The energy crisis has hit small businesses across the UK hard. With rising utility costs, inflation, and an unstable economic environment, managing expenses is more challenging than ever. For many small and medium-sized enterprises (SMEs), energy costs account for a significant portion of operating expenses, and the recent price hikes are straining already tight budgets. This guide provides practical strategies and resources to help small businesses weather the energy crisis, reduce costs, and plan for the future.
Why Energy Costs Have Risen
Energy prices in the UK have surged due to a combination of geopolitical tensions, supply chain disruptions, and fluctuating market demand. The conflict in Ukraine and sanctions on Russia disrupted the flow of natural gas into Europe, which has driven up wholesale energy costs. Compounding this issue, the UK’s relatively low natural gas reserves and reduced renewable energy production have intensified the pressure on energy prices. While there have been some government initiatives to ease the burden, the reality is that energy prices are likely to remain high for the foreseeable future.
How Rising Energy Costs Affect Small Businesses
Unlike large corporations, small businesses often operate with limited financial flexibility. According to research, up to 20% of a typical SME’s expenses may go towards energy costs. With recent price increases, many small businesses are seeing a noticeable dent in their profit margins. Some have been forced to pass costs onto consumers, potentially affecting their competitiveness against larger firms. Others have had to reduce staff, cut back on services, or postpone growth initiatives.
With these challenges in mind, small businesses need practical strategies to cope with the crisis. Below are actionable steps that can help SMEs reduce energy costs, increase efficiency, and stay resilient in a volatile economic environment.
1. Review and Optimise Energy Contracts
One of the first steps small businesses can take is to review their energy contracts. Many business owners are unaware that different contract types can significantly impact their bills. Here’s what to consider:
- Compare Suppliers: Shop around to find a better rate if your current contract is about to expire. Use comparison websites like Uswitch or Love Energy Savings to see if switching suppliers could reduce your energy costs.
- Consider Fixed-Rate Contracts: Fixed-rate contracts lock in your energy price for a specified period, protecting you from potential future price hikes. While these contracts won’t necessarily give you the lowest price, they offer stability in a fluctuating market.
- Negotiate with Your Supplier: If switching isn’t possible, try negotiating with your existing supplier. Some suppliers offer discounts or flexible payment plans for businesses struggling with high bills.
2. Take Advantage of Government Support
The UK government has introduced various schemes to help small businesses cope with rising energy costs. As of April 2024, however, the Energy Bill Discount Scheme (which replaced the Energy Bill Relief Scheme) has ended, meaning direct support has reduced. Nevertheless, there are still resources available:
- Tax Incentives for Energy-Efficient Upgrades: Investing in energy-efficient equipment may make your business eligible for tax breaks. The UK government offers capital allowances for businesses purchasing energy-efficient or low-carbon technology.
- Regional Grants and Loans: Some local councils and organisations offer grants or loans for businesses investing in energy efficiency. For example, Zero Waste Scotland provides loans to Scottish businesses for energy-efficient lighting, insulation, and heating upgrades. Check with your local council to see if similar support is available in your area.
- The SME Climate Hub: Small businesses can also benefit from resources available through the SME Climate Hub, which offers tools and guidance to reduce emissions and energy costs.
3. Implement Energy-Efficiency Measures
Reducing energy consumption can lower your bills and help your business contribute to environmental sustainability. Here are some cost-effective steps to make your business more energy efficient:
- Switch to LED Lighting: LED bulbs use up to 75% less energy than traditional incandescent lighting and last significantly longer. Replacing your lighting with LEDs is a simple yet impactful way to reduce energy consumption.
- Install Smart Thermostats: Smart thermostats allow you to control heating more efficiently, ensuring that energy isn’t wasted heating empty spaces. Set heating and cooling systems to lower levels during off-hours to save money.
- Conduct an Energy Audit: An energy audit can reveal inefficiencies in your current setup. Many local councils and utility companies offer free or subsidised audits to help businesses identify energy-saving opportunities.
4. Manage and Monitor Energy Usage with Technology
Technology can play a crucial role in monitoring and managing energy consumption. Small businesses should consider installing smart meters or energy management software to keep track of usage patterns and identify potential savings.
- Install a Smart Meter: A smart meter can help you monitor real-time energy use, making it easier to identify periods of high consumption and adjust usage accordingly. Smart meters also ensure you’re billed accurately for your actual usage, not an estimated amount.
- Use Energy Management Software: For businesses with higher energy demands, specialised software can provide detailed insights into energy use across different areas of operation, from heating to machinery. This data can be used to adjust workflows, ensuring that energy is only used when necessary.
5. Explore Renewable Energy Options
If feasible, consider investing in renewable energy sources such as solar panels. Although the initial investment may be high, renewable energy can significantly reduce your long-term energy costs, and there are government incentives available for businesses that make the switch.
- Solar Power: Installing solar panels can reduce your reliance on grid energy, particularly if your business operates during daylight hours. Solar technology has become more affordable, and government grants or financing options may be available to offset upfront costs.
- Power Purchase Agreements (PPAs): For businesses that cannot install their own renewable systems, PPAs allow you to purchase energy directly from renewable energy providers at a lower rate than standard tariffs.
6. Adjust Your Business Operations
During an energy crisis, small operational adjustments can make a big difference to your bottom line. Simple behavioural changes can help reduce energy consumption without major investments:
- Encourage Energy-Conscious Behaviours: Encourage employees to turn off lights, computers, and other equipment when not in use. Small changes in behaviour can add up to noticeable energy savings over time.
- Optimise Production Schedules: If your business involves energy-intensive production, consider shifting certain operations to off-peak hours when energy rates may be lower.
- Reduce Office Space: For businesses able to work remotely, downsizing office space can reduce energy consumption. Many SMEs have embraced hybrid working models, which can lower overhead costs and energy bills.
7. Plan for the Long-Term
Given the volatility in the energy market, it’s essential for small businesses to plan for potential future price increases. A robust financial plan can help you navigate these changes:
- Build an Emergency Fund: Setting aside funds to cover unexpected increases in operating costs can provide a financial buffer.
- Diversify Revenue Streams: Consider diversifying your income sources to spread financial risk. This can include expanding your product range, exploring new markets, or offering online services.
- Forecast and Budget: Regularly update your financial forecasts and budgets to reflect changing energy prices. Understanding your cash flow needs can help you make informed decisions and prepare for potential price spikes.
8. Seek Professional Advice and Support
If energy costs or cash flow issues become overwhelming, consider seeking help from financial advisors or debt relief organisations. There are resources available for small businesses in the UK:
- Business Debtline: This free service offers advice on managing debt and negotiating with suppliers.
- Citizens Advice: The Citizens Advice Bureau can provide support if you’re struggling to pay your energy bills.
- Local Chambers of Commerce and Trade Associations: Many business groups offer free resources and guidance to help SMEs navigate financial challenges.
Preparing Your Business for Future Energy Challenges
The energy crisis is likely to continue impacting small businesses across the UK, making it essential to adopt a proactive approach. By carefully managing energy usage, exploring government support, and planning for future uncertainties, small businesses can build resilience and maintain their operations in this challenging environment. Taking steps towards energy efficiency, exploring renewable energy options, and preparing for potential price increases are all part of building a sustainable, future-proof business model.
In a time of financial uncertainty, maintaining flexibility and being prepared to adapt are crucial. By making informed choices and seeking available support, small businesses can survive the energy crisis—and perhaps even emerge stronger.