Written by Oliver Buckley, Senior Associate Director, Madano Energy

Last week BEIS published its latest data on energy production, consumption, prices and climate change.

DUKES (Digest of UK Energy Statistics) is an annual summary of some of the key developments in the UK energy system.

The main highlights of the energy industries’ contribution to the economy in 2017:

  • 2.9% of GDP.
  • 9.8% of total investment.
  • 33.6% of industrial investment.
  • 1.9% of annual business expenditure on research and development in 2016.
  • 181,000 people directly employed (6.3% of industrial employment) and more indirectly (e.g. an estimated 142,000 in support of UK Continental Shelf production).

Isn’t energy more important?

Working with companies in the energy sector every day means I have a natural bias to follow energy news and at first glance, the energy industries’ contribution of just 2.9% of GDP feels very low. Energy is a topic that is often front page news and impacts the daily lives of every single person. Does this mean that energy isn’t that important to the UK economy?

Looking at the data in more detail provides some clues. The UK’s energy market has shifted dramatically in recent decades. In the early 1980s at their peak, energy industries contributed 10.4% of GDP, owing to the massive value of oil and gas extraction. Over time, as quantities of North Sea oil and gas have dwindled, and as investment has been redirected to renewables and other low-carbon sources particularly in the most recent decade, this percentage has steadily been coming down.

A more reassuring statistic is that energy investment comprises a healthy 10% of total investment. The energy sector is undergoing a fundamental shift with huge sums being put into R&D and new technologies in the push to decarbonise and digitise. A critical proof point is that big companies are pivoting – see how BP has acquired Lightsource and Chargemaster, a sign that they recognise the need to shift towards a low-carbon future featuring renewables and electric vehicles.

The biggest headline from the data, as picked up in various outlets including the UK’s most read newspaper The Sun, is that 50.1% of the UK’s electricity came from low carbon sources i.e. renewables plus nuclear. This beats the 45.6% registered in 2016. The share of renewables generation of all fuel types was also up in 2017 to 29.3% from 24.5% in 2016.

But what about my bills?

More low carbon generation is good news, however, what does this mean for consumer bills? Total domestic energy prices increased in 2017 in real terms by 1.9%, and for the period 2007-2017 real prices for domestic energy increased by 34%. This huge increase is to a large extent the result of the cost of subsidising renewable energy, which has been passed directly to the consumer.

With the UK Government planning to phase out subsidies for wind and solar, you might logically think that bills will fall. However, there are still fundamental challenges in integrating increasing levels of renewables into the UK’s grid system, necessitating other more traditional energy sources to still be readily available (at high cost). There are plenty of examples around the world where countries have ramped up investment to bring renewables onto the grid, expecting prices to fall, but instead those prices increased rapidly – just see the cases of South Australia and California. A blind assumption that more renewables lead to lower prices is a path to failure.

Optimistic outlook for UK plc

Whatever route we end up taking, we should take heart that UK investment in renewables is high. It’s an encouraging indicator of the low-carbon economy and shows that we’ve moved away from the times of simply taking dirty material from the ground and burning it. Energy impacts everybody every day and we have the power to design and benefit from a low-carbon future.

Madano is a fully integrated communications consultancy that specialises in advising clients in sectors where communications are critical to success. From energy and transport, to healthcare and technology – we would very much like to hear about your challenges and explore how we can help. Get in touch with me here.

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