With energy prices rising many businesses are trying to decide what they should do for the best when it comes to their energy bills.
We know all businesses use different amounts of energy and can usually benefit from having the option of a range of different tariffs. However, given the recent energy crisis, a fixed contract might be the only way to shield your business from price volatility over the next year.
What is a fixed tariff for business energy?
A fixed-rate energy tariff means that the unit price for your energy bills will remain the same throughout your contract. The unit price is the price you pay for the wholesale energy. To make up your final charge on your energy bill you will also have a standing charge.
With a fixed-rate tariff, the amount you pay for energy can vary depending on your usage, but the unit rate will stay the same for your whole contract.
Having a fixed rate contract does mean that you have to pay that price until your contract comes to an end. This is why businesses often try to get cheaper prices through a variable contract. However, due to prices being so high, your energy bills could get more and more expensive every month.
What are the benefits of a fixed tariff?
There are many benefits of having a fixed rate tariff with the main one being that you would be protected from price volatility.
Having a fixed rate tariff also gives you peace of mind that your energy prices are going to stay the same for the duration of your contract. This will also help if you have fixed budget costs. If you want to control how much your business is paying having a fixed contract is one way to ensure energy bills don’t go over their budget. This helps when it comes to planning for your business.
Usually, the energy market has dips where a variable tariff might be more advantageous, however with energy prices set to rise by up to 50% in 2023 prices are going to remain high. By signing a fixed tariff now, you will not have to deal with the higher energy prices across 2023.
What other business energy contracts are there
Apart from fixed contracts, there are also other types of energy contracts your business could be on.
If you are on a variable tariff, then your unit rate will be based on market activity. This means if the wholesale market rate of energy is up then your bills will be more expensive.
Deemed and out of contract
These are usually amongst the highest rates that your supplier will have to offer. You will be put on this type of contract if you let your current contract run out without renewing. This is also usually only paid when you first move into your new premises if you have not signed a contract with a supplier beforehand.
You will be put on this type of contract if you have not agreed on a different contract before your current contract ends date.
The price cap for fixed tariffs
Another reason your business should consider being on a fixed-rate tariff is to be able to benefit from government support for business energy bills.
All businesses that signed a fixed-rate tariff after the 1st of December 2021 will benefit the most from the Energy Bill Relief Scheme. These energy customers will have the wholesale element of their bills capped at 21.1 p/kWh for electricity and 7.5 p/kWh for gas.
If you remain on variable or deemed rates during the price cap period, your business will only benefit from a maximum discount on your energy bills. The maximum discount will be 34.5p/kWh for electricity and 9.1p/kWh for gas.
The discount will be the difference between a deemed wholesale rate and a maximum of 34.5p/kWh for electricity and 9.1p/kWh for gas.
This means that there is no benefit to paying for deemed rates whilst the current price cap remains in place.
Energy prices after government bill support ends
As we mentioned before energy prices are predicted to rise by up to 50% next year, this means that if you are waiting until the government energy support comes to an end you are going to be paying a lot more for your energy.
If your contract is coming to an end it would best to secure another contract before prices get much higher. This way you could shield your business from having to face the price volatility the market will bring in 2023.
EBDS- should I fix my energy prices now?
The current support that businesses are under will be coming to an end on the 31st of March 2023. The Energy Bill Relief Scheme has allowed those on a fixed rate contract to benefit from a cap on the wholesale element of their gas and electricity bills.
Those on a default or variable tariff have also benefited from the Energy Bill Relief Scheme, with a maximum discount applied to the wholesale elements of their bills.
However, this support has been far too expensive for the government to sustain, therefore on 1st April 2023, this support will be heavily reduced to protect the taxpayers in the Uk further from volatile energy prices. To see more about the Energy Bill Relief Scheme continue reading here.
The new energy support for businesses will come under the Energy Bill Discount Scheme(EBDS). The EBDS will only be applied to energy contracts once they have gone over a certain price which is outlined below:
- For electricity, if the wholesale portion of the bill rises over 30.2p/kWh then a maximum of 1.96p/kWh discount.
- For gas, if the wholesale price rises over 10.7p/kWh then a maximum discount of 0.697p/kWh will be applied.
This is around a 90% reduction in government support for businesses. Without the protection of the energy price cap, businesses are going to begin to struggle to pay energy bills.
Luckily for businesses, there has been a recent drop in energy prices compared to 2022 which means that it is the perfect time for you to lock in your new contract to make sure you are not paying sky-high prices when support is reduced.
Should I fix my energy prices until 2024?
If you are in charge of the energy bills for your business we would suggest thinking of long-term fixed deals now before prices rise too much. In 2023 prices have been a lot lower than they were in 2022, however, since we cannot say that the same price volatility won’t affect the UK throughout this year we would suggest a fixed energy tariff would be the best option when it comes to signing your next contract.
Why have energy prices increased over the past few years?
Since Covid, energy prices have been on a major incline, and whilst prices were looking like they would drop at the beginning of 2022 Russia’s invasion of Ukraine led to a to spike again. This has led to spikes across the EU as Putin continued to lower gas exports.
energy security in the UK has also been an issue as the UK has quite a large energy demand, however, we have not been able to secure long-term contracts causing prices to soar.
Supplier failures have also caused higher prices across the UK as many suppliers have had to stop trading due to the unstable conditions in the energy market.
Are energy prices going to drop in 2023?
Energy prices have dropped so far at the beginning of 2022, In January gas prices were 178p/therm, this is a massive drop compared to the peak prices we saw in August 2022 which was 875p/therm. However, prices are set to rise throughout the year.
Although the market has been quite unpredictable, analysts have said that due to poor energy security across the UK and volatility in the EU's market are expected to make prices rise again throughout 2023. This is why it’s best for your business to fix your energy prices as soon as possible.
If prices are volatile, why should I get a fixed tariff?
Price volatility is one of the main reasons you should be getting a fixed-rate tariff. There is not as much benefit from being on a default or variable tariff when energy prices are predicted to rise throughout the year. In these current times, it is best to sign your energy contracts when energy prices are at their lowest. This way you can shield your business from being affected by rising prices.
Compare energy prices with Resolve Energy today
At Resolve energy, we have an expert team of energy consultants that will not only find you the cheapest fixed-rate deal but also the best for your business.
We work with some of the best and most competitive energy suppliers in the UK. With our knowledge and market insight, we can not only help your business pay less on their energy bills but make sure that everything is taken care of for you, giving you more time to run your business.
If you're looking to save money on your energy bills then why not get in touch today? The relationships Resolve Energy has developed with over 24 of the UK’s biggest business energy suppliers allows our energy experts to source the best business energy rates available for your company right when you need them. Request a free quote today and start saving money on your energy.