Business customers could see their bills rise by 125% once their contracts end. In addition, credit may not be returned if your supplier goes bust.
As you will be only too aware, wholesale energy prices have risen sharply in recent months. As a result, gas and electricity prices globally have reached record highs, with some energy suppliers buying at a higher price than they are selling. This situation has resulted in 29 energy providers going into administration, with many more still in a precarious position.
Reduced supply and high demand are the principal reasons for the rise in wholesale gas prices. Prices dramatically decreased during the covid-19 pandemic, as countries locked down and demand plummeted. However, since global economies have reopened, the speed in demand change is unprecedented.
In addition, Russia’s ongoing invasion of Ukraine has led European countries to introduce economic sanctions in response, including the cancellation of Nord Stream 2. This pipeline would have supplied natural gas to Germany directly from Russia, the world’s largest natural gas exporter. Although the UK gets little of its supply directly from Russia (approximately 4%), if supplies are constricted in Europe, it drives up global demand and prices.
The UK is also hard-hit, as about 85% of homes are heated by gas central heating. In addition, a third of the country’s electricity is generated by gas, driving up electricity costs. The UK also reduced its gas storage capacity in 2017 by 70% when the Rough storage facility closed following a government decision not to subsidise the expenses needed to keep the site going. This reduction means that the UK’s stores hold enough gas to meet the demand of four to five winter days or just 1% of Europe’s total available storage.
Ofgem’s decision to increase the price cap by 54% from April 1st, 2022, shows just how dramatically energy costs have gone up. However, if British wholesale gas prices remain this high, it will significantly impact consumers. Analysts have even warned that April’s new energy price cap of £1,971 could increase to more than £3,000 at the following review in October. This adjusted level would equate to an extra £250 a month on energy bills. Ofgem has also recently floated the idea of reviewing the price cap every three
months instead of the usual six. This approach will support suppliers by allowing them to raise prices more quickly and avoid further collapses.
As the price cap does not cover businesses, some could potentially see their bills rise by125% once their contracts end. In addition, some business customers whose suppliers go bust during this current energy crisis may not see any of the credit they've built up returned.
If your contracts are drawing to a close, we advise you to speak to Beacon as soon as possible. We work with supply partners such as zero-carbon consultants Beond, who can advise you on the best course of action during this intense period of market volatility. We also partner with Taurus Energy, a provider that can help you save up to 20% on your electricity usage through voltage optimisation.
Although measures such as smart climate control and air sourced heat pumps can contribute to savings, simple things like low energy light bulbs can reduce operating costs over time. Conserving resources is good for both business and society; however, higher rates may make implementing energy reduction solutions more critical than ever.