NEWS RWE NPOWER REPORT: Large Businesses Voice
Concerns Around Electricity Market Reform RWE npower analysis shows that Contracts for Difference and Capacity Mechanism elements of Electricity Market Reform may add between £10 and £25 per MWh to cost of wholesale electricity by 2020
ollowing the closure of the government consultation on Electricity Market Reform (EMR), RWE npower has issued a report into business sentiment on the policy proposal. The report reveals new insights into the policy concerns of a number of major energy consumers within the UK, most notably around higher energy costs and their ability to forecast them. The report also presents a comprehensive analysis of the financial impact these measures may have, particularly with regard to two crucial elements of the EMR delivery plan, Contracts for Difference (CfD) and the Capacity Mechanism (CM).
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Contracts for Difference (CfD) Key Concerns: • The danger of volatility being introduced into electricity costs • The potential lack of sufficient notice of charges, hindering budgeting requirements
• A reduced incentive for generators to enter long-term Power Purchase Agreement (PPA) arrangements
Capacity Mechanism (CM) Key Concerns: • The impact that the CM will have on the wholesale markets, shifting volatility from commodity to non-commodity costs • The structure of CM charges could negate any
incentive for businesses to participate in Demand Side initiatives, which could be an important way to manage system demand at peak times
Further to this, and based on its own research, RWE npower has calculated that the proposed approach to CfD and CM could end up costing businesses between £10 and £25 per MWh by 2020. RWE npower’s current analysis for the CfD is a net cost of between £7 and £10 per MWh and between £3 and £15 per MWh for the CM. The latter figure will depend on final policy design of the CM, which has not yet been decided.
RWE npower has also issued the results of its latest EMR Pulse Survey as part of the report. The Pulse surveys are designed to act as a barometer of business confidence with regards to EMR, with the most recent survey tracking the views of major customers between July and October 2013. Key findings include: • Businesses are concerned about the impact EMR will have on UK competitiveness in global markets
• There is greater understanding of CfDs, while the CM is less familiar, and the majority would also like to better understand the full impact of the Carbon Price Floor
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PUBLIC SECTOR SUSTAINABILITY • VOLUME 4 ISSUE 2
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