Business energy costs have risen by a quarter since February, adding fresh pressure to companies across the UK. A typical small industrial or commercial site could now face annual electricity costs of about £638,500 and gas costs of roughly £1.15 million when securing a 12-month contract, according to Cornwall Insight’s latest forecast.
Key takeaways
- Typical electricity and gas contract costs for small industrial and commercial sites have increased by around 25% since February.
- Middle East conflict, weaker gas-storage levels and higher summer demand are driving wholesale-market volatility.
- Businesses renewing contracts in October may face significantly higher prices than anticipated.
- Most companies receive little or no direct support for energy policy costs.
- Hedging, on-site generation and flexible energy use can help reduce exposure.
The rise is particularly concerning for businesses approaching contract renewals. Companies signing new agreements in the autumn may have to commit to elevated prices for the following year, complicating budgeting and investment decisions.
Conflict and supply pressures drive prices higher
Wholesale energy prices have climbed to their highest level in almost four years as the conflict in the Middle East continues. Market uncertainty has been compounded by difficulties refilling European gas storage facilities ahead of winter.
Demand has also been unusually strong. Heatwaves across Europe increased the use of air conditioning and cooling systems during the summer, while extended outages in Norway’s offshore production and strong Asian demand for liquefied natural gas added further pressure to global supplies.
With a lasting ceasefire not yet in sight, businesses face the prospect of continued volatility as colder weather approaches. Lower-than-usual storage levels could make the market particularly sensitive to supply disruptions or sudden changes in demand.
Rising network and policy costs add to the burden
Wholesale prices are not the only factor pushing up bills. Companies are also paying more towards electricity-system balancing and network upgrades, costs that are expected to grow as the energy system becomes more flexible and incorporates more renewable generation.
Government assistance remains focused on selected energy-intensive industries. Around 90% of business energy consumption comes from companies that have not received support for policy costs, leaving retailers, leisure operators, manufacturers and other commercial users exposed to increases.
Support is due to widen from April 2027 through the British Industrial Competitiveness Scheme, which is expected to cover about 10,000 eligible businesses. However, most firms must manage the current rise without comparable relief.
Procurement strategy could limit exposure
The impact will vary depending on how companies purchase energy. Larger organisations often hedge or fix prices months or years ahead, shielding them from immediate wholesale-market movements. However, prolonged high prices can eventually affect more businesses as contracts expire and are renewed.
Companies are increasingly considering measures such as:
- Fixing or hedging energy prices earlier.
- Installing on-site generation, including solar power.
- Shifting consumption to cheaper periods through flexible demand.
- Improving energy efficiency to reduce overall usage.
These measures cannot remove the underlying market risk, but they can give businesses greater control over costs. The latest increase is also likely to influence expansion plans, with uncertain energy bills making it harder for firms to assess the return on new investment or additional capacity.
Sources
- Business Energy Bills Climb 25% Since February, Cornwall Insight.
