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Our weekly round up of national news from the weekend features news that Octopus has joined bidding for Bulb and SSE's chief executive challenges the threat of a windfall tax that he described as 'unhelpful' to ease energy costs for billpayers.
Octopus Makes Market Share Grab with Bid for Bulb’s UK Customers
The UK’s Octopus Energy Ltd has joined the bidding for customers of Bulb Energy Ltd, an electricity supplier that collapsed last year and became the first British company forced to nationalize since the 2008 banking crisis, according to a person familiar with the matter.
Ovo Energy Ltd, another U.K. energy supplier, is weighing a bid, according to a seperate person close to the talks. The people asked not to be named because the matter is private.
Bulb was put into special administration last year leaving about 1.6 million customers needing a new energy supplier. It was the biggest of more than two dozen British companies that have gone bust in the past year after surging gas prices exposed firms that weren’t protected by buying energy in advance.
The government stepped in and appointed Teneo Inc., to run the company using £2.2 billion ($2.7 billion) of taxpayer money until a buyer can be found. Centrica Plc and Abu Dhabi’s Mubadala Investment Co.-owned Masdar are the only other two companies reported to be bidding for customers in the process.
The winner of Bulb’s customers will land a big chunk of market share. Centrica is already the biggest supplier in the market, while Octopus is the fifth biggest.
UK Business Secretary Kwasi Kwarteng said last month he’s confident that a buyer can be found for the energy supplier and that the government doesn’t intend to run the company in the long-term.
Octopus Energy locks horns with Centrica over market reforms as bidding war for Bulb lights up
Two of the UK’s biggest energy firms are at loggerheads over proposals to fix the crisis-ridden industry, following the collapse of dozens of suppliers.
Octopus Energy (Octopus) has rubbished Centrica’s push for suppliers to ringfence customer credit balances, describing the rival’s proposals as misguided.
A spokesperson told City A.M. : “Centrica’s proposals are financially illiterate – they would increase energy prices and supplier profits but would have virtually no impact on the causes and costs of supplier failure.”
The energy firm considers insufficient hedging and poor management to be the key drivers of the energy crisis, which has seen 29 suppliers exit the market since last September – directly affecting over four million households.
Octopus noted its customers are in debt to the company most of the year and owed the firm £670m at the end of winter – undermining the notion it could even use credit balances to fund wider commercial ambitions.
Customers typically overpay for their energy use in the summer months – and the credit is then used over the winter to keep direct debits stable throughout the year.
Ringfencing balances could require energy firms to charge more, and could potentially benefit bigger firms with larger pools of cash at their disposal.
Instead of ringfencing, Octopus is in favour of an insurance protection policy, comparable to the kind provided to holidaymakers travelling via airlines.
Energy market reform will cut fuel bills
Ministers are drawing up plans to sever the link between the prices of gas and electricity in an effort to cut household bills for millions of families.
In what would be the biggest reform of Britain’s power market in decades, the government proposes to end the system by which the wholesale cost of gas in effect determines the price of electricity for consumers.
More than a quarter of the UK’s electricity is from renewable sources, for which costs have been largely unaffected by rising global energy prices. However, the link has been blamed for exacerbating the cost of living crisis as it has forced customers to pay over the odds for electricity because of spiralling wholesale gas prices linked to the conflict in Ukraine.
With more expansion of nuclear power and offshore wind generation due over the next decade, ministers believe that the pricing system is no longer fit for purpose. One expert has called it “unconscionable”.
The Department for Business is expected to bring forward proposals for market reform “in the coming weeks” as part of its energy security strategy. Legislation will then be introduced in autumn, within the energy bill.
Government sources said that in the long run the change would bring down electricity bills and make the market “far more stable”. However, they said the reforms were “fiendishly complicated” and that it was critical to get them right.
It is estimated that at present prices, generating power from new renewable energy is less than a quarter as expensive as gas, and the cost of new nuclear generation is about half that of gas.
Although many new renewables projects are paid fixed prices for their electricity under the “contracts for difference” system, many older projects have made millions in extra profits since gas prices began rising last year.
Rishi Sunak, the chancellor, said in May that he was considering a windfall tax on these generators. However, sources in the Treasury and the business department said that in the longer term the government was committed to fundamental market reform.
“In the past it didn’t really matter because the price of gas was reasonably stable,” one said. “Now it seems completely crazy that the price of electricity is based on the price of gas when a large amount of our generation is from renewables.”
UK poised to agree deal to keep coal-fired power station open over winter
The UK is poised to strike a deal to keep open a coal-fired power station that was set to close as the government scrambles to strengthen its domestic energy security. Ministers and EDF are expected to finalise plans this week to extend the life of the West Burton A power station in Nottinghamshire, which is run by the French energy company, from October to March.
The government would have a standby arrangement with EDF for the plant to remain available for back-up generation, providing enough power for about 1.5mn homes. The deal was set to be signed last week but EDF is still negotiating the price with the government, energy regulator Ofgem and National Grid’s Electricity System Operator over how much the company would be paid.
Industry experts say the cost is likely to be tens of millions of pounds, with this being levied on consumers’ energy bills. If finalised, the agreement will prompt a backlash from environmental groups which fear the government is set to backtrack on its net zero 2050 pledge. But the government insist that it will still close all coal-fired power stations by 2024 despite the temporary extension.
The West Burton A Power station was opened in 1966 and was due to close last year but has already had its life extended until September. EDF will also need to import coal from South Africa, Australia or Kentucky — rather than Russia, from where it drew resources historically. EDF said was is “working hard to finalise an agreement with National Grid ESO to support the government’s request to keep West Burton A power station available over next winter.”
Electricity generator SSE warns Sunak over windfall tax threat
SSE has hit out at UK chancellor Rishi Sunak’s plan to impose a windfall tax on electricity generators, warning that the “unhelpful” threat has harmed investor confidence just as companies planned to plough billions of pounds into new energy projects in Britain.
“They [the government] used the word extraordinary profits [to justify the proposal]. Where are these extraordinary profits?” SSE chief executive Alistair Phillips-Davies told the Financial Times.
“I’m not entirely sure where the windfall is. Given that we have got very well-developed plans to invest lots in [energy] networks, lots in renewable generation, it’s very clear from the share price reaction that they are affecting investor confidence and that is unhelpful for us,” he added.
Sunak confirmed that he also planned to target electricity generators when he announced a new 25% windfall levy on oil and gas producers at the end of May to partly fund a £15bn package to help households with soaring energy bills.
Describing electricity generators’ profits as “extraordinary” as a result of high wholesale power prices, the chancellor said he was considering “appropriate steps” to ensure generators also contributed towards support for consumers. The plans have wiped billions of pounds off the value of power companies including SSE, Drax and Centrica and has even drawn criticism from the Labour party, despite its MPs championing a windfall tax on oil and gas producers.
On a visit to Peterhead, north of Aberdeen, where SSE is spending more than £250mn to reinforce the electricity grid in order to accommodate more renewables projects, Phillips-Davies argued the generation sector was “much more complex” than oil and gas.
Power companies tend to sell their output far in advance and the sector covers a range of different technologies that are subject to different subsidy regimes.
“Looking at one price on one particular day for one megawatt [hour of electricity] or one therm of gas, not everything trades at that price,” said Phillips-Davies.
SSE’s adjusted operating profit rose 15% to £1.5 billion in the year to March 31, boosted by its gas-fired power stations and hydro plants that help to meet supply when renewable technologies, such as wind, are not generating. Profit at SSE Thermal, which includes its gas plants, jumped 91% last year to £306.3mn.
But Phillips-Davies argued some assets that benefited from record gas and power prices last year previously made losses. He cited SSE’s gas storage facilities, which generated £30.7mn in profit last year but did not make any money for the previous decade.
Sewage-polluted rivers blocking construction of thousands of new homes every year
Councils across England are being blocked from approving the construction of 20,000 new homes a year due to rules designed to clean up river pollution, according to analysis.
More than 7% of all of England’s planned house building cannot go ahead due to high levels of nutrient pollution in nearby waterways.
The Local Government Association (LGA), which conducted the analysis, said the situation was “concerning and frustrating” for local authorities charged with increasing the supply of affordable housing for their residents.
In total 74 local planning authorities are impacted by the ‘nutrient neutrality’ rule, which holds that developers cannot build more housing near certain river catchments unless they can prove the development will not add more damaging nitrates or phosphates to waterways.
England’s rivers are already in a parlous state in large part due to intensive farming practices.
Rainfall washes sewage or agricultural run-off laced with chemicals, phosphates and nitrates into rivers. These excess nutrients damage delicate freshwater ecosystems. Excess phosphorous, for example, can cause huge algal blooms that choke of freshwater life. It was highlighted as the ‘most significant pollutant’ impacting English waterways in a report by MPs earlier this year.
The nutrient neutrality rule, overseen by Natural England, blocks development that could increase this pollution any further. But local authorities say they are reliant on government, water companies and farmers taking action to crack down on pollution.
“Councils want safe, clean, thriving natural environments alongside the sustainable development of housing, growth and jobs,” said councillor David Rennard, environment spokesperson for the LGA.
“It is concerning and frustrating that pollution levels in some rivers have reached a point to trigger bans on building around 20,000 new homes each year, over 7 per cent of all England’s likely new house building,” he said. “People need homes, schools and doctors’ surgeries, and people also need a safe and clean environment.”
The LGA said its analysis shows 23 councils have more than 90 per cent of likely house building areas impacted by the law. Almost a third of building in the whole of the Northeast of England is impacted.
Yet unblocking the housing pipeline is likely to take time, involving a shift to more sustainable farming and hefty investment by water companies into sewage treatment plants.
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.
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