Posted on: 20/12/2016
With Drax’s Contract for Difference (CfD) approved yesterday and the Capacity Market running this winter, business energy users can expect to see higher non-commodity charges on their bills in 2017. Key Account Manager, Mark Cox explains some of the costs that customers need to be ready for.
News yesterday that the European Commission had approved the CfD for Drax to convert one of its coal-fired units to biomass was a timely reminder of the higher non-commodity charges forecast for 2017.
It is expected that the Drax unit will switch to the CfD scheme from January, which along with the impending commissioning of Burbo Extension and Dudgeon Phase 1 offshore windfarms, means the recently introduced CfD obligation levies will be a more noticeable feature of consumer bills from the New Year.
The cost of the Renewables Obligation (RO) scheme will be reduced by the Drax conversion, however this may not manifest in lower tariffs due to the wider increase in costs of the scheme.
Impact of the EII exemption
RO costs are likely to also be impacted in 2017 by the outcome of the consultation on implementing an exemption for Energy Intensive Industries (EII) from the indirect costs of RO and Small Scale Feed-in Tariff (FiT).
The proposed Exemption Scheme will mean EIIs will be exempt from paying up to 85% of the cost of the RO and FiT schemes, and the exempted cost would be spread across non-exempt consumers. If implemented, this would mean that most consumers would see an increase in their RO and FiT costs.
It is our understanding that Government are seeking to have the necessary approvals and state-aid approvals prior to April 2017. Should this go through on this timetable we could see an additional 5% rise in costs of the RO and FiT from April 2017.
Capacity Market costs expected to spike
Businesses should also be aware of Capacity Market costs which will be applied to their weekday consumption between 4pm and 7pm from November to February.
The costs of the scheme – which aims to ensure security of supply by providing a payment for reliable sources of energy when needed during peak times – will be relatively small this winter to cover the 800MW of capacity secured through demand-side response contracts.
For winter 2017/18 however, over 50GW of capacity has pre-qualified and the impact on bills will be significant. The cost of the capacity to keep the lights on next winter will be confirmed in the T-1 Early Auction on 31st January and the Transitional Arrangements auction for turn-down Demand Side Response (DSR) on 22nd March.
Next forecast webinar
We will be updating our non-commodity cost forecasts in February - register for our webinars here.