Business warned of rising low carbon costs ‘hidden’ in electricity bills
Peta Hodge
1st March 2010
A warning has been issued today that British businesses are unprepared for an increasing proportion of their electricity bills to be made up of ‘hidden costs’ associated with the transition to a low carbon economy.
The warning comes from
SmartestEnergy, the UK’s largest purchaser and supplier of independently generated electricity, which says these rising costs are going to be driven by
low carbon initiatives such as
feed-in tariffs (FITs) and the
CRC Energy Efficiency Scheme (CRC). SmartestEnergy says British businesses will have to adapt their purchasing strategies to counteract the dramatic rises in electricity costs that will hit them in the coming months.
SmartestEnergy has calculated that 40 to 50 per cent of the price British
businesses pay for electricity will soon be accounted for by charges associated with the transition to a low carbon economy.
This adds together the impact of new measures such as FITs and the CRC (both of which are being introduced next month) and existing low carbon transition measures, such as the Climate Change Levy and Renewables Obligation.
It also takes account of Ofgem’s recently-announced £7.2 billion upgrade to the distribution network, due to take place over the next five years, to accommodate more
renewable energy and support large scale trials of smart grids and other
technologies.
Although domestic bills are also set to rise, SmartestEnergy maintains that businesses will be disproportionately affected.
Asked to comment on this claim, a DECC spokesperson said: “We’ve always been upfront on the cost of climate change impacting on bills but we’ve always been upfront that there’s no high carbon, low cost alternative.
“Current industrial energy prices are on average lower than domestic retail energy prices. This is primarily because industrial customers tend to pay closer to wholesale energy prices. Therefore a given unit cost will result in a higher percentage increase in bills.
“These two factors combine to mean that the increase in bills in 2020 is about nine per cent for the domestic sector and about 21 per cent for the industrial sector.”
SmartestEnergy’s contention is that most business energy buyers focus their attention on wholesale prices and are not taking sufficient account of the impact of regulation on their energy bills.
UK business at risk of losing international competitiveness Jo Butlin, vice president for retail, said British businesses could be at serious risk of losing international competitiveness as prices spiral in an uncertain market: “Customers have got smarter at managing energy costs in a volatile wholesale market, but soon the wholesale electricity cost will not be their main concern, policy and regulation will be.
“Energy purchasing managers need to change their game and stay ahead by turning these new costs into opportunities.”
One solution for large companies favoured by SmartestEnergy is for them to switch renewable electricity, and so avoid the costs associated with the Climate Change Levy. It cites the example of Marks and Spencer, which is purchasing 100 per cent renewable power for all its Scottish stores, using power sourced only from renewable generators within Scotland.
On-site energy generation Another option for large industrial energy users, would be to follow the lead of companies like British Sugar and Rolls Royce and consider on-site energy generation, turning around the costs associated with purchasing centrally generated electricity into an additional revenue stream.
It is also vital that companies develop a better relationship with their energy supplier and force a more flexible approach, said Butlin.
“We are now operating in a market where business customers, be they large retail brands, industrial players or public sector organisations, must be able to engage with their supplier to develop a tailored energy package which meets their carbon emissions reduction targets without increasing their costs,” he said.
The company will be putting over these points at its annual conference in London later this week.
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