Small firms in the region could face financial ruin in the face of sweeping energy price increases, a watchdog has warned.

Business energy tariffs tie firms into long contracts, leaving small firms will have no option but to pass costs on to customers or risk going out of business, Energywatch has said.

The watchdog claimed the result was a double whammy for consumers who would already be hit by rising domestic tariffs.

Commenting that businesses should also prepare for a new year rise in energy costs, a spokesman for Energywatch said: "Business customers have to sign up to contracts lasting two or three years with their energy suppliers.

"This means that, unlike consumers, they are unable to switch when price increases are announced.

"They are left with two choices: pass their costs on or absorb them and risk insolvency. This is bad news for both businesses and consumers."

The warning came as experts predicted potentially "massive" variations in gas bills across the UK if suppliers introduce regional pricing.

It is expected that other suppliers will follow the lead of Worcester-based npower, which last week announced that domestic gas prices would vary regionally for the first time to reflect gas transportation costs.

Npower blamed the hike on higher wholesale prices but said distribution and the need to upgrade gas pipelines had contributed.

West Midland npower customers will see a rise in gas prices of 17.2 per cent - close to the national average. The East Midlands and London will both be hit with a 22.9 per cent increase.

Parts of Wales and Scotland will see their bills upped the least, although npower refused to issue a full list of its new charges.

Denise Craig, West Midlands policy manager for the Federation of Small Business, said small firms should be given the flexibility to switch energy suppliers in the same way as domestic customers.

Ms Craig said: "One of the big plus points of small businesses is that they are more nimble and flexible than other firms, but long contracts eat away at this unique advantage they have.

"Many of our members consume no more energy than a large domestic consumer, yet they do not have the same protections.

"They are caught between the devil and the deep blue sea."

Npower is the third UK energy company to adopt a regional pricing structure, having followed the lead of Scottish & Southern and Scottish Power.

But it is unlikely to be the last with British Gas admitting that it was considering it as an option.

A spokesman said: "We have said previously it is something we will look at but we have not implemented anything at this stage."

Campaigners believe the new structure will effectively penalise customers who live far away from coastal gas terminals.

Tim Wolfenden, the head of home services at uSwitch, the price comparison website, said it was anticipated other suppliers would follow suit, possibly within the next fortnight.

He said regional pricing could cause "huge geographical discrepancy in what customers pay. The losers will feel they have been hard done by".

He added: "If all suppliers go the same way as npower, it will hurt a lot of customers.

"There will be some massive increases in some areas."

A spokesman for the consumer body Energywatch said: "There is a little bit of variation in gas distribution costs, but there is no way that companies can explain differences that see some areas paying more than double the bills of other parts of the country.

"There is no information out there that provides an explanation for what Npower has done. We now wait to see how the other companies are going to respond to this, although we fear they will follow suit."

But a spokesman for Npower said the issue was more complicated than how far gas was distributed.

He said: "Another big contributor is the need to replace old iron gas mains with plastic pipes.

"Regions such as London and the East Midlands have an older infrastructure than elsewhere in the UK, which is why they have seen higher price rises.

"The West Midlands has had a smaller rise because its infrastructure is more up-to-date."