December 17 Newsletter

December 17 Newsletter 7th December 2017

Increasing Non-Energy Costs

Whilst the wholesale price of energy remains the single largest factor that affects the price consumers pay for their electricity, the non-commodity charges are increasing and are confirmed to continue increasing over the next few years.

Non-energy commodity costs are the costs on a consumers’ energy bill for system and network charges, environmental costs and energy reduction support schemes. “Pass through” contracts show each of these individual items separately and their costs can vary from month to month in line with the actual costs passed through to the supplier.

In “fixed rate” contracts the suppliers use their best forecasts to estimate these costs which are then rolled up in to the unit rate to give a simplified p/kWh. Where there is a change in legislation or new charges/levies are introduced suppliers T&C’s allow them to recover these from the end user by adjusting prices accordingly. The key non-energy commodity costs are:

Transmission & Distribution

• Transmission Network Use of System (TNUoS) – these charges recover the cost of installing and maintaining the transmission system in England, Wales, Scotland and offshore.

• Balancing Service Use of System (BSUoS) – BSUOS charges represent the costs incurred by National Grid for maintaining the balance of demand and quality and security supply on the network. BSUoS charges are paid by suppliers and generators based on their energy taken from or supplied to the National Grid in each half-hour Settlement Period.

• Distribution Use of System (DUoS) – DUoS charging reflects the costs of installing, operating and maintaining the regional distribution networks in the UK. There are 14 distribution networks covering the UK (excluding Northern Ireland) plus a small but growing number of independent networks.

Taxes & Levies

• Climate Change Levy (CCL) – is a tax on non-domestic energy users as an incentive to reduce energy consumption. Reductions and exemptions can be achieved for certain qualifying sectors.

• Renewables Obligation (RO) – there is a responsibility on Electricity Suppliers to source an amount of their supply position from renewable sources; each MWh of electricity generated receives a Renewables Obligation Certificate (ROC).

• Feed-in Tariff (FiT) – a subsidy scheme introduced in 2010 to support small-scale renewable generation in the UK, providing a fixed price set by Government to generators for each unit of electricity they generate.

• Feed-in-Tariff Contracts for Difference (FiT CfD) – CfD generators have a contract with the government-appointed Low Carbon Contract Company (LCCC), guaranteeing them a fixed price for their exported electricity

• Capacity Market – a scheme to secure additional winter capacity for the grid from small scale on-site generation. Members of the scheme receive stable payments in return for commitment to deliver electricity for grid load management.

Should you require any further details about non-energy commodity charges, how they affect your bills and exemption opportunities, please contact your Briar Associates account manager.

Current Market Position

Both gas and power wholesale energy prices rose over the course of November ending the month around 5% higher than October.

The beginning of November saw prices climb as it was anticipated that temperatures would fall below seasonal norms across Europe leading to higher energy demand in the UK and more exports to France and the Netherlands.

Prices settled mid November as supply and demand fundamentals improved leading to the system being oversupplied, but that didn’t last as demand increased with the colder weather and the UK switched to importing from the Netherlands.

Sharp increases were seen towards the end of November as wind generation fell, temperatures dropped and there was an unplanned outage at the Oseberg gas field.

Prices also rose following the OPEC meeting in Vienna on 7th December where it was agreed to extend the production deal by 9 months with a review in June 18. Nigeria and Libya, previously exempt from cuts, also agreed to cap production helping to keep pressure on oil prices.

non-energy costs