In the last few months, the rising energy prices have dominated the news and have caused panic across every household in the UK. Referred to as a global energy crisis, there are a number of reasons behind these escalating costs including lower renewable energy generation, low gas reserves, and damage to a major electricity import.
It is clear that households are suffering with the rise in living costs, but how are these expenses affecting UK businesses?
Of course, business energy requirements differ from an average household and from business to business. Whether you need facilities like factories, kitchens or workshops running or you use technology, laptops and an office space, it all adds up.
Companies directly involved in the energy industry are actually profiting from this crisis, like BP who saw underlying profits hit more than triple the amount it made last year – £6.9bn to be exact.
Currently there is an energy price cap on household bills, however this could rise even further by the October review. What does this mean for businesses?
Does the Energy Price Cap Apply to Businesses?
Regrettably, no. The energy price cap does not apply to businesses, it only applies to the consumer in order to protect them as much as possible from rising costs. Energy suppliers are therefore passing these costs onto businesses, which is another reason why businesses are feeling the impact a lot harder than households.
Out of contract rates have risen by an average of 100% since last August. This means, businesses need to keep an eye out for when their fixed rate contract is coming to an end before it rolls onto a new one; suppliers will use this as an opportunity to cover their increased costs.
From large, corporate operations to small and medium-sized businesses, they are all being affected by this energy crisis. Although changing business rates and National Insurance Contributions were designed to help support businesses back in April, this is simply not enough to support right now.
What is the Average UK Business Energy Bill?
Taking a closer look at business energy bills, we can see the detrimental impact these rising prices have had on their annual payments. For reference, in 2020, the average electricity unit rate was 13.93p per kWh, gas unit rate was 2.485p per kWh, and standing charges were between 23-27p per day.
Note: Lower unit rates are dependent on higher energy usage and energy usage will vary amongst medium- and large sized businesses due to differing number of employees.
Micro Business (1-9 Employees)
In 2022, the average unit rate is 20.06 pence per kWh for electricity and 5.40 pence per kWh for gas. With a total gas and electricity usage of 8,000kWh, their average annual bill would come to £1,704.
Small Business (10-49 Employees)
In 2022, the average unit rate is 20.57 pence per kWh for electricity and 3.64 pence per kWh for gas. With a total gas and electricity usage of 20,000kWh, their average annual bill would come to £4,114.
Medium Business (50-250 Employees)
In 2022, the average unit rate is 18.06 pence per kWh for electricity and 4.22 pence per kWh for gas. With a total gas and electricity usage of 75,000kWh, their average annual bill would come to £7,224.
Large Business (250+ Employees)
In 2022, the average unit rate is 18.00 pence per kWh for electricity and 3.70 pence per kWh for gas. With a total gas and electricity usage of 155,000kWh, their average annual bill would come to £14,495.
Government Business Energy Schemes, Loans & Grants
Energy efficiency schemes, loans and grants have been put forward from the government not only to help reduce business impacts on the environment, but to also save energy and therefore energy costs. Some examples of these include:
- Upfront costs of investing in energy-efficient equipment
- Waste management and reduction initiatives
- Smart Export Guarantee Scheme: get paid to generate own renewable power and heat
- Clean Heat Grant: upfront capital funding for businesses integrating green heating technologies
Unfortunately, these schemes, loans and grants may not help businesses in the long run if energy prices continue to escalate at this rate. Although it’s difficult to predict, many have said we should expect these increased costs to stay for the next couple of years. Businesses will have to do everything they can to stay afloat and maintain operations during this turbulent time by cutting costs, switching energy providers and improving their carbon footprint.