How Are Rising Energy Costs Impacting Businesses?

Over the last few years, energy prices have been front and centre for UK businesses. Since 2021, the market has been on a rollercoaster; with sharp rises, brief dips, and constant uncertainty. It’s been impossible to take our eyes off it.

In this blog, we’ll break down the current energy landscape, why prices have been rising, what this means for businesses like yours, and the strategic steps you can take to manage consumption and protect your bottom line against future volatility.

Current Landscape

So far in 2025, energy prices have remained relatively steady, with only a small dip in the wholesale energy market back in February. Compared to the volatility we saw from 2022 onwards, this stability is a welcome change, but it doesn’t mean prices are back to “normal.”

In fact, costs are still well above pre-2022 levels. Cornwall Insight reports that as of April 2025, the average small business energy bill is around 70% higher than it was in 2021–22.

On the domestic side, Ofgem recently announced a new energy price cap of £1,720 per year for July to September 2025, a 7% decrease from the previous level. While the cap doesn’t apply to businesses, it often signals where the wider market may be heading.

Current insights suggest we could see a small dip in business energy prices later this year, but it’s unlikely to be a dramatic change.

Why Have Prices Been Rising?

Energy prices first began to climb in 2021 as countries started to recover from the pandemic. Demand for gas surged, but supply was limited, pushing prices higher. On top of that, renewable energy sources like wind and solar underperformed, and a colder-than-average winter across Europe increased heating demand, compounding the problem.

These spikes in gas prices had real consequences. By the end of December 2021, 28 UK energy suppliers had gone out of business, affecting millions of customers. Since then, more suppliers have exited the market. You can read more about what happens when a supplier goes bust in our dedicated blog.

In 2022, Russia’s invasion of Ukraine added further pressure. Russia is one of the world’s largest gas and oil producers, supplying around 40% of the EU’s gas in 2021, so the conflict threatened supply chains and drove prices even higher.

More recently, tensions in the Middle East have caused crude oil prices to rise. This is critical because oil is essential for electricity generation, and disruptions, particularly through the Strait of Hormuz, which handles around 20% of global oil and gas flows have put additional pressure on the market.

Why Is Business Energy More Expensive?

At first glance, business energy bills often seem higher than domestic ones and there are a few key reasons for this:

Usage: Businesses generally consume much more energy than households, which naturally increases the final bill.
VAT: Businesses typically pay 20% VAT on energy, compared to just 5% for domestic users. Find out more about VAT on business energy bills here.
Meter type: High-usage businesses may have half-hourly meters, which come with additional charges.
Location: Where your business is based in the UK can affect unit rates and standing charges, with rural locations often facing the highest costs.
Additional charges: Certain levies, such as the Climate Change Levy (CCL), apply to businesses but not domestic users.

That said, when you look at cost per unit (p/kWh), business energy is often cheaper than domestic energy. Higher consumption gives businesses more negotiating power and access to bulk-buying discounts from suppliers. So, while the overall bill may be higher due to usage and extra charges, the rate you pay for each unit of energy is usually lower.

What Impacts The Cost Of Energy?

Energy prices are influenced by a wide range of factors, many of which can be sudden and difficult to predict. Some of the main drivers include:

Supply and demand: One of the biggest influences on energy costs is simple economics. When demand is high and supply is low, prices rise. Interestingly, electricity and gas are linked: when electricity supply falls short, gas-fired generators step in to fill the gap, which pushes up gas prices.
Geopolitical issues: Global events, like the pandemic, the Russia-Ukraine conflict, or tensions in the Middle East, all impact energy prices by affecting supply chains. Even fluctuations in exchange rates, particularly the US dollar ($), can influence costs. A strong pound (£) means more value for money, whereas a weaker pound can push prices up for UK businesses.
Renewable energy generation: When renewable energy output falls short of expectations, other generation methods are needed, increasing costs. Conversely, when renewable generation exceeds forecasts, reliance on other sources decreases, which can temporarily reduce prices.
Extreme weather: Severe weather events, whether in the UK or globally, can impact prices. For example, a colder winter in Asia increases gas demand for heating, reducing global supply and pushing costs up. A milder winter has the opposite effect.
Infrastructure repairs and outages: Unplanned outages at power stations, pipelines, or interconnectors can cause short-term price spikes. Even planned maintenance can temporarily influence prices, although rates usually stabilise once repairs are complete.
Storage levels: Gas storage acts as a safety net for the UK. High storage levels help stabilise the market and keep costs lower, while low levels can trigger panic buying and drive prices up.

When Will Energy Prices Go Down?

Predicting exactly when energy prices will fall is a risky move. At Dyce Energy, we’d never make claims that we “know” when prices will drop because the truth is, no one does. As we’ve outlined above, there are countless factors that can influence the market, many of which are sudden and hard to forecast.

That said, there are some signs worth noting. For example, the domestic energy price cap has fallen by 7% for July–September 2025. While business energy doesn’t have a price cap, the domestic cap can sometimes act as an indicator of broader market trends, suggesting there may be some downward movement.

However, wholesale costs remain sensitive. Any geopolitical event, supply chain disruption, or change in demand could cause business energy prices to rise unexpectedly.

Our recommendation? Keep a close eye on the market and stay in touch with your broker or supplier if your renewal is due in late 2025 or early 2026. If prices drop to a level you’re comfortable with, consider locking in a fixed-rate contract to protect your business from volatility. You can learn more about the benefits of fixing in our dedicated blog.

How Will Energy Costs Affect Businesses?

Rising energy costs are affecting businesses across the board, but some industries are feeling the impact more than others. Energy-intensive sectors, such as manufacturing and production, are among the hardest hit. Industries with tight margins, like hospitality, are also struggling as rising costs eat further into already narrow profit margins.

Small and medium-sized enterprises (SMEs) are particularly vulnerable. With limited financial buffers, higher energy costs can force tough decisions from scaling back growth plans and reducing hiring to, in extreme cases, closing operations.

A study by PwC found that 77% of UK businesses have had to increase the price of their products or services in response to rising energy costs. This not only affects a business’s competitiveness but also influences consumer behaviour, as these additional costs are passed on to end users.

How To Mitigate Rising Energy Costs?

To navigate these challenging times, UK businesses need to adopt proactive strategies to manage their energy consumption and costs. Here are a few key ways this is possible:

Efficiency measures: Introducing efficiency measures at your business is usually a good place to start and you don’t even need to make big, costly wholesale changes to see the effect. Even quick and simple options such as heating/light timers, upgrading to LED lighting and maintenance on heating/cooling systems can have a big impact on your usage and, in turn, your costs.

Energy audits: Conducting an energy audit can be very beneficial to businesses as this will help you better understand how your business uses energy. With this data you can identify areas of where you could improve your efficiency and in turn produce a clear data driven plan of action moving forwards.

Staff training: Providing energy efficiency and conservation training for your employees could go a long way, as it can lead to more mindful consumption habits. Even small changes like turning lights off in unused rooms or turning off equipment before leaving

for the day can contribute greatly to overall energy savings.

Renewable energy generation: Now, this won’t be applicable to all businesses, but transitioning to generating your own renewable energy is a possible avenue. Whilst the initial investment can be quite high, the long-term benefits, such as free energy and a reduced carbon footprint, alongside the government incentives and subsides, can offset some of the initial investment. This could also turn into a revenue stream if you create more energy than you are using, as this can be sold back to the grid, helping you recoup some of that initial investment.

If you want to find out more about how businesses can reduce their energy consumption, you can do so by checking out our dedicated blog here.

How Can We Help

While the steps outlined above can help businesses manage rising energy costs, it’s important to stay vigilant. The energy market remains unpredictable, and prices can change quickly with little warning. Keeping up with market trends and potential policy changes is crucial for anticipating fluctuations and responding effectively.

If your business is looking to reduce costs on gas or electricity, our team is here to help. Get in touch with our sales team today for a free, no-obligation quote.