Mitigating Your Exposure to the Energy Market
Not every KWH is the same. Facilities Management without accounting for energy price fluctuations can be catastrophic in a retail estate. Cost savings made in energy efficiency or optimisation can far outstrip maintenance savings. However the two are inextricably linked.
The price paid for a kWh depends on geographical location, time of day and the type of energy contract you have. Therefore, maintenance should be scheduled to take account of energy price implications.
In business there is nothing more stressful than uncertainty; watching costs spiral that are beyond your control. Yet in 2021 we observed exactly this volatility in the energy market. This article aims to explore ways that we can mitigate our exposure to higher energy costs and indeed take advantage of flexible energy usage.
In 2021, it seemed like power system price records were being broken month on month. Energy trading on the wholesale market was extraordinary. On 2nd November last year, the maximum system price (intraday) reached £3916/MWh and the minimum on 7th November was -£70/MWh. Most business supply contracts are based on the day ahead market but even this reached a maximum of £307/MWh on 15th November, which is quadruple the value of November 2020. Energy suppliers that couldn’t cope with these violent price swings have collapsed. The cost of balancing the grid was higher than projected, leading to formal investigations all whilst the carbon price (EUAs) continued an upward trajectory of €75 per tonne with a prediction of hitting €100 per tonne by the end of 2021.
Furthermore, gas prices soared roughly by 57% in 2021 with a high of £452 per therm in December amid dwindling inventories, insufficient supplies from Russia, and colder than usual weather. Upside risks also came from rising geopolitical tensions in Eastern Europe and delays in the approval of the Nord Stream 2 pipeline.
SO HOW CAN WE HELP TO MITIGATE THIS EXPOSURE IN THE FUTURE?
Be Efficient and monitor — Baselining consumption and seeking ways to be more efficient can reduce the number kWh used or wasted. Keeping up your planned preventative maintenance schedule for machinery and building fabric inspections is essential. Use an independent company to monitor and champion individuals in the organisation to instil a strong culture of energy preservation. If you generate on-site, performance monitoring at a granular level is crucial because for every minute of non-generation you will have to pay for grid electricity.
Understand your assets — Can your assets be optimised to use less energy through more efficient motors, adjusting temperature settings or by adding sensors to ensure energy is used only when necessary? Leveraging digital telemetry from these sensors provides scope for predictive maintenance and devising algorithms for remote monitoring to minimise energy consumption.
Understand your flexibility — Can your plant be flexed to use energy at different times of the day without affecting operations to avoid power price peaks? Many companies will have considered flexibility as part of Triad or DUoS avoidance. When flexing systems, it is vital to have resilience and maintenance regimes in place to bring equipment back online safely, without costing you more overall. Under the Targeted Charging Review, the recovery of DUoS charges will move to a new fixed charge from April 2022, meaning the value recovered through the existing red/amber/green rates will fall significantly. If you can flexibly shift production schedules, avoiding the 4-7pm weekday peak times at your operational sites is beneficial until then.
From 1st April 2023 (subject to Ofgem approval), the recovery of TNUoS charges will move to a fixed charge, which will remove the value in Triad Avoidance. TNUoS charges vary on a site-by-site basis and through a banding structure developed by National Grid. Most energy suppliers and/or brokers run Triad Warning Alerts throughout the Triad Seasons to assist with operational planning and avoiding Triads in this final season.
If your energy contract is flexible, many suppliers will allow you to sell back energy when the system price goes high and create revenue. There are also many demand response schemes you can participate in, by flexing your energy consumption. Working with a partner that understands your energy contract, your assets performance/maintenance and has the technology to respond quickly and manage global commands is vital.
Local generation advantages — Onsite generation (preferably renewable), reduces your exposure to non-commodity costs included in your grid contracts. Monitoring generation and detecting degradation quickly is key to your ROI. Operations and maintenance must be agile and adaptable to multiple moving variables – requiring a vast amount of data and secure logics to process it.
Digitisation, big data and modelling — Of course, different assets have an energy interrelationship and for that we need modelling. For example, comparing an increase in store temperature with the additional energy requirement of supermarket refrigeration. Thankfully, digitalisation means we can monitor this data, use logics to predict savings and send energy strategies to assets securely, whilst providing feet on the ground to maintain these systems and avoid operational disruption.
In summary, the volatility we’re seeing in the energy market is a storm to be weathered. But where businesses take the time to understand their estates, embed real-time monitoring across their assets, and are proactive in making maintenance and investment decisions supporting renewable on-site generation, then they will succeed.
Arcus FM works in true partnership with customers to ensure their retail estates’ energy consumption is monitored, reported, and reviewed in real-time. To learn more about our integrated FM services please visit arcusfm.com/services/
GLOSSARY OF TERMS
DUoS: Distribution Use of System – charge paid in addition to kWh unit charge and cover the cost of installing and maintaining local electricity distribution networks.
TNUoS: Transmission Network Use of System – charge paid in addition to kWh unit charge and cover the costs of installing and maintaining the UK electricity transmission system.
Therm: A unit of heat, equal to 100,000 British thermal units (BTU), approximately the energy content of 100 cubic feet of natural gas.
Triad: one of the three highest peaks of electricity demand between November and February each year and a means of charging TNUoS. Business users can avoid these charges by reducing electricity consumption through the three half-hourly Triads.
To find out more about Arcus FM and the services they provide to the retail industry, click here.
This article was also published in The Retailer, our quarterly online magazine providing thought-leading insights from BRC experts and Associate Members.