Weekend press round-up: Energy chiefs push for bailout fund to cut bills

In our latest review of sector coverage across national media, energy retail bosses and the leader of the Labour party have both proposed schemes to freeze energy bills this winter. Meanwhile, could plans for a “national grid for water” be a solution to future droughts?

Energy chiefs push for bailout fund to cut bills

Two of the biggest energy suppliers are calling for the creation of a special fund that would allow the industry to freeze customers’ bills for two years and spread the cost of the gas-price crisis over a decade or more.

ScottishPower and Eon are pushing for a bold scheme that would lighten the pressure on millions this winter, but require billions of pounds’ worth of loans from banks. Keith Anderson, ScottishPower’s chief executive, acknowledged that the scale of the idea made it unusual, but he said this weekend: “Unprecedented times call for unprecedented action.”

Families on default energy tariffs face a leap in their annual bills from £1,971 to an estimated £3,582 in October, when the price cap set by Ofgem goes up. Research firm Cornwall Insight predicts that bills will rise to £4,426 a year next April, before falling back. Ofgem is due to announce the level of the next price cap on August 26. It comes into effect on October 1. Energy bosses have said it is imperative to find a solution before then.

Boris Johnson and chancellor Nadhim Zahawi met representatives of 15 energy companies last week as personal finance campaigner Martin Lewis warned of a “national financial cataclysm”, saying that the “zombie” government had to take action before September 5, when the Tory leadership race is due to end.

Under the scheme being pitched by ScottishPower and Eon, a “deficit fund” would be set up and underpinned by a government guarantee. The fund would borrow billions of pounds from commercial banks, such as Barclays, which was interested in a previous iteration of the idea. Energy suppliers would then cap the bills of customers on default tariffs at the current level of £1,971 for two years, and fund the difference between that and the wholesale price by drawing down from the deficit fund.

The loans would be repaid over 10 to 15 years, either by suppliers adding a small surcharge to customers’ bills, or through adding the cost to general taxation. An industry source said the two-year period would give ministers and bosses time to rethink the wholesale energy market, including measures such as unlinking electricity prices from gas prices.

If the fund were to cover all 22 million households on default tariffs, it would need about £50 billion from banks. If it were to cover only the most vulnerable, it would still require more than £20 billion.

Anderson first mentioned the idea at a Commons committee hearing on the energy crisis in April. Then-chancellor Rishi Sunak took a different route, announcing a £15 billion cost of living support package that included a £400 energy discount for all households.

ScottishPower and Eon, which is run by Michael Lewis, raised their revived idea at last week’s meeting with Johnson and Zahawi. The boss of another supplier who was there said: “It’s got tremendous merit. I looked around the room and no one was jumping in to disagree.”

Zahawi floated a separate proposal this weekend under which suppliers would be lent money, either by the Bank of England or by commercial banks given a government assurance, so they could reduce energy bills by £400 to £500 this winter. Last night, Sunak announced his latest plan to tackle the crisis. He proposed targeted financial support for pensioners and the most vulnerable and scrapping VAT on energy bills.

A source close to ScottishPower said one of the benefits of the deficit-fund scheme was that it would be easy for customers to understand: “At the moment, people don’t understand what’s happening. There can’t be a much simpler message than saying, ‘It’s just not going to come onto your bill. Don’t worry about it — we’ll take the problem away.’ ”

British Gas, Eon and Octopus have also called on ministers to shift a swathe of charges from energy bills into general taxation. Wholesale gas and electricity costs account for just 57 per cent of the typical dual-fuel bill of £1,971, according to Ofgem. Eon said moving charges into taxation and cutting VAT could lower bills by more than £420 in October. Eon also wants a “massive” push for better energy efficiency, including home insulation.

The Sunday Times

Labour announces plan to freeze energy price cap with reinforced windfall tax

Keir Starmer has put a beefed-up £8bn windfall tax on energy company profits at the heart of a new plan to stop people having to pay “a penny more” on fuel bills this winter.

The Labour leader confirmed that under his plan the energy price cap would be frozen at the current level, meaning that an expected 80% rise in October – taking an average household bill to about £3,600 – would not go ahead.

Starmer said the country was facing “a national emergency” and that Labour “wouldn’t let people pay a penny more” on energy bills as a result of his “fully funded plan”. A typical family would save £1,000, he claimed.

He said: “Britain’s cost of living crisis is getting worse, leaving people scared about how they’ll get through the winter. Labour’s plan to save households £1,000 this winter and invest in sustainable British energy to bring bills down in the long term is a direct response to the national economic emergency that is leaving families fearing for the future.”

Starmer said the plan would cost £29bn over the winter and that it could be funded by extending the scope of the windfall tax on energy companies (raising £8bn), halting the proposed £400 payments for all households offered by the government to compensate for the price cap rise scheduled for October (saving £14bn), and lowering government interest payments on debt (saving £7bn), which Labour said would be possible because its plan would reduce inflation.

Starmer stressed that his proposal for the winter was part of a wider plan that also involves insulating 19m homes over the next decade. If the government had started that when Labour proposed it a year ago, 2m homes could have been insulated by now, saving typical occupants £1,000 a year, he claimed.

Under the energy price cap, Labour would need £29bn to pay energy companies to cover the gap between what they would receive from customers and what they would have to pay for energy on the wholesale market.

As well as freezing the energy price cap, the Labour plan would involve support for people not protected by the price cap, and a scheme to ensure people on prepayment meters do not have to pay more for their energy than people paying monthly.

Former Labour prime minister Gordon Brown, as part of his plan, suggested the government should consider taking energy companies into temporary public ownership. Starmer has rejected this proposal on the grounds that money from the package should go towards helping customers, not compensating shareholders, a party source said.

To raise an extra £8bn from the windfall tax, Labour would close a loophole allowing tax relief on fossil fuel investment and backdate the tax to January.

The Guardian

Liz Truss could ‘strip high earners of £400 energy bill help’

Liz Truss could strip the planned £400 energy bills discount from “high earners”, The Telegraph can disclose.

Simon Clarke, the chief secretary to the Treasury and a key backer of Ms Truss, said it was “odd” that wealthy people would also benefit from the handout, and suggested that a government led by the Foreign Secretary would examine whether such payments could be stopped.

He added that Rishi Sunak’s existing plan “is not really an authentically Conservative solution to this problem”.

Every household is expected to have £400 taken off their energy bills in October as part of a support package unveiled by Mr Sunak in May before he quit as chancellor.

Last week, Mr Sunak, who would continue with the plan, said he would give his own payment to charity.

A Truss campaign source said: “Under Rishi’s plans, Premier League footballers would receive a handout. How is that right?”

Ms Truss and Mr Sunak have been locked in a row over their rival plans to help households. Mr Clarke said Ms Truss was right to avoid making further commitments until closer to October when more will be known about price rises and she would have civil service support.

He added: “I do find it pretty odd that high earners are receiving £400 off their bills.

“As Conservatives, we ought to surely believe in targeting taxpayer money as best we can so that we actually achieve the best value and keep the burden on the exchequer as low as we can.

“It is not an ideal outcome, putting it very mildly, that people who don’t need it are receiving quite substantial sums of money from the state. That is not, frankly, a targeted package, is it?”

Ms Truss’s team are not thought to have decided at what level of income they would stop the discount.

Asked whether there was a specific method by which everyone other than “high earners” could receive the benefit, Mr Clarke said: “This is the question we need to go back around – whether we can do more through tax, whether we can do more through the welfare system … There are more ways that we could approach the question of how to get that help out than just going for Rishi’s bailout 3.0.”

The Daily Telegraph

Water leaks double as drought takes its toll

Britain’s depleted water supplies are under mounting strain with the number of leaks detected by some suppliers more than doubling since the start of the heatwave.

A drought was officially declared across swathes of England on Friday and the Environment Agency has predicted that the UK could face water shortages in the next 25 years without action, including tackling leakages and reducing customer use.

The revelation that leaks are being found at such a rate suggests that the drought, which comes in the driest summer in half a century, has entered a dangerous new phase, with the fall in the water table creating a vicious circle.

Thames Water, which was already leaking 624 million litres of water a day, confirmed the number of incidents had doubled since temperatures soared above 40C on July 19 and government sources said other companies had warned of the same. Thames blamed it on the damage caused by underground movements as the earth dries out, and also because of the need to pump water at higher pressures to meet demand which has hit a 27-year high in some places.

Anglian Water said it had 500 people tackling leakage because changes in ground conditions had placed unusual pressure on the network, but denied the number of leaks had doubled.

The fire services are unwittingly adding to the problem. One government source said: “When the fire brigade connects to hydrants, you get lots of additional pressure on the pipes and then you get new bursts.”

David Beale, a consultant engineering hydrologist, said: “The trees are extracting the remaining water so the ground is shrinking slightly and the old cast-iron Victorian water mains, and the plastic pipes of the 1970s, can’t cope with it. The problem is that the government is not taking climate change seriously. Things will get worse but there’s nothing seriously done about it.”

About three billion litres of water is lost every day to leaks in England. But Ofwat, the water services regulator, said provisional figures suggested three quarters of water companies were meeting their leakage targets.

The Sunday Times

Cross-country pipelines ‘would solve water crises’

Winter rains from western England would be pumped to reservoirs in Norfolk under plans to prevent floods and droughts with a water “national grid”.

George Eustice, the environment secretary, wants to use huge pipelines to connect reservoirs in higher rainfall areas, mainly in the west, to those more at risk of drought, mainly in the east.

Government sources insisted there was no risk to supplies this summer, with hosepipe bans designed as a precaution for next year despite a drought being declared across half of England.

Ministers met water companies and the Environment Agency on Friday but further meetings are not due until next week, with the government not planning any further action.

Eustice is understood to believe that the worst-hit areas have also avoided tighter restrictions on water use by buying supplies from other water companies. He wants to see beefed-up national schemes and has raised the topic of pipelines with Jonson Cox, the departing chairman of Ofwat.

“If you could then transfer winter rains from flood lagoons in places like Shropshire to reservoirs in places like Norfolk you would solve two problems with one piece of infrastructure,” a source close to Eustice said. “We have increasing flood risk in the west and greater stress on water resources and challenges around abstraction [taking water from rivers and lakes] in the east.”

Some local schemes already allow areas where water is running low to buy supplies from nearby reservoirs. Affinity Water, covering Bedfordshire, Berkshire, Buckinghamshire, Hertfordshire and parts of Essex, Kent, Surrey and London, can buy up to 105 million litres a day from Anglian Water, while Southern Water is buying up to 15 million litres a day from Portsmouth Water.

Eustice’s plan would involve much longer-distance pipelines explicitly designed to connect the wettest areas with the driest. These would take years to construct even if the idea is adopted by the next prime minister.

The Sunday Times

Water companies to dodge fines for missing targets because of rise in home working

Water companies are to be spared from fines if they miss targets for cutting household usage until at least 2025 because of the post-Covid rise in working from home.

The industry watchdog Ofwat is waiving penalties for companies that fail to keep water consumption under control because it says the increase in remote working has made the situation more complicated.

The disclosure sparked anger from campaigners who believe that companies have done too little to prevent the drought gripping Britain.

Feargal Sharkey, the former singer in The Undertones who now campaigns for better water quality, accused the regulator of letting suppliers “off the hook”.

Water companies are normally given payments or fines depending on how well they do compared to consumption targets, which are separate to their targets for limiting leakage.

They seek to cut usage with publicity campaigns urging people to use less water, installing water meters, giving households water-saving devices and fixing leaks at homes.

But every company missed its target last year after pandemic lockdowns forced millions of people to work from home instead of their usual offices, prompting a surge in household water use.

It has prompted Ofwat to pause the regime and suspend fines until 2025 at the earliest while officials work out what to do, a spokesman confirmed on Friday.

As a drought takes hold across southern Britain, companies have already come under fire for asking customers to cut back on their usage despite losing gargantuan amounts of water themselves to leaks through creaky infrastructure.

Mr Sharkey said: “Water companies have a statutory obligation to reduce water consumption and they should be educating the market and their customers on how to achieve reductions and savings in their water usage.

“It is quite clear, however, that Ofwat has become complicit and culpable in the water shortages we now face in southern England.

“Not only through its inability to control leaks and inability to secure London’s water supply, but now also because they are letting water companies off the hook on their consumption targets. Ofwat has clearly failed as a regulator.”

In response, an Ofwat spokesman insisted the only way to measure companies’ performance fairly was to wait until pandemic changes to working practices are fully understood.

The Sunday Telegraph

Inside the ‘crazy’ decisions that left Britain with no gas storage and vulnerable to Putin

Chris O’Shea and Kwasi Kwarteng met in Number 11 Downing Street last week in the teeth of a crisis. Summoned to crisis talks on energy bills, the boss of British Gas owner Centrica and the Business Secretary sat through a “chaotic” meeting with the Chancellor and the Prime Minister, which ended in a press release and little else.

But meaningful discussions are underway in private. The pair reconvened to try to thrash out a deal to reopen a key national resource: Centrica’s giant natural gas storage site under the North Sea.

Kwarteng’s interest in the project is a marked change in tone from the Government.

Ministers had shrugged their shoulders when Centrica shut down the site, Rough, five years earlier, saying that it no longer made financial sense to keep the facility open.

Now, Britain needs it back. With Russia restricting gas supplies to Europe as it weaponises energy alongside its war on Ukraine, politicians from Berlin to London are scrambling to shore up their stockpiles as winter looms.

Without gas storage, Britain finds itself dangerously vulnerable to Putin’s machinations. It is a predicament rooted in a decade of complacency by politicians of all parties who are now engaged in a war of blame.

Already, the constraints on global gas supplies since last August have pushed household bills to levels that are unbearable for millions of workers, more than 30 British energy companies have collapsed, and inflation is soaring to rates that have not been seen in 40 years.

Winter threatens to bring even more severe consequences in Europe and the UK, as millions of households fire up their boilers and turn on the lights earlier, drawing on more than twice the amount of gas.

British factories are being prepared for potential shutdowns if supplies fall short, while officials in Whitehall reckon six million British households could face blackouts under worst-case scenarios.

The closure of Rough in 2017 means Britain is missing a key line of defence. The site, which lies 18 miles off the east coast of Yorkshire and more than a mile under the seabed, can supply Britain for about 10 days during winter.

If reopened, it is unlikely to make a big difference to household bills. But it could provide vital energy security if North Sea supplies and imports fall short amid intense competition from abroad.

Read the full article (subscription required) here

The Sunday Telegraph

Slow wind farm approvals risk green goals, say renewable energy giants

The heads of two of the largest renewable energy companies have called on governments to vastly speed up the approval process for new wind farms or risk falling short on green goals.

The chief executives of Denmark’s Vestas and Ørsted, the world’s largest manufacturer of wind turbines and biggest offshore wind farm developer, respectively, said that governments needed to back up their green rhetoric by making it easier to go through an often convoluted planning process.

“We need a fundamental review on how we dramatically shorten the consenting process,” said Ørsted chief executive Mads Nipper.

Asked if he thought governments were doing enough to solve the energy crisis, Vestas chief executive Henrik Andersen said: “I think not. We spend a lot of time listening to why they’re going to apologise for why they didn’t do what they should have done in the past five years. There is a task force required in every government right now that needs to accelerate permitting.”

The issue has long dogged the wind industry where projects can be delayed for years by byzantine processes and legal challenges, in some cases leading to turbine designs being obsolete by the time permits are granted.

But the problem has gained fresh urgency in the energy crisis as particularly European countries try to wean themselves off Russian energy and look to renewables for the long term.

The European Commission threw its weight behind attempts to speed up permitting in May, saying that the principle that renewables are in the “overriding public interest” should be enshrined in EU law and that projects should receive approval within one to two years.

But the industry is still frustrated at the speed in certain countries, with enormous backlogs of projects still waiting for approval to begin. There is more than eight times the amount of wind capacity waiting for permitting than under construction in Germany, Spain, and Poland, according to analytics company GlobalData.

“OEMs [manufacturers], we are ready, and we could do more,” said Andersen.

Nipper stressed that governments’ actions needed to match their lofty promises: “Ambitions are critically important, and they are going up and up and up. But that’s only the first mile of the marathon. It needs to be followed by policy measures.”

The Financial Times

Littlechild: There is a route out of this energy nightmare

The retail energy sector is a nightmare. The average annual domestic bill will rise from about £1,000 until recently to over £4,200 next year. Many customers can’t afford this. Long-term policy options include increasing energy supplies, renewables, storage, energy efficiency and home insulation. But what about now?

Prompt but selective action is necessary. We don’t need to be panicked into suspending the Tariff Cap Act, freezing energy prices, or renationalising loss-making suppliers. Nor is the solution to continue the price cap beyond 2023. It was set below cost, and nearly 30 suppliers went bust, while others left the market because supply profits are negligible or negative. The cap has not prevented significantly higher prices and cannot legally do so. It has limited the variety of suppliers, increased hedging costs and risks, and thereby increased retail prices.

The price cap has destroyed one of the most competitive retail energy markets in the world. There is no longer a market price, only a loss-making regulated variable tariff at which suppliers don’t want customers, plus a few much higher fixed tariffs that customers don’t want to buy. Switching has essentially ceased. And to protect suppliers from the risks of the cap, Ofgem has introduced customer stabilisation charges … to reduce competition. What sensible business would invest in this sector, and innovate, to help solve the coming environmental challenges?

Is the solution a relative price cap, to prevent suppliers offering lower prices to new customers (the so-called “loyalty tax”)? No. Ofgem previously introduced a non-discrimination condition to prevent a “regional loyalty tax”. The CMA found that it reduced competition and increased prices. Ofgem removed it.

A few suppliers have voluntarily adopted a uniform tariff or similar-tariff policy but have never attracted more than about 15 per cent of all customers. The main proponent, Bulb Energy, went bust and some other suppliers abandoned the policy. A relative price cap would be a “dog in the manger” policy, preventing a price cut to some customers if all can’t have one. It would be a costly and needless restriction on competition that would not address today’s problem.

Is a social tariff the answer? If that means a uniform tariff specified by Ofgem which all suppliers have to offer to certain specified types of customers, then no. It would involve all the problems of the present price cap. And Ofgem would be constantly pressed on the differences between regulated and unregulated tariffs. In contrast, if a social tariff means encouraging suppliers voluntarily to provide lower tariffs or other benefits to their most vulnerable customers, that is desirable. Suppliers produced various valuable social tariffs in 2008-2010. But there were arguments about comparisons: did deferring price increases count? And government was not satisfied with the level of benefits offered. A voluntary approach would not cope with today’s problem.

The outcome of those earlier explorations was the Warm Home Discount (WHD) scheme, which provided a specified price reduction to a specified set of pensioners and low-income customers, as determined by government. It is financed by a levy (under £20) on all customers, hence by higher income customers.

The WHD details need further consideration, including to expand the customers eligible. But importantly, it works. Suppliers and customer groups accept it, and it has all-party support. It does not distort the market because it does not prescribe what tariffs suppliers offer, nor restrict any customer’s choice of tariff. Paid as a lump sum, it provides financial support without suppressing the energy prices that realistically must incentivise customers to reduce usage where possible.

The WHD scheme could form the basis of a social tariff – more precisely a social discount scheme – to address today’s major challenge. It can harness the three main sources of funds for reducing the energy bills of the poorest and most vulnerable customers.

The first source is relatively affluent customers who already provide support. They could afford a little more, via an increased WHD. The second source is taxpayers, who have already made a significant contribution, but more is needed. This could be channelled via a modified WHD – for example, allowing more frequent payment, or higher payments to the most needy. The third source is businesses who have unexpectedly profited from the increase in wholesale energy prices. In May, the Government introduced a temporary windfall tax on UK oil and gas profits and there is talk of including electricity generators.

Read the full article (subscription required) here

The Daily Telegraph

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

Many of the themes covered in this weekend press round-up, such as security of water supply and affordability of bills, will be debated in detail at the Utility Week Forum on 8-9 November in London. Find out more here.