UK Energy Market Reform and energy buying

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Growing electricity demand along with tighter capacity margins, caused by the decommissioning of coal and older gas power stations in order to comply with carbon emissions standards, increased the need to replace and upgrade the UK’s energy infrastructure. To address these issues the UK government has planned the Energy Market Reform, which is estimated to require a public investment of £110 billion. The reform
will help to improve energy security, reduce reliance on energy imports and reduce the average household bill by up to £53 past the year 2020. However, in the short term these developments might have some negative effects on consumers. If the government is unable to obtain the investment required from the private sector, it is likely that the consumers will pay the bill through higher energy prices. For businesses the energy prices are expected to rise by 10 per cent, plus year-on-year increases in power unit costs through to 2020.

So what does this mean in terms of energy buying for businesses?

There are several things to consider when signing or renewing energy contracts in the upcoming years. The main things to keep an eye on are the length of contract and variability of tariffs. Since the energy prices are likely to rise, it might be cost efficient to sign longer-term contracts with fixed tariffs, ensuring the fixed-price premium does not exceed the projected energy price increase. It is also crucial to make sure the company does not simply roll over onto a higher price tariff when the contract terminates.

Currently energy companies can increase provided prices if they meet certain conditions. Checking these conditions before signing a contract and being aware of the costs of terminating a contract or switching to the new supplier if/when the prices go up will allow you to minimise the risks of higher payments and provide flexibility to move between suppliers. It is also important to be aware of what is included in your energy tariff and whether you are taking advantage of all the subsidies that the government makes for renewable energy projects.

Reducing energy consumption whilst increasing energy efficiency

With the likely rise in energy prices, organisations should not only try to find the ways of getting the best deals on pricing and contracts, but also be pro-active in reducing their energy consumption and increasing energy efficiency. This could be done by using energy performance contracts and energy management centres. These can provide a valuable opportunity for businesses to upgrade their environment in terms of security, efficiency, economic development, environmental stewardship and sustainability, as well as save significantly in capital and revenue terms.

Preparing a strong business case might allow a company to gain funding from various sources, such as Green Investment Bank, Renewable Heat Incentive and various funds within the EU.

We all can go just one step further in order to secure fairly priced and sustainable energy demand in the following years.

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