Energy Prices and Pricing: Passing On Cost Increases With Good Reason

Rising energy prices: the question of 2022 returns

Anyone who ran a bakery, a foundry, or a laundry business in 2022 remembers the energy supplier's bills. Afterward the issue seemed settled for a while. Since summer 2026, energy prices have risen sharply again, and many owners once more face the decision of whether and how to pass the extra costs on to their customers.

So the question is: how does a business pass on higher energy costs so that customers accept the increase as justified and the relationship is not damaged? To answer it, we first put the current figures in context, then look at a well-known model of price fairness, then at two ways of passing costs on, and finally at a rule for your own business. How pricing conversations have changed in general after the inflation wave is described in After inflation.

An energy surcharge is only as credible as its way back. If you only ever calculate upward, you lose your credit for next time.

How much did energy prices rise in 2026?

For businesses, producer prices are more telling than consumer prices. They measure what manufacturers and utilities charge commercial buyers. Germany's Federal Statistical Office publishes them monthly. In September 2026, producer prices overall were 6.7 percent higher than a year earlier, but only 3.2 percent excluding energy. The gap shows how much energy is driving the rise.

The office attributes the sharp rise in mineral oil products to the hostilities in Iran and the Middle East. Consumers felt it too: according to the office, energy was 12.2 percent more expensive in October 2026 than a year earlier, heating oil 84.5 percent, while household electricity was 5.2 percent cheaper. These figures also appear in the article on pricing conversations after inflation.

For pricing, one thing follows above all: there is no single energy price trend. A business that works with heating oil or diesel faces an entirely different cost situation from one that mainly needs electricity. A blanket justification “because of energy prices” is therefore quickly questioned. How geopolitical events generally feed through to supply chains is discussed in Geopolitics as a business risk.

When do customers consider a price increase fair?

The model that explains most here comes from Kahneman, Knetsch, and Thaler (1986). They asked people by telephone which pricing and wage decisions by companies they considered fair. From this they derived a rule that became known as dual entitlement. The customer is entitled to the previous reference price, the company to its previous profit.

• Fair is a price increase that offsets higher costs and thus protects the previous profit.
• Unfair is a price increase that exploits favorable market conditions, such as a shortage or a sudden rise in demand.
• Accepted, according to these findings, is also a company keeping its price although its costs fall. Customers therefore expect cost decreases to be passed on less strictly than they expect increases to be justified.

The model applies well to energy costs. An increase that visibly offsets your own extra costs falls within what customers consider fair. An increase that goes beyond the extra costs and uses the general situation as a pretext falls outside it. The third finding seems convenient at first but is no longer quite up to date. After the inflation period, buyers specifically ask about lower costs, as the article on pricing conversations after inflation shows. They know from surveys such as Seiler (2026) that companies pass on rising costs far more often than falling ones. The 1986 survey was also addressed to private individuals, not corporate buyers.

More recent research refines the picture. Joyal (2026) analyzed, in a systematic review, 48 studies on communicating price increases, selected from four databases and assessed in full text. Cost justifications form the largest group of studies there. According to the review, their effect depends on whether customers believe the company had no control over the cause, whether the justification is credible, whether it fits the affected offering, and how large the increase is. Joyal also points to a limit: most studies measure the immediate fairness judgment, only a few measure later purchasing behavior.

Surcharge or new list price: two ways of passing costs on

In practice there are two ways to pass on higher energy costs. The first is a separately shown energy surcharge that follows a reference value. The second is an increase in the base price that absorbs the energy costs.

A finding by Pick and Zielke (2024) supports the surcharge. They first analyzed 119 letters in which electricity suppliers announced price increases, and then tested different justifications in an experiment with 552 participants. Increases justified by government regulation were seen as fairer than those justified by a good cause such as environmental protection. The authors explain this by where customers locate the cause: the further outside the company, the fairer. A second finding is notable. Letters that additionally expressed regret or stressed the company's own efforts partly reversed the judgment, and regret increased the intention to switch suppliers in both variants.

I therefore consider the surcharge the better route if three conditions are met: energy is a noticeable share of costs, prices fluctuate strongly, and there is a public reference value. If one is missing, a properly justified new base price is often the more honest solution, because a surcharge would then suggest more precision than it has. The study by Pick and Zielke concerns private customers and electricity contracts. For business customers the finding is plausible but has not been specifically studied.

The surcharge rule: four parts that make passing on costs traceable

The findings lead to a tool I call the surcharge rule. It extends the price logbook from the article on pricing conversations after inflation with a fixed formula for energy. The rule has four parts that you state to the customer in advance.

1. Determine the share

   Work out what share energy has in the unit costs of the affected service. Only this share may go into the surcharge, not the business's entire cost increase.

2. Set the reference value

   Tie the surcharge to a public figure, for example a producer price index of the Federal Statistical Office for electricity, gas, or heating oil, and to a starting value on a fixed date.

3. Agree a threshold

   Define from what change the surcharge is adjusted, for example from ten percent against the starting value, and how often, such as quarterly. Small fluctuations are thus left out.

4. Commit to the way back

   Promise that the surcharge falls or lapses according to the same formula when the reference value drops. This part turns an increase into a rule customers can trust.

In this worked example, a 15 percent rise in the reference value leads to a surcharge of only 1.2 percent, because energy makes up only eight percent of unit costs. It is exactly this calculation that convinces buyers: it shows that you are not passing on the headline but your actual extra cost. How such a surcharge affects the contribution margin of individual orders is shown in Contribution margin per order.

How to communicate the increase

The best formula helps little if the announcement goes wrong. Some rules for the letter or conversation can be derived from the findings.

• Name the cause specifically: which energy source, how much more expensive, with a source.
• Walk through your own share and show that the surcharge offsets only that share.
• Explicitly commit to the way back and state the next review date.
• Avoid stock expressions of regret and long descriptions of your own efforts.
• Honor existing fixed-price agreements and apply the surcharge only to new orders or as contracts allow.
• Explain the calculation to large customers in person before the letter arrives.

Leaving out regret seems cool at first. The results of Pick and Zielke suggest, however, that regret makes customers wonder whether the company could have avoided the increase after all. Objectivity is the more respectful form here. How to respond to objections in conversation is described in Handling objections. How to prepare a general price increase is covered in Raising prices without losing customers.

What follows beyond the individual case?

Energy prices will continue to fluctuate because they depend heavily on political events no business can influence. For the pricing of small businesses this means the question is not whether the next spike will come, but whether a rule is ready when it does. If you agree the surcharge rule in calm times, you don't have to negotiate in a crisis, only calculate.

This also implies a limit. A rule that only passes on costs protects profit but not competitiveness. If competitors lower their energy costs through their own generation or long-term contracts, a fair surcharge helps only to a degree. Then the question of energy use itself belongs on the agenda, not just the question of passing it on.

The next step

• Roughly calculate the energy share in unit costs for your three most important services.
• Record a public reference value and a starting value for each energy source you use.
• Set a threshold and a review rhythm for adjustments.
• Put the way back in writing and add it to your quote template.
• Have it checked whether and how the rule fits into existing contracts and terms and conditions.

Conclusion: how do you pass on energy costs with good reason?

The question at the start was
a business passes on higher energy costs so that customers accept the increase. Research on price fairness gives a clear answer. What is accepted is what visibly offsets your own extra costs, asks no more than those extra costs amount to, and goes back to a cause outside the business. The experience after 2022 has added one point: customers today expect lower costs to reach them as well.

The surcharge rule puts this into practice in four parts: share, reference value, threshold, and way back. It demands more openness than many businesses are used to. That openness, however, is exactly what distinguishes an increase from a pretext.