Transcript
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npowerElectricity Market ReformConsultation Research: Industrial and commercialcustomers

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At npower we feel that it’s important that UK businesses are given a voice in the Department of Energy andClimate Change’s consultation on the proposed UK Electricity Market Reform. To facilitate this, we havedeveloped this comprehensive report that captures the views of businesses, through face-to-face discussionsand a quantitative business survey.

npower hosted a roundtable event for businesses where they were able to discuss their views and concerns onthe future of the electricity market. The event, on Monday 14th February, brought together npower’s energyand policy experts with Jeremy Nicholson, director of the Energy Intensive Users Group, to discuss the EMRwith energy managers from a variety of sectors and leading energy consultants.

We also conducted quantitative research with 60 of our industrial and commercial customers to furtherinvestigate the views of major energy users on the proposals outlined in the EMR.

The following report summarises what was discussed at the event and details businesses’ views on the EMR,plus the results of our business research. It should be considered as part of the Department of Energy andClimate Change’s statutory consultation on the government’s preferred electricity market framework.

John McElroy

Director of Policy & Public Affairs

npower

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Introduction

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EMR Customer Roundtable - qualitative insight

Overview of the npower Electricity Market Reform customer roundtable

Businesses and the Electricity Market Reform• Carbon Floor Price• Feed in Tariffs• Capacity Payments• Emissions Performance Standard

Will EMR endanger the UK economy?

What message do businesses want to send to DECC about the EMR?

EMR Customer Survey - quantitative insight

Overview of quantitative research into views on EMR• Key Findings• Results in full

Next steps

Appendix - Detailed Discussion Notes

Event Details

Event Participants

Discussion Notes

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Contents

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Electricity Market ReformCustomer roundtable - qualitative insight

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Electricity Market Reformcustomer roundtable

Overview of the npower Electricity Market Reform customer roundtablenpower hosted a four hour roundtable on the government’s Electricity Market Reform (EMR) consultation onMonday 14th February.

The event brought together npower’s energy and policy experts – David Cockshott, director of industrial andcommercial markets, and John McElroy, director of policy & public affairs – with Jeremy Nicholson, director ofthe Energy Intensive Users Group, to discuss the EMR with energy managers from a variety of sectors and leadingenergy consultants, including:

The discussion was independently chaired by Sumit Bose, the respected former BBC journalist and presenter whois also the editor of Energy Live News.

The aim of the roundtable was to provide businesses with a forum to discuss their views and concerns on thefuture of the electricity market, and to give them a voice in the EMR consultation.

This section of the report summarises what was discussed at the event and details businesses’ views on the EMR,and should be considered as part of the Department of Energy and Climate Change’s statutory consultation onthe government’s preferred electricity market framework.

A short, ten-minute video of highlights from the roundtable also accompanies this document.

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David Olivant ASDA

Bernd Leven BT

Bruce Toper GlaxoSmithKline UK

Stuart Lea Inenco

Matthew Harris MBNL

Chris Collicutt PepsiCo

Mark McGlinn Pret a Manger

Malcolm Lee Sheffield Forgemasters

Simon Russell Tata Steel

Alison Meldrum Tata Steel

Alastair Hutson Utilyx

Andrew Horstead Utilyx

Chris Hendrix Wal-Mart (Texas Retail Energy)

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Electricity Market Reformcustomer roundtable

Businesses and the Electricity Market ReformA full transcript of the discussion is included as an appendix at the end of this report. Please click here to view a short, ten-minute video of highlights from the roundtable event.

What do businesses think of the Electricity Market Reform (EMR)?

• UK businesses welcome the timing of the consultation but believe that the focus should be on refining currentenergy policy, not reforming it;

• There is concern that proposals set out in the EMR will reduce the competitiveness of UK businesses in theglobal marketplace and their ability to reinvest capital back into their own company’s operations;

• Many at the roundtable also felt that are too many carbon taxes in place and that using renewable energy isnot adequately rewarded.

Looking at the EMR proposals in detail

1. Carbon Floor Price

• Businesses feel that existing legislation around carbon is already complex and that adding to it will onlycreate further confusion for businesses.

“There are already too many taxes and policies in place, we need to strip out the complexity. If the carbon floorprice is introduced then we need to chop out the other carbon taxes. We do need regulation but we also need toretain a competitive energy market.”

Chris Collicutt, PepsiCo.

“The carbon floor price is wrong to me, especially the way the government is going about it. We are using a 19thcentury mechanism to solve a 21st century problem.”

Malcolm Lee, Sheffield Forgemasters.

“There is a persuasive argument that says internalising the cost of carbon is necessary, however, with currentplans there will be four prices on carbon: Carbon floor price, Climate Change Levy, CRC and the EmissionTrading Scheme, quite apart from all the renewable subsidies. How many times do we need to internalise thecost of carbon? The government needs to choose one option for regulating carbon to make it simpler foreveryone involved.”

Jeremy Nicholson, Energy Intensive Users Group.

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2. Feed in Tariffs

• Businesses are concerned about how the strike price for the two-way Contract for Difference option will be set;

• There is a belief that setting a strike price will take the UK energy industry back to a state-run monopolyrather than a free energy market.

“I would like to see a more market-driven approach, rather than a government-led approach.”Chris Hendrix, Wal-Mart.

3. Capacity Payments

• Businesses are concerned about who will fund the capacity payments – will this become another tax onbusiness?

• Many did not understand why capacity payments are being proposed whenever there are already successfulsystems in place, e.g. National Grid’s Short-Term Operating Reserve (STOR).

“Our experience of capacity payments in other markets is that they do not incentivise new investment, they justsupport existing investment.”

Chris Hendrix, Wal-Mart.

“Our concern is where the funding for the capacity payments will come from. Will this just be another cost thatis passed onto end users?”

Simon Russell, Tata Steel.

“The reason for introducing a capacity payment has not been properly disclosed – why are we doing this? Is itbecause there are gas storage issues? Because nuclear is inflexible? Or because we recognise that windgeneration is unreliable? We already have a mechanism in place, why do we need a new one? That said, althoughintermittency is not a major problem right now, by 2020 it could be if wind power grows rapidly.”

Jeremy Nicholson, Energy Intensive Users Group.

4. Emissions Performance Standard

• Businesses are unsure why this has been included in the EMR and feel that it should be dropped from theEMR.

“I would like the emissions performance standard certificates scrapped.” Jeremy Nicholson, Energy Intensive Users Group.

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Electricity Market Reformcustomer roundtable

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Electricity Market Reformcustomer roundtable

Will the EMR endanger the UK economy?• There is concern that by leading the worldwide charge on the move towards a low carbon economy, the UK

government is dealing with a global issue at a national level. Businesses are afraid that this could damage theUK economy at a time when it is already fragile;

• Businesses are worried that extra levies applied to them in an effort to reduce the UK’s carbon emissions willresult in them becoming uncompetitive in the global marketplace.

“We are faced with a global problem that the electricity industry and Government will have seen coming formany years. Urgent action is now necessary and although a national response is required, it will not be sufficient.Suppliers, who are often global players, must take the lead and agree measures with Government that reflect theworld consensus. Will this endanger the economy? The economy is already challenged by the cost of risk whichwill only increase if no action is taken.”

Mark McGlinn, Pret a Manger.

“Due to a lack of competitiveness the UK is becoming less capable of manufacturing to suit our requirements.Businesses need to look globally to BRIC countries to meet supply chain requirements.”

Malcolm Lee, Sheffield Forgemasters.

“You won’t win business unless you are competitive, at what point will consumers say ‘it’s not worth me buyingit now?’ As costs go up, as a business we look at how much our margins can be squeezed and at which point wepass on the costs.”

Matthew Harris, MBNL.

“The EMR could end up squeezing business costs to such a degree that we cannot afford to reinvest in our ownsectors.”

Alison Meldrum, Tata Steel.

“The UK is the only EU country considering introducing a carbon floor price and, if anything, other EUgovernments take the opposite view in trying to overprotect their industrial sectors from higher charges.”

Jeremy Nicholson, Energy Intensive Users Group.

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What message do businesses want to send to DECC about the EMR?• There are already too many taxes and policies in place in the UK energy industry – the focus should be on

simplification, not reformation;

• Businesses want more rewards for energy efficiency measures and using renewable energy sources;

• Businesses want more liquidity in the UK power markets.

“I would like to see more focus on and incentives for energy efficiency.”Alison Meldrum, Tata Steel.

“The EMR will create a managed market that will drive volatility in and liquidity out of the UK market. Fromgovernment we would like to see a unilateral global agreement or the UK will become uncompetitive. This is toomuch, too fast.”

Alistair Hutson, Utilyx.

“We want improved liquidity in the market.”Bruce Toper, GlaxoSmithKline UK.

“In 2008 core and non commodity energy costs were split (%) 80:20. In 2011 this is now 50:50. In the very nearfuture it will become 40:60, it is the Government’s duty to stop this being happening.”

David Olivant, Asda.

“I would like a clear understanding of what constitutes success. If success with the current approach is security ofsupply, then it has been delivered. The government also needs to admit that the 2020 Renewable Energy targetcannot be delivered and start being honest about it in public.”

Jeremy Nicholson, Energy Intensive Users Group.

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Electricity Market Reformcustomer roundtable

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Electricity Market ReformCustomer survey - quantitative insight

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Customer Survey

Overview of quantitative research into views on EMRTo further investigate the views of major energy users on the proposals outlined in the EMR, npower conductedquantitative research with 60 of npower’s customers.

Key Findings:

What do businesses think of the Electricity Market Reform (EMR)?

- 24% of respondents did not agree that the proposals of the EMR will help the UK to achieve its emissionsreduction targets

- 57% of respondents are concerned the proposals of the EMR may lead to an increase in energy bills forbusinesses

- 48% of respondents think the proposals of the EMR will be complex and unwieldy for businesses

- 24% of respondents do not think the proposals of the EMR will help raise the increased investment needed inlow carbon generation

Looking at the EMR proposals in detail

- 55% of respondents think the carbon floor price element of the proposals will lead to an increase in energybills for businesses

- 20% of respondents think the feed-in tariffs proposed will encourage uptake of low carbon onsite generation

- 20% of respondents think the targeted capacity payments proposed will impede the UK’s attempts to meetits carbon emissions reduction targets

- 19% of respondents do not think the emissions performance standard will help the UK meet its carbonemissions reduction targets

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To what extent do you agree or disagree with the following statements?

Results in full:

The proposals set out in the EMRwill help the UK to achieve itsemissions reduction targets

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Customer Survey

I understand what the EMRproposals include

I am concerned the proposals ofthe EMR may lead to an increase inenergy bills for businesses

The proposals of the EMR will becomplex and unwieldy forbusinesses

The proposals of the EMR will helpraise the increased investmentneeded in low carbon generation

The carbon floor price element ofthe proposals will lead to anincrease in energy bills forbusinesses

The feed-in-tariffs proposed willencourage uptake of low carbononsite generation

The targeted capacity paymentproposed will impede the UK’sattempts to meet its carbonemissions reduction targetsThe emissions performancestandard will be instrumental inhelping the UK meet its carbonemissions reduction targets

0%

3%

40%

25%

5%

33%

3%

8%

3%

21%

15%

17%

23%

3%

22%

17%

12%

12%

55%

52%

41%

50%

68%

45%

65%

75%

66%

12%

18%

2%

2%

17%

0%

8%

2%

10%

12%

StronglyAgree

Slightlyagree

Neitheragree ordisagree

Slightlydisagree

Stronglydisagree

12%

0%

0%

7%

0%

7%

3%

9%

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Next Steps

Thank you for taking the time to read this document.

We hope that you found it both informative and interesting, and that the Department of Energy and ClimateChange will consider the views of the roundtable participants as part of the statutory consultation on theelectricity market framework.

We look forward to your response and should you have any questions or would like to talk to any of theroundtable participants, please contact John McElroy, Head of Policy and Public Affairs, by [email protected].

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AppendixDetailed discussion notes - npower Electricity Market Reformcustomer roundtable

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Electricity Market Reformcustomer roundtable

Event DetailsLocation: Kingsway Hall Hotel, 66 Great Queen Street, London WC2B 5BX

Date: Monday 14 February 2011

Time: 9.45am to 1.00pm

Event ParticipantsSumit Bose Roundtable Chair and editor of Energy Live News

David Cockshott Director of industrial & commercial markets, npower

Dr John McElroy Director of policy & public affairs, RWE npower

Jeremy Nicholson Director, Energy Intensive Users Group

Chris Collicutt PepsiCo

David Olivant ASDA

Bernd Leven BT

Bruce Toper GlaxoSmithKline UK

Stuart Lea Inenco

Matthew Harris MBNL

Mark McGlinn Pret a Manger

Malcolm Lee Sheffield Forgemasters

Simon Russell Tata Steel

Alison Meldrum Tata Steel

Alastair Hutson Utilyx

Andrew Horstead Utilyx

Chris Hendrix Wal-Mart (Texas Retail Energy)

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Discussion NotesWhat does the EMR mean to you?

Alison Meldrum Tata Steel The EMR demonstrates leadership from the government and Icommend that, however, we do have some concerns about thecost implications.

Bruce Toper GlaxoSmithKline UK The EMR is a good, positive move and this roundtable gives UKindustry a chance to make a contribution to the development ofthe energy market. I agree that changes to the market arenecessary, but the devil is in the detail.

Simon Russell Tata Steel There are big challenges ahead due to ageing generation plantsand the climate change agenda. However, I have seen too manyinitiatives, e.g. EUETS, and at a customer level, there have been toomany shifts in terms of legislation and investment. The big concern/question is, ‘will this work?’

Are businesses being heard?

Chris Collicutt PepsiCo There is a real lack of incentives for industrial end users fromgovernment to drive investment in the energy market – should weinvest in energy efficiency or renewable energy? When companiesare making decisions over capital investment in energy they cansee returns from efficiency projects, but not from renewable energy.We need a better mix to enable businesses to invest in both.

Carbon benefits and incentives are needed for the right pace ofchange, i.e. end users need to be able to have reportable carbonsavings from utilising renewable energy.

Do you want renewable energy?

Malcolm Lee Sheffield Forgemasters No, it doesn’t matter to my business how much renewable energyis produced in the UK as it is not suitable for our business; we needpower instantly and wind farms aren’t necessarily able to respondimmediately.

We require secure, reliable energy that’s there when we need it.

We are an exporter and are up against competition from Korea,Japan and developing countries. Any unilateral increases in UKenergy prices impacts on our competitiveness on a global front.

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Discussion Notes

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Discussion Notes

What do consultants think of the EMR?

Alistair Hutson Utilyx Through the EMR, the government is talking about encouraging UKinvestment in an affordable environment. They talk about securityof supply and living in a decarbonised world by 2050 – is that evenpossible?

Security of supply and affordability should come first, notdecarbonisation.

Chris Hendrix Wal-Mart At Wal-Mart, we want to be 100% renewable but we need it to becost-economical for our customers.

Our key concerns are:

1. Who will end up paying for the EMR?

2. Is the legislation understandable to end users?

There are too many UK government groups looking at energy,it is too complex.

Is now the right time for looking at EMR and is the timescale too fast?

Jeremy Nicholson Energy Intensive The timing is unavoidable. The EMR 'had' to come in with the new Users Group government. However, we are going over the same old issues again

as there is still a trade off between security of supply, carbon andaffordability. There is a recognition that this will drive costs up overthe next 20 years.

If the government is serious about a sustainable low carbonapproach, it needs to do it in a cost effective way. A fixedrenewable target is difficult - the future is ‘low carbon’, not ‘nocarbon’.

How has the energy industry got to this point – what have the generators been doing about it?

John McElroy npower npower effectively has a new fleet, because we have replaced ourasset base. We took the position to have the most efficient fleetpossible.

The dilemma investors now face is on payback versus low carbon.

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How has the energy industry got to this point – what have the generators been doing about it? (continued)

Simon Russell Tata Steel The UK is again trying to take a lead in low carbon economy, whenhistory tells us that others won’t always follow.

David Olivant ASDA Overcapacity is not just due to recession on its own, it is also dueto huge energy efficiency drives taken by businesses.

Retailers are already spending the equivalent cost of opening onenew store a year on energy reduction measures in the UK. The CRCmeans that we need to find extra energy efficiency measures fromnowhere.It is all stick and no carrot.

Are you worried about the outcome of the EMR due to the recent changes to the CRC legislation?

ALL ALL Yes

Jeremy Nicholson Energy Intensive There is a persuasive argument that says internalising the cost of Users Group carbon is necessary, however, with current plans there will be four

prices on carbon:

1. Carbon floor price;

2. Climate Change Levy;

3. CRC;

4. Emission Trading Scheme; quite apart from all the renewablesubsidies.

How many times do we need to internalise the cost of carbon? Thegovernment needs to choose one option for regulating carbon tomake it simpler for everyone involved.

I don’t how businesses can make a UK investment decision with somany balls up in the air. If I were a business I would hold offmaking any investment decisions in the UK right now – how canthey make multi-billion pound decisions without realisticlegislative incentives?

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Discussion Notes

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Discussion Notes

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Has industry been consulted on the EMR?

Malcolm Lee Sheffield Forgemasters We do engage with government quite regularly but the issue iswhether or not they listen to us.

The government has procrastinated over new nuclear build andwhile that procrastination was going on, things have changed. Theworld has moved on.

Jeremy Nicholson Energy Intensive DECC is almost hostile to industry remaining in the UK as it is notUsers Group part of its agenda. It wants to reduce energy consumption and

decrease carbon emissions so if industry goes overseas, it naturallymakes reaching the objective easier.

The Department for Business, Innovation and Skills are naturallysympathetic and Treasury are concerned because if industry goesoverseas they miss out on corporate tax revenue.

There is no explicit Impact Assessment for the industrial sector inthe EMR or Carbon Floor Price consultations

Alison Meldrum Tata Steel This is illustrated in the Carbon Floor Price section in the EMRdocument, which simply says that any costs incurred by industrycan be passed through to customers.

Carbon Floor Price – is it a good idea?

Chris Collicutt PepsiCo Yes – it is a good idea, it gives stability and provides a trigger forinvestment.

Bruce Toper GlaxoSmithKline UK As an end user I want to be able to count carbon from a windturbine I have built, however, I can’t count it because of the carboncost of deliver to my site.

Chris Collicutt PepsiCo Renewable energy is expensive to deliver. If we really want a lowcarbon economy we need to make it competitive for end users, sothey can count the carbon of renewable energy.

Why would I invest in renewable energy if I can’t count it? If youwant to drive low carbon economy you’ve got to drive demandwhich ultimately comes from end users. Even though I userenewable energy my carbon footprint doesn’t change.

Malcolm Lee Sheffield Forgemasters The carbon floor price is wrong to me, especially the way thegovernment is going about it. We are using a 19th centurymechanism to solve a 21st century problem.

Bruce Toper GlaxoSmithKline UK There is an appetite from industry to invest more in renewableenergy but there needs to be a clear benefit.

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Discussion Notes

Do customers care about low carbon sourcing?

Chris Hendrix Wal-Mart Our customers are more concerned about the best cost, ratherthan low carbon sourcing.

In stores where the green agenda is higher, we do focus onrenewable energy source, but this is very localised.

The right thing to do is to become carbon efficient. Our focus is onkeeping costs down for customers, we do that by keeping our owncosts down. Primarily through energy efficiency and secondlythrough renewable technology, but only where it makescommercial sense.

David Olivant ASDA The government needs to make the playing field level for allretailers. For example, we already know that putting doors onchiller units saves energy but it adversely impacts the customershopping experience because it takes them longer. So if thegovernment made it mandatory for all retailers to have doors onfridges then we wouldn’t be competitively disadvantaged – no onewants to go first.

Mark McGlinn Pret a Manger The principle that we should pay for what we pollute isfundamentally new and correct. It encourages us to form anaccurate and fair view of the cost/benefit of a product and itsassociated risk and make decisions based upon it. It forces us tonot only think of but act according to the common good. Thefundamental driver behind the EMR is the need to respond to whatis a global issue.

Although Pret doesn’t have a dedicated energy managementdepartment, we have sought to analyse and understand our energyusage with energy usage reduction trials being run in several shops.The challenge we face is whether to lead or be lead. We found forinstance that keeping entrance doors closed is more energyefficient but it impacts negatively on the customers’ ability to getin and out of the shop quickly during peak trading hours. So thequestion is how do we respond to this? We are still working on asolution – and perhaps there is both a technical and an awarenessanswer. We do believe strongly that the retail sector needs to worktogether closely and share best knowledge to come up with agreedpractices that work.

David Cockshott npower Should the market be refined or reformed?

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Discussion Notes

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How do your customers feel about nuclear as a source of low carbon generation?

Simon Russell Tata Steel The trading market is divorced from energy generation. I cannotidentify the source of a MW I purchase.

If the source was labelled at the point of purchase, wouldbusinesses demand a premium for specific sources or could thereverse happen, could green energy become budget energy with apremium placed on brown energy sources?

Jeremy Nicholson Energy Intensive The EMR is not a genuine reform. Instead, the four elements are Users Group very disparate, seeking to fulfil different objectives, yet overlapping

one another at the same time.

Bernd Leven BT The existing carbon schemes need to be reviewed and possiblymerged – how can we simplify the existing legislation? Can we givecustomers a choice of low carbon energy sources – e.g. premiumrenewable or nuclear, whilst creating transparency in the schemeto avoid double counting of carbon benefits?

Would BT make a decision to buy from a certain source?

Bernd Leven BT All BT’s UK consumption is from renewable energy or GQCHP andwe echo this outside the UK. But the schemes across Europe varyand in the UK there is no incentive to use renewable energy as theCRC and GHG reporting guidelines do not take this into account.

Are customers willing to pay a premium for green?

Alistair Hutson Utilyx Yes but we need to wait and see how the political landscapedevelops.

Stuart Lea Inenco For most, clients see green as a ‘nice to have’, but with currenteconomic pressures not at a price premium

Chris Hendrix Wal-Mart Many are confused about the difference between low carbonenergy (such as new nuclear) and green energy. The challenge ishow we separate the two, as nuclear carries negative connotationsfor many customers.

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Discussion Notes

Looking now at Feed in Tariffs, who should set the strike price for the proposed Contract forDifference option?

Malcolm Lee Sheffield Forgemasters It is all about risk management – who will pick up the risk?

Chris Hendrix Wal-Mart The set strike price will take the UK energy market back to a state-run monopoly

Jeremy Nicholson Energy Intensive The key thing is to what extent government can intervene?Users Group The energy industry is already decarbonising naturally due to shift

to gas.

Is the market being skewed to allow the introduction of new, smaller players?

Jeremy Nicholson Energy Intensive We still need to build new plant and larger energy suppliers are Users Group often best placed to do this.

Bernd Leven BT BT is being asked by investors can they use our land for renewableenergy such solar and wind turbines. We have an objective to havea ¼ of our consumption powered by wind turbines by 2016.

Chris Hendrix Wal-Mart While Wal-Mart is interested in PPAs and possible JVs we don’tbuild generation assets. We sell beans and socks – this is what iscore to our business, not energy.

What do you think of the Capacity Payment mechanism – do we need it or not?

David Cockshott npower I’m not sure if it is needed as National Grid’s demand sidemechanisms (e.g. STOR) are already an effective mechanism.

Simon Russell Tata Steel Our concern is where the funding for the capacity payments willcome from. Will this just be another cost that is passed onto endusers?

Chris Hendrix Wal-Mart Our experience of capacity payments in other markets is that theydo not incentivise new investment, they just support existinginvestment.

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Discussion Notes

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What do you think of the Capacity Payment mechanism – do we need it or not? (continued)

Jeremy Nicholson Energy Intensive The reason for introducing a capacity payment has not been Users Group properly disclosed – why are we doing this? It is because there are

gas storage issues? Because nuclear is inflexible? Or because werecognise that wind generation is unreliable?

We already have a mechanism in place, why do we need a newone?

That said, although intermittency is not a major problem rightnow, by 2020 it could be if wind power grows rapidly.

John McElroy npower There are tools in place to solve this already such as demand sideparticipation and smart grid, so we need to refine the currentsystem rather than total reinvention.

The EMR needs to look at supply and demand together.

Will the EMR endanger the UK economy?

Jeremy Nicholson Energy Intensive It is already impacting energy intensive users, they are less Users Group competitive on the global scale. We expect to see a 70% increase

in energy costs by 2020 simply because of climate policies. By2030 the UK carbon price could be £70 per tonne. For domesticcustomers the cost of energy could double by 2020.

The UK economy is not a priority for DECC.

Mark McGlinn Pret a Manger We are faced with a global problem that the electricity industryand Government will have seen coming for many years. Urgentaction is now necessary and although a national response isrequired, it will not be sufficient. Suppliers, who are often globalplayers, must take the lead and agree measures with Governmentthat reflect the world consensus. Will this endanger the economy?The economy is already challenged by the cost of risk which willonly increase if no action is taken.

David Olivant ASDA The challenge we are facing is to lead or be led. Sometimes it isbetter to go through a minefield second successfully.

Malcolm Lee Sheffield Forgemasters Due to a lack of competitiveness the UK is becoming less capableof manufacturing to suit our requirements. Businesses need to lookglobally to BRIC countries to meet supply chain requirements.

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Discussion Notes

What energy costs can UK industry absorb before a decision is made to move manufacturing to aBRIC country?

Malcolm Lee Sheffield Forgemasters We are operating in two markets:

• A short term market (2-3 months)

• A long term market (3-4 years)

The short market isn’t a problem as we know what energy costswill be, however, we don’t know what the energy price will be infour years time; It therefore becomes very risky for a business toaccept, say a £40m contract that carries a £10m energy risk.

Matthew Harris MBNL You won’t win the business unless you are competitive, at whatpoint will consumers say ‘it’s not worth me buying it now?’

As costs go up, as a business we look at how much our margins canbe squeezed and at which point we pass on the costs.

Alison Meldrum Tata Steel The EMR could end up squeezing businesses’ costs to such a degreethat we cannot afford to reinvest in our own sectors.

Jeremy Nicholson Energy Intensive The UK is the only EU country considering introducing a carbon Users Group floor price and, if anything, other EU governments take the

opposite view in trying to overprotect their industrial sectors fromhigher charges.

Is it a good thing that the UK is leading on this?

Chris Collicutt PepsiCo There are already too many taxes and policies in place, we need tostrip out the complexity.

If the carbon floor price is introduced then we need to chop out theother carbon taxes. We do need regulation but we also need toretain a competitive energy market.

As a comparison the introduction of road fuel duties have helpeddrive fuel efficiency in Europe and it is simple and granular. Whilstnot necessarily popular, that is more a question of its level ratherthan the mechanic.

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Discussion Notes

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What’s the alternative to the EMR?

Stuart Lea Inenco Our clients want price certainty. They are aware that somethingnasty is coming but they don’t understand how it will impactcosts..

What message would you like to give to DECC?

Bruce Toper GlaxoSmithKline UK We want improved liquidity in the market.

David Olivant ASDA We want simplification of the existing energy policy. If themeasures outlined in the EMR come to fruition then the existingtaxes need to be removed.

Malcolm Lee Sheffield Forgemasters The government should not expect industry to subsidise energythat it can’t use.

Alistair Hutson Utilyx The EMR will create a managed market that will drive volatility inand liquidity out of the UK market. From government we wouldlike to see a unilateral global agreement or the UK will becomeuncompetitive. This is too much, too fast.

Andrew Horstead Utilyx The EMR will create too much uncertainty. There is already toomuch risk in the energy market for businesses. And with the addedrisk of slippage on key energy legislation in the next couple ofyears, this makes for an uncertain world.

Alison Meldrum Tata Steel I would like to see more focus on and incentives for energyefficiency.

Chris Hendrix Wal-Mart I would like to see a more market-driven approach, rather than agovernment-led approach.

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Discussion Notes

What message would you like to give to DECC?

Jeremy Nicholson Energy Intensive I would like a clear understanding of what constitutes success. Users Group If success with the current approach is security of supply, then it

has been delivered.

Looking at the EMR in detail:

1. On capacity payments, I would like this to be left alone

2. I would like the emissions performance standard scrapped

3. On a carbon floor price, I believe that multiple carbon taxeswill ruin us economically. The govt needs to reduce the CCLand scrap the CRC.

4. Finally, the government needs to admit that the 2020Renewable Energy target cannot be delivered and start beinghonest about it in public.

David Olivant ASDA I have been in the industry since 2008,

In 2008 core and non commodity costs were split (%) 80:20.In 2011 this is now 50:50. In the very near future it will become40:60, it is the Government’s duty to stop this being realised.


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