No-one likes uncertainty. But when it comes to energy, a lack of clarity among businesses about future costs is all too common.
For example, according to research conducted by YouGov, more than 75% of senior decision makers responsible for buying energy are unable to accurately predict that electricity costs will rise by more than 40% by 2028.
We have devised a solution for predicting long-term costs (and ways to reduce them), of which more in a minute.
But when it comes to a clear view of short-term costs, this can be altogether more tricky.
Short-term costs unpredictable
The issue is that many of the growing number of non-commodity costs added to bills can be unpredictable – and the difference between what’s forecast and what then out-turns can be considerable.
Certainly, in the past few weeks, Balancing System Use of System costs have gone haywire.
High winds in Scotland in the latter half of September and into October have had the potential to generate record levels of power. More than Scotland can itself consume.
This isn’t an unusual scenario, especially at this time of year. That’s why National Grid has built an underground cable – the Western Link – that can transfer any surplus energy from Scotland to England.
When high winds aren’t good news for power
However, the recent high winds coincided with the Western Link being off line.
This connection is still in the process of being fully commissioned, which has been in progress since December 2017. During testing, a number of issues have been identified, causing the Western Link to go offline repeatedly.
As demand in Scotland wasn’t sufficient to absorb the additional power during this latest extended off-line episode, wind turbine operators were asked to ‘constrain’ generation – i.e. turn off their turbines.
To compensate for loss of earnings, they were paid constraint costs by National Grid.
These constraint costs are funded by Balancing System Use of System (BSUoS) charges, which are added to energy bills. As the name suggests, BSUoS covers the cost of ensuring the grid is balanced, with an appropriate level of power available to meet demand.
BSUoS charges to double
But the recent compensation paid to Scottish wind power operators – and the additional costs of sourcing other localised generation to meet the shortfall in England – means BSUoS costs for September are likely to average around £4.32/MWh, and climb as high as £5.18/MWh for the first 11 days of October.
To put this into context, September 2017 BSUoS costs were £2.31/MWh, with overall constraint costs of circa £25m – £75m less than the £100m constraint costs for September 2018. (Please note, these figures are indicative and therefore will be subject to change.)
The good news is the Western Link is now back online, so is able to redistribute any excess energy.
The network experts on our Non-Commodity Costs team have also been liaising with National Grid to get more insight as to any future outages and impacts, so that customers can be advised.
Insight into future costs – and ways to reduce them
BSUoS is charged on a £ per megawatt hour basis, so unlike other key network and distribution costs, it cannot be reduced by load shifting, for example through Demand Side Response.
But like any energy-related cost, it can be decreased by energy efficiency and other cost-saving measures.
You can find out both your likely future energy costs for the longer term – and the positive financial impact that key energy management interventions can deliver – by using our new Cost Predictor tool.
It’s free to access and combines the forecasting expertise of many of our network, non-commodity and policy cost specialists.
You can also hear more about ‘Predicting energy costs in an uncertain world’ when energy market expert Ben Spry presents at Energy Live Expo in London on 31 October. See our recent blog for more information and how to apply for free tickets.