Industry experts respond to the government energy announcement

  Posted by: electime      8th September 2022

As Liz Truss unveils £150bn plans to limit energy bill rises.

Simon Tucker, Global Head of Energy, Utilities & Resources at Infosys Consulting, said:

“The energy bill freeze will provide relative stability for working families and will help to curb inflation. But it’s a sticking plaster, especially for those who are on the lowest incomes. Households will still be paying around £2,100 in energy bills, and there will need to be targeted support particularly for those on pre-payment meters.

“The biggest beneficiaries will be small to medium sized businesses, like pubs, restaurants, and dry cleaners, whose operating costs will be shielded against the excesses of energy price rises.

“We’ll see pandemic-levels of spending to ease the energy crisis, but rationing remains a very real threat for at least another two years. The UK government’s energy strategy must focus on doing everything possible to secure new, reliable and low carbon energy sources, and to reduce consumption. Big investment in clean energy supplies like wind, solar, hydro and nuclear is an absolute imperative, but there also needs to be a greater drive to encourage consumers and business to use less. Reducing energy demand by 10-15% nationwide would make a huge difference when it comes to shoring up supply.”

Brian Berry, Chief Executive of the Federation of Master Builders (FMB) said:

“While direct government intervention to help struggling homeowners and businesses with energy bills is needed as we head into winter, it is ultimately a sticking plaster. Long-term, we must improve the energy efficiency of the UK’s leaky homes to reduce their energy use. A nationwide retrofit plan to make our existing 29 million homes greener and more energy efficient would help deliver the UK’s energy security; create a pipeline of work for local builders; help develop vocational training routes; and crucially slash energy bills.”

Electron Co-founder and CEO, Jo-Jo Hubbard said:

“Our new prime minister has shown willingness to implement short-term solutions to our energy problems. Next, we need to know whether she has the mettle to make the systemic long-term changes to our energy system and ‘tackle the root causes’ as she has promised. There has been talk of energy market reform and extending the contracts for difference scheme. Good, but we must go much further and look at the fundamental way our energy market is structured in the UK.

The current top-down, single UK market blunt approach is not fit for purpose. We need agile, buoyant local energy markets that allow generators and consumers of energy to get the most out of their assets and get the best deal. Without that level of structural reform, we are simply propping up a tottering status quo.”

Gareth Miller, CEO at Cornwall Insight said:

“Cornwall Insight welcomes the government’s objective to address the affordability of energy for both domestic and business consumers in the UK. The policy announcements made today will alleviate some of the hardship consumers have been concerned about for many months.

“On the household side of the equation, industry thinking is well progressed, and this is alongside the comparatively simple tariff structure. This should mean progress on implementing the ‘energy price guarantee’ of £2,500 for a typical household’s energy costs can move fast. Not loading recovery of costs onto bills is a positive move too.

“But while the freeze is lower than Ofgem’s announced October price cap rise, typical costs will still be double the energy prices domestic consumers were paying only a year ago. Many families will still be facing a difficult winter. It is vital that the campaign to support energy efficiency is well structured and delivered quickly. Every fast and credible lever for attacking this problem from an energy usage side needs to be pulled.

“Delivering an equivalent energy price guarantee to all businesses for six months, before targeting specific sectors, is likely to be more complex. The approach will invite pressure on where lines are drawn as we move from general support to sector-based approaches. The challenge is also financially steeper in business than households. UK businesses contribute a large share of demand, and face significant hikes in their energy bills. There are a variety of tariffs and different types of price fixes and hedging in play as well. Implementation of support here without creating accidental winners and losers across companies, sectors and suppliers is doable but challenging. To prevent widespread business distress, particularly during the first 6 months of cross-economy support, the injection of money required could be much higher than currently assumed. The two commodities in shorter supply than gas right now, from businesses struggling with energy bills, are time and cash. Neither will wait for long periods of policy development and implementation to conclude, with businesses already making hard decisions to close or release workers.

“Looking further ahead, the stakes in this crisis have always been huge, with continued support for the change required to our energy market to accompany net zero an absolute priority, as is minimising the time the UK economy is now harnessing to gas prices. The relief following the shot in the arm today’s policy package delivers, comes with its own risks. We should not kid ourselves that today’s medicine is the cure of what ails this market. With so much at stake, it is absolutely vital we put this sector on the path back to sustainable and enduring health.

“We have argued vocally since last Autumn about the need to think long-term. Going into this crisis a year ago, we suggested that we needed to develop policies which recognised cross economy effects, and impacts on businesses. And our longstanding view is that we need to calmly look at reforming the wholesale markets without jettisoning useful incentives or damaging investment signals, that we needed to migrate away from tariff caps towards social tariffs, and that we need to address the gap in policy on energy efficiency.

“Our view on where focus should be does not change today, but what does is that a large measure of the economic cost of the current crisis is now being taken on by the government at a level that remains unclear. As a result, the incentives to act in all these areas, so the exposure to risks and costs can be limited, should be overwhelming for Prime Minister Truss, and the full force of the government machine being put behind progress on these longer-term reforms should be a national economic priority. What this funding has done is bought us time, which needs to be used wisely. It is only week one, but it is already apt to say that the legacy of this new government depends on it.”