Energy bills are set to rise for manufacturers in the face of a new government initiative, which promises reliable resources of capacity.
A report by Inprova Energy suggests that the government’s new capacity market surcharge will add around £378m in total to manufacturers this year. The increase will represent a hike of around 1 per cent, which is actually smaller than the forecast.
The capacity market surcharge is part of the government’s electricity market reform, which looks to enhance the security of British electricity supplies by ensuring their is sufficient reliable capacity to meet demand. The scheme entails provider to put in tenders for peak times and receive an annual allotment, after which they must ensure the power requirements and demands are met.
At the start of February the latest auction took place and brought the capacity market forward by a year to help plug an shortfall, which is predicted for 2017/18. The auction cleared at the lowest ever price of £6.95/kWh to deliver 54.4MW extra capacity. The three previous auctions for 2018 to 2021 achieved much hight prices, which ranged from £18 to £22.50 per kWh.
“The low clearing price is better than expected news for manufacturers and will be good for UK system stability,” said Michael Hill, Lead Analyst for Inprova Energy. “This should ensure that businesses have a reliable supply of electricity at all times of the day, insuring against the intermittent nature of wind and solar generation or unplanned generation plant outages.”
Inprova Energy expects Capacity Market costs for Winter 17/18 to add 0.129 pence per kWh to bills, but cautions that this is a national average and will not necessarily be reflective of what individual customers pay.
Hill explained: “The cost of the Capacity Market will depend on a number of factors, including individual peak consumption, total consumption and supplier market share. Some energy suppliers will pass on Capacity Market costs to their customers through a monthly charge, whilst others may instead choose to add a cost per kWh during peak periods.”
He added: “Manufacturers should review their contract arrangements and speak to their energy adviser or supplier to fully appreciate how these costs may affect their energy spend. There are actions that can be taken to reduce costs, including introducing load management measures to reduce peak time demand.”