Businesses need to act on rising energy prices and regulatory changes

Written by

Tim Greenhalgh

Posted on

August 25, 2021

Businesses of all sizes are going to be paying much more for their energy thanks to big price rises in the wholesale markets and charging changes by the regulator Ofgem.

Companies need to be looking much more closely at their energy contracts as well as how they use their gas, electricity and oil.

At SaveMoneyCutCarbon we want business customers to make all the changes they need so they can use less energy, and also to find the best supplier deal. We say that “the cheapest unit of energy is the one you don’t use”. We can help you reduce the amount of energy and water you consume in your day-to-day business operations

Take control of your rising energy costs with our help.

What’s been fuelling the volatility in energy markets with steep price rises over the past few months particularly? While all commodity markets naturally work through shifting prices, energy markets – natural gas, electricity, heating oil –  are more unpredictable, as they are geared to constantly changing production and distribution conditions.

Wholesale energy price rises

Over the past six months, there has been a 50% rise in wholesale energy prices, according to Ofgem. And in fact, since February many British wholesale gas contract prices have doubled. There have been spikes of up to 248% visible in the past year.

Global gas prices have risen sharply in 2021 in response to pressures from low gas storage levels to production stoppages at gas plants and gas fields, while international deliveries of liquefied natural gas (LNG) have been affected by a buying spree in Asia.

While wholesale energy prices account for about 40% of the total energy bill, the larger part of the bill covers the non-commodity costs of network management and distribution. There is now new pressure on this part of the overall energy cost and Ofgem has recently moved to make changes that will affect many businesses.

It’s a bit confusing, given the drive by government to encourage more renewable energy production, but Ofgem has focused on companies that have on-site generation capability in its comprehensive Targeted Charging Review (TCR).

Transmission charges

The issue is that companies which can use, store and sell back excess power to the distribution operators can avoid paying Transmission Network Use of System (TNUoS) costs – the charges cover the cost of installing and maintaining the transmission system in England, Wales, Scotland and Offshore.

The growth of sustainable power generation has inevitably led to fewer companies sharing the burden of these costs. Ofgem is now levelling the field so all customers will contribute. Its solution is to levy a fixed charge for all businesses and believes that the change will reduce distortions, and make the system fairer for all.

So, companies which currently benefit from energy self-generation will face significant rises in their energy bills.

TCR will now sort half-hourly (HH) customers by band, with this banding based on the meters’ agreed kVa capacity. The TCR bands will be based on the supplier’s past two years of agreed capacity to discourage customers reducing their kVa to avoid paying residual costs.

The Transmission Generation Residual embedded benefit (Triads) process will come to an end next April. Triad periods are the three highest winter peak periods and are calculated retrospectively in March each year. They form the base of the transmission network component (TNUoS) of large companies’ energy bills. By reducing consumption or switching to onsite generation during Triad periods, companies can cut their bills substantially.

This cyclical process of load-shifting as charges change now become a fixed cost and businesses that have held surplus kVa as a means to keep within capacity now may be pushed into a higher price band.

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Hefty hikes in costs

Ofgem believes that there will be “significant savings to consumers of £3.8bn to £5.3bn and system benefit of £0.8bn to £2.9bn over the period to 2040” but some but inevitably some businesses are going to be faced with hefty hikes in costs.

Because of this, Ofgem is encouraging businesses to reduce capacity where this is feasible, which is both expensive and slow to complete but it also underlines the need to reduce consumption.

That’s where we come in. It’s our fundamental purpose to help all businesses (and homes) use less energy and water so they can reduce their costs and then continue to manage consumption with maximum benefits year after year.

Our comprehensive service offering differs from other companies which offer brokerage options. For the majority of them, the whole business model is built on the desire for customers to continue to use large amounts of energy, which converts into higher commissions.

We aim to find businesses the best energy deal and also to identify exactly where they can reduce energy consumption (and water use). At the same time, as part of this process, they will reduce their carbon emissions permanently.

Now is definitely the time for every business to review its energy and water costs. We’re here to help with expert advice and solutions.

Find out how we can help your business.

0333 123 5464

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