Brexit, which is an abbreviation for “Britain” and “exit”, had a major impact on business energy prices. When the UK left the European Union (EU), and all of its connected companies and benefits, most of the impacts related to energy were negative. Businesses, as well as households, had to pay increased prices for their energy.
The impact of Brexit on the UK energy sector led to an increase in business energy prices. Other areas of the UK energy sector were affected as well, some of them positive, and others negative. Businesses had to start taking measures to protect themselves against this change in the energy sector.
There are a few ways that UK businesses could adapt to the impacts of Brexit on the energy sector. One of these adaptations is to find and compare energy providers so that businesses can be sure they are getting the best deals possible. The correct energy provider will see to a business’s needs and requirements at a reasonable enough price.
What is Brexit?
On the 29th of March 2017, the UK government officially began its withdrawal process from the EU. The UK finally left the EU on the 31st of January 2020, and ended its transition period on the 1st of January 2021. Ireland did not take part in Brexit and remains an EU country. There are various reasons why the UK left the EU.
Britain felt that the EU threatened its authority, and was strangling it with burdensome regulations. It also thought that the EU entrenched corporate interests and prevented radical reforms. It did feel that the EU was a good idea, but that the euro is a disaster. Britain also felt that the EU allowed too many immigrants, and that the UK could have a more rational immigration system outside of the EU. The UK could also keep the money it sent to the EU.
Due to the UK leaving the EU, the country is no longer part of the Internal Energy Market (IEM). This means that the country buys electricity and sells capacity separately from and to Europe, instead of together. This means that energy distribution is less efficient, and the response to variable demand is sub-optimal.
Brexit And Business Energy Prices
Brexit led to a rise in business energy prices due to increased costs in transportation, uncertainty over carbon pricing, and a weakened pound.
Post-Brexit energy prices also increased due to:
- UK leaving the Internal Energy Market (IEM). Before Brexit, the UK received gas and electricity from EU country pipelines. Getting energy from EU countries complicated this trade process, and led to an increase in energy prices. This leads to a loss of investment.
- Increased energy transportation costs. Existing UK energy pipelines are connected to EU countries, meaning that they have to import energy. Where energy used to be free-flowing, there are no energy transportation costs. This causes higher energy premiums and prices. There is currently construction in the process on other subsea pipelines connecting the UK to Europe.
- Environmental impact. Due to exiting the EU without any proper energy deals to fall back on, UK energy supplies are at risk during extreme weather conditions. If power infrastructures experience technical difficulties, EU subsea cables are no longer available to provide balance to energy supplies. There is also no guaranteed supply of energy should wind and solar power not be available. This could lead to power interruptions and increased energy costs. It also negatively affects EU climate change policies and disrupts the fight against global warming.
- Uncertainty in the energy market. Before Brexit, the UK was part of the EU Emission Trading System which put a price on carbon through the trading of emissions permits. Does the UK have a carbon pricing mechanism in place to replace this system, and what is the exposure to carbon costs? This has an impact on putting a price on thermal generation and creates uncertainty across the market.
- Energy supply problems. Gas prices can increase due to the UK having to import their gas supply. It could also lead to shortages in the UK due to EU countries restricting export supplies during colder months so that they can focus on their own people.
- Tax rates. When the UK was part of the EU it had to adhere to strict VAT rules. These tax rates can’t go up or down according to the UK Government’s choices.
Protect Your Business Against Brexit Energy Prices
There are ways that you can “Brexit-Proof” your business’s energy prices. Keep in mind that the cheapest quote might cost you more over a longer period of time. Make sure that your tariff is secured in advance. To be Brexit-ready, your business has to be ready to play a long and smart game.
Price comparison. Compare the deals offered by different business energy providers, including your current one, so that you are sure you have the best price for your business’s needs.
Pre-emptive strike. Determine your energy provider and tariff instead of waiting for deals that might never exist. Check that third-party charges, levies, and non-commodity costs are fully fixed for the period of your contract. This will protect your business from any surprises that could have been added.
Longer, fixed-term rates. Try to get a deal that has a fixed rate for at least three years. This prevents your business from being impacted by additional prices in the future.
Switch your business energy supplier to get the best deal for your business, and to avoid rising energy prices.
This article explains what “Brexit” stands for, and gives a short overview of what it is about. The Brexit timeline is very briefly touched upon. The reasons why the UK left the EU are given and explained. The impact of Brexit on business energy prices is laid out. Explanations for the rise in energy costs are given. A few ways to protect your business against energy prices post-Brexit are set out.