UK Government publishes Energy Bill Relief Scheme rules

Forming part of the Government’s response to the current energy crisis, the Energy Prices Act (the “Act”) received royal asset on 28 October 2022. The Act grants the Secretary of State broad powers to implement certain government policies that aim to protect domestic and non-domestic consumers against high energy prices. One such measure is the Energy Bill Relief Scheme (“EBRS”) for non-domestic energy customers, which provides a mechanism for energy suppliers to discount energy contract prices for the winter period. Details of the EBRS have now been set out and given effect by the Energy Bill Relief Scheme Regulations 2022 (the “Regulations”), which came into force on 1 November 2022. On the same date, the UK Government Department for Business, Energy and Industrial Strategy (“BEIS”) published the rules, guidance and scheme documents related to the EBRS. In this Law-Now article, we provide an overview of the key details of the scheme.

The EBRS

In short, under the EBRS, licensed energy suppliers are required to provide a discount per kilowatt hour on wholesale gas and electricity prices to all non-domestic customers in Great Britain. Suppliers are then able to recover the cost of applying these discounts from the Government. A similar scheme applies to Northern Ireland and issues specific to the NI scheme are contained in the guidance. For domestic customers, a similar Energy Price Guarantee scheme is in place.

Scheme period

The EBRS applies solely in respect of gas and electricity usage during the period 1 October 2022 to 31 March 2023. The Government intends to publish a review by the end of 2022 to inform decisions on future support after March 2023.

Contracts

The EBRS is relevant for all non-domestic energy customers (UK businesses, charities and the public sector such as schools). There are limited exclusions, for example businesses that use gas or electricity to generate power that they are selling back into the grid.

In respect of supply contracts, it applies to:

• fixed price contracts (agreed on or after 1 December 2021) where the contracted wholesale price is fixed for the term of the contract;
• variable price contracts where the supplier may change the contracted wholesale price at any time by giving notice; and
• flexible price contracts where there is a mechanism by which the contracted wholesale price will be determined for periods specified in the contract.

Different provisions operate under the EBRS in respect of each type of contract which determine how the discount will be calculated.

Discount

The EBRS discount operates by reference to a Government Supported Price (which is lower than expected wholesale prices this winter) and reference wholesale prices determined for each eligible contract. A reference wholesale price methodology has been issued as part of the scheme documents published on 1 November, which outlines the methodology applicable to fixed price contracts with a price-fix date before or after 1 October 2022, as well as for variable price contracts. Fixed tariffs based on wholesale prices below the Government Support Price are not eligible for support. For flexible price contracts, the reference wholesale price for an energy supply period is the contracted wholesale price on a volume-weighted average basis for that period, as set out in regulation 11 of the Regulations.

The Base Discount is calculated as follows:

Base Discount = Reference Wholesale Price (pence per kWh) - Government Supported Price (pence per kWh).

This Base Discount is then applied to the customer’s supply price to reduce the actual price paid subject to both; (a) the Maximum Discount; and (b) the Minimum Supply Price. The following table sets out the relevant financial values for electricity and gas:

What’s next?

As the EBRS only applies to this winter period, we await to see what the government may decide in relation to future energy price support after March 2023. A review into the operation of the scheme is due to be published before the end of the year. In the near term, the Government’s Autumn Statement is due to be delivered on 17 November, where the Chancellor will update MPs on the government’s taxation and spending plans based on the latest forecasts for the UK economy produced by the Office for Budget Responsibility. With the summer season being an opportunity for deployment, we might expect there to be more of a focus on energy efficiency and security of supply measures rather than dampening commodity price signals. We can also expect that much of the attention in the coming weeks will be in relation to the details for other measures provided by the Act, such as the Cost-Plus Revenue Limit. We will watch these developments with interest.