You probably know about the energy price cap that helps protect domestic customers. But what about your business? Are companies getting the same protection against energy costs?
The short answer is no. Despite the domestic energy price cap being in place since January 2019, businesses in the UK don’t enjoy the same safeguards. This leaves many company owners exposed to market fluctuations for their energy bills.
We look at why this is the case and more importantly, what businesses can do about it. This guide explores why there’s no equivalent cap for commercial customers, how pricing actually works for businesses and the practical steps you can take to keep those energy costs under control without regulatory protection.
What exactly is this business energy cap everyone’s talking about?
If you’re searching for a “business energy cap” to protect your company from rising costs, it’s disappointing news as it simply doesn’t exist in the UK energy market. While domestic customers benefit from protection against excessive charges, commercial customers are left to fend for themselves.
The energy cap for domestic customers is an upper limit on the rate you are charged. It’s set by Ofgem, the energy regulator, and is applied to the amount paid for each unit of gas and electricity used. An extra benefit is a limit set on the daily standing charge. The cap is reviewed every 3 months.
However, business energy contracts work nothing like residential ones. Your commercial agreement is often a fixed-term contract negotiated directly between you and your chosen supplier. These arrangements are bespoke because energy needs vary dramatically across businesses, a small café uses energy very differently than a manufacturing plant running heavy machinery around the clock.
Another key difference is volume. Businesses generally consume much more energy than the average household. This higher consumption actually gives businesses greater purchasing power allowing direct negotiations with suppliers which reduces the reliance on regulatory protection. At least, that’s the theory.
Ofgem, the energy regulator, concentrates its price cap protections on domestic consumers who they view as more vulnerable to market fluctuations and less able to negotiate the set deals and tariffs offered to them. It’s assumed that business customers have better market awareness and stronger bargaining abilities. A fair assumption for large corporations perhaps, but many small business owners might raise an eyebrow at this.
The commercial energy market does benefit from more competition among suppliers, which should naturally drive more competitive pricing without the government stepping in. When your contract expires, you can shop around for better deals, creating market pressure to be competitive with pricing
Some small businesses would certainly benefit from household-style protections, but creating a comprehensive business energy cap presents enormous challenges. The diversity of commercial energy needs and consumption patterns makes a one-size-fits-all approach nearly impossible. This complexity, paired with Britain’s traditional belief in market-based solutions, has led to the current situation where formal price protection for business customers remains absent.
Without this safety net your company needs other strategies to manage energy costs, which we’ll explore next.
How business energy prices work in reality
Business energy pricing follows a different rulebook compared to domestic rates. There’s no safety net capping what suppliers can charge you. Instead, what you pay is largely dictated by wholesale energy costs and these make up the lion’s share of your bill.
The wholesale market is a bit like the backstage of the energy world and it’s where energy changes hands before reaching your business premises. This market doesn’t exist in isolation, it’s buffeted by countless global and local factors, such as:
- Global gas prices – Natural gas fuels a significant portion of UK electricity generation, so when gas prices wobble your electricity costs feel the impact
- Geopolitical events – The outset of the Russia-Ukraine conflict sent shockwaves through energy markets and gas prices skyrocketed.
- Weather patterns – A surprisingly cold winter or scorching summer drives up demand while potentially hampering renewable generation
- Supply issues – Problems with power plants or distribution networks can squeeze supply and push prices upward.
Your energy bill consists of two main parts: commodity costs (the actual energy) and non-commodity costs (everything else: taxes, transmission fees, distribution charges, and what suppliers keep as profit).
But how do businesses protect themselves against price rollercoasters? Suppliers offer various contract types with fixed term contracts probably the most familiar. Lock in your per unit rate for the duration, creating a shield against price hikes. The shield also prevents you benefiting if rates drop, but that’s the risk you take for price certainty with fixed deals.
If you choose a variable rate contract that allows prices to rise and fall with market conditions, you will be exposed to the pricing rollercoaster, taking you through highs and lows of the pricing which can have a big impact both positively and negatively. There are also part fixed contracts giving you more wiggle room with managing non-commodity costs that could be a half way point you’re more comfortable with.
The wild price swings we’ve seen since 2021 really hammer home why understanding price mechanisms matters for your business. Without a business energy cap, wholesale market turbulence flows directly to commercial customers like yourself, making your choice of contract particularly crucial. Suppliers do try to smooth things out by locking in the cost of the energy months in advance, a practice called “hedging”, but at the end of the day these costs make their way to businesses through their energy bills.
Protecting your business when there’s no energy price cap
With no business energy cap to shield you from wild market swings you’ll need to take your business energy seriously and manage it as efficiently as possible. Similar to cash flow, you are monitoring and trying to spot issues and efficiencies on a regular basis. The good news is there are ways to make this easier.
Fixed term contracts stand out as your best defence against price uncertainty. There’s a good reason many small businesses opt for these agreements as they try to offer the most competitive rates between suppliers while guaranteeing your price throughout the contract enabling you to offer a level of stability to your business costs. However, be vigilant as not all fixed contracts are created equal, and some ‘fixed’ contracts can still apply mid contract shifts, so make sure you challenge the terms to be clear what you are getting.
Smart metres have become another brilliant tool for energy management. These clever devices eliminate estimated readings, ensuring your bills reflect actual usage while providing useful insights into when and how you’re consuming energy, helping you make changes to reduce your usage. The government has mandated that energy suppliers must install smart metres in all eligible businesses by the end of 2025.
Timing matters enormously when it comes to contract renewals. Energy market experts consistently suggest locking in your next contract promptly when prices look favourable. Delaying can leave your business exposed to higher rates if the market takes a sudden turn and negotiating during low market periods gives you a buffer against future price hikes.
When comparing suppliers, look beyond the headline rates to consider:
- Quality of customer service (nothing worse than being unable to reach someone when issues arise)
- Flexibility of contracts and what the exit terms involve
- Environmental credentials if sustainability matters to your business
- Added extras like energy management tools or reporting features
Be cautious about termination notice periods and exit fees within your existing contract, before committing to new deals. Make sure you kick off your search early enough to provide your contracted notice or you could end up with two energy bills.
One last bit of good news, if you run a microbusiness, you now enjoy protection from automatic rollover contracts. This gives you more freedom to find competitive rates without being stung by exit fees when your current deal expires.
What this all means for your business
Understanding how business energy works puts you in a stronger position to make smarter decisions about your company’s energy spending. The energy market can be a rollercoaster yet you’re not completely at its mercy. Several practical options can shield your business from unpredictable price swings. Fixed rate contracts & smart metres are two effective options to consider in your energy strategy,
Don’t underestimate the importance of timing and comparison either. A well-timed contract renewal when markets look favourable can save you thousands over its duration and remember, suppliers differ on more than just their headline rates.
Wholesale energy prices shift constantly, sometimes dramatically, and without a business cap, these changes flow straight through to your bottom line. Smart energy management paired with strategically timed fixed contracts gives you the best chance of weathering market storms. Talking of weather… you could convert your electricity to solar powered, now that’s a whole new discussion….