Smaller UK businesses ‘paying twice as much for electricity’

Average electricity prices are around 50% higher for very small businesses than for large or very large consumers. That’s the findings of Ofgem’s new State of the Energy Markets report, […]

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By Priyanka Shrestha

Average electricity prices are around 50% higher for very small businesses than for large or very large consumers.

That’s the findings of Ofgem’s new State of the Energy Markets report, which also reveals non-domestic gas prices can be twice as high.

It suggests retail markets “typically work well” for larger businesses but small and micro businesses pay much more on average. That’s because larger business customers can often negotiate good deals with suppliers compared to smaller firms, which don’t switch frequently.

There are currently 60 suppliers, with small and medium firms serving 17% of customers.

Competition is said to be “working well” in wholesale markets where suppliers get their gas and electricity and for “switched-on” consumers who are able to shop around.

However, it’s not the same for those who stay on their supplier’s poor value default standard tariffs. More than half (58%) have never switched suppliers or have switched only once.

Around 60% of customers are on these poor value deals, which can be around £300 more expensive each year than the cheapest fixed term deals, although Ofgem says the number is falling.

The news comes after the government recently published the draft legislation to cap energy prices.

Are energy bills affordable?

The report states energy bills have fallen since their peak in 2013 but are higher than they were 10 years ago.

An independent review by Professor Dieter Helm recently revealed UK householders and businesses are paying too much for energy as a result of the government’s green taxes.

The average dual fuel bill for a customer of the Big Six was £1,123 last year – 16% lower compared to three years ago. However, this year all of the largest suppliers increased prices.

Charges in energy bills affect consumers on low incomes the most, with them spending 10% of their expenditure on energy – more than three time more than the proportion spent by households with the highest incomes.

While the number of fuel poor customers has stayed “stable” since 2003, they’re in greater need as bills are higher.

Earlier this year, Ofgem announced plans to help vulnerable people and this month extended the safeguard tariff to one million people receiving the Warm Home Discount this winter.

Image: Shutterstock

Decarbonisation

The report suggests the UK is getting greener, with 25% of the nation’s energy coming from renewable sources.

It adds low carbon policies, which cost £7.4 billion – equivalent to around £90 for the typical household – have driven the reduction in emissions.

The regulator believes while new investment in renewable technology is getting “substantially cheaper”, many contracts for support have been issued with limited or no competition, increasing costs for consumers.

However, as electricity is getting cleaner, the transport and building heating sectors are said to be lagging on cutting emissions.

The regulator believes while the UK is on track to meet its 2022 emissions reduction targets, more policies and investment are needed to cut emissions to meet long term goals.

Will the lights stay on?

The report suggests the UK has kept energy supplies secure without having to resort to back up measures to balance supply and demand.

It adds gas supplies are diverse and resilient to disruption, “with 38% from our own fields and 42% from Norway, limiting our exposure to shocks”.

The UK’s gas infrastructure can deliver 600 million cubic meters per day and if it wasn’t enough, National Grid can take emergency measures to maintain demand and supply. However, the grid operator expects to deploy fewer than 40 seconds of such measures for winter 2017/18.

Ofgem believes the Capacity Market should provide adequate capacity, however, close monitoring is needed to balance cost and security for consumers.

While the Capacity Market should secure supplies at the least cost, it adds in practice, the cost to consumers will depend on a number of factors, including the quality of forecasting.

National Grid’s costs of balancing the electricity system rose by around £250 million in 2016/17 to more than £1.1 billion.