Throughout 2016, Britain saw a 30% and 40% increase in British gas and electricity respectively and there are a number of factors that have contributed to this. It is inevitable that energy consumption rises during winter months driving costs up as demand is greater, however, suppliers face a number of different costs in supplying gas and electricity and the price they charge will reflect these costs.
Understanding current trends that affect pricing will allow you to manage your energy procurement strategy and help you get a better deal when purchasing energy.
How do suppliers set energy prices:
- Wholesale costs - This is the price energy suppliers pay to purchase gas or electricity from the wholesale market on behalf of the customer. They can change daily generally going up and down with supply and demand and are heavily influenced by global market, national disasters and political events.
- Transmission Use of System charges (TNUoS) - This charge is to the National Grid to recover the cost of installation and contributes to maintenance of the transmission system. This is usually a flat rate; however, it is based on your geographic location and you may pay more if your business is located in a remote area
- Distribution Use of System (DUoS) - This charge is applied by Distribution Network Operators (DNO) who own and operate the distribution network that bring electricity from the transmission network directly to premises.
- Climate change Levy (CCL) - Introduced by the government in 2001 as an incentive for businesses to be more accountable for their energy consumption with the aim to improve energy efficiency and reduce carbon emissions. The cost is charged on a per unit basis
- Government Levy - Is made of several charges including Green levy which is a tax designed to encourage the implementation of environmental friendly alternatives. This charge contributes to the Electricity Market Reform (EMR) which is a government policy that invests in improving and securing to future of Britain’s electricity supply and infrastructure
- Value Added Tax (VAT) - This is charged at 20% for gas and electricity, however some businesses may be eligible to pay a reduced rate of 5% if certain requirements are met
How to get a better deal this winter
It’s never too late to be proactive and take ownership regarding how your business purchases and consumes energy, now is as good a time as any to take control and plan for the future.
When negotiating energy, the following should be considered to ensure you get the best deal:
- Implement a procurement strategy – ensure you are a head of the game and there are no unforeseen costs and risk is minimised
- Compare the market - The market is competitive and although suppliers have increased their prices, they are under pressure to keep prices down to gain new and keep existing business. Comparing the full range of both large and small energy suppliers will ensure you get the best deal for your energy requirements
- Understand your business needs - Price plans can vary depending on your supplier and although price is fundamental, equally your energy tariff needs to meet the needs of your business
- Consumption – CCL is charged per unit, reducing consumption and improving your energy efficiency will reduce the amount of CCL you pay as well as reducing your business’s overall energy consumption
- Product offerings and price – Fixed price and fixed term contracts are different, fixed price contracts will lock you in to pay the same price per unit for the duration of the contract. Increasing the term of your energy contract could ensure budget certainty for a longer period. It is essential that not only do you understand the offering and the terms but you have clarity on the terms and conditions as fixed does not always mean fixed
- Be choosy when selecting your supplier - many cheap new entrants to the market are keen to win your business with cheap prices, however they can lack the experience in customer support and infrastructure which means that aftercare provision may be substandard
- Be vigilant - Don’t be caught out by terms and conditions and familiarise yourself with energy terminology