Cover Story: Energy prices

Electric worry

Trade associations across retail have been reacting to the news that there will be a more than 80% rise in the energy price cap in October.

Ofgem this week confirmed an 80.06% rise in the energy price cap, reflecting the continued rise in global wholesale gas prices, which began to surge as the world unlocked from the pandemic, and were driven higher still to record levels by Russia slowly switching off gas supplies to Europe.

Between February 2021 and August 2022, the Federation of Small Businesses estimates that bills have risen by 349% for electricity, and by 424% for gas over the same period. For a business in that situation, it would imply that an electricity bill has increased from just over £4,700 to just over £21,200, and a gas bill has increased from just under £1,350 to just under £7,050 over the period in question.

The increase prompted ACS to write to the chancellor, calling on the government to take emergency action to deal with the spiralling cost of energy, which will cost convenience stores at least £2.5bn this year.

For an average small convenience store at around 1,000sq ft, energy costs have rocketed to more than £45,000 a year, more than doubling for many retailers that have renewed their contracts in recent months. For larger stores at around 3,000sq ft, these costs can be in excess of £100,000 a year.

ACS is calling for urgent action to help retailers keep the lights on this winter, urging the government to introduce a £570m rescue package made up of the following interventions:

● Introduce a price cap on electricityfor small businesses inline with the cap that is alreadyin place in the domestic market.

● Scrap business rates bills for allconvenience stores from 1 Octoberuntil the end of the financial year.

● Freeze the business rates multipliersin 2023/24.

ACS chief executive, James Lowman, said: “The government needs to understand that this is an emergency. Thousands of convenience stores will be forced to make extremely difficult decisions in the face of tens of thousands of pounds of additional energy costs in the coming months, which at best will include cancelled investments, reduced staff hours and increased prices in stores, pushing up inflation even further. For some however, the cost of energy will make the business unviable, and so they will be forced to close unless action is taken to provide meaningful support.”

He added: “We have been calling on Ofgem for years to ensure that small businesses are treated in the same way as domestic consumers when it comes to their energy. A small business energy cap would take a huge step toward this goal, and protect thousands of retailers from the biggest annual cost increases in living memory.”

PASSING COSTS ON

Meanwhile, a survey by the British Independent Retailers Association (Bira) has revealed that almost 88% of its members feel they will be forced into raising their prices once the energy price rise comes into effect this autumn. In addition, 65% of members said they would be forced to reduce the number of staff they had or reduce wages, while 40% were considering limiting opening hours, and almost 23% would be looking to permanently or temporarily close the business.

Andrew Goodacre, Bira’s chief executive, said: “Businesses are under great pressure at the moment and, with some concerned that they need to reduce hours or even close permanently, it is incredibly worrying for us and the local economy.

“There has been no specific help coming through from central or local authorities to help businesses who are struggling with their bills which has been very disappointing. While some areas may have hardship funds or slight reductions in business rates, this is not seen across the country. It is clear to us that businesses are being targeted by energy providers to make up for any restricted price caps on consumers.”

Goodacre added that while business rate relief would be welcome, small businesses would still be paying 100% more this year compared to last year.

“We asked the government not to do this because as long ago as last October as we were seeing huge increases in retailer energy bills. More recently it has been 500% and keeping rates lower would have helped indie retailers absorb the higher energy costs. They will certainly need help as the rates for electric are increasing daily and we have just been told that one provider is charging 94p per kWh for electric – the highest we have seen so far,” he said.

Bira has written an open letter to the two Conservative Party leadership candidates, Rishi Sunak and Lizz Truss, urging them to take action, and in particular: maintain 100% business rates relief for retailers; persuade energy companies to place a cap on energy increases for businesses; reduce the multiplier for small businesses from 2023/24; cut VAT for retailers to stimulate demand; and provide more funding to encourage investment in low energy technology in retail shops to protect retailers from higher energy bills in the long term.

Goodacre is urging independents to also contact their local MPs.

“A big part of the electric vehicle appeal has always been lower running costs, but these price rises could jeopardise more people making the switch to electric cars.”

Emily Seymour, Energy and Sustainability Editor at consumer champion Which?

Meanwhile, the electricity costs associated with operating a forecourt are set to triple. Gordon Balmer, executive director of the Petrol Retailers Association, said: “The prospect of soaring energy costs is extremely worrying. Our members are already operating on razor-thin margins and have very little room to manoeuvre.”He added: “With electricity bills set to rise by 300%, I have written to the secretary of state for BEIS, the chancellor of the exchequer, and the two leading candidates expressing the need for government intervention to ensure that forecourts are supported to ensure fuel resilience in the UK.”

VEHICLE CHARGING

In addition, the cost of charging an electric vehicle at home and at public charge points is set to increase following the Ofgem price cap rise. It currently costs £18.37 on average to charge a typical family-sized electric SUV, but after the cap rise it may cost as much as £33.80 to fully charge the same car, according to the RAC.

RAC spokesperson, Rod Dennis, said: “The impact of the energy price cap increase will certainly be felt by drivers who charge their electric cars at home, with a full charge of a typical family-sized electric SUV costing 84% more from 1 October than it did under the old cap – £33.80, compared to £18.37. Despite recent falls in the price of petrol and diesel, the cost of charging at home is still good value compared to paying for either fuel, but again underlines just how the rising cost of electricity is affecting so many areas of people’s lives.

“We’re also aware that public chargepoint operators are having no choice but to increase their prices to reflect the rising wholesale costs they’re faced with, which will heavily impact drivers who have no choice other than to charge up away from home. The RAC continues to support the FairCharge campaign call for the government to cut the VAT rate levied on electricity from public charge points to 5%, to mirror the rate charged on domestic electricity.”

Emily Seymour, Energy and Sustainability Editor at consumer champion Which?, added: “A big part of the electric vehicle appeal has always been lower running costs, but these price rises could jeopardise more people making the switch to electric cars.

“Many non-hybrid petrol drivers will still save money by switching to electric, but for many diesel drivers that now won’t be the case. In a recent survey, we found that the upfront cost of buying an EV is the biggest barrier preventing drivers from considering an electric vehicle – and this latest energy price rise could further prevent people from making the switch.”