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Brexit

Understanding Energy: Brexit and the Energy Market

The Brexit referendum campaign has generated much heat but little light as the leave and stay campaigns trade claim and counterclaim in an attempt to answer the Pythonesque question – what has the European Union ever done for us?

The campaign, labelled by many as Project Fear, has been characterised by a series of striking claims. The leave side has warned that a vote to stay would endanger the NHS and realise the dreams of Napoleon and Hitler, while the remain side, now colloquially referred to as Bremain, warn that a vote to leave would be an economic catastrophe, would add a remarkably precise £232 to the cost of a holiday and increase the chances of World War 3!

BrexitWe have seen opinion polls tighten in recent days, with the Financial Times poll of polls now showing both sides neck and neck with 43% in favour of remaining and 43% intending to vote leave.

The spectre of Brexit has hung over the UK economy, like a sword of Damocles, for much of the year as uncertainty and speculation around the vote dominate political and economic discourse. The result will have obvious repercussions across European and global markets, but has particular significance here in Ireland given our strong economic, social and geographic links to the UK.

As we approach the 23rd of June referendum date, what impact is a leave vote likely to have on the structure of energy markets, particularly in Ireland which imports a significant portion of its energy requirements from the UK?  Any disruption to this trade would have a profound impact on our energy market and economy.

If we assume the worst and the UK votes to leave the EU, we would expect to see sterling weaken materially. New arrangements would have to be put in place governing the UK’s relationship with the EU. The vote for Brexit would trigger an application to withdraw under article 50 of the Lisbon treaty. This Article provides that the EU will negotiate a new agreement with the withdrawing country over two years. This can be extended, but only by unanimous agreement.

If we focus on the energy area, it is obvious that Ireland and the UK have become part of an increasingly integrated European market for electricity and gas. The move towards a single market for energy and the Energy Union brings benefits for all members. The single market increases security of supply at reduced cost benefitting all members.

If we look at a House of Commons report (Leaving the EU) published in 2013, it stated that a single market in energy has many potential benefits and concluded “given the multinational nature of energy markets and companies, even withdrawal from the EU would probably not affect the direction of travel.”

The likelihood is that the UK would follow the example of Norway and Switzerland who are non EU member states but are an integral part of the EU’s energy markets and do not face the imposition of energy tariffs. The UK is likely to remain part of European integrated gas and power markets just as Norway is a key part of Europe’s gas system and Switzerland a key gas and power transit state. The UK could retain almost all the energy market benefits of EU membership if it were to negotiate an energy relationship akin to Norway under its membership of the European Economic Area (EEA).

However, in this scenario, while the UK might be consulted it would not have a vote on EU legislation in this area. Whether the UK would be prepared to accept hand me down rules from the EU is a key question. In addition, the EU would have lost an influential supporter of energy market liberalization and a strong advocate of market-led approaches to challenges in the energy arena. The withdrawal of the UK may well reduce the drive toward integrated energy markets and key reforms in areas such as the emissions trading.

The impact of a Brexit on energy markets is far from clear. It will depend, to a large extent, on negotiations yet to take place by parties yet to be determined.  One would hope, however, that all parties would recognise that the UK is part of an increasingly integrated European market for electricity and gas and that the move towards a single market for energy and the Energy Union brings significant benefits for all members. In the event of a vote for Brexit, the UK is likely to attempt to reduce the impact by maintaining cooperation and policy alignment with EU on energy and climate policy.

Bord Gáis Energy has a team of experts who examine and report on the global energy market every day, and develop the monthly Bord Gáis Energy Index. Over the next few months, the team will provide some insight into the drivers behind wholesale energy price movements which will feed through to the  price of the energy used by Irish businesses and residential consumers.
Written by Joe Egan
Joe has worked on the Bord Gáis Energy gas trading desk since 2014, managing gas positions and exposures for retail and commercial customers. Before joining Bord Gáis Energy, Joe worked in equity markets in Ireland and London as a Private Client Portfolio Manager. He also held roles in Institutional Sales marketing Irish equities internationally. Joe holds a Masters Degree in Economics and Finance from Cambridge University.

 

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Supporting SMEs

PR

On the Brink….how crisis ready are you?

When a crisis hits your organisation later today, how prepared are you to handle it? What do consumers expect you to do?  And will you still be standing tomorrow, reputation intact?

In the court of public opinion, reputation is the only currency worth having in a crisis.  Failure to predict, prepare and adequately respond to a crisis will shred your reputation and the value of your organisation in an instant. Trust, built up over decades, can evaporate in minutes.

PRPSG PLUS’ new report ‘On the brink…how crisis ready are you?’ brings new research to light regarding consumer attitudes to companies in crisis.  Our research shows that the speed and strength of your investigation along with your reaction are the most important factors in responding to the crisis and protecting your reputation, not to mention your revenues.

‘On the brink’ poses the question, how crisis ready are you? Let’s start with some of the key findings. Our research shows that more than half of CEOs have experienced a crisis in the past 24 months, but only 40 percent of them had a crisis plan to activate. When it comes to crisis communications, the importance of preparation and planning cannot be over emphasised.

That’s especially true when you consider that 75% of consumers who responded to the survey said reputation was a key factor in their buying decision. In fact 52% of consumers said they will buy from a company that has a strong reputation. This emphasises the point that in today’s marketplace, reputation is everything and protecting it in a crisis is absolutely essential.

However, understanding what your customers prioritise is also key, as it will inform not only your strategy but also your response. The PSG PLUS research shows that for consumers the worst thing a company can do is lie to them or mislead them. 79% of the respondents put that at the top of their concerns, followed by fraud or white-collar crime inside the company.

Compare that though to what the CEOs of companies see as their biggest concern when it comes to issues that concern them the most. 90 percent said that the loss of customer data due to a breach or a hack would pose the biggest risk in a crisis. And while that was of significant importance to consumers, it actually ranked 3rd in the list of concerns for consumers.

How then should you respond in a crisis? What is it that consumers want to hear and see you do when things go wrong and your reputation is at stake?

While both consumers and companies agree that launching an investigation into the source of the crisis should come top of the list, our research shows some significant divergences in expectations. Whereas 31% of customers say the company should compensate the people affected, just 5 percent of CEOs agree.

And whereas 66% of corporations say the CEO is the person most responsible for solving a crisis, just 30% of customers agree. In fact most customers see the senior management team as sharing collective responsibility and say that as a group it should be that team which is on the hook for making the crisis go away.

So, we know how vital it is to protect our brand, the pressure points that are most likely to anger consumers and the importance of having a crisis communications plan in place. The next question is how best to relay our response to the wider public and who we need to build relationships with.

Again, `On the Brink….How Crisis Ready Are You?’ shows some interesting results. Social Media, the tool that can amplify a mistake and turn it into a crisis, is the most trusted source of information for just 9 percent of consumers during a crisis.

Indeed the most trusted source of information for customers while a company navigates a crisis is the appropriate regulatory body for the sector. This emphasises the need to build effective and healthy relationships with key stakeholders as part of the preparation plans.

In conclusion a crisis may happen whether you prepare for it or not, but planning will help mitigate a crisis, protect the brand and ultimately protect the bottom line.

Alan Tyrrell - On the brinkAlan Tyrrell is Agency Director for PSG PLUS, the corporate PR agency of PSG Communications.

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At Work is our quarterly publication full of SME news, helpful articles and competitions. If you have a topic suggestion or are interested in your business being featured in the next edition of At Work, let us know at atwork@bordgais.ie