Mr. Moffitt’s Profits Times – August 2017
Excess Capacity Charges
FROM 1ST APRIL 2018, DCP 161 WILL COME INTO EFFECT. WHAT IS IT, AND WILL YOUR BUSINESS BE IMPACTED?
Steve Mead, an Auditel colleague, has written this informative article about DCP 161, its implications, and how to avoid incurring excess capacity charges.
An interview with Chris Barrett, Auditel Energy Expert
WE THOUGHT WE’D ASK OUR RESIDENT AUDITEL ENERGY GURU, CHRIS BARRETT, A FEW QUESTIONS ABOUT CURRENT ENERGY AND WATER ISSUES.
Centrica is permanently closing the UK’s largest gas storage site, (the Rough facility). What impact will this have on gas prices and imports?
The closure significantly reduces the amount of UK based storage we have. This will have 2 main impacts. Firstly we will have less domestic control for balancing the gas system since we will have to rely increasingly on short term imports rather than simply accessing gas in storage. Secondly, we may be exposed to greater price volatility particularly if demand for gas increases on the continent and global increases at the same time that our own demand increases. The net amount that we import doesn’t change however, the closure simply reduces our ability to store imported gas to be used when we require it, particularly at peak times. During peak periods we will be more reliant on importing from the continent via interconnectors and on LNG deliveries by sea. Not only will this expose us to price volatility these sources are not always be reliable i.e. interconnectors can be affected by planned and unplanned maintenance activity, and ship deliveries affected by weather, tanker availability and demand from other parts of the world. The industry view at the moment is that these sources of gas should be sufficient to meet our needs for the coming year but we could be exposed to price volatility.
What is the progress of Water Deregulation to date, and how do you think this will evolve?
In many ways the term deregulation is a misnomer. Since deregulation, Ofwat has started a number of consultations aimed in bring more regulation in. One key areas is focussed on trying to ensure that the wholesalers fulfil their responsibilities fairly across all suppliers. The wholesaler is the organisation that
undertakes physical activities such as meter changes, dealing with leaks, new connections. However, customers can only access them now via their suppliers. There seems to be indications that some suppliers may not have the processes in place with the wholesalers to be able to manage these activities and even suggestions that the service levels being offered to the incumbent wholesaler’s retail arm may be better than that being offered to other suppliers. Looking further forward we are already beginning to hear grumblings from the market about the size of discounts and the complexity of tariffs and prices. In particular the lack of engagement of SMEs is a key concern. Whilst 28,000 supply points have engaged this is < 1% of the market and it seems that interest is now waning after the initial launch. This should push the regulator to bring forward regulatory changes to pricing (currently scheduled for 2020) to try to increase the gap between wholesale and retail tariffs. There may also be a requirement for wholesalers / retailers to simplify their tariff structures to make it easier for customers to compare prices.
Non-energy costs. Why are they there, and are they not necessarily a bad thing?
Non-energy costs are definitely not a bad thing, though this may depend on your political and
environmental perspective. Fundamentally they are instruments to support investment in new electricity
generation capacity and renewable technologies. This is key to ensuring security of supply for the future and to allow us to hit our carbon reduction commitments. There is a argument to say that some of the mechanisms are overly complicated and as always, there are winners and losers so they don’t satisfy everyone, all of the time. But I am personally reassured that the efforts are being made with the right objectives in mind. To simply do nothing will only store up problems in years to come when we might not have enough generation, costs may be much higher and we fail to fulfil our environmental obligations.