UK Energy Crisis Explained: What Does It Mean For Your Business?

The UK energy crisis has had a domino effect across the sector, and businesses are in no way immune. Find out what to do if your business energy supplier goes bust, and how to get help with your energy bills, by reading our guide below.

Connor Campbell Last updated on 11 January 2023.
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UK Energy Crisis Explained: What Does It Mean For Your Business?

You can’t move for headlines about the UK energy crisis. And for good reason – alongside rapidly rising inflation, the sharp spike in energy prices is having a significant impact on the cost of living for most Brits.

But it is not just domestic households affected by the UK’s energy crisis. The nation’s businesses – especially the 5.47 million small businesses that total more than 99% of the country’s business sector – are also facing steeper energy bills, which may pose real problems for their bottom line.

Below we take a look at what has caused the UK energy crisis, how it is affecting businesses, and what steps you can take if you are worried about your business energy bills.

» MORE: A Quick Guide to Business Energy in the UK

What is the UK energy crisis?

A staggering increase in the cost of wholesale natural gas has had a significant effect on the UK energy market.

Driven by, among other factors, the 2020/21 cold snap in Europe, rising global demand and supply issues from Russia related to the conflict with Ukraine, the increase in energy costs has put multiple energy firms out of business in the UK.

This is because those energy suppliers were unable to pass on these rising costs to the thousands and millions of customers they had locked in on fixed-term contracts, or who were protected by the energy price cap (which is likely to rise again in January 2023).

The remaining energy suppliers, meanwhile, have been gradually passing costs on to their domestic and non-domestic customers – a fact many people will already know from observing their own energy bills.

These increases have been so substantial that, prior to the announcement of government assistance, domestic energy bills for a typical household were expected to rise to an average of £3,500 in October 2022, and over £5,000 in 2023.

According to the International Monetary Fund (IMF), the financial agency of the United Nations (UN), this has meant the UK has been the worst-hit nation in Western Europe when it comes to household spending power, with a projected 8.27% reduction in how much Britons had to budget with across 2022.

This is partially due to the UK’s reliance on gas. In 2021, natural gas made up 42% of the UK’s energy demand, and was required for 29% of its energy production.

» MORE: Why are energy prices rising, and what can I do?

How are businesses affected by the UK energy crisis?

Businesses are affected by the UK energy crisis in essentially the same way as households: they are paying (a lot) more money for their energy bills.

The worry for businesses is that they have less protection than domestic consumers when it comes to energy. Namely, the Office of Gas and Electricity Markets (Ofgem) energy price cap does not apply to businesses in Great Britain, regardless of their size. In Northern Ireland, meanwhile, there is currently no price cap for domestic and non-domestic customers alike.

Business energy contracts are typically longer than their domestic counterparts, potentially lasting up to five years. So, for the moment, some businesses that have existing contracts will be shielded from rising prices.

However, there will be lots of businesses that need to renew their contacts over the next year, as well as others that will be on variable tariffs who have already seen their bills increase.

It is such a problem that, according to a NerdWallet survey conducted in September 2022, close to half (45%) of businesses fear they may have to close as a direct result of their business energy bills.

What is the government doing to help?

The government has implemented separate schemes for both domestic and non-domestic customers, in order to help combat the energy crisis.

Energy Bill Relief Scheme (EBRS)

On 21 September 2022, the government announced what help businesses and non-domestic customers in Great Britain will receive under the Energy Bill Relief Scheme (EBRS).

A Supported Wholesale Price was introduced on 1 October 2022, and will initially run until 31 March 2023. This is essentially a price cap on the maximum amount a business will pay for a megawatt hour (MWh) of electricity or gas.

The Supported Wholesale Price in Great Britain is £211 per MWh for electricity and £75 per MWh for gas. A parallel scheme was established in Northern Ireland, utilising the same supported prices.

In Great Britain, if you are on a fixed-rate contract signed on or after 1 April 2022, your discount will be automatically applied. This includes fixed-rate contracts signed after 1 October 2022. In Northern Ireland, the discount will apply to fixed-rate contracts signed on or after 1 December 2021.

If you are on a deemed, default or variable contract, you will receive a maximum per-unit discount no greater than £345 per MWh for electricity and £91 per MWh for gas. This will be calculated by looking at the average expected wholesale price for the six-month period, and the Supported Wholesale Price. While costs will be reduced overall, the terms of your contract mean your bills could change over time, and be subject to further price increases.

If you are a larger company on a flexible purchase contract, your price reduction will be calculated by your supplier and is based on the terms of your contract, but will be subject to the maximum discount as set out above.

From 1 April 2023 to 31 March 2024, the Energy Bill Relief Scheme will be replaced by the Energy Bills Discount Scheme.

Energy Bills Discount Scheme (EBDS)

Following a review of the Energy Bill Relief Scheme, on 9 January 2023 the UK government unveiled the next stage of (much-reduced) support for businesses: the Energy Bills Discount Scheme. This new scheme will run from 1 April 2023 to 31 March 2024.

Eligible businesses and non-domestic customers across the UK will automatically receive a discount to their per-unit cost, up to a maximum discount and as long as wholesale prices are above a certain threshold.

The maximum discounts are as followed:

  • Electricity: a maximum discount of £19.61 per megawatt hour (MWh), with a wholesale price threshold of £302 per MWh.
  • Gas: a maximum discount of £6.97 per MWh, with a wholesale price threshold of £107 per MWh.

For non-domestic energy users that are ‘particularly vulnerable’ to high energy prices, there is a higher level of support. These users are classed as Energy and Trade Intensive Industries (ETII), the full list of which can be found here – including a selection of manufacturers and miners, as well as libraries and museums, among others.

For ETIIs, the scheme runs as follows:

  • Electricity: a discount of £89 per MWh, with a wholesale price threshold of £185 per MWh
  • Gas: a discount of £40 per MWh, with a wholesale price threshold of £99 per MWh

While the standard level of EBDS support is applied automatically, businesses and non-domestic customers will need to apply for the higher ETII discount.

Energy Price Guarantee (EPG)

A similar scheme to the Energy Bill Relief Scheme was introduced for domestic customers, called the Energy Price Guarantee (EPG). In Great Britain, this started on 1 October 2022 and will initially run until 31 March 2023, with the aim of keeping the average dual fuel energy quote to £2,500 a year. From April 2023 until the end of March 2024, the EPG in Great Britain will be targeted at keeping the average energy quote to £3,000 a year.

In Northern Ireland, it will run from 1 November 2022 to 31 March 2023, with a further reduction applied to compensate for the scheme not starting in October. Equivalent support to that provided in Great Britain will continue in Northern Ireland.

The EPG automatically caps the unit rate and standing charges domestic customers will pay for their electricity and gas. What rates you are capped at will depend on where you live, and how you pay for your energy.

How much you end up saving overall, meanwhile, will be determined by your usage.

Energy Bill Support Scheme (EBSS)

Alongside the Energy Price Guarantee, domestic customers will also benefit from the Energy Bill Support Scheme (EBSS).

In Great Britain, this provides households with a £400 non-repayable discount to their energy bills, spread across six months. Domestic customers will see a discount of £66 on their bills in October and November, and £67 in December, January, February and March.

In Northern Ireland, the Energy Bill Support Scheme will be distributed as one lump sum payment of £400.

What happens if my business energy supplier goes bust?

The advice for businesses when it comes to suppliers going bust is much the same as for households: wait to be contacted.

Ofgem recommends that if your business energy provider were to collapse:

  1. Take a meter reading to make sure you have your up-to-date usage. If you cannot take a meter reading for any reason, contact Citizens Advice if you are in England or Wales, Advice Direct if you are in Scotland, or Advice NI if you live in Northern Ireland.
  2. Wait for Ofgem, if you are based in England, Scotland or Wales, or the Utility Regulator, if you are in Northern Ireland, to find you a new supplier, rather than actively switching to one yourself or cancelling your direct debit. This should take a maximum of 14 days.
  3. Once you have a new provider, you will be put on what’s known as a deemed contract, i.e. one you haven’t chosen, rather than your old tariff. This will likely be more expensive than your old tariff. You can then either sign a new contract with this supplier, or shop around for a better deal.

You should know that if your supplier does go bust, your energy won’t be disconnected. And if an administrator takes over your supplier, you are free to switch to a different provider at any time.

However, you should be aware that it is not guaranteed that any credit will be carried over between suppliers, as business credit balances are not protected by the Ofgem Safety Net.

As for any business energy debts, whether or not you will need to pay these off will depend on the terms of the switch as dictated by the administrator.

» MORE: How to switch business energy suppliers

What can I do if I can’t pay my business energy bills?

If you are feeling the financial pressure of rising business energy costs, there are a number of different options you might want to consider.

If you are in debt to your supplier

If you are presently in debt to your business energy supplier and cannot pay your bills, it is important to take immediate steps to prevent being disconnected, which itself may come with a fee.

You can call the Citizens Advice consumer helpline on 0808 223 1133 in order to get advice about how to resolve your issues, or contact them via their online energy problem chat service.

You might also want to contact Money Advice Trust’s Business Debtline for further help with your business debts if your business is based in England, Wales and Scotland. If you are based in Northern Ireland, meanwhile, you can contact AdviceNI for assistance with your business debts

If you cannot afford your bill

If you have received a business energy bill that you cannot afford, then you may need to come up with a payment plan with your supplier.

This could involve asking for a payment reduction or for more time to pay off your bill.

You can also contact the Citizens Advice consumer helpline mentioned above.

What can I do to reduce my business energy bills?

To combat the costs of the UK energy crisis, there are certain steps you can try to take to reduce your business energy bill.

Make sure you are being billed correctly

Although you may need to expect higher business energy bills in the coming months, it is still important to make sure you are being billed correctly. This is especially true if your supplier is only estimating your usage, rather than basing your bill on accurate meter readings or, better yet, a smart meter for businesses.

When it comes to your business energy bill, you should also know your rights as a micro business. You cannot be ‘back billed’ – i.e. charged for energy your supplier failed to bill you for – as a micro business for any energy used over 12 months ago.

Improve your business’ energy efficiency

A notable way you can cut your business energy usage, and therefore your bill, is by making your business more energy efficient.

Many of the energy savings tips you would use at home can be applied to how you run your business, from turning off electrical items overnight, to switching to LED bulbs, checking your insulation, and monitoring your heating.

It is best to be thorough when trying to improve energy efficiency. One way to do this is by carrying out an energy audit.

» MORE: Business energy savings

See if you have a business energy claim

Although a business energy claim itself won’t cut your bills, it might help you find some extra money for your payments.

If you believe you were mis-sold your business energy bill by an energy broker – for example, if they were not up front about how they were getting paid, or you were pressured to choose a specific tariff or supplier, you may have a claim.

» MORE: Business energy claims

Check if you are eligible for any business energy grants

There are numerous different grants available that can potentially help you cover some of your business energy bills.

This can range from supplier incentives to make your business more energy efficient to government and local council schemes designed to help small businesses in general.

Switch your business energy supplier

While business energy bills are going up, that doesn’t necessarily mean you won’t be able to find a better deal when it comes time for you to switch suppliers.

NerdWallet’s business energy comparison tool can help you find the right tariff for your specific needs.

» COMPARE: Business energy

Image source: Getty Images

About the author:

Connor is a writer and spokesperson for NerdWallet. Previously at Spreadex, his market commentary has been quoted in the likes of the BBC, The Guardian, Evening Standard, Reuters and The Independent. Read more

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