Procurement 18 August 2017

How to cope with rising energy prices as your small company grows

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There are a number of ways small business owners can work around rising energy prices and save money
Offering practical advice for small business owners, energy expert Jason Smith explains how to handlerising energy prices as your company expands.

Some business costs are often overlooked because they’re seen as relatively fixed, or are just part and parcel of running a business, with gas and electricity often falling into this category.

But, whether your company is growing fast, on a steady trajectory, or a startup, those energy costs can be reduced if you know how.

What drives rising energy prices?

Your bill is made up of several components, including the market wholesale price, supplier mark-up, transmissions costs, environmental surcharges and government taxes.

Nearly 50 per cent of a price is governed by the wholesale price. While the UK generates the majority of its energy itself, approximately 40 per cent of gas and electricity is imported from overseas. This leads to a certain amount of volatility.

Overall demand is down over the past decade, but the wholesale price is slowly increasing. The suppliers are now offering longer-term fixed rate contracts to help manage budgeting but also tie you into agreements running for up to five years.

The price is unlikely to drop anytime soon. In fact, it may only increase as the UK brings in new sources of power, such as the Hinkley Point Power Station more than doubling the wholesale price from where it is today. That’s a few years away, but it’s obvious higher unit prices are here to stay.

Why switch?

Like any cost of life be it car insurance, buildings insurance or energy there is no loyalty within the energy industry. In fact, being loyal will cost you, as prices increase each year for existing customers

All the best deals are always for new customers. Why is this? it’s because these companies know that most people won’t spend the time to compare prices and see if they can get a cheaper deal somewhere else.

And of those who do check, a large percentage forget or decide not to make the change.

If you havent switched in the past 12 months, you could make savings of up to 50 per cent. That number is so high because your previous bill will have had a price increase. SME prices have not increased for new customers during that period, and the smaller independent suppliers are driving business away from the traditional big six? with lower prices and better service.

The statistics for change make for poor reading

Despite all the headlines in the newspapers about energy pricings, the process of checking and switching energy providers is a task that’s being overlooked by most SMEs.

When the Competition and Markets Authority (CMA) conducted its research into the competitive nature of the industry last year, it found that only 21 per cent of companies with less than 49 employees had switched provider in the previous 12 months.

While the vast majority (85 per cent) cited reasons to lower costs, it’s disheartening that 79 per cent of businesses are missing out on what could be substantial savings.

The CMA research into this area cited the reasons for the static behaviour as:

  • We thought our prices were competitive
  • it’s too complex to switch and takes too long
  • Were under contract and can’t move
While business ownerswho have fixed-term contracts are unable to move in the middle of an agreement, the other reasons are cause for concern.

The reality of switching supplier

As more business owners move to lower costs, what’s stopping everyone else from moving? It seems that even five minutes is too long in a busy day to start the process. But, if you don’t want to do it yourself, there are plenty of accredited energy brokers that undertake all the heavy lifting on your behalf.

If you do it yourself, you’re best off using a comparison service so you won’t have to keep entering your details into multiple websites or make umpteen phone calls to each and every supplier.

Youll just need the postcode and building number of where your meter supplies the gas or electricity to begin the quoting process. Then it’s a simple and straightforward journey to switching:

  • Enter your details once into a price comparison service
  • Check the prices available and select a tariff
  • Sign a new contract with your selected supplier