We're in a time when our demand for energy is getting ever closer to exceeding the supply available to us and suppliers' prices are escalating as a result.
Coal-generated electricity is becoming a precious commodity and we’re all too used to the effect this is having on our wallets: power prices for commercial users have increased by a staggering 30 per cent since January 2011 and are set to increase by a further 20 per cent by 2015.
This rise will inevitably become a burden on businesses' operational costs, so gaining an understanding of exactly what you're paying for has never been more important and will give you the key to becoming a much more savvy energy buyer.
BREAKING DOWN THE CHARGES
Charges for electricity are split into three groups: first is the commodity charge – the base cost for the electricity. Next come the third party charges, which are essentially the network’s administration fees for managing energy distribution. The final charges are the environmental taxes, the added levies imposed by the government such as the Climate Change Levy (CCL), the Feed in Tariff (FIT) and the Renewable Obligation (RO).
What is most shocking is that the commodity cost, which many of us innocently assume is our only cost, represents less than 50 per cent of the bill. Making up the other half are the additional charges and premiums that can sometimes be buried in the overall cost and these are increasing year on year. "Surely there are itemised bills available," I hear you cry. Sadly this is not always the case. Suppliers will often provide you with one unit rate, which includes all of the additional charges – so it’s not always obvious what you’re paying for.
The unfortunate part is that there aren’t many ways to avoid these charges. The Climate Change Levy for example is a mandatory tax, which is charged per kWh. Alongside the Feed in Tariff and Renewable Obligation, CCL is the government’s attempt to motivate you to reduce your energy consumption, which in turn will reduce your carbon emissions, contributing to the UK’s target to cut CO2 levels by 50 per cent by 2020. These charges are a revenue stream for the government to fund the creation of renewable energy sources. The only way to evade them is to embrace the country’s move towards greener energy.
However, there are savings to be made by becoming smarter in the way you buy your energy – by comparing suppliers’ commodity prices, reviewing all their extra charges and choosing the one that's best value for money. This is a relatively new concept and there's a great industry debate going on regarding the need for transparency in energy procurement.
It's the responsibility of the industry to ensure it helps customers find their way through the fog to get them on the best energy tariff, but we can’t ignore the fact that energy providers are money-makers and their end game is ultimately to make a profit from their customers.
Other options
There are some solutions emerging in the energy market to make the procurement process more transparent. Energy service companies now give advice as to whether you should sign up for a fixed rate or flexible energy contract, and this service is evolving.
Tendering for energy is also becoming more dynamic. The technology now available allows us to create a competitive pricing environment in which you can compare each supplier and establish all of their extra costs, working in much the same way as price comparison websites do. This 'Online Reverse Energy Auction' turns the system on its head and means that suppliers are forced to offer their best rates to win your business.
Of course there are no quick fixes. Energy is an essential commodity and as such we are in danger of paying through the nose for something we know we can’t function without. However, there are new ways to shop around for energy and as more businesses become wise to their buying options, they're finding ways of playing energy providers at their own game.
