Weekend press: Macquarie to sell Cadent stake

This week’s roundup of sector news from the weekend’s national press includes Macquarie looking to ditch its stake in Cadent; another blow for troubled Thames Water as chair Adrian Montague leaves after less than a year; and government mulls roll-out of mini nuclear reactors.

Macquarie looks to cut stake in UK’s biggest gas network Cadent

Australian investment manager Macquarie has joined forces with another shareholder to try to sell a combined £1.3bn stake in Cadent, the UK’s biggest gas network, as it prepares for the transition to renewable energy. Macquarie currently owns 26% of the business and is in early stage talks to sell a near 5% stake, according to two people close to the discussions.

Cadent runs about half of the UK’s eight local gas distribution networks, providing gas to 11 million homes and businesses in North West and East England, the Midlands and north London.

US-based Federated Hermes is looking to sell a 4.6% stake, the people said. It currently owns 13% of Cadent.

The sale will be a key test of investor appetite for gas infrastructure as Britain tries to reduce its use of natural gas as part of its efforts to reach net zero carbon emissions by 2050.

Gas pipeline owners hope the UK will encourage the use of hydrogen, which does not produce carbon dioxide emissions when it is burnt, as a replacement for natural gas for home heating.

But the UK’s advisory National Infrastructure Commission last year urged the government to back heat pumps, which run on electricity, instead saying hydrogen for heating was “simply not ready at scale”.

Macquarie had been increasing its investment in UK gas infrastructure, buying into Cadent in 2017.

Three years ago, it bought a majority 60% stake in National Grid’s gas transmission and metering network in partnership with British Columbia Investment.

Last year, it raised that stake to 80%. The high-pressure pipelines in the transmission network carry gas from the North Sea and import terminals over long distances to large power stations and factories, as well as to regional distribution networks such as Cadent, which then pipe it to homes and businesses.

Cadent has already replaced 70% of its steel pipes with the plastic pipes necessary for hydrogen distribution and is on track to complete this by 2032. It believes it can convert its network to hydrogen, despite the uncertainty over its future role in the UK energy mix.

The government has said it will decide on the role of hydrogen in home heating in 2026, following trials in people’s homes.

However, two potential trials were cancelled last year because of local opposition and low availability of hydrogen, leaving only one left to run, in Fife, Scotland.

Colm Gibson, a managing director at consultancy Berkeley Research Group, said: “There are a number of promising hydrogen technologies out there, but any buyer will need to engage proactively in the decarbonisation debate to maximise the value of their stake.”

Macquarie said there was no change in strategy despite the sale. “We are a committed long-term shareholder in Cadent and are supporting significant investment across the network to maintain the safe, secure and reliable supply of gas,” the group said.

Financial Times

Adrian Montague to step down as chair of Thames Water’s parent company

Sir Adrian Montague has quit as chair of Thames Water’s parent company after less than a year, as the utility faces a regulatory investigation over its decision to pay shareholders a dividend.

Montague, an experienced City troubleshooter who previously chaired British Energy and was deputy chair of Network Rail, was parachuted in as chair of Thames Water and its parent, Kemble Water, in June last year to restructure the debt-laden group.

Britain’s largest privatised water utility has a byzantine corporate structure with multiple layers, only one of which is regulated by Ofwat.

The regulator is expected to rule in the coming weeks on whether Thames Water breached its licence conditions by paying a £37.5mn dividend to its parent company in October. Kemble needs the dividend to service its debts.

The utility’s licence means it has to consider requirements to look after customers and the environment before paying dividends, and ensure “financial resilience over the long term”.

In a statement on Friday, Thames Water said Montague’s resignation from Kemble was a “personal decision”, and that he “believes the time is right solely to focus on fully supporting the board and executive team . . . and “delivering the refocused turnaround plan”.

As well as resigning from Kemble Water, Montague has stepped down as a director of Thames Water’s subsidiaries. He will remain as chair and director of Thames Water Utility Limited, the only part of the group that is regulated by Ofwat.

Kemble Water’s only income are the dividends paid by Thames Water, which are funded by customers’ bills.

Its 20 directors were paid £579,000 in the 12 months to the end of March, with the highest-paid receiving £59,000. Kemble said Montague had not received any remuneration for his role as chair.

His pay as chair of Thames Water Utilities has not been disclosed, but his predecessor, Ian Marchant, received £325,000 a year.

Financial Times

Sewage spills are a stinker for Tories in marginal seats

Battleground seats held by the Conservatives have the highest number of sewage spills of any marginal constituencies, The Times has found.

The figures show how exposed Tory MPs are to attacks over the party’s record on water pollution. Seats won in the 2019 general election by a margin of less than 10 per cent will be crucial when people next vote.

The Times can reveal that of the 79,015 sewage spills in marginal constituencies in 2022, nearly 39,000 were in Conservative seats, more than those held by any other party. Labour marginal seats were second at little more than 24,000.

The Liberal Democrats have made sewage one of their top campaign issues, with Sir Ed Davey, the party leader, saying Tory voters were “very, very angry” over spills.

Since being appointed last September, Steve Reed, the shadow environment secretary, has also concentrated on water quality, saying the “sewage scandal” was a result of “Conservative failure”.

Polling of 6,000 adults by Survation found that 56% of people would consider raw sewage discharges when they voted in the next general election. The number for those who voted Tory in 2019 is 51%, whereas for Labour voters it is 66%.

The high number of spills in Tory-held marginal seats appears to be a ­result of the party’s gains in “red wall” areas in 2019. About 25,000 spills in 2022 were in marginal constituencies the party gained from Labour. About 14,000 sewage discharges were in marginal seats the Tories held in 2019.

The Welsh constituency of Carmarthen East & Dinefwr, held by Jonathan Edwards, the former Plaid Cymru MP who is now an independent, had the most sewage spills of all marginal seats, with 7,103 dumps. Edwards holds a 4% majority.

The Arfon constituency, held by Plaid Cymru, had the second most spills for a marginal seat, followed by three Tory consituencies: Ynys Môn, North West Durham and Aberconwy.

The drier weather last year is believed to have led to a slight fall in the number of sewage spills.

Discharges happen mostly during heavy rain when sewer capacity is overwhelmed. Sewage releases are often a result of geography and water company infrastructure. Having a high number of spills in their constituency can leave MPs ­vulnerable to criticism, however.

The Lib Dems attribute their victory in the 2021 Chesham & Amersham by-election to their concentration on polluted local chalk streams. One of the marginal seats in the party’s sights is Cheltenham, held by Alex Chalk, the justice secretary, with a majority of 981.

The Times

Great British Nuclear seeks EDF land for small modular reactor

The government is holding talks with EDF to take control of land at a site in Lancashire as part of plans to roll out mini-nuclear power stations in Britain.

Great British Nuclear is in early discussions with the French state-owned energy group over buying land adjacent to its existing nuclear plants at Heysham, with a view to potentially giving the green light for a private developer to build a small modular reactor there.

The 255-acre site is one of eight in Britain approved for new nuclear development and is the location of EDF’s Heysham 1 and Heysham 2 nuclear power stations. Almost 109 acres has a nuclear site licence, while the rest is being used for other purposes.

Britain’s first small nuclear plants are due to be awarded government contracts this summer after six designs, including one from Rolls-Royce, were selected to compete for up to £20 billion in taxpayer funding. The government does not expect to make a final investment decision on the first small modular reactor until 2029. Great British Nuclear is searching initially for two sites, each to house a single mini-reactor, with a plan to build between four and six in total, as part of the first phase of the rollout in Britain.

The government set up Great British Nuclear last year as an arm’s-length body to drive the deployment of the technology as it pursues a goal of increasing Britain’s nuclear capacity to 24 gigawatts by 2050, up from only 6GW at present, including by deploying small modular reactors.

All bar one of the nation’s existing plants are set to close by the end of the decade, including the two at the Heysham site. EDF is building Britain’s only new nuclear power station, Hinkley Point C in Somerset, which would generate 3.2GW. However, the project has been beset by delays and budget overruns. The French group is also involved in developing Sizewell C, a proposed nuclear power station on the Suffolk coast near the Sizewell B reactor.

Unlike conventional plants, small modular reactors can be factory-built, take up the space of one or two football pitches and have a capacity of up to 500 megawatts.

EDF declined to comment on the talks. However, the company has said previously that Heysham would be “well suited” to the development of both small modular reactors and advanced modular reactors. “Not only does the site have available land, grid and rail connections and a supportive community, it also has a highly skilled workforce, the largest of any generating nuclear site in the UK, which could support the operation of any future nuclear development,” it has said.

The Times

Oil and gas industry in crisis talks over Labour pledge to hike taxes on massive profits by energy giants

Offshore Energy UK (OEUK), the leading representative body for the sector, is convening emergency summits with operator and supply chain members at both its Scottish and UK headquarters in coming days.

Meetings will take place in London and Aberdeen to discuss “deep concern” over plans set out by Labour, which include a rate increase on the windfall tax for energy companies and cuts to investment allowances.

In a briefing note for its Prosperity Plan Policy, the party confirms its manifesto will propose raising the tax rate from 75 per cent to 78 per cent and end “loopholes in the levy that funnel billions back to the oil and gas giants”.

It also intends to extend the sunset clause, currently planned for March 2028, until the end of the next parliament.

According to the party, the measures will raise £10.8 billion in the next five years.

The proposals come as international energy giants have continued to reap record profits from oil and gas, driven largely by instability caused by Russia’s invasion of Ukraine.

The latest results show the three largest producers, Shell, BP and Equinor, between them raked in £42.7 billion in annual profits in 2023 – the hottest year on record, attributed to climate change.

OEUK warned earlier this month that 42,000 jobs could be lost in the oil and gas sector as a result of the proposals.

The body contends that the confidence of energy producers to invest in the UK has come under “consistent challenge” in recent years, with industry cautioning that proposals to increase the tax further and remove vital allowances would deliver a “hammer blow” to homegrown energy now and going forward.

OEUK chief executive David Whitehouse will lead the talks.

He said: “We remain deeply concerned about what Labour’s proposals could do to our people.

“If we can’t get companies to invest here, there are no jobs. It’s that simple.”

Speaking at the Labour conference in Glasgow, party leader Sir Keir Starmer said oil and gas would be part of the energy mix for “decades to come” but highlighted opportunities to create a world-leading green energy industry.

He said the party would support the likes of carbon capture and storage development – “literally putting the carbon back in the ground it came from” – which would create new North Sea roles.

The Scotsman

UK risks second troubled offshore wind auction round, RWE warns

The UK’s largest electricity producer has warned that the government is in danger of failing to secure enough new offshore wind projects this year due to flawed internal modelling around the technology.

RWE told the Financial Times that ministers risk overestimating the costs of offshore power to bill payers leading it to potentially award fewer of the government support contracts needed to get projects off the ground.

The German company, which produces about 15 per cent of the UK’s electricity and is developing offshore wind projects in the UK, wants officials to rethink their approach ahead of the next auction round in the summer.

“We have given this message to say — you are in danger of not deploying as much renewables as is economically possible,” said Tom Glover, UK country chair for RWE, which is listed in Frankfurt with a market capitalisation of about €23bn. “We need to keep on track for the overall mission, which is renewable deployment.”

Offshore wind is set to play a crucial part in the UK’s efforts to cut its carbon dioxide emissions to net zero by 2050. The government wants to have 50 gigawatts installed by 2030, up from roughly 14GW today.

The upcoming auction round for government contracts this year is vital for the industry’s prospects after the 2023 round flopped. No offshore wind developers bid after repeatedly warning the level of government support on offer was too low to offset rising costs.

In response, the government has raised the maximum price that new wind farms could be paid for each megawatt-hour they eventually produce under its subsidy scheme. The scheme is designed so that consumers fund top-ups to developers if the wholesale price of power falls below a certain level.

However, ministers have not yet released forecasts for wholesale power prices and wind farms’ performance, which will help determine the cost to bill-payers and, therefore, the number of wind farms it can back in its budget.

RWE warned that the forecasts used in the previous auction round for these subsidy contracts did not match market assumptions, with wholesale prices too low and performance too high, and that this could be damaging if repeated.

Financial Times

Octopus borrows £550m to accelerate electric car leasing

Octopus Energy’s electric car leasing arm is to double the size of its fleet to 30,000 vehicles after securing a £550m debt deal.

The division, which currently has around 14,000 cars, leases new and used vehicles through employer schemes.

Its expansion will be seen as a vote of confidence in EVs when some big fleet buyers are curbing their plans to go electric. It also comes as sales to individuals slow with the up-front cost of the cars still too steep for many households.

Instead, a growing number of drivers are leasing EVs through salary sacrifice schemes. These result in tax savings running into hundreds of pounds per month.

At the moment, around 4,000 workplaces including Dyson, McLaren and Innocent Drinks have partnered with Octopus EV to offer these schemes

Further growth of the company’s fleet is being financed by a £550m credit line secured from Lloyds Bank in December.

Fiona Howarth, chief executive of Octopus EV, said: “Demand for EV leasing continues to grow and the finance sector is ready to back the transition.

“We have more than tripled our fleet in the last year, and the growth continues as we see record numbers of drivers switching to clean, green driving.”

Octopus EV has grown from having 600 cars in 2021, to 6,000 as recently as last April and 14,000 today.

It reported revenues of £37m in the year to April 2023, up from just £5m in 2022.

In a bid to offer lower-cost vehicle options to drivers, the company also expanded its fleet to include used EVs in December.

Ms Howarth said she expected the company’s fleet mix to move from being less than 5pc used cars currently to as much as 50pc

The overall market share of EVs in the UK versus petrol and diesel cars slipped from 16.6pc to 16.5pc last year, according to the Society of Motor Manufacturers and Traders (SMMT).

Meanwhile, fleet operators such as Octopus remain by far the biggest buyers of EVs.

In 2023, about 315,000 electric cars were registered but 77pc were purchased by fleet owners or other businesses.

By comparison, the annual number of EVs purchased by private consumers fell from 89,000 in 2022 to 72,000 in 2023.

The Telegraph

‘South West Water tried to gag me for suing over sewage’

Jonathan Jones plucked his figure out of thin air whereas Jo Bateman multiplied the equivalent cost of swimming at her local pool.

Whatever system they turn to, beachgoers, wild swimmers, anglers and sailors are starting to calculate what the cost of sewage spills mean to them as they take water companies to court for stopping them enjoying the country’s waterways because of pollution.

Jones, 64, a retired business owner, took South West Water to the small claims court for “loss of amenity” after getting increasingly angry at the ability of water companies to pollute the rivers and seas with sewage overflows.

He was surprised when the company offered him hundreds of pounds to settle out of court as long as he signed a non-disclosure agreement (NDA).

“As an individual I thought, what can I do?” Jones told The Times. “I have used the small claims court for small personal disputes in the past and after doing a bit of research thought this loss of amenity use seemed to be a reasonable thing.

“I couldn’t find any precedent for it but maybe that is because anyone who has done it has settled and signed an NDA. I think it’s quite sinister that they tried to use a non-disclosure agreement.

“I would encourage anybody that has lost the amenity of their waterways and seas to go through the small claims court. Anybody that has been to a beach or river for wild swimming or fishing could potentially take out a small claim.”

Jones, who is also a keen river angler, filed his court action in August 2022, claiming he was prevented from swimming in the sea by sewage discharges near his coastal holiday home in Seaton, near Looe in Cornwall, which he bought from the former Radio 1 DJ Zane Lowe.

“I filed the claim, paid my £50 to submit the paperwork and sued South West Water for £550,” he said. “I just made the figure up but it seemed about right.

“We filed the claim but what happened with me was they offered to settle in full out of court, but with a gagging clause, which I wasn’t prepared to sign. Had I gone to court it would have been a matter of public record. That is why I think they wanted me to sign an NDA, because they didn’t want it getting out in the public domain.”

Jones, from Westbury-sub-Mendip, Somerset, said he eventually withdrew his claim because he “ran out of steam with the process”. He said: “I wasn’t prepared to engage a barrister and spend all my time fighting it.”

South West Water said: “Mr Jones issued a claim in the small claims court. As part of our usual process, we spoke to Mr Jones to try to help with his concerns.

“We take all matters like this very seriously, we pride ourselves on giving our customers the opportunity to voice their concerns at any time and also at our WaterShare+ customer AGM, stakeholder engagement forums and regular town hall meetings conducted in our communities.”

The Times

Geologists signal start of hydrogen energy ‘gold rush’

Geologists are signalling the start of a new energy “gold rush” for a previously neglected carbon-free resource — hydrogen generated naturally within Earth.

As much as 5tn tonnes of hydrogen exists in underground reservoirs worldwide, according to an unpublished study by the US Geological Survey.

Previewing the results at the American Association for the Advancement of Science annual meeting in Denver, project leader Geoffrey Ellis said: “Most hydrogen is likely inaccessible, but a few per cent recovery would still supply all projected demand — 500mn tonnes a year — for hundreds of years.”

The demand for hydrogen as a fuel and industrial raw material, particularly to make ammonia for fertiliser production, has been mainly met so far by chemically reforming gas that is made up largely of methane, known as “blue hydrogen” when the carbon emissions are captured or “grey hydrogen” when they are not.

A smaller amount is made by splitting water through electrolysis using renewable energy sources, known as “green hydrogen”. But Mengli Zhang of the Colorado School of Mines said tapping natural hydrogen — also known as geologic or gold hydrogen — would be cleaner and cheaper than blue or green hydrogen.

“A gold rush for gold hydrogen is coming,” she told the conference. The prospect is beginning to attract interest from investors. US start-up Koloma raised $91mn last year from funds including Bill Gates’s Breakthrough Energy Ventures.

“Geologic hydrogen represents an extraordinary opportunity to produce clean hydrogen in a way that is not only low carbon, but also low land footprint, low water footprint and low energy consumption,” said Paul Harraka, Koloma’s chief business officer. US company Natural Hydrogen Energy has drilled an exploratory well in Nebraska.

“It will take a couple of years to ramp up to commercial production,” said Viacheslav Zgonnik, chief executive. “We are doing everything we can to get there faster.”

Previous scientific opinion held that little pure hydrogen was likely to exist near Earth’s surface because it would be consumed by subterranean microbes or destroyed in geochemical processes.

But geologists now believe hydrogen is generated in large quantities when certain iron-rich minerals react with water, Alexis Templeton of the University of Colorado, Boulder, told the AAAS conference.

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.