How reviewing electricity contracts can bring savings

Following the introduction of big increases in electricity standing charges in April, energy contracts should be checked before renewal and any new offers need special scrutiny, warn advisers.

With a background of concern about rising energy prices in general, customers are sometimes being offered contracts that look like a better deal but which can include unclear terms and higher overall costs, warns Dan Cox, head of fuel, utilities and member services at buying group Fram Farmers.

Part of the standing charge is effectively a tax that suppliers must pass on to pay for upkeep and improvement of the National Grid through the transmission network use of system (TNUOS) charge.

This is the main reason for the big April increase in standing charges and one of several additional charges that make up the average bill. It covers National Grid infrastructure, maintenance and upgrades, grid expansion for renewables and long-term system reliability.

See also: How savings can be made on metered farm water costs

While in some cases the standing charge might look lower on one contract offer compared to another, the unit rate may be higher to compensate for that, says Dan.

“Don’t just look at the headline rates, read the whole document,” he says, highlighting issues to watch for:

Volume tolerances Sometimes contract prices are linked to a certain level of energy consumption, often based on past use, with these prices applying as long as use remains within a set percentage of those levels. However, some offers do not make clear what the tolerance is, or the price that will apply outside the tolerance, or both.

Standing charges Check the basis for these – are they fixed for the whole contact term, or can they change during the term? Standing charges are likely to rise again and while a contract might offer a fixed unit price, it may allow for the standing charge to rise again during the contract term, says Dan.

There have also been instances where contracts offered an apparently lower standing charge, but if consumption by the end of the contract year did not reach a certain level, an additional charge was imposed to make up the loss by the supplier on the “reduced” standing charge element.

Consumption rates Contract quotes or offers may be based on assumed or estimated rates of consumption which can be wide of the mark. Dan advises going back to the broker or supplier to query these and provide more accurate figures for a requote, and also to think carefully about how consumption might change in a new contract year, as this could push the account into higher-than-necessary charges.

Fram Farmers buys electricity at wholesale rates and supplies it to members on contracts of up to three years, also advising them on contract and use efficiency.

© Tim Scrivener

Options to make contracts work better

There are measures businesses can take to make sure they are in the right place with their energy contract, by reviewing consumption, and in some cases “de-energising” sites that operate only seasonally, and ensuring that their supply capacity is at the right level for their requirements, says Dan.

Non-half-hourly meters Where consumption has reduced by more than 50% – for example, an enterprise such as indoor pigs has ended – customers may move into a lower band, with lower standing charges.

De-energisation This involves effectively turning off electricity meters that are used only seasonally, resulting in a reduced daily standing charge and, for that time period alone, removing daily capacity charges. This option is available to those on a Fram Farmers contract and may be possible elsewhere, but check for any charges associated with the changes, advises Dan. 

Individual half-hourly meter capacity reviews These can also bring substantial savings where the peak use is regularly lower than the current capacity.

Where this is the case, a request can be made to the district network operator to reduce the capacity, which enables a move to a lower capacity band with a lower daily standing charge.

A word of caution on this: if it is expected that greater capacity may be needed in future – for example, for a change in the business such as a diversification – it could be tricky and/or expensive to regain the original capacity rate.