Business energy prices make up a substantial portion of a company’s budget, so it can be worrying when they fluctuate. This can be frustrating, as a huge bill can fall on your company at any time for no apparent reason, especially if you’re a company without a bottomless bank account.
There is a lot of confusion about what makes up these costs. People usually blame the “greedy” energy companies for hiking up prices whenever they so feel, but that isn’t always the case.
In truth, there are a lot of factors that go into the constantly changing prices, and not many of them can be avoided, so there’s no need to worry. It is, however, useful to learn about why the value of gas or electric can change, as you can predict when it’ll happen next.
Because of this, we’ve put together a list of all of these factors and why they affect the prices of energy.
Following the Brexit result on 24 June, the value of the British pound sterling took a large fall against the euro. This caused a jump in gas prices because it meant other European countries began to look to us to buy their gas, due to the shift in value for money. The opposite is true too, and the volatility of other currencies provides us with a lot of cheap gas from time to time.
Common sense really. When it’s cold, businesses use the heating more. When they use the heating more, they pay the gas company more.
Your business may even experienced power cuts during large storms and other rough weather. This damages power lines and distribution systems- all of which cost even more money to repair.
Extreme weather damages the facilities that provide these services too, which are filtered down to the prices the customers pay to cover their repairs.
The wind also affects wind turbines too, changing gas prices indirectly. If the wind picks up, gas isn’t needed as much, but if it gets too windy and it’s unsafe for turbines to run, gas shoots up in price
The weather isn’t always bad news, however. High amounts of rain and snow can be converted into power via hydropower stations like Swansea and the soon to be built MeyGen tidal energy project- the world’s largest tidal energy plant. Phase 1c, (49 turbines), will begin construction and deployment in 2018 with the rest of the project aiming to be completed by 2021.
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Crude oil prices
Crude oil is a type of fossil fuel, and can be refined to make diesel and other types of petrochemicals. It is a limited resource, so its price is constantly rising, and the cost of oil is directly correlated to the price of gas.
It’s estimated, if we produce energy at the same levels and with the same materials as we do right now, that oil will run out in 53 years, natural gas in 54, and coal in 110. These fuels took 66,000,000+ years to form and the fact we’ve consumed them in less than 200 years has really pushed providers to find greener alternatives, which will make crude oil cost a lot more.
A House of Commons select committee is set to carry out an inquiry into whether the UK has enough gas storage, after supply security was a point of concern last winter. In a supply and demand market, a gas storage facility closing drives up prices and puts a lot of strain on the company.
This makes the price of gas unpredictable, and worries a lot of companies, but it isn’t something anyone can really control. Sometimes it’s just comforting to know it’s only short-term.
Gas is bought and moved around in bulk through pipes. The gas can’t be transported at a consistent speed forever, so it’s a constant battle of supply and demand. Prices spike when the country has a slow day and vice versa. Maintenance and emergencies play a part in this too, albeit a bit more extreme.
Provider maintenance and renovation
Each business energy supplier wants to improve their facilities, become more efficient and become more powerful. As well as improving, they also have to pay for things such as maintenance and operating costs. If your company is ambitious and wants to have an overhaul of their power plants, you can expect your bills to increase for a short period of time.
Coal power station closures
Eggsborough power station in North Yorkshire closed in September 2018, relieving the UK of a huge source of air pollution, but also enough energy to power 2 million homes. Kilroot power station in Northern Ireland is due to close this year, and the 6 remaining stations will be closed by 2025, as promised by Amber Rudd.
This leaves the country working to draw up a solution to the loss in energy. While coal only supplies 7% of the country’s energy, compared to 9% in 2016, 23% in 2015 and 30% in 2014, 7% is still a big hit to our network.
Renewable and natural gas are tipped to replace energy in electricity production, and an increase in demand means an increase in price.
EU laws are often environmentally focused, and new regulations put in place hurt the gas industry constantly.
An example of this is the Dutch government’s decision to cut the size of the Groningen gas field. After the northern Dutch region was hit by a 3.4 magnitude earthquake in January, the Dutch government cut production at the gas field by nearly half to 12 billion cubic meters per year “as quickly as possible” to limit the risk. It is still the largest natural gas field in Europe, but 40 percent of the Netherlands’ energy comes from gas, the majority of which is from Groningen. This caused a huge spike in gas prices and it will likely continue as the gas field is cut further.
Businesses began to make more of an effort in becoming more environmentally friendly when the following climate change targets were announced by EU leaders in 2007. There are three key targets, with the aim of achieving them by 2020:
1. 20% cut in greenhouse gas emissions (from 1990 levels)
2. 20% of EU energy from renewables
3. 20% improvement in energy efficiency
Business owners everywhere were aware that these targets would eventually have a huge negative effect on how much they paid for their energy, as EU rules were certain to be tightened to stay on track with the announced targets. As a preparation, businesses began to search for green energy prices with hopes to switch.
The seismic shift to green energy overwhelmed a lot of providers, as there weren’t anywhere near as many green companies around over a decade ago. Demand massively outweighed supply, which made the prices of green energy shoot up.
This has levelled out over the last few years, however, as renewable energy is gaining popularity year on year for providers and consumers alike.
The UK currently makes almost half as much gas as it needs (44%), using the North Sea and the East Irish Sea. We’ve used more gas than we create for well over a decade now, and it means that imports are essential to keep the country running.
In the countries that transport oil to us, a natural disaster or war or other crisis can very easily affect their ability to produce and move fuel to us, which would massively drive up prices. This is a good reason to keep up to date with the news as a business owner.
Overall, there are many reasons for the volatile nature of energy prices. A lot of these are out of the hands of anyone, but are worth keeping an eye on, just so you’re not caught by surprise when you have to pay a little more one day.
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