We know the cost of living is expensive, and it doesn’t help that energy prices are constantly spiking and changing.
While you may not be able to track these price changes, it’s important to understand what wholesale energy is and how the wholesale energy market works.
Wholesale energy refers to the bulk purchase and sale of energy products – primarily electricity but also natural and steam gas – in the wholesale market by energy suppliers and energy producers.
So, how does the energy market work, and how can you save on energy costs? Read on to find out.
How Does The Energy Market Work?
The wholesale energy market is the buying and selling of energy between energy producers and energy retailers/suppliers (those that resell the energy).
Energy suppliers – including utility companies, competitive energy suppliers, and electricity marketers – purchase energy from energy generators/producers at wholesale prices. These energy suppliers then add a price markup and resell it to customers.
There are three essential elements when it comes to supplying energy to UK homes:
- The making of electricity through generation.
- Transportation of gas and electricity.
- Selling energy to customers.
Energy companies can operate in any of these different areas, and some work in all three. The electricity and gas markets in the UK are privatised, meaning that private companies make sure we have the energy we need.
Wholesale Energy vs Retail
When you purchase your electricity from a utility company or a retail electricity provider, this is known as retail electricity.
Wholesale electricity is when these companies, and other entities, sell and purchase electricity on the wholesale market.
There are numerous utility companies across the UK, but the main companies are known as the ‘Big Five’ (British Gas, E.ON UK, EDF Energy, SSE, and Scottish Power).
Moreover, the price of wholesale electricity is lower than the price of retail electricity. This is because the wholesale price of electricity must be added to various charges in order to purchase and deliver the electricity to your home.
What Affects Wholesale Energy Prices?
Energy is subject to changes in supply and demand. Small price changes occur all the time, which is why much of the energy we use is bought in advance by suppliers – this is known as hedging.
In essence, hedging means making an agreement that sets the price level for electricity for a selected time frame. It allows energy companies to reduce changes in the price of electricity and gas, and this protects you as the consumer from big spikes in your energy bills.
Due to the wholesale energy market being impacted by a wide range of variables, it can be hard to create a precise and accurate budget of what the prices may be.
But what causes these changes in price? Below are some factors that drive wholesale energy prices up and down.
- Gas prices and supply: The price of electricity is in part driven by the price of gas; due to the fact that gas-fired generation is often the marginal source of generation.
- Changes in currency value: UK prices increase when the euro is strong and will decrease when the pound is stronger.
- Carbon tax: The carbon emissions target required by energy suppliers can affect the selling price of the broader market. If suppliers fall behind on carbon targets, they pay more and target increases encourage selling price increases.
- Temperature: Prices fluctuate with seasonal changes.
- Global events: Natural disasters and conflicts in oil and gas-producing countries can increase prices globally. The UK’s markets are vulnerable to these changes as it is reliant on imports.
How To Buy Electricity Wholesale?
If you’re in the market for the right deal for your business energy, it’s important to know how to navigate the retail market.
Due to the sheer amount of suppliers and tariffs on offer, it can be difficult to know where to start when you’re looking for a competitive deal for your business.
Should You Switch Energy Suppliers?
So, should you switch energy suppliers? It’s always worth comparing energy prices! Even if you’re not affected by the costs.
With Utility Bidder, you can compare a wide range of energy suppliers.
As business energy comparison and switching specialists, they ensure you get the right deal for your business. They search the market on your behalf, and no matter the type or size of your business, they can find a contract that offers excellent value for money.
If you’d like to learn more about their services and how it can benefit you, you can find more info here.