When it comes to energy pricing, there’s often confusion between domestic (home) and commercial (business) energy. Recently, we’ve noticed several customers asking whether their business energy prices will increase on April 1st, likely due to the widespread attention around the domestic energy price cap in the news, especially by figures like Martin Lewis.
However, business energy pricing operates under an entirely separate system, unaffected by the domestic price cap. Let’s break down the key differences to clear up any confusion.
Domestic Energy Price Cap
The domestic energy price cap is a government-imposed limit designed to protect households from excessive energy bills. It’s widely advertised and adjusted periodically by Ofgem (the energy regulator) based on wholesale rates from the previous quarter.
For example, with the price cap changes on the 1st of April, the rates had already been calculated weeks prior, using wholesale data from the preceding quarter. This ensures households have some stability in energy pricing, regardless of fluctuations in the market.
Commercial Energy Contracts
Commercial energy, on the other hand, operates in a completely different manner. Businesses are not subject to a price cap. Instead, pricing for commercial energy contracts is determined by:
- Wholesale Market Rates: Prices are based on the market conditions on the day of signing or purchasing (for flex contracts).
- Non-Commodity Costs: These include charges for network maintenance, government levies, and other regulated fees that make up a significant portion of the overall contract.
Whether your business has a fixed or flexible contract, the domestic price cap has no impact on your energy costs. Commercial contracts are tailored to business needs, offering the flexibility and structure required for larger-scale energy consumption.
Why Does This Matter for Your Business?
Understanding the differences between domestic and commercial energy ensures you’re informed about what drives your energy costs, and why headlines about the price cap may not apply to your business.
At ARO, we specialise in helping businesses navigate these complexities. Whether you’re on a fixed or flex contract, we provide transparent insights into wholesale market trends and non-commodity costs, ensuring your business is always in control of its energy journey.
Understanding April Energy Pricing Adjustments
Depending on your contract type, energy pricing adjustments occur annually in April. During this time, the non-commodity elements of your overall contract price, such as network charges and government levies, along with the wholesale element, are revised by the network and government.
If your business is on a fully fixed deal, these adjustments will not impact your pricing, as your rates remain locked for the duration of your contract. However, for contracts with pass-through elements or fully flexible deals, these revisions will be reflected on your invoices, as they are tied directly to market changes and regulatory updates.
At ARO, transparency is key. When we share pricing analysis during quoting and contracting discussions, we strive to provide an informed estimate of potential changes to these rates. For contracts longer than 12 months that span multiple April adjustments, we build in a % buffer to account for potential fluctuations. Please note that these estimates are based on best-guess assumptions and are not confirmed unless we are close enough to the next set of rates being officially published.
This approach ensures you have a clear understanding of how pricing adjustments may affect your contract, empowering you to make informed decisions without surprises.
