How does business energy cap work and how much will firms save?

Gas and electricity bills to be slashed under new support scheme.

How does business energy cap work and how much will firms save? Glegorly via iStock

Energy bills for businesses will be slashed by around half their predicted level under a new scheme designed to ease the cost-of-living crisis.

The UK Government said companies on a fixed-term contract signed on or before April 1 this year will see the wholesale part of their bill capped automatically.

The wholesale cost is only part of the bill – it will be capped at £211 per megawatt hour (MWh) for electricity and £75 per MWh for gas.

This is around half the expected wholesale price on the open market, and equivalent to the wholesale cap on household energy bills that will be set in October for two years.

What about other firms?

Hospitals, schools and charities will qualify for the scheme, and those who enter new fixed-price contracts after October 1 will get the same support.

Companies on default, deemed or variable tariffs will be given a per-unit discount, but the amount of support is limited.

This means that if the price on wholesale gas and electricity markets keeps soaring, their bills will go beyond those on fixed-price deals.

The government said it was working with suppliers to ensure they offer businesses the opportunity to switch to a fixed contract.

Give me an example

A pub using 4 MWh of electricity and 16 MWh of gas that signed a fixed-price contract in August could see its bill drop from £7,000 to £3,900, the government said.

For a school using 10 MWh of electricity and 22 MWh of gas a month after agreeing a fixed price in July of around £10,000, the bill will be reduced to approximately £6000.

How long does the support last?

The scheme will last for six months, with a review halfway through.

The government will decide how to continue supporting the most vulnerable businesses after the scheme ends.

The green levy on companies’ energy bills will also be removed, the government said.

What are business leaders saying?

Shevaun Haviland, director general of the British Chambers of Commerce, said: “Six months’ support is not enough to make plans for the future.

“We understand there are a range of unknowns for the government in looking ahead, but without further reassurance very few firms will make plans to invest or grow.

“Some businesses will still struggle to meet their bills despite this government intervention. The Chancellor must prioritise those firms in his mini-budget on Friday.

Kate Nicholls, boss of UKHospitality, said businesses will get “some confidence” from the support, but “we will not relent in our pursuit of a more comprehensive package to safeguard businesses and jobs”.

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