The business energy market has long been criticised for its lack of regulation and pricing transparency. In particular, estimated billing has resulted in frustration for many businesses after leading to inaccurate and excess usage charges for some and unexpected additional payment requests for others. In a bid to achieve greater accuracy with energy consumption and billing, increase competition and lower costs, the Office of Gas and Electricity Markets (OFGEM) will soon introduce their latest regulatory changes – P272.
What is P272?
Taking effect from April 2017, P272 will impact all businesses using electricity meters in profile classes 05 – 08. Effected businesses will now be required to use automated meters – and these meters must be able to provide half hourly (HH) metering data back to energy suppliers.
Why is this needed?
Half hourly (HH) metering will provide significant improvements in the precision of data for each meter’s energy usage. This means businesses can be billed with assured accuracy, eliminating many of the frustrations surrounding current pricing ambiguities. Not only this, businesses will start to better understand their own energy consumption, enabling them to highlight ways to make improvements to energy efficiencies.
What does this mean for energy billing?
Whilst accurate billing will begin to resolve many of the frustrations when it comes to energy billing, the P272 regulation will also bring further changes to how business energy will be billed and charged. For businesses in affected profile classes, capacity it is likely that capacity charges will have always formed an integral part of overall power costs. The move to HH billing will create a need for much greater awareness of how these charges work.
So, just what do we mean by capacity charges?
After generation costs, capacity charges are often the largest cost-per-kwh on a half hourly energy bill. A capacity charge is typically based on ‘peak’ energy use during a specific period. Depending on your location, the capacity charge may be set either annually or monthly. Essentially, you will be paying for the guaranteed availability to cover your peak usage, regardless of when it occurs. Simply put, you pay the grid operator to have the capacity to meet your peak demand, even if you rarely use your largest expected amount.
Can business benefit from capacity charges?
For businesses which are able to generate their own electricity, the capacity scheme can also bring about notable financial benefits. Power generators and transmissions owners are paid for their capacity to provide power back to the grid, whether or not they are actually called upon to deliver it. Under this structure, you, as an end user, could also benefit by receiving a capacity charge (sometimes called capacity payment) or participation in Demand Side Response programs.
How will P272 affect capacity charges?
It is predicted that most businesses will either see no change to their overall bills or that they will reduce – although with HH precision data, energy costs are now likely to increase at certain times of the day. Some businesses may see an increase in energy costs as suppliers may charge for the additional resources to collect and process your electricity use every half hour. In the long term, energy bills are expected to decrease as business users are given greater visibility over energy use and can start to make considered adjustments in energy usage.
What do I need to do to prepare?
Businesses set to transition to HH settlement of their accounts should have already been contacted by their suppliers to ensure they have an AMR (Automatic Meter Reading) meter in place and are ready to transfer to HH billing. In addition to this, back in April 2016, businesses were given a 12-month grace period to agree an appropriate Maximum Import Capacity (MIC) with their Distribution Network Operator (DNO). This dictates the maximum electricity demand a business agrees they need to have from their supplier. In turn, the supplier agrees that their network will be able to continuously provide the amount the business requires – but no more. When agreed, the MIC will be stated in your property’s connection agreement with the local DNO.
These MIC negotiations will provide businesses with additional flexibility and will help protect your business in three ways:
What should I do now?
Whilst this is a big step in the right direction for ensuring businesses are billed accurately and start to invest more time in understanding and benefiting from the P272 changes, there are two important considerations for those businesses migrating to HH billing and who will, by now, have received correspondence from their supplier regarding capacity charges:
P272 should protect the interests of both present and future business energy consumers by promoting value for money, creating a more sustainable energy system, and helping to maintain security of supply. For those who correctly adopt and apply the upcoming changes are set to benefit from increased usage control which will, in turn, provide businesses with the required data to implement energy efficiency measures. With regards to reduced costs and increased competition that Ofgem hope P272 will provide – we hope to see these claims come to fruition in the upcoming months.