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Electricity Market Reform could cost businesses an extra £30/MWh by 2020, according to research by Npower.
The energy supplier published the figure on Monday, along with the results of a roundtable with energy buyers from high street retail chains, manufacturers and other major energy users.
Participants expressed concerns the government’s overhaul of the power market could increase prices and make it harder to forecast costs.
Contracts for difference (CfDs), designed to guarantee stable revenues to low carbon generators, could introduce price volatility for buyers and cut the incentive for generators to enter into long-term power purchase agreements (PPAs), the report found.
Meanwhile the capacity market, which will reward gas power generators for being on standby, could negate the incentive for big businesses to cut their demand at peak times, it added. It will also shift volatility from commodity to non-commodity costs.
Wayne Mitchell, director of industrial and commercial sales and marketing at Npower, said: “Our roundtable and associated report clearly show that UK businesses still have serious concerns about the implications on future costs and forecasting abilities for their organisations.
“Getting the electricity market right is absolutely essential for the competitiveness of UK businesses… Whilst there is a strong need for UK investment in energy infrastructure, it has become clear from businesses that EMR may come at the cost of UK plc competitiveness. What’s required is greater certainty for businesses to be able to forecast costs and budget accurately.”
They called on government to do more to keep down costs and give industry visibility of charging for CfDs.
One roundtable participant, who is head of energy supply at a major utility, said: “As a big energy consumer, it is critical that we have the ability to plan ahead. We would like to see greater visibility of charging for CfD costs under EMR, the minimum transparency being that prices are set in the November or December of the preceding year.”
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