Archive for September, 2014

Manufacturing companies in the UK are expected to increase investment in energy management technology according to a report from Siemens, with 79% of UK manufacturers now seeing energy as a business critical issue.

“Energy, its use and its cost, will continue to be a key battleground for manufacturing organisations wishing to remain competitive as competition on a local, national and international stage accelerates”

The Siemens research found that self-generation was the primary area of investment, which serves the multiple objectives of reducing costs while delivering a decent long-term payback and reducing vulnerability to future supply interruptions.

While the importance of mitigating rising energy costs is accepted, barriers to investment remain, ranging from uncertain ROI, other priorities and the need for capital outlay, often leaving a disconnect between intentions and action.

Price risks

Just as important as reducing demand is managing the risk of volatile international energy markets, and ensuring that global trends and unexpected events (eg the Ukraine-Russia stand-off) don’t hit the bottom-line and competitiveness. This requires a proactive approach

  • monitoring energy markets
  • timing contract renewals to avoid market spikes
  • choosing the right contract type (fixed v. flexible) depending on appetite for risk
  • ensuring you’re comparing like-for-like when assessing energy contracts (eg implications of fixed price and pass-through contracts)

This can be a pretty time-consuming process requiring specialised knowledge, which many companies don’t have the time or resources for, which is why around two-third of businesses use energy consultants/brokers.

 

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The prospect of winter brown-outs, planned reductions on voltage by the National Grid to avoid full-scale black-outs, has hit the front-pages in the last few days.

While this should ensure that power cuts are avoided, brown-outs have number of side effects including appliances switching on and off, flickering lights and interruptions to internet/wifi. While these might be annoying, they’re pretty harmless.

However, much as some electronics can be damaged by power surges, they can also be affected by power sags. At the first sign of a brown-out, usually flickering lights, it’s therefore time to unplug computers, printers, TVs, charging mobile phones and tablets to avoid damage.

The risk is that some electric motors may respond to a reduction in voltage by drawing more current, which, unless there is excess cooling capacity, may lead to overheating and burnout. Surge protectors can protect against voltage spikes when power is fully restored.

Peak demand times

Peak demand in the UK, not surprisingly, take place between November and February, usually between 5-7pm on Monday to Thursdays when industrial and domestic demands coincide, and it is these periods that are most at risk for brown-outs.

While most businesses may have limited opportunity to cut power demand during these times, it’s worth looking at whether manufacturing processes can be rescheduled, which has the dual benefit of helping to avoid a brown-out, while ensuring that these processes aren’t disrupted if one does take place.

Households can also help avoid brown-outs by not using energy-intensive appliances such appliances such (washing machines, dryers, dishwashers) between 5-7pm in the winter.

Longer than expected shutdowns at four of the UK’s nuclear power reactors have increased the risk of winter power shortages, according to an industry analysts Liberum Capital.

While a full-scale black-out has only a 5% chance, the likelihood of a brown-out has increased from 0.1% to 10%.  In the event of demand outstripping supply, caused for instance by a particularly cold spell, the National Grid would lower the voltage delivered rather than cutting off supply completely, known as a brown-out.

Reducing voltage would enable most households and businesses to function, although some types of electronic equipment could be damaged.

A mild, windy winter with no more unexpected plant closures should mean no supply shortages, although according to Liberum the last time the UK faced a similar scenario was during the 3-day weeks of the 1970s.

In the last month or so wholesale electricity prices have edged up from historic lows, with further increases likely in the new year if we experience a cold winter.

Related articles:

What’s a brown-out and what can I do about it?

Confused about why the lowest wholesale energy prices since 2010 haven’t led to a reduction in your energy costs? Then blame Labour plan’s to impose a price freeze if they win the next election, at least according to the Chief Exec of npower.

In a recent letter to The Times, Paul Massara argued that reducing prices was too risky, because a planned Labour energy price freeze means they would not be able to raise them again if the wholesale markets subsequently increased.

Ed Miliband has pledged to impose a 20 month energy price freeze if he wins power next year, a proposal which sparked intense political and media interest when first announced, but one which continues to raise more questions than it answers…

  • will the price freeze cover all elements of energy costs? what about the +40% (and increasing) of electricity costs accounted for by non-energy charges such as transmission, distribution & government taxes?
  • what is to stop energy suppliers raising prices the month before the May 2015 election and again 21 months after Labour win the election?
  • if energy companies freeze investment in new generation capacity due to this uncertainty what are the implications for the UK’s ability to keep the lights on?

What to do…

If Labour win in 2015 and attempt to impose a price freeze it’s likely that there will be legal challenges from the big suppliers, so there’s no guarantee that the price freeze will actually happen.

In the meantime the best way for businesses to minimise future price rises is to monitor the energy markets to identify the best time to contract (or work with a reputable consultant who can do this for you). Most businesses can fix prices for up to 3 years, which reduces the risk from price spikes just as effectively as Miliband’s plan.

The key thing is not just to wait until your annual renewal: your next energy contract can be agreed up to 3 years in advance so don’t wait until your renewal notice.