Splashed across the headlines is the news today that British Gas will increase electricity prices by 12.5% from the 15th September, which consumer experts fear could instigate a new spate of price rises from rival suppliers this coming winter. The gas prices remain unchanged, meaning the average dual fuel bill will rise by 7.3% – a cost of £76 that brings the average annual total to £1,120.
Owners of British Gas, Centrica, said that the rise in electricity prices was due to transmission and distribution costs and the cost of government policy but the government disagrees.
Commenting on the price increase, a spokesperson from BEIS (Department for Business, Energy and Industrial Strategy) said “Energy firms should treat all their customers fairly and we’re concerned this price rise will hit many people already on poor-value tariffs. Government policy costs make up a relatively small proportion of household energy bills. Wholesale prices are the bigger portion of household bills and are coming down.”
Centrica chief executive Iain Conn reported to the BBC “we have seen our wholesale costs fall by about £36 on the typical bill since the beginning of 2014 and that is not the driver. It is transmission and distribution of electricity to the home and government policy costs that are driving our price increase.”
Non-commodity charges – what are they and how can they be reduced?
Non-commodity charges, also known as pass through charges, include upgrades to the grid and government policies such as Contracts for Difference, Capacity Market, TNUoS (Transmission Network Use of System – triad), DUoS (distribution charges), Climate Change Levy (CCL) and the Renewables Obligation. These policies and regulations are becoming increasingly essential as we move towards a low-carbon and increasingly decentralised grid supply.
Centrica isn’t the first supplier to highlight the impact of rising pass through charges on electricity prices. Four years ago NPower estimated that policy and regulation costs will increase by 78% between 2013 and 2020. They also estimate that the cost of updating the UK’s infrastructure to accommodate low carbon and distributed generation technologies will add £114 to the domestic bill by 2020.
Businesses that consume large amounts of energy paid via a half hourly meter can use a variety of techniques to minimise the impact of these pass through charges. These include demand side response (reducing power consumption during expensive peak times), energy storage and energy generation.
At present, the best a small business owner or homeowner can do is to switch suppliers, reduce overall consumption where possible and generate energy on site but this looks set to change. Last week, Ofgem published a report called Upgrading Our Energy System – Smart Systems and Flexibility Plan. The plan addresses a range of issues with the current network and associated policies, including smart meters and the participation of public sector consumers in Demand Side Response.
Introduction of smart tariffs
Ofgem will decide on the case for mandatory half-hourly settlement (HHS) for all consumers and will help to remove barriers to suppliers offering smart tariffs through the provision of smart meters and removal of the four-tariff cap.
On energy generation and storage, the plan aims for future policy on small-scale low-carbon generation to ‘ensure the system and consumer benefits of storing electricity for self-consumption and export to the grid at peak times are realised.’
It may not be long before households and businesses alike can take control of their energy. Smart metering, variable half-hourly energy rates and policies should ensure they get the most from on-site low-carbon generation and energy storage.