Weekend press: Lack of internal auditors ‘significant weakness’ for water firms

Three water companies – South East, SES and Portsmouth – lack internal audit functions, placing them at greater risk of breaching their statutory duties, Ofwat has been warned. Also in the latest round up of the weekends’ papers, Xlinks prepares to commission a new 700 foot ship to lay an underwater power line between the UK and Morocco, and RenewableUK says the next Contracts for Difference auction could secure more offshore wind than Britain’s current capacity.

Lack of internal auditors at water companies a ‘significant weakness’

UK regulator Ofwat should ensure all water companies have internal auditors given concerns over the financial stability of several big suppliers, an industry body has said.

Three water companies — South East Water, Sutton and East Surrey Water and Portsmouth Water — all lack internal audit functions, the Chartered Institute of Internal Auditors said in a letter to Ofwat chief executive David Black, placing them at greater risk of breaching their statutory duties.

“This is concerning given the complex operational and financial landscape these companies navigate, involving the management of critical national infrastructure and environmental responsibilities,” the CIIA said.

The lack of internal auditors within water companies “represents a significant weakness in their audit and corporate governance framework, which we believe should be addressed by Ofwat”, it added.

The letter comes amid growing concerns about the financial stability of several water suppliers, including the largest, Thames Water, which is under threat of being put into special administration by the regulator.

Two of the companies identified as lacking internal audit functions — South East Water and Sutton and East Surrey Water — are already on Ofwat’s watchlist of financially at-risk companies, while Portsmouth has only recently been moved out of the high-priority category. Together, the three companies supply water to 3.7mn people across south-east England.

South East Water, which is under investigation by Ofwat for service failures, declined to comment on the letter. The company spent more on dividends and interest payments than on infrastructure in the two years to March 2022. Accounts filed in January showed its parent company, HDF Holdings, lent a Luxembourg-based unit of the utility £150mn to replace third-party debt that was due to be repaid in December.

SES Water, which has £291mn net debt and is in the process of being bought by Pennon for £380mn, said it “fundamentally” disagreed with the CIIA’s conclusions and that it had a “robust governance framework”.

“Our quality and compliance department conducts thorough environmental, quality and other internal audits, throughout the year,” the company said.

The CIIA said that “based on the evidence presented in their annual report and accounts, we do not regard SES to have any internal audit capability or internal audit function”.

Portsmouth Water declined to comment.

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Ofwat said: “We have increased regulatory challenge, scrutiny and monitoring of companies that require action to improve their financial resilience… water companies need to make sure they have the right structure, skills and capabilities in place.”

Financial Times

Britain to harness power of Sahara solar farms using 700ft ship

A project to power Britain using solar farms thousands of miles away in the Sahara is moving a step closer to fruition as its backers prepare to commission the world’s biggest cable-laying ship.

The 700ft vessel will lay four parallel cables linking solar and wind farms spread across the desert in Morocco with a substation in Alverdiscott, a tiny village near the coast of north Devon.

Once completed, the scheme is expected to deliver about 3.6 gigawatts of electricity to the UK’s national grid – equating to about 8pc of total power demand.

Xlinks, the business behind the project, expects the ship to cost several hundred million pounds and be capable of carrying 200 miles of power cables, coiled and ready for deployment on the seafloor.

James Humfrey, new chief executive of subsidiary Xlinks First, said the vessel would lay two 100-mile lengths of cable at a time, then head back to the UK for the next two lengths.

On returning it would pick up the cable ends, connect them to the next lengths and repeat the process. Commissioning of the ship is expected later this year.

Mr Humfrey said: “This will offer a near constant, clean and affordable supply of electricity to the UK and play a key role in Morocco and the UK’s future prosperity.”

The Xlinks scheme involves laying cables carrying high voltage direct current power along the coasts of Spain, Portugal and France, coming ashore in North Africa.

There, they will connect with seven solar farms and up to 1,000 wind turbines built across an area of Moroccan desert roughly the size of greater London.

The expected energy output is slightly more than the power to be generated by the Hinkley Point C nuclear plant, which is predicted to cost around £46bn when completed in the early 2030s – more than double the cost of Xlinks.

A spokesman for Xlinks said: “Designs for the ship are complete and we expect to commission it later this year.”

Proposals for the vessel, which is yet to be named, suggest it will carry 80 crew with cargoes of up to 26,000 tonnes.

The ship will be owned by Xlinks’s sister company, XLCC, which is also building a factory at Hunterston in Scotland to manufacture the 10,000 miles of cable.

The factory, adjacent to the town’s closed nuclear power stations, was granted planning permission last year and awarded a £9m Scottish Enterprise grant towards its £1.4bn cost.

Its centrepiece will be a massive 600-foot tower in which the cable will be coated in layers of insulation before being coiled onto giant reels for loading into the cable-laying vessel.

The project has already been declared one of “national significance” by Claire Coutinho, the Energy Secretary, who has also set a team of civil servants to work on it.

The Telegraph

UK can secure record number of offshore wind farms and double energy capacity

Britain could build the highest number of offshore wind farms and create record levels of capacity for green power generation in its next energy auction, a report suggests.

Ministers have the potential to double offshore wind capacity in this year’s auction, it notes, adding that this would provide a “huge boost to the UK’s energy security”.

The study, produced by the industry lobby group RenewableUK, says that 14.9 gigawatts (GW) of offshore wind capacity could be eligible for this year’s auction for electricity generation subsidies.

The UK’s operational offshore wind farms currently generate 14.7GW – or 14 per cent of the country’s entire electricity needs.

Ministers are due to set out the overall budget and other details for the energy auction next month.

The next sale of government electricity contracts will be crucial for the renewables industry’s prospects after a disastrous auction last year. Not a single offshore wind developer bid for a contract after repeatedly warning ministers that the level of government support on offer was too low to offset rising construction and operating costs.

To stop that happening again, the Government has raised the maximum price that new wind farms could be paid for each megawatt-hour they eventually produce.

RenewableUK said 14 wind farms were already eligible to bid into this year’s auction round, providing nearly 10.3GW of new capacity. The previous record was set in 2022, when 8.5GW was eligible.

Dan McGrail, chief executive of RenewableUK, said: “In this year’s auction, we have the potential to prove again that Britain is one of the best places to ­invest in new offshore wind projects.

“The Government has to strengthen the UK’s ­energy security, with a record number of new offshore wind farms eligible to bid into this year’s clean power auction, and a record amount of new capacity.

“As offshore wind farms are one of our cheapest sources of new power for bill payers, we are urging ministers to be ambitious when they set out the auction budget and ­parameters next month.

“If this is done in the right way, we can secure billions in private investment, driving the growth of the UK’s offshore wind supply chain and new jobs in the sector.

“The report also shows that ­offshore wind is ramping up worldwide at an astonishing pace, and that despite fierce global competition, the UK continues to be a world leader in this vital technology.

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Energy companies rake in ‘eye-watering’ £1bn a week as British families struggle in cost of living crisis

Energy companies raked in “eye-watering” profits of more than £1bn a week around the world last year as millions of hard-pressed Britons struggled to heat their homes or pay their bills in the ongoing cost of living crisis, The Independent can reveal.

Shell, Equinor, ExxonMobil and BP – some of the UK’s biggest suppliers of gas – made £65bn in net profits in 2023, leading campaigners to accuse the multinational firms of “stoking the energy bills crisis”.

Families have struggled to bear the rising costs, with an estimated 13 per cent of households in England in fuel poverty last year – up from 10.3 per cent in 2018, when higher energy prices started to squeeze incomes. Though regulator Ofgem has brought down the energy price cap to £1,690 from April, the rate is still far more than the £1,138 customers were paying before the energy crisis started in autumn 2021.

Critics hit out at the figures, which were revealed following an analysis by The Independent. Ed Miliband, the shadow secretary of state for climate change and net zero, said: “Labour’s plans will ensure that, while oil and gas giants are making eye-watering profits from the cost of living crisis, they pay more towards the delivery of cleaner and cheaper energy.

“We will set up a publicly owned company, Great British Energy, which will support the creation of thousands of clean energy jobs and help deliver clean energy by 2030.”

Simon Francis, coordinator of the End Fuel Poverty Coalition, said: “Rather than putting customers first, households have been left to build up record levels of energy debt or suffer living in cold, damp homes.

“Meanwhile, politicians in their Westminster bubble stand on the sidelines, trading insults and trying to barter down on the amount of money they are prepared to spend to fix Britain’s broken energy system.”

The Liberal Democrats said that huge profits for oil and gas giants showed that the government should have put in a proper windfall tax.

A windfall tax is levied on profits a company makes as a result of factors outside of its control. Gas prices have soared after Western countries sanctioned Russia following its attack on Ukraine. Russia in turn slashed its gas output. This meant more demand for less available gas, resulting in higher prices and better profits for gas producers. The government introduced a windfall tax in 2022, but said last year that it would come to an end if wholesale prices came down. Critics say the policy needs to be tougher.

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Meanwhile, BP’s new chief executive, Murray Auchincloss, has praised his company’s “strong operational performance” over the past year as the oil giant announced $15.2bn (£12bn) in net profit, while Shell said it had made “good progress over the year” as its net profit hit $19.3bn.

Other big suppliers of natural gas to the UK – a key component in the supply of both heating and electricity to British homes – include US firm ExxonMobil, which made $36.01bn, and state-owned Norwegian firm Equinor, which posted $11.9bn in net profit. Together, they made $82.3bn around the globe, or around £65.4bn.

The Liberal Democrats’ Treasury spokesperson, Sarah Olney MP, said: “This shows the government’s windfall tax is completely failing. The government could be raising billions to protect public services and help millions of families across the country who are in fuel poverty. Instead they choose to let the oil and gas giants continue to make massive profits.”

Analysis from Citizens Advice, published at the end of January, found that 5.3 million people currently live in households that are in debt to their energy supplier.

And 800,000 people went without gas or electricity for more than 24 hours last year because they couldn’t afford to top up their prepayment meter.

The net profits made by BP, Shell, ExxonMobil and Equinor are global and not specific to the UK. The companies pull in vast profits as they drill and explore for the oil and gas which is then sold to suppliers, such as British Gas or EDF.

ExxonMobil said its profits were almost 20 per cent lower compared with a year earlier. The oil giant said it is investing more than £1bn in the UK “to help meet the country’s fuel needs domestically and to help build the foundations for lower-emission fuels in future”.

Shell has said it supplies around 10 per cent of the UK’s total oil and gas needs, while BP said it is one of the largest oil and gas producers in the UK. Equinor is understood to be a top UK gas supplier, while ExxonMobil is an investor in the South Hook gas terminal in Milford Haven, where much of the UK’s gas is imported to.

Shell makes about 5 per cent of its revenue in the UK, while BP has said its UK business is responsible for less than 10 per cent of its global profits.

Equinor’s UK business said that in 2022, the most recent year for which it revealed its earnings, it made £702m net profit compared to its global net profit of $28.7bn.

ExxonMobil said its UK-based European gas marketing division made £1bn net profit in 2022 – a small proportion of the $55.7bn generated by its global operations.

Ofgem said it does not publish data on which companies supply the most gas to UK homes and businesses.

The Independent

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.