The UK energy market has seen rapid changes in the last few years, far surpassing the changes of previous decades. These reforms have paved the way for investment in low-cost renewable generation and a green transition towards ‘net zero’. However, the development of these technologies must be funded, and end users ultimately contribute through their energy supply contracts.
We ourselves at DB Group are socially minded and have renewed our office energy contracts on green tariffs, installing EV charging points etc, talking to our portfolio of Energy Suppliers about their services and offerings to able to fully understand and pass on more information.
The many elements that make up a contract and, therefore, your rates are explained below.
New non-commodity costs introduced by Ofgem, but delayed by COVID, will see significant impacts to your bills – the more you use the more you will be impacted as the country is pushed to try and use less energy as we aim towards out 2050 commitment.
Non-commodity costs cover all third-party charges. These charges are used to cover the cost of setting up and maintaining the network and distribution, to influence market behaviour and via government taxes and levies.
Costs have risen an average of 10% year on year for the past ten years. Overall, NCCs will make up roughly 60-65% of a bill – depending on level of consumption and the location of the meter; and while you can monitor markets, like stocks and shares, these are mandated by the regulator and impossible to avoid.
The new rates, ‘Targeted Charge Review or TCR, will be applied to DUoS and TNUoS charges. The TCR will sort HH customers by band, with this banding based on the meters’ agreed kVa capacity. The Triad process will come to an end along with the seasonal cat-and-mouse game of load-shifting as charges change into a fixed cost.
The TCR bands will be based on the supplies last two years of agreed capacity to discourage customers reducing their kVa to avoid paying residual costs. Customers who have hung onto extra kVa to ensure they do not exceed max capacity may feel penalized by the charge if this pushes them into a higher price band. Businesses will be encouraged to reduce capacity where possible, though this is an expensive and lengthy process to undo, in addition to reducing overall energy consumption.
While the non-commodity costs are set in stone once published, there are still ways to reduce your energy spend; the obvious being how much you use.
Sometimes it is not always possible to just turn machinery off if it is required, so through technical, environmentally sound equipment (from LED lights to solar panels and everything in between) it is possible to become sustainable and pay less.
What does dictate the prices you pay are the global energy markets that are traded on exchanges the world over – the commodity element. These prices change constantly and can cause your rates to fluctuate, and while we cannot control these, we can intelligently forecast the best days to have prices checked to ensure the best possible at any given moment.
We have an experienced trading and pricing team that analyse the wholesale markets through both fundamental and technical analysis, and who understand the nuances of the energy industry.
Our clients put faith in our forecasts, this trust leading to recognised industry awards among our peers. <<TELCA>>
We willingly look to educate everyone and make all our daily reports free to anyone, though email subscription, on our website and LinkedIn. We have subscribers from Ofgem, ELEXON, Energy Services Ombudsman, large to challenger suppliers, many competitors, investment groups, FX funds and the list goes on. <<Report Sign Ups>>
Many of our forecasts came to fruition from our <<AnnualReport>> as we look to stay ahead of the curve in providing timely, correct predictions. With markets up around 100% for this time last year this intel is highly prized and can impact your bottom line.
Great relations and information sharing with the industries media means we are often approached for comment and quoted in Bloomberg and have contributed to outlets such as Montel and S&P Global Platts. These are all leading, independent providers of energy commodity information, analytics, and benchmarks. <<Bloomberg>>
In addition to power and gas markets we keep abreast of the wider fuels complex that drive markets, from crude oils, coal, LNG cargoes as well as the all-important carbon emissions that play an ever increasingly important part in our challenge against climate change.
No matter what energy supply contract you require, the above markets are paramount in obtaining the best possible rates; be they Fixed or Flexi.
Fixed: The majority of energy supply contracts in the market are Fixed Contracts. This means all costs are fixed for a set amount of time and act as a security blanket that protect you from rising costs and make budgeting quite easy as the rates you pay are the same month to month while in contract.
While this is helpful and secure, it means “putting all your eggs in one basket” and the risk is prices may fall after your have signed on the dotted line.
Flex: A Flexible Contract is created by splitting the anticipated consumption pattern into blocks. Each set block is priced using wholesale costs during the contract, rather than before the contract begins, which is the case with Fixed Contracts. This price setting is known as ‘trading’ in the industry.
Unlike a Fixed Supply Contract where costs are set for the contract duration, if wholesale prices drop you can pick and choose when to buy your energy and for which periods. There is no supplier margin added, you pay the cost of the energy only. Being able to buy and sell within the same period allows you to reduce the initial cost of a trade.
Before switching to a Flexible Contract it is important to analyse whether it is the correct move for your company.