UK businesses and households are currently experiencing rising energy bills, with prices climbing to the highest they’ve ever been. But the issue isn’t exclusive to the UK – it’s a global concern.
The price rise comes as a result of Ofgem increasing the price cap that energy suppliers are able to charge their customers. Another contributing factor is the escalating war in Ukraine, as Russia supplies Europe with around 40% of its gas. Whilst the UK sources less than 5% of its gas from the country, gas prices are affected by fluctuations in the global market, meaning that Europe’s rising prices are having knock-on effects.
As some have pointed out, wholesale gas prices have actually dropped by a significant amount, leading people to question why energy tariffs aren’t coming down.
The global energy price rise explained
Energy price cap increase
In April 2022, there was a record global gas price increase as bills rose by as much as 54% for both households and business customers. Those on default tariffs saw their bills increase by as much as £693, an increase from £1,277 to £1,971 per year. Prepayment customers saw an increase of £708 from £1,309 to £2,017.
This is due to the maximum energy price cap that energy suppliers are allowed to charge their customers being increased. The cap is reviewed twice a year and tracks wholesale energy and other costs. The cap is in place to ensure that energy companies don’t overcharge their customers to make excessive profits.
The cap was updated in August 2021, but in early 2021 Ofgem stated that the level didn’t reflect the unprecedented record rise in gas prices. Therefore, in April the cap was increased and customers saw their energy bills increase significantly. It is expected that the energy price cap will increase to £2,800 in October, a further hike of £830. Soaring prices have led to a collapse of energy suppliers in late 2021 and early 2022, with more expected to follow.
Wholesale gas prices
Gas prices, like other energy commodities, fluctuate depending on supply and demand. The gas price that has dropped significantly is the day-ahead price. Day-ahead gas prices track real time market events and are more reflective of the market conditions. The market is affected by events such as maintenance issues or supply and demand changes.
Gas suppliers don’t commonly buy gas in short contracts depending on what the day-ahead market shows, as they need to be able to offer stable, fixed prices for their customers in the longer term. They’ll purchase a year’s (or more) supply, sheltered from short term market fluctuations.
Therefore, whilst day to day gas prices have dropped, the price to buy in the longer term hasn’t.
How your business can manage rising energy costs?
Smaller businesses are already feeling the result of rising energy costs. Research suggests that more than half of businesses are already spending £3,000 or more on their annual energy bills, whilst a quarter are spending over £4,000. Here is what you can do to manage the price increase.
Improve your business’s energy efficiency
There are numerous ways that you can transform your business to be more energy efficient. For example, changing your light bulbs to modern, LED bulbs that are more efficient and use less energy. Installing light sensors to turn off when there is no one in the room and unplugging your devices when you’re not using them.
Check with your energy supplier
Many energy suppliers will offer grants or advice to help you lower your bills. You may be able to arrange a payment plan to help lower your costs or change tariffs to a one that better suits your needs. You may also want to consider changing your energy supplier if you can get a better deal elsewhere.
Contacting a third-party company to help you manage your bills
If your business is struggling with its business energy procurement, contacting an energy consultant may be the answer you’re looking for. Energy consultants can help you with your energy bills, some can also source your gas for you to remove the burden from your shoulders.