Utility Week

UTILITY Week 8th January 2016

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Page 11 of 31

12 | 8TH - 14TH JANUARY 2016 | UTILITY WEEK The year in review Review Uncertainty ruled in 2015 There's no doubt about it, 2015 was another big year for UK utilities with major events, investment decisions and policy developments across all market segments. This is the year that was. F rom start to finish, policy uncertainty, unexpected announcements and shi- ing strategies shaped the world of utili- ties last year. Many of these developments will significantly impact the way in which companies in the sector do business in 2016. Foremost among the changes of 2015 was the ushering in of a new government. But hopes that a majority administration would bring policy certainty are as yet unfulfilled. Despite a policy reset, question marks remain over government intentions for both energy and water. Elsewhere, energy giants were shiing shape with three major players taking steps to radically reinvent themselves for a low carbon future. National Grid also made clear its intentions to increase its use of demand- side response and to sell a majority stake in its gas distribution business. All these organ- isational transformations will continue into 2016, no doubt with a few more to join them. It was a busy year at the Competition and Markets Authority, though not in the way many had expected. While the results of the investigation into the energy market were delayed it found its hands full with appeals from Bristol Water, British Gas and Northern Powergrid. It also approved the takeover of Bournemouth Water by Pennon as merger and acquisition activity and investment con- tinued to flow into the UK (see p22). While investor confidence was tested by policy shis, 2015 did include big investment calls, most notably in relation the Hinkley Point C and the Thames Tideway Tunnel. Our annual revue takes a closer look at these formative trends and events, and more, setting the scene for utilities in 2016. Politics and policy Last year began with the industry under a general election-induced cloud of policy uncertainty. Ed Miliband's Labour was prom- ising a price freeze and plans to radically overhaul the energy market. The Lib Dems – losing the PR battle with their senior coali- tion partners – were eager to push the mes- sage of going green, while the Tories set out their plans to press ahead with shale gas and to "halt the spread of onshore wind". Thrown into the mix, and adding to the complexity of an election nobody was able to call, was the SNP, seeking to ban fracking and remaining staunchly opposed to nuclear power. Fast forward past the surprising exit polls to 8 May and David Cameron is heading the first all-Conservative government since the mid-90s. And the new Tory administration wasted no time in making its mark. Subsidies to renewables were cut, with Commodity prices and pressure to cut bills with it voting in December to allow fracking in national parks and other protected areas. Returning to Number 11, chancellor George Osborne continued with its austerity drive, making cuts of 22 per cent and 15 per cent to Decc and Defra respectively. On the opposition benches, Miliband stood down and Jeremy Corbyn took on the Labour leadership. He and his new shadow energy secretary say they want to "democra- tise" energy – whatever that means. Industry hopes that a clear election result would lead to clarity and stability have only been met with cuts and more uncertainty. The only clarity to emerge from Rudd's pol- icy "reset" is that gas is the would-be king. solar and onshore wind being hard hit, as well as biomass generators such as Drax. Further cuts were made to keep the Levy Control Framework under control, and energy secretary Amber Rudd also urged suppliers to pass on falling wholesale prices to consumers as part of a concerted cam- paign to keep bills down. Rounding off the year came the shock announcement that the £1 billion carbon capture and storage funding was being pulled, although extra cash is being awarded for research into small modular nuclear reactors. The interest in gas – both shale development and as the "transition fuel" – appears to remain from for the government, At the start of 2015, the major energy suppliers cut prices by a maximum of 5.1 per cent despite wholesale gas prices falling by more than 20 per cent. At the time, they blamed the spectre of Ed Miliband's price freeze pledge. With oil now languishing below $40 a barrel, and likely to remain there, the squeeze on gas prices will heap the pres- sure on suppliers to pass on the benefits. Energy secretary Amber Rudd has already made her opinion clear, as has Ofgem chief executive Dermot Nolan. The smaller players have cut their electricity and gas prices as they continue to fight for market share (see p15), but the silence from the big six since their early 2015 cuts has been marked. Calls to reduce bills – both electricity and gas – from the regulator and the government will only grow as the winter gets colder. Conservative Labour SNP Liberal Democrat Other 56 8 24 232 330 General election result, number of seats Brent Crude $70 $60 $50 $40 $30 Jan Jun Dec

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