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The future for energy costs

Jan 04, 2011

By Jo Butlin, Vice President – Retail, SmartestEnergy Limited, the leading purchaser and supplier of renewable energy from the independent generation sector in the UK.

Energy costs for consumers continue to grow and the decision making process to choose a contract is increasingly complex.  Historically, when making purchasing decisions, the focus has been on wholesale energy costs. However, at today’s costs, wholesale energy only represents about 50% of the energy bill. The other 50% reflects the growing costs associated with delivery to the consumer and specifically funding the UK’s Carbon Transition Plan.

Distribution and Transmission costs included in a bill reflect the investment required to develop and maintain the electricity grid. The infrastructure is old and does not support all the localised generation of power that is required to deliver a green economy. Rises in distribution costs of 40% over the next five years have been approved. Customers are expected to fund the newly launched Feed in Tariffs (commonly known as ‘cash back schemes’) and potentially Carbon Capture Storage will be the next significant cost passed through to end consumers. Forecast increases in energy prices over the next 5-10 years range from 15-20% and more as a result of all the changes necessary to deliver a Green economy.

So what can customers do to avoid these increases?

Realistically, there are two options – look to avoid grid costs through generating power on site, or simply, use less.

Onsite generation has become a real option on a small and medium scale. Feed in Tariffs, whilst still requiring up front investment, make investing in solar panels or other technologies pay back in a meaningful period and even provide a financial return of 5-8% over the life of the tariff. Larger scale installations can also become viable through the sale of excess energy back to the grid. Companies such as SmartestEnergy Ltd can provide help and advice in delivering onsite generation.

Using less is achievable through a focused programme of energy efficiency measures. Help and advice is widely available through a range of consultants who can provide energy efficiency audits and solutions.

Delivering the UK’s Carbon Transition Plan will have the inevitable consequence of rising prices through traditional routes. Customers need to start looking now at alternative means of meeting their energy needs in order to manage their future costs.

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