How businesses can cut energy costs and boost efficiency

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Small businesses struggling to get costs under control may have been relieved to see Ofgem’s announcement of lower energy prices earlier this month. However, the energy regulator’s price cap does not apply to gas and electricity contracts for businesses, where there is no maximum charging regime. While Ofgem’s move reflects falling energy prices on the wholesale market, which companies may benefit from, there is no automatic reduction in bills.

Indeed, the vast majority of firms now get no protection at all from higher energy costs. The Energy Bills Discount Scheme, which provided some support for businesses, came to an end on 31 March 2024 and has not been replaced. That makes it imperative for small businesses to take action for themselves on energy costs – particularly amid predictions that prices could rise again this autumn.

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How to cut energy costs

Smart energy management systems, for example, provide businesses with a constant read-out of their energy usage. By incorporating sensors and meters with data analytics tools, such systems can identify inefficiencies in the way companies are consuming energy. It may be possible to reconfigure heating systems and lighting, for example, in order to lower costs. It may make sense to run certain types of equipment at a different time of the day.

Shifting to energy efficiency equipment may also help to drive savings. Less power-intensive lighting systems, for example, could cut bills. In plant-intensive businesses, it may be possible to upgrade to more efficient machinery. Moreover, while making such changes will carry upfront costs, capital investment attracts tax reliefs. There is then an ongoing return from reduced operating expenditure.

Renewable energy provides further opportunities to save money, as well as to reduce the size of the firm’s carbon footprint. Installing solar panels on top of buildings is an obvious first move, but many businesses are now looking at additional energy generation options, including wind turbines and even geothermal technologies. Again, the upfront costs will often count as capital expenditure.

It’s not only hardware where investment can generate dividends. There will also be a return on investments made by businesses in employee engagement and training. Many staff are ready to play their part in helping the business to reduce its energy consumption – not least because of their own instincts on sustainability – but need help to do so. Even encouraging relatively simple behaviours, such as shutting down workstations at the end of each day, can make a significant difference in aggregate.

The key is to get started as soon as possible. One good way for businesses to kick-start their efforts to lower costs is to conduct an energy audit, potentially with the help of a professional adviser. This is an exercise to understand exactly how and where the business is consuming energy, so that it can identify opportunities for improvements. Conducting such audits relatively regularly will also help businesses understand whether they are moving in the right direction.

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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.