Enjoy the calm before the storm in the turbulent energy market

Peter Nisbet -
What consensus do you get around the major energy issues of the day when you gather industry, policy and political experts around the table? Surprisingly rather a lot as we found at our recent Energy Question Time event.

Andrew Neil, who hosted the debate, summed it up with the view that businesses should be ‘concerned but not suicidal’. He was referring to the lights going out but the same could be said about a number of issues bubbling away at the moment. However complacency is the enemy of business, particularly in the turbulent world of energy, and whilst the waters may seem relatively calm at the moment, a storm is never far away.

 Our illustrious panel included: Shadow DECC Energy Minister Alan Whitehead MP; Richard Murphy, Managing Director at The Energy Consortium (TEC); Robert Buckley, Director at Cornwall Energy; Former DECC senior civil servant Jonathan Brearley and Peter Haigh, Managing Director at Bristol Energy Ltd.

Prices were, unsurprisingly a big issue for the audience - senior energy and procurement leaders from big business across retail, finance, leisure and telecommunications. Whilst we expect low prices to stay for possibly the next two or three years, recent events which have seen the crash in wholesale prices, remind us that the energy market can be notoriously difficult to predict.

Policy changes which have shaken up support for renewables have also been a big concern for business. A good example of this was the removal of exemptions for renewable energy sources from the Climate Change Levy (CCL), which has seen many businesses funding an unbudgeted rise in their energy bills. Such shock announcements can also have a knock-on effect on investor confidence.

The issue coming to the forefront of everyone’s minds again is the danger of the lights going out. At Utilyx we believe that is highly unlikely this winter, a view that was echoed by our panel of experts. However there is much more concern about capacity margins from 2016/2017 onwards. This is due to three major factors: coal plant closures, subsidy cuts to renewables and the impact on investor confidence, and the lack of new plants being built to fulfil our future energy needs. With limited additional capacity coming online to replace closures of coal-fired plants, we're likely to see energy supply margins continue to tighten. 

So how can businesses best weather the oncoming storm? If there was one conclusion from the panel it was: ‘cover all bases’ and ‘don’t get complacent’. Businesses would do well to spread their bets right now – ensure they have flexible contracts enabling them to respond to changing market conditions, focus on reducing energy consumption and consider self-generation.  These measures will become increasingly important when greater price volatility and higher prices hit the UK. With the likelihood of capacity margins being squeezed further in the future and the unpredictability of current energy policy we could be in for a turbulent time ahead. So our best advice to business right now is to enjoy the rare moment of calm but buckle up and get ready as the ride is almost certainly set to get rockier.