The UK wholesale market energy crisis has been a challenging period for businesses, marked by increased costs and operational difficulties.

Recent Trends and Market Insights

Over the past year, the UK wholesale electricity market has exhibited notable trends:

• Price Peaks and Troughs: Prices spiked during high demand and low renewable generation periods, while dipping during high renewable output and lower demand.
• Increased Renewable Generation: The growing integration of renewables has contributed to a more sustainable energy mix, stabilising prices despite their inherent volatility.
• Impact of Fuel Prices: Fluctuations in natural gas prices have significantly influenced electricity prices, underscoring the interconnected nature of energy markets.

Impacts on UK Businesses

The energy crisis has profoundly affected UK businesses:

1. Higher Energy Bills: Increased costs have eroded profits and raised operational expenses.
2. Price Increases: Businesses have had to raise prices, potentially impacting sales and profit margins.
3. Operational Adjustments: Some businesses have reduced hours, closed temporarily, or laid off staff to manage rising energy costs.
4. Delayed Investments: Higher costs have led to delays in planned investments and growth initiatives.
5. Competitive Disadvantage: Energy-intensive businesses have faced a competitive disadvantage compared to those with lower energy needs.

Labour Government’s Key Energy Policies and Actions

 The Labour government has introduced several key energy policies:

Key Energy Policies

1. Net Zero by 2030: Aiming for a net zero electricity system by 2030, increasing renewable energy sources.
2. Great British Energy: Establishing a public energy company to control UK energy production.
3. Energy Efficiency Upgrades: Upgrading homes to improve energy efficiency and reduce fuel poverty.
4. Onshore Wind and Solar: Lifting the ban on new onshore wind farms and promoting rooftop solar to triple capacity by 2030.
5. National Wealth Fund: A £7.3 billion fund to support energy projects.
6. Planning Reforms: Easing the building of energy infrastructure.
7. Onshore Wind Taskforce: Collaborating with industry to overcome barriers to wind farm development.
8. Onshore Wind Industry Taskforce: Collaborating with industry and regulatory bodies to overcome barriers to wind farm development.

Challenges and Risks of Increased Renewable Energy

Renewable energy sources like wind and solar are intermittent, leading to price volatility in the wholesale market. The UK uses a marginal cost pricing system, where the price is set by the most expensive method needed to meet demand, often natural gas. This can still influence wholesale prices despite cheaper renewable production.

Here’s how it works:

1. Electricity Generation Mix: Electricity is generated from various sources, including natural gas, coal, biomass, nuclear, hydro, wind, and solar. Each of these sources has different production costs.
2. Demand and Supply Matching: To meet the electricity demand at any given time, the grid operator dispatches electricity from the cheapest available sources first (e.g., wind, solar). If demand exceeds the supply from these cheaper sources, more expensive sources (e.g., natural gas) are brought online.
3. Setting the Price: The price of electricity for all suppliers is set by the cost of the last (most expensive) unit of electricity needed to meet the total demand. This is known as the “marginal cost.”

Integrating more renewables requires costly grid upgrades. Energy storage solutions and balancing mechanisms are needed to mitigate intermittency, adding to overall costs. Ensuring policies and regulations keep pace with renewable growth is crucial to avoid uncertainty and hindered investment.

While renewable energy offers long-term benefits for sustainability and cost reduction, addressing these challenges is essential to ensure a stable and efficient wholesale electricity market.

 Geopolitical Events Impacting UK Wholesale Electricity Prices

The UK wholesale electricity market is interconnected with global energy markets, making it susceptible to geopolitical events that cause price fluctuations. Key factors include:

• Russia-Ukraine Conflict: One of the most significant events to impact the UK energy market, this conflict led to a 12% surge in gas prices in January 2025 due to disrupted gas exports via Ukraine. The increased competition for LNG in Europe has driven up prices globally.
• Middle East Instability: The Middle East remains a major source of global energy supply, producing nearly 30% of the world’s oil. Tensions in the region caused Brent crude oil prices to rise by 4% in late December 2024, impacting gas and electricity costs.
• US Energy Policy: In December 2024, President Biden banned new offshore oil drilling in US coastal waters to tackle climate change, reducing future US oil production and potentially straining global supply. The US has been a key LNG supplier for Europe and the UK since the Ukraine crisis. President Trump plans to reverse this ban, aiming to increase oil and gas production by unfreezing offshore drilling and lifting fossil fuel restrictions. These policy changes can influence global oil prices, market dynamics, and international relations.
• Sanctions: These can significantly impact energy markets. For instance, Western sanctions on Russia after the 2014 Crimea annexation hindered their energy infrastructure investments, raising natural gas prices due to perceived risks. Ongoing sanctions related to the Russia-Ukraine conflict continue to influence energy prices, contributing to market volatility.

Impact of Ofgem’s MHHS Programme on UK Wholesale Prices

The Market-wide Half-Hourly Settlement (MHHS) Programme aims to create a more flexible, efficient, and accurate electricity market by settling all trading based on half-hourly data. This can lead to:

1. Efficient Market Operations: Reducing discrepancies and improving market operations.
2. Accurate Price Signals: Reflecting the true cost of serving customers at different times.
3. Reduced Price Volatility: Leading to more stable prices.
4. Innovative Solutions: Enabling new products and services like time-of-use tariffs and vehicle-to-grid solutions.

MHHS Benefits for Businesses

Businesses in the UK can expect several benefits from the MHHS Programme:

1. More efficient market operations and accurate pricing can lead to lower energy costs for businesses.
2. Access to detailed half-hourly consumption data allows businesses to better manage their energy usage and identify opportunities for savings.
3. The programme will support the development of innovative energy solutions, such as battery storage and smart appliances, providing businesses with more options to optimise their energy consumption.
4. By enabling a more flexible and efficient energy market, the MHHS Programme supports the UK’s transition to a low-carbon economy, helping businesses meet their sustainability targets.

MHHS Programme Risks

The MHHS Programme, valued at £1.6 billion in net benefits from 2021 to 2045, aims to improve market efficiency, reduce costs, and enhance flexibility. However, several risks need effective management:

1. System Changes: Transitioning to half-hourly settlement involves complex changes, potentially causing delays and increased costs.
2. Data Privacy: Handling large volumes of consumption data raises privacy and security concerns.
3. Market Readiness: The readiness of suppliers and network operators to adopt new processes is crucial.
4. Financial Costs: Implementation costs may exceed initial estimates.
5. Regulatory Compliance: Ensuring compliance with regulations throughout the process is vital.
6. Stakeholder Coordination: Effective engagement with industry participants and consumers is necessary for smooth implementation.

Conclusion

The UK wholesale electricity market has seen significant changes over the past year due to fuel costs, renewable energy integration, weather conditions, geopolitical events, and regulatory changes. Businesses must stay informed about these trends to make strategic energy procurement decisions and optimise their energy strategies. For more detailed insights on wholesale electricity prices visit TEAM’s UK Energy Wholesale Prices Market Review.

Organisations in the UK face growing pressure to meet net zero targets. Energy efficiency has the greatest potential to make the biggest impact on organisations’ emissions, energy use, and costs in the shortest amount of time.

According to the International Energy Authority (IEA), over the last two decades, global energy efficiency measures have halved the amount of carbon emissions that would have otherwise been released due to population and income growth. Between 2000 and 2022 alone, energy efficiency measures have helped reduce the energy intensity in buildings and transport by 35% globally.

Many organisations haven’t done the basics of energy efficiency improvements, which means each one has a wealth of untapped potential for carbon reductions and energy savings.