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Current± Predicts: The energy transition in 2021, part five

Image: Getty.

Image: Getty.

Doug Stewart, managing director of Green Energy UK

The real answer for 2021 is we simply don’t know because we are in a state of total confusion over Brexit, the COVID-19 Pandemic and energy policy... but the latter has always been thus!

Soothsayers tend to be doomsayers predicting disasters or purist optimists with a wish list for whatever area they are involved in; I’ll try to be objective and avoid both ends of that spectrum.

So, at the risk of leading with my chin and ignoring the science – a dangerous thing in 2020 but hopefully a liberating experience in 2021, here goes…

Energy prices will spike when the pandemic recedes, and vaccination allows us to return to a new normal.

The increase in use of ground transportation and travel in general will see an increase in demand for fuel and markets will react as they always do – early and with more volatility that is justified.

Prediction No 1: Expect spikes in all energy prices.

As the population can mix and a return to office working is encouraged, reticence to use crowded public transport will lead to, at least in the short term, an increased use of independent transport. This could provide an additional trigger for an expansion of EVs but I don’t expect to see EV use rapidly accelerating next year (costs are still too high for most people and the charging network needs to expand). Short commutes will continue to fuel the bicycle and walking-to-fitness boom, but the increased demand for petrol and diesel will be immediate.

Energy spiking will cause problems within the balancing market and those suppliers who are already stretched by a lack of profitability, a deferment of distribution charges, and the advancing of credit to those finding it difficult to meet their winter bills, will feel a pinch in their cash. Depending on the Capital Markets’ appetite for risk investments in utilities, the outcome could be managed, or disastrous.

Ofgem will finally introduce harsher penalties for licensees who fail to meet industry payments. The pandemic will have made credit harder to obtain, but Ofgem will be reluctant to trigger mutualisation for a fourth consecutive year. If they do, there will be an outcry for a review of the structure of the payments and the model of meeting shortfalls.

Prediction No 2: Further upheaval in the energy supply market as some suppliers struggle to deal with bad debt, industry obligations and OFGEM’s policy changes.

Boris’s Ten Point Green Revolution Plan will gain traction as a result of forward-thinking Midlands and German auto makers who have invested heavily in EVs and are at the start of a strong and attractive product cycle. Cars are an unavoidable element of 21st century society and their progression away from fossil fuels is a very real expression of advancement and will capture the public’s imagination!

The public’s lockdown-fuelled love of green spaces will also play to the government’s green agenda of protecting the natural environment, but the phrase ‘The economy, stupid’ will see a resurgence in popularity as the nation seeks to boost economic and commercial activity to start paying down and playing down the cost of crashing the economy to limit the effects of COVID-19 on the NHS.

We have to hope that the big decisions that governments around the world made in shutting down economic activity for ‘the good of all’ in the face of a pandemic, are mirrored in their approach to global warming and carbon emissions. There is no vaccine for climate change, so we need to transform our behaviour starting at the top! Brave decisions are called for and brave decisions we will see in 2021 (now that’s a glass half full prediction).

Prediction No 3: expect to see governments ramp up the rhetoric and outgun each other in the run up to COP26 in Glasgow, in November

The Dunkirk spirit that Boris wants to invoke in the accessible elements of the plan, zero emission vehicles, walking and cycling, will add credibility to the more ambitious and altruistic CCS, Jet Zero and Hydrogen projects but their timescales are such that we will have to wait for another year to hail them a success of failure.

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