In the ever-evolving landscape of the energy market, businesses often grapple with understanding or are unaware of minor changes to regulation, contract charges, and policies which can sometimes have the biggest impact on energy bills.
One common query we frequently get asked is: “If the cost of energy is falling, why is my energy renewal so high?” The answer lies in understanding the details of the standing charges, third pary costs, and network reform that impact your overall energy costs.
Falling Wholesale Energy Markets
Wholesale energy prices, which constitute a significant portion of your energy bill, have been on a downward trend. Factors such as global market dynamics, geopolitical events, and supply-demand balances play a pivotal role in determining these prices. While a decrease in wholesale prices might suggest lower energy bills, the reality is often more complex due to third-party Non-Commodity Costs.
Decoding the Standing Charge
The standing charge is a daily or monthly fee that covers the fixed costs of supplying gas and electricity to your business premises. It’s separate from the unit rate, which is the cost per unit of energy you use. With the rise in third-party costs, many businesses have seen a substantial increase in their standing charges, even if the wholesale cost of energy has fallen.
Components of the Standing Charge:
- Maintenance and Infrastructure: Costs associated with maintaining the energy distribution networks and ensuring a continuous supply.
- Operational Costs: Day-to-day operational expenses incurred by the energy supplier to manage your account.
- Government Levies: Charges related to government initiatives and schemes aimed at promoting renewable energy and sustainability.
- Metering Costs: Expenses related to the installation, maintenance, and reading of energy meters.
With these components in mind, it’s evident that the standing charge isn’t just a random fee but a culmination of various essential services and initiatives.
Why Are Standing Charges Increasing?
The increase in standing charges can be attributed to several factors:
- Network Charging Reforms: The energy regulator has been reforming the way we pay for using the network. Recent changes have shifted some costs that were previously variable (and included in unit rates) to fixed charges, now collected via standing charges. This shift is driven by Ofgem’s aim to ensure fairness in how everyone contributes to network costs.
- Distribution Network Charges: Effective from April 2022, distribution network residual charges, which cover the costs of carrying electricity from the transmission grid to your business, have moved to a fixed cost.
- Transmission Network Charges: These charges, related to maintaining and expanding the high voltage network, will also transition to a fixed cost from April 2023. The previous method, which calculated charges based on the three highest demand half-hourly periods during winter, will be replaced to ensure a fairer distribution of costs.
- Balancing System Costs: These are the costs incurred by the system operator (National Grid) for balancing the grid. Currently variable, these charges will become fixed from April 2023. Additionally, larger generators will no longer pay these charges, meaning end consumers will bear the full cost.
- Inflation and Rising Costs: The urgent need to upgrade our energy infrastructure to meet net-zero targets has led to increased network costs. This is further compounded by inflation, rising material costs, and wage increases.
No Standing Charge Contracts for Gas Supply
It’s worth noting that some businesses opt for gas supply contracts with ‘no standing charge’. While this means there’s no daily fixed fee, the unit rate might be higher. It’s essential to weigh the pros and cons and determine which contract type aligns best with your business’s energy consumption patterns.
Navigating the Energy Landscape with UtilityWorks
Understanding the energy market and its challenges can be daunting for many businesses right now. However, with UtilityWorks as your trusted energy partner, you can navigate these challenges with confidence.
Our commitment to excellence, combined with a deep understanding of the energy landscape, ensures that your business is always ready for sustainable success.
- Explore our range of Energy Solutions tailored to meet your business needs.
- Stay ahead of market trends and ensure you’re getting the best deal with our Utility Health Check.
- Dive deeper into the components of your energy bill with our guide on Third Party and Non-Commodity Costs.
While the energy market can be a challenge, having a clear understanding and a trusted partner can make all the difference.
Embrace an informed approach, stay updated, and ensure your business is always energy-efficient and cost-effective.
Contact us to find out more and join The Future of Energy Management.
