Business energy bills forecast to remain 70% above pre-crisis levels

28th August 2024

Data from Cornwall Insight’s newly launched Business Energy Cost Forecast has revealed that a typical small business such as a pub, restaurant or independent retailer is paying over £5,000 more a year in energy bills than prior to the energy crisis, with bills predicted to rise further from the April 2025 – March 2026 contract period.

The small business index included in the forecast, predicts annual electricity bills to be an average of £13,264 by April 2025 – 70% more than 2020-2021. The data is calculated from April to March, aligning with when most businesses renew their energy contracts.

Cornwall Insight’s Business Energy Cost Forecast, the business equivalent of their domestic Default Tariff Cap (price cap) forecast, shows that although energy bills have stabilised in recent years, they remain substantially above pre-2021 levels of £7,000 – £8,000 per year (figure 1) for a typical small business. A trend which is forecast to continue into 2025 and likely beyond.

While wholesale energy prices have decreased since the peak of 2022-2023 – when a typical small business’s annual electricity bill could be expected to reach more than £20,000 – the market has never fully recovered from the impacts of the energy crisis and the Russian invasion of Ukraine, which is keeping prices higher. Global events continue to impact the market, with recent tensions in Russia causing a fresh increase in wholesale prices. This, coupled with a slight rise in standing charges, is expected to push business energy costs up a small amount compared to 2024-2025.

Unlike household energy bills, businesses do not benefit from a price cap to protect them from soaring bills. Business groups have urged the government to increase support, arguing that their rising energy bills haven’t received the same level of concern as household expenses – despite the crucial role businesses play in the economy.

With businesses across the country experiencing similar challenges, these persistently high costs highlight the urgent need for the government to establish a sustainable and long-term energy plan, focused on delivering domestically produced renewable energy, to shield our prices from international volatility, and ultimately lower bills.

Dr Craig Lowrey, Principal Consultant, Cornwall Insight said “Our Business Energy Cost forecast shows businesses are faring no better than households, with bills still substantially above historic averages. While prices may have settled from their peak crisis levels, they are far from being sustainable for the numerous smaller businesses already struggling in this economic climate.

“For all the criticism of the household energy price cap, it does provide a level of protection that businesses simply do not have. Given the impact of the cost-of-living crisis on consumer spending and high street trade, the government will need to seriously consider how to support businesses with their high energy costs if they want to prevent further closures.

“The persistent challenges in the energy market, especially after the turbulence of the past two to three years, highlight just how fragile the energy system remains. Even a minor global incident can ripple through the market, maintaining higher wholesale prices and fuelling ongoing concerns about volatility.

“The only way we are going to deliver sustainable lower energy bills is to deal with the problem at the source – the energy generation. This requires a strong governmental focus on boosting domestic production and reducing our exposure to international disruptions. While this solution is neither quick nor easy, it is essential for achieving long-term stability in energy costs.”

 

Electricity cost per site based on a typical small business usage of 50MWh a year