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Its reconciliation time ! - Gas & Electricity Reform Charges 2018

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It is that time of year where the energy suppliers start to reconcile the actual cost incurred for the 2017/2018 period against the forecasts on your invoices.

Following on from our article last year about charges starting to appear (Market Reform Charges) we have now reached the first reconciliation point which will demonstrate how accurate the initial forecasts were.

Suppliers make pre-payments against the underlying obligation to the government at the start of the year and then once the financial year closes they are able to provide a reconciliation charge for any amounts that they may have estimated incorrectly.  This also works in reverse and they will refund charges they have taken beyond the actual cost.

These charges are simplified in to 4 categories, Feed in Tariff (FiT), Renewable Obligation (RO), CfD (contracts for difference) and CM (capacity market), however there will be variations from the suppliers dependant on how they have accounted for these within their pricing and products structure.

Feed in Tariff (FiT) - Current and historic price information is published by Ofgem on their website here
Renewable Obligation (RO) - Current and historic price information is published by Ofgem on their website here
Contracts for Difference (CfD) - Current published rates for CfD Operational Levy (from the EMR Settlement website here
Capacity Market (CM) - Current published rates for CfD Operational Levy (from the EMR Settlement website here

The changes have been effected by the Government introducing a legislation from 1st November 2017.  To help Energy Intensive Industries (EII’s) meet its low carbon targets the Government has introduced policies, to reduce greenhouse gas emissions by incentivising increases in renewable energy whilst still enabling them to competing with the global market, by making them exempt from up to 85% of the renewable reform charges.  This will save Energy Intensive Industries such as chemical, steel or engineering firms around £100 million a year.   Unfortunately, for all other business and commercial energy consumers in the UK this means the costs need to be recovered so these charges will increase. 

In summary these costs are predicted to rise year on year however so far we have seen suppliers overestimating last year’s charges resulting in small credits being returned. So whilst there are many variables it looks like suppliers were consistently over which is not so much of a surprise given the tricky task they have of predicting the future.

If you would like to know more about these charges and how they may affect you please don’t hesitate to give your dedicated customer account manager a call.