Archive for April, 2013

Widened scope could be more attractive for business

The Renewable Heat Incentive (RHI) for non-domestic users is set to include increased tariffs for some technologies according to the Climate Minister, Greg Barker.

BusinessGreen reported that the scheme could be broadened to include combined heat and power systems, air-to-water and air-to-air heat pumps, anaerobic digestion, geothermal and a number of waste-to-energy technologies.

At the moment the RHI covers only solid biomass, ground-source or water-source heat pumps, solar thermal, deep geo-thermal and bio-methane injection and biogas combustion.

The prospect of  wider range of technologies should be good news for businesses looking at on-site generation.

The RHI aims to do for renewable heat technologies what the Feed-in-Tariff does for photo-voltaic panels: rapidly increase the installation of domestic and non-domestic on-site generation through the provision of financial incentives. The RHI is the key element of the government’s heat strategy, which aims to reduce greenhouse gas emissions and meet climate change targets.

Is it worth it?

Payments, which are spread over 20 years, are dependent on the type of technology, the amount of energy generated and how much energy you use (see table).

Payback periods depend on a number of factors, including, for instance, the fuel being replaced: replacing oil with an RHI technology has a shorter payback (potentially 3 years) than mains gas (5+ years). The cost of installation and maintenance will also vary, particularly retrofitting an older building.

For more information check out the Ofgem Renewable Heat Incentive guide.

Key eligibility criteria include

  • The installation is of an eligible renewable heat technology type and size
  • The installation was completed and first commissioned on or after 15 July 2009
  • That the heat is used for ‘eligible purposes’ heating space, water or for carrying out a process where the heat is used in a building

Bear in mind that you won’t be eligible for the RHI if you received public funds to help purchase or install the technology.

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Identifying overcharges results in £185k refund

A major international investment bank contracted Energy & Carbon Management to manage the energy costs at their (large) London head office, which at that point had an annual electricity bill of £1.75 million.

E&CM reviewed the client’s invoices for the previous 12 months and found that they were based on estimated rather than actual consumption, calculated during the early part of the existing contract

The E&CM procurement team were able to negotiate a refund from the supplier based on the company’s actual consumption, including backdating the new energy contract to cover a period in which the client had been on a ‘deemed’ (ie particularly high) rate, resulting in a refund of £184,860 to the client. Within two months of starting the review process the refund was paid to the client.

Lessons for business

  • avoid estimated meter readings: actual readings ensure you’re not paying invoices based on the energy company’s best guess of your consumption
  • take a regular energy health check: a forensic audit of your invoices ensures that you have been billed correctly, including checking hidden components such as transmission and distribution charges
  • check that you are on the correct tariff structure; if not refunds could be available

If you have relied on estimated readings or not checked your tariffs for a number of years don’t worry: refunds can be claimed for up to 6 years for gas and energy overcharges. The easiest way to check if you’ve been overcharged is to have someone like Energy & Carbon Management audit your invoices and check your tariffs; if they find overcharges refund claims can then be submitted to your supplier – and ££ returned to your bank account.

Scottish & Southern Energy (SSE)  has become the latest major energy company to be fined by Ofgem: £10.5 million for a “woeful catalogue of failures” that resulted in “prolonged and extensive” mis-selling. SSE is not the only miscreant: EDF agreed to pay £4.5 million to vulnerable customers following breaches to marketing regulations last year, while npower and Scottish Power are also being investigated.

Ofgem’s focus has rightly been on misselling to consumers, which has proved to be widespread, preferring to leave businesses to sort things out themselves if they have a problem with their energy supplier. This hands-off approach is beginning to change however.

Small business energy users (up to £10,000 a year per fuel on gas/electricity) should soon have greater protection from Ofgem, who are introducing enforceable standards to tackle misselling, including ensuring that small firms have more time to inform their supplier they plan to switch; contract end dates must also be included on bills.

Ofgem also hopes to begin regulating the energy brokerage market, possibly including the introduction of an accreditation scheme, to prevent misselling and make the commercial energy market clearer and fairer for businesses.

These measures are not before time and will hopefully begin to shore up the eroded trust in the energy market. In the meantime there are a number of steps all businesses can take to ensure they’re making the best decisions about their energy contracts:

  • know your contract end date: if you become out of contract you will usually be put on to punitive rates until you enter another contract
  • don’t just accept your renewal quote: shop around yourself or with the help of an energy consultant, as there are often savings to be made by switching
  • if using an energy broker/consultant ensure they’re a member of one of the industry bodies (eg Association of Cost Management Consultants or Utilities Intermediaries Association), which have strict codes of conduct
  • check that your broker covers the entire supplier market, not just the ‘big 6’
  • check that they receive a standard % commission or payment regardless of supplier they recommend

Above all, don’t wait until the few weeks before renewal to look at your energy contract; start reviewing the market at least 6 months in advance so you can minimise the risk of volatile and rising prices.

March13 annual pricesMarch13 monthly pricesEnergy & Carbon Management’s monthly energy price reviews shows that both gas and electricity prices increased by over 3% in March, driven mainly by the unseasonably cold ‘Spring’ and unplanned pipeline closures that saw gas reserves fall to just two day’s supply.

With the poor weather set to continue into April, together with greater reliance on imports due to the closure of coal powered plants, it’s likely this gain will be maintained.

The cost of energy will also continue to rise due to increased government taxes. A March 2013 Department of Energy & Climate Change report highlighted this trend, stating that medium sized businesses face energy bills on average 15% higher as a result of government policies; by 2020 the impact could be 26%.