How is your energy management ?
Energy Cost Components
Electrical overhead lines, poles, cables, transformers etc. are essentially needed to transmit and distribute energy locally to the tenant, homeowners, industries and business owners. The distribution costs is recovered from the consumers by the utility owners.
As of now, we are completely free to choose are other utilities, so why not gas and power. To benefit the consumers and to raise the competition between the industry government deregulated the state’s electricity market enabling the consumers to opt for their energy choice. The consumers are empowered now to compare the rates services and the terms and conditions of the contract and opt for the best that suits the consumer’s needs and requirements.
At present some of the states in the nation are deregulated while others are not. Therefore, this is applicable only to the states that are deregulated. Here we have various suppliers coming with various plans, and we recommend “fully bundled” which will be mentioned later. Some of the deregulated States are mentioned below. –
Utility Vs Supplier/Provider
There are cases, where the customer has not chosen the supplier, in that case the utility company chooses the supplier by default on behalf of the customer. Some states have utility companies only as the supplier.
Major Cost Components on Supply Portion
The supply portion includes the below mentioned components which may vary from time to time.
Capacity Cost generally only applies in energy deregulated markets. Capacity is the amount paid to ensure the variable availability of power sources do not result in blackouts even if the day is hottest or it is coldest. The capacity helps to know the generators that how much energy they need to supply to the electricity grid. It ensures that the electricity is available all the time to all their consumers. In case enough electricity is not generated by it, the consumers will be deprived of the electricity. In today’s world, almost all tasks are energy based, therefore generators require capacity. It can be compared to an insurance cost against the power outage for uninterrupted power supply all the time. It passes through 5- 30 % if the customers fails to opt for fixed rates. This cost is increasing now and as of now it represents one of the largest components on several electricity bills. This cost is connected with maintaining reliability of the grid. The grid needs to be capable enough to produce reliable power on even the hottest day of summer or on the coldest day of winter. The capacity cost is related to the system being designed for the maximum use days. Importantly, the capacity cost that the customers pay for the whole year can be defined in few hours only during the summers on one of the maximum use days. The electricity consumption at one time is known as your demand and is measured in kW instead of measuring in kWh. This is because capacity is a demand – based charge kW and not an energy based charge therefore not measured in terms of kWh.
Bulk transfer of electrical energy from the power plants to electrical substations located near the demand stations is known as transmission of energy. The electric transmission grids consists of more than 2,00,000 miles high voltage of 230 kV or more transmission lines. These transmission infrastructures are to be owned by utilities or independent transmission owners who recovers the annual transmission revenue and the annual costs from the consumer bills. Power should also be transmitted across large transmission networks from state to state in order to maintain a reliable grid. Some of the costs is set by energy usage kWh and some by demand usage kW.
The amount of electrical energy lost at the time of transmission and distribution is called as Line Loss. At normal conditions 5.00 % is estimated as the loss between the power plants, distribution transformers of substations, overhead local and regional wires. Such line losses charges are considered at the time of supply of energy quantum. This is similar to the cost seen on natural gas bills. When energy is transmitted from the power plants to the centres, some of the electricity is lost as heat in the wires. The amount of energy that enters into the wires is not the same that leaves from the other end. In order to counteract these losses, prices and usage values are scaled up. There are times when these charges are fixed and adjusted into the energy costs while presenting on a bill.
What are ancillary services? These are the services that are necessary to support capacity and the transmission of energy from resources to loads while carrying out reliable operations of the transmission system as per good utility prices. . In an industry, ancillary services are a collection of secondary services offered that help ensure availability and reliability of energy to consumers. These services comprise of regulation, spinning reserve, supplemental reserve, voltage regulation, black – start and a lot more. Aggregation of smaller charges associated with maintaining a reliable grid. They may include credits or charges. They comprise of 2% – 5% cost on most of the electricity bills.
Congestion cost is the cost associated with transfer of power from liquid pricing hub to the delivery locations. This is combined with the energy cost specifically for the less intricate cv contracts.
RMR or the Reliability Must Run. RMR is also a charge that is associated with the maintenance of a reliable grid. As fluctuation arises in the plant age or in fuel costs, some of the power plant head do not make any profit by running their plants and think to switch them off. But on the other hand, the grid operators require these plants so as to continue operating so that the grid functions properly and with efficiency. The RMR cost is divided among the facilities in a specific region. This is a rarely occurring cost and if present often is relatively small.
RPS stands for Renewable Portfolio Standard. Several states mandatorily require renewable energy. These are present around the world with different names and treatments but are seen on the bills.
Pros and Cons of Variable Vs Fixed Rates
|Description||Variable rate||Fixed rate|
|Rate increase||Energy Bill increases||Rates remain same|
|Budget your cost||Impossible||Possible|
|Change supplier||Highly flexible||Needs early termination cost
in case supplier changes before end
of contract date
|Sudden increase in energy bills||Very often||Consistent and predictable bill|
|At the time of reduction in rates||Make savings||No savings|
|Budget certainty, price protection||Unavailable||Available, a sort of insurance|
It is nearly a challenge to opt for your electricity or natural gas supplier, energy customers in deregulated states can opt between various plans having different duration of contract, rate structure etc.
While you are choosing an energy plan, it becomes necessary to know variable energy rate or fixed energy rate is appropriate for you. The bill payed on your monthly utility may vary according to the energy rate you choose. Below is given a detailed description of fixed and variable rate plan.
What is a fixed rate plan ?
A fixed rate energy can be defined as an electricity or natural gas plan where the price for each kilowatt hour of a gas remains constant till the entire duration of the contract. Few suppliers make little adjustment of the season based on seasonal differences in the wholesale energy market. The energy rates are always predictable and vary only on a predetermined schedule. On shorter plans, the price remains constant for the entire duration of the contract.
The prices of the fixed rate plan are dependent on the energy prices on the wholesale market when you sign the contract. If the price of energy is low, you can opt for a cheap rate for the entire length of the contract. However, if you choose a plan when the energy rates are high, you will have to pay more for the entire term till the contract ends. The duration of the contract for fixed rate plan may vary depending on the retail energy provider (REP) . The length of the term could be any from 3months, 6 months, 12 months, 18 months, 24 months , 48 months or 60 even upto 60 months.
Even if you choose a fixed rate plan, the amount of the bill that you will pay may vary with the amount of energy used every month.
What is a variable rate energy plan ?
This plan is an electricity or natural gas plan where the price for each kilowatt hour changes as energy market prices change. Variable energy rate are likely to change every month, and for that energy provider will inform you.
Variable energy rates follow wholesale energy prices, they can be predicted to a certain extent. When the wholesale energy prices are low, then the residential energy rates are also low and vice versa. The energy prices in the wholesale market depend on various parameters such as supply and demand, weather conditions, climate, air temperature etc.
Pros and Cons of Fixed Energy Rates.
These provide reliability and advantage at the time of budgeting. If you choose a fixed rate plan , you choose a rate that stays the same for the entire length of the contract. The only variable that occurs in your utility bills is the energy consumption. Choosing this plan, you become absolutely relaxed, even if the energy prices increase because your rates are going to remain the same. In case wholesale prices decrease, you will not be able to gain benefits from lower prices with a fixed rate plan. This proves more appropriate when you choose your fixed rate at the time when prices were high. If your energy rates are fixed, you are bound to the deal until the contract expires. In case you end the contract before time , you will have to pay a termination fee.
Pros and Cons of Fixed Energy Rates.
These provide you the benefit from low energy prices on a wholesale market. At the time of reduction in the market prices, the residential variable rate also reduces. It proves beneficial when you monitor the wholesale prices and switch suppliers or adjust energy consumption whenever the rates hikes. The most important benefits it serves is that you are not bound to any contract.
The minus point of the variable energy rate is the uncertainty that comes with the changing rates. At the time you make the budget you must consider the varying energy consumption from month to month. The changing rates per kWh must also be kept in consideration with the variable energy rates. If you choose it, you choose a low average energy rate. At the time of increasing energy prices in the market, your residential rate also increases. It is a little bit difficult to save money when you choose a variable rate plan. You need to always monitor the increasing prices and should hunt for a different plan when the prices increase in the market.
Variable Vs Fixed Energy Rates –
Variable rate plans offer complete flexibility whereas the fixed rate plans generally offer plans of 6 months to 3 years. It completely depends on you to choose from fixed or variable rate plans depending on your situation and requirements. Both have their own advantages for the electricity or natural gas costumers.
However, fixed rate plans are a more suitable option for an individual who seeks consistency and a better basis to build a budget. It requires a little more investment for your energy to acquire price stability. Variable rate plans suits those who want to take risks, who wish to save money on their utility bills. Variable rate plans are appropriate for those who do not like to stuck in any sort of contract or bond. By estimating your annual energy consumption and by calculating the average cost for each plan, you can choose the more appropriate plan for yourself and your business. Most of the retail providers provide the available rates, giving an idea of how much variable rates can fluctuate. The energy rates follow seasonal patterns, which may provide variable rates that will costs the same as the fixed rates. Fixed Rates further provide two types of contracts One is the Energy Only Vs Fully Bundled. Energy Only : This provides fixed energy component for the energy portion, while other costs include capacity cost, transmission cost, line loss costs, ancillary cost which will be passed through as they actually are.
Fixed Fully Bundled : This is the best plan that one should opt for which includes all the components of supply portion such as Energy cost, capacity cost, ancillary costs, transmission cost, line loss costs, and all the costs on supply portion are included, bundled and are fixed for the duration of the contract you choose.
Power factor is a division of the consumer pull from the grid to the supplied actual power, ideally that should be unity. This is solely dependent on the load type that the facility has which needs to be pulled to complete certain amount of work and the actual supplied kW. Depending on the power factor that you have , the energy supplier or provider will give you the rates after analysing the past bills. Poor power factor leads to pulling of more power from the grid than it is required by the facility. This can be improved by installing capacitors or capacitor banks depending on the load amount. It is the ability of the load to smoothly pass the current and perform the work. Power factor means the ratio of power supplied to the measured points to the demand pulled from the supply. Ideal systems have power factor 1 , which implies that the power and the demand are exactly equal. But actually the power factor runs as low as 0.6 to 0.999. It is the ability of your electrical systems to convert the electric current into useful energy.
Selection of Swing
Components of Supply Portion for Natural Gas –
This is the actual commodity cost, . Delivery is your facility location, or another pricing location. The most liquid of all the natural gas trending hubs is the Henry Hub in Louisiana. This is known as the NYMEX as it traded on the New York Mercantile Exchange which is owned by the Chicago based CME group.
It represents the cost of getting the gas from the Henry Hub to the nearby locations. For buyers, NYMEX and basis built up the costs. This is also the cost of the gas that is basically used to compare prices from various suppliers or to compare a utility rate to a supplier. Rarely, the basis can be negative. This is more likely to occur in the parts where the gas is trapped that is there is high production capability, but the pipeline capacity is not enough to export the gas.
Transportation fuel losses – Some fuel is lost while transporting over long distances through the small holes or leaks in the pipes. Other gases are needed to pressurize the gas that is being distributed. Sometimes this loss is included in the energy cost but if it is broken out it is lesser than 5% .
If you use of more gas than mentioned in your contract, the additional gas used will be priced accordingly to the defined pricing point. It cad be the same as your contracted portion, but it may also be higher or lower depending on the conditions of the market. You can use of a little or more as per your needs, in case you have 100% swing specified. In such a situation, you need not pay additional than your contracted rate. Moreover, the supplier can include a little insurance premium to the price, if they take this risk .In case of 0% swing contract, any gas you use that is under or over your contract will be charged based on the market based rate.
Some of the utilities provide storage that can aid even how much gas you require to buy. Whenever you use lesser gas than expected, the remaining is filled up in the storage. When you burn more gas than estimated, a little bit is used from the storage. The contract specifies whether you allow third party supplier to manage this for your work. Depending on the situation, this can be used as a credit or a cost to you.