Credit, Collections & Insolvency News
Business energy costs are set to soar, with electricity bills increasing by an average of 10% to 30% since late February, depending on the sector and the size of the organisation. Gas price rises are steeper still, with Cornwall Insight forecasts showing bill increases of between 25% and 80%, as the ongoing conflict in the Middle East continues to drive wholesale prices higher.
Even near the bottom of these ranges, the impact is significant. Based on our Business Energy Cost Forecast, an average 12-month electricity contract for small industrial and commercial businesses¹ – such as larger retail and leisure sites or small manufacturers – would now cost an average £578,000 – representing £96,000 more than contracts agreed in early February. For gas, bills have risen by £376,000, reaching just over £1.02 million a year.
This volatility is landing at a difficult moment, as April is one of the busiest periods of the year for businesses renewing energy contracts. While we would expect some firms to have secured deals earlier in the year, many are now coming to market just as some suppliers pull fixed tariffs, regularly re-price available deals, or increase risk premiums on the ones that remain. For companies that rely on predictable pricing to plan their budgets, deliver their services and employ their staff, the choice is narrowing and the costs are rising.
The disruption to LNG flows through the Strait of Hormuz has continued to push wholesale prices higher, with traders pricing in the risk of further disruption. Unlike households, businesses have no price cap to insulate them from volatility in wholesale energy costs. The next household cap change will not take effect until July, which builds in a delay before market shifts reach domestic bills. Businesses may not have that buffer, with many seeing the impact immediately and with no safety net built into the system.
The immediate cost impact will vary depending on different businesses’ procurement strategies. Often, larger firms will hedge energy purchases months or years in advance. This means short-term wholesale price spikes do not automatically result in higher bills. However, for companies entering into new contracts right now or with limited hedging exposure, continuing high wholesale prices are feeding through into increased energy bills.
Businesses that have been able to plan, by hedging energy costs, fixing prices ahead of time or investing in on-site generation to lower the need for grid imports, are better placed to weather spikes like this one.
Jacob Briggs, Energy Users Lead, Cornwall Insight said “Since the start of the month, business energy bill forecasts have soared. Many of these companies are already battling slimmer margins, so this rise in energy costs is not something they can simply absorb. For some firms, this could mean the difference between investing in growth this year or shelving their plans entirely, and for others, high bills could force some very difficult economic decisions.
“There is no real safety net for businesses when the wholesale market spikes. Households at least have the price cap to slow the impact; many businesses face the market as it stands today. When fixed offers disappear and suppliers start pricing in uncertainty, companies are left with few viable choices.
“Whilst not immune to market shocks, businesses with a longer-term view of their energy costs are in a much stronger position when volatility strikes, whether that is through smarter procurement, better forward planning with supplier contracts, or investing in ways to reduce their reliance on grid imports. This moment amplifies the broader question on what more government could do, not just in supporting businesses through acute periods of market stress, but in creating the conditions that make it easier for businesses to build that resilience in the first place.”