Ofgem's 13% Energy Price Cap Rise: What July's Increase Means for UK SMEs
Will Marshall
MD
Energy costs are climbing again. On 27 May 2026, Ofgem confirmed that the domestic energy price cap will rise by 13% for the period covering 1 July to 30 September. While the cap itself applies to households rather than businesses, the wholesale gas pressures driving it ripple directly into the commercial market. For SMEs already managing tight margins, the announcement is a reminder that energy volatility has not gone away — and that the case for taking control of consumption is stronger than ever.
What Ofgem announced
The price cap will increase by 13% from July, taking the typical household bill to around £1,862 a year, an increase of roughly £221. Ofgem attributed the rise primarily to higher wholesale gas prices, linked to ongoing instability in the Middle East.
The detail beneath the headline is important. Unlike the energy crisis of recent years, this increase is heavily weighted towards gas. Electricity prices are set to rise by around 5%, while gas prices climb by approximately 24%. The divergence reflects a market where the cost of gas remains the dominant variable, even as electricity becomes relatively more competitive.
Why this matters for businesses
Business energy contracts are not covered by the price cap, but they are exposed to the same wholesale dynamics. UK business electricity rates in 2026 sit at roughly 22–30p per kWh, with only the cheapest contracts dipping lower. When wholesale costs rise, renewals and new contracts tend to follow.
For an SME, the impact is rarely just the headline rate. Energy is often a fixed overhead that is difficult to pass on to customers, particularly in manufacturing, hospitality, retail and logistics where consumption is high and margins are thin. A double-digit movement in underlying costs can erode profitability quickly, and the timing — heading into autumn and winter demand — compounds the pressure.
The shifting balance between gas and electricity
The gap between gas and electricity price movements points to a longer-term trend. As the grid decarbonises and renewable generation grows, electricity is gradually becoming the more stable and predictable energy source, while gas remains hostage to global events. This is one reason debates around zonal energy pricing have gained traction.
The trend has strategic implications. Businesses that reduce their reliance on gas — through measures such as heat pumps, improved insulation and electrified processes — insulate themselves from the most volatile part of the market. The transition is not instant or cost-free, but the direction of travel increasingly favours electrification.
Turning rising costs into a reason to act
Higher prices are painful, but they also shorten the payback period on efficiency and generation measures. Two routes are particularly relevant for SMEs:
- Energy efficiency: Reducing consumption is the fastest way to cut bills and carries no exposure to future price rises. Lighting, heating controls, insulation and equipment upgrades — many of them low-cost initiatives — often pay for themselves quickly.
- On-site renewable generation: Rooftop solar has become markedly more accessible. Under a Power Purchase Agreement (PPA), a third party funds, installs and maintains the panels while the business buys the electricity generated, typically at 15–30% below grid prices and with no upfront cost.
PPA rates in 2026 generally sit at 10–18p per kWh, against grid rates of 28–32p — a meaningful saving from day one. New financing is widening access, including a recently announced £100 million fund aimed specifically at helping SMEs install rooftop solar without capital outlay.
The challenges to weigh
A balanced view requires caution as well as enthusiasm. Solar PPAs typically run for 10 to 25 years, and the long contract term suits some businesses better than others, particularly those uncertain about their premises or future occupancy. Efficiency upgrades, while lower-risk, still require upfront investment and management time that stretched SMEs may struggle to find.
There is also no single right answer. The best route depends on a business's consumption profile, premises, lease arrangements and appetite for capital expenditure. Acting without understanding the underlying data can lead to oversized systems or contracts that fail to deliver the expected savings.
The path forward
Ofgem's July increase is unlikely to be the last word on energy prices in 2026, and SMEs cannot control wholesale markets. What they can control is how much energy they use and where it comes from. The businesses that treat each price rise as a prompt to improve efficiency and explore generation, rather than simply absorbing the cost, will be the ones best protected against the next round of volatility. In an unpredictable market, reducing exposure is the most reliable form of saving.
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