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The BREXIT Effect on Care Home Energy Costs

29 July 2016

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 July 29, 2016
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EnergyPriceRise

All signs are pointing towards an increase in Gas and Electricity contracts over the coming months

CSI asked leading business experts Energycentric, their thoughts on the effect BREXIT will have on care home energy costs

In addition to working with care home groups to improve marketing performance CSI has worked alongside leading business utility experts Energycentric to help save money for our clients with their energy bills.

There have been many commentaries on the effects of BREXIT in a number of areas, but I was keen to get their thoughts on its effect on energy bills, and I am very pleased that I did because, with 165 care homes closing their doors for good already in 2016, rising energy prices, along with National Living Wage, will be another hike in costs that the industry could do without.

Director Paul Antoniades told me, “For the past few months, and even more so in the last few weeks, the word on everyone’s lips is “Brexit” with many people uncertain of what to expect short term and the forthcoming years.

Without the ability of looking into a crystal ball it is very hard to determine what actually will happen but using the facts we do have, we can have a pretty good idea of what to expect over for the remainder of this year.”

So what do we know that will have an effect on your utility costs?

• The UK’s gas and power markets have been rocked in recent months by heavy infrastructure maintenance, unplanned shutdowns and political turmoil, leading to the most volatile quarter of trading in the last two years and a stark break from the market’s steady decline since 2013.

• Market experts have announced that the price of gas climbed 29% over the second quarter while wholesale electricity prices rose 25%.(see graphs below)

Electricity Prices

Gas Graph

• The immediate reaction of the markets to the Brexit vote was negative: the FTSE and Sterling plummeted. The UK’s credit rating has been downgraded by two key rating agencies, and the Governor of the bank of England said the UK economy faced a “deteriorating outlook”

• The value of the pound against the EUR/USD has been sharply declining in the wake of the referendum result with predictions of this declining further.

• This decline, in a nutshell, means that importing will become much more expensive for UK individuals and companies, including the various energy companies.

• The UK currently imports a huge amount of energy from Europe, in order to satisfy the high demand from the UK’s population. If the UK’s power companies are having to pay higher rates for this energy, you can guarantee that they’ll pass these higher costs onto their customers, thus leading to increased energy bills.

• Uncertainty over the UK’s access to the single market while Article 50 negotiations are underway could well cause an EU and UK-wide recession which would be likely to reduce demand for all forms of energy – electricity, oil and gas. That would have knock-on effects on price and hence profitability.

• Transmission and distribution costs are fixed via price controls and, as such, could be expected to be insulated from the impacts of Brexit. However, the costs are spread over total demand, which, while continuing to fall at present, had been forecast to start growing again with the economy. Now, as a consequence of leaving the EU, the economy materially suffers and the UK once again enters recession, falling demand will result in higher-than-average tariffs for system charges being passed through to end consumers.

All signs are pointing towards an increase in Gas and Electricity contracts over the coming months with possible increases to third party charges. With the fear of recession looming uncertainty and instability are the key messages which all suppliers are banding around.

Suppliers are very much “Risk adverse” and an increase within their prices will give them a bit more confidence as the dust starts to settle. Clients who look for budget certainty within their businesses would be advised to secure longer term contracts as soon as possible.

Our role as a utility consultant is very important and plays a pivotal role within the energy world. We analyse the wholesale power market, liaise with all suppliers (including the “Big 6”) and closely monitor the current economic conditions giving us all rounded knowledge on the best possible time to purchase and secure your energy contracts.”

Rising Energy Prices

Energycentric analyse the wholesale power market, liaise with all suppliers (including the “Big 6”) and closely monitor the current economic conditions giving them all rounded knowledge on the best possible time to purchase and secure energy contracts.

If you have an energy contract that is coming up for renewal in the next 18 months and would like Energycentric to secure contract prices now going forwards before they rise, please email me and I will put you in touch.

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Mike Short
Care Sector Innovations

Care Sector Innovations works within the care sector providing marketing support to care providers from a single project through to strategic management utilising our unique Care Sector Market Model.

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