Archive for June, 2014

DECC last week released further details of the forthcoming Energy Opportunities Savings Scheme (ESOS), being introduced as part of the EU Energy Efficiency Directive.

The mandatory scheme requires an estimated 7,000 large businesses – those with 250+ employees or turnover of £40 million+ and annual balance sheet greater than £34.4 million – to complete an energy audit every four years. Public sector bodies are exempt.

The audit must…

  1. Measure total energy consumption in buildings, processes and transport
  2. Conduct energy audits to identify cost-effective energy efficiency recommendations
  3. Report compliance to the Environment Agency

While the audit is mandatory, implementing the savings identified will be voluntary, with the government and EU hoping that by identifying cost-effective options companies will be sufficiently incentivised to implement them.

The government estimates that ESOS will have a net benefit of around £1.9 billion between 2015-30, based on a rather pessimistic assumption that only 6% of the identifiable efficiency opportunities will be implemented.

The Carbon Trust, on the other hand, predicts energy savings 2-3 times greater, based on its track record of 40% of simple recommendations with quick payback being adopted.

If businesses don’t implement the savings, particularly those with a good ROI, they’ll continue to pay more than needed for energy, while also paying for an audit from which they fail to benefit.

The first assessment must be completed and notified to the Environment Agency is 5 December 2015. Fines of up to £50,000 can be imposed for failing to carry out an audit. If your organisation is already covered by ISO 50001 then an audit is not required (although the Environment Agency must be informed).

Related articles

ESOS is coming: what does it mean for you?

Advertisements

The proportion of your business energy bill accounted for by non-energy costs such as transmission, distribution and sustainability charges could hit 50% next year. Since 2011 an estimated 70% of the increase in electricity costs is due to these non-energy costs, negating some of the recent falls in the wholesale electricity market.

While there’s no escaping these charges, it can help to know what they are and what to look for in your invoices, particularly when it comes to the two main renewable energy related costs…

Renewables Obligation (RO): administered by Ofgem, the RO requires electricity suppliers to increase the volume of renewable-generated energy supplied to customers. Renewable generators receive Renewable Obligation Certificates (ROCs) which they sell to electricity suppliers, who then redeem them to prove they have met RO targets. Business users then pay the cost of the ROCs through their electricity bill.

Feed-in-Tariffs (FiTs): small-scale generators of renewable energy (primarily solar) receive a payment from suppliers at a higher-than-market rate, the cost of which is then passed through to the electricity end-user.

Both the FiT and RO are designed to increase the proportion of the UK’s electricity generated from renewable sources by providing a financial incentive for investment; around 10% of the UK’s energy is now from renewables.

The RO accounts for around 8% of the average business bill, and the FiT 3%, based on the number of units consumed. While easy to ignore when your monthly bill lands, it’s not unknown for mistakes in these charges to be made so it’s always worth checking to make sure you’re being charged correctly.

This should always be done for your current bills, but also previous ones: if an historic audit of your energy bills identifies mistakes refunds can be recovered from up to six years ago.

 

 

 

 

Wholesale gas and electricity prices have fallen over the last few months to their lowest levels since 2010, yet this doesn’t appear have an impact on the price paid by many consumers.

In another swipe at the ‘big 6’ energy companies Ofgem last week questioned why the fall in the energy markets wasn’t being passed on to households: in early June gas prices for next day delivery were 38% below this time in 2013, while electricity prices were around 23% lower than this time last year.

Although households have yet to benefit from these falls, smart businesses are taking advantage of this price lull to lock out long-term contracts at very competitive rates, in many cases paying less than for their existing contracts.

Winter is coming..

With the Major Energy Users Council predicting prices will increase by between 5-9% over the coming winter organisations with renewals in the next 9-12 months should definitely take a look at their renewal options now.

 

The cost of electricity now consists of so many components that the energy itself accounts for less than 60% of the overall price. Transmission and distribution charges, Renewables Obligation, Feed-in-Tariff and the Climate Change Levy add up to a significant cost, yet most businesses have little idea of what or how they’re being charged.

The largest non-energy costs are distribution (around 20% of the price) and transmission (10%).

Transmission charges, also referred to as Transmission Use of Service (TUOS), cover the cost of the electricity transmission system operated by National Grid, who balance supply and demand across the country. TUOS charges, along with a smaller balancing services use of system (BSUOS) cost, are usually estimated and bundled into contracted rates.

Fourteen Distribution Network Operators (DNOs) then distribute that power to customers. DNO costs are charged mainly through an available capacity charge (pence per kVA per day).

While there’s little that can be done to reduce TUOS and DUOS charges, which are regulated by Ofgem, there are a couple of things businesses can do to minimise these costs:

  • check that your available capacity is set at an appropriate level: too high and you’re paying for something you’re not using, too low and you could be hit with penalty charges
  • audit your electricity invoices to ensure that you’re being charged correctly – mistakes are surprisingly common
  • invest in energy efficiency to reduce demand and therefore costs

A new report by the International Energy Agency warns that Europe needs to invest £1.3 trillion in the power sector by 2035 to replace ageing generation infrastructure while also meeting decarbonisation targets.

If this were not challenge enough, the IEA also warns that current wholesale energy prices are 20% below the level needed to attract this level of investment, and that “the reliability of European electricity supply will be put at risk” if this situation is not remedied.

The obvious implication is higher prices for consumers, particularly with the move towards a single European energy market.

While wholesale energy prices may be at their lowest level for over two years at the moment this is unlikely to last. The need to secure Europe’s future energy supplies (placed in greater focus due to the Russia-Ukraine situation), coupled with environmental targets, will inevitably lead to higher prices.

The answer for businesses? Investment in energy efficiency and self-generation will limit exposure to prices rises while providing an increasingly attractive ROI.