September 17 Newsletter 14th September 2017
The UK electricity supply infrastructure is in a state of reform due to the outdated generation and grid infrastructure; generation mix with increasing emphasis on renewables; and demand side pressures driven by economic growth, population increase and movement towards electric vehicles.
DCP161 is a UK regulatory reform that presents many opportunities such as FITs, RHI, CfD, STOR and demand side management incentives, it also presents a number of financial threats.
Excess Supply Capacity charges currently offer no financial penalty to businesses that exceed their Available Supply Capacity (ASC), however this is changing from the 1st April 2018. This reform was agreed in 2014, implemented from April 2018 and seeks to improve reflective charging for supply capacity agreements.
DCP161 will provide significant cost penalties for those organisations whose electricity supplies exceed their authorised Available Supply Capacity with excess supply capacity charges up to 300% above the standard capacity charges confirmed on bills from April 2018.
It is important to recognise that during 2017/18 a large number of organisations will seek to secure increased Available Supply Capacities and this will move to saturate local transformers and infrastructure, compounding costly upgrades for increased supply capacity in the future.
Briar Associates have carried out analysis on their Climate Change and Energy Procurement’s clients supplies and the findings are that 93% of the supplies analysed need to take some action to safeguard themselves from this legislation.
Typical actions are the improvement of Power Factor Correction to reduce the Maximum Demand, or simply increasing the Available Supply Capacity.
We would be happy to carry out similar analysis on your supply and make recommendations based on your business needs and growth plans.
You should act now, as doing nothing could be costly to your business.
Current Market Position
Wholesale energy prices were hit by a series of unplanned outages at UK gas fields, disruption to Norwegian flows throughout the month and a weaker pound. Both gas and electricity prices rose by around 16% over the course of the month.
Prices rose at the start of August as continued planned and unplanned maintenance stemmed UK gas supplies. Each week outages disrupted supply with St Fergus and Teesside BP both offline since the beginning of August.
Sterling fell against the Euro as the Bank of England announced it would keep interest rates at 0.25%, accompanied by comments by Mark Carney warning of the impact of Brexit uncertainty on the UK’s economy.
September could see prices continuing the upward trend with concerns over French nuclear plant outages and low hydro reservoir levels in Europe, both of which could push prices in interconnected markets higher as alternative sources of generation may be required.