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How Is The Energy Crisis Impacting Businesses?

The United Kingdom is currently facing an unprecedented energy crisis, with business energy bills at an all-time high. As energy wholesale prices rise, the new cost pressures down on small businesses which directly impacts financial markets.

These soaring energy costs are caused by a combination of factors which are contributing to a strain on the nation’s energy supply. This predicament has gained significant attention and concern recently and with great reason as it directly impacts the day-to-day lives of individuals, businesses, and the overall stability of the economy. But, with government support and ways to save energy, all is not lost.

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What Led To The UK Business Energy Crisis?

The excessive business energy bills are due to rising demand, supply shortages, and volatile wholesale gas prices.

Rising demand

The revival of economic activities has led to a surge in energy demand. Industries, transportation, and households are consuming more electricity and gas, putting a direct strain on the supply of energy.

Supply shortages

Unexpected outages of power plants, along with maintenance issues, and delays in developing new energy infrastructure have contributed to supply shortages. These interruptions further worsen the situation.

Insufficient renewable energy generation

The intermittent nature of renewable energy sources, such as wind and solar, poses challenges in maintaining a stable power supply. Additionally, reliance on imported electricity through interconnectors makes the UK vulnerable to supply fluctuations from neighbouring countries.

Volatile gas prices

The global energy market is experiencing high prices of gas due to geopolitical tensions, supply chain disruptions, and increased demand from emerging economies. The surge in the price of gas directly impacts the UK, as it heavily relies on natural gas for electricity generation.

These factors combined have created a challenging energy landscape, with implications for consumers, businesses, and the overall stability of the economy.

Impact Of The Energy Crisis On Businesses

The high energy prices have caused many UK businesses to dig deep into their pockets to fund the high electricity bills. As a result, many smaller businesses had to shut their doors indefinitely due to liquidation.

The number of bankrupt companies in Wales and England reached its highest peak between May and June 2022, making it the highest it had been since 2009. The ONS (Office for National Statistics) explained that this was when the UK was in the midst of a global financial crisis.

The ONS survey in August 2022 showcased that more than 20% of businesses said that their main concern was soaring energy costs.

Will the outlook get worse before it gets better?

Unfortunately, energy costs are not predicted to decrease in the near future. Small and medium businesses will also benefit less from the Energy Bills Discount Scheme as it will be directing its focus onto larger industries with higher energy usage.

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Many businesses that had not opted for fixed energy contracts during the 2022 winter months were now faced with a challenge. They could either decide to downsize their business, adjust their business model or close their doors for good. However, to protect businesses, the UK Government offered support to non-domestic energy users in the form of an energy price cap as well as The Energy Price Guarantee.

The Energy Price Guarantee applies to all households in Great Britain and Northern Ireland. It will restrict the rising wholesale cost for domestic customers, saving households roughly £1,000 a year. This is in addition to the £400 energy bills discount.

The Energy Bill Relief Scheme

With a total of £18bn, the UK Government along with Northern Ireland have been offering support to businesses and other non-domestic customers, such as local authorities and charities, in the form of subsidising their energy bill. This was known as the Energy Bill Relief Scheme. The Energy Bill Relief Scheme acted as a price cap and was effective over the winter period of 2022/2023.

The scheme applies to fixed-price contracts that were signed on or after 1 April 2022. This price cap ensured that discounts were automatic and were first viewed on energy bills in October 2022. Another added benefit was that businesses and other non-domestic energy customers did not have to pay a green levy anymore.

The Energy Bills Discount Scheme

Effective 1 April 2023, a new scheme has been implemented with more support, known as the Energy Bills Discount Scheme. This scheme will run up until 31 March 2024.

Non-domestic customers are now eligible for a discount on their costs per unit on their energy bills. This is however, subject to a maximum discount price and can only be utilised if the unit rate of their per megawatt-hour (MWh) is higher than the wholesale costs.

Available discounts under the Energy Bills Discount Scheme

  • Electricity: a discount of £19.61 per MWh, with a wholesale price threshold of £302 per MWh.
  • Gas: a maximum discount of £6.97 per MWh, with a wholesale price threshold of £107 per MWh.

An energy supplier will offer the above discount directly to their customers. This means that businesses will not need to apply for the Energy Bills Discount Scheme.

Discounts for energy and trade-intensive businesses

Energy Trade Intensive Industries are larger businesses with high utilities and energy consumption. Examples of these businesses would be the mining and manufacturing industries. These companies will receive a bigger reduction of their energy bill than other businesses and the threshold price will be lower. But, the discount will only pertain to 70% of a business’s total energy bill.

The discount is broken down as follows:

  • Electricity – £89.1 per MWh with a £185 per MWh threshold
  • Gas – £40 per MWh with a £99 per MWh threshold

Here is a full list of eligible Energy and Trade-Intensive sectors.

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How Can I Help My Business Combat The Rising Costs Of Energy?

There are a few ways that businesses can reduce the impact of rising energy bills. One of which is to speak to an energy consultant about finding a better deal. Other ways are to:

Improve energy efficiency

Business energy efficiency is vital for any company because when you save energy, you save money and it is often better for the environment too. Here are a few simple ways to improve your business’s energy efficiency:

  • Switch to LED lightbulbs
  • Switch equipment off when it’s not in use and at the end of the day
  • Have an energy audit

Compare Energy Suppliers

There is a high chance that your business is overspending on gas and electricity. This could be due to a fluctuating energy price or wholesale price changes.

It’s important for large businesses to compare and gather competitive gas quotes and energy quotes with other energy suppliers to ensure they’re getting the best deals.

Businesses can compare their gas and electricity prices with Business Energy Comparison.

What Happens If My Business Energy Supplier Goes Bust?

If your energy supplier goes out of business, Ofgem will provide your business with a new supplier. This won’t interrupt your energy supply. Once a new supplier has been found, they will make direct contact with the business.

Once the supplier makes contact, a business should enquire about the possible business utility tariffs that are available to them.

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Conclusion

The UK’s energy crisis presents a complex challenge that demands urgent attention and comprehensive solutions. Balancing the need for reliable and affordable energy with the imperative of reducing carbon emissions requires a coordinated effort from policymakers, energy providers, businesses, and consumers.

By implementing a combination of short-term measures and long-term strategies, the UK can navigate the current crisis and build a more resilient and sustainable energy future.

Start your journey and compare business gas and electricity rates with Business Energy Comparison today. Use our price comparison tool and in less time than it takes to make a brew, we’ll compile your best prices from the UK’ s best suppliers.

Frequently Asked Questions

Do businesses get the £400 energy grant?

The £400 grant applies to all households receiving a domestic electricity supply, regardless of their income. Therefore, businesses are not eligible for the £400 grant. It is only for household energy bills and not for business contracts.

Should I fix my business energy prices until 2024?

The prices of gas and electricity will likely rise in the future. Large businesses should fix their energy prices as this will ensure that their rates remain as they are currently. This fixed contract could last for up to five years and will depend on the closing contract date. Some suppliers may even offer a payment plan.

How much energy do UK businesses use?

The amount of energy that a business uses is based on its size. On average, the annual gas usage is 10,000 kWh for microbusinesses, 25,000 kWh for small businesses and 45,000 kWh for medium-sized businesses.

Do businesses pay more for electricity UK?

A business often pays less for electricity than domestic customers. But, a household energy user is not affected by fluctuating electricity prices or VAT charges.