Weekend press round-up: Centrica comes out fighting from energy market shake-up

In our latest review of stories from the national media, an expected improved financial performance from Centrica has led to some of its top shareholders to increase the pressure in their calls to reinstate its dividend which was pulled in 2020.

Elsewhere there are concerns that consumers could be encouraged to reduce energy use to avoid blackouts this winter, while United Utilities has decalred a major incident following a burst water main in Liverpool.

Centrica comes out fighting from energy market shake-up

Eighteen miles off the Yorkshire coast, a large sandstone reservoir offers one clue to a riddle Centrica investors are hoping the company will soon help them solve.

This week the energy company that owns British Gas was awarded a licence to reopen the “Rough” reservoir as a gas storage facility to help with supplies this winter, as fears spread of a shortage across Europe if Russia cuts off exports.

UK ministers still need to sign off on financing but Centrica investors have taken the development as a hint that gas storage could become a more integral part of the company’s longer-term growth strategy.

Shareholders are increasingly impatient to discover more about how Chris O’Shea, Centrica’s chief executive since 2020, intends to take advantage of the rapidly changing energy market.

“We would like to see a clearer long-term strategy as to how to return to [sustainable] earnings growth,” one institutional investor told the Financial Times.

So far Centrica has weathered the energy crisis.

Investec analyst Martin Young is forecasting adjusted operating profit of about £1.3bn when the company publishes first-half results next week, as it has benefited from high gas and power prices.

The improved performance — and the accumulation of a big cash pile — has led some top shareholders to increase pressure on Centrica to reinstate the dividend, which was pulled in 2020.

One top 10 shareholder told the Financial Times that resuming the payout when the group reports its first-half results next week was “an absolute must”, even though British households are facing steep increases to their energy bills.

Centrica’s previous chief executive, Iain Conn, slimmed down its oil and gas operations and sold off assets such as large gas-fired power plants, but the company still produces gas from beneath UK waters and owns a 20 per cent stake in Britain’s nuclear power plants.

Its first-half results will also benefit from a final contribution from its oil and gas production assets in Norway, which were sold in May. An agreement struck in 2013 to buy liquefied natural gas from US group Cheniere Energy should become profitable in the future, having previously been lossmaking.

Even Centrica’s core energy supply business, British Gas, is strengthening after years of decline as domestic customers defected to rivals offering cut-price deals.

Centrica has rescued around 750,000 customers in the past 18 months from collapsed suppliers as soaring gas and power prices proved the company’s longstanding theory that many of its competitors’ business models were unsustainable.

Its share of the British domestic supply market had recovered by the end of 2021 to nearly 20 per cent for electricity and 28 per cent for gas, according to the latest available data from the regulator Ofgem. It had fallen as low as 18 per cent for electricity and 26 per cent in gas before the crisis in the retail market took hold last year.

Part of Centrica’s revival has been down to luck.

It had tried to sell the entirety of its oil and gas portfolio, including in the UK, as it sought to focus on energy supply but it failed to find a suitable buyer. It also similarly scrapped the disposal of its 20 per cent British nuclear stake after the sales process stalled.

But O’Shea has been stripping out layers of unnecessary management from the company and has further reduced costs.

Analysts estimate that Centrica has around £750mn of net cash, putting it in a position to reinstate its dividend next week.

The Financial Times

What millions of households could be told to do to avoid blackouts this winter

Households could be asked to turn down their thermostats and switch off their lights under Government plans to avoid winter blackouts.

Emergency contingency plans for a gas or electricity supply shortage include public appeals to use less energy, The Telegraph can reveal.

Amid mounting concern over shortages in the coming months, the National Grid has held meetings in recent days with representatives from energy intensive industries to try and avoid a worst case scenario of blackouts or a shutdown of supply.

EU countries have been asked to cut their gas usage by 15 per cent from next month, amid fears they will not be able to store enough for winter after Russia reduced supply via the Nord Stream 1 pipeline.

Several European countries including Germany, Austria and France have already appealed to the public to cut their energy use by taking shorter showers, switching off lights and turning down thermostats.

Official contingency plans for the UK seen by The Telegraph include the option for the Government to give similar advice.

The document states that public appeals to cut electricity and gas usage could be delivered at regular intervals via radio, television and social media as well as posters and leaflets.

To avoid blackouts, a deal could also be struck which would see the National Grid pay large users to switch off to avoid cutting supply elsewhere.

But Arjan Geveke, the director of the Energy Intensive Users Group, which represents industry, said calls on the public to reduce demand would be made before National Grid started paying industry to shut down.

“First of all they will want to do a public information campaign because that’s the least costly option,” he said. “There’s obviously an increased risk of security of supply in the winter.”

National Grid has asked electricity suppliers to establish ways to pay households to switch their usage to times of peak supply, such as high wind power, and reduce at other times.

But two major national suppliers, British Gas and Shell, told The Telegraph they had no plans to do so this winter.

National Grid will release an early winter outlook next week, months ahead of its usual October release, to help prepare for what is expected to be a difficult season.

Britain is not reliant on gas supplies from Russia, but could be affected if demand for alternative sources rises in Europe.

Analysis for The Telegraph by consultancy EnAppSys found that extreme gas curtailments across Europe could lead to blackouts in the UK. The Government has asked coal-fired power stations to stay open past their planned closure date, and is working to reopen the Rough gas storage facility five years after it was shut down.

Ministers are understood to be extremely reluctant to appeal to the public to cut their energy use, and believe that record high prices will naturally reduce demand.

Annual energy bills could reach £3,244 under the October price cap, rising to £3,363 from January, according to new estimates from consultancy Cornwall Insight.

But the Government would be forced to act if there was a real risk of the worst-case scenario, which is millions of households facing electricity blackouts.

There are no plans to cut gas use to households, which would require a manual reconnection of every home for safety reasons.

The Government plans to update its emergency protocols for gas and electricity supply later this year.

A UK government spokesperson said: “The UK has no issues with either gas or electricity supply, and the government is fully prepared for any scenario, even those that are extreme and very unlikely to occur.

“National Grid Gas has standard, long-standing emergency procedures in place to protect the integrity of Britain’s gas network in the extremely unlikely event of a supply emergency. Ministers are not involved in this process.”

The Telegraph

The UK has no plan for affordable and reliable energy

As in so many nations, the impact of Russia’s invasion of Ukraine on energy prices has been a wake-up call for the UK, exposing the vulnerabilities in the country’s energy security. Record temperatures have been a reminder — if one is needed — of the need to tackle climate change. Put together, these events beg a question: what is the plan to deliver affordable and reliable energy as we transition to net zero?

Answer: there isn’t one. This is not to say that the government lacks commitment: it has passed a law to hit net zero carbon emissions by 2050, and has a target to decarbonise the power system by 2035. Nor is it short of ambition, having increased the role that low carbon energy, especially nuclear power, will play. But a six-month inquiry by the Lords economic affairs committee concluded that the government lacks an overarching net zero delivery plan which takes account of energy security, setting out what needs to be done by whom and by when. This must be a priority for the next prime minister.

Such a plan is critical to mobilise sufficient investment to hit government targets. In 2020, £10bn was invested in low-carbon technologies but the Climate Change Committee advises the government that £50bn a year is needed by 2030. Investors have a healthy appetite to plug this gap. If they are to invest more, though, ministers need to act now to increase confidence.

Our committee identified several areas for action. Market models need to be created to incentivise investment in low-carbon technologies such as hydrogen, carbon capture and storage, and long-term storage. The planning system in England needs to include energy security alongside climate change objectives. The new UK Infrastructure Bank should focus on financing innovative and potentially riskier projects, signalling their viability to investors. Meanwhile, more investment in the North Sea should be enabled, while ensuring any extension of oil and gas exploration or investment focuses on projects with short lead times and payback periods, limiting the risk of stranded assets.

Action on all the above, and more, is needed now to provide affordable and reliable energy during the transition — this is a prerequisite for public support for the changes required to hit net zero. However, none of it will address the current energy shock. There is nothing ministers can do to lower the price of energy in the short term. Yet there are steps that could be taken now to mitigate its impact over the next few winters.

Some necessary measures — such as prolonging the life of coal power stations due to close — are already in hand. But policy gaps remain. Speedier home insulation and other measures to improve energy efficiency are needed. Ways are already being sought to provide incentives to local communities for onshore wind farms in their area; given they can be built relatively quickly, ministers should now re-examine their ambitions. It is crucial to know that there is an agreement with European partners on energy co-operation, as there is none in place to manage energy supply emergencies.

In all this, the financial sector, including regulators, needs to be aligned with government policy. For example, the former chancellor has instructed financial regulators to have regard to energy security in what they do: those regulators must set out how they are interpreting this. Any green taxonomy should avoid giving the impression that projects are either green or brown, which may stifle innovation and fail to reflect the process of transition.

George Bridges, chair of the House of Lords Economics Affairs Committee and advisor to Banco Santander, writing in the The Financial Times

National Grid asks for emergency permission to pump more gas to Europe now so they can hold back sending gas this winter if Putin turns off the taps

National Grid has requested emergency permission to pump more gas to the stricken continent as Europe races to fill up stocks ahead of a difficult winter.

Wracked by a full-blown energy crisis, fuelled by Vladimir Putin’s war in Ukraine raging on and skyrocketing bills, operators have ramped up the capacity of British and Dutch pipelines as Europe braces for the cold months ahead.

National Grid has requested urgent increases on the 150mile Norfolk to Balgzand supply, with plans underway to export more than a third of usual levels.

European demand for gas has contributed to the UK’s gas exports increasing 185 per cent from 2020 to 2021, reaching record levels of exports in April 2022.

Britain exports supplies to Europe during the summer months before turning into a major importer during winter, but it has already sent out record amounts of gas in recent months to help shore up European supplies.

“Enhanced resilience of supplies across Europe heading into the forthcoming winter can benefit the GB market by reducing likely demand for exports to Europe over the expected period of high demand from October 2022 as we move into the winter,” a spokesperson for the Grid said.

Daily Mail

Liverpool water mains disruption ‘major incident’ as thousands cut off

A burst water mains pipe which has left thousands of people without water has been declared a major incident.

The mains pipe burst in Church Road, Liverpool, on Saturday, leading to water tankers and free bottle stations being set up.

United Utilities said 30,000 properties were initially affected but 18,000 of them have been reconnected with the rest due back on by the end of the day.

Sefton Council said teams were also delivering water to vulnerable people.

Helen Apps, the firm’s head of external affairs, said: “Not everybody has no water, some will have noticed reduced water pressure and that may come and go. So it’s affecting different people in different ways.”

Engineers worked overnight to repair the 24-inch burst pipe, which Sefton Council described as “very complex” due to the size of the water main and other utility services in the area.

United Utilities incident manager Charmian Abbott said they needed to “extend the excavation” to replace a six-metre section of large water main.

“This has taken longer than expected in order to protect the safety of our team on site.”

Ms Apps told the BBC News Channel: “It is an improving situation – we have now repaired the pipe so we are going to be gradually refilling that over the course of this evening.”

She added the firm would “take care of compensation automatically because we’re very sorry about what’s happened”.

“Householders won’t have to write to us. Automatically we’ll make sure that anyone who was without water for more than 12 hours will get a letter from us and they’ll get information about the compensation they’ll receive,” she added.

BBC News

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.