Europe 'made a major mistake' on energy, says IEA chief — what it means for UK business costs

The head of the International Energy Agency has warned that Europe made a 'major mistake' by not moving fast enough to end its reliance on imported fossil fuels since the energy shock of 2022. It's a big-picture, continent-scale warning about energy policy and electrification. For a UK business owner, the interesting part isn't the geopolitics — it's what continued exposure to volatile energy markets actually means for a cost line that's already been unpredictable for several years running.

Why this isn't just background noise

Energy costs have moved from an assumption most small businesses barely thought about to one of the more volatile, headache-inducing lines on a P&L. A warning from the world's leading energy body that the underlying exposure isn't going away any time soon is a reasonable prompt to check whether your own business is actually prepared for more of the same, rather than hoping the last few volatile years were a one-off.

Energy prices being unpredictable is now the normal condition to plan around, not a temporary disruption to wait out.

What's actually worth checking

Three things, none of which require becoming an energy market expert. First: when does your current energy contract actually end, and do you know the date without checking? Businesses get caught out rolling onto expensive default rates because a fixed-term deal quietly lapsed. Second: how exposed is your cost base if energy prices spike again — is it a rounding error, or could it meaningfully dent margin? Businesses with genuine energy-intensive operations (manufacturing, hospitality, anything with heavy refrigeration or heating) need a real answer to this, not a guess.

Third: is there anything practical and reasonably priced you could do to reduce exposure — better insulation, more efficient equipment, a fixed-rate contract locked in before the next spike, even solar where the numbers stack up for your premises. None of these need to happen this week, but knowing which apply to your business, and roughly what they'd cost, beats finding out you should have acted after the next price shock has already landed.

How UK business energy contracts actually work

Most small business energy contracts are fixed-term and fixed-rate, agreed for one, two or three years through a broker or directly with a supplier — and the date that contract ends matters far more than most owners realise, because if you do nothing when it expires, you don't get a new deal automatically. You get rolled onto what's called a deemed or out-of-contract rate, which suppliers are entitled to charge and which is routinely far more expensive, sometimes dramatically so, than anything you'd agree to if you were actually asked. It's the single most common way small businesses end up paying well over the odds — not a market spike, just a renewal date that quietly passed unnoticed.

Larger sites with half-hourly meters have more options, and more complexity, including the ability to shop around more aggressively and, in some cases, shift usage away from peak pricing periods. Most small premises are on standard, non-half-hourly meters, which means the main lever isn't clever tariff engineering — it's simply not missing the window to renew on your own terms, and reading your bill closely enough to know what you're actually being charged for beyond the headline unit rate. Standing charges, and where relevant the Climate Change Levy, both show up as separate lines and are worth understanding rather than ignoring.

One more thing worth checking, particularly if you've used an energy broker to arrange your contract: brokers are typically paid a commission built into your unit rate, and following regulatory pressure from Ofgem, suppliers are now required to disclose that commission on request. It's worth asking for that figure directly — a broker adding a modest, disclosed margin for genuinely finding you a better deal is reasonable; a broker who won't tell you what they're earning from your contract is a signal to get a second quote elsewhere before signing anything.

Where efficiency spend actually pays back first

Before spending on anything ambitious, the cheapest wins are usually the boring ones: LED lighting where it hasn't already been done, checking that heating and refrigeration are actually the right size for the space rather than oversized and running inefficiently, and a genuinely dull walk-through looking for equipment left running overnight or over a weekend for no reason — a commercial fridge that's fine to leave on is one thing, a bank of computers or an oven left on standby out of habit is a real, avoidable cost that compounds every single week.

Say a small hospitality business — a café with a kitchen — is on a fixed-rate deal that expires in four months. If nobody actions the renewal, the default deemed rate it rolls onto can easily run well above the unit price a re-negotiated fixed deal would have cost, with no cap and no warning beyond what's buried in the original contract's small print. On a business already running on tight hospitality margins, that gap alone can be the difference between a quietly profitable quarter and a loss-making one — and it's entirely avoidable with a calendar reminder set the day the current contract starts, not the week it ends.

The practical takeaway

You don't control European energy policy, and you don't need an opinion on it to run your business well. You do need an honest answer to how exposed your own costs are if the volatility the IEA is describing continues — and that's a conversation worth having with whoever handles your energy contracts, this month rather than after the next bill lands.

Common questions

Is there an energy price cap for businesses?

No. Ofgem's price cap applies to domestic customers only, so business energy has no ceiling on unit rates at all — you pay whatever your contract says, or whatever the supplier chooses to charge if you have no contract in place. That is the single most important thing to understand about business energy, because the protection you may assume exists as a householder simply is not there at work. Microbusinesses do get specific protections, including a 14-day cooling-off period after signing and the right to be told what commission a broker is earning from your contract, but none of those cap the price you pay. Negotiating properly and renewing on time are the only real levers you have.

What happens if my business energy contract runs out and I do nothing?

You roll onto a deemed or out-of-contract rate set by the supplier, which is routinely far more expensive than anything you would have agreed by negotiating. There is no automatic renewal onto a fair tariff and no cap to protect you — suppliers are entitled to charge these rates precisely because no contract exists. Worse, a deemed rate can run for months before anyone notices, and you cannot claim the difference back afterwards; that money is simply gone. The fix costs nothing. On the day a new contract starts, put two reminders in the calendar — one six months before it ends and one three months before — and treat the earlier date as your deadline for gathering quotes.

Does my business count as a microbusiness, and why does it matter?

You qualify by meeting any one of Ofgem's criteria: fewer than 10 employees or full-time equivalents with annual turnover or a balance sheet total of no more than £2 million; or using no more than 100,000 kWh of electricity a year; or no more than 293,000 kWh of gas a year. Most small premises qualify comfortably. It matters because microbusiness status brings protections larger customers do not get: a 14-day cooling-off period after agreeing a contract, clearer information about renewal, disclosure of what your broker is being paid, and free access to the Energy Ombudsman if a complaint goes unresolved. You can qualify for one fuel and not the other, since the consumption test applies per fuel.

What is the Climate Change Levy and do I have to pay it?

It is a tax on business energy use, charged per kilowatt hour and shown as a separate line on your bill. From 1 April 2026 the main rate is 0.801p per kWh for both electricity and natural gas. Your supplier collects it automatically, so there is nothing for you to file. Very low users escape it entirely: where average daily use is no more than 33 kWh of electricity or 145 kWh of gas, HMRC treats the supply as de minimis, meaning no levy and VAT at the reduced 5% rate rather than 20%. No certificate is needed for that. Energy-intensive businesses with a Climate Change Agreement pay a heavily discounted rate instead.

Is it worth using an energy broker?

It can be, provided you know what they are earning from you. Brokers are usually paid through a commission built into your unit rate rather than by a separate fee, which means the free-to-you service is being paid for out of the price you agreed. Under Ofgem's rules, suppliers must make microbusiness customers aware of broker commission in plain and intelligible language, so you can ask for the figure directly — and you should. A broker who discloses a modest margin and genuinely finds you better rates than you would find alone is earning it. One who will not say what they make on your contract is a reason to get a second quote before signing, and to remember the 14-day cooling-off period exists.