5 key themes likely to impact the business energy market this year

We can describe 2023 as a year of profound changes that have impacted the energy markets, with rising interest rates, tighter monetary policies, the potential recession of the eurozone, but also the first tangible effects of renewable energy being recorded through the upsurge in residential and business solar panel installations.

An important development is that during 2023, the USA became the No.1 importer of liquified natural gas (LNG) into Europe. This has helped gas storage across Europe to reach record levels in recent months, but the market remains jittery as we saw on 18th December when BP decided to suspend oil shipments through the Red Sea, which led to a knee-jerk wholesale power price increase of 6%. Although European gas storage levels continue to be at near record levels, we can expect unforeseen geopolitical tensions to continue to cause mini price shocks during the first half of 2024.

In this dynamic landscape, understanding the nuances of your energy bill is of paramount importance. Underlying charges for Non-Commodity Costs are still very high compared to historical levels, meaning that even the smallest change can have a significant impact on energy costs. At the start of this new year, fresh projections offer both promise and insight for businesses keen on managing their energy expenditure.

As 2024 unfolds, we expect to see a continued shift towards renewable energy sources, driven by government policies and corporate sustainability goals. Advanced technologies, including smart grids and energy-efficient solutions, will play a pivotal role in enhancing energy management for businesses, while increased collaboration between industries and energy providers may lead to more innovative and sustainable approaches to meet the growing demand for clean and efficient energy.

5 key themes likely to impact the business energy market this year

Renewable generation sources are set to grow significantly due to supportive government policies and a shift away from fossil fuels. Despite potential setbacks from policy changes, like increased VAT on clean energy technologies and cessation of solar subsidies, the ambitious 2030 alternative energy targets offer vast opportunities for eco-friendly energy companies. We anticipate a continued growth in renewable energy capacity, driven by ongoing investments in solar, wind, hydro, and other clean energy technologies. For instance, the UK is amongst the countries that have announced supply-side subsidy schemes, while also putting low-carbon hydrogen production targets in place.

At ARO, we help businesses under growing pressure to respond to customer demands for action on carbon emissions and to comply with Net-Zero in 6 easy to follow steps.

Energy costs for businesses are expected to decrease primarily due to reductions in wholesale energy prices. Analysts say that this decline can be attributed to several factors, including robust storage reserves, improved supply accessibility and favorable weather patterns. However, while some third-party costs are forecast to decrease, others are predicted to rise.

Carbon reduction measures are expected to accelerate based on more stringent regulatory requirements and support available with some of the measures taken as part of the Autumn Statement. These include:

  • Charities across the UK can claim VAT relief for the installation of energy-saving materials starting from February 2024.
  • Companies across the UK will be able to write off (“fully expense”) the full cost of qualifying main rate plant and machinery investment in the year of investment, meaning companies are rewarded with up to 25p off their tax bill for every £1 they invest.
  • The main and reduced rates of Climate Change Levy will be frozen in the UK in 2025-26 at the main rate of £0.00775/kWh for electricity and gas, £0.02175/kWh for liquid petroleum gas (LPG), and £0.06064/kWh for any other taxable commodity.
  • Reduced rates will be frozen at 92% for electricity, 77% for LPG, and 89% for gas and any other taxable commodity.

Global energy demand insecurities: Once steady due to predictable economic and population growth, energy demand has been subject to unprecedented volatility since the new decade began. From the staggering level of demand destruction from the COVID pandemic to the repercussions of the Russian invasion of Ukraine , you may be wondering what “normal” demand growth looks like. Some of the wildcards for demand in 2024 could be influenced by:

  • The ongoing challenge of reining in inflation without damaging economic growth
  • 2024 will be an El Niño year, with a 30% chance that the weather phenomenon could be historically intense

The impact of elections – In 2024, 78 elections are scheduled across the world, over half of which will choose a new president. This means that the political landscape may change as far-right parties are projected to make significant gains in many countries. However, the example of Poland points in a different direction, where a new, pro-European government has promised to put forward an ambitious energy transition program.

In 2024, businesses can expect to operate in a landscape shaped by geopolitical intricacies, technological challenges, and environmental imperatives. As we grapple with uncertainties, businesses equipped with strategic resilience and sustainable practices can navigate through these geopolitical storms and emerge stronger in an unpredictable global market.

ARO is here to help you navigate these challenges.

From initial energy audits to automated carbon reporting and green energy sourcing, we can guide you towards a sustainable future with expertise and innovation. Discover ARO Sustainability.

Contact us for a free, no-obligation desktop energy audit that will cover:

  • A comprehensive examination of your energy consumption patterns by reviewing utility bills, assessing energy usage across different departments or processes, and identifying peak demand periods
  • Evaluation of the efficiency of existing equipment, machinery, and systems to identify potential upgrades or replacements that could enhance energy performance. This may involve examining lighting, HVAC systems, production machinery, and other relevant equipment
  • Explore the feasibility of incorporating renewable energy sources