Since August 2021, the price of gas has been volatile and this has led to record increases in wholesale gas prices.
The price of gas has started to fall on what is known as the “day ahead” market.
This is where you can buy gas for immediate use.
Although the price of gas can change on the day-ahead market, it does not affect business energy bills during a fixed price contract period.
This is because most energy suppliers buy months and years in advance and offer fixed price contracts to small and medium sized businesses.
Most energy companies buy their energy in advance, so they can protect themselves from the sudden price spikes.
This is called hedging.
Unfortunately, some energy companies that went out of business last August didn’t hedge as much as they should have, or not at all.
Record prices for energy purchases
Due to the sudden price increases, they were forced to buy energy at record prices. They lost a huge amount of money, and they couldn’t recover their losses.
The cap on the amount that energy suppliers can charge their domestic customers also prevented them from increasing customer prices to manage increases in wholesale energy prices.
It’s also important to note that energy companies sometimes have to supply more energy to their customers than they planned.
About 2.3 million customers of the failed energy companies have been transferred to another supplier. This is because they need to have uninterrupted supply of energy in these circumstance and were protected under the Ofgem’s supplier of last resort processes.
According to energy regulator Ofgem, the cost of this failure could reach £2.4 billion.
This is why it’s important that we avoid another energy company failure.
Due to the high prices, more customers have stayed on the standard variable tariff than the energy companies expected.
Fixed-term deals were typically the cheapest option on the market before the crisis started. Many customers would have switched to these types of deals if they were in normal circumstances.
Fixed term frenzy
Many companies didn’t anticipate how many customers would switch to a fixed-term deal due to the high prices. As a result, they were forced to subsidise some of their customers until the price cap was raised.
Before the crisis started, most energy companies didn’t make a profit from their domestic customers. Due to the market’s fragile state, it’s hard for them to withstand the sudden price increases.
As the cost of energy continues to rise, it’s important that the government provides more support to consumers to help them avoid experiencing fuel poverty. This is an economic crisis that affects everyone, and urgent action is needed to protect consumers now.
If your business is looking for a competitive fixed price energy supply contract, we are here to help.