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Posted on: 

26 August 2022

Wholesale Energy Costs Explained

Want to know more about wholesale energy costs, and more importantly why they are so high at the moment? In our latest article we take a look at the significance of wholesale energy costs, how they affect the UK energy market, why prices are so volatile and what your business can do to protect against such uncertainty.
What is wholesale energy? 

Wholesale energy is electricity or gas that is traded between generators and suppliers. Suppliers purchase energy from generators on the wholesale market at wholesale prices, before supplying it to their customers. The cost to supply wholesale energy makes up almost 50% of your energy bill, whilst the remainder comprises of distribution, transmission, green taxes and other government levies.

How does the wholesale market affect energy prices?

The wholesale energy market is impacted by a wide range of factors, including continually varying supply and demand. At current the market is highly volatile meaning that prices are fluctuating dramatically over short periods of time. When wholesale prices go up, we have to increase the rates of our products to cover the extra costs. If you are on a variable product we will change our prices from time-to-time to reflect the actual cost to purchase wholesale energy. If you are on a fixed product, you will be protected from wholesale market volatility for the duration of your fixed price term.

Why are wholesale energy prices so high at the moment?

Increasing demand and limited supplies, plus the conflict in Ukraine mean wholesale energy prices are at an all time high. Supply and demand play a big part in the setting of energy prices. The most significant change has been a major restriction in the natural gas capacity of Nord Stream 1, the huge pipeline that channels natural gas from Russia to Europe. The graphs below will give you an idea of just how alarming these increases have been over the past few months and why as a supplier we have to take the necessary action to increase our prices to reflect the actual cost.

Gas Wholesale Prices

Electricity Wholesale Prices

How will wholesale prices affect my business?

If you’re on a fixed tariff with SmartestEnergy Business, the wholesale cost element of your unit rates and standing charge will remain the same for the contract period. Other charges that we must pass on (e.g. VAT, Climate Change Levy, and other green taxes) are set by the government or Ofgem and may change.

If you’re on a variable tariff with SmartestEnergy Business, your unit rates and standing charge can increase (or decrease) to reflect the cost of purchasing the wholesale energy. If you are on a variable tariff we would recommend you speak to us about your product options and consider fixing your energy prices through a fixed contract. Further details of our competitive fixed products can be viewed here

At SmartestEnergy Business we are committed to keeping the costs as low as possible for our customers. We have helped over 100,000 small businesses to control their costs and reduce their energy bills.

What effect does wholesale price volatility have on energy suppliers?

The volatile wholesale cost of energy has had a damaging effect on a number of energy suppliers in the UK market. Over the past 12 months, it has been widely reported that many have been forced to cease trading as a direct result. We would like to reassure our customers that SmartestEnergy Business is financially stable, and as part of the SmartestEnergy Group, owned by the Marubeni Corporation. During this uncertain time we remain a trusted and reliable supplier for you business energy services.

How can I reduce my energy usage and keep bills to a minimum?

To help you look at other ways to reduce your business energy bills, we’ve compiled some practical energy saving advice. For more information, please take a look at the following articles:

> Energy Saving Advice for Small Businesses

> Net Zero Guide for Small Businesses

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