Energy Crisis 2021 – what does it mean for my business?

Energy Crisis 2021 – what does it mean for my business?

As we move into Autumn, there is an increasing concern that the volatility in energy markets, which has resulted in unprecedented hikes in energy prices, will continue to affect businesses across the UK, as we move into the new year.

Since the January the wholesale price for gas has climbed sharply with prices up 70% since August and 250% since the beginning of the year.

For many this is an unwelcome situation, placing increased pressure on business operations particularly those placed in SME sector who consume 47% of the commercial energy use in the UK.

What are the reasons behind the energy price hikes?

There are many compounding factors contributing to the current crisis. One of the key reasons why the UK is being impacted so drastically is that more than 85% of domestic properties use gas for heating. In addition to this, more than a third of UK electricity is produced from gas.

Analysts and commentators have also attributed the rise in prices to a ‘perfect storm of factors’ which include:

·An increased global demand for gas as the world opens up following the end of Covid 19.

·Gas storage facilities being depleted due to a colder and longer winter experienced by many northern hemisphere countries in 2020/21. The UK’s storage capacity currently makes up less than 1% of Europe’s total gas stores.

·Unplanned outages from nuclear plants in the UK and power cables which import electricity from neighbouring countries such as France.

·Reduced electricity output from UK wind turbines due to calmer winds in recent months – this summer has been the least windiest since 1961.

·A fall in gas imports from abroad.

How will this impact my business?

The energy crisis will impact businesses of all sizes and types, whether that’s a small business operating from home or a business operating from a commercial premises. If you are running down on your existing energy supply contract you will most likely be affected by higher energy prices and bills when you move to a new supply contract.

For businesses operating from home, Ofgem, the industry regulator, does operate an energy price cap. The cap limits the unit rate and standing charge that suppliers can bill for their default and standard variable tariffs. The cap is reviewed twice a year (every six months in April and October) and will increase by 12% to £1,277 from the 1st October.

It’s important to note that the cap does not limit the amount of energy used. If you do use more gas and electricity than what Ofgem defines as a “medium user” your bills will be higher.

What if my energy company folds?

Several smaller energy supply companies have folded in recent weeks. Where this happens, Ofgem are responsible for ensuring that your energy supply is protected.

Ofgem will transfer you over to a new energy supplier and a new tariff within a few days. They will also ensure that you do not have any interruption to gas and electricity supply. For small business customers, Ofgem will try to choose a supplier that can refund some or all your credit, but this may not be guaranteed. More details can be found on the Ofgem safety net and Citizen Advice websites.

Once Ofgem have switched you to a new supplier you can contact your supplier directly to check that you are on the cheapest tariff. You can also switch to another supplier without paying an exit fee if you are able to find a better deal.

What can I do next?

Analysts and commentators are expecting the recent trajectory of energy price rises to continue. As we move into Winter, demand for electricity and gas is set to increase with the onset of shorter daylight hours and cooler temperatures.

On energy supply contracts, it’s still advisable to check if cheaper one year/two-year deals are available, but you may find that sticking with your current supplier may be more suitable as prices are going up across the board.

There are also some simple steps you can take to ensure that unnecessary energy usage is kept to a minimum. This includes:

  • Checking thermostats regularly. Set controls to recommended times and temperatures to ensure the building is not being heated out of hours – you could save between 8% - 30% depending on your heating requirement.
  • Reducing thermostats by 1 degree can reduce heating costs by 8%.
  • Making sure that windows and doors are not kept open when the heating is on and vice versa. Also making sure that any voids in building fabric are covered or draught proofed to prevent heat loss from the building.

Low Carbon Workspaces – grants to help businesses improve energy efficiency and reduce energy bills

SMEs across Hertfordshire will be pleased to know that Low Carbon Workspaces is offering grants for energy efficiency projects to help businesses reduce their energy usage and their exposure to the energy price rises.

Full details of the Low Carbon Workspaces Programme and how you can apply for a low carbon grant can be found here

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