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Blog: Have you 'future proofed' your energy use?

21st February 2017

Liz Wood (PIEMA, PhD)

Headline changes…

  • Non-Commodity Costs are set to increase
  • Wholesale Energy Costs are increasing

Wholesale energy costs…

Wholesale energy prices have generally been on a downward trend since 2013. However, they now appear to be on the turn, with energy companies and economic consultants indicating 5-10% rises may occur during 2017. Since the referendum sterling has weakened against the dollar, making importing oil, gas, coal and electricity more expensive.

What are non-commodity costs?

Obligatory charges, levies and taxes from third parties including government policy costs. Non-commodity costs accounted for around 50% of the customer bill in 2016, forecasts indicate that non-commodity costs will account for >60% of energy costs by 2020.

 

                                Source: TheEnergyst December/January 2017

 

 

 

Where does my money go?

Non-commodity charges – at a glance!

  • Carbon Reduction Commitment
    A tax on energy intensive organisations, obligated companies must report their usage, buy and surrender allowances equal to the CO2 emissions generated. CRC is being scrapped from 2019 and replaced by an increase in CCL. 
  • Climate Change Levy (CCL)
    A tax on businesses which use over 1,000 kWh of electricity a month. The charge is used to fund the development of renewable energy sources. Set to increase in 2019
     
  • Contracts for Difference Levy (CfD)
    This fund is used to pay a subsidy to low carbon electricity generators. Currently a small cost c.£0.04/MWh but set to increase dramatically to over £0.50/MWh.
  • Feed-in-Tariff (FiT)
    A government scheme designed to encourage the uptake of smalls-scale renewables. All suppliers contribute to a pot from which subsidies are paid out
  •  Renewables Obligation (RO)
     Designed to fund large scale renewable electricity generation
  • Assistance for Areas with High Electricity Distribution Costs (AADHC)
    Providing financial assistance to areas with high electricity distribution costs
  • Capacity Market
    Funding of projects to help secure electricity supplies in the future and prevent blackouts. Could you supply energy to the grid     (or reduce your use at peak times) and gain financial benefits from Capacity market funds? Similarly to Contracts for difference Levy, this is a low cost £0.01/MWh (2015/2016) but projected to increase by over 600% (2016/2017). (Demand Response)
  • Balancing Services Use of System (BSUoS)
    As the name suggests, this levy funds the balancing of the grid to ensure that the right amount of electricity is in the network at   any given time
  • Distribution Use of System (DuoS)
    This charge covers the cost of transporting electricity from the national grid to your premises
  • Transmission Use of System Charges (TNUoS)
    This charge covers the cost of transporting electricity from the power station to grid supply points
  • Transmission and distribution losses
    As electricity passes through the network some it lost, due to meter error, theft or natural dissipation

 

 

Upcoming changes to non-commodity costs:

  • CRC scrapped in April 2019: final period for reporting/allowance surrender is July/October 2019 
  • Increase in CCL from April 2019 to recover revenue lost with the scrapping of CRC.  CCL is currently £5.60/MWh but this is set to increase to £8.47/MWh in 2019

 

Good news – or bad? Well, it depends on your perspective:  those currently paying for both the CCL and CRC will benefit from a net reduction of around £2/MWh in April 2019 however, those businesses currently below the CRC threshold (consuming fewer than 6,000MWh) who currently pay around £5.60/MWh in CCL will see that cost increase to £8.47/MWh once the changes come into force in April 2019. Those with Climate Change Agreements can avoid the increase in CCL (see action 4 below).

 

Fight Back Against the charges: What can you do?

1. Focus on energy efficiency

If you were obligated under ESOS , dig out the report, dust off the cover and you should find lots of the work toward identifying energy saving opportunities has been done for you! Energy prices may have changed since the report was produced and considering future increases in non-commodity charges, may make acting on energy saving opportunities even more financially lucrative. 

If you weren’t ESOS obligated, or you were unhappy with the quality of the opportunities identified in your report, why not ask Comply Direct to conduct a feasibility study?  Our energy consultancy services can be tailored to your requirements.

2. Save on wholesale costs with intelligent energy procurement

The way you procure energy can have a big impact on your costs, although changing your energy procurement strategy won’t affect the non-commodity costs you face, reducing wholesale costs can go some way to offsetting the non-commodity increases. Comply Direct offer Energy Procurement services – contact us today to see how you can save.

3. Cash in with Demand Response

Demand Response involves reducing power use during periods of short supply. Demand response can benefit large energy users as individuals, or, as a medium to large energy consumer you can join an aggregator scheme. Companies receive financial benefits for reducing their energy use in the form of payments from the government. 

4. Consider Climate Change Agreements

Climate Change Agreements (CCA) allow holders to claim a discount (up to 90% on electricity) on the Climate Change Levy (CCL). In exchange they must agree to energy efficiency improvement targets. CCAs to be kept in place with no changes to eligibility until 2023. Even better, CCA holders will see their discount increase to protect them against the increases in CCL.