TM Energy Supplement 2013 by Optic Juice

ENERGY Purchasing Strategies

ENERGY 2013

What’s in this report? P4 Securing Energy Marc Sobbohi summarises the UK energy landscape and asks what manufacturers can do to protect their cost base while meeting their energy requirements

P6 Know what you’re paying for? Eon’s David Topping reveals the influence of non-energy costs on the price of energy for manufacturers and advises companies how to get the best deal for their needs

P10 Energy Food Outcomes from the Manufacturer Director’s Forum Dinner debate, co-hosted by The Manufacturer and SmartestEnergy

P12 Playing the market Advice from Malcolm Lee, energy and commercial manager at Sheffield Forgemasters, on how to develop a nimble, secure and cost effective approach to energy procurement

P14 Power to the people A review of findings from The Manufacturer’s recent Energy Conference 2013

Editorial

This report was compiled for The Manufacturer magazine by: Jane Gray, Editor j.gray@sayonemedia.com Marc Sobbohi, Reporter reporter@sayonemedia.com

Design

Martin Mitchell, Art Editor martin@opticjuice.co.uk

Sales

Henry Anson, Sales Director h.anson@sayonemedia.com In order to receive your copy of thec The Manufacturer kindly email g.gilling@sayonemedia.com, telephone 0207 4016033 or write to the address below. SayOne Media cannot accept responsibilty for omissions or errors. Terms and Conditions Please note that points of view expressed in articles by contributing writers and in advertisements included in this journal do not necessarily represent those of the publishers. Whilst every effort is made to ensure the accuracy of the information contained in the journal, no legal responsibility will be accepted by the publishers for loss arising from use of information published. All rights reserved. No part of this publication may be reproduced or stored in a retrieval system or transmitted in any form or by any means without prior written consent of the publishers.

INTRODUCTION B

ritain’s primary energy production is falling - in 2012, the amount of energy produced in the UK declined 10.7% on the previous year (p4). Energy generation technologies to redress this ebbing tide of UK energy production are in the pipeline – but viable options for large scale generation like commercial shale gas and new nuclear are still 10-15 years away. In the meantime, the UK is increasingly turning to imported energy to fill the void and, with depleting fossil fuel stores and environmental regulation in the balance; this means that energy bills are moving rapidly in one direction – up.

What are you doing about this? While the spot price for commercial electricity is out of your control, there are many things companies can do to minimise energy costs. Forward purchasing is a wellknown tactic and big companies will be fluent, but can smaller firms play the market too (p12)? There’s a maturing market for specialist commercial energy advice and power brokers and aggregators are finding innovative ways to help companies of all sizes benefit from a recent swell in self-generation (p10). Critically, manufacturers must understand their own energy needs and usage patterns and they must be confident that their contracts are based on value for money, not empty marketing spiel (p6). Acknowledging hidden influences on energy costs is one step towards achieving this and this supplement aims to highlight these; encouraging more strategic approaches to energy purchasing for responsiveness to short term fluctuations and security in the long run. Two subsequent reports will build on this theme with insight into technologies for energy optimisation in plant and options for on-site power generation. END

Is there money hidden in your business? npower could help you find it. Perhaps it’s in your manufacturing equipment? Maybe the electric motors or compressed air tools you use? Just ask npower. We could show you how to save money – simply by managing your energy better. Contact us today to find out more Visit npower.com/manufacturer

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Securing energy

Rising energy costs are a given – the question is by how much and what can manufacturers do to protect their energy supplies and minimise costs? Marc Sobbohi investigates. Production in decline

Swimming against the tide So what can businesses do in the face of rising prices set by a powerful energy market? Help is at hand. Regulation and market forces are encouraging suppliers to help their customers reduce usage and gain clarity on their energy requirements. David Topping, director at E.ON, breaks down how to get a better energy deal for your company on pages 4-6, detailing recent changes to energy prices. Communication about energy strategy with the public and businesses has undoubtedly been poor. Utility company Npower recently criticised the Government in a report for being too optimistic with predictions on energy prices. The report indicated the average household annual energy bill would increase by £240 to £1,487 by 2020, while a seperate government report published in March acknowledged that commercial energy costs in the UK are likely to increase by around 22% in the same time period. As Mr Topping identifies, much of this additional cost is attributable to ‘non-energy costs’ associated with supporting the establishment of the UK’s renewable energy infrastructure. SmartestEnergy, featured in this supplement, uses workshops and commercial arrangements to involve the commercial consumer in the evolving renewable energy network. This approach creates much needed awareness.

Renewable energy investment A recent YouGov poll of 1,952 people for The Sunday Times found that 78% of people agreed with the Government spending money to encourage solar power generation, 76% saying the same for tidal and 65% for wind. By comparison, 49% approved public financial support of nuclear energy, 57% clean coal and only 40% in favour of shale gas development. UK production annual growth rate 2000–2012

Annual growth rate 2000–2012

UK energy production from fossil fuels is declining. Figures from the Department of Energy and Climate Change (DECC) show a drop in production every year since 1999. Production fell 10.7% in 2012 compared with the year before. While it remains unlikely the lights will go out in the short term, the UK is clearly not sustaining its own energy consumption. In 2005 the UK was a net exporter of energy, but has since become a net importer at a dependency level (43%) not seen since the mid-1970s. In 2012 net exports went down to 1.1 million tonnes, from 5.1 million tonnes in 2011. As fuel resources dwindle, prices go up, and sources of renewable energy are increasingly relied upon to step in. Electricity generation from renewable sources increased 19% from 2011 to 2012. Whilst in 2005 renewables accounted for 4% of the UK’s total electricity generation, it represented 11.3% in 2012. But despite the slowly increasing availability of renewable energy, we remain beholden to fossil sources. A 30% decrease in gas consumption in 2012 was offset by a 32% increase in coal use, with the percentage of UK electricity generated by coal increasing 4% since 2005 whereas gas has dropped 11%. But now gas use is rising again - both as imported energy, and as a UK-generated resource. The UK is 10 years behind the US in exploiting shale gas, but is now seeking to replicate the well documented economic uplift it has brought over The Pond. Despite fierce protests in rural heartlands, mainly Sussex so far, Chancellor George Osborne has already sent out the message that the Tories will push for the UK to start fracking. They want to ensure

the country doesn’t miss out on the prospect of job creation and economic benefits from the gas boom. Speaking of job creation, an estimated 176,000 people (or 7% of industrial employment) are directly employed by the energy industry, with the sector contributing 3.5% of GDP in 2012.

Source: Digest of UK Energy Statistics 2013, DECC

ENERGY 2013 Securing energy

The Department of Energy and Climate Change plans to make renewables 30% of the UK’s electricity mix by 2020 as part of the aim to significantly decarbonise the power sector by 2030. An ambitious target, by late 2013, as only 11.3% of Britain’s energy currently comes from renewables. The Government says it wants to unlock up to £110bn energy infrastructure investment and support up to 250,000 jobs by 2020, with around one fifth of ageing power plants expected to close by the end of the decade.

Very much seen as the way forward for manufacturers to reduce energy costs, onsite generation offers better security of supply while creating a sustainable business, an increasingly attractive prospect to business consumers

Onsite generation Onsite renewables are now responsible for almost £40m worth of electricity generation a year. In 2012 there was a 53% increase in the number of larger (over 50kW) independent onsite schemes. The number of onsite energy generation projects operating expanded to a total of 327, with a value of £81m. Wind is the fastest growing renewable technology with 172 projects on-stream in 2012, but solar remains the most popular for onsite investment with 199 projects generating £1.8m a year. Very much seen as the way forward for manufacturers to reduce energy costs, onsite generation offers better security of supply while creating a sustainable business, an increasingly attractive prospect to business consumers. Richard Clothier, managing director of Wyke Farms, enjoys the security from not having politically unstable parts of the world dictating how much it costs him to make dairy products with the array of renewable infrastructure on his farm. He says even smaller companies can adapt to manage their power better, seeing few other examples in manufacturing where firms get such strong returns above the interest rate level where the paybacks are as short as three or four years. While there are alternatives, most manufacturers will have to invest in assets to create their own power generation system. This means in the future UK industry will be heavily reliant on leaders to use onsite generation and open the way for smaller companies.

The % of electricity generated from renewables in the UK has increased over 7% since 2005 2005

Vox populi: The UK public’s view of energy 79% of respondents believe the UK should reduce its use of fossil fuels. 81% of respondents want to reduce their energy use. 53% indicate their willingness to use electric vehicles. This is higher (75%) if vehicle performance matches that of conventional models. 22% are not willing to share their smart meter data with their electricity supplier. 74% of respondents are very or fairly concerned about climate change. 78% of respondents are fairly or very concerned that petrol will become unaffordable for them within the next 10-20 years. 54% of respondents think that government(s) are mainly responsible for ensuring appropriate changes are made to the UK energy system over the next 40 years.

2012

Source: The UK Energy Research Centre

Further reading

Digest of UK Energy Statistics 2013, the Department of Energy and Climate Change http://bit.ly/DECCStats Gas Coal

Nuclear Renewables

Other

The Changing cost of UK Energy, npower, 2013 http://bit.ly/NPowerReport

Source: Digest of UK Energy Statistics 2013, DECC

Do you know what you’re

doubled in just three years. The Feedin-Tariff – a Government initiative that pays consumers to generate their own energy from renewable sources - is predicted to be nearly 90 times higher in this year than when the scheme was first introduced back in 2010. The real challenge for the energy Understanding energy prices industry is to clarify the impact of these costs across the market for its You can see from the chart below that customers. Put simply, it is making it while wholesale power prices have much harder to compare quotes and increased by about 15% over the last three years, distribution and transmission work out who’s offering the best deal. From feedback, we’re aware that charges (the yellow and orange lines) there are many different approaches to have increased by about 30% and even quoting and displaying non-energy costs the smaller Elexon and Hydro charges between suppliers and it’s not always have risen by about a fifth. easy to evaluate contracts on a like-forBut the charge that really stands out like basis. is the Renewables Obligation – which Some suppliers offer fixed non-energy levies subsidies for renewable generation costs, with guarantees that they will technologies to help the UK to hit its not recover costs where forecasts are green targets – which has more than

David Topping, Director of Corporates, E.ON UK looks at non energy costs that make up an energy bill and explains how to get a better deal for your company.

nergy prices, as we all know from experience, often depend on the impact of global events – we only need look at recent history with Fukushima, the knock-on effect on international nuclear policy and, of course, the Arab Spring and its role in rising global oil and gas markets. But alongside the cost of the raw materials, the impact on bills of nonenergy costs is a growing concern for many energy buyers – whether those costs come in the form of transmission or distribution charges, the impact of environmental or social obligations or taxes imposed. To give you a sense of scale, these charges now make up around 40% of the average business electricity bill. These are serious numbers that need full consideration - that was certainly the feedback we received at our recent business energy conference and in direct conversations with customers. Alongside the confusion around exactly what makes up an energy bill, what is very clear is that varying levels of transparency and different pricing methods across the market are making it very difficult for both energy managers and brokers to effectively compare quotes and get the best deal.

Relative movements in electricity costs 2010 to 2013 220% 200% 180% 160%

DUoS RO TNUoS Elexon Hydro* Wholesale Energy

140% 120% 100% 80%

2010

2011

2012

2013

Source: Chart compiled using published industry data and our view of wholesale power prices for a typical half hourly metered customer consuming approximately £75,000 worth of electricity per year. Please contact us if you’d like more information.

* Hydro charge officially known as Assistance for Areas with High Electricity Distribution Costs

ENERGY 2013 E.ON

E.ON’s fixed or flexible products – assessing your appetite

incorrect. Others offer fixed energy prices and customers are hit with the additional non energy charges at a later date. On the other hand, you might be offered a quote which excludes these costs completely – instead receiving a bill with the latest rates added on. Another alternative is for suppliers to provide a more explicit breakdown of costs, either using the latest published rates or with forecasts to help budgeting. Then there’s the fact that not all customers want the same thing. Some are prepared to pay a premium to fix their prices and for their suppliers to take on that element of risk, while others value transparency and paying the actual outturn rates – even if these fluctuate. Others might be happy to take on the risk themselves, albeit with greater advice and engagement from their supplier, and then there are some who are simply unaware of what they are signing up to. For a customer it’s vital to understand how suppliers quote for non energy costs and what they are prepared to take on – does the supply quote include all relevant charges for the entire length of the contract or will they be looking at a significant additional charge somewhere down the line because the rules have changed without their knowledge? At E.ON we’re committed to offering customers transparent quotes and invoices, so they know exactly what they’re paying for. We also provide them with the information they need to make an informed decision about the type of contract they sign up to.

nce you’re aware of what makes up the total cost of your energy bill, the next step in managing your approach to buying energy is to look inwards and assess your desire to engage in how, and when, you buy that power or your appetite for risk when it comes to market activity and meeting your demand. That attitude or appetite for risk is one of the key factors for customers when it comes to agreeing an energy contract. Products can range from a fully fixed contract, offering consistency and security, to live market-tracking packages. Using its years of experience in the Corporates market, E.ON offers expert knowledge, with products built in partnership with its customers and based on understanding of individual needs.

Fixed Fixed contracts can be up to three years in length, with the electricity or gas price fixed for the duration. This means customers can forecast and manage their energy budget knowing there won’t be anything unexpected coming for the duration of that contract*.

Flexible products Flexible products allow customers to purchase electricity or gas in tranches through a dedicated flexible products team. This gives greater control of risk - as well as bringing freedom, control and price transparency to power and gas purchasing.

MultiPurchase Multipurchase contracts are designed to give customers flexibility and freedom for both electricity and gas, offering a choice of when to buy energy – monthly, quarterly, seasonally or annually. Instead of being tied to a single price throughout the contract they can take advantage of favourable market conditions with the confidence that E.ON’s regular market reports mean they will be able to make informed decisions.

ACC Liverpool is a landmark £164 million regeneration project on Liverpool’s waterfront, home to the 11,000 capacity Echo Arena and the award-winning BT Convention Centre. Gerald Andrews of ACC Liverpool says: “E.ON have always helped us find the best deal. At the moment, we’ve moved to a more flexible way of buying energy through multi purchase contracts, which allows us to fix our costs for longer periods.”

*subject to any unknown legal or regulatory changes

ENERGY 2013 E.ON

Market Trigger A flexible product, enabling customers to buy electricity or gas in more than one go, when market conditions suit. E.ON will monitor the market for the customer, who has the reassurance of knowing that E.ON will contact them if any triggers are reached, leaving them to get on with running their business. Bywaters (Leyton) Ltd, a recycling company, has been helping others to manage their waste for over 60 years. Understandably they’re passionate about saving energy and protecting the environment, but in the current climate, they need to save money too. John S Glover, Managing Director of Bywaters, says: “Our main recycling facility processes over 125,000 tonnes of material each year, with electricity needed to power most equipment. In 2012, we moved to a flexible ‘market trigger’ product, allowing

us to keep track of the everchanging energy market and fix prices for a period of time. Cost is our biggest driver, with small margins making a huge difference – even 1%. So, being able to make decisions about our energy based on E.ON’s expertise and experience has been invaluable.”

Fully Flexible Fully flexible gas and electricity contracts give customers flexibility about when to buy their energy, as well as additional transparency - in terms of both non energy costs and access to wholesale prices via our Sales Traders. Reforecasting and the ability to unfix positions are also available with these products. This is available to businesses with an annual consumption of more than 10GWh.

E.ON Portfolio Solution (EPS) E.ON Portfolio Solution offers advice and risk management strategies, energy portfolio position reports, market intelligence, detailed commentary on price drivers, and a forward view of the market. EPS enables Corporate customers to reduce exposure and risk, whilst taking advantage of purchasing direct from the wholesale market. Customers can develop a purchasing strategy through a detailed Risk Management workshop, then take advice from a dedicated Portfolio Manager on when to buy. EPS is a subsidiary of E.ON Energy Trading, and is fully licensed and supervised by the German Federal Financial Supervisory Authority (BaFin). For more information visit eonenergy.com/corporateenergy

Getting the best deal When it comes to making sure you get the right deal for your business, our advice to customers is simple: Ensure you understand suppliers’ terms and conditions, not just their marketing literature! Look at their past behaviour and historic approaches to recovering these charges Ask for quote transparency – make sure you or your broker are comparing prices on a like-for-like basis Ask for information about what’s driving these charges so you can make informed decisions. Being better informed about energy and non energy elements of prices will help companies understand their options on how to buy energy. To help them, we produce the E.ON MarketReport which gives a monthly update on the complex UK energy market and world events which influence it as well as key things to watch out for in the month ahead. END To register to receive this monthly report, visit eonenergy.com/MarketReport

That’s our guarantee.

ENERGY 2013

To find out more about our fixed price products visit

www.smartestenergy.com/fixed

SmartestEnergy

Or contact our award-winning customer service team on 01473 234 150 or supply@smartestenergy.com

Energy

SmartestEnergy Ltd is a wholly-owned subsidiary of the Marubeni Corporation of Japan

ENERGY FOOD

A recent Research Forum Dinner hosted by The Manufacturer and SmartestEnergy clarified concerns among manufacturers over energy supply and the value being extracted from sustainability strategies.

he dinner was attended by manufacturing leaders from a range of sectors, all with a common interest in reducing, optimising and securing energy supply. Sharp concern was expressed on the latter topic, particularly by attendees with processes which are dependent on constant supply. “In the future this will definitely be key and something for more manufacturers to consider,” observes SmartestEnergy’s insight manager Kate Farrell. Consumers are increasingly using onsite generation to protect their supply, with a 53% increase in 2012 according to SmartestEnergy’s Energy Entrepreneurs Report 2013*. It’s a trend that the generation aggregator is very close to, collaborating with new generators to help them get optimum value from the energy they create and helping other firms tap into diverse sources of generation via linked supply contracts for long-term power security without the need to purchase assets.

Sustainable sense In today’s business world, competitive businesses may not always be sustainable but sustainable businesses will always be competitive. “At The Manufacturer dinner we met a UK manufacturer whose main competition came from European plants with a lower energy cost. To survive, it had to embrace sustainability,” says James Graham, business development manager at SmartestEnergy. “Because of the real threat to the business and incredible engagement from all staff they made huge savings in energy cost. There’s a virtuous circle between its commitment to sustainability, its cost savings and its competitive business profile.” Furthermore, Graham says that more manufacturers will soon feel the pressure emanating from consumers for robust sustainability. “Increasingly the public want to buy from responsible and sustainable businesses. This is where you see some of the larger retailers starting to promote sustainability throughout the supply chain, including ISO standards on environmental management and energy efficiency in conditions of tender,” says Graham. “They’re leading the way and dragging the supply chain through the same sort of sustainability journey.”

Smarteronenergy

money commercial arrangements,” says Founded in 2001 SmartestEnergy is a competitive SmartestEnergy’s James Graham. generation aggregator for After seven years the natural progression energy procurement. was to launch a retail supply business. A first-mover in the generation aggregation market SmartestEnergy has led the way in offering independent companies access to the wholesale power market. “Generators were genuinely pleased to have a new entrant to work with and we built a reputation for flexibility and value for

Kate Farrell, explains: “We entered the retail market with a very customer-based approach. That was in everything we did in developing our systems to fulfil customer needs.” This approach hasn’t gone unnoticed SmartestEnergy’s retail arm now has as the company has been placed first 2.5% market share and several in the Datamonitor Major Energy Users high-profile customers. Survey for the past three years running. Customer service and listening are rarely The accolade comes from achieving the terms used in conjunction with energy companies. This is a key frustration company highest customer satisfaction rating for major energy users. has tapped into.

See: bit.ly/EnergyEntrepreneurs to find out more about renewable energy investment trends.

it’s worth reading the small print When it comes to selecting your energy supplier it’s tempting to choose the lowest fixed price available. But, did you know, some energy companies still pass on extra costs at the end of the year, even if they claim to provide a fully-inclusive tariff. Shocking isn’t it? So talk to SmartestEnergy. We have fixed priced products that really are fixed. No additional costs No hidden extras No nasty surprises And it’s all there in black and white and in our small print.* Unlike some other suppliers, we won’t try and recover undercharging costs from our customers. That’s our guarantee. To find out more about our fixed price products visit

www.smartestenergy.com/fixed Or contact our award-winning customer service team on 01473 234 150 or supply@smartestenergy.com

Energy

SmartestEnergy Ltd is a wholly-owned subsidiary of the Marubeni Corporation of Japan

e 10.6] s [Claus n io it d n nd Co Terms a from the End Date e period th g n until the ri te Du a D t Energy ncemen ase the re Comme c in t shall no Smartest Smartest End Date e th sts in r e ft da ased co re c in s Rate an y n ra ewable t recove the Ren to , shall no se a hc , in eac n Tariff. relation e Feed-i th r o n o ti Obliga

Playing THE MARKET

A nimble approach to energy procurement is vital in protecting heavy manufacturersâ&#x20AC;&#x2122; profits from market volatility, as Malcolm Lee, energy and commercial manager at Sheffield Forgemasters, explains.

s a supplier of components to industries like nuclear energy and offshore oil and gas, we often find ourselves playing the role of a single link in a long and complicated project supply chain. We have to manufacture products as and when our customers demand them and this often means orders are agreed and prices fixed several years ahead of actual production taking place. These protracted lead times mean it is critical for us to understand the underlying cost of all of our components and, of course, energy purchasing is a significant element of this. In recent years, as our production methods have grown more advanced, they have also become more energy intensive, and the volatility of prices for both gas and electricity presents a significant commercial risk. With this in mind, a standard fixed-price energy contract can never work for us, as we canâ&#x20AC;&#x2122;t afford to take the risk that contracts that we have committed to 18 months or two years previously might become commercially unviable because we are locked into paying a price that has increased in the intervening period.

ENERGY 2013 Sheffieild Forgemasters

flexibility to sell the gas to the market – so we’re never forced to pay for energy we don’t actually consume. This ability to trade also means that if the market price for gas begins to fall and we anticipate that we will be able get a better price for energy to power our future production schedule, we can sell off our holdings and re-purchase at a lower price, maximising our profitability. A good example of this happened in 2008 when the gas price briefly rose to over £1/therm. To avoid exposure to potential further rises, we had to secure enough gas for our planned production schedule over the next 18-24 months. However, when the wholesale price began to fall back into line we were able to sell of most of the future commitment we had made during the peak. At that point we were selling the energy at a loss, but the strategy paid off as we were able subsequently to secure the same energy for a much lower price. The key to this is having an open, flexible and trusting relationship with a supplier that stays very close to the wholesale gas market.

Carbon trading

To negotiate this challenge, we instead have a very flexible relationship with our energy supplier, Gazprom Energy, under which we are able to buy and sell chunks of energy in advance.

Perfect timing For us, energy purchasing is all about timing – and this is particularly the case with gas. By purchasing the energy we are expecting to use well into the future at a fixed price, we have clarity on the energy element of the components we are planning to produce in the years ahead and this means we can commit to prices as required by our customers without the worry of the agreement becoming unprofitable. Of course, there is a chance that we will not use all of the gas we purchase, but if this is the case then we have the

We now also trade all of our carbon through our energy supplier. Carbon is a fact of life for anyone in our industry, but we have to be able to prove the source of all our emissions and Gazprom Energy provides this service directly as part and parcel of our energy supply.

By purchasing the energy we are expecting to use well into the future at a fixed price, we have clarity on the energy element of the components we are planning to produce.

About Sheffield Forgemasters Sheffield Forgemasters is the world’s biggest independently owned forge, manufacturing steel components of all sizes at its Sheffield plant for shipment to industrial customers around the world. The maximum foundry casting size is 16 metres × 7.6 metres × 4.6 metres. The firm has massive energy requirements across its melt shop, foundry, two machine shops and rolling facilities. The company employs 800 people across its five business units and turns over in excess of £105m a year with operating profits of around £4.5m in 2012. It is surprising how few of our competitors are taking this approach to procurement, and how few suppliers are willing to deliver this level of flexibility to their customers. Good business is about constant negotiation, flexibility and working closely with people to get the best outcome on both sides, but many energy agreements don’t seem to operate in this way. This is particularly surprising given the significant overhead that energy costs now represent for large manufacturers. In recent years not only have we have seen gas prices increase rapidly as a general trend, but they have also grown more volatile. The result of this will be demand for more flexibility from manufacturers like us, and energy suppliers will have to continue to rise to the challenge.

ENERGY 2013 Event review

Power

to the people

Power was firmly on the agenda at the Future Factory: Energy Conference, hosted by The Manufacturer in Birmingham in July. Speakers offered manufacturing delegates advice on the latest techniques and technologies available to reduce energy consumption and provided information on how to negotiate the best deals from energy suppliers.

Energy strategy

With so many of the influences on energy costs outside their control, what can manufacturers do to manage their energy bills and requirements effectively? Gary Law, strategic buyer MCIPS for Allied Glass and a speaker at TM’s Energy Conference recommends: Make sure you have a defined strategy in place Look at historical seasonal data Ensure that you are on a flexible contract Lock and unlock blocks of energy when the price is moving Track the market against your forecast and budget

enerally speaking manufacturers at TM’s first annual Energy Conference agreed that it is relentless increases in energy prices rather than taxation or regulation which are driving efforts to reduce energy consumption in factories and across manufacturing businesses. David Topping, director of corporates at E.ON explained that the repetitive price hikes are largely due to levies being introduced for energy providers to cover the predicted £190bn in infrastructure investment required to maintain and improve the transmission, generation and distribution of energy in the UK. The ‘green’ element of these non-energy costs – such as the Feed-in Tariff (FiT) and Renewables Obligation (RO) – now makes up 13% of energy bills, up from 6% in 2010. “The key thing for customers,” said David Topping, “is that they understand the terms and conditions of their contracts so they know exactly what elements of these non-energy costs can be ‘passed through’ to their bills in line with their contractual terms.” He said that there were many wholesale market reports and ‘trader updates’ but far less focus on the regulated charges that go into energy prices (pXX). A report released after the event by RWE npower confirmed these remarks and claimed that the main factor behind rising costs was government’s approach to funding the UK’s transition to a more efficient economy, with modern infrastructure and warm, insulated homes for all. Greg Barker, minister for energy and climate change, rejected parts of the report claiming government action had helped reduce the costs from spiralling fossil fuel prices. “Global gas prices, not green policies, have been primarily pushing up energy bills,” he said.

Report, including fixed and pass through costs STICK to your strategy – don’t second guess the market Consider engaging an Energy Consultant

Current contribution of non-energy costs to energy bills 60% - Energy 21% - DUoS 10% - RO 6% - TNUoS 3% - FiT 0.06% - Elexon 0.22% - Hydro Source E.On

The Future Factory Energy Conference was part of TM’s growing Future Factory event series, which support the magazine’s remit of promoting competitive manufacturing in the UK. The next Future Factory event, Innovation in Manufacturing, takes place in London on October 16. Go to bit.ly/TMInnovation to find out more.

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ENERGY 2013

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