Lessen energy price rises

The pages of the UK media have been full of stories of consumer price rises and fuel poverty for months, but the business press seem to have either missed or ignored the fact that UK businesses face between 60 and 100% year-on-year increases when contracts come up for renewal in October 2008.

The result is that many small firms are blissfully unaware of the problems that lie ahead, and have no clear guidance on how to either avoid, or minimise these price rises. 

Perhaps more worrying, but not surprising given research that suggests only 1 in 5 small companies knows when their contract is up for renewal^[1], is a lack of urgency from business leaders to address this challenge. This apathy could come back to haunt them.

In July this year supplierswitch.com pointed out the lack of transparency shown by suppliers in their dealings with businesses, and suggested that this was something the OFT needed to be looking at. This would at least help businesses to understand their bills in more detail: how much was the commodity cost and how much is made up from fees for so-called ‘free' brokerage?  In August, the British Chamber of Commerce added its weight to our calls.

Supplierswitch.com has calculated that around three-quarters of UK businesses currently on fixed-term one or two-year deals are likely to see their energy bills double when they come to renew. Those businesses renewing a two-year deal could face as much as a four-fold increase.

According to Equifax the number of business failures this year has already risen by 9% year-on-year. In the face of these increases, those companies that have not budgeted for such large increases in their bills will be facing a significant threat to their ongoing business prosperity. For some businesses, already suffering the pains of higher borrowing, downward price pressures on goods and services and tightening economic conditions, it could be the final straw.

By taking a few simple steps, however, businesses can reduce the impact of rising energy bills and ensure that they get the most competitive renewal quote:

Calculate how much energy you actually use
Knowing what you consume means that when a supplier gives you a quote you can validate it accurately

Put your RFP out to as many suppliers as you can
By comparing as many different suppliers gives you better visibility of the market and also enables you to negotiate a competitive deal

Don't wait until the last minute to think about renewing energy contracts
Consider your energy contracts well in advance of renewal. Ideally, a business will monitor energy prices year-round, but contract negotiations should begin at least three months before the end of an existing deal to ensure you get the best deal; not the only deal available

Compare apples with apples
While the price of energy is a key marker of how good a deal is it's important to consider the commercial terms of any contract. While the price might be competitive the deal as a whole may not be best for your business

Don't bury your head in the sand
Keep abreast of market moves so you know where you stand from a budgeting perspective at any given time

Set realistic budgets
If you don't know the likely energy price rises facing your business budget for the worst-case scenario rather than the best

Where possible, take expert advice
Supplierswitch.com is one of a number of brokers that can help companies manage energy contracts and secure competitive supply contracts in a volatile, and rising, market. The company has an in-depth knowledge of the energy markets and its experts have worked with many of the UK's leading businesses to manage energy price and consumption risk

[1] Electricity4Business.co.uk, 24.06.2008