Offering practical advice for small business owners, energy expert Jason Smith explains how to handle rising 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.
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 haven’t 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
- We’re under contract and can’t move
While business owners who 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.
You’ll 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
Your new agreement starts when the current one finishes. Just in case there are any administration issues, it’s always best to take meter readings on the day of transition.
Managing consumption as demand increases
As your business grows, your gas and electricity usage is likely to increase with it. Perhaps you’re preparing more meals in a restaurant, adding new fridges in your convenience store, purchasing additional computers for your staff or expanding into new offices.
Whatever the circumstances, the case for being aware of energy management and taking action has never been stronger.
If, as we’ve seen, the wholesale price is moving upwards, that puts pressure on other areas of our business interests. Managing the unit price is one part of the cost reduction equation when it comes to energy.
The other element is keeping consumption as low as possible. Easy savings are made from installing LED lightbulbs instead of traditional lighting. These bulbs have come down in price as demand increases.
Keeping thermostats at reasonable levels, turning computers and lights off when not in use, and keeping doors and windows closed are all ways that could lead to an immediate 20 per cent drop in energy consumption.
Perhaps most change comes from staff awareness programmes. If you team always turn devices off when they’ve finished using them, only purchase A+++ rated appliances, and help conserve energy, then that’s going to go further in cost reduction than anything else.
The majority of businesses in the UK are investing in environmental changes, but the largest impact comes from staff awareness and a change in attitude.
Jason Smith is an energy expert who has helped business owners increase their energy efficiency for over ten years. He manages the website Business Electricity Prices, which advises small and medium-sized businesses on reducing their utility bills
An independent review has launched to give UK businesses the lowest energy costs in Europe
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