Only one energy supplier has fixed business energy deal from October as small firms face pressure to keep up with energy bills that are continually rising.
The intensity is increasing, with current energy deals for businesses wrapping up by October 1. This could leave small businesses on volatile standard tariffs, potentially going up more than four-fold, according to consultancy, Cornwall Insight.
These price rises have made suppliers more wary of the commercial market because more customers defaulting could leave them in greater debt. Small business owners are facing secondary difficulties such as uncertainty over what costs to quote clients because they don’t know what their energy prices will look like.
Chancellor Nadhim Zahawi is said to be considering a plan to help small businesses survive the winter, with grants along with business rates and VAT holidays. It will need sign-off from the next Prime Minister once they start in early September.
>See also: Firms may be offered grants to pay for energy
With Citibank predicting that energy prices could push inflation up to 18 per cent next year, we look at the best fixed business energy deals that will be available from October.
Which suppliers are offering fixed business energy deals from October?
EDF was the only supplier to respond to our enquiry about fixed-price business energy deals offered in October.
This is what the supplier told us:
SME (microbusiness) energy contracts are now available on one-year fixed terms. These can be sold with immediate start or for future start dates of zero to six months depending on the customers current contract (or not) status.
For SMEs, it’s very much dependent upon the existing contracts (if there is one) in place and the expiry date of that deal.
- An existing EDF SME Customer already on a Fixed Price contract which ends September 30 could agree a new EDF contract today to start October 1 for one year.
- An existing EDF SME Customer already on a Fixed Price contract which ends say November 24 could also agree a new EDF contract today to start November 25 for one year.
- An existing EDF SME Customer not on a Fixed Price contract (so no end date applicable) could agree a new EDF contract now to start today for one year.
- A non-EDF customer who wants to switch to EDF after expiry of their current supplier’s contract ends could move to EDF and have a one-year deal.
- E.g. If current deal ends September 27 we could take over September 28 for one-year
- E.g. (noting our zero to six-month selling window) If current deal ends say November 24 we could agree prices today to take over November 25 for one year
- A non-EDF customer who wants to switch to EDF who does not have a current contract with existing supplier could move to EDF in a matter of days and have a one-year deal.
Utilita aren’t taking on any new customers just now or for the foreseeable. Existing customers can renew their contract for a year.
Bulb offers one variable tariff for businesses, depending on where they’re located.
Small Business also contacted SSE, E.on, Octopus, Good Energy, British Gas (Centrica), Pozitive Energy, Smartest Energy, Shell and Crown Energy but they haven’t yet responded. We’ll keep this page updated if and when they do.
Small business struggle to worsen from October
Though energy prices are changing every day, October’s going to be a difficult time for small businesses whose current contracts will be coming to an end.
“You can actually have a contract renewing anytime of the year, it’s just a large chunk of them historically, have always renewed in October,” Phil Ager, managing director of Control Energy Costs, told Small Business.
“Because of the way energy prices, and this is what we’re talking about the UK here, but globally, energy prices have just been going up and up and up and up ever since – probably since the latter part of 2021. But obviously, since the invasion in February 2022, things have just gone nuts.
“I think so many businesses that would previously have made decisions far earlier – to sign new energy contracts to commence, let’s say October – have just been delaying its decision for obvious reasons, thinking, ‘Well, if I sit tight, wait, maybe things get better.’”
Ager has concerns that a lot of strain is going to be put on suppliers as a lot of renewals are going to be compressed over the next few weeks to October.
“There’s no other way to put it: it’s a total mess at the minute,” said Sam Riches, managing director of energy broker, Utililink Consulting. “Out of around 46 suppliers we deal with at the minute on a daily basis, there’s probably three, four, maybe five who are consistently pricing each day.”
He said ‘stressful’ as a good word to describe the situation, expressing his sympathy for small businesses.
“Even the beginning of 2021, if we got anywhere near 30 pence per kilowatt hour, I wouldn’t have believed you. That was totally unheard of when, five years ago, anything in the high teens was considered a really high risk. Now we’re talking over £1 [per kilowatt hour]. It’s totally unfathomable.”
I have a good credit rating – will I get a fixed business energy deal?
“For small to medium-sized businesses, let’s make one that may be spending £50,000 a year on energy, which wouldn’t be unusual for either an average size restaurant, energy suppliers would just be only interested in taking them on as a new customer if their credit record were exemplary – their track record of paying on time, all those kinds of things, otherwise they just won’t be interested,” said Ager. “They wouldn’t really want to offer them a supplier because they don’t want the risk. That lack of choice just contributes to the problem because there’s no competition there.”
Hospitality and leisure are especially risky sectors at the moment. “The reason they’re currently in a high-risk category is because most of them are still recovering because of the pandemic,” said Ager. “Credit insurers that work hand in hand with energy suppliers are likely to now be looking for businesses to have two years of post-pandemic accounts published so that they see that the business has kind of recovered a little bit, shall we say, and is financially sound in pandemic.”
The cost of living crisis and a reduction in public spending power also makes retail, leisure and hospitality more vulnerable.
Will I have to pay an expensive deposit upfront to secure a contract?
Costly upfront deposits come back to credit insurance, said Ager. “Where they ask them to pay an upfront deposit is generally because they might be the credit cover that the supplier can get against the supply contract that they’re writing for that customer.
“So, they are always exposed to the fact that you will owe them money, and they don’t know whether you’re going to be there to pay for it, which is why they take out credit insurance. Now, if the credit insurance that they get doesn’t cover the exposure that they potentially have in the two-month period between you using it and then billing it and you disappear off the face of the earth as a business, they lose that money.”
He used an example of credit exposure at £5,000 a month. That basically means you are £10,000 in arrears to that supplier because you use it and don’t pay it for two months. Well, if they can only get £5,000 worth of credit cover for your business, they may then come to you and say that we need a security deposit of £5,000 so that we are covered for that £10,000 worth of exposure.
“If we’re talking in small businesses, then theoretically speaking, the security deposits should be lower,” said Riches. “There are a couple of suppliers who seem to be pricing consistently and are not really asking for security deposits, they are Pozitive Energy and Smartest Energy. There are ways around the security deposit. Sometimes, if you have an investor or a parent company, they can act as a guarantor so you can get a little bit more credit or something like that. There are also a few different ways you can talk to the supplier about the security deposit.”
How are energy suppliers responding?
Ager said: “For many businesses, suppliers can’t get credit insurance to cover that and therefore say, ‘I’m really sorry, but we don’t want to supply you anymore.’
“That’s not to say they come and cut them off. What it means is that a business is forced into just having to accept punitive… should we call them out of contract rates, where the supplier is kind of just hoping they’ll go away and find another supplier because they don’t want the risk. That’s just making things even worse for businesses.”
What can I do to deal with rising energy costs?
Riches shares a few tips to keep your energy costs down.
Know when to switch
If your contract ends next summer, or any time after that, I would say, ‘Hang on, wait until April or May, because that’s when the next round of pricing is.’ Then in April, all the forecasts are saying that there will actually be a slight drop there. It will probably still be around about the 50-60 pence per kilowatt hour mark. But it won’t be as high as what it is now at 90p, £1 per kilowatt hour. It’s a risk. But that’s what I would do. If your contract ends anytime in the next six months, you need to do something right now.
If your budget allows it, as a small business, take it on the chin for 12 months and then reassess next summer.
Use energy at a cheaper time if you can
If you’ve got a meter that’s split, use your energy at night as it’s a lower rate. That might not be feasible depending on the business type.
Think through your energy efficiency options
If your budget doesn’t allow it, and you’re going to really struggle with energy, then it’s another conversation of can you increase prices to customers? Can you increase prices of goods and to get the increase of your energy? Can you reduce your supply usage in any way? Or can you be a bit smarter?
Contact a broker
What I would say is get in touch with a broker because if you try and do it yourself, it’s going to take a lot of time. We already know which supplies are priced and which ones aren’t, we know roughly what the market is. It depends on your starting usage where the market will be – we’ve got a little bit of a head start on consumers. So, what I would recommend is get in touch with a good recommended broker. There’s no obligation: go away, do your research as well, just to check yourself, but we’ll always have options of what to do and advice on where to go.
How to find the best energy supplier for your small business