How to manage energy price increases
At a glance
- After an uncertain few years, rising energy prices have put salt into the wound for small businesses looking to stay afloat.
- Sharon Musker of WiseUp Energy says business owners should prepare for further uncertainty on energy costs – but that there are ways to minimise the impact of energy cost increases.
- Her advice is to minimise usage as well as to check and negotiate contracts – and to remember that what works for one business might not work for all.
With the cost of energy going up, affecting consumers and businesses alike, it’s worth exploring what impact these changes are having on small businesses. Before that, though, let’s start with some background.
A variety of factors have caused the recent crisis – sanctions on exports of Russian oil and gas, an uptick in business activity prompted by the easing of COVID-related restrictions, Australia’s ageing generation plants being offline for maintenance, coal supply having been affected by this year’s flooding, and the arrival of winter upping demand even further. Rising inflation has also had an impact.
Normally, retailers purchase energy from generators on a ‘spot market’, with rolling auctions determining fluctuating prices between wholesalers and retailers, and the retailers then resell energy to users at a set price.
Those wholesale prices surged so significantly that the Australian Energy Market Operator (AEMO) established a price cap and, after several generators withdrew, suspended the market and began directing the operations of generators at fixed time-of-day costs.
AEMO has since ended the suspension, but energy costs climb nonetheless.
What does this all mean for small businesses?
“The impact of increasing rates is determined by usage, not necessarily the size of the business,” says Sharon Musker, director of WiseUp Energy, a consultancy that works with businesses to help them reduce their energy costs. “One small business might use a lot of energy and another might use very little.”
Compare a food retailer with lots of freezers and fridges to a clothing store – even with similar turnover, the factory or food retailer is likely to use more energy.
But aside from differences based on usage, contractual and structural elements may come into play.
“For example, some businesses purchase electricity through their landlord under an embedded network arrangement, and may be protected or impacted differently based on usage,” Sharon says.
“Customers on large commercial contracts might have fixed their peak and off-peak rates for the term of the contract, so if your contract doesn’t expire for a few years, then you have some time to ride it out. On the flip side, if your contract expires soon, your new rates could be more expensive. For businesses coming out of those contracts, now’s the time to really take notes.”
The question on every small business owner’s lips, though, is whether prices will continue to rise, will slowly even out, or even decrease again in the near future.
“Will we see a return to the lows of the past few years? That’s extremely unlikely in the short to medium term,” says Sharon.
A Prospa Line of Credit can help provide certainty, with ongoing access to funds that helps you keep your cash flow on track.
An expert’s advice for small businesses
When it comes to grappling with price hikes, Sharon advises small business owners to understand how their business uses energy and what contracts they have in place.
“It’s all about strategy,” she says. “Contrary to what we are led to believe, business owners can do far more than simply ask their retailer for a better deal. How your site or meter is classified, and the type of metering, can have a massive impact on the tariff and overall cost.
“If your tariff is not optimised, businesses could be paying thousands more than necessary. We see many instances of this, especially if they have recently moved into new premises or installed solar.”
She also recommends making sure premises are fit-for-purpose. For example, a small second-hand goods retailer that requires little energy moves into premises fitted out for use as a mini mart, with huge energy-consuming items of equipment such as refrigerators or ovens. If they don’t change the fitout, they would end up paying for more than they otherwise would.
That’s one part of what Sharon describes as a “low-cost and fit-for-purpose energy arrangement”, and is essential to prevent avoidable energy ‘leakage’. The second part is selecting equipment that doesn’t use more energy than necessary and ensure they are kept in good order.
“Use energy-efficient lighting and air conditioners, ensure heating and cooling systems are maintained, and keep track of bills,” she says.
Grants and allowances
There are also grants and allowances available for small businesses that could help alleviate energy-related pressures induced by rising expenses, including:.
- As part of the Business Energy Advice Program, small businesses with six to 20 employees are eligible for a free personalised energy consultation, plus access to a Small Business Energy Check tool.
- The Advancing Renewables Program gives businesses wanting to undertake renewable energy projects matched funding of between $100,000 and $50 million.
- Businesses in Victoria can take advantage of the Solar for Business rebate scheme, which provides small businesses with a rebate and an interest free loan to help with the costs of installing a rooftop solar system.
Sharon’s step-by-step energy strategy
The most important thing for business owners to do at a time like this is take notice of what’s going on around them.
“Once upon a time, this wasn’t a make-or-break issue,” says Sharon. “But now, rising energy costs could definitely make or break a business.”
Here’s a checklist of possible actions to take:
- Keep a copy of bills and contracts handy, and consider whether you have access to your meter data.
- Know your contract end dates, and start planning for what you would like in the new contracts up to 12 months in advance.
- Familiarise yourself with usage and charges so that you can identify billing anomalies and errors.
- Identify possible energy-efficiency strategies, such as lower energy consumption appliances, or augmenting with on-premises solar, that could be implemented in your small business.
A Prospa Line of Credit can help provide certainty, with ongoing access to funds that helps you keep your cash flow on track. Applying takes 10 minutes and funding is possible in less than 24 hours on approved applications.
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