UK businesses worry about energy price volatility as demand continues to rise

With 2025 now well underway, there are two main themes emerging that UK businesses are facing when it comes to the energy market - price volatility and increasing energy demand.

UK energy price volatility

A survey conducted by Ofgem, the energy regulator, on businesses’ experiences of the energy market found that many businesses are concerned about the volatility of the market and frequent energy price increases ¹.

Many companies reported that their bills had doubled or even tripled over the last year when their fixed rate contracts ended, and they were exposed to the latest market prices.

This was particularly mentioned by smaller businesses, which generally pay more for energy than larger businesses and have experienced greater increases over the past few years.

Although the most acute peaks of the energy crisis appear to have passed, energy prices remain significantly higher than businesses have been used to, and sources of volatility remain in international energy markets.

Overall, on average, businesses’ electricity and gas bills were 63% and 32% more expensive in Q4 24 compared to the same period in 2021, before the energy crisis ².

Average non-domestic electricity prices (left) and gas prices (right) (p/KWh)

Energy price volatility has been blamed for driving profits down by nine out of ten (89%) businesses in the past 12 months, according to a survey of 800 UK companies conducted by PwC ³.

Moreover, 92% of respondents expect energy price volatility to increase the price of their products and services in the next 12 months.

For manufacturers, for instance, the biggest challenge in 2025 is the energy price rise, which is putting immense pressure on their bottom lines ⁴. These cost increases will be too substantial for many to absorb. Therefore, these companies may pass on this burden to their customers.

Rising costs are further compounded by UK businesses already paying the highest industrial electricity prices in Europe, with companies’ bills 46% above the International Energy Agency member countries’ median ⁵.

Industrial electricity prices in IEA member states

As UK Energy, the trade association for the energy industry, puts it “Not only do higher electricity prices translate to lower business productivity, but in a globalised economy they reduce investment, as firms look to countries where their costs will be lower” ⁶.

With most businesses expecting energy costs to increase in 2025, many will be at risk of further deterioration in profits. Whereas those businesses that have already adopted energy efficiency measures and/or implemented some form of on-site generation are likely to be less exposed to the incoming energy price increases.

It’s therefore encouraging to see evidence that businesses are making positive progress in implementing measures to manage both the volume and carbon intensity of consumption.

PwC’s 2025 UK Energy Survey reports that more than half of respondents claim to have fully adopted LED lighting, 42% have a renewable energy supply agreement, and 40% say they have implemented on-site solar ³.

To what extent has your organisation adopted the following with respect to its use of energy?

(% of businesses who answered 'fully adopted where relevant')

Technology adoption is increasing energy demand

Together with the electrification of transport and heat, technology adoption is increasing energy demand.

As discussed in more detail in the energy consumption section of this report entitled “UK's new energy transition phase”, the long-term downward trend in electricity demand has recently reversed ⁷.

Reversing trends - the new phase of energy transition in the UK

A key driver of the reversal in energy demand has been investments in emerging technologies, such as digitalisation, automation, data analytics, cloud storage and Artificial Intelligence (AI),

As companies feel the pressure to modernise against the backdrop of heightened competition, leaders are committed more than ever to transform their businesses.

CEO insights

A survey of UK CEOs found that 98% expect to make material changes to their business or operating model in 2025 ⁸.

Some 34% believe their business won’t be economically viable within 10 years on its current course - up from 21% last year.

As part of their commitment to instigate material change to their business models, 61% of UK CEOs are investing in technologies including AI and Generative AI.

The energy appetite of AI technologies

And AI comes with an insatiable demand for energy. Every chatbot response, predictive model and image generation runs on vast computing power warehoused in data centres.

Another survey by PwC found that 89% of UK businesses used more energy than ever in 2024, with 83% expecting further increases in 2025 ⁹.

Globally, it has been forecasted that surging demand for AI will see data centre power demand double by 2050, accounting for almost 9% of energy demand ¹⁰.

Macroeconomic indicators update Q1 25

In March 2025, UK prices rose by 2.6%, a slight decrease from 2.8% in the previous month but still above the Bank of England’s target ¹¹.

Inflation, as measured by the Consumer Price Index (CPI) remained above the 2% target partly because of higher food prices.

UK gross domestic product (GDP) grew at a monthly pace of 0.5% in February, according to data from the Office for National Statistic, beating all forecasts in a Reuters poll of 30 economists, which had pointed to a 0.1% rises ¹².

The economy expanded at its strongest performance in 11 months.

Although this is encouraging, businesses and wider market participants are bracing themselves for the potential impact of President Trump’s tariffs.

UK key macroeconomic indicators

This, the imposition of tariffs by the United States and the subsequent volatility in financial markets, were mentioned by the Bank of England as some of the reasons for its decision to lower interest rates for the second time this year.

The Bank lowered rates to 4.25% in May, down from 4.5% in February ¹³.

The Bank's view seems to be that a gradual and careful approach to lower interest rates remains appropriate. Therefore, it's widely believed that the Bank is likely to lower interest rates again at the next rate-setting meeting on 19 June.

In this article

• UK energy price volatility
• Technology adoption is increasing energy demand
• Reversing trends - the new phase of energy transition in the UK
• CEO insights
• The energy appetite of AI technologies
• Macroeconomic indicators update Q1 25

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