Your clients will want to ignore this problem, but you must help them fix it

Our experience at Swoop is that business owners don’t want to engage in energy costs. We need your help to make sure they get the best deal possible.

At Swoop we have a problem, and it affects your clients:

We know that talk of energy costs can make business owners’ eyes glaze over. It’s not the most exciting bit of running a business is it?

Our approach has been to be really upfront with the risks of ignoring the problem and then follow up with a quick and easy solution, ideally with the promise of bottom-line savings that will catch the eye of the business owner.

Why do people find saving money on their energy bills boring?

Simple answer: they think that energy costs are going to be pretty much the same across the board, so savings will be incremental and not worth going through lots of fiddly numbers to save a few pennies per quarter. Otherwise, they know that bad news is in the post and are keeping their heads down, hoping the problem will go away, or there will be a government rescue package that means they don’t have to deal with the consequences.

What’s the current situation?

The Energy Bill Relief Scheme (EBRS) was announced by the UK government as a discount on wholesale gas and electricity costs for a period of six months between October 2022 and March 2023. From 1st April 2023, the ERBS will be replaced by the less generous Energy Bills Discount Scheme (EDBS) for 12 months.

What has changed in 2023?

In recent weeks, wholesale gas prices have fallen as a result of unseasonably mild weather and approx 70-80 percent gas storage capacity in Europe (as of 15/2/23). This is notable because most of the UK’s electricity is still produced by burning fossil fuels, mainly natural gas.

In short: when the gas market falls, so does the electricity market.

Unfortunately, gas prices are unlikely to fall low enough for business energy users to see the benefit when renewing their energy supply contracts – mainly because energy suppliers are hedging potential volatility from the ongoing situation in Ukraine. There are also challenges associated with increasing LNG competition from Asia, which is our primary alternative to gas imports, as well as inadequate infrastructure for converting LNG to its gaseous form.

At the time of writing, costs may be as low as they have been since June 2022, but risk remains high; energy companies do not want to make promises that will eat their margins if things change.

This means that businesses are unlikely to see a long-term decline in their energy bills until 2024 at the earliest.

What support you will get?

From 1st April, the following support will apply to those who are eligible:

Electricity – If the wholesale price exceeds £302 per MWh (30.2p per kWh), a maximum discount of £19.61 per MWh (1.961p per kWh) will be applied.

Gas – If the wholesale price exceeds £107 per MWh (10.7p per kWh), a maximum discount of £6.97 per MWh (0.697p per kWh) will be applied.

There is additional support for Energy and Trade Intensive Users (ETIIs):

Electricity – If the wholesale price exceeds £185 per MWh (18.5p per kWh), a maximum discount of £89 per MWh (8.9p per kWh) will be applied.

Gas – If the wholesale price exceeds £99 per MWh (9.9 per kWh), a maximum discount of £40 per MWh (4.0p per kWh) will be applied.

ETII eligibility is determined by Standard Industrial Classification (SIC) code. A list of the qualifying processes has been created and is available here.

ETII relief will have to be requested separately, (EBDS is applied automatically), but the mechanism for how this is done is yet to be announced.

The ETII discount will only apply to energy volumes up to the value of 70 percent for those who are eligible under ETII classification.

Who’s eligible for support?

The new scheme will be available to everyone on a non-domestic contract including:

• businesses
• voluntary sector organisations, such as charities
• public sector organisations such as schools, hospitals, and care homes

Support applies to customers who are:

• on existing fixed price contracts that were agreed on or after 1 December 2021
• signing new fixed price contracts
• on deemed / out of contract or standard variable tariffs
• on flexible purchase or similar contracts
• on variable ‘Day Ahead Index’ (DAI) tariffs (Northern Ireland scheme only)

How can Advisors shield their client businesses from rising energy costs?

The only way your clients can currently shield their business from rising energy costs is to review their energy purchasing strategy and put in place a long term plan.

Each business is unique in terms of energy profile, meter type and cost, so it’s important time is taken to understand their exact requirements.

By understanding the way your clients business works when it comes to purchasing energy, it will help us integrate as your energy partner, which will save your clients time, money and confidence they can navigate the energy crisis.

Next steps

Email your utility bill to [email protected] or book a free call in today here.

Resources

You can find the official announcement on the EBDS scheme here. Information on the current EBRS reference wholesale price and discounts applied can be found here.

Swoop will be exhibiting at Accountex Summit Manchester on the 19th September 2023 on stand D6.

You can register for a free ticket here.

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