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Why have business energy prices increased?  

Energy prices for businesses and consumers always seem to be on the rise these days. And it looks as though UK energy bills could rocket again this winter, following a big jump in the wholesale energy market. The wholesale cost of winter electricity on the UK market is now around 16% higher than it was at the same time last year. All six of the biggest retail suppliers have increased energy prices in 2017 and now 76 Conservative MPs have called on Theresa May to back up her election pledge to cap energy prices. How should business leaders and regular consumers understand these price increases? And is there anything that businesses can do to bring down their energy costs.

Understanding the energy market

The price that businesses and individual consumers pay for energy is dependant on several factors. Around 50% of the cost of domestic energy is determined by the wholesale price of gas and electricity. The rest of the price is made up of the cost of distribution, tax, environmental charges, costs associated with metering and the energy companies cut. Some of these costs have risen in recent years, with rises in environmental and metering costs being the most notable. But the most significant price rises can be attributed to wholesale pricing factors.

Wholesale energy costs

In Britain, oil prices are a significant driver of gas prices. This is because European gas prices are linked to oil prices and Britain depends on gas flows from Europe. A significant proportion of Britain’s electricity is also generated from gas, so changes in oil prices also influence gas prices. In January of last year, crude oil hit a low of $29 per barrel before starting an upward trend to a two-year high of $59 per barrel last week. During this window, oil prices were dragged around by short-term factors like currency fluctuations and periods of political instability. But the major price factor was the global production cut spearheaded by OPEC and supported by Russia. Analysts initially doubted whether OPEC members would stick to the cuts, but an agreement seems to have been reached and supply has dropped at the same time as global economic growth has pushed up demand. Many commentators now believe that production cuts will be extended and prices will rise further still in the coming months.

How can businesses avoid price rises?

Act to stop energy prices hurting your bottom line by switching tariffs or fixing your energy prices.

Switching tariffs

In the domestic energy market, the almost universal truth of energy shopping is that you need to switch suppliers if you want to get a better deal. The same is true for businesses who buy energy, but collecting quotes for business energy is more complicated and costly. Business energy contracts are more detailed than domestic ones, online comparison services are less reliable and businesses can’t secure dual fuel deals in the same way as domestic buyers. Because switching is more difficult, many small and medium-sized businesses don’t bother switching regularly and often find themselves rolled over onto a worse deal. The easiest way to switch your energy is by using a specialist business energy broker like Utility Helpline. An energy broker will gather the best quotes on your behalf. They will also advise on which rates are the best and help you avoid some of the biggest pitfalls when buying energy for a business. They help you save time and resources and give you the best chance of finding the best possible deal on your commercial gas and electricity.

Fixed price energy

Fixed price business energy contracts give you certainty about what the business will pay for its energy over a pre-determined time frame. This allows for better planning and budgeting, but it can also help businesses save money if prices rise during the length of the contract. Businesses should be wary though, because prices can fall as well as rise. Utility Helpline helps businesses secure fixed-price energy contracts for up to five years in the future, giving you peace of mind for significant periods of time. Fixed price energy contracts are standard for most small and medium-sized businesses. To find out more about Utility Helpline’s range of energy procurement services, please contact a member of the accounts team today. Call: 0800 043 0423.

Published by Utility Helpline on (modified )