Most businesses (and consumers) are aware that these days, the cost of electricity is only heading in one direction – upwards. There are several drivers behind rising prices. These include the fact that the UK has been very successful in switching to renewable sources such as wind for generation, leading to less predictable electricity supply.
In fact, the move to renewables, although very welcome and necessary, has been something of a catalyst for change in electricity supply. The UK energy network is somewhat creaky, and ensuring that it’s up to dealing with different sources is neither easy nor cheap.
So Ofgem, the electricity market watchdog, and National Grid, the body responsible for moving electricity from source to socket, have been reviewing how things are done. Be prepared for some fairly radical changes.
We find ourselves looking at an electricity supply market where changes to two elements of the current system could lead to higher prices for all
Keeping the grid in a state of delicate balance, where we can all turn on the kettle or operate our data centre, without worrying too much about whether the power will be there, is the daily challenge for National Grid. One of the ways they achieve this is with a range of incentives and peak charges.
The peak charges are applied to businesses during the UK’s winter months, and are calculated on the user’s three periods of highest electricity use, known as Triads.
Incentives are paid to ‘embedded generators’ to supply electricity into the grid when it’s needed most. These EGs are not directly connected to the National Electricity Transmission System (NETS), but they have a licence to feed into the system. And they are paid a tariff per kilowatt supplied.
These two methods look highly likely to be changed. Taking the application of peak charges during Triads. Smart businesses have adopted a method known as ‘load shedding’. It simply means using the building management system and controls in a building to ‘power down’ systems such as ventilation and lighting during the peak times. The shedding is done so quickly and for short bursts of time, so that occupants do not notice.
Triad peak payments
However, Ofgem has noted that not all businesses, and no consumers, can achieve load shedding. This leaves them liable for carrying the extra peak time costs that are necessary to support the Grid. As a result, it may be that at the end of 2017, National Grid announces the end of Triad peak payments. Good for some business electricity customers; but it means that it’s highly likely we’ll all see further price rises.
At the same time as this review is underway, payments to the embedded generators are in question. At the moment, they are paid £45 per kilowatt for energy supplied to the grid. Ofgem believes this is too much and that EGs are not as necessary any more. With this in mind there is a proposal to drop that tariff all the way to somewhere between £3 and £7 per kilowatt – quite a cut.
So, we find ourselves looking at an electricity supply market where changes to two elements of the current system could lead to higher prices for all. Along with the impact of Minimum Energy Efficiency Standards (MEES) starting to be felt in April 2018, next year could see a big emphasis on lowering energy use and saving on costs.
One benefit to those who have been trying to persuade building owners and managers to switch to more energy efficient building services equipment is that with higher electricity prices to put into the equation, payback times for investments look much shorter. So, look forward to an interesting 2018 as far as electricity is concerned.