Why are business energy prices so high?
Business energy prices are at record levels. Prices have increased gradually most of the year but exploded in September.
We take a look at the reasons behind the continued volatility.
As we wrote a few months ago, gas and electricity prices have been increasing for most of the year. This has largely been driven by low levels of gas in storage due to poor weather for electricity generation and low gas flows from Russia.
French-UK Interconnector outage
In September, a fire at a Kent converter station disabled one of the interconnectors that imports power from France. This removed 3% of electricity from the grid, and it is unclear how long this will be offline for*. The immediate reaction was a massive spike in wholesale prices the sent the costs of energy to even higher records.
* Update, it has been confirmed the interconnector will be back and full capacity in December 2022.
As result, all energy companies suspended prices.
2 months later, the energy markets are still extremely volatile, surging upwards one day and pulling back the next. Most suppliers don’t want to be exposed to such swings in wholesale prices and are still not pricing for any contracts.
Large swings in prices
These are generally caused by hints of increased gas flows from Russia, often followed by disappointment later in the week.
Earlier in the month, two French nuclear reactors were unexpectedly taken offline. This pushed power prices higher still.
Carbon prices are hitting record highs. This is a vicious circle really. Record gas prices mean it is more expensive than ever to use gas power stations to generate electricity. Therefore, Europe is firing up coal power stations again which is now relatively cheap compared to gas. However, this pushes up the price of carbon which in turn increases electricity prices.
All the above factors, along with colder weather on the horizon, are pushing up prices. Current price levels are unheard of.
For these reasons, there are little options available at the moment. Most of our clients took our advice to secure contracts earlier in the year.
Nord Stream 2
A chink of light in an otherwise gloomy outlook.
Nord Stream 2 is the new gas pipeline connecting Russia directly with Europe at the German coast. Running under the Baltic Sea, it was completed in June this year.
A controversial project from the outset, it is now seen as a chance to stabilise gas supplies in Europe and reduce prices. It is undergoing testing, but does still need approval from German regulators before gas can start flowing.
Why is it controversial? Existing pipelines run through Ukraine and Poland for example. Russia pays fees for transporting gas through other countries. Nord Stream 2 runs directly to Germany.
If your business energy contract is due for renewal during these difficult times, you can call our friendly team for impartial advice – 020 3372 6517.
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