Small businesses should be able to escape high fixed-rate energy tariffs, FSB says

Economy
By Liam

Thousands of small businesses are in ‘survival mode’ after fixing energy bills at market peak and should be able to renegotiate, lobby group argues

  • One in 10 small businesses set rates when energy prices were at their peak
  • The FSB is calling on energy suppliers to allow companies to renegotiate rates

By Angharad Carrick Because this is money

published: | Updated:

Hundreds of thousands of small businesses are trapped in sky-high energy contracts after fixation on the market peak.

Now a leading lobby group has called on energy suppliers to lower rates for struggling small businesses as wholesale prices fall.

According to the Federation of Small Entrepreneurs (FSB), more than one in 10 small businesses dissolved when wholesale energy prices peaked last summer.

Energy shock: small businesses that secured their energy contract last summer see their bills fall back to last year’s level

Businesses that settled their bill between July 1 and December 31, 2022, were paid up to £1 per kWh for electricity.

According to the latest research, a significant portion of small businesses tied to permanent contracts are in the food and retail sector.

Many say they haven’t been able to pass the cost on to customers who have tightened their own wallets in the cost-of-living crisis.

It is yet another blow to small businesses, left behind by the impact of the pandemic, as thousands of businesses closed, and the impact of higher costs and supply chain issues.

The FSB is now calling on energy suppliers to allow companies to renegotiate contracts to better reflect current lower prices as it warns that 93,000 small businesses are at risk of closing or downsizing.

Last month, the government phased out energy support for companies with the introduction of the Energy Bill Discount Scheme (EBDS), which came into effect on 1 April.

The new, less generous scheme offers companies a discount on the unit price of gas and electricity and is available for fixed price contracts entered into on or after December 1, 2021, and for assumed and non-contractual rates.

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The FSB said the reduced aid means small businesses that signed up for flat rates in 2022 will see their bills return to last year’s peak levels.

This could be three or four times what they paid when the more generous Energy Bill Relief Scheme was introduced last September.

The FSB is calling on suppliers to allow affected companies to renew their firm contracts at a mixed and lower rate, between the original flat rate and the current wholesale rate.

FSB Policy Chair Tina McKenzie: “Having come out of a harsh winter, this spring should see the start of economic recovery, but tens of thousands are still very much in survival mode as they are tied to sky-high energy contracts.

“The least energy suppliers should do is allow small businesses that took out flat rates last year to have their energy contracts ‘blend and renew’, bringing their bill closer to current market rates. We would also like the Government and Ofgem to support this initiative.

“There are signs that small businesses are about to turn the corner after last year’s recession. Giving small businesses a way out of last year’s market peak will help speed up the recovery.”

What do entrepreneurs pay with the Energy Bill Discount Scheme?

Rather than a flat rate, the amount companies pay when the discount is applied depends entirely on the rates they are currently paying to their supplier.

The maximum discount for gas is about 0.7 pence per kilowatt hour, with a threshold rate of 10.7 pence per kWh, while the maximum discount for electricity is about 2 pence with a threshold rate of 30.2 pence per kWh.

The threshold rate is the lowest amount on which you can receive a discount under the scheme. This means:

  • If you pay 32.2 pence per kWh of electricity, you’ll receive the full 2p rebate and pay 30.2 pence per kWh under EBDR, according to Bionic.
  • If you pay 31.2p per kWh you only get a 1p discount to go to the 30.2p discount.

If you pay 33.2 pence per kWh of electricity, you get the full 2 ​​pence discount, but you still pay above the threshold.

Fixed costs are not affected by the scheme.

The government claims that a pub that consumes 16 MWh of gas and 4 MWh of electricity each month could save up to £2,280 this year.

Large corporate energy consumers such as those in mining and manufacturing are eligible for a further discount.

Energy Trade Intensive Industries get a 4p discount on the difference between the wholesale rate per unit they pay to their supplier and the threshold rate of 9.9p per kWh.

The maximum discount for electricity will be 8.9 pence with a price threshold of 18.5 pence per kWh.

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