UK businesses have the power to succeed

By Matt Tormollen, CEO, POWWR

The last few years have been tough for UK businesses. Already reeling from a global pandemic, double digit inflation and increasing geopolitical tensions, rising energy prices have directly impacted the profitability for companies large and small. Whilst energy price caps were brought in to help businesses battling sky-high bills, there is a fear that recent increases to the price cap from Ofgem will put more financial pressure on UK businesses at the coldest time of the year. 

For our first POWWR Quarterly Energy Barometer we analysed over 300,000 data points to give valuable insight into how much energy UK businesses are consuming, and what they are paying for it. It made for compelling reading. 

Energy consumption continues to rise

Despite the cost of energy increasing and the industry providing widespread advice on how businesses can reduce their energy usage, the amount of energy the average UK business consumes has increased by 6.5% and is now enough to power a football stadium. 

In fact, the only group that appears to have heeded the various warnings and been successful in conserving their energy usage has been very small businesses with less than 10 MwH annual energy usage who have reduced their usage by approximately 9% since 2020. 

There is a significant amount of variation in energy consumption usage per region, though. Businesses in the South West of England use the least amount of energy at 25213 KwH — perhaps due to the warmer climate. Businesses in North Wales, however, use around 20% more (30076 KwH per year).

Energy spend differs wildly

The average annual spend on energy for a business in the UK has shown plenty of fluctuation over the past few years. This is, perhaps, not surprising. The energy sector is extraordinarily complex, with numerous factors influencing the price of energy such as supply and demand, geopolitical tensions, regulatory changes, weather patterns, and technological advances. Many of these variables, of course, changed significantly during 2022.

At the beginning of 2021, even large organisations were likely only spending £5000 on their energy bills each year. This, however, increased rapidly in 2022 due to the energy crisis and spiked in Q4 2022 where businesses were paying more than double for their energy than 12 months previously. 

Whilst some businesses are still stuck in the high fixed energy tariffs from 2022, the average energy bill has actually decreased during 2023 and is now £5265. This still remains significantly higher than in 2021, though. In the last quarter of 2023, a small business using 10 MwH of energy per annum was spending £3,180 per annum and a larger business using 50 MwH a year was spending £14,668, which equates to more than £1,222 a month.

Whilst the price of energy has increased wholesale, what the average UK business is spending from region to region still differs wildly. In the North East of England, for example, a business will be likely to pay around £3752 for its energy annually. Yet, a business in South Wales will be paying over £3000 more (£6792).

A confidence switch

With so much uncertainty in the market it is, perhaps unsurprising, that the average energy contract length for UK businesses is now 22 months, significantly less than the 29 months it was back in 2020. The average energy contract length for UK businesses started to reduce at the commencement of the pandemic from 29 month to 26 months. The biggest drop in contract length over the past few years, however, happened in Q4 2022 as the energy crisis hit. Here, the average contract length reduced further, from 28 to 20 months. A full nine months shorter a contract on average than a year before. 

Part of this was, of course, exacerbated with suppliers only being willing to offer a limited number of deals. The good news is that there is now a distinct upturn in the curve, with the length of the average contract slowly starting to increase for businesses of all sizes as suppliers start to offer longer-term contracts again.

It is also worth noting that there has been a confidence switch among businesses. Whilst four years ago very small companies used to prefer contact lengths that were shorter in length than larger companies (28 months versus 29 months), this has now switched around and they generally prefer the security of longer-term contracts (22 months versus 20 months). 

There is little variation on the average contact term agreed by businesses within different regions of the UK. North Scotland, South East England, South West England and Yorkshire businesses typically have the shortest contact of 21 months. East England, North Wales, North East England and South Scotland businesses typically have the longest contacts of 21 months.

Light on the horizon

The energy sector remains extraordinarily complex, with numerous factors influencing market rates and energy consumption. However, there is light on the horizon for UK businesses and the feeling that prices will likely finally start to go down. Partly due to the increased competition between brokers and suppliers, and partly due to improvements in technology that enable organisations to find better deals.

Either way, though, it is important that energy suppliers continue to do their bit to help UK businesses reduce their energy consumption by providing them with tools, insights, and advice to manage their energy use more efficiently. This will both help the planet, and their bottom line.