Since January, wholesale gas costs have increased 250%, approximately 70% in August alone. And while it would be easy to blame the Europian union department for supply problems, the truth is that there is not only one reason why energy prices are suddenly spiking.
This is all because of a series of events that conspired to hit back to back, including:
Gas shortages in Europe, triggered by a long cold winter in 2020-21, which emptied natural gas storage facilities.
Strong demand for liquefied natural gas (LNG) in Asian countries resulting in a drop in LNG shipments to Europe.
Delays and complications in the Nord Stream 2 gas pipelines, an $ 11 billion link through the Baltic Sea with the capacity to transport 55 billion cubic meters of gas per year directly from Russia to Europe, bypassing Ukraine.
Little wind, which means less sustainable energy is produced. Coupled with the failure of some nuclear power plants, this means that a greater percentage of our electricity production is using gas for production.
Then there is the fire at a National Grid site in Kent that destroyed a power cable that connected England to France and was used to import electricity from the mainland. National Grid said it could reduce the amount of electricity available on the grid before 13th October.
The problem of tight gas reserves dates back to 2017 when it was decided to shut down the UK’s largest gas storage facility. Although closed for security reasons, it was not considered profitable to remodel or renovate the site, despite warnings that we could be affected by more volatile winter gas prices than the increasing dependence on energy imports.
And then we have the ripple effect of the pandemic.
Back in the first lockdown(in early 2020) when a drop in demand drove energy prices to their all-time lowest rates. While wholesale prices had fallen from a high of £ 67.69 per megawatt hour (MWh) in September 2018, they bottomed out to just over £ 24 per MWh in April and May last year, and have been stronger since the initial closure.
Since then, prices have continued to rise. In September 2020, wholesale electricity costs were £ 45.30 per MWh and prices are now well above pre-pandemic levels:
Gas now costs over £ 80 per Therm (approx 29 kWh)
Electricity now exceeds £ 80 per MWh (1,000 kWh)
Increased demand is a major factor in price increases.
Due to the increase in energy demand since the crisis in March and April last year, gas prices have raised five times, returning to pre-pandemic levels. For the wholesale electricity market, the available energy supply is decreasing compared to the previous year, which in combination with higher gas prices has led to an increase in the wholesale price of electricity.
An increase in network and transmission costs also raises prices.
The increase in electricity distribution and transmission costs has led to an increase in network and transportation costs, as well as an increase in the costs of policies such as Renewable Obligations (RO). For reference, RO is a tax that is applied to all accredited electricity providers to encourage them to buy electricity from renewable energy sources.
Suppliers are plagued with bad debt due to the pandemic, which means a lot of money is lost because customers simply cannot pay their energy bills.
Ofgem, the UK energy regulator, recently raised the price cap on domestic power to help energy suppliers recoup money lost in this way over the past 12 months. Therefore, there is no reason why utilities suppliers are not doing the same.
How have energy prices increased in last few years?
Millions of UK households will face higher energy bills from 1st October as Ofgem announced it will raise the energy price cap on standard variable rates. But will the rate hike also affect small businesses?
The price hikes will affect around 11 million households in the UK. Anyone with a standard variable rate increases their annual bill from £139 to £1,277 per year. Prepaid customers will still face an increase of £153, reducing bills from £1,156 to £1,309.
This is the highest limit price level since its launch in January 2019.
It should be noted that the limit determines the prices that suppliers can charge for each unit of energy, but that does not mean that there is a limit to what people can pay. The amount of £1,277 is the average a household can expect at its provider’s standard floating rate.
In short, the more gas and electricity you use, the higher your bills get.
But what does that mean for SMEs?
Whether you’re running your small business from home or starting out in business premises, price caps will probably always affect you in one way or another.
If you run your small business entirely from home, you may not even have a commercial energy contract. In this case, you will be directly affected by the cap in two ways:
Your prices increase based on the price cap when you have a standard variable price
Your provider will increase the price of their flat-rate offers, so you could be under pressure the next time you switch business energy providers.
It is clear that running a home business consumes more energy than if you were spending your working hours in a commercial building, especially as winter approaches. And the more gas and electricity you use at home, the higher your home energy bill will be.
But even if you have business gas and electricity contracts, you may be indirectly affected by rising energy prices as supplies increase rates to cover your increased costs.
In the residential market, this means that all new deals of energy contracts are with higher rates which will bring them closer to the maximum tariff prices.
The side effect for entrepreneurs is that providers can do the same for their company’s energy rates. If your business energy deal is ending soon, get in touch with our energy experts now to set rates and avoid price hikes.
What should you pay attention to when choosing a business energy contract?
Not all business energy prices are created equal; If you choose the wrong one, your company will pay too much for gas and electricity.
And because you locked the energy prices by signing a business energy contract for a particular duration which can vary from 1 – 5 years, you could be overpaying for the gas or electricity you’re using. It is therefore really worth spending a small amount of time from your busy schedule to compare the business gas and electricity deals.
If you’ve never renewed or switched your business energy provider, your current supplier will put you on an expensive non-contractual rate that can cost up to twice the normal energy tariff.
When switching, keep in mind that rates depend on your energy use, the location of your business facilities, and the financial health of your business. A bad credit score can lead to higher rates because your business is considered riskier.
It is also important to know that business energy providers do not offer dual fuel deals. So even if you have a gas and electricity contract with the same supplier, they are still two separate energy contracts.
How to switch to a new business energy provider?
The quickest and easiest way to find the best energy deals for businesses is to speak with Committed Utility Solution‘s energy experts.
Give us your business name and zip code and we’ll use our contact and our inside knowledge to find the best electricity and gas rates for your business in minutes.
First, enter your business details on our website or call us on +44 0203 9781422 / 7444 342305.
Our business energy experts will choose the best deals from a list of high quality, reliable and best business electricity supplier in the UK and have a quick chat to help you choose the right energy rate.
Just choose the offer that suits you best and we will take care of the rest. You don’t have to worry about renewals either, since year after year we will find the best offers for you.
How about moving to a new business location?
When you move, your contract will be transferred to your new facilities or it will be canceled and you will have to find a new contract at your new location.
You rarely have the option to terminate the energy contracts prematurely after signing up. Your provider buys the appropriate amount of energy to supply you throughout the contract so that you do not miss anything. So, If you cancel before the agreed end date you have to pay the penalty for that.
Relocating your business presents a rare opportunity to end your current energy contract earlier and upgrade to a better deal, but you must weigh your options before making the decision to relocate.
When you transfer your existing energy contract to your new building, your utility company will arrange it so there are no hassles and you will only be charged from the first day of moving to the new location.
If you switch to a new contract with another provider, you will need to arrange for payment of your last utility bill or any pending debt.
If that sounds too tedious, keep in mind that switching can save your business hundreds of pounds a year.