A new energy department faces a massive challenge

Dave Cockshott, chief commercial officer, Inenco Group, urges the newly formed Business, Energy & Industrial Strategy department to provide policy certainty in the light of the massive challenges the UK’s energy industry is facing.

The UK needs £215bn of investment in energy by 2030 according to Barclays analysis published in August, based on the anticipated closure of coal, gas and nuclear plants - 70 per cent of all ‘reliable’ generation. This opens up a new world of opportunities for low-carbon technology, storage and innovation that will revolutionise our energy system, providing we have the right market conditions to deliver it.

In a recent survey of business energy users by Inenco, 80 per cent wanted Government to prioritise a long-term policy framework for energy, with the common sentiment that “investors and the market must have confidence in the security of their investments and a clear indication of the future direction.”

The whirlwind of change in Westminster following the Brexit referendum, greater market volatility and delayed decisions has created jittery investors and an uncertain market for businesses in which to operate. The question mark hanging over energy makes for a significant challenge – but what does it mean for businesses?

Lack of certainty in the industry is not new but the sheer scale of it is exacerbating the usual fluctuating status of energy policy. Its effect extends beyond the investment community: business energy users also need certainty to plan future energy strategy and budget with confidence.

Inenco’s survey – conducted in the wake of a new Prime Minister and a newly formed Department for Business, Energy & Industrial Strategy (BEIS) – gauged business energy users’ opinions on the current climate and asked them to rank the issues they felt BEIS should prioritise. The clear response was a call for more certainty, from climate change to future energy taxes.

Beyond the overwhelming sentiment that Government needs to bring forward infrastructure investment, businesses are also calling on BEIS to conclude the recent business energy efficiency tax review. 71 per cent called for a swift decision on what grants or incentives will be made available for energy efficiency measures, and 62 per cent are keen to know BEIS’ preferences for the new single reporting framework due to be introduced in 2019.

The strategic importance of energy and climate change was also questioned. The merger of DECC and BIS into one department might hint at greater integration between business and energy policy, and 42 per cent of respondents it will shift energy higher up the agenda, but 34 per cent believe energy needs a dedicated governmental department and now risks becoming an afterthought.

There was mixed opinion to what the departmental shake up means for climate change; over half of all surveyed believe that it will be deprioritised. Over 40 per cent expressed a need for Government to prioritise its approach to the ‘energy revolution’ required to meet the challenges set out by ratifying the fifth carbon budget and signing up to the Paris Climate Agreement.

This comes at a time when National Grid has warned that meeting our 2020 renewable energy targets looks unlikely, predominantly because transport and heat are lagging behind power generation. Looking beyond 2020, Grid expressed some doubt around the UK’s ability to meet our 2050 commitments without a low carbon strategy that goes far beyond the challenge to decarbonise power generation.

As many industrial and commercial users are only too aware, the burden of meeting carbon targets often translates into new subsidies and regulations that weigh heavy on the bottom line.

While the current economic climate means many businesses are focused more on the next 12 months than the next decade, the political climate and investment appetite governs future energy costs. This call for certainty is as much about the impact on the bill as it is about security of supply.

Controlling the controllable has never been more important: risk management has broadened and now encompasses all areas of a business’ energy strategy. While non-commodity costs now command the lion’s share of the bill and some charges are fixed, there are still some within a business’ gift to control – particularly through demand management. Shifting load away from critical peak demand periods not only avoids DUoS red bands and potential Triad periods but, from winter 17/18, will also ensure capacity mechanism costs are minimised.

Identifying flexibility in your demand can also unlock the door to demand side response schemes: Grid’s Demand Side Balancing Response scheme for the coming winter may have been withdrawn unexpectedly, but participation in the capacity market is still a possibility and can unlock new revenue streams.

Understanding new regulations and changes in the market early on can also make a big difference to your utility management strategy and ensure your business has time to react to changes. From avoiding paying over the odds for new meter charges under P272 or understanding how the increase to Climate Change Levy impacts your business, working with an energy expert with an understanding of your sector can reduce the time required to navigate this complex market.

The message from business energy users is clear: Government must act quickly to reassure investors and provide industry with the long-term certainty required to plan for the future with confidence. 

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