In fact, the majority of businesses in the UK can expect to see their energy costs rise by 25% by 2020. It’s difficult to predict whether wholesale energy costs will rise or fall in coming years, but we can be certain that non-commodity costs will rise significantly. This will lead to a considerable increase in energy bills for businesses that don’t take action.
We’re encouraging all businesses to start the new year by implementing an energy management strategy to help mitigate future cost rises.
The cost of inaction
In creating our Cost of Inaction report, we analysed our customer data to create an example of a typical large retail park, a small retail store, manufacturing site and inner-city university building. To determine the best outcome for businesses, we looked at the impact of taking no action at all and compared it with implementing a range of measures to manage energy consumption.
If they chose not to make any changes to their energy strategy, the estimated 3-year cost increase for each business example was severe – from a substantial 21 percent increase for a small retail store to a staggering 51 percent rise for a manufacturing site. Businesses that want to take control of rising energy costs must take action now.
Why are non-commodity costs increasing?
Most of our non-commodity costs, from the Renewable Obligation (RO) levy to the Contracts for Difference (CfD) levy, have been created to subsidise our growing reliance on renewables, and ensure security of supply. While the increase in renewable generation is a positive and necessary step towards our low carbon future, it will make balancing the grid more challenging, and so businesses are likely to see their non-commodity costs rise.
Last year, for example, we saw the introduction of the Capacity Market Levy. The Capacity Market was predicted to cost around £380 million in 2017, and this is expected to rise to almost £1 billion in 2018 and 2019. This means that the CM levy for half-hourly consumption on weekdays between 4-7pm will increase from £40/MWh to £100/MWh in 2018/19. We’re also likely to see the CfD Demand levy, which is designed to support large renewable projects, rise from £2.94/MWh in 2017/18 to £8.41/MWh in 2019/20.
How can you take control of your energy bills?
We looked at several ways that businesses could potentially keep their costs down, including:
The most effective ways of reducing energy costs were found to be shifting 50% of consumption from Red bands to Amber bands and implementing an energy efficiency programme. This kept energy cost rises as low as 2-4% for the small retail store!
In an ideal world, businesses would implement a combination of these actions in order to maximise their savings – but we know that for many organisations, it won’t be practical to shift 50% or even 20% of their consumption. That’s why we’re recommending that businesses implement an energy efficiency plan, as this is something that organisations of all sizes can enact and benefit from.
Take action today
Get started by reviewing your current usage, and see how your organisation could be exposed to rising non-commodity costs with our interactive Non-Commodity Cost Dashboard. We’d then recommend engaging with an external consultant to work out the best management solution for your business.
Inenco can deliver a comprehensive range of services to help you make energy savings and mitigate rising energy costs within your organisation – if you’re ready to take action, simply give us a call on 08451 46 36 26 or email firstname.lastname@example.org.