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Utilities & Environmental

The UK energy market

By 31st March 2014April 4th, 2019No Comments

Lee Freeman

Posted by: Lee Freeman

As you read this I will probably be enjoying one of the proudest moments of my life for the second time in the last 7 months or so, by walking one of my daughters down the aisle and giving her away to her new husband. Whilst up early this morning putting the final touches to the masterpiece that is my father of the bride speech, there was yet another segment on the BBC breakfast show about energy prices. Well now I have decided to add my two penny’s worth to the debate about the UK energy market.

In my mind it is simple, it is simply a case of supply and demand. It costs an awful lot of money to bring the energy to businesses and consumers across the UK and for that the energy companies need to be remunerated. Is the level of remuneration fair? Well that may well be for the competition enquiry to decide that was announced last week. Interestingly even the energy companies welcomed this step, as they believe that it will remove the uncertainty in the market since Ed Milliband’s famous promise last year to freeze energy prices for a period should Labour win the next general election.

So why all the furore about energy prices. Yes the energy companies have not helped themselves historically with confusing contractual terms and headline price increases of up to 10% and over, but what actually goes into making up the energy price. Well it is far more confusing than you may imagine. A recent presentation at an Auditel regional meeting by Scottish and Southern Energy showed us just how complex the market actually is. I will not bore you with the whole presentation but will just list a few of the constituent elements of the actual energy price that you and I or a business pays as the end user.

  • Wholesale Market Price
  • ROC
  • BSUoS
  • RCRC
  • AAHEDC
  • Elexon charges
  • Imbalance charges

The above just makes up the seed prices for energy.  On top of that there are additional charges for:

  • Losses and use of system costs
  • Balancing and settlement charges
  • Feed in tariffs
  • Commission and margins

Overall I think I counted over 20 individual elements that make up the final per KWH cost to the end user, and there are probably lots more. Now I am not defending the energy companies necessarily, I am sure other industries have similar complex markets, but it does appear that certain people are trying to simplify something that is quite complex for their own benefit.

Slightly more worrying however was the recent report stating that there is £204m of cash held by the energy companies which should be returned to businesses, which has arisen due to overcharges etc. Rather than tying the companies down in more regulation making them return this cash should be a higher priority.

Right time for a glass of champagne now.