If you’re stuck between a rock and a hard place when it comes to business energy, you’re not alone. With unprecedented wholesale price rises, business owners have felt the impact of rising operational costs.
This brings us to the question, should you fix your business energy rates now or wait to see what happens? We’d all like to think that cheaper energy rates are just around the corner, but the truth is, nobody knows.
Should I Lock-In My Business Energy Rates?
Nobody knows your business better than you. Depending on your attitude towards risk will very much answer your question. Although predictions are that energy prices will continue to rise, nobody knows for sure. This means that if you decide to lock in a business energy price today, you could save money against tomorrow’s possible price.
Many business owners are locking in today’s prices for 2-3 years with historic pricing trends over the last few years telling us that this is likely to be the new normal.
What If Business Energy Prices Get Cheaper?
Many are unaware that you can agree on your next business energy rates up to 12 months before the contract end date. For those proactive enough to be shopping around early, this is a great strategy as a price can be locked in now to automatically commence the day after your contract end date.
Why Are UK Energy Prices So High?
Energy prices have sky-rocketed in recent times and the energy market has changed as a result of this.
A worldwide squeeze on gas prices and energy suppliers has seen consumers facing significant increases when they come to renew their energy tariffs.
Wholesale gas prices have hit an unprecedented high of 450 pence per therm. This has placed real pressure on energy suppliers as fixed prices agreed previously have seen them losing money on the gas and electricity provided.
A number of factors have combined to see the wholesale prices increase so dramatically. A cold winter in Europe and increased demand from Asia put real pressure on supplies. Combined with other geopolitical factors, supply and prices have been severely affected.
The UK has been hit particularly hard due to our high gas and electricity usage and a lower storage capacity than many other nations.
These reasons, combined with other geographical factors and supply chain issues, have resulted in our current energy situation.
Source: Cornwall Insights
How Has This Affected The Energy Price Cap?
The Energy Price cap only applies to the domestic market. It is hard to understand what business energy prices are going to look like in the future and domestic energy prices may not accurately predict future trends.
The Energy Price Cap places a limit on the amount suppliers can charge domestic customers for gas and electricity. The price cap aims to reflect wholesale prices and protect customers on default standard variable tariffs from sudden price hikes.
However, the energy price guarantee currently supersedes the price cap. This means the amount suppliers can charge for each unit of energy is limited - similar to the price cap. The energy price guarantee will continue until March 2024.
Here are the current price guarantee rates for the average UK household:
- Until March 2023 - £2,500 per year
- From April 2023 - £3,000 per year
Why Fixing Your Energy Prices Could Be A Good Idea?
As prices increase, customers may be tempted to move to a fixed price tariff to avoid any upcoming hikes. This is only a good strategy in certain situations.
For example, if you find a tariff around 45-50% more expensive than the current price cap, you will almost certainly be paying a cheaper energy rate than those still on the price cap this winter.
However, it’s important to remember that we don't know what will happen post-2024 when the energy price guarantee is set to end. In normal circumstances, the price cap does not affect fixed-rate deals. As a result, many suppliers had set fixed-price deals well above the price cap to make up for a shortfall from standard variable deals.
What Will Happen To UK Energy Prices In 2024?
It is difficult to predict what will happen beyond 2023. However, the energy price guarantee is set to stay in place until 2024. This is a good indicator that business energy prices will continue to be high for at least another 1-2 years, and possibly 3. Many business owners are choosing to lock in prices today with the anticipation of saving money against likely future prices.
Reasons to keep your prices fixed
Many people simply prefer the stability and peace of mind provided by a fixed-rate tariff. Even though it may leave you paying over the odds currently, knowing your unit rate for gas and electricity will remain steady can be important.
How to find the best energy deals
It’s important to remember that the energy market has changed significantly in recent months. When switching to a new deal, you have little to no chance of finding a tariff that is cheaper than your previous contract.
Comparing prices from as many suppliers as possible is still important for domestic customers. With Love Energy Savings, you can quickly compare the latest energy prices and view your estimated yearly costs online.
We’d always recommend having as much information as possible when comparing energy tariffs. This includes your renewal quote, the energy price cap tariff costs, and the cost of your supplier’s standard variable tariff.
To start your switch, compare the latest energy prices with Love Energy Savings.
Compare Business Energy Prices Now
How To Reduce Energy Bills
Of course, there are other ways of reducing your energy bills this winter. Reducing consumption is currently the best way to save money.
Your home heating accounts for around 62% of your annual energy bill; this includes water heating. Heating your home more efficiently is likely to have a positive impact on your energy bills. Whilst large purchases may be out of the question at the moment due to cost, it may be worth going around your home draught-proofing. Pay particular attention to doorways and windows.
Switching to LED lightbulbs could save you around £40 per year. It doesn’t seem like much but adds this up with other energy-saving efforts and it soon makes a difference. You may also want to keep this in mind at Christmas when you’re hanging your lights.