CCL (Climate Change Levy) is a goverment levy designed to encourage businesses to be more efficient and to reduce carbon emissions to the atmosphere.
This levy is technically designed to be revenue neutral, with the proceeds being used to provide technical and financial help to businesses through The Carbon Trust and by Enhance Capital Allowances on technologies and products that improve efficiency.
Exemptions are allowed for some businesses, those that are already regulated by the Environment Agency pollution control and some manufacturing industry sectors have sector agreements. Exemption is strictly dependant on reducing actual indexed consumption.
Additional exemptions are available for some qualifying combined heat and power systems and you can buy exempt supplies from electricity suppliers, but these supplies are often provided at a premium to the normal supplies that neutralise the benefit of the exemption. (In addition there is some concern that "green" energy is being oversold, with profit from the sale not necessarily benefitting the promotion of further green sources, and that companies that purchase green energy consider they have done their bit for the environment and consequently do not have to conserve energy.)
Electricity and Gas Markets overview March 2009
In late 2008 when prices were at their
highest and all predictions for oil, gas and electricity prices to continue
going upwards, who could have predicted the impact of the credit crunch on the
world economies and their impact on gas and electricity prices.
The last time prices were significantly
lower than today was back in February 2007. Prices then seemed to continually
be going up and soared to an all time high in Oct 2008, some 300% higher. At
that time offers from suppliers lasted hours and were superseded on a daily
basis by ever higher offers. The strategy then was to lock in longer term
contracts, the conventional wisdom on a rising market.
Many of our clients especially our long term
customers of GM Associates were recommended to accept 2 year deals negotiated
around spring of 2007, for commencement in Oct 07. These contracts are now
coming to an end.
Fortunately gas and electricity prices are
now on a downward trend, but still 50% higher than the very low point in Feb 07,
but you will have avoided these extreme prices.
Given the national and international economic
situation, prices are likely to continue sliding for a few months, but the rate
of decline has slowed significantly over the past month. Looking at the curve
of forward electricity wholesale prices (Fig 1), the low point may occur in
early summer, so those with an October start to their next contracts may be
well placed to keep their price rise from their 2007 contracts to a minimum
(but should still expect an increase, which could be up to 50% higher than
presently enjoyed).
We are continuing to monitor the market and
are preparing to seek bids for around late spring/early summer, but this will
depend on the how the market develops.
If the economy recovers maybe in late 2009
or early 2010, as predicted by the Bank of England, then we think it is
inevitable that utility prices will rise. With that in mind, we will be
recommending minimum 24 month forward contracts where possible
Effect
of the “Credit Crunch”.
Since the “credit crunch” occurred, all
suppliers have been taking additional steps to minimise their risk of exposure
to loss, and to maintain their liquidity.
When a contract is let, many suppliers
contract to buy the majority of the contracted electricity or gas on the
forward market. This is on a take or pay arrangement, so if demand falls,
suppliers stand to make a significant loss on unused supply. They have reacted
in four ways to limit their exposure.
1)They are taking a harder look
at the credit rating of the company which are having three main consequences
a.A security deposit may be
required, equal to two times the highest monthly bill
b.Direct Debit payment may become
mandatory or no contract is offered.
c.Where this is a renewal, and
they deem the risk to be higher that they want to accept, they have been purposefully
offering a “price to loose the contract”, which will result in significantly
higher costs.
2)Some suppliers will only offer
up to 19 month contacts maximum. This could be to your disadvantage in a market
where you may want to seek longer term contracts to protect you from future
price rises, and reduces the competitiveness of bids received.
3)They will seek insurance for
the perceived risk which will be added to the supply price.
4)Will not make a contract offer
at all.
All in all, these measures are increasing
the cost to the customer over the wholesale price.
What you can do to minimise the impact of
these measures.
1)Send company accounts to
Companies House in the prescribed time.
2)Check that your credit rating
is accurate with the major credit rating agencies.
3)Accept DD as the standard
payment method (this also benefits from a small price reduction of up to 2% in
many cases)
4)Be prepared to offer a security
deposit if requested.
5)Make sure you pay your bills on
time (if not paying by DD)
Our
Strategy
We will continue to try to predict the low point in the market
for best time to secure longer term deals
Renewals with the incumbent are often favoured on a falling
market, as the decision to commit to any contract can be delayed to the
last possible moment. (Changing suppliers needs a 1 month transfer period,
whereas renewals can wait until up to and maybe beyond the old contract
end date)
We recommend minimum 24 months contracts where possible to reduce
impact of potentially increasing prices as the economic recovery
commences.
If you would like to join the many satisfied GM Associates customers, please call us or use the "Contact Us" page link below.
