Weekend press: Water bosses received £25m in bonuses since last election

Water company bosses have received more than £25 million in bonuses since the last election, Labour has highlighted, as the party mulls its pitch to voters in the next election, including its promise to invest £28 billion annually in the low-carbon economy. Meanwhile, the boss of Siemens Energy has warned that energy bills will need to rise to cover cost inflation in the wind sector. All this and more in the latest round-up of the weekend’s newspapers.

Water bosses have awarded themselves £25m in bonuses since last election, Labour says

Water company bosses have awarded themselves over £25m in bonuses and incentives since the last general election, according to analysis by Labour.

The analysis found that nine water chief executives were paid £10m in bonuses, £14m in incentives and £603,580 in benefits since 2019.

It comes amid outrage over illegal sewage dumping, with water firms in England seeking to hike customers’ bills by an extra £156 a year to invest in Britain’s Victorian infrastructure.

Labour has pledged to give the water regulator new powers to ban payouts to bosses of firms that are illegally polluting rivers, lakes and seas if it wins the next election.

It said under the plans, Ofwat could have blocked six out of nine water chiefs’ bonuses last year because of severe levels of sewage pollution.

Steve Reed, the shadow environment secretary, said: “This Conservative government has wilfully turned a blind eye to corruption at the heart of the water industry.

“The result is stinking, toxic sewage destroying our countryside, and consumers facing higher bills while failing water bosses pocket millions in bonuses.”

The government has introduced unlimited fines for water companies who pollute and increased Ofwat’s powers to ensure water company dividends are linked to environmental performance.

And last year, Ofwat decided that water companies failing to meet environmental commitments would be barred from funding bonuses from household bills.

Labour said it will go further by allowing the regulator to ban bonuses altogether and making sure chief executives face personal criminal liability for “extreme and persistent” lawbreaking.

Mr Reed said: “Labour will put failing water companies under special measures. We will strengthen regulation so law-breaking water bosses face criminal charges, and give the regulator new powers to block the payment of any bonuses until water bosses have cleaned up their filth.

“With Labour, the polluter – not the public – will pay.”

Sky News

Energy bills must rise to pay for net zero, says Siemens Energy boss

The German boss of Britain’s biggest wind turbine maker has warned energy bills will have to keep rising to pay for the green transition as he attacked “fairytale” thinking about net zero.

Joe Kaeser, chairman of Siemens Energy, suggested higher energy bills were inevitable as turbine makers grapple with huge losses, forcing them to pass on costs to their customers.

The company is the owner of the UK’s biggest wind turbine manufacturing site, in Hull, and employs thousands of British workers.

Mr Kaeser said manufacturers had become locked in a harmful “rat race” to build ever-bigger turbines and claimed developers and governments were in denial about the costs this entailed.

He also warned that inflation is battering industry balance sheets and warned of separate growing problems with faults and breakdowns in the sector.

Mr Kaeser told The Telegraph: “Every transformation comes at a cost and every transformation is painful. And that’s something which the energy industry and the public sector – governments – don’t really want to hear.

“I believe that for a while [customers] need to accept higher pricing.

“And then there might be innovation – about the weight of the blades, other efficiency methods, technology – so the cost can then go down again.

“But the point is, if there is no profit pool in an industry, why should that industry innovate?”

His comments come after the UK Government bowed to industry pressure in November and increased the power prices offered in future renewable energy auctions, after a competition in the summer received no bids from offshore wind developers.

The earlier auction flop triggered serious doubts that the UK would be able to meet its target of 50 gigawatts of offshore wind capacity by 2030.

Speaking at the World Economic Forum in Davos, Switzerland, Mr Kaeser criticised what he described as “a lot of big mouths but little action” that had gone on for years in the wind industry.

Governments and developers are failing to follow through on their own green transition promises quickly enough, he said, while many are reluctant to admit the full costs of their plans to reach net zero carbon emissions by 2050.

Wind turbine manufacturers have faced surging prices for materials such as concrete and steel as well as labour and specialist ships used to move large components such as blades and towers.

These rising costs were not factored into many contracts with wind farm developers, pushing turbine makers into the red as a result. Some, including Siemens Energy, have also had to set aside large sums to fix faulty equipment.

After crashing to a €4.6bn (£3.9bn) annual loss last year – blamed mainly on Siemens Gamesa, its offshore wind unit – bosses at the company had to go cap in hand to the German government for support. Gamesa announced 6,000 job cuts in November.

Inflation has also led to the cancellation of many offshore wind projects. 15 gigawatts’ worth of projects were cancelled or postponed last year in the UK and US alone, which would have provided enough electricity to power 12m homes.

As well as inflation, Mr Kaeser, who took over as chairman in 2021, argued that the problems are also down to foot-dragging by developers and governments.

“One of the shortcomings of the wind industry in the last five years is that there were a lot of announcements, a lot of plans,” he explained. “But they took four, five or six years sometimes to go from the order to execution.

“Now, if you have five years in between, you have a massive risk of inflation, which has hit us really, really hard. Not just Siemens Energy, but also others.

“We need to have a long-term energy plan, that this is what we’re going to do in the next three years, five years.”

Mr Kaeser, 66, also criticised a “bigger is better” mentality in the industry that has seen turbine heights more than double in the past 20 years. For example, General Electric’s Haliade-Xs stand at 853 feet each – two and a half times as tall as Big Ben – compared to a typical turbine height of around 300 feet at the turn of the century.

A dash to build bigger and bigger turbines has in some cases proved counterproductive, Mr Kaeser said, by forcing manufacturers to spend large sums of money upfront with too little time to recoup their investments.

“Industry was in quite a rat race. It was 3 gigawatts and then somebody would come out with 3.5 and then someone else 4 and on and on. They hadn’t even tested the old one yet but announced a new one.”

At the same time, flip-flopping on projects or delays caused by slow planning processes have left manufacturers without the certainty they need to invest in even bigger factories, let alone research and development that could bring costs down.

He said: “It’s up and down and up and down, and promise here and promise there and then, ‘Oh, well, renewables are too expensive’. Well, the cost of energy doesn’t go down on renewables if you don’t innovate.

“And if you’re making all the losses, why should you innovate? So you have a sort of a Catch 22, which you can only break if you have a long term energy agenda.”

Ultimately, money talks. If countries and developers are not prepared to put their money where their mouths are, they should rethink their plans for net zero altogether, he suggested.

“I think [the net zero targets] are realistic, but they come at a cost,” Mr Kaeser said. “You need to stick by the facts at some point, even though facts sometimes may not be liked.”

The Telegraph

UK needs ambitious green plan to keep up with allies, says Labour frontbencher

Britain needs its own ambitious green investment plan to keep up with its allies, a Labour frontbencher has said, amid an increasingly bitter row over whether Keir Starmer should stick to his £28bn pledge.

Jonathan Reynolds, the shadow business secretary, said the UK should come up with its own version of Joe Biden’s $369bn (£290bn) Inflation Reduction Act, which has provided support to a range of technologies including electric cars and renewable power.

Speaking from Davos, Reynolds warned that the UK risked losing business to the US if it did not commit to a significant plan of its own, even as some around the Labour leader said it would risk damaging the party in the polls.

As Labour officials race to finalise the party’s main manifesto commitments in time for its 8 February deadline, the fate of its green prosperity plan remains one of the main unanswered questions. Reynolds’s comments will bolster the arguments of those who have urged Starmer not to drop it in the face of a sustained Conservative attack.

Reynolds said Biden’s act was “probably the most significant disruption to investment capital markets in 40 years – a greater impact than the pandemic and the global financial crisis … we’ve got to respond to that. We’ve got to increase our competitiveness, we’ve got to understand there’s a huge offer there from the US.”

Labour officials will meet this week to discuss the £28bn promise, and further meetings are planned between shadow ministers in the coming weeks.

Some in the shadow cabinet believe the policy, first launched in 2021, should be ditched altogether given that the UK now faces much higher borrowing rates and Labour is desperate to avoid making unfunded spending commitments.

However, others say the policy is the party’s main economic and environmental offer to voters and that dropping it will only intensify accusations that Starmer cannot be trusted to keep his promises. Like Reynolds, they make the point that the UK could lose business to the US if it fails to come up with its own version of the US act.

“What’s so significant about the Inflation Reduction Act is, they have recognised that if you just do it in the cheapest way … that’s going to be Chinese,” he said. “This [the act] has been a huge disruptor, sucking away from Europe a whole range of exciting companies and technologies.”

His words echo the recommendations of a group of leading economists, who said in a paper on Monday that Britain should invest £26bn a year in the low-carbon economy rather than using the money for tax cuts.

…

Among those making the decision over the party’s green policies are two shadow cabinet ministers whom Starmer has asked to “bomb-proof” the manifesto so that it does not fall apart in an election campaign.

The Labour leader has asked Jonathan Ashworth to see how the proposals will withstand media and opposition attacks, and Lucy Powell to check whether they will be able to form coherent legislation.

Their roles mirror that played by David Miliband for Tony Blair before the 1997 election, when the young policy chief was tasked with making sure that the party had not made any promises that it could not defend from opposition criticism.

If Powell and Ashworth sign off individual policies, they will be checked by Rachel Reeves, the shadow chancellor, to see if they have been costed, before getting the final signoff from Starmer. Ravinder Athwal, the Labour leader’s policy director, is in charge of writing the manifesto.

Shadow cabinet ministers have been told to have their headline policy proposals ready by 8 February, even if finer details need to be ironed out at a later date.

The Guardian

UK should invest in green economy instead of tax giveaways, study shows

The UK should invest £26bn a year in a low-carbon economy to revive prosperity instead of planning tax giveaways that will only lead to further stagnation, leading economists have advised.

Investing in energy infrastructure, transport, innovation in new technologies such as AI, and the natural environment would boost the UK’s economy rapidly, the research found.

Public investment at that level would be likely to generate about twice as much accompanying investment from the private sector, and would quickly pay off in higher productivity, efficiency savings, economic growth and carbon reductions, according to a major paper by Lord Stern, a former chief economist of the World Bank, and colleagues from the London School of Economics.

Current government plans to stifle investment, by contrast, would lead to a “continuation of stagnant productivity and weak economic growth”.

The findings are strikingly similar to the commitments made repeatedly by Keir Starmer, the Labour leader, to invest £28bn a year in a “green prosperity plan”. Those commitments have come under sustained attack from the Tories, and are now to be reviewed by the opposition leadership this week, as some figures within the party are understood to favour dropping the pledge.

The authors of the LSE paper, entitled Boosting Growth and Productivity in the UK Through Investments in the Sustainable Economy, published on Monday, arrived at their conclusions independently, by examining the fitness of the UK’s crumbling infrastructure, the challenges and benefits of low-carbon investment, the broader economic environment and international competition.

Dimitri Zenghelis, lead author of the paper, said: “This does indeed mean that Labour’s £28bn-a-year green investment plans are of the right magnitude, consistent with investing in the structural change associated with a sustainable and resilient transition.”

But he noted that the investments required – equivalent to an increase in public investment of roughly 1% of GDP – were also similar to those espoused by the former prime minister Boris Johnson, when he held the presidency of the G7 group of advanced industrialised nations.

Zenghelis said the research suggested that any “fiscal headroom” within the public finances, owing to better than expected economic performance, would be better allocated to investment than to tax cuts, which the Conservative government is planning.

“The evidence suggests that [such an uplift in public investment], after more than a decade of underinvestment, gives the UK the best chance of staying in, and possibly ahead of, the global innovation, efficiency and productivity game,” said Zenghelis.

“High taxes do constrain private activity, but the evidence shows that in the UK the far bigger constraint is deficient core infrastructure and underinvestment in produced, human, intangible and natural capital.”

The Guardian

Tide of disapproval awaits new round of UK water companies’ price rises

Water companies are preparing to announce a significant increase in bills for customers, despite a torrent of criticism of their environmental records.

The 11 water suppliers in England and Wales have until the end of January to publish their new household charges, which will take effect from April. In early February, the industry body, Water UK, will then announce how much bills have increased by on average. Last year they went up by £31 to £448.

The announcement is likely to open the floodgates for a fresh round of criticism of an industry facing anger over sewage dumping, executive pay, debt levels and big dividends.

The companies have a tightrope to walk. On one hand, they will consider how much more their customers can afford to pay and whether their already damaged reputation can withstand a backlash over bills.

On the other, they need to spend large amounts on infrastructure to fix the country’s leaky pipes and bolster water resources to cope with the climate crisis. Meanwhile, a £10bn promise to improve infrastructure to tackle pollution – ultimately paid for by bill payers – has been delayed.

“There is an element of catchup here,” says Martin Young, an analyst at Investec. “The challenges for the water sector are clear for all. In the past, the level of the bill has been very high up the priority scale; as a consequence, some of the investment we would have liked to have seen as a country hasn’t been made.”

The exact rise in charges is determined by several factors. A significant driver is last November’s CPIH inflation figure (the consumer price index including owner-occupiers’ housing costs), used across the industry to calculate annual bills, which came in at 4.2%.

On top of this, the regulator, Ofwat, allows companies to charge more if they hit targets on pollution, leaks and customer service. In September, Ofwat ordered 12 underperforming companies to take £114m off bills from April, including £101m from debt-laden Thames Water. By contrast, Severn Trent was allowed to add £88m.

Industry sources believe nearly all suppliers plan to increase bills, most by November’s inflation figure or more. The north Wales water company Hafren Dyfrdwy is expected to make the largest increase, while Welsh Water could be the only supplier to reduce bills, as a result of penalties for supply interruptions and leakage during the last financial year, sources said. Thames Water, Britain’s biggest supplier, could increase at below the inflation rate, but its consumption figures were hard to assess due to problems with its stuttering smart meter rollout, a source said.

Limits on the amount companies can charge were set in 2019, as part of the twice-a-decade price review. Ofwat’s allowances were later made more generous after a challenge by some companies through the Competition and Markets Authority. The charges announced this month will apply to the final year of the current price period, and the regulator is now studying business plans which will cover 2025 to 2030 and detail further planned increases in bills.

“People get that there is a need for investment and that needs to be remunerated. But they want it to be fair and for water companies to deliver – there is no hiding place for them,” says Young.

Meanwhile, concerns are mounting over the ability of low-income households to pay bills. Plans for a standardised social water tariff were considered but later abandoned by the government.

Just over 1.3 million low-income households are on a piecemeal assortment of cut-price tariffs, largely funded by other customers. The Consumer Council for Water (CCW) has called on the entire industry to join the five companies that contribute some profits to social tariff support. “Water companies should be showing greater generosity and putting their hand in their own pocket to help bolster support even further,” said Andrew White, a senior policy leader at the CCW.

The Guardian

Gas networks face uncertain future as Britain charts course for net zero

When Hong Kong tycoon Li Ka-shing swooped on one of the UK’s major gas distributors in 2012, the Paris climate accords were seven years away and prime minister David Cameron was gearing up to “cut the green crap”.

More than a decade on, efforts to tackle climate warming have put the future of these pipeline network owners under a cloud including Wales and West Utilities bought by Li’s CKI Holdings 12 years ago.

One of Britain’s four gas network owners, it faces uncertainty as ministers plan to ditch methane or natural gas for home heating as a key objective to reach net zero emissions by 2050.

WWU said in its latest accounts published in September that the overhaul of the energy system could lead to “loss of value/business”, summing up the concerns of the whole gas sector.

To secure their future, the networks have been pinning hopes on ministers backing hydrogen as a low-carbon alternative to methane or natural gas, alongside moves to switch households to electric powered heat pumps.

But so far, the signs are not good for hydrogen as an option to heat homes. In November, the National Infrastructure Commission (NIC) urged ministers to reject the fuel source and opt for heat pumps instead.

It argued that heat pumps were far more efficient and readily available, unlike hydrogen, adding that the government should make plans to decommission parts of the gas network that would no longer be needed.

Lord Martin Callanan, an energy minister, said in the same month that hydrogen “will not play a major role in home heating”.

In another setback, hydrogen trials in Redcar and Whitby, near Liverpool, which the networks hoped would strengthen the case for the gas, have been scrapped because of local opposition and a lack of supplies.

Just one trial is left in Britain in Fife, Scotland, planned to start in the second half of 2024, to demonstrate hydrogen’s benefits before ministers make a final decision on the NIC’s recommendations in 2026.

Some gas groups have already acknowledged the likely hit to their businesses. Northern Gas Networks said in its accounts in August that the “most likely scenario” for the company is an overall 46 per cent fall in gas transported through its network by 2050.

The uncertain outlook makes it hard for energy regulator Ofgem to assess how much network owners should be allowed to invest and charge customers, with risks that money for pipeline upgrades could prove counterproductive if they end up being decommissioned.

In December, the regulator cautioned that households could face higher bills as distributors recoup costs from fewer and fewer customers, a nod to a possible switch to heat pumps.

Richard Lowes, at NGO the Regulatory Assistance Project, warned consumers could suffer if owners are allowed to invest large sums for upgrades, which then need to be recouped through bills despite the possibility of falling customer numbers. “You are exposing the country to these financial risks,” he said.

The government has supported, pending safety approval, blending up to 20 per cent of hydrogen into the methane or natural gas being carried through the pipelines. However, it has stressed the aim is to support wider growth of hydrogen in the economy, rather than decarbonise heating.

One positive for the gas groups are potential complications in rolling out heat pumps. This could prompt the government to back hydrogen for home heating as well as the NIC’s call for pumps.

Only about 250,000 pumps have been installed in British homes, a fraction of the home heating market. The latest figures show 72,000 were installed in 2022, despite grants for conversions, a long way short of the government’s target of 600,000 installations per year by 2028.

In contrast, 85 per cent of UK homes use methane gas.

The capacity of the electricity grid will also have to rise, if demand for pumps does pick up.

“We’ve never electrified heat in the UK before and we’ve never decommissioned the gas network before,” said Sarah Williams, director of regulation and asset strategy at WWU, speaking shortly after the NIC’s decision.

She warned of the risk that “either we don’t have a resilient energy supply, or we have a resilient energy supply that costs far more than it needed to”.

Cadent, the UK’s largest gas distribution network, has sent the NIC a report it commissioned from Imperial College London, arguing that switching to hydrogen could save £5.4bn a year by 2050 compared with switching fully to electric heating.

The Financial Times

Household energy bills ‘set fall in the spring’

Household energy bills are forecast to fall by 16 per cent or just over £300 a year from April, as wholesale gas prices continue to come down in spite of fresh global political turmoil.

Europe has imported an increasing amount of its gas from the United States since the outbreak of the Ukraine war, which has limited the impact on supplies from attacks by Houthi rebels in the Red Sea and the Israel-Hamas conflict.

Analysts at Cornwall Insight, the consultancy, have reduced their forecasts for energy prices from the spring. It now predicts that Ofgem, the energy regulator, will reduce the price cap to £1,620 for the second quarter of the year, £40 less than Cornwall Insight had forecast in December. Then it expects energy bills to drop to £1,497 from July, compared with a previous forecast of £1,590 a year.

…

Europe has become more reliant on American shipments of liquefied natural gas after Russia curtailed supplies. The US was the largest source of imports of the fuel, which is natural gas cooled to liquid form to enable in transport by tanker, to Europe in 2022, making up 42 per cent of total LNG imports, compared with 27 per cent a year earlier.

In Britain, American imports overtook those from Qatar for the first time. More recently, that shift has helped to curb any disruption in supplies from attacks in the Red Sea’s shipping lanes.

Gas prices also have been kept in check by relatively milder winter weather, which has maintained storage sites in Europe at fuller levels than expected.

Craig Lowrey, principal consultant at Cornwall Insight, said: “What we’ve had is a combination of comparatively mild winter conditions and that, combined with high levels of gas in storage in the UK and in Europe and a generally positive supply outlook, has really weighed on prices.”

European wholesale gas prices for the month ahead have fallen close to the lowest level since August at 28.5p a therm. In October prices leapt to 54p a therm after the outbreak of the Israel-Hamas war.

Gas prices in Asia also had been subdued, Lowrey said, which had reinforced global confidence in the security of supplies.

The Times

Utility Week’s weekend press round-up is a curation of articles in the national newspapers relating to the energy and water sector. The views expressed are not those of Utility Week or Faversham House.