UK businesses do not have a price cap on their energy
Unlike domestic energy customers, UK businesses operate in an environment without price cap protection. This fundamental difference in how business and domestic energy markets are regulated has significant implications for commercial energy costs and planning. While households benefit from Ofgem’s price cap system, businesses must navigate a more complex and potentially volatile pricing landscape.
What is the price cap for domestic energy?
Currently, until December 31, 2024, domestic customers benefit from caps of 24.50 pence per kWh for electricity with a 60.99 pence daily standing charge, and 6.24 pence per kWh for gas with a 31.66 pence daily standing charge. This translates to an average annual household bill of £1,717 for those on standard variable tariffs paying by Direct Debit.
Why can’t businesses have a price cap on their energy?
The absence of a business energy price cap stems from the fundamental complexity of commercial energy usage patterns. Unlike households, which generally use energy in relatively predictable ways, businesses have vastly different consumption patterns depending on their sector, size, and operational model. A fish and chip shop, for instance, has entirely different energy needs from a car repair garage, making it challenging to implement a one-size-fits-all price cap system.
This diversity in commercial energy usage requires tailored contracts rather than standardized tariffs. Each business requires a unique approach to energy pricing based on factors such as operational hours, peak usage times, and total consumption patterns. This complexity makes implementing a universal price cap system for businesses practically impossible.
What support is there from the UK government for businesses with their energy bills?
While there isn’t a price cap for businesses, the government has previously stepped in during periods of extreme market volatility. The Energy Bill Relief Scheme (EBRS), which operated from October 2022 to March 2023, provided temporary support by limiting wholesale prices that suppliers paid to generators. This was followed by the Energy Bills Discount Scheme, though both programs have now concluded, leaving businesses to manage energy costs independently.
What is driving UK energy costs?
The energy market’s volatility continues to affect both domestic and business customers. Recent increases in wholesale gas prices, which rose by 29% between February and June 2024, have driven up costs across the board. Due to the interconnected nature of energy markets, these gas price increases affect electricity costs as well, even for suppliers using renewable sources.
Managing business energy costs without a cap
In the absence of price cap protection, businesses need to adopt strategic approaches to energy procurement and management. Forward contracts and fixed-rate deals can provide stability, though they require careful timing and market understanding. Energy efficiency measures become particularly crucial as they represent one of the few areas where businesses can exert direct control over their energy costs.
Could there be a business price cap in the future?
While a formal price cap for businesses seems unlikely in the near future, other forms of support and market regulation may emerge. The government’s approach to energy policy increasingly focuses on sustainable practices and carbon reduction, building on the already long established Climate Change Levy, which may shape future support mechanisms for businesses.
Should I switch suppliers and find a better energy deal?
Without the protection of a price cap, businesses should be particularly vigilant about their energy contracts and usage, and be on the look out for new suppliers and better rates on deals. There is much better price differentiation in the business energy market because of the variety of types of contract, consumption demands and business types (the very same reasons that it is impractical to implement a price cap), so there is every reason to get out there and find yourself better rates!