Is There a Small Business Energy Price Cap in the UK? Learn about the Supportive Scheme

The UK government’s last discount scheme for small business energy is still unclear to many. This energy cost reduction program seems like a price cap. However, it is a different supportive project to help small businesses reduce energy costs.

Energy Bills Discount Scheme or EBDS is a strategic step to ensure energy affordability for small businesses across the United Kingdom. This article will comprehensively describe the discount scheme and how it works.

What is the Energy Bills Discount Scheme (EBDS)?

EBDS is launched in April 2023. It replaces the Energy Bill Relief Scheme (EBRS), a previous energy bill reduction project.

It is a supportive project for small businesses in the United Kingdom that struggle with high energy costs. The program is designed to make energy expenses affordable. However, it is different from the traditional price cap.

The discount scheme applies to non-domestic users only, including small businesses and organisations. In this strategic program, each unit of energy consumption is counted. This mechanism is quite helpful for reducing the price you pay for business energy.

Differences Between EBDS and EBRS

EBDS has raised curiosity among business owners. Many want to know its differences from the EBRS. Check out the comparison chart to see their distinctions:

Aspects	EBDS	EBRS
Discount mechanism	Per unit of energy consumption.	A flat monthly discount.
Eligibility	Default contracts and variables.	All non-domestic users.
Application procedure	Automatic.	Automatic.
Impact on energy bill	It varies depending on consumption and contract.	It covers a fixed discount.

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Understanding the Support Schemes

Here is an explanation of how the EBDS works, including an example.

1. Threshold Pricing

In the EBDS project, the UK government has set wholesale threshold prices for gas and electricity. For gas, the rate is 10.7 pence per kilowatt hour. The rate for electricity is 30.2 pence per kilowatt hour. You will get a discount on energy bills for only part of your unit rate over these thresholds. You get no discount if your unit rate is already below the thresholds.

2. Discount Calculation

The maximum discount set by the UK government for electricity is £345/MWh and £91/MWh for gas. A per-unit reduction will be applied to each unit rate beyond the threshold. Remember that the discount is limited to the gap between your unit rate and the threshold. It means you will not be eligible for the maximum discount if the energy rate does not exceed the threshold.

3. Who does Calculate the Discount?

A user under the scheme does not have to calculate the discount. Instead, it will automatically be applied to the energy bill. There is no requirement for a claim or manual application to be eligible for the discount. Your energy supplier will deduct the discount amount and prepare your bill accordingly.

How is the Discount Calculated?

For more clarification, here is an example of how EBDS is applied to the energy bill.

The present EBDS threshold for electricity is 30.2 pence per kilowatt hour. Assume your current electricity unit rate is 45 pence per kilowatt hour.

So, the gap between your electricity unit rate and the threshold is 45p/kWh – 30.2p/kWh = 14.8p/kWh.

Now, imagine you have been eligible for the maximum reduction of £345/MWh, which also means 0.345p/kWh.

Subtracting this rate from your current rate will show you the after-discount unit rate. Finally, your effective unit rate would be 45p/kWh – 0.345p/kWh = 44.655p/kWh.

Additional Strategies to Manage Energy Costs

Depending on a supportive scheme like EBDS should not be your only way of managing energy costs. You can follow the strategies below to reduce the overall cost.

1. Choosing Appropriate Contracts:

You should choose a suitable energy contract between the fixed and variable models wisely. Fixed contracts offer you a better prediction of the cost. However, you may not enjoy the future price drops. On the other hand, variable contracts generally offer lower rates. But it carries a risk of sudden price increases. If you prefer better certainty, a fixed model will be appropriate. The variable model can be beneficial for those who favour flexibility.

2. Being Energy Efficient:

A few changes in your energy usage can dramatically save your cost. You can utilise natural light, switch off unused electronics, and adjust the thermostat for better energy efficiency. Besides, modern equipment like LED bulbs, power-saving appliances, and smart thermostats can save a lot in the long run.

3. Seeking Expert Advice:

Energy consultants or brokers can suggest better rates for your business energy budget. Their precise analysis and energy efficiency measurement will help you compare deals and find a more satisfactory solution.

Wrapping up

A price cap on energy bills sounds more attractive. However, EBDS is a more subtle approach to tackling uncontrolled energy costs. This clever strategy allows you to lower energy costs without sacrificing market flexibility. The most convenient thing about the discount scheme is it requires no extra paperwork or hassle. Is your business eligible for the EBDS? Contact an energy consultant for in-depth information.

FAQs on Business Energy Price Cap

Q. Can I switch energy suppliers and still receive the EBDS discount?
Switching the supplier is not an issue if your new contract is also eligible for the EBDS scheme.

Q. How does the discount work if my unit rate fluctuates around the threshold?
The discount is calculated based on your actual unit rate per month. As it is calculated automatically, fluctuation does not affect the calculation.

Q. How long will the Energy Bills Discount Scheme remain active?
The scheme is scheduled to be active until March 31, 2024. Its extension depends on the government’s decision.