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Commercial Energy Suppliers | Can you get paid to use energy?

06/07/2020

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It might sound far-fetched, but some energy suppliers are already paying customers to use energy. Why are they coughing up the cash, and what does it mean for your business?

Energy suppliers rarely makes the headlines for the right reasons, but there’s been an increase in coverage over the past few weeks – because wholesale energy prices have dropped to their lowest levels in decades.

So why have energy prices dropped? And why are some energy suppliers paying their customers to use energy?

Why energy suppliers are paying customers to use energy

It all comes back to the same thing:

The Covid-19 pandemic.

The pandemic has had a major impact on most industries, and the energy industry is no different. Not only are energy suppliers struggling to man their customer service centres as they deal with the same sickness issues that other employers are facing, they’re also dealing with the way lockdown fundamentally changed demand for their product.

Energy demand has collapsed

With quarantine measures taking effect around the world from early March, demand for energy collapsed almost overnight. International travel bans meant that airlines were effectively grounded, while national lockdowns meant that demand for petrol slumped as people stopped travelling. Business and industry demand for gas was similarly affected by the pandemic and, thanks to a warm spring and early summer, domestic demand was lower than usual. Prices dropped significantly, with knock-on benefits for consumers looking to make savings on their bills.

Production rates did not change (and in some cases even increased)

Collapse in demand wasn’t the only thing that caused problems for oil companies. IN early April, Saudi Arabia ramped up its production rate to try and throttle US crude and shale producers and gain market share over both US and Russian companies. American producers were forced to cut dividends and oil prices dropped to their lowest levels since 1992.

Storage capacity

Oil and gas are physical commodities, and with production rates failing to drop in line with demand, storage capacity is quickly becoming an issue. The UK’s gas storage capacity is stretched to the max and prices fell dramatically. Not only that, in late May wholesale power prices went negative thanks to increased power generation from solar and wind power, coupled with continued low demand from business and industry.

But longer-term, this oversupply is likely to have the opposite effect on prices. This is because National Grid is paying power producers an estimated £500m to run at lower capacity than normal in order to balance supply and demand across the electricity grid during the pandemic, and in fact the cost of balancing the grid could come to £826m between May to August – an increase of over £300m on the same period in 2019.

National Grid typically passes these costs on to energy suppliers and generators, who in turn pass the costs on to their business and domestic customers.

What this means for your business

Unfortunately, you probably won’t be getting paid to use energy.

Octopus Energy recently started paying their customers with smart meters to use power at specific times. The trial exercise is to see if it will help balance the grid. As electricity can’t be easily stored, suppliers end up paying fees if their customers under consume . Paying customers to use power at the right time could help suppliers  achieve a more balanced grid and avoid fees.

It’s part of the move towards a “smarter grid”, and it’s why the customers participating all have smart meters. Smart meters were marketed as money-saving tools for businesses, but they’re also one of the foundational elements of the smarter grid system. For a smart grid to function, it needs to be able to communicate with its users. That means smart meters, which send information about your energy consumption back to the grid. Without a smart meter, your business can’t be part of the smart grid, and you’ll be stuck with estimated readings and bills.

What you can do now

Fix your energy price sooner rather than later, because there’s a good chance prices will go up as winter approaches.

Right now, business energy prices have tumbled and are lower than they have been for a long time, so it’s a good time to switch or renew your business energy contract. Fixing your energy contract now means locking in a price that is unlikely to be available again. It’s a financial advantage for your business in tough economic and social circumstances.

Fixing your prices now for the next 2-3 years will see your business through economic turbulence caused by the pandemic (and don’t forget Brexit is still bubbling away in the background, with uncertain economic consequences).

Get in touch with our team on 0808 164 2222 or email fairer@troocost.com to lock in a lower energy price asap.

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