Why are energy prices rising?

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.

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 Certain suppliers have even temporarily withdrawn from the market.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.

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:

• Wholesale gas prices exceed 271p per therm (equivalent to approximately 29 kWh).
• Wholesale electricity costs have exceeded £257 per MWh (equivalent to 1,000 kWh).

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.

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.

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.

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.

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.

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:

• Warm Home Discount
• Winter Fuel Payment
• Cold Weather Payment

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

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.

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.

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.