Plain text version:
Earlier this year the government published its proposals for decarbonising the economy through electricity market reform (EMR). These proposals will affect all businesses in the UK. The first, and most significant, is due to come into force in less than 18 months.
EMR’s overall goal is to ensure at least 15% of the UK’s energy comes from renewable sources by 2020. However, because this means lifting the price of carbon emissions the combined effect of the proposals means that energy unit costs could double in the same timeframe.
UK energy consultancy Ener-G believes this is the right time for businesses to start planning for EMR’s impact. They have released a report, A Quick Guide to the Energy Market Reform, which describes how EMR is intended to work and gives businesses advice on the measures they can put in place to both mitigate its effects and take advantage of them.
Key areas of the report include the following:
Understand the reforms
The carbon floor price (CFP) is the first EMR proposal to come into force, in April 2013. This is intended to work as an escalator tax, pushing the price of carbon emissions up from £16 a tonne in 2013 to £30a tonne in 2020. These prices currently represent a significant premium on the EU’s emissions trading scheme price, meaning the cost of carbon-based power generation is likely to jump when CFP takes effect.
Another EMR proposal, which also comes into force in 2013, is the emissions performance standard (EPS). This specifies a maximum amount of carbon that new power stations can emit for every kWh of energy produced. One effect of this is that new coal and gas power stations will be more expensive to build and some believe this too will lead to energy prices rising.
Strategic business planning
Businesses should recognise that EMR is predicted to cause energy unit costs to rise by at least 15% a year until 2020 and quite possibly beyond. Consequently, as a significant and rising cost to the business, EMR should be drawn to the board’s attention and strategic measures put in place to manage it.
These measures include: ensuring rising energy prices are part of both short and long-term financial planning; developing a robust procurement strategy to select the best energy provider and contract for the business; and implementing energy efficiency plans to limit the energy use of the business.
Understand your energy consumption
The development of energy efficiency plans will demand that a company gains a detailed understanding of what parts of its business consume the most power and when.
Smart meters and their associated energy management software are the best way of arriving at this understanding. These allow a business to keep a real time track of their energy consumption and identify areas where further energy efficiencies can be achieved through either new equipment or business processes.
In addition, some software packages, such as Ener-G’s E-magine, also help businesses comply with regulations such as the CRC energy efficiency scheme.
Generate your own power
Another major concern surrounding EMR is the potential volatility in energy supplies and prices as the transition to a low carbon economy is made. In order to try and minimise their exposure to these issues many companies are looking at generating their own energy.
Onsite energy generation has the additional advantage that any surplus could take advantage of EMR’s feed-in tariffs. These will start to be available from 2014 and will provide an index-linked tax free payment for the next 20 years. Furthermore any heat generated (for example, from combined heat and power generators) could also be eligible for support under the renewable heat incentive.
Ronan O’Regan, director of renewable and clean technology at PwC, said: “The carbon price floor will have a great impact from 1 April 2013 … quick wins will be all about implementing energy efficiency measures and enhancing business processes.
“However there is also movement towards hedging against prices with onsite energy provision and some organisations are seeing this as a way of increasing their overall sustainability.”