Weekend press round-up: Long Bailey says utility bosses must listen

Rebecca Long Bailey maps out Labour’s business plans: They won’t be singing, but bosses must listen

Having said that it plans to nationalise the railways, Royal Mail, the water industry and parts of BT, as well as increasing corporation tax and introducing a four-day week, Labour never anticipated wholehearted support from business leaders at the general election. That doesn’t mean, however, that it isn’t ready — and happy — to argue its case.

Indeed, according to Rebecca Long Bailey, the shadow business secretary: “I never for a million years expect an energy company that’s going to be brought into public ownership to be singing that policy from the treetops — but they’ll understand why we’re doing it.”

Ms Long Bailey is responsible for selling her party’s plans to transform parts of corporate Britain, an argument that begins with an emphasis that a Corbyn government would stand up for all businesses. Indeed, she believes that employers often are surprised when she takes them through Labour’s slate of policies. “They read a lot of the rhetoric in the media and expect somebody else.”

Though lobby groups have voiced concern, Ms Long Bailey, 40, said that it would be “easier for them to understand” higher taxes, for example, should her party deliver on pledges to turn on the spending taps and increase investment.

Nevertheless, some proposals were never going to sit well with everyone. The promise of free broadband for all sent shockwaves through the telecoms industry, for example.

In the energy industry, it remains unclear how many companies a Labour government would buy. Although the party has vowed to bring the Big Six into public ownership and to leave smaller suppliers in private hands, recent deals have blurred the lines. Is Ovo, launched a decade ago to challenge the big players, in the party’s sights as it buys SSE’s business? “I wouldn’t like to answer the question hypothetically.”

Many nationalised businesses almost certainly would face upheaval at the top, with Labour planning to readvertise the jobs of executives earning more than 20 times their lowest employee’s rate. The High Pay Centre estimates that this cap would allow salaries of about £300,000 — well under the £4.6 million total remuneration package of John Pettigrew, National Grid’s boss, or the £2.4 million package of Liv Garfield, Severn Trent’s chief executive.

Ms Long Bailey is confident that increasing the main corporation tax rate to 26 per cent would not alienate large employers, believing that no business is against fairness in the system. “If we did it on its own, without the other investment that we’ve talked about, it might be quite difficult for companies to understand.”

The Times

Energy supply giants muscle out minnows

Big companies are dominating the energy supplier best-buy lists for the first time in more than a year, as smaller rivals struggle to offer cheap deals and stay in business.

Deals from new suppliers traditionally top the best-buy tables as the fledgling firms seek to build their market share. However, they have now been muscled out by a “full-blown punch-up” between the big five energy providers — British Gas, Eon, EDF, Scottish Power and SSE — over prices.

These suppliers are capitalising on increased public concern about poor customer service from smaller companies and the growing likelihood that people will switch, particularly in the winter.

Anna Moss, retail manager at Cornwall Insight, an energy market analyst, said: “Knowing that the market has seen several suppliers exit, larger firms may be making concerted efforts to attract customers back who are now wary of unknown brands.”

Eight small firms have gone bust since January — most recently Toto Energy, which acquired 134,000 customers in just three years. Some were unable to sustain the loss-leading deals they offered to attract customers; others were unable to cope with the huge influx of customers, leading to a downward spiral in service.

Ellen Fraser of the analyst Baringa expects a further 10 suppliers to go bust in the next few months, including some middle-sized firms desperately seeking to raise capital from investors.

She added: “It’s not that the larger firms are offering much cheaper deals — it’s more likely the smaller firms are losing the appetite to undercut their bigger rivals in the way they did.”

Big companies have been notably absent from the best-buy lists since October last year, according to price comparison website theenergyshop.com. Last week, however, they were back on top.

“We’re seeing a full-blown punch-up between the big five over price,” said Joe Malinowski, founder of the site.

“While price competition is of course great news for consumers, the longer it goes on for, the worse the outlook for smaller energy suppliers.”

The market share of small providers has dropped from a peak of 10% in 2017 to 8% today, according to official figures.

A search last week using five comparison websites — GoCompare, uSwitch, Confused, Moneysupermarket and Compare the Market — found Eon topping most results, with its large rivals not far behind. The company recently acquired Npower (turning the big six into the big five in the process).

Many smaller suppliers faced a financial crunch at the end of October when they were due to make a payment to Ofgem, the regulator, to cover their green obligations. One was Nabuh Energy in Sheffield, which offered some of the UK’s cheapest deals even though it has net liabilities of £1.25m, latest accounts show.

Last week, Ofgem confirmed that Nabuh did make its payment and had its provisional order for enforcement action revoked. However, the payment came after the October 31 deadline, meaning Nabuh was still technically in breach of the rules. Ofgem has said it will take no further action against the firm but has sent a warning to other suppliers, saying that its provisional orders should be taken “very seriously”.

Breeze and Gnergy also failed to pay their green fees in time. The regulator said it was in discussions with the two firms and is considering whether further enforcement action is required.

Together Energy is using Brexit fears to market its products in a desperate bid to grow. One of its deals, Green Brexit Protect, locks in rates until December 2021. The company made a loss of £6.8m last year, in spite of which it was selected by Ofgem last December to take on the customers of OneSelect, a small rival supplier that had gone bust.

The Times

A perfect storm threatens a fragile energy sector – and there could be more trouble in store

From the first day of 2019, tension has been mounting in the UK’s energy sector. December could be the month when that pressure finally comes to a head, as a convergence of factors strike, putting unbearable strain on the sector.

Big energy suppliers, including SSE and British Gas, have been suffering after an influx of competitors offering cheaper deals, while profits are down after the Government imposed an energy price cap on Jan 1.

The small electricity companies that sprung up to take on the so-called “Big Six” players could be in trouble themselves, though. While these new entrants are offering cheap deals that are damaging established firms, their low prices could be unsustainable.

At least 28 of these new competitors have gone bust since the start of 2018, according to data obtained by The Daily Telegraph under the Freedom of Information Act.

Now, a number of other issues that have been bubbling under for months look likely to boil over.

“December is going to be a crunch time for many retailers, particularly for smaller suppliers, such as Pozitive Energy, E and Economy Energy,” says Elchin Mammadov, a utilities analyst at Bloomberg Intelligence.

Last Thursday, The Telegraph revealed that 12 electricity suppliers still owe £24m in overdue payments towards the capacity market (as first revealed a week earlier by Utility Week): the system aimed at preventing blackouts during winter, allowing generators to bid to provide emergency electricity.

More than £1bn is owed to generators such as power stations that have not been paid for the past year. It is owed by power suppliers – the companies that buy the electricity and sell it on to households.

While some energy suppliers will have set aside money each month to deal with these back payments, others will have spent that money, leaving them struggling as the Government comes knocking for the money owed.

Another key underlying factor driving troubles in the energy market is renewables commitments.

Under the renewables obligation scheme, firms are given a target for spending on clean power as part of a push to make Britain a carbon-neutral country by 2050. If companies fail to hit this target, they must make up the shortfall by paying into a fund run by energy regulator Ofgem.

In recent months, several suppliers have been unable to meet their payments, leading them to fail.

Every time a supplier doesn’t meet its obligation, the money owed is spread among the remaining suppliers, increasing the burden on them.

According to new data from Ofgem, energy suppliers will be forced to pick up an outstanding bill of £97.5m in renewables obligations

“We are definitely going to see many more bankruptcies of energy suppliers,” Mr Mammadov said. “Key drivers include capacity market and renewable obligation payments as well as spikes in wholesale prices due to cold snaps or supply interruptions.

“Ofgem urgently needs to address a growing number of bankruptcies by increasing barriers to entry and ending renewables obligation mutualisation, which encourages financially reckless behaviour by the retailers.”

But this coming week could throw the greatest curveball of all at the country’s energy suppliers. “Letters to Santa have been written,” says Martin Young, a utilities analyst at Investec. “We suspect that the UK utilities have asked for a Tory majority in the early hours of December 13. But should the Ghost of Christmas Past appear,” he warns, “nationalisation fears could send stocks tumbling.”

Jeremy Corbyn and the Labour Party are threatening to nationalise the UK’s energy suppliers.

“Most energy companies will probably hope for a Tory majority, which would preserve the status quo,” Mr Mammadov added. “We see the risk of renationalisation fading because the list of targeted industries keeps growing and the Labour Party is trailing in the polls.”

The Daily Telegraph

Nottingham council frozen amid row over Corbyn’s ‘Robin Hood’ energy firm

Jeremy Corbyn’s electricity supplier has sparked financial deadlock for the council behind it, amid mounting industry anger over state involvement in the energy market.

Robin Hood Energy, Britain’s first council-owned energy supplier, which counts the Labour leader as its most famous customer, has caused a delay of three months to the publication of Nottingham City Council’s accounts.

Officials have been unable to sign off on the books because they are waiting for information about Robin Hood, which has hit financial trouble. The company’s accountant, BDO, is yet to finish its audit.

The delay is ongoing despite the council’s own auditor, John Gregory from Grant Thornton, telling a committee in September that it was “delaying a key part of the overall public accountability process”.

Andrew Rule, who leads the opposition Conservatives on the council, said there was a “veil of secrecy” surrounding Robin Hood, and urged councillors to be more transparent.

The company was set up by the Labour-run council in 2015 as a not-for-profit company to challenge the so-called Big Six suppliers. Robin Hood has grown to nearly 170,000 customers nationwide, with turnover of more than £44m. It made a profit last year of £202,000, compared to a £7.2m loss in 2017 and a £2.5m loss in 2016.

However, its finances have been under scrutiny since the council was forced to lend it an extra £9.5m earlier this year so it could pay a bill due to the industry regulator to boost green energy schemes, having missed a deadline. The council’s overall “exposure” to the company, in loans and guarantees, has been put at over £40m.

Many rival energy companies are unhappy about what is seen to be unfair state funding, while there are also concerns that the council-run companies foreshadow industry under Labour’s growing nationalisation agenda.

Robin Hood’s accounts are not legally due until the end of the year, but it has tried to produce them in sync with the council. The reason for the delay this year is not clear.

The council’s draft accounts say Robin Hood owes £26.7m as at March 31, compared to £12.4m the year before. However, council bosses admitted on Friday night that it was likely to have to make changes to its accounts once it has the information from Robin Hood. Mr Gregory told the council committee that the council’s draft finances risked being “completely inappropriate” because Robin Hood Energy’s figures had changed by millions “not in a favourable direction”.

A spokesman for the council said: “Grant Thornton has been unable to conclude their audit of the accounts because the auditor of Robin Hood Energy has not yet concluded their work.”

The Daily Telegraph

Just one in three households with a smart meter have seen energy use reduced, new survey suggests

Only one in three households have reduced their energy use after having a smart meter installed, a damning survey has revealed.

The gadgets, which are being pushed into every home in a shambolic £13.5billion campaign, promised to slash power bills by showing households how much they were spending in real time.

But a survey of 1,000 households by researchers Consumer Intelligence for the Daily Mail found that 53 per cent of smart meter owners had not changed their energy usage after having one installed – and 16 per cent said they were using more energy.

Only 31 per cent said they were using less power, including just 3 per cent who said they were now using considerably less. The programme to install smart meters in all homes is already behind schedule and massively over budget.

Only half are now expected to have a smart meter by the original 2020 deadline and the cost has surged by £2.5billion to £13.5billion. The gadgets automatically send readings to suppliers and displays show households the cost of the energy as they use it.

The idea is that they encourage households to cut their energy consumption – saving money and helping the environment. Families are paying an average of around £10 a year more through their bills to fund the scheme and it is not expected to save money until 2022.

Last night Mark Todd, of price comparison service energyhelpline, said: ‘It’s shocking that only a third of customers are reporting that they are using less energy after having a smart meter fitted as that’s one of the key justifications for the £13.5billion rollout.

‘The Government needs to make the programme much more effective and get customers back on side.’

Energy providers have been under huge pressure to install the devices in homes and face multi-million-pound fines if they cannot prove they have taken all reasonable steps to do so. Households have complained of technical problems with the devices.

Smart Energy GB, the body overseeing the programme, said its own survey recently found that 49 per cent of people with a smart meter said it was helping them to save money.

Robert Cheesewright, of Smart Energy GB, said: ‘These aren’t figures we recognise. We survey over 10,000 people twice a year and those results show that people use their smart meters and in-home display to help them save money.

‘Every household that installs a smart meter is helping to create a greener energy system that will reduce pollution and make better use of cheaper renewable energy

Daily Mail

Energy treaty ‘risks undermining EU’s green new deal’

The international energy treaty that threatens Labour’s energy nationalisation plans may also risk undermining the EU’s green new deal, according to Friends of the Earth.

The environmental organisation is calling for parts of the energy charter treaty (ECT) to be scrapped to prevent fossil fuel companies from using the multilateral agreement to take governments to court over green policies.

The group has warned that unless the ECT undergoes a fundamental overhaul in talks this week, it risks undermining the European green new deal, which is to be unveiled on Wednesday by Ursula von der Leyen, the president of the European commission.

The ECT was set up after the end of the cold war to protect western energy companies as they started to invest in former Soviet states. However, energy companies are increasingly using the treaty to challenge governments’ new climate policies.

The ECT would also threaten a Labour government’s plans to nationalise large parts of the energy industry that are owned by foreign companies covered by the treaty. City lawyers have said Labour’s plan to pay a discount to nationalise foreign-owned energy networks and the big six energy suppliers would run the risk of a legal battle in European tribunals.

Paul de Clerck, the economic justice coordinator at Friends of the Earth Europe, said the treaty was outdated and “a boon to dirty fossil fuel companies”.

“As soon as people hear about this obscure pact undermining the public interest and the fight against climate change, they will be outraged. Either the EU and member states fundamentally revise it, or pull out,” he said.

Friends of the Earth Europe is one of 260 civil society organisations and trade unions that have warned the ECT is incompatible with climate action because it contains measures to protect energy investments even where they contradict climate goals.

The environmental groups say the treaty is being used by large fossil fuel companies to to take national governments to court over decisions to phase out dirty energy.

The German government became embroiled in a legal battle with the Swedish utility company Vattenfall over Berlin’s decision to halt nuclear power generation in the wake of the Fukushima disaster. The Dutch government may also be taken to court by the German fossil fuel company Uniper if it moves ahead with plans to phase out coal-fired power generation by 2030.

Freek Bersch, a campaigner for Friends of the Earth Netherlands, said the ECT has already played a part in slowing down the Dutch coal phase-out because of “fear of high claims, like from Uniper”.

A spokesman for Labour said last month that the party has consulted “with a number of lawyers” about the ECT and it was confident that the party would “deliver the changes that the electorate wants”.

The Guardian

Clock ticks for Drax to find a new financial model

When Will Gardiner took charge of UK energy company Drax last January, he knew it had only “10 years of life” left in its current form.

Mr Gardiner, who was finance director before taking the top job, is now in a battle to extend the prospects of a company whose main asset, the UK’s biggest power plant, provides 5 per cent of the country’s electricity from Selby, North Yorkshire.

Four of the plant’s six generating units produce power by burning wood pellets, which the UK government counts as renewable, attracting subsidies that added up to 19 per cent of Drax’s £4.2bn revenues last year.

But in 2027 these subsidies will expire, so Mr Gardiner must find an alternative financial model.

Although biomass — electricity generated from organic material — is classified in the UK as a renewable energy source, it is strongly opposed by some environmentalists, who argue it can in some cases be more damaging than burning fossil fuels.

Last year, the UK’s Committee on Climate Change said “sustainably harvested” biomass — which does not contribute to deforestation for instance — can help decarbonise the economy but subsidies should be shifted away from biomass for electricity generation, unless plants are fitted with carbon capture and storage technology. This involves burying carbon emissions in depleted oil and gasfields and is still in the early stages of development.

Earlier this year, Drax became the first wood-burning plant in the world to capture carbon dioxide produced in energy generation but had to release it back into the atmosphere because it lacked storage capability.

It is part of a coalition of companies, including Norway’s Equinor and National Grid, that wants to create a large CCS scheme in the north-east of England, but the plans depend on government support.

At the same time, Mr Gardiner is on a drive to cut the cost of generating electricity from biomass from £75-£80 per megawatt hour to £50 by 2027. This he believes, would put Drax in a position to survive without subsidy.

This target still looks high compared to other renewables, such as offshore wind; some wind developers this year pledged to build schemes in UK waters for a guaranteed electricity price of £39.65/MWh. At the moment, the guaranteed price for one of the Drax biomass subsidy agreements is £114/MWh.

Mr Gardiner said Drax would compete to provide power at peak times, when market prices are around £58/MWh.

He is betting on large power stations finding a profitable place in the market to meet demand and help keep the system stable when renewables such as wind and solar are not producing.

“We think . . . the peaks will become higher and it’ll become more volatile, the power system, over time as there’s more intermittent renewables and there’s less traditional generation,” said Mr Gardiner.

He also believes Drax’s biomass generating units could qualify for the government-run process where energy companies compete to provide standby power during winter.

To cut costs, Drax also intends to change its biomass sourcing.

It currently produces 1.5m tonnes of wood pellets itself at plants in US Gulf states such as Louisiana. These are then shipped across the Atlantic.

It forecasts it will need to increase this to 5m tonnes by 2027. Plans are already under way to increase capacity at its current plants to 1.85m tonnes by next year but it will also have to find alternatives to sustainable wood pellets, which are in limited supply. Options include bagasse — sugar cane residue — but the company has not yet fixed on a solution.

FT Weekend