We all know that the cheapest unit of energy is the one we don’t use. We also know that many business still do not take energy efficiency and energy management as seriously as they could do, missing out on the opportunity to make considerable savings.
Often the excuse is either the cost of investment in assets or disruption to business processes.
However, a new incentive is evolving which might focus customers and their representatives minds to reconsider.
Non energy costs now make up nearly half of an energy bill and this proportion is set to rise for some customers to as much as 60%. Generally, these costs are seen as fixed and unavoidable, but as more and more meters become measured on a half hourly basis the scope for customers to understand their consumption better and change their behaviour to avoid costs increases significantly.
Where are the main impacts?
Transmission, Distribution and Capacity Market charging mechanisms all have timing elements that will allow a customer with HH metering to target savings.
Transmission Charges (TNUoS) – larger customers have benefited by reducing usage during ‘Triad’ periods, the 3 highest peaks of usage in the year which are used to set charges. As transmission charges are set to almost double by 2021 the impact will become even greater, the ability to identify the Triad period and reduce usage could have a major impact on a customer annual costs. Triad periods are measured across October to February and the peaks are usually occur around 5-5.30 on Mondays or Thursdays.
Distribution Charges (DUoS) – many customer do not see these costs as they are built into their prices. The distribution businesses have banded charges based on the time of day, Red, Amber and Green. The red period is usually between 5.00 and 6.30 in the evenings.
Capacity Market Charges – this is a new charging mechanism. The Government will pay organisations to guarantee the availability of electricity in the future. These costs are currently very low, however, the next Capacity Market auction has been brought forward resulting in a major forecast increase in Capacity Market costs from around £5/ MW now to as much as £70 / MW in 2018/19. Once again these charges will be levied across a specific price period Nov – Feb and between 4pm and 7pm. It is expected that the charging methodology will be similar to TNUoS.
On top of this other non-energy costs are set to increase.
Renewable Obligation – though set to be phased out by 2019 this will rise to as high as £18/ MWH (currently £15/MWh), and it will be replaced with the Contracts for Differences Levy, which could be as high as RO
CCL – will continue to be a major tax and is set to double to C £10/ MWh by 2020 as the Government passes the cost of removing the Carbon Reduction Commitment and protection of the Energy Intensive onto the broader customer base.
Saving money by finding the cheapest supplier has always been an attractive approach to cost saving however….
… taking tangible action to reduce usage has not always been as appealing, partly because of some of the barriers such as investment costs. The change in non-energy costs means that savings can be made without necessarily reducing usage but by moving that usage around. With Half Hourly metering being rolled out across the metering landscape surely NOW is the time for customers to take a fresh look at their consumption patterns and see how they can mitigate the risk of non-commodity related cost increases.
And also, not to forget … the cheapest unit of energy remains the one never used…