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The issue
Care operators could face up to 100% increases in their energy bills.
A typical care home of 50 residents already spends approximately £50,000 annually on gas and electricity. Price increases could lead to bills doubling.
Care homes are not covered by the price cap which protects domestic consumers.
Reasons for energy price rises
This surge in prices has been driven by many different factors.
Firstly, lifting of COVID-19 restrictions has led to countries beginning to return to a more “normal” usage pattern.
This increase in demand has resulted in record low gas storage levels.
Last year, the UK experienced a particularly cold winter, resulting in storage levels being depleted.
Cooler temperatures in Asia also led to higher competition for LNG (Liquefied Natural Gas). LNG cargoes usually help support UK storage supply.
European gas storage has not yet been replenished. The storage level for Europe is just 76%.
But there is hope on the horizon.
Nord Stream 2, a new gas pipeline running from Russia to Germany has finally reached completion. Commissioning of the pipeline is currently underway. Once complete, the pipeline will have a capacity of 55 billion cubic meters of gas per year.
Russia is now meeting contracted commitments (via Gazprom) to deliver gas to Europe, but are refusing to supply extra gas, preferring to focus on their domestic demand.
In addition to gas supply concerns, there are also issues with electricity supply, following a recent fire at the electricity interconnector with France, and lower than expected generation from renewables.
This has led to the UK generating more power from gas-fired power stations, and because gas prices are high, the cost of electricity is driven up.
The future of energy prices
At this moment, we can’t be certain if energy prices could rise further, or if renewed confidence in supply will allow prices to return to more familiar levels.
We are seeing energy suppliers closing, as they are having to purchase energy at significantly higher prices than can be passed to residential customers, due to the price cap.
We expect to see more suppliers fail if wholesale prices aren’t reduced.
If your supplier does cease trading, there is no risk to supply, as OFGEM will appoint a new supplier.
There is no price cap for businesses, including care homes, so suppliers can pass on the full increase in wholesale energy prices.
Suppliers are making very high contract offers.
We are also seeing suppliers not pricing at all, or withdrawing prices very quickly, due to market volatility.
How to reduce the impact of rising energy prices on your care home
Your options will depend on when your current supply contract ends and your individual circumstances.
However, we have compiled recommendations, to help your care home navigate the energy crisis.
- Develop an energy reduction strategy. An effective strategy should consider pricing, billing, energy reduction, compliance, monitoring and reporting. Energy consultants can provide support if required
- Request quotations from several suppliers, directly, or via an experienced energy broker. Remember that water is also now available on the open market. You may make savings by switching supplier
- Ensure you are providing meter readings, so you are only billed for actual consumption
- Complete an energy survey to review ventilation, insultation and behavioural changes. Again, energy consultants can support if required
- If you are struggling to pay invoices it’s vital you communicate with your supplier, at the earliest opportunity, as they may offer payment options
- Ensure that your care home has processed the Climate Change Levy and VAT at the appropriate rates. You may be owed payments
- Commission a historic audit of your energy bills. If errors are identified, you can recover over payments from up to 6 years ago
- Explore options for self-generating energy
If you would like to arrange a complimentary call with ECA Business Energy specialists, please call 01246 290 490 or visit www.ecabusinessenergy.com.
