With small and medium-sized businesses the lifeblood of many towns and cities across the country, it is certainly in the interest of local government to nurture and support the SMEs in their area.
In fact, the Federation of Small Businesses estimates that SMEs account for 99% of all businesses in the UK, making up 59% of private sector employment and a third of the overall business turnover in the UK. It is these businesses that struggle the most to access credit, with the Chancellor announcing new efforts to increase bank lending to SMEs to help with cash flow, and importantly, help these businesses survive.
Many councils are pretty savvy when it comes to helping local residents with energy, with some offering collective purchasing deals. Collective purchasing provides residents with better negotiating influence, allowing those who have signed up to get better deals on their energy prices. However, what some councils may not be aware of is that they can also help local businesses in a similar way – through offering an 'energy basket' deal.
What is an energy basket deal?
Many small businesses buy their energy in a similar way to how domestic purchasers buy it – through renewing a contract directly with a supplier, setting the price for energy for the year or a fixed period. However, this method of purchasing doesn't allow the businesses to make the most of market fluctuations – i.e. the potential to purchase energy during market lows, when the price is best.
Some of the reasons why many small businesses don't usually purchase energy from the wholesale markets include: a lack of industry knowledge, time and resource. For instance, many large businesses may have a facilities or procurement manager responsible for the purchasing and management of energy. Conversely, for most SMEs energy purchasing is often a task that falls to the business owner, who has to fit it in amongst their other responsibilities.
An 'energy basket' deal allows organisations to join together to collectively pool their energy-buying needs. By creating economies of scale, they allow SMEs the opportunity to access and reap the benefits of more flexible energy purchasing options that are usually only available to larger businesses.
There are two types of 'energy basket' available. The first enables SMEs to buy energy regularly, responding to the wholesale markets' movements. This method brings the most opportunity for cost savings, but has an element of uncertainty as energy prices may go up as well as down.
For those businesses and councils looking for a greater degree of certainty, there is a second option where it is possible to use a fixed contract that locks in the best energy price available. This makes it easier for businesses to forecast costs for the coming year. As businesses do this as part of a basket, they tender and purchase their energy together, giving them stronger buying power and the benefit of collective decision making.
Why should a council offer an energy basket deal to local businesses?
Various councils already offer different energy support services to businesses in their area, acknowledging that help with this essential overhead cost is a great benefit to SMEs. These could include energy saving tips, referral to schemes for insulation and heating measures or interest-free loans to enable businesses to invest in energy efficiency. An energy basket deal can be a very useful addition to this armoury, serving both local SMEs' and councils' interests.
Councils interested in setting up an energy basket deal should get in touch with an energy supplier or consultancy to discuss further.
From our insight into energy purchasing trends, demand for energy basket deals is only going to increase. We have recently seen a rise in energy basket deals covering many sectors including councils, schools and even groups of small businesses. For many small businesses, an energy basket is attractive as it allows them to reap the benefits of shrewd energy purchasing, while freeing them up to do what they do best – running their day-to-day business operations.
Michelle Tyreman is from Opus Energy
