Speakers: Andrew Bainbridge and Andrew Buckley of the Major Energy Users’ Council, plus contributions from 12 member companies
All Party Group on the Costs of Energy
30 October 2013 – meeting notes
Oral contributions from:
Major Energy User’s Council
British Polythene Industries plc
Mid West Energy Group
British Photovoltaic Association
Belfast Harbour Commission
Lord Palmer, the APPG chair, opened the session welcoming the attendees and introducing the Major Energy User’s Council (MEUC) team of Andrew Bainbridge and Andrew Buckley.
The MEUC explained that its membership represented energy users across the board, with an annual spend on energy of £1billion. At present their main concerns are energy security and affordable costs energy.
The MEUC presented the headline findings of its recent report Powercut Britain: Are the lights about to go out for UK Business
- 88% of members surveyed had genuine worries over supplies over the next 2-3 years
- 91% concerned by the threat energy inflation poses to their business
- 33% concerned that increases from introduction of carbon floor price will need to be passed on to customers.
- Concern about CFDs prices: Hinckley point and renewables, which look likely to increase prices from the current £50 to £100 or £150 per megawatt hour.
- 73% have energy issues represented at boardroom level.
- 75% employ energy specialists, such as an energy manager
- 60% poised for major energy efficiency investments.
- Larger customers are faced with multiple programmes, with compliance which needs company resources.
- The latest DECC pilot initiative to study demand-side management is welcomed by the membership.
The MEUC reminded the meeting that customer can play an active role in the issues raised and do more than just pay bills.
Issues raised in discussion
Energy costs and decline in UK competitiveness
Energy is a major cost in the UK and has an impact of business; at times creating difficulties for companies which sell products into a global market. This can be a direct threat to jobs and affect investment decisions; one company stated that the cost of UK energy meant it would spend half its CAPEX on investments outside the UK, despite 70% of its workforce being in the UK.
One company stated that 22% of turnover is spent on energy, which compares badly with its EU competitors. In one case it was pointed out that UK prices can be as much as 100% higher than in Germany.
A further example of the effect of UK pricing was given by a company which found it cheaper to import cement from Indonesia than to produce it in the UK.
Contributors generally blamed a combination of complex tariffs, levies and reporting related to carbon neural policies as the reason for the higher prices and decreased competitiveness.
Components of the energy bill and causes of the increases
One user pointed out that their energy bills had risen by 30% since 2010 despite their company reducing its energy consumption. The primary drivers of price increases were set out as:
- The fuel tariff,
- Renewables obligation,
- Carbon reduction commitment
- Distribution use and system charges
- Commodity cost rises
- Transmission charges
- Increasing demand from increasing population
- The need to pay for infrastructure improvements
Consistency and transparency in costs
A recurring topic was the perception of a lack of transparency in energy pricing and a lack of consistency in the regulatory regime. Additionally several contributors suggested that UK wholesale prices could be blamed, not on global events, but on government policy interventions. It was pointed out that further changes in the pipeline (taxes, ROCs/CFDs) would not help to create the stabilising effect that would help bring investment into the industry.
Contributors suggested the following solutions to these problems:
- Government mandate a clearer simple charging for carbon and simpler A-G labelling of electricity.
- Ofgem to remove price risk and costs by adopting the policy (in use by some Distribution Network Operators) of fixing the prices 15 months ahead instead of current 40 days.
- Provision, by government, and regulators, of long-term stability and visibility of pricing.
- A need for companies to know what overall impact on EMR will be for consumers.
- The need for more predictability and transparency around carbon prices.
- Suggestions that transparency is a key driver to keeping costs down.
- Transparency of wholesale market
- Ability develop long-term plans
Whilst there were many companies representing large, individual consumers of energy, one contributor working with SMEs blamed a lack of regulatory oversight and transparency for creating difficulties (such as cash flow problems) for the SMEs they represented.
Examples of these problems were:
- The difficulty in comparing prices from different companies.
- Utility brokers not working for the best interests of individual SMEs.
- Roll-over contracts.
- The complexity of the termination and transfer notices framework.
It was suggested that a better regulatory system would resolve these issues and help SMEs.
Speaking on behalf of one of the big 6 companies, one contributor explained that roll-over contracts were being phased out whilst the termination and transfer notices were being looked at.
Representatives from the renewables industry set out the following case for their part of the industry:
- It had attracted inward investment to the UK
- It was now exporting new technologies
- As with all infrastructure, it needed to be paid for, and that payment had been in the form of subsidies.
- By 2018-2020 the industry would be self-sufficient and no longer need “feed-in tariffs”. Thus answering the suggestion that the cost of renewables be removed from energy costs with the removal of the industry subsidy.
The renewables sector challenged other users to become more self-sufficient (generating their own energy). According to the MEUC survey, this is already happening with a change of attitude towards, with a move towards more self- sufficiency.