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Energy and the EU Referendum. What’s next for energy prices?



Energy and the EU Referendum. What’s next for energy prices?

IDG’s Environmental Consultant Chris Shearlock shares his thoughts on energy prices, the EU Referendum and how businesses can use the potential impact as a catalyst to better resource efficiency.

 

It’s certainly been an interesting few weeks and now that the result of the EU referendum is starting to turn into questions of ‘what next?’ my mind turns to the potential implications for energy.

During the campaign, one of the biggest arguments put forward for leaving Europe was that deregulation could bring about a new competiveness for the UK. With environmental protection and the supply of energy both being highly regulated, the theory was that if we took this burden away from UK businesses, costs would drop and attention could be invested elsewhere.

But with article 50 yet to be triggered and then our two year exit plan from there, only time will tell what happens in the long term.

And yet the impact on energy will likely be felt a little sooner and so now really is the time for businesses to be proactive and start thinking about how they use their resources.


Energy Impact Area: Currency and Imports
One issue that seemed to have a reasonable level of consensus before the referendum – and is now being borne out in the markets – is that the pound would fall against key currencies such as the US dollar and Euro and how this affects our spending power.

In the UK, we currently import the majority of our fuel and with this being traded in US dollars, price hikes could follow. Couple this with the recent increase in oil prices (from $39 to $48 per barrel from April to June), the deflationary trend we’ve seen at the pumps in recent months may well reverse too.

Similarly, gas and coal are also largely imported and so wholesale prices could be set to rise as forward purchases expire. With the likelihood of these increased costs being passed on to consumers, we could see some price hikes as early as the autumn.


Energy Impact Area: Infrastructure
Alongside the economic issues of a weak currency and purchasing power, general uncertainty in our markets can play quite a significant part in how things move forward – especially in areas that need investment.

The UK’s energy infrastructure is badly in need of an upgrade and a large number of current projects such as power stations and offshore renewables are reliant on significant outside investment, whether from other EU countries or further afield.

The degree to which these are affected by the decision to leave and the following uncertainty is again another unknown, but it could mean that some projects slow down and investment that would stabilise prices in the future stall in the short term.


Energy Impact Area: Access
Generally speaking, for energy prices to remain low and stable we need access to European markets via the interconnectors linking us with the continent.

As we are in such early stages of the decision to leave, it isn’t clear what arrangements will be made to access cheap electricity. As we go about negotiating new trading arrangements, there may again be an impact on the price of energy supporting our businesses in the meantime.


Taking Positive Steps
Although the impacts of the EU Referendum will take time to filter through, now is the opportunity to take stock and positive steps.

Taking on board what is happening so far, there is a lot we can do to support our businesses moving forward - ensuring that we build up our resilience and competitiveness for the future.

So when it comes specifically to resource efficiencies what can you do?

  • Plan: It could be that the currency shocks we see now will translate to energy price rises in a few months. Take some time now to look at how much energy your business is using, what you are likely to need and afford and whether you have the opportunity to make quick savings. For example, do you leave lights and machines running outside of operating times? Do you use equipment that eats electricity when more efficient models are available and often offer short payback periods? Forewarned is forearmed.
  • People: Don’t consign energy and other resource efficiencies to just your senior team or specific department – chances are every single person in your business uses resources in some way. And so it follows that they can be in the best position to help you be more efficient. Explain how being careful with energy and other resources is important to the business and its future, encouraging suggestions or reports of anything that needs attention. Make it a positive part of your culture.
  • Perseverance: If you really want to make sure your business is using resources as efficiently as possible, it’s not a one time thing. You need to keep an eye on what you’re doing to identify development and keep the momentum of improvement going. Regular spot checks, healthchecks and implementing formal standards such as ISO 14001 and ISO 50001 can all help to support you, as well as engaging your people in this approach too. The savings, re-investment and innovation opportunities it can present will speak for themselves.

While energy price rises are a sobering thought, take it as your catalyst to a fresh approach to resource efficiency – converting environmental pressures into competitive advantage.

 


Chris Shearlock is our energy and environment specialist consultant at IDG. If you’d like to get a hold on how your business is using energy, water and other resources and how you can be more efficient, please get in touch.

We have a range of services that can help, including our Energy & Environment Healthcheck which identifies improvements you can make and how - with many recommendations often being no or low cost to take forward.