It’s election time which means it must also be time for politician’s to pledge capping residential energy prices… but this time it’s the Conservatives.

Re-wind a few years and it was Ed Miliband promising that Labour would freeze energy prices for 20 months if they won the 2015 election, which generated headlines, hot air and hysteria, while also putting the Conservatives on the back foot.

This time it’s the Conservative party who are reportedly going to cap household energy prices in an effort to reduce the average bill by around £100 a year.

As with the Labour initiative, this raises at least as many questions as it attempts to answer

  • if standard tariffs (never the best option) are capped, what is to stop suppliers raising the cost of their cheaper rates, in the process penalising those consumers who do shop around for the best deal?
  • will the price freeze cover all elements of energy costs?
  • if so, does that means transmission and distribution infrastructure investment will be capped/reduced to prevent prices rises?
  • if energy companies freeze investment in new generation capacity what are the implications for the UK’s ability to keep the lights on?

Five of the Big Six (EDF, Eon, npower, SSE and Scottish Power) have increased prices this year, with only BG holding them (for the time being).

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New research has found that as many as 1 in 5 business energy invoices could contain errors costing around £500 million a year.

The most common mistakes are incorrect meter readings and the wrong unit rates being applied, while other mistakes can include duplicate charging, for instance on available capacity, incorrect VAT rates (particularly for schools) or wrong standing charges.

Retail and leisure businesses with complex and changing portfolios, often without automatic meter readers, are subject to the most overcharging.

Most business don’t conduct detailed energy invoice validation, yet common errors could be costing thousands.

The best means of ensuring you haven’t overpaid in the past is to conduct an historic audit, while ongoing validation is important to ensure that mistakes are spotted and rectified as soon as possible.

 

There are a number of potentially misleading energy-related cold-calling techniques being used these days, often by offshore call centres, that businesses should be aware of to avoid signing contracts that aren’t in your best interests. Some of the more common include:

“I’m calling from your supplier – could you confirm your supply details?”

If the caller really is from your supplier they’ll have your electricity MPAN and gas MPR numbers, consumption and cost data; if they don’t treat with extreme caution as the caller is likely on a fishing expedition to gain your verbal agreement to an energy contract on which they’ll receive a hefty fee.

This only applies to smaller gas and electricity supplies (those on non-half-hourly meters), as contracts for larger gas and half-hourly electricity supplies cannot be agreed by phone.

“Our service is free”

Then ask the caller how they earn their money: if the answer is they get paid by the supplier then either they have an exclusive relationship with that supplier and you’re not getting a full market assessment (and probably paying a premium), or the commission they receive is added to your unit rates. Either way, you’re paying for the service.

“Working on behalf of…”

Beware of anyone who says they’re working on behalf of your supplier / the National Grid / distribution company or similar.

For instance, companies stating they work to support the National Grid by checking available capacity (kVa) on half-hourly electricity supplies are being economical with the truth at best.

Capacity assessments are a legitimate and useful cost saving exercise, but are completely independent of the National Grid – end users need agreement to reduce capacity from their local Distribution Network Operator (DNO) not the National Grid, who also don’t have arrangements with energy consultants to conduct this type of work.

Due diligence required

Ofgem’s initiative to introduce regulation to the energy consultancy/broker market has ended without resolution, so while there are many reputable consultants out there, Ofgem (and suppliers) have limited ability to crack down on the cowboys, putting the onus on businesses to conduct their own checks.

 

 

Ofgem has revealed plans to protect consumers in the event their energy supplier goes bust – a new MOU sets out how Ofgem, the Treasury and Department for Business, Energy & Industrial Strategy (BEIS) will work to ensure continuity of supply.

Suppliers would enter into an Energy Supply Company Administration to provide uninterrupted supply and continued safe operation of essential services.

The measure would be used if Ofgem failed to appoint a Supplier of Last Resort, which is used when a smaller supplier goes under – as when Co-operative Energy took over 160,000 of GB Energy’s customers after it went bust last November.

The Special Administrator has an obligation to consider consumers as well as creditor interests.

New analysis from Ofgem shows that energy supplier costs are up by 15% since January 2016, primarily due to an increase in the wholesale gas and electricity markets, driven by a rising oil price and the weakness of the pound post-Brexit.

Despite this increase the Ofgem supplier cost index shows that costs remain below those at the start of 2014, with a sharp rise during the second half of 2016 following two years of falling costs.

While energy costs, particularly electricity, are on the up with further uncertainty likely, it remains a good time to be reviewing all contracts due for renewal in 2017 (if not beyond).

The easiest way to do this is to run an indicative tender to understand your exposure to rising markets and the impact of further increases, and if it makes sense lock-in future contracts now to protect you from further market fluctuations.

 

 

Solar the cheapest form of energy?

A December report by Bloomberg New Energy Finance found that unsubsidised solar is beginning to see lower costs than wind and other forms of energy, becoming one of the cheapest forms of energy. While the lowest solar costs are being seen in countries such India and Chile (where it is now about half the cost of coal), 2017 looks to be the year that solar becomes truly mainstream.

Windy up north

Not to be outdone, wind generated enough power to supply Scotland for four straight days at the end of December (including Christmas day itself), the longest period when wind supply has matched demand.

The strong end to the year resulted in wind power contributing more to the UK supply in 2016 than coal for the first time, 11.5% of total UK output compared to 9.2%.

However, the government’s withdrawal of subsidies for new onshore wind power has resulted in criticism that one of the lowest cost forms of generation is being denied the support given to far more costly technologies including offshore wind and nuclear.

2017 Christmas in the dark?

The British Infrastructure Group has warned that the National Grid’s buffer between supply and demand could fall to as little as 0.1% next winter, resulting in power failures, particularly if there’s unusually severe weather.

At the moment the supply-demand margin is 1.1%, increasing to 6.6% if emergency measures are implemented.

These measures include paying power stations that would otherwise be closed to be kept on stand-by, businesses and other large consumers using emergency generators and old coal-powered stations being put back into operation, all of which add around £30 a year to a residential energy bill.

The US Energy Information Administration (EIA) forecast in December that the 2017 oil price would average US$52, similar to current levels though double that of a year ago.

However, Forbes analysis recently found that past EIA forecasts varied from actual prices by 30-35%, and with other expert forecasts also not faring too well, predicting the future price of oil, gas and electricity is a pretty thankless task.

The variety and complexity of factors influencing energy prices mean it is increasingly difficult to provide confident price predictions, from the geo-politics of the Middle East, Opec and Russia to Brexit and Trump, the expansion of renewable energy and supply- and demand-side technological developments such as fracking, battery storage and energy efficiency.

While oil and gas prices may experience see relatively stable 2017, UK electricity prices are all but certain to see an increase:

  • The wholesale electricity element now accounts for less than 50% of your bill, so even if the commodity markets fall prices could still increase on the back of rising non-energy charges
  • These non-energy costs – transportation, distribution, government charges, taxes etc – will increase over the next few years, resulting in higher costs for all

What to do?

  • Understand your risk: what is the impact on your business if prices increase by 5, 10, 15% a year over the next few years?
  • Manage that risk: test the market early, don’t wait until near your renewal time when you could be hit by a price spike – contract when the market is in your favour
  • Focus on efficiency: cut costs and reduce exposure to volatile markets by using less

To no great surprise Ofgem announced that it had abandoned attempts to introduce a code of conduct for energy brokers/consultants, despite several years, numerous consultations and innumerable workshops.

The code was intended to be a set of standards that set a benchmark for high quality consultants acting as intermediaries between non-domestic energy users and suppliers, protecting businesses from unprofessional and misleading tactics. Initial plans from Ofgem indicating that suppliers would only be able to work with consultants who had signed up to the code of practice have now been scrapped.

Ofgem reported that they found inconclusive evidence of consultant malpractice, so has postponed further work on the code and instead said that consultants should take on voluntary principles to treat businesses fairly.

Things to be aware of when working with a consultant…

  • some consultants may represent a single or small group of suppliers rather than the whole market
  • you’re not obliged to accept an offer from a consultant: ensure you understand their services, fees and T&Cs before accepting
  • make sure you’re comparing like-for-like: supplier and consultant price offers may not be presented in the same way, some charges may be pass-though and therefore vary during the contract lifetime, while others are fixed

Questions for your consultant…

  • how many suppliers will be approached for prices?
  • what will you do to help switch supplier?
  • what other services are included during the life of the contract?
  • how do you charge for your services – a direct fee or an indirect commission?

Although Ofgem doesn’t licence consultants, they must comply with consumer protection legislation such as the Business Protection from Misleading Marketing Regulations (BPMMRs) – and since November 2013 Ofgem has the power to apply to the courts for an injunction to prevent breaches of the BPMMRs.

The advent of commercial-scale energy storage is set to be a key theme in the energy world for the next few years.

Storing renewable (and other) energy generated during periods of low demand to then release during peak demand periods offers huge potential while also limiting the need for new power stations.

To put that in context, National Grid’s Future Energy Scenarios predicts that by 2040 up to 18GW of batteries could be installed at commercial and domestic sites, five times the capacity of the £18 billion Hinckley Point C Nuclear power plant (raising further questions about the need and viability of new nuclear).

Production booming

Battery efficiency is improving and costs falling, which, coupled with incentives, are making battery storage a realistic option for many businesses, meaning they can avoid using peak price electricity from the grid, while selling excess capacity.

The main factor in the increasing uptake is the dramatic fall in the cost of lithium batteries (down 80% in last five years according to some estimates), with further falls expected. Tesla is the best known battery company, while China is ramping up production as only they can. Tesla’s planned gigafactory plans to produce 35GW of batteries a year from 2017, pushing costs down by 30%.

Storage contracts and incentives

National Grid announced the first 1GW of storage projects recently, potentially saving up to £200 million by balancing the system more efficiently. As storage capacity increases so flexible demand and response schemes become more viable and generate greater benefits, along with stronger business case for businesses investing in storage.

While mass uptake of battery technology may be a little while off, storage is set to be one of the main energy themes of the next few years, creating opportunities for businesses to reduce peak energy costs while profiting from excess capacity.

Eight years after water deregulation was introduced in Scotland, April 2017 marks the opening of the English water market to competition. From next year businesses in England can choose their water supplier, opening up opportunities for price cuts and service improvements.

Experience from Scotland shows that savings of up to 25% may be possible, while competition should stimulate water companies to improve their service, billing systems and value added offers (eg around water efficiency). At a minimum, consolidating multiple supplies with a single provider should simplify things.

From October this year businesses will be able to give notice to their incumbent water company that they intend to switch supplier (or at least look at alternatives).

This means now’s the time to audit your water supplies, consumption and cost data to firstly ensure you’re paying the correct rates and haven’t been overcharged, and secondly to ensure you’re best placed to switch supplier next April.

For Thames Water customers change is definitely coming, after the supplier announced it would be transferring all business customers to a new supplier, Scotland-based Castle Water, and withdrawing from the commercial market. Thames will remain a domestic supplier and run the water infrastructure, but from the end of 2016 Castle will take over billing and customer service.

Do get in touch to discuss how E&CM can help.