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Business Energy Contracts: Why Waiting for the Residential Price Cap Drop May Cost You

In the intricate dance of energy markets, understanding the rhythm is crucial, especially for businesses. Many business clients hold the belief that the residential price cap drop scheduled for April 2024 will affect their energy contracts—a misconception that could lead to missed opportunities. Let’s clarify why the residential price cap is a different tune to the one businesses dance to.


Blog banner featuring an illuminated cityscape transitioning from day to night with residential houses in the foreground and towering skyscrapers in the background. Overlaying the image is a dynamic, rising and falling graph with icons symbolizing energy, such as lightning bolts and power gears. At the bottom left corner is the logo of 'Smart En. Co.', and across the banner in bold, white font, the text reads 'Unraveling the Mystery: The Divide in Business & Home Energy Costs'

The Residential Energy Market: A Buffered Beat

Residential energy prices are influenced by the price cap, which is Ofgem's way of keeping the beat steady for households across the UK. The cap is based on a six-month average of wholesale prices and is adjusted accordingly, but only twice a year. This creates a lag effect, where the impact of market changes is delayed in reaching consumers.


Understanding Business Energy Contracts in the Current Market

Businesses, however, operate to a different beat—one that moves in real-time with the live market prices. Business energy contracts are directly influenced by the current wholesale costs, not a price cap. This means that as the market prices change, so too can the cost of energy for businesses—whether that's an increase or a saving.


The graph below shows the direction of the wholesale energy market over the last 12 months. With the recent downward trend in energy prices, businesses can capitalise on the lower prices and secure their next contracts at a cheaper rate, up to 12 months before their current contracts is due to expire.


graph to show the last 12 months wholesale market movements

Misconception in the Market

It's a common misconception among business clients that they should wait for the residential price cap to drop before renewing or signing new contracts. This strategy overlooks the fact that business energy prices are not dictated by the price cap and are, instead, subject to the immediate fluctuations of the live market.


A Closer Look at Recent Trends

The wholesale market prices over the last 12 months have shown significant volatility, which directly affects business contracts. For instance, we've seen:

  • A decrease in gas prices from 106 pence per therm to 69 pence per therm.

  • Electricity prices experiencing similar drops, from 142 £/MWh to 69.25 £/MWh.

These shifts are crucial for businesses to consider when deciding on the timing of their energy contract renewals.


The Cost of Waiting

For businesses, waiting for the April 2024 residential price cap drop could be a costly mistake. If the market starts to increase again, they may face higher prices despite a residential drop. The recent decrease in market prices suggests that now may be an opportune time for businesses to secure energy contracts, rather than waiting for a residential cap change that doesn't apply to them.


Conclusion: Staying in Tune with the Market

Understanding the nuances between residential and business energy markets is essential. Businesses need to stay in sync with the live market to make informed decisions about their energy contracts. To keep an eye on the energy market, we invite you to follow our Weekly Energy Market Report which you can subscribe to, to actively follow the market movements and capitalise on securing your next energy contracts at the best time!


 

Don't Miss the Beat

Are you a business owner unsure about the best time to secure your energy contract? Let Smart Energy Co guide you through the market’s fluctuations and help you lock in rates that suit your business’s rhythm.



0151 459 3388 | info@smart-energy.uk


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Have More Questions?

  • Is it possible to change multiple business utilities at the same time?
    Our switching service allows you to switch multiple utilities simultaneously. We have successfully assisted multiple businesses in the UK by helping them save on various services such as energy and water with savings within 2023 already over the £2 Million mark.
  • How much can I save on my business utility bills?
    The amount you can save on your business utility bills will depend on various factors such as your current usage, the rates offered by different providers, and the specific deals available in your location. However, our switching service is designed to help you find the best deals and save as much as possible. By comparing multiple suppliers and negotiating competitive rates, we aim to maximise your potential savings. Get in touch with us to discuss your specific needs and get personalised information on potential cost savings for your business utility bills.
  • How does switching business utilities work?
    Switching business utilities involves a straightforward process. Here's a general overview of how it works: Evaluation: Start by assessing your current utility bills and usage patterns. This will give you an idea of your current costs and help identify areas where savings can be made. Comparison: Use a switching service like ours to compare different utility providers in your area. We provide you with quotes from multiple suppliers, allowing you to compare prices, contract terms, and services offered. Selection: Based on the comparison results, choose the utility provider that best meets your needs and budget. Consider factors such as price, customer reviews, contract terms, and any additional services or benefits offered. Contract Negotiation: Once you've chosen a new provider, our team can help negotiate the contract terms and rates on your behalf. Switching Process: The switching service will coordinate the transition with your current supplier and the new provider. This may involve submitting termination notices, arranging meter readings, and scheduling the activation of new services. Enjoy the Savings: After the switch, you'll start receiving services from your new provider, typically at the agreed-upon rates. You will notice savings on your utility bills, providing you with cost advantages for your business. Remember, the exact process may vary depending on the type of utility you are switching, but our switching service aims to simplify the process and assist you at every step.
  • Who are the cheapest business utility providers?
    As market conditions and prices fluctuate regularly, it's challenging to provide an up-to-date and definitive list of the cheapest business utility providers. The prices we provide you are valid and available on the day of the quote and will provide most current and competitive deals available. Our switching service helps you compare prices and offers from multiple suppliers, ensuring you have the most accurate and relevant information to make an informed decision about your business utility provider.
  • What is energy procurement?
    Energy procurement is the process of sourcing, negotiating, and securing energy contracts to meet the specific needs of a business. It involves analysing energy consumption patterns, understanding market trends, and negotiating with suppliers to obtain the best possible rates and contract terms.
  • Why is energy procurement important for my business?
    Energy procurement ensures that your business secures energy contracts that are both cost-effective and aligned with your operational needs. Proper energy procurement can lead to significant cost savings, budget predictability, and reduced risks associated with volatile energy markets.
  • How does The Smart Energy Company help with energy procurement?
    We specialise in analysing your energy consumption, understanding your specific needs, and leveraging our relationships with over 20 suppliers to negotiate the best possible contracts on your behalf. Our team ensures you get optimal rates, flexible terms, and contracts that align with your business goals.
  • How do you ensure I get the best energy rates?
    Our team continuously monitors the energy market, staying updated with trends, price fluctuations, and supplier offerings. Coupled with our in-depth analysis of your energy needs and consumption patterns, we negotiate with suppliers to secure rates that are both competitive and suited to your business.
  • Are there any hidden fees associated with your energy procurement services?
    Transparency is a core value at The Smart Energy Company. We provide a clear breakdown of any commission we earn as a company when you come to agree any new energy contract. This is typically included as an uplift in your unit rate and paid to us by the supplier you chose to go to. Our primary goal is to secure the best energy deals for you, with no hidden costs.
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See What Our Clients Say About Us

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Very helpful, quick expert advice. We have been using Smart Energy for a while.

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Ian Hughes

Operation Manager

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