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Reflections on 2020 and Predictions for 2021

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By Carl Ennis (pictured), CEO Siemens and Smart Infrastructure, GB&I

Since becoming CEO in December, most of my life has been dominated by Covid-19.  But despite causing many difficulties, the pandemic has brought some good. It has accelerated the pace of change and given us valuable insights into where – and how – we will work in the future, the skills we will need, and the environmental challenges we face.

It has also provided distraction from Brexit, which I hope will move the discussion away from its rights and wrongs to focus on how the country can maximise any opportunities in the year ahead.

In the new future many people will continue to work from home if they can do so effectively, while offices will become places to meet. At Siemens, like much of the UK business community, we have found that intercontinental flights and getting together in person is not as essential as we thought. We now run strategy workshops and town halls online, and even festivals where we engage with all our employees. I predict that these ways of communicating with each other and groups of people will continue.

One of the many benefits of this working model is accelerated decarbonisation, which we urgently need. Our economy was almost crippled during the first lockdown, yet CO2 emissions reduced by just 20% and NOX by 40%. Strategies to increase decarbonisation will be central to discussion at next year’s UN Climate Change Conference, COP26, in Glasgow, in which I hope President-elect Biden’s administration will play a crucial role. Having the US agree that climate change is a real risk, with its scale and ability to influence global policies, will help the world address the issue.

My worry for the UK is that in the government’s enthusiasm to kick-start the economy, we will do what is easy or cheap rather than what is right. But instead of trying to generate short-term jobs we must “grow back green” and invest in long-term jobs that help decarbonise.

The government is also focused on identifying a couple of big things it can do to achieve the decarbonisation targets. These large-scale projects, such as investing in wind power and hydrogen, are important. Wind power is already generating more than 20% of the UK’s electricity, and hydrogen has huge potential for fuelling vehicles and trains and for replacing natural gas in home heating systems and industrial turbines.

But local initiatives are also essential if we are to meet our net zero carbon targets. That’s why Siemens has been helping local enterprise partnerships (LEPs) and local governments address energy challenges in transport, industry and infrastructure. Individuals need to get involved too. The old adage of environmentalists is “reduce, reuse, recycle.”  Reducing consumption requires all 66m people in the UK to participate.

I believe the shock that the virus has delivered to our economy will speed up digitalisation across industry. We will build a digital environment which will become central to everything we do. Unfortunately it will be painful for many sectors and businesses, but in the mid to long term it will be positive. History shows that when countries go through industrial revolutions there are winners and losers, but overall in the end everyone’s a winner.

We know that our businesses will be very different 10 years from now. A statistic that always astounds me is that 80% of the employees that we will have in 2030 are with us today. So while entry-level skills for apprentices and graduates matter, the existing workforce will need to re-skill too.

Adult learning is crucial and has gone unaddressed in the UK for too long. Covid-19 and Brexit have reinforced the need for us to develop and change our skills. This is not just about technical expertise — soft skills and vocational work will become increasingly necessary.

The fact that the virus pushed Brexit down the hierarchy of news was probably helpful. Anybody who’s been involved in negotiating a big deal knows you don’t want to do it on a public stage. The challenge is how to unlock the benefits people wanted without causing damage in the short term for individuals, society and business.

The negotiating teams have been trying hard to do that, and while time is short, most deal-making is done in the eleventh hour, so I remain hopeful. The gap between both sides is probably quite narrow, but a deal is essential for stability. Anything that goes above WTO arrangements will be positive.

President-elect Biden has been clear on his desire that the UK government does not implement changes that destroy the Good Friday agreement. We must not put that at risk. My father was from Dublin so I know first-hand how important the island of Ireland is to the Irish and our shared culture.

It’s going to be tough. From a business perspective, erecting barriers to trade is never a good idea. Brexit is likely to result in friction between us and our biggest trading partner, mainland Europe. That will present a challenge, but we’ll have to make the best of it. Luckily, as a nation we’re pretty good at triumphing over adversity and our business people are entrepreneurial.

Meanwhile, Brexit hasn’t stopped Siemens investing in the UK. In Hull, we partnered with Associated British Ports in a £310m investment to build a wind turbine blade manufacturing facility creating 1,000 jobs. And now we are spending £200m in Goole on a train facility to build the next generation of underground trains with 700 new jobs.

We still see the UK as a vibrant place and will continue to invest. While we would rather the added level of complexity of Brexit wasn’t there, it’s not stopping us from doing business.

But it will make life difficult for those of our suppliers and partners with vertically integrated supply chains in continental Europe and those who are trying to sell their products there. A brave person might make predictions about where they will be in a year’s time. But I will put my crystal ball aside for now.

Half of businesses in the energy sector believe Brexit will have ‘a long-term positive impact’

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A state-of-the-nation study into how businesses in the energy sector are prepared for Brexit has revealed 62% believe the process of exiting the EU is currently having a positive impact on their business, while just 15% feel it hasn’t had any impact at all.

Commissioned by Huthwaite International, the report shows that post-Brexit business prospects remain positive, with 52% of businesses believing their growth potential will prosper post-Brexit, regardless of the outcome.

When looking at what worries businesses most about the UK leaving the European Union, international trade, uncertainty around trade agreements and changes to laws and legislation ranked as the highest concerns.

Improving negotiation skills also ranked as the biggest priority amongst businesses before the Brexit deadline, with many sighting it to be a key priority when it came to safeguarding profits and reducing overheads.

Tony Hughes, CEO at Huthwaite International, said: “Gaining the skillset and knowledge to survive this economic uncertainty is vital for business success. The UK is packed with ambitious and prosperous companies that in theory should flourish regardless of economic uncertainty, however the importance of obtaining the core skillsets to flourish shouldn’t be underestimated.

“One of the few certainties the UK faces is that, for selling organisations, things are getting tougher. As buying organisations entrench, delaying or even cancelling purchasing decisions, sales teams across all sectors and markets are having to up their game. This means sophisticated negotiation skills aren’t just important to ensure the UK secures a quality deal with the EU, but also form the fundamentals for ensuring business success across the UK too.”

Huthwaite International has published a white paper looking at five key elements businesses can implement to increase sales success in times of economy uncertainty. These include:

  • Confidence through coaching
  • Aligning capabilities
  • Utilising your service resources
  • Negotiation skills
  • Effective qualification

To access the full research white paper, visit: https://info.huthwaiteinternational.com/improving-corporate-negotiations.

UK power market hits consolidation as Brexit looms

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A major change is underway in the UK power market, with increasing competition, regulatory headwinds, growth in renewables and investors’ uncertainty in Brexit all playing a part.

That’s according to research by GlobalData, which says a significant number of mergers and acquisitions (M&A) within the UK power sector has signalled a period of consolidation, along with over 10 electricity and natural gas suppliers folding their businesses within the last year.

GlobalData says the smaller scale suppliers are most at risk, with some exiting the market after they failed to hedge the risks properly, and others falling prey to big players through M&A.

“It is evident that companies will only be able to survive in this competitive market if they are able to achieve economies of scale,” said Ankit Mathur, Practice Head of Power at GlobalData. “The small players have provided an opening for large energy companies to diversify and enter the UK energy retail business.

“For example, Shell Energy debuted into the UK energy market after acquiring First Utility in 2017 and recently proposed to acquire Green Star Energy. This proposed transaction along with announcements of Octopus Energy acquiring Co-op Energy, and Ovo Energy slated to acquire SSE Energy’s retail business, marks the third such announcement in the last three months that indicates the UK retail market is under a consolidation phase.”

GlobalData says the UK’s Big Six energy suppliers (British Gas, EDF Energy, E.ON SE, npower, Scottish Power and SSE) have been badly bruised by the fierce competition from more than 60 smaller competitors offering cheaper and affordable prices.

According to Ofgem, the Big Six companies have lost around 1.3 million customers and are serving just above 70 per cent of the domestic customers. Their cumulative profits tanked by 10 per cent and earnings before interest and taxes (EBIT) fell by 35 per cent in 2018 as compared to 2017.

Mathur added: “The smaller companies in the next tier are boosting share; however, they are more prone to the risk, with some exiting the market. The new stringent entry requirements for new suppliers including tighter funding requirements, providing a customer service plan and passing a ‘fit and proper’ test may restrict new entry into the market.”

Brexit is already leading to higher energy prices

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Consumers paid on average £75 more in the year after the EU referendum for gas and electricity, according to research by UCL, with the business sector also to be hit as wholesale prices fluctuate.

A hard Brexit could lead to a further average rise of £61 per year in the event of further devaluation of sterling to pound-euro parity.

The UCL researchers found that energy bills increased overall by £2 billion in 2017 due to the lower value of sterling relative to the euro and US dollar.

The average wholesale prices of electricity and gas rose by 18 per cent and 16 per cent respectively in the year after the referendum, translating into a £35 increase for electricity and £40 for gas.

Lead author Dr Giorgio Castagneto Gissey (UCL Bartlett School of Environment, Energy & Resources), said: “We know that exchange rates fell after the EU referendum but we can now look at the effect this had on wholesale and consumer energy prices.

“The exchange rate depreciation plus the fact that energy prices are now much more volatile means consumers have been paying more and are facing even higher bills over the next several months.”

The wholesale gas price makes up 39 per cent of the price paid by consumers, so the 16 per cent increase resulted in a six per cent (£40) increase in retail prices. The variability of wholesale gas prices increased by 60 per cent in the year after the vote.

Co-author Professor Michael Grubb (UCL Bartlett School of Environment, Energy & Resources) said: “Forecasts always carry some uncertainty, but this research pinpoints historical fact: the referendum result, through its impact on exchange rates, has been the principal factor driving up UK household energy prices over the past two years.”

The Government passed a law in July giving Ofgem the power to set a price cap, and subsequently a cap said to save the average household £75 a year on standard tariffs has been proposed.

The predicted price rise of a further £61 resulting from a hard Brexit breaks down into £29 from electricity and £32 for gas. This corresponds to a predicted extra £1.5 billion added to consumers’ annual energy bill from the end of March 2019 to the end of March 2020.

The academics analysed the behaviour of the wholesale electricity price in the UK alongside the sterling to euro exchange rate between 2012 and 2017, finding that as the exchange rate fell dramatically after the EU referendum the electricity price increased over the subsequent year, directly reflecting the resulting higher cost of energy imports.

The prediction following a hard Brexit is based on an assumption of a further depreciation of sterling to sterling-euro parity, with a 12 per cent drop from the exchange rate of 1.14 on the 3 November 2018. The change in annual bills was calculated assuming everything else is held constant between 29 March 2019 and 29 March 2020.

The team behind the overall report used several data types; electricity generation and thermal efficiencies of fuel-intensive plants were used to calculate the shares at margin, with fuel and imbalance prices and volumes used to model electricity prices and derive pass-through rates.

For the overall report, the researchers aimed to understand the principal determinants of electricity wholesale prices in the UK and some major European markets. Those considered additionally were Germany, France, Italy, Spain, the Netherlands and Norway from 2012 to 2017. The report found Great Britain to be among the most cost-reflective of a sample of European electricity wholesale markets.