Revealed: the hidden benefits of pass-through contracts for businesses affected by P272. Sherlock Holmes says the world is full of obvious things that nobody ever observes – like the opportunity Utilitywise has uncovered simply by choosing the right tariff type.
It took some detective work but eventually cost-savings were dragged out of the complexity and confusion cast between pass-through tariffs and all-inclusive tariffs. Also known as a fixed tariff, this is the option energy suppliers are nudging their customers towards after P272 comes into effect on 1 April 2017.
But it may not be right for your business and could cost you cash you don’t need to spend.
P272 is a mandatory industry change made by Ofgem that affects meters in the 05 to 08 profile class (known as max demand meters). If your business has one or more of these meters, it must be reconfigured to a new way of billing called Half-Hourly (HH) settlement. You can read about how bills will change and its impact on business here.
Deducing the benefits
After switching, energy suppliers say all-inclusive deals are easier for firms to budget with. They are less vocal about the budgetary advantages of pass-through contracts.
Chris Toole, Market Segment Manager at Utilitywise, says: “Energy suppliers haven’t exactly hidden the benefits of pass-through contracts compared to an all-inclusive or fixed tariff, but neither have they made them entirely clear.
“The P272 changes are multiple and very complex, so it took us a while to realise that with a fixed contract you won’t be able to take advantage of load managing and the resulting savings you could make.”
Load managing means moving or lowering consumption at peak times. So a pass-through contract is the better option if your business can change working patterns. If you can shift opening hours from peak-time red (4pm-7pm), for example, to less expensive amber or green time bands (1pm-4pm), it would save you money.
Exploding the easy-to-budget myth
An all-inclusive contract looks good on the surface for budgeting energy spend. However, with HH billing you are billed for exactly what you use so the bill will vary each month anyway as consumption fluctuates, even just slightly. It means you can neither budget precisely every month nor do you have the potential to save through load managing.
Most suppliers have fixed and included third party costs like the DUoS charge – that’s the Distribution Use of System levied by Distribution Network Operators (DNOs) for using the National Grid – in the contract unit rate.
The DUoS has a published annual rate, which the DNO charges the supplier. It is then included in the overall unit rate within an all-inclusive contract. Even though the rate is fixed by the DNO some may see it as an opportunity to build in a margin to cover themselves for customers using energy at higher rate time-bands.
So if you shift your energy demand or load manage it away from peak times, you won’t get the benefit until you renew your contract and your DuOS charge is re-calculated and you’ll have spent a year giving the supplier money you didn’t have to.
For example, the DNO DUoS charge is 0.5p per kWh within the red band peak time. The supplier may charge 1p per kWh as a fixed charge within the overall unit rate as it has a 50% margin to cover itself from the customer using excessively in this expensive peak time. The customer then moves consumption to cheaper green peak time when the DNO actually charges 0.1p per kWh instead of 0.5p but they don’t benefit as they are on an all-inclusive tariff. The supplier, however, makes 0.9p profit instead of 0.5p.
Save immediately with a pass-through contract
A pass-through contract puts you in control and allows you to load manage to achieve an immediate impact on your costs.
These contracts are based on a fixed unit rate per KWh where third party costs are completely ‘passed through’ directly from the DNO. These include DUoS charges but also others known as TNUoS and BSUoS.
With a pass-through contract:
– The DNO passes actual DUoS charges directly to you, as a separate charge on your supplier bill with no margins added by the supplier. The charges show as an additional line on the supplier’s bill and are paid as part of that bill but at no more cost than the DNO charges
– You can take advantage of load managing and reduce third party costs within the lifetime of the existing contract.
The only disadvantage is the bill itself will be slightly more complex than a fixed-rate’s.
How Utilitywise can help
“If you can change your working patterns, our advice is to take a pass-through contract not an all-inclusive one,” says Chris.
The problem is that Utilitywise believes around 90% of suppliers are not offering pass-through contracts for those affected by P272. To adjust the balance, we have partnered with Engie, which will offer a one-year to a five-year contract that’s either fixed, pass-through or anything in between.
Chris adds: “The ability to determine whether it’s worth load shifting is to understand where you use energy. If you cannot move working times it’s probably not worth moving to a pass-through contract but you should at least have the option to choose rather than be driven down one path.”
To find out more, visit – www.utilitywise.com/products-services/procurement-and-tendering/p272/ call 0330 303 0233 (Small – Medium businesses) or 01527 511 700 (Large – Corporate).
Are the UK Governments Plans for the Energy Sector Smart?
The revolution in the energy sector marches on, wind turbines and solar panels are harnessing more renewable energy than ever before – so where is it all leading?
The UK government have recently announced plans to modernise the way we produce, store and use electricity. And, if realised, the plans could be just the thing to bring the energy sector in line with 21st century technology and ideologies.
Central to the plans is an initiative that will see smart meters installed in homes and businesses the length and breadth of the country – and their aim? To create an environment where electricity can be managed more efficiently.
The news has prompted some speculation about how energy suppliers will react and many are predicting a price war. This could benefit consumers of electricity and investors, many of whom may be looking to make a profit by trading energy company shares online using platforms such as Oanda – but the potential for good news doesn’t end there.
Introducing New Technology
The plan, titled Smart Systems and Flexibility is being rolled out in the hope that it will have a positive impact in three core areas.
- To offer consumers greater control by making smart meters available for all homes and businesses by 2020. Energy users will be able to monitor, control and record the amount of energy they use.
- Incentivise energy suppliers to change the manner in which they buy electricity, to offer more smart tariffs and more off-peak periods for energy consumption.
- Introduce new standards for electrical appliances – it is hoped that the new wave of appliances will recognise when electricity is at its cheapest and at its most expensive and respond accordingly.
How the Plans Will Affect Solar Energy
Around 7 million houses in the UK have solar panels and the government say that their plan will benefit them as they will be able to store electricity on batteries. The stored energy can then be used by the household and excess energy can be exported to the national grid – in this instance lower tariffs or even payment for the excess energy will bring down annual costs significantly.
The rate of return on energy exported to the national grid is currently between 6% and 10%, but there are many variables to take into account, such as, the cost of battery storage and light levels. Still, those with state-of-the-art solar electricity systems could end up with an annual profit after selling their excess energy.
The Internet of Things
Much of what the plans set out to achieve are linked to the now ubiquitous “internet of things” – where, for example, appliances and heating systems are connected to the internet in order to make them function more smartly.
Companies like Hive have already made great inroads into this type of technology, but the road that the government plans are heading down, will, potentially, go much further -blockchain technology looms and has already proved to be a game changer in the world of currency.
It has already been suggested that the peer to peer selling of energy and exporting it to the national grid may eventually be done using blockchain technology.
“The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.”
Don and Alex Tapscott, Blockchain Revolution (2016)
The upshot of the government’s plans for the revolution of the energy sector, is that technology will play an indelible role in making it more efficient, more flexible and ultimately more sustainable.
4 Case Studies on the Benefits of Solar Energy
Demand for solar energy is growing at a surprising rate. New figures from SolarPower Europe show that solar energy production has risen 50% since the summer of 2016.
However, many people are still skeptical of the benefits of solar energy.Does it actually make a significant reduction in our carbon footprint? Is it actually cost-effective for the company over the long-run?
A number of case studies have been conducted, which indicate solar energy can be enormously beneficial. Here are some of the most compelling studies on the subject.
1. Boulder Nissan
When you think of companies that leverage solar power, car dealerships probably aren’t the first ones that come to mind. However, Boulder Nissan is highly committed to promoting green energy. They worked with Independent Power Systems to setup a number of solar cells. Here were the results:
- Boulder Nissan has reduced coal generated electricity by 65%.
- They are on track to run on 100% renewable energy within the next 13 years.
- Boulder Nissan reduced CO2 emissions by 416,000 lbs. within the first year after installing their solar panels.
This is one of the most impressive solar energy case studies a small business has published in recent years. It shows that even small companies in rural communities can make a major difference by adapting solar energy.
2. Valley Electric Association
In 2015, the Valley Electric Association (VEA) created an 80-acre solar garden. Before retiring from the legislature, U.S. Senate Minority Leader Harry Reid praised the new project as a way to make the state more energy dependent and reduce our carbon footprint.
“This facility will provide its customers with the opportunity to purchase 100 percent of their electricity from clean energy produced in Nevada,” Reid told reporters with the Pahrump Valley Times. “That’s a step forward for the Silver State, but it also proves that utilities can work with customers to provide clean renewable energy that they demand.”
The solar energy that VEA produced was drastically higher than anyone would have predicted. SolarWorld estimates that the solar garden created 32,680,000 kwh every year, which was enough to power nearly 4,000 homes.
This was a major undertaking for a purple state, which may inspire their peers throughout the Midwest to develop solar gardens of their own. It will reduce dependency on the electric grid, which is a problem for many remote states in the central part of the country.
3. Las Vegas Casinos
A number of Las Vegas casinos have started investing in solar panels over the last couple of years. The Guardian reports that many of these casinos have cut costs considerably. Some of them are even selling the energy back to the grid.
“It’s no accident that we put the array on top of a conference center. This is good business for us,” Cindy Ortega, chief sustainability officer at MGM Resorts told Guardian reporters. “We are looking at leaving the power system, and one of the reasons for that is we can procure more renewable energy on the open market.”
There have been many benefits for casinos using solar energy. They are some of the most energy-intensive institutions in the world, so this has helped them become much more cost-effective. It also helps minimize disruptions to their customers learning online keno strategies in the event of any problems with the electric grid.
4. Boston College
Boston College has been committed to many green initiatives over the years. A group of researchers experimented with solar cells on different parts of the campus to see where they could produce the most electricity. They discovered that the best locationwas at St. Clement’sHall. The solar cells there dramatically. It would also reduce CO2 emissions by 521,702 lbs. a year and be enough to save 10,869 trees.
Boston College is exploring new ways to expand their usage of solar cells. They may be able to invest in more effective solar panels that can generate far more solar energy.
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