5 tips to manage rising energy costs for small businesses

With global demand for energy soaring, wholesale energy prices have seen massive hikes, putting financial strain on consumers and businesses. While the Government has announced support for households, no new support has been announced to help businesses. Here, we take a look at why energy prices are rising and what you can do to manage these increased costs.

Why are energy bills rising?

There are a number of factors that have played into the energy bill rise. Firstly, due to an unusually cold European winter in 2020-2021, and a hot summer in Asia in 2021, there’s been greater demand placed on the global supply of energy. This, coupled with limits on Russian exports of gas, have compounded the issue, causing a significant rise in wholesale energy prices. Gas, in particular, 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, is raising 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, due to current demand, seems unlikely.

What impact does this have on small businesses?

Small businesses are already feeling the pinch of rising energy costs. 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. 70% of small businesses believe that their ability to grow has been impacted by energy bills, and with prices set to climb even further, it’s easy to see how large price rises will have a detrimental impact on business profits.

While large businesses will typically be able to absorb a lot of these running costs in the short to medium term, small businesses with tighter margins and lower cash flow are more likely to feel the effects. Business owners may be forced to pass on any increase of running costs through consumer price hikes, putting them at a disadvantage when competing with larger businesses.

What can I do to manage business energy price rises?

 1.) Use available Government support

While the Chancellor hasn’t announced any specific support for businesses, there are a range of regional support schemes available from local councils to help fund energy efficiency measures. 

For instance, the SME Energy Efficiency Scheme (SMEES) supports businesses located in Tees Valley with fully-funded energy efficiency audits and expert advice, as well as online resources and workshops. Businesses here can also apply for capital grants to contribute towards works undertaken to reduce greenhouse gas emissions and energy consumption, covering 45% of upfront capital project costs between £10,000 and £100,000.

To see which loans or grants might be available in your area, you can check out the Government’s website here.

 2.) Check with your energy provider to see what support they can offer you

Many energy suppliers will offer schemes or grants to help you improve your energy efficiency, much like the Government schemes above. You may be able to get subsidies on the upfront costs of energy efficient equipment, or you may be able to claim from a business hardship fund, if they offer it. 

You might also be able to arrange a payment plan to spread out the cost of energy bills over a longer period, or pay in smaller instalments. It’s worth creating a budget to know what kind of payment plan would be affordable for you, then contacting your energy supplier directly to see what support they can offer.

3.) Improve your business’s energy efficiency

As outlined above, you could get either a Government grant or support from your supplier to improve your energy efficiency — but these options could take some time. In the meantime, there are a couple of energy efficiency tips you can make use of to help you save money:

• Ditch any older filament bulbs in favour of more modern, efficient LEDs or halogen bulbs
• Install sensors to ensure lights go off in rooms when they’re not being used
• Reduce your thermostat by 1°C, as overheating can increase bills by 8%
• Turn off your computers overnight to reduce their energy cost to around £11 a year per computer

4.) Look at reducing your carbon emissions

In addition to the other Government and energy supplier schemes, the Government also offers incentives to businesses who reduce their carbon footprint and invest in green technology. 

Businesses can claim additional capital allowances when they buy energy efficient, or low or zero-carbon technology. Not only can this help your business’s energy efficiency, but it can also help to reduce your overall business tax bill and make further savings.

You can learn more about what equipment you can purchase with capital allowances here.

5.) Consider switching energy supplier to get a better deal

One way you can look to reduce your energy bill cost in spite of the price rises may be to switch suppliers. There are no price caps in the commercial sector, but suppliers can offer new customer discounts, which can go some way to offsetting the price hike in commercial energy tariffs.

You can try price comparison websites to find the best deal for you. Services like MoneySupermarket, USwitch for Business, Compare the Market or GoCompare allow you to see how much you might be able to save by switching suppliers, so it’s worth testing out a couple to find the most affordable option for your business.

04/03/22: While we want to help as much as we can, the information found here is provided solely for informational purposes and should not be considered financial or legal advice. To the extent permitted by law, Funding Circle does not accept any liability for any loss or damage which may arise directly or indirectly from the use of, or reliance on, the information contained here. If you have any questions, please speak to your professional adviser or seek independent legal advice.