The energy industry has been stuck in a holding pattern recently, awaiting the visibility it needs from government to land new investment. The trajectories of several key mechanisms come to an abrupt halt at the end of the current decade, and the Brexit vote has left question marks over huge swathes of policy to which there are few immediate answers.
In his autumn statement, chancellor Philip Hammond maintained the status quo by not announcing any new policies, and providing certainty only for some that we already have. Avoiding the chopping and changing of previous governments is welcomed by some, but others slam the chancellor for overlooking the utilities sector.
In sticking to the existing plan, Hammond has generated a level of much needed certainty. There will have been sighs of relief at many energy companies as Hammond revealed that the carbon price support (CPS) would be maintained until 2020/21 – capped at its current rate of £18 per tonne.
However, it was what wasn’t in the speech and documents that is more pressing. Aurora Energy Research project leader for research and publications Mateusz Wronski hoped for more, especially as nothing beyond 2020/21 was set out. “Nothing of this sort happened. There is still a big uncertainty,” he tells Utility Week.
For Baringa energy advisory partner Phil Grant, the statement was a missed opportunity: “There’s some relief for the owners of existing assets, but for anybody building stuff today it doesn’t provide any greater clarity.”
Foggy future
The lack of visibility is becoming increasingly problematic. New-build projects bidding into this year’s main capacity market auction know the carbon price only in the first year of their prospective contracts.
Nor was there any new information about the future of the levy control framework (LCF) either. At least the departure from the EU is less of an issue for the LCF.
Utilitywise strategy director Jon Ferris says: “We know costs are being committed to in the 2020s, but we’ve just got no idea of what the cap is and what might be left for any other investment.”
The autumn statement document says we will have to wait until the full budget in 2017 to find out what is happening with the LCF in the long run.
The only other explicit nod to energy came in Hammond’s commitment to “look carefully over the coming months at the functioning of key markets”, including energy retail. A green paper will be brought forward by the government in spring 2017.
However, Ferris is among those who think the changes need a chance to settle down and bed in. “I’d have thought that having come out of a two-year CMA investigation we wouldn’t need to have a close look,” he said. “We should be focused on implementing the CMA’s recommendations and then seeing if that produces the desired results, so I was little bit surprised that there was no support for the CMA.”
Unanswered questions
Many of the questions to which the energy industry had been hoping to get responses remain unanswered following the autumn statement. Indeed, in the retail sphere, some of the issues previously thought to have been put to bed may even have been reopened.
Although experts told Utility Week they were disappointed not to get more visibility, they added they were understanding of the unusual circumstances faced by the chancellor. The Brexit vote has left the future of the entire country up the air, and the change in government and the scrapping of the Department of Energy and Climate Change over the summer have added hugely to the workload of ministers and civil servants.
However, this excuse will hold good only for so long. The industry will be less forgiving if the government fails to provide a clearer picture of where policy is heading when the emissions reduction plan is published in early 2017 and later in the year when the chancellor delivers his first full budget. The energy sector needs answers and it needs them soon.