Weekend press round-up: Centrica is having a good energy crisis

In our latest round-up of national newspaper coverage, industry experts explain why they believe Centrica may benefit from the energy crisis, business leaders warn of a “hostile environment” in the energy sector and Age UK raises concerns about the impact cold weather has on older people.

British Gas owner Centrica is having a good energy crisis

It was mid-October, and investors in British Gas owner Centrica received a fright. Wholesale gas prices were soaring, households were facing a tough winter and bigger bills, and energy suppliers were dropping like flies. Into this maelstrom pitched up Centrica boss Chris O’Shea to declare that he was scrapping Centrica’s long-planned capital markets day the following month.

These days are typically a chance for companies to talk up their growth plans and show what treats they have in store for shareholders. Investors feared that pulling the plug on the event meant the chaos was taking its toll on Britain’s biggest energy supplier too.

The opposite was true. As the energy crisis played out around it, business was good at Centrica. But the perennial pantomime villain of British business — a regular of tabloid front pages about “fat cat” excess — was keeping its head down.

“They basically said of the optics: ‘Just as a load of customers are getting a lot of grief from their energy bills spiking or their provider going bust, they won’t want Centrica standing up on a podium and saying we’re reinstating the dividend.’ That would not have been a good look,” said Richard Colwell, head of UK equities at Columbia Threadneedle, a top-five shareholder.

Amid the chaos, analysts wonder whether the crisis would turbocharge O’Shea’s turnaround of the energy giant.

Centrica’s shares have reflected the increased optimism, having surged nearly 50 per cent since July.

It has been a rare purple patch for Centrica’s long-suffering shareholders. Despite the recent spike, the share price is still 83 per cent below where it was in September 2013.

Under former chief executive Sam Laidlaw, Centrica embarked on a plan of global domination, expanding further into oil and gas and into electricity and gas supply in North America — despite having its own problems at home with British Gas. Iain Conn, who took over in 2015, attempted to stabilise the company, which was losing customers at British Gas and grappling with oil prices that were much lower than in Laidlaw’s tenure.

Theresa May stunned the market when she unveiled plans in October 2017 to cap energy prices for consumers. It limited bills for households, but slowed Conn’s attempts to steady the ship.

O’Shea joined Centrica in November 2018 as chief financial officer from engineering company Smiths Group, but took over as chief executive just as the pandemic struck in March last year.

In the short time since, he has ticked a number of boxes for shareholders, simplifying the business and strengthening the balance sheet. Having offloaded its US energy supply arm Direct Energy for $3.6 billion (£2.7 billion) this year, O’Shea unveiled plans this month for an £800 million sale of the Norwegian oil and gas assets of Spirit Energy, the North Sea oil company it owns. The Spirit deal also included passing on £830 million of decommissioning liabilities. He is still weighing whether to sell its 20 per cent stake in British Energy, the EDF-owned fleet of operational nuclear power plants.

O’Shea also went through painful negotiations with unions over terms for staff Centrica wanted to “fire and rehire”. The company said the changes meant it was now able to compete. But they did not make O’Shea popular: his family received a letter filled with excrement.

O’Shea inherited a company on the decline that was failing to stem the flow of customers walking out the door to sign up with cheaper rivals. At the end of 2013, British Gas was supplying energy to 15.3 million customers. By the end of last year, it had 6.9 million.

But his efforts to stabilise and then grow customers numbers has received a boost from the current market chaos.

British Gas has picked up more than 400,000 accounts from collapsed suppliers, including People’s Energy, through the Supplier of Last Resort (SoLR) process, where Ofgem hands companies customers left without a supplier.

Last month, Bulb collapsed, cutting adrift 1.7 million customers. Ofgem and the government said it was too large to go through the SoLR process and needed to be put into special administration, along with a £1.7 billion bailout to keep it running for six months.

Ambitious rivals including Ovo, which in 2019 bought SSE’s energy supply business, were pushing hard to take on Bulb’s customers before it went into special administration.

But so was Centrica. Sources said it weighed a deal to buy Bulb. However, it wanted help to do so — and is said to have approached the government about taxpayer support to enable it to secure the energy needed to supply 1.7 million new customers. The proposals were rejected. Centrica declined to comment. Others interested in Bulb before its collapse included Masdar, Abu Dhabi’s state-owned clean energy company.

Whether Centrica, which has 23,000 staff, returns later in the administration process to swoop on Bulb or collects some of its customers remains to be seen.

Read the full article in The Sunday Times

Business leaders warn of ‘hostile investment environment’ in UK energy sector

BUSINESS leaders across the UK have joined forces to warn UK and Scottish politicians against creating a “hostile investment environment” in the energy sector.

In a joint open letter to political party leaders, Aberdeen & Grampian Chamber of Commerce, supported by The British Chambers of Commerce and Scottish Chambers of Commerce, has called for a “more reasoned debate” around the future role of oil and gas in Britain’s energy mix.

The intervention follows remarks calling for an end to oil and gas exploration in the North Sea, which threatens future investment.

The letter says: “Statements calling for an end to new exploration and production have shaken investor confidence and placed tens of thousands of jobs – together with the economic wellbeing of whole communities across the UK – at risk.

“They also threaten the very basis of a fair and inclusive transition at the most crucial point in our collective journey to a net-zero society.

“A transition, by definition, is a change of state over time. This is one of the most complex challenges we have faced in our history and it doesn’t lend itself to a simple, ‘Who’s good, who’s bad? Who’s green, who’s not?’ approach. To characterise it in this way is overly simplistic.

“We must now pause and allow for a reasoned debate about our energy future to take place. At the same time, we urge politicians to reflect carefully on their public statements on oil and gas and the impact they have on investment in the industry.”

The letter, which is also been signed by 58 leading figures from business and civic life in Aberdeen, highlights energy security concerns and the additional carbon footprint that importing more energy from abroad would bring.

It adds: “By 2050, the International Energy Agency projects that global oil and gas demand will fall by 80%, but even then 20 million barrels per day will be required to meet our needs.

“Therefore, there is no current future scenario where there is not a requirement for some oil and gas. Meantime, it continues to be required for people to travel, heat and power their homes and for the manufacture of many everyday goods.

“This leaves us with two options; to produce this domestically, with full control over the regulatory environment in which it is extracted; or to import an increasing amount of our energy, with the heavier carbon toll that shipping it from other parts of the world carries. The latter makes little economic sense, and even less environmental sense.”

The National

Lack of wind sparks new fears over green energy revolution

A lull in wind speeds over the summer was felt in boardrooms across Europe. As it blew at its weakest for around 60 years, major energy companies lost millions of pounds in electricity sales.

By September, households started to feel the pain. Coal and gas-fired plants were switched on to make up for loss of wind, compounding a global shortage of gas and pushing electricity prices to record levels.

“It’s very serious,” Mads Nipper, chief executive of Danish oil-turned-wind giant Orsted, told the Financial Times in August, as he warned shareholders of a hit to profits. “It is like you’re a farmer and it doesn’t rain.”

Countries are relying more on wind to meet their energy needs in the rush to slash carbon emissions. The technology accounts for more than 6pc of global electricity, and is set to grow as fossil fuels are muscled out of the way by cleaner sources.

In the UK, turbines on land and dotted around the coast generate about a quarter of domestic electricity over the year. Boris Johnson wants to make wind the backbone of the energy system, with a huge increase in offshore turbines, as part of the legally binding push to net zero.

But events like the wind lull have triggered questions over whether it was a sign of things to come, and how predictable wind patterns are in the long term amid climate change.

It’s an area of growing corporate and scientific research, with huge consequences for energy security and business investment. But much remains unknown.

“Given what we saw in 2021, I think we will see and we need studies to understand [wind trends] better, especially given our increased reliance on wind as an energy source,” says Paul Williams, professor of Atmospheric Science at the University of Reading.

Read the full article in The Telegraph

‘It’s heat or eat’: 7m older Britons worried about cost of energy

More than 7million older people across Britain are worried about heating their homes this winter, amid soaring energy bill costs.

Nearly half of people aged 60 or over are concerned about the cost of keeping warm, with some having to choose whether to ‘eat or heat’, according to charity Age UK.

With around 1.4million older Britons already living in fuel poverty, Age UK is concerned that rising bills will lead to many thousands more suffering over the coming months.

It has said that some of the poorest pensioners will be rationing their heating this winter and thinks the Government needs to step in.

In its report, 32 per cent of older people said they would be forced to reduce their energy usage due to financial constraints.

Caroline Abrahams, charity director at Age UK, said: ‘As temperatures plummet this winter, millions of vulnerable older people are feeling trapped at home, too scared to go out for fear of catching Covid, and too scared to turn the heating on for fear of racking up a bill they can’t afford.

‘We cannot let a situation continue where people are so worried about rising bills that they either put their health at risk by not keeping their homes warm enough, or feel forced to cut back on meals to make ends meet.

‘No one should have to make the impossible choice between eating and putting their heating on.

‘If the Government does not provide urgent financial support to change this – at a time when new restrictions encouraging us to stay at home seem a distinct possibility – it could mean a tragedy for many older people. The cost of cold has never been higher.’

With many Britons spending more time at home amid the increase in the Omicron variant of Covid-19, some elderly and disabled people are using even more energy than they normally would at this time of year, further driving up their bills.

Age UK wants the Government to provide an additional one-off payment of £50 to everyone eligible for the Cold Weather Payment to help with their energy bills and give people the confidence to stay warm without fretting about money.

The charity also thinks existing Cold Weather Payments should also be expedited to ensure that payments in arrears arrive no later than seven working days after a spell of cold weather.

It also wants to see the existing Household Support Fund double to provide £1billion of funding, ‘so that fewer vulnerable households are forced to make the difficult choice between heating and eating during the coldest months.’

Full article in This Is Money

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.