Policy Impacts

Never a dull moment: a year in energy

Posted on 18 December 2019
By Wayne Mitchell
Wayne Mitchell
Director of npower Business Solutions, Energy HQ

Wayne has worked in the energy industry for 20 years, starting as an Analyst for an energy consultancy before moving into business development and pricing for npower Business Solutions. Upon joining the company he focused on strengthening relationships with external consultants, before taking up his current position heading up Energy HQ, which provides energy solutions and risk management services to UK businesses.

2019 has certainly been an eventful year for the energy sector. Indeed, it’s been quite a year in many key areas of UK life.

Clearly, politics has taken up a lot of air time and after last week’s election, the Tories now have the Parliamentary majority they need to deliver Brexit – although what form that will take is still to be decided.

Nationalisation off the agenda

Whatever your political persuasion, the energy industry breathed a huge sigh of relief that Labour’s proposed nationalisation plan was at least off the agenda.

You’d have been hard-pressed to find anyone with experience of the sector who believed that would have been in the best interests of consumers.

But there’s no question that energy is currently a tough and complex market to be in, especially since the Ofgem-instigated price cap came into force at the start of 2019.

Failures increase cost burden to consumers

It’s not coincidental that we’ve seen a number of inexperienced suppliers go out of business over the year.

Unfortunately, one of the impacts is an emerging invoice for ‘mutualisation costs’ to cover the shortfall in unpaid levies. And consumers will sadly be picking up the tab.

For example, the latest figure from the Electricity Settlements Company is estimating £10m to recover for the Capacity Market (CM) for 18/19. And Ofgem is citing £97.5m for the Renewables Obligation (RO) for 18/19.

However, Ofgem has confirmed that they received £38.7m worth of late payments from three suppliers after the RO payment deadline of 31 October 2019. So we await more information regarding the timescales for the redistribution of that money.

Market consolidation

We’ve also seen consolidation in the market – and indeed experienced this ourselves, with the aborted merger with SSE and then the recent takeover by E.ON.

SSE’s domestic portfolio has subsequently been purchased by OVO to create the second-largest domestic energy supplier in the UK.

Our domestic and SME divisions will start preparing to transfer customers to E.ON next year and, as we’ve already announced, sadly a large number of our colleagues will leave npower.

But for us in npower Business Solutions (nBS) – and for our clients – it’s very much still business as usual.

Net zero goal makes change inevitable

And with the many changes in the market – and the government announcing the UK’s 2050 net zero goal earlier this year – we’ve busier than ever.

The energy landscape is changing. And consumers will be expected to adapt to new conditions and challenges.

Back in May, we clocked up the longest ever period (two weeks) of coal-free power since large-scale generation began.

But then in August, we experienced the biggest power cut in a decade, when more than a million homes and businesses were left without electricity for several hours.

Unsurprisingly, concerns over security of supply were put sharply in focus.

Flexibility key to meet demand requirements

As we transition from large-scale dependable fossil-fuel generation to more diverse, small-scale and intermittent power sources, finding ways to balance supply with 24/7 demand is key.

This is especially key as demand for electricity increases, with growing numbers of electric vehicles (EVs) and the need to decarbonise domestic heating.

The Triad system for encouraging large consumers to reduce demand during periods of peak demand will soon cease, as a result of Ofgem’s newly introduced fixed methodology for calculating transmission charges.

This will remove the mechanism whereby in the region of 2GW of capacity is saved over the winter months.

So new ways of utilising consumer flexibility will need to be found (as I doubt firing up coal-fired plant will be a popular choice in our current climate).

Ofgem’s TCR brings more change

As you are probably aware, the Triad change is part of Ofgem’s wider Targeted Charging Review (TCR), which is also looking at the way in which distribution costs are recouped from suppliers.

These changes are set to add around 10% to the invoices of large consumers (although some may pay less).

For more on this, you can watch a recording of our recent TCR Explained webinar here

We’ll also be bringing you updates in the new year on Ofgem’s planned changes to forward-looking charges and network access.

For now though, we’d like to wish you a very happy festive season – may you rest well and recharge your batteries. You’re certainly going to need a fresh injection of energy to face all the new opportunities and challenges set to come in 2020!

Finally, if you’re looking for ideas for how to get your energy management strategy off to a good start come 2020, do look out for our New Year blog on 2nd January.

Comments

Your email address will not be published.