The energy crisis is showing no signs of diminishing anytime soon and with the latest news that trade associations are calling for an investigation into pricing, it's never been more vital for operators to be on top of their energy consumption.
Operators have seen energy costs spiral upwards and despite some Government intervention, those costs are now a serious issue for most pub and bar businesses.
A number of pubs have already been forced to close their doors and others are having to make hard decisions around opening times in a bid to try and make ends meet.
UKHospitality (UKH) chief executive Kate Nicholls said: “Rising energy costs are having a huge impact on hospitality businesses. Beyond the eye-watering increases we’re seeing from every corner of the sector, businesses are having to go even further to mitigate the costs and keep their heads above water.
“For some, that means closing more often or reducing daily trading hours to get by. Unfortunately, we have seen some fantastic businesses unable to swallow these price increases and have had to make the difficult decision to close for good.”
There has been some support from Government, but the impact is limited, with operators still facing some significant increases.
“Support was desperately needed for the sector and UKH was instrumental in its engagement with Government to make clear the vulnerability of the sector in this crisis, which eventually led to the introduction of the Energy Bill Relief Scheme,” added Nicholls. “This scheme is extremely good news and will provide some relief to many businesses. Like many Government schemes, it’s very complex and our energy advice, guidance and costs calculator is free for all to use.”
UKH has also now called for an investigation into wholesale pricing, which the Government is basing its scheme on. The association said energy suppliers are now quoting prices significantly above the wholesale price for operators.
Typically, the retail price would be higher than the wholesale price, but that is no longer the case, with no rational explanations as to why.
Nicholls said: “The Government’s support package for business is absolutely vital but there are real fears that this substantial package of support is being undermined by energy suppliers quoting far above the wholesale price, with no transparency as to why. Many businesses are still not being offered fixed rates at all despite the certainty provided to suppliers by the Government.
“There needs to be complete clarity and certainty that energy suppliers are not deliberately profiteering from the current crisis and the size of the Government’s intervention. That is why I’ve urged the business secretary to recommend Ofgem and the Competition and Markets Authority (CMA) urgently investigate.”
Massive volatility
Small changes can lead to big savings
Heineken UK on-trade category and commercial strategy director, Charlie Fryday discusses the small changes with potential to make big energy savings.
“Pub and bar operators tell us that saving money and reducing costs are their most pressing concerns. Improving energy efficiency is an effective way to do this. Big and expensive changes, however, aren’t always necessary to see significant savings. Instead, small adjustments can add up and help tackle rising costs.
“Weigh up easy, low investment fixes versus longer term projects requiring more funding. AMR meters are low cost and allow outlets to monitor energy usage. They not only ensure accurate billing, but help identify high usage areas and times. Use free resources, such as Zero Carbon Forum’s suite of energy saving advice including a carbon calculator and ‘save while you sleep’ checklist to reduce overnight energy usage.
“Plan to conveniently and cost-effectively replace old equipment for modern alternatives before they break down. In the meantime, simple but thorough maintenance on existing kit – such as making sure seals on fridges, freezers and ovens have not perished – can optimise energy efficiency.
“Installing timers or sensors are a low cost way to ensure lights aren’t unnecessarily left on. Line coolers, kitchen extractors and bar fridges can also be fitted with timers to save energy, allowing staff to focus on the day-to-day and customer service. However, prompting staff with signage to turn off lights or, for example, only run the dishwasher when full, can be a cost-effective alternative if everyone plays their part.
“Sustainability is likely to be a passion for many of your staff, so encourage open dialogue in team meetings for sharing ideas to meet sustainability ambitions. Future Net Zero’s Ellis Hall suggests responsibility for launching bigger initiatives could be assigned to team members and building energy saving into business objectives means everyone has an interest in making changes.”
Listen to more expert advice from the SmartDispense™ Energy Well Spent Summit and the SmartDispense™ Debate Series.
Recent weeks have seen operators having to make some hard choices when it comes to signing up to inflated energy contracts. But perhaps its time to reconsider our strategy, according to specialist broker Steve Wennington of Pro-Eco.
“Over the past 20 years we have been fortunate enough to have relatively low energy prices with small variations each year (we never appreciate the good times!).
“This meant asking your supplier or broker for best options over one, two, three or even five years and going with the lowest price. But with today’s high prices and massive volatility it’s time to change your strategy.”
He said the previous tactics of tying a business into a long term contract was one the sector needs to reconsider: “We recommend looking at short-term contracts, possibly as little as four to six months to get you through the winter (with Government support).
“Prices will fall, but you need to be in a position to take advantage, so locking a long-term deal today would almost certainly be a decision you would come to regret.”
He added while prices were unlikely to go back to where they were, around 15p for electric and 3p for gas, he said it was possible to navigate a better path through the next few years with good advice and common sense.
“If you are renewing today, expect to pay circa 50p per kwh for electricity (including the Government discount) with a view that this might fall to between 30p and 40p in the next couple of years.
“For gas, it will be 13 to 14p (including Government discount), but this is likely to be a fair target for the next couple of years.
“The view further out, is slightly lower prices, but there are likely to be many many peaks and troughs through the coming couple of years, keep yourself in a position to take advantage of the troughs.”
Decisions to go for shorter contracts is also something Neil King of Wiser Utilities recommends. “Shorter contracts require less credit making it easier to secure,” he said, pointing out that it is also a challenge “trying to find suppliers to take on new businesses”.
He added: “The Government has established the energy relief scheme now, so make the most of it by taking shorter fixed term contracts of 6 to 12 months to get you over the winter.”
He also warned operators to be wary of the term ‘cap’: “Remember the subsidy is towards the wholesale costs, for example electricity is 21.1p kWh off the wholesale element of your total electric unit rate. They are not capping the total unit rate at 21.1p kWh. So beware of brokers claiming your unit rate will be capped at the Government support rate.”
Although prices have dropped in the past week, he urged operators to remain cautious as confidence on supply remains low. “Personally I’d rather take a shorter fixed-term contract to avoid the risk of Russian skulduggery to negatively impact EU energy prices. What’s the alternative? Sit on being out of contract or on a variable rate and worry which way the market is going? I honestly can’t see rates dropping enough over the next six months to justify taking a variable.”
Resist attempts to be pushed into longer term contracts by brokers as well. “Brokers like long term deals. The longer the term, the more commission they make out of it.”
Key focuses
As well as all that, operators should be looking to reduce and cut consumption as much as possible and Simon Heppner, executive director of Net Zero Now, has recommended focusing on two key areas, behaviour and infrastructure:
- Behaviour (no/low cost, immediate return)
- Turn it off – have a specified last man out shut down schedule.
- Turn it down - get thermostats set right, and turn down flow temp on the boiler: https://moneysavingboilerchallenge.com
- Look after it – team maintenance & specialist maintenance can significantly reduce energy costs: gaskets and seals on fridges and ovens, cleaning of ventilation filters, cellar chillers
- Infrastructure (some cost/higher return)
- Lighting – LED lighting is an easy way to reduce consumption and save costs
- Insulation – draft proofing, pipe lagging and attic insulation
- Equipment - Split unit, water-cooled remotes which dump heat outside the cellar can reduce cellar electricity use by up to £1,500 per year
He said: “Pound savings are hard to estimate because every pub is different but a good way to think about it is that energy use/pound benchmarks range from 0.19 kWh and 0.56 kWh and that means 3p – 10p per £1 of revenue spent on energy.
“All pubs should be aiming towards the 3p rather than 10p and the actions above will help do that.”
Overall, we’re in a situation which is not going to change in the short term future, so over the coming weeks, our Energy Focus series will feature a number of case studies and ideas to help you cut back on energy consumption to reduce some of those costs to your business, so keep your eyes on The MA’s website.
It’s not going to be easy, but together we can try to navigate a path through these choppy waters, as Nicholls said: “Once again, we find the sector in survival mode and that is incredibly frustrating when I know just how much potential hospitality has to grow, deliver for the economy and give people fantastic careers.
“I’m focused on ensuring the sector can survive the winter, the Government understands the importance of hospitality and it introduces measures that can really help the sector, such as extended business rates relief and a lower rate of VAT.”
