Written by Philip Armstrong, Account Director, Madano Energy Practice
So now we know. The Conservative Party go into the election with a pledge to take the UK forward, together (in a ‘strong and stable’ way, of course) while the Labour Party are offering eye-catching policies for the many, not the few.
On the face of it, there’s a huge gulf between the two manifestos. On marquee issues – migration, taxation and deficit reduction – that’s absolutely the case. But, on at least one issue, there’s a substantial convergence with significant implications – energy.
Despite the bluster, it is now clear that the UK’s main political parties are committed to intervention to ‘fix’ the energy market. While it’s fair to say their approaches differ in style and substance, both parties pledge some form of price control for energy suppliers.
Even if the Conservatives bow to pressure to water down their ideas, this is still a big shift from their traditional market-friendly approach. Meanwhile, Labour is continuing a policy trend that has been developing since the Ed Miliband years.
It’s not just consumer bills though – both parties support greater levels of Government intervention across the energy sector. The Conservatives are moving towards relieving councils of their planning role in fracking and will set up new bodies to enable a major push to exploit UK shale reserves. Labour proposes to give new publicly owned companies control of regional energy infrastructure and has grabbed attention by pledging to nationalise the whole grid in the longer-term.
Now, some will claim (not unfairly) that the energy market is not functioning as it should and so government needs to step in and ‘do something’. It is also fair to say that governments haven’t really stopped tinkering in the energy sector since privatisation. However, the manifestos signal a new, more populist, interventionist mind-set that carries real risks for the sector.
Significant and persistent intervention by government will likely knock investor confidence, which in turn could increase the cost of capital and harm inward investment. This is a serious issue, particularly given how dependent the UK’s energy economy is on foreign funding. Companies will need to be alive to the risks no matter who wins the election.
There also remain many unanswered questions on energy policy, which won’t be resolved until after the election. The Conservatives say little in detail, offering a post-election policy review and commitments already made in the Industrial Strategy Green Paper. Labour might argue that they have made the more ambitious pledges, including making 60 per cent of the UK’s energy low carbon by 2030, but it’s not clear how they would achieve this (if elected).
This means that what the energy sector craves – policy certainty – is unlikely to be forthcoming when the smoke clears on 9 June. We already know that investor confidence in the UK’s energy sector is weak – EY’s latest renewable energy investment attractiveness index found investors are “underwhelmed” by the state of UK energy policy. Continuing uncertainty in areas as wide ranging as market pricing, the competition for small modular reactors, sign-off on a pathfinder for tidal power or support for renewables, is deeply unhelpful.
So now we know, whoever wins, we can expect another shake-up in the energy sector, by a government that is willing to intervene more directly. In this environment, it will be crucial for companies working in the energy sector to communicate early, clearly and effectively. They will need to state the facts but also social purpose – their positive role in society. And they will need to go beyond just government and speak directly to consumers, those ’hard working families’ whose anger at rising costs is a key influence on political parties’ policies.