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The Power Switch: A first look at the outcome of the UK elections and its potential impact on energy markets

todayJuly 9, 2024 671

Background

The UK election taking place on 4th July is widely expected to deliver a new Labour Government under Keir Starmer – after 14 years in opposition, and now holding a significant parliamentary majority allowing them to implement their vision with relative freedom.

What will this mean for energy markets – in the UK and beyond?

Certain ambitious flagship energy policies are already announced, others remain unclear. Billions will be needed to fund these plans. It is uncertain what the change of Government will mean for relations with Europe, the US – itself potentially under a new Government before long, and the rest of the world.

This important webinar will explore in depth, early indications of what we might expect in the months and years ahead, how the markets may react, and provide practical guidance on what trading firms can do now to prepare.

KEY THEMES TO BE COVERED INCLUDE:

  • The new Government's vision and regulatory approach to energy markets, security and net-zero
  • What is expected from the new Secretary of State for Energy Security and Net Zero?
  • Legislations and subsidies expected to expedite net-zero policies – Ensuring GB Energy's success: what to learn from past initiatives
  • Is it realistic to compete with the Big Six? · Bureaucratic or entrepreneurial approach?
  • Robin Hood and Bristol Energy: lessons learned – Reshaping international relations: impact on European markets and beyond
  • Potential impacts on GB-EU power markets
  • US elections and impact on net-zero and LNG exports – Likelihood, and impact of windfall taxes on energy companies, and other changes to taxation policy

SPEAKERS:

  • Mark Copley, CEO, Energy Traders Europe (formerly EFET) · Kathryn Porter, Energy Consultant, Watt-Logic
  • Kathryn Porter, Energy Consultant, Watt-Logic
  • Marc Ostwald, Chief Economist & Global Strategist, ADM ISI
  • Christian Baer, Secretary General, Europex
  • Russ Morrow, Commercial Director, Commodities People

Transcript

RUSS MORROW, COMMERCIAL DIRECTOR, COMMODITIES PEOPLE

Good afternoon, everybody. I can see lots of people now joining us. We'll just wait for five more seconds and then we shall get started. So, good afternoon, everybody, and welcome to today's webinar, the power switch, a first look at the outcome of the UK election and its potential impact on energy markets. My name is Russ Morrow. I'm from commodities people and I'm delighted to be your host for this important and timely discussion. I think it's fair to say that the energy sector is at a pivotal moment, facing both unprecedented challenges and exciting opportunities. With the election results now in, we've got a new government whose policies and decisions could significantly impact the direction of our energy landscape. The new government under Sakir Stalin's stewardship. And unless we see a huge shuffle in shadow cabinets, Ed Miliband, leading the charges, Energy secretary and net zero policy chief, has made some bold promises about making Britain a clean energy superpower, with a manifesto stating that the Labour Party are committed to driving forward investment in clean, homegrown energy production, significant renewable energy investments, reduced energy prices and an overall strategy for achieving energy security and sustainability. Today's discussion aims to explore how the new government's policies may shape the future of energy and the markets in the UK. Now, we would love to hear from the audience, so please make sure that you ask any questions by typing them in the q and a box, which you'll be able to see at the bottom of your screen. We will try to get through as many as possible over the course of today's discussion. Now, we're very fortunate to have with us a distinguished panel of experts who bring a veritable wealth of knowledge and I think, some diverse perspectives to the conversation. I'm delighted to welcome Mark Ostwald, Kathryn Porter, Mark Copley and Christian Baer. Thank you all for joining us. So, to start, I would like to ask each of our panelists to briefly introduce themselves and to give a short opinion, a short thought on the new government's energy vision. What is your understanding of their overarching vision for the UK energy market over the next few years, and what do you see as the most pressing, immediate priorities? Mark Ostwald, perhaps we can start with you.

MARC OSTWALD, CHIEF ECONOMIST & GLOBAL STRATEGIST, ADM ISI

Okay. I'm Mark Ostwald. I'm the chief economist and global strategist at ADM Investor Services International. I've been working in financial markets for about 39 years and have a particular interest in the energy sector, particularly in the energy transition. In terms of the election, I think the first thing to note is 40% of the population didn't vote so labor only got 34% of the vote despite this landslide majority that they've got. And they will be. They have been very, very cautious in terms of outlining their policies. They've said that energy is the core of it and they say they want to put the energy transition and renewables right at the very heart of everything they're doing. The only problem is there's a lot of conflict here. At the same time, they want to raise capital gains taxes, which is hardly an incentive to invest in the energy sector. They want to get rid of non-dom status, which will drive a lot of the investors from abroad who are already in the UK. And a lot of what they've proposed is basically drop in the ocean stuff. So I think there's going to be a big conflict between prioritizing what the public wants. And I think the simple thing to note from this election is the public just didn't want the Conservatives to be in government. That was literally the only real message from the voting that we had. So they're going to have to tread carefully and they're going to have a very short honeymoon period. And the lessons from the European elections for me are, the public are very wary of any large scale spending commitments to the energy transition, which are going to end up costing them more money. And that, to me, is the big conflict at the heart of Labour's energy policy.

RUSS MORROW, COMMERCIAL DIRECTOR, COMMODITIES PEOPLE

Mark, thank you. A bold and strong statement to start us off. Kathryn, perhaps we could come to you.

KATHRYN PORTER, ENERGY CONSULTANT, WATT-LOGIC

Good afternoon, everyone. I'm Kathryn Porter. I'm an independent energy consultant working with clients across the energy value chain. Before starting my own business, I bounced between the trading floors of banks and utilities. And my background originally was in finance. I would echo a lot of what Mark has just said. I think that. And Labour's manifesto was pretty light on detail. They'd put out a document earlier in the year that had a little bit more information in it around its plans, but still not very detailed. And I think in government, they're going to be faced with the usual job of government, which is making trade offs. It's very easy in opposition, because all you have to do in opposition is throw out ideas and criticize the incumbent's ideas. And each one of those is pretty much done in isolation. You don't have to form a coherent plan that's all paid for and budgets balanced. But once you're in government, you have to balance those trade offs. You have to find parliamentary time for the legislation that needs to be passed. You have to engage with internal and external stakeholders to really deliver on your ambitions. And I think labor is going to find that a lot of its ambitions are going to be very difficult to achieve. It's plans for accelerated development in renewables, even if there was public support for that. And I, I agree with what Marcus said, I think that the public isn't really very behind all of this. And I would also caution that although Labour won this election with a large majority, I don't think we should assume that that represents a shift to the left in the public sort of political outlook. In Europe, we've seen the opposite. We've seen a big shift to the right. And I think really the overriding sort of unifying message is an opposition to the incumbent governments rather than any necessarily in Britain, a particular political statement that's being made by Labour winning. So Labour is going to have to be cautious about that. Its large victory is not necessarily an endorsement of its policies. And people have been starting to resist the cost impact of the energy transition. Labour needs to understand that renewables are not cheap and that it's a belief that they are going to be challenged. The next CFD auction round, I think, might be a very strong wake up call for them and it's going to be interesting to see how that pans out.

RUSS MORROW, COMMERCIAL DIRECTOR, COMMODITIES PEOPLE

Thanks, Kathryn. Once again, a really good opinion on the current situation. Mark Copley, perhaps we come to you.

MARK COPLEY, CEO, ENERGY TRADERS EUROPE (FORMERLY EFET)

Hello, everyone, and thanks to commodities people for the invite. My name is Mark Copley. I'm also technically an independent energy consultant, but my main client is energy traders Europe, of which I'm the CEO, which means I represent the interests of 168 companies who trade electricity, gas, carbon and anything else you care to trade across Europe. I'm a former UK government official, former UK regulator, so I have absolutely no insight to bring to this discussion at all. But look, maybe I'll answer the easy part of the question first, which is, what are the things that are needed by the new government? And I think the answer to that is decisiveness and speed. And the reason that's the easy part of the question is because when you read the manifesto, you don't actually know what the proposal is. There's investment in, there's retail market reform, there's small scale flexibility reform, there's doubling onshore wind tripling solar quadrupling offshore ccs, hydrogen and nuclear in there. So there's an awful lot of things to be done and we should be honest. The challenges facing this government in energy are huge, and what it needs, in my view, going back to my first part of my answer, is decisiveness and speed. We've almost had death by a thousand strategies and now is the time to try and define some of the pathways we need to be going down and getting on with the delivery. And I think first amongst those is a kind of a non energy topic and that's planning reform and that's absolutely the one we need to start with.

RUSS MORROW, COMMERCIAL DIRECTOR, COMMODITIES PEOPLE

Thank you, Mark. Yes, some very interesting ideas and particularly interesting to get your thoughts as somebody who has been involved in government and policy in the past. Christian, let's turn over to you.

CHRISTIAN BAER, SECRETARY GENERAL, EUROPEX

Yes, thanks a lot. And thanks also to commodity peoples for the invitation. It's been quite a remarkable night. And when comparing the exit polls that came out initially to the final results that are now coming in now, there's been an even bigger landslide than expected. I think it's the least representative parliament in british history when comparing it to a proportionate system by now. But that's just the system. And when looking at other countries in Europe, especially in the south of the UK, and that's certainly a positive fantasy in terms of the next big steps for british energy policy. I mean, labor is very ambitious, but very little coherent. Christian announced that there will be no tax increases, that energy bills will have to come down by 400 pounds per household while trying to set up great british energy. This new publicly owned company, which is already underfunded from the start, certainly nowhere close to achieving any of the emissions. When you look at the social policies that are directly related to energy policy now as well. When you look at the National Wealth Fund that's supposed to be set up, and this also just a drop in the ocean, not very coherent at the moment. The narrative during the campaign was overly simplistic, explaining to everyone how cheap renewable energy is and not really explaining system costs. Energy independence was a very important theme during the debate and very dangerous. Labor essentially explained to everyone that the UK is supposed to become energy independent, which would make energy more affordable and which is quite a contrary to reality, of course. So the next big question mark is to which level this new government will prepare to reintegrate with the internal market. I mean, Starr already made it very clear that they do not want to reintegrate with the EU internal market, but there could be some rapprochement question is to which level? I think reality will probably drive them to become more pragmatic and also overcome some of the red lines that abrogates still have. And eventually affordability will win over ideology, but that's still a way to go and there's still a lot of debates ongoing. And the next big thing is also to make a little bit of progress on market design. Obviously something that has not been mentioned yet. Thank you.

RUSS MORROW, COMMERCIAL DIRECTOR, COMMODITIES PEOPLE

Thanks, Christian. Really interesting. And I think we're all perhaps of the same opinion. There's lots of ambition in the manifesto, but perhaps it is indeed not particularly coherent. It would be great to get some insight from the audience. You will hopefully see a short poll there and would love to get everybody's thoughts on how confident you are in the new government's ability to actually address its presence through its policy. Please do give us your votes. We'd like to see if there are any differing opinions while we're waiting for the results to come through there. We've obviously touched on the fact that labor has committed to a net zero power system by 2030. Would love to know from the panel what they feel that means in practice. Is the timeframe remotely achievable, and are Labour's plans realistic for investing in the UK's energy infrastructure? Kathleen, could we come to you first?

KATHRYN PORTER, ENERGY CONSULTANT, WATT-LOGIC

So, what's interesting is that labor quoted Sir Patrick Valance in their manifesto as saying that this is absolutely achievable. Okay, so with all due respect to people like Vinton Sly and Jonathan Brilli, if I had a heart attack, I wouldn't be consulting them about my treatment options. So I'm really not sure why a clinical pharmacologist is the one to be opening on the 2013 net zero target for the power system. And indeed, I think he's completely wrong. I don't think it's remotely achievable. And I haven't spoken to a single person who actually knows anything about their energy, who thinks that it is. And if they try to do it, it's going to cost them an enormous amount of money. And that's money we just simply don't have to spend. And it will make our energy far more expensive than it needs to be. I think that if you look at the supply chains that need to deliver on those ambitions, I don't think they can. And we're not the only country spouting these types of ambitions. If you look backwards into the mining sector and start to understand the ramping up that needs to take place, the additional copper, aluminum, and all the other metals and minerals that are required for the energy transition, those supply chains just are simply not able to scale up in the required way. And in fact, last year we saw Panama closing a large copper mine because of objections to the impact of mining on local communities within South America. This is a trend that people aren't really speaking about very much, but it's going to have a huge impact on the energy transition. If the countries and the populations that own the resources that are necessary for the transition aren't willing to cooperate, then the transition simply isn't going to happen. And it doesn't matter how much money you throw at it and what ambitions you have, it simply won't be deliverable. I think Labour is in for a very rude awakening and I think it's been actually quite foolish putting out this target and putting such a strong emphasis on it when so many people are saying that it's not achievable because it's. It's setting itself up for failure. And I don't really understand why it's put its neck out in this regard. There's very little that they've really strongly committed to through this election process. VAT on schools is another one. The ones that they have chosen seem to be ones that are actually either difficult to deliver or will have some pretty strong unintended consequences. It seems quite bizarre to me that they've approached it this way.

RUSS MORROW, COMMERCIAL DIRECTOR, COMMODITIES PEOPLE

Thanks, Kathryn. Mark Oswald, I saw you nodding there. Any further thoughts on that?

MARC OSTWALD, CHIEF ECONOMIST & GLOBAL STRATEGIST, ADM ISI

Yeah, I mean, I think there's two things I agree completely with Kathryn. First, I think there's an important point to understand that the UK never left the EU energy system. It's part of Europe's energy system. No one can be independent. This is a pie in the sky up sort of idea. We are very dependent and all of Europe is very dependent on each other. So, I mean, yeah, that's the realistic point. Secondly, they want to also introduce windfall taxes on the hydrocarbon industry. That is a very good way of ending up with not being able to deliver the renewables in the timeframe that they want to, and at the same time getting those companies which operate the hydrocarbons in the hydrocarbon sector to start disinvesting, closing down their supply at the moment just when it's needed most, and therefore you're basically threatening your own energy security. So there are so many mountains to climb on this. And I couldn't agree more with Kathryn. They are setting themselves up to fail on this.

RUSS MORROW, COMMERCIAL DIRECTOR, COMMODITIES PEOPLE

Thanks, Mark. Mark, your thoughts on this?

MARK COPLEY, CEO, ENERGY TRADERS EUROPE (FORMERLY EFET)

It might be the sleep deprivation, but I want to be kind of a naive devil's advocate to this, because does it matter? For ages, we've had no decisions about important stuff in energy policy and now we've got a target that's so stretching, it's going to force a mindset of actually addressing the biggest challenges and actually recognizing there isn't a silver bullet to solve all of this. So actually, could there be, and look, clearly I am doing a bit of devil's advocate, but could actually there be some benefit coming out of this? Doesn't this force you to work out what GB energy needs to be in order to unlock your target? Doesn't it force you to look beyond the kind of technology that will solve all the problems? Actually, couldn't this lead to a much more nuanced conversation about reforming connection queues, getting transmission and distribution to talk to each other, sorting out the structure of retail bills, which are a bit of a disgrace, if we're honest. Getting back to Christian's earlier point and starting to have conversations about coordinated planning with neighbors, could common sense break out from a very, very, very ambitious and arguably unachievable target? Question mark.

RUSS MORROW, COMMERCIAL DIRECTOR, COMMODITIES PEOPLE

Good question.

KATHRYN PORTER, ENERGY CONSULTANT, WATT-LOGIC

Christian, those drugs that you've been taking, I think that would be fabulous.

CHRISTIAN BAER, SECRETARY GENERAL, EUROPEX

Yeah. I would also like to chip in a bit of drugs here. What we've now seen is a landslide and a very stable majority in Westminster. And unlike the ordinary labor government, I think there will be room for discussions and room for unpopular decisions potentially, and a lot is in the pipeline. It's been very indecisive over the last ten years at least, and maybe labor will actually be able to use some of that majority now to force through some of the more difficult decisions. What is very clear is that the UK will remain bound to the green emission, and while affordability, household bills, etcetera, that's to be discussed, they'll probably try to hide some of the cost in subsidies, which is a very likely scenario because they will have to deliver somehow on cheaper energy. But in terms of investments, in terms of market design, et cetera, that's something where they now can use that very large majority to make progress. And yeah, we should embrace it. We should try to stay very positive. One big question Marga had was with regard to the ets, because so much focus has now been on price. UK ETs are currently much cheaper than the EU ETs, although the system, of course, is not very efficient. Idly, they would of course link it and then force more decarbonization through the ETS. I'm not quite sure whether this labor government would be too willing to reconnect the UK ets to the EU ets, but maybe that's also a matter of explaining and certainly helping them in achieving some of the climate change ambition rather than only the price aspect.

MARK COPLEY, CEO, ENERGY TRADERS EUROPE (FORMERLY EFET)

Raoul Christian, I just need to jump on that because you're absolutely right. I mean it's easy to go. Oh, 60% of people voted or fundamentally there's 410 Labour MP's, 71 Lib Dem MPs and four Green MP's. And actually one of Rishi Sonakshi's big policies was moving away from net zero targets. So unlike much of Europe, where you and I spend a lot of our time, you could argue this is quite a rigging endorsement of progress towards net zero and there are huge challenges involved and perhaps people don't know all of the nuances and consequences, but actually that direction I think is a fairly interesting and clear signal coming out of this, isn't it?

KATHRYN PORTER, ENERGY CONSULTANT, WATT-LOGIC

Yeah, well, I would caution against reading too much into that, to be honest, because I think what we've seen is Morris' statement against the status quo rather than necessarily an endorsement of stronger progress towards decarbonization. I think that one of the reasons the Conservatives started backtracking was after the Uxbridge by-election, which was a pretty strong signal against wanting the cost and the inconvenience associated with the next stages of the energy transition. And I think one of the challenges we're going to have around things like carbon pricing, and I think Europe will have this around the carbon border adjustment mechanism, is managing the inflationary impact of that. You can't, on the one hand say we want to make bills cheaper, and then on the other hand say we're going to make them much more expensive by making carbon more expensive. The reality is that you're not going to be able to remove gas from the British energy system, certainly not by 2030. So within this parliament, we're still going to be having a lot of gas providing electricity and heating, and that's going to be underpinning the cost. They're not going to move away from marginal pricing based on gas. And in fact, labor wasn't saying that it wanted to do that. That's been pretty much dropped out of Rima as well. So I think the impact of making carbon more expensive will be to make energy more expensive. And I'd be very surprised if the appetite existed for that.

MARC OSTWALD, CHIEF ECONOMIST & GLOBAL STRATEGIST, ADM ISI

I couldn't agree more. And I think there's a couple of historical facts one needs to remember. The UK's infrastructure in general, but particularly its energy infrastructure, suffers from the fact that every time the UK goes into a recession, the first thing that every government does, and it doesn't matter whether it's conservative or labor, is cut infrastructure spending. Now, a recession is a distinct possibility over the period of this labor government. I'm not even saying it's down to their policies. I'm basically just saying it's a fairly high likelihood given what we've had. And then the other problem that you have, and we've seen it with the HS two project, which has also been butchered along the way to save money in budget terms, is the UK habit of nimbYism. Where do people want this? I think a lot of people would like to see this. I think there is support for this, but the cost and where it's going to be situated will be other factors which will create some resistance within the public.

RUSS MORROW, COMMERCIAL DIRECTOR, COMMODITIES PEOPLE

Thank you.

CHRISTIAN BAER, SECRETARY GENERAL, EUROPEX

Wouldn't if you were not to disagree on certain points. I think the political logic may be a little bit different now because you have a Lib Dem who came in really strongly now with over 70 seats. And if you look at the Lib Dem program initially, it was even greener than the labor program. And from that perspective, it may actually create a new dynamic now that they may take from the selection that indeed there is appetite for a greener overall policy and also to distinguish themselves from other Tories because they've been backtracking a lot recently on, well, the Green Deal, if you would call it on this side of the channel, on greener policies. So politically, it could actually be part of the bigger game. Yes, there's pragmatism, but I think the analysis politically could be a bit different and could play in favor of more climate friendly policies.

KATHRYN PORTER, ENERGY CONSULTANT, WATT-LOGIC

I think one thing that might be who the new MP's are, because I think that within the new Labour group, less so, the Lib Dems. I think the Lib Dems are probably more homogenous, but within Labour they have quite a wide range of people with all sorts of different priorities. It's a little bit like the Church of England in that regard, and I think it will probably be difficult to marry up all of the different interest groups within the Labour party now going forward. The Lib Dems are interesting because their energy policy was even less coherent than Labour's energy policy. One of the main things I took away from their manifesto was that they, for example, want to make renewable electricity more expensive when consumers sell it to the grid, but cheaper when they're buying it from the grid. That doesn't really make very much sense. And it somehow thinks that big energy suppliers, who, if you understand the inside of the industry, do not make large profits, will absorb all of these costs. And then somehow also big oil and gas companies, who earn very small proportions of their revenues in the UK, will somehow be able to pay more taxes to cover all of these things. So it's actually. And it's also a theme we've had in labor. We'll just tax the rich people and they'll somehow pay for everything in government. They're going to have to manage these tradeoffs, they're going to have to come up with some way of balancing the budget. And I think this is going to involve trade offs that are quite difficult to achieve. The conservative, outgoing conservative government had a fairly large majority. They had a 60 seat majority at the start of the parliament. They weren't able to push through the things they wanted to push through. I don't think that majorities are necessarily as powerful as they maybe once were.

MARC OSTWALD, CHIEF ECONOMIST & GLOBAL STRATEGIST, ADM ISI

I think also in funding terms, they haven't come up with the very. There's a couple of very simple ideas which are not directly related to energy policy, but reshaping the whole of the bank of England QE program, seconding or re appropriating some of the QE, which has been done as a seed for an infrastructure bank for the UK, is something which isn't actually that difficult to do and creates a much bigger pool of available capital for seed funding ideas. And then you have to craft something which provides the correct incentives. You basically, at the end of the day, need to attract both domestic capital and foreign capital. The one advantage that the Labour government has now is this perception of being able to be a stable government. I have some questions around that, because I see the Labour party as deeply divided as Conservatives, and we've seen the conservative vote fracture enormously. One thing considers that reform was actually the third strongest party in voting terms, 14%. But some of the simplest ideas which could be deployed aren't in there at the moment. And that actually worries me.

RUSS MORROW, COMMERCIAL DIRECTOR, COMMODITIES PEOPLE

That's a very fair point, Mark. Now, I realize that we're in danger of perhaps having a political debate, and this is very much about what needs to be done to see the improvement, the continued development of the energy industry. So, in terms of. We've talked about great British energy and the pledge from Labour of 8.3 billion pounds over the course of the next government, the party themselves have said it will be owned by. By the British people and will deliver power back to the British people. So I suppose the question is really what needs to be done? What will change in order to really move things forward? Mark Copley, perhaps you'd like to give us your thoughts on that.

MARK COPLEY, CEO, ENERGY TRADERS EUROPE (FORMERLY EFET)

So, thanks, Russ. So, to the question of great British energy, I have to say I'm not clear what it will do. I've tried to. There are various suggestions of owning small scale community energy, there are suggestions of owning battery investments, and to be quite honest, I don't see the value add in all of those, because at the moment the challenge is not the volume of projects. We have sat in a connection queue, it's actually getting them connected. So maybe the easier question is what would I like great British energy to do? And I think there are, if you look at quite a macro level across this sector, I see skills and I see supply chains as the two biggest barriers to grid development. In particular now, the number of apprentices, linemen, those kinds of jobs you don't realize exist until you start actually trying to understand why we're so bad at building infrastructure in this country. Actually, could great British energy play a role in bringing some of those forward, helping the education system, really creating some growth in that sense. Then I look at something like the supply chains for offshore HVDC cabling for example. If we want to do very geeky example, but if we want to do large scale offshore wind and move towards the kind of integrated european network which I'm extremely keen on, or you've got three global suppliers of HVDC technology and everyone in Europe tried to have conversations with them about securing kit. Now your basic economic theory would say, well, someone will build a factory then and capacity will sort itself out. But perhaps it's not as simple as that because you haven't got a long term pipeline of what's happening. So could great British energy be underwriting some of those risks, encouraging some investment, dare I say, into some of those places which need a leveling up agenda, could actually. That industrial strategy, which I think I used to work for the Department for Business, Energy and Industrial strategy, and I didn't know what the industrial strategy was then, but actually, could we actually move towards one through using great british energy as a kind of PFI vehicle for some sensible investment?

RUSS MORROW, COMMERCIAL DIRECTOR, COMMODITIES PEOPLE

Thanks, Mark Oswald. Sorry, Christian, carry on.

CHRISTIAN BAER, SECRETARY GENERAL, EUROPEX

Jump in. I think labor put themselves in a trap here because they're already spelled out quite a few details on British energy. First of all, it's supposed to be a job creation machine and they've even detailed to her nation how many jobs should be created. So there will be a lot of expectation around really bringing labor on the ground in some form or shape. So an investment vehicle would be great, but looking at the figures, they don't match, obviously. So with the number of jobs announced versus how much funding would be put in, it's unworkable. And then the bigger issue is of course, how would it be funded? Because at the moment, it's a Robin Hood company, supposed to be entirely funded by windfall profits from big companies, oil and gas. We mentioned. We've seen it during the energy crisis in the EU when we were trying to put out some windfall taxes that didn't quite work, and we're certainly not earning the amounts that were announced initially. So it's going to be very, very difficult to actually finance this. And then the other big question mark is great. British energy is supposed to be a decentralization mechanism, in theory, because local communities should be supported, local energy projects should be supported, and should be owned by the British people, as it said. But that means a very broad ownership across various nations. So I don't think it's going to ever fly as the vehicle it's been announced at. However, it could potentially evolve into something slightly more useful in terms of changing the job landscape that Marco would refer to. I wanted to come to another point, which hasn't really been discussed in the debate. It's the island of Ireland, Northern Ireland and the single electricity market. Because we are now in a stain made for over a decade, very little decisions are taken. Not very much related to the situation and Stirling as well, but generally, and there's no real plan of how to reintegrate the energy system on the island of Ireland. So that's certainly a debate that we should now stalwart. Again, I think labor overall is less political in its approach when it comes to the Irish question, and I would eventually also help improve things quite a bit on the practical ground of things.

RUSS MORROW, COMMERCIAL DIRECTOR, COMMODITIES PEOPLE

Thanks, Christian. Mark, bringing you in on that. Your thoughts?

MARC OSTWALD, CHIEF ECONOMIST & GLOBAL STRATEGIST, ADM ISI

Yes, I mean, the minefield that there's going to be is anything which is integrational with the EU and this whole issue of immigration, because improving the education system to provide the skill sets for the energy market in the broadest sense of the supply chain. So one has to look all the way down the supply chain to what we need in manufactured goods. What we need in terms of operators is very important. But in the first instance, maybe there needs to be more migration, basically, just to fill the gaps that there are going to be, because there simply aren't the people in the UK with that sort of skill set. Now, that's a historical failure. You can't do anything about that. Historical failure is the historical failure. What you need to do now is put in place policies which basically ensure that the whole of your supply chain, above all in terms of labor market skills, and also in terms of capitalizing on how you could actually export in the longer run, some of the discoveries you've made working the situation in the UK, there is a lot of potentially a lot of knowledge to be built up around this project. But can the country capitalize on it? Because historically, actually, the UK is a country of great innovation, which isn't capitalized domestically, and that is another opportunity which would also create more domestically. But there are some old fashioned ideas which are still very deeply embedded, which will be difficult to dislodge. But if we have, as they have, 415 seats in parliament, they should be able to railroad a lot more on that side.

RUSS MORROW, COMMERCIAL DIRECTOR, COMMODITIES PEOPLE

Thanks, Mark. Kathryn, anything to add to that?

KATHRYN PORTER, ENERGY CONSULTANT, WATT-LOGIC

Yeah, I mean, this whole question about how practically do you move forward from this point? I agree with what's been said already around the need for a skilled workforce and the need to manage supply chains. I'm inclined to also agree that these things are much easier said than done and require probably longer than one parliament to solve, particularly on the workforce side. Yes, we can try approaching some of that with immigration, but it's the skilled workers that are necessary, not just any workers. Great British energy could be used to support more apprenticeships. One of the things that I've observed in recent years is, although there's been a focus on apprenticeships, the side of the industry around graduate recruitment has really gone away. So, for example, when I went to university, lots of companies were offering sponsored degrees and so on for graduates within engineering. Now, there's almost none of that. And so we really need companies within the energy sector at all levels and all types of skill levels within the workforce, whether that's academic or not.

MARK COPLEY, CEO, ENERGY TRADERS EUROPE (FORMERLY EFET)

To.

KATHRYN PORTER, ENERGY CONSULTANT, WATT-LOGIC

By having a forward plan around how they're going to develop the workforce, they need to deliver on all of these plans. And I would hope that great british energy will have a plan and a policy for that and put some money behind it. But as Christian said, the funding that appears to be available for this enterprise doesn't seem like it's going to be enough. Then we need to also address challenges within the planning system. But it's not just planning reform that we need. We also need to reform the whole approach to judicial review. One of the big challenges at the moment that people face, particularly with large scale projects, is that in order to defend against the possibility of a judicial review, regulators have started to increase the sort of bureaucracy around these applications. So large, huge additional volumes of paperwork are being required from developers. Obviously, that increases the costs. Now, the strategy appears to be, well, let's make these things more expensive, people to try and review, but that's not really a very productive approach. So we need to reform the way in which strategic projects in particular are amenable to judicial review. The next challenge also is, well, there needs to be public acceptance of the infrastructure that's going to be required. We've seen, on the one hand, and people themselves are quite contradictory in this, on the one hand, they'll say, yes, we want to have more renewables, but we don't want them near us, or we don't want the power lines near us. And Germany is an amazing example of this strong support for renewables, but absolute, total and utter resistance in new power lines. It's insane how in Germany, you cannot bring the renewables generated in the north of the country to the demand centers in the south, because every time somebody proposes a new power line, the public will mobilize to oppose it. So you need to make sure that the public is on board with all of the necessary steps and that this is done in a joined up way. And that's quite a big challenge to solve. There have been some suggestions that, well give people discounts on their energy bills if they accept power lines in their backyard. There's been some talk about, well, maybe we need to bury more power lines so they have a lower impact on people. Obviously, that makes them more expensive. There needs to be, I think, a comprehensive discussion around all of these things so that a consensus can emerge on the way forward. And I think one of the reasons that there wasn't more progress in the previous parliament, and one of the things that will inhibit progress in the next parliament is joining all of these things together, managing the trade offs that are inherent in trying to deliver on all of these plans. And I think it's just much easier to say than to do, I think it's actually quite a big challenge.

RUSS MORROW, COMMERCIAL DIRECTOR, COMMODITIES PEOPLE

Thanks, Katherine. Looking at some of the questions that are coming in from the audience, a couple of questions there about the difference between GB Energy and UKIB. What are the panelists' thoughts on whether it's better to build something from scratch, that is, GB Energy, or to continue investing, subsidizing those already existing and potentially struggling projects? Mark Oswald, would you care to give us your thoughts on that?

MARC OSTWALD, CHIEF ECONOMIST & GLOBAL STRATEGIST, ADM ISI

Well, I think there's two things we need to remember in the whole energy transition. One of the biggest problems that we've got, and this is a real challenge, is that a lot of the technology actually hasn't bedded down yet. You can't scale up something where you constantly, it's constantly evolving. Just think of car batteries. There's going to be horses for courses. We haven't actually established what we want. So you've got the science challenge, it's there, it's making progress. But to create it into a marketplace is actually very challenging for everyone. It's not just for the UK. This is a problem globally. The one who's closest to it is China. Secondly, I still think that the biggest challenge of all is actually getting the public on board and getting the public on board, engaging with them. That is going to require a lot of going out there and explaining things and sounding knowledgeable. One of the problems the public are now wary of post Brexit, having had a lot of promises made about what Brexit would be delivered. This is a sort of Brexit type project. In other words, a fundamental change to the way the UK operates. You need to engage the public in a credible way, but remember that they are now very skeptical about politicians making promises of this will do that and this will do the other. So you've got a couple of really major hurdles to try and overcome there.

RUSS MORROW, COMMERCIAL DIRECTOR, COMMODITIES PEOPLE

Thanks. Katherine, your thoughts?

KATHRYN PORTER, ENERGY CONSULTANT, WATT-LOGIC

Well, I agree. I mean, it was essentially what I was trying to say earlier, that the public acceptance piece is a huge challenge to this whole scheme. And it's not just around what's happening in their backyards in terms of the new power line that might need to go through their gardens. It's about the cost implications. If you plot a chart of wholesale gas and electricity prices against household gas and electricity prices between 2020, you see that gas prices bumped up in 2004 when the UK became a net importer of gas. But really, from 2006 to 2020, wholesale gas and electricity prices more or less just moved sideways in a nice sort of parallel line with each other. But retail prices increased through that whole period. And why did retail prices increase through that period? Because we were subsidizing renewables. Because we had to pay the grid infrastructure to connect these renewables, because we had to start subsidizing conventional generation to be available when renewables weren't available, and because we had to pay for the additional balancing costs that come along when you bring all that amount of intermittency into your power system. And so in 2022, which I think is the last year for which data are available, we paid 15.8 billion pounds collectively on all of those schemes, and that all fed directly through into household bills. So energy was already expensive before gas prices went up at the end of COVID and then before the Ukraine war. Now, obviously, we've seen quite significant reductions in gas prices and that's fed through back into wholesale and retail electricity prices. But then we can expect the previous trend to continue, which is that the retail price continues to diverge from the wholesale price. And this is primarily what happens when you introduce a generation that has many more costs that are not captured within the wholesale price. And the public doesn't really understand this. They're being sold this argument that renewables are cheap. But actually, if you look at the history of how renewables have been added onto the GB power system, since we started large scale deployment of renewables, our electricity bills have gone up significantly. And you can't avoid these realities because really pretty much self evidently, if you're going to base your electricity system on something that's intermittent, you've got to build at least the same capacity again of something that's not intermittent, whether thats generational storage that's going to be available when that intermittent generation isn't, and then you need to have grid infrastructure to connect it up. And so the public is starting to understand that the transition is going to involve costs more because of people talking about heating. But actually the electricity system is going to continue to be more expensive. And the more you progress, this transition and Labour's plans to try and get to a net zero electricity system by 2030 will put a huge amount of extra cost onto bills or onto taxes. I mean, one way or another, it's going to hit people in the wallet. And so even if it were practically achievable, which I think it isn't, the cost of it is going to be so high that public resistance will grow quite quickly.

MARK COPLEY, CEO, ENERGY TRADERS EUROPE (FORMERLY EFET)

I mean, it's a little odd still to be kind of almost questioning the net zero target after the results of yesterday, the point of shouldn't the focus be on minimizing the cost of which we're doing it is absolutely the right one. So actually, what can I just think?

KATHRYN PORTER, ENERGY CONSULTANT, WATT-LOGIC

Renewables is the thing that pushes the cost. If we had more of a focus on nuclear, then that would end up being cheaper because you wouldn't need all of the same amount of infrastructure. It's a much more material and actually capital efficient way of going about it. So I'm not challenging the net zero target, I'm challenging the assumption it should be delivered through renewables.

CHRISTIAN BAER, SECRETARY GENERAL, EUROPEX

Well, the southern Hikley point is a very affordable contribution to the power price in the UK, maybe new build, nuclear on top, but at the moment, with the TFD in place, it's also driving prices up, assets inflation index. So it's not that easy.

MARK COPLEY, CEO, ENERGY TRADERS EUROPE (FORMERLY EFET)

At the risk of something like a consensus builder. Isn't everyone? Right here? Isn't the thing. The thing that annoys me most in UK energy policy is when the sentence starts with and the right answer is x. Actually, if you build, you need to do a bit of everything. So we need to keep the confidence in people investing in offshore wind, but we need to make sure demand is cited more sensibly near it. We need to plan electricity and hydrogen networks together. So you're right, there has to be backup capacity. But actually if we can earmark a few industrial clusters and I think we all know where they're going to come out, can you actually start to optimize some of your usage there? So your surplus wind drives batteries or drives electrolyzers, you can get your green hydrogen to customers. Is it that sort of thinking we need? Can you actually try and find a way to more strategically plan and integrate grids beyond these shores so you can manage that intermittency? Because as the volume goes up, clearly it's going to become harder and harder and harder and more costly to manage it. So I think this is about when I said fast and decisive. You sort of need to say what is the path we are trying to go down? And if that path is not said for the sake of argument, ccus then we're going to need to do more of something else. Lets try and take some of those degrees of freedom away, try and use some of the market mechanisms were good at designing to find what the lease cost is and try and not chuck all our eggs in one basket. So i'm in a little bit of a well tired but pragmatic state this morning. I think this afternoon, whatever it is.

RUSS MORROW, COMMERCIAL DIRECTOR, COMMODITIES PEOPLE

Would anybody like to comment on Mark's thoughts?

MARC OSTWALD, CHIEF ECONOMIST & GLOBAL STRATEGIST, ADM ISI

Yeah, I agree with him. There needs to be. What you need to do is you do need to plump for something, rule certain things out because you can't, you know, if you spray everything around, you're ending up with a guaranteed failure. On the other hand, what you need to do, and I think this is really the biggest challenge for everyone, not just the UK, is you need to build in flexibility so that as technology develops, and it will, it's already developing at a very rapid rate, you can basically put in some plans in place for redundancy. You know that some of what you've got is going to be redundant. What you need to do then is to guide the political atmosphere so that we don't end up in a situation where you've wasted so much money on this. Well everyones wasting a lot of money on this. And you also probably need to structure everything less around subsidies and more around the American idea of tax credits. That is forcing people to spend money to get the tax credit, throwing a lot of government money around. The most important part for GB energy for me is that a lot of the technology is still in development. Typically, in a transition period, in any sector, you will have up to 60%, to 70%, even 80% failure rate. And that's what the governments need to basically, they need to seed fund a lot of that small scale technology development, which can then basically the government bears the cost. But at the end of the day, it's quite marginal. But you're still making that research which is so important to progress. You're setting the wheels in motion and not creating financing problems, which basically means it never gets over the starting line.

RUSS MORROW, COMMERCIAL DIRECTOR, COMMODITIES PEOPLE

Thank you, Mark.

KATHRYN PORTER, ENERGY CONSULTANT, WATT-LOGIC

But I think if I can maybe just comment on that, I agree with the tax credits side, encouraging and incentivizing people to spend their own money on these schemes. Where I may disagree is around the idea that we should spend public money on technologies that are really immature. We hear a lot from parliamentarians around Britain leading the world on various things, which I find a little bit random, really. It's kind of a little bit neocolonialist to take that view, that we should be leading the world on everything. We're a small country. We're not even that rich anymore. I think there are some technologies where actually we should sit back and let someone else do the leading carbon capture. For example, billions have been spent on that around the world with actually not that much to show for it. Given the time and money that's been put into that, is it really the best use of British taxpayers money to put more in? Or should we maybe just lead when somebody else figures it out? I would rather see the government putting its money and putting taxpayer money into proven technologies. Lets build more power lines, for example. Lets build more power lines from Scotland down to the south of England. We know they're going to work. We know they're going to deliver what they need to deliver rather than trying to play around with market mechanisms. That would be a really great place to put capital because we know it'll deliver results. And so that's the kind of thing that I think, I completely agree with you. We need to be selective about where we spend our money. But if we focus on stuff that we know works, provide different types of incentives for things that are more speculative, and really focus on that basis, and stop this whole nonsense about Britain leading the world on everything, let's choose where our strengths are and try and lead there, but not do this whole blanket, you know, leadership.

MARC OSTWALD, CHIEF ECONOMIST & GLOBAL STRATEGIST, ADM ISI

I wouldn't disagree with that. It has to be very, very selective, but there needs to be some support at that small scale for things which basically have scalability within them. I think scalability is probably the ultimate yardstick in all of this.

CHRISTIAN BAER, SECRETARY GENERAL, EUROPEX

I think what's really needed is some clear objective. Just trying to come back to the question of how to integrate communities into all of that. The labor program is clearly saying that more of the benefits should actually remain in local communities, which essentially would mean that you have to take off some of the profits and then make it an even less interesting business case, which is of course by contrary to what people are trying to achieve, I think we should really look at the low hanging fruit and affordability and price should be put back in the focus, which is currently not really in debate. So how to reintegrate the GB power market with the rest of Europe, put it back into implicit market coupling, just get cheaper power prices to also be able to finance all the other projects. I mean, we haven't even talked about the 1.5 million homes that are supposed to be built over the next five years. Projects by labor. So try to really increase interconnection across the North Sea, but also with the south, try to build in more flexibility, but in a smart way. Try to leverage some of the existing systems inefficiencies. So there's a lot that can be done immediately. And that's also what Mark said at the beginning, just be quick and decisive and just try to achieve everything that's already known. And then the next step will be to reflect upon market design and the 2040 strategy. But there's so many low hanging fruits at the moment that can be picked fairly easily and it must be a progressive process and it's way too complex anyway. And then, of course, politically already said labor isn't that united on energy policy, not even on climate policy. So it's going to be a step by step process. There'll be a lot of learning and doing as well.

RUSS MORROW, COMMERCIAL DIRECTOR, COMMODITIES PEOPLE

Thanks, Christian. Everybody, I'm very conscious that we are getting very close to the end of today's session. Looking at the questions that have come in. I think it's fair to say that we have certainly been very open and there are quite a few questions and statements about some of the things that have been said. So I'm delighted that at least we've, we have not been blamt with your answers. So thank you for that. And everybody, sorry that we haven't managed to get through every question. Hopefully we've covered some of those. As we wrap up, I would like to ask the panel to conclude with your one takeaway, your warning, your thoughts for the future of UK energy that you'd like to leave the audience with. Kathryn, may we start with you?

KATHRYN PORTER, ENERGY CONSULTANT, WATT-LOGIC

So I assume you mean UK energy as in the landscape of energy in the UK, not the GB energy? Yeah. I think we have three challenges, and these three challenges we've had for a long time. It's the old energy trilemma. It hasn't gone away. We need to balance the requirements of decarbonisation, affordability and security, which we really haven't talked that much about this afternoon, and to make sure that all of those things are being managed simultaneously. I actually think security of supply gets overlooked a lot until suddenly it becomes very important, because as soon as security of supply is actually threatened in real life, it becomes the number one priority. It's going to be a challenge, I think, for the labor government to navigate this and manage the tradeoffs, and it's a little bit difficult for us. And I think I've observed some frustration in the comments that we haven't really talked more about what we expect to see in practice. And the reason for that is that the Labour party simply hasn't given us any information about what it's planning to do. Its manifesto was very light on detail. And so, just like everyone else, we're more or less in a position of having to wait to see where they will make those trade offs and how they're going to do that in the coming months and years.

RUSS MORROW, COMMERCIAL DIRECTOR, COMMODITIES PEOPLE

Thanks, Katherine. Mark Oswald, can we go to you?

MARC OSTWALD, CHIEF ECONOMIST & GLOBAL STRATEGIST, ADM ISI

Yeah. Security is absolutely paramount and not making those missteps. I think the other important thing is, if they are going to go down this community route, they really need to make sure that companies in local geographies are working together, because at the moment, too many companies, when looking at transitioning to renewable energy, are purely looking at their competitor group rather than locally, and seeing how resources could be grouped to actually save them a lot of money. It's been seen in the states with the shale oil revolution. It is definitely a saver, but you need to get it into the mentality of local businesses that they should pull their resources together to try and encourage some of these renewable options.

RUSS MORROW, COMMERCIAL DIRECTOR, COMMODITIES PEOPLE

Thanks, Mark. Christian.

CHRISTIAN BAER, SECRETARY GENERAL, EUROPEX

Sorry, yeah. Also, three points. First of all, come back to British common sense. This is now the first non Brexit government and it's a new chance and it's a new beginning. Change begins now. As the new prime minister said this afternoon, ideology is a very dangerous pool and the whole independence talk should be avoided and certainly turned around into a more and bigger integration project to reintegrate GBDen the UK with the wider European energy system. That will help affordability. It will certainly help security supply, which is so important, and also try to use the ETS, one european ETS as a common tool to decarbonize. It will be beneficial for everyone and it will certainly drive forward climate ambition. So these would be my three points.

RUSS MORROW, COMMERCIAL DIRECTOR, COMMODITIES PEOPLE

Thanks, Christian and Mark, to finish it off.

MARK COPLEY, CEO, ENERGY TRADERS EUROPE (FORMERLY EFET)

Feeling a little bit optimistic. Look, energy is important to all of our lives, and electricity in particular is getting more important. Sorting this out is vital for growth and prosperity in this country. And so that means, you know, we need to sort this out now. The trilemma isn't going anywhere. So if we start with the affordability part of the trilemma, I was a regulator for ten years. I care that customers have low prices or lower prices. We have a terrible housing stock we can address. We have a need to restructure retail tariffs to actually mean that you incentivize reducing your energy use. And I'd like to see us focus there. Kathryn's right. The security of supply gets overlooked. The Russian invasion of Ukraine showed the value of working together to try and deal with a threat like that. We need to keep managing that. And Christians, right, energy independence, nice as it sounds, is not a particularly sound strategy in order to maintain your security of supply. So you need a bit of diversity, you need a bit of integration, you need a bit of working with your neighbors, and that's something that this government should, could and should prioritize. And then you have decarbonisation, which I believe is extremely important, and I do think there are some opportunities from it. Britain is not going to lead the world in every single aspect of it, but choosing some areas where you've got a comparative advantage, because we do have phenomenal universities, great skills, and with a bit of planning, you could really become an expert in some areas. So, actually, I see decarbonisation, something which is going to be difficult to message, hard to manage, but has opportunities with it. So, look, there's an awful lot of work to do. I'm sure we'll manage to mess some bits up and achieve others, but actually, it's pretty crucial that we have debates like this, even if some of the options, if the opinions may come across as unpalatable. And actually, I'm looking forward to being part of this transition in the next few years to come. Thank you all.

RUSS MORROW, COMMERCIAL DIRECTOR, COMMODITIES PEOPLE

Thanks, Mark. So, a big thank you to all of our panelists for your insight. It certainly has been a very enlightening debate today. Thank you to the audience for joining us. It's definitely clear that the future of the UK energy industry is a very critical point. It's a very dynamic topic. I know that it will continue to evolve with the new government's policies. Thank you, everybody, for joining us today. We look forward to continued discussions on this subject. If you haven't already done so, please don't forget to register for the forthcoming Energy Trading Week Europe event, which takes place on the 24th and 25 September at Tottenham Hotspur Stadium in London. Thanks again to everybody. Have a great day.

Written by: Commodities People

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