Weekend press: National Grid’s net-zero vision

Our weekly round-up of news from the national press over the weekend includes National Grid’s plans for decarbonisation; speculation about Thames Water’s finances; Ovo Energy facing a deluge of customer dissatisfaction; and a case for more gas-fired power stations is made to protect the economy under a new government.

National Grid’s net-zero vision: £60bn and an ‘electrical spine’

Britain’s power network will need £60 billion investment in new offshore wind farms if it is to hit the government’s target to decarbonise the electricity system by 2035.

National Grid, the FTSE 100 company which is responsible for keeping the lights on, will unveil its plans on Tuesday.

It intends to connect up to 86 gigawatts (GW) of offshore wind by 2035, which on a windy day is enough to meet peak demand. It says 20,000 jobs will be created annually, of which 90 per cent will be outside the southeast of England.

The plans will, however, raise fears of hundreds of new pylons spoiling the countryside.

National Grid receives about £20 a year from each household bill as part of a transmission charge. These payments will finance the network upgrade.

Demand for electricity is set to rise by nearly two thirds over the next decade as people’s everyday lives, from increased smartphone usage to running an electric car, place more demand on the network.

To meet the government’s net-zero target, thousands of miles of new cabling will be required to move electricity from the sea and on to homes and businesses.

National Grid’s ESO division (electricity system operator) has recommended the creation of an “electrical spine”: onshore cables that will move a huge volume of power between Peterhead in Aberdeenshire and Merseyside.

Although the route is yet to be determined, the cable is expected to run down the east coast then through the central belt of Scotland to the northwest of England.

In addition three offshore links connecting windfarms in Scotland to those on the east coast of England will be recommended to “innovatively connect up the turbines offshore”.

Fintan Slye, the ESO executive director, said: “Great Britain’s electricity system is the backbone of our economy and society and must be fit for the future”. He said the company had to take “swift, co-ordinated and lasting action” to meet the net- zero target.

Up until now offshore wind farm developers have built individual connections to the shore. This approach was both criticised by affected communities and created bottlenecks, resulting in wind farms being paid to turn off turbines.

The ESO said this was now untenable as ministers pursued a near fourfold increase in offshore wind capacity to 50GW by the end of this decade. At present 14GW comes from wind although offshore capacity, from 130 projects at all stages of development, stands at 100GW.

Read the full story at The Times

Thames Water lenders hire EY as debt deadline looms

A group of lenders to Thames Water’s parent company have engaged advisers weeks before a £190m debt held by Britain’s biggest water utility falls due.

Sky News has learnt that a syndicate of financiers which is owed the sum by Kemble Water, under which Thames’s regulated operations sit, has drafted in the big four accountancy firm amid growing concerns about the company’s survival.

A £190m facility is due to be repaid or extended by the end of April, with the utility’s bosses telling MPs in December that it was “not currently” able to repay the funding.

The progress towards a successful conclusion of discussions with the relevant lenders was unclear on Friday.

Uncertainty has surrounded the solvency of Thames Water since last June when Sky News revealed that Whitehall had begun drawing up contingency plans for its collapse.

Thames Water serves 15 million customers across London and the southeast of England, and has come under intense pressure in recent years because of its poor record on leaks, sewage contamination, executive pay and shareholder dividends.

It is facing a slew of big fines from regulators, and has requested from Ofwat a package of measures to shore up its finances, including a rise in consumer bills of up to 40% and delays to capital expenditure plans.

EY declined to comment.

Separately, a vehicle headed by the prominent City financier Edi Truell has proposed a deal to Thames Water’s pension trustees that would involve it removing £1.7bn of pension obligations from the company’s balance sheet.

Pension SuperFund Capital, Mr Truell’s vehicle, has offered to structure the deal in a way which entails no cash cost to Thames Water, according to insiders.

Sky News

How Ovo is driving its customers to despair

Within hours of Victoria Coren Mitchell posting a tirade against Ovo Energy on social media hundreds of comments had appeared in reply.

The television presenter had told followers she was in “despair”, saying Ovo had sent her bills worth “thousands of pounds”. She said she believed the bills were incorrect and that she was in the process of disputing them with the firm.

Users came back with similar tales of frustration, describing Ovo as “absolutely useless” and said its staff were “impossible to reach on the phone”. Several complained in particular about its approach to direct debits, with one saying it was “nonsense”.

“Disgusting”, “utter joke of a firm” and “unbelievably poorly managed”, wrote others.

The feedback was overwhelmingly clear – they had been going through just the same thing.

Just a few years ago Ovo was winning awards for its customer service. In 2020 it bought rival Scottish-based provider SSE, boosting its customer numbers by some 3.5 million – completing a mass migration of accounts in October.

But in August last year, it all changed. Amid concerns over the gas and electricity supplier’s handling of complaints, the energy regulator ordered the company to improve its customer service.

The regulator has also levied a £4m fine against Ovo and rival supplier Good Energy for overcharging thousands of households on their bills by breaching the Government’s energy price cap. Ovo apologised to customers who were wrongly billed.

It now faces a reckoning – and disgruntled customers are speaking out.

Among them is Peter Bertram, 66, who was moved over from SSE to Ovo last year while waiting for his meter to be fixed. He said he first reported the problem to his old supplier in January 2020 and that he was left waiting almost three years for the problem to be fixed.

During that time he claims he was unable to submit accurate meter readings. He continued to pay his monthly energy bill via standing order, but a large credit balance soon began to build up on his account without the regular readings.

By the time he sold his house, near Bath, and moved out in September last year he was over £20,000 in credit to the company. “The money just sat in the account because there were no meter readings,” he said

After the sale went through, he told Ovo he was closing his account and expected them to send along a cheque with his remaining balance, minus what he rightfully owed in energy costs. “They said they would action the refund but of course it has never happened.”

For Mr Betram, a property lawyer, it could have hardly come as a surprise after years of trying – and failing – to get the firm to replace his faulty meter. His efforts to recoup his credit balance also fell on deaf ears, he said.

“You can’t get hold of anyone… you can’t speak to anyone when you’ve got something that needs sorting. The standards are shoddy.” He said he was saddled with chatbots and struggled to speak with someone who could resolve his case.

After The Telegraph contacted Ovo about Mr Bertram’s case, it returned about half of his credit balance to him. The remainder was used to cover the costs of his bills for the time when he could not enter readings.

Reverend Edward Tomlinson, a priest at Saint Anselm’s Catholic Church in Pembury, Kent, said he was billed for over a year’s energy consumption by Ovo over a single two-month period in 2022.

Simon Francis, of the End Fuel Poverty Coalition, explained that bills have come under increasing scrutiny across all providers since the energy crisis in 2022.

“The role of direct debits is coming under increasing scrutiny with people overpaying each month and trying to get the money back.

“I think everyone understands the principle of how you should pay in a little bit more over the summer so you can keep your bill the same in the winter.

“The whole way of energy firms estimating how much use people have is clearly problematic,” he said. He added that the rollout of smart meters, designed to save consumers money, occasionally had the opposite effect on bills.

Around three million smart meters are estimated to be broken and not working in the required “smart” mode, according to a report by the National Audit Office last year.

A spokesman for Ovo Energy said: “We’re always striving to provide the best possible experience for all our customers. Our teams work extremely hard to provide help and support and will continue to review lessons learned.”

Full article at The Telegraph

Without more gas-fired power stations, support for net zero risks collapse

Downing Street strategists still hope that falling inflation and a string of tax cuts might help the Conservative Party avoid a seriously embarrassing general election result.

For almost 18 months, Labour has been 20 points ahead in opinion polls, contributing mightily to Tory turmoil as MPs fear for their seats and rival factions clash over how to revive the party’s fortunes.

But nearly all Conservatives agree that a series of interest rate cuts from the Bank of England, by helping to revive the economy ahead of an autumn election, would give campaigners at least something positive to tell voters on the doorsteps.

Having cut employee National Insurance from 12pc to 10pc in January, with another fall to 8pc due in April, a third tax reduction in September or October could add to the sense that – and here’s a putative election slogan – “The Tories have fixed the economy: don’t let Labour blow it”.

But unless inflation keeps coming down, even Downing Street’s desperate strategy to avoid electoral meltdown collapses. If price pressures don’t ease significantly, the Monetary Policy Committee will keep the base rate up at 5.25pc, where it’s been since last August.

And if borrowing costs stay high, so too will government debt service costs, further stretching the UK’s lockdown-ravaged public finances – with the Office for Budget Responsibility then decreeing more tax cuts “unaffordable”.

Having dropped from 11.1pc in October 2022, the fall in headline inflation has lately stalled. In both December and January, the consumer price index was 4pc higher than the same month a year earlier.

When the February data is published on Wednesday, CPI inflation is expected to drop to 3.6pc, in part because of the slowdown in the growth of companies’ labour costs.

Wages rose 6.2pc in the three months to the end of January, compared to the same period 12 months earlier – the slowest pace since October 2022. And wholesale natural gas in February was some 60pc cheaper than a year ago, easing economy-wide energy costs.

Even if the February CPI figure is significantly lower, though, the MPC is unlikely to lower rates when it meets the following day. While nominal wage growth is slowing, the CPI drop we’ve seen means inflation-adjusted wages are rising at their fastest pace since September 2021, up 2pc during the three months to January.

Recent surveys suggest, as consumer purchasing power recovers, businesses are increasingly trying to rebuild their margins by raising prices even more. That’s why at least some of the nine MPC members, far from voting to lower rates this Thursday, could vote for a further rise. After all, as things stand, headline inflation is still double the Bank of England’s 2pc target.

Into this mix, we must add a sharply rising oil price. Brent crude touched $85 a barrel last Thursday, up 4pc in a week to a four-month high. Concerns about Red Sea-related supply disruptions are intensifying amid the prospect of more production cuts by the Opec exporters’ cartel.

As estimates of 2024 global oil demand rise, there are further geopolitical factors at play – not least increasingly serious attacks by Ukraine on Russian oil infrastructure. And, as the US outpaces most other major economies, a strengthening dollar makes oil – priced in dollars – more expensive for users of other currencies, not least the pound.

Should the oil price keep rising, that would seriously complicate the MPC’s future thinking, stymieing the UK’s escape from expensive borrowing and this ongoing cost of living crisis.

The vital importance of affordable energy was highlighted last week by Prime Minister Rishi Sunak. “A nation that is dependent on the whims of dictators for its energy supply can never be truly safe,” he wrote in The Telegraph.

The UK’s energy mix has shifted significantly over recent years. Coal-fired power stations, having generated 40pc of our electricity as recently as 2013, now account for just 1pc. Wind power has surged to provide 29pc of electricity, with solar and hydro generating another 7pc between them.

But the UK’s 32 gas-fired power stations still meet a third of our electricity needs, a share that may now rise, after Sunak backed the development of a generation of new plants, taking a more pragmatic approach to tackling climate change.

This makes sense. The shift towards net zero will put enormous strain on generating capacity, with electricity demand estimated to balloon no less than 50pc by 2035, if the widespread shift from fossil fuels to electricity as the primary transportation fuel happens as planned. That presents a very real danger of disastrous blackouts, precisely because of the UK’s now very significant use of renewables.

Wind and solar power are, of course, intermittent – there are days, especially during winter when energy demand is high, when the wind doesn’t blow and the sun doesn’t shine.

Given that we haven’t solved how to store renewable power to the extent required at a cost that makes sense, we need other baseload generating capacity to fill the gaps at short notice. That’s why our rapidly ageing fleet of gas-fired power stations needs updating.

Green lobbyists complained loudly last week that Sunak was “abandoning” the UK’s environmental commitments. Labour described the announcement as “desperate nonsense”.

This column has often argued that the now high share of renewables in the UK’s energy mix, given the huge expense of maintaining numerous gas-fired power stations on stand-by as back-up, is one reason we pay more for electricity than almost all other European countries.

But as the demand for electricity surges over the coming decade – in the very name of net zero – the UK would almost certainly endure power cuts, causing civic and commercial havoc, without more gas-fired baseload in place.

And then the case for tackling climate change, already increasingly questioned, would become politically toxic.

The Telegraph

Ilkley: Feargal Sharkey hits out at ‘measly’ Yorkshire Water investment

Clean water campaigner Feargal Sharkey has said a £1.4m investment by Yorkshire Water to cut the amount of waste it discharges into the River Wharfe is “measly”.

The firm said the project in Ilkley was part of a £180m project to cut storm overflow discharges.

The former singer hit out at the company when he addressed members of the Ilkley Clean River Group.

Yorkshire Water said it had plans to spend a further £58m in the area.

Speaking about his visit to the River Wharfe, Mr Sharkey, who is a keen fisherman, said: “I wanted to come up and just give them an enormous round of applause to the extraordinary people that are the Ilkley Clean River Group.”

He described the campaign group as “incredible”.

“What took me by surprise and delight was their sheer brilliance and capability,” he said.

The former Undertones singer, who has heavily criticised utility firms in recent years for discharging sewage into waterways, said the River Wharfe was once “renowned globally” for its populations of grayling.

“It’ll come as no surprise that populations of grayling throughout the UK are now collapsing. That tells you everything you need to know about water quality,” he added.

Nicola Shaw, chief executive officer of Yorkshire Water, said the money would be spent before the end of March 2026.

“These are huge numbers for a town of 14,000 people,” she said.

Ms Shaw said she recognised it was “difficult” to ask customers to pay higher bills.

“I absolutely assure customers they won’t be paying twice, we’ve made sure that what we are doing is new work so they are paying for work that needs to be done,” she added.

Becky Malby, who chairs the Ilkley Clean River Group, said they were “delighted” to receive the support of Mr Sharkey who was “fantastic at holding water companies to account”.

“This week Yorkshire Water is announcing how it is investing millions to clean up the sewage in the river but they want the customer to pay,” she said.

“All that goes on our bills and we think we’ve paid and Feargal is here to support us to make sure we don’t pay twice.”

BBC

Put Thames Water into special administration, Lib Dems tell ministers

Thames Water should be put into special administration by the government and reformed as a public benefit company, the Liberal Democrats have said.

Sarah Olney, the Lib Dems’ Treasury spokesperson, has called in a parliamentary debate for the biggest privatised English water company to be wound up under legislation that has recently been updated by ministers.

It makes the Lib Dems the first mainstream political party to say the struggling company must be taken over to secure water and sewerage services for 15 million people.

Thames Water is seeking a shareholder bailout of £2.5bn to the end of the decade to stay solvent, but it wants Ofwat, the water regulator, to allow it to increase customer bills by 40%, pay higher dividends and face lower fines for pollution in order to secure the shareholder investment.

Olney said in parliament: “Thames Water is no longer a functioning company and the government has a choice: either bail them out with taxpayer money or listen to our calls to put them into special administration to then be reformed into a company for the public benefit.”

Thames Water declined to commit extra funds this week to a £180m industry-wide initiative to fast-track efforts to reduce sewage pollution in England’s waterways. Its parent company has been told by its auditors that it could run out of money by April if shareholders do not inject more cash into the company. It needs to repay a £190m loan due in April.

Special administration can be triggered if a company cannot pay its debts or is not performing its statutory requirements.

“The final straw was this week, when Thames Water bosses refused to stump up the cash for new sewage investments,” said Olney. “It was shocking that Conservative ministers just let them get away with it.”

The government is drawing up an emergency plan, known as Project Timber, in the event of the collapse of Thames Water. But Olney said ministers must use their recently updated water insolvency legislation to put the company into special administration.

This can be triggered by the secretary of state or Ofwat. Olney said with the company unable to pay its debts, and recusing itself from new sewage investments, the threshold for special administration had been met.

Under the updated water insolvency legislation the company can be taken over as a going concern to make sure that water and wastewater services continue for 15 million people. The taxpayer would not be liable for the debts, which would stay with the holding company, according to independent analysis of the updated legislation by the House of Commons library.

Olney said the company, once in special administration, could be reformed as a public benefit company, where “profit is no longer put above environmental goals”.

Olney asked the government to provide details of Project Timber. In response, Mark Spencer refused to comment specifically on Thames Water, citing “market sensitivities around private companies”. The environment minister said “the government does have a plan” to support companies in essential services such as utilities or banking “in moments of distress”.

He said: “The government’s priority is the ongoing provision of water and wastewater services.”

Thames Water admits in its latest business plan, which has been submitted to Ofwat for approval, that it has overseen the “sweating of assets” and allowed its infrastructure to decline over decades because it has stretched the life of the assets, repairing rather than replacing.

The Guardian

From wind to nuclear: How the UK plans to keep the lights on

Mission control of the Dogger Bank windfarm in the Port of Tyne is eerily quiet. This large, airy room is the nerve centre of the £9 billion project — but there’s just one operator monitoring the screens. That’s because the array of giant windmills is not quite ready. Just six turbines were installed when The Sunday Times visited recently, their icons strung together like Christmas lights on the giant map overhead.

When the windfarm is complete in 2026, it will have nearly 300 turbines, and generate power for six million homes. “We can go quite fast building these and Dogger Bank is going to be the size of a nuclear power station,” said Tom Nightingale, UK supply chain leader at the project, a joint venture between SSE Renewables, Equinor and Vårgrønn.

Dogger Bank is just one endeavour in the UK’s scramble to decarbonise its electricity grid by 2035. The country’s energy mix has already undergone a remarkable change, with the rise of renewable energy and the phasing out of coal. There is some legitimacy to the government’s boast last week that the UK is leading the world, with a 65 per cent cut in emissions from its power sector since 2010.

Hard yards remain, however. Last week, Claire Coutinho, the energy secretary, outlined reforms to the market that ministers hope will spur further investment.

It’s a fine balancing act. Britain is trying to electrify everything from its cars to its steel mills as it weans itself off gas. But gas provides reliable energy at times when the wind doesn’t blow. Even with new nuclear power plants and batteries, the UK can’t do without it — a point acknowledged by Coutinho, who called for the building of new gas-fired plants to meet this demand.

“The energy system is transitioning to net zero, but net zero doesn’t mean no fossil fuels,” explained Tom Edwards, senior modeller at the analyst Cornwall Insight. “We will have a diversified mix of technologies.”

Experts predict a pinch point at the end of this decade, when ageing gas plants and nuclear power stations switch off, leaving a shortfall in reliable energy at peak times. Last month, a report by the consultancy Public First, commissioned by the power company Drax, warned “it is unlikely that new-build plants … will be online to mitigate the crunch by 2028”.

Governments generally have been loath to ask people to dial down consumption, although the National Grid now runs a scheme that rewards consumers who throttle back usage at peak times.

So just how do we tackle this pinch point? And how will the UK’s energy system look as we make the transition to net zero?

In future, gas plants will provide “dispatchable” power to the grid: that is, top-up electricity when the wind drops. New plants will feed into the capacity market, where they can win 15-year contracts to be on standby to provide energy.

New gas plants would need to be fitted with carbon capture and storage technology, which would squirrel harmful emissions away into caverns underground, although this remains unproven at scale. They must also be ready to burn hydrogen, which produces no greenhouse gases when ignited.

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.