UK ENERGY OPINION FORMERS
2014 PREDICTIONS Introduction As with any industry involving long-term, often capital intensive, assets linked to the provision of an essential commodity, certainty is valued extremely highly by the energy sector. The temptation to make predictions (we tend to call them forecasts - it sounds more credible) is strong. Predictions allow for forward planning and strategic investment, as well as helping manage risk. Of course the more uncertain the future appears, the harder it is to make reliable predictions and the more uncomfortable an industry like energy becomes. The key opinion formers who have kindly contributed to this publication provide extremely varied and valuable insights into what the next year might hold. We are most grateful to them for taking a risk and sharing their thoughts. Uncertainty has arguably become the new normal for today’s energy industry. We are at a tipping point for many issues:
Jessica Lennard
Director of Energy Public Affairs, Edelman
where future energy supply will come from; how much it will cost; the degree to which it will be managed bottom up by communities, or top down by Governments. Consumers, largely absent from the debate thus far, have become central to it. A new future is coming into focus, but the transition is characterised by higher levels of risk and uncertainty than those experienced by the industry in many decades. This trend shows no signs of lessening in the near future. Three UK predictions from us for the next year: energy will become increasingly politicised ahead of the General Election; non-mainstream issues (community energy, independent generation, storage, heat and efficiency) will continue to enlarge their share of the policy space; and the trend toward increasing levels of policy intervention will peak as the tension between policy objectives, investor certainty and consumer frustration comes to a head.
Peter Atherton, Liberum Capital @LiberumAtherton The stresses seen in EU energy policy in 2013 are only going to increase in 2014. EU policy makers have grossly under estimated the financial, technical and economic difficulties in decarbonising the power sector by 2030. As policy makers have so far been unwilling or unable adjust their thinking to take account of the unexpected challenges, the capital markets have concluded that the policy is implausible. The UK is moving centre stage of the crisis as energy policy, and particularly its cost to consumers, forms a key element in the forthcoming general election. The recently signed Hinkley Point contract is going to receive intense scrutiny and is unlikely to survive as currently written. Indeed it is very unlikely that any ‘big ticket’ investments in UK power will get financial close in 2014.
Jonathan Brearley, Energy and climate change advisor @JonBrearley Energy will remain controversial and will undoubtedly stay on the front pages of our newspapers. The reason is this year and, for the next few years, we face a fundamental choice: We can choose a world where politicians and industry regain public trust and develop an energy market that treats all its customers fairly. Therefore, we can build public support for an investment programme that will keep the lights on and make a sensible transition to low carbon energy. The alternative is each side continue to blame the other for changing prices and we collectively ignore the science of climate change. This will generate such uncertainty that no one will invest without huge premiums, which will take more money out of the pockets of consumers. I am an optimist. With a talented team in DECC and investors preparing for the UK’s market reforms, 2014 may be the year we begin to build the 21st century energy system that the UK so badly needs.
UK ENERGY OPINION FORMERS 2014 PREDICTIONS
Edelman | Southside | 105 Victoria Street | SW1E 6QT London
Lord Browne, Former BP CEO @LordJohnBrowne The energy industry is in flux. From production to consumption, and from North America to the Far East, a great rebalancing is underway. For investors in the oil and gas sector, the most important change in 2014 will be the significant redistribution of capital expenditure between industry participants. The majors are facing growing pressure to protect their dividends, and are no longer willing to run the sort of capital expenditure programmes we have come to expect. Investments made today will deliver energy decades into the future, so the world is depending on state-owned companies and private investors to step in. If they do not, we might look back on 2014 as a rather quiet year – but one which set the scene for rising prices in years to come.
Professor Charles Hendry MP, Former Energy Minister Continuing political risk in UK, but more common ground over market reforms; Labour gradually softens approach on price freeze; people stop talking about EMR as it settles down; solar prices keep falling; onshore wind becomes election battleground; new nuclear stays on track with no red-light from European Commission and EU gets pro-nuclear Energy Commissioner; little progress in establishing for certain what shale gas means for the UK but battle lines between supporters and opponents become starker; fuel poverty debate focuses particularly on off-grid consumers; (another!) new Minister of Energy as Michael Fallon gets promoted!
Chris Huhne, Zilkha Biomass Shale gas in Europe will continue to be a dream in 2014, as exploration firms find the hurdles of planning permission daunting. The gas price is likely to stay firm as the gloom and doom about China and other emerging markets is seen to be overdone. With gas prices rising in the US too, coal prices may get some more support as utilities start burning again. Europe’s energy-intensive firms will go on complaining about the EU-US price gap, but the costs of liquefaction, shipping and gasification will ensure that US producers have a cost advantage for a long time even when the US starts exporting. Europe’s consumers will increasingly rebel about energy costs, which may cause governments shortsightedly to curb energy-saving measures (as the UK has just done). It may also call the more expensive big-scale renewables – notably offshore wind – increasingly into question as an effective way of meeting the 2020 EU target.
Michael Liebreich, Bloomberg New Energy Finance @MLiebreich 2014 is set to be a turning-point year for clean energy. It is the year when the benefits of the last decade’s surge in investment in renewable energy, energy efficiency and smart grid will finally start to feed through to energy users. It will become obvious to all that the energy future does not look like the past; nor will it be all about coal, or all about nuclear, or all about unconventional oil and gas. It is going to be about a mix of renewable energy, gas and nuclear, driving a vastly more efficient energy infrastructure, with increasing numbers of electric vehicles and some power storage – and all of this held together by a sophisticated digital grid. Media coverage moves in cycles. Between 2004 and 2009 there was a surge of coverage of clean energy and climate, and hype moved far ahead of delivery. Copenhagen in 2009 marked a turning point: Climategate showed the corrupt side of climate science, and austerity made clean energy look an expensive luxury. Suddenly the fashion was to ridicule renewable energy. Now with wind and solar being increasingly competitive with conventional power, and with clean energy companies like Nest and Tesla grabbing the headlines, the cycle could be about to turn.
Guy Newey, Policy Exchange @guynewey I expect the political pressure on the big energy companies will become even greater, so we will see a full Competition and Markets Authority investigation into the energy market launched this year, even if evidence of wrongdoing remains weak. The focus on ‘green crap’ and extra costs on bills could see the ambition of the smart meter programme being re-examined. I do not think there will be any major power blackouts in winter of 2014/15 and capacity margins will remain comfortable.
Will Straw, IPPR @wdjstraw Europe has to decide this year whether it remains serious about climate change or whether its member states will cave into their domestic carbon lobbies. If an ambitious deal to cut 40% of greenhouse gas emissions by 2030 is reached at the European Council meeting in March this should subdue criticisms of the UK's Climate Change Act. If not, renewed Tory pressure to unwind Britain’s own carbon budgets and put us on a lower trajectory is a distinct possibility. At home, we’ll be reading more about solar as more and more new capacity comes onto the grid. Meanwhile, shale will be the dog that barks but doesn’t bite as local opposition and geological concerns continue to make investors bearish despite.
Dr Tim Stone, Senior Advisor and Non Executive Director 2014 opened with three groups developing up to 16GW of new nuclear power - including NuGen with its new majority owner, Toshiba/Westinghouse. With engagement from China as well, it is self-evident that investor interest is real and significant. Over the year, realisation that the EdF strike price could offer electricity to future generations at less than today’s market price will emphasise the strategic nature of what’s unfolding. As standard designs drive prices down and tens of thousands of jobs are created, new nuclear will create highquality careers for life. While there is no magic bullet for UK energy needs, nuclear will play a vital part in ensuring economic competitiveness. Providing cheap, safe, low-carbon energy in economically competitive ways must be the driver of energy policy . Without that, the UK cannot remain a major force in global markets, but with that we can thrive and prosper. We now need the whole of the nuclear industry to help deliver this. The developers have started this, particularly EdF, while Horizon and NuGen are making significant progress. Now we need that scale of vision and commitment from the rest of the supply chain.”
Matthew Spencer, Green Alliance @Spencerthink The energy sector will be hoping for a calmer year than 2013, and there is a moderate chance it will get one. As the EMR policy development process reaches its end, a new phase begins with political parties developing their priorities for the next government. Most of this activity will be beneath the surface and away from Whitehall. Meanwhile, the government will confirm its existing decision on the 4th Carbon Budget because there is no appetite for another fight or evidence to justify a change. EU leaders will also ratify a European carbon target which should align to the UK trajectory. Both steps will help to rebuild confidence in the UK’s low carbon energy investment if politicians explain their decisions with clarity and consistency.
Dr Alan Whitehead MP @alanwhiteheadmp Parliament and the real world will probably travel in opposite directions this year: there may be further moves in Government to roll back green energy and energy efficiency measures, possibly even an attempt to unpick the 4th Carbon budget in favour of an unsustainable ‘dash for gas’ strategy. In the real world the tumbling costs of renewables and better organisation of alternative funding arrangements will see a surge of interest and activity in community-based renewable energy : large scale wind will, after its temporary hiatus, start to pick up again. There will be some surprising and positive strides forward with interconnection. By the end of 2014, we will be far closer to the tipping point of commercial and common sense renewable deployment: but I’m not sure Westminster will notice, in the short term.”
Jessica Lennard Director of Energy Public Affairs Jessica.lennard@edelman.com
Tristram Denton Account Director Tristram.denton@edelman.com
Robert Jeffery Senior Account Manager Robert.jeffery@edelman.com
Clementine Cowton Account Executive Clementine.cowton@edelman.com
UK ENERGY OPINION FORMERS 2014 PREDICTIONS
Edelman | Southside | 105 Victoria Street | SW1E 6QT London