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Where are business energy prices going?

In the latest in our series of questions to the boss, we focus on the commonly asked question of

“Where are business energy prices going?”

Business Juice:

“The general direction is upwards…”

“The energy market is naturally volatile however there are currently, and for the foreseeable future, significant other pressure points on prices.”

Pressures on Price

These include

  • the ongoing Ukrainian situation and its impact on gas supplies,
  • the UK’s reliance on imported coal,
  • the phasing out of nuclear and fossil fuel power stations,
  • the renewal of the networks,
  • the need for new power stations,
  • the development of renewables,
  • the roll out of smart metering
  • the environmental targets that need to be met by 2020 and beyond

All of this costs money, sums that will need to be recovered through bills.

Whilst we can’t say for certain what the price will be, it is moving in only one direction, upwards.

Who’s the cheapest?

Happily there will always be a cheapest option in the business energy market. Unlike in domestic energy prices don’t all move together and energy suppliers will offer very different deals from each other.

Cheapest however can be measured in one of a number of ways:

  1. Lowest unit rate
  2. Lowest annual bill
  3. Lowest estimated cost over 3-5 years

These may all sound the same but a unit rate can be low, yet the standing charge could be very high, this could mean the lowest unit rate does not end up as the lowest annual bill.

Even if you do happen across the lowest annual bill, this may be so for a single year, however when it comes to contracting for the second year, prices may have moved significantly meaning your cheap one year deal has left you high and dry for the following years.

This probably sounds frustrating but to provide a true comparison all that is needed is:

  1. Your estimated usage
  2. Your SNumber (Electricity) or MPRN (Gas)
  3. Your permission to undertake a credit check

Once we have this Business Juice can then produce bespoke prices from all eligible suppliers for your needs.

You can then decide which is cheapest in real terms for the needs of your business.

We can even give you a benchmark of what your future contract costs may be if you choose only a one year deal, so you can make the right commercial decision for your business.

Should I fix for a longer term?

In the current market environment our advice, depending on your business’ circumstances, would always be to fix for longer.

It is true that the cheapest one year deal is cheaper than the cheapest five year deal however what this does not take account of is the relatively small premium to be paid against the cast iron certainty that your energy price will not change over 5 years regardless of what happens in the market.

We know some of our customers like to have regular freedom of movement and so sometimes opt for single year contracts and we are happy to support them in this but as a general rule fixing for longer is a very sensible approach right now.

How much more expensive is a 5 year deal?

Currently, the cheapest 5-year deal is only 4% more than the most expensive 1-year deal, however it is around 15% more expensive than the cheapest 1-year deal.

This may sound considerable, however it is necessary to factor in the potential future cost of contracting for years 2-5.

At current market rates, taking individual 12 month contracts to cover that period would cost an additional 6% against the 5-year deal and that’s before any future movement in the cost of energy.

Ultimately it comes down to your business’ appetite for risk, but a small premium today could save significant headaches in the future.

Ask the Boss

If you’d like a burning business energy question answered then please contact us on 0800 051 5770 or and you could be featured in the series.

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