Why are energy prices rising?

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    Contents

    Guide Author

    James Longley

    Managing Director

    min read
    Last Updated October 23, 2023

    Why are energy prices rising?

    Following a significant rise in wholesale prices in December 2021, the wholesale price of energy remained volatile throughout 2022 and extended into 2023. However, a shift emerged in December 2022, indicating a general downtrend in which energy prices fall thereafter.

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    Compare Business Gas & Electricity Rates

    Unsure of just how much electricity your business is using? We’ve put together the table below to give you a rough idea of how much your business could potentially spend on its annual electricity bill based on the consumption of similar-sized businesses.

    We’ve included average business electricity prices per kWh, however it’s important to note that these rates may fluctuate. This means the prices you see in your quote may differ. It’s also important to note that business electricity comparison websites can’t update live prices that suit all businesses.

    Average business electricity prices per kwh by business size

    Business size Annual usage Unit price (per kWh) Daily standing charge (pence) Annual cost
    Micro business 5,000 to 15,000 kWH 26.6p 64.6p £2,833 (based on annual usage of 10,000 kWh)
    Small business 15,000 to 25,000 kWh 25.6p 83.0p £5,302 (based on annual usage of 20,000 kWh)
    Medium business 25,000 to 55,000 kWh 26.1p 65.5p £10,637 (based on annual usage of 40,000 kWh)
    Large business More than 55,000 kWh 26.4p 68.5p £14,548 (based on annual usage of 55,000 kWh)

    Disclaimer: Due to volatility within the energy market, prices can change on an hourly basis meaning that the prices you’re quoted are different from the averages shown. Prices may also vary according to your meter type and business location. Updated May 2024.

    Average gas kWh Prices by business size

    Business size Annual usage Unit price (per kWh) Daily standing charge (pence) Annual cost
    Micro business 5,000 to 15,000 kWH 8.9p 33.9p £920 (based on annual usage of 10,000kWh)
    Small business 15,000 to 30,000 kWh 8.5p 36.6p £18,131 (based on annual usage of 22,500kWh)
    Medium business 30,000 to 65,000 kWh 8.3p 79.2p £38,328 (based on annual usage of 47,500kWh)
    Large business More than 65,000 kWh 8.4p 55.7p £52,200 (based on annual usage of 65,000kWh)

    Disclaimer: Due to volatility within the energy market, prices can change on an hourly basis meaning that the prices you’re quoted are different from the averages shown. Prices may also vary according to your meter type and business location. Updated May 2024.

    Why are energy prices going up?

    It is the escalation of these wholesale costs that predominantly accounts for the energy price spikes witnessed this year.

    A variety of unexpected factors have contributed to this global issue of energy crisis. The ongoing conflict in Ukraine is currently amplifying a pre-existing challenge regarding energy prices. Additionally, the subsequent elements have synergistically contributed to inflating energy prices:

    1. Supply Shortages: The protracted cold winter spanning 2020 and 2021 caused gas scarcities throughout Europe, depleting natural gas storage reserves.
    2. High Demand: Heightened demand for liquefied natural gas (LNG) from Asia has resulted in decreased LNG shipments to Europe.
    3. Nord Stream 1 Closure: The substantial Nord Stream 1 pipeline, responsible for transporting gas from Russia to Germany, has ceased operations. Russia initially restricted pipeline capacity to just 20% and subsequently shut down Nord Stream 1.
    4. Infrastructure Challenges: The delay in launching the Nord Stream 2 pipeline – an $11 billion project spanning the Baltic Sea with the capacity to transport 55 billion cubic meters of gas annually directly from Russia to Europe, bypassing Ukraine – is another contributing factor.
    5. Post-Lockdown Rebound: A resurgence in demand following the relaxation of global lockdown restrictions has compounded the situation.

    How has the conflict in Ukraine affected energy prices?

    There are several factors contributing to the current surge in energy prices. The ongoing conflict in Ukraine has further exacerbated the escalation of rates.

    A key factor intensifying the influence of this conflict on energy costs is the substantial dependence Europe has developed on Russian gas. In the year 2021, Russia accounted for over 40% of Europe’s gas imports, and any disturbances arising from the conflict with Ukraine could severely disrupt this supply chain, resulting in elevated prices. Although the UK’s reliance on Russian gas isn’t as substantial, it does procure nearly half of its gas from European sources. Consequently, any future price rises or surges in European supply would impact the UK.

    This scenario has induced unrest in the energy industry, with wholesale gas prices surging by up to 33%. Certain suppliers have even temporarily withdrawn from the market. Safeguarding your energy deals at current rates is the sole means of shielding existing customers and your business from prospective fluctuations in prices.

    How has the pandemic affected energy prices? 

    Let’s rewind to the initial lockdown phase of early 2020, during which a notable drop in demand caused wholesale energy prices to plummet to their historically lowest levels. After witnessing a gradual decline from a peak of £67.69 per Megawatt-hour (MWh) in September 2018, prices reached just over £24 per MWh in April and May of the subsequent year, coinciding with the peak of the first lockdown.

    Following this period, wholesale gas prices have demonstrated a steady upward trajectory. By September 2020, wholesale electricity prices stood at £45.30 per MWh, and they have now surpassed levels observed before the pandemic:

    A significant factor propelling these price hikes is the surge in demand. The heightened energy requirements post the dip witnessed in March and April of the preceding year have caused gas prices to surge more than fivefold, subsequently returning to pre-pandemic levels.

    Furthermore, an escalation in third-party costs has also contributed to the price escalation. Increased distribution and transmission costs for electricity have driven up network expenditures. Additionally, elevated policy costs, such as the Renewable Obligation (RO), have played a role. To provide context, the RO entails a levy imposed on all licensed electricity suppliers, motivating them to procure a portion of their supplied electricity from renewable energy sources.

    For a more comprehensive understanding of the various factors influencing your energy tariff prices, you can explore our guide on how to compare business energy tariffs.

    What is the Energy Bill Relief Scheme?

    The Department for Business, Energy and Industrial Strategy (BEIS) has announced further details of the financial support that will be provided to businesses to manage energy costs this winter following the Prime Minister’s statement pledging help for businesses on 8th September.

    All businesses with a non-domestic energy account including the voluntary sector and public sector organisations such as schools and hospitals will be eligible for support through the Energy Bill Relief Scheme (EBRS), which will apply annual bills only for six months from 1 October 2022 to 31 March 2023.

    Energy Bills Relief Scheme

    What is the Energy Bill Discount Scheme?

    If eligible for the Energy Bills Discount Scheme, the government will apply a discount on your gas and electricity unit prices. Eligible non-domestic consumers will receive a per-unit discount on their energy bills during the 12 months from April 2023 to March 2024, subject to a maximum discount. The relative discount will be applied if wholesale prices are above a certain price threshold.

    For most non-domestic energy users in Great Britain and Northern Ireland, these maximum discounts have been set at:

    • Electricity – Discounts of up to £19.61 per megawatt-hour (MWh) when the wholesale prices are above £302 per MWh

    • Gas – Discounts of up to £6.97 per MWh when the wholesale prices are above £107 per MWh If wholesale prices stay below the threshold, the discount is not applied.

    Energy Bills Discount Scheme

    What is the energy price cap?

    Ofgem’s energy price cap for business energy deals is notably absent. Instead of imposing rate limits, the government has introduced the Energy Bills Discount Scheme, which aims to provide discounted rates for eligible non-domestic business energy contracts.

    Our energy experts conduct a Business Energy Comparison from reputable UK energy providers, to offer you the most competitive fixed deals available for your business.

    Will energy prices go down in 2023?

    Predicting energy costs is challenging even under optimal circumstances, and the current market volatility has elevated the uncertainty, making it unfeasible to ascertain whether wholesale energy prices will decrease this year. While prices have exhibited fluctuations throughout the year, the predominant trend has been one of escalation.

    Projections from Cornwall Insight, a renowned energy research and analysis firm, indicate that high energy costs might persist well into the upcoming year and potentially extend into 2024.

    Effective from the 1st of April 2023, the Energy Bills Discount Scheme has taken over from the Energy Bill Relief Scheme. This new scheme endeavours to provide discounts on unit rates for all eligible business gas and business electricity plans.

    However, the level of government support isn’t as ample as the previous energy bills support scheme was, given the government’s decision to trim funding from approximately £18 billion over six months to £5 billion spanning 12 months.

    For a more comprehensive understanding, refer to our comprehensive guide on the Energy Bills Discount Scheme.

    Should you fix your energy prices until 2024?

    The UK government has announced the Energy Bill Relief Scheme will now be replaced with the Energy Bill Discount Scheme, a reduced scheme to help businesses and other non-domestic customers.

    We recommend that you secure a fixed deal to protect your business against future price rises in 2024. Other than the Energy Bill Discount Scheme, there is very little help available for businesses struggling with their energy bills.

    Whether you’re currently on a variable tariff or a fixed deal, Utility Bidder can help you find a better rate for your business. We can help you compare fixed deals and find the one that best meets your requirements.

    Due to the volatility of the current energy industry, energy rates fluctuate daily, which is why it’s important to seek a professional business comparison service. We can alleviate the stress and handle the entire switching process for you.

    Why are renewable energy prices high?

    If you’re enrolled in a green energy plan that boasts 100% renewable sources, you might be perplexed by the surge in prices, even though no gas is utilized for its generation.

    Despite renewable energy accounting for a substantial portion (45.5%) of the UK’s overall energy production during the initial three months of this year, the reliance on gas-powered plants for some electricity generation remains.

    Even if you’re subscribed to a scheme that pledges 100% renewable energy, the cost of your electricity is established not based on the expenses associated with wind or solar generation, but by the cost attributed to the last energy source utilized to fulfil demand. As gas-powered stations are engaged to supplement electricity demand in the UK, the cost of gas-powered electricity sets the pricing for all electricity.

    Therefore, when gas and electricity prices encounter abrupt spikes, it’s highly likely that gas and electricity prices will closely follow suit.

    What if you can't afford your energy bills?

    While reducing your energy consumption can contribute to some savings on your bills, the impact on the average annual bill is likely to be relatively minor when contrasted with the current energy expenditures.

    Reaching out to your energy supplier and expressing your financial challenges can lead to the establishment of a new payment arrangement. In situations where consensus can’t be reached and you’re accustomed to direct debit customers, your provider might propose a transition from direct debit customers to a prepayment energy tariff only.

    Additionally, it’s prudent to investigate your eligibility for the following government initiatives:

    There could also be local grants accessible, prompting you to consult your local council for potential assistance.

    What if you're moving to a new business premises?

    When relocating your business, one of the two scenarios below will typically occur with your energy contract:

    1. Your contract will be transferred to your new premises.
    2. Your contract will be terminated, necessitating the establishment of a new contract at your new location.

    When you commit to a business energy agreement, the flexibility to terminate it prematurely is often limited. Suppliers procure the precise energy quantity to cover the contract’s duration, making early termination potentially disadvantageous for them.

    Should you opt to transfer your current energy arrangement to the new premises, your supplier will manage the transition, ensuring a smooth process. Your billing will commence from the day you begin operations at the new location.

    Alternatively, should you decide to switch to a new deal with a different energy supplier then, you’ll need to address your final business energy bill payment or any refunds due if your account held a credit balance.

    Switching your business energy supplier could save you money on your energy bills. Speak to our energy experts now to secure your business energy deal.

    What happens if you run your business from home?

    In the scenario where your small business operations are entirely home-based, you might not have transitioned to a dedicated business energy plan. Consequently, the energy price cap will directly impact you in either of the following manners:

    1. If you are enrolled in a standard variable rate tariff, your rates will rise in alignment with the Ofgem energy price cap.
    2. Your fixed deal from the supplier will incur price increases, potentially affecting your costs when switching energy suppliers in the future.

    Running a business from home naturally implies higher energy consumption compared to working at commercial premises, especially during colder months.

    The amount of gas and electricity utilized at home directly influences the magnitude of your average household energy bills. In contrast, if your business is conducted from dedicated premises (e.g., a salon or restaurant), the protective shield of an energy price cap doesn’t apply. While your workplace benefits from customized business gas and electricity arrangements, your commercial supplier might still revise rates during your upcoming renewal to offset increased expenses.

    For those engaged in the restaurant or takeaway industry, our energy-saving tips guide page offers insights into energy bill savings strategies.

    How to switch business energy suppliers with Utility Bidder

    For the fastest and most straightforward approach to discovering optimal business energy agreements, get in touch with our business energy experts.

    Simply provide us with your business name and postcode, and we will harness intelligent data and our expertise to swiftly identify the finest business gas and electricity tariffs tailored to your enterprise, all within a matter of minutes.

    Our team of business energy professionals will then conduct a search for the best fixed deal, from our array of reputable energy providers across the UK. You can simply determine your preferred fixed deal then, leaving the rest to us.

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    An estimate is fine if you don't have a bill to hand

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    Let’s save time, can we automatically gather meter information?

    ? What does this mean?
    To get your quotes at lightening speed we need several key pieces of information which can all be found on your electricity bill. But by simply ticking this box, we can search ‘industry held data’ to get your meter number, electricity consumption and current energy supplier. This means that we can get you quick quotes without asking you to dig out all of your paperwork. This is personal data therefore we need you to allow us to access this information.
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    Do you know your electric meter number?

    Does your meter number end in any of the following?

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    An estimate is fine if you don't have a bill to hand

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