Energy has continued to trend downwards through 2019 driven by concerns over the global economy and weak commodity prices. Consequently, rates are – in general – lower than at the same point last year. However, prices are predicted to increase by around 2% in the next couple of years due to rising non-commodity costs.
Short-term Wholesale Prices
Wholesale rates have fallen roughly 40% since September-18, driven by low oil and coal prices, weak demand and fears over a slowing global economy. Oil has competing pressures; with ongoing tensions in the Middle East countered by fears of decreasing global demand. How US tensions with both Iran and China play out will therefore impact rates going forwards.
Brexit presents an unknown variable; no-deal could see sterling fall and prices rise, while a “good” deal could add downward pressure. The long-term impact depends on how closely aligned the UK remains to existing frameworks e.g. the EU Emissions Trading System and Internal Energy Market, if/when a deal is agreed.
Figure 1: Gas – Pence Per Therm (12 months forward average)
Long Term Energy Rates
As shown below, electric rates have risen over the long term due, in large part, to rising non-commodity costs. However, the latest quarter has seen a slight drop due to falling wholesale rates. The cost is predicted to increase by 2% to 2020-21, assuming wholesale prices remain flat or falling.
Figure 2: Source BEIS. Electric – Avg Non-Domestic p/per kWh Exc. CCL & Vat (up to 2M kWh p/a)
Gas rates are not subject to the same level of non-commodity costs as electric and so haven’t seen the same, consistent increase, trending slightly downwards in recent years. The delivered cost of gas is expected to increase by roughly 2% to 2020-21, however this includes a jump in CCL rates; CCL-exempt supplies may see rates remain flat.
Figure 3: Source BEIS. Gas – Avg Non-Domestic p/per kWh Exc. CCL & Vat (up to 2.7M kWh p/a)
New Tariff for Onsite Generation – the Smart Export Guarantee
If you’ve considered installing onsite generation, such as solar panels or wind turbines, but were discouraged by the recent closure of the government subsidy, the “Feed in Tariff” (FiT), you might be interested in a new scheme called the “Smart Export Guarantee” (SEG), due to open in January 2020.
SEG obliges energy suppliers with over 150,000 customers (i.e. 90% of the market) to offer an export payment for small scale generation, up to 5MW. The tariff is unlikely to be fixed in the same way as previous FiT payments – with rates left to the market to determine, but it may give some schemes that extra financial viability to get the go-ahead.
The Energy Saving Opportunity Scheme (ESOS)
As mentioned in the last update, ESOS is fast approaching, with the deadline for compliance in December, so if you qualify, you need to act soon to ensure you meet this.
ESOS is a mandatory energy assessment scheme for (non-public sector) organisations in the UK that either:
- Employ 250 or more people, OR
- Have an annual turnover in excess of 50 million euros AND an annual balance sheet total in excess of 43 million euros, OR
- An overseas company with a UK registered establishment which has 250 or more UK employees.
Auditel’s ESOS assessors are being booked up quickly – please contact us if you would like further advice and/or to arrange an assessor.
Article by: Overhead Management (Phil Bennett)