Big fuel bills could still hit rural businesses despite discount scheme
The government's decision to scale back its energy support for companies will leave many rural businesses, including farms and estates, struggling to cope. Knight Frank's energy experts offer some tips to keep fuel bills in check.
4 minutes to read
From the end of March, energy bills for commercial businesses will no longer be capped. Instead, companies will qualify for a discount on their energy bill's gas and electricity unit prices. The discount size depends on the difference between the wholesale price threshold and the contract wholesale price in the tariff.
The new scheme for non-domestic customers will be known as the Energy Bills Discount Scheme (EBDS) and will run from April 2023 to March 2024.
Gas unit rate reductions will apply when the wholesale price element of the bill rises above 10.7p per kWh (313.6p per therm), up to a maximum discount of 0.697p per kWh (20.4p per therm).
For electricity, when the wholesale unit rate rises above 30.2p per kWh , a maximum discount of 1.96p per kWh is applied.
So if the wholesale part of your electricity unit rate is 32.2p per kWh or more, you'll get the full 1.96p discount.
But, if the wholesale part of your unit rate is 31.2p per kWh hour, you'll only get a 1p discount - as the difference between the threshold rate and the contract rate is only 1p.
Big fuel bills could still hit rural businesses despite the discount scheme. In the scenario below, a £19 per MWh discount will only reduce the cost impact from £387 to £368 per MWh and face an over 200% potential electricity bill increase. This increase could be 5-fold for rural businesses that are about to renew tariffs from lower prices fixed at least a year ago.
An example scenario as if the energy contract was renewed on 1 Oct 22 at fixed rates for one year:
Notes: Based on an electricity unit rate of 70p per kWh and a gas rate of 18p per kWh. Excludes standing charges as they are unaffected by the scheme. A typical standing charge would be 60p per day.
As well as leading to potentially higher bills, this adds an extra layer of uncertainty for firms. Reducing that volatility and energy consumption will be crucial for food producers. We asked our energy experts for their ideas on how to get started.
Make the most of energy efficiency grants
"Rural businesses need support to encourage investment in capital items that will reduce energy bills long term and allow them to plan for the future, for example, solar panels and battery storage", says Henry Clemons, Knight Frank's grant expert. "Currently, there is little grant support for renewables, but funding is available at local levels for energy-saving grants and to encourage investment in green energy to help small and medium businesses reduce carbon use. Funding to encourage green heat networks could deliver for some projects, as could available funding for EV charging points. Knight Frank continually searches grant funding streams for opportunities for our clients to save money and invest in their futures."
Utilise renewable energy options
Knight Frank's energy and sustainability consultant Robert Blake explains, "Farmers with high energy consumption are increasingly turning to onsite energy generation to reduce their electricity bills - either funding an installation themselves or opting for fully funded offers by committing to purchasing the solar power from the operator at a fixed rate for terms of 10 to 25 years. This reduces costs considerably while avoiding the fluctuations of grid power. Other technologies being adopted and should be explored to reduce energy costs are wind, bioenergy and methane capture from slurry lagoons."
Renegotiate energy tariffs
"Communicating early with suppliers and shopping around will allow you to understand the market better and decide what is best for your business," says John Williams in Knight Frank's Rural Consultancy team. "In many cases, these will be short-term contracts to limit exposure to today's higher rates with the expectation of lower prices come the summer. Continued government support at responsible levels is essential to ensure the backbone of Great Britons economy survives what we all hope is short-term pain."
Use less energy-intensive farming systems
"It isn't easy for farmers to react to increasing energy costs in the short term, and there aren't many alternatives for food producers. Food production is energy-intensive, and changing and quickly adapting systems is difficult. Change is a long-term process and can usually involve significant capital expenditure." Head of Agri consultancy, Tom Heathcote, advises, "businesses should review the whole system, undertake a longer-term approach to planning, and identify areas to reduce the reliance on conventional energy sources."
Assess let property portfolios
"One-way landlords can help tenants reduce energy expenditure is through improving the energy performance of their let property," says Rachel Patch, a Partner in Knight Frank's Rural consultancy team. "The minimum rating on the Energy Performance Certificate will be raised to a minimum of 'C' from 31 December 2025 for new tenancies and 31 December 2028 for all existing tenancies – although we still await the details of these changes. The practicality and cost of achieving this will be challenging, and landlords will be under financial pressure themselves. Therefore, we recommend landlord's carry out EPC assessments early and seek any grants available - such as the Boiler Upgrade Scheme."