How changing energy market dynamics impact the drive for energy flexibility
Energy flexibility is becoming more important than ever. Find out why, and the steps your business should take to respond.
Discover how the energy market is changing and why businesses need to think more strategically about energy flexibility.
The energy landscape is currently experiencing unprecedented levels of transformation owing to:
- The introduction of new environmental policies to reduce emissions
- Political uncertainty surrounding Brexit and the rules associated with interconnects, imports and future agreements
- A change in consumer habits and expectations, with many wanting to order their energy online and buy from sustainable businesses
- New technologies, such as the increasing use of renewables, digitisation and blockchain technology
- Rising non-commodity costs
These changes to the energy market are leading forward-thinking businesses to step up how they optimise their energy to reduce waste, improve efficiency and reduce emissions. While new technologies are helping businesses to source and use their energy in smarter ways and achieve their wider business objectives.
Rising non-commodity costs are also a factor in driving energy optimisation, with compulsory non-commodity costs not only covering the cost of delivering power, but also the cost of balancing the grid as well as taxes and levies from the Government to support the development of renewable energy and the reduction of carbon emissions. The main non-commodity costs include:
- Transmission Network Use of System (TNUoS)
- Distribution Use of System (DUoS)
- Renewable Obligation (RO), Contract for Difference (CfD)
- Feed in Tariff (FiT)
- Capacity Market (CM)
Continually rising non-commodity costs
While a kW rate for energy may seem simple, it masks the rising cost of non-commodity charges with wholesale energy costs. For many businesses, non-commodity costs currently make up 57% of energy bills, and in as little as two years, by 2020 non-commodity costs are projected to increase to 64%. Energy optimisation helps businesses reduce their exposure to increasing costs and future-proof the business.
Recent analysis completed by our sister company British Gas Business looks into non-commodity charges, and shows that renewables obligation and distribution network charges are accountable for 42%, 19% and 14% of energy costs respectively.
Tracking the continuing rise of non-commodity costs in the UK
We tracked non-commodity energy costs in the UK from 2010 and forecast costs to 2020. There has been a significant rise in Environmental Levies from 2010 to 2018, a rise that is projected to continue. The rise in Levies coupled with rising Balancing Services, Transmission Network and Distribution Network charges has increased non-commodity costs from 31% of total energy costs in 2010 to 57% in 2018 and is forecasted to reach 64% by 2020.
Realising the value of energy flexibility
The dynamics are changing. Businesses want to generate greater revenue and save costs in all available areas. Energy optimisation gives businesses the power to flex their energy in a way that suits its wider business needs and objectives.
Forward-thinking businesses understand that rising non-commodity costs are unsustainable and are looking to future-proof their business against continually rising costs, with many looking at energy flexibility solutions, such as Demand Side Response (DSR). Access to renewable and low-carbon technologies are also changing the way businesses produce and consume energy.
Adopting energy flexibility solutions can help businesses significantly reduce their non-commodity costs, as well as their overall energy bill, by reducing the amount of power needed from the grid. Energy flexibility helps businesses to flex demand, allowing them to deliver energy to the right place and at the right time to meet demand, accessing more energy in periods of high demand and storing energy at times of lower demand. Flexing demand helps to avoid an overloaded network and times of low voltage and frequency.
Businesses are also playing a role in overall energy imbalances, where more or less energy than is needed may be produced. Energy flexibility helps to balance your system and create new revenue streams by selling unused energy back to the grid and from the reduction in levy liability and an increase in eligibility for Government incentives.
The drive for energy flexibility and optimisation is essential for businesses to maximise the reduction of non-commodity costs, improve operational efficiency, realise new revenue streams and strive for a sustainable future.
Unlock flexibility and gain greater revenue with Demand Side Response
Centrica Business Solutions offers Demand Side Response (DSR) to help businesses take control of their energy, unlock flexibility, and gain greater revenue. We understand the role energy flexibility can play to unlock new value, reduce costs and power business performance. DSR is a way for organisations to unlock value by being flexible in how they use their energy for commercial advantage. DSR services are relied upon by the electricity grid operator to ensure they can balance supply and demand at all times.
Combining our DSR solutions with our sophisticated device-level sensor technology, we can help businesses identify even more flexibility, further enhancing performance. All our DSR solutions come with our market-leading approach and access, meaning you have more options to pursue value; be it through lowering energy use at peak-price times, accessing financial rewards for providing support during grid stress events, or even selling energy back into the wholesale markets.
Unlock the value of DSR for your business
The benefits of DSR are not only cost reduction, they also include reduced environmental impact, lower carbon footprint and with it an improved security of supply. As we transition to a distributed energy system, the volatility of the grid is increasing and businesses that make flexibility a part of their energy strategy have the most to gain. By supporting National Grid’s target of 3GW of flexible power by 2020, your business can access part of the £1bn in annual incentives.
Sappi doubles Demand Side Response payments
Prior to teaming up with REstore (now part of Centrica Business Solutions), Sappi’s paper and pulp plant participated in a reserve programme that yielded low returns. Since the partnership, Sappi has doubled payments to the plant from Demand Side Response.
The paper industry is a very energy intensive sector, so it was important for Sappi to lower its electricity costs through continuous improvement actions. Participation in Demand Side Response (DSR) programmes enabled Sappi to reduce overall energy costs with zero impact on production.
A flexibility audit was performed and found that Sappi’s flexible pulp plant could be leveraged within a fast response reserve programme (Primary Reserve). Two major challenges needed to be overcome to participate in this reserve programme, requiring a response time of 30 seconds. These included poor availability of the pulp plant and avoiding any impact on daily operations.
Centrica Business Solution’s patented technology enables ultra-fast portfolio effects with response times of a few seconds. Inserting Sappi’s flexibility within this portfolio provided the solution to reduced availability. Production processes were safeguarded downstream by monitoring the buffer levels and limiting curtailments of the pulp plant when stocks are too low.
Want to know more? We’ll help you make the most of energy flexibility to reduce your energy costs, increase revenue and lower your carbon footprint. Contact our experts who will help you realise the power of power, with straightforward solutions that put you in control.