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Posts Tagged ‘Energy’

Tackling the £28bn question

It’s been the political headache facing Labour for nearly a year – questions over exactly how their Green Prosperity Plan will be funded and delivered. The multiple climbdowns and the significant deliberate ambiguity were not enough to fend off their critics, who identified – rightly or wrongly – an area of vulnerability for the party.

The electoral and political implications are dominating the media, but what exactly does this now mean for the energy industry?

  1. For industry, the ambition and targets are more important than the funding

While the media has been focused on the level and sequencing of government funding for the Green Prosperity Plan, for industry this is arguably the less critical issue. Generators and others in the sector want policy certainty and ambition in order to be able to make the case to their boards and investors to deploy capital in the UK.

The 2030 target – even if it is recognised as being virtually impossible to deliver – provides this. While backsliding over the £28bn figure could be perceived as a signal that Labour is wavering on green investment, it’s the 2030 target that really matters. Recommitting to this yesterday was key. The question now is whether Labour is willing to take the bold steps required to deliver it…

  1. As political and media attention shifts to how 2030 power decarbonisation can be achieved, there’s risks and opportunities for the sector

However, the reality is that the political and media focus will simply – and we’re already starting to see this – shift to scrutiny of how this target will be delivered, with critics arguing that Labour now have a hugely ambitious target in place with no investment behind it to enable delivery. The political argument that the government and others will prosecute will be that either Labour are selling a vision to the electorate that they know cannot be delivered and so aren’t prepared for office, or that there will inevitably be ‘secret tax rises’ coming to fund this.

Further backsliding from Labour on the 2030 target should not be expected, but the risk of disagreements opening up within the party over it is unhelpful for industry particularly if enhanced media focus ends up driving up public scepticism over the right route to net zero.

The opportunity for industry now is to highlight even more clearly how it will be private capital that will do the heavy lifting to decarbonise the economy. As Labour – and the media – look even more closely at how power decarbonisation is achievable, now is the moment – in a highly political year – for industry to be explicitly showcasing the projects that will practically get the UK to net zero.

  1. Strengthening the argument for bold supply side reforms?

To achieve private sector delivery at pace, the case for non-financial supply side reforms that enable projects to move from plans to reality in order to achieve 2030 power decarbonisation becomes even stronger. Grid connections and planning reform; swifter, longer-term and more consistent policy decisions; the right fiscal environment to encourage investment are all being pushed.

Ed Miliband has spoken ambitiously about a ‘Covid taskforce’ approach to government, hitting the ground running from day one to deliver the Clean Energy Mission. Industry is getting the right noises from government with a recognition that it gets the scale of the challenge, but if there is any chance of coming even close to the target, these things are now non-negotiable. Labour has already notionally committed to acting on these things, but the industry’s ability to press for these changes at pace and ensure full accountability for delivery has arguably been strengthened significantly this week with funding now reduced.

  1. There are inevitably still plenty of gaps

While the ‘plan’ published yesterday provides a little more detail in some areas – particularly on the Local Power Plan – there are inevitably still large gaps and areas where industry is still lacking detail.

There are also still questions over exactly how key parts of Labour’s net zero vision – including carbon capture – will be funded.

This gives industry the chance to continue to shape the right pathway for delivery. Labour wants solutions – ideally with no or little costs attached – that will help the delivery of its Clean Energy Mission. This is the moment for industry to share thinking on how specific elements of the plan can be implemented, aligning business priorities with Labour’s language, structures and funding envelopes.

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Resetting net zero: the implications for business?

One of the key questions on the minds of business representatives attending Conservative Party Conference in Manchester this week will be just what the implications of the Prime Minister’s reset on net zero are. Industry will be looking for reassurance from ministers over the coming days that the broad net zero agenda remains in place and for confidence on other policy measures.

Last week, WA hosted a webinar with Nathalie Thomas, former Energy Correspondent and writer of the FT’S LEX column and Sam Hall, Director of the Conservative Environment Network to explore whether the political consensus on net zero is broken, and if it is, what that means for business.

These are our key takeaways:

1. There may have been limited substantial policy changes, but it has still caused uncertainty

The Prime Minister’s speech gathered significant interest, but on the substance, it arguably moved the dial less. While the phase-out date for petrol and diesel vehicles has shifted back five years, the ZEV mandate proposals announced by the government in recent days showed there will still be a very significant increase in EVs as a proportion of the market by 2030.

There are large swathes of the net zero agenda – particularly on industrial and power decarbonisation – that have not been impacted by these specific proposals. However, Sunak’s speech still caused concern and disruption to many of these businesses. For businesses and investors the sense that long-term policy frameworks could change so suddenly, has cast doubt over the certainty and stability of other policy areas.

2. It’s all about the politics

As we enter a critical general election campaign businesses need to recognise that politics is ruling the day. Ideas may stand up on pure policy and technical terms, but if they don’t fit into the government’s political agenda they’re unlikely to be taken seriously, and policy already in train that doesn’t meet this test could be under threat.

This means it is essential for business to fully understand the different factions and priorities within government, and knowing who’s influencing No10 and key departments. Messaging and policy asks from businesses need to be aligned with these political trends to succeed.

3. But how effective was the political trap the government tried to set for Labour?

The motivating factor within government was to force Labour into having to defend policies presented by government as expensive and disruptive to consumers. No10 wanted to create a ‘wedge’ between the parties. The Labour Party appear to have avoided this with a pragmatic commitment to reinstate the 2030 ICE phase-out date and by suggesting they will review the approach to domestic heating if they enter government.

The Conservative Party’s position in the polls has stabilised, and in some cases improved since the speech, but it is still to be seen whether it changes the fundamentals ahead of the general election. Currently, that doesn’t appear to be the case.

4. Businesses can do more to communicate the benefits of the green transition

Businesses are understandably frustrated at the policy instability. However, it also places the spotlight on the responsibility that businesses have to make the case for net zero and the green transition. The Prime Minister’s renewed focus on consumer affordability makes it even more critical for businesses to show that the agenda – and specific policies that will fit within it – will reduce costs for consumers and offer the best value for taxpayers and consumers.

Equally, the promise of ‘green jobs’ is made regularly, but there’s a renewed opportunity in the run-up to the next general election for businesses to be more specific and tangible about this – where are these jobs, what will they look like, how can they show they are ‘real’ and not just numbers from a spreadsheet?

This will make it much harder for policymakers to row back on the wider agenda in future, with clearer acceptance of the benefits and value, with net zero not just perceived as a cost.

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UK’s largest power generator, RWE, appoints WA Communications to lead integrated strategic comms brief

Energy giant RWE, which produces around 15% of the country’s electricity, has appointed WA Communications to lead a two-year-long integrated communications programme, following a competitive pitch process.

WA – ranked as one of the UK’s Top 3 Public Affairs agencies in this year’s PR Week’s Top 150 table – will be supporting RWE as they look to work closely with the Government to deliver on its energy independence, affordability and Net Zero ambitions.

With a diverse operational portfolio of renewables and gas, RWE is at the forefront of delivering the UK’s Net Zero transition – and leading the way in cutting edge energy technology such as Carbon Capture and Hydrogen.

The wide-ranging brief will cover both political engagement and corporate communications, building on WA’s experience in integrated strategic communications, and leverages the firm’s deep energy expertise – with RWE joining its extensive roster of existing clients across the sector, including energy storage company Eaton, and clean-tech innovator Enertechnos.

Commenting, Dominic Church, WA’s Managing Director said:

“Energy is in the political and media spotlight like never before, and the Government needs to show it is acting to address well-publicised energy security and affordability concerns of voters – while at the same time maintaining progress against Net Zero targets.

“This puts an enormous onus on the energy industry to be providing solutions now to the current Government, while Labour is increasingly eager for industry input to flesh out their ambitious green energy plans ahead of the upcoming election.

“RWE sits right at the heart of this challenge, and we’re hugely excited to have been brought on board to deliver an integrated programme of work, as they look to navigate the turbulent months to come for the industry.”

Alice Barrs, RWE’s Head of UK Policy and Public Affairs said:

“We knew from the outset that we needed an agency that would take an integrated approach to the challenges RWE were facing as the UK looks to transition to Net Zero, and ahead of a General Election most likely next year.

“With its deep roots into Labour, and the team’s energy sector expertise – across both public affairs and comms – we knew that WA would be a great fit for this programme of work.”

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Labouring to the point

Even though the energy crisis has taken a back seat in the news cycle, the impact it has had on consumers, their behaviour, and overall public awareness of where their energy comes from, is stark.

However many industry commentators believe that, to date, very little has been done by the Government to prevent such a crisis from happening again.

With several complex, but complementary, policy issues remaining high on voters’ agendas, the Labour Party has been tentatively navigating complex waters as it sets out its stall ahead of the next General Election, looking to capitalise on perceived current inaction.

Climate change, energy costs, and energy independence is a challenging trifecta to find a solution to at the best of times, let alone when the overriding priority is to project economic competence and fiscal trustworthiness.

An additional twist in the tale for Keir Starmer has been the dramatic way in which Scotland has electorally come into play, which 12 months ago he could only have dreamt of. Labour is now facing the very real prospect of tangible, double-digit Parliamentary gains north of the border, which could make the difference between a clear majority, or a hung Parliament.

Balancing each of these considerations has seen a number of previously solid commitments become softened, watered down, or changed altogether.

Two headline pledges, no new oil and gas licenses, and investing £28bn a year in green infrastructure, have been the main casualties.

The latter has been slightly amended so that instead of the full annual investment starting immediately, it’ll be built up to in the first half of a Labour Government. This has generally been interpreted as a pragmatic move, as deciding what to invest that level of money, finalising deals, and then spending it within 12 months was perhaps always an unrealistic timeline.

The former has been somewhat more eventful. Rifts have opened within the Labour front bench; and the unions, most notably the GMB, have started flexing their muscles. In addition, Anas Sarwar’s political capital has grown exponentially, making him an even more influential figure in the Party machine.

The result? A fudge. Labour will now honour any licences issued before the election, their position on CCS has suddenly become very positive, and the previous ban on new licences has now been limited to only blocking new exploration licenses, a minor but crucial difference, specifically aimed at keeping Scotland in play.

Beyond it being a fantastic case study for observers as to how the levers of power within the Labour Party work, it’s also a strong indication as to how seriously Keir Starmer is taking the Party’s policy development, not letting anything jeopardise any chance he may have of becoming the next Prime Minister.

‘Next Left’ – WA’s recently published Guide to Engaging with the Labour Party – explores the people, processes and politics shaping the development of Labour’s next election manifesto, and how businesses can engage with the party’s plans.

We will shortly be releasing a deep-dive specifically exploring the Labour Party’s emerging energy sector policies. To receive a copy, please email angushill@wacoms.co.uk.

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Powering up?

Yesterday’s Powering Up Britain announcement had been trailed as a gamechanger for the country’s energy transition: the UK’s response to IRA in the battle for green investment. But to what extent does it shift the dial on the government’s priorities and give confidence to investors? WA’s energy team reflects on what it means and looks ahead to what’s coming next.

1. Yesterday’s announcements mark an important albeit incremental drive to ‘power up Britain’

Much of the commentary following yesterday’s package has focused on the relatively limited nature of the announcements: there was very little in the way of new funding announced, many policies from existing strategies and publications repurposed, significant reforms that are urgently needed – for example on planning reform for onshore wind – pushed into the future, and the number of specific projects backed on the low scale of expectations.

All this is true, but the fact that ‘Powering up Britain’ was neither radical or fast enough to meet key national ambitions, doesn’t mean it’s not welcome or important. Industry repeatedly calls for a renewed focus on ‘delivery’, with key targets and objectives already agreed. Yesterday’s announcement represents movement on ‘delivery’ – the hard policy grind that is necessary to move progress to targets forward.

Upcoming announcements on grid connections and onshore wind will also be critical to increase the pace of renewables deployment.

2. Picking winners (and losers)

Governments – particularly this one – dislike being seen to be ‘picking winners’ and choosing which businesses thrive. However, it’s a core theme of yesterday’s package, particularly picking the early leaders within technologies. Yesterday showed that government is committed to backing a broad range of technologies – as the Energy Minister Andrew Bowie reiterated at a dinner hosted by WA earlier this week. However, not every project within those technology types will progress – there will be winners and losers.

Across different sectors – from new nuclear to CCUS and hydrogen – government is using competitions between projects and firms to identify which they will back. This isn’t new – in effect this has happened with the CfD regime within renewables for some time – but it’s now been embedded across the sector. This very starkly exposes that within the UK energy market, project developers and investors are dependent on government permission and support to progress. There are clear commercial consequences – the impact on the share price of both the winners and losers of CCUS and hydrogen competitions yesterday neatly demonstrates this.

One critical consequence of this is that it makes it even more essential for those wishing to progress projects to make a strong case for their individual investment and to be able to differentiate it from competitors. As well as having a strong technical case, this means telling a story. How will this specific project or technology tangibly improve the local community by delivering economic growth jobs and a strong supply chain? How will it meet the government’s ambition for low cost, homegrown power more effectively than other solutions? Do you have influential champions for your project? It’s no coincidence that Teesside was a big winner on CCUS and hydrogen yesterday, with a Mayor in Ben Houchen who has made this a priority. In an election year, showing the political ‘win’ as well as technical competence is critical.

3. Home decarbonisation is the piece of the puzzle policymakers still struggle to solve

The one part of the decarbonisation challenge that arguably lost out yesterday was home decarbonisation and domestic heat. It’s a problem that successive policymakers have struggled to grapple with, but the measures announced yesterday will not yet do enough to fundamentally address the scale of the problem.

Take the government’s announcement on the establishment of a Great British Insulation Scheme. The 300,000 homes this will focus on are just a drop in the ocean of the number that need to be improved. Unlikely power decarbonisation, addressing this is much more piecemeal and requires significant consumer engagement and behavioural change.

The second big challenge is the choice of technology to heat those homes. This is one area where the government is – perhaps understandably – less keen to pick winners, worried about the political consequences of mandating higher cost solutions that will require significant disruption to consumers.

However, yesterday’s announcement conceivably gave the biggest steer yet that the government is leaning towards electrification over hydrogen as the primary solution for homes (albeit ultimately there will need to be a mix of technologies) with an extension to the Boiler Upgrade Scheme and a vision that in the future, “people’s homes will be heated by British electricity, not imported gas”.

4. Bigger things to come?

This package of announcements is important, but not enough. It is a critical step in providing clarity on the competitions, policy frameworks and future schemes required to encourage external investment but it won’t be a gamechanger.

Industry will be looking ahead to see what’s beyond this that might fundamentally shift the dial, and there’s two things to consider:

Greater financial firepower at the Autumn Statement?

The Chancellor has promised that the government’s full response to IRA will come in the Autumn, arguing that it will be ‘different – and better’. Those looking for a game changing moment – matching the simplicity the IRA mechanism – have the next six months to make the case for what this looks like.

While we’re currently in a fiscally constrained environment, the government has signalled that it will turn the spending and tax cutting taps on ahead of the next election. The argument needs to be made – partly through Lord Harrington’s review into foreign investment – as to how deploying it to support the green transition will give the government the greatest political impact. However, the delay in getting this full response to IRA and the Chancellor’s insistence that the UK isn’t about to enter a subsidy race, should constrain confidence amongst the industry.

A future Labour government?

In stark contrast to the incrementalism of this government, is the radicalism of Labour’s plans on energy. In his speech earlier this week, Ed Miliband highlighted the differing approach a Labour government would take – more ambitious targets, greater public spending (£28bn in borrowing per year and a new national wealth fund),and a much more muscular and interventionist role for the state (including a public sector energy company, Great British Energy). The ambition and pace can’t be doubted, but there remain questions over the deliverability and the solidity of this level of public spending in a challenging financial context.

WA’s upcoming report into Labour’s energy plans will delve much deeper into this, looking at the outstanding questions that remain.

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What does a government restructure mean for the energy sector?

You’d be forgiven for having a sense of déjà vu with the announcement of a new separate Energy department, with a return to the structure of the Brown and Coalition governments. With Rishi Sunak committing to this change in his summer leadership campaigns, and recent reports from Chris Skidmore and Andrea Leadsom both recommending this, it felt inevitable. It is however unusual to make such a radical change so close to the next election.

So what does this mean for the energy industry, currently seeking to deliver a transformational shift to a low carbon economy?

Major machinery of government changes take time, effort and focus, particularly from senior officials. Establishing a new department creates short-term uncertainty amongst officials and risks urgent policy priorities being deprioritised.

The retention of the current political team – Shapps, Stuart and their advisers – maintains policy leadership and largely ensures a continuation in approach.

One school of thought is that a singular focus from the new department on energy will deliver better results, without the distraction of other business issues and with the whole department aiming in the same direction.

This may well be true, but a new department – even with a competent and respected Secretary of State – is on its own not going to move the dial on key sector agendas, such as planning reform and changes to the grid to speed up offshore wind deployment or establishing a hydrogen market in the UK. Achieving these requires a more radical and ambitious approach to policy delivery, which ultimately needs the support of the political centre, namely No10 and the Treasury.

As the next General Election gets closer, there’s a clear risk for the sector that the singular narrative focus from government on the Prime Minister’s ‘five key priorities’ pushes aside the detailed policy action required for the UK to stand any chance of achieving its 2035 power decarbonisation target. The industry’s priority has to be to frame its case in terms of helping achieve these goals, specifically on driving economic growth and halving inflation.

Government messaging on energy has been shifting to focus on energy security for the last year, with an even greater focus post the Johnson government. The unveiling of the new department does highlight this shift in government focus very starkly: energy security is specifically mentioned in the name, and prioritised over Net Zero; and the absence of any reference to low carbon power or green growth in the government’s overview of the department, focusing purely on security and affordability.

The industry has made a strong case that low carbon power and energy independence are two sides of the same coin, and there needs to be no choice between them. However, there will be a need to double down on this case, and to shift messaging to emphasise the benefits to security of supply when seeking government support.

Climate advocates within the Conservative Party have long sought to frame the case for action on Net Zero through the lens of green growth and jobs. The location of major projects, be that the renewables sector, hydrogen projects or new nuclear sites are in traditionally economically left behind areas of the country. The Net Zero transition is one of the clearest routes to delivering levelling up.

The combination of energy and business policy within one department made it easier to make this case, and for the government to recognise it. That now may become harder. Tying energy to jobs, skills and growth (particularly in the right, electorally important areas) is still the clearest route to securing government backing, particularly from the Treasury. It will be incumbent on industry to make this compelling argument even more effectively, bringing data and human stories to the fore to show why government needs to quickly push the right policy levers that support industry.

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