Following is a summary of tips on ways small businesses can save money by minimising the impact of energy price increases:
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.
“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.
“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.”
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.”
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 mini-mart that requires little energy moves into premises fitted out for use as a takeaway and convenience store, with higher energy-consuming 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.
There are also grants and allowances available for small businesses that could help alleviate energy-related pressures induced by rising expenses, including:
Here’s a checklist of possible actions to take:
If your business needs cash flow support to assist with expenses, your experienced Green Team business finance broker will be in the best position to help you compare a range of solutions for your business.
THE FINEPRINT: The information provided on this site is on the understanding that it is for illustrative and discussion purposes only. While all care and attention are taken in its preparation any party seeking to rely on its content or otherwise should make their own enquiries and research to ensure its relevance to your specific personal and business requirements and circumstances.
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"Owning and running your own business is an exciting, daunting, challenging and rewarding endeavour all rolled into one. Just like the physical premises of your business, your success hinges on your foundations, starting with getting the right finance at the right price. That's where I can help."
Commercial Finance, Equipment FinanceFortitude Valley, Brisbane
An award-winning small business and franchise finance specialist who's on your side when it comes to finding a better finance deal.
Prior to joining the Green Team in 2018 I worked behind the scenes at some of the country's largest finance institutions, including Westpac and BankWest, primarily helping small and medium sized businesses to secure competitive finance.
