Businesses fear reform will bring volatile power prices

Britain’s largest energy users worry a new system to deliver low carbon energy will lead to volatile electricity prices. That’s according to a new report from npower after the Government’s […]

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By Vicky Ellis

Britain’s largest energy users worry a new system to deliver low carbon energy will lead to volatile electricity prices.

That’s according to a new report from npower after the Government’s consultation on Electricity Market Reform (EMR) closed.

Two of the biggest changes ahead are the Contracts for Difference (CfD), where generators will be paid for renewable and nuclear energy and the Capacity Market, the system meant to ensure the UK has enough baseload generation such as gas.

When it comes to the CfD, alongside the danger of volatile electricity costs it seems businesses are worried by the prospect of a lack of notice of charges, hindering their ability to budget.
They also fear there will be less incentive for generators to enter long-term Power Purchase Agreement (PPA) arrangements, found the report.

On the Capacity Mechanism front, they worry about its impact on the wholesale markets and if it could shift volatility from commodity to non-commodity costs.

There is also concern the structure of charges in the system could negate any incentive for businesses to participate in Demand Side initiatives, a way to manage system demand at peak times.

Wayne Mitchell, Director of Industrial and Commercial Sales and Marketing at npower said: “Our roundtable and associated report clearly show that UK businesses still have serious concerns about the implications on future costs and forecasting abilities for their organisations.

“Getting the electricity market right is absolutely essential for the competitiveness of UK businesses. It is therefore crucial to understand from a business context the impact of DECC’s policy proposals around EMR. Whilst there is a strong need for UK investment in energy infrastructure, it has become clear from businesses that EMR may come at the cost of UK plc competitiveness. What’s required is greater certainty for businesses to be able to forecast costs and budget accurately.”

Research by npower published alongside the report showed businesses have greater understanding of CfDs but the CM is less familiar and most would also like to better understand the full impact of the Carbon Price Floor.