When commodity markets are down and the price of electricity drops it is common for business owners to expect to see a fall in their energy costs when on a flexible energy contract. However, our clients often ask us why they do not see any savings when there is a drop in the market. It’s a question that has several answers.
Targeted Charge Review
Roughly 40% of your actual electricity price is made up of the commodity market and the rest is non-commodity network charges or subsidies. A key contributor to this is a change in the way that transmission is going to be recouped and billed which is known as the Targeted Charge Review (TCR). This has created uncertainty among energy suppliers and therefore changed the way suppliers model their pricing and how they recoup the costs, so they are not left exposed.
With a standard fixed price contract, where you use that price as a budget-setting tool, make sure it’s fully inclusive of all the charges that make up the electricity. This way you have calculated everything and can set an accurate and fair budget to clearly see any future differences. If you’re more prone to having a pass-through contract because you’re wanting to have greater visibility over the different costs, then just be aware that this is a factor that will need to be considered in your budgeting on electricity.
