Firms warned of ‘energy black hole’

Companies risk “sleepwalking into an energy black hole” as a result of rising oil prices, increasing non-energy costs, the low pound and the onset of winter.

That's the dire warning of leading energy procurement specialist Businesswise Solutions, who says that increase in business energy bills in 2017/18 is inevitable.

Frazer Durris is the managing director of Businesswise Solutions, which has offices in Lancashire and Manchester and says most companies don't realise they will be facing increases up to 30 per cent, per year in energy costs from next year.

He said: “We hear a lot about the pension black hole but I'm concerned about the energy black hole. The combination of the low pound; uncertainty over Brexit; rising wholesale energy costs, some fundamental changes in non-energy costs and the onset of winter, have created the perfect storm and the potential for an energy black hole to appear on company balance sheets.

“We buy and manage energy for companies that typically spend between £100,000 up to £20m per annum. If the customer is spending £5m on energy it wouldn’t be uncommon to see an increase to £6.5m a year from 2017.

“It puts pressure on the bottom line for both large corporations and smaller owner-managed organisations and it is vital, now more than ever, that future energy strategies for these operations are discussed at board level.

“The wholesale energy cost has gone up significantly in the last month. In the past fortnight the oil price has increased by 15 per cent alone and it's forecast that cost could rise to up to $60 a barrel.”

Durris said the onset of winter always sees a spike in energy consumption, which is why the National Grid recently put two UK coal power plants on standby this winter at a cost of £77m to reduce the risk of electricity blackouts.

“All these costs have to be paid for,” said Durris. “The other big factor is the low value of the pound, which is having a big impact on the wholesale energy price. We import a lot of our electricity from Europe and the low pound means it’s costing us more.”

The energy specialist advised companies to act now to mitigate the risk of rising costs. “They need to look at how they buy their energy and ensure they have a robust management strategy to offset the impact,” he said. “Basically they need to reduce the premiums they’re paying to suppliers, look at how they manage it and make a concerted effort to reduce consumption.”