Wholesale electricity prices in the UK are determined between buyers and sellers and change daily. Depending on your contract type, the wholesale rate can have either a very large or negligible impact on your business energy costs.
Having an understanding of wholesale energy prices can help you find best gas and electricity deals for your business. Here, we offer advice on what you need to know about the wholesale energy market and the latest wholesale electricity prices.
What is Wholesale Energy?
Simply put, wholesale energy is gas and electricity purchased in bulk to resell for a profit. Energy suppliers will purchase wholesale gas and electricity from energy producers before distributing that energy to customers.
Some large multi-national corporations will buy their energy directly from the wholesale market. However, this is rare and is not a viable option for most businesses.
2021 Wholesale Energy Prices & Trends
Nevertheless, the reason why plummeting energy prices have not resulted in proportionate decreases in energy bills is that even with lower wholesale costs suppliers are still faced with the other 58% of the costs not made up by the wholesale market.
In 2021, wholesale electricity prices stand at 3 pence per kWh. Gas wholesale prices are much lower at 0.45 pence per kWh.
What Affects Wholesale Energy Prices?
However, if the energy companies judge future demand wrong, they will have to buy electricity and gas on the open market. The open market rate can be affected by things such as:
Weather: When the temperature drops demand for gas in particular increases sending prices higher. However, if temperatures soar you may see an increase in electricity usage due to the use of air conditioning.
Time of the Year: Demand for both gas and electricity tends to increase in the winter as the days grow shorter and the night grow colder.
Infrastructure: Investment and repair of the UK’s energy infrastructure also has an impact on the wholesale price. If an unexpected event damages the ability of suppliers to supply energy, you can expect prices to rise.
Speculation: Since energy is traded in a market you get people trying to make money off which way energy prices will go. This can either increase prices or decrease prices depending which way traders bet.
World Events: The UK no longer produces all its own gas and so must import it from abroad. This means political unrest in the Middle East and Russia or the recent fracking boom in the US all impact the price UK energy suppliers pay in the market.
When wholesale energy prices fall will I automatically see a decrease in my business energy bill?
The short answer is: No!
Ofgem, the industry regulator, does not set electricity or gas prices and so can’t force the companies to pass savings on to you and your business.
However, the longer answer is that it depends on what type of customer you are. If you have a half hourly electricity meter or a daily gas meter, you’re likely already on some form of variable rate tariff.
Same goes for anyone not on a fixed term, fixed price contract.
The bottom line is that if you have a variable rate contract you should see your bills decrease, but just keep in mind wholesale electricity and gas prices are only one part of your bill. Other costs are likely to increase, offsetting some of the savings.
How do I avoid price fluctuation?
Depending on your energy usage, you may be able to qualify for a fixed price, fixed term tariff from one of the UK’s many energy suppliers. The advantage of such tariffs is that you know what your costs will be for the next 1, 2 or 3 years.
The downside is that they can lock you into higher business electricity rates when energy prices fall.
To understand a bit more about your energy options please get a free quote here.