Small businesses must be protected by electricity market safeguards to prevent energy bills from escalating further as small firms say they are concerned about the rising cost of energy, the Federation of Small Businesses (FSB) said in a new report.

In the 2011 Budget, the Government announced plans to reform the electricity market and introduce carbon pricing – a mechanism that artificially increases the prices of electricity generated from fossil fuels – in order to make renewable and nuclear energy more attractive energy sources and decrease the UK’s dependence on fossil fuel energy.

But, ahead of the While Paper on Electricity Market Reform due tomorrow (Tuesday 12), the FSB is raising concern that electricity generators will pass on the extra costs to consumers. This comes at a time when two of the big six energy companies have recently announced large price increases with the rest likely to follow.

In a new report, ‘Small business and infrastructure: Energy’, the FSB is arguing that while it supports the idea of incentives to invest in low carbon infrastructure, there needs to be safeguards in place to prevent electricity generators from passing the carbon price on to consumers by pushing prices up further.

Research from the FSB’s ‘Voice of Small Business’ survey panel shows that eight in 10 (81 per cent) small firms are worried about the rising cost of energy. The survey also found that small businesses are concerned that they have limited knowledge of the energy options open to their business (18 per cent) and very few understand energy contracts (18 per cent).

The FSB has long argued that the smallest of businesses are similar to domestic energy users, but they do not receive the same regulatory safeguards as domestic users and are unable to negotiate contracts the way that larger businesses can.

The FSB is calling on the Government to ensure that any safeguards put in place around carbon pricing treat small businesses in the same way as domestic users, and that this be extended across other market regulations, so that small businesses are not penalised because of their limited knowledge and purchasing power and the unpredictability of their demand.

John Walker, national chairman, Federation of Small Businesses, said:

“Energy companies have increased prices sharply over the past five years, with yet more rises over the past few weeks. There is a huge risk that introducing a mechanism to increase electricity prices generated by fossil fuels will further inflate prices for the smaller players as generators pass on the extra costs to consumers and small firms. This concern comes at a troubling time for small firms and is yet another thing that will prevent them from growing their business and taking on staff – precisely what the Government is asking them to do. The Government must ensure it puts safeguards in place to protect consumers – including small businesses – and prevent energy companies from passing on the levy.”

Some of the smallest businesses are losing out on the best energy deals because of the ways some brokers work when they negotiate contracts with energy suppliers, new Consumer Focus research, Watching the middlemen shows.

The problems micro-businesses face are compounded by a ‘protection gap’ with confusion about who takes lead responsibility – Ofgem or the Office of Fair Trading – for making sure this part of the market works well. To boost consumer protection in this sector, Consumer Focus would like to see Ofgem take further action. The first step must include clear standards and genuine buy-in from the brokers and energy companies, with the backstop of stronger regulation if improvements aren’t delivered.

Brokers are important because they can guide a busy business through the range of complex tariffs. Often, it will be a direct approach from a broker that makes a micro-business realise they could get a better deal. But the report highlights some serious problems. One of the most common is that brokers often aren’t clear about their role or don’t explicitly say that they do not have to search the whole market for the best deal. This leads to small businesses assuming they are dealing with impartial advisers rather than third parties who are often paid commission by energy companies.

Other issues are that some brokers:

• misrepresent offers from suppliers
• aren’t up-front about their fees and offer poor quality advice.
• aren’t clear how much a commission they receive and who pays it.
• there is also confusion about whether brokers are paid commission by a limited number of energy companies, or will advise on all suppliers and products.

Consumer Focus energy expert, Andrew Hallett, said: “Small businesses need to know they’re getting sound advice from brokers otherwise there is little point in their role.  When micro- businesses are under more pressure than ever before, it’s vital that they can be confident they’re getting the energy deal that’s best for them.

“Confidence in the energy market is becoming even more pressing as the Government wants small businesses to go green with Green Deal loans to improve energy efficiency. Small businesses need strengthened consumer protection.”

 

The Government’s Green Deal risks failing to attract the businesses it needs to deliver its flagship energy efficiency scheme unless it provides greater clarity on how it will be financed and promoted, the CBI has said.

The Green Deal will allow people to take out loans to improve the energy efficiency of their properties, including for insulation, heating and lighting. The loans are to be attached to the property and will be paid back over a fixed period through the savings made on energy bills.

However, with a new CBI survey showing that three-quarters of the public do not even consider the energy efficiency of a property when buying or renting a home, the Government clearly needs to do more to get consumers to buy into the concept. This is a vital first step to ensure there is a market for the businesses that will deliver the scheme.

Dr Neil Bentley, CBI Deputy Director-General, said: “Improving the energy efficiency of our homes and businesses is a surefire way of cutting emissions, as well as creating economic growth.

“The Green Deal is a good idea, but risks becoming a lame duck unless the Government tackles the big questions of financing and uptake.

“The Government faces an uphill challenge convincing home owners to sign up to the Green Deal, given that three-quarters admit they don’t consider energy efficiency when looking at a property.

“To ensure the scheme is a success, the Government needs to clarify how the Green Deal will be paid for in the early stages to give investors confidence, and make it simple and hassle-free for consumers.”

In a new report called A Real Deal? Making the Green Deal Work, the CBI is calling on the Government to deliver:

• A financial model that is attractive to private investors with a decision by Spring on where the default risk will lie, ensuring that it does not undermine the ability of smaller firms to become providers. 
DECC should also provide robust and realistic modelling to show expected payback periods, including for different types of properties
A range of policies to encourage take-up of the Green Deal by the public, which could include rolling out Display Energy Certificates to commercial properties
Promoting the Green Deal through targeted communications at appropriate trigger points. For example, when people are buying their first home or installing a new boiler.
Establishing a strong, recognisable Green Deal kitemark and system of accreditation to generate confidence and trust, both among potential consumers and providers.

The Government is said to be masterminding a multi-billion pound scheme designed to help more than four million British small businesses go green.

uSwitchforbusiness.com, the independent energy brokerage for small businesses, comments on the proposed new ‘Green Deal for Business’.

James Constant, Director of uSwitchforbusiness.com, says: “The latest proposal from the Government to help small businesses is extremely welcome. Anything that helps small businesses to manage their energy usage and therefore cut their costs has got to be good news. The question is whether it will go far enough to encourage business owners to be proactive in the energy market and to take steps to really tackle their energy bills.

“There are two simple steps to managing business energy costs – cut down the amount of energy you use and pay the lowest possible price for what you do use. While the ‘Green Deal for Business’ will tackle the first step, it looks set to ignore the second and this is a concern. While consumers are being urged to take advantage of the competitive market, small businesses are being left to their own devices. As a result, only a third (33 per cent) proactively check the market before signing their next energy contract, while three in ten (30 per cent) simply allow their existing energy contract to rollover – often paying over the odds as a result.

“If the ‘Green Deal’ is going to have an impact it needs to look at both steps in harmony and not just energy efficiency in isolation. It is important that businesses start to understand energy contracts so that they can avoid continual rollover onto uncompetitive terms. If the Government gets the ‘Green deal for Business’ right they could encourage many more businesses to take part in the market and actively take control of both their energy usage and their costs.”

The range in commercial energy prices in the UK is such that the cheapest business electricity rates are a third of the price of the most expensive. The difference between ‘new customer’ and ‘repeat business’ electricity rates, for example, can mean a savings of thousands of pounds, even to the smallest of companies. Consequently, there are two types of business that switch regularly: those with a high consumption of energy in relation to their size and those on tight budgets that simply can’t afford not to.

There are about 1.8 million business electricity customers on the UK mainland that are classed as neither residential nor heavy industrial. Of theses, hotels and B&Bs are the most cost-conscious when it comes to their business energy bills. In fact, providers of accommodation are three-and-a-half times more likely than the average business to switch supplier, having topped a list of 100,000 companies that have shopped around throughout 2009 to compare business electricity and/or business gas prices.

The list, worked out proportionately for each business type, also ranks pubs, bars and restaurants in the top three, just after wholesale premises. Other savvy business types include: manufacturers, post offices, printers and membership/sports organisations. The latter group includes clubs such as British Legions, Scout groups, community centres and other not-for profit organisations – all treated as business premises in the eyes of the energy suppliers.

Rank              Business Type                   Switching Likelihood

1                      Hotels / B&Bs                                 x3.5

2                      Wholesalers                                   x3.3

3                      Pubs, Bars & Restaurants            x2.7

4=                   Manufacturers                                 x2.6

4=                   Post Offices                                      x2.6

6                      Printers                                             x2.5

7                      Membership & Sports                    x2.3

8                      Engineering                                     x1.8

9                      Churches                                         x1.7

10=                 Hairdressers                                     x1.6

10=                 Dry Cleaners                                    x1.6

 

Further evidence suggests that businesses that have recently changed hands are also among the most common types to switch. A ‘change of tenancy’ usually means the energy supplier to the previous occupier will charge the new business out-of-contract, or ‘deemed’, rates which are significantly higher than average.

Here’s how one typical hospitality business has managed to save £3,000 this year following its discovery that it was being charged out-of-contract for its business electricity and business gas.

‘The George’ is a traditional coaching inn set in the heart of the village of Silsoe, Bedfordshire, close to places of interest such as Woburn and convenient for Luton Airport. Accommodation is available in the form of six letting rooms on a bed and breakfast basis. Owner Sue Goldsmith’s New Year resolution was to do something about lowering her business energy bills which had crept up to a total of £10,000 for electricity and gas combined.

Sue was being charged out-of-contact by both her gas and electricity suppliers and that these rates – 16.5p/unit for business electricity and 3.5p/unit for business gas – were much higher than rates normally available. Sue went for in-contract rates of 9.8p/unit for electricity and 2.5p/unit for gas. Because Sue was not in an existing contract with her suppliers she was able to immediately accept. Based on its energy consumption this year, The George has saved at least £2,000 on electricity and £1,000 on gas, bringing the annual energy bill down to a much more manageable £7,000.

Click here to see if you can get cheaper business energy