How will the energy crisis affect YOUR business?

The rising costs of powering a business may be forcing many smaller firms to the brink of disaster.

Wholesale fuel prices across the globe are on the rise, leading to massive hikes in energy that threaten the future of many fledgling businesses.

Small-to-medium-enterprises (SMEs) account for 99% of the UK’s workforce, and they are facing huge financial problems caused by the ongoing national and international energy crisis.

A dearth of stored power reserves means the UK is only able to hold enough to meet the demand of a few days at a time during the winter.

And prices, for business and domestic customers, are shooting up.

What has caused the cost of gas and electricity to rise so sharply?

Gas heats nearly nine out of 10 homes in the UK and generates two-fifths of its power as a whole.
But gas prices have more than quadrupled since the coronavirus outbreak. Here’s why:

  • A squeeze on the wholesale cost of gas across the planet started last year, prompted by the post-COVID economic recovery
  • Demand climbed sharply after global consumption during the pandemic had ground to historically low levels
  • A particularly cold winter drove up demand for liquefied gas and meant stored supplies were used up
  • While pipeline supplies of gas from Russia were lower than had been projected, demand in Asia had increased. Additionally, an increasingly-strained relationship between Russia and mainland Europe meant a reduction in political stability, not ideal when dealing with a volatile situation such as gas supply
  • Dozens of smaller energy companies – who accounted for more than two million homes – collapsed, with Ofgem’s energy price cap from October meaning they couldn’t pass the additional costs on to their customers

Businesses are already feeling the strain from the COVID restrictions and the impact of Britain’s departure from the European Union. More than half of UK businesses believe Brexit has had a negative impact on their ability to trade internationally and, with the pandemic estimated to have cost SMEs far in excess of £100bn in total, these are indeed trying times.

GRIM READING: Small business owners across the UK are facing rising energy bills

The Omicron variant, and the likelihood of further variants in the short- and long-term future, means further uncertainty and unrest in virtually every sector is spreading through the country.

A survey carried out by the Federation of Small Businesses (FSB) indicates that energy bills are its members’ prime concern at present.

Indeed, there are small businesses that continue to have their staff members work from home, primarily because they want to save money by not forking out for utilities at their premises.

Many business owners may have signed up to fixed-rate contracts but at the end of their present deals could be hit with much higher charges. Business energy rates are often cheaper than domestic deals but contracts for their customers are, in almost all cases, longer.

Studies by Citizens Advice show that around 1.5 million businesses in the UK are more likely to be disconnected than domestic utilities customers. Businesses do not have the same protection as domestic customers, and suppliers must explore every avenue possible before resorting to disconnecting residential customers’ energy. This is not the case for business users, who are at a greater risk of having their energy supply withdrawn and may find they are paying more than they were expecting to, or should.

If you are a small-to-medium business owner, perhaps you should think back and consider your business energy deal when you arranged a contract. Did you enlist the help of a professional intermediary or broker? If so, did they find you the cheapest deal, or one that offered the most lucrative commission for themselves?

These specialists are employed for their expertise in scouring the market and finding their clients good deals on what is a significant outlay for them. Two thirds of businesses use these third-party specialists.

You might wonder why firms do this when they can spend a little time and look for themselves.

But getting a good deal is a big deal.

Business energy is bought as a bespoke bulk package unlike the gas and electricity that can be arranged on a monthly basis for domestic customers. Business energy contracts last for much longer, generally with fixed terms, and can be set for up to five years in duration.

And typically you won’t be able to save any money by obtaining your gas and electricity on one deal. Even if they come from the same utilities supplier, it’s highly likely you’ll have two distinctly separate deals.

What are the pros and cons of fixed-term energy contracts for businesses?

The Pros

  • Cheaper tariffs should be available as suppliers lower the rates for customers signing longer-term deals
  • As wholesale prices rise you should be protecting from sudden hikes in your energy bills
  • Suppliers absorb long-term price risks, rather than your business
  • You have a degree of certainty with budgeting for your energy costs, with prices staying as a constant
  • Your energy bills are simple and straightforward
  • More deals should be on offer from suppliers, with greater competition arising from their desire to tie customers down to fixed-term contracts

The Cons

  • Locking yourself into an energy contract when wholesale prices are on the higher side means you’re stuck with an uncompetitive price until the contract ends
  • If you sign up to a deal but there is a drop in wholesale prices – unlikely in the current climate, we know, but still – you could be at a disadvantage with your competition
  • Finding, and switching to, a better tariff will mean you will be liable to pay out ‘early exit’ fees
  • Your deal may involve usage limitations on your business, with substantial penalties if you go over your allocated use
  • Unless you take steps ahead of your deal expiring, it’s possible you could roll over automatically, and on to a pricier plan
  • Generally speaking, the longer your fixed-term business energy contract is, the higher the premiums are likely to be

So it’s only natural that, when locking yourself into a long-term energy contract for your business, you want sound advice from an expert in the field. You need the decision to be the right one for you and your company. You’ll have no cooling-off period and won’t even be able to consider looking for a different deal until your contract nears its end.

Making a claim for mis-sold business energy deals could see your SME recoup what you have overpaid due to your broker’s lack of transparency and their self-interest taking priority for them.

CHANGE NEEDED: Energy bills for businesses, as well as domestic customers, is on the verge of massive rises

Breaking down the value of claims by sector, an engineering firm’s average claim is close to a quarter of a million pounds. Other major sectors’ claims include £160,000 in education organisations, £120,000 in sporting clubs, and £80,000 among hospitality companies.

These are huge sums which can make a massive difference to a company’s future prospects and, in many cases, its very existence.

Energy firms have already had to pay out the equivalent of £100,000 per day over the last decade. That total runs close to £400million in fines and redress payments in 10 years.

Approximately three quarters of this is payments for redress made to customers, with the remainder going to the Treasury. That is a decade of regulation non-compliance by energy companies.

And the balance is shifting. Claims for mis-sold business energy deals is a growing trend.

Look at a typical business energy deal, and let’s throw some numbers into the mix. These are for illustrative purposes only – we’re not making recommendations or suggesting what you should actually be paying!

So, say your firm agrees to a contract in which you pay 10p per kW/h. The commission model means that a further penny per kW/h is added on top as commission for your broker or intermediary. With annual consumption of 512,091 the commission adds up handsomely. So, the third-party intermediary gets his or her commission paid, via ongoing additions to your bill. On a two-year energy contract that’s a commission of more than £10,200.

Meanwhile, the bill shows your tariff to be 11p per kW/h so the chances are most business owners are none the wiser, and neither the energy supplier or the broker who arranged the deal have seen fit to pass this information on. If their fees are incorporated into your utilities bills you, as their customer putting your trust in them, should have been told about it before signing up to anything. Otherwise, that is a clear instance of mis-selling.

If you are paying more for your business’ gas and electricity than a) you should, and b) you were told you would, then you need to know why.

THE DEVIL’S IN THE DETAIL: Barings Law’s legal experts will examine the finer points of your business energy contract

At Barings Law, we have a team of experts dedicated to recovering money for customers who have been mis-sold their business energy plans.

We can pick through the finer details of your contract and find out if there is a case for claiming compensation to restore you to the financial position you would have been in had you not been a victim of mis-selling.

What’s more, we’ll do it on a no-win no-fee basis so there is no financial risk to you whatsoever.

We can prepare a case for you to get back what you have overpaid. You simply supply us with whatever documents you can lay your hands on, then sit back and we’ll do the rest. There will, in virtually all cases, be no need for you to give evidence in a court hearing, we can do all the legwork for you.

It’s surely worth a quick no-obligation call, isn’t it? Give us a call on 0161 200 9960. Or if you prefer, just click on the webchat icon at the bottom right of this page and have a chat with one of our advisors.

They’re friendly and professional in equal measures and they can give you reliable advice in an instant.