Constant changes in wholesale energy prices can be incredibly frustrating to business owners and consumers, especially with limited financial flexibility.
Knowing the factors that cause changes in the energy market that result in soaring energy prices will help you predict when this will happen and how to prepare for it.
The following factors play a role in wholesale gas and electricity prices and the rising energy costs.
Supply and demand are fundamental relations determining the prices of electricity and gas.
When the price a producer wants to sell corresponds to the amount of energy that businesses are willing to buy for that price, then a market price is established.
Certain factors – geopolitical events, natural disasters, and even the weather – limit electricity supply, resulting in higher demand and higher prices.
When wholesale prices rise, energy providers increase their rates to cover the extra expenses, and we are all hit with a higher energy bill.
Natural gas prices are hitting all-time highs due to lower supply and higher demand.
How do world events affect business energy prices?
Major events such as natural disasters or wars in oil- and gas-producing countries will lead to gas and electricity supply shortages. This means higher demand, and the end result will be an increase in your business energy bills.
Keeping up to date with current global events will prepare you for price rises and higher energy bills.
The carbon pricing system aims to decrease carbon emissions, reduce greenhouse gases, and promote clean energy technologies.
Under the EU Emissions Trading System, a few heavy manufacturing industries are required to pay the cost for carbon emissions, including coal-powered generators, which then pass carbon costs down to individuals, homeowners and businesses.
Companies have to buy permits with emission allowances to operate. Permit prices are constantly increasing and predicted to quadruple by 2030, which heavily affects coal and gas power plants (and your electricity bills, of course!).
Similar to other commodities, gas and electricity fluctuate in currency.
The price of these commodities in the United Kingdom depends heavily on Pound strength relative to the Euro because much of Britain’s gas comes from Europe.
Generally, gas prices and electricity rates fall when the Pound is strong against the Euro. If sterling weakens, the rate will increase.
In light of Brexit’s uncertain outlook, the British Pound is suffering an economic downturn, and energy prices are on the rise.
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