How to Avoid Business Energy Price Shocks

Energy prices in the UK are continuing to rise. Recent announcements confirmed yet another price hike, with a 6% increase for residential users between the 1st April and the 30th June 2025 alone. All of this means that businesses, for whom maintaining a strong bottom line is critical, need to take a more proactive approach towards their energy management. 

Understanding the UK Energy Price Cap and Recent Rises

The UK energy price cap, set by the government regulator Ofgem, limits suppliers' maximum amount per unit of energy and daily standing charges on standard variable tariffs. It aims to balance excessive costs with wholesale energy prices for the benefit of consumers.

Recent rises in these prices have been driven by global factors, including increased wholesale gas prices due to geopolitical tensions and reduced supply. The UK’s reliance on gas for electricity generation makes this country particularly vulnerable to such fluctuations. Additional factors include higher costs for renewable energy expansion, grid upgrades, and inflationary pressures.

Impacts of Energy Price Rises on Businesses

Rising energy prices significantly impact businesses by increasing operating costs, particularly for energy-intensive industries such as manufacturing and hospitality. Higher energy bills can reduce profit margins, forcing businesses to either absorb costs or pass them on to consumers, potentially affecting competitiveness. Small and medium-sized enterprises are especially vulnerable, often operating on tighter budgets.

Rising costs can have detrimental effects on businesses. They can lead to reduced investment in innovation, staff reductions, or even business closures. Companies are also pressured to adopt energy-efficient technologies and practices, which may require upfront investment, though this can offer long-term savings. The challenge for businesses operating in this environment is to balance financial sustainability with operational efficiency.

Strategies to Mitigate Energy Price Shocks

Businesses can adopt strategies that may limit the negative side effects of this rapidly changing environment. Locking into long-term contracts with energy suppliers can come with both costs and benefits. On one hand, locking in energy prices provides stability and predictability for budgeting, shielding businesses from sudden market fluctuations. But these contracts may result in higher costs if energy prices drop, and they reduce the flexibility to switch suppliers or benefit from newer, more competitive rates.

Investing in energy-efficient technologies such as LED lighting, efficient heating systems, and automated energy management tools helps businesses reduce consumption and costs. While upfront expenses can be high, the long-term savings and environmental benefits often justify this investment. Encouraging behavioural changes, such as minimising energy waste, can also complement these upgrades.

Switching to renewables like solar, wind and biomass offers sustainable alternatives to traditional energy sources. Solar panels can reduce dependency on grid electricity, while wind power and biomass can provide a consistent energy supply. Although initial installation costs are significant, renewables can lower long-term expenses and align businesses with green initiatives, appealing to eco-conscious stakeholders.

Government and Regulatory Support Mechanisms

The UK government offers subsidies and grants to support businesses, including funding for energy efficiency, innovation, and sustainability projects. Numerous grants are also available for green technologies. These initiatives aim to reduce costs, enhance competitiveness, and promote environmental goals.

Businesses can use the government grants portal to search for relevant opportunities to access support. Eligibility criteria and application processes vary by scheme. Detailed guidance is available on official platforms, which will help you navigate requirements and submit applications correctly. Local councils and business organisations may also provide assistance.

Monitoring and Managing Energy Usage

Effective energy management begins with regular energy audits to identify inefficiencies and opportunities for improvement. Setting clear energy-saving goals and engaging employees in these efforts are crucial. Optimising equipment, such as upgrading to energy-efficient lighting and HVAC systems, reduces consumption, while incorporating renewable energy sources and scheduling operations during off-peak hours can further enhance efficiency.

Smart meters provide real-time data on energy consumption, enabling businesses to track usage patterns and identify waste. Energy management systems can integrate data from various sources, offering insights to optimise energy use. Smart thermostats and automation systems adjust heating, cooling, and lighting based on occupancy, reducing unnecessary consumption. Additionally, energy monitoring apps and devices, such as smart plugs, allow businesses to control and analyse energy usage remotely.

Future Outlook and Preparing for Price Volatility

Energy prices in the UK are expected to remain volatile due to global factors like geopolitical tensions and fluctuating wholesale gas prices. Analysts predict a slight price decrease during mid-2025, followed by potential rises later in the year, reflecting ongoing market instability. The transition to renewable energy and infrastructure upgrades may also influence long-term trends.

To mitigate future energy price shocks, businesses and households can adopt energy-efficient technologies, such as smart meters and automated systems, to reduce consumption. Diversifying energy sources by investing in renewables like solar and wind can lower dependency on volatile fossil fuel markets. Long-term contracts may offer price stability, and government support schemes provide funding for energy efficiency projects.

At times, it can feel as though energy prices are simply spiralling out of control and that there’s nothing that anybody can do to mitigate this. But the truth of the matter is that the action that your business can take to reduce your exposure to this sort of shock. By monitoring your energy usage better, and taking advantage of technologies such as smart meters and financial incentives such as government grants, you may even find that you can save money through eliminating inefficiencies or enhance your business reputation by taking a responsible attitude towards the environment. As always, the opportunities for your business are there if you know where to look. It’s time for your business to seize the challenge!