The third party intermediary (TPI) has totted up the cost of rising non-commodity costs (renewable and low carbon subsidies, climate change levies and carbon taxes) and says these will add £41/MWh in the current financial year alone.
According to its calculations, across the UK this could add up to an extra £7.42bn by the end of 2019. But the firm says implementing effective energy management strategies could in some cases limit business bill increases to around 2%.
The company analysed data from a large retail park, a small retail store, a manufacturing site and an inner city university to quantify potential savings over 2017-2019 versus ‘business as usual’.
It applied the following scenarios: 1) reduce overall consumption by 10 per cent, 2) shift 20 per cent of consumption from [distribution network charge] red bands and distribute across amber bands, 3) shift 50 per cent of consumption from red bands and distribute across amber bands and 4) implement an energy efficiency programme (aiming for a five per cent reduction year-on-year).
According to the company, in all cases, shifting 50 per cent of consumption from red bands and distributing across amber bands, or implementing an energy efficiency programme, had the most impact compared to inaction, keeping energy costs rises as low as two to four per cent in the case of a small retail store, and three to four per cent in the case of an inner-city university.
“Most UK businesses can expect to see their energy costs increase by 25 per cent by 2020,” said Inenco consultant David Oliver.
“These rises are happening against a backdrop of other financial challenges – business rates are rising, the national living wage has increased further, a new Apprenticeship Levy has been introduced, and the workplace pension will soon apply to all businesses.
“With costs increasing across the board, our research demonstrates that businesses cannot afford to stand still and carry on as before.”
Not all businesses will be able to shift loads and adjust processes, but those that can may be able to earn revenue from demand-side response and demand management schemes, said Oliver. However, he said all businesses do have scope to limit cost increases through an effective energy efficiency programme.
The firm said its Cost of Inaction report may help companies justify implementing such programmes and its interactive Non-Commodity Cost Dashboard can calculate firms’ exposure to incremental non-commodity costs.
David Oliver is one of a number of market experts interviewed for The Energyst’s 2018 market outlook. Published in the current print issue, it outlines key energy risks and opportunities for the year ahead. Read it here (p20): https://issuu.com/energymagazines/docs/the_energyst_jan_2018