British energy providers have a “moral responsibility” to renegotiate agreements with companies stuck on high fixed-price energy deals arranged last autumn during a historic spike in prices, according to Andy Street, the Conservative mayor of the West Midlands.
The call echoes a warning from businesses that thousands of companies were struggling because they signed fixed contracts in the second half of last year when energy prices were at their peak — and have therefore failed to benefit from the recent downward trend in prices. The government spent nearly £6bn subsidising business energy costs through the winter but has since switched to a much less generous successor scheme.
Street said data showed that one in 10 companies in the West Midlands were now spending more than 20 per cent of their turnover on energy costs. “That is not sustainable . . . so we need to say to the retail supplier, what is your moral responsibility to this?”
He called on energy companies “to do the right thing and offer to renegotiate those contracts” and if not he said the government should intervene again and provide businesses with generous targeted subsidies later this year.
Industry body Energy UK has said that while suppliers often support restructuring contracts where feasible, many energy companies have bought gas and electricity in advance — at the higher rate — when agreeing fixed-term contracts with customers. Street said that some businesses would be willing to extend their contracts in return for a cheaper rate, known as “blend and extend”.
The price of wholesale natural gas has fallen by more than 80 per cent since last autumn from a peak of more than £6 a therm to about 80p a therm. But an estimated 93,000 companies face closure or cutbacks because their energy bills are still marooned on prices struck six months ago, according to the Federation of Small Businesses.
“Our local chamber of commerce is saying that up to a third of our businesses could be paying up to five times as much as the market price,” said Street.
“I’ve got examples where manufacturing companies are already offshoring the production process in order to sustain themselves; this is about jobs right now. I’ve got a restaurant which is literally considering its future right now purely because of how energy has changed their cost structures.”
The government has said contract negotiations are “ultimately a matter for suppliers and their customers” but it holds “regular discussion” with regulator Ofgem and the industry.
The government offers much more limited support at the same level for all companies than was available over the winter months via the energy bills discount scheme, which began in April.
The only exception is a handful of “energy-intensive industries” such as steel and ceramics, which have their own support scheme.
Street said it was hard to argue against the government’s support reduction given the need to protect taxpayer finances.
But he said there was an opportunity for the ministers to use existing schemes in a more targeted way for the most needy companies.
“That could be done through targeted support, either via a national or regional hardship fund. Here in the West Midlands we would be happy to have our EBDS share for businesses devolved so we could target it at the firms we know who are under threat because of their energy costs.”
One of the many West Midlands firms struggling in the face of sky-high energy costs is Alpha-Rowen Ltd, a heat and metal treatment business based in the Black Country. The firm has been hugely impacted by the volatile energy market over the last two years.
Alongside other energy price rises, its gas prices have risen from 2p/kWh in summer 2021 to around 12p/kWh in April 2023, putting the business under serious financial stress, leaving it running at a loss over recent months and needing to restructure in a bid to try and preserve its long-term future.
Managing director Mike Leach, said: “Our industry sector is extremely energy intensive and vital to most manufacturing supply chains. Unfortunately, due to the vagaries of the replacement government support scheme we don’t qualify for enhanced support but will be liable to support the bigger companies that do qualify.
“Whilst wholesale energy prices are reducing, we are still currently seeing the highest gas price of the last two years meaning we’ve had to increase our own prices several times – which results in difficulties for our customers and sees us lose business, so it is affecting both sides.
“We’ve also have had to reduce our working week and our headcount and our remaining employees are seeing reduced pay, all whilst enduring the pressures of the cost-of-living crisis themselves.”