Understanding the UK Energy Crisis: Implications for Your Business
The ongoing UK energy crisis has created a ripple effect throughout the industry, and businesses have not been spared. Discover the origins of the crisis and the government support available in our comprehensive guide below.
Since summer 2021, the UK energy crisis has become a major financial concern for many. With the rapid increase in inflation, soaring energy prices have significantly impacted the cost of living for the majority of Brits.
However, it’s not just households that have been affected by this crisis. The country’s businesses, particularly the 5.47 million small businesses that make up over 99% of the UK’s business sector, have also experienced rising energy bills, creating challenges for their financial stability.
In this article, we’ll explore the causes of the UK energy crisis, its impact on businesses, and the measures you can take if you’re concerned about your business energy bills.
What caused the UK energy crisis?
The primary trigger for the UK energy crisis was a dramatic surge in wholesale natural gas prices, which has since subsided.
Various factors contributed to this spike in wholesale prices, including the European cold snap, increased global demand, increased Chinese LNG demand, and supply issues from Russia due to the invasion of Ukraine. The heightened energy costs forced numerous UK energy firms to go out of business, destabilising the entire industry and causing prices to skyrocket.
Energy providers were unable to transfer the escalating costs to their customers, who were either on fixed-term contracts or protected by the energy price cap. In response, the remaining energy companies gradually passed the costs onto their domestic and commercial customers, resulting in increased energy bills for many homes and businesses over the past 18 months.
How has the UK energy crisis impacted businesses?
Similar to households, businesses in the UK have been affected by the energy crisis primarily through significantly higher energy bills.
The concern for businesses lies in the fact that they have less protection compared to domestic consumers when it comes to energy costs. Specifically, the Office of Gas and Electricity Markets (Ofgem) energy price cap does not extend to businesses in Great Britain, regardless of their size. In Northern Ireland, no price cap currently exists for both domestic and commercial customers.
Business energy contracts generally have longer durations than domestic ones, potentially lasting up to five years. As a result, some businesses with existing contracts have been insulated from the increasing prices.
Nevertheless, businesses that needed to renew their contracts within the past 12 months, as well as those on variable tariffs, have already experienced a rise in their bills.
What action has the government taken to assist?
The government has introduced separate programs for domestic and non-domestic customers to address the energy crisis. However, the extent of support provided by these schemes has evolved over time.
Energy Bills Discount Scheme (EBDS)
Eligible businesses and non-domestic customers throughout the UK will automatically receive a discount on their per-unit cost, up to a maximum discount and subject to wholesale prices exceeding a specific threshold.
The maximum discounts are as follows:
- Electricity: a maximum discount of £19.61 per megawatt hour (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.
For non-domestic energy users classified as ‘particularly vulnerable’ to high energy prices, increased support is available. These users fall under the Energy and Trade Intensive Industries (ETII) category, which includes a range of manufacturers, miners, libraries, and museums, among others.
For ETIIs, the scheme offers the following:
- Electricity: a discount of £89 per MWh, with a wholesale price threshold of £185 per MWh
- Gas: a discount of £40 per MWh, with a wholesale price threshold of £99 per MWh
While the standard EBDS support is applied automatically, businesses and non-domestic customers must apply for the higher ETII discount.
However, concerns exist that this diminished support may be insufficient to prevent thousands of businesses from collapsing as energy bills rise. In March 2023, the Federation of Small Businesses (FSB) disclosed that 28% of businesses that entered fixed energy contracts the previous year might need to “downsize, rethink their business model, or even close” due to the cessation of the more generous Energy Bill Relief Scheme (EBRS).
What happens if my business energy supplier goes bust?
If your business energy supplier goes bust, the advice for businesses is similar to that for households: wait to be contacted.
Ofgem suggests the following steps if your business energy provider were to collapse:
- Take a meter reading to ensure you have your up-to-date usage. If you cannot take a meter reading for any reason, contact Citizens Advice if you are in England or Wales, Advice Direct if you are in Scotland, or Advice NI if you live in Northern Ireland.
- Wait for Ofgem, if you are based in England, Scotland or Wales, or the Utility Regulator, if you are in Northern Ireland, to find you a new supplier, rather than actively switching to one yourself or cancelling your direct debit. This should take a maximum of 14 days.
- Once you have a new provider, you will be put on what’s known as a deemed contract, i.e., one you haven’t chosen, rather than your old tariff. This will likely be more expensive than your old tariff. You can then either sign a new contract with this supplier or shop around for a better deal.
You should know that if your supplier does go bust, your energy won’t be disconnected. And if an administrator takes over your supplier, you are free to switch to a different provider at any time.
However, be aware that it is not guaranteed that any credit will be carried over between suppliers, as business credit balances are not protected by the Ofgem Safety Net.
As for any business energy debts, whether or not you will need to pay these off will depend on the terms of the switch as dictated by the administrator.
Secure your energy future with confidence
Collaborating with Northern Gas and Power gives businesses access to a variety of services aimed at safeguarding their energy future. Our offerings include flexible energy procurement, energy bill assessments, energy efficiency solutions, Net Zero consulting, and more. Our skilled team possesses extensive knowledge of the energy market and industry-specific insights that enable us to deliver customised advice and support.
We assist businesses of all sizes in achieving long-term price stability and protection against market volatility. Whether your goals are to reduce energy expenses, enhance energy efficiency, or meet sustainability objectives, we have the know-how and resources to help you succeed.
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When partnering with us, businesses can rest assured that they have a reliable ally with the expertise needed to navigate the complex energy market. Our aim is to help businesses attain long-term price stability and security, enabling them to concentrate on their core activities – managing their business. Contact us today to discover how we can assist you.