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Commercial

The general market fluctuates depending on demand for both business users and domestic use due to a variety of reasons.

Hot weather in the UK puts demands on the National Grid as energy usage increases. Similar demands occur during cold spells when additional requirements for heating on the grid forces prices up from the wholesaler and imports from external countries.

During the hot spells in 2010 the trading energy market for electricity reached a 17 month peak of £50/MWh (Megawatt Hour = 1,000 kWh) and again in November 2016 with a price of £67/MWh.

Although not totally to blame, the increase in appliances that have a high kWh usage will increase market prices, such as air conditioning systems used by both businesses and residential properties.

Where is the Market Heading?

The energy companies are quick to blame higher tariffs on the external market when they increase unit costs immediately after a wholesale price rise. Although the market has an effect and is perhaps the main driver, prices are usually stable as seen in the chart below.

Wholesale Electricity Prices 2010 2019

Current Wholesale Electricity Prices

The current wholesale electricity price has fallen to around £35 per MWh; that’s some of the lowest prices seen in three years and one third the pirce when the market was at its peak. The peak happened during 2008 which saw these rates nearly double to over £90/MWh, and that’s when most of the big six suppliers increased tariffs.

Since then, we haven’t seen the same reduction, but there are also investment programmes that the energy companies need to implement that also put pressure on prices.

Wholesale Electricity Price Chart 2016 – 2020

The chart below shows the wholesale price of electricity for each quarter from 2016 to early 2020. Against this are the Retail Price Index (RPI) of the average price paid by consumers.

Quarter/ Year Wholesale Price Electricity RPI Average Electric Bill
Jan 2016 £36.95 127.90 £590.15
Apr 2016 £34.37 127.70 £589.23
Jul 2016 £38.40 127.70 £589.23
Oct 2016 £56.03 127.70 £589.23
Jan 2017 £53.37 127.70 £589.23
Apr 2017 £42.10 132.10 £609.53
Jul 2017 £43.05 139.20 £642.29
Oct 2017 £46.68 142.30 £656.59
Jan 2018 £56.18 142.30 £656.59
Apr 2018 £50.74 143.50 £662.14
Jul 2018 £57.61 149.40 £689.36
Oct 2018 £64.76 155.20 £716.12
Jan 2019 £62.55 147.60 £681.05
Apr 2019 £35.50 163.80 £755.80
Jul 2019 £41.86 163.80 £679.00
Oct 2019 £37.74 161.70 £679.00
Jan 2020 £33.93 161.70 £679.00

Data sources: Ofgem and the Department for Business, Energy & Industrial Strategy. RPI based on January 2010 = 100. Last updated 21st July 2020.

The effect of wholesale prices on average bills

The table above highlights the changes in wholesale prices and the average electricity bill from January 2016 to January 2020. Although wholesale prices have returned to lower levels than those in 2016, the average electricity bill has continued to steadily increase.

Hinkley Point C Nuclear Power Station

Once the new Hinkley Point C Nuclear Power Station is built, the wholesale price charged is fixed at £92.50 per Megawatt Hour (MWh) for 35 years. This strike price is based on 2012 prices and is index linked, already it’s some way above that after four years of inflation. Hinkley Point C will be the first new nuclear power station built in the UK in over 20 years. Construction began in 2018 with an expected completion date of 2023.

How Do Wholesale Fluctuations Affect my Tariff?

The wholesale component only makes up approximately 45% of any tariff available (see graph below). Other costs such as distribution to your premises are 17%, government taxes 20% with profit and account management making the last 7%.

Wholesale Pricing

Businesses are also charged the full VAT rate at 20% (reclaimable if you’re VAT registered) although registered charities are exempt.

Although electricity prices per kWh had remained relatively stable throughout most of 2018 and 2019, average prices have increased by around 6% in the last 12 months to 13.26 pence per kWh in 2020.

You won’t see tariff announcements in the press for businesses as the rates are quite secret and unpublished. What happens in the residential market is quite different from the commercial arena, although Ofgem is making inroads into this area.

Prices normally peak during the dark, cold winter months when the demand for heating and lighting is at its greatest.

Should I Renew my Business Electricity Contract Now?

At Business Electricity Prices, we would always advise businesses to compare electricity quotes each year when their contracts are coming up for renewal. If you don’t renegotiate your contract, then your prices can increase by as much as 120% if you are placed on to a rollover contract by your supplier.

Research shows that as many as 80% of businesses simply allow their tariff to roll over to the next year. The contract extension will happen automatically if you don’t renew correctly and for most businesses, this will result in increased rates.

By comparing with Business Electricity Prices, you can access quotes from a wide range of suppliers in seconds to find great business electricity deals.

We make the process of finding the right electricity tariff for your business simple. You can compare a variety of tariff types and contract lengths to ensure you switch to a deal that best suits the needs of your business.

Wholesale electricity market FAQs

  • How does the wholesale electricity market work?

    The wholesale electricity market involves competing generators offering their electricity output to energy suppliers. Suppliers will then re-price the electricity and sell it on to business and households.

    Electricity can also be imported through inter-connectors which are currently in place between Britain and France, the Netherlands, and Ireland. National Grid Electricity Transmission (NGET) has overall responsibility for the wholesale electricity system.

  • What affects wholesale electricity prices?

    The general market fluctuates depending on demand for both business users and domestic use due to a variety of reasons.

    Hot weather in the UK puts demands on the National Grid as energy usage increases. Similar demands occur during cold spells when additional requirements for heating on the grid forces prices up from the wholesaler and imports from external countries.

    During cold snaps in November 2016, wholesale electricity prices hit a high of £67/MWh (Megawatt Hour = 1,000 kWh). Although not totally to blame, the increase in appliances that have a  high kWh usage will increase market prices, such as air conditioning systems used by both businesses and residential properties.

  • Who trades on the wholesale electricity market?

    Electricity suppliers buy electricity on the wholesale market to supply it to their customers. Suppliers may also sell electricity if they have bought more than needed or if they are seeking to combat price volatility.

  • Can businesses buy directly from the wholesale market?

    Some large industrial businesses do purchase their electricity on the wholesale market although this is rare.

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