Archive for the ‘Business energy’ Category

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.

 

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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.

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.

UK energy markets spiked in the immediate aftermath of the Brexit vote, mainly due to the weakness of the pound making fossil fuel imports more expensive. They’ve since fallen back a little though remain up from their Jan-April 2016 lows.

In the next few years a number of issues will impact the price paid on your next energy contracts:

  • Informal discussions between Opec and non-Opec countries may result in some kind of agreement to cut back oil production (many leading producers, including Saudi Arabia and Russia, are suffering from the current low price), which would increase the oil price from its current US$45-50 level, and could in turn would push up gas and electricity prices
  • Exchange rate: if the pound continues to strengthen against the dollar and Euro those increases may be negated, but with the exact nature of Brexit still to be confirmed there remains a significant level of currency uncertainty and risk
  • In the longer-term the market sees wholesale electricity costs falling on the back of reduced demand (due to efficiency improvements) and a greater contribution from renewables
  • However, this possible easing will likely be countered by increases in non-energy chargestransmission, distribution and government charges/taxes (including those subsidising renewables)

Despite recent market fluctuations it remains a good time to be looking at longer term contracts, taking advantage of the relative market lows while minimising the risk from price spikes.

The implementation of Ofgem regulation P272 from April 2017 means that around 155,000 electricity supply points will move to half-hourly billing from next April (if not before).

The new ruling affects supply points with Meter Point Administration Number (MPAN) profile classes beginning 05, 06, 07 or 08 (the first 2 digits of the 22-digit supply identification MPAN). Those beginning with 00, 01, 02, 03 and 04 will see no change.

While the intention is to offer these businesses cheaper off-peak electricity and therefore incentivise them to cut consumption at peak periods, it could lead to higher costs for those which have little choice on when they use power (eg schools).

In the short-term those renewing supply contracts for 05-08 supplies should prepare for and understand the changes…

  1. Suppliers are taking different approaches to the change, with some transferring supplies to half-hourly rates within 45 days of a new contract starting, while others are waiting until nearer April 2017. As P272 means new charges apply to your supply it’s important to understand the approach being taken by your supplier.
  2. Supplies renewing in the next few months should receive a non-half hourly (as before) offer, along with a half-hourly price, which means you should be able to compare the change in overall cost.
  3. The principle new cost you’ll see is a capacity charge, which is the maximum electricity you can draw from the grid at any one moment, determined by the local Distribution Network Operator (DNO). The capacity level should reflect your actual demand so needs to be monitored to ensure you’re not paying for something you’re not using.
  4. Half-Hourly supplies also incur Meter Operating (MOP) and Data Collector/Aggregator (DC/DC) charges: the MOP covers the installation and maintenance of the meter, while the DC/DA pays for the collection of meter data and passing it to the supplier. These charges can vary widely, particularly if you’re put onto default contracts, so do shop around for the best options.

Do get in touch to find out more about how P272 could impact your organisation.

Organisations that exceed their assigned available capacity on half-hourly electricity supplies will be penalised under new measures being introduced by Ofgem from 1 April 2018.

These distribution costs make up between 25-30% of overall electricity costs so it’s important that they’re at the correct level.

At the moment if you exceed the available capacity suppliers only charge the standard kVa available capacity charge, which is often minimal so gives no incentive to reduce consumption or increase the capacity.

From April 2018 the excess charge could be over three times the standard rate. The exact penalty will vary by region and voltage – in areas with high capacity demand (such as London) the costs could be higher.

The good news is that there’s plenty of time to review your available capacity levels to ensure they’re aligned to your needs through analysis of historic capacity demand and understanding of likely future demand:

  • if a site exceeds the set capacity level then either take measures to reduce demand to avoid penalties, or apply for increased capacity (which can take several months to agree)
  • if capacity demand is constantly well below your set available capacity (and no demand growth is expected) savings could be made by reducing your capacity level
  • if you’ve moved to a new site be sure to check the capacity levels as they will have been agreed with the previous occupier who may have used significantly more/less power than you

Not sure if your capacity charges match your organisation needs? Contact me for help.

What is Available Capacity?

The Available Supply Capacity is the maximum electricity you can draw from the grid at any one moment. The local Distribution Network Operator (DNO) is required to make this capacity available, so if you use significantly more than your agreed kVa it’s important that an application for increased kVa is submitted. Available capacity is measured in Kilo Volt Amperes (kVa) and charged on a monthly basis per kVa.

 

The Competition and Markets Authority (CMA) recently proposed a number of measures designed to increase competition and reduce energy costs for small businesses, including…

  • ending automatic rollover contracts
  • enabling rival suppliers and energy brokers to access customer details so they can target them with cheaper energy offers
  • moving all small businesses to half-hourly settlements
  • requiring suppliers to publish all tariffs on their website to increase transparency

According to the CMA suppliers make twice the margin on small business customers than they do in the domestic market, and four times the margin compared to larger industrial customers.

It also found that small firms were paying around one-third more on rollover contracts for electricity and about 25% more for gas. Those on out-of-contract or deemed rates are paying at least two-thirds more for both electricity and gas than those on contracted rates.

Half-hourly settlement would improve invoicing accuracy and mean businesses could pay less by using energy outside peak times, although those who have no choice but to use power in the expensive morning and evening peak periods may end up paying more.

It’s not clear if or when the CMA’s proposals will be implemented, but it’s likely that half-hourly settlements will be introduced at some point by Ofgem (already underway for some customers), while pressure on suppliers to improve customer service, transparency and pricing from the CMA, Ofgem and others is set to continue.