Is your electricity price about to increase without your knowledge? Many businesses energy costs will, find out why…
In the industry this is know as P272.
It is yet to have been widely communicated to business consumers but there is a change in the energy market on the horizon – businesses at the larger end of the market can expect to see a change in how they are billed in the future.
Firstly it should be set out that your business will only be affected by this change if one or more of your energy supplies is a maximum demand meter – that is where an MPAN starts with either 05, 06, 07 or 08 – this information is displayed on your invoice.
P272 (or P272 Alternative Modification to be precise) is the change from maximum demand profiles to Half-hourly profiles (an MPAN which begins 00).
Simplistically that means that large consumers of energy would communicate more information to the network than they do at present – half-hourly meter readings, load distribution & capacity being the key data feeds.
A brief history of events informs us that Smartest Energy originally proposed the changes in May of 2011 in an attempt to open up this end of the market to smaller suppliers.
Currently the uncertainty in consumption and load at this end of the market means that more risk is presented to smaller suppliers when taking on maximum demand profiles. Losses & gains can leave these parties at risk, and when these losses occur they cannot be as easily absorbed – this results in newer/smaller suppliers loading their contracts with more risk premium and becoming uncompetitive.
So more competition means cheaper energy, right?
Not always, it’s far too early to tell how an individual profile will be affected – While it is hoped that more competition at this end of the market will result in sharper pricing with newer and smaller suppliers becoming less risk-averse and potentially shaking up the competition, there are elements of cost which will no longer be absorbed by either a unit price or standing charge:
Capacity – if you already have a half-hourly meter in your portfolio then you will be familiar with capacity charges. Dependant on the amount of maximum capacity your supply requires, your supplier will agree the maximum allocation of capacity (in kVa’s) within your area – this will usually be charged at £x.xx per kVa per month. A potential pitfall here may be how the capacity is set as a supply profile is changed, it is possible that a supply may be over-allocated capacity, thus resulting in increased cost to the customer – we’re working with suppliers to understand how they intend to manage this, follow us on Twitter to keep abreast of future developments.
Data Collection / Aggregation – some contracts already specify the charges for this element of the contract, however most do not – you can expect to see nominated DC/DA charges on your bills going forwards. Although it is not yet known who will appointment of meter operator, all HH contracts require one so a cost can be expected to be incurred.
Transparency – currently consumers without HH meters are assumed to have an even distribution of load, however this might not be the case. Base-load energy costs fluctuate by season, day and hour. For example, a data-centre might be expected to consume energy consistently throughout the day, week, month & year – it would be displayed as an almost straight line if plotted on a graph. A hotel for example might display peaks and troughs throughout the day, week, month & year and the base-load cost of energy at these times may directly affect the cost of energy offered. If peaks in consumption match points of high dependancy on the network, energy prices will likely increase.
Reactive Power – the information recorded and shared by an HH meter provides much greater granularity. As such instances of inefficient equipment which draw more power than required and subsequently send it back to the network is captured and charged for on a reconciliatory basis – this is known as Reactive Power.
Currently Ofgem have sighted 01/04/2016 as the date in which this market reform will have gone live. Suppliers are being slow to update both their clients and the wider industry. I am working with each individual supplier to understand how they intend to manage the changes, click if you would like to be included in our weekly update wherefore news will follow. Separately, if you would like to speak to a consultant regarding this matter then please feel free to drop us a call on 0161 613 0357
Ofgem website for further info.
Elexon website for further info.