Energy suppliers should renegotiate fixed-term contracts with smaller UK businesses to reflect the sharp fall in wholesale prices in recent months or thousands of businesses will struggle to stay afloat, the Federation of Small Businesses has warned.
The call from the trade body, which represents 150,000 small and medium-sized businesses in the UK, comes after thousands of businesses signed up permanent contracts in the second half of last year, when energy the prices were top notch.
But since wholesale natural gas prices have fallen more than 80 per cent and the government has sharply reduced support for businesses since the end of winter, despite many businesses being stuck on fixed deals with higher costs.
The FSB has called on the government and energy regulator Ofgem to support what it calls a move to “mix and extend” contracts, warning that 93,000 businesses faced closure or cuts due to the size of their energy bills.
“Having emerged from a harsh winter, this spring is supposed to be the start of economic recovery, but tens of thousands are still very much in survival mode because they are tied to sky-high energy contracts,” said Tina McKenzie, FSB policy chair.
“There are signs that small businesses may be about to turn a corner after last year’s downturn. Giving small businesses a way out of last year’s market peak interest rates will accelerate progress towards recovery.”
Energy prices increased last year as Russia cuts natural gas supplies to Europe as part of its full-scale invasion of Ukraine, with prices in the UK peaking at more than £6 per term in August 2022.
Although prices remain relatively high by historical standards, they have still fallen sharply, with the wholesale price hitting a 22-month low on Friday of 80 pence per term for delivery next month. Contracts for delivery in the winter of 2023/24 are higher but still down to around £1 per term.
Energy UK, the industry body, acknowledged it was “in suppliers’ interests to ensure their customers can afford their bills” and said many were already “offering to renegotiate and extend existing contracts where possible”.
But they warned that energy suppliers had also often bought the energy in advance to hedge their exposure to the fixed-term contracts entered into with companies last year.
“Once contracts have been agreed and signed, energy is purchased at prevailing market prices on behalf of the customer – meaning it is a commercial decision for the supplier concerned whether they can offer such flexibility.”
The government said contract negotiations were “ultimately a matter for suppliers and their customers”, but added it was holding “regular discussions with them and Ofgem to ensure businesses get a fair deal”.
The government said it had so far spent £5.9bn, or £30m a day, to protect businesses from as much as half their wholesale energy costs over the winter.
Ofgem said that while it could not “opt out of private contracts”, it wanted to “see commercially sensible solutions that help non-domestic customers”, adding that it had recently written to suppliers asking them to “show flexibility”.
“We will continue to press suppliers on this while we review the regulation of the non-domestic market more widely,” Ofgem added.
The FSB said any company that signed a contract in the second half of last year should be allowed to renegotiate its energy supply contract if the price it paid was higher than in the winter months, when more generous government subsidies were in place.
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