Business energy costs have risen by 25% since February, with higher wholesale prices, summer heatwaves and rising policy and network charges adding pressure on companies ahead of winter.
Business energy costs have climbed sharply this year, with a typical 12 month electricity contract for a small industrial and commercial (I&C) site now costing around £638,500, according to Cornwall Insight.
That’s a 25% increase since February and the largest rise in almost four years.
The same trend is playing out in gas. A typical I&C site is now facing an annual gas cost of around £1.15 million, also up 25%.
The figures highlight the growing challenge for businesses trying to budget for energy at a time when prices remain highly volatile.
Wholesale prices remain under pressure
The conflict in the Middle East has pushed wholesale gas prices higher, while European gas storage operators are also struggling to refill stocks ahead of winter.
Cornwall Insight expects prices to remain elevated through the rest of the year and into early 2027.
Heatwaves across Europe have added to the pressure. Higher temperatures have increased demand for air conditioning and cooling, while extended Norwegian offshore production outages and strong demand for liquefied natural gas in Asia have also affected the market.
For businesses with contracts due to renew this year, the timing is particularly difficult. Many contracts are expected to renew in October, meaning some companies will be locking in prices at a higher rate than previously expected.
The impact will not be the same for every business. Larger organisations often hedge their energy purchases months or years in advance, which can provide some protection against short-term wholesale energy price spikes. But, if high prices persist, that protection will eventually run out for more businesses.
Policy and network costs add to the bill
Wholesale prices are only part of the story.
Businesses are also facing higher costs from energy policy and the electricity network. Two charges increased in April – the Climate Change Levy (CCL) and the Transmission Network Use of System Demand Residual (TNUoS TDR) charge.
The CCL increase is relatively small, with gas and electricity rates rising from £0.00775/kWh to £0.00801/kWh. The impact of changes to TDR charges is potentially much larger for some energy-intensive businesses.
The new TNUoS charging framework, which runs until March 2031, introduces higher fixed costs for many commercial and industrial users. Some medium-sized businesses could see TDR charges rise by more than 65% compared with 2025 levels, while some businesses could face annual increases of tens of thousands of pounds.
There could be further pressure on electricity costs this autumn, with NESO considering an increase to BSUoS charges from October as the cost of balancing the grid has sharply risen.
At the same time, government support remains heavily targeted. Around 500 energy-intensive businesses currently receive support through the British Industry Supercharger, including relief from some policy costs and network rebates of up to 90%. That support is due to widen through the British Industrial Competitiveness Scheme (BICS) from April 2027, which is expected to support around 10,000 eligible businesses.
But, Cornwall Insight estimates that almost 90% of business energy consumption comes from businesses that have received no support on their policy costs.
High energy costs could hold back investment
The uncertainty around energy bills is a major cause for concern. “High bills will continue to weigh on investment decisions,” said Jacob Briggs, Energy Users Lead at Cornwall Insight. He warned that businesses may find it difficult to commit to expansion when they cannot predict what their energy costs will look like next year.
For businesses, that makes energy procurement an increasingly strategic decision rather than a straightforward purchasing exercise.
Cornwall Insight points to several ways businesses are responding, including fixing or hedging prices in advance, investing in on-site generation and using flexibility to reduce their reliance on the grid.
These measures will not remove exposure to the wider energy market. But they can give businesses more control over how much energy they use, when they use it and how much they pay.
For companies facing contract renewals over the coming months, that control could become increasingly valuable as the UK heads into another uncertain winter.
There are practical steps businesses can take to manage rising energy costs and reduce their exposure to future price increases. For advice on managing volatile energy costs and planning your procurement strategy, get in touch with Sustainable Energy First.