Business Insights: Why do energy prices fluctuate so much?

If you run a business, you’ve likely noticed how unpredictable energy costs can be. One quarter, your electricity bill is manageable—next, it spikes unexpectedly. So what’s behind these fluctuations?

• Global Market Forces

  Energy is now the ultimate global commodity.

  Prices are influenced by international supply and demand, geopolitical tensions, and trade policies.

  For example, the war in Ukraine disrupted gas supplies across Europe, causing wholesale prices to surge in 2022 and 2023.

  Prices have never recovered to their pre-2019 level due to conflicts, supply and demand.

• Fuel Costs and Generation Mix

  Electricity prices are closely tied to the cost of fuels used to generate it - like natural gas, coal, and renewables….yes, we are still using gas to produce electricity.

  So, if gas prices rise, electricity price hikes often follow.

  The UK’s shift toward renewables helps reduce long-term volatility, but short-term changes in fuel prices still have a big impact.

• Infrastructure and Network Charges

  Government policies, such as the Climate Change Levy (CCL) adds to the price you pay as a business.

  Support schemes like the Energy Bills Discount Scheme (EBDS) help buffer businesses from spikes, but they don’t go far enough to protect a business that is a high consumer from sudden changes.

• Weather and Seasonal Demand

  Would you believe that in the colder winters and hotter heatwave summers, energy use increases.

  When demand is high the supply is controlled by the market players with fuel availability in the Generation Mix.

  Renewables generation (like solar and wind) depend on weather conditions. Less sun or wind means more reliance on expensive backup sources.

• Contract Types and Timing

  Businesses on fixed-rate contracts may be shielded from short-term spikes, while those on variable tariffs feel the impact immediately.

  Timing matters as renewing a contract during a volatile period can lock in higher rates.

  Be cautious of brokers and their terms too.

  Also, if you are considering renewables, don’t lock into a contract until you’ve installed the system.

What Can Businesses Do?

Many businesses are paying high rates because they haven’t reviewed contracts regularly, gaining better prices which prices are stable. Exploring sustainability and investing in energy efficiency on-site generation, like solar PV or battery storage has benefits for both the bottom line and the environment. We’re creating more content as this is a question we answer often with our customers. Why not subscribe to get regular updates?

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