Energy - Fuel for thought

With predictions of a hard winter, and rising fuel costs, there is a compelling reason for businesses to look at ways to reduce their energy bills.

Alex Blyth.

Energy prices have doubled in the past 18 months, and, according to a survey commissioned by Utilyx, an energy buying consultancy, and Barclays Capital, British companies are suffering losses of around £1bn a year purely through their failure to manage the energy buying process properly.

The picture for the future does not look any rosier. A recent survey from the Engineering Employers' Federation (EEF) revealed that 80% of companies expect the cost of energy to rise further in the coming 12 months.

The main reason for these price increases is that the global market for oil and gas has become increasingly competitive over the past three years.

The Iraq war and climatic disasters in the southern US have played their part in this, but more than anything else it has occurred because the booming Asian economies of China and India are pushing demand for fossil fuels to their highest ever levels at just the point that reserves of those fuels are beginning to run out.

Legislation has also helped to drive up prices in the UK. Most notably, the Climate Change Levy, which was introduced in 2001 to help the UK meet its Kyoto target of reducing greenhouse gas emissions by 20% by 2010, has increased business energy costs by between 10% and 20%.

And disasters such as the Buncefield blast last month can cause notable - but temporary - rises in the price of fuel.

Faced with these sharply escalating costs, many companies are increasingly keen to find some way of reducing their energy bills. Yet, while around 40% of the companies surveyed by the EEF have taken advice from the Carbon Trust, most have only made a tentative start towards effective energy procurement and use.

How to get the right price

'The first step towards getting the best possible price for your energy should be to analyse your bills,' says David Gray, financial director of international energy consultancy, McKinnon & Clarke. 'Bills have become more complex and, as a result, it is more difficult for consumers to detect anomalies or areas of overcharging. It takes a fair amount of effort and expertise to identify discrepancies. Often, understandably, many accounts departments aren't doing it.'

The next step should be to get on a contract. Around one third of all UK businesses are not on an energy contract, and so are subject to regular price rises. Most fixed rate contracts freeze prices for three years and so it is possible to make significant savings. However, as Gary Worby, operations director at EnergyQuote explains, it is vital to get the timing right: 'Around 85% of businesses renew their annual electricity contracts for either an October or a November start. As a result, prices are much higher at this time of year. So consider taking out contracts at other times.'

Jonathan Elliot, business services director at, advises every business to avoid overly restrictive contracts: 'There are sometimes catches stipulating you need to serve three months 'to one year's notice.

We had a case last week where a company found a new and cheaper supplier when their original contract expired but the old supplier refused the transfer on the grounds of a rolled over contract. This is potentially costing the company an extra £2,500 over two years.

'The best way to avoid this is to send a letter immediately and save it as proof so you have all your options open when it is time for renewal. Given that your current supplier knows this, it will also have to offer you competitive rates to stay.'

There are now around 30 different gas and electricity suppliers all offering different rates and pricing structures, so every company should be able to find a suitable supplier. Doing so does involve a fair amount of work, so the experts advise companies to set aside enough time and to start the search for a new supplier at least eight weeks before an existing contract expires.

How to reduce consumption

The amount you pay for energy depends on the price of each unit and how many units you use. So, cutting down on the number of units you use is the other way to reduce costs. There is some evidence that businesses are, at last, getting this message about waste reduction. A new survey by the Confederation of British Industry and the regional development agencies has revealed that if energy prices continue to increase then of the 3,549 firms that responded, 37% will change their energy purchasing arrangements, but 48% will seek greater energy efficiencies.

There are many very simple measures that they can take. For instance, failing to switch off computers costs British industry £123.2m each year, according to Fujitsu Siemens Computers. Research conducted by that company confirmed that UK workers remain more interested in the theory of environmental conservation than they are in the practice: 78% of British employees claimed to be more environmentally conscious today than they were five years ago, but 37% of them admitted that they fail to turn off their computers when they leave the office.

Elsewhere, energy saving light bulbs use 75% less electricity than standard bulbs, and yet they provide the same amount of light and last up to 10 times longer. Heating costs jump by 8% for every 1 deg C increase, so companies should at the very least reduce heating during holidays and weekends.

Companies can avoid paying anything towards the Climate Change Levy by taking their energy from renewable sources such as wind power.

More and more new technologies are becoming available to help companies reduce their spending on energy. Mike Tapia, CEO of Qonnectis, says: 'If you can't measure it, you can't manage it. Our technology enables companies to obtain electricity, gas and water consumption data and so to manage that consumption more effectively. Qonnectis collects the data remotely via its meter data loggers. Customers can then view the information on a secure website, or on third party analytical applications.'

Many companies can save up to 20% on their energy bills by implementing inexpensive conservation measures. In some cases this can be achieved simply by alerting staff to the need to save energy, but in most cases, it does take a little more effort. As prices continue to rise, there is now, more than ever before, a compelling reason for businesses to make that effort.


There are many organisations which offer free or heavily subsidised advice on how to get started on this process.

Envirowise is a government-funded organisation which offers a free two-hour telephone consultation plus a free on-site audit on waste reduction.

0800 585794

The Carbon Trust is another government-funded organisation which offers free energy saving advice tailored to your business. It also offers interest-free loans for SMEs and access to enhanced capital allowances for energy-saving investments.

0800 085 2005

The ECA (enhanced capital allowances) tax-rebate scheme was introduced in April 2001 to encourage more companies to invest in energy-efficient equipment. In 2003/2004, just 1,500 firms are estimated to have received ECAs. is a price comparison service. It claims to help thousands of companies each year find cheaper deals on gas, electricity, water, landlines and mobile phones.

020 7960 4444.

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