Business energy prices to be cut by half expected levelson September 21, 2022 at 9:47 am

Businesses could have their energy bills cut by a third under government support to be announced later.

Business Secretary Jacob Rees-Mogg is expected to reveal a cap on wholesale energy costs for business customers.

It is thought the limit will be 21.1p per kWh for electricity and 7.5p per KWh for gas – a discount of a quarter to a third on current market prices.

It means businesses facing an energy bill of £40,000 could see a reduction of £10,000 depending on usage patterns.

It is understood the changes will apply to contracts from 1 October and fixed contracts taken out since April, although show on bills from next month.

The government is likely to pass new laws to force the price cut to be passed on. Current market prices are about 28p per unit of electricity and 11p for gas.

Prime Minister Liz Truss has previously said support for business would be limited to six months.

There will be an option to extend it for “vulnerable businesses”, however details of which sectors this applies to are not known.

Mr Rees-Mogg is expected to confirm details of a scheme to help firms, after the government announced a multi-billion pound support package to limit bills for households.

Typical household energy bills have been limited to £2,500 annually until 2024.

Both businesses and households have been hit by soaring electricity and gas bills due to the rising cost of global wholesale gas, largely caused by Russia’s invasion of Ukraine.

But unlike households, businesses are not covered by an energy price cap, which is the maximum amount a supplier can charge per unit of energy, measured in kilowatt hours (KWh).

It means non-domestic bills have soared even higher in recent months.

Business lobby groups have warned that without help on bills, many firms would collapse.

Graham Burchell founded Challs International in a front bedroom in Twickenham 32 years ago.

The firm makes household cleaning products like BinBuddy for major supermarkets and the likes of B&Q and Homebase.

He#s seen an increase in the firm’s gas and electricity bills of about 28% and that they now top £100,000 a year.

While the company has managed to get a deal that locks in prices until next June, the firm is looking at costs that are “a lot higher” coming through.

“We are definitely hurting now and would need some support,” he says.

It is understood the government’s support to help businesses will also apply to other non-domestic settings such as hospitals, schools and community halls.

Any support is likely to be backdated because the precise mechanism and amount of support may not be finalised until November, a government source previously told the BBC.

Firms have a huge variety of different contracts based on the intensity of their usage and the mix between gas and electricity.

Many big businesses also have their own energy buying departments and systems to insure themselves, or “hedge”, against extreme price movements.

They also typically have one or two-year fixed contracts, but a significant number – the CBI estimates a third – traditionally come up for renewal before winter.