Why are energy prices still at record highs?

Over the past four months, the energy market has reached new records. It is proving a considerable hurdle for businesses navigating substantial increases in a short period of time.

Business energy prices continue at record levels, but what’s causing the unprecedented cost of energy? Here are the key factors driving the wholesale energy market:

1. Less wind than usual in 2021, resulting in a decline in energy produced by wind farms, leaving the UK more reliant on gas-fired power stations.
2. Sanctions against Russia, the world’s largest exporter of natural gas.
3. Due to a cold 2020/21 winter, the gas reserves are low, making the UK reliant on importing natural gas.

Increase in wholesale gas prices:

Wholesale gas prices have maintained the same record levels over the last four months. Gas reserves are relatively low, which means the UK depends on importing natural gas from the European market.

In response to Russia’s invasion of Ukraine, Germany has cancelled the Nord Stream 2 gas pipeline. The economic sanctions against Russian mean that the demand is expected to exceed supply raising prices for all European countries.

Increase in wholesale electricity prices:

Wholesale electricity prices have maintained record levels throughout the last four months, mainly due to the increased cost of producing electricity through gas-fired power stations. One third of the UK’s electricity is generated through this method, meaning electricity prices correlate closely with gas prices.

The cost of electricity is being driven higher also due to the increased cost of carbon allowances. The carbon allowance is a tax scheme introduced by the government to discourage the generation of electricity from non-renewable sources.

Here’s how you can secure better energy rates for your business:

How to minimise the cost of business energy rates

Firstly, use the AquaSwitch business energy comparison tool to compare business electricity and gas rates to ensure your business is paying competitive rates.

It’s also crucial to focus on reducing unnecessary consumption of energy. Here are a few easy steps businesses can take:

• Insulate your offices or factories
• Switch appliances off or set a timer
• Turn off lights when they are not in use, or install a timer
• Use LED bulbs
• Go paperless
• Educate staff in energy efficiency
• Install a smart meter

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