Hill+Knowlton Strategies

Yesterday’s Energy and Climate Change Committee report on consumer engagement with energy markets made for interesting reading. From a PR perspective the section on media reporting on energy costs was particularly compelling. The rising cost of energy and impact of ‘green’ policy has been one of the hot topics of 2012 – capturing the attention of the trades, broadsheets and the tabloids alike. And for a sector that’s traditionally not the topic of pub chat, this is the year that the country got talking. With squeezed wallets and fluctuating weather conditions, combined with the challenge of global warming and carbon reduction, the public is taking notice.

Depending on your newspaper of choice you will likely read very different views on how serious our energy challenge is – both in terms of dwindling resources, and environmentally sustainable sources. Yesterday’s report states that “It is likely that consumers get a lot of their information about energy issues from the media.” So with increased, and often emotive, attention now focused on energy it becomes even more important to know where our media stand on the issues, and crucially – how accurate their reporting is.

The Energy and Climate Change Committee is troubled by concerns raised over media reporting on energy matters. The report points to several witnesses who have suggested that media reporting of the cost to consumers of DECC’s environmental and social policies may be misleading. The Carbon Brief says that a series of newspaper articles have overstated the current impact of green policies on energy bills, either through error or selective research. Scottish Renewables suggested that the media preferred to rely on figures that fitted with their editorial line on energy and climate issues – relying on “unverifiable leaked reports or skewed research by think-tanks and individual consultants”. RWE npower said of media reporting, “Very often, it is a case of ‘not letting the facts get in the way of a good story’”.

The Committee wrote to the print media requesting responses to the evidence it has received on media reporting of these issues. Whilst only 6 of the 17 publications replied, the answers are telling. The Sunday Times decided its coverage has been “very balanced”, focused on the science, while The Financial Times put responsibility with the reporter. The Daily Telegraph and The Sunday Telegraph responded that the costs of green energy were “hotly disputed” but that they reported “all sides of the debate”. The Daily Mail and The Mail on Sunday acknowledged that “mistakes are occasionally made” – hmm…

One national newspaper responded that they were “uneasy that a Committee of the House of Commons appears to be asking a newspaper to justify its reporting on a particular issue based on vague, partisan criticisms from lobby groups with an interest in the issue”. That same paper failed to print a letter from the Committee’s Chair highlighting factual inaccuracies about an article on the effect that investment in renewables would have on consumers’ bills. No coincidence then that such disdain comes from the paper with perhaps the most supportive line on fossil fuels, with anti-rhetoric towards wind energy? I’ll leave it you to work out the paper in question…

Of course, in the fast paced world of journalism mistakes from time-to-time are inevitable. But the Government must do everything in its power to make facts and figures on the cost of going green transparent. It is all too easy for the media to hide behind confusing and conflicting data so they may follow an editorial line that misguides an already bewildered public. Renewable technologies and environmentally sustainable practices are a necessity not a choice for our long-term energy future. Isn’t it better that now the public’s attention is caught they get a full, accurate and honest picture?

 In its report on the Electricity Market Reform (EMR) of April 2011 the Energy and Climate Change Select Committee recognised the “potential” of the new low carbon generation delivery mechanism, but cried out that the consultation paper’s proposals were “overly-complex, potentially expensive and fail to recognise the urgency of the transformation that needs to take place”. In short, EMR for all its innovation and cross-party political support would not attract the investment needed soon enough.

 Fifteen months later and the committee have had another chance to review the government’s plans to attract new investment in the UK’s electricity market. In today’s report Draft Energy Bill: pre-legislative scrutiny the committee cast their judgement on every aspect of the government’s 2012-13 Energy Bill and its central tenet, the EMR.

 Tim Yeo, the chair of the committee, and his colleagues did not hold back. “Unworkable,” “unacceptable” and “counter-productive” where just some of the salvos fired at DECC, who will sponsor the bill, and HM Treasury, who will have the final say on the financial instruments under-pinning so much of the Bill. In his statement accompanying the report Yeo concludes:

 “The Government has a lot of work to do over the summer to make sure that the Bill is fit for purpose in the autumn and is not subject to any further delays.”

 Select committees tend to find provocative language in order to help them secure media interest in their often very dull reporting but this is pretty strong stuff from the ECCC. The damning report picks holes into several of EMR’s central components and takes aim at the lack of detail provided by the Government. The later charge is hardly surprising to those following the committee’s progress with the Bill. Its chair Tim Yeo has complained very publicly in recent weeks about the Treasury’s refusal to give oral evidence to his committee on the essential features of its measures in the Bill over which it has control.

 Today’s report addresses those measures by attacking the government for failing to back the EMR’s new system of long-term contracts. These new contracts seek to give power companies a guaranteed price for the low-carbon electricity they produce. The theory goes that the long-life of the contracts will reduce the risk of investment in projects with high up-front capital costs – a key barrier to investment in the sector – by providing certainty for a longer-period of time.  

 The prospered ‘Feed-in Tariffs with Contracts for Difference’ mechanism in the Bill was declared “too complex” and “unworkable”. The committee also warns that the proposed reforms will probably consolidate the dominance of the big six energy companies. Instead the Committee would like to see the Government use its strong credit rating to underwrite the new contracts in order to keep the costs of energy investment down for customers. The report also criticises the Treasury for the spending cap on green levies that can be passed on to consumers in energy bills as they “could mean unacceptable risk to investors”. This is because the levy cap will ration the number of contracts available to the various competing low carbon technologies.

 Other concerns around the Bill include:

 The draft Bill and its associated documents are fundamentally flawed by the lack of consideration given to demand-side measures – potentially the cheapest methods of decarbonising the UK’s electricity system.

• Given that the Government (and the Committee on Climate Change) see nuclear playing a key role in the future energy mix, Government should consider how carbon and security objectives could be delivered if no new nuclear is forthcoming.
• The ECCC want a clearer understanding of the likely impact of the EMR proposals on the future role for gas. They recommend that the Government, in its forthcoming Gas Strategy, considers the interrelationship between EMR and the capabilities of the gas infrastructure, in particular the potential need for more gas storage.
• They do not believe that it is appropriate for National Grid, a private company, to act as the EMR delivery body.
• The FT quotes Mr Yeo as saying: “If the energy bill does not set a target to largely decarbonise the electricity sector by 2030, then the UK may miss one of the biggest opportunities it has to create a low-carbon economy in the most cost effective way.”

 The report comes at a time when the UK media are also reporting on George Osborne’s blocking of a new subsidy regime for renewable energy, as he fights another coalition battle with the Liberal Democrats, this time to ensure that gas remains central to Britain’s future power needs. The FT reports that the stand-off between Mr Osborne and Ed Davey, the Lib Dem energy secretary who wants to prioritise renewables, has infuriated business. John Cridland, head of the CBI employers’ group, claims the “political row” is holding back investment in Britain’s energy infrastructure.

Following the Queen’s Speech, today the Government publishes its landmark piece of legislation to reform the electricity generation market in the UK. The draft Energy Bill contains the long-awaited Electricity Market Reforms, which are intended to provide the support necessary to balance future electricity generation over a mix of energy sources in order to reduce dependence on any one source and to meet carbon reduction targets. Against a challenging economic backdrop and with a fifth of existing generating capacity due to be retired from the grid in the next decade, these reforms are critical to ensuring the lights stay on while meeting our commitments to cut carbon emissions.

Overview

The key part of the Electricity Market Reform (EMR) are ‘market mechanisms’ designed to transform our generating capacity. The first of these is the introduction of Feed-in-Tariffs with Contracts for Difference (CfDs), long-term instruments designed to provide stable and predictable incentives for companies to invest in low-carbon generation. This will replace the system of Renewables Obligations (RO), which is due to end in 2017.  DECC has also committed to working with industry on Final Investment Decisions (FID) Enabling to enable some investment to begin in advance of the CfD regime coming into force. The second is an Emissions Performance Standard (EPS) that will limit carbon dioxide emissions from fossil fuel power stations by setting emissions standards for all new fossil fuel powered generation. This will prevent the construction of new coal plants which emit more than 450g/kWh.

Further support for the market mechanisms is the introduction of a Carbon Price Floor. This was announced by the Chancellor in the 2011 Budget and was introduced in the Finance Bill. This provides a clear economic signal to move away from high carbon technologies by increasing the price paid for emitting carbon dioxide. It places an initial value on the price of carbon of around £16/tCO2 (2009 prices) in 2013, which will rise to £30/tCO2 (2009 prices) by 2020. This will be complemented by a Capacity Market that will, if required, provide security of electricity supply by ensuring sufficient reliable capacity is available.

The measures are set to increase consumer bills, although the Government argues the rises will be less than if the UK carries on without reforms. The Department of Energy and Climate Change estimates the average bill will increase by GBP160 by 2030 instead of the GBP200 rise predicted if the market is left as it is. The costs of this investment will preoccupy media interest today and in the coming weeks, especially as consumer bills continue to rise and incomes tend to fall. One aspect of energy policy that will be critical to ensure that the cost increases stay within Government targets is the drive to improve the energy efficiency of the UK’s housing stock, and therefore reduce energy usage. The Green Deal is not part of the Energy Bill, but will be very important to achieving the Government’s affordability ambitions.

In addition to EMR, the Energy Bill also aims to ensure that Government and regulator Ofgem are aligned at a strategic level through a Strategy and Policy Statement (SPS). The Bill also establishes a new nuclear regulator, the Office for Nuclear Regulation, to regulate the building of new nuclear power stations. Finally, the Bill contains provisions that will enable the sale of the Government Pipeline and Storage System (GPSS). The Parliamentary Under Secretary of State for Defence Equipment, Support and Technology, at the Ministry of Defence provided a separate Written Ministerial Statement about this.

Gas

The Government have said that gas will continue to play an important role in the transition to a low-carbon economy, to provide flexibility and help maintain security of supply. A separate strategy on the role of gas will be published in autumn 2012. This is the subject of a public consultation and the deadline for submissions is 28^th June 2012. Also the Government announced earlier this year that the Emission Performance Standard for gas fired power stations in the UK that will allow them to continue to operate until 2045. Gas may well play a critical role in filling any gaps in supply created by a delayed roll out of the EMR.

Nuclear

The introduction of CfD for nuclear, together with other forms of low-carbon generation, is an important part of the Government’s plans to support the construction of new nuclear capacity. Some commentators have suggested that the EMR has been designed firstly to accommodate the nuclear consortia that are bidding to build new nuclear reactors, to the detriment of other energy sources. This is primarily because the Government have stuck to their no subsidy line for nuclear. This appears to provide very positive reading for nuclear and DECC appear very ready to engage with project developers in the short term before CfD comes into force. This will be welcomed by EDF Energy, who today suggested that they may apply to extend the life of their existing nuclear power stations.

Renewables

The CfD is seen by many commentators as favouring developers of larger renewables projects, but as an industry the EMR will be welcomed as a first step to providing the investment certainty required to build new capacity, especially the third round of offshore wind. For developers though the devil will be in the details and there remain some questions about issues like the tenure of CfDs, the details about contracting parties on CfDs, but perhaps most importantly around the proposed timeline for implementing EMR. The industry suggests these timelines look ambitious. The CfD must be in place to support investment decisions before the end of the RO, which currently expires in 2017.

Today energy major Total plugged the well at its Elgin platform the North Sea that has been leaking gas since March 25th this year. This is a great result and now will make the process of plugging the well more straight forward. The plans to drill a relief well, which have been run simultaneouslywith the Top Kill attempt, were well progressed, but estimates suggested this would take six months to complete. No doubt customers, officials at DECC and operators of nearby platforms will be relieved, a estimate suggested that up to 6% of the UK’s summer gas needs would be affected by the leak. Now that the leak has been stopped, hopefully production can be brought back online safely in the coming weeks. 

I expect too that those concerned about the environmental impact of the Elgin spill will also be relieved that the leak has been stopped. There will of course have been consequences for the local ecosystem as a result of the leak, but these have proven to be far less apparent than the impact of oil spills. It is this aspect of the spill that I wanted to focus on with this post.

Of course I am not overlooking the impact of this spill, but as this case has shown gas is not as visibly noxious as oil and the results of a spill are not as easy to convey visually, which impacts media interest. I remember Greenpeace had attempted to convey the impact with some high impact infra red images of the leak, but even these images didn’t get much traction. Had the leak caught fire then in terms of reputation this leak would have been far more catastrophic.

I think this chart neatly shows this in action (the horizontal axis is time and the vertical axis is number of posts). It’s small, but you can clearly see how interest has tailed off since the initial news of the leak and early speculation about the impact of the spill. The red line shows how this played out in mainstream media and the grey line shows Twitter posts. It is interesting that in contrast to the Macondo spill in the Gulf of Mexico, media interest has been far more muted and less persistent. Of course there are other differences including BP’s record in the US, the company statements that exacerbated media interest, the apparently different perspectives between BP and the White House etc, but one difference is telling and that is the visual impact of oiled birds and beaches versus the more intangible evidence of a gas leak at Elgin. 

It lead me to wonder a question to which I don’t know the answer, but would be fascinated to know and that is whether the risk profile and therefore cost of offshore gas developments factors in this lower reputational risk. I expect the differences in terms of risk are probably imperceptible, but from a reputational perspective this leak appears to have been far easier to manage for Total than Macondo was for BP.

As some of you know, International Petroleum Week took place in London this week.

For the second year in a row, the risk of supply disruption was the dominant theme at the conference, where the main worry was Iran (a shift from Libya in 2011).

The event, which brought together influential traders and executives in the energy industry, led to many talks and forecasts on the price of oil – with some ventured forecasts hitting $150 a barrel or higher dependent on the large supply disruption involving Iran influences the energy market.

The FT reports that Wall Street banks briefing their clients during IP Week have painted a bullish outlook. However, Christophe de Margerie, Chief Executive of French oil group Total, tried to calm the market by claiming it had had no trouble finding alternative sources of crude since it ceased trading with the country earlier this year. That message was supposedly reinforced by the International Energy Agency.

Another topic of interest at the conference was minister of state for energy at DECC, Charles Hendry’s opinion on the Coryton refinery.

The Global technology Forum published an interview with the minister. “We think Coryton has a very real future in the UK economy. Of the Petroplus refineries, it’s probably the stronger one and therefore while there is clearly  challenges facing the refining sector across the whole of Europe, Coryton is in a strong position to survive in the future.”

He added that they are currently preparing a strategy paper which will be published in Autumn of this year about “how we view the importance of that industry and we have an organisation called the Downstream Oil Industry Forum which brings together industry and government to work on that.”

Other highlights of this year’s programme included a focus on Russia, The Arctic and CIS, with a presentation from Jonathan Kollek, Senior Vice President of Sales, Trading and Logistics at TNK-BP, and a talk from Paul Corcoran, Financial Director at Nord Stream AG about Nord Stream’s ability to help companies meet European Gas Demand.

There was also a focus on deep-water offshore with presentations from Ali Moshiri, President, Africa and Latin America E&P Company at Chevron  and a discussion on partnerships with Kjell-Erik Oestdahl, Executive Vice President Operations at  Schlumberger.

We will be closely monitoring the shift in crude oil prices over the coming months as the relationships between Iran and other European states develop.

Which? The consumer affairs group today launches the Big Switch campaign, designed to get the more than six in ten households who have never switched their energy supplier to consider doing so. Featured today in The Mirror and The Sun the campaign is encouraging consumers to submit their (non-binding) interest in order to collectively negotiate a better deal from the large energy suppliers.

The timing couldn’t be better and the Which? team deserve credit for launching in the middle of a cold snap when interest in energy prices is set to peak again. It is also just days into the term of new Secretary for Energy & Climate Change, Ed Davey, who began his Cabinet career by suggesting his focus would be on enabling consumers to get a better deal from their energy supplier. 

Which? Has long been a trusted consumer brand and I remember blogging last year about CBI research around the Green Deal that showed Which? to be the most trusted brand by consumers looking for advice. This campaign is in my mind overdue and I hope that it will be successful. I’ve signed up this morning and it was dead simple. Congratulations to Which? for kicking it off.

They will though face an uphill struggle in encouraging consumers to make the switch if the latest research from Ofgem is to be believed. In a report available on the regulator’s website they review attitudes to switching and new devices aimed at simplifying bills. It’s clear from the opening of the report though that the vast majority of energy users fall within a ‘disengaged’ category of people who don’t understand their bill, don’t appear to want to understand their bill and/or don’t feel there is much value in better understanding their bill because ultimately they do not trust that their time and interest will save them money. As I mentioned the Which? campaign faces and uphill struggle, but they have made the right start. I also just noticed the first tweets about this from @whichaction and @whichconvo. This is encouraging because a campaign like this is made for social networks. A shame though that Facebook hasn’t also been engaged by Which? I did look for their page to show an example of what they are doing, but perhaps they are waiting for the new Facebook timeline to launch on 29^th February.

Either way don’t delay, expressions of interest need to be logged on the campaign site by 31^st March.

It has been an age since my last blog and on the energy front things have been busy. The Statoil campaign in the UK has kicked into gear, we’ve had the Electricity Market Reform, release of strategic oil reserves (good blog from Platts yesterday), increased retail energy prices in the UK and continued debate about the future of nuclear in different parts of the world.

In the world of media too things have changed. Of course we no longer have the News of the World on our newsstands, but we have a new social network to play with in Google+ and apparently there are already 10 million users (for those interested I’m at http://gplus.to/chrispratt). We also had the launch of the Huffington Post in the UK, and the subsequent debate in the journalist twittersphere about unpaid content and commentary.

Personally speaking the pace of things at work and at home (moving into new house) has precluded much else, but the train journey has allowed me to make a start on the new book by Tom Bergin , Spills and Spin, about BP’s Macondo spill and the changes at BP under Lord Browne and Tony Hayward, which according to Bergin had created an environment more comfortable with risk than perhaps an oil company should be. It’s an interesting perspective and I look forward to the week off next week that will allow me some time to finish the book.

I’m also looking forward to reading more about the fallout from the EMR. One thing is clear about the reforms and that is that energy prices will increase to foot the bill for the investment in our national infrastructure. What the bill will be and how much the average energy consumer will have to pay, nevermind the extent to which heavy industry can afford to stay in the UK, will be the subject of much debate as the Government starts to provide the clarity required to make the calculations. From a communications perspective therefore much remains to be done as consumer groups, businesses, energy companies and Government line up for what will be a time of challenging messages. Something to think about on the beach? Probably not, but maybe when I get back.

The sun shone on Monday during my visit to Aberdeen to meet with representatives of the offshore energy industry in the Granite City, but the general mood of the industry appeared more glum under the gathering rainclouds of increased regulation and the changes to the offshore production levy.

The current consultation by the European Commission into offshore drilling may well be a pre-cursor to additional regulations for an industry still integrating learnings from the fallout of last year’s Gulf of Mexico spill. The key question will be the extent to which any new regulations place additional burdens (and costs) on an industry that has for many years set the bar for world offshore HSE standards.

There was an encouraging appetite for making contributions to the consultation among those that I met with, but evidence too that many were planning to make only collective submissions, which often has the effect of watering them down. What is clear is that DG ENER at the Commission are keen to review offshore drilling regulations and that such a consultation regularly results in regulatory changes. Now is the opportunity to engage in the process to avoid any nasty surprises.

Speaking of which it is clear that the energy industry operating on the UK Continental Shelf is still reeling from the changes to the offshore production levy introduced in April’s Budget. It seems that there are fresh headlines every day as different organisations up the ante and review investment decisions as a result of the changes. Certainly Energy Secretary Chris Huhne’s meeting with the Energy and Climate Change Committee yesterday has done little to settle industry concerns at the apparent intrasigence of the Government on this issue, especially when it comes to gas production and marginal fields. Although according to some the result of the AV referendum could bring about some changes.

This is an issue that we expect to run and run in the coming months, but I hope the storm clouds lift for long enough that we can enjoy some of the beautiful sunshine that is forecast.

H&K were fortunate enough to have the opportunity to host a very interesting event by the Confederation of British Industry (CBI)yesterday morning. The event was not only one of the first outings of new Director General, John Cridland, but also featured Secretary of State at the Department for Energy and Climate Change, Chris Huhne MP in one of his first outings since the launch earlier this week of his government’s Carbon Plan. The CBI used this event to share some insights about consumer attitudes toward ‘low carbon economy’ products and initiatives and from a communications perspective the conclusions gave some food for thought. First though some really useful stats from the CBI report entitled ‘Making the Consumer Case for Low Carbon’:

•  Three quarters of the UK’s greenhouse gas emissions are either directly or indirectly attributable to consumer actions (Sustainable Consumption Institute)
• Seven out of ten people feel a sense of responsibility to do something about climate change (Ipsos MORI, March 2010)
• 39% of respondents to Ipsos MORI said that ‘clear evidence of reduced running costs’ would change their purchasing attitudes toward more energy efficient products
• 83% of respondents either strong agreed or tended to agree with the statement that ‘companies have a responsibility to give consumers as much information as they can about the energy efficiency of the products they sell’.
• When asked about which sources of information they trust to provide reliable information about energy efficiency or climate change, 40% said Which? Magazine, 30% Government or Government agencies, 28% scientists, 16% action groups like Greenpeace, 16% manufacturers, 12% trade associations. 9% newspapers, 9% TV and 9% retailers/shops. There were striking differences between different age groups too.

So what was so interesting from a communications perspective? Well one of the overriding messages that Mr Cridland was sharing with the audience and his members was that they had a challenge to communicate better with consumers if they were to convince them that low carbon products were worth their consideration.

When the leadership of an organisation like the CBI starts to make statements like this it can feel like manna from heaven for a communications specialist, especially when they conclude by saying that this is about more than spin and offering worthy but premium priced alternatives, it is about creating compelling price points and standards that consumers can trust. I couldn’t agree more and so look forward to working with our clients to define compelling low-carbon propositions for consumers. With the launch of the government’s Carbon Plan, policy appears to at last be providing a relatively clear path for more investment by business in the low carbon economy. Let’s hope the joined up approach continues.

One area where the Coalition government has stuck to its guns has been the issue of public subsidy for a new-generation of nuclear power stations – there will be no money.

The cost of decommissioning nuclear plants, and disposing of nuclear waste, has become a huge financal millstone around the neck of the government, as Chris Huhne made clear in his speech to the Liberal Democrat conference this year.

The Government’s mantra was continued in the consultation launched this week by DECC. In it, DECC sets out detailed proposals aimed at ensuring that the taxpayer is not on the hook for the cost of decomissioning or waste disposal in the future. In a nutshell, nuclear plant operators will be expected to make sufficient financial provision for decommissioning and disposal of waste from day one.

The question remains whether any potential operator has deep enough pockets to go ahead on this basis or whether, with energy security concerns becoming ever more pressing, the Government will fudge the issue by e.g. setting a minimum price for carbon. DECC is expected to launch a wide-ranging consultation on electricity market reform next week, which is likely to address a floor price for carbon among other issues; the small print will be keenly scrutinised…