Electricity charges are changing – are you ready? [Plus 4 tips to ensure you are keeping costs low]

With energy prices soaring and uncertain energy security, managing energy is now more critical than ever. Part of that management is understanding how electricity charges are calculated and applied to our bills.

The way in which we use and generate electricity is changing. With more focus on decarbonisation, organisations are switching to onsite renewable energy, fleets to electric vehicles, and heating from fossil fuels to electricity. This has created a shift in electricity demand. These changes have led Ofgem to produce the Targeted Charging Review (TCR) initiative which reviews the way in which costs across the network are recovered fairly.

Electricity costs are made up of a series of separate charges and applied to the electricity we use. Most of these charges apply to the actual volume of energy we consume, with the remaining charges being applied to the amount of capacity that we have within our local network and fixed costs for maintaining the network.

Part of these charges covers the costs for maintaining, improving, and building the infrastructure through which our electricity is transported, as well as the costs for transporting the electricity from the generator through to your premises at different times of the day.

Over the next two years, the charging structure for our electricity bills will change, with the first set of changes taking place in April 2022, and the second in April 2023. Within this article, we will explain the changes and how they will apply and look at steps to ensure you are being charged correctly.

Changes being made

Currently, energy charges are based on the time of use, with some charges towards the capacity of our local network. Capacity is the amount of capacity reserved on the power network for your use at a point in time. The new changes will be less focused on the time of use and are concentrating more on capacity and higher fixed costs. This is to reflect the use of the Grid and ensure that all organisations are charged more fairly, based on the proportion of energy each organisation takes up in comparison to the total energy usage.

All businesses have a capacity level allocated to them, but you only pay an additional charge for this if you have a half-hourly meter. Therefore, half-hourly metered sites are more likely to be affected by the changes from the review as the capacity charges increase. If you are unsure, check with your electricity supplier, or with your Facilities Manager (or equivalent) if you have one.

What can you do?

The charges have changed to better reflect how energy is used across the network and to ensure that everyone pays their fair share based on their proportion of energy consumed.

  1. Check your contract, are you paying the rates you should be paying? Do you have day and night rates and are they being applied correctly?
  2. Speak to your facilities team. Make sure you are within the correct pricing band, particularly if you have a half-hourly meter. Additionally, it is imperative that you understand your capacity allowance and whether that is right for you.
  3. For all organisations, it is vitally important that you look ahead by checking when your electricity contract is set to end. As there are no price caps for businesses, you will need to understand when the contract ends and start to plan your budget. Do not go out of contract rates, i.e., ensure that you have an agreed contract rate and are not subject to variable price rates. This may require a 12-month contract, but securing a price is less risky than being exposed to price changes.
  4. Ultimately, consumption charges will still make up most of your electricity bill, so to save money, reducing the amount of electricity you consume is the only way to make a significant impact on your electricity bill.

As energy prices are predicted to rise, energy management is vital to protecting your organisations. Understanding how charges are applied will help to understand what you can do to reduce them. Get to know your meters, tariffs, and predicted charges to ensure that you are paying a fair price for your energy consumption.

For more technical information on how to check how these changes will affect you, download the full article here.

Looking to reduce energy consumption? Get to know how and why you are using energy to identify where there is an opportunity to make reductions, this is covered in the ‘Measure Resource Use lesson’ for all levels of iiE members. Check out your Members Portal for more information.

Not an iiE Member? We support all organisations in developing an Environmental Management System that will give you the tools to understand your energy and support informed decisions to reduce your energy consumption. Find out how we can help you here: https://www.iie.uk.com/register

Disclaimer: At the time of writing, the high and variable cost of energy sits within the consumption costs and is applied to the volume of energy consumed. These costs are levied by the suppliers and reflect the high wholesale cost of oil and gas. It is worth noting these costs are separate from the costs described within this article.