| ELECTRICITY MARKET REFORM


Water sector caught in EMR crossfire


The UK energy market is undergoing its largest overhaul since privatisation, through the much-debated Electricity Market Reform (EMR). Since EMR was first cited in 2010, npower has been working in partnership with many industrial sectors, including the water industry, to give it a voice in the shaping of legislation that will have a big impact on it. Wayne Mitchell discusses why water businesses, as high energy users, are feeling caught in the crossfire of the legislative shake-up.


BUSINESSES IN all sectors are


already facing a wide


variety of energy legislation. In addition to this, the government has recognised that the UK electricity market needs to change fundamentally over the coming years as demand increases and supply changes. Electricity


Market reforms Reform


(ERM) aims to address the challenges facing the energy market, with wide- reaching


designed


to attract the substantial investment needed in low carbon electricity, while also achieving the government’s objectives on security of supply and affordability. npower fully supports the objectives of the EMR proposals,


and recognises


the need for the UK to have a modern and efficient energy infrastructure with a diverse mix of technologies to ensure our economy can grow and compete globally. However, there are a number of concerns raised by those in the UK water sector who feel caught in the middle of policy discussions on the future of the UK energy market.


Since EMR was announced in 2010, npower has been listening to company views −


including representatives


from the water sector − on the legislation and feeding them back to government, to ensure their voices are represented in key EMR consultations. To date, npower has hosted four customer and stakeholder roundtables on EMR; conducted its own consultation to ensure time- poor businesses had their say during the process; and presented its findings to government at every stage as part of RWE’s membership of all of DECC’s Expert Groups for EMR.


A voice


During this ongoing process, water


companies have


continued to raise concerns about the impact EMR will have on their operations. As a result, we launched ‘EMR Explained’, an initiative designed to help educate industry on EMR and continue to give it a voice in the ongoing consultations around EMR’s design. As part of this initiative, we consulted


further with major energy users through our ‘EMR Pulse’ survey and found that nearly all (97%) are worried about how EMR will affect the


cost of their energy.


Also, 91% are worried about the ability to forecast costs and 86% of businesses highlighted the impact on UK competitiveness as an area of uncertainty.


In particular, water companies


are worried


about cost certainty, and want more information from government on the impact of each part of EMR in terms of financial and administrative cost. Businesses also want greater transparency on how EMR schemes will operate, with further details on how costs will be set and markets regulated. Finally, we know water utilities want a system with longevity so the scheme is not affected by changes in governments


within short-


term parliamentary cycles. The government published updated EMR policy and corresponding consultation plans in October 2013, which provided an element of greater clarity, but many in the water industry still say they need more information on the specifics of the scheme and how it will impact them – to provide certainty, particularly for those making long-term investment decisions.


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Organisations in the water industry are high energy users, bringing significant cost pressures. By having to operate within the five-year investment framework to deliver security to consumers, it can mean water companies are


further exposed to the


impact of volatile energy costs compared with other industrial sectors. One only has to refer to the recent banning by Ofwat of a proposed price increase to appreciate the extreme cost pressures now present across the UK water market. While the common use of flexible energy contracts, in tandem with a partnership approach


with future Call 01342 332000 or email wwtonline@fav-house.com with your questions


suppliers, can help in both forecasting


energy energy


costs and mitigating the impact of any increases, nonetheless,


the 12 | WET News | December 2013 uncertainty


gives a day’s warning ahead of likely Triad periods, allows energy managers to make an informed choice on their consumption, such as


switching high-energy


processes to another time to try to reduce the impact of National Grid fees. Water utilities can estimate how much they could save by responding to Triad warnings using npower’s free Triad savings calculator tool at http://bit.ly/TriadCalculator. In addition, water companies


are actively


looking to increase renewable self-generation of energy to further protect themselves from future energy risk. With the potential to develop small-scale hydro, solar and wind generation, many energy managers within the water sector are looking to self-generation as a practical means to manage energy costs, and potentially generate additional income streams through


Power


Water companies want more information from government on the impact of each part of EMR in terms of financial and administrative costs


created by market reforms such as the EMR certainly sets a challenge for such companies.


Chief among such


challenges is the requirement to manage expectations around energy and its cost. Energy managers, as made clear from the npower research, are seeking early and detailed information around the energy market so they can prepare the ground internally for any potential changes in energy cost. Intelligent procurement of energy is one way to protect against cost pressure, but keeping a close eye on energy market influences such as the EMR is also going to play a pivotal role for those water company executives charged with delivering an efficient energy purchasing service for their organisations. Helping them to do this will be a key objective for all energy suppliers.


While many details of EMR are still to be confirmed, a key practical means of ensuring a business is well prepared


for its impact – in whatever form it takes – is good energy management. Measuring, monitoring and minimising energy use are the key steps water companies can use to help take control of costs.


Triad periods


Businesses can also manage energy costs through demand management.


For example,


npower offers a service for customers to alert them when a Triad period is likely to occur – a half-hourly period of peak energy demand used to set transmission fees (TNUoS), which appear as pass-through charges on many major energy users’ energy bills. The amount these businesses are charged for TNUoS depends on how much energy they use during these three half-hour periods. Organisations that have TNUoS as a pass-through price on their bill can actively lower their consumption during times when a Triad is predicted, and therefore reduce their TNUoS costs. npower’s service, which


Purchasing Agreements (PPAs). PPAs also allow businesses


to source energy with third party renewable generators, through a process known as PPA netting. As part of npower’s EMR Pulse survey, businesses said sourcing energy in this way has a number of benefits. For example, 53% said it gives price certainty, while almost half (47%) think it demonstrates a business’ green credentials. However, there is uncertainty among some businesses on the impact EMR will have on these contracts.


To secure the country’s power future, it is clear that EMR’s impact on the UK energy landscape will be considerable. But, while we are at a critical stage of economic recovery, the impact on industry is something that needs to be given prime consideration, which is why npower is continuing to work with organisations to give them the support they need in both understanding and managing EMR. ■


Wayne Mitchell, is Industrial & Commercial Markets sales and marketing director at npower. www.npower.com/business


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