Weekend press round-up: Boiler makers up in arms over UK heat pump targets

In our latest round-up of the weekend’s coverage of the utilities sector, boiler manufacturers have hit back against government plans to fine companies if they fail to meet stringent quotas for heat pump production and installation. Elsewhere Thames Water has been accused of a “flimsy PR stunt” as it prepares to report that its chief executive has landed nearly double her annual salary with a £1.5 million pay package, while there are forecasts that energy bills will fall below £2,000 later this year.

Boiler makers up in arms over UK heat pump targets

Boiler manufacturers are pushing back against UK government efforts to force them to rapidly make thousands more heat pumps, in a new flashpoint over the pace of the shift towards lower carbon heating.

The government plans to fine companies from next year unless they meet stringent quotas for heat pump production and installation.

But bosses are lobbying Whitehall to delay and amend the plans. They argue the quotas are unrealistic given sluggish demand for heat pumps and strains on the number of installers, and claim that penalties of £5,000 per missing heat pump could push up costs for consumers and put investment and jobs at risk.

Vaillant UK, a leading boiler manufacturer which invested £4mn in a new heat pump production line at its Derbyshire factory, warned it would review its UK investment plans if the plans went forward.

Henrik Hansen, managing director for Vaillant UK & Ireland, said: “Altogether in the UK we employ around 1,000 people. If we start having penalties imposed on us, we will revisit our investment plans. We think there is a risk this could not only hold investment but also potentially lead to job losses in Derbyshire.”

The planned quotas and fines echo proposals to encourage the shift to electric cars, and supporters argue the mechanism is needed to help stimulate the market and drive down the costs for consumers.

“We believe that the government’s proposed scheme design is fair to the obligated parties,” said a spokesperson for Electrify Heat, a campaign group to promote heat pumps.

About 8,790 heat pumps were installed in the UK in the first three months of this year, but the government wants installation rates to hit 600,000 per year by 2028, requiring a major overhaul of supply chains and demand.

Uptake of heat pumps has been held back by the relatively high costs of the devices, while estimates by Nesta last June suggest the number of heat pump installers would need to climb about 800 per cent, from about 3,000 to 27,000 by 2028.

Under the plans to jump start the market, which are going through consultation, manufacturers from next year will have to sell a certain proportion of heat pumps relative to gas or oil boilers, or face fines.

The UK industry is consolidated around a handful of big, Europe-wide groups that already make and sell heat pumps alongside boilers. Vaillant, Baxi and others have raised concerns with government.

Mike Foster, chief executive of the lobby group Energy and Utilities Alliance, said there was now an “impasse between the industry and Whitehall . . . Whitehall is divorced from how industry works.”

One industry executive said: “We want to get this market going as well — but you’ve got to bring consumers with you. The penalties are significant and commercially material.”

The Department of Energy Security and Net Zero said heat pumps were a proven means of decarbonising heating across the UK and were key for increasing the country’s energy security.

“We are consulting on proposals to give industry greater incentive to invest in ways to make heat pumps a more attractive and simpler choice for more UK households,” it said.

Financial Times

Thames Water accused of ‘flimsy PR stunt’ over bonus as boss’s pay swells

Thames Water has been accused of conducting a “flimsy PR stunt” as it prepares to report that its chief executive has landed nearly double her annual salary with a £1.5m pay package – after announcing that she would shun her bonus amid intense criticism of Britain’s water companies.

Sarah Bentley said last month that she and the firm’s finance chief, Alastair Cochran, would forgo their bonuses and any payments due under long-term incentive plans for the 2022-23 financial year.

The company did not say how much the decision would personally cost Bentley but the previous year she received a £496,000 bonus.

But her latest pay packet, set to be announced next month, will state that her remuneration was swelled by one-off payments – collectively larger than last year’s bonus – as part of a “golden hello” incentive package used to lure her from rival Severn Trent.

Bentley joined Thames Water in 2020 after nearly six years at Severn Trent.

Thames Water reports show she received £548,780 last July as a “final buyout payment” to compensate for share awards she forfeited at Severn Trent, and £178,000 relating to Thames Water’s performance in the first two years of her tenure.

The payments mean that during the last financial year, even without the waived bonus, she will have received about £1.5m, including her £750,000 salary and a £90,000 cash pension payment. She also receives a car, travel allowance and other benefits such as healthcare cover.

Executive pay has proved a lightning rod for clean water campaigners who have condemned England’s water companies, which are under pressure to improve their pollution records after repeatedly discharging sewage into Britain’s rivers and seas.

Earlier this year, Thames Water was accused by the group Windrush Against Sewage Pollution of being “reliant on being able to use our rivers and streams as toilets to deal with problems caused largely by underinvestment and profiteering”.

Bentley and the bosses of South West Water and Yorkshire Water announced they would give up their bonuses on the same day last month.

Gary Carter, a national officer at the GMB union, said: “The UK water industry is in a complete mess, with creaking infrastructure, a disgruntled workforce and effluent allowed to flow freely into our beautiful waterways. To see those responsible for this carnage pocket a king’s ransom is particularly galling. Ms Bentley’s announcement she won’t take a bonus, while at the same time trousering a huge total pay package shows, it was nothing more than a flimsy PR stunt.

“And while the boss takes a fortune, Thames Water hasn’t even got round to discussing water workers’ annual pay award, despite it being due next month. It’s obscene.”

Thames Water will confirm the makeup of Bentley’s pay – and set out her future remuneration – in its annual report, expected early next month. Her total package is expected to fall from the £2m she received in 2021-22, but outstrip the £1.2m she was handed the year before that.

A Thames Water spokesperson said: “Sarah has made the personal decision to decline any incentive payments she may be awarded for the 2022-23 performance year. This includes the 2022-23 annual management bonus and the 2020-2023 long-term incentive plan. She will still receive the final buyout payment for loss of inflight awards from Severn Trent as this is unrelated to Thames Water performance.”

The Guardian

Relief as household bills, petrol and diesel prices tumble

Household energy bills are set to plunge below £2,000 in the autumn for the first time in 18 months, amid a sharp fall in wholesale prices.

The price cap set by energy regulator Ofgem, which was £4,279 in January, could hit £1,870 in October, analysis by Investec’s Martin Young shows. July’s cap has been set at £2,074.

It is a huge fall from the peak price cap in January, but still higher than the pre-crisis average of £1,100. Young’s estimates are based on the so-called observation window being open for two weeks for the next price cap so it will change as wholesale prices fluctuate. Natural gas prices have dropped back to 54p a therm — not far off the historic average.

A softening in household energy bills comes as prices for petrol and diesel are also tumbling fast, easing budgets after months of pain.

The man in charge of climate policy at BP at the time of the Deepwater Horizon oil spill and a one-time director of British Gas owner Centrica are among the applicants to be the new chairman of the energy regulator, Ofgem.

Paul Jefferiss, who led BP’s sustainability and climate policy for more than a decade until 2021, has joined Conservative peer Lord (Andrew) Tyrie in applying to take over from Martin Cave, who is due to step down in October.

Nick Baird, ex-chief executive of UK Trade & Investment and Centrica’s former corporate affairs director, has also joined the race to head the board of the regulator — as has Simon Eyers, who ran the energy division of private equity firm Warburg Pincus.

The final decision will be made by Grant Shapps, energy security and net-zero secretary.

The government and Ofgem declined to comment. The applicants were contacted for comment.

The Times

Grant Shapps is ‘poised to ditch’ plan to add £120 to Brits’ energy bills to fund Net Zero hydrogen drive

Grant Shapps is poised to ditch a plan to add around £120 to Brits’ energy bills to fund the transition to hydrogen.

The Net Zero Secretary is understood to be ‘not at all convinced’ that the levy should go ahead, after fierce criticism from Tories.

The government has been accused of heaping more pain on struggling consumers with the proposals for a charge to fund the fledgling industry.

Analysis by the Onward think-tank suggested hitting a target of 10GW of hydrogen production capacity by 2030 will cost £50billion.

That would mean around £118 extra per year for dual fuel households, with complaints that everyone will pay the same no matter how rich they are.

The levy is due to take effect by 2025, with the government admitting it would ‘ramp up’ by 2030.

But there is mounting speculation that the Energy Bill – which is set for committee stage after clearing second reading in the Commons – will be overhauled.

Department for Net Zero documents accompanying the legislation said: ‘The purpose of the levy is to provide long-term funding for the hydrogen business model, which will enable hydrogen producers to overcome the operating cost gap between low carbon hydrogen and fossil fuels.

‘The levy is not expected to be implemented until 2025 (subject to legislation being in place) and so we do not expect it to have impacts on consumer bills before then.

‘Once introduced, we expect its impacts will ramp up as we look to deliver our 2030 hydrogen ambitions to improve energy security.

‘As policy development on the levy is ongoing, with a number of key decisions still pending, there is uncertainty regarding the precise impact of the levy on consumer bills.’

Mail Online

Unions lambast Labour over ‘naive’ green energy plan

Two of Labour’s biggest union backers have criticised a central pillar of Sir Keir Starmer’s green strategy.

Gary Smith, general secretary of the GMB, joined Unite’s Sharon Graham yesterday in criticising the pledge to ban new licences for oil and gas extraction in the North Sea. He said the proposals were naive and displayed a “lack of intellectual rigour and thinking”.

Smith told Sky’s Sophy Ridge on Sunday: “Their policies are going to create a cliff-edge with oil and gas extraction from the North Sea.”

He said he thought that workers in the petrochemical industry “are going to be very worried about what Labour are saying and I think it is time for Labour to focus on the right thing rather than what they think is the popular thing”.

While vowing to ban new drilling, Starmer has said that Labour would allow existing North Sea projects to continue until 2050.

Last week Graham, general secretary of Unite, warned that “Labour must now be very clear that they will not let workers pay the price for the transition to renewable energy”.

She said: “We cannot have a repeat of the devastation wrought on workers and their communities by the closure of the coalmines. It is reckless in the extreme to talk about halting this industry without offering a coherent, fully funded plan for jobs.”

Last year the GMB and Unite each gave Labour about £1.2 million.

Jonathan Reynolds, shadow business secretary, said that allowing energy extraction to continue until 2050 would protect the jobs of those working in the sector. “The big opportunity comes from the transition and we don’t think further new oil and gas fields are the answer,” he said.

He added that with investment in renewable energy “the number of jobs that will be created by that is far in excess of the jobs currently there”.

Offshore Energies UK, which represents oil companies, told The Sunday Telegraph that the policy could lead to 45,000 jobs being lost in the industry by the end of this decade.

However, as union opposition coalesces, last night 139 organisations signed a letter urging Starmer to stick to the ban on extraction.

In a statement to The Guardian, groups including the Campaign to Protect Rural England and the Royal Society for the Protection of Birds called on him to “stand firm on Labour’s policy of no new oil and gas developments and its significant investment in well-planned, nature-positive renewables and energy efficiency”.

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.