Wholesale costs make up the largest proportion of your electricity and gas bills, currently between a half and two thirds for electricity and a

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2 Wholesale costs make up the largest proportion of your electricity and gas bills, currently between a half and two thirds for electricity and a little higher for gas. Smaller businesses are likely to face a fixed cost for their wholesale energy, but larger companies (typically metered every half-hour for electricity or daily for gas) may choose to link their wholesale energy costs to traded markets.

3 Network Charges Transmission Charges contribute towards the cost of building, maintaining and operating the high pressure gas and high voltage electricity transmission networks. Transmission companies charge the users of these networks and the costs get passed down to customers by suppliers. Suppliers and generators are also charged for balancing the system (termed Balancing and Use of System Charges in electricity). Distribution Charges go towards the cost of building, maintaining and operating the local gas pipes and electricity wires which deliver energy to your business. Suppliers are charged for these costs by the distribution company and the cost gets passed on to consumers in electricity or gas bills. Consumers in northern Scotland receive a partial rebate on their high distribution cost, which is paid for through a socialised charge on all other consumers. Green Subsidies Renewables Obligation is a subsidy paid to support large-scale renewable electricity projects in the UK. Feed-in Tariffs promotes the uptake of small-scale renewable and low-carbon electricity generation technologies. Levies & Taxes Climate Change Levy (CCL) is a tax that businesses must pay through their gas and electricity bills. Companies with electricity consumption under 12,000 kwh/year and gas usage lower than 53,000 kwh/year are exempt, as are charities. Discounts are available for many manufacturers and some green electricity supplies.* VAT for business consumers of energy is generally in-line with standard VAT rates, which currently stand at 20% (Please note the pie charts exclude VAT). Supplier Costs Costs to serve and profit is charged on an individual basis for non-domestic electricity and/ or gas contracts. Suppliers assess their costs to serve individually with credit being a very important factor. A cost is also factored in for the provision of metering services. This will vary depending on customer and site and typically makes up a very small fraction of the bill. * 65%-90% discounts are available for businesses holding a valid Levy Exemption Certificate (LEC) or Climate Change Agreement (CCA). A business may be eligible for a LEC if it buys renewable energy or implements other energy saving measures. Discounts on the CCL apply to 10 major energy-intensive sectors providing they reach pre-agreed carbon reduction targets.

4 Rises in wholesale gas and electricity costs have historically been a significant contributor to increases in bills. But over the past couple of years increases in network costs, supplier operating costs and margins have also contributed to the increase in energy bills, as have government-mandated climate change policies. The additional cost components of the bill set out on pg2 have all contributed to rises in gas and electricity costs. Small Businesses Large Businesses Wholesale energy prices can change frequently. Some gas and power is bought on the day, but a large amount is bought in advance. So electricity you use one day to boil the kettle could have been purchased up to two years previously when wholesale prices were very different. The same trend can be seen in gas purchasing. Suppliers are responsible for balancing their risk and ensuring they make the best buying choices they can, based on what they think their customers needs will be in the future. This process is called hedging. For small businesses, purchasing energy in advance (forward purchasing) helps suppliers to smooth out the costs of energy. For larger business customers energy is purchased on a more immediate basis. Fixed price energy contracts have their wholesale costs set on the day they are struck for their duration. But many suppliers offer flexible energy contracts allowing the customer to control the timing and amount of purchases during the contract period. Exactly how is determined by negotiation and the buying strategy the customer employs.

5 Business energy bills are likely to increase in the future and one of the contributing factors to this is the impact of government policies, namely the Electricity Market Reform. The impact of policies on unit gas costs is estimated to remain broadly constant to 2030 (rising around 5%), while the impact of policies on unit electricity costs is expected to more than double by 2020, due to increased deployment of renewable technology and other low-carbon generation funded by the RO, FiTs and the Electricity Market Reform. By 2030 the impact of policies is expected to raise unit electricity costs by around 50% on The government estimates the gas bill for a medium-sized business to increase by 3.8% from 2013 to 2020 and then increase by a further 3.7% to While the electricity bill for a medium sized business is expected to increase by 27.1% from 2013 to 2020 and then increase by a further 15.4% to But the government is keen to stress the impact of its policies on the average energy bill should be lower than the rises seen in wholesale prices if the policy measures to support low-carbon generation were not introduced.

6 Environmental levies on energy bills will also climb to subsidise new low-carbon generation that is promoted under Electricity Market Reform. Because of this new low-carbon generation coming online, transmission and distribution costs will also need to rise in order to safely connect and manage new low-carbon generation to the national grid. In terms of gas costs, although distribution charges are set to increase, transmission charges are likely to decrease. Overall gas prices are expected to rise as gas is the primary source for electricity generation across Great Britain. Global competition for gas is also likely to contribute to rising gas prices in the future.

7 The most effective way to reduce energy bills for businesses is to improve energy efficiency. More information on this can be found on the Energy Saving Trust and Carbon Trust websites. Other ways of cutting the cost of your energy bills are to: - Make sure you are on the best electricity and gas product for you. - Monitor your energy consumption. - Get an energy audit to see whether additional savings can be made. - Consider investing in on-site generation.

8 About Indigo Swan We believe everyone is entitled to the truth about their energy and shouldn t be penalised because they don t have the knowhow. The information in these guides has been prepared in conjuction with Cornwall Energy who provide strategic energy market intelligence. If you have any questions please get in touch hello@indigoswan.co.uk Indigo Swan Limited 2 Millennium Plain Norwich NR2 1TF