Energy Price Volatility: A Big Financial Opportunity For UK Business

Price volatility in the electricity markets is high on the energy agenda. How do we transform price volatility into an opportunity?

Higher than normal gas prices, low wind output, abnormal interconnector events and higher carbon prices have been the root cause of recent spikes. However, these types of events will become increasingly more commonplace due to the nature of an increasingly renewable-generation-based electricity grid.

It’s a theme that we know will recur, yet spikes are consistently communicated as a problem for bill payers that needs to be solved, rather than an opportunity to be harnessed.

Example price swings can be as radical as the below figures:

• Monday 22nd of August 460.04 GBP / MWh (in the Imbalance market)
• Sunday 24th of December  -9.01 GBP /MWh (in the day ahead market)
• Wednesday 21st of February -28.51 (in the imbalance market).

Related What is Electricity Price Volatility & How it Impacts UK Business

Energy price volatility update (January 2024)

Price volatility increasing

The difference between the highest and lowest price within a day (what we call spread) has been increasing throughout the year. In Q2-23 it was £50.65 /MWh whereas in Q4-23 it was £80.11 /MWh.

Similarly, the rate of price changes between days (what we call volatility) has been increasing – having doubled from Q2-23 to Q4-24.

Non energy costs 

Non energy costs make up 45% of the monthly electricity bill. Non energy costs have been increasing over the past few years and this trend continues, particularly around capacity and Distribution Network chars (DUoS). National capacity expenditure has increased 50% year on year, whereas DuOS charges will increase by 15% (on average) in 2025.

Wholesale prices

Power prices have been reducing after a long period of increases. The power price for March 2023 closed at £73.45 / MWh whereas the price for March 2024 is currently at £56.15 / MWh – a decrease of 24%. This is because natural gas prices have been reducing but also because of the mild winter.

How do we transform price volatility into an opportunity?

“Electricity Price volatility can be an opportunity for businesses if addressed properly, particularly for SME industrial and commercial sites where the impact of a price spike can be critical. There are ways that businesses can hedge against price spikes and  on top of that benefit from price volatility, all whilst helping the national grid cope with situations like these. Simply said, SMEs can have their cake and eat it too – if done the right way” explained Stephan Marty, CEO at Wattstor.

Wattstor is partnering with electricity suppliers to deliver a hybrid dynamic tariff offering to SME I&Cs. Essentially, these tariffs ensure that energy consumption is charged at a fixed rate, whilst on-site flexibility can still be sold to the grid at a significant profit – all fully automated.

The opportunity for UK businesses

Typically, an I&C site could easily achieve a 20% net-reduction in energy costs based upon non-extreme events, with the right energy strategy and Wattstor’s platform in place. However, on a hybrid dynamic tariff during the anomalies of the past week or so, Wattstor clients could make back almost double their entire daily energy spend in just a four-hour window.

Leonidas Spiliopoulos, Head of Product at Wattstor, commented:

“Optimising against time of use pricing is nothing new. However, the kind of pricing peaks we are now seeing requires a more dynamic solution. Wattstor’s platform intelligently shifts load, manages generation and optimises storage whilst maintaining grid limitations and respecting operational parameters.

Only a solution that can manage all these variables in real-time will enable customers to capture maximum value in today’s volatile wholesale market. On top of this, we have hybrid utility solutions that empower customers to protect themselves from risk and only capitalise on pricing peaks in the half hour periods that they chose to do so.”

Until Wattstor entered the market, this level of optimisation has been relatively inaccessible to smaller and medium sized businesses due to the typical costs associated with such sophisticated systems. Some of the well-known names in EMS, along with aggregators and traders, won’t go near businesses under a certain level of spend/consumption. This leaves these businesses less competitive and unable to participate in the transition to a greener, more flexible, more affordable energy network.

Why does electricity price volatility occur?

Global Political & Economic Events 

Global political and economic events play a pivotal role in influencing electricity price volatility. When nations introduce new policies, become embroiled in geopolitical conflicts, or levy economic sanctions, such actions can significantly impact the international electricity supply chain.

Supply & Demand Dynamics 

The dynamics of supply and demand are fundamental to energy price volatility. Energy markets operate on a delicate balance where even minor shifts in energy production or consumption can lead to significant price changes.

Weather-Related Disruptions

Weather-related disruptions significantly influence energy price volatility by affecting both the supply side and demand side of the equation. On the supply side, extreme weather events like hurricanes, floods, or severe storms can damage critical electricity infrastructure such as power lines and grid networks.

Transition to Renewable Energy Sources 

The integration of renewables into the energy grid, which was originally designed for stable, baseload power sources like coal and nuclear, poses challenges. During periods of high renewable output, there may be an oversupply of electricity, leading to lower prices or even negative pricing in some markets.

The bottom line

Businesses need to make plans to hedge against price volatility in the markets due to increasing renewables.

Steep Solar PV cost reductions, equally impressive battery cost reductions, rapid uptake of EVs, increasing grid congestion issues and steadily increasing wholesale electricity price volatility, combined with political and societal pressure to reduce carbon emissions create the perfect opportunity for businesses to utilise a platform like Wattstor’s to mobilise their energy strategy for outstanding ROI.

The opportunity to create huge net-savings on electricity costs is vast, and with the right strategy, technology and expertise, the returns are compelling, with recent events delivering an ROI of 190%.

CEO Stephan Marty concluded, “Wattstor is committed to collaboratively working with solar & storage installers, EV charging point operators & installers, energy project developers, and local energy communities to deliver the technology and expertise required to bring SME I&C businesses into the fold. Not engaging this sector in such important market transformations would be a missed opportunity across the entirety of the energy landscape.”

Speak to an energy storage expert

Our experienced team, here at Wattstor, specialises in offering comprehensive energy management solutions that address the unique needs of your business.

From exploring fixed price deals and energy storage systems to considering Corporate Power Purchase Agreements, we’re here to guide you through the options that best align with your operational goals and financial objectives. Contact us to speak to an expert.