Factors That Can Affect The Cost Of Your Business Energy Bill

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Energy bills make up for the high cost of operating a business. So, if you want to improve your business's bottom line, you will have to manage your business energy bill.

But to control it, you will have to learn about the factors that affect the cost. Even though you cannot control factors like the global economy, or the global energy market, there are a few factors that you can control.

Energy price fluctuates based on numerous factors, making it challenging to track all of them. But understanding the underlying market forces affecting the energy price can help you make more informed decisions.

You may look into this guide if you want to learn about various factors affecting the cost of your energy bill. Learn what all affects the business energy price and develop strategies to cut down your bills.

Supply and demand

Supply and demand is a significant factor that determines the cost of energy. The price will be low when the energy is available in abundance

You can create a supply and demand graph to better understand how these factors influence energy prices over time.

Factors That Can Affect The Cost Of Your Business Energy Bill

For instance, if there are more than two power generation companies, the price will be lower as the supply is higher. The same goes for winters and peak hours when the energy demand is high.

Energy prices depend on the type of fuel your business use

Your energy bill will depend on the source of energy your business uses. Businesses will have a range of energy sources to choose from, and the most common choices of fuels are electricity, natural gas, petroleum, and renewable resources.

The cost of each of these fuel types depends on demand and availability. The bill will be low when the fuel you use is cheaper and readily available. 

But if the fuel source you use is unavailable, the energy prices will soar, increasing your overall energy costs.

The energy bill will vary based on the supplier and energy plan 

The energy plan you are using is a decisive factor in determining the energy price of your business. In addition to choosing the type of fuel you want to use for your business, you can also consider changing the energy plan.

To take advantage of energy deregulation, you should make wise decisions regarding these factors.

Various energy plans are available in the market. You can save a lot of money by choosing variable vs. fixed rate plans and finding the most suitable supplier.

The first component you need to consider when choosing your supplier is their reputation. Then you need to evaluate various plans they are offering and their rate.

Since there are many energy suppliers in the market and they are trying to get new clients, they will provide many plants. So, compare energy suppliers in the market and find the one giving the best offer.

You can take the assistance of companies like Business Energy UK if you want to compare the electricity rates and get the best deal in the market. While choosing the plan, do not forget to analyze your risk tolerance.

In addition, you can make small changes in the energy usage patterns, like shifting the high energy operations to the time when the rates are low, which will show significant changes in your monthly energy bill.

The closeness of your business to the energy supply

One major component of electricity cost and a significant factor that affects the energy price is the distance between you and the power generation plant.

Economic fluctuations

The transmission fee will be high when your business is located far from the power plant. So, if your business is close to a power generation plant, you will have to pay less transmission fee.

Energy price fluctuates based on the time of the year

The time of the year or season is a considerable factor affecting the energy price. Demand will rise and fall at certain times of the year, influencing the prices.

You can predict the energy market based on seasons or certain weather conditions. The demand will depend on various, including:

Temperature

This is one of the most obvious factors that can cause energy price fluctuations. For instance, the demand for gas and electric heating is lower during summer.

Similarly, when the temperature falls, the demand for electricity and gas soars high during winter. You can easily predict the wholesale price of gas and electricity based on the weather forecast. 

For instance, if a weather forecast says that the weather will be good in a few weeks, the temperature will be ideal, and energy demand will be low, then the prices will fall in the short term.

Even though long-term weather forecasting is difficult, it is still possible. For example, the El Nino weather event happens every few years. This is usually linked to harsh winters where the demand for energy will be higher.

Wind

Certain climatic conditions, like wind flow, can also result in price fluctuation. As we know, Britain is the biggest offshore wind generator.

More than 17% of the energy needs of the UK are satisfied by the energy generated through on and offshore wind turbines. On windy days, a significant portion of the UK's electricity will be generated through the wind. 

But when the wind doesn't flow, they will have to depend on the power plant for various energy needs, which increases the energy price. When you rely on wind energy for a long time, and when there is a period of no wind, gas prices will go up.

Economic fluctuations

One of the factors that influence energy prices is economic fluctuations. For instance, the demand for products and services will increase when the economy is booming.

As a result, the business will have to increase its production and distribution cycle to meet the market demand.

When there is more demand for the products, the energy demand will be high, and so will the energy prices

Therefore, you must understand the market well and regularly track the market development. This will help you to anticipate and prepare for the change in energy costs.

Harsh weather and natural disasters

Unpredictable events like extreme weather and natural disasters can affect energy prices. Severe weather and natural disasters can disrupt or damage power generation plants.

Harsh weather and natural disasters

For instance, the series of hurricanes in the Gulf of Mexico in 2017 reduced natural gas production. With less energy in stock and difficulty in distribution channels, energy prices will go up in such market conditions.

Changes in the global energy market

Changes in the global energy market have the potential to affect energy prices. This can be understood from the scenario of the American energy market.

Until the end of 2020, the US exported energy, and they didn't have to depend on anyone to procure it. But this scenario changes rapidly with new government policies

They became a net importer of crude oils, which means they must depend on exports to satisfy their energy needs

This disruption in the supply chain has increased crude oil prices. This reduction in the domestic production of crude oil has raised the market price.

Regulations

Each government imposes different regulations.

There are states where the energy price is entirely regulated; there are states where it is a combination of regulated and unregulated prices.

Energy prices will vary depending on whether they are regulated or not and how much they are regulated.

Drivers of electric demand

Based on a survey conducted by European Commission, energy price can depend on these two factors:

Income factors

Demographics and the growth rate of the population economically will affect the energy price. In simple words, in the areas where the more affluent people are residing, they will be using more energy; hence the power rate will be higher

This is the general scenario of capitalist states where energy is not subsidized. However, understand that this does not apply to all places.

Price factors

Another factor that determines the price of energy is how they are produced. For instance, wind energy will usually be more costly than electric energy produced through conventional methods

This is because the companies that generate wind energy will be using specialized instruments and will have to pay more for the specialists operating it, resulting in high upfront costs.

Moreover, the workforce will be expensive in a developing industry.

Industrialization

The price of energy will depend on the city you are living in. Living in an industrialized town means the power demand will be higher. As we have discussed, the price will go up when the demand is more.

Industrialization

The factors like weather changes, natural disasters, and geopolitical factors are beyond your control. However, understanding all factors influencing your business energy price will help improve your bottom line.

Evaluate your power market and learn how and where you can cut down your bills. Consider changing your business supplier.

Even if you are not changing your business supplier, you may want to change your business plan. Investigate various options that are available to you and see which will work better

You can consider doing an energy audit to understand your business energy consumption patterns.

See how and where you are using your energy. Follow some energy-saving tips like using energy-efficient equipment or reducing electricity during peak hours to control your business energy bill.

About the author 

Peter Keszegh

Most people write this part in the third person but I won't. You're at the right place if you want to start or grow your online business. When I'm not busy scaling up my own or other people' businesses, you'll find me trying out new things and discovering new places. Connect with me on Facebook, just let me know how I can help.

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