How small businesses can reduce their energy bills

Here are the best ways to soften the impact of soaring power costs.

Hand turning a thermostat knob
Programme thermostats so they only heat when staff are actually there
(Image credit: © Getty Images/iStockphoto)

Soaring energy prices are hitting small businesses hard: a fifth are considering raising prices because of the effect of higher bills on their bottom line.

One key problem is that small businesses are not covered by the price cap that provides a safety net in the consumer sector. As a result, if you are not currently locked into a fixed-price deal with your energy supplier, there are no constraints forcing it to keep your bills at a certain level.

Also, if you have run up a credit balance with your current supplier only for it to go bust, there is no guarantee you will recoup this loss. While Ofgem, the industry regulator, is required to ensure your contract is transferred to a new supplier, it may not be able to persuade the company taking on your account to recognise your credit. You can register as a creditor with the administrators of your old firm, but there may not be enough money in the business to pay you what you’re owed.

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How, then, to reduce the effect of rising energy costs, particularly as many in the sector think the problem will get worse before it gets better?

Part of the answer lies in ensuring you’re on the best deal possible with your energy provider. Most businesses lock into deals for a set period with their supplier, but if you’re currently out of contract – or it’s coming up for renewal – consider your options carefully.

Look for short-term deals

On the one hand, fixing your costs will give you certainty, useful for budget planning, and protect you from further price increases over the next few months. On the other, costs are already very high, so you’re arguably fixing your bills at just the wrong moment.

Given these conflicting pressures, energy-market advisers currently suggest signing up to short-term deals. Look for a contract lasting six or 12 months, so that you have room to benefit once market conditions ease. Alongside focusing on your energy supply contracts, now is also the time to prioritise energy saving. There may be all sorts of opportunities to reduce your firm’s energy consumption.

Having your company’s energy use audited could be a valuable first step. An expert adviser will help you establish where and how your business is using energy – and, more importantly, where the greatest opportunities for reducing usage are to be found.

Your energy provider may offer audits free of charge, but if not it is worth considering paying for advice, since the potential savings are likely to outweigh the costs.

One initiative could be to reduce the amount of energy your business uses during peak hours, when charges tend to be higher. Can you stagger the working day for some staff, for example? If you run energy-hungry machinery, can you employ it during non-peak hours?

Energy efficiency can also generate savings, particularly if you focus on the cumulative gains. Programme thermostats so you’re only heating the workplace at times when staff are actually there; install sensors that turn off the lights when no-one is in a particular room; switch to energy-efficient light bulbs throughout your premises; and if you’re buying new equipment, make energy-efficiency ratings a key part of your purchasing decisions.

Finally, while all these steps will help, you will make more progress if you can get staff to take reducing energy usage seriously too. Talk to employees about why you need to get energy costs down, and keep reminding them that they can help.

David Prosser
Business Columnist

David Prosser is a regular MoneyWeek columnist, writing on small business and entrepreneurship, as well as pensions and other forms of tax-efficient savings and investments. David has been a financial journalist for almost 30 years, specialising initially in personal finance, and then in broader business coverage. He has worked for national newspaper groups including The Financial Times, The Guardian and Observer, Express Newspapers and, most recently, The Independent, where he served for more than three years as business editor.