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The UK electricity supply margin is set to be squeezed over the next three years, according to a new report from Ofgem. What does this mean for SMEs?
Ofgem’s report comes in response to National Grid’s Future Energy Scenarios for electricity security of supply. The National Grid (NG) report called margins “narrow”, meaning that the NG will need to call on balancing tools such as voltage reduction, maximum generation or emergency assistance from interconnectors. The Supplemental Balancing Reserve (SBR) and Demand Side Balancing Reserve (DSBR) are the extra tools that the NGcould use to help balance the system.
These assurances have not convinced everyone. Some have blamed privatisation and a lack of forethought in energy generation strategy for margins that are too tight for comfort.
This coming winter seems to less of a worry. For 2015/16, NG has procured ‘additional balancing services’ that should keep the lights on. But there is a “wide range of uncertainty” over the outlook, particularly for 2016/17. Margins could tighten if further power stations close or mothball (which may not be unlikely as it seems, given the age of much of the UK’s generation infrastructure).
Still, Ofgem assured that it has identified potential for the market to respond and reduce the risks to security of supply. The outlook is expected to improve in 2017/18 as some mothballed generating capacity returns to the market. A continued reduction in demand could also have a positive impact.
Despite the small chance of outages, Ofgem conceded that projecting future demand “is inherently difficult”, especially against a backdrop of rapid installation of embedded generation, on-going energy efficiency and the changing nature of the relationship between power demand and economic growth. “This is a key area of uncertainty in the outlook, because understanding demand evolution is challenging,” the report concluded.
While SMEs probably do not (yet) need to invest in generators, the evident concern over electricity margins could be accompanied by an uptick in business electric rates. The return to market of electricity generators should ease supply pressures but, in the meantime, locking in relatively cheap business electricity now might soon prove to be a prudent move.
Unfortunately, small to medium sized business often lack the time to compare business electricity. Price comparison sites are abundant in the consumer sphere but those helping compare electricity prices for business users are far fewer. When you discount those without specific expertise in small business electricity tariffs, the list is very short indeed.
SwitchMyBusiness.com offers a no-obligation comprehensive comparison of business electricity and gas suppliers in just 20 minutes. Fill in our simple form (also at the top right of this page) or give us a call on 0330 0100 251 now to start saving.
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