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5 ways to prepare your business for the changing UK energy landscape

AD-1311Name – Andrew Diplock

Job title – Managing Director

Company – UES Energy

Location – UK

Linkedin profile – uk.linkedin.com/in/andrewdiplock

Website – www.uesenergy.co.uk

Procurement quote – Most businesses will not purchase anything else where prices fluctuate by nearly as much as that of energy. So it’s crucial that timing plays a key role in how you buy gas and electricity for your business.

5 ways to prepare your business for the changing UK energy landscape

Rocketing gas and electricity prices have put energy costs onto the agenda in every UK boardroom.

It’s not just increased global demand that has fuelled this but also our migration towards green energy, which the Government estimates will cost the UK £110 billion by 2020.

A series of progressive taxes and levies ensures energy prices will increase considerably in the next decade. These measures are called the Electricity Market reform (EMR) and have been combined in The Energy Bill which came into law in December 2013. The full implications of these are only just becoming clear.

Energy price predictions

Several mechanisms within the Bill will raise money for the Government but only one is directly targeted at business consumers. The Carbon Price Floor (CPF) or “carbon tax” aims to encourage businesses to cut carbon emissions. Initial estimates were that it would increase the wholesale electricity price by £4 per MWh in 2014/2015 rising to £9 per MWh by 2017/2018 but it could be higher if coal-powered generation is further marginalised.

Other elements of the Bill are aimed at electricity generators but any levy they face will be passed on to consumers. These include:

  • Contracts for Difference (CfD) – encouraging investment in new low-carbon electricity generation. The cost impact is still being assessed, although it is widely agreed that charges will continue to rise.
  • The Capacity Market (CM) – to provide a secure electricity supply through stored energy. It will add £2 per MWh per year from 2018.
  • The Emissions Performance Standard(EPS) – limits the amount of CO2 new fossil fuel-using power stations can emit. This will put pressure on wholesale prices, leading to increases.

Of course, to estimate the full energy price increases businesses face we must also include wholesale market predictions. The Major Energy User Council’s (MEUC) recently concluded that UK faces long-term wholesale gas price rises and electricity prices, which have tracked gas prices for some time, will continue to do so.

For many businesses, this is likely to lead to a significant increase in overheads. Estimates suggest businesses face a further rise of 17% in their energy bills between 2015 and 2020. This represents almost a doubling of prices since 2007.

EMR has fundamentally changed energy procurement for UK organisations. My 5 tips on how to address this are:

  1. Keep abreast of new information and changes announced by the UK Government – there will be some!
  2. Review your existing energy supply contracts to see how they deal with third party costs that could now be passed onto you
  3. Assess the likely cost impact of EMR and plan your budgets accordingly
  4. Consider whether you need to amend your energy procurement strategy
  5. Take advice from independent experts if you need further help understanding the options open to you.

For more information on this complex area click here for the UES Energy ‘What does EMR mean for your organisation?’ white paper.

2 comments

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      Paul Bouwman
      Founder of Procurement Professionals

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