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Will the Energy Price Cap Mean Higher Energy Prices for My Businesses?

Business energy bills have been steadily climbing for a while now, Why?

If you’re looking for a good deal, maybe because your contract with your electricity provider is up for renewal soon, you might have been keeping an eye on the energy industry, for the last few months prices have continued to increase. Here we will discuss some of the reasons for this.

Why are business energy prices rising?

If there’s a positive to take from the first lockdown back in the first part 2020, it’s that demand for fuel was dropping sharply, meaning demand for energy was at some of the lowest levels in history! The wholesale price of electricity was already decreasing steadily from the all time high of £67 in 2018 , however it was even lower around April-May at around £24 when the first lockdown was at its peak.

As of September 2020, prices for electricity were climbing back up to around £45 per MWh – nearly double the height of the pandemic price. And prices are continuing to rise as seen in the graphs below, information courtesy of Ofgem shows Electricity Wholesale prices are currently sitting at around £83, a whopping 345% increase!

Amongst many factors that contribute to the increase in the cost of energy, demand has been found to be a main driver. For the wholesale electricity market, there has been a reduction in available power compared to last year. Combined with higher gas prices, this led to an increase in the wholesale price of electricity.

Another reason for the price hike are network and policy costs. We’ve seen a rise in network costs, partly due to the Renewable Obligation (RO). The renewable obligation is a levy placed on licensed suppliers of electricity to encourage them to source a proportion of their electricity they supply from renewable energy sources.

Due to the increase in businesses closing their doors for good or having difficulties with their finances, more energy suppliers are seeing an increase in ‘bad debt’ from customers who owe payment. Sources suggest that on our High Streets, around 50 businesses are closing each day! The UK energy regulator Ofgem, increased the domestic energy price cap recently to help suppliers recover losses incurred over the last 12 months so this is probably happening with businesses soon too.

Does the price cap make a difference to business owners?

UK households and millions of customers will end up with higher energy bills later this year, as Ofgem has announced that the energy price cap would be increased in October. This is important but will it effect my business?

The price hike will come into effect on October 1 and will affect around 11 million residential customers around the United Kingdom. Anybody on a Standard Variable Rate tariff plan would see their annual bills increase by £141 to £1,285 a year. Prepayment meters will end up even more worse off with an increase of £155 that will see the average monthly bill rise from £1,149 to £1,322. 

This is the cap’s highest level ever since it was first introduced in January 2019.

But remember that the cap sets the prices that suppliers can charge for each unit of energy, that does not mean there is a limit to how much your bills will be. The figure of £1,285 is the amount a household would need to spend if they were on their supplier’s standard variable rate tariff. 

Put simply, as you consume more electricity and gas, your bills will go up more than before.

But what does this mean for my business? 

If you have specific business gas and electricity contracts, The indirect effects of the price cap might still affect you. This is because suppliers rarely miss a chance to raise their prices when the opportunity arises.

For example, in the domestic market with any new energy deal that’s introduced it will come at a higher rate and with rates closer to the price cap. ‘Price Bunching’ of tariffs has become standard practice ever since the price cap was introduced in 2019. 

So it is fair to assume that, for business owners, suppliers could do the same with their business energy rates. If your Business Gas or Business Electricity contracts are due to end soon, contact the impartial Energy Broker of tomorrow, our energy experts at Future Business Utilities can lock in rates now and avoid the October price rises. 

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