The North-South divide for business electricity bills will widen from 1 April 2018 with the introduction of the P350 Balancing and Settlement Code (BSC) modification.
P350, which changes the way businesses are charged for power transmission losses, could increase electricity bills for London business consumers by around 1.5%. That's according to financial modelling by Elexon, which is responsible for administering the BSC in Great Britain. Business energy consumers in the North and Scotland, however, are likely to pay less.
Businesses in the South of England already pay higher Transmission Network Use of System (TNUoS) charges than those in the North and Scotland. This third-party charge covers the cost of running and maintaining the National Grid. Tariffs vary according to location, but are generally higher for consumers in the south, to reflect the fact that more electricity is generated in the north, and more used in the south.
This principal of setting tariffs according to proximity to the source of generation and the respective cost of transmission is being applied to P350 and the same regional zoning structure will be used by both schemes.
Currently, there is a universal tariff for power transmission losses, but P350 is designed to create a fairer charging system by moving to a locational variability charge, based roughly on the distance energy travels to the end user. As such, customers in Scotland and parts of Northern England, who are located closer to wind farms and power stations, will pay less due to smaller transmission losses, while those in areas of the South of England, such as London, will see their electricity bills rise – reflecting the higher power losses when transporting electricity from remote power stations.
The tariffs for P350 will be published annually by 31 December, but there could be significant changes year-on-year due to the dynamic nature of the power and renewables industry.
P350 is a response to an investigation by the Competition and Markets Authority's (CMA), which identified that uniform pricing for transmission losses in the wholesale electricity market was likely to distort competition between generators and have short and long term effects on generation and demand – leading to inefficiency in power generation and higher customer bills.
The CMA estimates that P350 will reduce the total cost of meeting the power demand of British customers (though to 2026) by between £130 million and £160 million, and that it will deliver an environmental benefit valued at between £1 million and £15 million.
P350 was approved by energy regulator Ofgem in March 2017, which said: "We consider that the P350 proposal improves cost reflectivity and therefore allocates costs more appropriately than the current arrangements. Greater cost reflectivity is generally likely to lead to more efficient, economic and co-ordinated system operation. This should result in more efficient despatch, production cost savings, reduced losses and reduced emissions."
The impact of P350 will vary according to location, so businesses will need to budget accordingly. This is just one of many third-party, non-energy charges, which currently make up as much as 55% of the cost of an average business electricity bill and are rising every year. There's little room to avoid these charges, but businesses can find some relief from reducing their energy consumption, particularly during peak charging periods, known as Triads. It's more important than ever for businesses to control their wholesale costs, which they can influence, via smart purchasing strategies.
Further information: www.inprovaenergy.com 0330 166 4444
About Michael Dent
Michael Dent is Managing Director of Inprova Energy, one of the UK's top ten business energy procurement and energy management consultancies
He has extensive senior leadership experience of the European energy markets, working for Utilitywise plc, Total Gas & Power Ltd and RWE npower.
Inprova Energy is an independent energy consultancy – specialising in business energy purchasing and analysis, energy auditing and management, carbon reduction and reporting, and legislative compliance. Its chartered advisers are qualified ESOS Lead Assessors, and certified to deliver Carbon Trust Standard, ISO 50001 and carbon footprint measurement services.