Business energy costs: Should you be worried about surging prices?
Soaring energy costs are leaving some small businesses ‘terrified’ about the future with the potential for bills to rocket by thousands of pounds this year.
While households have been the large focus of the ongoing energy crisis, an army of entrepreneurs are worried about spiraling costs crippling their business as they are not protected by a price cap.
Adam Bamford, chief executive of Colleague Box, told This is Money: ‘The surge in energy prices is keeping me awake at night.
‘It isn’t a case of changing supplier to save money or reducing what we are doing it is simply an inescapable truth that prices will rise dramatically so we’ll need to save money elsewhere to cover the basics of energy usage.’
He is not alone in voicing his concern.
Adam Bamford of Colleague Box said he is having sleepless nights over the cost of energy
Gillian Ferguson, owner of Twisted Empire Bakes, said: ‘I am genuinely terrified about rising energy bills.’
‘My provider went bust recently and we were moved to Shell and they have just suggested we increase our monthly direct debit by GBP90 a month.’
This is GBP1,080 that will have to be baked into her overheads. She adds: ‘I’m a wholesale baker working from home with several ovens on the go. I’m not sure how long will I be able to keep going on swallowing the increases.’
Huge rises will be crushing for many small and medium-sized firms who are still trying to get back on their feet after the pandemic and get their heads around a raft of Brexit red tape.
Business energy is different to domestic, with fixed-price contracts commonly in place for one, two or three years.
However, when this period comes to an end, most will face soaring prices for whatever tariff they choose.
Business energy tariffs do not come with a price cap like standard variable deals do, meaning the prices can be huge.
The price hikes are coming at a time when other bills, such as food and National Insurance contributions, are also increasing.
Eddie Whittingham, founder of Go Founder, has applied to have air source heat pumps
Eddie Whittingham, boss of Go Founder, which provides guidance to start-ups, is in the process of converting a dilapidated church to a co-working space.
With energy prices soaring, he is now concerned about how he will afford to heat the space.
Whittingham said: ‘The situation with the energy prices is of concern across the board.
Given the size of the building we’re renovating, it’ll naturally consume a lot of energy so the more prices go up, the more of a problem this could become for the sustainability of the project.
‘For me personally, it also means the extra money that would be spent on energy could result in less money being spent on being able to support small start-ups, which is the whole purpose of the project, so it’s quite deflating.’
As a result he has decided to make the space as energy efficient and green as possible, to help the environment but also to cut down on costs.
‘We’ve applied to have air source heat pumps, together with solar panels for the project, which will essentially help to make the building ‘off grid’ by producing enough of our own energy, we shouldn’t need much, if any, electricity from the grid.
‘In that sense, it can massively help reduce our long term energy costs, as well as providing a more eco-friendly workplace.
‘Obviously this comes with a downside of significant upfront costs in order to fit heat pumps and solar panels but given the instability of the energy prices, I think this will be a sound investment.’
Adam Bamford, of Colleague Box, a corporate gifting company with a team of nine adds: ‘We are concerned about rising costs across a range of products and services,
‘The concern is very real. We very recently purchased an electric forklift truck with the idea of changing our diesel van in the New Year but as the cost of the van was significant along with the cost of actually charging it now shooting through the roof we are holding off this purchase too.
This could well be the straw that breaks the backs of a number of small businesses.Adam Bamford – Colleague Box
‘In general I feel that businesses are seen as a blank cheque book with endless cashflow so it really wouldn’t surprise me if businesses are given a different price cap to residential and rates spiral out of control.
‘The squeeze on SMEs is already frightening with many of us putting a stop to investments because a majority of suppliers are sending weekly price increase emails.
‘This could well be the straw that breaks the backs of a number of small businesses.’
Other firms are concerned that rising costs could put a pause on their plans for expansion.
Craig Bunting, co-founder of BEAR coffee, an independent coffee brand with five stores in the Midlands, said: ‘The process involved in securing energy prices and being “approved” by credit is prolonged.
Concern: Craig Bunting said there are a number of worries with prices rising across the board
‘You can suddenly find yourself in a situation where you are out of contract quite quickly – even when proactively trying to re-contract the site months in advance.
‘We have a number of other sites that will be due in the next 12 to 18 months. My concern is that the prices will be high, and it’s more pressure on our recovery as a business in the hospitality sector.
‘Worries include the rising cost of goods, rising energy, increased wages (which we support), VAT going back up to 20 per cent, work from home impacting sales and staff isolation.
The list goes on.’
Meanwhile, some owners have even had to relocate their business as a result of the surge.
Nicola Wordsworth, Studio Manager at Whybrow Pedrola, is working from a studio in Margate.
Nicola Wordsworth was paying an ‘extortionate amount’ in energy costs
She said: ‘We lease a property in Old Margate, we moved there early in the lockdown from Somerset House London out to the coast.
‘This was due to the high rent at Somerset House and the fact they weren’t suspending it due to Covid. We couldn’t pay for a studio we weren’t allowed to use.
‘We are paying an extortionate amount in energy costs in Margate, approximately GBP4,000 a year, for a small small studio and a tiny flat above.
‘Energy prices going up are an unbelievable stress and worry, and may make us have end the lease and all work from home permanently. Not ideal for a team of creatives.’
Industry experts are also warning of the ‘disastrous’ impact on manufacturers in the UK.
Lucinda O’Reilly, director at The International Trade Consultancy, added: ‘The rate at which energy prices are rising is going to have a disastrous impact on British manufacturers who already pay much higher prices than competitors in Europe and the rest of the world.’
Martin McTague, the Federation of Small Business’ National Vice Chair, said: ‘The Government and Ofgem need to understand that micro businesses face many of the same challenges as consumers when it comes to negotiating energy deals but without the same protections.
‘Big corporates can use their sizeable purchasing power and large headcounts to secure favourable terms.
Small business owners don’t enjoy that luxury.
‘As things stand, you have the smallest business being hit by surging fees but with no price cap, no protection of credit balances and no support from the Redress Fund for households impacted by supplier failure to fall back on.
‘That’s on top of all the other pressures facing firms, not least continuing consumer Covid anxiety, widespread isolation of staff and spiralling inflation in the round.
‘The Government should redress the balance by extending more consumer protections to microbusinesses.
Equally, a Help to Green scheme – modelled on Help to Grow – would enable firms to invest in on site generation and becoming more self-sufficient where energy is concerned.’
The price hike will be crushing for firms who are still trying to recover after closing
What can businesses do to cut costs?
Whilst there will be much less choice on the market than previous years, businesses are still encouraged to use a broker or price comparison sites to find the best deal.
If firms are struggling to pay their bills, they are advised to contact their supplier as soon as possible and see if they can arrange a payment plan.
Many energy companies also offer schemes or grants to help improve 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.
It is also important to ensure you are being billed accurately so take regular meter readings and send them to your supplier.
If you become in debt to your supplier, it is important to act quickly as your energy supply could be disconnected within 30 days if you don’t make arrangements to deal with the money owed.
If you’re disconnected, you will normally have a disconnection fee added to the money you owe and will often need to pay another fee to be reconnected.
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