Billions of pounds to be saved in power industry shake up

UK consumers could save billions of pounds thanks to major changes in the way electricity is made, used and stored, the government has said. New rules will make it easier for people to generate their own power with solar panels, store it in batteries and sell it to the National Grid. Ofgem says this means consumers could save £17bn to £40bn by 2050.

In addition, the Government is to invest £246m in battery technology that it says will play a key part in helping to power its industrial strategy. This is one of six pillars supporting the UK’s industrial strategy which could help unlock markets and industries of the future.

The Government will set up a “battery institute” to award hundreds of millions of pounds to companies on the brink of major research and development breakthroughs. Greg Clarke, the business secretary, gave details of a competition for innovation in battery technology, which he says will help make the UK a world leader in battery design and manufacture.

The rapidly falling cost of battery power is expected to radically change the way Britain is able to make use of its renewable energy generation, by storing excess wind and solar for when wind speeds slip and sunshine wanes.

Separately, Ofgem is expected to outline a new approach to its charging regime for power storage devices so that batteries can play a bigger role in balancing the electricity system.

New rules will come into effect over the next year, which, for instance, will benefit a business that allows its air-conditioning to be turned down briefly to help balance a spell of peak energy demand on the National Grid. Among the first to gain from the rule changes will be people with solar panels and battery storage. At the moment they are charged tariffs when they import electricity into their home or export it back to the grid.

Thanks to improvements in digital technology, battery storage and renewables, these innovations in flexibility are already under way with millions of people across the UK generating and storing electricity. The new rules have been designed to cash in on this.

Source: BBC News

Clarke says government will take action against rising energy bills

After five of the big six suppliers already announced price rises this year, the energy regulator Ofgem said that some of the rises were hard to justify.

Business and Energy Secretary Greg Clark told a Business Select Committee that the market is “clearly not working” for those on default tariffs. Mr Clark said he did not have the power to affect prices directly, but the government could act to alter a “deficiency” in the market.

The government has said that action would be taken against energy firms’ “damaging” price rises. Clark said it would happen “soon”, but the timing remains unclear and, owing to the imminent election, the date for this “decisive” move was being reviewed.

Energy UK said government intervention would be bad for customers.

British Gas announced a price freeze until August. Other major energy firms revealed increases in standard tariffs recently, blaming investment needs, government demands and the value of the pound falling.

Those organisations include:

Npower increased its electricity prices by 15% and gas prices by 4.8% on 16 March

E.On will put up electricity prices by 13.8% and gas prices by 3.8% on 26 April

Scottish Power raised its electricity prices by 10.8% and gas prices by 4.7% on 31 March

EDF, combining previous prices changes with a second announcement of rises in June, will raise    electricity prices by 18.1%, but gas prices will stay the same

SSE will raise electricity prices by 14.9% on 28 April, although gas prices will remain unchanged

An investigation by the Competition and Markets Authority (CMA) found that two-thirds of UK households were paying too much for their energy compared with those who have switched to a different tariff. But the CMA also stated that capping standard tariffs was not in the best interests of customers.

The findings have been widely challenged and there has been speculation that the government could intervene with a cap on these variable deals.

The Business and Energy Secretary believes that customers who could not shop around online or didn’t act were being milked by the energy companies. He said the government’s response would be decisive.

Lawrence Slade, chief executive of Energy UK, which represents the major suppliers, said: “We must allow the remedies from the recent market investigation to be implemented but the industry is not complacent. Action is being taken now, with companies going further to engage with loyal customers and leading new initiatives like targeted switching campaigns. Intervening further in the energy market risks undermining so many of the positive changes we are seeing in the retail market. That would be bad for competition but more importantly, bad for customers too.”

Source BBC News

Ofgem slashes benefits for embedded generators

A major industry announcement this week has cast further uncertainty into the world of small-scale power producers, as Ofgem has announced it is “minded to” change the Triad methodology for generators. This change will have a profound impact on the UK energy market in the coming years, with the generation make-up set to alter and a prolonged period of uncertainty; strangely however, the impact for the end consumer should be a positive one.

Embedded generation is the name for smaller-scale power producers which are connected at the distribution level rather than to National Grid’s high voltage network. It includes a large proportion of the renewables market, but also smaller gas-fired generation. At present these producers are paid Generator Triads for the capacity they provide to the network during the three winter peak demand periods; this is the opposite of the Demand Triads paid by end users who pay for what they demand of the system.

Ofgem’s ruling effectively states that this payment places these generators at a competitive advantage over large-scale transmission connected generation – the traditional large gas and coal-fired power stations that have always played a large role in the supply makeup. This is because embedded generators do not actually use the transmission system for which Triads pay, with their connection only at local level. To counter this unfair payment, Ofgem plans to slash payments to embedded generators from current levels of around £47.30/kW to £1.62/kW (a 96% drop) over the course of the coming three years, putting a major dent in the economics of installing generation capacity at distribution level.

Furthermore, the proposal contains no “grandfathering clause”; therefore this cut applies equally to capacity already installed as to new generation yet to be built. This means that new embedded power producers, who may have factored this payment into the lifespan of their plant, will now have to reconsider the economics over the longer term.

Ofgem argues that embedded generation brings benefit to the national network only equal to the costs that National Grid would otherwise incur from reinforcing the network, a cost it calculates at around £1.62/kW nationally; therefore any payments over and above this represent an unfair advantage and an excess cost to National Grid. Clearly this could have a major impact on the growth of embedded generation, an area of innovation and development into which the UK system was expected to develop in the coming years. This ruling however potentially alters the landscape again, providing considerable uncertainty for potential investors and undoubtedly favouring large, centralised producers who have traditionally monopolised the generation makeup of the country. Ofgem, for its part, does not believe this will impact security of supply.

For end users however the development is (perhaps counter-intuitively) positive. Due to the way suppliers calculate and pass through Triad charges, the drop in payments to generators by National Grid will see this element fall for customers. Basically, lower payments to generators will allow National Grid to cut charges to demand customers; this is because National Grid’s income is fixed by Ofgem and therefore the benefit of lower outgoings must be passed through to customers as a reduction in costs. It is currently unclear how large this reduction in Triad charges will be; however it is unlikely to be large enough to dis-incentivise Triad avoidance, and customers therefore should continue to try to reduce their demand in peak winter period to manage this cost.

Concerns for investors will be raised further however by the announcement that Ofgem will also be carrying out a Targeted Charging Review in early 2017, looking at further benefits received by these embedded generators; this will consider charges such a balancing costs, as well as costs for storage and “behind the meter” installations. This could lead to a Significant Code Review (effectively a legislative overhaul), highlighting the uncertain landscape for the UK power sector at present.

Customers of The Energy Brokers can contact their dedicated Account Manager on 0331 221 1000, or by email to info@tebl.com to find out more about Triad charges and how to manage this element of their power spend.

Source: The Energy Brokers

Stick or twist: TPI views on switching

David Peake, a director of The Energy Brokers appeared in the recently published Directors’ Energy Report 2017 published by The Energyst. In his opinion, customers have “come around to the view that they will not make a significant saving [from switching] first time around”. For larger firms, “the real value” lies in consolidated billing while intermediate-sized business may be “under the illusion that they will receive greater bill savings than they will actually get”. Meanwhile, for “single site customers with a small level of consumption, it is going to be a negligible saving”. For those that do want to switch supplier, Peake advises a layered approach. “Rather than try to get a 2-5% saving from day one, we are advising clients to go shorter and also out of sync to the main round. Everyone is going to submit to an early [switching] round, assuming the market is ready,” he said. “But [instead switching all sites at once], we think it might be better to split portfolios, take some contracts out on a year, take some out on 18 months, some out on three years. That way, as the market develops greater liquidity, you start to see the benefit sooner. The lesson from Scotland is don’t take a 3% saving and lock out with that provider for three years. You would probably receive better value going shorter. So we are looking at whether we can devise a solution on that basis.”

The Energy Brokers is publishing a paper on Openness and Transparency in Energy Pricing and Purchasing.  Email info@tebl.com to receive your copy.

Source: The Energyst

Energy company pricing announcements

On 10 February 2017 Npower announced it was increasing gas and electricity prices by 9.8% from March, not long after EDF had also announced price increases. Scottish Power then declared price rises – its dual fuel prices will go up by 7.8% from the end of March.

However British Gas, the market leader, has stated that it will extend its current price freeze for customers on its standard energy tariff until August. With three-quarters of its customers on standard variable tariffs, this decision will benefit around 5 million household customers. The move puts immense pressure on the three members of the Big Six who have announced price increases to decide whether or not to go ahead with them. British Gas, which has now frozen prices, has a total of 6.6 million customers, more than the three that have raised them – EDF, Npower and ScottishPower – combined.

It remains to be seen if the two other members of the Big Six, German-owned Eon and the number two player SSE, continue their current freeze on prices. Similar to British Gas they committed to a price freeze for the winter and may now decide they have no choice but to extend it to August.

Contrary to popular belief this proves there is competition in the energy market.

Source: Sky News

Provisional Capacity Market cleared at £6.95/KW

The capacity market clearing price was confirmed on Friday by delivery body EMR at £6.95/KW, the lowest ever reached in a Capacity Market Auction, which guaranteed £378.3m in revenue to UK power generators.

A combined capacity of 59.28GW entered the auction, with 91.82% receiving Capacity Agreements for delivery next winter. The majority of the 54.4GW procured was picked up by existing gas power stations, who received £153m in guaranteed payments. Coal fired or coal and biomass generation plants secured 19% of the auction, a total of 10.5GW and £73m in revenue. This included the Eggborough coal-fired power station plant, which was set to close in March 2017. The plant will now remain open until March 2018; potentially remaining open until 2023 if more contracts are won.

EDF were the largest party winning contracts and were had 12.6GW of capacity, including 100% of its 7.9GW of nuclear capacity winning a contract. Capacity secured by the “Big Six” totalled 64% of contracts awarded in the auction. A breakdown of capacity by party is displayed below.

Supplier Capacity Awarded
EDF 12.6GW (15%)
Npower 7.9GW (15%)
E.ON/UNiper 5.2GW (10%)
SSE 4.5GW (8%)
ENGIE 3.1GW (6%)
Centrica 2.5GW (5%)
Scottish Power 2.2GW (4%)

 

Industry officials criticised the results for not encouraging green projects. With 96.4% awarded to existing generation and interconnectors, commentators expressed dissatisfaction as battery storage won just over 10MW of combined capacity, significantly lower than the 500MW in the previous auction.

Results will be provisional until 15 February, with the Secretary of State deciding whether the auction results will stand before allowing National Grid to publish the final auction results. If approved, providers will be expected to deliver their obligation during times of system stress from October 2017.

Source: The Energyst

Ofgem tells the big six energy suppliers not to raise prices

Utility procurement prices

Ofgem has warned the big six energy companies, EDF Energy, British Gas, SSE, E.On, Scottish Power and Npower, that they shouldn’t raise their prices in the Spring, despite a 15% increase in their costs. It believes that increasing wholesale gas and electricity prices were mainly to blame for driving costs upwards, along with renewable energy subsidies.

At the end of last year, energy companies stated that upward pressure from wholesale costs may be passed on to consumers with tariff price increases. However, they were slow to pass on falling wholesale prices in 2014.

Ofgem recently published its supplier cost index. EDF Energy announced a price rise in December, which will increase customers’ electricity prices by 8.4% and lower gas prices by 5.2% in the Spring. Oil prices, which also set the gas price, dropped from a high of $115 a barrel in 2014 to less than $30 at the beginning of 2016. However, the price has now recovered. Other companies have pledged to freeze prices until the end of the Winter, but some have already hinted that wholesale pressures will lead to imminent price rises. The regulator’s analysis found that electricity wholesale costs accounted for 6% of the increase on the cost index, with gas wholesale costs accounting for 6.6 points. Levies on environmental and social programmes, in particular those supporting renewable energy, accounted for 2.9%. Other costs, such as energy transmission and distribution, were down a little. Despite higher costs to suppliers, they are still around a tenth lower than they were at the start of 2014 due to a 2-year period of falling costs. The average household dual-fuel energy bill was £1,066 in December 2016 compared with £1,140 in December 2013.

The Energy Brokers is independent of suppliers and provides energy and utility procurement, management, risk, compliance and related services to organizations that want to drive down costs. Part of The Consultus International Group and sister company of The Waterbuyers and Assured Energy, we have spent 20 years in energy procurement building a reputation for openness, honesty and transparency. We are proven experts in procuring and managing energy and other utilities, in understanding and reducing risk, in taking a genuinely commercial view of your business and its requirements and then matching that with the most appropriate and cost-effective energy strategy.

For more information email info@tebl.com or call 0330 221 1000.

 

Source: The Guardian

Gas flame photo

Ofgem data shows increase in energy switching deals

Gas flame photoGrowing numbers of energy customers have switched their electricity and gas deals during the first six months of 2016 according to data from regulator Ofgem. The increase saw a second consecutive six month period where the total number of energy switches was above 3 million, and the figure was almost 1 million higher than the first half of 2015.

The jump in energy switches has been attributed to wider promotion for customers to look for better deals following the publication of the Competition and Market Authority’s (CMA’s) two year investigation into the UK energy sector, despite Ofgem’s negative response to the investigation and report as not being bold enough.

According to the CMA report, two-thirds of households were paying more than necessary for their energy contracts compared to those who had switched to an alternative tariff. Ofgem claim that UK customers could potentially save more than £300 by moving from standard variable tariffs to cheaper deals, often a fixed-term tariff.

To encourage more customers to switch, Ofgem plans to introduce more effective measures on customers’ bills to urge them to compare different tariffs. However, Ofgem has confirmed that it would not be capping standard variable energy tariffs.

Source: BBC

gas flame photo

Britain’s Bix Six energy suppliers stem customer exodus as prices rebound

gas flame photoBritain’s ‘Bix Six’ energy suppliers – British Gas, SSE, RWE Npower, EDF Energy, Eon and Scottish Power – have been given the opportunity to win back ground lost to smaller rivals and slow down the number of lost customers through a rebound in wholesale gas and power prices this year, helping to recover more than a billion pounds in lost revenue last year.

Falling energy prices last year hit the profit margins of the ‘Big Six’ hard and enticed customers to smaller, independent suppliers that could offer cheaper tariffs and better customer service. Smaller energy companies, such as First Utility, Ovo Energy or Utility Warehouse were able to offer cheaper rates as they buy most of their energy needs in the short term market, therefore enabling them to take advantage of the 20-30 percent tumble in prices in 2015. Larger suppliers purchase most of their requirements in the longer-term market, typically hedging a few years ahead, which meant they were unable to take advantage of last year’s price falls.

However, due to a rebound in prices this year, smaller providers are having to increase their tariffs to cover the increase in wholesale prices, thus giving an opportunity to the ‘Big Six’ to reclaim customers, or at least slow down the flow of customers leaving.

Market prices for this winter, which runs from October through to March and is typically the highest demand period of the year, have risen by almost 30 percent since April due to a recovery in the oil market and concerns over gas storage availability for the coming winter period.

This has seen the rate of customer switching from the traditional ‘Bix Six’ supplier, in favour of a smaller, cheaper supplier, slow down, with industry data showing it fell to its lowest level since April 2015. RWE Npower gained an extra 200,000 new customers in July, returning its customer base to levels not seen since the end of last year, while number 2 supplier SSE reduced customer losses to 50,000 between March and June, from 90,000 over the same period a year ago.

In contrast, according to uswitch, a price comparison site, smaller suppliers such as Ovo Energy and Co-Operative Energy have lifted their tariffs by 3.6 percent and £103 respectively as a result of higher wholesale prices.

According to Ofgem, the UK’s energy watchdog, smaller players, such as the ones mentioned above, had increased their electricity market share to 13 percent by March this year, while increasing their share of the gas market to 14 percent, both up from the 10 percent recorded in 2015. Apart from the price of gas or electricity, frustration with customer service levels at ‘Big Six’ firms has also seen consumers switch their energy supplier.

In the face of increasing market prices however, smaller rivals are moving to strengthen their balance sheets. Good Energy, which specialises in renewable energy, raised £3.1 million in a share offer in June, while some of the biggest independent providers, such as First Utility and Utility Warehouse have hired established trading firms, such as Shell and Npower to carry out their hedging and trading on their behalf.

Many other independent suppliers declined to comment on their strategies due to commercial sensitivity, however, should wholesale energy prices continue to rise, smaller suppliers with deteriorating balance sheets could be encouraged to take more drastic action in the future.

Source: Reuters