Fracking: What the fracks going on?

<br /> David Powell

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David Powell

With the Government announcing that local councils who back fracking will get to keep more of the proceeds from operations in the UK, we thought it might be worth taking a look at the state of play, so to speak.

Fracking is a controversial and hotly-discussed topic in most of the industry and for every 10 people, there seem to be 15 opinions on the subject.

From an impartial, emotionless standpoint, there are many, many reasons fracking seems like a “must do” rather than a “maybe”, and it seems that the whole subject is another example of eye-popping, jaw-dropping images and conjecture clouding and misinforming the general public about the ‘risks’ involved in fracking… After all, which makes the better story, “Fracking could save consumers a little bit on their bills“, or “LOOK AT THIS TAP SPRAYING OUT FIRE!!!“?

The long and short of it is that we need a solution to the current quagmire in which we find ourselves. We are ridiculously over reliant on importing energy, and the import figure is rising.  Renewables are a great way to push us towards self-sufficiency, but there is major investment needed (which, frankly, should have begun YEARS ago, as it did with many countries, most notably, perhaps, Germany).

So where is the energy we use coming from? The Gridwatch website is brilliant. If a little confusing at first…

Without looking at the ‘dirty’ generation elements and focussing solely on ‘renewables’:

  • Wind Energy currently provides about 7.8% of our daily grid demand for Electricity (including unmetered farms, therefore an estimate).
  • Hydro Power accounts for 1.4% of this daily need (worryingly, as the Gridwatch site states, this could be higher were it not for stations intentionally reducing their output to maximise subsidy rates)
  • Biomass contributes 2.14%, however much of this comes from importing timber which, whilst qualifying it as ‘sustainable’, hardly seems far to take into account with a goal of ‘Self Sufficiency’ in mind, does it?
  • Solar is, as expected in our tropical British climate, infinitesimal in the scheme of things, and massively weighted to summer months. Estimates are in the region of 0.25GW’s, therefore less than 0.5%, on generous estimates

That, from ‘renewables’, gives you somewhere in the region of 15/16% of our daily demand for electricity. In real terms, unless you are happy with blackouts for (in the region of) 20 hours a day, every day, then we need to find our energy from some other source.

The protesters may have some of their facts correct but there are upsides and downsides to all energy sources all of which seem to cause the same people to object:

  • Wind – ugly
  • Solar – ugly
  • Biomass – save the trees
  • Nuclear – aargh Chernobyl
  • Coal – let miners keep their jobs, but shut down all the polluting power stations please.
  • Hydro – reservoir destroys beauty spot and kills fish, allegedly
  • Gas/Oil – yet another ugly power station blighting the landscape
  • Shale – caused an earthquake in Blackpool and you can set fire to water
  • Tidal Power – destroys habitats of estuary birds

Microgeneration is likely to provide the long term solution (i.e. micro turbines, solar panels and ground source heat pumps on every new home/office development), but at present, this is a long, long way off and requires the concentration of everyone in the UK all at once… This, historically, has been somewhat tricky to achieve in any area, let alone something as complex, taxing and confusing as Global Energy Management… Apparently, even Eastenders is struggling to do that these days!!

There is an estimated 26 trillion cubic feet of extractable Shale Gas in the UK, based on the latest estimates.  We already have many operations licensed for on-shore drilling in the UK as it stands and this practice began in 1919. Surely, at the very least, this possible solution requires some further investigation? Yes? With things settling down in the US and them becoming a net exporter of energy for the first time in decades in 2011, Shale Gas looks like a very viable, and if properly regulated, safe way of reducing our dependence on Import until we get something better off the ground. Plus, environmentally speaking, the net effect of extracting Shale Gas in the UK is not likely to be as ‘Dirty’ as our current solution, which is to buy fossil fuels from the cheapest source we can.

If the choice was “do it with renewables” or “do it with fracking”, the choice is obvious… renewables it is… That, however, is not the choice… it’s just another part of the energy mix and it’s better to use our own resources in the UK than to pay ever increasing prices for importing energy and when our energy runs out be held to ransom by other countries. So more of everything please.

 

 

2014 Energy Market, ‘Flat and Flatter’ and the value of 3 Year Deals

<br /> David Powell

Posted by:
David Powell

With all the recent brouhaha regarding Energy over the back half of 2013, we thought it would be worth giving our thoughts as we go into 2014 on the energy market in general and some of our reasoning.

Regardless of what the perception is, the market is flat. It’s flat now, and it’s been flat for a while. Today’s pricing is almost exactly the same as this time last year. The difference between the commercial market (which energy companies buy at AND sell to businesses at) and the domestic market is what causes the confusion here. We sit at home watching our bills go up and the news telling us about price increase after price increase, but, not to labour a point, the wholesale market is flat. In fact 5 of the Big 6 have announced price decreases for domestic tariffs in the past month but you’ve not seen that on the front pages have you! The press are as much to blame for perception of increases.

The domestic market lags behind the commercial market for many reasons, which we’ve written about in the past.

As it stands, long term deals seem to be more productive at the moment, which, again, regardless of perception, is unusual (but not unheard of). Energy companies have to build in a lot of uncertainty into long term contracts. Usually, the gut feel is you have tended to pay in the region of a 10% premium for this. Historically, this has not been far away from what we have experienced over the years. Currently, however, we are often finding that the cheapest annualised contract price is actually the 3 year deal, the graph below is a genuine client’s tender results:

Jan14-Energy-Blog-Graph-102

So, what could be causing these oddities and the pricing anomaly?

  • The Pressure?  There’s no doubt (and little coincidence) that the furore started by Mr Miliband in August (and now carried through by almost everyone within 50 miles of the Commons) had the respective PR machines at the Big 6 pushing the overdrive button. However, this long term pricing strategy seems far more considered and reasoned than just a good old fashioned knee jerk. Have Ed’s claims to control the energy markets borne fruit, purely by stimulating the market forces he derided in the first place?
  • hale Gas? Very soon, and for the first time in a LONG time, the USA will be a net exporter (in around 2 years) of energy and British Gas have already begun to purchase future supplies from them in anticipation. Is the Middle East’s stranglehold on pricing coming to a close?
  • ‘Green’ tariffs going into general taxation?  Much has been made of this in the recent press, with the energy companies themselves coming out in support of the exchequer funding the UK’s clean energy drive. Is this just ‘story swapping’ as the ‘Price Freeze’ tub-thumping runs its course?

There are also many other factors at play here, but the general message is that all of the aforementioned point to energy suppliers themselves feeling the market will stay flat or actually trend down over the next 3 or 4 years, barring any major disasters and/or conflicts.  This may, or equally may not, be borne out, but that is the gamble energy companies take with this pricing strategy.

All this speculation could lead you into thinking you might be better off leaving this to the experts… I’d certainly agree with you there!

 

 

British Gas announce an end to rollover contracts

Nigel Collins

Posted by: Nigel Collins

Following the July announcement by British Gas to end rollover contracts, there will no doubt be sighs of relief from procurement managers, FDs or business owners previously trying to avoid missing the 90/120 day window in which termination had to be given. This of course applied to SME contracts and not Corporate contracts which have a different set of terms and conditions; curious then that the tweet came from the Corporate division.

As always, there are caveats within the terms and conditions which buyers will need to be aware of. Although contracts no longer rollover, we don’t yet know how much higher the variable rates will be than the contract rates so it is still important to manage the process. Notice to leave British Gas is still a requirement and if the account is not paid up to date or notice has not been logged, this could result in an objection to the supply leaving being raised.

Whilst this may be a welcome change, I don’t see it reducing our workload!

One last word of caution; contracts ending before 1st September 2014 can still rollover.

Energy Rationing Anyone?

<br /> Simon Eggleton

Posted by:
Simon Eggleton

Ofgem’s recent warning that the margin of spare capacity on the network will reduce from 14 per cent today to 5 per cent by 2015 has caused a stir in the energy industry. Talk of energy rationing and the “energy gap” are widespread.

As a business that helps organisations to manage energy more efficiently, this comes as no surprise. There are two tectonic plates clashing over the next few years, and predicting exactly what will happen is increasingly difficult – even National Grid has moved away from a single best estimate to a range of scenarios.

So what are these tectonic plates? The first is the Government’s target on climate change – namely: To produce 30% of electricity from renewable sources by 2020; to cut greenhouse gas emissions by 50% on 1990 levels by 2025 and to cut greenhouse gas emissions by 80% on 1990 levels by 2050. The second is the continued and steady decline in UK oil and gas, with ever increasing reliance on foreign imports of energy (the UK is already a net importer of energy).
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Energy Prices and Delusion

Tim Halfhead

Posted by: Tim Halfhead

On Saturday I met a Conservative MP whose primary message was that things in our teetering economy are improving. The media just choose not to report them. As evidence, he cited the February new cars sales increase (7% year on year) and falling unemployment figures. When asked what the Government was doing to help the consumer, he made much of the commitment to hold down energy prices for households (there was no mention of business).

Yesterday gas prices hit a 13 month high. 5 coal fired power stations are being closed in the next few months to satisfy EEC environmental regulations, taking about 17% of the capacity out of the National Grid. The head of Ofgem has said that these will have to be replaced by gas fired stations over the next few years because any increase in nuclear capacity is at least 7 years away.

Wind farms are costing us, not saving us and as we all know only contribute when the wind blows.
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What is Energy Management?

Paul Foster

Posted by: Paul Foster

Energy management is a complex and confusing area in which most organisations need specialist advice from assessment to implementation and measurement in order to minimise the risks and maximise the benefits.

What is Energy Management? 

“The sum of the measures planned and carried out to achieve the objective of using the minimum possible energy while comfort and production levels are maintained.”

According to the Carbon Trust (CTG054):

“Successful Energy Management doesn’t just happen, it needs commitment, planning, implementation and sustained effort.

What is Energy Management?

According to experts in 60 countries who have developed the ISO 50001 Energy Management Systems, it’s a standard that supports energy efficiency, every day, to help you save energy, cut costs and meet environmental standards.
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Are you displaying your Energy Certificate Regulations?

Paul Foster

Posted by: Paul Foster

The fine for not displaying an EPC or a DEC is now £1,000 per outlet

  • 10 restaurants = £10,000
  • 300 restaurants = £300,000
  • 700 restaurants = £700,000

The floor area threshold for public buildings requiring Display Energy Certificates drops from January 2013. However they are current for longer, 10years is the new lifespan.

Currently, only public buildings with a floor area of 1,000 sq m or above need a DEC, but from 9th January, 2013 public buildings with a floor area greater than 500 sq m will be required to have a Display Energy Certificate in place. The threshold then falls to 250 sq m in 2015 with the changes resulting from recent revisions to the Energy Performance of Buildings directive

Recommended Approach:

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Auditel and Allia Ltd (Future Business) in strategic cost management partnership

Ron Yellon

Posted by: Ron Yellon

Auditel the Uk’s leading cost and purchase consultancy is very pleased to announce its new client agreement with Allia Ltd, the innovative Cambridge-based charitable social investment intermediary that creates investment vehicles to raise finance for organisations delivering social impact.

Allia Ltd engaged Auditel to provide a specialised cost and purchase management service and to examine the opportunities for reducing their non-strategic overhead costs.

Speaking about the new partnership, Ron Yellon said:

“We are delighted to become cost management partners for Futurebusiness, an Allia initiative, which specialises in helping those with a social or environmental mission. Its enterprise support agency brings together all the essentials every organisation needs – business advice, coaching, impact measurement and affordable workspace.

Initially working on electricity and gas, this work will reinforce the objective of offering best value to Future Business tenants, and provide additional valuable management information and resource to increase management’s control and peace of mind, all without diverting proceeds from public benefit.”

Energy Deal – Good news for homeowners but no help for the business market

<br /> Laurence Fitch

Posted by:
Laurence Fitch

Interesting to see Nick Clegg on Breakfast TV announcing the new Government initiative requiring energy companies to tell consumers the best deal they have available. Apparently this has been introduced because of the bewildering number of products the big 6 energy companies currently have available which makes it difficult for households to select the best option for them.
Although this may be true I believe the decisions householders face are nothing compared to the complexity of business tariffs. As a business owner to ensure you are achieving best value you need to be sure that your meter is the correct profile for your business, available capacity is at the appropriate level for your demand, termination notices have been logged allowing you to change supplier and negotiate freely, VAT/CCL is charged at the correct level – the list goes on and you have not yet even started to consider looking at rates or length of contract !

It’s not surprising that when I ask my clients about the key benefits of asking Auditel to manage their energy contracts ‘time saving’ ranks just as highly as ‘financial savings’. If you are interested in finding out more about how Auditel are helping clients reduce their energy costs please contact me (laurence.fitch@auditel.co.uk or 01727 865501) to discuss further.

Wind power…it splits opinion

<br /> Mike Ramsden

Posted by:
Mike Ramsden

The study ‘Why is wind power so expensive?’ published by the climate change sceptic group Global Warming Policy Foundation (GMPF) suggests the Government’s policy of backing wind power could be a “blunder” which could cost roughly £120bn, ten times as much as gas plants, and actually be worse for the environment.

To meet the Government’s target for renewable energy in 2020, the report reckons 36 GW worth of wind capacity will be needed, backed up by 13 GW of open cycle gas plants. On top of this, it says extra investment in transmission capacity will bump up costs.

The study claims the same electricity demand could be met from 21.5 GW of combined cycle gas plants with a cost of £13 billion.

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