Utility Week

12 | 1ST - 7TH JULY 2016 | UTILITY WEEK W ith the polling complete, the citi- zens of the UK voted to leave the European Union by 52 per cent to 48 per cent. In the wake of this decision, markets have been plummeting, the value of sterling has dropped to 31-year lows, uncertainty reigns, and the main UK political parties are in chaos. What hasn't yet become clear is what utilities, British business and the nation as a whole wants and needs to know: what hap- pens next? Short-term fears, linked to the tumultuous state the financial markets find themselves in and the political vacuum that has been created by David Cameron announcing his resignation and Labour's front bench desert- ing Jeremy Corbyn, have unsettled utilities. The UK, and in particular its regulated utilities, have been seen as a stable and secure place for investment, and as such have benefited from a low cost of capital. However, the Brexit vote has changed this because the whole UK plc picture has shied (see box). Moody's has said the uncertainty will have a negative effect on the UK's credit rat- ing, while Energy and Climate Change Com- mittee chair Angus MacNeil told Utility Week: "There will be a premium for investment." Aside from the extra costs now placed on the utilities and their investors, the lack of political and legislative clarity is the other major concern. Questions are being asked about the UK's access to the single European energy market, how the UK-Europe interconnectors will run, the security of supply of Britain, the impact on the European-led water and environment framework directives, and how the vote will affect the UK's climate change commitments. While the Climate Change Act binds the UK to reaching its carbon targets, the Renew- able Energy Association is leading calls from industry for the government to confirm the fih carbon budget so the sector can have some visibility on how these will now be achieved. Key water and environmental targets also potentially face an uncertain future and meanwhile a shadow has been cast over the UK's standing as a global centre for research and development of new products and tech- nologies – many of which will be essential for a transition to a sustainable low-carbon economy. There's no doubt the outlook is grim. But in the face of this, some experienced voices are already calling for industry to brace up and start working proactively to get the best results from its new future. Chiltern Power's director John Scott told Utility Week "there's no luxury of sulking" and others have urged utilities to start pour- ing resources into the scenario planning and business modelling. Before 23 June, so many had assumed such work would become a stranded investment. How wrong we all were. Lobby Election / Party conferences What happens next? The vote to leave the European Union has cast the UK into turmoil and economic uncertainty. Utility Week reports on what this might mean for the utility sector. Investment – how can utilities keep essential investment coming in, without borrowing costs spiralling amid the uncertainty? Regulation – what role will the regulators play and how will they co-ordinate with their EU counterparts? Affordability – with financing costs set to rise, utilities will have to think about how they can limit bill increases to consumers. Policy uncertainty – with a lack of clarity around what policies will drive future decisions, utilities will have to consider and revisit their business plans. Innovation – The UK has traditionally been a key trialling ground for next-generation technologies. Manufacturers and tech firms are now questioning whether that will continue to make sense. MAIN CONCERNS FOR UTILITIES Policy & Regulation

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