Energy companies in a pressure cooker environment

By Imogen Shaw

Shortly after his appointment as Chancellor of the Exchequer in October, Jeremy Hunt announced that the government’s Energy Price Guarantee, which was supposed to apply for two years – until October 2024 - will now only remain in place until April 2023. Much has changed since then, including the Prime Minister, and the Chancellor’s Autumn Statement on 17 November continued this trend.

Many renewable energy generation companies had expected an extension to the Energy Profits Levy on supernormal profits from oil and gas companies and had anticipated that they might be brought within its scope. However, the details of the new Electricity Generator Levy surprised many in the low-carbon electricity industry, given that the tax will be levied at a rate of 45% (higher than that for oil and gas), and that renewable energy generators are set to receive no exemptions for investment, unlike their oil and gas counterparts.

Many renewables companies have spoken out in the press, querying how the government will achieve its aim to decarbonise the UK power market by 2035, given the confusing signal that introducing a windfall tax on renewable energy generation profits sends to investors at a time when the government wants to see investment in low carbon generation ramp up.

Some, including ScottishPower CEO Keith Anderson, have highlighted that their organisations are not actually making windfall profits at the moment, because they pre-sold their power output in previous years at prices well below today’s high wholesale prices.

The regulatory environment has suddenly become more complicated for renewable energy generation companies and this poses challenges both in terms of their engagement with politicians and policymakers, but also in terms of their communications to investors – both directly, and via the signals they send in the media.

Of course, it is not just energy generation that is affected by the ongoing gas price crisis – the supply side has its own challenges.

Recently, some energy suppliers have been accused in the media of attempting to force vulnerable households to switch to prepayment electricity and gas meters as consumers fall behind with regular payments. Others have written an open letter expressing their concerns about elements of the government’s new Energy Prices Act and the extensive new powers it grants ministers in relation to the regulation of the sector. These companies fear that parts of the Act could stymy investment in the UK’s energy sector, at a time when it should be increasing at an accelerated rate.

This is all going on against a backdrop of an immensely high-pressure situation. Companies need to deliver clear customer communications and navigate a regulatory environment in flux.

The risk of a reputational crisis is only one misguided email to customers or disgruntled employee letting off steam away. That said, energy companies who are fully engaging with their communities, including speaking up and out for their stakeholders, can emerge from these engulfing crises with their reputations intact and the opportunity to further influence change in the market.

This article was featured as part of SEC Newgate's The Reputational Risks of the Cost of Living. To read the full document, click here.