The ongoing conflict in the Middle East has further driven up wholesale prices, which in itself will increase energy costs for businesses.
According to a recent analysis by energy consultancy Cornwall Insight, depending on the sector and size of the organisation, electricity bills have risen by an average of 10-30% since the end of February.
Gas prices are expected to rise even further, between 25% and 80%. Even the lower end of these forecasts could have a significant impact on small businesses, according to the energy consultancy.
An average 12-month electricity contract for small commercial and industrial (C&I) businesses would cost £96,000 more than those agreed in early February, while gas bills have risen by £376,000 over the same period.
The energy consultancy added that this energy volatility came at a “difficult time” as April was one of the busiest times of the year for companies to renew energy contracts.
Jacob Briggs, Energy Users Lead at Cornwall Insight, said: “Since the start of the month, business energy bill forecasts have soared. Many of these businesses are already struggling with tighter margins, so this increase in energy costs is not something they can simply absorb. For some businesses this could mean the difference between investing in growth this year or shelving their plans entirely, and for others, high bills could force some very difficult economic decisions.”
Briggs added that unlike households, businesses do not have a price cap to smooth out the volatility of wholesale energy costs. Households still have a buffer until July before the new ceiling change, a buffer that businesses do not have and which are already seeing the impact of the Strait of Hormuz blockade, which has led to a sharp increase in oil and gas prices.
This prompted the trade organization Global Renewables Alliance (GRA) to call on policymakers earlier this month implement measures to accelerate the deployment of solar energy and other renewable energy sources.
“While companies with a long-term view of their energy costs are not immune to market shocks, they are in a much stronger position when volatility strikes, whether that is through smarter purchasing, better planning with supplier contracts, or by investing in ways to reduce their dependence on imports from the grid.
“This moment reinforces the broader question of what more government could do, not just by supporting businesses during acute periods of market stress, but by creating the conditions that make it easier for businesses to build that resilience in the first place.”
