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Mitigating the ‘double whammy’ of energy cost rises

In a new report, Inenco’s analysts have forecast how energy costs could change in the coming years. 2018 has already seen volatility return to wholesale markets, with spikes reaching levels not seen for almost two years. Add to that the fact non-commodity charges have risen by up to 25%, and businesses are facing a ‘double whammy’ of rising costs on both sides of the bill.

Business energy costs could rise by up to 50% by 2020, compared to 2016 prices, making it even more important for organisations to refocus on their energy risk management strategies, from reconsidering demand management and approaches to procurement to building a business case for investment in energy efficiency.

In our Energy Costs Outlook report, we look at different scenarios to consider how energy costs may change over the next 15 years and offer an illustration of what those changes could mean for organisations with different levels of consumption. Using examples of medium, large and industrial energy users with differing exemptions, the forecast shows how businesses face continued upward pressure on prices, with particular focus over the coming winter.

In the short term, all organisations could face more than a 10% increase in the total cost of energy compared to winter 2017/18, fuelled both by wholesale rises and an increase in some indirect charges such as the Capacity Market levy.

2019 costs could be compounded by currency fluctuations caused by the outcome of Brexit negotiations, along with a rise in the Climate Change Levy and potential changes to the Energy Intensive Industries (EII) exemption threshold, offering more industrial users relief from the cost of renewable levies, but increasing non-commodity charges for other users.

The report provides four different scenarios, ranging from a medium sized energy user to large commercial users and industrial users with and without Energy Intensive Industries exemptions. There is a marked difference between the unit costs of industrial users with an EII exemption and those users required to pay renewable levies in full; by 2020, smaller users could find themselves paying 65% more for each unit of energy compared to energy intensive users benefiting from exemptions.

The key findings are:

  • Medium-sized energy users could see bills rise by over 40% by 2020*, with the highest unit rate of all business energy users
  • Large commercial energy users could find costs rise by 45% by 2020*
  • Industrial users without Energy Intensive Industries exemption on renewable levies could find their energy costs more than a third higher than those benefiting from relief.

Whilst there is always an element of uncertainty in business energy, and fluctuating costs could be compounded by anything from changes to EII thresholds to currency fluctuations caused by the outcome of Brexit negotiations. However, the trend of rising costs shows no sign of slowing.

Inenco’s industry experts are on hand to share their expertise in mitigating rising costs, from investigating ways to improve energy efficiency to checking whether an organisation is eligible to any relief. Get in touch today to discuss what the forecast means for your business and download our report here.

*Compared to 2016 prices