10 May 2023
Urgent call to energy suppliers: Renegotiate fixed contracts for small businesses on market-peak tariffs
Urgent Call to Energy Suppliers. More than one in ten small firms fixed energy contracts during market peak last year. 93,000 small firms now say they’re in danger of having to close, downsize or do some radical restructuring of their businesses. Energy suppliers should give small firms the option to ‘blend and extend’ their fixed energy contracts, renegotiating and signing up for longer.
Hundreds of thousands of small businesses have found themselves trapped in contracts that mean their latest bills are at last summer’s peak market rate for energy. This even though wholesale prices have fallen since last winter, new research shows.
The Federation of Small Businesses is urging energy suppliers to allow small firms locked into fixed tariffs from last year to renegotiate contracts. To get them to better reflect the much lower wholesale energy prices we see today.
This comes a month after massive cuts to government support on energy bills for businesses. 1 April 2023, saw the Energy Bill Relief Scheme downgraded to the Energy Bills Discount Scheme. That changes support to pennies that don’t touch the sides of huge bills (see illustrative examples under notes to editors).
Downscaled government support
The downscaled government support means small firms that signed up to fixed tariffs in 2022 will see their bills revert to last year’s peak levels. This could be three or four times what they were paying when the more generous government support scheme was in place.
FSB’s latest research shows more than one in ten (13%) small firms fixed their energy bills between 1 July and 31 December 2022. During that period businesses got quotes of up to £1 per kWh for electricity. Of this group, 13% say they could find themselves forced to either close, downsize, or radically restructure their businesses, equating to 93,000 small firms across the UK.
A significant proportion of small firms stuck in fixed contracts are from the accommodation and food sector (28%). While the wholesale and retail sector is around 20%.
Four in ten (42%) small firms that fixed energy contracts in the second half of last year say it’s been impossible for them to pass on costs to consumers. They’ve already had to tighten spending and can’t afford further price increases amid the cost of living crisis.
The FSB is calling on energy suppliers to allow these small firms to extend their fixed contracts but at a blended and lower rate. Something between their original fixed rate and the current, lower wholesale rate.
The option to renegotiate fixed contracts should be an automatic option for businesses which:
- Negotiated the new energy contract between July 1 and December 31 2022.
- Can confirm the level of wholesale price on the contract is above the EBRS wholesale price cap
- Can confirm the end date of the contract to show the length of exposure to higher prices from April 2023 onwards
FSB Policy Chair Tina McKenzie said: ‘Having come out from a tough winter, this spring should be the beginning of econmoic recovery. But tens of thousands are still very much in survival mode because they’re tied-in to sky-high energy contracts.
Many small businesses agreed to lock in energy contracts last year to ensure they qualified for the largest level of government support. Now, with that suppor tall but gone, they’re once again faced with massive energy bill hikes as rates go back to pre-Energy Bill Relief Scheme level.
If ending the successful support scheme is on the basis that wholesale energy prices have gone down, then our research sheds light on just how many small businesses have found themselves overlooked as they’re entangled in high fixed tariffs.
‘It’s disheartening to see a significant proportion of small firms could be forced to close, downsize or radically restructure their businesses at the moment when we look to grow our economy. Our community shrank by 500,000 small businesses over the two years of COVID. We shouldn’t now be adding any more to that gruesome tally.
The least energy suppliers should do is to allow small businesses who signed up to fixed tariffs last year to ‘blend and extend’ their energy contracts. That way their bills are closer to current market rates. We’d also like to see the government and Ofgem support this initiative.
Illustrative example on the level of support under the old and new energy support scheme
The government uses the following example of a pub in its Energy Bill Relief Scheme guidance.
A pub has an electricity consumption level of 48,000 kWh per year and a gas consumption level of 192,000 kWh per year.
If the pub placed a new contract for electricity on 22/08/2022 at 76.15 p/kWh (at the Market Reference Price set by the government) paying now £36,552 per year for electricity (this is without any government support).
On the same day, the pub placed a new contract for gas at 25.14p/kWh (at the Market Reference Price set by the Government) paying now £48,268 per year for gas.
For both electricity and gas, the pub now pays £84,820.
EBRS (which ran from 1 October 2022 to 31 March 2023)
- EBRS delivered savings to that business of over £26,424 a year for electricity, resulting in an annual electricity bill of £10,128.
- EBRS also delivered savings of over £33,868 a year for gas, resulting in an annual gas bill of £14,400.
- The total discount for both gas and electricity amounted to £60,292 per year. The total bill is £24,528 per year.
EBDS (coming in on 1 April 202)
Under EBDS the annual discount will be reduced to £941 for electricity and £1,338 for gas, or £2,279 for both gas and electricity. The business’s bill for electricity will go back up to £35,610 a year and £46,929 for gas. £82,539 per year for both gas and electricity.