Electricity and gas are essential utilities for all businesses, as they are required for most basic operations. However, energy contracts can become costly at certain times. Understanding what causes energy prices to fluctuate in the UK can help your business save money.
Why are energy prices in the UK so high?
Since around 2020, several global and domestic issues have contributed to rising energy costs. The COVID-19 pandemic initially disrupted demand and supply chains, pushing prices up. Before the market had a chance to recover, the outbreak of the Russia–Ukraine war further increased prices globally.
This contributed to the energy crisis of 2022, when wholesale energy prices rose by 500% between August 2021 and August 2022. This dramatic increase caused serious problems for businesses, forcing many smaller companies to shut down.
What drives the UK energy market?
As the UK is heavily reliant on foreign energy imports, several factors influence the price of energy for both businesses and households.
Global gas prices
The UK faces challenges with energy security, making it dependent on foreign gas supplies. Additionally, due to high levels of LNG (liquefied natural gas) imports, the UK is closely tied to the EU’s gas market. When EU gas prices rise, UK prices often follow. In the UK, electricity prices are also linked to gas prices, as natural gas remains a key source of electricity generation.
Geopolitical issues
Global conflicts can disrupt supply chains and create uncertainty in the market, leading to sudden price changes. For instance, when the Russia–Ukraine war began in 2022, sanctions imposed on Russia led to a retaliatory halt in gas supply to the EU. This caused significant price hikes across both the EU and UK.
Weather conditions
Extreme weather events can disturb the balance between energy supply and demand. In winter, for example, extended cold spells can reduce energy reserves and increase demand, driving prices higher and making them more volatile.
What causes fluctuations in business energy prices?
Unlike domestic energy prices, business energy rates are closely linked to the wholesale energy market. This means they are affected by a wider range of factors.
Supply and demand
The main component of your business energy bill is influenced by supply and demand. When demand is high and supply is low, wholesale prices rise. If you happen to renew your contract during one of these periods, you're likely to pay more.
Time of day
Depending on your energy contract, the time you use electricity can impact how much you pay. For example, using large amounts of electricity during the day, when demand is at its peak can result in higher costs.
How to combat high business energy prices
Fortunately, there are several strategies businesses can use to reduce their energy costs and protect against market volatility.
Lock in prices
One effective way to shield your business from market fluctuations is to sign a fixed-rate contract. This ensures your unit rate remains consistent throughout the contract period. However, it’s important to monitor market trends before committing. Speaking to a business energy broker can help you determine the best time to secure a deal.
Implement energy-efficient practices
Even with a fixed-rate contract, energy prices remain above pre-pandemic levels and may not decrease anytime soon. To further reduce costs, consider lowering your energy usage. Adopting energy-efficient measures such as installing LED lighting, conducting energy audits, using voltage optimisation, or investing in solar panels can lead to long-term savings.
If you're looking to save money on your energy bills then why not get in touch today? The relationships Resolve Energy has developed with over 24 of the UK’s biggest business energy suppliers allows our energy experts to source the best business energy rates available for your company right when you need them. Request a free quote today and start saving money on your energy.
