Foreword

Smaller businesses, particularly microbusinesses, need to be protected in the same way individual consumers are, when it comes to navigating complex markets – including that of energy provision. With limited resources and time – small businesses face inherent barriers to identifying the best deal for them. FSB welcomes Ofgem’s recent review of the microbusiness retail energy market, but wants to see an ongoing commitment to review this market every three years, identifying barriers and opportunities for small firms.

Many small businesses are struggling with the ever-increasing cost of doing business. Therefore, whether business models are heavily energy intensive or less so, even marginal savings by negotiating a slightly cheaper tariff can make an important difference to the overall costs of small businesses. Small businesses are far from a homogeneous group when it comes to energy provision. FSB wants Ofgem to require energy suppliers to demonstrate their understanding and segmentation of their diverse small business customer base so that the energy needs of these customers can be targeted in a focused, bespoke way.

Smaller businesses, particularly microbusinesses, need to be protected in the same way individual consumers are, when it comes to navigating complex markets – including that of energy provision

Allen Creedy
FSB Infrastructure & Energy Policy Chair

Currently too many smaller businesses think they will experience the thin edge of the wedge when engaging with energy providers. That is why we believe third party intermediaries (TPIs) have an important role to play in helping small businesses to navigate their way through the complexities of the energy market. However, too many small firms distrust what is essentially an unregulated industry. FSB is calling for proportionate regulation in this area – to shine a light on the good and call out the bad.

The UK, as a whole, is moving towards a distributed energy system, which requires an expensive overhaul of the UK’s energy infrastructure, the cost of which is already falling on tax and bill payers – including small businesses.  Let’s be clear – small businesses want to play their part in reducing carbon emissions. The ability of customers to access their usage data, via smart meters and smart services, will be critical in helping small firms identify energy saving opportunities as well as other investments that may benefit them. It is incumbent upon UK Government, Ofgem, Smart Energy GB and energy suppliers to work together to set out a clear vision for how a future smart market will work for small firms. This is essential to help small businesses play their part in driving forward energy efficiency and contribute to the target of net zero carbon emissions by 2050.

It is abundantly clear that small businesses, especially microbusinesses, should benefit from the same support and protections as consumers when engaging with energy providers instead of being treated like the ‘poor relation’.  Now is the time for both OFGEM and the Government to act to make this a reality.

Recommendations

review energy use

Ofgem should commit to a three-year review cycle for the microbusiness energy retail market, setting out clear targets and timescales for improvement, evaluating progress, and identifying barriers and opportunities for small firms. Three years on from the publication of the CMA’s Energy Market Investigation report, and following Ofgem’s review of the microbusiness energy market, policy makers must act quickly to address problems and ensure smaller firms are treated fairly in the non-domestic market, with an ongoing commitment to review this at regular intervals. More broadly, there should be a particular focus on the experience of vulnerable microbusiness customers, including those struggling with debt and those whose supplier has failed or exited the market.

Ofgem should, as part of the Electricity Suppliers Licence conditions, specifically require energy suppliers to demonstrate their understanding and segmentation of their diverse small business customer base. Without this, the energy needs of these customers cannot be targeted in a focused, bespoke way and should be considered ‘unfair’. This is particularly important for vulnerable businesses and all those from whom Government is seeking market behaviour change (e.g. around uptake of energy efficiency and renewable tariffs).

UK Government, Ofgem, Smart Energy GB and energy suppliers should work together set out a clear vision for how a future smart market will work for small firms. Not enough work has been done with smaller business customers to set out the direction of travel for the energy market, the longer-term benefits of smart meters and the potential for investment in energy efficiency and management technology.

Ofgem should re-establish its previous commitment to explore proposals for a regulated TPI sector, publicly seeking evidence from suppliers, consumer groups and TPIs themselves to understand the most effective solution. A market-wide Code of Practice, underpinned by proportionate regulation, should be a priority.

UK Government and Ofgem should set ambitious expectations for products and services related to smart meters and a smarter market, so that smaller businesses can understand how they might take advantage of energy efficiency, microgeneration, demand management and time of use tariffs. In this context, Government should promote the benefits of Open Data and develop solid plans for:

  • a) Standardising tariffs and other relevant market information in machine-readable formats to allow automated comparisons of energy tariff offerings.
  • b) Making smart meter data available through a secure standardised Application Programming Interface (API) to approved third parties.
  • c) Allowing energy customers to delegate contract switching powers to third party intermediaries.

UK Government and Ofgem should work with energy suppliers, landlords and business groups to explore how small business customers in rented premises can be empowered to reduce and manage their energy use. More broadly, suppliers must do more to understand their diverse business customer base in order to recognise the barriers and opportunities they face in more granular detail – a one size fits all approach will not work. In doing so, policy makers must recognise ‘opportunity costs’ of market engagement, particularly when making assumptions about the potential for financial savings by smaller firms.

UK Government should formally review the role of subsidies and other incentives (including access to finance) related to low carbon generation and energy efficiency. In this regard, more work is needed to understand the various motivations of a diverse community of smaller businesses facing myriad opportunities and barriers related to their own individual circumstances.

Key findings

Current deals

  • 62% say energy is a significant cost to their business
  • Top three factors for choosing current tariff – Price Stability (75%), Cheapest Possible Cost (65%), Minimal Effort/Time (47%)
  • 30% used a TPI to identify their current tariff
  • 12% used a PCW to identify their current tariff

Switching

  • 54% expect to switch suppliers when their current contract expires
  • 47% say a renewable tariff offer would encourage them to switch
  • 51% say better customer service would encourage them to switch

Energy Generation and Management

  • 47% would consider generating their own energy in future
  • 40% would consider battery storage in future
  • 40% believe they will own an electric vehicle within the next 5 years

Smart Energy

  • 48% have not yet been offered a smart meter
  • 24% believe a time-of-use tariff would benefit their business
  • 43% would currently prefer to avoid half-hourly settlement

 

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