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07 November 2017

Gaining a complete picture of your energy costs

With the news that British Gas is to increase its electricity prices by 12.5% from 15th September, PCMG’s Director of Energy Analysis, Martin Chitty urges all businesses to examine energy costs – especially non-commodity charges.

 

Since the last electricity price rise from British Gas in 2013, non-commodity charges have been on a steady but significant upward trajectory. Today’s announcement may cause the energy buying community to look to wholesale commodity charges for the answer but it actually underlines the non-commodity charging trend and its implications.

Martin commented that “Our advice to customers has always been to track the complete picture of their energy costs – it’s never been sufficient to monitor wholesale commodity charges in isolation. We want to highlight to all those responsible for energy management that, with non-commodity charges making up more than half the average electricity bill, the situation is more acute than ever”. 

These regulated, non-commodity charges, including network and government charges, which are outside the control of a supplier like British Gas have increased substantially since 2013 – in the range of 50-100%. These include:

·         Renewables Obligation

·         Feed In Tariff

·         Transmission Use of System

·         Distribution Use of System (DUoS)

·         Balancing Use of System

Furthermore, new charges have been introduced by the government, including the Contracts for Difference and Capacity Market charges.

Wholesale power charges have dropped by around 20% since the last British Gas price rise but we think it's feasible that this has been outweighed by the huge increases in these other areas of cost, hence the overall price rise. 

We would also predict that this trend isn't going anywhere any time soon. Martin added “We expect all of these non-commodity charges to rise further over the next 3 years, by an average of 50%, and this is likely to be coupled with a rise in wholesale costs too”.

A common misconception is that, because non-commodity charges are regulated by the government, we all have to just grin and bear them.

However, the good news is that the methodologies and mechanisms behind non-commodity charges actually allow energy buyers to better understand their expenditure and to more effectively optimise and forecast their costs.

When we are called in to help clients, our primary focus is often on these costs, set by the networks and by government. Here it pays to monitor regulatory policy – 70 per cent of our cost recoveries are actually secured as a result of changes here.

This complexity of electricity charges is one of the reasons why, despite the fact businesses may have robust processes in place to check their bills, large amounts of overcharging can be missed – it will pay to gain a complete picture.

PCMG is a world-class operating cost consultancy, based in Blackpool, Lancashire. By looking deeper below the surface, we have recovered well over £300m for its clients to date.

Our commitment is to deliver a clean bill of financial health for all our clients – working with us will leave you safe in the knowledge that your organisation is as fit, lean and strong as it possibly can be.

We will maximise your organisation’s liquidity by applying highly specialist expertise to reduce your operating costs and improve performance in the areas of energy, telecoms, water and accounts payable.

Part of Ayming (www.ayming.com), Europe’s leading business performance consultancy. with over £1bn recovered for clients across the group in 2016 and operating in 16 global markets, we have over 30 years’ experience, with audits delivered in more than 30 countries.

Visit our website at www.pcmg.co.uk or email us on enquiries@pcmg.co.uk

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