Weekend press: Ovo to explore options including sale

The latest roundup of energy and water industry coverage in the national press over the weekend as the country gears up for the general election, included Ovo Energy exploring sale options; the price cap to bring lower bills to millions of householders; and speculation over how a new government will deal with Thames Water.

Energy supplier OVO to explore options including sale

Britain’s fourth-biggest household energy supplier is lining up bankers to explore options including bringing in a new investor or a sale, 15 years after it launched in a bid to challenge the industry’s oligopoly.

Sky News has learnt that OVO Group, which was founded by Stephen Fitzpatrick, is close to hiring Rothschild to assist with a strategic review of the business.

City sources said this weekend that a range of possibilities would be considered during the process, which is expected to take several months.

These are likely to include a refinancing – with talks already underway about OVO’s existing borrowings – as well as issuing new shares to prospective investors, or a partial or full sale by some of the company’s shareholders.

An outright sale of the business is considered by insiders to be unlikely at this point, but is expected to be explored as part of the strategic review.

OVO, which has about four million customers, sits behind Centrica, the owner of British Gas, Octopus Energy and E.ON Next in the rankings of Britain’s leading gas and electricity suppliers, according to market share data provided by Ofgem, the industry regulator.

Under Mr Fitzpatrick, who launched OVO in 2009, the company positioned itself as a challenger brand offering superior service to the industry’s established players.

OVO’s transformational moment came in 2020, when it bought the retail supply arm of SSE, transforming it overnight into one of Britain’s leading energy companies.

Its growth has not been without difficulties, with insiders referring to a challenged relationship with Ofgem and a torrent of customer complaints about overcharging.

Sky News

Millions to pay lower summer energy bills as UK price cap drops

Millions of households will pay lower gas and electricity bills this summer as the energy price cap for Great Britain falls by £122 a year to the equivalent of £1,568 for the typical annual charge from today.

However, the latest cap applies only from July until the end of September, and bills are expected to rise again this winter, leaving millions struggling to heat their homes.

Monday’s adjustment reflects lower costs in the wholesale gas and electricity markets – but bills are still more than £500 a year higher than they were before Russia’s war on Ukraine upended global energy prices.

National Energy Action (NEA) has estimated that about 5.6 million households in Great Britain will remain in fuel poverty over the summer, even with lower prices.

Adam Scorer, NEA’s chief executive, said: “Any drop in energy bills is welcome, but modest falls in summer look set to be wiped out by bigger rises in autumn when people will need to put the heating back on.”

The energy price cap is expected to rise by 10% to £1,723 a year from October, according to analysts at the energy consultancy Cornwall Insight, as wholesale markets have climbed higher. It expects bills to remain at a similar level into the first months of 2025.

Analysts at the Energy and Climate Intelligence Unit (ECIU), a thinktank, have warned that energy prices are likely to remain significantly higher than they were before the Russian invasion for the rest of the decade.

The conflict has ended Europe’s gas pipeline imports from Russia, which was once its largest source of gas. This has left European markets more exposed to global energy price fluctuations as it relies more on imports from the US and the Middle East.

Europe’s gas market prices were lower in the early months of the year after a relatively mild winter, allowing energy bills to fall this summer. But markets have started to climb again, in part due to stronger gas demand from Asian economies, which will spell higher bills again this winter.

Simon Cran-McGreehin, the head of analysis at the ECIU, said: “The UK’s high dependence on gas for electricity generation and heating has cost bill payers £2,000 so far during the gas crisis, and the economy as a whole tens of billions of pounds.”

The Guardian

Thames Water board approved £150m payout hours before funding U-turn

The board of Thames Water agreed to pay a £150m dividend hours before its shareholders U-turned on plans to pump emergency funding into the struggling water supplier, the Guardian can reveal.

The water industry regulator was examining the decision by the debt-laden company’s board to sign off the payout at a meeting on 27 March, sources said.

The following day, the company said an imminent £500m injection of funds that had been pledged by its investors would not be paid, amid a standoff with Ofwat. That decision threatens to tip Britain’s water company into public hands, with Whitehall officials war-gaming its temporary renationalisation.

Ofwat planned to investigate the circumstances around the dividend paid by Thames, sources said. At the time, Thames was already under investigation over its decision to pay a separate £37.5m dividend.

Thames Water’s fate is one of the biggest issues facing the next government, with the company labouring under £15.6bn of debt, the bulk of which could be added to the public purse.

Thames said it was too early to know what the outcome of Ofwat’s inquiries into the dividend payment would be.

The company, which has a complex corporate structure, said the payment was made from the regulated company to an intermediate parent company, Kemble Water Eurobond, to “settle a pension top-up payment” and “surrender relief” on tax losses.

In March the company and its shareholders drew heavy criticism when investors refused to pay £500m of promised funding. Michael Gove, the communities secretary, said the leadership of the company had been a “disgrace”.

In December the Guardian revealed that Ofwat was examining a £37.5m dividend paid from its regulated operating company to its ultimate owner, Kemble.

While the £150m payout did not go to Thames shareholders, Ofwat has been clamping down on the flow of cash from ringfenced water companies to holding companies, amid concerns that payouts are weakening the finances of regulated water and sewerage firms.

In May 2023 it modified the conditions of water companies’ licences to stipulate that companies must explain how dividend decisions were made and how they “reflect overall performance, alongside investment and financial resilience needs”. The regulator can take action where a company has failed to meet the conditions.

This month it emerged that Ofwat was considering fining the company £40m over the £37.5m payment on the grounds that it breached those rules on dividends. Sources close to the situation said a final decision on that possible fine was unlikely to be published before the regulator rules on water companies’ five-year spending plans next month.

Ofwat is due to publish its draft response to water companies’ business plans on 11 July, after a delay caused by the general election. Thames’s annual results need to be published by 15 July.

The company, which serves about 16m households, faces the prospect of a potential special administration, handled by the government, if it cannot raise fresh funds from investors. Officials are drawing up contingency plans for a temporary nationalisation under the codename Project Timber.

The Guardian

Tory deputy chair dismissed sewage crisis as ‘political football’

The Conservative party deputy chair Angela Richardson called the sewage crisis a “political football” and claimed opposition parties and activists had put Tory MPs in physical danger by campaigning on the issue.

Richardson, who is standing for re-election in Guildford, where the River Wey was recently found to have 10 times the safe limit of E coli, also suggested the only reason people were talking about the problem was “because the Conservatives let everyone know it was happening”.

Speaking at a hustings held last week by Zero Carbon Guildford, Richardson was asked about her party’s record on sewage spills. “The reason we’re all talking about this is because the Conservatives let everyone know it was happening,” she said. “If you go and have a look at the manifestos in 2019 you will not find anything about water quality. It is a very, very convenient hobby horse to jump on and attack Conservative MPs for voting against things that would not work.”

She added that activists putting up blue plaques around the town criticising her record on the issue in 2021 “resulted in a police helicopter above my house and police sniffer dogs through my house”.

“I was in danger because of the actions taken by political parties. It is no laughing matter,” she went on. “So my suggestion to everybody is to actually look at what we’re trying to do, working together and not turning this into a political football that’s actually dangerous.”

In March it was revealed that raw sewage was discharged into waterways for 3.6m hours in 2023 by England’s privatised water firms, more than double the figure in 2022.

The issue has become a theme of this election, as opposition parties take aim at ministers’ failure to get to grips with the crisis.

Research by the Rivers Trust found that sewage was spilled for 1,372 hours in the Guildford constituency last year, and recent water testing by local campaigners found E coli in the river last month at nearly 10 times the safe rate in government standards.

Richardson’s comments have caused outrage among campaigners. “Every single river in England is now polluted and one of the largest sources of that pollution is the water industry, so for her to even suggest this is some sort of hobby horse or convenient political issue is wrong,” said the environmental campaigner Feargal Sharkey.

“It is clearly an act of desperation that instead of taking responsibility for the environmental decimation caused by their own incompetence they are now trying to shift blame away and point the finger at others. It is the dying, decaying voice of a discredited government.”

The campaign group Surfers Against Sewage said: “Sewage pollution has become a core election issue because people love being in and around water but they are getting sick when they do it. We have been campaigning on this issue for nearly 35 years, because we surfers, swimmers and water users have been getting sick when we do what we love.

The Guardian

Will rising debt cause Thames Water to sink under a Labour government?

If Labour triumphs in this week’s election, as polls suggest, then top of the incoming business secretary Jonathan Reynolds’s in-tray will be the possible collapse of Thames Water. The Thames timebomb is ticking – and could explode before new MPs have even become fully acquainted with the corridors of Westminster.

To recap, Britain’s biggest water company has been labouring under an £18bn debt mountain and has become the chief target of mounting anger from the public and politicians towards the industry over sewage spills, executive pay and shareholder payouts.

In March, Thames investors refused to stump up a pledged £500m of emergency funding amid a standoff with the industry regulator, Ofwat. So acute are concerns that the government has tasked officials with making contingency plans for a temporary renationalisation, codenamed Project Timber.

Its finances were back in the spotlight this week, when the Guardian revealed that a £150m dividend paid out from the regulated company on 27 March – hours before investors pulled the plug – was being examined by Ofwat. An internal party dossier by Labour’s chief of staff, Sue Gray, seen by the Financial Times, put the company’s potential collapse high on the party’s “risk register” after taking power, alongside prison overcrowding, bankrupt councils and an NHS funding shortfall.

One of the first tests will be the postponed publication of Ofwat’s proposals for the water industry on 11 July. The regulator had been due to release its draft “price review 24” – the process by which it determines how much each company can charge customers over the following five years – on 12 June, but the pivotal moment was delayed by Rishi Sunak’s soggy early election announcement.

Thames’s own five-year plan, submitted in October and updated in April, is at the heart of its standoff with shareholders, who fear Ofwat’s response to it will be too stringent. The company has promised an extra £1.1bn to tackle environmental issues on top of the £18.7bn already pledged, to be paid for in part by raising bills 59%, including inflation. The regulator has indicated it is reluctant to impose large increases on struggling households.

Investors will be combing Ofwat’s draft for an indication on the weighted average cost of capital it will allow companies, allowing them to calculate their returns. Last time round, some water firms successfully appealed Ofwat’s findings to the Competition and Markets Authority.

The documents will also be scrutinised to see whether the regulator will allow companies to build less than they promised, or the same projects at a cheaper cost, amid an industry pledge to spend £96bn on infrastructure, from new reservoirs to sewage treatment plants.

Thames, which serves about 16m households, is also due to publish its much anticipated annual results imminently. Sources said they were keen to examine whether the accounts, and those of the diverse collection of companies in Thames’s complex group structure, will be signed off on a going-concern basis, and whether they include a “material uncertainty” statement, as last year’s figures from parent company Kemble did. A source said the accounts were expected to be signed off at a board meeting on Friday and published by 15 July.

Investors hope the various publications could clarify the prospects for the group. Options still include a complex restructure, a debt-for-equity swap and a government-handled special administration – in effect a temporary renationalisation.

A source close to Kemble’s creditors said: “Obviously, the draft determinations are just a draft, but it will spark some activity.”

Colm Gibson, managing director at Berkeley Research, said: “Analysts and investors should be wary of reading too much into Ofwat’s draft determinations, as there is scope for Ofwat’s position to move materially before final determinations are revealed in December.”

He added: “Water companies have proposed large increases in their investment programmes just as they will face increased competition for staff and supply chain resources from the energy industry’s net zero programme, and a new government keen to invest in schools, hospitals, transport and other national … infrastructure. It will be interesting to see how this is taken into account in prices.”

This week, Reynolds said he “wouldn’t want to see a nationalisation” of Thames. “I think there should be a solution that involves [something] short of that,” he told an event in the City of London, without specifying what that solution might be.

Unfortunately for him, a testing financial squeeze at Thames may banish any post-victory party atmosphere before the balloons have even deflated.

The Guardian

UK haulage industry calls for investment in electric truck infrastructure

The road haulage industry is calling on the new government to urgently tackle investment in infrastructure for electric trucks, after pointing out there is just one public charging point for HGVs in the whole of the UK.

Takeup of electric cars is soaring, with about 1.1m fully battery-powered cars on British roads and about 63,000 charging units in 33,000 locations, according to Zapmap data.

But the haulage industry is miles behind, with just 300 electric HGVs registered out of the country’s 500,000-strong lorry fleet, says the Road Haulage Association (RHA).

After surveying the country, the RHA found only one public charging point at which lorries can power up. It is located at a service station at Rivington, on the M61 southbound about halfway between Manchester and Preston.

Chris Ashley, policy lead on environment and vehicles at the RHA, said action was needed. He said: “All the anxieties people have with cars, whether it’s raining, whether the windscreen wipers or air conditioning are running, applies to trucks. It depends on the weather and the load.

“On average, a good range for a diesel truck would be 600 miles, with caveats of course. That is why a public charging network is necessary, in our view,” he said.

Research shows 70% of British electric trucks return to depots for recharging overnight, according to the RHA. Longer-haul journeys are impossible on batteries, which means most electric trucks are used for local deliveries within a 50- to 80-mile radius.

The size and weight of trucks means the distance they can achieve on a battery is a fraction of a car, just 200 miles.

The RHA is planning to submit 12 demands to the new government, with polls predicting a Labour win in this week’s election.

It wants the incoming government to build a trial network of HGV charging points, speed up planning applications “gummed up in the wider planning process” for HGV electricy substations at truck depots, and offer financial incentives for small and medium-sized businesses to make the switch to electric.

Trucks cannot be charged outside truckers’ homes and companies with large fleets may need substations installed to cope with the energy consumption, as trucks need at least 150KW of power, compared with a 22KW minimum for cars.

Chris Pritchett, partner and energy and mobility lawyer at the law firm Shoosmiths, said it was “crucially important” the government developed the right strategy to install the charging units at the right places.

Energy and haulage companies may even have to work together to schedule times at the units at motorway stations.

“It will require a sort of utopian level of collaboration,” said Pritchett. “The way forward is more nuanced and complex than for passenger vehicles.”

Work is already under way to tackle the shortage. Energy company Gridserve is leading a government-backed trial to roll out 200 chargers capable of delivering 350kW.

“What we need is momentum and [we’ll] see decarbonisation start to snowball,” said Ashley.

The current government plan is to phase out the sale of diesel and petrol HGVs of 26 tonnes or below by 2035 and the sale of all new HGVs heavier than that by 2040.

The Department for Transport had no comment ahead of the election.

The Guardian

‘Do not drink water’ warning could end in July

A warning to more than 600 households in a Surrey village not to drink tap water could be lifted from early July.

Thames Water issued a “do not drink” notice to Bramley residents on 30 May, after a previous fuel leak from a petrol station in the village.

The company confirmed a section of pipe had now been replaced and road closures removed.

A spokesperson for the water company said: “We are sorry for the disruption this has caused but it was essential for us to carry out the work safely and efficiently.”

They said “extensive testing” was being carried out with the new pipe in place and a full process for lifting the “do not drink” advice had been agreed with the UK Health Security Agency.

The water company previously said it believed hydrocarbons from petrol had contaminated the water supply.

Provided tests met the required standards, Thames Water said it hoped to be able to lift the notice in early July.

In a statement, the company said: “Your health and safety is the most important consideration to us so we will do everything thoroughly and only lift the ‘do not drink’ advice when we are entirely confident there is no risk.

“We are currently unable to provide a precise date when this will be complete but we will keep you informed.”

It said residents could help by running kitchen taps for between five and 10 minutes each day, to help move the water around internal plumbing.

People affected were also warned that remedial works would continue to clean up the ground water contamination.

Thames Water said: “Unfortunately, due to the widespread nature of the fuel leak, we cannot be certain it will solve the problem once and for all.”

BBC News

Vast salt caverns to store hydrogen under former Royal Navy base

Vast salt caverns designed to store hydrogen are to be excavated under Britain’s biggest former naval base as part of plans to bolster the country’s energy security.

Each the size of St Paul’s Cathedral, the 19 caverns will be dug under Portland Harbour in Dorset and filled with enough hydrogen to fuel a power station for days.

The hydrogen contained in the caverns will be reserved for emergency use and called upon when wind and solar farms are not generating enough energy to keep Britain’s lights on.

Claire Coutinho, the energy secretary, is said to have not only backed the scheme but also altered the Government’s hydrogen storage business policy to ensure it can secure taxpayer subsidies.

UK Oil and Gas (UKOG), the company behind the scheme, has said it will seek planning permission within months.

Stephen Sanderson, UKOG’s chief executive, has said he would make the application under the Government’s nationally significant infrastructure system, allowing it to bypass potential local opposition.

He said: “Portland Port is ideally situated for the construction of large salt caverns as it overlies a 450-metre thick, high-quality rock salt.”

Mr Sanderson added: “I have enjoyed one-on-one meetings with the three key figures from the Department for Energy Security and Net Zero, including Secretary of State Claire Coutinho, Lord Callanan, Minister for Energy Efficiency and Green Finance and Graham Stuart, Minister for Energy Security and Net Zero.”

Portland Harbour lies in Weymouth Bay on England’s south coast and was first used as a naval base in the 16th century by Henry VIII.

It was massively expanded last century to accommodate new steam-powered warships, eventually becoming one of the Royal Navy’s biggest bases until it was closed in 1995.

It remains one of the UK’s largest harbours and the training centre for the UK’s Olympic sailing teams.

The harbour’s anticipated new role storing hydrogen relies on a rock known as halite or rock salt.

A massive layer of this has been found two miles beneath the surface – where it has been buried for at least 200 million years.

Salt is highly soluble so the fact it has lasted so long shows the rock has no water running through it – making it highly stable and suitable for storing hydrogen.

Matt Cartwright, UKOG’s commercial director, said the caverns would be created by drilling wells into the salt and then injecting fresh water to dissolve the rock.

UK Energy Storage, a wholly-owned subsidiary of UKOG, will oversee the project.

Each cavern is set to be 85 metres in diameter and 90 metres high with a capacity of 320,000 metres cubed, which is roughly twice the volume of St Paul’s Cathedral.

The Telegraph

Water bosses’ £80,000 training courses get further scrutiny from MSPs

Expensive staff training courses bought by Scotland’s water regulator involving trips to Argentina, the United States and London are to be further investigated by MSPs.

The public audit committee has written to the Water Industry Commission for Scotland (WICS) to ask it for evidence that the executive education programmes for its employees — two of which cost more than £80,000 — were providing value for money and helping it to retain staff.

Richard Leonard, the committee convenor, has also asked WICS if the expense had followed public sector procurement and approval rules.

WICS has been under scrutiny since Audit Scotland highlighted inappropriate use of public money, governance concerns and poor financial controls at the organisation in December.

The watchdog found instances of expenses being claimed without itemised receipts, sustenance guidelines being ignored and a £77,000 MBA qualification being provided for the chief operating officer at Harvard in the United States.

Since then further details have emerged of two other people doing MBAs, both taking place in Argentina and London at costs of more than £80,000, as well as a £21,000 management certification from Columbia University in the US. A further £87,768 was spent on “executive coaching” between April 2019 and March this year.

Alongside that there have been allegations of a “toxic” workplace culture and details of boozy meals including instances where Scottish government officials were in attendance.

Alan Sutherland, the former WICS chief executive, stepped down in December following the Audit Scotland report. David Satti, who it emerged had paid for a £560 meal for four with a £300 alcohol bill on a company credit card, has been appointed as the interim chief executive.

WICS, which employs fewer than 30 people, acts as the economic regulator for the water sector. It sets a cap on the amount that Scottish Water can charge and promotes the interests of water and sewage customers.

The Times

Bord Gais boss engineers a transition to green energy

Five minutes into our conversation at Bord Gais Energy’s headquarters in Dublin city centre and Dave Kirwan, its managing director, apologises. He has just used the word “megawatts” but technological lingo and acronyms aren’t his bag.

“I’m a great believer in plain English. People still come into this room and throw acronyms at me. I say, ‘I’m 32 years in the energy business and I don’t know what you’re talking about. So let’s keep it simple because our customers need to understand this.’”

What Kirwan prefers to talk about is the transition; not just Ireland’s transition to greener power but Bord Gais Energy’s transition to providing green energy. He has, he says, been given the task of “reimagining a business”.

“We looked at this business four years ago and realised we’re probably known as a gas company but we’re an energy company that needs to lead the transition,” he adds.

In 2023 nearly 86 per cent of Ireland’s energy came from fossil fuel. The government has set a target to obtain 70 per cent of all electricity from renewable sources by 2030. Russia’s invasion of Ukraine has brought home the need to increase its security of supply.

“What we’ve got to do with the energy industry in the next decade is like going from playing 2D Tetris at four out of ten speed to 3D Tetris at eight out of ten speed. We’ve got to spin building blocks, turn them, fit them together at pace without the lights going out, without people suffering as a result. We’ve got to transition how we generate power, how we transport it, how we help people use it,” Kirwan says.

He expects that nearly 85 per cent of Bord Gais Energy’s power will be “sourced green and then topped up with conventional” in the next decade or so. Eventually the use of gas will diminish. Plans for how the company will do that are multifold but present the obvious conclusion: surely having gas in its name is counterproductive?

Kirwan says it is something the company has considered. It could even happen within the next few years. Yet he is acutely aware that ditching a 48-year-old brand name — Bord Gais has been in existence since 1976 — could be disastrous if handled badly.

“It’s a really tricky one,” Kirwan says. “The heritage of the brand that has been built up over five decades does mean something but at the same time we need to be known for something different than gas.”

The Times