With oil and gas prices reaching record highs on an almost daily basis at the moment, businesses are really starting to feel the effect. French Duncan Restructuring & Debt Advisory Manager Rob Hardie met with Business Utility Consultant, Steve Wilson from Focus Energy Services Limited, to discuss what businesses can do to reduce their energy usage, and costs.
1. What started the Energy Crisis/Why are wholesale energy prices rising?
Energy prices started climbing in February of 2021, but it wasn’t until September 2021 when things really ramped up. This is mainly an issue of supply v’s demand but several un-planned outages from energy suppliers to the UK created a drop in supply and the market reacted. There are still on-going supply issues. Additionally geo-political things impact energy prices so market concerns over Brexit (early last year) or the on-going situation in Ukraine also impact prices. You will not be surprised to learn prices are quick to rise and far slower to come down.
2. Will prices continue to rise?
Industry experts and analysts are predicting instability in the energy market for the next 18-24 months. Volatility in any market tends to result in price increases so we have some challenging times ahead before things are likely to improve and the cost of energy starts returning to more historically normal levels. Domestic customers are already being warned of significant increases from April 2022 and it is anticipated that there will be a further increase for households in October too.
3. What are the Implications for Small Businesses?
Regrettably small businesses will feel the squeeze as their utility costs, as an overhead, rise significantly. I helped a client a few weeks ago who was now being quoted an additional £40,000 per annum for their energy. If they made a £30,000 profit last year and traded similarly this year, they could have been facing a £10,000 loss for the year. Thankfully I was able to renew them with their current supplier for £30,261 less than their own supplier was offering them.
4. How can my business save money on energy?
There are many ways to help reduce utility expenditure. For smaller businesses I would recommend replacing lighting with LEDs and looking at how long – and at what temperature – a heating system is set for. A less obvious one is looking at your boiler as they often have separate settings for both the radiators and the hot water. You’d be amazed how many people wash their hands or rinse their cups and – after turning the hot tap on – the water is too hot for them, so they then turn the cold water on to make it more comfortable. Simply turning the hot water setting down a little on the boiler not only saves money on making it as hot but it also saves water as the cold water doesn’t need to be ran to cool the hotter water. On the subject of water, I move many clients over to trusted alternative suppliers. Despite water (in Scotland) being privatised back in 2008 but there are still circa 70% of Scottish businesses who are still paying Scottish Water Business Stream. Water privatisation works in favour of the business owner when there are many other providers in the market to compare prices against. Some good, some not so good, this is where advice from a good energy/utility broker comes in.
5. When is the best time to look at energy contract renewals?
It’s never too early to start looking and having a conversation – particularly in the current climate. I try to get clients to look at things anywhere from 12 months down to 3-4 months in advance for larger users. For more modest users 2 months is usually sufficient. There are 2 things to bear in mind:
- Your current supplier will not typically offer you their renewal rates until circa 6 weeks before the end of your current contract.
- If you want to move to a new supplier most contracts require 30 days’ notice so the timing of this by your broker is essential – you do not want to incur prejudicially higher standing charges and unit rate cots for going out of contract if the transferral of your contract takes you out with your contract end date.
6. Should I fix my energy prices 2022/2023?
Energy supply issues and market volatility are expected to continue for a further 18-24 months. Most of my clients are choosing 2 or 3 year contracts (albeit at higher prices) to fix their costs in the expectation of reduced prices upon renewal.
7. What are your top tips to help businesses be more energy efficient?
Easy, always measure your usages. If you can measure what you use, then you have some idea going forwards if your usage has now been reduced and by how much in either kilowatt hours or in money terms. I can provide an invoice validation service for some of my larger clients or multi-site clients whereby I will monthly or quarterly compare their usages with the same month from the year previous to either measure efficiencies or to highlight additional usages or anomalies.
8. Should I speak to a Commercial Utility Consultant?
A good consultant should help businesses source the best available contracts for their client using their knowledge and offering a broad range of suppliers. It is unfortunate that a lot of businesses have experienced a poor service from a previous broker which, understandably, gives the industry credibility issues. The energy brokerage industry is still unregulated, and some brokerages are very pushy and sales driven. I’m fortunate in that I have never had a sales role, but I do have a 30-year background in giving professional advice to business owners.
Why does my business need a Commercial Utility Consultant?
A utility broker will often have access to prices (via their brokerage platform) which businesses simply can’t get. With access to a large range of gas and electricity suppliers and the ability to source better prices – even renewing with your existing provider cheaper than they may offer – and the benefit of market experience and advice this lets business owners get-on with what they do best – running their business.
How much could a Consultant save my business?
Anywhere from hundreds of pounds up to many tens of thousands of pounds. Whilst this is a great question a lot depends on who the customer is and what they do. There are a number of factors in here from the credit rating of the business through to the type of energy (and meter) that they have, their annual usage and when they use their energy. Larger scale users have half-hourly meters and KVA ratings, so I always look at historic bills to better understand when and how a potential client uses their energy. I have a client who, when on-boarding them, I found was on too high a KVA rate for their usage – simply lowering the KVA allocation saved them £2,000 a month before I’d even sourced them a new contract.
9. Can I get access to all the tariffs out there? And how long does the process take?
Yes, I will give any potential client a full range of suppliers and timescale for contracts, but the added advantage is discussing the pros and cons of each supplier. By way of example – circa 30 UK suppliers have ceased to trade since September 2021. These tended to be the smaller suppliers who did not have the reserves of the “big 6”. In the current climate it is only the larger, more stable, suppliers who are currently left.
Timescales vary depending upon usages, meter types and supplies. Water quotes can usually be provided same-day and can take 30 days to transfer over. Smaller gas and electric prices can be offered within 24 hours normally but, again, suppliers work to a 30-day handover. Larger users of gas and electric or multi-site premises can take 4-5 working days to quote as we get the suppliers to give us a more bespoke quotation which takes them longer than the general prices which they’d put on an energy quoting platform. It is worth noting that due to the volatility of the market prices change daily. I recently quoted a larger use business who took 7 days to make a decision and by the time they came back the rise in prices cost them an additional £18,000 a year.
If you would like to speak to Steve about changing your energy supplier or tariff, please get in touch using the contact details below. If your business is struggling and you’re looking for advice, please have a look at our Solutions, or contact Rob Hardie.
|Steve Wilson, Business Utility Consultant|
Focus Energy Services Limited
Phone: 07966 279866
|Rob Hardie, Restructuing & Debt Advisory Manager|
French Duncan Restructuring & Debt Advisory
Phone: 0141 271 3944