The Hidden Cost of Doing Nothing About Energy Prices

Why Energy Volatility Is a Strategic Business Risk

UK commercial electricity prices roughly doubled between 2020 and 2023, rising from around 13p/kWh to over 26p/kWh. That is not a short-term market anomaly — it reflects a structural shift driven by grid decarbonisation costs, expanding network charges, and carbon levies that are built into every unit rate whether businesses realise it or not. Even after the post-crisis correction, prices remain significantly above their 2019 baseline, and the policy and infrastructure costs that contributed to the rise are not going away.

For most SMEs, electricity is now the third largest operating cost after staff and premises. Unlike wages, which rise predictably, or rent, which is fixed by lease terms, energy costs are almost entirely outside the business's control. Supplier contracts typically run 12 to 24 months, and renewal rates in a rising market are routinely 20 to 40% above the previous contract. Businesses that renew without exploring alternatives are not managing this risk — they are absorbing it.

The risk is not just financial — it is strategic. A business whose energy costs are unpredictable cannot forecast operating costs with confidence, cannot price products and services with reliable margin assumptions, and cannot make long-term capital decisions without a significant unknown variable sitting in the model. Energy price volatility is, in effect, a hidden tax on business planning.

Three Ways Energy Costs Damage Your Business

The damage is rarely dramatic — it accumulates slowly, which is precisely why most businesses do not address it until it becomes acute. There are three mechanisms worth understanding clearly.

1. 1

   Budget unpredictability

   Energy costs are one of the least controllable overheads a business carries. Supplier contracts typically run 12 to 24 months, and the renewal rate is often significantly higher than the previous contract — sometimes by 30% or more in a single cycle. This unpredictability makes financial forecasting harder, creates variance in budget models, and forces finance teams to maintain large contingency buffers against costs that could instead be structurally reduced.

2. 2

   Margin erosion

   When energy costs rise and prices to customers cannot be increased proportionally — because the market is competitive, contracts are fixed, or customer relationships make repricing difficult — gross margins compress. In energy-intensive sectors such as hospitality, manufacturing, warehousing, and food production, energy can represent 5 to 15% of revenue. A 20% rise in energy costs in those sectors translates directly to one to three percentage points off the gross margin. Over multiple contract cycles, the cumulative impact on profitability can be material.

3. 3

   Competitive disadvantage

   Competitors who have invested in solar and battery storage have lower and more predictable operating costs. Over time, this translates into either better margins at the same price point or the ability to price more competitively while maintaining the same margin. In markets where energy intensity is significant, the business that controls its energy costs can bid on contracts that the business paying full grid rates cannot profitably win. The advantage compounds with every year of lower energy costs.

What Inaction Actually Costs Over Time

The compounding nature of energy cost growth is most clearly illustrated with numbers. Consider a business currently spending £40,000 per year on electricity. At a modest 5% annual increase — well below the rates experienced in 2021 to 2023 — that business will spend over £65,000 per year by year ten. The cumulative extra spend versus today's rates approaches £70,000 over the period. At 10% annual growth, the figures become significantly more severe.

These are not exceptional scenarios. They reflect the kind of gradual price escalation that has been the structural reality of UK commercial energy markets for the past decade. A business that does nothing is not standing still — it is falling further behind the cost curve every year.

Solar as a Long-Term Price Hedge

On-site solar generates electricity at an effective levelised cost of around 5 to 8p/kWh over the system's lifetime — calculated by dividing the amortised system cost by the total generation expected over 25 years. Every kWh generated and consumed on-site displaces a kWh that would otherwise have been purchased from the grid at the prevailing rate. As grid prices rise, the value of each unit of self-generated solar increases in absolute terms. A business that installed solar at a grid rate of 20p/kWh and subsequently sees the grid rate rise to 30p/kWh is not saving 5p/kWh against its investment — it is saving 30p/kWh against the counterfactual.

This is the hedge property of solar that most business financial models fail to capture correctly. Solar is not simply a cost reduction today — it is insurance against future price rises, the value of which increases proportionally as grid prices rise. A commercial system sized to offset 40 to 70% of daytime consumption typically produces returns that improve as energy prices rise, making it one of the very few business investments whose value goes up when external cost pressures increase.

The arithmetic is straightforward. A business currently paying 25p/kWh that generates 40,000 kWh/year from on-site solar saves £10,000/year at today's rate. If the rate rises to 35p/kWh, the same generation saves £14,000/year. The capital cost of the system has not changed. The return has increased by 40% purely as a consequence of the energy price rise the business would have been exposed to anyway. Every business that delays installation is forgoing this compounding return while simultaneously absorbing the rising grid cost.

Assessing Your Own Energy Risk

Understanding your business's exposure to energy price risk does not require specialist knowledge. It requires a straightforward review of your existing data, which most businesses already hold. The following steps give you a clear picture of the opportunity within a few hours of work.

1. 1

   Gather 12 months of energy bills and calculate your total annual spend and average unit rate per kWh. This gives you the baseline against which to model future scenarios.

2. 2

   Identify what proportion of your consumption occurs during daylight hours — approximately 8am to 6pm. This is the portion solar can directly offset without battery storage. Consumption data is typically available from your supplier or from a smart meter.

3. 3

   Ask your supplier for half-hourly consumption data. This shows exactly when your business draws energy and how much, allowing precise modelling of solar offset and battery storage requirements.

4. 4

   Request a solar feasibility assessment. Omni3 offers free commercial site assessments covering roof suitability, system sizing, generation modelling, and a projected return on investment based on your actual consumption data.

5. 5

   Model the downside scenarios. Ask what your P&L looks like if energy prices rise 30%, 50%, or 100% from today. What does that do to your EBITDA? The answer to this question typically makes the case for action more clearly than any positive scenario.