EY UK Energy blog

The energy game is changing – can the industry keep up?

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Posted: Wednesday, 17 October 2012 at 9.20am

I’ve been asked to write the inaugural blog for our new Energy Hub – what an honour and a privilege!

Where do I start? Well, what about a comment on the biggest recent news stories and perhaps a reflection on some developments that got less coverage.

One of the two big stories seems to be a reiteration of what we have heard many times – energy prices are increasing, impacting any nascent recovery for businesses and further squeezing hard pressed households.

The second story is about the environment minister questioning whether the targets in the Climate Change Act can be met and the open letter from the Aldersgate Group signed by 50 of the UK’s largest companies and industry bodies. In that letter businesses are requesting clear leadership from Government to create the conditions for investment in delivering the low carbon power and the required infrastructure to enable the UK to be competitive.

These stories illustrate the paradox of the energy agenda. Politicians are caught between further fuelling short-term increases in price and failing to create an environment that will encourage investment and enable new technologies to accelerate down the cost curve towards “grid parity”.

But behind the big stories, something else is happening. Large corporates have decided that they will take resolving the energy agenda paradox into their own hands. They want to increase security of supply, decrease price volatility and reduce their emission. They, also, recognise that they can’t do this through green tariffs or the products the utilities offer.

Some of these corporations – which have an enterprise value greater than many Eurozone economies and much faster growth rates – are looking at investment in renewables and energy efficiency through a different lens. These projects provide a greater return than their cost of capital and, in an environment where investment opportunities are limited, they make commercial business sense and create the much talked about “shareholder value”. Perhaps they’ll be able to refinance them in the future as the investors take a better informed view of returns based on realistic future energy prices.

So this new dynamic can be a major force for change. But there’s also an important role for consumers as they respond to rising energy prices through energy efficiency measures and greater discernment about alternative sources of energy. We expect the changes in the world of energy to accelerate over the next few years and the EY Energy Hub will provide resources for organisations and policy makers to respond to these changes. We also intend to provoke and cajole. The issues around energy are too important for any of us to sit on the sidelines, watch and hope.

Will the Green Deal deliver? How will customers signal their preference for their chosen form of renewable energy?

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