Business Electricity Capacity Charges – What are capacity charges?
Ever noticed a ‘capacity charge’ on your energy invoice? For many customers, this will be the second highest charge on their bill after their energy commodity cost. Business Electricity Capacity Charges are an area we frequently receive questions about.
But what are they? How are they charged? And what can you do to reduce them?
What is a capacity charge?
Capacity charges reflect the cost of ensuring that the power your business needs is always available on the network. Take an example where a factory will undertake a high energy activity at random intervals. To allow for this high energy task, the power network must ensure that the correct amount of energy is available on the national grid. Because the factory might need the energy at any hour, the grid must have this amount available, regardless of whether the factory is using it. Should network demand exceed capacity, clients face losing continuous energy availability.
Suppliers consider how much power you are likely to need at any particular point when determining how much capacity is needed for the network.
The charge for this service is the capacity charge.
How are capacity charges calculated?
The price of energy differs depending on location. The capacity charge is no different. So, expect your capacity charge to be slightly different from other customers.
But fundamentally, your capacity charge is based on your Peak Load Contribution (PLC) throughout the year. But different areas will use different calculations to determine the actual rate.
You may be charged extra for exceeding your capacity limits
Many contracts will include a standard capacity charge based on your PLC. Previously, if you exceed this agreed amount, then you would be charged at the standard rate of electricity.
But, from April 2018 Ofgem changed the rules. Now, companies on half-hour meters will be charged up to three times higher than the standard rate for exceeding their capacity limits. The exact price will depend on your area.
This new charge will be labelled as ‘DUoS Excess Availability’ on your contract. If you see this, then you could benefit from renegotiating your contract.
How to reduce your capacity charge
If you can reduce your PLC, then your energy bill will decrease even if you use the same amount of energy.
This can be done in many ways:
1) Spread high energy activities throughout the day, rather than completing all of it in a short period
2) Move non-critical tasks to off-peak times where there is a lower demand for energy
3) Upgrade to more energy efficient equipment that draws less energy
4) Use a combination of on-site generation and storage equipment to trim energy during peak times
Implementing these changes may sound like a daunting task, but Tritility can help.
We have years of knowledge and experience at our disposal that we can use to reduce your capacity charges.
Simply get in touch with us, and we’d love to help in any way we can.
P.S There are many others charges other than capacity charges that you can reduce to reduce your energy bill. Be sure to look at our other posts or get in touch, and we’d be happy to explain every way you could reduce your energy bill.