Energy: Headline prices only part of the story

Chris Best, joint managing director at energyTEAM, reveals management ‘tricks’ that could save you £1000s on your business’ electricity bill:
  
Industrial users are rightly concerned about the size of their energy bills, and are taking imaginative steps towards reducing their consumption.

However, at the end of the day, there is only so far a business user can go with reducing consumption - goods and services still have to be produced. So managers also need to make sure that they are well-informed about all the factors affecting the price that they are paying for electricity. Headline prices tell only part of the story.

Half-hourly meters (HHM) are mandatory in the UK for larger businesses (over 100Kws) and you can tell if your business has one by having a look at your bill which will have an MPAN (Meter Point Administration Number) with a prefix of “00”” on the top line. The data collected contains a lot of information that, if used correctly, can help a business determine what and how the electric supply is used.

In general terms if you are paying more than £30,000 per year in electricity then you’ll likely be in this category. The information you get from half-hourly meters can be used to understand your usage, but do make sure that your supply contract - either now or when it next comes up for renewal- affords you the flexibility to act on this knowledge.

Every electricity bill contains two ‘Use of System’ charges. The first of these is the ‘Transmission Network Use of System’ charge (TNUoS). This covers the cost of using the national transmission system, owned and operated by National Grid, to deliver electricity from power stations into and across the transmission network. Your electricity supplier will repay this charge to National Grid on your behalf. You have no influence over these charges.

The ‘Distribution Use of System’ charge (DUoS) is the second element and is the one that you can influence. This charge covers the use of the regional electricity networks to distribute a safe and reliable supply of electricity to homes and businesses.

The distribution networks include overhead lines and underground cables, as well as substations and transformers, which reduce the electricity’s voltage to safe levels for use in homes and businesses. The networks are paid by the electricity suppliers such as E.ON, npower and SSE to deliver electricity to users.

Surprisingly few half-hourly metered business users know about DUoS charges - yet it is the one part of the total cost of energy procurement that you can most easily influence. DUoS charges vary according to the time of day - so simple adjustments to the production timetable can deliver massive savings.

Half-hourly customers’ DUoS charges are made up of the following elements:

 -     Capacity charge:  Also known as the availability charge, this is a fixed daily charge that relates to your site’s Maximum Import Capacity (MIC). If your site has a higher import capacity than it needs, you are effectively throwing money away.

It could be possible to reduce this by scheduling equipment and processes so they do not all run at the same time.

 -     Reactive power charges: Devices, such as fluorescent lights and air conditioning, use what’s known as reactive power which leads to increased power flows in the distribution network. If reactive power levels are high, then large amounts of useful electricity will be wasted, driving up network costs.

This can be controlled by installing power factor correcting equipment such as capacitors. Power factor correction can also help improve energy efficiency in your business, as less electricity is lost - potentially reducing your bills.

 -     Fixed charge: This is a fixed daily amount that suppliers apply to your bill, regardless of how much electricity you’ve actually used.

 -     Unit charges: These charges are for each unit of electricity used and they vary according to the time of day and how much electricity you’re using in kilowatt hours (kWh) during each period. Unit charges are separated into red, amber and green time bands and so any changes you can make to shift your consumption from red into amber or green bands the better. Beware the time bands and prices do vary in different parts of the country.
  
It is unit charges that offer most scope to reduce your bills by shifting your production schedules to avoid the red bands. Companies are often surprised when they realise they have potentially been missing out on the opportunity to save £1000s a year.

A business’ ability to take advantage of this new understanding of how its bills are made up will depend on its procurement contract. If a business is currently on a fixed rate deal, then shifting usage will make no difference, but that should not stop them from planning ahead. At renewal, negotiating a contract based on ‘pass through’ (paying for what you use, when you use it) can pay big dividends.