The conflict in the Middle East has pushed up oil and gas prices, which means energy costs for UK businesses are going up. What should businesses do now? Sustainable Energy First’s procurement specialists are on hand with advice.
UK industrial energy costs were among the highest in the developed world before the current war even began. Earlier in February the CBI and Energy UK had joined forces to sound the alarm about persistently high business energy costs. Their joint report showed that businesses were already cutting investment in the face of high electricity and gas prices. Now the Iran conflict has created a fresh problem, pushing up UK energy prices further.
If your energy contract ends soon
Despite President Trump’s recent claim that the war is “very complete, pretty much,” we fully expect further volatility in the region. This will have a continuing impact on global markets for many key commodities, including energy. We’re seeing organisations face higher prices, either through a fixed price contract, or if they have exposure on a flexible contract. If your business needs to renew its energy contract in the next couple of months, it’s important not to panic or make knee-jerk decisions. The right procurement strategy depends on the business – so we’d suggest getting expert help to discuss the right timings and approach for your type of business and attitude to risk.
Alternatives to supplier contracts
Rather than searching the shrinking market for a standard-issue supplier contract, we would also suggest you explore alternatives. Some very large UK businesses have turned to corporate power purchase agreements (CPPAs), in which they agree terms directly with the electricity generator. This means price certainty (because the price per unit is fixed for longer).
CPPAs are complex, costly to negotiate and have typically only been viable for very large enterprises. But Sustainable Energy First is pioneering an alternative model: the Sustainable Energy Consortium (SEC). By joining the SEC, you avoid the need to sign an agreement directly with a generator. Instead, you join a group of business energy users who are linked by the SEC to a group of renewable generators. SEC is a capped-price model that reduces exposure to wholesale market volatility and non-commodity costs.
Joining the SEC is much quicker and simpler than attempting to negotiate a CPPA as a single business. It also gives you complete traceability of supply and clean energy is matched half-hourly. Find out more.
Reduce exposure to non-commodity costs
The headlines have all been about wholesale energy costs, but for most businesses this isn’t even the biggest part of your bill. Typically, 60 – 65% of your bill is made up of non-commodity costs – network charges and green levies that sit outside your contracted unit rate.
2026 and 2027 will see an overall rise in non-commodity charges, largely to modernise grid infrastructure and support the clean energy transition.
The good news is that businesses have some control over these costs. There are practical ways to reduce exposure and protect budgets — whether through reviewing how and when energy is used, reassessing capacity levels, or making use of available schemes and procurement structures.
We’ll have advice on this in our upcoming Non-Commodity Cost Guide. It explains what each charge is, and importantly, how you can reduce your exposure to increasing costs. Get in touch for a copy.
Accelerate energy transition plans
This latest energy price shock is not the first, and it certainly won’t be the last. Long term, it makes sense for businesses to reduce their reliance on volatile fossil fuel markets – both by reducing demand and gaining greater energy independence. Now is a good time to consider the business case for measures including:
- Onsite generation
- Battery storage
- Energy efficient technologies and process improvements
Companies that actively manage their energy exposure – through procurement strategies, efficiency improvements and diversification – will be better positioned to weather the next price shock.
If you have any questions or need advice on protecting your business from energy price rises, get in touch with Sustainable Energy First via the form below.
