Currently, the share of expenditures allocated to gas and electricity has reached levels unseen in UK business budgets for an extensive period, perhaps even unprecedented.
For the business owners and directors, tasked with ensuring the operational lights remain on, the unexpected upheavals in the business energy market over the last 18 months are likely not unfamiliar.The root causes of these developments, their potential recurrence, and the trajectory of business energy prices in 2024 all beg further exploration.
Following a period of erratic and significant price fluctuations in 2022, some semblance of stability has emerged in 2023.
Despite this, energy prices remain twice as high as they were at the beginning of 2021, surpassing a concurrent inflation rate of approximately 11%.
In contrast to households, business energy did not receive a price cap; instead, the government introduced discount schemes to alleviate immediate challenges.
The initial initiative, the Energy Bill Relief Scheme, operated from October 1st, 2022, to March 31st, 2023, succeeded by the Energy Bills Discount Scheme on April 1st. While the names may sound similar, a closer comparison reveals a significant cut in funding, and prices have not exceeded the required minimum threshold since December 18th, 2022, well before the scheme's initiation.
Both business owners and households must consider two critical factors:
The domestic energy price cap will rise by £94 from January 1st, 2024, reaching £1,928 per year, though it is essential to note that only unit rates are capped, not the final bill. Those with above-average energy consumption may incur expenses exceeding the cap.
Business energy lacks a price cap, and despite potential declines in rates, prices remain uncapped, with diminished government support since April.
Business energy prices respond to the live market and fluctuate weekly. Despite a 50% reduction in wholesale prices since October, this does not guarantee future changes.
According to Ofgem, "In the medium term, we're unlikely to see prices return to the levels we saw before the energy crisis."
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