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Businesses face 'price hike'

CfD, Capacity Mechanism to add up to £25/MWh to wholesale bills, says report

Businesses face 'price hike' image

The Contracts for Difference and Capacity Mechanism elements of electricity market reform may result in up to £25 per MWh being added to the cost of wholesale electricity for businesses by 2020, according to a report by RWE npower.

The findings, which follow the closure of the government consultation on EMR, are based on roundtable discussions with businesses whose combined total volume usage is 10.5TWh and the company’s own research, taking in its latest Pulse survey.

On CfDs, the researchers found businesses feel there is a danger of “volatility” being introduced to electricity costs. They also warn of a reduced incentive for generators to enter long-term power purchase agreements.

A key concern in the area of CM was impact on wholesale markets, “shifting volatility from commodity to non-commodity costs”.

It is also feared that the structure of CM charges could negate “any incentive for businesses to participate in demand side initiatives, which could be an important way to manage system demand at peak times”.

RWE npower said that based on its own investigations, the system as proposed by Westminster will result in a price hike of £10 to £25 per MWh on wholesale electricity for UK businesses by 2020.

Wayne Mitchell, director of industrial and commercial sales and marketing at RWE npower, said: “Our roundtable and associated report clearly show UK businesses still have serious concerns about the implications on future costs and forecasting abilities for their organisations.

“Getting the electricity market right is essential for the competitiveness of UK businesses. It is therefore crucial to understand from a business context the impact of DECC’s policy proposals around EMR.”

Elsewhere, one of the main findings from the latest Pulse survey, which covers July to October 2013, is that businesses are concerned about the impact EMR will have on UK competitiveness in global markets.

It also reveals there is now greater understanding of CfDs but the CM is “less familiar” and the majority of businesses would also like to “better understand the full impact of the Carbon Price Floor”.

The head of energy supply at a major utility said: “As a big energy consumer it is critical that we have the ability to plan ahead. We would like to see greater visibility of charging for CfD costs under EMR, the minimum transparency being that prices are set in the November or December of the preceding year.”

Image: many businesses are still seeking a sense of certainty under electricity market reform (UK Parliament)

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