High energy costs: what help exists and for whom?

At a time when small- and medium-sized enterprises across Europe are being sorely tested by high energy prices, support is welcome in any form.

Financial help is out there, so where can you find it? What guidance exists to help SMEs get through the chilly financial winter of 2023? We explore that, right here.

Energy costs are high up on the list of worries for businesses. They were already a concern this time last year but what’s happened since has made prices even more volatile and left a larger number of SMEs exposed. From March 2022, inflation went from highly unpredictable to predictably high and, in the summer, European energy prices were reaching unprecedented peaks.

One driving factor was - and still is - the continued impact of the war in Ukraine and the resulting lack of Russian gas on the European market. Scarce gas meant expensive gas and that in turn meant expensive electricity.

Another root cause was the massive hike in demand for energy as the economy emerged from its COVID-enforced hibernation. Europeans suddenly needed more gas and electricity again; there was just less of it to be had.

The European Central Bank stepped in to kick-start the stalled machine by raising interest rates last year and that policy is expected to continue in 2023. It seems, to an extent, to be working: inflation in France receded to 5.9% last December, from 6.2% the previous month, according to INSEE, the French national statistics institute.

But 5.9% is still historically very high. The specter of high energy prices still looms large over SMEs, which can’t always pass on the higher prices they pay to their customers.

Before looking at the available support, let’s summarize how small businesses are being impacted.

INSEE’s 2022 report on energy consumption in French industry tells us that the chemicals sector is the most energy-hungry and therefore worst-affected. Following not far behind is another industry that demands large, sophisticated machinery that’s expensive to run: the metals sector.

In third place comes the agriculture and food industry. France’s 33,000 or so boulangeries will know only too well that the ovens they use guzzle electricity; when you consider that this significant running cost has increased tenfold year-on-year in some cases, you can understand to what point bakers are feeling the pain (no pun intended).

Even if some trades are suffering more than others, energy prices have left all sectors fragile. It’s difficult for many SMEs to see where growth will come from. Insolvency figures are up by 50% year-on-year and nearly one small business in 10 is faced with closure. The cost of energy is not the only culprit but it is the most cited cause.

To survive, many SMEs - reportedly around 40% - are transferring at least some of the extra cost to their customers. Others are trying to find solutions to reduce how much energy they consume.

The French government has introduced measures it says will help small business owners. We’ll now look at what those measures are.

The government’s Tariff Shield (le bouclier tarifaire) to limit price increases was put in place in 2021 and renewed in 2022. We now know that it will be continued again in 2023 (until June 30 for gas and December 31 for electricity).

The same goes for the official Support Center (le guichet d’aide), which provides help in paying gas and electricity bills; it was supposed to end last year but has now been prolonged:

• The Tariff Shield (le bouclier tarifaire): this initiative will see any gas or electricity price increase capped at 15% for very small enterprises (i.e. fewer than 10 employees; in French, TPEs). The two conditions are that the TPE pays the regulated rate and that it is equipped with an electricity meter that has an energy consumption of less than 36 kVA. So if an eligible TPE has a contract with an electricity provider for a regulated rate of €257.88/year, the next annual bill cannot increase by more than €38.59.

• The gas and electricity bill support center: Known in French as le guichet d’aide au paiement des factures de gaz et d’électricité, this service provides up to 4 million Euros in relief for gas and electricity bills to companies that rely on high energy consumption to operate. To qualify, companies need to have energy costs equal to or greater than 3% of their last turnover and must have seen their bills increase by at least 50% compared to 2021.

The ‘electricity buffer’ mechanism (l’amortisseur électricité) was brought in on January 1, 2023 to complement existing measures. It’s designed to help very small enterprises (TPEs) whose electricity meter makes them ineligible for the Tariff Shield mentioned above. Bakeries are among this target as a reported 80% of them don’t qualify for the Tariff Shield.

We can summarize the new measures introduced by the French government as follows:

• The ‘electricity buffer’: the state will pay a portion of your electricity bills, typically around 20%. Specifically, it pays the difference between the contracted energy price and €180/MWh on half the energy you consume. So if you have an energy contract to pay €400/MWh, that difference is €220/MWh (400-180). The state will pay half of that, so €110/MWh.

• An electricity price cap of €280/MWh: this price is based on a yearly average and is reserved for around 600,000 French TPEs that don’t qualify for the regulated rate for energy prices.

• Spreading energy bill repayments: TPEs and SMEs with cash flow difficulties because of energy prices can ask their energy supplier to spread these repayments across the first months of the year.

There are many common sense tweaks you can make to reduce your energy consumption but we’ll look at some concrete measures you can put in place that will help you save money:

- Draft a budget dedicated to energy spending that you can include in your financial forecast for 2023;

- Renegotiate your electricity contract with your supplier. Energy companies have shown they’re willing to discuss lower rates with TPEs that pay a tariff of more than €280 per Megawatt-hour;

- If your provider won’t negotiate, find another one! First, though, check the terms of your current contract and when it’s due to end. If you are shopping for a new deal, consider a fixed fee for your energy so you can budget better and shield yourself from price fluctuations;

- Finally, ask your energy provider if you can spread your energy bill payments over a period of months. This can ease any pressure on your cash flow.