2016 is the year more companies will be charged not just for how much power they use, but when they use it. A piece of regulation called P272 means that a further 160,000 businesses will have their usage settled on a half hourly basis. With industry experts predicting more volatile half hourly prices, that will be reflected in bills. It’s a major change and could have significant cost implications for larger businesses in the SME sector and upwards.
The cost implications
Between November 2015 and April 2017, some 160,000 businesses in profile classes 05-08 will move to half hourly settlement. That means they will be more fully exposed to use of network charges at both distribution and transmission levels. Essentially they will pay more or less depending on the time of day they use power.
Their transmission network charges will be based on how much power they use at the most expensive times and the price signals will likely be much sharper. The problem is, most firms will not know when those periods, known as Triads, actually fall until afterwards, as they are set retrospectively.
Distribution network charges may also become more volatile, partially due to the effect of intermittent renewable generators connected to local grids, although the most expensive periods will probably remain the evening peaks.
Essentially P272 means that rather than being charged based on an ‘average’ profile, businesses will now be billed and settled for exactly the amount of energy they take from the network on a half hourly basis. Firms that use more power at peak times will therefore pay more for use of the distribution network. Firms that use less will pay less.
Given that network charges typically make up around a quarter of electricity bills, the cost implications for businesses could be significant.
Why is this happening now?
Regulator Ofgem believes that half hourly settlement will make the costs suppliers face in buying and transporting electricity much more accurate. It thinks that will deliver stronger incentives on suppliers to promote energy efficiency. Suppliers’ business customers will now be fully exposed to time of use tariffs and will therefore have to think more carefully about when they use power – or pay the full cost. That should lead to more efficient balancing of the power system, which will be required in a market more reliant on demand response. The regulator thinks it will also improve competition in the supply market.
Is your firm affected?
Your business will be affected if the first two digits of your power bill’s MPAN or Supply Number (S-Number) starts with 05, 06, 07 or 08.
If you already have an accredited automated half hourly meter, your business will be settled half hourly within 45 days of supplier change or contract renewal. If you do not already have the half hourly meter but fall within the 05-08 profile classes, suppliers must install one and align all the associated services by next April or face fines.
What you have to do
P272 presents some administrative burdens. It means those 160,000 companies need to appoint an accredited meter operator (MOP) and data collector (DC) and a data aggregator (DA). In short:
The MOP is responsible for meter installation and service.
The DC is responsible for collecting energy consumption data from your half hourly meter and presenting it to your energy supplier.
The DA (which is appointed by your energy supplier) takes that data and works out how much power your site has used, upon which your bill is based.
All of those services are chargeable and prices vary by supplier, so shopping around for the best quote is advisable.
Businesses that can reduce demand permanently will benefit from lower power costs. Firms that can shift loads at times of peak demand will not only pay less for their power but may also have the opportunity to earn revenue via demand-side response programmes operated by National Grid, local grid operators and commercial aggregators.
Read more about this year’s key energy procurement and management issues in our new free 2016 Directors’ Energy report. Download it here.