Serious energy commentators know that predictions are a mug’s game. We plug in the latest price forecasts when appraising investments knowing full well that a small shift in demand, or unexpected events in far off places, mean they are not worth the spreasheets they are written on.
Take the oil price fall: few of us saw that coming. In fact, I recall two years ago seeing projections from well known investment banks that oil would be $150-200 a barrel by now.
As a policymaker, you know that any change you make needs to be tested under a range of scenarios, including political scenarios, because not only do you have economic uncertainty, but with big policy trade-offs you have huge uncertainty about the future political direction.
That said, how else would we kick-off the New Year unless it was with a set of new and completely unfounded predictions?
So, here’s my top 5:
1. Climate change will re-emerge in the energy debate.
As set out in my last column, with cost of living concerns starting to ease and an international agreement likely, politicians will focus once more on their record in reducing carbon dioxide emissions. We have seen Ed Miliband writing publicly about this, so expect more political competition on the issue in the next few months.
2. The capacity market will clear higher next year.
With Trafford stubbornly refusing to leave the auction, this year’s price crashed through the floor. With the government, post-election, more comfortable paying a little more to keep the lights on, demand in the auction may be set more “generously”. So unless there is another ‘Trafford’ in the pipeline, we could see prices climb higher.
3. CfD auctions will be a “success”.
Auctions are good for consumers and good for the industry and this will be no exception. It is not sustainable to have officials calculating the price to be paid for large projects. We will see lower prices coming out of the auction than the headline values, but this is as good for the sector as well as for consumers. With prices set through competition, consumers will have more confidence in the result, which will cement the longer-term sustainability of the industry.
4. Current gas prices will not stop shale gas exploration.
Developing shale gas in the UK is not a short-term game and, despite the overblown claims, it is unlikely to have any impact on our market before 2020. However, this means that investors are thinking about the longer-term price scenarios and so are less likely to be swayed by shorter-term changes.
5. Whoever wins the election, renewables are here to stay.
On 7 December National Grid showed that wind power provided enough power for 43 per cent of UK homes, which means renewables are already a fundamental part of the mix. Equally, we now have a nascent industry driving jobs and economic growth and we have legal targets written into European law. Whoever wins the election, we will still see the sector grow.
Finally, you will notice that I have steered clear of a complete imponderable that you would hope would be clearer by now: who will win the election?
Even, in my New Year prediction madness, I am not that “brave”.
Jonathan runs Brearley Economics – an energy/ climate change consultancy and can be contacted on:jonathan.brearley@live.com