Are charities protected by the energy price cap?
There is no energy price cap for charities. With energy prices rising exponentially, some charities mistakenly presume they are protected by the price cap. We explain why this isn’t the case and what charities can do to mitigate against price increases.
Charities are often more familiar with domestic energy, and don’t always appreciate there is a considerable difference to business energy. All energy supplies that are not for a domestic property (house or flat), fall under business/commercial energy.
And business energy has slightly different ‘rules’ than domestic energy.
The most pertinent difference in the current climate, is that business energy is not protected by the cap. Therefore, a charity won’t receive any protection from the energy price cap either. Along with churches and village halls for example.
Check Ofgem’s website for more information on the price cap.
The cost to charities if they don’t act
Charities who presume they are protected by the price cap, understandably think they should take the advice offered to households. This is not to switch at the end of their gas or electricity contract. Instead, they sit on the variable rate they are move to.
This is the problem. The variable rate for charities and businesses is not protected by the price cap.
The current price cap was set by Ofgem in early February, to start on 1 April. Unfortunately, in between these dates, Russia invaded Ukraine. The war has understandably pushed wholesale energy prices to even higher levels. Higher than prices in early February when Ofgem calculated the price cap for April.
Current energy prices then, in the business and charity sector, are much higher than the price cap. With no energy price cap for charities, your organisation will be completely exposed to very even higher energy prices when your contract ends.
No energy price cap for charities – don’t get caught out
For example, a charity has an energy contract ending on 30 June 2022. The charity presumes they have no option but to move to the variable rate provided by their energy company on 1 July.
The charity will be unaware that all the electricity (or gas) they use throughout July will be charged at a much higher rate.
Now, you may think that even energy prices protected by the price cap are clearly going to be higher than usual anyway. This is very true. However, variable rates on business energy contracts are considerably higher than those you come across for domestic energy.
This is another significant difference between business and domestic sectors.
And the charity in question will not be aware of the level of new energy charges until they receive their electricity bill for July.
Which will be sometime in August.
And they may receive bills on a quarterly basis.
In which case they won’t see a bill until October.
And even then, will a charity who aren’t necessarily ‘on the ball’ when it comes to energy costs, realise their variable rate is much higher than the price cap?
How much more will charities have to pay for energy?
As mentioned earlier, variable rates for businesses and charities are much higher than domestic. Even more so in the current climate.
Don’t forget, the April price cap was set prior to the war in Ukraine, when wholesale energy was lower – although still very high of course, due to the energy crisis. Therefore, the price cap was set based on lower wholesale prices.
With no energy price cap for charities, a charity will pay the current cost of electricity which is much higher than the price cap.
Variable rates then, for the charity sector are eye watering at the time of writing (April 2022).
A typical variable rate for electricity in the charity sector will be around 50p per kWh. Although we have seen some energy companies setting their variable rates even higher.
One supplier told a customer their variable rate would be a whopping £1 per kWh. And £4 per day. To be clear, that is £1 for each unit of electricity, not the daily standing charge.
What can charities do?
Have a plan, don’t leave it until the end of your contract. You may hope energy prices fall in the next few months, and you can get a ‘deal’ later in the year.
The trouble with leaving this until the last month, is you are stuck with prices available then. The situation in Ukraine might escalate even further, and more sanctions could be introduced on oil and gas. If prices rise, there aren’t really any other viable options.
Of course, energy prices might fall back as well. But given the industry consensus just before the war was that prices could remain high for a couple of years, certainly throughout 2022, you may prefer to look at tying something up sooner.
We work with energy prices day in, day out.
Call us for clarity, we monitor the markets, work with around 25 energy companies and can advise accordingly. When to fix, how long for – and all completely independent. We will outline the options. And you decide as a charity, which you feel more comfortable proceeding with.
Depending how long you decide to fix for, we can also get in touch when the markets are looking favourable for you following contract.
Call us on 020 3372 6517 for information and a chat about your charity’s situation.
See how we help charities with their energy contracts.