Why are energy prices such a concern? And critically are they still rising?

Energy rates are again on the rise, although the volatility seen in 2022 has eased.?

However, businesses still face potential risks with out-of-contract rates, up to 50% higher than those on a fixed contract.?

Unlike households, which have benefited from a price cap since 2019, businesses have no such protection.?

Instead, they rely on government schemes like the Energy Bills Discount Scheme, which ended in March 2024. While future support is on the horizon, it's significantly reduced.

As a business owner, keeping a close eye on market trends is critical.?

Although prices dipped toward the end of 2022 and into 2023, they remain much higher than pre-crisis levels.

Importantly, the domestic energy price cap, though unrelated to business rates, can indicate where broader energy prices are heading.?

From July 2024, the household price cap dropped slightly to ￡1,568 per year but is set to rise again in October, pushing the average household dual fuel bill to ￡1,717 annually.

For businesses, this signals that price increases are coming, with no cap in place to limit those rises.?

Given the frequent changes in wholesale energy prices, locking in a fixed-rate deal may help your business avoid unpredictable costs in the months ahead.

Here's why energy prices have been so volatile: supply chain disruptions, increased demand post-pandemic, and geopolitical tensions, including the conflict in Ukraine, have all led to massive fluctuations in global energy markets.?

This affects the live market rates businesses pay, which are influenced by wholesale price shifts.

If your energy contract is up for renewal, now is the time to assess your options. Compare quotes and consider locking in rates before further increases take hold.

Energy prices on the rise

Energy prices are experiencing a steady rise after a brief period of decline in 2023.

This increase stems from several factors that began with the global energy crisis of 2021-2022. During that period, wholesale energy costs skyrocketed by over 500%, driven by disrupted supply chains, the COVID-19 pandemic, and geopolitical events such as the war in Ukraine.?

Russia’s invasion, coupled with the closure of major gas supply routes like Nord Stream 1, forced European nations to cut reliance on Russian gas, opting instead for liquefied natural gas (LNG) imports.?

This shift led to price surges as demand outpaced global supply.

Despite these pressures easing in 2023, with prices falling due to a mild winter, reduced consumption, and increased energy efficiency measures, current wholesale rates remain approximately 50% higher than pre-pandemic levels.?

Notably, Cornwall Insight analysts have predicted that these elevated prices could persist well into the decade, making it crucial for businesses to act strategically.

The energy supply chain, including how suppliers buy and sell energy, plays a key role in today’s pricing.?

Energy providers often purchase energy months or even years in advance to lock in costs and mitigate risks associated with market volatility.?

As a result, even though wholesale prices may have dropped recently, the energy sold to customers could still be tied to higher costs that suppliers incurred when the market was unstable.?

This delay between falling wholesale prices and reduced customer rates is influenced by the risks suppliers face, such as balancing supply and demand or managing sudden market fluctuations.?

As Alex Staker, Head of Commercial Operations at Bionic, points out, energy suppliers must build in risk premiums, making it difficult to pass on savings to customers immediately.

For UK businesses, this volatility makes it more critical than ever to monitor energy contracts closely.?

Unlike households, which are protected by a price cap, businesses face uncapped rates, meaning they are at the mercy of market conditions. Government support has also diminished since April 2023, with schemes like the Energy Bills Discount Scheme offering limited relief.

Securing a fixed energy rate now could be smart for businesses looking to shield themselves from future price rises.?

Several factors, including business size, energy usage patterns, and location influence rates. By locking in rates while the market stabilises, businesses can avoid the risk of higher costs when their contracts expire.?

Experts recommend comparing prices regularly to ensure you get the most competitive deal.

As energy prices continue to rise, businesses in high-consumption sectors, such as manufacturing and heavy industry, should consider additional measures to manage costs, such as investing in renewable energy solutions.?

Solar Power Purchase Agreements (PPAs) or other energy efficiency projects could help businesses offset some of these price increases, further protecting against long-term price uncertainty.

With rising energy prices and no clear end, UK businesses must take proactive steps to secure energy contracts, explore renewables, and consider long-term strategies for stabilising energy costs.

For more information on current energy prices and forecasts, Ofgem provides regular updates and insights into the UK energy market.

Here is a look at the current energy rates.?

Are energy prices still rising??

Energy prices, which spiked dramatically in December 2021, remained volatile through 2022 and early 2023.?

Although they stabilised and began to fall by the end of 2022, the overall market still shows prices significantly higher than pre-2021 levels.?

Across 2024, a gradual rise in energy prices has been observed again, albeit without the extreme volatility of the previous years.?

Currently, prices are approximately double what they were in early 2021, highlighting the ongoing pressure on energy costs for businesses and consumers alike.

For more details, you can view Ofgem's graphs for further insights.

Energy price volatility stems largely from imbalances in supply and demand.?

When energy supply is tight, prices surge; similarly, high demand pushes prices upward.?

Recent volatility since 2020 is due to global disruptions like the pandemic and geopolitical events such as the Ukraine conflict, exacerbating the typical market fluctuations.

Suppliers usually hedge by trading in future markets, but extreme price spikes have made this difficult, with some pulling out of markets entirely.?

This volatility, particularly in wholesale prices, directly impacts consumer energy costs and fuels inflation fears.?

Government schemes like the Energy Bill Relief Scheme aim to mitigate these rising business costs.

Why are energy prices so high??

The current surge in energy prices is primarily driven by supply shortages and increased demand for gas, particularly across Europe.?

Key factors include a prolonged cold winter depleting gas reserves, high demand from Asia for liquefied natural gas (LNG), and significant infrastructure disruptions like the closure of Russia’s Nord Stream 1 pipeline.?

These global issues, coupled with the delayed Nord Stream 2 project and reduced gas shipments, have exacerbated Europe's energy crisis.?

Additionally, the rebound in demand post-pandemic further strained the market, leading to historically high energy prices.

A global crisis still here

The UK's energy price surge is part of a global crisis, but several local factors intensify the issue:

1. Reduced Renewable Generation: Low winds and outages at nuclear plants have forced more reliance on gas, increasing costs.
2. Supply Chain Interruptions: Events like the fire at the Kent National Grid site reduced electricity imports from Europe.
3. Low Gas Reserves: The UK has minimal gas storage compared to other European countries, leaving it more vulnerable.
4. Market Failures: Over 28 energy suppliers have collapsed, adding costs for consumers.

Despite 100% renewable energy tariffs, prices are linked to gas due to the marginal cost pricing system, where the highest-cost energy source (often gas) sets the price for all energy, including renewables.?

This pricing mechanism is under review, with proposals to de-link renewables from gas prices under Contracts for Difference (CfD), which would stabilise renewable energy prices.

Future energy prices remain uncertain, with some predictions indicating high rates extending into 2024.

Should You Fix Your Energy Prices in 2024?

Fixing your energy rates in 2024 may provide much-needed stability in a still-volatile market. Although prices began to fall in 2023, inflationary pressures could push them upward again. A fixed rate ensures you avoid future hikes, offering protection as the energy landscape evolves.

However, predicting exact market movements remains challenging. Consulting with energy experts can help you decide if fixing your rates is the best move for your business. To explore your options, reach out for tailored advice.

What if You Can’t Afford to Pay Your Energy Bills?

If your business is struggling to meet its energy costs, engaging with your supplier early is crucial. They can help set up a manageable repayment plan.

Delays in action may result in disconnection if no agreement is reached within 30 days of missing a payment.

Explore our guide on handling business energy bills to avoid potential disruptions for more comprehensive advice.

The key is acting swiftly to prevent larger financial strain.

How Has the Ukraine Conflict Impacted UK Energy Prices?

While multiple factors are driving energy prices, the Ukraine conflict has added significant pressure.

Europe’s reliance on Russian gas—over 40% in 2021—means any disruption to this supply directly affects prices.

Although the UK is less reliant on Russian gas, it still imports nearly half its supply from Europe, causing price hikes to ripple across the UK market.

Gas prices have surged by up to 33% due to the conflict, with some suppliers pulling out of the market.

Fixing your rates now could shield your business from further price fluctuations caused by geopolitical tensions.

The Pandemic’s Lasting Impact on Energy Prices

The early days of the pandemic saw a sharp decline in energy demand, resulting in record-low prices.

By mid-2020, however, prices began to recover, and wholesale gas costs have now soared to over 271p per therm, while electricity exceeds ￡257 per MWh.

The rising demand post-pandemic, combined with reduced power supplies, has pushed prices higher than pre-pandemic levels.

Increases in network and policy costs, such as the Renewable Obligation (RO), have also contributed to the spike.

Bad debt from customers unable to pay their bills has exacerbated the financial strain on energy suppliers.

Will Energy Price Rises Ever End?

Predicting energy prices is notoriously difficult, especially in a market as volatile as today's.

According to Centrica’s CEO, high gas prices could persist for the next 18 months to two years. There is growing pressure on the UK government to step in with additional measures, such as cutting VAT or introducing an energy grant for SMEs.

Until substantial support is provided, businesses can protect themselves by locking in energy rates and taking proactive steps to manage consumption.

Practical energy-saving strategies include smart meters, energy audits, and reducing unnecessary usage wherever possible.

Keeping Business Energy Bills Low

The best way to avoid being hit by fluctuating energy rates is to lock in a fixed rate as soon as possible.

Additionally, business owners can cut costs by being mindful of energy consumption patterns and implementing energy-efficient practices.

Consider these steps to lower your bills:

• Assess your heating schedule.
• Switch off appliances when not in use.
• Install energy-saving devices, like smart meters and light sensors.
• Conduct an energy audit to identify potential savings.

Explore my blog for a detailed guide on reducing business energy costs.

Can You Predict Your Energy Bill?

While predicting your energy usage might seem straightforward, taxes, levies, and other factors complicate the final bill.

Understanding how to read your business energy bill accurately can help manage costs more effectively.

Choosing the Right Energy Deal for Your Business

Selecting the right business energy deal is crucial to managing long-term costs.

You may be stuck on out-of-contract rates without switching, which can be significantly higher than fixed rates.

Business energy deals are more complex than residential ones, as they are typically based on usage, location, and business financial health.

Some factors, like poor credit, could lead to higher rates.

It’s essential to shop around and compare deals, as dual-fuel deals are unavailable for businesses.

Separate gas and electricity contracts will need to be negotiated.

Switching To Rewenable Energy

Switching to renewable energy is my biggest piece of advice to businesses across the UK.

Reducing reliance on the grid, is critical to cost control, and forecasting.

By working with a me I will guarantee you cheaper electricity.

All of this comes at absoutely ￡0 cost.

All you need to do is provide details like your business name and postcode, and a I'll expert navigate the best project for your business.