What does the Energy Bill Relief Scheme mean for UK Businesses

Following the emergence of the energy crisis during the course of 2022, the UK Government is seeking to make a number of interventions in the UK energy market, including addressing the rapidly rising energy prices for homes and businesses. Whilst the relief provided to residential consumers has dominated many of the headlines, the Energy Bill Relief Scheme (“EBRS”) is aimed at the non-domestic sector. This will impact virtually all non-domestic customers operating in the UK and should be carefully considered to ensure that non-domestic customers both: (i) receive the support that they are entitled to; and (ii) comply with any obligations the scheme may place on them, and in particular, the obligation to pass on the benefit of the scheme if they qualify as an intermediary.

This scheme is new and as yet untested and we expect that regulation and guidance may evolve over the coming months as the scheme is implemented. 

This note concentrates on the requirements for Great Britain, and it should be noted that separate (but similar) arrangements are in place and being developed for Northern Ireland.

Energy Bill Relief Scheme

The EBRS is applicable to all non-domestic energy customers, regardless of size. The scheme is initially intended to run for 6 months, covering bills from 1 October 2022 to 31 March 2023. After three months, the scheme will be reviewed to decide on future support after March 2023. 

Subject to a number of specified exclusions, the relief is available to customers on a non-domestic gas or electricity contract who are:

• On existing fixed price contracts that were agreed on or after 1 April 2022.
• Signing new fixed price contracts.
• On deemed/out of contract or variable tariffs.
• On flexible purchase or similar contracts. 

Under the EBRS, licensed energy suppliers are required to provide a discount per kilowatt hour on the wholesale gas and electricity element of prices to all non-domestic customers in Great Britain. The reduction is therefore automatically applied and there is no requirement for non-domestic customers to register or apply. Suppliers are then able to recover the cost of applying these discounts from the Government.

It is possible that the scheme could continue for the most vulnerable non-domestic energy customers, but if or how this would be implemented is not yet certain. 

How the relief is calculated

The Government has a set a ‘Supported Price’ of £211 per MWh for electricity and £75 per MWh for gas in Great Britain. Importantly the reduction applies to the wholesale element of energy pricing rather than the final per unit price paid by non-domestic customers (which will also reflect other operational and commercial costs including industry pass through costs and the supplier’s margin).

Given the variability in the ways that non-domestic customers contract for their energy supplies, the EBRS and associated guidance caters for a number of scenarios on which the reduction will be calculated, and non-domestic customers may wish to confirm that the reduction is being calculated correctly for its own circumstances (especially where complex energy supply arrangements or energy supplies from multiple sources are in place). 

Relief examples

• Fixed Price Contracts: the discount will be calculated by reference to the difference between the Government Supported Price and the relevant wholesale price for the day the price was fixed between the non-domestic customer and its supplier. The Government will publish the wholesale prices it will use for this purpose for each day from 1 December 2021. If the fixed tariff in the contract is based on wholesale prices below the U.K. Government Supported Price, then the customer will not be eligible for support.
• Variable Price contracts: the discount will be calculated by reference to the difference between the Government Supported Price and relevant wholesale price, subject to a ‘Maximum Discount’ set at £345/MWh for electricity and £91/MWh for gas.
• Flexible Price contracts: the discount is based on the difference between the non-domestic customer’s volume-weighted average contracted wholesale price for the relevant time period (determined by the individual hedging approach) and the Government supported price, but also subject to the Maximum Discount. 

Pass-through requirements

A key part of the EBRS is the requirement for ‘intermediaries’ to pass-through the benefit of energy price support to end users. Intermediaries are any individuals or organisations that hold an electricity and/or gas contract and pass on these costs to an end user (which includes the provision of energy, heating, cooling, hot water or electricity to such end user). 

This therefore covers obvious examples such as; electric vehicle charge point operators; combined heat and power operators; and landlords, local authorities or other residential or non-residential providers that pass on energy or heat prices to tenants. There may be other situations where it is less clear cut, as intermediaries can also include persons supplying a product or service where a part of the price relates directly to the cost of electricity and/or gas. It is also possible to be an intermediary and an end user simultaneously meaning that there could be a chain of end user/intermediaries where the energy is passed through multiple entities. 

Passing on the benefit in a just and reasonable way:

Intermediaries are required to pass on the benefit they receive regardless of how the end user pays for their energy use, but they can adjust the amount passed on based on how they charge the end user. Ultimately, the requirement is that the amount passed on is ‘just and reasonable’ and the benefit must be passed on to end users as soon as reasonably practicable. Intermediaries can also make allowance for how they have increased their charges to end users during the energy crisis so that if, for example, an intermediary has not passed on the full increase of recent energy prices to its end users, it may be just and reasonable to retain some or all of the scheme benefit. 

This standard is relatively subjective given the breadth of ways in which end users may be charged directly or indirectly for energy usage. To mitigate against potential disputes over what should be passed on or not, Government guidance provides a number of examples of how and on what basis the benefit should be passed through. As a general rule, intermediaries must use the best available information to calculate the amount to pass-through.

Intermediaries must take reasonable steps to notify end users in writing that they have been provided relief under the EBRS and how much they are intending to pass on, even if no benefit will be passed through. The deadline for notifying end users is within 30 days of the intermediary receiving the EBRS benefit. 

Failure by an intermediary to either provide necessary information to the end user or pass on the benefit, may result in the end user being entitled to recover payment due as a civil debt. The EBRS does not currently contain fines for intermediaries for such failures. 

Heat Networks

The Energy Bill Relief Scheme Pass-through Requirement (Heat Suppliers) (England and Wales and Scotland) Regulations 2022 define a ‘heat network’ as ‘a network that by distributing a liquid or a gas, enables the transfer of thermal energy for the purpose of supplying heating or hot water to a building or persons in that building.’ 

Heat suppliers responsible for the supply of heating and/or hot water to end users through a heat network are non-domestic energy consumers and will also receive the benefit of EBRS. Heat suppliers in Great Britain: (i) are required to pass on the benefit to domestic and non-domestic customers and provide them with information as to how the pass-through of cost will operate; and (iii) should register with the consumer redress scheme administered by the Energy Ombudsman. 

Similar to electricity and gas intermediaries above, heat suppliers are intermediaries that are also bound by the requirement to pass-through the benefit of EBRS on to end users in a just and reasonable way. Please see Government guidance. Heat suppliers must notify end users within 30 days of receiving the benefit, with necessary information such as how much benefit they have received and whether or not they will be passing this benefit on and the reasons supporting their decision. It is possible that the non-domestic customer is itself an intermediary (e.g. a landlord who receives and pays for a heat supply on behalf of its tenants) meaning that such non-domestic customer would need to pass on the benefit it receives from the heat supplier to the ultimate end users. 

The requirements for what to include in a notice are the same as for electricity and gas intermediaries above. Similar to the above, failure by a heat supplier to provide necessary information to the end user or pass on the benefit, may result in the end user being entitled to recover payment due as a civil debt. 

Exclusions

Heat Suppliers who do not receive support under the EBRS are not subject to the pass-through requirements. Additionally, heat suppliers who are contractually bound by ‘price promises’ which link heat prices to gas and electricity prices under the domestic Energy Price Guarantee (EPG) are not required to pass on the EBRS benefit to their customers (on the basis that those customers will already benefit from prices comparable to domestic customers who directly received the EPG.) 

Variations to contract 

The Government also anticipates that many heat suppliers will need to update their contracts through contractual change in law mechanisms to cater for the receipt of the EBRS benefit. The Government expects these updates to be made as soon as possible and in any event, before the next time the heat supplier is due to update its bills to end users.