How UK Businesses are Dealing with Soaring Energy Costs

If you run a business, you already know that keeping costs to a minimum is essential and that this hasn’t been easy in recent years. But one of the more significant costs - energy prices - has been making headlines. Since Russia invaded Ukraine in February 2022, many businesses have struggled to keep up with prices that had already been increasing beforehand. 

Ofgem was sufficiently concerned by the results of a survey of businesses it carried out to issue a statement in April 2024 confirming that it would be offering “greater protection for businesses.” More than half of those taking part in the research (58%) said they were concerned about the impact of energy prices on their business, with 42% reporting they were very concerned. 

These increases have eased off somewhat, but while it would be easy to believe that some degree of ‘normality’ has returned, there’s every possibility that prices could suddenly shoot up again, and this means that you should be paying more attention to those costs and what you can do to reduce them. To do so means understanding how those costs are calculated and what your business - no matter its size - can do to drive them down.

Understanding Business Energy Costs

Several factors come into play when breaking down how business energy costs are calculated.

Wholesale Cost

The price at which energy suppliers purchase electricity and gas. It fluctuates based on market demand, supply, and geopolitical factors.

Network Costs

These are charges for transmitting and distributing energy through the grid. They include maintenance, infrastructure, and connection fees.

Environmental Obligation Costs

Levies and taxes to support renewable energy generation and energy efficiency programmes.

Other costs

These include supplier margin costs (the profit margin for energy suppliers, which will cover both administrative costs and profit), other tax costs, including VAT, and other direct costs that may be industry-specific. 

Factors contributing to rising energy prices may include global supply constraints, such as limited stocks of natural gas and supply disruptions, increased demand as economies recover from pandemic-related lockdowns, international market dynamics (the UK imports around 50% of its gas, meaning that European wholesale market volatility affects UK prices), and changes in government policy. 

These factors will, in turn, have a knock-on effect on businesses. Rising energy bills will squeeze profit margins, reducing profitability, while high costs will affect competitiveness in international markets. Reduced profits also present operational challenges, such as increasing pressure to manage costs efficiently.

Strategies for Energy Cost Reduction

Regardless of the cause, the effect has been the same. A recent report found that the average energy consumption by UK businesses has decreased by 4.6% compared to last year, while the number of businesses switching energy suppliers has increased to record levels. In short, companies are already taking significant action off their backs. Some of the steps that you could take may include: 

Switching energy suppliers

Different energy suppliers or special offers can appear on the market at any time, and it may be worth checking what deals are currently available to see whether you can switch suppliers for a better deal. There may be penalty clauses for leaving an existing contract, and most business energy contracts last between one and three years, so if you’re thinking of breaking an existing contract, you’ll need to determine whether it’s cost-effective. 

Negotiating better energy deals

Unlike domestic energy bills, business contracts tend to be bespoke and there may be room for you to be able to renegotiate your contract with your existing supplier. Don’t be afraid to shop around for quotes!

Implementing energy efficiency measures

If you can’t squeeze the price of your energy down, the next obvious thing to do is to use less of it. By implementing energy efficient measures - lights that are operated by sensors, for example, or schedule power-intensive jobs for off-peak hours - you can start to bring your costs down.

Investing in renewable energy sources

Switching to renewable energy sources will require some initial investment, but with a return on investment that can be as low as just a few years, it is an excellent way to cut your bills and future-proof your business against any future spikes in fossil fuel prices.

Energy audits and assessments

An energy audit is a great place to start to better understand your business's electricity needs and inefficiencies. This assessment will identify gaps in your business practices that you can plug, making your company leaner, more efficient, and ultimately cost-effective. 

Energy Saving Tips for Businesses

There are simple actions that you can take which may significantly impact your business energy usage.  

You can reduce heat loss by implementing effective draught-excluding, keeping windows closed when heating is on, ensuring that water tanks and boilers are properly insulated, and securely sealing unused doors and windows—apart from emergency exits, of course.

Using heating controls effectively can avoid wasting energy on unnecessary heating. Also, check that the air conditioning is turned off in meeting rooms when people leave. 

Much of this is about paying attention. Ensure thermostats are set correctly. The temperature in corridors, storerooms and areas of higher physical activity can be set lower than in offices. In contrast, air conditioning in IT server rooms should be set as the manufacturer recommends. Replace traditional lighting with LED lights and make the most of natural light. 

Check-in on your systems. Computers, servers, and the like draw a lot of energy. Are you using the most energy-efficient technology? Are you keeping your machinery as operationally efficient as possible? Make sure refrigeration units are working efficiently. They can be a major drain on electricity, and simple steps such as their positioning can make a difference to their efficiency. 

Technological solutions can assist with this. Meeting rooms, storage areas, and corridors, for example, are often lit unnecessarily. Installing lighting controls and sensors in spaces that don’t need continuous lighting is low-cost and easy to implement, and taking small actions like this can soon have a positive impact on your energy bills. 

Specific Tips for Small Businesses

As a small business owner, saving energy reduces costs and contributes to environmental sustainability. Here are practical tips to help you achieve both:

• Conduct an Energy Audit: Understand your energy usage patterns and identify areas for improvement. Consider hiring an energy consultant or using online tools to assess your energy consumption.

• Turn Equipment Off When Not in Use: Encourage employees to turn off lights, computers, and other equipment at the end of the workday and activate power-saving modes on computers and monitors.

• Go Paperless: Digitise documents and processes to reduce paper usage. Use cloud storage for file sharing and collaboration.

• Work from Home: When possible, allow employees to work remotely. Fewer people on-site mean reduced lighting, heating, and cooling energy consumption.

Remember that there may be financial incentives and grants available for energy improvements. Ofgem has a complete guide on how to go about doing this. 

Long-Term Energy Management Strategies

Larger businesses will want to take a longer-term, strategic view towards their environmental commitments and reduce their energy outgoings. Financial savings might be less accentuated for a bigger company than for an SME. Still, bigger companies can significantly enhance their reputation (and especially their green credentials) by taking a positive approach towards reducing carbon emissions. Customers and suppliers increasingly pay attention to these credentials when choosing who to do business with. 

Such strategisation carries significant benefits, allowing you to build in continuous improvements and monitoring, which may save you both time and money. When strategising in this way, it's important to engage with your staff and get them on board. In larger organisations, you can incentivise them in plenty of ways, and the rewards for your business could be greatly multiplied by the more people you can involve. 

With more than half of surveyed businesses having expressed concern over the impact of energy price increases and more than a third having said that they have hindered growth, it should be little surprise that there is still plenty of room for your business to make changes to bring down its overheads. Contact Switchpal today, and we can talk to you about your business energy needs and how you could start saving, too!