Weekend press round-up: Former minister says May’s price cap has failed

In this weekend’s press round-up: Conservative MP John Penrose says consumers are still being ripped off after Theresa May introduced the “wrong kind” of price cap; Octopus Energy acquires 70,000 customers from French energy firm Engie; and water companies defy Ofwat by paying out hundreds of millions of pounds in dividends.

Theresa May’s energy price cap has failed to end rip-offs, warns senior MP

Theresa May’s energy price cap has failed to tackle the problem of electricity rip-offs because she introduced the “wrong kind” of limit, according to the ex-minister who led the Tory campaign for action.

John Penrose said Mrs May’s cap on the cost of electricity and gas had left the problem “just as bad today as it was before the cap began” after the former prime minister implemented a “compromise” that MPs had warned could prove ineffective.

In an article for The Telegraph, Mr Penrose, a former Cabinet Office minister, pointed out that the “gap” between default tariffs and the cheapest deals available to those who switched suppliers, had risen to £300 – a similar level to before the cap was implemented last year.

Mr Penrose said: “This can’t be allowed to go on.”

He is calling for the current cap on overall bills to be replaced with a £150 limit on the gap between default tariffs and the cheapest versions available.

Mrs May introduced the absolute cap on prices following a campaign led by Mr Penrose, which came after Ed Miliband promised a cap during the 2015 election.

But former Tory ministers had warned Mrs May that her proposals for an “absolute” cap on bills would “distort” the energy market and could fail to tackle the problem of high prices because it would leave Ofgem, the energy regulator, in the position of attempting to predict the future cost of wholesale gas.

Instead, the MPs had called on Mrs May change the Energy Price Cap Bill to introduce a “relative” cap, which, rather than setting an overall cap, would introduce a maximum mark-up between each energy firm’s best deal and the standard variable or default tariff paid by most customers.

Mr Penrose states: “The compromise has turned out to be fatal.

“We created the wrong kind of price cap. It’s set by the regulators at Ofgem every six months and, as I argued at the time, they’re bound to get it wrong … because it’s impossible to know what the international wholesale price of gas will be in six minutes from now, let alone six weeks or six months in the future.”

He adds: “The rip-off is the size of the gap between the best prices which you or I could have got if we remembered to switch to a different suppler, and the price of the default tariff that most of us pay. And the rip off gap is just as bad today as it was before the cap began.

“Before the cap, most of us were paying £300 or so more than if we’d switched to a better deal. Ofgem’s first go got it down to about £170. Then their dreadful second attempt pushed it close to £400, and the third cap got us back to just over £300 again.”

The Sunday Telegraph

Octopus Energy to acquire 70,000 customers from French power group Engie

Octopus Energy has agreed to acquire 70,000 household customers from Engie, the French power group.

The deal is the fast-growing gas and electricity supplier’s sixth acquisition in two years and means that it has more than 1.4 million customers, about 5 per cent of the UK market.

Its rapid growth continues the restructuring of a market that for years was dominated by the “Big Six” suppliers but one that has been shaken up by new entrants and a government-ordered price cap.

Engie, minority-owned by the French state, has decided to make “a strategic exit from the UK domestic energy market”, which it entered in 2017, to focus on working with businesses and local authorities.

Octopus Energy was launched in 2016. It reported a pre-tax loss of £7.4 million in 2018, when it ended the year with 500,000 customers, and is expected to have been heavily loss-making last year after investing in growth. However, unlike some new suppliers, its backers have deep pockets: the company is majority-owned by the Octopus Group, an investor with interests from property to renewables, with about £9 billion of funds under management.

Last year Octopus Energy took on 300,000 customers from Co-op Energy and the year before its acquisitions included the 90,000 customers of Iresa, one of more than a dozen small suppliers to go bust over the past two years. It is also expanding internationally.

Greg Jackson, 48, chief executive of Octopus Energy, called it “an honour to acquire Engie’s UK home energy supply operations, enabling Engie to focus on their expanding services in other sectors while we bring their customers Octopus’s renowned service, pricing and technology”.

Engie’s exit makes it the latest big utility company to review its position in the fiercely competitive British market. The once-familiar Big Six no longer exists after SSE sold its household supply business to Ovo Energy, the biggest challenger, while Npower, long the problem child of the six, is being subsumed into Eon, a larger rival.

The Times

Water chiefs defy Ofwat with dividend payouts

Leading water companies have handed out hundreds of millions of pounds in dividends in recent years, despite pledges to halt payouts.

Thames, Southern and Yorkshire Water all promised not to reward shareholders amid pressure from the watchdog to bolster their finances, cut bills and invest more in infrastructure. Yet the monopolies have continued to pump dividends to their holding companies, primarily to service huge debt obligations.

After a long run of hefty returns, the industry is reeling from a new price settlement with Ofwat. The watchdog, led by former Anglian Water boss Jonson Cox, has slashed their maximum permitted return on capital from 3.19 per cent to 2.96 per cent. The five-year settlement is expected to trigger a rash of appeals to the Competition and Markets Authority.

Thames has paid £115 million in dividends to its holding company over the past two years. In 2017 it pledged not to distribute cash to its shareholders for the next three years. Southern has paid a total of £152.1 million in dividends to its parent company over the same period and Yorkshire shelled out £168.4 million, of which £107 million was to service inter-company debts.

In many cases, the dividends are a legacy of huge sums lent by the water giants to their holding companies – loans that were designed to cut the cost of borrowing by their owners.

Thames was owed about £2 billion as of last March by its parent company, Thames Water Utilities Holdings. Under pressure from Ofwat, about £250 million of that has since been repaid.

Southern argues that dividends paid to its owner are negated by a “dividend loop” — when interest is paid back to the company by its parent. Its owner repaid £682.3 million of inter-company debt last year. Yorkshire was owed £974 million of inter-company debt as of March.

The Sunday Times

Wind farms paid up to £3 million per day to switch off turbines

Wind farms were paid up to £3 million per day to switch off their turbines and not produce electricity last week, The Telegraph can disclose.

Energy firms were handed more than £12 million in compensation following a fault with a major power line carrying electricity to England from turbines in Scotland.

The payouts, which will ultimately be added onto consumer bills, were between 25 per cent and 80 per cent more than the firms, which own giant wind farms in Scotland, would have received had they been producing electricity, according to an analysis of official figures.

The payments have prompted questions in Parliament, as one charity warned that consumers were having to fund the consequences of an “excessive” number of onshore wind farms, which can overwhelm the electricity grid.

In December an analysis by the Renewable Energy Foundation, a charity that monitors energy use, revealed that the operators of 86 wind farms in Britain were handed more than £136 million in so-called “constraint payments” last year – a new record.

REF has warned that consumers are left to foot the bill for wind farm operators having to reduce their output as a result of an “excessive” number of turbines in Scotland leaving the electricity grid unable to cope on occasions such as when there are strong winds.

The Western Link, a 530-mile high-voltage cable running from the west coast of Scotland to the north coast of Wales, was built to help overcome the problem by providing more capacity to transport green energy from onshore wind farms in Scotland, to England and Wales.

But the line, which became fully operational in 2018, has been dogged by difficulties.

In the latest incident, it “tripped” on Jan 10, prompting a spike in the number of wind farms being asked to shut down temporarily because they were producing more energy than could be transported to consumers’ homes.

On the following day – last Saturday – 50 wind farms were asked to stop producing electricity and given a total of £2.5 million in compensation to do so. Last Wednesday, the figure was as high as £3.3 million, which was paid out to £3.3 million wind farms by National Grid’s Electricity System Operator (ESO) arm.

This weekend the payments continued to be made as the power line remained out of use amid an investigation into the cause of the fault.

The Sunday Telegraph

Sites for revolutionary mini nuclear power stations led by Rolls-Royce are set to be built in the North of England

The first of a new generation of revolutionary mini nuclear power stations is to be built in the North of England and North Wales by a consortium led by Rolls-Royce, The Mail on Sunday can reveal.

A number of existing licensed nuclear sites have already been informally discussed within Whitehall.

The sites under consideration include Moorside in Cumbria and Wylfa in North Wales, where plans for future large-scale reactor projects have recently been shelved.

Britain’s eight large-scale nuclear power plants are nearing the end of their collective lifespan, with most due to close by the end of the decade.

Now a consortium led by Rolls-Royce has tabled plans, subject to approval from regulators, to have the first small reactor plugged in by 2030, promising reliable, low-carbon electricity for decades to come.

It will be followed by up to 16 more mini reactors at other sites, with plans for all to be producing electricity.

It is understood that other locations being considered include Trawsfynydd in Snowdonia, North Wales.

Alan Woods, strategy and business development director for Rolls-Royce, would not be drawn on specific sites. But he revealed: “We expect to build them in the North and Wales. That’s where we’re focusing, that’s where we’ll put our effort.”

The Mail on Sunday

Why the pub could become the new refuelling station for electric vehicles

Have a drink, have a drive. Not of the alcoholic variety, of course, and please consider buying a meal before you set off, but nevertheless that’s the message from Marston’s, the listed brewer and pub chain, the first in its industry to announce the installation of rapid charging points for electric vehicles across its estate.

It could be the first of many. According to Ian Johnston, chief executive of Engenie, the private company putting in 400 chargers at 200 of Marston’s sites, the tie-up is an example of how there could be some unexpected winners as electric vehicle adoption picks up.

“Rapid” in this context means 80 miles of charge to vehicles in 20 to 30 minutes, which, of course, is considerably longer than it takes to fill up your tank at a petrol station. Mr Johnston, 39, believes that rather than hanging around on a forecourt, drivers of electric cars will be more inclined to shop or to get a meal or a coffee while they charge, meaning that retail and hospitality companies have an opportunity to draw in new customers and to get existing ones to visit more often.

“There’s a change of behaviour required,” he said. “We think rapid charging will [mean] people will sit down, check their emails, have a meal. Other pub chains are looking at it now. They understand where this market is heading.”

Engenie was founded in 2013 by Jeremy Littman, an entrepreneur. It has raised money from crowdfunders, Investec and last July secured £35 million from Cube Infrastructure Managers, a Luxembourg-based investor, intended to help it to install more than 2,000 rapid charging points across the UK at sites such as retail parks, restaurants, supermarkets and pubs.

An average rapid charge costs £6 to £8, or about 9p per mile. As well as offering a profit share from charging revenues, the company pays for the infrastructure, installation and runs the service, in return for being able to access its partners’ land and customers.

The Times