How your business energy supplier determines when you use your energy
Electricity may come as a p/kWh unit rate on your invoice, but the constituent parts of that price take some explaining.
Elsewhere in our business energy guides we explain why the energy itself is only around 50% of your rate, with the rest covering transportation costs, government levies and supplier profits. But that 50% energy cost is still the biggest single element of your unit rate.
So how is this determined?
Well your energy supplier will have an idea of how much you consume through your meter reads and annual consumption records, however they won’t necessarily know when you use that consumption.
For instance if you are a bakery or butcher you could be open for business, or at least prepping, from the early hours of the morning, using energy as you go, whilst most businesses are on snooze buttons.
By contrast you could be a nightclub whose stock in trade doesn’t get going until after closing time and your energy dances away the night along with the clubbers.
Or you could be a traditional office, with workers rolling in to open up at 8.30 and escaping out the doors at 5.00pm on the dot.
The electricity market operates in half hours, every half hour a different price is set for electricity and in each half hour it is possible to purchase a myriad of shapes and sizes of electricity. Each having its own price.
In broad terms, during the night energy will be cheaper, and in the day, particularly the morning and early evening, it will be more expensive (as that’s when residential customers use most of their energy and drive up demand). As a result a baker may use the majority of its energy in a cheaper period, whilst an office uses theirs throughout the premium priced hours.
If a supplier is to understand what to charge your business for each unit of electricity used then they will need some way of modeling how they think you will use your energy and thereby determine the price periods (half hours) where you will use more, less or none at all.
Clearly the only way to do this with accuracy is to read every meter in every business every half an hour. As a result your supplier would know how much you use and when and produce a bespoke price for your needs. But obviously that isn’t realistic.
Smart meters however offer a potential route to achieve this but given there are just 200,000 half-hourly meters in the UK, and that the ‘settlement’ system which logs and categorises the energy consumption of these meters is not scaleable, the ability to increase such meters 10, 20 or 100 fold just isn’t currently viable.
As a result, because suppliers have to ‘know’ your usage pattern in order to buy your electricity they need some form of uniformity where actual data isn’t available.
Step forward the energy load profile.
Given the number of businesses in the UK how many load profiles would be enough to represent every UK business?
One hundred thousand? Ten thousand? One thousand? Five Hundred? One Hundred? Fifty? Ten?
No, the number of load profiles for ‘non-domestic’ customers is 6, with a further 2 for domestic customers.
As a result if your business doesn’t match one of the eight and you don’t have a half hourly meter, the assumptions your energy supplier will make about your energy usage will in all likelihood be wrong or at least not totally accurate.
You may be being billed for the right number of units, but because the assumptions used to compile your p/kWh have assumed you use most of your energy in a busy period, you will pay an accordingly higher price regardless of whether you use any energy at ‘peak’ times.
Clearly this is an imperfect system, but it is the system we have and one that has been in existence for many years. It is to be hoped that the advent of smart meters will bring about a data revolution however for now we must accept profiles as a necessary step in understanding the energy usage of UK businesses.
The whole process of calculating the 8 profiles is a mathematical one, littered with equations and algorithms but the ultimate principle is that over a 24 hour period or a 12 month period the demand being measured will total up in fractions and percentages to a sum of 1.
The 8 profiles themselves are numbered 1 to 8
- Profiles 1 and 2 are for domestic consumption patterns, with the latter being specific to Economy 7 meters.
- Profile 3 is the most common profile, used for most businesses.
- Profile 4 is for a business fitted with an Economy 7 meter.
- Profiles 5 to 8 are for customers known as Maximum Demand customers, these are larger business users, of which there are far fewer, and are categorized according to their peak load factor or in other words their peak demand as a proportion of overall demand.
So whether you are a baker or a nightclub, nocturnal or 9-5, your profile will not necessarily reflect when you use your energy, just when the average business is deemed to use their energy.
Presumably then there is a significant testing sample used to deliver this data? Unfortunately not, the sample size is very small, and has historically been confined to Scotland with its variant sunlight, dawn and dusks from the rest of the UK.
The system then is fundamentally flawed in terms of what they are measuring, whom they are measuring, what they are concluding and how it is applied.
Even the most optimistic of commentators would question the validity of these assumptions, however this is the system the UK energy network operates and despite the advent of smart metering and decades of half-hourly demand recording we are no nearer to a better way of apportioning a business’ consumption to an accurate pattern of usage through the working day.
However unsatisfactory this all sounds, this imperfect system has served the market well, but now must be the time to move to a smarter way of working, harnessing smart metering, big data and smart grids to provide a seamlessly transparent flow of information enabling real time, accurate pricing, demand and supply optimization and an energy efficient culture from top to bottom in the energy industry.
Until that day comes we will always be paying more than we should do for our business energy.
To find out your energy profile and how it affects your business electricity costs call us on 0800 051 5770, we’d love to hear from you.