Did you know your business energy quote goes much further than just the supplier? Various factors have a crucial role in determining the final price of your contract. From industry changes to the location of your business, each factor can influence your energy quote. In this blog, discover the 12 things that can have a significant impact on the energy industry that translate into your energy quote, and learn how to utilise these factors to your advantage.
Wholesale market factors
1) Supply and demand
The more people buy, the more expensive it gets; the less, the cheaper. For a better chance at getting a cheaper energy quote, find a quote when supply is high and demand is low.
2) Season
During summer, demand is generally lower but during winter demand is more likely to be higher as people will be using more energy to warm their homes and places of work. As winter is colder and darker, two major factors contribute to increased energy consumption: heating and lighting. These factors alone account for 76% of energy usage in warehouses, similar to usage found across homes and other business sectors. If your contract is due to renew in winter, take advantage of summer rates to secure a cheaper energy quote.
3) Availability
During low renewable periods, the grid will turn on gas-fired generators to help meet demand. Because the cost of gas production is so high, it increases the electricity price. Gas and oil benchmark the cost of electricity for this reason.
4) Global events
This can include politics, maintenance, or where the fuel is sourced from. For example, the UK sources most of its gas from Norway. In 2022, the UK imported 341,387 GWh of natural gas from Norway, so when Norway’s trains (plants) have unplanned maintenance, it can have a significant impact on the wholesale market.
5) Geopolitical factors
In recent times, the energy industry has felt the effect of the war on Ukraine. In support of Ukraine, the UK stopped importing gas from Russia. This hiked the price of energy in the UK as we had to source our gas from other countries. Economic intergovernmental organisations have a big stake in the gas trade. Organisations such as G7 and BRICS are examples of separate global councils that discuss foreign relations. BRICS seek to enhance economic cooperation and trade among member countries, aiming for mutual growth and development. Other geopolitical factors that can impact the energy markets are policy changes and technological advancements.
6) Natural disasters
Natural disasters have the potential to impact your energy quote heavily. For example, the Fukushima nuclear disaster changed energy sourcing for Japan. A tsunami struck the Fukushima nuclear plant in 2011 and is still causing irreversible damage which continually needs to be treated. Japan spends roughly £5.4b on victim compensation, decontamination, and reactor decommissioning annually. It’s no surprise that Japan has chosen to move towards fossil fuels and oil as their main supply of energy. With this increased demand, the global energy market has increased.
Retail market factors
7) Transportation/network costs
Charges for delivering electricity and gas through the National Grid and local networks. This can vary by region, depending on how far away you are from a power station or storage facility.
8) Environmental and social obligations
Costs associated with renewable energy initiatives, including subsidies for renewable energy sources and energy efficiency programs.
Climate Change Levy (CCL): The CCL is a tax on the industrial and commercial use of energy to encourage businesses to improve energy efficiency and reduce carbon emissions. It is applied to electricity, natural gas, liquefied petroleum gas, and solid fuels. The levy is split into the main rate and the Carbon Price Support rate.
Carbon Price Support (CPS) rate: Part of the Climate Change Levy, this fee is specifically aimed at reducing carbon emissions from electricity generation by charging a fee based on the carbon content of the fuels used.
Climate Change Agreement Scheme (CCA): Companies that meet an agreed energy efficiency or carbon reduction target receive a discount on the Climate Change Levy (CCL). If your business falls within a high energy usage sector, it may be worth exploring this scheme to reduce your energy costs.
It is the responsibility of suppliers and generators to add the correct levy or discount to your energy bill(s).
9) Tax
Value Added Tax (VAT) on Fuel and Power: VAT is charged on the supply of fuel and power used for lighting, heating, and power in business sectors. The standard rate (20%) is applied, but there are occasions where a reduced rate may be applicable, such as for domestic energy.
10) Operating costs
This covers the supplier’s rent, utilities, payroll, advertisement etc.
11) Hedging
Investopedia describes hedging as “an investment that is made with the intention of reducing the risk of adverse price movements in an asset”. Energy suppliers try to prevent putting their prices up to customers by purchasing their energy in advance. Larger suppliers will sometimes buy their energy 2 years in advance. However, it is difficult to buy the right amount of energy at the right time. Suppliers should leave enough storage in anticipation of buying more energy but also retain enough that they can still supply their customers in the short term if the wholesale market is bullish for a short period.
Extra costs
12) Broker commission/fees
If you use an energy broker/third party individual (TPI), expect to be paying for their services either directly or through the supplier. For more information, please refer to the FAQs section of our website.
Summary
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