Rising energy prices are a big topic in the energy industry right now, and we know that costs are a key concern for our customers. There are a number of global influences that have contributed to pushing up energy costs over recent months, from an unseasonably cold spring in 2021, to record low levels of gas storage in both the UK and the EU.
The conflict in Ukraine is currently the most significant factor, due to concerns about the EU’s reliance on Russian gas supplies and the impact of economic sanctions. On the day of the invasion by Russia into Ukraine, forward electricity prices for the coming year increased by nearly 30% compared to the previous day. Prices fell slightly the next day, but then spiked again on Wednesday 2nd March by over 35%. This level of day-on-day movements is unprecedented and, over the course of a week, prices have increased by around 70%.
In addition to this, Ofgem recently confirmed that the domestic energy price cap will rise by 54% from 1st April 20221. While this price cap does not affect business energy users, businesses should be aware that the current wholesale market volatility and record forward electricity prices could make it difficult to agree fixed prices for contracts, or lock in prices under Flex contracts, on particular days.
Customers who have fixed rate contracts are protected from current price volatility until their contract ends, as are Flex customers who have already locked in a price for their forward requirements. However, if you are approaching your contract renewal date during these uncertain times, now more than ever it’s important to understand your business energy needs, the risks faced and the options available. We strongly recommend seeking expert advice, whether from a supplier or an energy consultant, and reviewing the type of energy supply contract you’re on. For example, fixed rate energy contract give you more certainty but also locks in the wholesale prices at the date the contract is entered into, whereas Flex arrangements give scope for you to benefit from future market falls (but similarly also leaves you open to future price rises) and to manage your own hedging strategy.
There are a range of energy contract types out there, so be sure to seek expert guidance to find the most suitable solution for your business during these uncertain times.