Some UK firms are opting to shut down due to peak power costs during evening winter peak, according to energy brokers and suppliers.
While that is arguably a measure of the success of National Grid’s Triad methodology, they warn that further costs are being piled into the evening winter peak which may ultimately impact UK productivity.
They add that UK businesses may be unprepared for double digit power bill rises over the next couple of years as a result of rising wholesale prices and increasing non-commodity costs, such as environmental levies, network charges and security of supply policies.
The warning comes as energy managers in the public sector express dismay over mounting energy costs and their impact on public service provision.
“The general outlook is one of significant rises in energy costs,” says Gavin Baker, head of pricing at Smartest Energy. “The [capacity market] policy measure is expensive,” he adds, “and I’m not sure that has necessarily been communicated at the outset”.
Baker believes the signals for demand reduction measures are now so strong that firms may consider “the outright restructuring of business opening hours across the winter. Getting everyone in earlier and shutting up shop earlier in the evening just to mitigate energy consumption at that time of the day”.
Nick Proctor, CEO at Amber Energy, holds similar views. He says some of his clients already shut down if there is a risk of a Triad being called, let alone the incoming capacity charge.
“There is so much pressure during that 4pm-7pm winter period. For some businesses, I don’t think it will be profitable to use energy during that period,” says Proctor.
“The tax is becoming so bad that is not just a case ‘can we avoid it?’ For some firms, it is more a case of ‘we can’t physically produce and make a profit with that much risk exposure during those hours of the day’,” he says.
“So I think some businesses will try and switch away from [peak consumption] completely.”
Proctor accepts that might be the intent of policy, but feels businesses have not been properly engaged or given adequate warning.
“They are not all ready for a 20-25% hike in their [power] price and I think it will cause a number of issues and a lot of pressure on some businesses going through 2018 and 2019 in particular.”
Those trying to fix energy budgets against 2016 prices – which may have been based on soft wholesale markets and minimal capacity and CfD charges – should take note, Proctor warns.
Baker and Proctor were interviewed for The Directors’ Report, which polls directors and managers on their approach to energy and water. It also provides a snapshot of key risks and opportunities for the year ahead and will be available to download this week.
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How does this fit with the recent announcement that the CM auction size will be reduced in future and the imminent move towards a smoothed Duos RAG charging methodology, essentially reducing the costs of peak times?
Probably dependent on usage times, type of contract and operations. Some may win from smoothed RAG rates, others that pay more for off peak will lose. CM volume not being massively reduced and again dependent on use times and auction outturn.