Weekend press round-up: CMA dispute costs water groups £26m

In our latest review of sector coverage across the national newspapers, the cost of the four appeals against Ofwat’s PR19 determinations is analysed. Meanwhile, Scottish Power discusses plans for Britain’s largest green hydrogen production facility and Shell sets out its strategy to install 5,000 rapid and ultra-rapid electric vehicle chargers across the country by 2025.

UK water groups pour £26m down the drain in dispute with regulator

Four of Britain’s large water companies spent at least £26m on an appeal to the competition watchdog, adding to concerns over the cost of the regulatory system.

A document released by the Competition and Markets Authority reveals that the dispute with water regulator Ofwat cost Yorkshire Water £8.3m, Anglian Water £7.6m, Northumbrian Water £6.5m and Bristol Water £3.5m.

The full cost is expected to be much higher as the figures only cover external expenditure, mostly lawyers and consultants. It significantly exceeds the £2.8m spent by Ofwat and the £3.1m spent by the CMA on the appeal.

Water companies are monopolies, so Ofwat sets the returns investors can make, how much they can charge customers, and their expenditure on infrastructure such as reservoirs and pipes every five years.

But there are concerns that the review process has become unnecessarily cumbersome, and expensive.

Water companies say they spent three years and around £140m between them on the review, adding at least £15 a year to customers’ bills, even without the costs of the CMA appeal.

Yorkshire Water, which supplies water and sewage services to around 5m people and 130,000 businesses, said: “There has to be a simpler and less complex way of conducting price reviews.”

Last year’s appeal to the competition regulator was the biggest since privatisation 31 years ago.

Water companies argued that Ofwat had prioritised price cuts over much needed investment following an outcry over leakage and pollution, including at least 400,000 recorded sewage spills into rivers and seas last year.

The water regulator was concerned that investors — a clutch of private equity and sovereign wealth funds — would “outperform” or carry out the investments more cheaply, which under the complicated regulatory system would mean that they could retain a portion of the excess for distribution to shareholders.

The CMA overruled Ofwat and allowed a headline rate of return of 3.2 per cent over the next five years, higher than the 2.96 per cent that the water regulator had recommended. Water bills will also fall by an average of £34 rather than the £50 Ofwat had advised.

Dieter Helm, a utilities specialist at Oxford university who is calling for reform of the regulatory system, said the CMA appeal had been a profitable investment for the water companies, adding an extra 0.3 per cent to their allowed rate of return.

But he added that the challenge showed the periodic review processes had run out of steam. “They are no longer fit for the purposes of providing the long-term investments needed to tackle climate change and rebuild our inadequate infrastructures,” he said.

The Financial Times

ScottishPower plans UK’s biggest green hydrogen plant in Glasgow

Britain’s largest “green” hydrogen production facility is to be built on the outskirts of Glasgow under plans unveiled by ScottishPower.

The energy group has submitted a planning application for a 20 megawatt electrolyser next to the UK’s largest onshore wind farm at Whitelee. The electrolyser will use surplus renewable electricity from the wind farm as well as power from a proposed new 40 megawatt solar farm and a 50 megawatt battery storage project to split water into hydrogen and oxygen.

Hydrogen burns cleanly and the government has indicated that it could play a central role in helping Britain achieve its goal of reducing emissions to net zero by 2050. Several much larger projects have been proposed by oil companies to produce “blue” hydrogen by processing natural gas and capturing the waste carbon dioxide. However, this still generates some emissions whereas making green hydrogen using renewable electricity does not.

Scottish Power says the Whitelee electrolyser should produce up to eight tonnes of green hydrogen per day, or enough to fuel more than 550 buses to travel from Glasgow to Edinburgh and back again each day.

The solar farm that will help power it will be one of Scotland’s biggest and will comprise 62,000 panels. The battery storage facility will also help optimise usage of the power generated by the wind and solar farm, storing surplus electricity.

The project is expected to cost tens of millions of pounds and could be operational by 2023, subject to planning consent from East Ayrshire Council.

Keith Anderson, ScottishPower chief executive, said he believed green hydrogen looked like “a great way” of decarbonising industry, replacing natural gas or hydrogen that is currently made in emissions-intensive ways, and decarbonising heavy goods vehicles, for which electrification could require impractically large batteries.

Anderson said ScottishPower wanted to invest in electrolysis at an early stage in order to prove the technology and explore what would be needed to make hydrogen a “commercial reality”.

The Times

Shell plans thousands of ultra-rapid vehicle chargers on UK forecourts

Plans to install 5,000 rapid and ultra-rapid electric vehicle chargers in Britain by 2025 have been set out by Royal Dutch Shell.

The Anglo-Dutch oil major also is planning to invest in slower on-street public charging points as it seeks to cement a market-leading position established through the acquisition of Ubitricity in February.

The plans form part of Shell’s low-carbon strategy unveiled in February. It is aiming to operate half a million electric vehicle charging points globally by 2025 and as many as 2.5 million by 2030.

Shell has just over 100 “rapid” 50-kilowatt and “ultra-rapid” 150KW chargers on its forecourts in Britain and is in the process of doubling this number by the end of this year. All forecourt installations are now ultra-rapid devices, which can add about a hundred miles of range in ten minutes.

Sinead Lynch, 49, Shell’s UK boss, said: “The ambition is to go to 5,000 by 2025. That’s not just going to be on the forecourts: we’re also wanting to step into that ‘destination charging’ space with the rapid and ultra-rapid . . . so you could see them in the car parks of supermarkets.”

The company owns about half of the 1,000 Shell-branded petrol stations in Britain, the rest being franchises. Lynch said that she expected the 500 Shell-owned forecourts to have an average of one or two ultra-rapid chargers per site by 2025, although some would have many more, especially on A-roads, on motorways and in cities.

“This is quite a lot of money we’re going to spend, so you have to spend it wisely where the commercial case is strongest,” she said. Many forecourts would have “a hybrid model for decades”, but Shell would cease to sell petrol entirely at some sites, such as in Fulham in west London, where it had removed liquid fuel tanks and infrastructure and had replaced them with ten ultra-rapid electric vehicle charging points. Lynch said that Shell wanted to develop “the forecourt of the future”, with coffee shops and parcel pick-up.

The Times

Islay green energy plant wins backing

A green energy scheme that was refused funding by the Scottish National Investment Bank (SNIB) just weeks ago, has won backing from one of Europe’s top infrastructure investment groups.

The £6 million project to enable the Bunnahabhain Distillery on Islay to almost fully decarbonise its power supply was turned down for debt-funding of £5.7 million this year by the state-owned bank which viewed it as “inappropriate and uncommercial”.

The scheme has now received funding from London-based AMP Clean Energy, which is owned by Spanish infrastructure investment group Asterion Industrial Partners.

Madrid-based Asterion has assets under management totalling about €1.7 billion (£1.4 billion) and has just announced its second infrastructure fund, Asterion Industrial Infra Fund II, targeting €1.3 billion. It closed its debut €1.1 billion infrastructure fund last year. Both funds focus on European mid-market infrastructure investments.

Asterion acquired AMP Clean Energy through its subsidiary Fossa Holdco in a £55 million deal in 2019.

Victor Buchanan, director of developer Dallol Islay, which will build and maintain the plant, said work would start on site next month.

“We had a frantic month, but it’s great to have an investor who understands renewables and finance after wasting so much time having to explain the deal to the Scottish National Investment Bank.”

The backing from a key player in European infrastructure is the latest embarrassment for the SNIB.

Despite receiving £370 million from Holyrood in the past two financial years, it has announced just two deals, worth £52 million; one was a £40 million investment in a housing fund set up by the Scottish government that had already received almost £48 million of taxpayer funds.

The Times

Investors bet clean power shift will fuel higher uranium prices

Investors are betting that global support for a transition to cleaner energy will benefit nuclear power and its fuel uranium.

A Solactive index tracking shares in uranium miners has rallied 35 per cent in 2021 on a total return basis, reaching its highest level in more than six years.

The move is being driven by hopes that nuclear energy will play a role in helping countries shift away from fossil fuels as they target net zero emissions by mid-century. Nuclear energy provides a low-carbon source of power that is not intermittent, unlike wind and solar.

“Electrification and clean energy is at the heart of the Asian rollout of nuclear capacity led by China,” Rob Crayfourd, a portfolio manager at the New City Investment Managers’ Geiger Counter fund, said. “In tandem with that, Biden and the EU’s policies are very much keen to incorporate nuclear as part of the energy mix.”

China has pledged to increase nuclear power generation to 70 Gigawatts by 2025, from 50GW currently, as part of President Xi Jinping’s plans to move away from coal.

At the same time, President Joe Biden’s US administration has said that nuclear will be included in its “clean energy standard” that would mandate utilities to produce power that is carbon-free by 2035.

In addition, some smaller countries are switching to nuclear power. This week the United Arab Emirates started its first nuclear power plant, the first Arab state to do so.

Analysts at Morgan Stanley expect nuclear power capacity to increase by 8GW this year, and grow at a 1.7 per cent compound annual rate until 2026.

A number of companies have bought supplies of physical uranium this year, which has helped bolster the price. Prices for uranium have risen by 11 per cent since the beginning of March to $31 a pound.

This month, Canadian uranium miner Denison Mines said it had spent $74m buying 2.5m pounds of uranium concentrates. In total, companies have bought 11m pounds of uranium in the market, according to analysts at Canaccord.

The sector was delivered a blow in 2011 when the Fukushima disaster in Japan caused the government to pledge to phase out nuclear power.

But Crayfourd said nuclear power generation is now above pre- Fukushima levels despite Japan’s withdrawal of much of its fleet.

Power utilities are likely to re-enter the market this year to secure their uranium supply, he said, given the policy certainty over nuclear power.

“More and more people are saying that it is renewables plus nuclear — the resistance [to nuclear] is weaker than it was in the past,” Andre Liebenberg, chief executive of London-listed Yellow Cake, a company that holds physical stocks of uranium, said.

The Financial 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.