Cut peak electricity demand to counter rising third party charges

Half-hourly metered electricity customers should take urgent action to reduce their peak time consumption to mitigate hefty increases in transmission charges, says business energy purchasing specialist ENER-G Procurement.

The need for organisations to address demand side management is underlined by findings from the new 'Third Party Charges for Energy Forecasts 2014-15' report, published by Cornwall Energy. Cornwall predicts that overall third-party costs for half-hourly electricity users will increase by 4% in 2015-16 and 10% in 2016-17, compared to a 2014-15 baseline.

The report's analysts forecast that while Ofgem's new price controls will bring a 14% reduction in distribution charges for 2015-16, all other charges will go up  - particularly the cost of transmission, which is predicted to jump by 16% in 2015-16 and a further 14% in 2016-17.

But it’s the costs associated with support for low carbon generation that show most movement.

Renewables Obligation alone (already the second largest third-party cost) is forecast to rocket by 19% this year, with another 12% hike in 2016-17, whilst the other elements (Feed in Tariff, Climate Change Levy and the new FiT CFD) combine to drive green support measures up by 15% in each of the next two years - to become around 55% of total third-party charges by 2017.

For large non-domestic gas users, third-party costs should remain stable until April 2016, when a 2% overall increase is forecast.

"By 2016, third-party charges are set to account for more than 50% of a large electricity user's bill," said Mark Alston, Director of ENER-G Procurement. "Whilst general energy efficiency measures do produce incremental savings, it’s important to remember that the best returns arise from targeting the peak times of day when network charges are highest.”

He continued: "In distribution networks, the massive weighting of usage charges towards 'red band' periods is incentivising 'peak lopping' across the UK. For those organisations with the flexibility to avoid usage at peak times, it's a 'no-brainer'.  First priority is to avoid Triads (the three highest half-hour demand periods on the electricity system per annum, i.e. winter tea-time). By minimising demand or maximising on-site generation during Triad periods, organisations can avoid Transmission Network charges which have risen dramatically over the past ten years.

"There's also a new incentive to reduce peak demand from National Grid’s new 'Demand Side Balancing Reserve' auctions (plus various other local distribution networks’ schemes). But before organisations take any action to reduce peak demand, they should check whether they have a 'pass-through' contract, where savings in third party charges benefit them, rather than the supplier.

"Even if you are not able to manage your load, it might be worth moving to a 'pass-through' contract at your next renewal so that you only pay the actual published rates of third party charges, rather than paying a premium for the supplier to shoulder the risk."

He added: "All  companies using significant amounts of electricity, particularly  those  spending in excess of  £150k per annum with half-hourly metering, should  explore  the  potential of demand side management. It may have been something that was considered in the past and rejected due to relatively small rewards, but with spiraling third party charges the benefits are now much more compelling."

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