Your need-to-know guide to wholesale electricity prices
A Complete Guide to Wholesale Business Electricity
Electricity is traded and sold through the wholesale electricity market before it is delivered to individuals, homes and businesses through the national grid. The wholesale cost of electricity is a major component that influences the overall cost of your business electricity bills, and it changes all the time.
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How wholesale prices impact energy bills
The UK’s energy regulator, Ofgem, collects data for monitoring and analysis of the wholesale energy market for gas and electricity. Key market outcomes can be drawn from Ofgem’s analysis of the wholesale price of gas and electricity, which it says has, “a significant impact on retail bills.”
Ofgem also states: “Understanding how and why wholesale prices have changed helps us understand why retail bills have changed.”
Energy companies tend to blame their higher tariffs on external factors such as the wholesale energy market and will increase unit costs in line with wholesale price rises. According to Ofgem, wholesale energy prices account for a large proportion of energy bills. This typically makes up almost half of each energy bill.
Other factors that affect what your energy company charges you for your energy bills include:
- network and distribution costs to deliver the energy to customers,
- operating costs, customer service and account management,
- government taxes such as environmental and social levies.
On top of this, the price you pay for energy will also be affected by:
- your business energy consumption,
- the energy efficiency of your business premises,
- your chosen energy supplier and tariff,
- the type of contract you have chosen.
When you are thinking about changing your energy contract, consider how timing and other factors may affect wholesale prices. The rates offered on energy tariffs will peak during the winter months because these months are dark and cold, driving up the price because there is a higher demand for heating and lighting so that our homes and offices are comfortable.
January and February are generally the worst months to renew or switch your contract because energy companies are affected by the wholesale energy market. Quotes during these months will often provide the worst value for money.
Current wholesale electricity prices
The rates for wholesale electricity in the UK were relatively low in January 2020, but there were energy price peaks in 2013, 2016 and 2018, and the average bill charged by the Big Six energy suppliers has gradually risen from £474 in January 2010 to more than £750 in June 2019.
Prices and demand for energy may remain flat or more stable because of factors such as reduced economic activity or less fluctuation between seasons, with colder summer months and milder weather in the winter months.
Not unexpectedly, the market was affected by major political decisions in 2016. The wholesale cost of electricity rose by 20% shortly before the UK-wide Brexit referendum. Immediately after the outcome revealing the withdrawal of the United Kingdom from the European Union, prices dipped, before rising again.
Considerable energy market peaks happened during the financial crisis in 2008, with energy rates almost doubling and steep price hikes from the Big Six suppliers.
How fuel sources impact wholesale costs
When to renew your electricity contract
Regardless of the wholesale cost of electricity, it’s crucially important that your business looks for new energy quotes each year, and especially when your business electricity contract is coming up for renewal.
If you don’t compare and switch to a better business energy deal or effectively renegotiate your contract, you risk increasing your business costs if you are automatically moved to an expensive default tariff that does not offer good value for money.
It’s estimated that the nature of the energy industry and rollover contracts can increase prices by more than 100%. Despite this, research suggests many businesses will allow their contracts to extend and rollover without exploring their renewal options.
To ensure your business doesn’t overpay for its commercial electricity contract, it’s a good idea to keep a close eye on your energy deal options. Compare tariffs and suppliers using our free online tool and switch contract when your current contract comes to an end.