I own a restaurant on the south coast. I need to sign a new electricity contract and all of the brokers I have spoken to are suggesting a three-year fixed term – they all individually predict business energy prices will keep rising until 2025/26.
I’m not sure what they’re basing it on and don’t know whether to take the plunge on their advice.
I hate feeling pressured into fixing for so long, but also have no idea where business energy costs are going.
I have no idea where energy prices are going to go, should I sign a fixed contract for my restaurant? Dave Fishwick replies
Dave Fishwick, This Is Money’s business doctor replies: The wholesale gas price has dropped dramatically in recent months and, at the time of writing, is currently less than a third of where it was at its peak in August 2022.
Similarly, oil prices have fallen dramatically over the past few months.
While that’s gas and oil prices and not electricity generated from various sources, the overall picture in the energy market should roughly follow the same course.
The price spike caused by the government response to the pandemic and the Ukraine conflict has fallen back, and supply constraints have eased. The government energy bill relief scheme has been extended until April 2024, but the government expects energy prices to fall in the second half of 2023.
However, as we tend to see with petrol and diesel prices, they seem to shoot up like a rocket but float down like a feather.
The reasons for lagged declines are usually given to be that wholesale energy companies hedge their bets on future prices just as you are considering doing. Still, the biggest UK energy generator did report record profits in 2022.
I would personally like to see energy giants taxed more and the extra money used to help with energy bills for anyone that is struggling, hard-working families, pensioners and small and medium-sized businesses.
It sounds like the energy brokers may be trying to make themselves a big commission by locking unwary customers into expensive contracts before prices come down to normality.
There’s always some risk that external events will push prices higher again.
An escalation in the Ukraine war, between China and Taiwan or problems in the Middle East could send wholesale prices back to their 2022 levels. But barring any such catastrophe, I can’t see any reason for prices to continue to rise until 2025/6 other than more profiteering within the energy industry.
Over the long term, prices could rise as we see the costs of the low-carbon policies added to energy bills. The green energy levy has been in place for some time now and adds around 8 per cent to accounts. This will likely be a gradual increase, though.
You should be in a contract for your commercial energy supply as out-of-contract prices are costly, but I’d be reluctant to enter into a three-year contract unless it’s at a price you’re happy with. Shop around for the best deal online and through energy brokers.
I also called some dear friends of mine, Zack and Catherine, who own a family restaurant similar to yours. It’s called the Well Springs in Sabden, Lancashire, and I asked them what their energy plans are.
Catherine said, ‘Energy prices are dropping, and I understand they may be dropping again in June. I have just been quoted, fixed for three years at 26p a unit. My deal finishes at the end of July, and I currently pay 17pence a unit.
‘It will never be that low again, but I am waiting until June before I do anything, as I have been told it will reduce a little more. The deals last year were 90pence a unit, and many people sadly fixed at that. I have contacts who are independent telling me this.’
I hope that helps a little.
My personal thoughts are, I would be reluctant to fix anything for over 12 months at this point in time as by this time next year, I think we’ll have a clearer picture of where energy prices and the economy are heading, but over the course of this year, they should be heading down.
Good luck!
