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How advances in flexibility are changing businesses relationship with energy

Fast developing energy markets and a whole range of new technologies are leading businesses to change their attitudes and approach to energy.

Fast developing energy markets and a whole range of new technologies are leading businesses to change their attitudes and approach to energy.

Today’s power prices vary by the half hour, and the change from one moment to the next can be dramatic. For example, prices on July 3rd 2018 – a typical day – varied between £32/MWh and £100/MWh, and they can swing much more wildly than that – up to a record of over £900/MWh earlier this year. Even negative values are possible when renewables surge and baseload plant is still running.

In the UK winter, those buying during the three half-hour periods with highest demand pay a premium under the “TRIAD” system, reflecting the high cost of maintaining rarely used generating capacity.  In the UK’s gas market, within day commodity prices are not as volatile as power, but they did rise to a record of over 300 pence a therm during the very cold weather of early March 2018, compared with more typical levels of around 50 p/th.

These commodity price moves reflect the balance of supply and demand, as well as the cost of providing the power. Consumers are also incurring a whole raft of charges on top of the commodity cost, including carbon taxes, imbalance charges, transmission and distribution costs - that today represent over half a typical bill.

A greater proportion of intermittent renewables means imbalance charges are increasingly significant, while transmission charges are also rising to reflect the additional costs of connecting new distributed sources of power to the grid.

Changing perceptions to energy related costs

This increasing energy market volatility and pricing complexity means it’s making more of a difference to businesses when they buy (or sell) their power and gas, as well as how much is consumed. It is also causing the way businesses use technology to take action to change.  Where it was produced is also important, along with how much carbon is emitted in its generation. There is a carbon floor in the UK of £18/mt CO2 – a higher rate than most of Europe – and this is passed on to consumers of coal or gas-fired power.

Combining this dynamic market environment with new automation, data processing and low carbon technology, companies are coming to realise that energy can be used in a strategic, flexible way to help achieve commercial and operational goals. The right approach to energy can make a huge difference to a company’s bottom line, as well as helping with corporate image, social and environmental goals, operational issues, and security of energy supply.

Businesses need to become active participants in energy

Once businesses become active participants and establish a successful strategy, instead of just receiving a bill at the end of the month, the results can be impressive. One big energy consumer, ArcelorMittal, set up a specialist internal business unit to focus on energy optimisation and energy trading. This change in the way the company dealt with energy, as well as its change in attitude, helped the business mitigate growing costs from energy taxes, transport and renewables levies. It has been able to identify opportunities across Europe, and one of its plants is now participating in the UK’s capacity market, which pays large consumers of power to avoid peak winter TRIAD demand periods.

However, the plant’s flexibility was not sufficient to ensure adequate Demand Side Response (DSR) to do this on its own. Instead, it was aggregated into Centrica Business Solutions’ DSR portfolio, which also contains a wide array of other industrial sites owned by different companies. When circumstances mean ArcelorMittal’s plants can’t curtail power, improved data processing and automation means another company in the portfolio can step in, ensuring the required power is always available. Aggregation technology from Centrica Business Solutions enables more companies to be flexible, changing their relationship with energy. In Arcelormittal’s case, it gained a new revenue stream from returning 150MW to the grid at critical times, while maintaining full control over operations.

Energy flexibility creates monetisation opportunities 

Sugar producer and processor, Tereos, reduced its carbon footprint as well as cutting costs by changing its approach to energy and utilizing Centrica Business Solutions’ Demand Side Response (DSR) service. Tereos’ new relationship with energy has enabled it to achieve this, as well as returning power to the local community by reducing consumption when the market is tight, which also helps avoid paying high prices.

Tereos had the opportunity to monetise this power flexibility directly with the transmission system operator, but found the process complex, and was concerned by the associated risk to its operations. Using Demand Side Response, the business was able to achieve its goal and minimise the risk of penalties when power flexibility is not possible - showing how its changed relationship with energy, combined with the new products and technology on offer, helped achieve strategic goals.

Energy flexibility is better for the environment

One large UK university has an environmental strategy focused on reducing its carbon footprint and evaluating the environmental impact of all its activities, something it may now be able to bring a step closer after changing its approach to energy and adopting the latest technology.

Having installed a Combined Heat and Power (CHP) plant, the university improved efficiency and security of supply. Centrica Business Solutions was then able to help the organisation utilise the asset more efficiently by helping it participate in the Capacity Market and as part of a portfolio of assets delivering dynamic Firm Frequency Response (dFFR) to the grid. CBS worked closely with the CHP manufacturer ensuring all warranties were still valid and there was no impact on maintenance cover. Revenues are now optimised all year-round, offering the highest possible volume, in the highest-paying reserve, at the best possible time.

Centrica Business Services is an experienced and established partner that understands why the relationship between business consumers and energy must change. We can help you to introduce an optimum energy strategy and take advantage of the wide range of opportunities available.