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A costly future!

UK businesses are bracing for a substantial increase in electricity costs, with small industrial consumers, including retail and leisure units and small manufacturers, expected to pay 57% more than pre-crisis levels by 2026.

This alarming forecast, published in Cornwall Insight’s Business Energy Cost Forecast, reveals that by the contract year April 2026 – March 2027, annual electricity bills for these businesses will rise to approximately £550,000, or £238 per MWh, up from a pre-crisis cost of £350,000 (£151 per MWh).

How can businesses future-proof their bottom line? In this blog, we look at the current state of energy costs and offer solutions on how businesses can reduce their energy bills.

Presently, electricity bills for small industrial businesses are around £540,000 per year (£232 per MWh), in line with a steady upward trajectory in energy expenses in the last few years. While energy costs have eased from their peak of nearly £1 million annually during the energy crisis, prices remain significantly above historical averages.

Factors such as the ripple effects of the energy crisis, the ongoing impact of Russia’s invasion of Ukraine, and looming changes to network charges continue to drive prices up.

Additionally, anticipated new carbon levies and other costs set for implementation over the next few years contribute to the expected price spike.

Current Costs Already Above Pre-Crisis Levels

No Price Cap Protection for Businesses

Unlike households, which benefit from the Default Tariff Cap (price cap), businesses lack a similar safeguard, leaving them fully exposed to the fluctuations of the electricity market. This unshielded increase, coupled with other economic pressures on sectors like retail, poses serious risks to profitability, job security, and potentially even the survival of certain companies. As the price cap increases for households, so do wholesale energy prices – thus leading to higher energy bills for businesses.

Dr. Craig Lowrey, Principal Consultant at Cornwall Insight, underscored the gravity of this situation: “While political discussions have focused predominantly on household energy bills, the substantial rise in business energy costs is the energy elephant in the room. Our forecasts indicate that rising energy expenses in 2026 will exacerbate the challenges already faced by many businesses. The potential consequences are wide-reaching, from job losses and strained supply chains to reduced consumer spending—all of which could ripple through the broader economy.”

Expert Perspective: Industry Facing ‘Energy Elephant in the Room’

Renewable Energy Solutions Offer Hope but Require Time

Although the government and industry are refocusing on enhancing domestic renewable generation, the benefits of these projects are likely years away. Cornwall Insight advocates for a collaborative approach among policymakers and industry leaders to develop solutions that provide immediate relief for businesses that are vulnerable to these mounting costs.

With costs rising, what is the best strategy to future-proof your business?

Future Proof Your Business

Future-proof your business by embracing renewable solutions like solar energy and battery storage. By investing in sustainable practices, you not only reduce your footprint but also enhance your operational efficiency.
Transitioning to clean energy sources can lead to significant savings in the long run, ensuring your business thrives in an evolving market. Join the movement towards a greener future and make a positive impact today!

Return on Investment

Commercial solar panels can significantly reduce electricity bills, potentially saving businesses thousands of pounds annually. A 25kW system, for example, could save a business around £3,000 a year. The payback period for commercial solar installations is often between 6-8 years, after which the generated energy is essentially free.

Here's a more detailed look at the potential savings and benefits:

1. Significant Electricity Bill Reductions:

By generating their own electricity, businesses can substantially lower their dependence on the grid and reduce their energy costs.
A medium-sized business consuming 25,000 kWh per year could save approximately £3,750 annually, assuming an average price of 15p per kWh.
Some businesses have seen savings of up to 90% on electricity bills with solar and battery power.

2. Enhanced Energy Independence and Reduced Reliance on Grid:

Solar panels provide businesses with more control over their energy consumption, reducing their vulnerability to fluctuating grid prices and potential shortages.
This can lead to long-term financial savings and greater energy security.

3. Improved Environmental Impact and Brand Image:

Switching to solar power demonstrates a commitment to sustainability and reduces a company's carbon footprint.
This can improve a business's reputation and attract environmentally conscious customers.

4. Financial Benefits and ROI:

While there is an initial investment, the long-term benefits of solar panels often outweigh the costs.
The payback period for commercial solar installations can be as short as 3-5 years, after which the energy generated is effectively free.
Businesses can also sell excess electricity back to the grid via the Smart Export Guarantee (SEG) scheme, creating an additional revenue stream.

5. Government Incentives and Support:

Businesses may be eligible for various government grants, tax credits, and other incentives to support solar panel installations.
The Annual Investment Allowance (AIA) allows businesses to deduct the cost of solar panel purchases and installation from their taxable profits, up to £1 million per year.
There are also schemes like the Public Sector Decarbonisation Scheme (PSDS) that provide funding for solar PV installations