David Topping, E.ON's director of corporates discusses the impact of peak prices on customers' energy costs.
Like the demand for many commodities, energy demand varies considerably depending on a number of factors, including season and time of day. However, as yet there’s no way of storing significant amounts of electricity so the challenge is that supply and
demand must be balanced in real time in order to keep the lights on.
Spikes in demand are relatively infrequent but power blackouts would be hugely disruptive to industrial consumers so it’s vital the whole supply chain is able to cope at points of peak demand – from generation to distribution.
The cost of reinforcing the UK’s infrastructure to cope with these peaks is high, even though this capacity isn’t needed most of the time. The industry regulator, Ofgem, has signalled to the market that we need to reduce those peaks in demand. Because of this, the costs associated with the infrastructure – transmission, distribution and standby generation charges – are increasingly being set based on energy use at peak times. This is on top of the cost of the energy itself, which is also more expensive when demand is high.
Peak charges affect large business customers, regardless of the type of contract they have. For those with fixed prices, these costs will have been built in but reducing consumption in peak periods will benefit future contracts. For others these costs are passed on as they are incurred, so being able to manage consumption around peak periods could be an important factor in managing and, therefore, reducing energy costs with immediate benefit.
We believe there are a number of practical steps businesses can take to help them manage these charges.
Perhaps the most prominent of the ‘peak charges’ are known as Triads. Triads are the three half hour periods of peak demand that occur between November and the end of February and are used to set transmission charges.
Forecasting the Triads is not easy – they’re calculated retrospectively and regulatory rules mean there must be ten days separating each Triad. In winter 2013-2014 Triads occurred on November 25, December 6 and January 30, however between 1990 and 2014 a number of patterns have emerged:
There’s the potential to make significant savings if businesses are able to reduce load at these times and we provide our customers with a free Triad warning service. This gives businesses the opportunity to take short-term steps to help reduce their consumption. Such steps will vary between businesses, but could include:
- Adjusting shift timing
- Avoiding batch processes, e.g. kiln drying
- Switching off heating or air handling systems
- Reducing compressed air pressure or depleting buffer storage
- Maximising the use of onsite generation
In the medium term there are opportunities for businesses to focus on more sustainable opportunities to ‘shift’ load away from more expensive peak times into cheaper off-peak periods.
Such an approach should be data led and manufacturers should analyse their consumption data to understand what’s driving their patterns of energy usage. To help our customers achieve this we recently launched our Energy Toolkit.
The focus on peak charging is likely to continue as it’s predicted that the balance between supply and demand will get tighter over the coming years. With this brings the opportunity for businesses to engage in demand side response activities which ultimately provide the ability to earn income from demand management, rather than just avoid cost – which may support investment in new assets such as onsite generation.