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Are SMEs being held back by high energy costs?

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Energy bills are finally falling for most of us, but are SMEs being left out of the party? A member of the energy and utilities team at Harrison Drury, examines the issues.

After years of increasing energy costs, it seems that Britain’s energy market might finally be heading in the right direction from a consumer point of view. All of the ‘Big Six’ energy providers have now cut their prices this year, reflecting the savings made from lower wholesale fuel prices.

In addition, British energy consumers are becoming more alive to the benefits of shopping around for their energy. Data released by Ofgem last week showed that six million households switched energy provider last year, representing a 15% increase compared with 2014. Rachel Fletcher, Ofgem senior partner, said:

“It’s encouraging to see switching levels at their highest level for four years. With more than 30 suppliers active in the energy market and hundreds of pounds of savings to be made, it’s a great opportunity to shop around.”

Unfortunately, things aren’t looking as good for some energy users

SMEs are yet to feel the benefit of lower energy prices. This is because the reductions rolled out by the ‘Big Six’ only apply to the residential energy market. Most small businesses remain on much higher fixed tariffs and there is no requirement on energy companies to publish tariffs in order to help small businesses find the best deals.

Ofgem are yet to release the data showing how many small businesses switched providers last year, but it is predicted to be a much lower percentage than residential consumers.

The Federation of Small Businesses (FSB) says that almost of a third of its members now cite the cost of energy as a barrier to their growth and success. What’s more, it seems that once they have acquired a small business’s custom, the energy companies aren’t proactive in helping them keep costs down, with only a fifth of all businesses surveyed saying they’d been offered energy efficiency advice by their supplier.

HD_SMEs_energy

Certain businesses are hit disproportionately hard by these problems. In particular, sectors such as engineering and manufacturing are especially vulnerable because they have such high energy costs, and high bills are ultimately eating into these company’s profit margins and undermining their commercial viability.

What can SMEs do to save on their energy costs?

As many residential customers have found out, the answer to getting the best energy rates possible may lie in switching providers, but there are certain obstacles for SMEs to overcome when attempting to switch.

Firstly, businesses need to check that they are able to switch. Business contracts, generally, can only be switched at the end of a contract, so customers need to give adequate notice to their supplier that they want to terminate their contract.

Once a preferred supplier and deal has been identified, SMEs need to provide confirmation that they want to move to that supplier. Small business customers are still required to give formal notice to existing suppliers when looking to switch to a new provider; in the consumer sector, by contrast, the very act of applying to a new provider counts as an automatic serving of notice.

Another obstacle lies in the fact that energy companies have a right to object when customers say they want to move to a rival provider – but only in very specific circumstances such as when there are outstanding debts. Yet “Make it Cheaper”, a price comparison service aimed at the business market, says energy companies objected to 26% of switching requests last year in the small business sector, up from 17% in 2015.

So how does the future look for SMEs when it comes to energy costs?

Obstacles aside, there remains some hope for SMEs looking to save on their energy costs. We have heard talk within the industry recently of expected growth in the number energy brokers looking to specialise in SME switchovers.

In addition to existing service providers, it was revealed earlier this month that EPH (the Czech owner of Eggborough and Lynemouth power stations) is launching Energy Scanner – a digital marketplace for SME customers to find, compare and transact their energy business. The company is in the process of signing up energy suppliers and expects to expand into water when the non-household market opens to competition in 2017.

Eggborough

Eggborough Power Station is located in North Yorkshire.

It seems that SMEs have been overlooked for some time when it comes to saving on energy costs, but with increased competition and a greater focus being placed on small businesses in the utilities market, it may now be the time for businesses to consider making the switch.

Jacob Walker is a member of Harrison Drury’s specialist team of energy and utilities lawyers. For further advice on the legal considerations surrounding SMEs and their energy providers, contact one of our experienced energy lawyers at Harrison Drury today on 01772 258321.


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