Weekend press round-up: Goldman Sachs to plough £250m into Ovo

In our latest review of sector coverage across the national newspapers, Goldman Sachs is said to be in advanced negotiations to inject capital into Ovo Energy. Meanwhile, BP is considering bidding in the Scotwind auction as it ramps up its green ambitions. Lobbying efforts to promote investment in hydrogen and the future of desalination for drinking water are also analysed.

Goldman Sachs to plough £250m into energy gatecrasher OVO

An arm of Goldman Sachs is in talks to plough £250m into OVO Energy, one of Britain’s biggest domestic gas and electricity suppliers.

Sky News has learnt that a private investment division of Goldman’s asset management business is in advanced negotiations to inject the capital into the group.

City sources said on Friday that the deal was subject to being finalised by Goldman executives but that it could be announced within weeks.

Once confirmed, it will conclude a process that kicked off last autumn for OVO to raise capital to accelerate its expansion.

Insiders said the exact sum being raised would be between £250m and £300m, and was likely to result in Goldman owning a substantial minority stake in OVO.

The proceeds will be used to fund the company’s residential decarbonisation agenda as well as grow its software platform, Kaluza, internationally.

The valuation attached to Goldman’s investment is expected to be between £2bn and £3bn.

It is the first external capital-raising by OVO since Japan’s Mitsubishi Corporation bought a 20% stake in OVO in early 2019.

People close to the company said it would help OVO expand Kaluza, which recently announced a joint venture with AGL, Australia’s biggest energy retailer and generator.

Sky News

BP seeking second wind off Scotland

BP is preparing to bid for the rights to build wind farms off Scotland as it signals no let-up in expansion after a £900 million splurge on leases in the Irish Sea.

The London-based oil giant caused waves in February by offering record prices to enter the UK offshore wind market through a Crown Estate auction of seabed leases off England and Wales.

Bernard Looney, chief executive, told The Times it was looking at bidding in the forthcoming Crown Estate Scotland auction. “We’re looking at ScotWind [Crown Estate], we are looking elsewhere in the world as well,” he said.

It is understood that BP is working on bidding jointly for Scottish leases with EnBW, the German utility it partnered with on the Irish Sea leases.

Bids are yet to be finalised with a deadline of July 16 for the ScotWind process, which is offering 17 areas spanning 8,600 sq km of seabed.

BP, one of the world’s biggest oil companies, is expanding into offshore wind as it pursues a goal of cutting emissions to net zero by 2050.

It plans to develop 20 gigawatts (GW) of renewable power generation by 2025 and 50GW by 2030. It now has 1.6GW operational, 3.3GW developed to the point of final investment decision and a pipeline of 13.8GW.

Looney, who dismissed suggestions it had overpaid for the Irish Sea leases, said: “The key thing for us is being disciplined, saying no to as many things as we say yes to. We’re feeling very comfortable about the targets that we’ve put out, and therefore it’s not like there’s some mad panic going on at BP to try to fill a gap to a target.”

The Times

Energy giants’ lobbying fuels the rise of hydrogen

Few parts of the UK have attracted as much government attention in recent months as northeast England. Although Conservative mayor Ben Houchen is favourite to win Thursday’s Tees Valley mayoral election, ministers have left nothing to chance.

The 34-year-old has hosted visits from Boris Johnson, chancellor Rishi Sunak and business secretary Kwasi Kwarteng. Nearby Hartlepool, where the Tories’ Jill Mortimer is the bookies’ favourite to grab the seat from Labour in this week’s by-election, has received a similar love-bombing.

Houchen’s campaign has had a distinctly green tinge. He has campaigned on a ticket of clean industrial rebirth in an area ravaged by the closures of steel and chemicals works.

Hydrogen has been at its heart — an element that in just a few years has propelled into the mainstream. The gas, the most abundant matter in the universe, has been hailed as key to cleaning up global carbon emissions, for use in heating and transport. Its only by-product in combustion is water.

Huge vested interests lie behind the rise of hydrogen: oil giants such as Shell, BP and Norway’s Equinor have staked their futures on natural gas as a less-polluting alternative to oil.

Shell did so in 2015 with its £47 billion takeover of BG, the rump of privatised British Gas. BP has been investing in liquefied natural gas terminals and fields from Egypt to west Africa. In 2018, it spent $10.5 billion on BHP Billiton’s US shale gas assets.

But those bold bets have soured amid a backlash against fossil fuels of all types, led by the Extinction Rebellion movement and inspired by the Swedish teenager Greta Thunberg.

Now the oil majors hope that by stripping the carbon from their methane to create hydrogen, they can ensure a market for it remains. Equinor has taken to Twitter with an advertising campaign: “Is it high time for hydrogen in the UK?”

A similar lobbying push is under way from the owners of the pipes that transport the gas. Companies including Cadent and Northern Gas Networks are promoting the role of hydrogen amid concern that their pipelines, worth billions of pounds, risk becoming “stranded assets” as gas is phased out.

Their trade body, the Energy Networks Association (ENA), is pushing for state support for a net zero gas grid. The ENA says pumping hydrogen through it provides a cheap way to clean up domestic heating and could be used in the UK’s 23 million homes on the gas grid.

Matt Hindle, head of gas at the ENA, said: “The more we can develop the hydrogen infrastructure and use our existing gas-distribution networks to deliver hydrogen instead of natural gas, the simpler the transition is for consumers. Hydrogen boilers look, feel and are the same size as an existing boiler.”

That lobbying is paying off. Hydrogen was mentioned 18 times in parliament in 2015; last year it was mentioned 392 times. The all-party group on hydrogen is funded by Shell, Cadent, Scotia Gas Networks and Northern Gas Networks, as well as boiler-makers Baxi and Bosch.

Data from Transparency International shows that companies and trade bodies held 34 meetings with ministers on hydrogen from January to September last year; there were none on that subject in 2019.

The Sunday Times

Drink seawater to save chalk streams

More than half a million people will drink treated seawater under plans to build a giant desalination plant to help to protect prized chalk streams where the sport of fly-fishing was invented.

Chalk streams have been compared to rainforests because there are only about 200 globally and 85 per cent are found in England. The Test and the Itchen in Hampshire are two of the finest and anglers from around the world pay up to £350 a day to fish for trout, salmon and grayling in their normally gin-clear waters.

The rivers are threatened by excessive abstraction for drinking water, especially during droughts, which are predicted to become more frequent because of climate change.

Abstraction can rob the rivers of the strong flow needed for salmon and trout to migrate upriver to spawn. It also reduces weeds, which keep the rivers healthy, and means fertiliser and other chemicals that leak into the water from farms are less diluted and therefore more harmful.

The Environment Agency ordered Southern Water to reduce how much water it takes from the rivers. The company has responded with plans to build a £600 million desalination plant by 2027 that would take seawater from the Solent to produce up to 75 million litres of drinking water a day.

Desalination plants are increasingly common in countries at risk of water shortages, including Australia, Israel and Saudi Arabia, but the UK has only one at present, in Beckton, east London. It is used only occasionally, as a back-up, unlike Southern Water’s plant which would operate all year round, normally producing about 15 million litres a day but increasing output in a drought.

The plans were welcomed by the Test & Itchen Association, which represents landowners with fishing rights on the rivers, but were strongly opposed by the Hampshire & Isle of Wight Wildlife Trust because of the threat to marine wildlife from the concentrated brine that would be discharged back into the Solent. The trust said the increased salinity could cause algal blooms and other effects that would threaten the recovery of native oysters and damage seagrass, which stores carbon and is a breeding ground for sea bass, cuttlefish and spider crab.

In letter to Southern Water seen by The Times, the trust said: “We feel strongly that there are significant risks to protected habitats and species … The Solent is already stressed and the unfavourable condition of its protected habitats such as seagrass has been attributed, in great part, to the impacts of poor water quality.” It urged the company to do more to fix leaks and to invest in water treatment plants that allow wastewater to be turned into drinking water.

The Times

Dirty energy deals sold as green

As little as £1.45 a year is being spent creating renewable power for each customer signed up to a green tariff at some of Britain’s biggest energy suppliers.

A report by the consultancy Baringa has found that rather than generating renewable fuel or buying it directly from plants, many companies are buying ultra-cheap certificates that allow them to market their tariffs as green.

For example, Bulb, which has more than 1.6 million customers, promises to provide “100 per cent renewable electricity”. However, 96 per cent of its green power is paid for through Renewable Energy Guarantee of Origin certificates, known as Regos.

Renewable power plants, such as wind farms, obtain Regos from Ofgem, the energy regulator, as certification that they are generating supply. They are allowed to sell them on to providers separately from the power they certify. Prices are low: the cost of being allowed to market a tariff as “100 per cent green” is about £1.45 per customer per year.

Industry experts have called on the government to overhaul the marketing of green tariffs so households understand what they are signing up for.

The number of electricity tariffs advertised as green has risen dramatically in recent years. This week there were 135 tariffs classed as renewable out of 247 on the market.

The study showed that last year only 4 per cent of Bulb’s energy supply came from direct power purchase agreements with suppliers, and 96 per cent was offset by Regos. For British Gas’s green tariffs, 33 per cent of supply was backed by Regos, and for Eon’s green tariffs it was 51 per cent. Shell Energy Retail backed all of its green tariffs by buying Regos, as did Pure Planet, which is part-owned by BP. All of Scottish Power’s, Good Energy’s and EDF’s green energy tariffs were underpinned by power purchase agreements whereby the companies bought green energy direct from the supplier.

Vladimir Parail from Baringa, who compiled the report, said: “What the report shows is that it does make a difference where energy is bought, and this is simply not clear to consumers under current rules.”

The cheapest green energy deal on the market is with the small supplier Orbit Energy, with an average household bill costing £873 for its Spring vari-save tariff. This company does not appear in the Baringa report, but it says on its website that it justifies its green tariff by purchasing Regos. Eon’s Next exclusive tariff is tenth cheapest, costing £942, while British Gas has seven tariffs ranked between 27th and 37th, starting from £995. Bulb’s Vari-fair tariff is priced at £1,026 for an average household, halfway down the table.

However, the suppliers that choose to buy green energy directly from generators or create it themselves generally charge more, reflecting the true cost of making green power. Of the 20 most expensive tariffs, 11 were supplied by Good Energy, Scottish Power or Ecotricity, which is owned by the eco-warrior entrepreneur Dale Vince. These cost from £1,150 to £1,356.

Hayden Wood, Bulb’s co-founder, defended his company’s record. “Not all Regos are equal. They come from different sources. Bulb only buys Regos from solar, wind and low-impact hydro generators,” he said. “It’s very different to some of the other Regos that come from things like energy from waste generation and biomass.”

Ofgem said it was worried that environmental tariffs were being missold and has welcomed a pledge by the Department for Business, Energy and Industrial Strategy to review the Rego scheme this year.

British Gas said: “Over two thirds of our electricity comes from renewable sources, which is achieved through a mix of direct investment in low carbon assets, renewable power purchase agreements and certificates. We know our customers want renewable energy but at an affordable price.”

Shell Energy, which offers only renewable tariffs, said the wider Shell group used power purchase agreements, and “this power is matched to Shell Energy domestic customers using Regos.

The Times

‘Beetroot’ water complaints lead to red alert over algal blooms in reservoirs

Water companies are facing a barrage of complaints that the supply has a “beetroot” taste, as climate change leads to growth of algae in reservoirs.

Cyanobacteria, colloquially known as blue-green algae, is appearing more frequently in British water.

It produces two substances, 2-Methylisoborneo (MIB) and geosmin, which is also present in beetroot and gives it its “earthy” taste.

This does not pose a threat to health, but some customers are able to taste them even at extremely low concentrations, as little as five billionths of a gram per litre.

Now a new project aims to tackle the problem by detecting the presence of algae before it has a chance to cause the unpleasant musty taste and smell.

Professor Laurence Carvalho, a freshwater ecologist at the UK Centre for Ecology and Hydrology, said companies were under pressure because of customer complaints.

“Algal blooms are becoming more frequent over the past few decades, at least partly because of nutrient pollution, and sewage and agriculture, and partly because of the warmer, drier summers we’re getting.

“Both of those climate effects lead to more frequent and larger-magnitude algal blooms.

“There is pressure on water companies to reduce customer complaints, and one common complaint is taste and odour.

“So they’re really trying to think about how they can look at non-chemical intervention, and how to manage the catchments and the reservoirs better so they don’t have so much chemical treatment.”

In a project starting in June, environmental DNA technology will be used to detect the presence of the algae before it has a chance to produce the foul taste and smell.

The project recently won funding in a competition run by water regulator Ofwat and innovation charity Nesta Foundations.

Paul Gaskin, research and innovation manager at Welsh Water, which is leading the project said: “At the moment, to measure blue green algae levels, you’ve got to take a sample that goes to the lab, you’ve got to have someone who’s skilled in identifying algae, who looks down the microscope and tells you how many of each species are present in the water.

“It’s a backbreaking, boring, time-consuming method to use, so what we’re hoping to do is use environmental DNA to look at that instead.”

Samples of water collected from the six reservoirs, which include two in Wales, two in Yorkshire, and two in Bristol, will be filtered on site.

Filters are then sent to a Cardiff University lab to undergo DNA analysis which can detect the presence of organisms in the water at very low concentrations.

It can also tell whether the genes that produce the problem substances are “switched on”, providing a more accurate test of whether taste problems are likely.

Daily Telegraph

UK’s net zero push undermined by energy grid that holds back renewables

Efforts to tackle the climate crisis are being undermined by an antiquated energy grid and outdated planning rules which discourage investment in renewable energy, industry figures and MPs have said.

Renewable energy developers warn that an ageing network of pylons, transformers and cables, designed for an era of large fossil fuel plants, is limiting the rollout of green power. They say it is no longer viable to build additional supply in parts of the country because the costs of connecting to the grid are too high.

The call for reform comes as MPs on the Environmental Audit Committee wrote this week to the business secretary, Kwasi Kwarteng, urging for renewed support for small-scale, community energy projects which have suffered from the withdrawal of a range of government subsidies.

Despite the government’s commitment to reaching net zero carbon emissions, local energy generation in the UK is not growing, unlike in Germany, Denmark and the Netherlands, the committee said.

Philip Dunne, chairman of the committee, wrote: “Grid connection costs and access charges can be too high for small groups and do not account for the wider decarbonisation benefits – including education and social support – that the projects bring to their communities compared to commercial renewable projects.”

The committee wants ministers to overhaul planning rules to force councils to engage with community energy groups and prioritise local power generation.

Commercial developers too are calling for reform to make it cheaper to connect renewable power to the grid.

A key issue is that gas power stations typically have access to a set amount of grid capacity, whether or not they are generating energy at a given time. Renewable energy suppliers are therefore unable to use it even if the capacity is lying unutilised.

Developers argue that these contracts should be renegotiated to allow fairer and more flexible use of existing capacity.

Many wind and solar developers joined the grid more recently than fossil fuel suppliers, under contracts which allow network operators to turn their supply down when there is excess energy being generated.

Typically this occurs when it is very sunny or very windy – exactly the times that renewables would be most profitable.

Investors in new energy supply also have to pay companies that operate the network for upgrading local infrastructure, which can be prohibitively expensive.

One renewables developer was recently quoted £40m to connect a new solar and battery storage development that was projected to cost £10m.

Tom Edwards, a consultant at Cornwall Insight, a renewable energy research and advisory company, would also like to see change.

“The way the network charging arrangements were built was all done back in the 1990s when it was thought we were just going to build gas forever,” he said.

Fossil fuel suppliers have “reserved connections” to an energy network which is already overloaded, he explained.

“So if you’re in an area where there’s already a lot of solar farms and no spare capacity, you’ve got to pay to build more network to get more power out.”

If renewables developers do not want to fork out millions to upgrade the network so they can connect, they can agree to a flexible connection which means they can be tripped off the system when there is too much power being generated.

The key question, Mr Edwards said, is how the cost of adding new capacity is shared between renewables developers – who build it and profit from it – and society as a whole through taxes and electricity bills.

He said older agreements between fossil fuel plants and network operators could be renegotiated so that capacity is not reserved all of the time but is instead allocated flexibly and can be used by renewables when gas power stations are laying idle.

This would free up space on the grid and allow a fairer distribution between all types of power. The plan would encourage renewables investment but also require compensation payments for the power stations that lose out.

Read the rest of this article here

The Independent

UK university pension fund proposes net zero investment strategy

The UK universities’ pension scheme has pledged to pursue an investment strategy consistent with net zero carbon emissions by 2050, but its plan has sparked criticism from academics seeking a rapid exit from fossil fuels.

The £80bn Universities Superannuation Scheme, the UK’s largest private pension fund by assets, has begun the process of developing a comprehensive net zero strategy after last year promising not to make investments in companies producing thermal coal that is used in electricity generation.

The USS would not make “wholesale divestments” from fossil-fuel producers but would work with other pension funds to encourage oil and gas companies to make material cuts to their carbon emissions, said Simon Pilcher, chief executive of the pension scheme’s investment management arm.

New rules are due to be announced this year by the government which will require pension schemes to evaluate the risks posed by climate change as part of Britain’s plan for net zero emissions by 2050.

The USS has begun establishing interim targets towards net zero and intends to evaluate its carbon footprint for new reporting standards required by global regulators under their Task Force on Climate-related Financial Disclosures.

“This is about taking the logical next step as responsible investors,” said Pilcher. “We recognise the transition . . . will not be easy and we have work to do to make our net zero ambition a reality by 2050 or before.”

The USS, which has more than 450,000 members in its pension scheme, has already committed £1bn of investment in wind energy. Pilcher said the USS had also allocated £300m to building new solar energy projects.

Anne-Marie Trevelyan, the UK energy minister, said she hoped that other investment groups would follow USS by “using their position to shape the green economy and providing climate security for generations to come”.

The House of Commons work and pensions select committee last week launched an inquiry into the government’s approach to pension stewardship, which will also examine measures to encourage retirement schemes to make climate-friendly investment decisions.

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.