Last week, I talked about how much the newly-finalised Electricity Market Reform (EMR) policies are likely to cost consumers. If you recall, we estimate between £11 and £17 per megawatt hour by 2020, which when you are consuming in the mega megawatt league, is not an insubstantial amount, especially on top of other existing policy costs and non-commodity charges.
But EMR is not just about extra cost. It also brings opportunities to participate in and benefit from its Capacity Mechanism via demand-side response.
For those organisations who are able to be flexible around consumption – for example by switching off equipment, switching to on-site generation or shifting working patterns at short notice – you can generate income as part of the Capacity Mechanism (CM).
The first CM auction takes place this December, and will focus on securing capacity from generators for delivery in Winter 2018/19. Demand-side response (DSR) participation is then expected in the second auction, due to take place a year ahead of delivery, in November 2017, where the government hopes to secure 2.5GW to top up the 50.8GW it expects to purchase this year.
Would-be participants must be able to offer a minimum load capacity of 2MW that they can reduce when asked to do so (ie at times of peak national demand). If you haven’t already participated in a previous system-balancing scheme, you’ll need to provide a detailed proposal as well as a bid bond of £5000/MW to secure your place in the auction.
While the Department of Energy and Climate Change (DECC) hasn’t yet published an anticipated ‘clearing price’ for the second auction, they are estimating around £39 per kilowatt in the first.
A trial run for newcomers
For those new to DSR, there will also be a ‘transitional arrangement’ in 2016 and 2017 to allow you to test the market. This offers a reduced bid bond of 90% plus the chance to trial a time-banded option if the main load reduction obligation appears unfeasible. The periods ear-marked for reduction are 9-11am and 4-8pm during winter weekdays. So if your business can be flexible around the timing of energy-intensive activity, this may be an option worth considering.
In addition, National Grid will be looking for participants in its new Demand Side Balancing Reserve scheme, which will run annually from November 2014. Unlike DSR in the Capacity Mechanism, this carries no penalty if you don’t respond – and you could also qualify for a £10k set-up fee if you are able to offer demand reduction that can be sustained for two hours or more.
Mitigating EMR costs
Whether you participate in these schemes or not, you can still reduce your EMR costs by becoming more energy efficient. A comprehensive strategy will yield the best results, and where investment in new equipment or system upgrades is required to harness the best efficiencies, Energy Performance Contracts can enable you to offset the cost against future savings.
For those organisations also looking for greater budget certainty, we can now offer a fixed price contract option that not only fixes the cost of the wholesale electricity element of your bill, but many of the volatile non-commodity costs including EMR Contracts for Difference charges. You can find out more about Fixed Certainty EMR on our website.
Wayne Mitchell is npower’s I&C markets director.
This is a sponsored article.