What does the 6% price cap increase mean for pubs?

Current market conditions

The commercial energy market remains highly volatile. Thankfully a sharp decline in commodity cost has occurred in the last two weeks.

This 20% reduction is driven by the belief that a Trump-led settlement to the Russian invasion of Ukraine will mean a return of pipeline Russian gas in the coming months. If true, prices will fall further as supplies are redirected.

It is uncertain if the pro-Russian terms will continue as this assumes a bilateral settlement involving only Russia and the United States. The response of European nations and Ukraine in particular has to be factored in.

Cost outlook

The rise in commodity costs in the past 12 months has reflected lower supplies and higher demand across Europe. Falling gas reserves meant that Europe was paying a premium to secure liquefied natural gas (LNG) heading for Asian markets.

While gas reserves are still very low with Europe at 40% and the UK only holding 20% a range of other factors are evident. Crucially the long spell of lower-than-average temperatures has given way to warmer weather that seems set to continue. Renewable generation has also increased.

There are fewer threats to current supplies and Europe is no longer paying a premium to Asian LNG prices.

While commodity costs have dropped, the sample of recent contract rates shows higher prices. Understandably contract rates lag commodity cost movements, both up and down.

Future energy cost movements remain uncertain. Most directly, any serious barrier to the Trump-Putin deal and the return of Russian gas to Europe will see a further spike in prices.

Businesses in their renewal period should monitor the market or seek assistance from a trusted consultant. Budget certainty may be a greater priority for many, than the hope of securing a better rate by delaying. Be wary of cold callers claiming that “today is the best day to fix” — they likely make the same claim every day, regardless of market conditions.

Lower energy costs

Every business has opportunities to reduce their energy use and costs through changing behaviour:

1. Only turn equipment on as needed.
2. Heating & hot water - adjust timers and thermostats to reflect seasonal requirements.
3. Maintain equipment for optimum performance.
4. Insulate cellars to prevent heat gain and seal any draughts in the pub.
5. Fit self-closers on doors and ensure they are used.

Nationwide Energy provides advice and support from experienced professionals.