Residual costs – Time to take notice. What will price rises mean for energy bills in 2017?

At our July energy event, we spoke about how a two tier energy market may start to play out, with higher prices in winter, and lower prices in summer.  This started to become a reality this winter, with some of the biggest price swings we’ve seen for a decade (click here).

“Residual costs” have been one of the industry’s dark arts, with many customers (and many industry professionals) perplexed about how they are calculated.  Customers who are on flexible purchasing contracts effectively buy structured products (Base, Peak), which naturally do not translate exactly to a customer’s profile.  So there is this “flexible amount” where you are effectively buying/selling energy in any given HH which is the difference between what you bought (base/peak) and what you used (your load shape).

Now in truth, whilst it is a bit of a dark art, the industry has not really been that worried.  After all, the commodity prices have been dropping and, to date, spot markets have not been volatile.  So if you purchased your base at £45 and have to buy a little more at £38 does it really matter?

But that all changed in 2016.  We’ve seen some of the biggest price swings in a decade.  Prices have gone to £1500 for half hours and they’ve gone as low as -£216.  So now whether you’re buying more or selling back, it may get a lot more interesting (and a lot more expensive).

At Utilidex we don’t believe that these price swings are a one off.  They are a product of a changing energy market, where we have a changing energy mix, and therefore a changing set of risks to manage. And naturally there are opportunities as well as risks when things change.

In fact, the business case of batteries, storage, on-site renewables may become increasingly better if energy costs rise and volatility opportunities (£1,500 spikes) continue to occur.  Which is all very possible given the current energy mix and direction of the market.

That’s why we believe in 2017 customers should start to care more about flexible purchasing.  Those that do, and take an active interest, will naturally find opportunities to manage their costs better.  While those who don’t may simply see their bills rise even more.

This doesn’t have to be complicated.  With the Industry’s only combined billing and trading solution, reviewing and looking at these costs is a lot easier. Plus,  with a digital platform that provides validation and trading all in one, at 50% less than you can get through traditional consultancy services, we think it’s a great time to start thinking about change.

For more information get in touch with Richard Lewin on richard.lewin@utilidex.com