Choosing Suppliers

What will the energy bills cap mean for businesses and their suppliers?

7 min read

06 November 2018

Reporter, Real Business

How will business owners and energy suppliers be effected?

Although we are just getting into the Christmas season, we have to remember that 2019 is just around the corner.

After the turkey-stuffed merriment of Christmas and the sparkly night of New Year’s Eve has died down, full-bellied SME owners up and down the country will be looking to consolidate their business strategies for the year ahead.

Whilst the New Year provides a prime opportunity for businesses to revise their approaches, it’s also a time to be practical, and see what changes, no matter how small, could affect the way they run their businesses going forward.

One of these changes that may seem rather mundane, but is very important, is the state of energy bills in 2019.

According to the government energy regulator Ofgem, a new ‘price cap’ is set to drop on Jan 1, 2018.

The cap is expected to save an estimated 11 million customers an average of £76 a year on their gas and electricity bills.

“Regulator Ofgem has set the final level of the cap at £1,137 a year for a typical dual fuel customer who pays by direct debit.”
– BBC News

Now before you balk at this information, and think that this news doesn’t matter to you, well it should, as (shock horror) most people, including SME owners, pay for domestic use of gas and electricity in some way

– And what you pay for it can impact your ability to fund other arms of your life, including, a business.

Whether you’re a small home-based business or use a commercial premise, the price of your domestic supply of energy has a direct impact on you

Paying more for your domestic energy supply means you may have less in the way of personal funds to sink into your business, also, if you default on personal bills, it doesn’t create a good picture for you should you seek business investment or related loans in the future.

And if you are indeed running a small business from within your home, or in an outbuilding (especially if you’re a rural business) this cap will be even more important to you.

So, at the dawn of the brave New Year, suppliers will have to obey this new energy cap and cut the price of their default tariffs to at least the level of the established cap, or below it.

And whilst we’ve already mentioned that customers must sit up and listen to this news, so should companies operating in the energy supplier economy…

The cap won’t be forever

Ofgem is set to review this cap as soon as February 2019. The regulator has already stated that it expects the cap to rise by April to reflect the higher cost of “wholesale energy”.

 “Any rise in the energy cap would only reflect changes in the actual costs of providing the gas and electricity rather than supplier profiteering”. – Ofgem

Whilst this little nugget of information is a bit of a letdown for customers, it shouldn’t really be seen as much of a surprise.

Considering on-going debates and discussions about toxic fossil fuel emissions and their relative costs, it shouldn’t be a shock that supplying these forms of energy should rise.

“Ofgem is attempting to protect consumers by launching this cap with a £76 savings message, but it’s simply not sustainable. The cap will be reviewed again in February, when market forces look likely to dictate it will rise significantly.” – Stephen Murray, MoneySupermarket.

The cap gives customers less agency

There’s also an argument that the cap could mean that fewer customers (and potential businesses) will shop around and switch suppliers, as they may feel falsely comforted by the temporary stabilisation of energy costs.

Whereas before, when prices were constantly in flux, customers felt less loyalty to their suppliers.

The oscillation of prices galvanised savvy customers to look around for the best deals that suited them, which meant they were more likely to make savings.

The real lesson to take away from the recent news is to not take this cap for granted.

Both Ofgem and the British Secretary of State have already said they could well revise the cap, and soon, saying they will debate whether to extend it in 2020, according to the BBC.

Effects on the health of energy suppliers

The price cap could also have an adverse effect on the business health of suppliers, where keeping costs down due to the cap could result in fewer jobs being available in the sector.

For energy suppliers, cutting costs doesn’t always come ‘for free’, and this move could entail a number of redundancies within supplier companies to keep the books balanced.

The energy supplies industry as a whole could be affected, with the cap possibly impacting the state of inner-industry competition, and as we know, healthy competition often makes for a healthy business climate.

As we’ve already heard from government and regulatory sources, the cap could change almost as quickly as it is introduced.

So, what can energy suppliers and customers do in this time period?

Well, all they can do is, in a similar way to how we’re all trying to deal with Brexit, we can only wait, and keep alert to changes and updates, and see what happens…