Weekend press round-up: Centrica pulls out of Bulb auction

In our latest round-up of sector coverage across national media, there is renewed speculation over who is bidding for Bulb, Ofgem’s chief executive looks ahead to the RIIO-ED2 draft determinations, the prime minister pledges reform of the UK’s “ludicrous” wholesale electricity markets and the chief medical officer calls on water companies to do more to stop pollution entering waterways.

Bulb loses £600 per customer as deadline for bids nears

Collapsed energy supplier Bulb has lost nearly £600 for each customer on its books since it was bailed out by taxpayers last November as ministers try to find a buyer.

Bulb has racked up an £886 million loss in the six months since nationalisation, a progress report from Teneo, the administrators, revealed. The company has about 1.5 million customers, so it has lost nearly £600 for each household to which it supplies gas and electricity.

The revelations come as industry rivals ponder whether to bid for Bulb ahead of this week’s deadline.

The biggest cost at Bulb has been the £1.5 billion spent on buying gas and power for its customers, the report showed. Other charges included £371 million of “industry costs” related to the transmission of energy, and meter rentals and installation. Bulb received £1.2 billion from customers.

By comparison, Bulb lost £37 million in the seven months to the end of October 2021, just before it went bust and entered the special administration process.

The report by Teneo is the first time the dire state of the company’s finances have been laid bare. The collapse of Bulb is the biggest taxpayer bailout since the financial crisis. Ministers set aside £1.7 billion to cover the running costs, but could end up pumping in more. As of last month they had already spent £900 million.

A senior industry source said the size of the loss was a result of the government failing to hedge — in other words, not buying gas and power months in advance for Bulb’s customers.

The Treasury has been criticised for banning Teneo from doing this. A government source defended the lack of hedging, claiming it would have cost the taxpayer more given that the wholesale price of gas has fallen in recent days.

However, Darren Jones, the Labour MP who chairs the business select committee, said: “If the government has to use the special administration process again, it probably needs to review the hedging rules, specifically in respect of taxpayer-owned energy companies.”

The Sunday Times

Centrica pulls out of Bulb auction in blow to government

Centrica, the owner of British Gas, has pulled out of the auction for failed energy provider Bulb, leaving the UK government struggling to achieve a competitive bidding process.

Bulb collapsed last November after natural gas prices soared and it failed to raise new money. The government stepped in to ensure its 1.6mn customers still received energy and had planned to sell the business by the end of July.

People close to the sale process said Centrica had withdrawn, leaving just two confirmed potential bidders — Octopus Energy, the fifth biggest supplier, and Masdar, an energy company from Abu Dhabi. One option is that the two team up, with Masdar providing the cash, and Octopus, which has never made a profit, taking on Bulb’s customers, said one of the people.

Ovo, the sixth biggest energy company, has not ruled itself out of the bidding but the company announced thousands of redundancies earlier this year and is lossmaking, so would need to raise finance.

Closing bids are due this Thursday in a sales process that is being handled by Lazards.

The Financial Times

Hard-up families will be paid to use less electricity and avoid blackouts

Millions of households could be paid to use less electricity at peak times this winter under plans from the National Grid to reduce the risk of blackouts.

The company responsible for keeping the lights on is working urgently to establish a scheme to pay consumers with smart meters to ration their usage voluntarily when supplies are scarce.

It believes that this could be a cheaper and greener option than paying fossil fuel power plants to generate more electricity, as Russia restricts the gas supplies to Europe and stokes fears over security of supply.

The proposed scheme by National Grid’s electricity system operator (ESO) would reward households for shifting the time at which they carry out power-hungry activities such as cooking, using the washing machine or charging electric vehicles.

Households typically pay 28.34p for each kilowatt-hour of electricity they use, but could instead potentially be paid as much as £6 for each kilowatt-hour that they avoid using at peak times, according to initial proposals seen by The Times.

Energy bills have already risen to a record £1,971 a year and are expected to leap again to more than £2,800 a year from October, leaving many households looking for ways to save money.

National Grid ESO carried out trials with about 100,000 Octopus Energy customers this year. It is now seeking to offer the scheme to millions of households, and wrote to suppliers last week asking them to assess urgently how much their customers could be persuaded to cut their demand at peak times. It is understood to have given them only a week to respond.

Government modelling suggests that in a reasonable worst-case scenario Britain could face rolling blackouts this winter. Ministers have already asked National Grid ESO to pay Britain’s last remaining coal plants to delay planned closures and stay open this winter. When supplies are scarce, the ESO has to pay high prices to use extra power plants, typically calling on diesel, coal and gas plants.

The cost of the proposed scheme would be levied on household bills but National Grid believes all households should benefit if the payments to those households reducing demand through the scheme are less than it would have to pay power plants for an equivalent increase in supplies.

The Times

River sewage a serious public health issue that water companies must tackle, warns Chris Whitty

River sewage is becoming a serious public health concern, Prof Sir Chris Whitty has warned, as he demanded that water companies do more to keep effluent out of Britain’s waterways.

Writing for The Telegraph, the Chief Medical Officer joined forces with Jonson Cox, chair of water regulator Ofwat, and Emma Howard Boyd, chair of the Environment Agency, to call on companies to urgently invest in ways to stop human waste entering water courses.

The trio said it was “unacceptable” that some individual storm overflows were releasing sewage up to 200 times a year, even though they were designed only for exceptional use during extreme rain.

Sir Chris is concerned that bathers and other recreational river users could become seriously ill by ingesting bacteria from human faeces – coliforms – which can lead to severe infections.

“Nobody wants a child to ingest human faeces,” he said. “No-one expects river water to be of drinking standard, but where people swim or children play they should not expect significant doses of human coliforms if they ingest water.

“Raw sewage from storm overflows and continuous discharge of waste containing viable organisms from sewage treatment works is an increasing problem.

“This is a serious public health issue for the government and regulators and it is clear that the water companies are not doing enough.”

Daily Telegraph

Brearley: I’m sorry we got it wrong on energy start-ups

The energy watchdog has taken multiple maulings for its role in the collapse of 29 suppliers since last July, but a savaging from the MoneySavingExpert stood out.

Martin Lewis, the advice site’s founder, called Ofgem a “f***ing disgrace” over a tightening of its so-called market stabilisation charge (MSC), introduced in April to deter suppliers from aggressively poaching each other’s customers. Ofgem said this was needed to calm the industry and prevent further failures; Lewis said the regulator was selling consumers “down the river” and “killing hopes of firms launching cheaper deals”.

Lewis then apologised for his outburst — and a few weeks later, he addressed Ofgem’s staff conference. “Martin and I talk quite regularly and exchange robust views,” says Jonathan Brearley, Ofgem’s chief executive. “He came and talked to us because, at the end of the day, the people who disagree with you are the people you need to listen to.”

That does not mean the National Audit Office (NAO) will be receiving a summons to Ofgem’s brightly-lit canteen in Canary Wharf any time soon, though.

Last week, the NAO issued a more sober but also more comprehensively devastating analysis of the “low bar” regulatory regime that let dozens of poorly funded entrepreneurs start selling energy to consumers — in some cases from their home addresses — before the spike in wholesale gas prices caused a market wipeout. The biggest casualty was Bulb Energy. The NAO said a total of 2.4 million customers had so far been moved to new suppliers at a cost of £2.7 billion — a sum that will be spread across all energy bills, hitting households for £94 each.

The NAO said Ofgem had “allowed a market to develop that was vulnerable to large-scale shocks”, and consumers had “borne the brunt of supplier failures at a time when many households are already under significant financial strain”.

The build-up to the crisis happened under Brearley’s predecessor, Dermot Nolan, in place from 2014, in what now looks like a misguided attempt to encourage competition to the big six energy firms. Brearley, who took over in 2020 after four years as an executive director, notes: “The frustration at that time was that we had a small number of companies who, quite frankly, were overcharging some of those customers who don’t switch very often.”

As per the NAO’s comment, this will be a bleak winter for Britain’s poorest. Vladimir Putin’s invasion of Ukraine, and the resulting disruption to fuel supplies, has exacerbated the post-Covid inflationary squeeze. The energy price cap for UK households rose by 54 per cent to £1,971 in April; it could jump past £3,000 early next year, according to the energy research firm Cornwall Insight.

“It is perfectly possible the price pressure increases,” Brearley says. “It’s equally possible that things change the other way. My main message is that whatever happens, there is going to be a systemic and strategic increase in prices.”

On Wednesday, Ofgem will set out “draft determinations” on the investments and returns it expects owners of 14 local electricity grids to make over the next five years. And shortly after that, it will publish a discussion paper on how Britain’s energy system will need to change if we are to decarbonise by 2050.

Both will look to a world dominated by electric cars, ground-source heat pumps, small nuclear reactors and more offshore wind. The net-zero paper will focus on the creation of a new independent body responsible for keeping the lights on — the Future System Operator, to be spun out of National Grid — and will moot the regional or even local pricing of wholesale electricity. The draft determinations will ask owners to upgrade networks to cope with the mass use of electric vehicles and local electricity generation “without putting more and more [expensive] copper in the ground”. They will also “dramatically reduce returns to shareholders”, such as the FTSE 100 company SSE. “Whereas we had between 7, roughly, and 11 or 12 per cent [annual returns] in the previous controls, we’re now focusing on a much lower number,” Brearley says. Ofgem mentioned a figure of 4.4 per cent last year.

“What we’re saying to the local networks is, ‘We’ll give you the investment you need to upgrade — but you need to use all the technologies available to make sure it’s done for the least cost.’ ”

Read the full interview here

The Sunday Times

Boris Johnson hints at cut to VAT on energy bills

Boris Johnson has hinted at cutting VAT on energy bills to save Brits hundreds of pounds.

The Prime Minister said he would not “rule out” cutting tax as families continue to feel the squeeze from the cost-of-living crisis.

Speaking to BBC Radio 4’s Today programme on Saturday, Boris Johnson said the Government is doing “a huge amount” to support people “with the fiscal firepower we have”.

Asked why he had not yet cut VAT on energy bills, he said: “I don’t rule out that we will do it.”

He said the Government had “already cut fuel duty by record amounts”, but he acknowledged this would be “swallowed up” and added: “There may be more that we have to do.”

Pressed on whether the tax will be slashed further he said: “We want to make sure that those cuts are properly passed on to the consumer.”

He said: “I’m very happy to have an argument about tax and I’m saying some of the things that we’re already doing.

“But when it comes to energy, and the cost of people’s energy bills, tax is not enough.

“You’ve got to look at the way the whole thing works.

“And at the moment one of the problems is that people are being charged for their electricity prices on the basis of the top marginal gas price, and that is frankly ludicrous.

“We need to get rid of that system.

“We need to reform our energy markets, as they have done in other European countries.

“So that is one of the ways by reforming the market, by changing the way things work, that you can get prices down, you can bear down on costs for people.”

The Sun

Smart meter rollout plunged into crisis in fresh blow for net zero

The smart meter rollout is facing a fresh crisis as a shortage of microchips leaves energy companies unable to meet their installation targets and facing multi-million pound fines.

Global shipping chaos and fierce competition from other electronics companies has led to a severe lack of critical parts for the devices, which track households’ energy usage in real time and send this data to suppliers.

Every home is meant to have a smart meter by 2025 as part of the Government’s net zero plans, but the rollout is far behind schedule because Covid disrupted appointments and millions of consumers are reluctant to have the devices installed.

Energy UK, the industry’s trade body, has warned MPs investigating the chip shortage that many suppliers are already suffering from problems, which could leave them unable to meet their targets.

Companies that fall behind are at risk of being fined by Ofgem, the energy regulator.

In evidence submitted to MPs on the Business, Energy and Industrial Strategy (Beis) Committee, Energy UK said: “As an industry, we are already experiencing the effects of the global [semiconductor] shortage.

“Many energy suppliers have suffered shortfalls in the deliveries of smart metering equipment as a result of smart metering device manufacturers being unable to secure sufficient volumes of semiconductor materials to meet demand.

“The medium-term outlook for an improvement in the availability of semiconductor materials is highly uncertain, which could (if the current situation continues) result in some energy suppliers having to reduce the number of smart meter installations available to consumers as early as quarter 4 2022 / quarter 1 2023.”

Ministers say the meters are central to ambitions to decarbonise energy networks because they will be able to smooth out peaks of supply and demand, allowing “surge pricing” when there is most strain on the grid and encouraging consumers to charge electric vehicles during quieter periods.

Ofgem said it is working with suppliers to try to manage shortages.

Daily Telegraph

Don’t pay energy bills! Campaign group calls for millions of Brits to take extreme protest

An activist group has decided to protest against skyrocketing energy bills, by simply not paying them.

As Ofgem is set to raise the price cap for energy bills to around £2,800, a group of activists have launched a new campaign urging millions of Britons to not pay their energy bills in protest. Campaign group Don’t Pay UK, which is run by activists operating anonymously to avoid repercussions from energy companies, has already gathered over 4,000 social media followers since launching last week.

Their website reads: “It’s simple: we are demanding a reduction of energy bills to an affordable level, our leverage is that we will gather a million people to pledge not to pay if the government goes ahead with another massive hike on October 1st.”

Daily Express

RWE warns UK tax on electricity generators would risk £15bn investment in renewables

The head of RWE has warned that Germany’s biggest utility will reconsider £15bn of investment it plans to make in the UK’s renewable energy sector if the country imposes a windfall tax on electricity generators.

RWE is one of the UK’s largest power producers, supplying about 15 per cent of the country’s electricity through assets such as gas-fired plants and wind farms.

But its chief executive Markus Krebber warned a windfall tax on electricity generators’ profits would force a rethink of investments planned in areas such as offshore wind.

“With the current [fiscal] framework our commitment is to invest £15bn in the UK until the end of this decade,” Krebber told the Financial Times. “[That is] net investment from RWE, it will be higher with our partners and if things change we reconsider.”

He added: “If the environment changes — and part of that is of course the regulatory framework and political decisions — everybody would reconsider.”

Several leading investment groups including Newton Investment Management and Baillie Gifford have also cautioned that a windfall tax on the electricity sector would be “short-sighted” and put a brake on the rollout of renewable energy technologies in the UK just as the government wants to bolster domestic electricity supplies.

Chancellor Rishi Sunak in May hit out at electricity generators for making “extraordinary profits” due to high power prices. He said the Treasury was examining “appropriate steps” to ensure the sector contributed to a £15bn support package for households facing soaring energy bills. Sunak has already imposed a 25 per cent “energy profits levy” on UK oil and gas producers.

Paul Flood, a portfolio manager at Newton Investment Management, which has invested just under £1bn in renewables in Britain, said his group would “think very carefully about our current holdings in the UK” if Sunak imposed additional taxes on generators.

American colleagues at Newton had already cancelled “significant” investments in UK renewable companies because of uncertainty about the regulatory regime, Flood added.

Nicoleta Dumitru, a multi-asset investment manager at Baillie Gifford, whose holdings include a 5 per cent stake in renewable investment trust Greencoat UK Wind, said a windfall tax would “potentially slow down the pace of renewable deployment in the UK”. “It would be a real shame to see a windfall tax chip away at the attractiveness [of the UK market],” Dumitru said.

Jim Wright, fund manager at Premier Miton Investors, which invests in groups such as RWE and SSE through its global infrastructure fund, warned that many other countries were trying to attract investment in renewables as governments sought to reduce their reliance on Russian gas.

“The increase in the perceived risk of UK investment increases the likelihood that other jurisdictions will prevail in attracting capital,” Wright said.

The Treasury said it recognised that any steps taken following its evaluation of electricity generators’ profits needed “to be proportionate and avoid creating undue distortion or impacts on UK investment”.

The Financial Times

Coal makes unwelcome return as energy crisis engulfs Germany and Europe

War has unforeseen consequences. And so it proved last week, when Germany’s politicians did a screeching U-turn on environmental policy and ordered coal power plants to fire up in the face of soaring gas prices stoked by Russia’s invasion of Ukraine.

“From now on, gas is a scarce commodity,” said economy minister Robert Habeck, a member of the Green Party that is now part of Germany’s coalition government. He added that there were “no taboos” in the hunt for energy security, suggesting Germany’s phase-out of coal by 2030 could be delayed. Ministers have even floated the idea that Germany’s dwindling fleet of nuclear power stations could be kept online beyond their shut-off this year — an idea long considered verboten in a country that, under former chancellor Angela Merkel, shunned atomic energy after the Fukushima disaster in Japan in 2011.

Coal’s comeback is a bitter moment for a country where environmental concerns dominated much of the election debate last year, in the wake of deadly floods that hit western Germany last summer. The question for politicians is just how temporary coal’s resurgence will be — European Commission president Ursula von der Leyen, herself a veteran of German politics, last week warned against “backsliding” into “dirty fossil fuels”.

Her plea is in danger of falling on deaf ears, as Germany is not alone in its new embrace of the black stuff. Last week the Dutch government, led by Mark Rutte, scrapped limits on power production from coal-fired plants until 2024. And last weekend, Karl Nehammer’s government in Austria ordered a reserve gas plant to switch to burning coal; the Mellach station was mothballed just two years ago, when Austria became the second country in Europe after Belgium to go coal-free.

In the UK, business secretary Kwasi Kwarteng ordered the Electricity System Operator (ESO), the manager of the grid, to open talks with the owners of three coal plants — EDF, Drax and Uniper — to “bolster” energy security this winter.

Yet supply challenges are building in coal that could make this emergency measure a very costly foray — politically, environmentally and financially. For how long will Old King Coal regain his throne?

Though not a direct importer of Russian gas, the UK has, like everywhere else, been exposed to European prices going haywire since the invasion of Ukraine. The timing is especially bad, since Britain considers gas a “transition fuel” to help pave the way for a net-zero economy, as it is greener than burning coal. But if gas is suddenly too expensive, coal moves up the pecking order.

“That the government is having to consider using coal to keep the lights on this winter is a sign of its failure to deploy an effective renewable energy strategy,” said Tony Bosworth at Friends of the Earth. He notes that the installation of onshore and offshore wind capacity has slowed since 2017, according to the government’s own statistics. “Coal was a vitally important part of the UK’s past, but its place is now in the history books.”

Following Kwarteng’s intervention, EDF agreed to delay the closure of its West Burton A coal plant in Nottinghamshire by six months, to March 2023, to provide “emergency” power. Talks with the other suppliers are ongoing. It is a measure of the severity of the situation that the ESO has never before had to seek “top up” agreements beyond the regular deals it strikes with power companies to ensure the system has enough juice.

Michael Grubb, professor of energy and climate change at University College London, said Kwarteng was right to act as he did: “If one of your major bridging technologies for energy security is natural gas and all hell’s broken loose, it makes sense to fall back on something else.”

Coal has sunk in the last decade to make up just a tiny fraction of power generation. Kwarteng has insisted the firing up of plants this winter will not delay the planned shutdown of all coal generation by September 2024. But Grubb suggested this deadline was likely to slip. “I think the UK does, by implication, have to change its phase-out date for coal, and probably wants to make it conditional upon how long this crisis lasts,” he said.

The waters were muddied further last week by the prime minister’s unexpected backing for more coal production in the UK. Boris Johnson responded to a question from a Tory MP by saying: “It makes no sense to be importing coal, particularly for metallurgical purposes, when we have our own domestic resources.”

He was referring to “coking” coal, used in furnaces to make steel, as distinct from the thermal coal burned in power stations. His comments were interpreted as support for a new mine in Cumbria that will supply coking coal to the UK and Europe. A final decision by communities secretary Michael Gove is expected soon.

Sunday Times

Government admits failing to ask EDF to keep Hinkley Point B nuclear power plant open to ease energy crisis

Ministers have admitted they failed to contact the operator of Hinkley Point B to explore the possibility of keeping the reactor running amid major fears over the country’s energy security.

Energy Minister Greg Hands said his department did not speak to EDF about prolonging the life of the power station, which will now shut down this August.

Up until now, ministers had suggested they had been in touch with the French-owned company about keeping Hinkley Point B running to help the country manage with the growing global energy crisis. The reactor provides enough electricity to power more than 1.7 million homes.

But in a response to a parliamentary question from Labour’s Charlotte Nichols, Mr Hands states: “The Department is in regular communication with EDF and the [Office for Nuclear Regulation] ONR but has not written regarding the extension of nuclear power stations.”

The news comes just days after the head of the International Energy Agency, Fatih Birol, urged Europe to “consider postponing closures [of nuclear power plants] as long as the safety conditions are there” amid concerns that Russia is preparing to turn off its gas supplies to the continent.

It emerged last month that a reasonable worst-case scenario briefing drawn up by Whitehall officials showed six million UK households could face blackouts as a result of gas shortages, should Russia cut supplies to the EU.

At the time, culture minister Chris Philp said the dossier had prompted Business Secretary Kwasi Kwarteng to consider “whether Hinkley B, the large nuclear power station, might continue beyond its planned end of life”.

This now appears to be untrue. EDF subsequently released a statement saying that while an extension to Hinkley Point, near Bridgwater, Somerset, was “technically feasible”, it was too late to carry it out.

Leaked correspondence seen by i shows Mr Hands was urged back in March to take action to prolong the operating lives of nuclear reactors, in an attempt to shore up the country’s energy supplies amid fears of shortages as a result of the war in Ukraine. But he rejected the demands.

Energy experts and senior Tories are at a loss to explain ministers’ failure to keep the reactor running.

A nuclear industry insider told i that “less nuclear means more gas” which would eventually lead to higher energy bills for consumers.

The Government’s handling of energy security was strongly criticised last week by Professor Sir Dieter Helm, an Oxford academic who advised the Prime Minister on energy market reform.

He said ministers had made “significant failures” in preparing the country for an energy supply shock, such as those that have occurred after the pandemic and since the war in Ukraine. He added: “Frankly people have been asleep at the wheel.”

i

Octopus Energy CEO lays out roadmap for £1,000 heat pumps: ‘Much cheaper!’

Heat pumps play a crucial role in the Government’s Energy Security Strategy to boost the UK’s energy independence and fulfil its climate targets.  But given that they can cost up to £10,000 at market price, many households cannot afford to replace their gas boilers. Prime Minister Boris Johnson rolled out the Boiler Upgrade Scheme, which offers up to £5,000 in subsidies to install a new heat pump.

But despite this support scheme, many households have still found heat pumps to be prohibitively expensive, with some even being quoted £16,000 for installing a replacing their gas boiler.

Speaking to Express.co.uk, Mr Jackson said: “We have got to become appealing for day-to-day use for typical British homes.

“Heat pumps are getting there, and as we install more, they’ll get cheaper.”

The UK’s push to install heat pumps through the Boiler Upgrade Scheme is set to be followed by a ban on the sale of new gas boilers from 2036, as part of the Government’s net-zero pledges.

Mr Jackson noted that in order for heat pumps in the UK to be widely rolled at the same cost as boilers, a few things need to happen.

He said: “First of all, the hardware needs to get cheaper, today a typical heat pump unit costs about £3,000.

“We feel we can get that price down to not much more than £1,000.

“We will get the hardware [price] down by a factor of three, with volume, and these are going to be better heat pumps, and cheaper.”

He also noted that the installation process for a new heat pump, needs to get much smoother, as it currently takes “a couple of guys, three or four weeks” to install a heat pump.

“Our aim is to get to same-day installation over time.

“Last thing is that we need to get running costs down.

“Now that gas costs so much more, a heat pump is actually cheaper to run typically than a gas boiler.

“As the differentially between gas and electricity starts to open, we’ll see that heat pumps start to get cheaper and cheaper to run.”

Express

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.