The draft Energy Bill: a five-minute summary
Today DECC has published a draft of the new Energy Bill. Here’s a five-minute summary to get you up to speed.
What’s in the Energy Bill?
Electricity Market Reform (EMR)
The way we use and generate electricity is changing. Our demand for electricity is expected to double by 2050 as we move towards electric heating and transport, but lots of old power plants are closing.
The much-discussed EMR is intended to try and attract the £110 billion investment we need to upgrade and expand our energy infrastructure for the future, meet our emissions obligations and increase the use of renewables.
The Bill includes:
- Contracts for Difference, which is hoped will provide ‘stable and predictable’ incentives for companies to invest in low-carbon generation;
- Investment Instruments – to help get investment before Contracts for Different come into force;
- Capacity Market – to help make sure we have enough electricity in the future;
- Conflicts of Interest and Contingency Arrangements
- Renewables Transitional – transition arrangements for investments under the renewables obligation scheme,
- Emissions Performance Standard – to limit emissions from new fossil fuel power stations.
A new Strategy and Policy Statement (SPS)
The SPS is intended to improve things at a regulatory level and ensure that the government and Ofgem are working to the same strategy and with the same aims. It will also lay down the roles and responsibilities of the government, Ofgem and other relevant organisations.
The creation of the Office for Nuclear Regulation (ONR)
The ONR will regulate the nuclear power industry, to regulate the safety and security of the next generation of nuclear power plants. This move signals the government’s ongoing commitment to nuclear as source of electricity in the UK.
What's not in the bill?
There are few things that you might have expected to be in the Bill that are missing. One such example is energy efficiency; there's nothing in the draft to do with cutting energy usage. There is also less of a focus on renewable energy, with gas and nuclear being the focal point of the Bill.
For more information on the Energy Bill visit our partners Busines Juice.
60% increase in business energy costs as average turnover falls by 6%
New figures from uSwitchforBusiness show that while average business turnover has fallen by over 6%, energy bills have risen by over 60%.
The numbers from BIS show that between 2010 and 2011, average business turnover fell from £716,309.49 to £671,960.36, while our stats show the average business energy bill rose by 60% from £2,130.28 to £3,408.89.
This means that business energy costs now represent 0.51% of an average business’s turnover. It might not sound like much, but it’s a 70% increase on 2010, when it was just 0.3%.
Our sister site uSwitch.com, has noticed a similar trend in domestic energy prices: the cost of household energy has grown five times faster than the average salary since 2004.
Why? Well, the economic crisis explains declining turnover, and rising wholesale energy prices have a big part to play in rising energy prices.
James Constant, director at uSwitchforBusiness.com, commented: “Historically, businesses could afford to ignore energy costs, because they seemed almost negligible in relation to their profits. But with costs having leapt up from 0.3% to 0.51% of turnover in just one year, this is no longer the case.
“Furthermore, if this trend continues, energy costs may soon hit 1% of total business revenues, a hugely concerning figure that should force businesses into acting fast.
“No one is in a position to accurately predict the market right now, but anyone responsible for energy should certainly ensure that they are as prepared as possible for what is to come. Businesses should therefore be sensible and think about cutting and offsetting costs when they have the opportunity. Switching suppliers, or even just your tariff, can save a business an average of £946 a year.”
And while that £946 saving won’t quite wipe out the £1,278.61 rise we saw between 2010 and 2011, it will still make a big difference to your balance sheet.
Business week in brief: 11th May 2012
Ed Miliband and the Queen talk energy
This week Ed Miliband and the Queen both joined the energy debate.
“Then let’s get on with tackling the problem with people’s living standards; stand up to the energy companies so that we guarantee every pensioner over the age of 75 the lowest tariff available and break up the Big Six energy companies: stand up for people who are seeing their train fares going up; and stand up for different choices on taxation.”
That’s the leader of the opposition, Ed Miliband, going on an all-out offensive on the Tories in a speech given in Harlow this week.
Now, I’m not a political commentator and I’m not siding with any party, but I have to say that it does frustrate me when statements that haven’t been completely thought out are thrust out purely with to capture votes or headlines.
He said that he wants to guarantee that every pensioner over the age of 75 gets the lowest possible energy tariff. However, I’d argue that that the issue shouldn’t be about age - it should be about levels of poverty. Not everyone over 75 is living in poverty, just as not everyone under 75 is financially secure. But that’s not my not my axe to grind.
His next suggestion - that we break up the Big Six energy suppliers - is the sticking point for me.
I will be the first person to say that the UK energy market is far from perfect and it needs to improve in many ways, not least by increasing the number of companies operating within it. But Ofgem’s plans to increase liquidity in the market should aid new entrants, and I would also like to add that in the B2B market we already see a great deal of activity from non-Big Six energy companies and we know that more are coming in the very near future.
My question to Ed Miliband is, what good will breaking up the Big Six do? Surely if he was feeling in a destructive mood, he would have been better off picking on the banks and would have got a lot more support from voters for it.
Energy is always going to be a hot topic, so it’s not surprising that as well as Ed Miliband, the Queen also made a reference in her speech at the state opening of Parliament. In a nutshell, the Queen said that there will be reforms the electricity market to encourage more investment in low carbon generation and clean energy, put more restrictions on the emissions of new coal plants and create a new independent regulator, the Office for Nuclear Regulation, funded by the industry.
Interview with Steve Fitzsimons of new business energy supplier, Hudson Energy
Hudson Energy - the North American business energy giant - is due to launch in the UK this year. It's not every day that a new business energy supplier appears on the scene, so I caught up with Steve Fitzsimons, sales and marketing director for Hudson in the UK, to find out more.
Hudson Energy is coming to the UK from North America this year. Image by tame_alien via Flickr.
Would you like to introduce yourself and tell us a bit about your background and your role now?
"My current role is sales and marketing director for Hudson, responsible for launching and developing the UK supply business. I’ve been working with my North American colleagues for the past six months, undertaking all of the background work required to launch the business such as recruiting, creating and developing our systems and processes.
"I’ve got a long history running I&C and SME sales organisations in the UK market, with a number of major suppliers, since before market opening, developing new products, services and propositions for customers , as well as a period heading up the sales activity for a specialist demand response company."
Hudson is a well-known name in B2B energy in North America, but it's new to us here in the UK. Can you tell us a little about the background of the company?
"Hudson supplies power and gas across a number of states in the US and Canada, where the market is deregulated. Established in 2002, our operations are centred on New York and Texas. We were acquired by Just Energy, a major Canadian residential gas and electricity retailer in 2010 who also have operations in the US, with the two businesses being complementary to each other."
Why is Hudson launching in the UK now? What are your aims for the company?
"At Hudson we recognise that the UK offers opportunities for new suppliers, with a number of similarities between the UK market and US markets, particularly Hudson's largest market, Texas. Your own research showed that SME and I&C customers are far more willing to contract with smaller suppliers than residential customers. So while the market is mature, it is competitive, and we feel that, with Hudson Connex, our sales portal, allowing brokers quick and easy access to the market, we offer a proposition that hasn’t previously been available. Of course, we will be backing that up with high quality service, giving customers the confidence that we’ll deliver on our promises, and have made significant investment in all our systems as we go to market.
"Our aim is to grow the UK electricity market to scale, and, having created an operational hub for Europe, launch sales operations in one or two European countries within a year, and, of course, leverage our trading capability by moving into gas supply. I’m sure my colleagues in Just Energy are equally excited about the potential that may exist in the residential space."
What are the differences between the market in North America and UK? Do you think that we could learn anything from them, or vice versa?
"The markets are remarkably similar, although visibility and availability of market price is easier in the UK – although to counter that, liquidity and term are easier in the US, with five year contract terms widely available. On the service side, the difficulties we have in credit language in the UK are significantly less apparent in the US, perhaps because disconnection for non payment is comparatively easy.
"Overall, I’d say our markets are more complex , and many of the difficulties I have had to explain to my counterparts relating to obligations on suppliers that they simply don’t understand."
What will Hudson offer its UK customers? What sets it apart from other business energy suppliers?
"Hudson won’t be approaching customers directly with an offer, our business model is to work through brokers and consultants in the market, allowing them access to the market via our sales portal “Hudson Connex” – which provides brokers with customer offers, including product and term choice, with prices refreshed on demand. We are very clear that we are an energy supplier, and as such, don’t want to broaden our offering into energy services, similarly, our product and service offering, will enable us to keep our operational costs down, allowing us to offer a great value proposition."
One of the things the really sets you apart is that fact that you don't have a sales team. What's behind the decision to only work with brokers and TPIs, and what does this mean for customers when it's time to renew their contract?
"While I don’t have a sales team as such we will, of course, be developing and managing our relationships with brokers, aligning our offering to meet changing needs, and requirements. Operating in this way means that I don’t have to manage multiple sales channels, with the inevitable conflicts that arise in respect of renewal paths. It also focuses our attention entirely on supporting the broker in their sales relationship with the customer, allowing us to focus entirely on service."
Finally, when will you be open for business?
"We’ll be entering the market in late July, initially with limited capability as we prove our systems to Elexon via the controlled market entry process. We don’t anticipate any difficulty with that, and I expect to be fully operational by mid August."
Business week in brief: 4th May 2012
The see saw of corporate profit
Yesterday, Ofgem release its consultation on Improving the Reporting Transparency of Large Energy Suppliers. James Constant takes a look at the consultation and what it means for transparency on energy supplier profits.
When the transfer price the supply business pays the generation business shifts, so does the picture on profits.
We’ve said before that, working in the B2B sector, naturally we want to see businesses do well and make a profit to provide reward for their staff, investors and customers. However, we also believe that transparency on profits is essential, a fact that has previously been recognised by Ofgem, which has mandated that the Big Six energy supplier should publish their accounts.
- all suppliers should report to the same year end to ensure transparency of comparison. Ofgem now does ‘not intend to take forward this recommendation’.
- an independent auditor should provide opinion on the statements. Ofgem now will get an opinion, albeit not from auditors and maybe just for the initial year.
- the statements be reconciled to IFRS (International Financial Reporting Standards). Ofgem now only requires that the supplier statements mirror their group accounts.
- the businesses recognise sources of additional potential profit by reporting trading and risk results. Ofgem now only requires the suppliers to fill out a checklist of activities they undertake.
- it would undertake further work to understand the critical issue of the transfer price between the generation and retail arms of the vertically integrated business. Ofgem now does ‘not intend to take forward this recommendation’.
- exceptional items on the supplier’s account were given greater definition. Ofgem now will settle for the information held in the suppliers’ group accounts.
- a consistent profit base for reconciliation was created. Ofgem now only requires the information held in the suppliers’ group accounts.
Business week in brief: 27th April 2012
EDF Energy’s Business Customer Commitments: four key pledges
Hot on the heels of E.ON’s Rest Review for business energy customers, EDF Energy has unveiled its Business Customer Commitments. So what are they and what do they mean for your business?
Is the sky the limit for EDF's business energy customers? Image by LaurenTucker Photography via Flickr
Vincent de Rivaz’s speech at the EDF Energy Talk Power Conference, where he unveiled the new Business Customer Commitments, had three themes: 'Fair Value', 'Better Service' and 'Simplicity'. But beyond these three themes, as I see it, there were four main announcements:
1. Short-term contracts, with no termination fee, for start-ups.
There will be new ‘good-value fixed term contracts, lasting months rather than years’ for entrepreneurs and start-ups. Crucially, these contracts won’t have termination fees, which will give new businesses the flexibility they need while they’re growing. We think this is a fantastic decision by EDF; it could be a real game changer and is exactly what a many new businesses are crying out for.
2. Visi, a real-time energy dashboard.
EDF Energy previewed Visi, a new real-time energy dashboard service. It’s inspired by the energy monitoring system that EDF has developed for the Olympic Games, and the company hopes it will help larger businesses to educate and change the behaviour of staff when it comes to energy efficiency. Energy efficiency is of growing importance to all businesses as prices rise, so this is interesting, but the concept isn’t groundbreaking; other similar services exist, for example Carbon Trust Empower
3. Simplification of prices.
EDF already has a single unit rate for its small business customers, but Mr de Rivaz said that there would be further simplification. We’re a little cautious about this - simplicity is great, but not if it means higher bills. For some businesses, a simple single-rate tariff is ideal, but for others multi-rate tariffs or tariffs with different day and night/evening and weekend rates offer great value for money. (Which is why it’s so important to get an overview of the market and make sure the tariff you sign up to really does offer the best value for your business.)
4. Better bills
Mr de Rivaz also announced that EDF would be introducing a ‘far simpler bill’ which would bear the Plain English Crystal Mark. Having for worked for uSwitch, which has the Plain English Internet Crystal Mark, I can tell you that the Plain English standard really means something and isn’t easy to attain, so hopefully this will mean bills which are easy to understand, and, most importantly, easy to act on.
Businesses buck the trend when it comes to smaller energy suppliers
The Big Six (British Gas, EDF, E.ON, npower, SSE and Scottish Power) account for around 99% of all domestic energy accounts, but when it comes to business energy, it’s a different story.
It won't taste any less sweet because it's smaller... Image by Facundo Prámparo via Flickr.
There are plenty of smaller energy suppliers on the market, and many of them are competitive when it comes to price. However, according to DECC, their share of the domestic market is a tiny 1% and new research from our sister company, uSwitch, has found that only 52% of customers would switch to one for their home.
Ann Robinson, Director of Consumer Policy at uSwitch commented: “Unfortunately, when it comes to energy suppliers many consumers are caught in a trap – they’re unhappy with the Big Six, they like what smaller suppliers have to offer, but they’re too frightened to try one out.”
She added: “The fact is that smaller suppliers offer competitive prices and a genuine alternative to being with the Big Six. There is no risk of losing your supply, either while switching or at a later date. If anything happened to your supplier, Ofgem would step in so you would always be guaranteed supply.”
However, we’ve found that it’s a different story when it comes to businesses - 24% of our customers go with a supplier that isn’t part of the Big Six.
Why? Well, in the business energy market, beyond the Big Six you have suppliers that cater specifically for businesses, which is a real selling point. These suppliers may not have a big name or advertise on TV, but that doesn’t mean that they aren’t competitive, or that they don’t have a good pedigree or significant backing. For example, take Haven Power, which is part of Drax Power, one of the UK's largest independent power companies, or Gazprom, which is part of the Gazprom Group - the largest producer of natural gas in the world.
So if you’re thinking about your business energy contract, don’t think there are only six options and no competition. One of the Big Six may well be the best option for your business, but then again, it could be that the best combination of price and service comes from somewhere you weren’t expecting.
There’s 16 suppliers listed in our energy supplier directory if you want to find out more, or if that sounds like too much effort, give us a call on 0800 688 8568.
- The draft Energy Bill: a five-minute summary
- 60% increase in business energy costs as average turnover falls by 6%
- Business week in brief: 11th May 2012
- Ed Miliband and the Queen talk energy
- Interview with Steve Fitzsimons of new business energy supplier, Hudson Energy
- Business week in brief: 4th May 2012
- The see saw of corporate profit
- Business week in brief: 27th April 2012
- EDF Energy’s Business Customer Commitments: four key pledges
- Businesses buck the trend when it comes to smaller energy suppliers