Businesses don’t have the protection of an energy price cap afforded to householders. Some larger firms can pass on extra costs to customers, including energy suppliers themselves. But many small businesses face the daunting task of absorbing costs or losing custom.
Let’s look at what your small business can do about soaring energy costs.
Small businesses are already feeling the pinch
Small businesses are already feeling the pinch of soaring energy costs. The business market differs from the residential one not only for the absence of a legal price cap but also because there is no obligation to maintain the supply.
Research suggests that more than half (54%) of businesses already spend £3,000 or more on their annual energy bills, while almost a quarter (24%) spend over £4,000. The same research says that 70% of small businesses believe that their ability to grow has been impacted by energy bills, and with prices set to soar even higher, this will impact profit.
With tighter margins and lower cash flow, small businesses are more likely to feel the effects of all this. Business owners may therefore have no choice but to pass on any increase of running costs through consumer price hikes, putting them at a disadvantage when competing with larger businesses.
What’s causing the soaring gas prices?
An unusually cold European winter in 2020-2021and a hot summer in Asia in 2021 has caused a greater demand on the global energy supply. Limits on Russian exports of gas have compounded the issue further, causing a significant rise in wholesale energy prices. Gas has seen a rise of 250% between January 2021 and January 2022.
In line with the inflated wholesale prices, Ofgem, the energy regulator in the UK, rose the price cap on household energy bills by 54% in April 2022. This is expected to continue into October 2022 unless global wholesale prices fall which seems unlikely.
Suppliers have been facing record wholesale costs over the past year with gas prices increasing by around 500% from the start of 2021.
Suppliers have to be able to recoup these costs which unfortunately, but inevitably, means higher prices.
Most energy suppliers fix their prices on an annual basis, and of them, around 80% see the new contract start on October 1 each year. That was fortuitous in 2021, because prices fixed during last summer were set before the price surge began. But for October 2022, they’re going to feel the burn.
What can your business do to manage soaring energy costs?
Ofgem, the government regulator for the electricity and downstream natural gas markets in the UK, has some advice on its website on what your business can do to manage soaring energy costs that we’ve summarised here for you.
The first thing you might want to think about doing is checking if you can cut costs by switching from your current business energy contract, or, if your supplier is billing you for energy used more than 12 months ago, check the energy back-billing rules. You can’t usually do this if you’re a microbusiness.
Agree a business energy payment plan
Contact your supplier as soon as you can if you are worried about paying your business energy bills.
Suppliers may be able to work with you to agree on a payment plan you can afford more easily. This includes reviewing a plan you have agreed before.
You can ask for:
- a review of your payments and debt repayments
- payment breaks or reductions
- more time to pay
- access to hardship funds.
You can also speak to Citizens Advice if no agreement can be reached.
Check business finance schemes and grants
From suppliers
Many energy companies offer schemes or grants to help you improve your business energy efficiency, which can reduce costs. For example, subsidies on the upfront costs for more energy-efficient equipment. They may also offer business hardship funds.
Contact your supplier to find out what they offer.
From the government
Use the GOV.UK business finance and support finder.
Ask your local council about small business support funding, including sustainable business growth grants. You will normally need to submit a business case to apply
From charities
Check free grants search services, like Grants Online.
Let’s Talk has information on business funds some charities offer and how to apply.
Get business debt advice
You can find advice on managing business debt and budgeting through the Business Debtline from the Money Advice Trust.
Start by working out which debts you need to deal with first.
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