Convenience retailers are facing soaring electric bills as the UK energy market is exposed to “more price uncertainty than ever before”.
Energy broker The Bottom Line director John Lyons told The Grocer retailers taking out a new one-year contract today could see energy costs more than double, depending on what they’re currently paying and when they took out their existing contract.
He explained retailers looking to take out longer contracts, such as on four-year rates, are more likely to see prices increase by up to 60%.
“With a very large number of business premises closed during the various lockdowns, utility providers have not gained as much revenue as they would normally have expected, especially during the period to April 2021,” said Lyons.
“As such, they need to recover some of those lost revenues and they are doing this through higher charges, particularly in the next 12 months.
“They argue that they need to recoup revenues in order to maintain the networks and ‘keep the lights on’. So, if there are further lockdowns or reduced consumption as a result of energy efficiency measures, then the distribution companies want to be assured of their revenue stream whether there is consumption or not.”
Lyons also highlighted low wind generation throughout summer being a key cause behind the dramatic price increase – which initially took hold in September.
“A fire at the UK end of a large electrical interconnector with France caused very significant damage and had to be shut down,” he said. “This caused a massive shortfall in the UK generated electricity capacity and to cap it all – ‘shock-horror’ – the wind didn’t blow. Low wind generation meant that generators had to turn to gas and coal generation for our electrical needs.
“The cost of coal is already high and the UK has such little gas storage that we were suddenly competing with the rest of the world for badly needed liquefied natural gas from Qatar and other Middle Eastern countries.”
Energy prices in the UK are largely driven by the price of gas. This is because gas is used to generate a substantial proportion of electricity, so when the price of gas is high, so is the overall electricity price.
EDF Energy warned energy prices are expected to remain high for the remainder of 2022 and “possibly beyond”.
“The UK energy market is going through unprecedented times with more price uncertainty and volatility than ever before,” said a spokesman. “Unlike the domestic market in the UK, there is no price cap in the non-domestic energy market. This means when businesses’ energy supply contracts expire, they are fully exposed to any increase in underlying wholesale energy costs.”
Trade bodies Association of Convenience Stores and the National Federation of Independent Retailers said convenience retailers can ease the burden of rising costs by making their stores more energy efficient.
One example is Derbyshire retailer Amit Patel, who has saved more than £600 a year by implementing a series of sustainability-focused changes in his store after joining forces with Suntory Beverage & Food GB&I last year – which partnered with Energy Saving Trust in early 2020.
Changes to his store included: replacing old chillers with newer, energy-efficient models, installing a new door-closing mechanism to ensure the front door keeps heat in and updating an old TV used to display CCTV footage with a more modern, energy-efficient model.
“The project aimed to help independent convenience retailers understand how they can become more sustainable,” said SBF GB&I head of regional accounts Andrew Pheasant.
“We know not every store is in a position financially to invest in replacing their chillers, but our work in Amit’s store shows that not every change has to be as large as that to make a real difference. If the UK’s 46,388 convenience stores made these sustainability-focused alterations, the total savings across the channel could be up to £28.3m per year.”
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