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To get the best home energy and business energy tariff possible, you need to understand fluctuating wholesale energy prices. Wholesale electricity and gas prices can be confusing, especially when supply and demand, variable rate tariffs, and the balancing mechanism market are thrown into the mix.
Luckily, we’ve compiled everything you need to know about the wholesale energy market.
The wholesale energy market allows organisations to buy and sell energy in bulk. The two main players are energy producers and energy suppliers. Suppliers purchase energy from producers before passing the energy to consumers.
The wholesale energy price is the rate that your supplier pays. The cost of wholesale energy informs the cost of domestic and commercial gas and electricity.
Before suppliers sell gas and electricity to consumers, they add extra charges. The charges cover admin fees, maintenance, and the other services that they provide. Charges are usually added to your bill as a standing daily charge, but they can also be absorbed into the unit cost of your gas and electricity.
The more a supplier has to pay for wholesale energy, the more you have to pay for your supply.
Ofgem, the regulatory body that oversees the gas and electricity markets in the UK, monitors wholesale prices and establishes a new price cap every three months.
Here are the current prices for wholesale energy, from Ofgem’s data.
Ofgem introduced the energy price cap in January 2019 as a way to protect homeowners from unusually high spikes in wholesale electricity prices.
From the 1st of April to the 30th of June 2024, the price cap is set at £1,690 per year for a typical household that uses electricity and gas and pays by Direct Debit. This is £238 lower than the price cap from around the same time last year.
It’s important to remember that Ofgem’s price cap only applies to domestic customers. Business owners have no protection from rising wholesale energy prices, which is why most opt for fixed-rate tariffs.
Wholesale energy prices determine domestic and commercial energy costs. When energy costs fluctuate, so will your bills. However, it’s not quite that simple.
It all depends on your tariff. If you have a fixed rate tariff, your supplier can only charge a fixed unit rate for the length of your contract. If you are on a variable-rate contract, you will have to brace yourself against the fluctuating energy market.
Wholesale energy prices are governed by supply and demand.
The higher the demand, the higher the wholesale electricity prices.
There are plenty of factors that impact supply and demand.
There are three energy markets in the UK: the wholesale market, the retail market, and the balancing mechanism market.
In the UK, the National Grid acts as the Electricity System Operator (ESO). It balances the supply and demand for energy in real-time.
The ESO oversees the Electricity National Control Centre (ENCC) and monitors electricity supply and demand in the UK. It forecasts how much electricity is needed on a second-by-second basis. Energy generators use this information to inform how much electricity they can create and how much it will cost.
Wholesale energy prices can change from one second to the next. But unless there is a significant spike in one of the supply and demand factors mentioned above, wholesale unit rates typically level out.
However, domestic and commercial energy consumers will remember the sudden rise in energy prices in 2021. All at once, Russia invaded Ukraine, the COVID-19 pandemic wreaked havoc on the world’s supply chain, and Britons settled in for extremely cold months.
During this time, wholesale electricity prices rose to 50 pence per kWh and wholesale gas prices increased to 60 pence per kWh.
Since then, gas and electricity prices have fallen, but this example shows just how quickly (and dramatically) wholesale energy prices can change.
Where do our gas and electricity supply come from? Suppliers can choose from a wide range of different sources, but some are more environmentally friendly than others.
The fuel mix represents the percentage of different sources.
Here is the fuel mix disclosure data table from 2023.
| Energy Source | % |
|---|---|
| Coal | 7.0 |
| Natural Gas | 73.5 |
| Nuclear | 1.7 |
| Renewables | 12.2 |
| Other fuels | 5.6 |
Before you commit to a supplier, you can view the fuel mix on their website. This will give you an insight as to whether the supplier cares about the environment, and you can choose a supplier that aligns with your beliefs.
Cut the cost of your business electricity and business gas bills by finding a new tariff. The energy specialists at SwitchWhiz can help you find a new, more affordable deal in just a few minutes.
The process is simple; just add a few details into our energy comparison generator, and wait for the deals to pop up. You can find lower wholesale energy prices in the time it takes to boil a kettle.