How SMEs Can Reduce Business Energy Costs in 2025/26

Meet Mark Gamble

Mark has worked in the business energy industry for more than 10 years. He’s forged close relationships with the UK’s gas and electricity suppliers to help secure the best energy contracts for our clients.

The current state-of-play on the wholesale market

The energy market is highly dynamic. Prices shift rapidly in response to global and regional factors.

Recent data has highlighted continued volatility across the wholesale market.

Over the past few months, we’ve seen:

• Colder-than-expected winter conditions across Europe, leaving UK and European gas storage levels 18% lower than in 2023. With reduced reserves, gas prices have become more sensitive to weather fluctuations.
• The expiration of the Ukraine-Russia gas transit deal at the end of 2024 (which previously allowed Russia to pay Ukraine to transport gas to central and eastern Europe) has forced countries to seek alternative supply routes, increasing demand and driving prices higher.

• Increased summer injection requirements. Countries across Europe exited the winter with lower gas storage stockpiles. This has seen the summer season being priced higher than for Winter 2025 contracts. As a result, the EU Commission has had to relax certain injection target rates to remove some of the demand concerns. There’s a fixed target of 90% fullness by 1 November. Several countries are lobbying for greater flexibility on this deadline, due to concerns of being able to hit the target, thereby maintaining demand pressures.
• The start of President Donald Trump’s second term in office has marked lots of action in a short space of time. He has declared the US can meet EU gas demands by removing previously imposed LNG export freezes (set in place by former President, Joe Biden). Although this has created supply confidence in the market, concerns have been raised around the imposition of import levies on EU countries, and whether the EU will apply counter levies on US experts as a result.
• Calls for a temporary ceasefire by President Trump between Russia and Ukraine yielded some early promise. However, a full agreement unfortunately still looks far away, with both parties wanting distinctly different outcomes upon key agenda items. The more uncertainty that remains, the more cautious the market remains.

As we leave the winter season and enter the summer period all of the above have the ability to influence direction of prices.

These geopolitical and weather-related disruptions have directly impacted wholesale energy markets, leading to:

• Gas prices experiencing sharp fluctuations. In mid-February 2025, UK front-month gas contracts surged to 142.20 pence per therm, marking a two-year high.

However, by late February, we saw:

• Electricity prices experience significant declines, with day-ahead power prices dropping by 37.8% to £71.00 per megawatt-hour (MWh), driven by strong wind generation forecasts and rising temperatures.
• Day-ahead gas prices decline by 12.5% to 110.25 pence per therm due to milder temperatures softening demand.

Despite these recent declines, wholesale prices remain significantly higher than pre-crisis levels:

• February 2020 average day-ahead gas price: 23.50 pence per therm
• February 2020 average day-ahead electricity price: £29.5 per MWh

For 37% of SMEs, energy costs were the number one business challenge in 2024, surpassing concerns over cash flow and supply chain issues, according to a study conducted by Allianz. With many businesses struggling to absorb rising costs, some have reduced operations, while others face the risk of closure.

This financial strain makes it even more important for SMEs to take control of their energy costs now—before further increases put additional pressure on their bottom line.

Immediate steps businesses can take

1. Lock in the best possible energy rate
   • The moment your business enters its ‘energy switching window,’ start shopping around. The earlier you do it, the more time you have to find a price that works for your business.
   • Negotiating with your current supplier may secure a better deal, but shopping around often yields the most competitive rates.
   • If you don’t switch or renew, you could be rolled over onto a deemed rate—one of the most expensive tariffs on the market.
   • Fixed tariffs offer budget certainty, while variable rates allow businesses to benefit from falling prices. The best choice depends on market conditions and your risk tolerance.
2. Conduct an energy audit
   • While this requires an upfront investment, the potential savings can be transformational, particularly for businesses operating across multiple sites.
   • Energy audits help identify wasteful practices, implement quick fixes, and drive cost reductions.
   • Simple changes (such as switching to LED lighting, improving insulation, and reducing energy usage during non-operational hours) can lead to substantial savings.
3. Invest in renewable energy generation
   • Installing solar panels can be a cost-effective long-term solution. Costs have decreased significantly in recent years, and solar panels require minimal maintenance – making them ideal for SMEs with limited operational budgets.
4. Use smart technology
   • Smart meters and automated energy management systems provide real-time insights into consumption, helping businesses optimise energy use and reduce waste.
5. Targeted Charing Review (TCR) and kVA review (for half hourly meter customers)
   • Businesses on half hourly meters can benefit from significant savings via TCR and kVA reviews.
   • Across the UK, a large number of businesses with half hourly meters are on the legacy TCR band and are therefore paying too much. With a TCR, you can bring this down.

Actionable steps for businesses

Short-term energy cost reduction strategies

• Turn off non-essential equipment: Encourage staff to switch off unused devices and optimise heating/cooling settings.
• Compare supplier rates: Even small differences in per-unit energy costs can lead to significant annual savings.
• Adjust operating hours: Shifting high-energy activities to off-peak times can reduce costs.

Long-term strategies for sustainable savings

• Upgrade to energy-efficient machinery and appliances: Investing in A-rated appliances and equipment can reduce energy consumption over time.
• Explore on-site renewable energy: Businesses with available budget and space could consider solar panels or wind energy.
• Engage employees in energy awareness programmes: Staff training on energy-saving habits can lead to substantial reductions in waste.

With the right strategy, businesses can take control of their energy costs and safeguard their financial health as we move into financial year 2025/26.

By staying informed on market trends, securing favourable contracts, and investing in efficiency measures, companies can navigate the challenges of fluctuating energy prices.

Save money on your business energy bills this year. Get a free price comparison with Utility Bidder today.