Hill+Knowlton Strategies

On 22 May 2012, the Government published its draft Energy Bill – you can read my colleague Chris’ analysis of the key points here. The landmark piece of legislation is intended to establish a legislative framework for delivering secure, affordable and low carbon energy. Ahead of its expected introduction this autumn, the Energy and Climate Change Select Committee are currently scrutinising the details of the Bill. As part of this inquiry, yesterday the committee held a public evidence session with key representatives from the energy industry.

The first session comprised of Sara Vaughan, Director of Strategy & Regulation for E.ON UK; Keith Anderson, Chief Corporate Officer of ScottishPower; and Ian Marchant, Chief Executive of SSE. They were followed by Vincent de Rivaz, Chief Executive Officer for EDF Energy; John McElroy, Director of Policy and Public Affairs at RWEnpower; and Sarwjit Sambhi, Managing Director Power Generation at Centrica. Each group were asked the same questions, centred on Part 1, Chapters 1-7 of the draft Bill. The particular focus was Contracts for Difference (CfD), the UK’s investment incentives vis-à-vis other markets, and the proposed Emissions Performance Standard.

KEY POINTS

• Industry must find a common voice: It quickly became apparent that the key industry players have divergent views on what is needed to optimise the UK’s energy market. From whether the Energy Bill is needed at all, to ministers’ role and responsibilities, to the need for capacity mechanisms, some clear differences in position were set out. SEE’s Ian Marchant described himself as being at “one end of the industry”, acknowledging substantial differences of opinions with his competitors. Tim Yeo MP, who chaired the session, stressed that the more industry is able to find agreement, the more likely their views and points will be accepted by Government.

• One thing they do agree on is transparency: If one word stood out in each of the sessions, and by each witness, it was the desire for transparency. Keith Anderson of ScottishPower was particularly forthright in his desire for transparency and the creation of a robust long-term framework to achieve investor confidence, create jobs, and ultimately restart the UK’s economy. Vincent de Rivaz from EDF Energy stated that the Government has a clear responsibility to ensure fairness and transparency.

• The UK is an attractive investment market: Those giving evidence do not believe incentives on renewables lead to excessive return on investment. SEE’s Ian Marchant stated that without market mechanisms, a mixed generation portfolio simply won’t be realised. However, he added that there is not currently enough liquidity in the wholesale electricity market to support CfD mechanisms. RWEnpower’s John McElroy voiced concern for clarity over budgets and how the Government intends to manage the levy control framework.

• But the current period of uncertainty must be resolved as quickly as possible: Concerns over slippage on the timeframe were raised by Sara Vaughan from E.ON UK. The lack of detail in the Bill and a centralisation of decision making power among ministers were perceived as a risk, compounding uncertainty in the market and therefore investor confidence. In the second session, EDF Energy’s Vincent de Rivaz, reiterated the need to maintain momentum and ensure Government sticks to its timetable.

• The counterparty issue must be resolved: The key industry players had previously registered their desire that the Government act as the counterparty so as to ensure CfDs are legally robust, with the power to raise money. However, it was noted that there seems to be hesitation on the Government’s part and potential problems with standards of State Aid set by the EU.

• There is no agreement on emissions performance standards: Dan Byles MP began his question in the second session by suggesting that the first session’s witnesses were in agreement over Emissions Performance Standards, but was quickly caught out by Centrica’s representative, Sarwjit Sambhi, who had attended both. Sambhi agreed with SEE’s Ian Marchant that the standards were unnecessary, but Sara Vaughan thought quite the opposite. John McElroy agreed, noting that gas has a key role in the transition to a low carbon economy, so certainty around emissions performance is vital.

CONCLUSIONS

The current state of the energy market in the UK is one of uncertainty. Until a clear and comprehensive framework is in place investors will remain shy, and if timeframes are not met there is the possibility that confidence will ebb away. To this end, industry believes that the Government must move swiftly in its reforms and be open in its processes. There is much to be clarified and worked through, and as John McElroy noted: the devil is in the detail. One thing is clear – if the industry wishes to see swift reforms they must be forthright on the issues they agree on, presenting a united voice wherever possible.

WHAT THE MEDIA HAVE TO SAY

• The Financial Times (Pilita Clark) - Energy groups attack ill-defined reforms
• The Daily Telegraph (Emily Gosden) – SSE attacks secrecy of nuclear subsidy talks

And so the Jubilee weekend is finally here. Have you hung out your bunting and stocked up on Pimms?

Here at H+K we thought the festivities made for a good excuse to engage in a little cross-team bonding. So last night we held the inaugural Financial Services, Internal Comms and Energy Social Team (FINSEST) event – a Diamond Jubilee Quiz!

Skipping over the fact that my team did spectacularly badly (taking home the Queen topped silver ‘wooden’ spoon prize), it was an excellent evening. Since it’s Friday and the bank holiday weekend is fast approaching I thought I’d share a few snap shots. We were joined by some very special guests after all…

Before you scroll down to take a look, here’s a few comparisons of the UK from the year our good Queen took the throne:

• Let’s start with an energy one (it will keep Chris happy!). At 228 million tonnes, 1952 was the peak of the UK’s coal production. Scroll forward 60 years and our country’s last coal mine is on the brink of closure. The last six decades has seen a revolution in energy policy across the globe – the realisation that our Earth is not an infinite resource and that mankind is not-so-slowly destroying the planet has fundamentally changed the way our energy is sourced and will be sourced for generations to come. It’s actually quite incredible to think about the changes Queen Liz has witnessed when it comes to keeping the lights on.

• The same month of Elizabeth II’s coronation PM Winston Churchill announced that the UK had become the third country to own an atomic bomb. Apparently we currently sit on about 225 warheads. As the BBC notes, the future of the UK’s nuclear deterrent is regarded as one of the main points of tension between the Conservatives and the Liberal Democrats in their coalition arrangement. Quite a topical one then.

• Average property prices in the UK are 86 times higher now than in 1952. Ouch.

• In October 1952 tea rationing came to an end. Tea rationing?!! Can you imagine anything worse? Horrendous. Tea (in my prize possession – the West Wing mug) is my salvation the morning after our quiz debauchery. The UK Tea Council reckons that today us Brits drink 165 million cups of tea daily, that works out at a mere 60.2 billion per year! Though I’d say roughly half of that is drunk by our very own Alexandra Da Cunha.

• On a more serious note, lets get back to energy. 1952 saw the great smog disaster across London. Causing up to 12,000 deaths, the tragedy was the instigator of the Clean Air Act, which gave local governments the authority to help finance the conversion of home owner’s  coal-fired heaters for use of ‘cleaner’ sources of energy such as gas, oil, smokeless coal, or electricity. Gradually over the years of Elizabeth II’s reign moves have been made to regulate emissions but clearly much more needs to be done. Over the next 60 years how will political and industry leaders work together to answer the biggest challenge of our generation?

• Speaking of challenges, it appears that my colleague Scott over in Change & Internal Comms has beaten me to it and already blogged about last night’s quiz. He doesn’t have the photos to rival mine, but why not continue your Friday procrastination and check it out all the same: The fourth floor quiz.

Now for those photos…