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This Month in Energy – March

Rising and Falling Energy Costs 

The end of March looks set to bring further uncertainty when it comes to the energy bill support that will be available to UK business. While domestic energy support has been extended at the current levels for a further three months, as it stands business support is set to effectively end from Monday. 

While business support will technically continue in the form of the new Energy Bill Discount Scheme, the relatively high minimum price point where that support will now kick in means that businesses are effectively on their own from next week. Some sectors will continue to receive support, including sectors identified as energy-intensive and a small number of additional sectors identified for targeted support, such as leisure centres. Everyone else will likely face a substantial hike in energy costs, at least until 2023’s bearish wholesale gas markets start to translate to lower energy bills for end users. One analysis from Cornwall Insight found that for businesses that entered a fixed price contract at the peak of last year’s energy market could face a rise of 133% from Monday. 

One bit of relief is that the first signs of wholesale prices filtering through to bills are starting to emerge. In the past week, Ovo Energy became the first major energy supplier to offer an energy tariff lower than the domestic energy cap. In what is hopefully a sign of things to come in the next few weeks or months, much of the reaction to this announcement focused on advising customers not to jump on the first deal they see, with lower prices expected to come soon. After an initial decline during the spring and early summer of 2023, prices are expected to stabilise somewhat for the rest of the year, potentially signalling an end to the early, acute phase of the energy crisis that has rumbled on for over 18 months now. 

Net Zero 

March saw a flurry of seemingly increasingly dire warnings about both the UK, and the world as a whole’s, ability to meet its carbon reduction targets. The fourth and final instalment of the sixth assessment report by the Intergovernmental Panel on Climate Change, known as the Synthesis Report, was released in the middle of the month to draw together the key findings from the previous three instalments. It made for concerning reading, concluding that the world is approaching ‘irreversible’ levels of global heating, with catastrophic impacts rapidly becoming ‘inevitable’. 

In response, greater attention was placed on the UK’s own net zero efforts, which generally have been found to be lacking. A lack of a clear road map to net zero has been a recurring theme when it comes to commentary on the UK’s net zero ambitions. This culminated in a High Court ruling last July that the Government needed to publish a major update to its Net Zero Strategy that provided more broad and ambitious policies. While it came down to the wire to meet the nine-month deadline given, that update came this week as part of the Government’s ‘Green Day’ of announcements. 

Powering Up Britain 

The new title of the Government’s Net Zero Strategy update, Powering Up Britain laid out a mixed bag of new and reheated measures to bolster the UK’s efforts to achieve net zero and improve our energy security. While the announcements contained some much-needed support and clarifications for some aspects of our energy mix, yet again it feels lacking in detail or a clear picture of how to achieve net zero.  

The newest headline is the aim to ensure the UK has the cheapest energy in Europe by 2035, but without much of a plan on how to achieve that and an admission already that the raft of new measures will have no impact on energy costs either this year or next. Perhaps predictably at this point given recent Government announcements, many in the industry have already branded the Government’s ‘Green Day’ as a cobbled together rehash of previous policy announcements. This may be fair, given many of the policies included in the announcement this week had already been announced earlier in the month. This includes a boost to Contracts for Difference funding and a competition to find a viable small modular reactor. 

However, to focus on the positives, there is set to be a major investment in much needed EV charging infrastructure, while new funding will also be used to boost the rollout of heat pumps, the emerging floating offshore wind sector, carbon capture and storage and green hydrogen. This focus on UK renewable infrastructure is to be welcomed, both in terms of our collective net zero efforts and in boosting the UK’s energy independence.