Power to the Tenant

I recently worked for a tenant who wanted me to review their energy supply costs which they received via the landlord. In many shared building scenarios the landlord will control the energy procurement, and then re-bill the tenant.

Generally where a fair sub-billing system can be set up (although this is not as easy as it might seem) this keeps everyone reasonably happy. However, tenants often won’t know what they will be paying and what to set their budgets for if they are not in control of their energy supply and bills.

It’s no picnic for the landlord either as energy procurement can be time consuming and confusing. Some landlords will factor the energy costs into the rent or service charges. Landlords that do this may seem more expensive but they are probably taking on significant risk as energy prices will become increasingly expensive due to the rising costs of meeting EU Climate Change agreement targets over the next few years to reduce Co2 output by 2020. So the landlord in this scenario must take care in setting accurate long term budgets to not leave them out of pocket.

Electricity and Gas (internal Markets) Regulations 2011

However, I came across a piece of legislation recently called the Electricity and Gas (internal Markets) Regulations 2011. The legislation came into force in the UK in 2011 and gives “power” to the tenant who wants to control their own supplies and feels they can achieve a better price and service direct or through their own appointed consultant/broker. There is similar legislation throughout Europe as this was a directive mandated by the EU.

A tenant who gives notice to a landlord under these regulations can ask for the landlord to make provisions for them to secure their own supply even if it means making adjustments to the electricity or gas infrastructure within the landlords building. So in a multi-let and multi-occupied building every tenant has the freedom to request their own supply.

The tenant wanting to go down this route would need to pay for retrospective metering and cabling costs. An easier solution would be to give the tenant the option of purchasing their own energy by ensuring the managed building can easily accommodate the tenants own meter(s) if required. So it may be worth planning for this at the outset of a build.

Control over supply gives freedom of choice

For the tenant control over supply gives obvious freedom of choice. Furthermore, the type of contract such as a fixed or flexible energy cost contract also comes into the tenant’s remit. For CSR purposes the tenant can source Green or CCL Exempt electricity contracts. Not only can this offer green/CSR credentials, these type of contracts are currently cheaper in many cases than brown contracts. The landlord can source green contracts for the tenant but the landlord takes all the “green credit”.

Talking about credits the CRC Scheme qualification Phase 2 may have put some tenants wanting direct supplies off before 31st March 2013. However, now that the qualification period has passed for the next five years energy users can’t qualify for CRC Phase 2 eliminating the potential CRC cost exposure in the medium term.

Finally it is worth taking a moment to consider Ed Milliband’s recent comments of “freezing energy prices until 2017”. As mentioned above the biggest driver of energy costs over the next three to five years across Europe will be caused by EU climate change treaties to meet stringent Co2 targets between 2020-30. This means investment in new infrastructure and renewable generation projects and a price freeze would effectively bring an end to renewable investments because you can’t have one without the other.

Who knows what the long term decision will be, but it is worth keeping an eye on this for both landlords and tenants alike because if investments in renewables and Co2 targets are scrapped energy budgets could well come down.