The Informer

This week's energy news headlines: An industry body says the CfD mechanism needs to be reformed to attract the investment needed for full decarbonisation; Energy bills are now the number one concern for businesses according to a survey; A National Audit Office report into supplier failures says Ofgem allowed the development of a market vulnerable to large-scale shocks.

  • Reform of CfDs needed to hit decarbonisation target

    The Contracts for Difference support scheme for renewables should be reformed to attract the investment to achieve decarbonisation of the power sector, according to industry body RenewableUK. In a manifesto looking at what needs to change for the system to be fully decarbonised by 2035, it said although the scheme has been a success, the current market set up may not be enough to deliver the volume of projects needed. Surging global demand for offshore wind is increasing competition for investment and putting pressure on supply chains. These pressures, along with maturing technology, means that the trend of ever cheaper prices may be at an end. RenewableUK argues that an ‘evolution’ of the CfD is now needed to incentivise long-term capital investment in the sector. It recommends that the Government should also consider new policies to make the UK more attractive for investment such as creating offshore wind enterprise zones where businesses can qualify for tax reliefs or tax credits. RenewableUK’s Chief Executive Dan McGrail said: “Speed and scale are key: we must revolutionise the rate at which we build new projects onshore and offshore. Working closely with Government and local communities, we need to transform the way we plan and regulate our energy system, to make the UK the best place to invest in by reforming the CfD mechanism. “This will help us to develop our supply chains and build up whole new industries in innovative technologies like floating wind technology and green hydrogen, which we can export worldwide.” Read more

  • Energy costs now biggest concern for businesses

    The rising cost of energy is now the biggest single concern for businesses, according to a new report. A survey of firms also found that nine out of ten predict their energy costs will increase further over the next 12 months. Most believe the Government needs to do more to help companies, but they are also taking matters into their own hands with investment in measures such as energy efficiency high on the priority list. “While some progress has been made, the message coming through loud and clear from this research is that current policy is not doing the job it needs to do to support businesses at a time when energy is their biggest concern,” said Anthony Ainsworth, Chief Operating Officer at npower Business Solutions which carried out the research. Although two thirds of firms think net zero by 2050 is still achievable, nine out of ten are concerned about the potential cost impact for their business of funding the low-carbon transition. Read more

  • Regulator allowed ‘vulnerable’ market to develop

    Ofgem allowed a market to develop that was vulnerable to large-scale shocks and where the risk largely rested with consumers who would pick up the costs in the event of failure, according to a report from the National Audit Office into supplier failures. The report said to attract new entrants into the market, the regulator took a ‘low bar’ approach to licensing new suppliers. It did not undertake detailed scrutiny of their financial position when they applied for a licence or after they entered the market. “Ofgem has rightly recognised that it must quickly improve its capacity to oversee the financial resilience of individual suppliers and the sector as a whole,” said the NAO. It added the regulator and the Government must also ensure the market recovers from its current state, where high wholesale prices combined with the price cap has stifled some aspects of competition, and where ongoing volatility means many suppliers still face financial risks. Ofgem said it accepted the findings of the report and was working hard to address all of the issues raised. Earlier this month it announced a series of measures aimed at improving the financial resilience of suppliers. Read more

  • SMEs up investment in sustainability despite cost challenges

    Over half of small and medium sized firms in the UK have invested in environmental sustainability measures over the past 12 months compared to less than 20% during the previous financial year. A report by finance group Aldermore found the average spend of those who had invested was £61,250 and that most firms plan to maintain or increase their spending on measures despite the cost pressures facing businesses currently. Aldermore estimates that, on average, the businesses covered by its survey will spend almost £78,400 on sustainability-related activities this financial year – a year-on-year increase of 27%. “It’s hugely encouraging to see that businesses are increasingly willing to address the issue of sustainability and it will be the ingenuity and drive of SME owners that will help make much of the UK’s green transformation possible,” said Tim Boag, Aldermore’s Head of Business Finance. Read more

  • Major investors call for carbon pricing shake-up

    A coalition of major institutional investors have called for major changes to international carbon pricing policy to avoid the aims of the Paris Agreement failing. The Net-Zero Asset Owner Alliance pointed out that just 25% of annual global carbon dioxide emissions are covered by a carbon price. Prices differ hugely across countries and the alliance believes in most cases they are far too low to have a meaningful impact on the low carbon transition. The Alliance’s chair Gunther Thalinger said: “The sharp rise in energy prices is putting enormous stress on households and the business sector. Continued government support and relief is needed to bridge these difficult times. “Yet, in addition to better managing the near term, we also need to better position ourselves to avoid this happening again in the future. Accelerating the shift to net zero is essential in this regard. Structural change will need policy incentive, such as carbon pricing. These take time to implement and should not be delayed.” Read more