Running a business often means that you will have no shortage of paperwork and administration to tackle on a daily basis. Business owners will also be aware of unwelcome seasonal issues, such as the impact of a freezing winter or a poor summer on crops and tourism in the UK – and ultimately on profit margins.
Energy suppliers are also faced with similar uncontrollable factors and anyone keeping a passing eye on the energy market will notice it can be a volatile area when it comes to pricing. To keep things as simple as possible, here is a short, easy to digest guide to understanding the market to help you get the most from your commercial energy contract, whatever the financial or weather forecast.
Energy suppliers constantly track prices against changes and any expected future changes in the energy market.
Wholesale costs can change as energy suppliers buy gas and electricity to secure it for use in the future – sometimes up to three years in advance – which means the cost is impossible to predict.
What impacts wholesale prices?
To put you in the picture, the gas wholesale market is substantially more unstable than the FTSE 100. In recent years, it’s been affected by world events such as growing demand from Asia, unrest in the Middle East and natural disasters like the tsunami in Japan. Because most energy suppliers rely on buying gas on the world market, world events that affect supply and demand can influence local prices here in the UK.
The weather can also impact wholesale prices. A colder than expected winter, like winter 2009-2010 or 2010-2011, will increase demand and usually results in a higher wholesale energy price. If a supplier hasn’t already bought all of the energy they need for those colder periods, they have to buy the extra amount at the higher wholesale energy price.
When it comes to business energy prices, one way to think about them is that they are like mortgages. For example with a fixed-rate mortgage, the longer your deal is and the longer you want your fixed rate to last, the higher the price. The fixed rate option also gives you the security and peace of mind that your rate won’t change for the duration of your contract – one less thing for your business to worry about!
Simplifying the complicated
To find our more about this rapidly-changing market, visit the British Gas “Energy Made Simple” hub, which has further information about the global energy sector and what impact it has on gas prices.