You may have seen recent media quoting a number of senior executives at Electricity Retailers forecasting increases around 35% for electricity costs in 2023? When they are talking about this, what they are referring to is “bundled” tariffs for SME and Residential customers.
Large Market customers have already borne the brunt of significant increases during 2022 if they needed to renew contracts. Fortunately most NES Customers were able to avoid this, but Wholesale and Retail pricing during 2022 has hit unprecedented highs, time weighted average energy rates that used to sit around 7-8 c/kWh are currently around 30 c/kWh, that’s a touch more than 35%!
Bundled Electricity Tariffs are reviewed each year, normally aligning with a review of the regulated tariffs which is the maximum rate that can be charged. The most recent increases from July were small and did not capture the increases in the market, largely insulating SME and Residential Consumers from the increases in the hope the market volatility would be short-lived. This was unrealistic and tariffs will inevitably increase materially from 1 July 2023.
A number of “boutique” retailers ceased trading as the tariffs were not recovering the costs of their hedge contracts, and it is highlighted in a number of reviews we have done in recent months for Embedded Networks, where a property owner buys supply on a Large Market Contract, and sells to tenants on a Tariff. Previously this has been lucrative for property owners as a source of revenue, but any who have had to re-contract their supply agreements during 2022 have found that the cost of supply significantly exceeds what they are recovering from tenants.
If you have a portfolio of SME locations, it has never been more important to manage expectations for the inevitable increases and ensure that the rates you are on remain best in market, if they are not, there are generally no penalties in changing arrangements for SME.
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