The UK Energy Crisis: 2025 Update

April 4, 2025 by Admin

The sharp shocks of the global energy crisis that began reverberating in late 2021 and peaked dramatically through 2022 and 2023 may have subsided from their headline-grabbing intensity, but their legacy continues to shape the energy landscape for UK businesses in 2025. While the extreme price volatility seen previously has eased, energy costs remain significantly elevated compared to pre-crisis levels, embedding themselves as a critical factor in operational planning, financial forecasting, and strategic decision-making.

As we are in the early months of 2025,  we have shifted from immediate crisis management to a more complex picture of persistent high costs, ongoing geopolitical uncertainty, accelerating decarbonisation pressures, and emerging technological opportunities.

For UK businesses planning for the remainder of the calendar year and the upcoming 2025/26 financial year, understanding this intricate environment is not just advisable – it’s essential for resilience and competitiveness.

This article provides an updated assessment of the global and UK energy situation, its direct impact on businesses, and actionable strategies for navigating the challenges ahead.

 

What Is The Energy Crisis?

It’s a common misconception that the energy crisis only began in 2022. While that’s certainly the time when it started to have a more significant impact, the energy crisis actually has its roots back in 2021.

Statistics from National Energy Action found that over 4.5 million households were living in “fuel poverty” (where a household needs to spend a substantial portion of their income to keep their home at an acceptable temperature) in October of 2021.

A year later, in October 2022, that had increased by 2 million, to 6.5 million households that were struggling to pay their bills. This is often where many believe that the energy crisis really started to take hold, but the rise had already been set into motion earlier in the year.

April of 2022 saw Ofgem’s first energy price cap increase, meaning that households would be paying £1,971 per year, more than 50% more than previous years. This prompted additional measures from the Government, which sought to reduce the impact of the energy crisis on both households and businesses.

 

Gas Markets

European nations successfully ramped up imports of Liquefied Natural Gas (LNG), primarily from the US and Qatar, and accelerated renewable energy deployment. Gas storage levels across the continent were managed effectively through the 2023/24 winter and subsequent seasons, preventing the dire shortages once feared. However, this reliance on the global LNG market means European (and therefore UK) gas prices are now more closely tied to international events, including demand growth in Asia and potential disruptions to LNG facilities or shipping routes. While benchmark prices like the Dutch TTF have fallen significantly from their 2022 peaks, they remain structurally higher than historical averages. Geopolitical tensions, particularly in the Middle East affecting shipping lanes like the Red Sea, continue to pose a risk premium. The International Energy Agency (IEA) continues to monitor global gas markets closely, highlighting the ongoing need for vigilance.

 

Oil Markets

Oil prices have also experienced volatility, influenced by OPEC+ production decisions, fluctuating demand forecasts linked to global economic health (particularly in China and the US), and ongoing geopolitical risks. While not experiencing the same extreme spikes as gas, oil price movements still filter through to the broader economy, impacting transportation costs and inflation.

Electricity Markets

Wholesale electricity prices remain strongly correlated with gas prices, as gas-fired power stations often set the marginal price in the UK market. The increasing share of renewables is helping to moderate prices at times of high wind and solar output, but intermittency and grid constraints mean the link to fossil fuels persists. Investment in grid infrastructure and energy storage is crucial but takes time.

 

Why Did The Energy Crisis Happen?

This is quite a complex question, and one that’s deep rooted in geopolitics, fuel shortages, environmental issues, and a myriad of other different factors.

We’ll break down a few of the main contributing influences, and why they represented such a concern for the global energy crisis.

The Russo-Ukrainian War

This is a huge factor in the rising prices of consumer and business gas, as well as being one of the most devastating and uprooting conflicts of recent memory. While conflict began in 2014, it’s only in February of 2022 that Russia’s invasion of Ukraine sparked a huge escalation.

Russia is the largest producer of gas in Europe, and given that recent, widely publicised invasion of Ukraine, many European governments and energy providers have completely cut ties with the country. This has meant that gas supplies have taken a substantial dip, with any gas that is available commanding a much higher price as a result.

It’s also meant that construction of the new Nord Stream 2 pipeline, designed as a successor to the recently closed Nord Stream 1, has been halted as a result. The pipeline was set to be a huge highway for gas supplies across Europe but, given Russia’s current volatility, the decision was made to stop building for the foreseeable future.

Global instability following Russia’s invasion has also destabilised energy markets, with many providers of commercial and business gas and electricity still uncertain of how to proceed, resulting in fluctuating prices.

Supply Shortages

According to The Telegraph, it’s estimated that the UK stores only 1% of its possible stores of gas and electricity, or around enough for 4 to 5 very cold days. That’s been the case since the closure of various plants and storage facilities across the country, most notably the Rough storage facility back in 2017.

This lack of infrastructure, coupled with an unusually cold winter between 2020 and 2021, meant that the UK’s supplies were at a much lower level than had been previously thought. These historically low stockpiles and colder winters have driven up prices, and scarcity has meant that many (both consumers and businesses) have seen a drastic rise in their bills.

Global Pandemic Recovery

While the days of masks and social distancing often seem a distant memory for some, the wider world is still recovering, and that includes the energy markets. As they were for the general population, the pandemic was an unprecedented time for energy providers, and some of the effects are still being felt.

With many people still working from home, or operating on a hybrid-remote basis, energy needs are evolving to meet the resurgence of customers and clients. Business electricity and gas requirements are returning to the levels seen before the pandemic, and providers are learning to act and react to changing demands.

Energy Market Instability

If you’ve looked to switch your business energy over the last year or so, you’ll have noticed a dwindling number of options, and the disappearance of some familiar names. Of particular concern were large providers like Bulb, and smaller, business-focused suppliers like Whoop or Xcel Energy.

However, these were just the tip of the iceberg, with an estimated 31 companies ceasing to trade since the start of 2021. It’s this uncertainty that’s led to some of the changeability in the prices we pay for our home or business energy.

 

The UK Energy Picture in Early 2025

The UK, while possessing its own North Sea gas resources and significant offshore wind capacity, is deeply integrated into European energy markets and exposed to global price fluctuations.

Wholesale energy prices in early 2025 are considerably lower than the peaks of 2022/23. The Ofgem energy price cap, which governs default tariffs for households and reflects underlying wholesale costs (albeit with a lag), has fallen accordingly, providing some relief. However, for businesses, particularly those on fixed contracts negotiated during the peak crisis period, the pain may still be lingering. Even for those seeking new contracts, prices remain stubbornly above pre-2021 levels. This ‘new normal’ of elevated costs requires a fundamental shift in how businesses budget for and manage energy.

 

Government Policy & Strategy

The extensive government support packages implemented during the crisis, such as the Energy Bill Relief Scheme (EBRS) for businesses, have largely been phased out. The focus has shifted towards long-term energy security and achieving Net Zero targets. Key policy directions include:

Energy Security: Continued emphasis on maximising North Sea oil and gas production (where viable), alongside significant investment in renewables and nuclear power. The government’s strategy aims to reduce reliance on volatile international markets.

Renewables Growth: Offshore wind remains a cornerstone of UK strategy, with ongoing auction rounds (Contracts for Difference – CfD) aiming to bring more capacity online. Onshore wind and large-scale solar development also continue, though sometimes facing planning hurdles.

Nuclear Power: Progress continues on large-scale projects like Sizewell C, alongside growing interest and investment in Small Modular Reactors (SMRs) as a potential future contributor to baseload power. Great British Nuclear has been established to drive this forward.

Grid Modernisation: Acknowledging that the existing grid infrastructure is a bottleneck for integrating renewables and meeting future demand (e.g., from EVs and heat pumps), significant investment and regulatory reform are underway to accelerate network upgrades.

Energy Efficiency: While direct financial support schemes for business efficiency have varied, the underlying principle remains crucial. Reducing demand is recognised as the cheapest way to improve security and lower costs.

 

Impact on UK Businesses: 2025 and the New Financial Year

The transition from the acute energy crisis of previous years to an environment of persistently high costs presents significant and evolving challenges for UK businesses as they plan through 2025 and into the 2025/26 financial year. Energy remains a major operational expenditure across numerous sectors, with manufacturing, hospitality, and retail often feeling the pressure most acutely. Even though wholesale prices have retreated from their unprecedented peaks, the sustained increase compared to pre-crisis levels continues to squeeze margins and directly impact overall profitability. Furthermore, businesses that secured fixed-term energy contracts during the height of the market turmoil may find themselves locked into particularly uncompetitive rates until their renewal dates arrive.

Compounding the issue of elevated costs is the lingering financial uncertainty. While the extreme day-to-day volatility seen in 2022 and 2023 has subsided, forecasting energy expenditure with precision remains a difficult task. Unexpected variables, such as prolonged cold weather patterns driving up heating demand or sudden geopolitical events impacting global fuel supplies, can still cause significant price swings in the wholesale market. This inherent unpredictability complicates the budgeting process for businesses, often making it necessary to build in larger contingency funds to mitigate potential cost overruns.

These financial pressures inevitably create investment dilemmas for many organisations. Funds that might otherwise be channelled into strategic growth initiatives, research and development, or essential innovation are frequently diverted simply to cover rising operational expenses, including energy bills. Conversely, the very persistence of high energy prices strengthens the economic rationale for investing in energy efficiency improvements or exploring on-site generation technologies like solar PV. However, accessing the necessary capital expenditure for such projects can represent a significant barrier, particularly for small and medium-sized enterprises (SMEs) who may face tighter credit conditions or have fewer internal resources. This situation can also impact the broader competitiveness of UK firms operating in international markets, especially those in energy-intensive industries who may struggle against rivals benefiting from lower energy cost bases in other regions.

The ripple effects of high energy costs are not confined within a single organisation; they permeate the entire supply chain. Businesses must therefore remain vigilant regarding the financial stability and operational resilience of their key suppliers, who are likely grappling with similar energy-related cost pressures. This downstream vulnerability can manifest as increased input costs being passed along the chain, impacting the final price of goods and services, or, in more severe instances, potentially leading to disruptions in supply continuity if suppliers face insurmountable financial difficulties.

Finally, overlaying these direct cost and operational challenges is the intensifying pressure to decarbonise business activities. Driven by ambitious government Net Zero targets, growing scrutiny from investors demanding sustainable practices, and increasing expectations from customers favouring environmentally conscious brands, the sustainability agenda is becoming central to corporate strategy. While often perceived initially as an additional cost burden, integrating proactive energy management with broader sustainability goals can, in fact, unlock significant operational efficiencies, reduce long-term energy spend, and substantially enhance brand reputation. This imperative is further underscored by regulatory frameworks such as Streamlined Energy and Carbon Reporting (SECR), which mandates that larger companies provide public transparency on their annual energy consumption and associated greenhouse gas emissions.

 

Outlook for the Rest of 2025 and the 2025/26 Financial Year

Predicting energy markets remains inherently difficult, but several key themes are likely to shape the next 12-18 months:

Continued Price Sensitivity: While a return to the extreme peaks of 2022 seems unlikely barring major unforeseen shocks, prices are expected to remain elevated compared to historical norms and sensitive to geopolitical events, weather patterns (especially winter temperatures), and global LNG demand/supply balances.

Policy Momentum: Expect continued government focus on implementing the Energy Security Strategy, potentially including further details on nuclear development (SMR funding), results from renewable auctions, and consultations on grid reform and market mechanisms. Political cycles (potential General Election timings) could also influence policy announcements or priorities.

Technology Advancement: The costs of renewable energy technologies (solar) and battery storage are expected to continue falling, further improving their economic viability for businesses. Smart energy management systems will become more sophisticated.

Focus on Grid and Flexibility: Addressing grid constraints and enhancing system flexibility (through storage, interconnection, and DSR) will be critical priorities for policymakers and network operators to manage the increasing penetration of intermittent renewables.

 

The UK energy landscape in 2025 is markedly different from the depths of the crisis, but the challenges for businesses persist. Elevated costs, lingering volatility, and the accelerating drive towards Net Zero demand a strategic and proactive approach to energy management. Simply absorbing higher energy bills is unsustainable for most.

The era of cheap, predictable energy is over. By embracing energy efficiency, exploring new technologies, and seeking expert guidance, UK businesses can not only mitigate the risks associated with the current energy environment but also uncover opportunities for cost savings, enhanced resilience, and a stronger competitive position in the transition to a lower-carbon economy.

 

How Can Tariff Help Navigate My Business Through This Energy Crisis?

We believe that a good service always begins with a comprehensive assessment. Whether you’re seeking to switch your business electricity and gas, or make your first foray into net-zero, it starts with understanding your circumstances. This includes taking into account:

• The size of your business
• The industry you operate in
• How many staff you employ
• Your current energy package

We’ll then take measures of your business’ energy usage using our state-of-the-art IPSUM system, which tracks the amount of greenhouse gases your business emits using small sensors on energy use points.

This can then be displayed as easily digested data, showing you exactly where your business is using energy, and the changes you can implement in order to save you money in the near future.

From there, we’ll begin the process of switching your business energy. We’ll trawl the current market, and source not only the best possible price for what you’re looking for, but also prioritise greener, renewable energy providers so you’re as prepared for the future as you can be.

With this research completed, we’ll then come back to you with our findings, so you can have the final say in the provider you opt for. It’s part of our commitment to be as transparent and open as possible in helping you switch your business gas and electricity.

Once you’ve finalised your decision, we’ll take that final step forward, and organise all the paperwork on your behalf. We understand how busy you are, which is why we endeavour to make the process as smooth and hassle-free as possible.

All you’ll need to do is pay your final bill, and we’ll accommodate all the rest. We’ve got extensive experience working with some of the largest UK energy providers (including British Gas and SSE), and can effectively manage the whole process of switching your business electricity and gas.