Businesses have for some time cried for help in understanding energy bills, for getting their heads around complicated schemes such as CRC, preparing there businesses to remain compliant, or trying to get a solar array installed to find that a change had been made.......I'm afraid the frustration is set to continue and the only positive I can see is that the energy bill will get simpler (as it's only going to get bigger!).
With the fall in oil prices to historic lows the energy market has moved bearishly for quite some-time. In the midst of businesses rubbing their hands together as they get their hands on cheaper wholesale prices the rugs been ripped from beneath their feet. Sure most businesses have just signed an energy contract with perhaps 30% savings on their previous electricity contract but come 1st April 2019 the energy bill is undeniably higher!
I sat at the airport in Warsaw tonight, trying to work out where the bill would be in 2019. It took me a few 'old fashioned' to digest the numbers, which whilst normally a celebratory & favourite cocktail for me, in this case something to get over the numbers (& the cocktail of carbon taxes being mixed by the UK Plc' bar manager).
For starters I know that the CRC brings in £900m(ish) a year to the treasury and CCL a little shy of that at £800m. With that in mind and bearing in mind CCL is 0.554 (until 1st April 2016) I've worked out CCL will be roughly 1.274 p/kWH on 1st April 2019. For those who pay CCL but were never captured by the CRC it's a huge blow. For them the idea of the CRC was to capture the large businesses who perhaps had more of a budget and more capital to invest (or a better covenant for lending against), such that they could reduce their carbon bill. The fact that the tax will now be spread equally and will be over a penny will be hard for a lot of small businesses to digest.
For those larger businesses who were captured it's great news. No more annual reports, no more lump sum payments and a saving of around 0.2p/kWH; which has to be a minimum £15,000 saving for those who were in the CRC (noting the threshold was 6,000MWh).
The oil price drop seems to have been used to the advantage of the UK government a little too much for my liking. More recently hearing of the plans to bring forward the Capacity Mechanism a year forward. From my workings all I can see is a tax mountain for the average UK business that is pretty unattractive.
Small Retail (LV)
- Energy: 4.5p/kWH
- Carbon: 6.0p/kWH
- Delivery: 4.5p/kWH
The total of 15p/kWH above is in a scenario where the wholesale energy price is at a level similar to the historic lows we currently have. If we revert back to previous market conditions the price would be unsustainable as it would head towards 20p/kWH.
The only saving grace will be if this electricity market reform actually works. In the meantime, I urge every business to consider any opportunity to diversify their fuel sources, to reduce and squeeze consumption, to consider renewable installations, and to start a journey to battery storage (sooner rather than later).