UK Government Spring Statement - March 2019

In the midst of Brexit uncertainty and with continued uncertainty over our future relationship with Europe, Philip Hammond delivered the UK Government’s Spring Statement. Building on the Industrial Strategy, Clean Growth Strategy and the 25-Year Environment Plan, there was a renewed commitment to accelerating the shift to a cleaner economy and focusing on decarbonising our gas infrastructure and support SME organisations in obtaining and realising energy efficiency.

Consumers have felt the financial and administrative burden of decarbonisation in the UK electricity sector and rising non-energy costs, increasing levels of reporting, compliance and a continual shift in strategy have all proven challenging in reducing cost and complying with legislation. A shift in focus towards the gas sector will create new risks, challenges and costs for consumers in a sector where many consumers are yet to develop or deliver decarbonisation strategies.

 The UK Government’s 2018 Budget set a shift towards a cleaner economy with a link to an Industrial Strategy, Clean Growth Strategy and a 25 Year Environment Plan. This renewed focus is aimed at supporting the continued pathway to decarbonisation and to reduce emissions by at least 80% of 1990 levels by 2050.

As the country has moved through various “carbon budgets” (currently within the third carbon budget 2018-2022) it has become evident that we are not on track to meet our targets and existing measures to support decarbonisation are not delivering reductions effectively.

The Spring Statement delivered a further reinforcement of the UK Government’s commitment to delivering a cleaner economy and the following statements were given:

  • A new call for evidence has been released to consider the launch of a new energy efficiency scheme to support the UK SME sector in delivering energy efficiency and technology.

The call for evidence is seeking responses to a range of ideas to support improving energy efficiency for the SME sector and the current options are:

    • An energy efficiency auction for efficiency installers or energy service companies to bid in to deliver measures in smaller businesses. This would likely be funded through a range of measures including a levy on suppliers or co-funding from consumers who realise the benefit of lower bills.
    • An introduction or a new Energy Company Obligation (ECO) scheme or an expansion of the existing scheme to obligate suppliers to deliver energy efficiency measures to its customers funded through supplier costs.
    • Expanding finance options available to SMEs in a similar manner to the existing Energy Sector Company (ESCO) funding or an additional form of Green Loan.
  • A new standard will be introduced by 2025 for the domestic new build homes sector to future-proof new build properties with low carbon heating and energy efficiency measures, including the banning of gas-fired appliances in favour of heat pumps and induction hobs.

Ending the use of fossil fuel heating systems by 2025 for new build domestic properties is a significant challenge which will not be as straightforward to implement. Any standards are likely to be met with resistance given the difficulty faced by the UK property sector and the rising cost of housing.

  • It has been proposed that the Government gives people the option to travel “zero carbon” and a call for evidence will be released on offsetting transport emissions.

With increasing sustainability and energy efficiency / utilisation reporting (i.e. SECR) becoming a greater part of an organisations responsibility there is a growing concern over the emissions as a result of travel. Whilst decarbonising the transport sector is an evolving strategy, it is likely that travel providers (i.e. train companies, fleet operators etc.) may be required in the future to offset emissions.

    • It is likely that any future plans to target travel may require organisations to set targets, measure emissions and provide plans to decarbonise staff or company travel to a greater degree than the existing requirements under ESOS Phase II.
  • There is going to be a significant acceleration in the decarbonisation of the UK’s gas-grid by increasing the proportion of green gas and by seeking to reduce the UK’s dependence on natural gas for heating in homes and businesses.

Natural gas supplies and the costs associated with a delivered gas bill to consumers have largely escaped the impact of decarbonisation costs. Non-energy costs remain a relatively small proportion of a delivered gas bill (circa 25%) and are less volatile than those in the electricity sector. Therefore, most consumers are yet to consider and implement a decarbonisation plan for imported natural gas aside from ensuring the utilisation of gas is as efficient as possible.

Gas-fired CHP has remained popular in periods over the past 15 years and has seen a resurgence in the past 2 years as consumers seek to benefit from improved delivered gas costs (relative to electricity) and the associated benefits of utilising the secondary benefits of CHP (i.e. heat) within their processes.

We are likely to see up to £400 million invested in associated infrastructure (by 2020), the development of new biomethane plants and a greater focus on the role of gas in our economy from transport, heating and industrial processes.

This drive towards a cleaner gas sector is likely to mirror the current pathway seen in the UK electricity sector with the creation of support mechanisms (like the CfD and FiT) to promote and support the growth of green gas and increasing compliance, minimum standards and enforced obligations soon to be part of a consumers gas exposure.

The pathway to delivering this accelerated commitment is not clear. However, gas consumers have to assume they will face taxes, levies and restrictions in the future. Addressing this uncertainty now will be crucial in preparing for this uncertainty.

How Beond can help?

Beond believes in helping our clients achieve their ambitions and as part of this commitment we seek to support our clients across a wide range of objectives beyond traditional procurement.

As we move towards 2020 it is becoming increasingly more evident that consumers must adapt and evolve their strategy to focus on energy efficiency, compliance and minimum standards enforced as part of the UK’s continued decarbonisation pathway. These areas are likely to become significantly more important for consumers to truly deliver value and protect their organisations from cost & compliance.

We have been advising and predicting the increasing risk of a shift-change in the gas and heat sector and the Spring Statement has reinforced our belief that a new energy dynamic is on the horizon.

Driving down the cost of procuring energy, delivering insights, planning for the future and helping organisations exceed in creating value is part of our commitment, belief and values.

Beond can help consumers with an entirely bespoke strategy aimed at delivering maximum value in the near-term and to protect their organisation from an uncertain future. Our success in delivering real value to our clients has helped some of the UKs largest energy consumers and can help your organisation in succeeding.

To talk about this article further or if you wish to understand how Beond might be able to help you, please do call +44 20 8634 7533 or email info@beondgroup.com

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