Government policy costs drive up the Index of Domestic Electricity Supply Costs in April
Policy costs exerted a 52 point increase on the Cornwall Insight Index of Domestic Electricity Supply Costs in April as the charges for subsidising renewable electricity, paying for the Smart DCC’s smart metering infrastructure, and social policy costs rose. However, a reduction in wholesale and network costs on the previous month mitigated the increase slightly, falling 8 and 13 points respectively to finish the index 31 points above the previous month at 1,431 points.
In contrast the Index of Domestic Gas Supply Costs decreased 2 points to 991 points. Wholesale prices droppped 18 points on the previous month while changes to network and government policy costs both contributed 8-point increases.
The latest monthly Cornwall Insight Index of Domestic Energy Supply Costs was published last week. Updated every month, the index tracks wholesale, network and policy costs faced by electricity and gas suppliers. It is baselined to a value of 1,000 points in January 2012.
Looking at the breakdown of electricity network costs in more detail shows decreases across all categories, to varying extents. The transmission use of system (TNUoS) and distribution use of system (DUoS) charges both fell for the second year running, falling by the equivalent of 0.02p/kWh and 0.05p/kWh in each case. In addition, balancing use of system (BSUoS) charges fell to their lowest level since June 2016.
But, in contrast, the components which make up the different government policy costs almost universally increased. In social policy costs this ranged from a 3% increase in ECO costs to a 50% increase in smart metering charging from the DCC, meaning that smart meter costs now represent 44% of all social policy costs imposed upon electricity suppliers. In terms of generation policy costs, the largest overall change came from increasing Renewable Obligation (RO) charges, but the greatest proportional increase (36%) came from increased costs of the Contract for Difference (CfD) scheme.
On gas charges, distribution cost changes varied considerably by local distribution zone (LDZ) from +5.8% in one region to -2.1% in another. On average, however, network costs increased by 2%. As with the electricity index, the largest government policy costs increase (51%) was due to changing smart metering charges.
Overall the data upon which the indices are based shows that a growing proportion of supplier costs come from third party charges. With a range of suppliers already announcing price rises to their standard variable products across March and April, it is likely that further tariff increases will be seen even as pressure on wholesale costs abates.
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