Weekend press: Cutting energy prices will take years

Our latest round up of national coverage of the utility sectors this weekend includes a warning that high energy prices are set to remain; delays are expected on a project linking solar generation in northern Africa to the UK; and Octopus' acquisition of Bulb is likened to the Lloyds-HBOS deal in 2008.

Cutting energy prices will take years – power boss

It “will take years” to get energy prices back to pre-Ukraine war levels, the boss of one of the world’s biggest energy firms has told the BBC.

Enel’s Francesco Starace said bringing prices down depends on new sources of energy such as renewables and heat pumps.

Governments across Europe are spending billions helping business and households afford energy bills.

They are also scrambling to secure new supplies.

Mr Starace said the company, which produces and distributes electricity and gas, tried to shield its 20 million European customers from energy market volatility this year.

It did its best to stick to the fixed-price contracts it had agreed, he said.

Breaking customer trust would inflict greater damage on the firm than a hit on one year’s results, he said.

The Italian energy giant sells power to more than 70 million homes and businesses in over 30 countries.

But Enel is planning to leave many of those countries as it focuses on renewable energy and becoming carbon neutral by 2040.

It also wants to cut its huge debts of around $63bn (£52bn).

It is investing heavily in making solar panels as it expands an existing factory in Sicily and builds a new one in the US.

Soaring energy prices have been the biggest contributor to inflation and the cost of living crisis in the UK, the US and the eurozone.

The global energy crisis triggered by Russia’s invasion of Ukraine “showed very clearly how dependence on one single source of energy is dangerous for Europe”, Mr Starace said.

The future will be “extremely decarbonised” and depend on nuclear and renewable energy, he said.

However, that shift to renewables also has risks.

In July, the International Energy Agency warned that China’s dominance of the solar industry creates “potential challenges that governments need to address”.

Mr Starace said the West has been over-reliant on China for renewables and other goods.

“Some rebalancing needs to be happening because it is healthy,” he said, when asked about geopolitical tensions interfering with energy supplies.

This has helped drive Enel’s investment in solar panels, although the expansion of the Sicilian factory will still meet only 10% of Europe’s needs, he said.

BBC

Europe cuts gas demand by a quarter to shed reliance on Russia

EU countries cut gas demand by a quarter in November even as temperatures fell, in the latest evidence that the bloc is succeeding in reducing its reliance on Russian energy since Moscow’s invasion of Ukraine. Provisional data from commodity analytics company ICIS showed gas demand in the EU was 24 per cent below the five-year average last month, following a similar fall in October.

European countries have been trying to pare back their reliance on Russian gas and oil by finding alternative sources or making changes to curb demand. They have been helped by an unseasonably warm autumn, although in the past two weeks temperatures have dropped closer to normal levels. In Germany and Italy, the EU’s two largest gas-consuming countries, demand fell 23 and 21 per cent respectively in November, ICIS found. In France and Spain it fell by more than a fifth and in the Netherlands by just over a third.

“Industry is proportionally driving the biggest reductions in gas consumption, and this is entirely the result of clear market pricing,” said Tom Marzec-Manser, lead European gas analyst at ICIS. The high gas price has “disincentivised” use, he added. Europe has also imposed sweeping new restrictions on Russia’s oil exports to limit its use of that energy source too.

The EU’s bar on seaborne Russian oil imports came into effect on Monday. Meanwhile G7 leaders have agreed to launch a so-called price cap that aims to keep Russian oil flowing to countries such as India and China to avoid creating widespread shortages, but only if the crude is sold at less than $60 a barrel to crimp Moscow’s revenues.

However industry executives and analysts have warned that without further declines in demand and more imports of LNG, gas shortages could persist for years in Europe. “Demand will need to be lower than pre [Russia-Ukraine] war levels to get enough inventory” for next winter, said Alex Tuckett, head of economics at consultancy CRU Group. “The question is, how much demand reduction, and how painful it will be.”

The drop in demand meant gas storage facilities in the EU were at 95 per cent capacity in mid-November, according to industry body Gas Infrastructure Europe, close to an all-time high. Record inflows of LNG into the region also helped. But colder weather in recent weeks has increased demand and storage facilities are now at about 93 per cent capacity.

At the same time, prices have risen. Dutch TTF gas futures, the benchmark European contract, are trading near €150 a megawatt hour, the highest in more than a month, but still only half the €300/MWh they briefly reached in August.

Read the full story in the Financial Times

£18bn project to link UK to huge wind and solar farm in Sahara delayed by a year

An £18bn project to connect Britain with a huge wind and solar farm in the Sahara through an undersea cable has been delayed by at least a year because of political ructions in Westminster.

The energy startup Xlinks hopes to provide 8% of Britain’s energy supplies through a 3,800km (2,360-mile) cable linking Morocco with the UK, powering 7m homes by 2030.

The project had been expected to begin generating power by 2027. However, that target date now appears unlikely.

The Xlinks’ executive chair, Sir Dave Lewis, a former chief executive of Tesco, warned that the recent political turmoil that has seen off three prime ministers in less than six months has stalled its progress.

He has been trying to secure a government “contract for difference” – a mechanism under which public subsidies are used to offer low-carbon generators, such as windfarms, a fixed price for power. The arrangement aims to encourage investment by making revenues more predictable.

Lewis told the Guardian: “We spent a long time with the then business secretary [Kwasi Kwarteng] who said: ‘We like it a lot but it needs to go through Treasury.’ There was a review with Treasury, Cabinet Office and the business department, which was very positive.

“Then we came back to them to start the detail and the political world exploded and, as a result, everything stopped. And everybody has changed, so it’s sort of like you’re starting again.

“Time is important for the UK to meet its net zero ambitions, to secure energy supplies and to reduce bills. We have lost a year.”

Xlinks was founded in 2019 by its chief executive, Simon Morrish, who has grown the environmental services business Ground Control across the UK.

When the Morocco-UK link is complete, Xlinks expects to generate 20 hours of reliable renewable energy a day using the Sahara’s sunshine and breezy night-time conditions.

The plan is to build almost 12m solar panels and 530 windfarms over the 960 sq km area of desert. The site, in the Guelmim-Oued Noun region, will also have 20 gigawatt hours of battery storage.

The cable transporting power from the site will hug the Moroccan coastline, then pass alongside Portugal, northern Spain and France before looping around the Isles of Scilly to terminate at Alverdiscott in north Devon, where Xlinks has already agreed to 1.8 gigawatt connections.

Morocco has an established wind, solar and hydroelectric power industry, and its solar intensity, a measure of generation power, is second only to Egypt and double that of the UK, according to data from Xlinks.

The power lines will be laid by the world’s largest cable-laying ship and buried beneath the seabed to mitigate the risk of damage from fishing boats. The company is in the process of studying the seabed and gaining offshore permits.

Xlinks hopes to land a strike price of £48 per megawatt hour, lower than the £92.50 agreed for the delayed Hinkley Point C nuclear power plant in Somerset.

The company argues that despite the scale of the project, it can be more reliable for the security of UK energy supplies than domestic options because UK wind power can be hugely variable. Last week National Grid issued, and later cancelled preparations to launch its emergency winter plan after low wind and solar power left supplies tight.

Lewis has personally invested in the Xlinks project, along with Octopus Energy and its founder Greg Jackson.

The Guardian

 Is Octopus-Bulb a replay of Lloyds-HBOS?

On Wednesday September 17 2008, when Eric Daniels, then chief executive of Lloyds bank, conquered his nerves, looked past the collapse of Lehman Brothers two days earlier and agreed to buy HBOS for £12bn, he saved the giant mortgage lender from nationalisation. Is something similar happening now in the UK energy market?

Dozens of suppliers have already failed, not least because the regulator — echoing lax banking supervision 14 years ago — allowed them to disregard basic safety and soundness measures, such as hedging wholesale energy prices. But the biggest company failure is ongoing.

Today, Bulb looks a lot like HBOS in 2008; and Octopus, its putative rescuer, looks a lot like Lloyds. The omens are hardly propitious. Within a few weeks of striking that September 2008 deal, Lloyds had itself been forced into a humbling government bailout ultimately worth £20.3bn.

It took a further eight-and-a-half years for the government to sell off its 43 per cent stake, roughly making its money back (but only if you exclude the state’s cost of borrowing, inflation and fees). Along the way, HBOS caused Lloyds years of pain, most notably with the early-2009 disclosure of an £11bn loss thanks mainly to vast bad debts in its corporate loan book.

In other respects, though, Octopus — and the government — may have grounds for optimism. Lloyds today is Britain’s dominant high street bank with a quarter-share of the market, having secured an exceptional waiver from competition rules when it did the HBOS deal. Octopus, post-Bulb, will command a market share of close to 20 per cent.

At the same time, the government is ensuring that Bulb’s 1.5mn customers benefit from undisturbed service, thanks to the Special Administration Regime under which its failure has been managed, and the energy transfer scheme that will move them to Octopus. So in orchestrating the rescue has the government learnt the lessons of Lloyds-HBOS? In some ways, clearly yes.

The SAR, explicitly dreamt up for key sectors in the wake of the 2008 financial crisis, seems to have worked effectively and has given the government time to find a commercial buyer for Bulb. By doing so, it has avoided having to inject state equity capital into Bulb, instead supporting it with lending. Of course, this was the original plan for Lloyds-HBOS, and it unravelled fast (largely because of bank-specific regulatory capital requirements).

But managers reckon that as long as Octopus can swiftly hedge out the risk in Bulb’s operations, any surprises, given the limited complexity of the business, should be manageable. Octopus may even prove a healthier buyer for Bulb than Lloyds was for HBOS. It is not a legacy operator, but a fast-growing new player.

While that may give it less solid foundations, it does have the merit of being less bogged down with old technology and working practices. It reckons its operations are between £50 and £100 per customer a year more efficient than rivals. But one aspect of the Bulb deal, when compared with the HBOS rescue, is far from welcome: the details of the government’s financial support for Bulb are shrouded in mystery.

Read the full story in the Financial Times

Britain risks being left behind in the race to a cheaper energy system

Greg Jackson, chief executive of Octopus Energy, tells a good joke about the challenges of Britain’s transition to green energy, which he generously attributes to Kristalina Georgieva, managing director of the International Monetary Fund. Not such a po-faced, politically correct organisation after all, you might think on reading it.

God says to Moses, I have good and bad news for you. The good news is that you can wave your hand, and the seas will part, allowing you to lead your people to safety. Well that is indeed good news, says Moses. How can there be any bad news after that? The bad news, says God, is that first you must conduct an environmental impact study, and I should warn you that it may take some time.

The prospect of boundless, relatively cheap and secure renewable energy has never been more real, but thanks to the obstructions of monopoly, nimbyism, regulation, bureaucracy, and planning laws, the parting of the waters is simply not happening on anything like the scale needed, or not in Britain and much of the rest of Europe in any case.

New investment in offshore wind – expected to be the primary source of renewable energy generation for the UK – has all but ground to a halt. Wind turbine manufacturers say new orders have fallen off a cliff, the very reverse of what you might expect given the incentives to invest as an alternative to Putin’s stranglehold over gas supplies. It’s not hard to see why.

The process is just far too long winded – excuse the pun – and the regulatory and tax environment too unstable to command the necessary level of support. Wind farm investors complain that National Grid is in virtually all cases unable to guarantee a point of connection to the main transmission network until 2030 at the earliest. You read that right – not for seven years. From inception to completion, it can take 11 years for a new offshore wind farm to come on stream in the UK.

That there should be such an impasse given all the political posturing around net zero is almost incomprehensible.

With the car fleet fast turning electric, and household heating soon to follow, demand for electricity is about to go through the roof. What is more, the regulator guarantees the Grid a handsome rate of return on all new investment, so you would think that it would be hot to trot. Indeed we are, insists the Grid. Published plans involve £30bn of UK investment by the Grid alone over the next eight years in providing connectivity for new sources of energy generation.

Yet the wheels grind exceedingly slowly and right now there is virtually no chance of the UK meeting its target of a 78pc reduction in emissions by 2035, let alone the longer term commitment to net zero by mid-century. Given the Government’s refusal to contemplate fracking as an alternative, there is no chance either of the energy security needed to underpin the nation’s long term future.

It’s not yet too late, but urgent and heavy handed – one might even say authoritarian – action needs to be taken to over-rule intransigent vested interest, backward looking regulation and obstinate, risk averse circumspection, or the desired energy transition simply won’t happen on the scale needed.

We also need something similar to Biden’s curiously named “Inflation Reduction Act” – curiously named, because many of its measures are more likely to be inflationary than disinflationary. All the same, with its promise of nearly $400bn of tax breaks and grants for renewable energy investment, this is exactly the sort of policy initiative needed to tip the balance in favour of a low carbon economy.

Read the full article in The Telegraph

UK energy debt crisis revealed as half a million warrants granted for forced prepayment meters 

Nearly half a million warrants allowing energy firms to forcibly install pre-payment meters in the UK’s poorest homes have been granted since Britain came out of the Covid lockdown, it can be revealed.

An i investigation has found that debt collecting agents acting on behalf of the nation’s biggest gas and electricity companies have been handed more than 490,000 warrants to force their way into properties since July 2021.

Since October last year, the number of warrants issued in England and Wales has risen to 18 percent.

i can also reveal how the warrants are being granted through an obscure court process in which magistrates who sign them off have little or no oversight of people’s vulnerability or health issues.

At one court in the north of England, magistrates signed off a single batch of 496 utility warrants in just three minutes and 51 seconds, as a debt agent representing several major energy firms dialled in by telephone.

Pre-payment meters are controversial because they are a more expensive way to buy energy, and can leave customers facing a choice between self-disconnecting their electricity or being pushed deeper into debt.

The investigation comes as families across the country are facing the pressure of a deepening winter fuel crisis. National Energy Action has warned that 8.4 million households will be in fuel poverty by April.

Matthew Cole, the head of the Fuel Bank Foundation, which supports people in a fuel crisis, said: “We are seeing people who are new to fuel poverty. We can hear the panic in their voices. They can see the cliff edge approaching.”

iNews

Cambridge Water customers’ bank details published to dark web after cyber attack

Bank account details of Cambridge Water customers have been published to the dark web, following a cyber-attack.

Customers have been left alarmed and furious after learning that names and current addresses, sort codes and account numbers are among the data stolen by cyber criminals from its parent company, South Staffordshire plc, back in August.

Cambridge Water has written to customers to warn them that “criminals may try to use this compromised data to carry out fraud, in particular by submitting fraudulent Direct Debit mandates to your bank or building society using the data compromised in the cyber-attack”.

Andy Willicott, managing director of Cambridge Water, said in a statement: “We understand that customers trust us to keep their data safe and I’d personally like to say sorry to all those customers impacted – we’ll be doing what we can to support you through this.”

The company has set up a helpline for customers, from 8am to 6pm on weekdays and offered customers access to free credit monitoring for a year.

The customers affected are understood to be some of those who pay by Direct Debit.

Cambridge Water has told customers that its parent company took “immediate steps to manage and respond” to the cyber-attack once it had been identified.

That, however, was too late to prevent the data breach.

Customers have been told that South Staffordshire plc “engaged leading IT forensic experts to investigate the issue and also notified the National Cyber Criminal Security Centre, the National Crime Agency, the Information Commissioner’s Office (ICO), Ofwat and the Consumer Council for Water as well as the Drinking Water Inspectorate”.

Some customers took to social media to express anger that there was “barely an apology” from Cambridge Water in the letter they received from the managing director.

In it, he says: “We regret the concern this may cause you and will do all we can to support you.”

There has also been concern from customers about the length of time taken to notify them what data had been stolen and published, given that the attack happened in the summer.

One customer told the company on Twitter: “It’s absolutely disgraceful that customers are only finding out about this data breach (and that out details are now on the dark web) four months afterwards.”

Mr Willicott said: “We have been working with external specialists to understand exactly what data has been published. This is a complex and time intensive process.”

Cambridge Independent

Redcar and Cleveland Council faces £1.2m bill over sewage spill

A cash-strapped council faces a huge bill after workmen inadvertently damaged a main pipe, causing sewage to spill on to a nearby beach.

It happened in February during work to extend Saltburn’s Cat Nab car park.

Redcar and Cleveland Council has referred to the involvement of a third-party contractor and said it would be “inappropriate to comment further”.

Northumbria Water is thought to have demanded £1.2m from the authority to pay for work to deal with the problem.

It said it was “working closely with them [the council] while they process our claim”.

Complex engineering work lasting several weeks was needed to work around the damage until a new pipe and fittings could be installed.

The water company had to build a mini-treatment works and a dam to redirect water flows from the nearby Skelton Beck, the Local Democracy Reporting Service (LDRS) said.

The LDRS has been told the company is seeking £1.2m from the council to cover its costs, although neither party has confirmed the sum involved.

The local authority was already looking to make savings ahead of setting of its annual budget next year, having previously issued warnings about its financial situation.

In March, cabinet member for highways and transport Julie Craig, whose department commissioned the car park extension, was relieved of her position by council leader Mary Lanigan.

Council director for adults and communities Patrick Rice has conducted an investigation into the incident, including looking at the authority’s procedures and processes, but the findings have not been published.

The Environment Agency is also investigating what happened.

It can prosecute where environmental breaches have occurred with potential penalties for pollution spills including jail sentences or unlimited fines.

BBC

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.