Archive for January, 2017

Solar the cheapest form of energy?

A December report by Bloomberg New Energy Finance found that unsubsidised solar is beginning to see lower costs than wind and other forms of energy, becoming one of the cheapest forms of energy. While the lowest solar costs are being seen in countries such India and Chile (where it is now about half the cost of coal), 2017 looks to be the year that solar becomes truly mainstream.

Windy up north

Not to be outdone, wind generated enough power to supply Scotland for four straight days at the end of December (including Christmas day itself), the longest period when wind supply has matched demand.

The strong end to the year resulted in wind power contributing more to the UK supply in 2016 than coal for the first time, 11.5% of total UK output compared to 9.2%.

However, the government’s withdrawal of subsidies for new onshore wind power has resulted in criticism that one of the lowest cost forms of generation is being denied the support given to far more costly technologies including offshore wind and nuclear.

2017 Christmas in the dark?

The British Infrastructure Group has warned that the National Grid’s buffer between supply and demand could fall to as little as 0.1% next winter, resulting in power failures, particularly if there’s unusually severe weather.

At the moment the supply-demand margin is 1.1%, increasing to 6.6% if emergency measures are implemented.

These measures include paying power stations that would otherwise be closed to be kept on stand-by, businesses and other large consumers using emergency generators and old coal-powered stations being put back into operation, all of which add around £30 a year to a residential energy bill.

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The US Energy Information Administration (EIA) forecast in December that the 2017 oil price would average US$52, similar to current levels though double that of a year ago.

However, Forbes analysis recently found that past EIA forecasts varied from actual prices by 30-35%, and with other expert forecasts also not faring too well, predicting the future price of oil, gas and electricity is a pretty thankless task.

The variety and complexity of factors influencing energy prices mean it is increasingly difficult to provide confident price predictions, from the geo-politics of the Middle East, Opec and Russia to Brexit and Trump, the expansion of renewable energy and supply- and demand-side technological developments such as fracking, battery storage and energy efficiency.

While oil and gas prices may experience see relatively stable 2017, UK electricity prices are all but certain to see an increase:

  • The wholesale electricity element now accounts for less than 50% of your bill, so even if the commodity markets fall prices could still increase on the back of rising non-energy charges
  • These non-energy costs – transportation, distribution, government charges, taxes etc – will increase over the next few years, resulting in higher costs for all

What to do?

  • Understand your risk: what is the impact on your business if prices increase by 5, 10, 15% a year over the next few years?
  • Manage that risk: test the market early, don’t wait until near your renewal time when you could be hit by a price spike – contract when the market is in your favour
  • Focus on efficiency: cut costs and reduce exposure to volatile markets by using less