Weekend Press: Insulate homes now to avoid energy crisis worsening

The weekend's newspapers featured a call to action to avoid a worse energy crisis in 2023, a proposal by Centrica to voluntarily cap profits; and energy retailers criticise National Grid's off-peak pricing scheme.

UK must insulate homes or face a worse energy crisis in 2023, say experts

Britain will be plunged into an even worse energy crisis in a year’s time without an immediate plan to improve leaky homes and dramatically reduce demand for gas, ministers have been warned.

The UK ranks among the worst in Europe for the energy efficiency of its homes, according to new research outlining an urgent need to reduce the amount of heat being wasted. Experts are warning that while Liz Truss has bought the government time with her £100bn-plus package to cap energy bills, similarly expensive and unsustainable schemes will be needed unless substantial plans are introduced to improve homes and reduce demand.

Truss’s energy package, a measure likely to define her premiership, is already under pressure for a lack of detail. There is further concern that additional help will need to be targeted at the poorest households, while the relatively short-term assistance handed to businesses will also be raised by business groups in the coming weeks.

While Truss pointed to fracking and the expansion of North Sea fossil fuels as a way of increasing the supply of energy, she has already been warned that this will fail to dent prices – while damaging Britain’s commitment to tackling the climate crisis. Instead, she is being urged to copy successful policies in Germany and elsewhere to improve the energy efficiency of the UK’s houses to reduce demand.

Research from the Institute for Government (IfG) found the UK scored worse than countries right across Europe with a range of climates in terms of the energy efficiency of its homes. Citing analysis of a 2020 study, it found that a UK home with an indoor temperature of 20C and an outside temperature of 0C lost on average 3C after five hours – up to three times as much as homes in European countries such as Germany.

The analysis concludes that UK households and businesses “are likely to still be facing high energy bills in the winter of 2023 – quite possibly beyond that”. It adds: “If the government focuses only on short-term financial support, and long-term measures unlikely to have a major impact, it will find itself in an even more difficult position in a year’s time.”

The UK is particularly vulnerable to spikes in the price of gas. More than four-fifths of UK homes are currently still heated by gas boilers, which is much higher than most countries. The UK’s housing stock is also the oldest and least energy efficient in Europe. More than 52% of homes in England were built before 1965 and nearly 20% were built before 1919.

The IfG analysis warns that energy prices are now expected to rise further and stay higher for longer than had been expected earlier in the crisis, with prices potentially remaining as much as four times higher than historic rates into 2025. It means another huge rescue package could be needed unless Truss acts on reducing demand for gas.

Experts believe a serious energy-efficiency programme could have a real impact within a year. The institute pointed to Germany as a success story, where grants, low-interest loans, tax rebates and free expert advice have all been used, resulting in high take-up figures.

“Energy efficiency is a giant hole in Liz Truss’s energy plan,” said Tom Sasse, associate director at the IfG. “Bills have gone through the roof – and show little sign of coming down soon – yet the government has no plan to tackle the fact that we have the draughtiest homes in Europe.

“Borrowing huge sums to freeze energy bills only makes sense if we also have a plan to reduce demand. Announcing a national mission to boost energy efficiency – learning from successes abroad – could make a real difference in reducing the pain coming for households and businesses.”

The costs of Truss’s plan will be unveiled this month in a fiscal statement to be made by the new chancellor, Kwasi Kwarteng. The prime minister has ruled out using a windfall tax on suppliers to fund the scheme, which Labour has demanded. However, there are already calls for the statement to back further help for the poorest households, who face added pressures from inflation.

The Centre for Social Justice, a thinktank with close connections to senior Conservatives, including the former party leader Iain Duncan Smith, is calling for an increase in universal credit to help the group. “Frankly, it’s an injustice not to be using the welfare system in the way that we can to help people,” said Joe Shalam, its policy director. “Universal credit is the way to do that. We saw it deliver during the pandemic. It is one of the most advanced social security systems in the world.”

The Guardian

British Gas owner wants to cap profits in government deal over energy bills

Centrica is planning to voluntarily cap its profits in a deal with Liz Truss’s government to help cut Britons’ energy bills during the cost of living crisis.

The British Gas owner is keen to sign up to a plan for new, long-term contracts for its electricity generation which would mean accepting lower profits in the short term.

Ms Truss is accused by Labour and the Lib Dems of siding with the energy giants after refusing to impose a new windfall tax on profits as part of her plan to freeze bills at £2,500 for two years.

But part of the new prime minister’s plan is to get power generators like Centrica to agree to stop pegging the price of electricity – sold on to suppliers – to soaring wholesale gas costs.

Centrica chief executive Chris O’Shea has said he wants to be the first company to sign up to a new price contract, saying talks with Whitehall officials were ongoing.

“We are in this business for the long term. We’re not in this business to maximise our profit this year,” Mr O’Shea told The Guardian.

The Centrica boss added: “We are obviously in this business to create value for all of our stakeholders, customers, country [and] colleagues. But it’s not about maximising this year’s profits; it’s about having a long-term sustainable business.”

The structure of the system at the moment means all electricity is closely pegged to the price of gas, which has rocketed since Russia’s invasion of Ukraine in February.

The UK Energy Research Centre first proposed that nuclear power stations and renewable electricity generators could sign up to new “contracts for difference” (CfDs) to sell their electricity at lower prices, in exchange for fixed prices over the long term.

Energy UK – the body representing many of the big giants in the sector – is now keen on the idea, estimating that it could cut £18bn each year from household and businesses’ energy bills.

But the plan has come in for criticism. The Resolution Foundation think tank said there was a risk of “delaying but locking in” the huge profits of the power generators.

Labour has made the same point. Shadow climate secretary Ed Miliband said long-term contracts would only “lock in” profits for electricity companies for years to come, warning that it will lead to higher than necessary household bills in future.

“What Energy UK has said is we’ll accept slightly lower prices now, so we can have much higher prices over the following 15 years,” he said on Thursday. “This would be a terrible deal for the British people, a terrible deal for billpayers.”

Centrica’s chief executive said it was in the company’s interests to help bring down bills right now. “We supply more than eight million homes and businesses in the UK with energy – if they can’t afford their energy, we don’t have a sustainable business,” said Mr O’Shea.

Ms Truss announced the energy price guarantee hours before the Queen’s death on Thursday. Expected to be paid for with a vast amount of borrowing, it will cap all household bills at £2,500 for two years, while businesses will have similar support for at least six months.

No 10 has said it does not believe the mourning period will have any impact on the policy, confirming on Friday it would not require MPs to vote on emergency legislation.

The Guardian

National Grid’s off-peak energy plan ‘set to fail’

A National Grid scheme to avoid blackouts this winter by paying households to use less electricity at peak times is in danger of failing because the proposed payments are too low, leading energy suppliers have warned.

The company responsible for keeping the lights on is trying to urgently establish a scheme whereby millions of consumers with smart meters could be rewarded for avoiding using energy-hungry appliances when electricity supplies are scarce.

The scheme, first revealed by The Times in June, is one of the measures the National Grid ESO, or electricity system operator, is scrambling to put in place ahead of the winter as fears grow that the energy crisis triggered by Russia curtailing gas supplies to Europe could result in power shortages.

However, Octopus Energy and Eon, two of Britain’s biggest energy suppliers, have warned National Grid that the scheme could fail on existing plans because the proposed payments are too low for consumers to sign up.

The National Grid ESO plans to establish the scheme through a series of test events with customers of participating suppliers, planned for November and December. Suppliers will submit the price they believe their customers need to be paid to take part.

But National Grid warned suppliers at a briefing last week that it may not proceed with any companies seeking payments for their customers of more than 52p for each kilowatt-hour of electricity they avoid using. That’s the same unit rate as they would have been charged for using electricity if the price cap had risen as Ofgem planned in October.

Octopus, Britain’s fourth biggest supplier, which tested the scheme with National Grid earlier in the year, said it needed a “much higher price”.

“Customers should be properly incentivised to join up front — ie at least £1 to £2 per kWh,” an Octopus representative warned National Grid at the briefing, adding that customers were “expecting up to £6 per kWh”, the rate mooted in initial proposals reported by The Times in June.

The price is “not high enough to incentivise customers to take part”, a representative from Eon, Britain’s second biggest supplier, warned, suggesting that the payments needed to be about £2 per kWh.

National Grid told suppliers it needed to “balance between incentivising participation and managing the overall cost and impact of tests on the wider market”.

Industry sources question why it is not willing to pay more to ensure the scheme succeeds, given the high costs of alternatives. In July National Grid was forced to pay £9 per kWh to import power from Belgium to avoid blackouts in London.

The Times

Energy bills: Britons urged to pull together to prevent ‘cost of lives crisis’

Britons must develop a spirit of “radical generosity” to prevent lives being lost because of soaring gas and electricity bills this winter, the head of the World Energy Council (WEC) has warned.

Angela Wilkinson, the secretary general of the WEC, said that failure to get communities across Britain pulling together over the colder months would “move [this] from a cost of living crisis to a cost of lives crisis”.

The WEC is a nonprofit industry network with more than 3,000 member organisations in about 90 countries, including government bodies, private and state corporations and academics.

Britain’s new prime minister, Liz Truss, last week announced plans to freeze energy bills expected to cost taxpayers more than £150bn, in one of the largest government interventions to shield households from sky-high gas and electricity costs.

But Wilkinson argued that while “pain relief” from the government over bills was needed, citizens needed to play their part. She said: “It should be a self-organised response to this energy crisis, not just a top-down government response.

“We shouldn’t expect governments to tell us what to do all the time. Society can better prepare and we can organise for it. In the second world war, there were community kitchens, which provided food.

“Now schools are providing food for kids. So there’s not just a shortage of community investment. There’s also a shortage of kindness and reciprocity. This is a time for radical generosity in the UK.”

Charities and consumer champions have warned that individuals taking action alone will not be enough to prevent millions from the risk of poverty this winter, given the dramatic scale of the increase in living costs. Inflation has reached the highest level since the early 1980s, while Britain faces the risk of a lengthy recession.

It has been estimated that the number of UK households in fuel poverty could more than double to 12 million in January without government action. The End Fuel Poverty Coalition said 42% of households would not be able to afford to adequately heat and power their homes from January.

The plans announced by Truss will limit the increase in gas and electricity bills for a typical household to £2,500. However, the figure is still more than double the level last winter.

Truss’s proposal will, though, prevent the cost of a typical bill reaching £3,549 from the start of October. Before it was abolished, some forecasts said the Ofgem price cap could have risen close to £7,000 next year, with Russia’s war in Ukraine exacerbating high wholesale energy prices.

Wilkinson said charity shops, hosting community bake sales and giving away toys for people unable to afford Christmas presents were among the ways citizens could help.

Governments across Europe have intervened to protect consumers from high prices, and the EU and UK are examining options to reform the wholesale energy markets to bring down bills.

There are concerns their actions will not be enough to fully insulate households this winter, particularly if Russia cuts off gas supplies into Europe, which could push up prices and even lead to blackouts.

Wilkinson said: “There’s going to have to be some social solidarity here – we’re going to have to find inclusive, bottom-up solutions, from a community level.”

The Guardian

Housebuilders ‘lobbied against plan for electric car chargers in new homes in England’

Britain’s biggest housebuilders privately lobbied for the government to ditch rules requiring electric car chargers to be installed in every new home in England, documents have revealed.

The FTSE 100 construction firms Barratt Developments, Berkeley Group and Taylor Wimpey were among the companies who argued against the policy in responses to an official consultation seen by the Guardian. The “blatant lobbying efforts” were criticised by Transport & Environment, a campaign group.

Swapping cars powered by fossil fuels for zero-emission models is viewed by scientists, environmental campaigners and the government as key to reaching net-zero carbon emissions – alongside increased public and active transport. However, the lack of chargers is seen as a barrier to uptake.

The rules requiring all new homes to have a charger were announced by Boris Johnson in November 2021 as the flagship policy of a speech to business leaders. While the details were overshadowed at the time, as the former prime minister meandered through his speech with a riff on the children’s cartoon character Peppa Pig, the government hopes 145,000 charging points will be installed thanks to the rules.

However, the housebuilders who responded stated their opposition to the policy, citing cost concerns. They also warned that mandating installation could lock homeowners into obsolete technology, that there could be a risk of electric shocks with some car chargers, and even that the plan could prevent owners from choosing between cars with different plug types used in Asia and Europe.

Taylor Wimpey warned that the installation of chargers could result in fewer homes being built. “We see practical and financial challenges associated with the proposed approach,” it wrote, citing “significant uncertainty over the financial costs”.

Berkeley Group said it did not believe chargers would be required at every parking space because people would charge at work or while “going to the gym”.

However, automotive industry leaders say charging at home is more attractive for users because it removes the need to search for available power outlets during the day and because smart tariffs allow people to charge overnight, when energy is cheapest.

The housebuilders argued that their responsibilities should end with the laying of “cable routes” into homes, which could then be used for charging points, saying this would avoid the installation of infrastructure that went unused. In most cases, these would be simple – and cheap – pipes or gutters that could later carry cables to parking spaces.

Matt Finch, T&E’s UK policy manager, said: “It’s absurd that housebuilders attempted to hold back progress and slow down the drive to net zero. In the future, all cars will be electric, and futureproofing new homes with charging infrastructure is an obvious step to take.

“The government should be applauded for resisting these blatant lobbying efforts.”

Cost concerns were a common theme in the housebuilders’ warnings. Barratt said mandatory chargers could cost it as much as £63m. Vistry Group, which recently changed its name from Bovis Homes, argued that the requirement would cost the FTSE 250 company up to £14m.

The details of the lobbying efforts came in freedom of information disclosures obtained by the Guardian, as part of the building industry’s response to ministers consulting on the new charging point rules in late 2019 – before the government introduced the measure.

Spokespeople for Berkeley Group and Taylor Wimpey said they supported moves to encourage electric vehicle adoption. The companies are now installing charging points in line with the law.

Read the story at the Guardian 

Fracking groups seek further steps on Truss reforms

Fracking companies have said that Liz Truss’s lifting of a moratorium on the controversial method of shale gas extraction will not resurrect the industry in England without rapid reform of planning and earthquake rules.

The new UK prime minister on Thursday ended a ban on fracking in England that has been in place since 2019, as part of wide-ranging reforms to bolster Britain’s domestic energy supplies and address soaring bills for households and businesses.

Truss claimed the decision “could get gas flowing in as soon as six months”, although she acknowledged that the resumption of fracking in England would also be dependent on “where there is local support for it”.

While fracking companies, including Australian-owned Cuadrilla and Britain’s largest privately owned company Ineos, welcomed the reversal, industry insiders warned that other rules would also need to be tackled if the government wants to kick-start production.

Ross Glover, development director at Aim-listed fracking company IGas Energy, told the Financial Times that streamlining rules around planning and permitting would be crucial.

“Development of any form of infrastructure” in the UK faces a lengthy planning and permitting process, Glover argued. “We are not saying get rid of all the regulation, what we are saying is we need to have a proper discussion about how we accelerate the projects.” IGas shares have surged more than 650 per cent this year, partly on the back of investor anticipation of a reversal of the fracking moratorium.

Shale gas companies have also long called for a review of seismicity regulations, known as the “traffic light system”, that require an immediate halt to work if fracking triggers earth tremors of magnitude 0.5 or above.

Charles McAllister, director of policy at UKOOG, a trade body that represents frackers, warned that if the industry does “not get the comprehensive policy support required, then some of the companies may not progress” their shale projects. UKOOG is asking for the fracking industry to be subject to the same standards on surface vibrations that apply to other industries.

“We are asking to be treated fairly in terms of . . . earthquake regulations. We would want to be treated in line with construction, geothermal, quarrying and [the] coal mining industry,” McAllister said. “Our view is, the industry has been demonised in the context of wider regulation on seismicity and surface vibration.”

Brian Mullin, head of planning consultancy Marrons Planning, suggested community consent may also need to be removed from fracking consenting processes “as it demonstrably amounts to a moratorium for delivery”. Ineos, which has offered to drill a shale gas test well to prove to the government that “we can do [fracking] safely and without harm to the environment”, has raised the prospect of payments to local communities to gain support.

“We have promised to invest the first 6% of the value of the gas back into the local communities,” Ineos director Tom Crotty said on Thursday.

Hydraulic fracturing, or fracking, involves pumping water, sand and chemicals under the ground at high pressure to release gas from rock formations. It has transformed the US energy sector, but some leading academics have long argued Britain’s geology is ill suited to the process, even if community consent in such a densely populated country could be achieved.

“[The] geological history of the UK is complicated,” said Stuart Haszeldine, professor at the school of geosciences at the University of Edinburgh. Truss’s energy reforms are also aimed at unleashing a new wave of exploration among UK North Sea companies, although sceptics argue that any increase in the region’s output is likely to have a minimal impact on sky-high oil and gas prices.

Truss will greenlight the first oil and gas licensing round since 2019-20 as the government seeks to arrest declines in UK oil and gas production. The UK’s annual North Sea oil and gas output dropped 17% last year. Although gas production has improved 27% year on year in the first half of 2022, energy companies have cautioned that the reversal will prove “shortlived” unless there is a new wave of investment.

The new permits will be for mature areas of the UK North Sea, meaning any companies that successfully drill new wells can take advantage of existing infrastructure rather than installing costly new pipelines. The UK oil and gas regulator, the North Sea Transition Authority, will prioritise an initial package of fast-track licences that contain existing discoveries, which companies could potentially exploit in less than a year, although the remaining permits could take between five and 10 years to yield any production.

Officials are also seeking to accelerate projects that are already in the development stages so they can reach production faster. The government is particularly keen for Equinor to progress its Rosebank oil and gasfield 130 kilometres off the cost of the Shetland Islands, according to people familiar with officials’ thinking.

Read the full story at the Financial 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.