The combination of a new occupant in the White House and the world’s focus falling on Glasgow for the UN’s climate change summit will drive the international energy agenda in the year ahead.
Graeme Forbes, Gemserv‘s Head of Energy Market Solutions, explains the market forces and insights that are set to shape the way we work and live in 2021 and beyond.
GREATER CONSUMER ENGAGEMENT
Since the UK’s gas and electricity markets were opened up to competition in the late 1990s, the retail governance arrangements have been managed by a number of separate – but interconnected – codes of practice. These rules and governing bodies were established by the largest energy suppliers and were, largely, created to protect their interests and their business models.
At the time, this was not an unreasonable position. It reflected a nascent market craving stability and security, while it learned, developed, and grew. Change was slow and the process for changing suppliers even slower. However, as technology has evolved and consumer behaviours have changed, there is a need for a more flexible regulatory framework that is both more accommodating for
new business models and also more considerate of how it engages with, and treats, the end-user.
The regulator has been working hard not only to increase consumer engagement in changing their energy suppliers but also to improve the associated switching systems and processes. That work will take a major step forward during 2021 when both a new governance framework – the Retail Energy Code (REC) – and a new Centralised Switching Service (CSS) go live.
That combination of the REC and the CSS represents a more innovative and consumer-focused approach.
They should also encourage greater competition between the companies that want to supply customers with gas and electricity.
That means 2021 could see regulators, distributors, suppliers, and service providers truly put the consumer at the heart of the retail energy market. Consumers will also gain more control over how their data is used. That focus on data alongside energy will be crucial in the years ahead, as demand-side response plays a greater role in balancing an electricity system that will be dominated by intermittent renewable power. The combination of smart meters, battery storage, and balancing mechanisms will start to take a clearer shape over the next 12 months.
FLUCTUATIONS IN CONSUMPTION PATTERNS HERE TO STAY
The ever-changing sequence of national and regional lockdowns has turned traditional gas and electricity consumption patterns on their head. During the spring, the balance of consumption switched from commercial to residential as hundreds of thousands of workers were sent home from their offices.
Although consumption returned to within touching distance of normal levels over the summer, several patterns have emerged, such as the lack of a daily commute pushing peaks in the consumption curve to later in the day.
During televised addresses from the Queen and Boris Johnson, National Grid even noticed the return of the traditional TV “pick-up” as house-bound viewers turned their kettles on at the same time – a trend that even occurred after the Thursday night “clap for the NHS”.
Changes to those consumption patterns during 2021 will depend on the speed and spread of the vaccine rollout. While the inoculations will allow some workers to return to their offices, many companies will be pondering the potential cost savings of leaving at least part of their workforce to carrying on with remote working.
For many people, working from home could be here to stay – whether through their own choices or those of their employers. Analysts predict that energy consumption could paradoxically increase because domestic heating and lighting – and insulation – aren’t as efficient as in most workplaces.
When furlough eventually ends, those left without jobs will face the hardship of heating their homes while job hunting or on benefits. Others will be wary of their lack of job security as the economic consequences of the pandemic begin to hit, and so may trim their gas and electricity consumption to start saving money for the rainy days ahead.
Either way, the chances of returning to “normal” gas and electricity consumption patterns are slim. Instead, the “new normal” could well include different peaks and troughs in consumption, which will tie into the wider trends that will come from smart meters and the introduction of electric vehicles (EVs).
US PROVIDING GLOBAL LEADERSHIP ON CLIMATE CHANGE
Under Donald Trump, there was a major shift back to traditional fossil fuels like oil and coal as part of his efforts to support economic regeneration, as well as feeding into his rejection of climate change concerns. When Joe Biden is inaugurated as the 46th president of the United States, the country’s energy policies will change. The president-elect is proposing net zero electricity production by 2035, with $2 trillion of investment in energy efficiency measures for four million buildings, and no fracking on federal land.
Once the US begins providing global leadership on climate change again, there will be a shift in other countries’ net zero policies too. Decarbonisation and low-carbon technologies will become increasingly attractive for investors and for industry as the world chases the green dollar.
Many of the measures contained within the UK Government’s Energy White Paper and Prime Minister Boris Johnson’s recent “Ten Point Plan for a Green Industrial Revolution” will sound familiar on the other side of the Pond. Politicians on both sides of the Atlantic realise that boosting renewable energy production needs to go hand-in-hand with creating “green” jobs and revitalising former industrial areas.
COP26 TO SPARK GREATER INTEREST IN RENEWABLES
While it’s become a polarising issue in the US – often along party lines – opinion polls show the British public are more supportive of policies to tackle climate change.
Which directions those measures should take will come into sharp focus in November when the 26th UN’s Conference of the Parties (COP26) rolls into Glasgow.
The climate change conference will bring together the world’s leaders to agree tougher binding targets to reduce greenhouse gas emissions and move closer to net zero.
That focus on the environment will play out in two ways domestically – from a household and from a business perspective. On the business front, expect campaigns such as RE100 to redouble their efforts to sign-up members both before and after COP26, as companies commit themselves to only using renewable energy.
They’ll be in good company – Amazon’s recent signing of the world’s largest single site corporate power purchase agreement to buy electricity produced by a wind farm in Scotland is a sign of things to come. Surveys show that consumers want to buy goods and services from brands that can demonstrate their commitment to climate action, so expect to see more businesses walking the walk, not just talking the talk.
Households will also be focusing on the impacts of their actions too. If more people are choosing to work from home – or have become a permanent part of their employers’ remote workforce – then they’ll be keeping a closer eye on their gas and electricity bills.
If energy companies can set attractive prices then we could see more consumers moving over to greener tariffs. Those households that are able to install solar panels or other small-scale renewable energy devices may also take the opportunity to become more self-sufficient in terms of generating their own electricity.
At a macro level, there will be pressure on the UK Government to lead by example in the run-up to the conference and the recent publication of the Energy White Paper and a new emissions reduction target have set the direction of travel.
For the energy sector, the uncertainty of Brexit has mainly focused around security of supply across new borders and the impacts on company ownership. While there was never any expectation that interconnectors would be “cut” or fuel ships blockaded, clarity was still needed on how a full range of new commercial, legal, technical, and political requirements would be addressed.
Even if a headline announcement is made before Christmas, in all likelihood detailed negotiations will still be going on while the majority of us are enjoying the Hogmanay celebrations. However, whichever way the final decision goes, there is confidence at government and regulator-level that supply will continue without interruption. With plenty of gas reserves and increasing sources of
electricity from renewables, there is little concern for a post-Brexit blackout.