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Business speaks out on Feed in Tariff confusion Okay, confusion may be a little strong. But the Feed in Tariff – or at least the way that business consumers pay […]

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By Geoff Curran

Business speaks out on Feed in Tariff confusion

Okay, confusion may be a little strong. But the Feed in Tariff – or at least the way that business consumers pay for it – is causing concern. At a time when accurate budgeting is paramount to keeping costs under control, having so much uncertainty over what you’re going to have to pay for this government levy on energy consumption – and disparity between forecasted and actual costs – creates unwelcome challenges.

We’ve been talking to our large business customers and listening to their views and concerns. In the past few weeks, we hosted a working group with a combination of businesses and stakeholders who together represent 60% of consumption in the industrial and commercial market, plus a FiT specialist from DECC – of which more of in a minute.

But first, before I share the views of large energy users on the Feed in Tariff, I think it only fair to say this isn’t about bashing DECC or Ofgem. The Government is facing a huge challenge to administer what is a very complicated scheme, where costs have to be forecast then later adjusted to reflect actual take up of low-carbon technologies each year. But I think it’s worth sharing our findings, as these help to move the debate forwards.

The main issue, from what businesses have told us, is the significant uncertainty for both suppliers and businesses caused by the way in which FiT costs are currently administered. The total cost each year is only known months after year end, and there have been both marked increases in cost since the inception of the scheme and wide variations in estimates in each given year. For example, after a cost of 4.7p per MWh for 2010/11, estimates by DECC for the 2011/12 year started off at 26.5p before being amended upward to 56.5p and then finally coming in at 63.6p. The DECC forecasts for 2012/13 currently stand at £1.79/MWh.

For businesses consuming energy in the gigawatt league, these increases and cost ambiguity have a big impact. The key concerns expressed both by those who attended our working group, and also the many customers who contributed to our FiT survey, can be summarised as follows:

Increasing legislative costs may lead to operations moving abroad

In particular, the businesses attending the working group highlighted serious concerns that increasing legislative costs, in particular FiT charges, are making businesses less competitive on a global scale. Some are even – or certainly considering – moving operations abroad due to the crippling impact of energy costs.

Our survey results also reveal that eight out of ten businesses are concerned about the impact of FiT charges on their business’ bottom line, believing the introduction of FiT has made budgeting more difficult.

Poor forecasting for FiT charges causes frustration

The lack of certainty around future FiT charges makes budget planning very difficult during already tough economic times, and businesses were shocked at how drastically DECC’s original FiT cost forecasts have been revised upwards. This lack of forecasting accuracy only added to concerns about the future impact of FiT charges on their business operations.

Lack of uniform approach among suppliers creates confusion

Many businesses are perplexed by the lack of uniformity across energy suppliers in the way that FiT charges are applied. As a result businesses are baffled, with more than 80% stating that evaluating supplier offers has become more difficult due to the inconsistency in the way the FiT is charged and recovered.

Disbelief that the FiT scheme will help the UK to meet emissions targets

Finally, more than half of business customers surveyed don’t think the FiT scheme will actually help the UK to achieve its emissions reduction targets. And when it comes to expressing a view on whether the FIT scheme will help raise the increased investment needed for low-carbon generation, businesses are divided – 45% think it will and 43% think it won’t.

So what’s to be done? Both our working group and survey participants had similar suggestions for how DECC should amend the way that the FiT scheme is charged.

Set costs, rule out nasty surprises and introduce a level playing field

The key calls are for DECC to set projected FiT charges for the next five years to aid better budgetary forecasting, and to move to a system whereby any changes to FiT charges are not adjusted retrospectively, but instead added into the FiT charge for the following year. This takes out the current nasty surprise element. Businesses also want suppliers to adopt a transparent approach to how they bill customers for FiT charges to clear up current inequality and confusion.

Some businesses also suggested that the FiT scheme should be scrapped altogether and instead that all environmental policies are combined and charged to businesses as one simple tax.

So there you have it. DECC has also announced a FiT mini-consultation this week that will run until September 25, so you have an opportunity to give your views directly to DECC on the practical impact of current FiT scheme to business via www.decc.gov.uk/en/content/cms/meeting_energy/renewable_ener/feedin_tariff/fits_review/fits_review.aspx

And if you’d like to see more about our original findings, please email [email protected] to request a copy of the npower FiT report.

If you would like to hear more from me, please find my blog archive here.