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Why do business energy prices fluctuate?


One of the main differences between business energy prices and domestic rates is that business energy rates fluctuate. Why?

Unlike domestic energy prices business energy prices can alter every day – and even several times a day sometimes. This doesn’t happen often but it’s not unusual and can explain why you’re offered different prices the following day.

Energy suppliers don’t just buy energy in advance. Much of their energy is bought as and when new contracts come in. But wholesale energy costs can change every day a bit like the stock market. Global events and supply and demand impact on any changes that may occur meaning wholesale prices can change a number of times each day. If a supplier buys energy on the wholesale market in the morning the price they pay can be different from the one they pay if they buy energy in the afternoon. If these changes are significant a supplier may withdraw prices and introduce new ones. It doesn’t happen often but it’s possible for price changes to occur several times a day.

Suppliers also buy their energy in advance which is why it’s important to let them know how much energy you use each year. They need to have a rough idea of how much energy they will need to supply in two or three years’ time. When energy suppliers buy their energy they have to not only try to predict how much energy they will need in three years’ time, but also the cost of that energy in three years. This also obviously impacts on the prices you are offered.

World events impact business energy prices

Energy suppliers buy energy on the world market so events across the world can affect prices on a day to day basis. For example the Japanese tsunami a few years ago resulted in Japan shutting down all their nuclear reactors for a time and moving to gas fired power stations. This meant a greater demand for gas on the wholesale markets and an increase in prices.

Political unrest can also impact energy prices. The current situation in Ukraine means that any sudden changes in international policy can affect how much suppliers have to pay.

The weather can also influence wholesale energy prices. Last year we had a fairly warm winter and as a result gas reserves remained high and gas prices low. However, if there’s a cold winter and everyone turns their heating on full, more gas is used, demand increases and so prices go up. But when you’re buying energy in advance it’s impossible to know if the weather’s going to be good or bad in two, three or four years’ time, so impossible to know if prices are going to go up or down.

Volatility makes business energy comparisons difficult

Business energy bills are made up of largely wholesale costs so this volatility in the wholesale energy market can explain why prices fluctuate from one day to the next. It makes comparing business energy prices difficult and is why it’s a good idea to use someone like SwitchMyBusiness.com. Our energy experts will be able to advise you on the most suitable deal for your business and they will know the state of the current market – whether prices have just gone up or if they have just dropped so you can make an informed decision on your new energy contract.

But there will always be the chance that once you’ve made your choice and agreed a contract that the next day someone else will offer you lower prices. It’s just the same as when you buy a new pair of shoes and go to the same store the next day and they are on sale at half the price. It’s impossible to know exactly what will happen in any given situation but by comparing prices you know you’ve done your best to ensure your energy prices are as low as they can be.

You can read more about business energy on our electricity page.

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