Reacting to energy prices in 2022

Energy costs have hit SMEs hard. Swoop explains how we got here, what to expect in the coming year and how to protect your business from price fluctuations

Uncertainty has been thrown in bucketloads at SMEs in 2021 and some of that uncertainty can be felt from the moment the boss flicks on the light switch in the morning. The UK energy market has been shaken hard in the last 12 months with massive hikes in the cost of energy and 16 energy supply businesses folding. 

SME owners are left wondering where it will all end and what, if anything, they can do about it. 

How did we get in this situation?

The COVID-19 pandemic forced wholesale energy costs to record lows as businesses shuttered up and hunkered down. When the world reopened, the surge in demand saw prices soar and the small suppliers that neglected to hedge their costs were those that were hit the hardest. 

The hope is that 2022 will see more stability in the energy markets as well as other events that have disrupted ‘normal life’, such as supply chain issues. Unfortunately, the recent move to ‘Plan B’ by a beleaguered UK government, mired in scandal, suggests that the gradual shift back to ‘normal’ will not be entirely one-way. With leadership wobbling hard, there are precious few assertions about the future that are worth putting money on. 

The Omicron variant in particular has raised the prospect of another lockdown and with that, the drop off in demand will lead to another drop in energy prices followed by another steep rise. Such a lockdown may not happen, but uncertainty around it is only causing more problems. 

Will Ofgem’s Price Cap hold?

There are rumblings of discontent around the Ofgem price cap. For the period 1 October 2021 – 31 March 2022 the default tariff cap rose by £139 to £1,277. For consumers, this insulates them from dramatic spikes in cost. For suppliers, it is a disaster, preventing companies from raising prices in response to soaring wholesale costs.

By April 2022, predictions are placing the price cap at a record high of around £1660, though there are some suppliers asking for the cap to be removed completely or increased by as much as 34 percent to enable them to make a profit.

What can business owners do?

In the face of such uncertainty, business owners should know where they stand with their own energy companies, understand how much they are paying for energy and what they need to do if it became crucial to switch suppliers. Swoop has long offered business owners a tool with which to check current tariffs against competitors and made it easy to switch. 

When there are so many moving parts, being able to find one unmoving point of reference is crucial, which is why we recommend that business owners compare their current deal against others in the market. What you have may or may not be the most appropriate for your business needs; in any case, smart business owners will know where to get help quickly should the need arise. 

With energy price volatility promising to be a long-term prospect in the new year, knowing where you stand could stop you from getting burned. 

Check your energy tariff against the market here