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ISSN 2753-7757 (Online)

UK government plans to cut business energy bills and bolster domestic energy security

28/9/2022

UK PM Liz Truss and MPs in discussion around table Photo: No10 Flickr
The UK government's new Energy Bill Relief Scheme to help businesses sets a Supported Wholesale Price per unit of gas and electricity – expected to be £211/MWh for electricity and £75/MWh for gas, less than half the wholesale prices anticipated this winter

Photo: No10 Flickr

The UK government has unveiled more details about how it plans to support businesses and public sector organisations facing escalating energy bills.

A new Energy Bill Relief Scheme will provide a discount on the wholesale price of gas and electricity. Equivalent to the Energy Price Guarantee put in place for households, this support will be available to all non-domestic customers in England, Scotland and Wales, including all businesses, the voluntary sector, such as charities, and the public sector, such as schools and hospitals. A parallel scheme, based on the same criteria and offering comparable support but recognising the different market fundamentals, will be established in Northern Ireland.

 

The scheme sets a Supported Wholesale Price per unit of gas and electricity – expected to be £211/MWh for electricity and £75/MWh for gas, less than half the wholesale prices anticipated this winter. It will apply to fixed contracts agreed from 1 April 2022, as well as to deemed, variable and flexible tariffs and contracts. It will run from 1 October for an initial six-month period.

 

As with the Energy Price Guarantee for households, customers will not need to take any action, as the support will automatically be applied to bills in the form of a p/kWh discount. The government says it will review the scheme after three months, to inform decisions on further support after March 2023.

 

Equivalent support will also be provided for those not connected to either the gas or electricity grid, who use heating oil or alternative fuels. Further details are expected shortly.

 

The Confederation of British Industry (CBI) welcomed the announcement, describing it as ‘quick and decisive’. However, its Chief Policy Director, Matthew Fell warned that companies would need to know more about what happens when the six-month cap runs out.

 

Meanwhile, Unite General Secretary Sharon Graham was more critical: ‘The government plans are a short-term taxpayer funded panic measure. Although they will give business some respite on soaring energy bills in the short term, employers are crying out for long-term solutions in order to be able to plan with confidence for the future. Yet again the taxpayer is being required to pick up the tab, with no check or penalty being placed on the excessive profits being generated by the energy companies who will be laughing all the way to the bank.’

 

Jess Ralston, Senior Analyst at the Energy and Climate Intelligence Unit (ECIU) added: ‘With taxpayer support only set to last for six months under the current plan, the question is what happens after that? Experts have said time and time again that the government’s approach to the gas crisis is missing a key component – conserving energy. While billions will be spent on bailing out bills, much less is targeted at the root of the problem, that we waste huge amounts of our energy.’

 

Strengthened household support
The government also unveiled plans to strengthen the measures already announced to support households under which the new Energy Price Guarantee will ensure that, from 1 October, a typical household will pay on average £2,500 a year on its energy bill for the next two years. Based on energy prices from October, this will save the average household £1,000/y. This support comes in addition to the previously announced £400 energy bills discount for all households, which, when combined with the Energy Price Guarantee, will bring costs close to where the energy price cap currently stands.

 

The government now plans to extend the Energy Bills Support Scheme (EBSS) to ensure that the £400 discount to households starting from October will also be available to the 1% of households who would not otherwise have received this support, such as park home residents and those whose landlords pay for their energy via a commercial contract.

 

The government will also provide an additional payment of £100 to all households across the UK who are not able to receive support for their heating costs through the Energy Price Guarantee. This might be because they live in an area of the UK that is not served by the gas grid and is to compensate for the rising costs of alternative fuels such as heating oil.

 

Boosting domestic energy production
Meanwhile, in a bid to bolster the UK’s energy security, the government also announced it had formally lifted the moratorium on shale gas production in England and confirmed its support for a new oil and gas licensing round, expected to be launched by the North Sea Transition Authority (NSTA) in early October. A number of new blocks on the UK Continental Shelf are expected to be made available for bids, leading to over 100 new licences.

 

Making the announcement, Business and Energy Secretary Jacob Rees-Mogg said: ‘In light of Putin’s illegal invasion of Ukraine and weaponisation of energy, strengthening our energy security is an absolute priority, and – as the Prime Minister said – we are going to ensure the UK is a net energy exporter by 2040. To get there we will need to explore all avenues available to us through solar, wind, oil and gas production – so it’s right that we’ve lifted the pause to realise any potential sources of domestic gas.’

 

The decision came alongside publication of the British Geological Survey’s scientific review into shale gas extraction, commissioned earlier this year. This recognises that there remains limited understanding of UK geology and onshore shale resources, and the challenges of modelling geological activity in relatively complex geology sometimes found in UK shale locations.

 

‘There have only been three test wells which have been hydraulically fractured in the UK to date. It is clear that we need more sites drilled in order to gather better data and improve the evidence base and we are aware that some developers are keen to assist with this process,’ said the government. ‘Lifting the pause on shale gas extraction will enable drilling to gather this further data, building an understanding of UK shale gas resources and how we can safely carry out shale gas extraction in the UK where there is local support.’

 

However, many industry observers were unimpressed with the latest announcement, with The Independent reporting that Lord Deben, Chair of the independent Climate Change Committee, had said there was no evidence that if the UK maximised fracking and North Sea extraction there would be a significant impact on the cost of living crisis as the price of any gas extracted would be set at international prices.

 

New growth plan
Just days after the above announcements were made, the UK Chancellor unveiled a new ‘growth plan’ in his ‘mini budget’, tackling energy costs to bring down inflation, backing business and helping households.

 

In a further move to grow the economy, the Chancellor announced plans to accelerate new roads, rail and energy infrastructure. New legislation will cut barriers and restrictions, making it quicker to plan and build new roads, speeding up the deployment of energy infrastructure like offshore wind farms, and streamlining environmental assessments and regulations.

 

Among the energy infrastructure projects to be ‘fast tracked’ are the Sizewell C nuclear plant; the Hynet and East Coast Cluster hydrogen and carbon, capture, use and storage (CCUS) projects; the Cambo Phase 1, Murlach and Talbot field developments; the remaining Round 3 and Round 4 offshore wind projects, Scotwind, floating wind commercialisation projects and Celtic Sea wind projects.

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