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UK businesses remain doubtful on Government's energy policy

Reg Tucker

A new npower poll reveals just how sceptical businesses are by the effectiveness and impact of the Government’s energy policies, particularly on renewables. Wayne Mitchell, head of commercial and industrial markets at npower, elaborates.

New released research from npower shows that UK business leaders are still unconvinced by the economic case for the Government’s energy policy.1 Specifically, the findings reveal that 59% of businesses surveyed were ‘not very confident’ or ‘not at all confident’ that current energy policies reflect the needs of business in Britain, while 62% expressed a similar lack of confidence in planned energy policies. Included amongst the planned policies is the Government’s flagship Electricity Market Reform (EMR), which is designed to help the UK transition to a low-carbon economy.

More importantly, according to nPower,2 the findings demonstrate that businesses aren’t willing to see their energy bills increase in order to financially support low carbon energy schemes, such as those proposed through the EMR. In fact, 81% of the 600 senior decision makers surveyed by npower ranked affordability as the most important energy related issue for their businesses, ahead of security of supply (77%) and the move to a low carbon economy (41%)

While there is scope to improve affordability by taking measures to boost energy efficiency,
 28% of respondents said their business would not be willing for energy bills to increase at all to help fund low carbon energy schemes. A further 30% said it was ‘unlikely’ that their business would be willing to see their bills increase to help fund these schemes. 

Case in point: The Contracts for Difference (CfD) initiative guarantees companies with the ability to produce electricity a fixed price for using low carbon technologies. The difference between the wholesale market price and the guaranteed fixed price is paid to those producing the electricity by the Government-owned Low Carbon Contracts Company (LCCC). This comes as a cost to energy suppliers, who must then pass this additional expense on to customers in their energy bills directly impacting the latter’s bottom line. Not surprisingly, when told that Government estimates that CfDs will increase energy bills by 10% by 2020, 73% expressed concern about this.

The survey findings come as npower launches The Twenty Per Cent Imperative, which includes guidelines for how UK businesses can cut energy costs through demand side management. The paper calculates that if the UK’s large businesses put energy reduction initiatives in place now, they could collectively realise annual savings in excess of £4 billion over the next 10 years — that is, if energy inflation continues on its current trajectory. 

“This survey has revealed just how sceptical businesses are by the effectiveness and impact of energy policies – the very policies that are going to have far-reaching and long-term impacts on their businesses,” said Wayne Mitchell, head of industrial and commercial at npower. “As political parties consider their energy manifestos, there is a clear case here for Government and the wider energy industry to work together to better educate businesses about the importance of these policy initiatives in securing the UK’s energy future and the competitiveness of UK plc.” 

Shortly after the release of the survey, Renewable Energy Focus magazine caught up with Mr. Mitchell for a one-on-one interview. Following are excerpts of that discussion:

REF: What are the main impediments standing in the way of progress on the energy policy front, particularly regarding renewables?
     Wayne Mitchell: Big businesses are generally very supportive — they want renewable energy, they want a low-carbon economy. However, they are not being engaged by government in developing new policies. What tends to happen is: any cost of funding these renewables is simply levied as taxation on the end user. Of course, this is unpalatable, especially when you are operating on a global economy in which others are not subject to these taxes, or are not being taxed for carbon in the same way.
    At the moment, the market is still a bit dysfunctional in terms of renewable generation.
REF: In recent months, several renewable energy associations have been quite proactive in working with Government on policy recommendations. Are you encouraged by what you’re seeing so far in terms of actual implementation, or the “prospect” of implementation?  
    WM: If there is the prospect, then, yes, I would be, but I don’t personally feel or see that this is happening. I think there is at least much more dialogue going on at the moment with government, and I know that in particularthe trade associations do an awful lot to try and lobby government when it comes to policy. However, it is our experience that that lobbying doesn’t always produce the desired results. It remains to be seen whether all that lobbying will pay off or not.
     There are some instances where we have seen certainly the energy-intensive industries have had dispensations on certain policies that could cripple their businesses, but I’m not sure that I’ve seen anything more than that to make me feel deeply encouraged that there’s a big chance of that happening in the way policy is being implemented.
REF: In renewables, where are you seeing the most activity right now?
     WM: In the UK, the predominant sources are onshore and offshore wind and biomass. Solar is on a lower scale compared to the others; there are some solar farms in the UK, but they are nowhere near as large as wind power. Biomass is big as well. We’re seeing a lot of old conventional fossil fuel power stations converting their units to burn biomass. So these are not spanking new facilities; rather, these are facilities that are being retrofitted.
REF: How do you see the future developing for renewables in the UK. Are new models emerging?
    WM: In 2015 and beyond, we expect to see a move from a commodity market — where we transact with each other based around a price — to a market where we interact with each other to better understand each other’s businesses better to get the best results for all parties and to find a solution to customers’ problems. So, rather than selling off-the-shelf products, it’s about finding bespoke products and services that suit the needs for those particular clients.
     At the same time, we’re also seeing customers taking a more active role in the market as opposed to a passive role. As a result, there will be more end user controls of their sites and in their businesses and, therefore, better control of their energy consumption. We expect more customers to take advantage of commercial opportunities and commercial schemes to get them to turn down. Overall, we see a decline in the amount of energy that is actually being consumed, and that’s due to various energy-efficiency measures and reducing waste.  
     Finally, we expect to see a continued drive toward third-party power purchase agreements and end users sourcing energy from renewable or independent generation projects on their own and back through us.
REF: In working with its customers, npower puts a lot of emphasis on energy management and conservation. Can you elaborate?
    WM: Our recommendations range from some very simple behavioural techniques that businesses can employ, all the way through sophisticated energy performance contracts. On the low end, it starts with having the right meter on site, making sure you’re measuring the data in the right way to using some very simple data tools. And that can then be used to drive employee behaviour. Then you have the very simple packaged solutions, such as lighting audits or replacing aging equipment of relatively low capital cost (i.e., replacing light bulbs with LEDs), through to the more sophisticated energy contracting, where we are looking to provide the engineers on site with ongoing support and the people on the ground. We can do whatever it is that the customer needs us to do to get their consumption down to the optimum level.
     Then there’s the issue of “interacting” with the market. In the past, energy users have been sort of passive. But because of the way the pricing mechanisms work in the market, we encourage use of these energies at the right time. So, if you are on a half-hour meter, then you are on the triad — a charge levied upon all half-hour customers that is based on the three highest days of consumption in the winter months. It’s essentially a scheme designed to get end users, particularly industry, to turn down during peak hours between 4pm – 8pm so the grid can better balance the system. A very simple example of where we can help customers interact with the market is to get them to turn down their volume (or use it at different times) during the winter months in the period between 4pm and 8pm so that they avoid the triad charges. The end result is it gives the market what it wants, and the end user avoids cost.
     There are other ways of interacting with the market, including voluntary load management, which is purely based on market economics. For some customers, it’s better for them to sell their energy back to the market rather than consume it. There’s also the short-term operating reserve by National Grid, which is designed to balance the system during times of peak demand. If you enter that scheme, then you pay for an ‘availability’ charge. 
      At the end of the day it boils down to buying the “right stuff,” not only renewable energy, but buying that energy in the right way. Customers can buy pure supply renewables from us, or they can go contract with a generator separately and generate their own “good stuff” off the grid. That way, they can take full credit for it while avoiding transmission and distribution charges. 
  1. All figures, unless otherwise stated, are from YouGov Plc. Total surevey sample size was 633 senior decision makers. Fieldwork was undertaken between 1 – 4 September 2014. The survey was carried out online.
  2. RWE npower is a leading integrated UK energy company that supplies gas, electricity and related services to residential and business clients alike. Its customer base ranges from large industrial customers (heavy industry such as steel and industrial gases) to some of the big retail chains, local businesses and councils, high-techs businesses. In renewables, npower offers standardized, “packaged” products all the way up to bespoke products in the top tier.   

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