Businesses could see energy bills increase fivefold in October
Businesses could see energy bills increase fivefold in October
Businesses in the UK will see their energy bills rocket when new contracts are negotiated in October1 according to data from Cornwall Insight. Some will face bills five times their current price, as concerns over Russian gas supply, tight electricity markets in Europe, and a global disruption to Liquified Natural Gas see prices spike.
Business energy prices have been surging for 15 months with increases proportionately higher than those experienced by households under the Default Tariff Cap (price cap). Those who negotiated two-year fixed price contracts in summer 2020, are potentially facing a substantial fivefold rise in October, with those renewing an annual contract due to see bills twice what they paid this year, which in turn was double what had been seen during 2020-21.
It is feared, higher energy costs could force business closures, with the corresponding job losses reverberating throughout the economy.
While the business energy markets have so far managed to cope with the price increases already experienced, it is feared that October’s increase in bills coupled with the other economic concerns being seen in the market, could tip businesses over the edge. This is particularly true for certain firms whose profitability is most exposed to energy cost increases, including hospitality, leisure, retail and many in the industrial sector. Some of these sectors are concentrated in regions that have been positioned in the UK Government’s Levelling up agenda, which could damage any efforts to boost productivity and raise living standards in these areas.
Suppliers’ reluctance to take on new customers and the struggles of brokers and intermediaries to secure the quantities of quotes for their clients that they have been used to are sign posts of where the business energy sector could be heading. With businesses potentially struggling to get credit insurance, which limits business risk, increasing supplier concerns.
Figure 1: Indicative breakdown of business electricity costs
Breakdown of Projections, Half Hourly Metred Low Voltage Connection (i.e., office blocks and supermarkets) Archetype, Nominal (£/MWh)
“We must think much harder about what this energy crisis is doing to business. This is not only to ensure we don’t see loss of output, but so we don’t see companies with heritage, roots in their communities and otherwise good prospects washed away. Such an outcome would have consequential impacts on real people and families not just company balance sheets and GDP statistics."