Archive for the ‘Uncategorized’ Category

Ofgem has revealed plans to protect consumers in the event their energy supplier goes bust – a new MOU sets out how Ofgem, the Treasury and Department for Business, Energy & Industrial Strategy (BEIS) will work to ensure continuity of supply.

Suppliers would enter into an Energy Supply Company Administration to provide uninterrupted supply and continued safe operation of essential services.

The measure would be used if Ofgem failed to appoint a Supplier of Last Resort, which is used when a smaller supplier goes under – as when Co-operative Energy took over 160,000 of GB Energy’s customers after it went bust last November.

The Special Administrator has an obligation to consider consumers as well as creditor interests.

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Hinckley: to B or not to B?

Posted: August 24, 2016 in Uncategorized

The seemingly never-ending saga of the Hinckley B nuclear power station seems no closer to resolution… after 3 years edging closer to a signed contract the EDF board finally gave approval in July, only for the UK Government to decide more time was needed to review the deal.

While the pretext may have been to ensure the small print was all OK, the real reasons are more obscure. Many focused on Prime Minister Teresa May’s apparent concern about handing over the financing and development of a key national infrastructure asset to China, while the 35 year strike price of £92.50 p/MWH is increasingly thought to be over generous at a time of wholesale prices in the £40-45 range.

The ongoing lull in wholesale energy prices makes Hinckley look on the (very) pricey side, which means advocates of mandatory LED installation and other energy efficiency measures, along with offshore wind and solar generation are gaining traction as quicker and cheaper means of meeting the UK’s long-term energy needs.

With the UK’s energy policy in a state of flux (along with much else after the Brexit vote) the decision on Hinckley will set the UK’s energy policy direction for the next few decades.

 

 

A leave vote in the UK’s looming EU referendum could lead to two years of energy policy – and therefore price – uncertainty according to a new report by the UK Energy Research Centre.

The UKERC report states that if Brexit results in the UK having an isolated energy system rather than one integrated with that of the European system prices would likely rise, while reduced influence on Europe’s energy markets could also have an impact.

Another report, this time by the Chatham House think tank, also highlighted the positives of remaining within the EU, including benefiting from an integrated energy market, influencing its direction and reducing the policy and investment uncertainty that would come with an exit.

Not surprisingly, the leave campaign maintains that leaving the EU would provide the freedom to keep bills down, meet climate change targets and keep the lights on by no longer needing to comply with EU directives.

However, with the UK increasingly reliant on imported energy from and through the EU, energy prices will still be influenced by factors outside the control of the UK government, while the UK may also have to comply with EU market, environmental and governance rules to benefit from continued inter-connectedness, rules over which it would have no influence after an exit.

 

 

 

Many organisations, understandably, ask several energy consultants/brokers to price their energy contracts to introduce competition and ensure they receive the best price.

What not so many realise is that suppliers asked to quote for a supply by several brokers will give them all the same price: any difference is either down to the level of commission added, or the way the price is presented, for instance, charges such as the Renewables Obligation or Climate Change Levy are excluded, which means you’re not comparing like-with-like.

The end result may still be a good price, but there’s a risk that the lowest price results in the worst service, increasing costs in the longer-term.

A better way to test a prospective (or current) broker is to understand their fee structure, how they’d develop and implement your procurement strategy and what else you receive in terms of additional energy services, and then negotiate the service and fee that works for you. (If they won’t reveal their commission, do the same as you would with any supplier who wants your business but won’t tell you their price.)

While some brokers only provide a basic procurement service, the strong ones will also…

  • Develop a procurement strategy based on an understanding of your business and approach to risk eg fixed or flexible contract
  • Monitor the energy markets to identify the best time to renew, which is usually not just before your renewal date
  • Validate your invoices and resolve supplier queries so you don’t have to
  • Identify energy reduction opportunities and help you realise them
  • Help meet regulatory requirements such as the new Energy Savings Opportunity Scheme (ESOS)

By conducting a through selection process, in the same you would for any professional service, you’ll ensure the correct balance between price and service, while empowering your consultant to negotiate on your behalf with suppliers to obtain the best price.

A recent npower survey found that 49% of UK manufacturers are unaware of the new Energy Savings Opportunity Scheme (ESOS), while 69% feel uninformed about the scheme’s requirements.

Organisations meeting the ESOS criteria must complete an energy audit by 5 December 2015 or face fines of up to £90,000. The policy is designed to help businesses cut energy use as part of the UK’s commitment to cutting carbon emissions.

While the audit is mandatory, implementing the efficiency recommendations is not, which leaves ESOS at risk of being seen as a costly tick-box exercise, rather than something with the potential to reduce energy consumption at the average business by 20%.

Long-term benefits of ESOS

ESOS will only turn from cost to benefit if the recommendations are implemented, so it’s important to consider your capacity to deliver these recommendations when appointing your ESOS Lead Assessor.

A ‘full service’ Assessor will help to maximise savings through impartial advice on the best solutions tailored to your operational and financial criteria that:

  • improve your bottom-line
  • reduce energy consumption
  • future-proof your business against rising energy costs
  • make premises more comfortable and efficient for your staff and customers

Energy management system

With ESOS now on a 4-yearly cycle it’s also worth establishing an energy management system that makes future compliance straightforward, particularly energy data collection and an asset register that includes key ESOS data.

A robust system means that next time round ESOS can become a stock-taking exercise that measures progress, highlights new opportunities and maintains efficiency momentum, rather than a costly one-off project that has little long-term benefit.

To gain a clear idea of the costs and benefits of ESOS do get in touch.

 

The independent Committee on Climate Change (CCC) has released its latest projections on the impact of carbon budgets on UK energy bills, which forecasts relatively low increases in household energy bills, but higher costs for business.

According to the CCC, low carbon polices account for approximately 26% of commercial energy bills; these policies are set to increase bills by between 15-48% between 2013-30, however, with a central estimate of a 31% increase.

Despite the increasing proportion of energy costs accounted for by government policies, the CCC also found that the main cause of rising energy prices since 2004 is the increased cost of gas coupled with investment in the distribution and transmission infrastructure.

Post-2030, it’s expected that the cost of green policies will fall during the 2030s as clean energy support contracts being signed over the next five years begin to expire.

The main rationale behind the investment in low carbon energy generation is insurance against the potential costs of climate change: while green policies will add about £155 to a dual fuel household bill by 2020, the costs of not implementing these policies could be far higher.

In the meantime, the best way to offset these inevitable increases is through energy efficiency measures.

 

 

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.

 

The cost of electricity now consists of so many components that the energy itself accounts for less than 60% of the overall price. Transmission and distribution charges, Renewables Obligation, Feed-in-Tariff and the Climate Change Levy add up to a significant cost, yet most businesses have little idea of what or how they’re being charged.

The largest non-energy costs are distribution (around 20% of the price) and transmission (10%).

Transmission charges, also referred to as Transmission Use of Service (TUOS), cover the cost of the electricity transmission system operated by National Grid, who balance supply and demand across the country. TUOS charges, along with a smaller balancing services use of system (BSUOS) cost, are usually estimated and bundled into contracted rates.

Fourteen Distribution Network Operators (DNOs) then distribute that power to customers. DNO costs are charged mainly through an available capacity charge (pence per kVA per day).

While there’s little that can be done to reduce TUOS and DUOS charges, which are regulated by Ofgem, there are a couple of things businesses can do to minimise these costs:

  • check that your available capacity is set at an appropriate level: too high and you’re paying for something you’re not using, too low and you could be hit with penalty charges
  • audit your electricity invoices to ensure that you’re being charged correctly – mistakes are surprisingly common
  • invest in energy efficiency to reduce demand and therefore costs

Around two-thirds of UK businesses use energy brokers or consultants to help manage their energy procurement. Some brokers focus solely on placing contracts, from which they earn a commission or fee, and provide little additional value or service. While this is a valid option, there are several areas where a good consultant can provide significant additional value beyond just recommending annual contracts

1. UK energy prices are volatile: the wholesale energy market can increase/decrease by 50%+ in a 12 month period, so waiting until your contract ends to renew leaves you exposed to significant price surprises. Independent expert advice on the best time to go to market, which is often not just before your current contract ends, can result in significant savings.

2. Contract offers are increasingly complex: the growing number of 3rd party costs (transmission, distribution, metering, Renewable Obligations etc) makes it difficult to compare offers from suppliers all presenting their prices differently. Interpreting these price models so you’re comparing like-for-like is vital, yet requires specialist knowledge.

3. Validate invoices: just as price offers are becoming more complex, so are charges and invoices. Reconciling and checking actual consumption data and pass through charges such as the Feed in Tariff (FiT) with invoice data identifies supplier errors and ensures you’re not overpaying, yet requires specialist systems and expertise available to some brokers.

4. Switch suppliers smoothly: although improved in recent years, switching suppliers can be a fraught process, resulting in punitive out of contract rates if it goes wrong. A good consultant will handle this process, saving time and potentially money.

5. Consumption reduction: by analysing meter data to understand consumption profiles, energy consultants can recommend savings opportunities, from low-cost behaviour change to payback assessments of energy-efficient technologies (eg LED lighting)

One final point: any broker saying their service is free is being at best economical with the truth. Always check how they make their money – most receive a commission from the supplier which is added to your unit rate, which means you’re paying an indirect fee.

If you’re not receiving at least some of the benefits listed above then do get in touch; Energy & Carbon Management clients receive these benefits as part of their procurement service, with no extra fees, generating savings and identifying opportunities to reduce energy costs.

At the October Major Energy Users Council conference in London npower presented a useful overview of the factors likely to impact energy prices over the winter and beyond. Issues that could help keep a lid on wholesale prices include:

  • a slowing Chinese economy reducing international gas/LNG demand
  • continued uncertainty around the government’s carbon policy and the impact of the much anticipated Energy Bill on current carbon policy and taxes. The outcome of next year’s review of the UK’s carbon reduction targets will also have a longer-term impact.
  • at present coal-fired generation is the cheapest (yet most polluting) source of electricity; if prices remain low that could reduce price pressures (but threaten legally binding carbon reduction targets)

On the upside, the factors threatening to push prices up include:

  • continued tensions in the Middle East and particularly Syria; if the conflict widens into neighbouring countries supply risks will inevitably increase
  • concerns over gas supplies: with the UK relying increasingly on imported gas, unexpected pipeline shut downs can quickly reduce gas in storage and drive prices up
  • LNG imported by tankers is an important source of the UK’s energy, yet the global nature of the energy market means that, even when en route, LNG tankers can be diverted if they can receive a better price elsewhere. The UK is now competing with Japan, China, India and others for energy supplies, with implications for the price we pay.
  • an unusually cold or long winter would increase demand, reducing gas in storage, adding price pressures and volatility to the market
  • reduced generation capacity due to polluting (mainly coal) power plants closing to meet the EU’s Large Combustion Plant Directive (LCPD)

While wholesale markets will have priced in many of these risks, unknown factors – winter temperatures, erratic LNG deliveries, Middle Eastern geopolitics, pipeline shutdowns – are set to have the greatest impact on prices over the next 6 months.