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:
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:
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.
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.
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.
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.