How Will the Energy Crisis Affect Your Business This Winter? What Can You Do About it?
After a difficult spring and summer, businesses are extremely apprehensive about energy costs throughout the coming winter. For many firms, rising energy prices could mark the end of trading. With that in mind, we’re here to explain everything you need to know about energy this winter, including: why energy prices are rising, what is likely to happen, how long the crisis will last and what your business can do to survive the next couple of years.
Energy has been in the headlines a lot recently. With unprecedented price hikes, wide scale financial support for households and the ongoing war in Ukraine, many individuals and businesses will be worrying about fuel costs this coming winter.
So, what is likely to happen, and why? How will business in particular be affected? How long will this crisis last and what can your business do to make the best of the global energy crisis? This week, we’ll be answering all of these questions, and doing our best to help your business prepare for the winter.
What Could Happen This Winter, and Why?
Last year, concerns about energy prices stemmed from longrunning disruptions in the construction of the Gas Nord Stream 1, several especially harsh winters and limited storage facilities.
Since then, Russia’s invasion of Ukraine has caused further supply issues across Europe, including the Nord Stream 1’s total closure. Growing demand and a decline in gas and oil supplies mean that prices have risen. As one Guardian article explains, this conflict has left “European nations embroiled in a dash for winter gas”, “with volumes in gas storage reservoirs running well below historical levels.”
Of course, rising gas prices also create inflation further afield. We have seen this in headlines describing Britain’s “Cost of Living Crisis”, a crisis partially caused by commodity suppliers raising their prices in order to cover the extra fuel and energy costs incurred through production/distribution of goods.
With all of this going on, it’s no surprise that media speculation about winter power outages and fuel poverty dominates headlines. In fact, according to the government’s latest “reasonable worst case scenario”, “the UK could experience blackouts for several days in January if cold weather combines with gas shortages to leave the country short of power.”
Keith Bell, professor of electronic and electrical engineering at Strathclyde University, was quoted in a BBC article saying that “cutting some gas supplies to large industrial users was a credible scenario that we need to be ready for". He also identified “ the UK's dependence on gas imports from abroad and the lack of storage capacity as two major supply risks heading into winter.”
Of course, Britons are not just worried about running out of electricity; further energy price hikes dominate headlines too, with forecasts suggesting annual (household) energy bills will “top £4,200 from January”.
Unsurprisingly, the BBC has warned of this creating “serious hardship on a massive scale” if the government does not intervene with further cost-relief measures. The Guardian also warns that the “UK may have to rely more heavily on piped gas shipments from Europe at a time when gas exports have already been curbed and the continent is scrabbling to rebuild its own supplies.”
How Will Businesses in Particular Be Affected?
Whilst headlines have focused largely on domestic fuel poverty, businesses are also facing a very difficult winter.
Businesses have in fact “experienced a 424% rise in gas costs and 349% increase in electricity since February 2021”, according to “the Federation for Small Businesses (FBS). As many “two-year, fixed-price contracts expire in October”, businesses will now have to renegotiate contracts at a time when energy cost forecasts are high to say the least.
Companies are not protected by energy price caps in the same way as domestic consumers. Due to this, many businesses are already reporting catastrophic projected price hikes and many have even announced that energy prices will cause certain closure. In fact, businesses “signing new energy contracts are facing an average increase of 300 percent”, according to analysis in The Telegraph.
For example, one hotel in Aberdeen was quoted saying “it will be cheaper to close for the winter than heat rooms for guests.” Likewise, a fish and chip shop in Oswestry, Shropshire, announced its “annual energy bills are rising from £9,000 to £35,000.” It is perhaps no surprise then that Simply Business research reveals “rising fuel and energy costs are the biggest challenge for 54 percent of small businesses.”
How Long Will the Energy Crisis Last?
Some may believe that should the conflict in Ukraine subside over the next 12 months, energy prices will fall again. Many businesses may be hoping that this winter is the peak of our energy crisis, and everything will go “back to normal” next winter.
Unfortunately, companies should be aware that this is unlikely to happen. Shell’s CEO, Ben Van Beurden has cautioned that Europe will need to “ration gas for several winters.”
He warns that “it may well be that we have a number of winters where we have to somehow find solutions through efficiency savings, through rationing and as a very, very quick build out of alternatives.”
Whilst this may not be the news businesses were hoping to hear, it is also valuable information and should inform commercial responses to the energy crisis. Potential government grants could help to ease the financial burden of such drastic price increases but with a longer term energy crisis on our hands, it is important for businesses to take more sustainable measures.
What Can Your Business Do About the Energy Crisis?
With such extreme price increases, to the tune of 300% on average, businesses will need to take multiple steps to protect themselves.
As the Financial Times explains, “Business support should include sticks and carrots to save energy, not just assistance to pay for it. Revising a scheme to incentivise reducing peak energy demand could be worthwhile [for the government], given the likely persistence of high wholesale prices and the demands of the energy transition.”
So, if you’re looking to protect your business from potential closure due to rising energy prices, make sure you have explored all of the following options:
Government Support, Grants and Understanding Tariffs
Any business struggling with energy costs should stay informed about energy tariffs. Ensure that you understand the pros and cons of each tariff type to get a better idea of price variation across the market. If you are unsure about how different tariffs work and would like to learn more, then read our article entitled What Makes up Your Energy Bill? Insights from Mike Davies, Managing Director of ClearCost Energy Limited.
Many energy companies also offer repayment plans. If you contact your supplier and give them notice that you will be unable to pay your bill, this gives you the best chance of accessing these benefits. Potential outcomes include receiving more time to pay, a payment break, reduction in payments or access to a hardship fund.
There has been considerable speculation about how the government will support struggling businesses with their energy bills. In fact, a report in The Times quotes previous Chancellor Nadhim Zahawi as saying the government should introduce schemes similar to those offered to businesses affected by COVID-19 hardship. Since then, the government has announced new measures including a 6 month cap for businesses with some further support for “vulnerable sectors”.
Although the government has promised to review their longer term strategy in three months time, many businesses have concerns about the longevity of these packages. Afterall, households will benefit from a 2 year price cap, which is a significantly stronger package.
As one BBC article points out, the government’s plan does not make it “clear what defines a "vulnerable" company”. What’s more, the Federation of Small Businesses (FSB) Chairman Martin McTague warns of a potential "cliff-edge after six months, with the withdrawal of support to all but 'vulnerable' targeted industries, sectors or types of business." With all of this in mind, it’s fair to say that energy saving and efficiency still has a key role to play in cutting costs for businesses.
Energy Efficiency and Energy Saving
Finally, energy efficiency will be essential for high-consuming companies at risk of closure. For one thing, the extent of government grants and subsidies depends upon the results of the Conservative leadership contest.
Furthermore, with many businesses relying on long-term, fixed-price contracts, understanding energy usage is even more important. To put it simply: the more data you have about your energy usage, the more accurate your forecasted usage can be. Greater accuracy usually means lower upfront costs, which is essential for businesses struggling right now.
What’s more, should more “schemes to incentivise reducing peak energy demand” come into effect, then appliance level and time-switch based energy control will become all the more important.
Energy monitoring systems, or smart meters at the very least, can help your business to identify any avoidable energy waste. For example, using GridDuck’s system, London Cocktail Club were able to reduce their energy consumption by 35%, whilst Priors Grove Farm saved 45%. To learn more, visit www.gridduck.com/case-studies.
If you are worried about energy costs, GridDuck can help. Book a 15 minute, no-obligation meeting with our team today.