Weekend press round-up: Centrica faces industrial action in January

In our latest review of sector coverage across the national newspapers, there are reports on a turbulent energy retail market – with Centrica facing strikes and Shell Energy revealing a £32 million loss. However, in a weekend of gloomy news, there was one bright spot, with a new record set for windfarm generation in Great Britain.

Centrica faces industrial action in January

Centrica faces strikes early in the new year after one of the unions that represents more than 9,000 of its 20,000-strong UK workforce voted in favour of industrial action over the company asking all employees to sign new contracts.

The GMB union said late on Thursday that 89 per cent of the more than 5,400 votes cast in a ballot on the new contractual conditions had voted in favour of strike action.

Centrica, the owner of British Gas, said in June that it intended to tackle its many types of employment contract because it had more than 80 separate agreements.

The move was announced as part of a restructuring by new chief executive Chris O’Shea. This involved 5,000 job losses, particularly from management roles, on top of the 12,500 roles that have already been cut since 2015.

Other unions have accepted the new contracts but the GMB has resisted what it branded Centrica’s “fire and rehire” tactics and says gas repair and service staff face cuts to pay and conditions of up to 10 per cent.

It claimed that the energy supplier had responded to Thursday’s vote by setting a new deadline two days before Christmas for staff to accept the proposed cuts or lose pay and protections “ahead of being sacked”.

Justin Bowden, the GMB’s national secretary, said this had “now made strike action unavoidable”.

The union will now consider the ballot result and “the nature” and dates of industrial action in January, Mr Bowden said. He added: “Centrica and British Gas CEO Chris O’Shea is entirely to blame for this disruption in the depths of winter.”

Centrica claimed that the union had a “very weak mandate” for strike action as only 5,427 votes were cast in the ballot out of a total of 9,195 that were eligible. The company added: “It is clear the GMB leadership does not have popular support across their membership for this course of action.”

The Financial Times

Shell Energy losses rise as customers seek cheaper deals

Losses at Royal Dutch Shell’s British household energy supply venture deepened to £32 million last year as it battled to stop customers leaving for cheaper rivals.

Shell Energy Retail, which was rebranded from First Utility in March last year, blamed a “very difficult competitive environment”, in which it said that many companies were offering unsustainably cheap prices. He said that 26 suppliers had left the market in recent years, leaving behind £300 million in unpaid debts.

Colin Crooks, the Shell executive who ran the business until this month, said that it had sold energy at a loss to try to stem customer departures but had not priced cheaply enough to rank on price comparison websites “at the top of the table, where you needed to be in order to grow”.

Revenues fell to £832 million from £850 million in 2018, because of lower average customer numbers, although it ended last year with 745,000 household energy customers, slightly up on the start of the year. Pre-tax losses swelled to £31.5 million last year, from £20.8 million in 2018. The supplier warned that the pandemic would “adversely impact” its results as many customers had been unable to pay their bills.

Mr Crooks, 54, admitted that Shell had found the UK domestic energy supply market to be “more challenging than we first thought” and that it had not expected the business to be loss-making “to this extent”.

Energy customer numbers have risen to 915,000 households, thanks primarily to the acquisition of Hudson Energy and its 200,000 customers.

Mr Crooks said that Shell was “in this for the long game” and that supplying customers was “very much part of our Shell group strategy to transform ourselves through the energy transition”. He noted Shell’s hiring, including Thomas Brostrom, “one of the top offshore wind executives on the planet”.

The Times

Windfarms in Great Britain break record for clean power generation

Blustery winter weather helped Great Britain’s windfarms set a record for clean power generation, which made up more than 40% of its electricity on Friday.

Wind turbines generated 17.3GW on Friday afternoon, according to figures from the electricity system operator, narrowly beating the previous record set in early January this year.

High wind speeds across the country helped wind power’s share of the electricity mix remain above 40% through Saturday. Coal and gas plants made up less than a fifth of electricity generated.

Melanie Onn, the deputy chief executive of Renewable UK, said: “It’s great to see our onshore and offshore windfarms have smashed another record, generating more power on a cold December day than ever before, just when we need it most.”

The record follows the “greenest” year ever for the electricity system thanks to a surge in renewable energy and sharp drop in energy demand caused by the shutdown of office blocks, restaurants and schools during coronavirus restrictions.

Solar power reached a record of 9.6GW in April, which helped spur the longest coal-free streak ever, of 1,629 consecutive hours, which ended in June.

Wind power generation reached a record share of almost 60% of electricity use in August as demand for power fell by more than a fifth compared with the year before.

The abundance of clean electricity caused the carbon intensity of the electricity grid in March fell to an all-time monthly low of 143g of carbon dioxide per kilowatt hour, and annual figures are expected to confirm that 2020 was the greenest year.

“We expect to see many more records set in the years ahead, as the government has made wind energy one of the most important pillars of its energy strategy for reaching net zero emissions as fast and as cheaply as possible,” said Onn.

“This new record is an early Christmas present we can all celebrate.”

The Observer

Steel industry bemoans ‘missed opportunity’ to reform electricity prices

Britain’s battered steel industry is under growing pressure after new data revealed a plunge in demand when Covid hit.

Steelmakers were hammered when manufacturers and building sites shut down early in the pandemic, which sent UK demand for the metal down 23pc to 6.4m tonnes in the first three quarters. Early indications suggest there was only a weak recovery in the final three months of the year.

A white paper setting out government plans for the energy industry also failed to address pleas from steel firms for reform of power prices. British producers pay far more for electricity than rivals in Europe, making it hard to compete.

According to analysis by industry association UK Steel, manufacturers in Britain pay 62pc more for energy than steelmakers in Germany and 80pc more than those in France.

The trade body, which represents companies employing 32,000 staff in Britain, said the white paper was a missed opportunity after years of calls for action.

Gareth Stace, UK Steel director, said: “The white paper was a chance for government to support British steelmakers and their workers.

“Uncompetitive electricity prices are a barrier to investment in the UK steel sector, and a barrier to decarbonising our steel production in the UK. This was an opportunity to provide our steel sector with a strong foundation for a post-Brexit future and it is incredibly disappointing that this was not taken.”

Daily Telegraph

Ofgem chief: ‘Net zero is the goal. We must make it happen’

Only five months into his new job as head of the energy regulator Ofgem, Jonathan Brearley was already provoking fury among some of the sector’s most powerful companies.

Scottish Power declared he had “flunked his first big test” with his draft plans in July to slash network operators’ returns and limit spending, which would drag Britain “back to austerity”, while National Grid warned of blackouts.

Fast-forward to December and the 47-year old has just handed operators his final decision – budging only an inch to allow for 4.3pc returns (40pc below current) and £30bn spending.

Relaxed even as he has yet to find out if any plan to appeal against his decision, Brearley is confident he made the right call. “It is more investment for roughly the same price. This requires them to perform efficiently and effectively. I think it is robust.”

The tussle around the five-yearly price controls is likely to be just a taste of the battles ahead as Brearley tackles the huge challenge of helping the country meet its legally binding goal of net zero carbon emissions by 2050. Overhauling the energy system to make way for more wind turbines, hydrogen, heat pumps, carbon-capture systems, electric cars and other lower-carbon technologies is expected to require about £50bn annual investment between 2030 and 2050, and lead to a doubling of electricity demand. Brearley’s and Ofgem’s role is to help encourage that level of spending – without letting customers’ bills rocket, or the lights go off.

Read the full interview (subscription required) here

Daily Telegraph

Can the great hydrogen gamble cut out carbon?

In a lab outside the spa town of Buxton in the Peak District, scientists are experimenting with scrap sections of steel, plastic and copper piping.

Researchers from the Health and Safety Executive are testing to see how they react when hydrogen is pumped through them rather than natural gas.

Hydrogen, touted for years as the holy grail of energy, is going mainstream as governments and companies try to curb carbon emissions. Last week, it was given extra impetus with the release of a white paper on energy, which mentioned hydrogen 133 times and unveiled an ambition to “decarbonise gas supplies” with five gigawatts (GW) of low-carbon hydrogen production capacity by 2030.

Ministers want a “hydrogen neighbourhood” by 2023, a large village powered by hydrogen by 2025 and a town by 2030. “We will turn water into energy with up to £500m of investment in hydrogen,” said Boris Johnson last month.

A hydrogen gold rush is under way. Alongside huge lobbying, vast sums are pouring into research projects, sending the price of companies involved soaring.

Shares in ITM Power, which makes electrolysers, are more than six times higher than a year ago. Shares in fuel-cell companies AFC Energy and Ceres Power are up almost four times and five times respectively.

“On the surface, hydrogen looks like the answer to every energy question,” said Michael Liebreich, founder of Bloomberg New Energy Finance, on Twitter. “Sadly, it displays an impressive list of disadvantages. Even so, it holds a vice-like grip over the imaginations of techno-optimists.”

S&P said that to make hydrogen viable, the cost of producing it from renewables must fall more than 50% to $2-$2.50 per kilogram by 2030. Even then, it would require a market price almost three times the current price of natural gas in the UK.

None of this deters the gas’s advocates. The EU has made it a pillar of its post-Covid recovery and envisages spending as much as €470bn (£426bn) on hydrogen production by 2050, claiming that it could meet 24% of world demand by then.

Hayden Wood, chief executive of energy supplier Bulb, said: “It might be useful for things like shipping and heavy industry, but the real challenge will be competing with the likes of electricity for residential heat.”

On a former RAF base in Cumbria, three new terrace homes have been fitted with boilers made by Worcester Bosch that are designed to run exclusively on hydrogen. Worcester began developing a hydrogen-powered boiler in 2015. “They have been driven to destruction in our laboratories,” said director Martyn Bridges. When mass-produced they will be “roughly” the same price as a gas boiler, he said.

“We know we’ve got to get rid of gas in its present form,” added Bridges, who said it was “hard to see” the downsides. Worcester’s boilers are hydrogen-ready: they will run on natural gas until converted with parts costing about £75.

Proponents of the fuel argue that it can be injected into the grid without requiring a huge replacement of gas infrastructure or rebuilding the electricity network, which would be required if homes were to be powered solely by electricity.

Experts reckon a mix of up to 20% hydrogen with natural gas could be pumped into the grid to begin that process. A trial is under way at Keele University in Staffordshire.

There is significant interest in making it work, both from oil and gas giants and from gas infrastructure companies. Royal Dutch Shell and BP have staked their future on natural gas, arguing that it will provide a bridge to a lower-carbon future.

Royal Dutch Shell did so in 2015 with its £47bn takeover of BG, the rump of privatised British Gas. BP has been investing in liquefied natural gas terminals and fields from Egypt to west Africa. In 2018, it spent $10.5bn on BHP Billiton’s US shale gas assets.

Those bets look risky as the climate change movement gathers pace and gas faces the same opprobrium that did for coal. At the World Economic Forum in Davos in January, the oil giants were shaken by the backlash against gas, led by Swedish schoolgirl Greta Thunberg, who said: “Our house is still on fire. Your inaction is fuelling the flames by the hour.”

Fighting back, they were founder members of the Hydrogen Taskforce, a lobby group set up to persuade Westminster of the benefits of hydrogen. Its members include the gas distribution business Cadent and FTSE 100 power giant SSE.

For their gas to remain relevant, they must trap the carbon. SSE is developing Keadby 3 in Lincolnshire, a gas-fired power plant it says will be the first in the UK to trap carbon emissions from the flues, using chemicals.

Stephen Wheeler, the managing director of SSE Thermal, said it was “proven technology” and could capture more than 90% of the emissions. “Net zero changes everything,” he said. “We believe now is the time.”

For every £1 put in by the government, the industry is putting in £4, said Wheeler. Companies want a funding mechanism that allows them to earn a return on projects during construction. The hydrogen future is coming, and it will be expensive.

Sunday 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.