The long-awaited business energy price cap has finally been announced by the Government this week with details emerging yesterday.

After many rumours and speculation we can now confirm that the energy price cap for businesses will be in effect from October, running through to March 2023. This will be applied to any contract that has been taken out after April of this year and the actual cap will be effective from any consumption from October. The price cap for electricity is currently at £211 per megawatt, so that’s 21 pence per kilowatt and £75 per megawatt equivalent on the gas market or seven and a half pence per kilowatt on the gas market.

At this point we must stress that this is a cap to the wholesale rate only, so what this means is on your electricity this will be the baseline of wholesale prices and all third-party costs, such as network charges, supplier margin brokerage fees, will be charged on top of the rate. The impact of this will mean that it’s roughly half of what the going rates for the wholesale gas and electricity is at the moment and what the anticipated rate would be going into the winter season. So anyone who’s taking out a contract recently should see the benefit of the cap come in and anyone who’s still yet to do their October rounds can understand that they’ll have at least six months of relief via the wholesale cap. Now the Government have announced that they will review this after the first three months to see about possibly extending the cap for vulnerable businesses – at the moment it’s yet to be determined what vulnerable businesses are, there’s a genuine sentiment across the marketplace that this could involve likely areas such as hospitality, as this is a much more vulnerable area of business – however nothing has been confirmed in regards to that at the moment.

What this does mean is that you should still be getting contracts, competition is still very much alive in the energy market. If you do decide to roll out of contract there is a cap, however the cap is significantly higher than when you do contract they’re expecting about £405 a megawatt hour or 40.5 p per kilowatt hour on electricity and £115 megawatt hour for gas or 11.5, so I would strongly recommend that anyone who is up for renewal in October at the moment does look to secure that as soon as possible.

What you must understand or what we must keep in mind is that this is only a six month cap, we do have to take a view of what’s happening over the horizon and ask ourselves the question of what sort of contract length do we go for. I know that there’s a lot of temptation just to take a six month contract for the cap period but I would also say we need to bear in mind of how many other businesses will be thinking about doing that and what does that mean for demand come March and what effect that would have on pricing come March.

We’ve also seen some good news over the last couple of weeks, with prices continuing to sell off at quite heavy discounts – obviously we’ve all been following that with much delight. We have seen an up-tick of around about 10% on wholesale prices yesterday on the back of a quite significant escalation in the Russian-Ukraine war. I imagine that this sentiment will probably permeate throughout markets until there’s a de-escalation or some sort of easing of the global consensus in regards to that information and that escalation in Russia.

So what does that mean for anyone who’s got October exposure or even anyone who’s got 2022 exposure and early 2023? Recommend looking at securing those rates, obviously depending on your business, it’s bespoke to what sort of terms you look for for those contracts, whether you go flexible, whether you go fixed.

Another key element of the price cap is that this does affect both fixed and flexible contracts, however the flexible contracts is supposed to be calculated by suppliers and there is subject to a maximum discount. At the moment that says that’s all we know on it. I understand that’s quite vague, we are looking for the details in regards to what actually surrounds that, get some more meat on the bones for our flexible clients and we shall see really what that translates to in the coming days and weeks. Yes, anything further to that we would expect to see some significant trading volatility coming up over the winter, which is no surprise to anyone, so yes we recommend securing contracts, preparing budgets and obviously what we’ll be doing for our clients is we’ll be working in a cap analysis with the information that we have at the moment to give a perceived budget over any contract periods that include the cap and beyond.

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