Guide

Five ways SMEs can manage energy price rises

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The recent major increase in energy costs has hit households and businesses alike. A variety of factors relating to wholesale supply and issues with infrastructure have come together to drive the increase. While many of us will be worried about heating and lighting our homes, businesses are also feeling the pinch. Unlike consumers, business leaders not eligible for the £350 rebate on household energy bills announced by chancellor Rishi Sunak.

According to the Federation of Small Businesses (FSB), energy costs are topping its members concerns and this “cruel pincer”, as the organisation puts it, could prove to be “an existential threat” to some SMEs. According to a recent survey by Tyl, NatWest’s payment partner, some 70 per cent of SME business owners believe that the cost of their energy bill impacts the growth of their business. However, the research also revealed that “many businesses are leading an energy and cost-saving fightback,” with 72 per cent currently taking action by adopting energy efficiency measures within the workplace.

So, what can small and medium-sized businesses do to manage rising energy costs?

(1) Aim to reduce your existing bills

What you can’t measure, you can’t manage, so it’s important to analyse your costs. Check your bill on a monthly basis and then see what effect any changes you make have on it. The Carbon Trust has an energy benchmark tool for SMEs. Simply choose your sector and the size of your business, type in what you pay for your energy, and you’ll see an estimated energy profile for your site or premises. You could also think about getting a smart meter.

According to a recent report by the Green Alliance, office buildings are losing £60m in wasted energy every year. Energy currently wasted by less than 3,300 office buildings in Manchester, Bristol, Leeds, and Birmingham could power over 42,000 homes, it claims.

This suggests that there’s scope for savings among offices and factories across the country. Business leaders might want to start an energy saving campaign among their staff to help with team spirit and employee buy-in. Encouraging your teams to turn off lights and computers, and to ask whether they’re willing to turn the thermostat down by one degree can save significant amounts.

There’s a growing range of more energy efficient office equipment available to those SMEs which want to reduce energy bills too. The Carbon Trust offers a guide and, if you’re leasing technology, now is the time to ask your supplier for the least energy hungry options.

As part of the 2019 Coworker Member’s Choice Awards, around 77 per cent of the co-working operators surveyed said that they planned to open new locations. The growth of hybrid working, fuelled by lockdown and evolving communications technology, has prompted many businesses to reconsider whether they need all the space that they currently have. Thanks to economies of scale – among other factors – shared and serviced offices can reduce all kinds of costs including energy bills.

(2) Research regional financial support

The Department of Business, Energy & Industrial Strategy (BEIS) has a website with information about a range of grants and loans made through local authorities to help with energy and other costs. Some SMEs in Scotland can apply to the Scottish government for an interest-free, unsecured SME Loan between £1,000 and £100,000 to pay for energy efficient upgrades. Initiatives include LED lighting, energy efficient heating systems and building insulation.

Get energy smart

Have you ever changed your energy supplier?

According to the Federation of Small Businesses, 43 per cent of SMEs have never switched their energy company.

Lightbulb moment

The Energy Saving Trust has calculated that, if the average UK household replaced all their bulbs with LEDs, the cost would be about £100, but saving would amount to £40 a year on bills.

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(3) Consider switching energy supplier

Although energy cost increases are almost universal at the moment, it’s always a good idea to check to see if you can get a better deal from another supplier on a regular basis. According to the Federation of Small Businesses, nearly half (43 per cent) of SMEs have never changed energy company. With USwitch for Business, for example, an expert will search the service’s panel of suppliers on your behalf and give you the results in a short phone call. They’ll then manage the transfer and negotiations.

Compare Money UK allows you to compare over 150 business energy tariffs, and gives you access to exclusive rates. It claims that it can reduce your annual energy bills by over £1000. Other business energy comparison sites include SwitchPal and Business Energy UK.

(4) Longer term measures

Lighting accounts for 15 per cent of a typical household’s electricity bill and you can save £2 to £3 a year for every traditional halogen bulb that you switch to a similarly bright LED bulb, according to the Energy Saving Trust. The Trust has calculated that, if the average UK household replaced all their bulbs with LEDs, the cost would be about £100, but saving would amount to £40 a year on bills. Based on these amounts, the savings that a business can make with this simple switch are obvious.  In some cases, you can even get solar panels installed in your business free of charge. The Renewable Energy Hub has more details.

Some SMEs may prefer to lock in a tariff for a fixed period so that they can better budget and manage cash, while more energy-hungry businesses could consider energy price hedging.

(5) What to do if you're struggling to pay your energy bills

If you’re finding it difficult to pay your energy bill, there are several things that you can do in the short term. The Citizens Advice Bureau (CAB) has these suggestions.  In any case, your first point of call is to contact your supplier and explain the situation to them. If you don’t pay your bill then you might be disconnected and, as well as the resulting disruption, you’ll probably have to pay a fee to be reconnected. Most energy companies are usually willing to negotiate a payment plan. Finally, the Business Debt Line can help generally if your company is finding it hard to meet your outgoings.

As businesses come out of the pandemic and struggle with staff shortages and broken supply chains, many are particularly vulnerable to soaring energy costs. However, by refusing to panic and by taking practical short-term action while considering a longer-term strategy to meet this continuing challenge, forward-thinking SMEs can emerge from this challenge to become more resilient and cost efficient.