Why Are Business Energy Prices So Volatile?

If it feels like business energy prices are on a rollercoaster, that’s because they are. In the past few years, companies have seen electricity and gas rates swing dramatically. One quarter, you might lock in a decent rate; a few months later, prices have doubled or more. Let’s unpack the major reasons why energy costs can rise or fall so unpredictably for UK businesses.

Global Gas Market Turbulence: The number one factor is natural gas prices. Gas isn’t just used for heating – it’s a key fuel for power generation, so it heavily influences electricity costs. When global gas prices spike, UK business energy prices tend to spike in tandem. We saw this vividly during the 2021–2022 energy crisis: after Russia’s invasion of Ukraine, wholesale gas reached all-time highs and some UK suppliers went bust. Even though the UK wasn’t heavily reliant on Russian gas directly, we felt the shock through higher prices on international markets. Geopolitical events (conflicts, sanctions, OPEC decisions), weather extremes (cold snaps boosting demand, or calm weather reducing wind power so more gas is burned), and supply issues (like outages at major gas facilities) all ripple into the gas market – and thus into what businesses pay for energy.

No Price Cap for Businesses: Unlike households, businesses don’t have a regulated energy price cap to shield them. You pay the going market rate. So when those global price surges happen, they hit business tariffs directly. The government did step in with temporary discounts during the worst of the crisis, but ultimately, businesses are exposed to market forces. This means volatility in the wholesale market shows up in your bills more quickly and sharply. It’s a double-edged sword – you get to ride prices down when markets calm, but you’re also fully exposed when they spike.

Renewables and Weather Effects: As the grid gets greener, you might expect prices to smooth out, and over the long term they should. But in the short term, weather still creates variability. A large portion of our power now comes from wind and solar. If we get a very windy period, wholesale electricity prices can plunge (even go negative) because abundant cheap power is available. Conversely, if there’s a cold, still day with high demand and low renewable output, the grid relies more on gas plants and even coal backups, driving prices up. For example, the UK has seen daily power prices spike above £220/MWh on harsh winter days and then ease off in milder weather. Until we have more energy storage and backup for renewables, weather will continue to make energy rates fluctuate.

Network and Policy Costs: Your energy price isn’t just about energy. It includes various network charges and government levies (for infrastructure, renewables support, etc.). These costs have been rising too, and sometimes unpredictably. Different regions saw steep increases in local distribution charges recently. Taxes like the Climate Change Levy can change with government policy. While these non-commodity costs don’t jump around monthly the way wholesale prices do, they have ratcheted up over the years and can amplify the impact when energy prices are high (since they often scale with usage). The result is higher and less predictable total bills, even for companies that thought they had “fixed” prices (because when renewing, those embedded costs made new fixed rates much higher).

Market Sentiment and Speculation: Energy is traded as a commodity, so financial market dynamics can play a role. If traders expect a harsh winter or a fuel shortage, prices for forward contracts might rise in anticipation. Likewise, news of robust gas storage levels or economic slowdowns (reducing demand) can pull prices down. Sometimes prices move not just on today’s supply and demand, but on forecasts and fear. This adds another layer of volatility, as we saw in late 2022 – even rumors or headlines could send markets jumping. For a business, this can make it feel like a gamble to pick the timing of a new contract.

The Bottom Line: There are a lot of moving parts causing price swings – global events, lack of a cap, weather, policy, and market psychology all feed into what you pay. Volatility is something businesses have to live with for now. However, you can mitigate it. Strategies like fixing rates at the right time, using flexible contracts smartly, or improving efficiency (so you buy less when prices spike) can all help. Check out our guide on managing energy price volatility for practical tips on coping with the rollercoaster. And remember, as brokers, we keep a close watch on the market – our goal is to help you make the best energy decisions even in a volatile landscape. If you’re worried about your rates, get in touch and we’ll help you navigate the ups and downs.