Business energy buyer’s guide 2024

Looking for a new business energy supply quote? There’s one thing every business has in common – the desire to get the best possible price for your next business energy contract. However, to achieve this, there are a few decisions you need to make:

• When should you look to secure your contract? Do you contract early because you think costs will rise further? or, should you hold off because you believe costs will fall before you fix your price?
• How long should you secure your contract for? Do you sign for one year or less to limit your potential exposure to higher energy prices? or, do you opt for a longer contract to take advantage of lower energy prices further into the future?
• How fixed do you want your price? Do you want complete price certainty for your entire contract duration? or, are you happy to take a slightly cheaper option that could result in price increases at a later date? 

Which contract type is right for my business – a fixed or flexible price contract? 

Should you opt for a fixed or flexible price contract? Fixed-price contracts offer some stability, but that usually comes with a premium. 

Being aware of current market conditions and what the future market forecasts look like is crucial as if you lock yourself into a fixed price contract and your timing is misjudged, you could be stuck paying higher than the market rate. 

It’s also worth remembering that if you let a fixed contract expire without arranging a new one, your supplier will place you on its out-of-contract rates. These are often more expensive than the rates you are offered on the fixed deal. 

If your business uses high volumes of energy, you could benefit from a flexible contract option. With this type of contract, you may be able to fix the non-energy costs and buy your energy in bulk ahead of time.

With a flexible energy contract, you can capitalise on advantageous wholesale rates by procuring energy in advance for future months or years, typically during low-cost periods.

This sets the cost you will incur when you consume that energy supply. However, there are risks, as you may have already purchased energy at a rate that could be higher than future rates if they continue to drop or if you are caught out of contract when energy prices are much higher.

What factors impact my business energy quote?

In this volatile energy market, there are some key factors to be aware of that feed directly into your business energy quote and have a big impact on the price you’ll pay. This guide will help you make sense of those variables to help you with your energy purchasing. 

Your energy bill comprises two main elements:

• The cost of energy (gas and/or electricity) purchased on the wholesale market, which can be fixed by buying volume at a specific time.
• Non-energy costs, which are set by third parties and are related to the delivery of your gas and/or electricity and investment in future generation.

The wholesale power cost (energy cost) changes constantly but normally by small amounts. Sometimes though, the movements can be large. For instance, with growing intermittent renewable generation and the lack of ways to store energy in the UK, when it looks like supply may struggle to meet demand the wholesale power price can spike. But regardless of whether the day-to-day movements are large or small, they instantly affect the energy price offered to you by suppliers. That’s because your price reflects the wholesale power price on the day we quote you. 

Non-energy costs are a bundle of charges, relating to transport and environmental factors, making up more than 60% of your total bill. These tend to change less often but in larger jumps. However, the regulator has been reviewing some of these larger costs to make sure they’re both fit and fair for the current market. This resulted in significant changes to the way that transmission, distribution and balancing costs (TNUoS, DUoS and BSUoS) are charged. These changes will have a huge impact on the quotes you receive. 

What other factors influence the price of my business energy quote?

Gas prices: The gas market is key in driving power prices as gas generation provides a large source of supply and is generally the most expensive source of generation needed to meet demand. 

Gas prices are impacted by the supply/demand balance, with the weather a key driver of demand. Supply comes from a variety of sources, ranging from pipeline flows from the North Sea to Liquefied Natural Gas (LNG). 

The price of carbon:  The cost of carbon relates to the tax levied on large emitters of CO2, including that from power generation assets (gas, coal). The carbon market became ever more relevant when the prices surged higher, adding a further premium to the UK power price.

What’s been happening with electricity prices?

In 2022, we saw a huge peak in the price of electricity, reaching a record high. 2023 brought some relief, with the trend showing a gradual decline by the end of the year. Although wholesale rates have been affected by global tensions and geopolitical events in the Middle East and Ukraine.

How can I keep track of what the market is doing?

The market volatility has shown us that you can’t take your eye off the energy cost (the cost of power on the wholesale market). This is still the single biggest component of your energy price. The price of gas and carbon as well as the geopolitical climate all impact the wholesale power price. That’s a lot to keep tabs on. But don’t worry, we have all the information you need right at your fingertips. We publish all our latest analysis and figures from our experts in our Market Insight portal or your account manager is on hand to support you:

Market Insight: Use our online portal to track commodity prices and get the latest view from our analysts on what’s driving these. You can also get the latest wholesale power market prices alongside expert commentary in our fortnightly Market Pulse. 

Talk to your account manager: Speak to us today to discuss your next contract. We have a range of contracts to suit your needs and help you make the right energy decision for your business.