Even though wholesale energy prices have dropped over the past year or so, energy bills haven’t fallen by as much. In large part, this is because the cost of delivering the energy to consumers has increased, off-setting some of the falls in the price of oil and gas.
There are many articles and sources of advice for reducing energy consumption, but what about your energy unit costs? What steps can you take to reduce the cost of each unit you consume?
If you’re pretty diligent, you will be reviewing regularly the various tariffs available, using your judgement and market intelligence to time your renewals well and check every bill for accuracy. If you don’t do it yourself, you may be using a third party to do it for you. Either way, you may well be feeling that you have done everything you can to get the best price for your energy. But have you?
Things are changing in the energy industry. A recent report from the BBC: Smart Energy Could Save £8bn indicated the potential for £8bn of savings as a result of new approaches to meeting energy demand. Far from being something for the future, this is here today and being used by some leading businesses, with great results. One such approach is demand management.
So what is demand management?
The principle is nothing new. You switch off non-time-critical equipment (e.g. heating, air conditioning, refrigeration) when prices are high and switch them back on again when prices are lower. This fine tuning can reduce energy costs without any noticeable impact. The energy generation market is very dynamic, with prices constantly changing depending upon the supply. If wind generation increases, the fact that energy isn’t stored puts downward pressure on prices. Historically, only the very big energy users could justify a full-time energy manager to carry out this role. Part of their role is to seek opportunities to adjust when energy is consumed to times of day when prices are lower.
Small and mid-sized businesses could never justify the cost of employing someone if the cost of energy was, say, £80k p.a. It just wasn’t a practical or financially viable solution.
That was, until quite recently. There are new suppliers that buy and sell power in a more efficient way than the “Big Six”, automatically matching customers’ non-time critical energy needs to the cheapest market price at all times – without them having to track prices or deal with complex “time of use” tariffs. Energy consumers that can be flexible enjoy lower electricity bills, while helping to reduce carbon emissions and waste in the energy system.
What most suppliers don’t tell you is that it isn’t just how much energy you use that affects your bills, but when you use it. Electricity prices vary hugely across different times of the day, depending on how much supply there is, relative to demand. Intermittent energy on the system increases this price differential, which both makes using energy at the wrong time more expensive, and using at the right time more worthwhile.
Many renewable generation sources are by their nature intermittent, which means that the more flexible customers can utilise their energy output, the more efficiently renewables can be used. At the same time, the delivery networks needed to get electricity to customers are physically built to meet peak demand – even if peaks happen rarely. Flexibility can also reduce this infrastructure cost, which makes up a significant proportion of customers’ energy bills. A flexible energy system is one where customers increase their consumption when renewables are plentiful, thus avoiding unnecessary peaks that cause greater use of expensive and polluting fossil fuel generation.
So when it comes to energy unit costs, it’s all about timing. By employing smart controls and sensors to help automatically avoid expensive periods and schedule flexible consumption at cheaper times, energy costs will reduce and de-carbonise our energy supply. This advance in technology allows the sort of demand management, that was once only cost-effective for the largest organisations, to be accessible to thousands more. As the “internet of things” takes off, even energy for domestic appliances will be managed more effectively than ever before.