Two frequently asked energy supply questions transcript
I’m Phil Ager, managing director here at Control Energy Costs and I’d like to answer two questions that are frequently put to us when we present energy supply contracts to a client for approval.
An energy bill comprises several components which can be broadly grouped into three areas. The energy cost, distribution and transmission charges, and finally, green taxes and levies.
Let’s firstly look at the energy cost, the commodity element, as it’s often referred to, taking electricity as the example. This is the bit that fluctuates on a day by day basis as the wholesale energy market moves up and down.
Overall, the energy cost represents approximately 40% of your bill.
Secondly, we have distribution and transmission charges. In its most simplistic sense, this covers the cost of transporting electricity from where it is generated to where it will be used, together with the cost of building and maintaining our electricity network.
The steady increase in renewable generation has meant that these charges have also steadily increased to support an ever expanding and more complex renewable energy infrastructure. Overall, network distribution and transmission charges make up approximately 20% of the bill you receive.
Finally, the various green taxes and levies which are now applied to energy charges in the UK typically make up the remaining 40% of your bill.
As for the two questions we are frequently asked, the first is, I see in the news that wholesale electricity prices have dropped 10% in recent days, why is this not represented in the prices I am being offered by my supplier?
Well, as you’ve just heard, the energy cost only represents 40% of the total you pay, so a 10% price drop in the energy cost will not equate to a 10% drop in the overall supplier offer.
For example, if a supplier offered a proposal at 12.5 pence per kWh and the wholesale energy price within that proposal worked out at, let’s say 5 pence, then a 10% drop in the wholesale element would only reduce that offer by 0.5 pence per kWh.
The second question is, I have an offer on the table and it appears to be much better value than any of the other offers I have seen from other brokers and providers, why is this?
Well, some brokers try and lure you into a deal that covers just the energy cost, or they may have intentionally left out one of the components within their evaluation just to make their proposal look better. Face value, this might seem like a great deal but the nasty shock arrives when you get your first bill and all is not as you thought you had signed up to.
These types of contracts are called pass-through contracts and they are the type that we most frequently see as mis-sold to businesses. Again, this all comes back to the elements that make up your bill.
It is critical that you are comparing like-for-like and that all elements have been included in any evaluation. If something seems too good to be true, then it usually is.
If you want to work with an energy partner that you can trust to provide an honest opinion on options for your business, why not get in touch via live chat, on our website, email or phone.