The future of energy: How to reduce the impact of market volatility
14th February 2019
To discover more about the changing energy market, download our free white paper.
What’s going to happen to business energy costs over the next few years? For the second of our articles about the future of energy, Haven Power approached experts Cornwall Insight for an independent view on how the market’s changing and why.
During 2018, fluctuations in the unit price of wholesale electricity and increases in third-party costs (TPCs) created a degree of budget uncertainty for businesses.
With market prices stabilising in early 2019 and Brexit on the horizon, organisations aren’t sure what might happen. To reduce the impact of any potential volatility, you’ll need to consider the following:
Changes to TPCs
Cornwall Insight predicts that the costs associated with securing electricity supply, and those for Contracts for Difference (CfDs), will increase. The CfD levy supports low carbon renewable generation.
To exacerbate the issue further, costs covered by the Carbon Reduction Commitment (CRC) and the Climate Change Levy (CCL) will also, eventually, be incorporated within TPCs, increasing costs further.
In addition, the Government exempts Energy Intensive Industries (EIIs) from the full liability of policy costs. This means that all the remaining (non-EII) businesses will, by necessity, find themselves paying a greater proportion of these costs.
Volatility in the wholesale electricity market…
Changes to the electricity generation mix mean that wholesale prices could still become more volatile. In part, this is due to the changing charging structure for ‘cash out’ prices - the cost that National Grid incurs for balancing electricity demand.
What’s more, while commodity prices seem set to rise, the increase in low carbon generation could depress costs across the entire wholesale electricity market. As the government subsidises low carbon generators, these plants have an incentive to bid low to generate as much electricity as possible. This, in turn, keeps prices low across the whole system.
So over the next decade, increases in TPCs could cause the wholesale cost of electricity to fall, while the price businesses pay for it increases. To read more about the possible effects of TPCs on the electricity wholesale market, download our FREE ‘Future of Energy’ white paper below.
... and how to avoid it
While it’s difficult to completely protect your business from the impacts of volatile electricity prices, it is possible to limit the effects of market unpredictability.
For example, some businesses prefer an energy plan that fixes the price at which they buy the electricity they need. Others choose to become ‘prosumers’ and reduce their exposure to the market by generating some, or all, of the electricity they use. Many will even change the way they use electricity in order to benefit from schemes such as Demand Side Response.
Get your FREE copy of ‘Supply and beyond: What does the future hold for business energy customers?’ white paper here.
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