Looking forward to 2025

Kath Chapman , Managing Director at Ameresco peers into her crystal ball.

As another year comes racing to an end, we must now look to 2025 and consider what to anticipate and prepare for.

Energy Prices

2024 saw prices return closer to those familiar to us pre-COVID, though not entirely back to historical norms. Markets remain on edge after the rapid increases in 2021/22 and it is likely that we will continue to see wholesale energy prices remain volatile for the foreseeable future.

Several established and new factors contribute to this volatility. While LNG flows to Europe have been steady over the past couple of years, increased conflicts in the Middle East, relatively strong Asian demand, and uncertainty about replacing Russian gas transiting Ukraine have prevented prices tracking down further. US gas production has also been lower than forecast, cutting back when prices have got too low. These will be key factors to look out for in 2025, as any escalation could drive prices upwards.

Prices have been tied closely to perceptions about Europe’s gas storage levels throughout the year. We have entered this heating season around the highs we have previously witnessed; however, current long-range forecasts expect more cold snaps and, therefore, increased demand for gas. The key questions now are about where stocks will be as we exit the winter and securing continued supplies of LNG.

Compliance

2025 brings changes to compliance requirements. The Government has recently confirmed that current Climate Change Agreements will be reset into a new scheme. Companies new and old will have to sign onto the updated scheme to receive the discount to the Climate Change Levy (CCL). All sites will have to reapply, and ‘bubbling’ more than one site together will no longer be possible. Details of the target reductions are yet to be published but are expected to be tighter than present targets. However, from the Budget, we know that CCL rates will increase with the higher Retail Prices Index from 2026/27. Eligible companies should start preparing for these applications now.

Additionally, companies participating in the Energy Savings Opportunity Scheme (ESOS) will be expected to complete two reports in 2025. The first is the Action Plan, where companies will be expected to outline energy saving projects that they intend to complete during the current phase of ESOS, and the Progress Report, the first of two, setting out how ...companies participating in the Energy Savings Opportunity Scheme (ESOS) will be expected to complete two reports in 2025. these projects are coming along. Parts of these reports will enter the public domain, so it is in a company’s interest to ensure that they are complying to avoid financial and brand impacts.

Opportunities for funding

Despite the compliance challenges, there are opportunities for companies. The Autumn Budget confirmed the continuation of the Industrial Energy Transformation Fund (IETF), allowing companies to compete for funding on projects that increase energy efficiency or decarbonise industrial processes. ￡163 million will be available for each of three years from 2025-26 to 2027-28. From our experience, successful projects need to be well developed, and even rejected by a Capex committee, before entering an application process that has many hurdles to overcome.

Changes to invoicing

If there weren’t enough items already, a new charge will appear on businesses’ invoices in 2025. The EII Support Levy is due to start from April 2025, to fund lower network charges for energy intensive businesses. This is forecast to be an additional ~0.1p/kWh on your electricity bills, unless you are already benefiting from the Energy Intensive Industries (EII) exemption from indirect costs. If you are unsure whether you might qualify for EII relief, we can share the content from the MEUC webinar earlier this year to help you consider this.

We are also anticipating further guidance on two charges that could possibly be in place in 2026. The Renewable Asset Base Charge (RAB) has been proposed to provide funding for the nuclear industry and we expect that this will be added to electricity bills. The other charge, the Hydrogen Levy, would be implemented onto gas bills and would provide funding for the development of hydrogen production and use in the UK.

The UK Government

One of the most important factors we will be watching closely in 2025 will be the new Labour Government, which has come out with a sweeping number of announcements and promises related to the energy industry. Great British Energy is expected to facilitate a significant increase in renewable generation capacity. The CfD scheme will add ￡1.5 billion a year to national electricity bills, and Ed Milliband has already given consent to more than 1300MW of large-scale solar farms. However, apart from the IETF, there appears to be little support for most businesses looking to decarbonise.

Finally, keep an ear open for statements from this government about changes to existing renewable support schemes and the sharing of those costs between electricity and gas. The sensitivities around increasing costs for working people may mean that the approach for redistributing those costs may focus only on business consumption, with consequential adjustments to the EII scheme. Kath can be contacted via [email protected]

This article appears in Buying and Using Utilities Winter 2024 issue

Read more ??https://meucnetwork.co.uk/buu-winter-2024/