Steve Fitzsimons, sales manager at npower business, looks at the changes in the electricity market and how these will impact on businesses wanting a cheaper or greener supplier
From this month, the electricity market in Britain will undergo its most significant change since
privatisation in 1990. British Electricity Transmission and Trading Arrangements will create a single wholesale electricity market, opening up the UK mainland to competition in supply and generation.
BETTA aims to bring more competitive prices and a greater choice for all electricity customers, particularly those in Scotland. According to Ofgem, Scottish customers have not enjoyed the same benefits from the privatisation of the energy markets as those in England and Wales. The wholesale electricity market in Scotland – where suppliers buy their energy from – lacks effective competition, meaning customers face the risk of higher prices and lower standards, despite an abundance of generating capacity.
The structure of the existing market prohibits other suppliers from targeting Scottish customers because they are unable to match the prices offered by local suppliers. The new rules remove these traditional barriers to entry and give Scottish generators a broader customer base. It is hoped these changes will encourage competition in supply for Scottish businesses and lead to savings on energy bills.
These new rules have been hailed as good for Scottish customers, as well as the renewable generation industry, giving them access to a wider market for their products. The issue for renewable generators in Scotland was that, due to the historic surplus in generation capacity, for every kW they produced, the ‘brown’ energy coal-fired generators produced a kW less.
As renewables developed, it would have led to generators being turned off incrementally, so there would have been large plants sitting there with less to do, costing more for each mW they produced. By opening up the market, BETTA has released any tension that might have been brewing between traditional providers and the new wave of renewable generators. So do these changes mean there will be an influx of new renewable capacity for companies looking to buy green energy? Currently, increased customer demand for renewable energy is exceeding supply capacity.
Demand for greener energy
The surge in demand for green energy is not helped by the inertia in bringing new renewable generation online. The reasons for this range from lengthy planning consent procedures, to the time it takes to actually build more plants, to the capital costs involved in developing more resources and the lead time in securing new technologies such as photovoltaic cells and wave power.
Also the government’s planned business rates overhaul will affect the economics of renewable development. The proposals will create a level playing field for rates across all types of businesses. Central to the new system is a “poundage” calculation, in which the value of an asset is significant. High-cost assets such as wind turbines could significantly increase the rates for renewable developments, increasing concerns about their economic viability.
According to some within the renewable industry, the structure of BETTA also presents challenges for green energy producers. The arrangements include a pricing policy for generators based on where they are located in relation to their customers. These transmission costs are designed to encourage generators to locate facilities as close as possible to large centres of demand, such as the south of England.
Ofgem argues this system will mean the transmission network is no larger than it should be, lowering transmission charges for customers. It also states there are environmental benefits because it should lead to fewer pylons and lower losses from transmitting long distances. Scotland is seen as the best place to site green energy projects and, under BETTA, these could incur substantial transmission charges.
When Ofgem recently approved the new transmission charging system, it still maintained the overall effect of the new regime would be broadly neutral for Scottish generation as a whole and, for many, costs would fall. Regarding renewables, it seems there are a number of market issues – some of which are related to BETTA – that need to be resolved before we can all enjoy an influx of green energy on the market.