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Published 05 April 2023
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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 caused the crisis, and what support the government has provided, by reading our guide below.

Since the summer of 2021, the UK energy crisis has been near the top of people’s list of financial concerns.  And for good reason – alongside rapidly rising inflation, the spike in energy prices has had a significant impact on the cost of living for most Brits.

But it is not just domestic households affected by this crisis. The nation’s businesses – especially the 5.47 million small businesses that total more than 99% of the country’s business sector – have also faced steeper energy bills, posing a real problem 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 led to the UK energy crisis?

Although it has since fallen, a staggering increase in the cost of wholesale natural gas was the catalyst for the UK’s energy crisis. . 

This initial rise in wholesale costs was 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 put multiple energy firms out of business in the UK, destabilising the entire sector.

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

The remaining energy suppliers, meanwhile, gradually passed costs on to their domestic and non-domestic customers – a fact many people will be aware of, thanks to their own rising energy bills over the last year and a half. 

These increases were so substantial that, prior to the implementation of government assistance, domestic energy bills for a typical household were expected to rise to an average of over £5,000 in 2023.

According to the International Monetary Fund (IMF), the financial agency of the United Nations (UN), this meant the UK was the worst-hit nation in Western Europe when it came to household spending power, with an 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 in the UK have been affected by the 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 some businesses with existing contracts were shielded from rising prices.

However, other businesses have been forced to renew their contacts in the last 12 months, as well as those on variable tariffs, which have already seen their bills increase.

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. But the level of assistance offered by these schemes has changed over time.

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 and replaces the Energy Bill Relief Scheme.

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.

There are fears, however, that this reduced level of support will not be enough to protect thousands of businesses from going bust as their energy bills start to rise. In March 2023, the Federation of Small Businesses (FSB) revealed that 28% of businesses that signed fixed energy contracts last year may need to “downsize, rethink their business model, or even close” thanks to the end of the more generous Energy Bill Relief Scheme (EBRS).

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 was to initially run until 31 March 2023, with the aim of keeping the average dual fuel energy quote to £2,500 a year.

Originally the government announced that, 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. However, in his Spring Budget 2023, Chancellor Jeremy Hunt announced that the EPG would target an average dual fuel energy quote of £2,500 until 30 June 2023. 

In Northern Ireland, the EPG was initially set to run from 1 November 2022 to 31 March 2023, with a further reduction applied to compensate for the scheme not starting in October. However, as in Great Britain, the scheme has been extended until the end of June, targeting an average annual dual fuel energy quote of £2,109. 

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.

While Jeremy Hunt announced that the current levels of EPG support would be extended until the end of June, he did not renew the Energy Bill Support Scheme (EBSS). This had provided households with an automatic £400 discount to their energy bills over the winter of 2022/23. Therefore households are facing an increase in their household energy bills in the short-term, even with the Energy Price Guarantee kept at the higher level of support.

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.

Image source: Getty Images

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