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How Cold Weather Affects Business Energy Prices

The cold is back. After a bright and mild autumn, winter has blown back with a bang. Temperatures dipped below 0°C this weekend as the clocks went backwards – making British evenings even darker. With memories of February’s Beast from the East still fresh in the memory, most will be dreading another cold blast this winter. But business owners with energy contract renewals coming up should be more worried than most. Unusually cold weather has a direct impact on business gas and electricity prices. And it isn’t just because they are using more gas and electricity to heat and light their businesses. Cold weather can also affect the unit price for gas and electricity. Wholesale gas prices are strongly linked to supply and demand in the UK. An unseasonably cold will push the demand for gas higher than previously expected. And because it’s difficult to increase the supply of gas, wholesale prices will rise. Small and medium sized business don’t pay for wholesale gas directly. But they will purchase from suppliers that pay wholesale prices. If a small or medium sized business has a contract renewal date coming up, they may spend more on gas. Cold weather can also influence electricity prices. During the winter months, renewable energy generation becomes a little more sporadic. Solar generation all but disappears for the winter months and wind power becomes patchier. Although the wind can blow harder on some days, other days it will not blow at all. When renewable generation is low, more gas is used at natural gas-fired power plants. Which can also result in higher prices.

What will this winter bring?

The short answer is that we don’t know. Although the forecast for the rest of the week is cold, prices will only move around on longer-term weather forecasts. Sensationalised news stories in the media warned of imminent ‘mega freezes’ last month, but these don’t appear to have come true. One long range predictor of long-term winter weather is the El Nino weather event. This is a natural weather pattern that can disrupt sea flows and increases the risk of a colder winter in the UK. A strong El Nino event in late 2015 preceded an extremely cold winter in Britain. Although this year is thought to be an El Nino year, the effect is thought to be weak to moderate, the Met Office says. But El Nino is just one factor that can be used to predict warm or cooler winters and it is certainly not 100% reliable. Professor Adam Scaife, head of long-term to decadal climate prediction at the Met Office Hadley Centre said: “An El Niño can create wetter and windier conditions in the first half of winter and it can bring a colder and drier second half, but El Niño is just one factor and others will vie to affect our winter.”

Reduce your energy costs during the winter

Using an energy broker to compare energy prices can be an effective way of getting the best prices. An energy broker can advise you on the best time to get a fixed-term energy contract and lock in the best prices. With a range of additional consultancy services, Utility Helpline can also help you identify areas where you can save gas and electricity by improving efficiency.

Published by Utility Helpline on (modified )