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The truth about business energy prices

npowerAs we predicted earlier this week another domestic energy supplier, nPower, has announced a price cut. On Tuesday we said:

“The simple rule is, following pressure (or on the odd occasion the desire to be seen as a market leader) one of the Big 6 will move their price (up or down) by a defined amount. Within one week a second member of the Big 6 will have done so. Within the following 10 days 3 more will have announced price changes in the same direction and to the same magnitude with one outlier taking a little longer than the rest.”

If only life were so simple in the business energy market. It isn’t.

But that doesn’t mean we lose out, not at all. In fact the straightjacket of the ways and wherefores of the domestic energy market are resolutely not something the business energy market would be thankful for.

We benefit from a price far more aligned to the reality of the wholesale market price and therefore much more volatile – in both a good and a bad way. In the last week alone the gas price has moved thus:

And with prices far more reflective of these trends in the business energy market, depending on the day your business interacted with the market this week it would have resulted in a potentially very different price.

This is positive news. Although exposure to wholesale costs is greater, the opportunity to strike a deal is far higher.

The key is that in the business energy market you do not need to sit and wait for the suppliers to act, you can make the suppliers act through your own engagement.

The corollary is because the business energy market does not operate in the same way as the domestic energy market, the broadsheets and red top tabloids alike get their advice and understanding very wrong all too often.

Some points of clarification for the Guardian, Telegraph, Times, Independent, Sun, Mirror, Mail…….

  • The business energy price is NOT driven by or connected to the domestic energy price.
  • There is NO prospect of a mass movement downward in the cost of domestic energy (more than the 5% already seen that is).
  • There is absolutely NO prospect of a mass movement downward in the cost of business energy that isn’t directly aligned to the behaviour of the wholesale market.
  • The wholesale market can ONLY fall to a certain level and always has a natural base point well above ‘zero’. This point will be the level at which it fails to be economic to produce gas or generate electricity. When that point hits production and generation will falter, supply will reduce, however demand will not, prices will initially stabilise and then quickly rise until the economics of production once again rise to the required level.
  • The wholesale market is NOT driven by the price of oil. Broadsheets and tabloids please stand corrected.
  • The wholesale market IS driven by supply, storage and weather. Where the weather is mild (it is), storage is abundant (it is), and supply is economic (it still is), there will be a glut of supply and a diminishment of demand. The price will fall.

It is that simple.

Simple but volatile.

Volatility drives cost but also opportunity.

Knowing one’s way around the volatility is priceless.

The broadsheets and red top tabloids don’t have this knowledge.

Follow the facts, not the sensationalism and questionable forecasts.