All signs point to energy price hike for UK business

The UK government’s NetZero strategy is firmly in execution stage and we can now start to see where these initiatives are heading, a significant hike in UK gas price for business. Azad Camyab, CEO at Pearlstone looks at the key government initiatives that lead us to this conclusion…

In 2020 the Prime Minister announced a series of initiatives designed to help the country reach its target: net zero carbon emissions by 2050. Nothing unusual about that. Let’s dig into these initiatives in more detail to see what they are all about.

The government’s £1bn Public Sector Decarbonisation Scheme allows public sector organisations a financial lifeline to invest in new heating technology (as well as other things). Applications closed in January this year; sources close to the scheme leaked that it was incredibly popular and oversubscribed by as much as 100%. Not deterred by the overspend, the government announced it would return in 2021 instead. It’s almost as if they had a plan all along to pay for the budget busting popularity of the scheme. Let’s come back to that.

In September 2020 the government announced £2bn for the Green Home Grant, a

scheme that will fund up to two-thirds of the cost of ‘eligible’ energy-saving home improvements in England. Despite numerous rumours about the complexity of the forms and difficulty finding approved tradespeople during the COVID-19 restrictions, the scheme still achieved over 100,000 applications in the first phase and has been extended for another year.

Both schemes have similarities in their approach to improve energy efficiency. While the Public Sector Decarbonisation Scheme is far reaching in what it allows, it must include provision for the removal of legacy (gas powered) heating and cooling technology. At the very least, contracted firms must provide a plan for future work to be carried out which details cost implications and expected carbon savings. It is unlikely that heating projects will be carried out for economic reasons at this moment in time, the numbers just don’t add up. Instead, they will focus on other initiatives such as lighting that will both save money and carbon immediately.

Likewise, the Green Homes Grant includes a tiered approached to allocating funds, with a favourable weight applied to primary green measures such as insulation and (you guessed it) low carbon heat. Secondary measures such as more energy efficient doors and windows can only be included in the application if at least one primary measure is included. Furthermore, the funds available for secondary measures are capped at the value of the primary improvement.

On the face of it seems that government is challenging the problem from multiple angles, which is smart. The final play for Government is likely to focus on incentivise scheme to remove legacy gas-powered heating technology from business buildings. However, this time the incentive may not be the carrot as it has been in the initiatives above, but more likely a big stick. Learning lessons from the past, if Governments want business to act, they move to impact the bottom line of business. Raising tax on wholesale gas price should effectively accomplish that. Businesses will be slow to act as this will mean a herculean task of analysing all heating assets in the field and planning to update this over a number of years. The income into to Treasury during this period will no doubt pay for overpayments on the schemes leading up to this moment (look at how that worked out). While Public Sector organisations can simply push the button on their plans to update heating technology, previously mandated, which will now be more economically sound, thanks to the shift in the energy market.

It seems this Government has thought of everything, it will even avoid taxing its own local government buildings. Clever. There was further news supporting this shift from National Grid itself last week as it strategically manoeuvred it options away from National Grid Gas (NGG) and towards Western Power Distribution (WPD) in a move towards electricity distribution.

My message to UK business is: Read between the lines and act now to avoid the inevitable rush to improve and innovate.