Are UK Energy Prices Putting Businesses at Risk?

Last updated December 2023

Energy costs in the UK have soared in recent months, and while this has put pressure on consumers and businesses, some business owners have reported risking closure if things don't improve. In this article, we recap the current state of energy costs in the UK and explore what's being done to improve the situation.

What's Increasing the Cost of Energy?

While many factors are causing energy prices to be high, one of the notable causes is rising wholesale costs. According to Ofgem, from November 2021 until August 2022, the wholesale price of gas has increased by more than 460% (105.66 to 592.56), with wholesale electricity following a similar trend, increasing almost 380% (106.87 to 511.2) during the same period.

Although wholesale prices have reduced since then, businesses have had to deal with a sharp increase in energy bills, with some businesses facing bills that are double or even triple what they were paying a year ago.

How are Businesses Being Affected?

There have been several reports of rising energy costs affecting businesses, from Yahoo reporting UK pubs, bars and restaurants revealing their average bills have surged 81% over the past year to The Times reporting on record energy debt bankruptcies.

Some businesses are having to pass on the increased costs to their customers, leading to higher prices for consumers. Other businesses are being forced to cut operating costs, leading to job losses and slower economic growth.

What Has the UK Government Done?

The Energy Bill Discount Scheme, available from April 2023 to March 2024, is potentially a helping hand for businesses. No application is required, but the discount will automatically be applied to your bills if eligible.

The level of support has waned since April 2023, making it unlikely for your business to get any lucrative payout. Help is available where the wholesale energy price surpasses £302 per megawatt hour (MWh) for electricity and £107 per MWh for gas. The maximum discount is £19.61 per MWh for electricity and £6.97 per MWh for gas.

This scheme encompasses all non-domestic customers, regardless of energy tariff. Whether on a fixed contract, an 'out-of-contract' agreement, a variable contract or a flexible purchase contract, your SME may be eligible.

For fixed contracts, the discount depends on the wholesale price on the day that the contract was signed. For other contract types, the level of discount moves with wholesale price changes. The total is deducted from the wholesale energy cost, and the remainder of the bill is unaffected.

Businesses classified as ‘energy and trade intensive’ and using a substantial amount of energy could qualify for an additional discount. 70% of energy usage receives a discount if wholesale prices exceed £185 per MWh for electricity and £99 per MWh for gas. The maximum discount for energy-intensive companies is £89 per MWh for electricity and £40 per MWh for gas.

How to Deal with Rising Energy Costs

Here are some tips for businesses struggling with rising energy costs:

Review your Energy Contract

Ensure that you are on the best possible deal for your energy needs. You may be able to save money by switching energy suppliers or negotiating a better deal with your current supplier.

Invest in Energy Efficiency Measures

You can do many things to improve your business's energy efficiency, such as installing energy-efficient lighting and insulation. By reducing your energy consumption, you should start to save money on your energy bills.

Implement Smart Thermostats

Install smart thermostats to regulate heating and cooling systems efficiently. These devices can adapt to your schedule, ensuring that energy is not wasted when it's not needed.

Conduct Regular Maintenance

Regular maintenance of heating, ventilation and air conditioning systems can ensure they operate at peak efficiency. Clean or replace air filters, check for leaks and perform routine inspections to prevent energy wastage.

Encourage Involvement

Raise awareness among employees and colleagues about energy conservation practices. You can also reduce your energy usage by developing simple habits like turning off lights, computers and equipment when not in use, which can collectively contribute to significant energy savings.

Upgrade to Energy-Efficient Appliances

Consider replacing outdated appliances and equipment with newer, more energy-efficient models. Many modern devices are designed to consume less energy while providing the same or even better performance.

Explore Government Incentives

Investigate if there are any Government incentives, grants or tax credits available for implementing energy-efficient measures. Taking advantage of these programs can help offset the initial costs of upgrades.

Consider a Remote Work Policy

Consider allowing employees to work remotely, even if it's only part-time. This can reduce the need for office space and the associated energy costs.

Should you Switch Business Energy Suppliers?

Ultimately, whether you should switch depends on the current energy contract. If you're getting a great price now, it's not worth switching. What will be beneficial is ensuring you are paying the best price for business energy.

At BusinessComparison, we've made comparing energy prices quick and easy. Simply provide your details, and we'll do your research for you, providing you with the best possible price from our panel of energy suppliers. It only takes a few minutes and can help you to decide if it's worth switching energy providers.

Are Businesses at Risk?

Rising energy costs are a significant challenge for UK businesses. However, by ensuring you're on the best energy tariff for your business, taking steps to reduce your energy consumption and taking advantage of Government support, you can help mitigate the impact of the rising cost of energy.

If your business is facing financial hardship due to the current state of energy costs, we can help you with solutions that can help keep your cash flow positive. We compare various finance products that can give your business a cash injection, from business loans to invoice finance solutions.

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Jon Cole-Dalton