Firms facing higher energy bills for two more years

Businesses will remain under pressure from energy bills that are hundreds of thousands of pounds higher than pre-crisis levels for another two years, forecasts from Cornwall Insights suggest.
Volatile international gas markets and the increased cost of balancing and upgrading the energy grid will push bills for small manufacturing, as well as larger retail and leisure businesses, up by an average £200,000 per premises to just over £550,000 a year by 2026.
The increase in energy costs will be a rise from present bills of about £540,000 a year, according to the energy consultancy, albeit down from the highs of almost £1 million a year in 2022.
The price of electricity is still tied to wholesale gas prices, which remain more volatile since the Russian invasion of Ukraine, partly because of Britain’s increased reliance on imports of liquefied natural gas from America.
The cost of maintaining and balancing the energy network has also increasingly fallen on the standing charge. Ofgem has set out plans to reform the standing charge for households, including shifting some charges to the unit rate, although the proposals did not extend to businesses.
Craig Lowrey, principal consultant at Cornwall Insights, said the political discourse had been dominated by household energy bills, making the costs facing businesses the “energy elephant in the room”. He said: “Many businesses, especially in the retail arena, are navigating an increasingly challenging environment, with some struggling to survive month to month. The impact could be far-reaching, from job losses and disrupted supply chains to a decline in consumer spending: consequences that can ripple through the broader economy.”
Energy bills for households also remain much higher than pre-Ukraine war levels and increased by £12 a month in October to £1,717 after Ofgem lifted the price cap, which limits the price per unit of gas and electricity, and the daily standing charges, that suppliers can charge customers on variable standard tariffs. Businesses are expected to be more severely affected by higher energy prices than households since they are not covered by the price cap.
Increasing the level of renewable energy in the system should filter through to lower bills, but because of the lead time in getting new projects up and running it may take several years before domestic and business consumers feel the benefit, the consultancy said.
A spokeswoman for Ofgem said: “We know high energy bills continue to be a challenge for many businesses. We are working closely with government and industry to understand the range of issues non-domestic customers face and where the powers we have to tackle them could be stronger.”
A spokeswoman for the Department for Energy Security and Net Zero, said: “The sharp increase in electricity prices in recent years was driven by the rise in global gas prices and a reliance on volatile fossil fuels. The best way to protect billpayers from future price shocks and boost Britain’s energy independence is through homegrown clean energy and our mission for clean power by 2030.”