Changes in wholesale energy prices can have a real impact on your business energy bills. Gaining an understanding of the wholesale energy market and the latest prices can help you in finding the right business energy deal.
Here, Business Energy explains the latest wholesale energy prices and how they can affect your business energy costs.
What are the Wholesale Energy Prices in 2021?
The latest wholesale gas and electricity prices are published by Ofgem once a quarter. These are usually published in pounds per MWh for electricity and pence per therm for gas. Here, we’ve converted the costs to pence per kWh (which is how your unit rate will be charged by your energy supplier).
The latest wholesale electricity price is 4.53 pence per kWh. The latest wholesale gas price is 0.45 pence per kWh.
Since 2018, wholesale energy prices have fallen quite sharply. However, prices once again began to increase in the latter half of 2020.
What Affects the Cost of Wholesale Energy?
As with any commodity, wholesale energy prices are subject to change depending on supply and demand.
Energy suppliers buy most of the gas and electricity we use in advance. This helps energy providers to reduce the number of changes to our energy bills.
Many factors can dictate the cost of wholesale gas and electricity.
The Current Gas Supply
The UK now imports large amounts of the natural gas we use. As a result, we rely on the supply of gas to keep prices steady. If pipelines in Europe go offline, gas prices can spike in the UK.
As so much of the UK’s energy is used for heating, cold temperatures often see demand increase and wholesale energy prices go up. During warmer spells, demand and wholesale costs will often fall.
As wholesale energy is bought in advanced, these changes will often be linked to forecasts.
Our wholesale energy prices are also linked to the Pound’s strength against the Euro. Wholesale gas and electricity prices will often fall when the Pound is stronger. Reductions in the Pound against the Euro can see wholesale energy prices increase.
The wholesale energy market is also affected by current global events. The COVID-19 pandemic initially led to a reduction in global wholesale prices.
Events in countries that produce high levels of gas or oil can also have a significant impact on the UK’s wholesale energy costs. Due to our reliance on imports, conflicts or natural disasters can significantly increase our wholesale prices.
As energy suppliers are encouraged to meet carbon emission targets, charges are applied to providers based on the amount of carbon dioxide they use.
Energy suppliers falling behind on carbon targets are required to pay a higher price. These increases can lead to price increases across the wholesale energy market.
How Does the Wholesale Energy Market Affect My Bills?
Changes in wholesale energy prices will affect where your supplier sets your gas and electricity unit rate. Immediate price changes will depend on the type of business energy tariff you’re currently on.
Variable rate tariffs will be affected by wholesale price changes as your unit rate can rise and fall during your contract. If you’re on a fixed rate tariff, your unit rate will always remain the same throughout the duration of your contract.
Wholesale energy prices make up 42% of a business electricity bill. Other costs include:
- Taxes (24%)
- Distribution (16%)
- Operating Costs (11%)
- Profits (7%)
Can Businesses Purchase Wholesale Energy?
Some large industrial businesses do purchase their energy directly from the wholesale market. However, this is rare and is generally reserved for companies with the largest energy usage.
Is There an Ideal Time to Switch Energy Suppliers?
To get the very best energy deals available, businesses may be tempted to switch energy suppliers when wholesale prices are expected to be at their lowest. In the UK, this is commonly in the spring or early summer months.
However, the most important thing to consider when you switch business energy suppliers is your renewal window. If you allow your renewal window to expire, you will often be placed on a rollover contract.
These rates can be much higher than negotiated rates. No matter when your energy contract ends, you should aim to switch tariffs and avoid rollover contracts. Any savings made by renewing when prices are lower are likely to be cancelled out if you are forced to initially pay higher rollover rates.
When you choose to switch with Business Energy, we will stay in touch when your current deal is approaching its renewal window. You can then arrange to switch to the cheapest available deal when your contract comes to end.
To find out how much you can save by switching business energy suppliers, simply complete our quick online comparison form.