Non-commodity costs are rising – they probably already account for over half of your electricity bill, and by 2020 they’re set to make up around 60% of it. These costs will continue to rise as we come to rely more heavily on renewable generation, which in its unpredictable nature makes balancing the grid a more difficult and costly task.
While some of the costs will be unavoidable, it’s important to ensure you understand how and why your non-commodity costs are changing, as you may be able to take action to avoid excessive charges. Here are the upcoming changes that your business needs to be aware of:
On 1 April 2017 the new P272 regulation came into force, requiring all customers with AMR meters installed to have them converted into Half Hourly (HH) meters, which provide suppliers with energy consumption data on a half hourly basis.
Over 100,000 businesses will have been affected by P272, and the government plans to extend the rollout of half hourly meters in the future. If your business has half hourly meters, your contract will be priced according to your historical half hourly usage, with higher charges during peak demand periods. So, if you typically operate during these periods of peak demand, you’re likely to see your electricity bills rise substantially.
Although you may need to accept higher costs for now, if you can shift your consumption to times when there’s less demand on the grid, you may find that your charges are lower when you come to renew your contract.
This is a planned initiative to exempt Energy Intensive Industry (EII) businesses, like heavy manufacturing companies, from a large proportion of the cost of the Renewables Obligation (RO) and Small-Scale Feed-in Tariff (FiT). Clearly this scheme will be welcomed by exempt businesses, but those that aren’t eligible for exemption will have to absorb the extra costs – which is expected to raise RO and FiT costs by around 6% for each business.
The EII exemption scheme is still awaiting State Aid approval, so we don’t know when it will come into effect, but businesses would be wise to keep it on their radar.
Blog continues below.
Non-Commodity Cost Dashboard from Inenco
Using published rates and forward-looking estimates, Inenco have created an Interactive Non-Commodity Cost Dashboard for users to calculate how their business will be exposed to incremental non-commodity costs over the coming years. To view the make-up of your typical energy bill going forward and how your business will be impacted if you do nothing, click here.
Please note: the figures included in the dashboard should only be used for indicative purposes.
From November 2017, you’ll see a new charge on your bill – the Capacity Market (CM) levy. Running the CM and paying businesses and generators to provide additional capacity is expensive for National Grid, so they have raised the CM levy to cover the costs it incurs.
Part of the CM levy will be based on your time of use, so if you use electricity in peak demand periods then you will see higher charges on your bills. The CM runs from November to February, any electricity you use between 4-7pm on weekdays throughout those months will incur significant additional costs. Businesses that can turn down their consumption or switch to on-site generation during those times should be able to reduce their CM costs.
Distribution Use of System (DUoS) charges fall into either Red, Green or Amber bands, depending on time of use – you’ll incur the highest Red band charges if you use electricity during peak demand periods, whereas electricity consumed during Green band periods is charged at significantly lower rates.
These bands are set to change with the implementation of DCP228 in April 2018, which will flatten out the charging structure. This will make the pricing difference between the bands less significant, so Red band charges will be slightly lower, while Amber and Green tariffs will rise. While businesses that use a lot of electricity during peak times may see a slight decrease in costs, many businesses will see their bills rise as a result of DCP228.
April 2018 will also see the introduction of DCP161, which is being established to ensure that businesses on half hourly meters face penalty charges when they exceed their assigned capacity.
If you usually exceed your available capacity, you won’t currently face any punitive charges – but if you continue do so once DCP161 is in force, you will be handed an Excess Capacity penalty of up to three times higher than the standard rate. This is to enable Distribution Network Operators (DNOs) to recover the additional costs they’re exposed to when customers exceed their capacity.
Businesses that have recently moved from non-half hourly to half hourly meters should check their agreed capacity level in order to avoid unexpected penalties.