How small businesses can reduce their energy bills

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

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.

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.

Recommended

Should you be worried about energy windfall tax proposals?
Energy

Should you be worried about energy windfall tax proposals?

Calls have been growing for a windfall tax on UK oil and gas producers. It's a popular idea, but is it a good one? And what does it mean for investors…
24 May 2022
Four high-quality US stocks to give shelter from the storm
Share tips

Four high-quality US stocks to give shelter from the storm

Professional investor Timothy Parton of the JPMorgan American Investment Trust picks four solid US stocks to buy now.
24 May 2022
Three undervalued mid-cap stocks with attractive prospects
Share tips

Three undervalued mid-cap stocks with attractive prospects

Professional investor Katen Patel of the JPMorgan Mid Cap Investment Trust picks three fast-growing mid-cap stocks to buy now.
24 May 2022
Could a stronger euro bring relief to global markets?
Currencies

Could a stronger euro bring relief to global markets?

The European Central Bank is set to end its negative interest rate policy. That should bring some relief to markets, says John Stepek. Here’s why.
24 May 2022

Most Popular

Imperial Brands has an 8.3% yield – but what’s the catch?
Share tips

Imperial Brands has an 8.3% yield – but what’s the catch?

Tobacco company Imperial Brands boasts an impressive dividend yield, and the shares look cheap. But investors should beware, says Rupert Hargreaves. H…
20 May 2022
Everything is collapsing at once – here’s what to do about it
Investment strategy

Everything is collapsing at once – here’s what to do about it

Equity and bond markets are crashing, while inflation destroys the value of cash. Merryn Somerset Webb looks at where investors can turn to protect th…
23 May 2022
Barry Norris: we’re already in the 1970s. Here’s how to invest
Investment strategy

Barry Norris: we’re already in the 1970s. Here’s how to invest

Merryn talks to Barry Norris of Argonaut capital about the parallels between now and the 1970s; the transition to “green” energy; and the one sector w…
19 May 2022