As the UK moves into the next phase of the Electricity Market Reform (EMR), Darren Lennon, head of strategic sales at npower, urges businesses to respond to the changing policy landscape to ensure they remain competitive.
The EMR is one of the biggest shake-ups in our industry since its privatisation over a decade ago, and we’re now preparing for change as policies become law. With the regime having gone live on 1 August, we’ve been hard at work to ensure that businesses understand exactly how this will affect them.
The EMR has been designed to attract £100bn worth of investment, which is needed to replace the UK’s ageing energy infrastructure with a low-carbon energy mix to meet EU carbon reduction targets.
The first step in the implementation phase kicked off at the beginning of August, with the application process for both the capacity auction and first Contracts for Difference (CfD) allocation round beginning, and the Low Carbon Contracts Company (LCCCs) becoming operational. The LCCC, the government-owned CfD counterparty body, is key to managing the new CfDs, the impacts of which will be felt more immediately.
Briefly, CfDs are being introduced to provide long-term price certainty for the generation of low carbon electricity in order to increase investment in these low carbon technologies. CfD generators will continue to sell their renewable energy and other low carbon electricity into the market, but contracts will provide a top-up from the market reference price to a pre-agreed strike price, reducing the risk of price uncertainty. Allocation of the first round of CfDs begins this autumn, with the outcome due to be announced in late December 2014. For businesses, there is a cost associated with this change in policy.
While it is difficult to quantify the exact pricing impact, we anticipate that CfD costs will begin to appear on bills from April 2015 at approximately £0.5/MWh, and this will increase on a quarterly basis to approximately £8/MWh by 2020. Volatility will be managed through a quarterly fixed rate, in order to provide some certainty for budgeting.
The time has come to stop debating the uncertainties of impending policy and to start acting on it by planning ahead. At npower, we’re urging energy managers to talk to their supplier for advice on making the most out of existing assets, as well as ensuring clearer budget certainty in the changing energy landscape. To speak to a dedicated member of the team, contact us at business@npower.com
