By Nicholas Earl
The Government needs to provide more clarity to suppliers to ensure businesses on flexible contracts have enough support this winter, warned a leading UK energy firm.
Anthony Ainsworth, chief operating officer at Npower Business Solutions, told City A.M. that “time is ticking” for suppliers to get their systems in place to support their customers in line with the Energy Bills Relief Scheme.
While was “super supportive” of the package, which he believed would ensure businesses remained competitive and jobs were protected, Ainsworth argued that Npower still “needed to see the finer details” around how businesses with flexible contracts will be protected.
Otherwise, it would be difficult to bring them into the support measures in time for November.
This would mean energy usage this month will not be discounted, with businesses will be swallowing ultra-high bills for longer than expected.
The energy boss explained: “Time is ticking because we need to update our systems and test those systems. To get this working for October consumption, the Government needs to press ahead pretty quickly this week, so that suppliers like us can make all the system changes that we need.”
Flexible contracts leave businesses exposed
The Energy Bills Relief Scheme will protect businesses on fixed term contracts with a cap on unit rate pricing over the next six months.
This has been set at £211 per megawatt hour (MWh) for electricity and £75 per MWh for gas, substantially below the rates of current wholesale prices.
Suppliers will then apply these reductions to the bills of all eligible business customers, with the Government compensating suppliers for the reduction in wholesale gas and electricity unit prices.
Energy specialist Cornwall Insight has predicted the package will cost around £25bn, however this is highly dependent on wholesale costs, with Investec predicting the overall price could vary from £22-48bn.
For businesses on flexible deals with variable rates, the discount will reflect the difference between the Government supported price and wholesale price, but be subject to a ‘maximum discount’ of £345/MWh for electricity and £91/MWh for gas.
This is considerably higher than the fixed term rates and in Ainsworth’s view, did not take into account the nuances of the business supplier market.
Comparing it to the household support package, he said: “There is huge complexity in the contracting type and the supply side of things, which means it’s not quite so straightforward to say, ‘Oh, here is the scheme that we’ll put in place for next two years.’”
Flexible contracts allow businesses to buy energy in a way that factors in the ups and downs of the wholesale market, rather than a fixed rate.
It typically involves tracking the wholesale market and purchasing smaller chunks of energy throughout the length of a contract.
The benefits are that it can allow companies to be more reactive with their energy use and choose how far into the future they want to buy energy.
However, it also leaves companies exposed to huge spikes in gas prices and market volatility, which has characterised the energy market for the past 18 months with 30 suppliers collapsing and record spikes in bills.
Six months support won’t be enough
Npower was snapped up by Big Five supplier EON UK three years ago, with two million household and business customers moving over to the parent company in 2021.
Its business solutions offering, which has kept the Npower name, is home to 20,000 large industrial clients – providing 30 terawatts of power – including many of the customers on flexible contracts.
Ainsworth revealed the company’s teams are very actively engaged with the Department for Business, Energy and Industrial Strategy (BEIS) over smoothing out any operational issues in providing them support.
Alongside concerns over support for customers on flexible rates, he argued the sooner the Government established the support available after six month, the easier it will be for businesses.
The Government has confirmed its plans for a review of the package and prospective future measures after three months.
He said: “They have talked about supporting more vulnerable businesses and industries but with no definition of what that might be. So, we’re really keen to engage with BEIS on that and what a longer-term support scheme may well be.”
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