Chris Trigg highlights the latest electricity and gas price rises, the impact on business and a strategy to reduce demand for grid-supplied energy to help manage and avoid these rising costs.
Rising volatile energy costs
Between the end of March 2018 and 24th September, the price of Winter 2018 electricity contracts increased by 44.1% and the equivalent gas contracts by 54.1% – suffice to say these are staggering figures. Day ahead prices followed the same trend across the summer, a season when commodity prices typically soften reflecting ample system supply margins, particularly for gas.
Winter 2018 Forward Contract Closing Prices
| 28th Mar 2018 | 24th Sep 2018 | % | ||
| Electricity (UK Baseload) | £/MWh | 52.58 | 75.75 | 44.1% |
| Gas | p/therm | 53.4 | 82.28 | 54.1% |
Source: Ecova Daily UK Energy Market Watch
Because most energy suppliers buy their energy through forward contracts these wholesale cost increases, coupled with double-digit non-commodity cost inflation (the costs of delivering the energy and the government’s levies) and price volatility are priced into the tariffs being offered by the retail energy suppliers now.
The factors driving energy price increases are outside any organisations control but include sterling’s relative weakness, rising crude oil prices and system outages contributed to these wholesale cost increases that ultimately hit a business’ bottom line, market competitiveness or both.
So what practical steps can be taken to mitigate the risk of rising energy prices and volatility?
Investing in energy efficiency measures such as LED bulbs and lighting controls are often a sensible place to start but then what?
Generating electricity and heat at the place it is needed could reduce grid-supplied energy costs by up to 80%. This requires an investment in suitable onsite renewable technologies, ideally using free feedstocks such as the sun and wind.
Government subsidies (e.g. the feed-in tariff) have encouraged the uptake of renewables and by themselves were often sufficient to justify the initial investment but quite rightly, as technology costs have plummeted these support mechanisms are being phased out.
Despite subsidy removal, the business case for onsite renewables has never been more compelling, the key is to size a renewable technology (or combination of) with energy storage to meet the energy demand on the site.
Consider the tax breaks available
Companies can obtain relief against corporation tax through maximising capital allowances on capital expenditure. Not all capital assets qualify, where they do there are varying different levels of allowance ranging from an annual 8% writing down allowance for long-life assets (those with an expected economic life of 25 years or more) to enhanced capital allowances for energy-saving technologies included in the Government’s extensive Energy Technology List (ETL).
The financial benefits of being energy resilient can be just as important as the financial benefits of being energy efficient
For some organisations, particularly those involved in expensive batch manufacturing processes the need for energy resilience underpins investment case for onsite generation and battery storage.
A loss of power or even a voltage drop at a critical juncture within a manufacturing process can result in tens or hundreds of thousands of pounds of loss. Avoiding a couple of these events through investment in a battery can represent a 1-year payback alone even without the benefits of load shifting and avoiding grid-supplied electricity.
Will investment in energy efficiency deliver wider business goals?
Reducing carbon emissions feeds into an organisations corporate social responsibility (CSR) strategy which can boost brand reputation and help to attract and retain new customers and staff.
As the UK moves towards a low carbon energy future, more legislation is being introduced to encourage businesses to become as energy efficient as possible.
The Climate Change Levy is a prime example of this, as it is set to rise in April 2019, if your business is affected then having a strong energy efficiency plan in place is a good way to mitigate cost rises.
If your organisation is required to comply with the Energy Savings Opportunity Scheme (ESOS) with its next compliance deadline of December 2019 or as a landlord, the minimum energy efficiency standards (MEES) which came into effect in England and Wales from 1st April 2018 onsite renewables should be firmly on the agenda to improve a buildings energy performance certificate rating.
Article by Chris Trigg, Co-founder and Managing Director of OnGen Ltd.
Chris Trigg is co-founder and Managing Director of OnGen Ltd, an energy consultancy and developer of the OnGen Expert™, an objective renewable energy and energy storage feasibility assessment tool which won the Energy Managers Association prize for “best energy reduction product” in November 2017. Chris is also a Chartered Accountant and member of the ICAEW Energy & Natural Resources Community.
OnGen was established to help all energy users, including residential, take control of their energy demand, reduce energy costs, reduce carbon footprint and provide energy resilience in uncertain times.
