How do Third Party Charges Affect your Energy Bill
Transcript of How do Third Party Charges Affect your Energy Bill
• Around half of the customer bill is attributable to third party charges (pass through/non commodity/non-energy costs)
• Suppliers are responsible for:
– Paying to move energy to customers
• Network charges
– Paying to balance the system
• Costs incurred by System Operators
– Paying for metering
• Installing, reading, maintaining
– Paying for government policy
• Subsidising generation and energy efficiency
• Electricity and gas networks:
– 3 electricity transmission owners (+ OFTOs) and 6 distribution network owners operating across 14 zones
– 1 gas transmission owner and 5 distribution network owners for 12 regions
• Renewables Obligation (RO)
• Feed-in Tariff (FiT)
• Contracts-for-Difference (CfD)
• Capacity Market (CM)
• Energy Company Obligation (ECO)
• Warm Homes Discount (WHD)
• Climate Change Levy (CCL)
• Carbon Reduction Commitment Energy Efficiency Scheme (CRC)
Suppliers must recover a range of costs from consumer bills:
• Introduced to budget and monitor the costs of policies feeding in the consumer bill –LCF cap set at £7.6bn by 2020 (in 2012 money) – deemed the amount needed to meet our 2020 renewables generation targets
• The Trilemma in action: sustainability and affordability aspects of the Trilemma being linked by budget
• Included:
– RO
– Small-scale FiT
– CfD FiT
• Excluded:
– Renewable Heat Incentive
– Warm Homes Discount
– Capacity Market
LCF project funds
£bn2011-12 prices
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
2018-19
2019-20
2020-21
Total 1.61 2.36 2.97 3.50 4.30 4.90 5.60 6.45 7.0 7.60
Networks
• Heavily regulated
• Complex charging models to create tariffs
• No competitive advantage arising from charges (but operational impact)
• Defined collateral/ credit calls
• Explicit approach to recover charges from different customer (meter) types
• Rules subject to constant change
Policy
• Cost recovery generally less prescriptive
• Suppliers have some leeway regarding how/ when to recover costs
• Many policies designed such that competitive pressures ultimately reduce consumer costs (and therefore real differences between suppliers)
• Relatively stable arrangements for cost recovery
Wholesale Transmission DistributionGovernment
schemes Tax Operating
Electricity
50%-60%extraction, refining, trading
1%-3%providing
assets, system
balancing
15%-20%providing
assets
0%-5%ECO
5%-25%VAT, CCL
1%-10%billing,
metering, margin
35%-45%fuel, operation, maintenance
3%-8%providing
assets, system
balancing
15%-25%providing
assets
5%-15%ECO, RO,
FiTs5%-25%VAT, CCL
1%-10%billing,
metering, margin
Gas
An increase in our forecast costs of the Renewables Obligation and the
Capacity Market in 2017-18 and 2018-19 outweighs a reduction in
our forecast cost of CfDs.
Wholesale Transmission DistributionGovernment
schemesTax Operating
• Connecting renewables
• Gas imports
• NIMBY-ism
• Planning/ parks etc.
• Supply chain
• Materials cost
• Smart grids
• Emissions/ losses
• Embedded generation
• Pipe replacement
• Smart grids
• Maintenance
• Materials costs
• Pensions deficit
• Emissions/ losses
• Targets
• Timeframes (to meet targets)
• Setting subsidy
• Political capital
• Who pays?
• Complexity
• Overlaps
• Political uncertainty
• Affordability
• Who pays?
• Drive behaviour?
• Carbon vs. sales taxes
• Policy/ regulatory compliance
• Sales channels
• IT systems
• Margin
• Market design
• International commodity markets
• Import capacity
• European market opening/ harmonisation
• Disasters/ war
• What about low/ zero cost plant?
• Supplier at the heart of the industry to recover from consumers a variety of costs
• Third Party Charges account for around half a typical dual fuel bill
• Policy and regulatory framework critical for determining how costs will fall