Understanding the Energy Bill Discount Scheme

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The UK Government has introduced the Energy Bill Discount Scheme (EBDS) to assist businesses with their energy bills beyond the initial 6 months of support provided by the Energy Bill Reduction Scheme (EBRS). The EBDS runs for a full 12-month period, from April 1, 2023, to March 31, 2024.

There are two tiers of support: one for all UK businesses and one for Energy & Trade Intensive Industries (ETII). The discounts are based on a ‘floor price’ to unlock a discount up to a maximum discount.

For fixed contract, discounts will only be applied if wholesale prices were above a certain price threshold on the week in which the contract was locked in, and only apply to contracts locked in after December 1, 2021. For variable and flexible contracts, the same maximum discounts apply, and will be phased in if the wholesale element is more than 30p/kWh for electric and 10.7p/kWh for gas.

The ETII discount will only be applied to 70% of a businesses’ consumption with the remaining 30% being charged at the prevailing unit rate. The sectors included in the ETII scheme are typically those that have high energy usage, such as heavy industry and manufacturing. Sectors that are excluded from the ETII scheme include retail, services, and agriculture.

Overall, the support for general businesses (not ETIIs) is very low, particularly when it only supports those that locked in during the peak period of July to December. The actual percentage being discounted is only around 3-5% of the wholesale unit rate. For ETIIs, the support is more generous, up to 30% of the wholesale rate in some instances, but will still leave businesses above that floor price if they locked in contracts during the peak period of July to December.

Unfortunately, this leaves businesses having to cover the lion share of the increases in energy costs. When that increase on pre-2021 wholesale averages is 5-8 times higher, businesses will need to make sure their buying strategy is robust enough to give them the best possible chance of surviving the next 12 months.