In 2022, the war in Ukraine sent energy prices skyrocketing across Europe, due to the continent’s heavy reliance on fuel imports from Russia. With nearly all European countries affected, four years onwards, Britain continues to face some of the highest electricity prices in Europe. With small and medium-sized businesses (SMEs) paying around 92% more than the EU median, placing UK firms at a clear disadvantage.
The effect of energy prices on SMEs has become a major factor in the decline of Britain’s high streets, with places once thriving with independent businesses becoming essentially ghost towns. As
energy bills
rise, independent businesses are increasingly pushed out of the market, replaced by larger chains and corporations that can better absorb higher margins. Meanwhile, across much of Europe, local businesses continue to thrive, with high streets filled with businesses rooted in their communities, such as delis, butchers, bakeries, and restaurants. So, why are UK business energy prices higher than that of Europe?
The Slow Road to Renewable Energy and the Toll of Extra Costs
A major factor is the reliance on global markets and slower investment in renewable energy. Unlike other European countries with greater access to nuclear, hydroelectric power, or cheap renewable resources, the UK relies heavily on natural gas to generate electricity. As a result, prices remain closely tied to volatile global gas markets. For example, Norway generates around 90% of its domestic electricity from renewable hydropower, while in Britain, renewables account for around 44.4% of electricity generation. Although renewables help stabilise prices over time, the UK’s energy mix still includes a significant share of gas-fired power, leaving costs more exposed to fluctuations in gas prices.
The investment needed to modernise Britain’s ageing grid and
energy infrastructure
comes at a price. While the UK is expanding interconnectors, offshore networks, and more flexible systems, the cost of upgrading the network is passed on through energy bills. Meaning households and businesses end up paying more for their energy, even if their usage hasn’t changed. In contrast, European countries benefit from newer systems or fund energy transitions through general taxation, helping to keep
electricity prices lower for consumers.
SMEs Pay the Burden
Smaller firms often pay more per unit than larger companies, with the gap between large industrial users and smaller firms continuing to widen. Ofgem and industry data showed that while electricity prices fell for medium and large businesses in 2024-2025, many smaller firms actually saw prices increase, leading them to pay the highest rates in the market.
The reason for this is that small businesses have less buying power. Large organisations can negotiate
bespoke energy contracts
on more favourable terms and receive partial exemptions from some policy costs and levies. While many smaller firms rely on standard tariffs and shorter contracts, leaving them more exposed to
market volatility. Alongside this, suppliers often price at a higher risk for SMEs, which results in higher unit rates. In a report from Wolters Kluwer Tax & Accounting, which polled more than 1,000 SMEs across Europe, 56% of UK SMEs listed challenging economic conditions and rising costs as their biggest challenge, compared to an average of 40% among SMEs based in Europe. It’s no surprise that many local businesses have started to disappear, as they struggle to plan budgets, maintain profit margins, and invest in future growth.
What Can Small Businesses Do?
However, compared to Europe, businesses within Britain reported being more ready for regulatory changes and tough conditions than their continental counterparts, with 44% of businesses stating that they were fully prepared. Compared to 31% in the Netherlands, 32% in Germany, and 16% in Sweden. British businesses stand out for their resilience, readiness, and trust in advisors to navigate complexity. Understanding that they are not left with much choice in the face of adversity, they keep calm and carry on.
So, while it may feel like the system is stacked against small businesses, there are practical steps businesses can take to stay in control over their energy costs. Such as acting early and
making informed decisions. Too many businesses let contracts roll over into expensive out-of-contract rates or renew without exploring better options. By
reviewing energy deals
months in advance, businesses can secure far more competitive rates and
avoid being exposed to sudden price spikes.
Choosing the right
contract type, whether fixed, flexible, or pass-through, can make all the difference. That’s why expert support is important. With the right guidance, businesses can time the market, compare the best deals, and build a strategy that works for them.
How Can Purely Help Your Business?
If you would like a free quote, please fill in the box below, or compare the most competitive business energy rates.
For more information, contact us on 0161 521 3400 or email us at info@purelyenergy.co.uk
Written by Elizabeth Heverin and edited by Faith Labong at Purely Energy.
