Manufacturing industry views on 2017 energy market

Our new Energy Matters shows that manufacturers have some key concerns about how the energy market will look in 2017 – with a vast number of respondents to our quarterly survey feeling that government policy in 2017 should focus firmly on bringing down energy bills.

There is a wealth of policy proposals and consultations underway going into 2017. Given the failure of previous capacity market auctions to secure baseload generation capacity, the onus remains firmly on market flexibility rather than cost-control however.

There are growing opportunities for businesses to drive down bills however. They are dominated by the ability to be agile in responding to market conditions, with aggregators and storage a rising force. Consultation is underway that could radically shake up the aggregation and storage industries, with a call for evidence seeking views on how to secure “system value pricing”, or pricing which lets solutions compete based on their value to the whole system.

So-called “system value pricing”, or pricing which lets solutions compete based on their value to the whole system, is also on the rise. Distribution Network Operators, for example, charge network users a flat-rate p/kWh fee to transport electricity through their networks. (Distribution Use of Service charges or DUoS). This neither reflects the costs associated with the network being built and reinforced for peak demand nor does it send a signal as to when demand is at its highest (or lowest).

This is likely to change with upcoming consultations and events which include changes to the Capacity Market, Contracts for Difference and Capacity Market auctions, regulatory changes to stimulate more Demand Side Reduction (DSR) along with amendments to the Energy Efficiency Tax landscape. This edition of Energy Matters aims to demystify the state of the market as 2017 gets underway.

The survey

Our quarterly survey posed five questions to 100 manufacturing decision makers in companies with 250 or more employees. The results were straightforward: 62% identified energy costs as having had most impact in 2016, against 20% for lack of technological improvements, 8% for changes in reporting mechanisms and 6% for lack of access to information.

Looking forward, 57% of businesses believe decreasing energy costs should be a priority when deciding energy policy for 2017, but the biggest concern across the board (63% of businesses) was the impact of Brexit in 2017. Some 76% of businesses were aware of the upcoming developments in the energy sector in 2017, but concerns about changes to European energy policy impacting businesses in 2017 were pronounced, with 87% of businesses describing themselves as concerned.

Changes afoot

November’s announcement that the government is seeking an “orderly transition” away from unabated coal generation – which represents 15% of the UK’s total generating capacity – by 2025 emphasises the changes the market faces in coming years. The government has set aggressive capacity targets in recent capacity auctions (for delivery in 2020/21) which is fuelling a battle to deliver new power plants; up to 5GW of new capacity may be required.

Debate rages though about the finer details of delivering this. Diesel peaking plants have been big winners in recent years, but pressure is mounting to restrict their use through emissions limits, with Ofgem also expressing concern about the payments that embedded generators received from suppliers for helping them to reduce electricity transmission charges at peak times.

David Reed, Head of nBS, said:

“Rising energy costs are understandably a huge concern for manufacturing businesses. The government is rightly under considerable pressure to deliver a more flexible system that minimises overall costs to users.
“Given that recent Capacity Market auctions have been unable to deliver baseload generation, costs, unfortunately, look unlikely to fall, so helping customers to use their energy more efficiently should be a primary focus of all energy managers and buyers as they go into 2017. Businesses can prepare for a range of outcomes by continuing to improve understanding of their consumption and emissions patterns. nBS is committed to helping our customers cut costs by improving flexibility and making full use of the range of incentives in the market place to do this.”