How Does The Way Energy Is Bought And Sold Affect The Price That I’ll Pay For My Energy?
There are several different factors that affect the amount you pay for your energy. Wholesale energy costs are responsible for about a third of your electricity bill. So, the wholesale price of energy is mostly responsible for rising energy prices.
Wholesale prices are affected by things such as supply and demand, and energy generation costs. Other factors that affect these prices include government policies and taxes, operating costs, and competition between businesses.
The cost of your business utilities can also vary depending on where your business is based. Local distribution networks have different levies which affect the energy prices in specific regions.
The huge rise in costs for energy recently has been caused by a combination of factors. The main reason is the Russian invasion of Ukraine which massively disrupted global supply chains. The lack of storage space available for gas and the spike in demand after the Covid-19 pandemic have also contributed to these price increases.
Energy suppliers hadn’t properly hedged on these factors which means that the increased wholesale prices of energy have been passed onto the consumer.
Suppliers buy energy in advance in order to keep prices and supplies as stable as possible. The huge increase in demand for energy meant that suppliers needed to buy more energy from the spot market. This has led to them paying more for energy which, in turn, means businesses have to pay more for theirs.