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CBI data highlights business anxiety at rising energy costs

 960 640 Stuart O'Brien
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New survey data from the CBI has revealed the extent to which businesses, like households, are concerned about soaring energy costs. More than two-thirds of firms expect their energy costs to increase over the next quarter.

A third of firms expect energy price rises to act as a barrier to growth, by stifling current or planned investment in energy efficiency or Net Zero measures.

With many firms, particularly Energy Intensive Industries and SMEs, already feeling the pinch, further energy price rises could push many viable businesses to the brink unless urgent action is taken to support them and their supply chains.

The says it will CBI will work with new ministers to explore all options for navigating the crisis and has proposed a 3-point plan that can be delivered at pace to support vulnerable consumers and businesses by targeting help where it is needed most, cutting costs, and kick-starting an energy efficiency drive that reduces demand and boosts the UK’s energy security:-

(1) To target support at those households and firms most in need, the UK Government should:

  • Urgently introduce targeted interventions for the most vulnerable households, through existing mechanisms like the Energy Bills Support Scheme
  • Instruct HMRC to replicate Time to Pay flexibility granted during the pandemic to take account of energy price rises
  • Launch a publicity drive around the recent extension to the Recovery Loan Scheme and commit to its expansion should evidence show this is needed; preparatory discussions with lenders should begin now, so future decisions can be taken at pace if the situation deteriorates and further help is needed

(2) To help keep costs down, the UK Government should:

  • Announce a business rates freeze now for 2023/24. This would head off a business-as-usual approach that would otherwise see rates increasing with inflation, and piling additional pressures on firms when they can least afford them. (Governments in devolved nations should do the same)

(3) To kick-start an energy efficiency drive to reduce demand, the UK Government should:

  • Roll out an ambitious programme to improve energy efficiency by providing people with upfront financial support to help retrofit household insulation (through a new ECO+ scheme)
  • Provide energy efficiency support for the most energy intensive sectors through an expansion to the Industrial Energy Transformation Fund

Matthew Fell, CBI Chief Policy Director, said: “The impact of soaring energy prices on households is going to have serious consequences, not just for individuals but for the wider economy.

“While helping struggling consumers remains the number one priority, we can’t afford to lose sight of the fact that many viable businesses are under pressure and could easily tip into distress without action.

“The guiding principles for any intervention must be to act at speed, and to target help at those households and firms that need it most.

“Firms aren’t asking for a handout. But they do need Autumn to be the moment that government grips the energy cost crisis. Decisive action now will give firms headroom on cashflow and prevent a short-term crunch becoming a longer-term crisis.

“With firms under pressure not to pass on rising costs, there is a risk that vital business investment is paused or halted entirely. That in turn could pose a real threat to the UK’s economic recovery and Net Zero transition.”

Europe’s energy crisis creates a ‘trilemma’

 960 640 Stuart O'Brien
By:

HANetf recently reached out to its expert partners in the energy sector to articulate their thoughts on the ongoing energy crisis in Europe [1].

With Europe currently sweltering under extreme temperatures, cold weather is likely the last thing on the mind of many. However, with Russia dialling back supplies to Europe, the continent potentially faces an energy shock this winter.

Gabriela Herculano, manager of the iClima Global Decarbonisation Enablers UCITS ETF (CLMA) and iClima Smart Energy UCITS ETF (DGEN) comments on the difficult decisions being faced by European countries: “Countries are facing a “trilemma” during the coming energy transition, as we must decarbonize the energy industry while guaranteeing security of supply and affordability. European countries are doing two things in parallel: passing legislation that supports a massive acceleration in the energy transition, while going back to using fossil fuel for electricity generation.[2] Coal burning related emissions are thus likely to increase in Europe. The consequences of the reduced flow of natural gas from Russia that started in June are profound.

“In the long run, Germany will decarbonize its energy sources and renewable energy will replace Russian hydrocarbons, but in the short term the alternative is to replace natural gas (that can only be either liquified as LNG and then transported or sent via long pipelines) with coal (that is transportable in bulk) for electricity needs and store the natural has still being supplied for heat purposes ahead of next winter.[3] Germany, Italy, Austria, and the Netherlands have all announced plans to restart coal fired power plants; Germany’s Economy Minister Robert Habeck, a Green Party member, referring to the decision as “painful but a necessity.[4]

“However, the mid to longer term growth prospects of green solutions – from EV adoption to long duration energy storage – are extremely strong, again led by Germany in a material way. That means that longer term investors have a unique opportunity to invest in the companies leading the energy transition at a steep discount.”

Konrad Sippel, Head of Research at Solactive, the index provider for the Electric Vehicle Charging Infrastructure UCITS ETF (ELEC), expands on this issue:

“I think the interesting thing to observe is how quickly past policy decisions become obsolete in the light of a real and immediate threat of an energy shortage: discussions about increasing the use of coal power, the re-opening of a discussion on nuclear energy in Germany, just to name some examples.

“On the other hand, the short-term crisis is also likely to accelerate adoption and expansion of renewable and alternative energy sources and an affirmation of the Paris Agreement goals which should also in the mid-term benefit the Electric Vehicle ecosystem and provide an additional push for the expansion of the charging networks.”

Stephen Derkash, manager of the Solar Energy UCITS ETF (TANN) comments: “Global oil prices and European gas and electricity prices have spiked in the aftermath of Russia’s invasion of Ukraine. As the conflict in Ukraine continues, European leaders are pushing for a faster switch to renewables as part of a strategy to end dependence on Russian gas. Currently, approximately 40% of the EU’s gas and about 25% of its oil is imported from Russia. The EU’s ambitious plans now call for fast-tracking deployment of solar and tripling clean energy capacity by 2030.[5] The effects of the conflict have implications for greenhouse gas emissions and energy policy.

“Experts say that electricity has to take over from natural gas in sectors where just months ago gas seemed a secure long-term bet, which would significantly enhance prospects for solar power.[6] The European Commission believes it can replace 24 billion cubic metres (bcm) of Russian gas with zero-emissions renewable energy sources this year.[7]Furthermore, The International Energy Agency (IEA) issued a 10-point plan in March to reduce Russian gas imports by 63bcm, approximately half of what Europe imported last year, through a mixture of diversification and economy.[8]The organisation says these measures could be enacted in the next year, without building new infrastructure. Following the IEA’s statement, the European Commission announced an even more ambitious plan, the REPowerEU plan, to reduce reliance on Russian gas by two-thirds before Christmas and abolish all Russian fossil fuels – including coal and oil – by 2030.[9]

“The IEA plan would reduce Russian gas use by 33bcm by asking Europeans to turn down their thermostats by 1 degree Celsius (33.8 Fahrenheit) and increasing electricity generation from nuclear power and biofuels and renewable energy.[10] Additionally, the EU is aiming to make solar panels mandatory on all new buildings by 2029 under a new proposal aimed at rapidly replacing its reliance on Russian oil and gas.[11] The EU’s REPowerEU plan and the “solar rooftop initiative” is introducing a phased-in legal obligation to install solar panels on new public and commercial buildings, as well as new residential buildings by 2029.[12] If successful, solar energy will become the largest electricity source in the EU by 2030, with more than half of the share coming from rooftops.”

Furthermore, Europe’s energy crisis has implications far beyond the continent. Stacey Morris, manager of the Alerian Midstream Energy Dividend UCITS ETF (MMLP), comments: “Benchmark Dutch natural gas prices have reached record highs in the wake of Russia’s invasion. Unlike oil, there are no strategic reserves for natural gas, and European inventories were already tight this winter.

“Although it will take time, Europe can reduce its dependency on Russian natural gas through the ongoing shift towards renewables and by purchasing LNG. To facilitate this, additional import capacity may be needed with Germany recently committing to the construction of two LNG import terminals.

“While the near-term impact of Russia’s invasion on energy commodity prices is readily apparent, the intermediate and long-term implications for the US energy landscape are less certain. Changes in how Europe sources natural gas should have positive long-term implications for US LNG exports with direct and indirect benefits for energy infrastructure. The extent to which US producers will accelerate production growth is less clear but could result in more volumes for energy infrastructure companies to handle.”

[1] First white label ETF issuer, as confirmed in ETF Database of all ETFs: https://etfdb.com/

[2] https://www.france24.com/en/live-news/20220620-dutch-join-germany-austria-in-reverting-to-coal

[3] https://www.bloomberg.com/news/articles/2022-07-16/germany-to-do-everything-to-fight-climate-crisis-scholz-says

[4] https://www.bloomberg.com/news/articles/2022-07-07/germany-s-habeck-urges-canada-to-help-thwart-putin-s-gas-excuses#xj4y7vzkg

[5] https://www.carbonbrief.org/in-depth-qa-how-the-eu-plans-to-end-its-reliance-on-russian-fossil-fuels/#:~:text=The%20commission%20recommends%20raising%20the,for%2055%20proposals%20last%20year

[6] https://www.ftadviser.com/investments/2022/06/27/the-race-for-energy-independence-accelerating-the-green-transition/

[7] https://www.iea.org/reports/a-10-point-plan-to-reduce-the-european-unions-reliance-on-russian-natural-gas

[8] https://www.iea.org/reports/a-10-point-plan-to-reduce-the-european-unions-reliance-on-russian-natural-gas

[9] https://www.carbonbrief.org/in-depth-qa-how-the-eu-plans-to-end-its-reliance-on-russian-fossil-fuels/#:~:text=The%20commission%20recommends%20raising%20the,for%2055%20proposals%20last%20year

[10] https://www.theguardian.com/environment/2022/mar/03/turn-down-heating-reduce-need-russian-imports-europeans-told#:~:text=4%20months%20old-,Turn%20down%20heating%20by%201C%20to,for%20Russian%20imports%2C%20Europeans%20told&text=Europeans%20should%20turn%20down%20their,leading%20energy%20adviser%20has%20said.

[11] https://www.independent.co.uk/climate-change/news/solar-panels-new-buildings-eu-mandatory-b2081732.html

[12] https://www.independent.co.uk/climate-change/news/solar-panels-new-buildings-eu-mandatory-b2081732.html