Business prices plus the inflation UK businesses are facing has made 2022 a pretty tough year. Before government intervention, many businesses even had to close due to not being able to afford to keep operations up and running.
Although the panic around energy bills has settled given the recent government support, we are coming into the colder winter months when demand for energy is constantly rising.
To ensure that your business does not suffer with gas and electricity bills the same as last year you need to keep on top of energy and utility bills and make sure you are getting the best possible contracts as early as you can.
Below we will go through how the energy market is going to affect business energy prices over the next couple of months going into next year.
Gas prices have recently fallen
Recently gas prices have fallen globally. However, for this quarter of 2022, they are still higher compared to the same quarter over the past two years.
There has been a few factors contributing to gas prices recently dropping. One reason for this has been lower gas prices across Europe. The EU has managed to get themselves into a good position for gas over the past few months. Despite the lack of Russian exports, European countries have managed to fill storage tanks to capacity.
Another reason for gas prices being lower was the mild weather we saw in Autumn. As the weather was unseasonably warm this Autumn there has been less demand for gas. This will not last long as temperatures begin to go up, and so will demand.
Gas prices are going to rise and stick through 2023
Although we have seen a drop in gas prices, this doesn’t mean they will continue to fall. As of now, it has been predicted that gas prices are going to be rising going into 2023.
There has been a recent global demand for LNG mainly from major markets such as the UK and EU procuring significant volumes.
With the lack of Russian gas, Europe has had a supply and demand imbalance across countries. Countries such as Germany have been rationing gas and urging energy customers to lower their consumption levels. However, with the cold weather coming in over winter demand is likely to spike causing supplies across Europe to be drained.
We are already seeing prices creep up due to the change in weather, if there is really cold weather this is only going to further increase gas prices going into next year.
Demand for gas in the UK is forecasted to be higher than in the last five years for this winter. Energy experts have said that higher gas prices could potentially put people off from consuming a lot of energy. Therefore, this might curb demand slightly, but not enough to bring down gas prices.
Forward pricing of energy contracts is still extremely volatile and is heavily dependent on developments in the global gas market and upcoming weather conditions.
In the UK the supply uncertainty going into next year is one of the primary drives of higher gas prices. UK storage is slowly improving, despite not having the biggest storage infrastructure. Centrica’s Rough storage centre will increase UK’s capacity by 50%. In order for the UK to maintain a low and steady gas market, storage levels need to be a lot higher than they currently are.
The UK electricity market
With gas prices rising we can also expect to see higher electricity prices as well. According to energy experts, electricity prices are entering winter at a higher price compared to the previous two years.
The volatility in the electricity market has originally stemmed from the gas market. Gas prices are the main driver of the electricity markets. This is due to the electricity and gas markets being tied to one another.
There has been contingency plans put in place for power over the winter and into next year. For example, the ESO has managed to secure contracts with energy suppliers to extend the life of coal fired power stations to secure electricity for at least the next year.
This security will reduce the chances of the UK experiencing power cuts; however, this deal will not bring down the price of electricity in the UK.
Electricity in the UK is more uncertain and likely to be more expensive from a consumer point of view.
Get a business energy contract
The price outlook for gas and electricity prices could be a lot worse for next year than it has been. With this, it is best for your business at this time to ensure you are on fixed a gas and electricity contracts. This will shield your business from having to deal with the price volatility of wholesale market prices.
With business support being available it would also be best for your business to be on a fixed rate contract.
The government support states that if you are on a fixed rate contract then the wholesale element of your bill will be capped at 21.1 p/kWh for electricity and 7.5p/kWh for gas.
However, if your business is currently on a deemed or variable rate tariff then you only receive a maximum discount on the wholesale element of your business energy bills. The maximum discount will be up to 34.5p/kWh for electricity and 9.1p/kWh for gas. The discount will be the difference between a deemed wholesale rate and the maximum discount. This means when global wholesale prices go up if you are on deemed rates you are going to be paying a lot more for your gas and electricity than those on fixed contracts.
If you would like to ensure you are paying the lowest prices possible on your business energy bills, then compare quotes here today.
