Posts Tagged ‘energy prices’

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.

 

 

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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.

Even before the Brexit vote on 23 June the energy markets had experienced a couple of months of steady increases after a lengthy period of stability. Between April and the referendum wholesale market rises equated to increases of approximately 25% in the cost of gas and 18% in the cost of electricity.

The immediate aftermath of the leave vote saw suppliers pull prices in the midst of currency falls and general surprise and uncertainty. This short-term volatility could well continue, although in the longer-term underlying factors such as the price of oil, new generation capacity, policy changes and investor confidence are likely to be the main drivers.

Energy prices

The fall in the value of the pound will inevitably result in more expensive imports (on which the UK is increasingly reliant).

How long this will last is very difficult to predict, though fears over the UK and European economies could also lead to a weakening of oil prices, stalling their recent rises and negating some of these exchange rate costs.

Energy investment

Of concern is also the impact Brexit will have on the much needed investment in the UK’s energy infrastructure – around £19 billion a year is required until 2020, much of which is expected to come from foreign sources to fund new nuclear, offshore wind and gas power stations.

Until there’s clarity on new trade agreements this investment would well be put on hold, threatening security of supply and carbon reduction targets, which in turn could push up prices.

In particular, the future of the Hinkley nuclear power plant in development by EDF with Chinese backing remains uncertain: will the French Government facing their own economic and political challenges really back a massive and possibly risky investment in a non-EU British project?

In the absence of a new Prime Minister and clarity on a timetable for Brexit – let alone what that actually means – energy prices are likely to continue their recent upward trend, based on an unhealthy mix of uncertainty and volatility.

 

 

After a lengthy period of declining energy markets the last couple of weeks have seen wholesale electricity prices spike to around £40 p/MWH compared to January lows of £33.

A mix of Sterling falling against the US dollar and Euro on the back of Brexit uncertainties has pushed up the cost of energy imports, rising oil prices (nearing $48 p/barrel against lows of $27), along with the recent cold snap increasing demand, have created a volatility not seen for some time.

In the longer-term the expectation is that the market will remain suppressed, but the current volatility highlights the importance of monitoring the market well in advance of renewing your energy contracts – buying at the wrong time could turn out to be an expensive mistake.

It’s therefore important not to wait until you receive your supplier renewal letter: prices fluctuate, so implementing a long-term strategy ensures you’re buying when the wholesale energy market is in your favour, not just when your contract terminates.

 

 

 

The collapse in the price of oil attracted numerous headlines in the new year, falling to less than US$30 a barrel. Since then however, the market has pushed up by about 19% to nearly US$33, though from such a low base this only equates to a US$5 a barrel increase.

In comparison, oil was trading at around US$60 a barrel this time last year, and over US$100 a barrel 18 months ago.

The post-January oil increase is now being reflected in gas and electricity markets, though again they’re still trading below their recent longer-term trends.

It’s too early to tell whether the price bounce is the beginning of a period of upward price momentum, but it could signal the beginning of a period of relative volatility so needs to be monitored.

The good news is that it remains an excellent time to look at any renewals for 2016.

Record low oil prices pushed electricity and gas prices to new lows during 2015, despite continued conflict in the Middle East.

Whether oil remains at its current level – currently about US$31 a barrel compared to US$55 this time last year – is the key question, with the usual range of predictions as to what happens next.

A slowing Chinese economy and the relaxation of sanctions on Iran are expected to maintain downward pressures during 2016 however, which is good news, though there’s always scope for the unexpected to reverse this. Issues to watch include OPEC reversing its current stance and cutting output, or a renewed flare-up between Ukraine and Russia leading to disruption of supply to Europe.

Commercial electricity prices are increasingly determined by non-energy costs, however, with low carbon policies and investment in transmission and distribution infrastructure now accounting for over 50% of electricity costs. This means that changes in the wholesale markets have less influence than previously, but as these non-energy costs will definitely rise over the next few years even a small increase in wholesale markets will start to see prices pushing higher quite quickly.

What to do?

  • While wholesale prices remain low it continues to be a good time to check renewal options for any contract due to terminate during 2016
  • Fixed or pass-through? When comparing prices make sure you know whether the offer is for a fixed contract (one that includes future increases in charges such as the Feed-in-Tariff) or pass-through (where future increases are passed-through to you)
  • Whenever possible go for the fixed option as it ensures you’re not hit with unexpected charges, while also ensuring that you select the best overall price, as a low-priced pass-through contract may turn out to be more expensive in the long-term

The prospect of a winter blackout came nearer this month as the National Grid had to ask the generators for more power due to breakdowns at a number of power stations.

The worry is that the UK’s balance between supply and demand is now so tight that if a breakdown on a warm autumn day causes the National Grid to issue a Notification of Insufficient Margin, what will happen if we have a particularly cold spell and further breakdowns?

News like this is normally enough to send energy prices surging, and although the response was muted this time, it’s possible that repeated supply warnings  (or even a short blackout) could cause prices to spike.

Businesses are enjoying some of the lowest energy prices for many years however this trend must come to an end sometime, and it could be that further supply warnings are the turning point for wholesale markets, bringing to end a period of benign energy prices.

Where possible it is advisable to quickly secure a long, fixed contract now to minimise any risk of increased energy costs, so do get in touch.

 

Initial results from a survey of company directors by The Energyst show that around two-thirds think that electricity prices will increase by around 10% next year.

The expected increase comes after a year of softening wholesale energy prices on the back of the low price of oil.

With most industry commentators anticipating price rises next year it’s a good time to be reviewing any contracts coming up for renewal during 2016. Even if your renewals aren’t until next August/September savings could be locked in now, so do get in touch.

 

 

Unless you’re tracking the wholesale energy markets daily, understanding the best time to renew an energy contract is extremely difficult – and leaving the renewal process until your current arrangement expires means you could be missing an opportunity for substantial savings.

Energy prices historically are often lower during the summer months, edging higher in the Autumn and Winter, so beginning the renewal process early means you can test the market to assess your options: if they don’t look good or you think the market will fall, then wait a bit and try again.

Just as energy markets can have seasonal variations, the market is also vulnerable to spikes and shocks, anything from volatile relations between Ukraine and Russia, to Euro-zone economic scares and OPEC oil production decisions. Understanding the difference between short-term prices shocks and longer-term trends is therefore vital, something a good energy consultant can advice upon when timing your next contract.

If the market is low, why aren’t my costs?

Despite record lows in the wholesale markets, you may not experience clear savings on your next electricity contract due to the plethora of third-party (or non-energy-charges) which now constitute around 50% of the overall cost of electricity.

These charges include transmission, distribution, taxes such as the Renewable Obligation, Feed-in-Tariff and Climate Change Levy. Two new charges will also add 4-5% to electricity bills by 2020: Contracts for Difference and Capacity Market charges, which are aimed at boosting low-carbon generation.

All inclusive or pass through

Depending on your specific contract terms, third-party charges can be:

  • all-inclusive or fixed so that they’re the same throughout the contract life, meaning you know what you’ll pay. On longer contracts suppliers will include a premium to cover future increases in these costs. These non-energy charges will either be incorporated into your kWh unit rate or itemised separately
  • pass-through: billed to the customer at the rate charged to your supplier, so not included in the unit rate. A pass-through contract avoids the supplier premium of an all-inclusive contract, but means you have the risk of future increases in these charges, along with an element of budget uncertainty.

It’s vital to understand which charges your contract does and does not include, otherwise it’s very hard to compare prices like-for-like, as a seemingly low unit rate may not include third-party charges, resulting in a misleading comparison with all-inclusive rates. Working with a reputable consultant can help avoid these pitfalls.

New measures introduced by Ofgem are about to change the way that thousands of businesses are charged for electricity.

From 5 November 2015 organisations with automatic meters (ie those that record electricity consumption half-hourly and are read remotely) will have this half-hourly consumption data used to work out supplier energy and network costs.

This is important as it means suppliers will change the way in which they charge these organisations, as the cost of buying and transporting electricity varies depending on the time of year and time of day: for instance, it is significantly higher during winter early evenings when demand peaks.

Around 115,000 organisations already have their costs calculated in this way, with the new ruling affecting around 155,000 supply points – those with a Meter Administration Point Number (MPAN) profile classes beginning with 05, 06 or 07 (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).

It’s important to understand how these changes might affect you so do get in touch with your supplier, who should explain any changes. It’s also likely to make it even more worthwhile to shop around for your next contract, particularly with the help of a consultant who understands how your business operates and what contract may be most suitable.

If you’re not sure whether these changes affect you do get in touch.