Does the energy price cap apply to businesses?
What is the energy price cap?
The energy price cap is the maximum amount that energy suppliers are allowed to charge per kWh of gas and electricity (unit rate) per year.
The energy price cap only applies to domestic energy customers on standard variable rate energy tariffs (SVTs). It doesn’t affect customers on a fixed-rate tariff.
How much is the cap?
Ofgem announced that from 1 April 2022, the energy price cap on variable tariffs will increase by 54%. This means that these energy bills will, on average, increase by £693, to £1,971 per year. For households on prepayment meters, the average annual bill will rise by £708, to £2,017 per year.
It’s estimated that the price cap will impact almost 22 million customers as the uptake of variable tariffs has increased.
Importantly, the price cap only sets the maximum price that suppliers can charge for each unit of energy. It’s worth noting that there is no limit to how much people can end up paying. High energy consumption will still lead to higher energy bills.
What does this mean for businesses?
The energy price cap is likely to indirectly affect businesses trading out of a commercial property.
Even if businesses do have bespoke procurement for business gas and business electricity, they might still face higher charges in their energy costs. Energy suppliers may increase charges to businesses in order to recoup their costs.
What should I do about my business energy?
There’s little doubt that the energy market will remain highly volatile going forward. However, businesses who are soon up for renewal will need to secure a price for their energy, even if the market is higher. So what are the solutions for businesses?
1. Smarter procurement
Whilst the cost of short-term energy contracts is high, contracts in the long-term are priced lower. Organisations looking to renew their contracts within the next 6–12 months can mitigate the short-term record pricing by “cost averaging”. These organisations should secure the longest contract term possible. This will average out any prices you pay by taking advantage of lower market prices further out on the curve.
2. Review your contract type
The government’s own forecast predicts that energy prices will continue to rise over the next decade, meaning that the volatility will become a common theme.
Businesses need to remain flexible and open to new ideas on how they operate and when and how they consume their energy. This means that businesses on Pass Through or Flexible Contracts will have the flexibility to shift their operational hours minimally by just a few hours to take advantage of lower energy rates and avoid paying peak rates.
Rather than securing your energy costs through a Fixed Rate contract, which allows little flexibility, Flexible or Variable Rate contracts may allow you to take advantage of lower energy prices depending on the time of day in which you use your energy.
For example, energy used between 4–8pm is often considered peak time. During this period, you will pay the highest rate for your energy consumption, which is typically 20 to 40 percent more expensive than other times of the day. Variable rates have proven highly popular as a result of the added flexibility.
3. Energy efficiency for your business
If your business is in the retail sector, check out our guide on energy saving tips for retailers. Simple solutions such as energy-efficient lightbulbs can lead to significant savings on energy costs. For businesses in the food and beverage sector, see our guide on energy saving tips for restaurants and cafes.
If your business is due to renew their energy contract, you can find your renewal options in just 10 seconds with BusinessEnergyQuotes.com. If you’re looking to compare gas and electricity for your business, we make sure you get the most accurate energy deals on the market.
4. Monitor your energy consumption
For consistent returns and reduced energy spend, businesses should also engage with energy management and energy monitoring.
Energy management is the process of monitoring, controlling, and optimising energy in a building, site, or organisation to satisfy both economic and environmental requirements.
The hardware and software technology of an energy management system (EMS) solution allows businesses to visually see through data-rich and easy-to-use graphs and reports exactly how much energy their business is using and losing.