Energy
Hidden charges

Commodity costs make up less than 50 per cent of our energy bills – so what exactly are we paying for? Noah Andrie gives us advice on how to play energy providers at their own game

By Noah Andrie | Published in Leisure Management 2013 issue 3


We're in a time when our demand for energy is getting ever closer to exceeding the supply available to us and suppliers' prices are escalating as a result.

Coal-generated electricity is becoming a precious commodity and we’re all too used to the effect this is having on our wallets: power prices for commercial users have increased by a staggering 30 per cent since January 2011 and are set to increase by a further 20 per cent by 2015.

This rise will inevitably become a burden on businesses' operational costs, so gaining an understanding of exactly what you're paying for has never been more important and will give you the key to becoming a much more savvy energy buyer.

BREAKING DOWN THE CHARGES
Charges for electricity are split into three groups: first is the commodity charge – the base cost for the electricity. Next come the third party charges, which are essentially the network’s administration fees for managing energy distribution. The final charges are the environmental taxes, the added levies imposed by the government such as the Climate Change Levy (CCL), the Feed in Tariff (FIT) and the Renewable Obligation (RO).

What is most shocking is that the commodity cost, which many of us innocently assume is our only cost, represents less than 50 per cent of the bill. Making up the other half are the additional charges and premiums that can sometimes be buried in the overall cost and these are increasing year on year. "Surely there are itemised bills available," I hear you cry. Sadly this is not always the case. Suppliers will often provide you with one unit rate, which includes all of the additional charges – so it’s not always obvious what you’re paying for.

The unfortunate part is that there aren’t many ways to avoid these charges. The Climate Change Levy for example is a mandatory tax, which is charged per kWh. Alongside the Feed in Tariff and Renewable Obligation, CCL is the government’s attempt to motivate you to reduce your energy consumption, which in turn will reduce your carbon emissions, contributing to the UK’s target to cut CO2 levels by 50 per cent by 2020. These charges are a revenue stream for the government to fund the creation of renewable energy sources. The only way to evade them is to embrace the country’s move towards greener energy.

However, there are savings to be made by becoming smarter in the way you buy your energy – by comparing suppliers’ commodity prices, reviewing all their extra charges and choosing the one that's best value for money. This is a relatively new concept and there's a great industry debate going on regarding the need for transparency in energy procurement.

It's the responsibility of the industry to ensure it helps customers find their way through the fog to get them on the best energy tariff, but we can’t ignore the fact that energy providers are money-makers and their end game is ultimately to make a profit from their customers.

Other options
There are some solutions emerging in the energy market to make the procurement process more transparent. Energy service companies now give advice as to whether you should sign up for a fixed rate or flexible energy contract, and this service is evolving.

Tendering for energy is also becoming more dynamic. The technology now available allows us to create a competitive pricing environment in which you can compare each supplier and establish all of their extra costs, working in much the same way as price comparison websites do. This 'Online Reverse Energy Auction' turns the system on its head and means that suppliers are forced to offer their best rates to win your business.

Of course there are no quick fixes. Energy is an essential commodity and as such we are in danger of paying through the nose for something we know we can’t function without. However, there are new ways to shop around for energy and as more businesses become wise to their buying options, they're finding ways of playing energy providers at their own game.


Energy contracts
Ask TED, The Energy Desk's specialist help desk, answers your questions


 

The Energy Desk
 

How do I know if I’m on the right energy contract for my business?
There are varying tariffs available depending on how much energy you use and when. For example there are contracts available that split the rates between day and night, the latter being cheaper. If you are a leisure centre that uses electricity for 24 hours a day, then this would be the ideal contract for you. There are also Seasonal Time of Day (STOD) contracts where you can adjust your peak production times around the cheaper rates.

I've just entered a contract for three years. Can I get out of it if I want to?
This depends on the terms of the contract. Suppliers can often make it very difficult for you to get out of contracts so it’s important to have someone looking over things who can read between the lines to ensure you're not trapped in a contract that isn’t right for you.

How can suppliers justify all of the extra charges?
There are two factors at play here. Firstly, coal-powered electricity is on the decrease due to its widely publicised environmental harm, therefore suppliers can charge a premium for what's becoming a precious commodity. Secondly, suppliers may also import energy from other countries and the logistics of this make it a much more expensive process – a cost they pass onto the consumer.

Can I get out of paying the government’s environmental charges?
Not always. These are compulsory charges that are designed as an incentive to use less carbon-produced electricity. These are often charged per kWh used so if you use less, it then follows that you pay less. However if you procure green energy from renewable sources, there are ways to eliminate the Climate Change Levy.

What's the difference between a fixed and flexible contract?
A fixed contract means that you're tied into paying the same cost per kWh for the duration of the contract. A flexible contract is much more flexible, whereby you get the chance to repurchase your energy at a reduced rate if the costs in the market go down.



About the Author
Noah Andrie is head of site operations at The Energy Desk
T: +44 (0)800 3777 889
F: +44 (0)1282 877081
E: [email protected]
www.theenergydesk.co.uk

 


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Tel: +44 (0)1462 431385

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SELECTED ISSUE
Leisure Management
2013 issue 3

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Leisure Management - Hidden charges

Energy

Hidden charges


Commodity costs make up less than 50 per cent of our energy bills – so what exactly are we paying for? Noah Andrie gives us advice on how to play energy providers at their own game

Noah Andrie, The Energy Desk
It pays to choose your energy supplier and contract very carefully

We're in a time when our demand for energy is getting ever closer to exceeding the supply available to us and suppliers' prices are escalating as a result.

Coal-generated electricity is becoming a precious commodity and we’re all too used to the effect this is having on our wallets: power prices for commercial users have increased by a staggering 30 per cent since January 2011 and are set to increase by a further 20 per cent by 2015.

This rise will inevitably become a burden on businesses' operational costs, so gaining an understanding of exactly what you're paying for has never been more important and will give you the key to becoming a much more savvy energy buyer.

BREAKING DOWN THE CHARGES
Charges for electricity are split into three groups: first is the commodity charge – the base cost for the electricity. Next come the third party charges, which are essentially the network’s administration fees for managing energy distribution. The final charges are the environmental taxes, the added levies imposed by the government such as the Climate Change Levy (CCL), the Feed in Tariff (FIT) and the Renewable Obligation (RO).

What is most shocking is that the commodity cost, which many of us innocently assume is our only cost, represents less than 50 per cent of the bill. Making up the other half are the additional charges and premiums that can sometimes be buried in the overall cost and these are increasing year on year. "Surely there are itemised bills available," I hear you cry. Sadly this is not always the case. Suppliers will often provide you with one unit rate, which includes all of the additional charges – so it’s not always obvious what you’re paying for.

The unfortunate part is that there aren’t many ways to avoid these charges. The Climate Change Levy for example is a mandatory tax, which is charged per kWh. Alongside the Feed in Tariff and Renewable Obligation, CCL is the government’s attempt to motivate you to reduce your energy consumption, which in turn will reduce your carbon emissions, contributing to the UK’s target to cut CO2 levels by 50 per cent by 2020. These charges are a revenue stream for the government to fund the creation of renewable energy sources. The only way to evade them is to embrace the country’s move towards greener energy.

However, there are savings to be made by becoming smarter in the way you buy your energy – by comparing suppliers’ commodity prices, reviewing all their extra charges and choosing the one that's best value for money. This is a relatively new concept and there's a great industry debate going on regarding the need for transparency in energy procurement.

It's the responsibility of the industry to ensure it helps customers find their way through the fog to get them on the best energy tariff, but we can’t ignore the fact that energy providers are money-makers and their end game is ultimately to make a profit from their customers.

Other options
There are some solutions emerging in the energy market to make the procurement process more transparent. Energy service companies now give advice as to whether you should sign up for a fixed rate or flexible energy contract, and this service is evolving.

Tendering for energy is also becoming more dynamic. The technology now available allows us to create a competitive pricing environment in which you can compare each supplier and establish all of their extra costs, working in much the same way as price comparison websites do. This 'Online Reverse Energy Auction' turns the system on its head and means that suppliers are forced to offer their best rates to win your business.

Of course there are no quick fixes. Energy is an essential commodity and as such we are in danger of paying through the nose for something we know we can’t function without. However, there are new ways to shop around for energy and as more businesses become wise to their buying options, they're finding ways of playing energy providers at their own game.


Energy contracts
Ask TED, The Energy Desk's specialist help desk, answers your questions


 

The Energy Desk
 

How do I know if I’m on the right energy contract for my business?
There are varying tariffs available depending on how much energy you use and when. For example there are contracts available that split the rates between day and night, the latter being cheaper. If you are a leisure centre that uses electricity for 24 hours a day, then this would be the ideal contract for you. There are also Seasonal Time of Day (STOD) contracts where you can adjust your peak production times around the cheaper rates.

I've just entered a contract for three years. Can I get out of it if I want to?
This depends on the terms of the contract. Suppliers can often make it very difficult for you to get out of contracts so it’s important to have someone looking over things who can read between the lines to ensure you're not trapped in a contract that isn’t right for you.

How can suppliers justify all of the extra charges?
There are two factors at play here. Firstly, coal-powered electricity is on the decrease due to its widely publicised environmental harm, therefore suppliers can charge a premium for what's becoming a precious commodity. Secondly, suppliers may also import energy from other countries and the logistics of this make it a much more expensive process – a cost they pass onto the consumer.

Can I get out of paying the government’s environmental charges?
Not always. These are compulsory charges that are designed as an incentive to use less carbon-produced electricity. These are often charged per kWh used so if you use less, it then follows that you pay less. However if you procure green energy from renewable sources, there are ways to eliminate the Climate Change Levy.

What's the difference between a fixed and flexible contract?
A fixed contract means that you're tied into paying the same cost per kWh for the duration of the contract. A flexible contract is much more flexible, whereby you get the chance to repurchase your energy at a reduced rate if the costs in the market go down.



About the Author
Noah Andrie is head of site operations at The Energy Desk
T: +44 (0)800 3777 889
F: +44 (0)1282 877081
E: [email protected]
www.theenergydesk.co.uk


Originally published in Leisure Management 2013 issue 3

Published by Leisure Media Tel: +44 (0)1462 431385 | Contact us | About us | © Cybertrek Ltd