Weekend press round-up: Energy companies set for price battle

In our latest review of sector coverage across the national newspapers, there is continued speculation of appeals to Ofgem’s RIIO2 final determinations by gas and transmission companies. Meanwhile, Abu Dhabi’s sovereign wealth fund is reported to be considering selling its stake in Thames Water. There is also coverage of government plans to force energy retailers to switch customers on to lower tariffs.

Energy companies set for price battle

Some of Britain’s biggest energy companies are expected to appeal to the competition watchdog this week to allow them to charge customers more for gas and electricity.

Network owners including National Grid, SSE and ScottishPower have a deadline of Wednesday by which to appeal to the Competition and Markets Authority against plans to curb the returns they make at consumers’ expense. Analysts said that they expected some if not all the companies to appeal and industry sources told The Times that such a move was likely.

Energy network companies’ spending on Britain’s gas pipes and electricity wires is funded through levies on energy bills that are regulated by Ofgem in multiyear “price control” settlements. They add about £250 to a typical annual household bill.

The regulator proposed in July to halve the returns that energy transmission network operators could make from this year and to disallow billions of pounds of proposed investments. The companies fought back, with National Grid claiming that the plans would leave Britain at risk of blackouts.

Ofgem gave some ground in December by approving more investment and slightly increasing the returns on offer. However, the latest proposed return on equity of 4.3 per cent — up from 3.95 per cent originally — remains the lowest ever and almost 40 per cent lower than in the existing price control.

SSE said at the time that it was still “very disappointed” by the proposals, while the boss of Iberdrola, the owner of ScottishPower, said last week that the rate of return was still “low”.

In a research note on Friday, Dominic Nash, analyst at Barclays, said: “We expect to see all companies appealing.”

Energy companies had been waiting to see what the CMA concluded in a separate case where water companies appealed against low returns allowed by Ofwat, their regulator, in a similar process. However, a final verdict in the water case has been delayed until after this week’s deadline.

John Musk, analyst at RBC Capital Markets, said: “Even though the network companies won’t have full clarity on the CMA’s latest thinking, we expect an appeal against the financial returns within Ofgem’s [price control] settlement.”

He said that the most recent thinking from the CMA suggested a return on equity of 50 basis points above that proposed by Ofgem. “We see this as a meaningful gap not just for the next five years but for establishing a baseline on returns in future periods as well, given the likely increased capex on the energy transition as we target net zero,” he said.

The Times

Households lose out as fixed energy tariffs far exceed cap

Homeowners are paying hundreds of pounds more for their energy bills because they are locked into fixed tariffs which far exceed a Government-imposed price cap.

The Government will in the coming weeks set out plans to force energy companies to switch customers on to lower tariffs, protecting millions from paying over the odds.

But new research published by the auto-switching service Look After My Bills found 65 tariffs with 22 different suppliers are currently offering fixed price deals that are more expensive than the current price.

The cheapest deals on the market currently cost under £950 which means people on these fixed price deals will be paying as much as £250 more per year.

Of the Big Six energy companies, ScottishPower has the most fixed price deals above the current price cap, with 18 tariffs above the cap.

Ofgem, the industry regulator, earlier this month announced that energy prices for millions of households will increase from April after it increased the price cap by £96 for default tariff customers.

An Ofgem spokesman said: “The price cap protects around 11 million households on default tariffs, and around 4 million households who use prepayment meters.

“Fixed tariffs are generally much cheaper than default tariffs and priced below the level of the cap, which will increase on April 1 mainly due to higher wholesale energy prices.

“The impact of an increase in wholesale prices usually feeds more quickly into the price of fixed tariffs, which is why some are already increasing.”

On automatic switching, the spokesman added: “We will continue working closely with the Government to determine the best way to take the Government’s proposals for automatic switching and will consider carefully what would be the best way to implement these measures.”

The “Big Six” energy companies have all said that they are putting their prices following the increase to the cap, affecting millions of customers.

Of those, Eon, Npower and British Gas have said they will put up prices by the maximum allowed by the new cap, with SSE and EDF increasing prices to just £1 below it.

Look After My Bills urged ministers to close a loophole which allows energy companies to offer fixed price deals at prices above the price cap, potentially locking in unwitting customers to sky-high bills.

This is because the price cap only applies to variable rates, not fixed price deals. According to the research, 15 of the high-priced fixed deals will still be above the new price cap when it comes into force in April. It will increase by £96 to £1,138 a year.

Daily Telegraph

Abu Dhabi plots exit from Thames Water

Abu Dhabi’s sovereign wealth fund is considering selling its stake in Thames Water after a disastrous spell.

Abu Dhabi Investment Authority (Adia) bought 9.9 per cent from the Australian bank Macquarie in 2011. The UK’s biggest water company has since been laid low by problems including a record £20 million fine for sewage leaks, the worst ranking for customer service and conflict with Ofwat, the sector regulator.

After extracting huge dividends and loading Thames with debt, Macquarie sold its final 26.3 per cent stake in 2017 for about £1.3 billion to Canadian and Kuwaiti investors.

Adia, which manages the oil wealth of the Gulf emirate, declined to comment. It has about $875 billion (£628 billion) of assets and owns stakes in businesses including Gatwick airport.

Some smaller investors are expected to sell alongside Adia, including Canadian fund manager Fiera Capital.

Investors in other water companies, including Yorkshire’s owners, Deutsche Wealth Services and Corsair Capital, are also expected to attempt to sell up once they have clarity over the Ofwat case.

Sunday Times

UK carbon trading system to launch in May

The UK’s post-Brexit carbon trading scheme will launch in May, the government said on Friday, with the first auctions that replace its EU counterpart expected to attract strong interest from buyers.

The UK emissions trading programme is a cornerstone of the government’s pledge to become a net-zero economy by 2050. It sets a limit on the volume of greenhouse gases that heavy polluters can emit and requires them to buy carbon credits, which can be traded, to cover their output.

Companies such as power providers have been awaiting details on the UK scheme since the Brexit transition period concluded at the end of 2020. The plans released on Friday show the first trades will take place on May 19, pending regulatory approval.

The UK ETS is designed to enable companies to cut emissions in a cost-effective way, make cleaner fuels more competitive and force industry to clean up its operations. It will become the main UK benchmark for the price of emissions following Brexit.

Auction volumes are expected to be in line with a UK government pledge to reduce the number of allowances for polluting by 5 per cent relative to the EU system.

Intercontinental Exchange, which also hosts the EU carbon trading platform, said on Friday that 83m UK allowances would be sold this year with the auctions taking place every two weeks.

Anne-Marie Trevelyan, UK energy minister, said the scheme was designed to be “even more ambitious than the EU system it replaces”.

The Financial Times

Budget to launch ‘green bond’ to encourage investment in climate change technology

Savers who want to invest in protecting the environment are to be offered the opportunity to purchase the world’s first green savings bonds.

The bonds, to be launched in Rishi Sunak’s Budget on Wednesday, will raise funds to invest in projects such as renewable energy and clean transport to support the government’s goal of the UK reaching net zero carbon emissions by 2050.

The announcement will come alongside Mr Sunak unveiling in the 3 March statement reforms to the visa system to encourage high-skilled workers including researchers, engineers, scientists and tech experts to come to the UK.

The new “elite” points-based routes will guarantee a visa for winners of international awards like the Nobel prizes and will allow highly-skilled migrants with a job offer from a fast-growth firm to qualify without the need for sponsorship or third-party endorsement.

Mr Sunak said that the green savings bonds would help drive innovation in the technologies needed to reduce the UK’s reliance on greenhouse gas-producing fossil fuels.

“The UK is a global leader on tackling climate change, with a clear target to reach net zero by 2050 and a 10-point plan to create green jobs as we transition to a greener future,” he said.

“In a world first, we’re launching a new green savings bond which will give people across the UK the opportunity to contribute to the collective effort to tackle climate change.

“And we’re also launching new competitions that will unlock innovation in renewable energy and help us develop the cutting-edge technology we need to reach net zero.”

Further details will be set out in the coming months before the product goes on sale later in 2021.

In other green announcements in the Budget, the Chancellor will launch three programmes funded by the £1bn Net Zero Innovation Portfolio , which is designed to support the drive to net zero.

These are expected to include £20m for a competition to develop floating offshore wind demonstration projects to generate electricity in deep waters where winds are strongest.

Nearly £70m is expected for a competition to deliver first-of-a-kind long-duration energy storage prototypes that will reduce the cost of net zero by storing excess low carbon energy over longer periods.

And a further £4m will go towards a biomass feedstocks programme to identify ways to increase the production of green energy crops and forest products for energy use.

The Independent

Thames Water fined £2.3m for raw sewage pollution incident

Thames Water, the UK’s largest water company, has been fined £2.3m for a pollution incident in 2016 that resulted in the death of 1,200 fish and damaged the environment.

The incident, involving a leak of untreated sewage with a high ammonia content into the Fawley Court ditch and stream that flows into the River Thames at Henley-on-Thames, happened between 21 and 24 April 2016.

The prosecution and sentencing of Thames Water, which pleaded guilty to the Environment Agency’s charge, was delayed until this week for reasons including the pandemic.

Francis Sheridan, the judge in the case, which was heard at Aylesbury crown court, said Thames Water’s breach of environmental standards constituted “high negligence”.

The company received a record £20m fine in March 2017 for a series of pollution incidents at sewage facilities in Buckinghamshire and Oxfordshire that led to the pumping of 1.9bn litres of untreated sewage into the Thames.

In the latest case, the court heard that Thames Water’s warning systems of low levels of oxygen in the water had been activated over a number of days, but that effective action had not been taken in response.

Sheridan said he wanted a deterrent element to be built into the sentence and for that reason he had set the fine high.

Thames Water initially sought to get the case dismissed, but the judge rejected its attempt as hopeless.

He accepted in mitigation, however, that Thames Water had taken significant steps to improve matters since the incident. Its eventual decision to plead guilty to the offences was also recognised as a mitigating factor.

Thames Water’s CEO, Sarah Bentley, who joined the company in September, said: “We’re really sorry for what happened in Henleyfive years ago. Discharges of untreated sewage are simply unacceptable and we will work with the government, Ofwat and the Environment Agency to accelerate work to stop them being necessary.

“Our business plan for the next five years includes an unprecedented amount of investment, much of it directed towards safeguarding the environment. We have a long way to go and we certainly can’t do it on our own, but the ambition is clear.”

The Guardian

Climate change: Carbon emission promises ‘put Earth on red alert’

The world will heat by more than 1.5C unless nations produce tougher policies, a global stocktake has confirmed.

Governments must halve emissions by 2030 if they intend the Earth to stay within the 1.5C “safe” threshold.

But the latest set of national policies submitted to the UN shows emissions will merely be stabilised by 2030.

The UN Secretary-General, António Guterres, called it a red alert for our planet.

He said: “It shows governments are nowhere close to the level of ambition needed to limit climate change to 1.5 degrees and meet the goals of the Paris (Climate) Agreement.

“The major emitters must step up with much more ambitious emissions reductions targets.”

Dr Niklas Hohne from the New Climate Institute told BBC News: “There is a huge gap to fill if we are serious about 1.5C (the threshold nations have agreed not to pass).

“Global emissions have to be halved – but with current proposals they will only be stable. That’s really not good enough.”

Some nations have not even submitted a climate plan, and some – such as Australia – are judged to have offered no substantial improvement on previous proposals.

Emissions from those countries doing little or nothing extra comprise 10-15% of global emissions. Mexico and Brazil have attracted criticism for not doing more.

There are some positive signs, though. The EU, for instance, made the biggest jump from a target of a 40% cut to a 55% cut, based on 1990 levels.

“The target could have been more, but it’s a good step in the right direction,” Dr Hohne said.

BBC News

Electricity needed to mine bitcoin is more than used by ‘entire countries’

It’s not just the value of bitcoin that has soared in the last year – so has the huge amount of energy it consumes.

The cryptocurrency’s value has dipped recently after passing a high of $50,000 but the energy used to create it has continued to soar during its epic rise, climbing to the equivalent to the annual carbon footprint of Argentina, according to Cambridge Bitcoin Electricity Consumption Index, a tool from researchers at Cambridge University that measures the currency’s energy use.

Recent interest from major Wall Street institutions like JPMorgan and Goldman Sachs probably culminated in the currency’s rise in value and an endorsement by Tesla’s Elon Musk helped drive its recent high as investors bet the cryptocurrency will become more widely embraced in the near future.

While the recent fall has dented Musk’s fortune, bitcoin also poses a threat to the company’s mission toward a “zero-emission future” and poses serious questions for governments and corporations looking to curb their own carbon footprints.

Bitcoin mining – the process in which a bitcoin is awarded to a computer that solves a complex series of algorithms – is a deeply energy-intensive process.

“Mining” bitcoin involves solving complex math problems in order to create new bitcoins. Miners are rewarded in bitcoin.

Earlier in bitcoin’s relatively short history – the currency was created in 2009 – one could mine bitcoin on an average computer. But the way bitcoin mining has been set up by its creator (or creators – no one really knows for sure who created it) is that there is a finite number of bitcoins that can be mined: 21m. The more bitcoin that is mined, the harder the algorithms that must be solved to get a bitcoin become.

Now that over 18.5m bitcoin have been mined, the average computer can no longer mine bitcoins. Instead, mining now requires special computer equipment that can handle the intense processing power needed to get bitcoin today. And, of course, these special computers need a lot of electricity to run.

The amount of electricity used to mine bitcoin “has historically been more than [electricity used by] entire countries, like Ireland”, said Benjamin Jones, a professor of economics at the University of New Mexico who has researched bitcoin’s environmental impact. “We’re talking about multiple terawatts, dozens of terawatts a year of electricity being used just for bitcoin … That’s a lot of electricity.”

Proponents of bitcoin say that mining is increasingly being done with electricity from renewable sources as that type of energy becomes cheaper, and the energy used is far lower than that of other, more wasteful, uses of power. The energy wasted by plugged-in but inactive home devices in the US alone could power bitcoin mining for 1.8 years, according to the Cambridge Bitcoin Electricity Consumption Index.

But environmentalists say that mining is still a cause for concern particularly because miners will go wherever electricity is cheapest and that may mean places that use coal. According to Cambridge, China has the most bitcoin mining of any country by far. While the country has been slowly moving toward renewable energy, about two-thirds of its electricity comes from coal.

The Guardian

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.