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How to Take Control of Your Electricity Costs

I’m often asked by our clients as to why their electricity costs keep rising despite the fall in oil prices, despite the fall in the cost of gas & electricity. Energy & Carbon Management are expert energy consultants and are here to help.

Many businesses that renewed back in 2018 and 2019 saw huge increases in costs – some getting hit with a 20-30% increase in some cases. Despite the pandemic causing a crash in prices to levels not seen in some time there any many electricity supply contracts that still see increases. But why?

So, why are energy costs rising?

The answer is what we might call ‘nonenergy costs.’

Imagine you have an invoice for £100 – this invoice is divided into two key parts. The first part relates to wholesale costs. This is the traded part which is impacted by a range of factors, such as the financial markets, demand, weather and the like.

The second part relates to non-energy costs or non-commodity costs.

These are the costs of the transmission and distribution of electricity, Renewables Obligation (RO) and a myriad of other complex terms.

Now, if we split your £100 invoice and break down these two key elements, you’ll find that only about 40% of the £100 bill relates to wholesale costs. The remaining £60 or 60% is made up of these non-energy costs. These costs have been increasing for a few years now and the bad news is they are going to carry on rising.

But why you may ask. Well, the answer to this question is that we in the UK have to invest massively into new, low or no carbon-emitting renewable generation, such as solar and wind, whilst at the same time transforming our creaking National Grid from an older centralised distributor into a more intelligent, smarter grid, capable of coping with intermittent sources of energy. After all, it’s not sunny all the time nor windy.

Unavoidable Costs

These non-energy costs can’t be negotiated. Set by the industry, they are unavoidable and charged by every kWh you use. It’s highly likely that by the early to middle of the next decade around 70% of your electricity bill will derive from these unavoidable, non-negotiable costs.

If we take the industry projections on non-energy costs, plus add a little market volatility into the mix, then we have the perfect storm with increasing electricity costs to your businesses.

However, this is on the basis that your energy consumption remains largely the same.

Julian Zacharias, Director of Strategy and Partnerships, Energy & Carbon Management

A Focus on Sustainability

With the advent of the Government’s 2050 net zero target, there will be further emphasis on transforming the country into a more sustainable energy user - I would not be at all surprised if eventually legislation follows, targeting commercial business - to reduce carbon emissions through energy efficiency and sustainability.