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New guide to energy pricing for communal heating schemes

A new 'Guide to Tariff Calculation' for communal and district heating schemes has been launched by energy metering and billing solutions provider ENER-G Switch2 (www.energ.co.uk/switch2).
New guide to energy pricing for communal heating schemes
The free guide is designed to help landlords to take the risk out of energy pricing and to charge fairly, but accurately, on the basis of predicted total operating costs of the heating system. This takes into account many factors, including the types of technologies deployed to generate heat in the main energy centre.

An alternative method of setting communal heating scheme energy tariffs is to benchmark against a competitor fuel, such as gas or electricity. This enables the landlord or scheme operator to offer a competitive price for the heat delivered by the communal heating plant when compared to alternative utility suppliers, but can be risky.

Chris Fortes, finance director for ENER-G Switch2, said: 'The price benchmarking method of tariff setting may not bear any resemblance to the actual cost of producing and delivering the heat to the point of use, as it does not take into consideration critical factors such as operational inefficiencies. The danger in adopting such a methodology is that payment for heat by the residents may not cover the cost of the primary fuel supplied through the bulk meter.'

He continued: 'A more accurate method of tariff setting is to calculate the actual cost of raw fuel and other direct costs of heat production and service provision. This takes into consideration the type of primary fuel source, whether this is biomass, biofuel, gas, solar panels, or a combination of these technologies.

'This actual cost pricing methodology also considers other key factors such as how efficient the boiler plant is, based on heating system operating parameters, and the cost of distributing the energy to individual dwellings. It also takes into account other elements, such as renewable output and renewable incentive payments, as well as the impact of energy taxes. Landlords can also build in a bad debt provision, based on previous data and experience, to prevent financial risk exposure.'

The guide also provides advice on standing charges, Climate Change Levy and potential contribution from the Renewable Heat Incentive (RHI). It can be downloaded at: http://www.energ.co.uk/switch2quickguide

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11 June 2012

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