Business energy costs in the UK have risen sharply since February, intensifying pressure on companies already dealing with uncertain demand and higher operating expenses. Cornwall Insight estimates that wholesale market volatility, supply concerns and rising network charges are pushing bills higher, with many firms due to renew contracts at unfavourable rates.
Key takeaways
- Typical 12-month electricity costs for a small industrial and commercial site have risen 25% to about £638,500.
- Comparable gas costs have increased by around 25% to approximately £1.15 million.
- Businesses renewing contracts in October may face higher prices than previously expected.
- Nearly 90% of business energy consumption receives no support for policy-related costs.
Energy contracts face renewed pressure
Cornwall Insight’s Business Energy Cost Forecast indicates that a typical small industrial and commercial customer—including a larger retail or leisure premises or a small manufacturing site—would now pay substantially more for both electricity and gas than it would have expected earlier in the year.
The increase is particularly significant for companies with contracts expiring in the autumn. Firms that need to secure new prices could find their budgets under pressure just as winter approaches and energy demand traditionally rises.
Geopolitical and supply risks keep prices elevated
Wholesale energy prices have climbed to their highest levels in almost four years amid continuing conflict in the Middle East and uncertainty over future supply. European gas storage operators are also facing greater difficulty replenishing stocks ahead of winter, adding to concerns about seasonal volatility.
Several other factors have contributed to the rise. Heatwaves increased electricity demand for cooling during the summer, while extended outages affecting Norwegian offshore production and strong Asian demand for liquefied natural gas have tightened competition for available supplies.
Non-wholesale costs add to the burden
The increase in bills is not solely being driven by wholesale markets. Businesses are also paying more towards electricity-system balancing and network infrastructure, as the energy system adapts to changing patterns of generation and demand.
Government assistance remains narrowly focused. Some energy-intensive industries qualify for support, while businesses in eight growth sectors identified in the Industrial Strategy are expected to receive help from 2027. However, the majority of commercial energy use currently receives no relief on policy costs.
Companies consider ways to reduce exposure
The effect of higher wholesale prices varies according to how a business purchases energy. Larger organisations that hedge or agree prices months or years in advance may be partly protected from sudden market movements. Smaller firms and those renewing contracts now can be more exposed.
Businesses are responding by combining several measures, including:
- Fixing prices earlier or using longer-term hedging strategies.
- Installing on-site generation, such as solar power.
- Adjusting consumption through energy-efficiency and flexibility measures.
Investment decisions could be delayed
Persistent uncertainty over future bills may make companies more cautious about expanding, recruiting or investing in new premises and equipment. Cornwall Insight said firms that closely monitor market trends and plan their purchasing strategy should be better placed to manage the volatility.
The latest increase highlights the continuing challenge for UK businesses: even where wholesale prices eventually ease, higher network and balancing charges may keep total energy costs elevated for longer.
- Business energy bills have climbed 25% since February, Credit Connect.
