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  • npowerElectricity Market ReformConsultation Research: Industrial and commercialcustomers

  • At npower we feel that its important that UK businesses are given a voice in the Department of Energy andClimate Changes 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 npowers 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 Changes statutory consultation on the governments preferred electricity market framework.

    John McElroy

    Director of Policy & Public Affairs

    npower

    npower | 2

    Introduction

  • 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

    npower | 3

    Contents

  • npower | 4

    Electricity Market ReformCustomer roundtable - qualitative insight

  • Electricity Market Reformcustomer roundtable

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

    The event brought together npowers 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 Changes statutory consultation onthe governments preferred electricity market framework.

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

    npower | 5

    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)

  • 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 companys 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.

    npower | 6

  • 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 Grids 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.

    npower | 7

    Electricity Market Reformcustomer roundtable

  • 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 UKs 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 wont win business unless you are competitive, at what point will consumers say its 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