Business electricity: renewables driving down business energy prices

A new report shows that renewables are cutting the wholesale price of energy and lessening the impact of subsidies on bill payers. What does this mean for SMEs?

Good Energy’s report, which claims that wind and solar brought down the wholesale cost of electricity by £1.55 billion in 2014, may add to the controversy around the Government’s recent decision to cut support for renewables.

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Renewables are an increasingly import supplier of business electricity with the latest figures showing that 25.3% of electricity was generated by wind, solar, hydro and other renewable generators in 2Q15.

Solar capacity has increased from just 96MW in 2010 to over 8,200MW today and wind has also seen significant growth. The UK now boasts more offshore wind capacity than the rest of Europe combined.

Decarbonising electricity provides one of the quickest paths to emission reduction so this laudable progress will play a key part in helping the UK achieve its ambitious carbon reduction targets – at least 80% in 2050 from 1990 levels. Other major contributors to emissions, particularly transport and heat, are themselves heavily reliant on greener electricity.

Renewable energy has been supported by subsidy schemes, most notably the Feed-in Tariff and the Renewables Obligation, both pay a fixed amount per unit of renewable generation, irrespective of wholesale electricity prices or other market metrics.

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The need for austerity in the wake of the global financial crisis and ensuing downturn and an apparent Tory dislike of renewable energy (strongly denied by the Conservatives) has seen these subsidies drastically pared back.

The closure of three solar power supplier in rapid succession took already withering criticism of the cuts to a new level. The Government responded by claiming the cuts were necessary given the level of spending.

Good Energy’s report raises questions over the Government’s position. The report calculates the overall net cost for supporting the solar and wind sources was £1.1 billion 2014. While that sounds like a lot, it is 58% less than the cost reflected in the capped budget set for green subsidies, known as the Levy Control Framework.

If correct, this could undercut some of the concerns over the cost of renewable subsidy schemes and cast doubt on recent policy changes.

Good Energy found that, whilst these support mechanisms increase energy bills in the short term, renewables also act to reduce them by driving down wholesale electricity prices – a phenomenon described as the ‘Merit Order Effect’.

While the technical subtleties of this Effect may be lost on most, Good Energy Chief Executive Juliet Davenport was keen to offer analysis that “puts the bill payer at the centre of the debate around renewable energy subsidies. Let’s give them the full picture and not just half of it.”

While Good Energy, as a business energy supplier focused on providing renewable energy, can be expected to take such a stance, the argument that wind and solar has actually been bringing the cost of business energy down is intriguing.

Davenport was unequivocal about such claims: “The bill payer money invested into supporting renewables yields significant benefits, let’s be very clear about that.”

Experts from the University of Sheffield, including Dr Lisa Clark from the Department of Physics and Astronomy, have backed the report, giving it further weight. Clark was keen to stress the importance of decarbonising electricity generation for the future sustainability of the planet, calling UK wind generation “a really important source of renewable electricity”.

She said that the costs of renewable subsidy schemes such as Feed-in Tariff and Renewable Obligation should be weighed the actual financial savings from renewable generation. “[T]his report provides clear evidence that UK wind generation is typically saving UK consumers around £1.5 billion per year. This is more or less the same amount that the subsidies cost … So not only is wind energy decarbonising our electricity generation, it isn’t costing any more than any other source of electricity to do so.”

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What does this mean for small to medium sized business owners?

The increasing number of SME owners that see using renewably generated business electricity as both a moral obligation and a potential marketing hook may be understandably frustrated. There is still time to have your say: the Government’s Feed-in Tariff review consultation closes on 23 October.

In fact, renewable energy doesn’t have to be expensive, even now. The no-obligation business electricity comparisons that our SME experts offer can include a variable amount of green energy.

For those (completely understandably) focused more on price, the realisation that renewables may eventually be cheaper could be a shock. Again, you might be surprised by how much the low price of oil and greater renewable generation could affect your business electricity tariff.

Just 20 minutes is enough for us to give you a free business electricity comparison and switch you to a new supplier so give us a call on 0330 0100 251 (or request a call back using our form) now.

Our dedicated page has lots more information about business electricity.

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