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From the Queen’s Speech to the next election: what now for the government’s agenda?
From the Queen’s Speech to the next election: what now for the Government’s agenda?

Archive for the ‘Energy’ Category

From the Queen’s Speech to the next election: what now for the Government’s agenda?

The Queen’s Speech on 10th May will be one of the Government’s last opportunities to set out its policy agenda ahead of the next general election.

With the Conservatives trailing in the polls and expected to lose seats in this week’s local elections, will Boris Johnson take the opportunity to reset and galvanise his premiership, or will rising inflation and the cost of living mean that the Government continues to lose ground as the general election approaches?

WA’s new report on the Queen’s Speech takes a close look at the Government’s latest legislative agenda, assessing where its priorities are likely to lie in the coming months and what that will mean for businesses.

You can download the full report here:

Queen’s Speech 2022: A look ahead (PDF)

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Navigating the NSIA: which way for M&A?

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What we can expect from the Heat and Buildings Strategy

The imminent publication of the much delayed and highly anticipated Heat and Buildings Strategy is expected to have significant consequences for the fabric and the fuel source of our nation’s homes.  The scale of change – as the Government seeks slash into the 40% of CO2 emissions that heat, and buildings are currently responsible for – is set to be even bigger and more impactful on peoples’ lives than the nation’s move from coal to gas 50-years ago.

We’ve all read the headlines about gas boilers, so here we pull together a summary of what industry, investors, consumer groups and environmental campaigners are calling on the Government for if we are to smoothly accelerate progress towards net zero.

1.Plug the hole left by the Green Homes Grant.

The scheme, shelved less than a year after it was announced, was plagued by criticism for being too bureaucratic and laborious to access.   Despite condemnation of its complicated set-up, there remains a sense that uptake of energy efficient and insulating products will continue to be insufficient without market intervention to stimulate demand.  These products – used in our homes at scale – are critical to reducing emissions from existing housing stock, but the high upfront costs are often prohibitively expensive and off-putting.  The Government has committed to bringing forward a new scheme and will be hoping it is a case of ‘third time lucky’ (readers will remember the Green Deal debacle of the Cameron era and the eye-watering interest rates homeowners were expected to pay on loans).

2. Answer how we will have enough skilled tradespeople to carry out the scale of work required.

Fewer than 2 percent of UK homes are heated by a low-carbon source and estimates put the number of gas boilers that will need to be replaced, either by a heat pump or hydrogen-ready boiler, at around 20 million.  That’s not counting new homes yet to be built where Government plans to halve energy use by 2030, compared to today’s standards.  These figures are set alongside an exising shortage of approximately 100,000 gas engineers.  The Government is expected to set out detailed plans on how it will attract, train, retain and upskill the huge number of engineers we are going to need to install new heating systems across the country.

3. Detail how the remaining £6 billion committed to energy efficiency in the 2019 manifesto will be spent.

Less than a third of the £9.2 billion earmarked for energy efficiency has been allocated to projects and programmes to date.  While the fiscal situation has changed markedly since Covid, industry is looking to the Government for a steer on whether the scale of this commitment remains in-tact and, if so, where resource will go.

4. Support new supply chains.

Buying energy efficient products and using new sustainable infrastructure is brilliant but putting in place the building blocks to establish a deep-rooted supply chain for their design and manufacture in the UK is the cherry on the top that many will be looking for.  Making sure that the Heat and Buildings Strategy ties into the Government’s Levelling Up agenda will be particularly important for political audiences who have seen the offshore wind industry put down roots in the UK and who want to see that model successfully replicated in other parts of the country.

5. Explain how homes not connected to the grid will be heated.

Around 4 million homes are not connected to the mains gas supply, the majority of these being in rural communities that rely on oil or LPG for heating.  Electric heat pumps could well be the answer, but some suggest an increased role for biofuels to cut emissions from these households sooner rather than later.  Guidance from Government on how rural homes will lock into the transition is keenly anticipated and will likely receive significant scrutiny.

6. Clarity on taxation.

A very contentious area that the Government will have to wrestle with, eventually.  There is growing pressure on ministers to re-orientate the tax system to encourage more clean heat as well as demand for green products. Whether the Government decides to entirely remove levies currently applied on electricity generation and place them on gas bills or even general taxation is a big question, or to scrap VAT on things like insulation and heat pumps.  The answer is likely to result in a lot of debate and for that reason, we may not see receive a complete one in this strategy. That being said, industry will be looking for some indication of where Government thinking is going.  A signal that it may be minded to change tax treatment could be a huge boon for the UK’s embryonic heat pump industry, but could have repercussions for the gas sector’s transition hydrogen – a nascent endeavour that the Government won’t want to knock off course at this stage.

All of this goes to show the careful balancing act that the Government must perform in what it sets out in its strategy.  The complexity potentially being part of the reason for the delay in its publication.  One thing unites all the different lobby groups in this debate – a desire that the strategy sets out meaningful detail, promotes action, provides confidence, and unlocks investment.  A repetition of ambition and targets won’t be enough.

We hope this short overview provides a useful reference point against which the strategy can be judged once published for consultation.  To discuss any of the issues raised or how the Heat and Building Strategy could impact your business, please email me at naomiharris@wacomms.co.uk.

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Telling your Net Zero story: communicating the critical role of the energy sector in the transition

COP26 in Glasgow this November will see the eyes of the world focus on the UK. The UK’s green ambitions – and action – are under significant scrutiny. The regular drumbeat of announcements from across government aimed at supporting the green recovery and the UK’s transition to Net Zero are testament to this.

But it is not just government aiming to set their own narrative ahead of COP26. Businesses – particularly those in the energy sector – also have a need to communicate around the summit and to tell their own story on the contribution they are making to achieve the UK’s legal targets by 2050. Brands need to show consumers and other stakeholders that they are doing the right thing. They need to shape the policy frameworks that government is developing that will achieve these ambitions. They need to explain to investors, employees, and customers what the transition means to them and how they are adapting their businesses to reflect this. While the transition to Net Zero presents many opportunities, it also isn’t without its challenges.

All of this means that for businesses in the energy sector, communicating about Net Zero is not as simple as just sharing good news and showing you are ‘green’. Different audiences all have different needs and priorities. They need to hear nuanced messages in different ways. Understanding these complexities and responding to them through simple communications is not easy.

Here we share our thoughts on how best to engage with these different audiences:

Customers

To date, the transition to Net Zero has been largely theoretical for most people. It has focused on how energy is generated rather than how it is used. Where it has been about usage – for example transport decarbonisation – change is still at a relatively early stage and it has had limited impact on people’s lives. This will inevitably change. Net Zero will become a lot more intrusive in people’s lives very quickly – the decarbonisation of heat is just one example of where business must take the lead in explaining to their customers what is happening, why it is happening, and how it will impact peoples’ lives.

Heat decarbonisation could see the mass installation of hydrogen boilers and/or electric heat pumps with old boilers and hobs eventually replaced with lower carbon alternatives. Consumers will be looking to their energy suppliers and other well-known brands – manufacturers and network operators – to guide them through this period of change and uncertainty. They will be looking to these businesses for clarity on what heat decarbonisation is likely to mean for them and their families, what they need to do, when, and how they will be supported.

Consumers risk losing trust in suppliers and others in the sector if they feel they’re not getting the advice they need. The challenge is that not all of these answers are known yet and there is disagreement within the sector about the best pathway to take. In the interim, businesses in the energy sectors have a role to play in explaining the different options and showing that they are actively championing the needs of consumers.

Policymakers

The key milestones and direction of travel on the transition to Net Zero will be set by government. While business has a critical chance through innovation to shape the approach of the UK to decarbonisation, it will ultimately have to align with the policy and regulatory framework.

Communication to policymakers needs to balance two dynamics: what businesses need – whether that be a supportive tax or regulatory framework – and what they can offer. The offer could be innovation that makes it easier for the UK to meet its Net Zero objectives, or it could be jobs. But critically it needs to go beyond narrow business interests and fit into the government’s political agenda: supporting ‘levelling up’ and promoting Global Britain, for example through exports.

Crucially your approach needs to be about talking to more than just BEIS. The shift of industrial strategy policy from BEIS to the Treasury enhances their existing interest in how innovation supports regional investment, and the policy frameworks required to achieve this. But other departments beyond the Treasury can also play a key role as champions for a supportive policy environment and will be keen to hear what you have to say, be that the Department for International Trade on exports or MHCLG on ‘levelling up’ and investing in communities.

 Communities

Net Zero has dovetailed with the government’s ‘levelling up’ agenda. There is a drive to root the transition to a low carbon economy in particular places. The focus on Teesside and the Humber reflects the Conservative Party’s electoral priorities as well as the contribution these areas can make to decarbonisation – in both cases decarbonising industry and as hubs for offshore wind development.

Businesses need to reflect this in their communication. But just suggesting that green innovation will lead to investment in these regions is not enough. It needs to be specific: what will this mean in practice for people living in these places? How many new or higher skilled jobs will be created? How will this investment support local young people – through training – to access high-skilled, long term jobs? How will it upskill existing employees or help them transition from jobs in high carbon sectors to new ‘green’ industries? How will this improve the local communities, high streets and living conditions of people there?  People like Ben Houchen, the Metro Mayor for Tees Valley, are important advocates to have in making this case, but ultimately you need to be persuading local people and not just their elected representatives.

Employees

The transition to Net Zero means significant opportunities, but it also means change for some parts of the energy sector. This is likely to lead to uncertainty for those working in these sectors, particularly in oil and gas. By explaining to their employees what the transition is likely to mean for them and how they plan to help them benefit from these opportunities, employers can show empathy and demonstrate they genuinely understand people’s concerns. This may require reskilling or a focus on training. Employers can tell a story to their staff about how the transition will bring value to them not just the planet or the UK economy more broadly. Importantly, employees aren’t just workers but they are also consumers, part of local communities, and possibly even shareholders in the businesses they work for. Your employees can be your greatest advocates.

 Shareholders and investors

The rise of the ESG agenda highlights that investors recognise the importance of Net Zero. However, the policy and regulatory developments to drive progress towards these targets will still likely to lead to questions for them. Much of the policy detail in certain areas of energy decarbonisation is still to be defined; in some areas there are still more questions than answers. Businesses in the energy sector are having to manage this ambiguity and are seeking to provide clarity to investors as to what the likely pathways to Net Zero are.

In heat decarbonisation for example, government has been careful to date to be seen not to pick technology winners. This could leave shareholders unclear of the implications and therefore at risk of making the wrong choices. It makes it even more important for businesses to paint a picture of the opportunities and risks, and to interpret what policymakers’ choices will mean for them. It’s a circular process: your conversations with investors provide insights to share with policymakers on how best to unlock private capital and investment through a well-designed policy framework.

Concluding thoughts

 

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What can we expect from the Transport Decarbonisation Plan?

The responsible Minister, Rachel Maclean MP, recently said the Plan will put transport on a path to delivering its contributions to carbon budgets and net zero by 2050. Expected to be published in the Spring, not only will it take a “holistic and cross-modal approach” to decarbonising the entire transport system, but it will also set out a “credible and ambitious” pathway to cut emissions.

Below we look at some of the main themes and challenges it will need to address.

Innovation and technology

As a core pillar of the UK’s Industrial Strategy, innovation is key to decarbonising transport. This is already happening; from large scale electric vehicle infrastructure funding and roll out, to the UK’s first Battery Industrialisation Centre as part of the Faraday Battery Challenge. As such, the Plan is likely to include continued funding and participation in these types of initiatives to ensure progress towards net zero is maintained. Covid-19 has meant many major investments in research, technology and development have stalled. This cannot persist if transport is to be decarbonised and so the Plan is set to offer incentives that will stimulate private investment.

Making the UK a hub for green transport technology and innovation is a strategic priority for the Department for Transport (DfT) and, arguably, the most important for full-scale decarbonisation. Covid-19 has seen the emergence of new forms of mobility solutions like e-scooters, for example, now in the process of being legalised on roads for the first time in the UK. However, questions remain over the extent to which they can fit seamlessly into an already well-established transport eco-system. For example, the evidence on the extent to which e-scooters are encouraging genuine modal shift is patchy, as is the argument they offer reduced emissions given their poor green manufacturing credentials, according to a recent study by North Carolina State University. These are exacerbated when e-scooters are vandalised or destroyed because of leaving them undocked on pavements.

Supporting the shift to electric

Other technologies like electric vehicles and their charging infrastructure are expected to feature heavily in the Plan. To date, roll out of this infrastructure has been patchy and either regionally or locally led, with the levels of success varying considerably. The Plan will need to set out much more strategically how increased roll out will happen, with strong leadership from the DfT to ensure there is sufficient provision ahead of expected demand.

Last year saw the ban on the sale of new petrol and diesel vehicles brought forward from 2040 to 2030, and potentially even sooner according to Grant Shapps. However, the timing of the ban is not as important as the context in which it has been set. Affordability of electric vehicles and availability of its infrastructure is still a major issue. Recent funding commitments have helped businesses with the cost of installing rapid EV charging points and given consumers the confidence they need to purchase one. For example, the Rapid Charging Fund and the recently announced additional £20m for on-street charging.

However, there is pressure on the government to go further and faster and so it is likely the Plan will set out more details on how the EV charging money announced to date is to be spent exactly. Similarly, the Plan might also include new subsidies to help make EVs more affordable. In any case, ensuring consumers have a genuine choice is paramount and will necessarily involve making EVs a practical alternative to internal combustion engine vehicles through ease of use and cost. The new DfT consultation on the consumer experience at public EV charge points and the recent CMA market study in to the EV charging sector is a good indicator of how much the government is prioritising this area.

Reducing emission through modal-shift

The Plan is also likely to include a focus on changing people’s travel habits, reducing their overall miles travelled in privately-owned vehicles, for example, which emit more emissions than public transport or micro-mobility solutions. We can therefore expect a doubling down on active travel ambitions through the creation of even more safe cycling and walking infrastructure.

Public transport

Active travel will not decarbonise transport on its own. Beyond this, there will still be ambitions for a modal-shift back towards public transport. This must be affordable, accessible, and reliable, which, often, is not the case outside of London. The Plan will need to bring forward policy and fiscal measures to restore public confidence in public transport, alongside actively promoting and incentivising more sustainable forms of transport.

For example, in rail, the continued use of diesel train fleets has meant the network is losing its edge as a green mode of transport. To decarbonise the rail network by 2040, diesel trains must be removed to make way for new, innovative, zero-emissions fuel/propulsion systems. Network Rail’s interim plans propose significant expansion of overhead electrification of the rail network from 38% today to 90% by 2050. But this is yet to be formally backed and adopted by Ministers and would come with significant cost attached. There is likely to be an important role for alternative technologies such as hydrogen and battery electric trains. However, with the industry currently in flux, undergoing structural changes in light of Covid-19 and in anticipation of the Williams Review, industry will be keen to see a clear plan that provides certainty and incentivises innovation.

Existing electrification programmes should be expedited, and more support given to the introduction of zero-emission technology such as hydrogen fuel cell trains and battery electric trains to stimulate the market for alternatives to diesel trains and make the UK a leading manufacturer, particularly now we have left the EU.

As the Minister says, the Plan will be holistic and cross-modal, meaning its scope will likely be vast. The Plan will lay down a marker and signal only the start of the transport decarbonisation process, not the end.

As such, though the window of opportunity to influence the Plan itself is fast running out, there will be several other opportunities to influence its implementation through additional consultations or working groups that are set up.

WA is in a unique position to help organisations make sense of the Plan and make their case to government for proposals that help accelerate transport decarbonisation. For further information or to arrange a call, please contact:

Marc Woolfson, Partner and Head of Public Affairs: MarcWoolfson@wacomms.co.uk.

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A promising start with more to follow: The Prime Minister’s Ten Point Plan and next steps for business

The Prime Minister’s Ten Point Plan on a ‘green industrial revolution’, published last week, can be read as a statement of intent to accelerate the move to a net zero economy, create green jobs, and spur on the levelling up agenda. It shows government’s thinking on the future of sectors which will play a key role, from energy to transport and housing. But how will this vision be implemented and what does it mean for businesses in these sectors? WA this week hosted a webinar with policymakers and industry experts to explore these questions. Caitlin Fordham shares our key takeaways on the plan and next steps:

It’s in the detail, and the detail is still to come

The Ten Point Plan has been widely welcomed as providing clear policy and regulatory signals to the sector. Having deadlines for roll out will spur innovation, but a more detailed policy framework is now required – and expected – to provide greater clarity on how this vision will be delivered.

From developing the first hydrogen town to bringing forward, by a decade, the ban on the sale of petrol and diesel cars, huge questions remain over how exactly these flagship commitments will be delivered.

Before the end of 2021, we expect a string of strategy papers and consultations – from the Energy White Paper and Net Zero Strategy to the Transport Decarbonisation Plan – which will go some way to answering these questions. However, not every question will be answered right away.

In responding to these, businesses can shape what comes next and the direction of travel that the UK’s policy framework takes. This means laying the groundwork now and thinking about what you’ll need to do at each stage to get the outcome you need. It is about making consultations work for you and using them as a platform to set out a wider narrative beyond engaging on technical specifics.

Who pays for it and where does the money come from?

Tackling climate change will require significant government investment at a time when the pandemic response has taken its toll on public finances. The IPPR has estimated the government will need to spend £33 billion a year to reach its net zero target, but this package amounts to just over a third of that figure at £12 billion. The plan represents the start of a battle between Number 10 and Treasury on how the green industrial revolution is funded.

While Number 10 wants to be bold on climate and environment, and sees this as a political priority, the Treasury is cautious about committing to significant public funding at a time when finances are stretched. The government is betting on regulatory and policy signals – such as bringing forward the 2030 ban on the sale of petrol and diesel cars – to open-up significant private sector financing in support of its ambitions. By providing some kickstarter funding in specific areas alongside setting targets and creating new market frameworks for heat networks, for example, the government will hope it can provide consumers, businesses and investors with confidence and spur innovation.

In the context of this week’s Spending Review, the Treasury will need to consider how much more public money can be pumped in to top up this plan and which regions and sectors should benefit. It will also need to consider ultimately where this public money comes from. Road pricing or an end to the fuel duty freeze are options to free up cash to spend on developing EV charging infrastructure. The Net Zero Review – expected next year – will analyse the range of choices for funding the transition and set out greater clarity on the balance between taxpayers and bill payers. Businesses should keep this front of mind and consider what is realistic to ask for and how your proposition can create value for government.

Return to the levelling up agenda

You cannot read this plan without having the government’s commitment to ‘levelling up’ at the front of your mind. The plan places at its heart regions and communities which the government has promised to level up, including the North East, Yorkshire and the Humber, Scotland, and Wales. By delivering for these communities the Prime Minister will hope his party can retain non-traditional seats won at the last election.

Place is critical for the government’s wider agenda and you can see that reflected in the plan. The plan roots policy promises in terms of outcomes for communities across the UK, from coastal towns to industrial heartlands.

This is evident through the focus on creating high-skilled, green jobs in areas like the Humber and Teeside. To get there, we will need to see a comprehensive strategy on skills and reskilling, which will likely form another ‘reset’ announcement. Government will need businesses’ buy-in as part of this. It will not just be enough for the energy sector to show how it is achieving net zero; it also needs to communicate how their plans support government on jobs and wealth creation in these areas.

What does this mean for business and what should you do about it?

• This is just the start and there is a long road ahead which will involve a flurry of activity and detailed policy processes. Plans are not yet set in stone but what we have seen are statements of intent which now need policy and regulatory frameworks to bring them to life. Now is the time to start developing your narrative and building relationships with key stakeholders. Policy does not write itself and there are a series of milestones before decisions are made. You will need to engage across these milestones, from informal meetings to formal consultation responses, to ensure outcomes support your objectives.

• You need to show government how you can solve problems. You need technical detail and data to support your arguments, but you also need to tell a positive story about your business and frame your asks as wins for government based on its various agendas, from levelling up to net zero. Look at offshore wind – one of the biggest winners in this plan. This is a direct result of the industry’s ability to showcase how they not only help decarbonisation but also support jobs and UK export.

• You should build alliances now that will support you in developing support across government. Net zero and decarbonisation do not simply sit in one department. For example, you may need final sign off from Number 10, funds from Treasury, and to brief officials in teams across different departments. You may also need to bring industry and consumer groups along with you. To be successful in this, you need to make sure you’re talking to the people that will be shaping decisions that impact you and start the groundwork now.

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The government’s roadmap to transport decarbonisation: What can industry expect?

Covid 19 has had a dramatic impact on how we have been able to travel in recent months. All forms of transport fell dramatically in the first lockdown and the ‘new normal’ is posing major challenges to the traditional model of public transport in particular.

However, the longer-term transport challenge for government remains decarbonisation. Significant questions remain unanswered, namely, how it will achieve full scale decarbonisation across every area of the transport network and by when.

The next few months are expected to see several set piece policy initiatives emerge from government, intended to answer these questions. We have looked at what industry can expect and the implications for engagement with government.

Transport Decarbonisation Strategy

When is it due?

Officials are hopeful this will be published by the end of this year but there is potential for it to slip to early 2021.

Issues and implications for transport

Billed as the Department for Transport’s roadmap for how to decarbonise the transport sector. It will look across all modes of transport and set out the government’s strategic priorities. Decarbonisation of rail and road, being the easiest to act upon, will be a major focus of the Strategy.

On Rail, much of the groundwork has been done by Network Rail’s recent Traction Decarbonisation Network Strategy (TDNS). This details that much of the rail network will need to be electrified, with new low carbon rolling stock being vital for some lines. The Strategy concludes that over 11,000 standard track kilometres of electrification will be needed, supplemented by a significant role for zero carbon traction, including hydrogen and battery technology.

This area is seen as in the ‘easier’ category by DfT officials and it is likely that the DfT Strategy will be closely aligned with Network Rail’s recommendations. However, there is likely to be more work to do scoping out how to implement these changes under the new Emergency Recovery Measure Agreements and whatever follows them.

In the more challenging category is driving the transition to electric vehicles. In response to the Committee for Climate Change’s call for the government to bring forward a ban on petrol and diesel vehicles to 2032, the government said it recognised “the need to go further than the existing regulatory regime” and is considering more stringent measures in the Transport Decarbonisation Strategy.

Specifically, the government is understood to be considering a new ‘zero-emission mandate’ scheme which will see manufacturers forced to sell their models even if demand is lower than other fuel types. Briefings to the media have implied that this would reduce the need for fiscal incentives to encourage such purchases. If that is the case, it would indicate the government is minded to reach for the stick rather than the carrot. However, this risks alienating parts of the industry that they will need to take along with them in order to meet such ambitious timelines, especially if they accelerate the target date to 2030.

The other part of the picture for electric vehicles is how to fast-track the deployment of a national charging infrastructure ahead of consumer demand. Again, government will need industry onside to supply the necessary infrastructure ahead of its inevitable demand. However, charging operators will also need a clear steer from government to provide an environment in which to invest.

National Infrastructure Strategy

When?

The Chancellor has said it will be published this autumn.

Issues and implications for transport

Major infrastructure projects can provide a significant boost for jobs and economic growth and this strategy will now therefore be viewed through the lens of recovery. It will also have a major focus on decarbonisation.

While the National Infrastructure Strategy will have a broader focus than just transport, it will be a good yardstick of how joined up the government’s approach is by how well it aligns with and facilitates what will be included in the DfT’s own Decarbonisation Strategy. Most likely it will simply echo what the various parts of government are doing but in order to make progress, more will be required. On rail decarbonisation for example, significant investment will be required. The big question is whether the National Infrastructure Strategy can be a vehicle to confirm this investment or not.

This question has only become sharper with the news that the Spending Review will now only cover one year. The caveat that multi-year settlements will be given to some ‘priority’ infrastructure projects will leave several sectors waiting to see if their programmes fall into that category.

Energy White Paper

When is it due?

Currently due to be published at the end of this month but further delay is likely.

Issues and implications for transport

The Energy White Paper may not appear too relevant to transport policy at first glance, but the scale of change required to electrify the rail network, provide national charging infrastructure for electric vehicles or introduce significant numbers of hydrogen trains or buses will require fundamental changes to our energy generation and distribution sectors.

The White Paper itself is likely to support a wide range of different technologies as opposed to prioritising one over another. This has implications for transport because, while the government may not want to close down its options, sectors that need to introduce major changes will need a steer that the government is actively backing them. The introduction of hydrogen trains on the scale envisaged by Network Rail for instance would require the introduction of a new hydrogen generation and distribution industry. This is only possible with clear government backing.

Again, the challenge is the extent to which the Treasury feels able to make significant commitments as this time of great economic uncertainty and how detailed the White Paper is in setting out next steps.

What this all means for the transport sector and what you should do about it

 

 

 

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What to expect and how to plan for the Energy White Paper

The last Energy White Paper was published over a decade ago.  It is long overdue a refresh, but what can we expect and how should business plan for the next steps that will follow?

The (truncated) background

There’s been a lot of industry chatter about the continued delay of the Energy White Paper.  Due to be published in summer 2019, it was first delayed so that officials in BEIS could recalibrate the plan to net zero legislation.  Understandable.

Then there was the small matter of the general election; and without warning Covid struck.  Every time officials and ministers thought they had a few quiet weeks to dot the ‘Is’ and cross the ‘Ts’ something has happened to knock them off course.

Knowing that a White Paper like this can only be delayed for so long, Alok Sharma told the BEIS Select Committee in July that he ‘very much’ hoped it would be published with the Heat Strategy and the Building Strategy alongside the Autumn Budget.

Coordination of big-ticket policy announcement – made sense. Waiting until autumn – that was ok.

Two months later and the Chancellor cancelled the Autumn Budget.

What we do know

We don’t know exactly when the Energy White Paper will be published. The Government’s public line on ‘autumn’ has been repeated since the Budget was cancelled, but publication could easily drift into the first quarter of next year.

Timing aside, we know that the White Paper’s central aim is to put the UK on the path towards the decarbonisation of the entire energy system. Its scope is huge.

Importantly, unlike previous Energy White Papers which have been largely left to ministerial and civil service teams, pored over by policy professionals, and written about by energy journalists, this edition is being teed up to support a broader political agenda – namely economic recovery.

The Government wants to be seen, through this White Paper, to support green infrastructure, green jobs and green consumerism.  Balanced against this is the need to keep consumer costs down – households for electoral reasons, and commercials for global competitiveness reasons.

In an attempt to make this balance, the Energy White Paper won’t be bursting with huge sums of money.  Instead it will seek to catalyse investment into generation, smart grids, battery technology, carbon capture and storage in addition to supporting the decarbonisation of transport and heat.  It will also seek to support new and embryonic markets for innovative products and services whether that is hydrogen fuel or renewable heat.

Part of this will be funding allocations, but arguably more important will be the adjustments made to criteria for accessing financial mechanisms, changes to codes covering electricity and gas, the evolution of Ofgem as a regulator, and modifications to the regulatory regime itself.

Generators, suppliers, network operators, system operators, manufacturers, aggregators, brokers and investors – all will be impacted to varying degrees by the Energy White Paper.  Beyond them there will be consequences for all modes of transport.

How you should plan

Here are four points to bear in mind when preparing for the Energy White Paper’s publication:

To book a discussion with our dedicated energy team, please email naomiharris@wacomms.co.uk

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Energising our way to a recovery: How have priorities in the energy sector been impacted by COVID-19?

In recent weeks, the outlook has changed for every sector of the UK economy and energy is no exception. WA takes a look at how government and Ofgem have responded to the COVID-19 crisis, whether their priorities have changed and the emerging opportunities for businesses in the energy sector.

Where are we now?

April should have been the month that the government sold us their vision for the energy sector, yet they have been forced to postpone the release of their White Paper to focus efforts on ensuring consumers are protected during the ongoing pandemic. Similarly, Ofgem should have been actioning its work programme, but they are now working with companies to keep essential services running.

The challenges faced by the government and regulators are profound, but that does not mean that pre-COVID-19 pledges will simply fall by the wayside. Instead, they are even more important to securing the UK’s economic recovery. At some point in the near future, the government’s focus will shift towards rebuilding lost momentum. Companies should prepare to take the opportunity to shape the energy sector’s future policy environment.

COVID-19 shouldn’t be an excuse for failure by energy companies, says regulator

During a recent Utility Week webinar, Ofgem Chief Executive Jonathan Brearley stated that COVID-19 should not be used by energy companies as an excuse for failure. In particular, Brearley noted the energy sector was too timid in how it supported consumers during the financial crash in 2008, and now is not the time to repeat similar failings. The regulator is going full steam ahead with its plans to decarbonise the economy and will be delivering the new RIIO-ED2 framework as planned, though this will be reassessed if the outlook worsens. Overall, Ofgem is being pragmatic and trusting companies to do the right thing by their customers, and it’s clear they see the road to net-zero as a fundamental step towards securing the UK’s economic recovery.

In the weeks ahead, Ofgem will be reviewing its work programme in light of COVID-19. This is an opportunity for the sector to re-engage with the regulator and demonstrate what support is needed to help businesses impacted by the virus and fulfil the regulator’s plans.

Fresh ideas and a new Chair for the BEIS Committee

Keir Starmer’s appointment of Rachel Reeves as the new Shadow Chancellor of the Duty of Lancaster means the chairmanship of the BEIS Committee is vacant.

As Labour MPs compete for the role, the Committee is inviting comments on issues it should investigate over the course of this Parliament. At such an important time in our country’s history, the Committee will be looking at suggestions beyond the response to COVID-19, which will be covered by a myriad of inquiries. Instead, they will be looking to the sector to offer insights into business areas the UK needs to strengthen if it is to thrive in the new digital, carbon-neutral age.

Energy White Paper will return

We understand that the Energy White Paper, which has already been delayed on several occasions, will be delayed further as a result of the ongoing response to COVID-19.

While this is frustrating, as it will provide crucial insight into the government’s policy direction on the retail market and reaching net-zero, this presents an opportunity to influence and feed into a document which is further away from completion than widely thought. With much of the country confined to their homes, now more than ever the government will be looking to industry for answers. For example, the government’s manifesto included commitments to introduce new measures to lower bills and invest in clean energy solutions to reduce carbon emissions. While detail around these measures is light, the delay to the White Paper is a good opportunity for the industry to shape what activity in these areas should look like. This will be even more important as the government considers the role of the energy sector in the UK’s economic recovery.

So, what does this all mean for the energy sector?

We have a government with a fresh mandate and a new Chief Executive at Ofgem, both of whom will want to make a bold start to their tenures which will go a long way to securing their legacy.

As the country shifts towards its plans for economic recovery in the weeks ahead, the energy industry has an opportunity it never expected – to help the government and regulator overcome the COVID-19 crisis and help achieve their shared goal, which remains unchanged: to achieve net-zero by 2050.

Those companies able to start that forward-looking process, to demonstrate how they can protect consumers and offer solutions to support decarbonisation efforts, stand to benefit a great deal from their ability to shape the policy environment in the months and years ahead.

WA is supporting organisations across a range of sectors in their response to COVID-19 – whether it is engaging with government and regulators or helping to manage their reputation at this critical time. Please get in touch if you would like to learn more about how our experienced consultancy team can help your business.

 

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As Ofgem turns up the heat, what will reforms mean for the energy sector?

Parliament may be paralysed, but in the world of regulation, change is afoot. In a bid to catch up with the way the energy market is evolving, Ofgem has announced a raft of new proposals to better protect consumers from the possibility of their supplier going into administration. New plans under consultation until December 2019 would require small energy supplier to meet more stringent requirements to take on new customers, enhance financial disclosure rules and strengthen the safety net for customers in the event of a supplier’s failure.

Under these new reforms, energy suppliers would have to prove they have the right resources for customer growth when they reach thresholds of 50,000, 150,000, 250,000 and 500,000 to 800,000 customers. Ofgem is also planning to tighten its “fit and proper” requirements, with more scrutiny on the fitness of senior management staff, and bringing in a new openness and cooperation principle.

The new proposals, published at the beginning of the week are in response to over a dozen energy providers going into administration since January 2018 – Toto being the latest to cease trading on Wednesday – and the bill that has been picked up by customers as a result of these collapses.

If the proposals are accepted, it would bring existing energy suppliers into line with new market entrants who have been under additional scrutiny since similar proposals were introduced in June 2019. The final decision on whether to take the proposals forward will be taken in early 2020, but implementation is unlikely to take place before 2021.

Ofgem have long been caught in a dilemma between protecting consumers from market failures and encouraging competition in the energy sector. These proposals are an attempt to find a balance, but as always, the devil is in the detail, and there are some differences of opinion within industry about what this detail should be.  Unsurprisingly, while energy retailers have overwhelmingly supported the ambition of Ofgem, there are different ideas on how financial and operational resilience should be measured.  Where the dial comes to rest will undoubtedly affect what the sector looks like in terms of the number and scale of market participants, and the industry’s overall stability.

Earlier this month, Ofgem warned that Delta Gas and Power, Gnergy, Robin Hood Energy and Toto Energy would be unlikely to meet their Renewables Obligation late payment deadline. Toto ceased trading shortly after and as the example of Solarplicity, which collapsed in August shortly after it was banned from taking on new customers earlier in the year, helps illustrate, Ofgem has already shown that it is not afraid to step into the market where it thinks necessary to do so.

These proposals will give the regulator more scope and power to intervene and could therefore have serious consequences for the industry.

For more information  on what impact these proposals could have on the domestic energy market and advice on how you can engage and prepare, please contact our investor services and specialist energy team.

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The electric vehicle infrastructure problem

As set out in the Road to Zero Strategy, the government plans to end the sale of petrol and diesel vehicles by 2040, and for all vehicles to be zero-emission by 2050. This is a significant commitment to electric vehicles and is part of the government’s wider Clean Growth Strategy.

The government anticipates that most drivers will charge their electric cars at home or at their place of work. But these options are not available to everyone; many people do not have access to off-street parking, nor does every workplace have the capacity to provide electric vehicle charging. These problems are particularly pronounced in urban areas, which suffer the most from low levels of air quality.

The government believes that if electric vehicles are to become truly mainstream, there will have to be provision for on-street vehicle charging. Delivery of this infrastructure has been left to local authorities and the private sector (with some funding available from central government), but many local authorities do not have the money or the expertise to build it and have struggled to coordinate with network companies. This has meant the electric vehicle charging network lacks size and geographic coverage.

A further issue is that increased use of electric vehicles will increase the pressure on the UK’s energy network. The National Grid is confident that new capacity, and reinforcement of the existing grid, can be brought online in time to meet any increase in demand. However, this will require significant investment in new electricity generation capacity and in ‘smart charging’ technology. The latter is particularly necessary to ease the burden on distribution networks that could be subject to local overload.

The development of infrastructure can also be encouraged from the demand side; increased demand for electric vehicles should be a catalyst for greater provision of charging infrastructure. More electric vehicles on the road provides a greater incentive for firms and local government to work together to install electric vehicle charging points. However, the government has recently decided to reduce the subsidy for electric vehicles, and tax incentives relating to the use of electric vehicles remain limited. The government believes that the price of electric vehicles will fall as battery technology improves, but a lack of demand side support is likely to constrict growth of electric vehicle ownership and charging infrastructure.

Money, knowledge and planning are issues that affect all government infrastructure projects, particularly ones that involve a significant amount of coordination between different levels of government and the private sector. However, there is a more fundamental problem that has received little attention: how to make long-term infrastructure decisions when faced with technological uncertainty? Current government policy is to end the sale of petrol and diesel cars by 2040, but this is over 20 years away. In 20, or even 10 years’ time, how we use cars and roads might have completely changed. The danger for the government is that it might be doing the equivalent of investing in CD players, with digital streaming just around the corner.

The government recently announced that it wants to have self-driving cars on UK roads by 2021. While this is an ambitious target, it signals a technological revolution that could completely alter the way we use vehicles, and therefore the infrastructure those vehicles need. Should vehicles become truly autonomous, there may be no need for individuals to even own their own car. Driverless cars could be used like taxis and charged in out-of-town charging centres when not in use. Privately owned autonomous cars could drive to charging stations when not being used, negating the need for on-street charging.

This presents a puzzle for government: should it invest billions of pounds in a charging network that may only have a useful lifespan of a decade? While this may seem like an unattractive option, the alternative may not be very palatable either. If the government adopts a ‘wait and see’ approach and does not fully commit to on-street charging in the short-medium term, there is a danger that the take-up of electric vehicles will stall. This will directly affect the UK’s ability to achieve reductions in greenhouse gas emissions and could slow the growth of an important emerging industry in the UK.

The government is in an unenviable position. It will need to invest in on-street charging technology to keep to its promises on climate change, and to stick to its Industrial Strategy aims. But, thanks to rapid technological change, it may only be able to reap limited rewards from this investment. This dilemma tells us something about the role the state can play during periods of technological uncertainty. If private actors are unwilling to invest in a new technology due to concerns over its long-term profitability, investment from the state may be necessary to bridge the gap and allow greater gains to be realised in the future. This investment may only provide short-term or limited benefits directly, but it could lay a foundation on which private sector investment can then build. On-street charging infrastructure may not be a permanent fixture on our streets, but it may be required if the electric vehicle industry is to succeed in the UK.

Rather than assessing government investment in new technological infrastructure on a case-by-case basis, we should be content with a broader view. It is almost impossible to accurately predict the path of technological development, and under such conditions there will always be wins and losses from government investment. Rather than being distracted by the noise surrounding each individual decision, we should focus on whether government investment supports innovation and growth throughout the economy.

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Turning up the heat on climate change policy

There’s a new kid on the block in UK politics. Climate change and the demand for radical, green policies has burst onto the political stage and into our discourse in recent weeks. This has been driven by the Extinction Rebellion protests which took over London in a huge display of civil disobedience, capturing the eye of the media and dominating the debate as MPs returned from recess.

Research by Greenpeace found that two-thirds of people in the UK recognise there is a climate emergency, and 76 per cent say they would cast their vote differently to protect the planet. Once Brexit has been dealt with (or kicked sufficiently into the long grass), and as parties begin posturing for a general election, will climate change feature as a primary focus of the Conservative Party’s agenda?

Labour have already staked their ground. Keen to talk about anything but Brexit and focus on bashing the Tories on austerity, Labour have linked their green policies to their narrative of protecting workers and ensuring fair outcomes. Labour’s headline economic policies – such as nationalisation – are also underpinned by a criticism that companies are not doing enough to protect the environment.

Tackling climate change with a radical shift towards a clean, green economy fits perfectly into Labour’s narrative, but it is less of a natural fit with the Conservative’s.

Yes, the government’s Road to Zero, Clean Growth and Industrial Strategies outline an ambition and roadmap to follow, signposted by big policies such as banning petrol and diesel cars, and marked by achievements such as the UK running without coal for a week for the first time since the Industrial Revolution. But despite this, they are constantly criticised for not doing enough. The Committee on Climate Change, the government’s official climate adviser, found that current policies are not sufficient to meet existing targets – never mind their new recommendation of net-zero emissions by 2050. 16-year old climate activist and de-facto leader of the new climate movement, Greta Thunberg, also accused the government of “creative carbon accounting” by excluding certain emissions in headline figures.

The Conservatives have never been the party of the environment but, in their time in government, they have certainly now shored up some green credentials – or at least they have a policy record to talk about on the campaign trail. The swell of public attention to climate change, the fragility of the Conservative government, and Labour’s strong, radical alternative, might force a change of tack from the Conservatives.

Ideologically, the Conservatives are simply not willing to intervene in the market with a heavy hand, something climate change activists are calling out for. However, as there has been a growing recognition that markets are not working for consumers, regulation has increasingly become a feature of Theresa May’s government – particularly around consumer protection. Will the next focus of regulation be on markets not working for the environment?

With May’s leadership on a knife edge, the next leader will decide how the party handles the climate question. Reusable coffee cup in hand, Environment Secretary Michael Gove has overhauled his image with a stream of initiatives coming out of the Department for Environment, Food and Rural Affairs. Despite criticism that these policies were tokenistic, Gove has proved his political ability in navigating the Brexit-dominated arena and the Treasury’s austerity spending constraints to push relatively substantive policies out of his department. If Gove, currently standing at 8/1, becomes the next leader he will no-doubt capitalise on this with the environment featuring as a main item of his platform. It is also likely Gove could throw his weight behind another leadership candidate and become an eco-warrior Chancellor – if he doesn’t get distracted.

As for the other candidates (bearing in mind most Conservative MPs have thrown their hat into the ring already) this is less clear. Liz Truss, zealous advocate of the free market, would be unlikely to suggest massive state intervention on behalf of the environment but other, more moderate, Conservatives may rethink intervention and regulation’s role in managing climate change. More broadly, newly promoted Rory Stewart is a proponent of considering climate change in development aid funding – an interest also held by grassroots favourite Boris Johnson. As the leadership contest gains pace, we’re sure to find out more.

With climate change now integral to our political discourse and championed by opposition parties, the Conservative Party will be forced to respond out of political necessity. However, they will certainly face a challenge in balancing a green vision with the pro-market beliefs which underpin their ideology.

But what does this mean for business? While this debate hots up, businesses must demonstrate how they are already facilitating the shift to a carbon-free future and acting in the common interest. In many ways this is already happening, but, as public and political pressure ramps up, businesses are certain to be in the spotlight.

Businesses should capitalise on this new-found momentum to put pressure on government to acknowledge the challenges they face. Those with climate friendly policies and breakthrough technologies must clearly set out their role in enabling both parties’ future vision. Climate change is firmly on the agenda, businesses must adapt or face interventions of varying proportions from across the political spectrum.

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