It has been a concerning couple of weeks, with headlines being dominated by Russia’s invasion into Ukraine. This is deeply saddening and our thoughts are with all those affected.

The conflict is first and foremost a human tragedy and humanitarian crisis. With this, we are aware that the conflict will have a range of implications for all of Europe, including energy markets. So during this unsettling time, we want to continue to support our community and keep businesses informed on the impact external influences like this can have on energy prices.

Rising energy prices are a big topic in the energy industry right now, and we know that costs are a key concern for our customers. There are a number of global influences that have contributed to pushing up energy costs over recent months, from an unseasonably cold spring in 2021, to record low levels of gas storage in both the UK and the EU.

The conflict in Ukraine is currently the most significant factor, due to concerns about the EU’s reliance on Russian gas supplies and the impact of economic sanctions. On the day of the invasion by Russia into Ukraine, forward electricity prices for the coming year increased by nearly 30% compared to the previous day. Prices fell slightly the next day, but then spiked again on Wednesday 2^nd March by over 35%. This level of day-on-day movements is unprecedented and, over the course of a week, prices have increased by around 70%.

In addition to this, Ofgem recently confirmed that the domestic energy price cap will rise by 54% from 1^st April 2022^1. While this price cap does not affect business energy users, businesses should be aware that the current wholesale market volatility and record forward electricity prices could make it difficult to agree fixed prices for contracts, or lock in prices under Flex contracts, on particular days.

Customers who have fixed rate contracts are protected from current price volatility until their contract ends, as are Flex customers who have already locked in a price for their forward requirements. However, if you are approaching your contract renewal date during these uncertain times, now more than ever it’s important to understand your business energy needs, the risks faced and the options available. We strongly recommend seeking expert advice, whether from a supplier or an energy consultant, and reviewing the type of energy supply contract you’re on. For example, fixed rate energy contract give you more certainty but also locks in the wholesale prices at the date the contract is entered into, whereas Flex arrangements give scope for you to benefit from future market falls (but similarly also leaves you open to future price rises) and to manage your own hedging strategy.

There are a range of energy contract types out there, so be sure to seek expert guidance to find the most suitable solution for your business during these uncertain times.

One of the regulatory mechanisms to support investment in new renewable generation is Contracts for Difference (CfD). Put simply, this scheme guarantees a minimum price per unit generated, which in turn provides a clear business case and reassurance for renewable developers.

Introduced in 2013 as part of the UK’s Electricity Market Reform, CfDs have successfully enabled 16GW of new renewable electricity to be brought onto the market, with auctions taking place every two years. On 9th February, the Department for Business, Energy and Industrial Strategy (BEIS) announced that from March 2023, the frequency of CfD auctions would change to taking place annually. The move is intended to accelerate UK renewable production to continue to attract investment and bolster energy security, and as such this announcement is an important step on the road to net zero.

Since its inception, the CfD auction has broadened its scope to include a larger number of technologies. Solar and onshore wind generation are now eligible to bid again, for example, where earlier auctions have seen an emphasis on offshore wind generation.

The announcement comes shortly after the launch of the BEIS’ consultation into the ways in which changes to the CfD mechanism’s supply chain could help to lower electricity generation costs. To learn more – or if you’re interested in submitting your views as part of the consultation – visit here.

With energy prices top of the agenda for many businesses, it’s understandable that SMEs are struggling to make sustainability a priority. A new survey has revealed that while improving sustainability is a ‘high priority’ for the majority of large businesses over the next 12 months, only 41% of SMEs see sustainability as a high priority for 2022 (down from 44% in the previous year’s survey)².

Challenges such as rising energy, material and fuel prices may have caused sustainability to slip down SMEs’ agendas, but the research also shows that many SMEs still make it a priority to purchase low carbon electricity and monitor the sustainability of their supply chain. In fact, another survey found that over 60% of SMEs would consider cutting ties with suppliers or partners that didn’t live up to their environmental pledges³.

SME business owners stated that they were largely motivated to continue to improve their environmental sustainability due to customer expectations and Government legislation, although they were also keen to benefit from the boost sustainability can provide to a company’s reputation and improved profitability.

No matter where sustainability currently sits on your organisation’s agenda, you might want to consider submitting your views to a new inquiry. The House of Lords Economic Affairs Committee is inviting businesses and other stakeholders to put forward their thoughts on a range of topics regarding the Government’s long-term energy strategy. This means you can have your say on the incentives the Government could provide to businesses to reduce their energy consumption and improve energy efficiency, which could help to shape future energy policies. If you’re interested in submitting your views, click here.

We’re pleased to share that…

• The first reactive power contract has been awarded to offshore wind. Dogger Bank C will be the first UK offshore wind farm to support National Grid ESO in balancing the network. Reactive power services are important in helping to maintain suitable voltage levels on the electricity system. National Grid ESO instructs generators or asset owners to either absorb or generate reactive power, according to system requirements.

• Renewable electricity can now provide extra grid stability as a recent change to industry code now means that National Grid ESO can call on renewable generators as well as other kinds of generation and end users, to help balance the electricity system. Enabling renewables to provide stability – a move which the operator has stated is a world first – will help to minimise the costs involved in the net zero transition by reducing the level of infrastructure change needed to support future energy demand.

If you have any questions about any of the updates we’ve discussed or how they might affect your business, our team of experts is on hand to answer them. Simply call us on 0330 053 8620 or email us at heretohelp@brytenergy.co.uk.