Weekend press round-up: Japanese owners put SES Water up for sale

The Japanese owners of SES Water are reportedly putting the business up for sale due to their reluctance to inject fresh equity into the highly-geared company. Meanwhile, Grant Shapps, head of the newly-formed Department for Energy Security and Net Zero, discusses his plans to make British energy the cheapest in Europe. This and more in Utility Week’s latest round-up of the weekend’s papers.  

SES Water up for sale in UK as Japanese owners pay £7.8mn dividend

SES Water’s Japanese owners are paying a £7.8mn dividend and putting the business up for sale as the UK’s privately owned water companies come under pressure to invest in ageing infrastructure.

The company, which provides water for about 745,000 people in south-east London, West Sussex and Kent, has been put on the market by its owners Sumitomo and Osaka Gas, according to two sources close to the sales process. Macquarie Capital is acting as adviser to the companies.

SES’s Japanese owners are understood not to have wanted to put equity into the business and instead decided to sell, one person close to the discussions said. The company is one of six water-only providers in England and is responsible for supplying Gatwick airport, which was forced to close restaurants and toilets for one day last July after pipes burst.

Sewage treatment in the region is provided by Thames Water and Southern Water, either of which could emerge as a potential buyer.

The sale comes as privately owned water and sewage companies in England and Wales face the biggest wave of protests since privatisation 33 years ago. The companies are accused of massive water leakage and pollution failures, including tipping unknown quantities of storm water and sewage into coastal waters and rivers.

Around a fifth of treated water across the industry is lost in leakage while just 14 per cent of rivers meet the minimum standards for “good” ecological status, according to official figures.

However, even as water companies come under pressure to invest in infrastructure, regulator Ofwat is increasingly concerned with the companies’ balance sheets. After being sold with almost no debt at privatisation three decades ago, the companies have racked up borrowings of £60.6bn, diverting income from customer bills to service the interest.

In December, Ofwat said SES needed to strengthen its “financial resilience” alongside Southern Water, Thames Water, Yorkshire Water and Portsmouth Water.

As with other water companies, SES is under pressure from the rising cost of energy, chemicals and labour, as well as the cost of servicing its £211mn net debt.

Last year the company said that net financing costs had almost tripled from £5.5mn in 2021 to £14.3mn in the six months to the end of September 2022. Despite this, SES is paying dividends of £7.8mn in the year to March 2023.

Financial Times

Water company bosses’ pay up 20% last year despite sewage failures

Pay packages for water industry bosses soared by a fifth on average last year, despite the companies overseeing hundreds of thousands of sewage spills.

The average remuneration for executives at ten firms in England and Wales climbed to £1.1 million in 2021-22, up by £193,000 on average. The increase prompted accusations of a “national scandal” given the state of the country’s rivers. Collectively, executives across the sector were paid almost £25 million.

The Times revealed this week that several water firms, including Northumbria Water and United Utilities, had lobbied to weaken the government’s £56 billion plan to clean up storm overflows.

Analysis of Companies House data by the Liberal Democrats, who are calling for a ban on bonuses for water bosses, found significant increases in base pay, bonuses and pension contributions.

Total executive remuneration was highest at Severn Trent, with two executives paid a total of almost £6 million. The company’s chief executive, Liv Garfield, is the highest-paid boss in the sector, on a £3.9 million package. Thames Water, the biggest water company, had the second highest total executive remuneration, with four executives sharing £3.24 million.

Pension contributions collectively rose by almost 10 per cent on the year before, to an average payment of £61,067 per executive in 2021-22. Executives at United Utilities received the highest pension contributions, at £222,000 in total.

Tim Farron, the Lib Dem environment spokesman, said: “This is a national scandal. Our rivers are becoming polluted with filthy sewage whilst these execs get rewarded with gold-plated pensions and bumper pay packets. The British public will be rightly furious at these payout figures. These staggering pay levels cannot be justified when sewage is gushing into our waterways.”

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A Water UK spokesman said: “Bonuses and incentives for water company leaders are linked to their delivery for customers and the environment. If delivery falters, then levels of reward will, rightly, be lower.”

The Times

Ban polluting water companies from handing out dividends, public say

Water companies should not be allowed to pay dividends unless they do more to prevent pollution, according to a YouGov poll for The Times.

Asked who they thought was most responsible for the pollution of Britain’s rivers and beaches, 31 per cent assigned most blame to the water companies, 21 per cent pointed the finger at manufacturing companies and 17 per cent held the government responsible.

There is still little support for the government’s handling of the issue. Only 11 per cent of the country think the government is dealing with water pollution well, while 68 per cent say it is handling it badly.

Even among those who would vote Conservative if an election were held today, 27 per cent say the government is handling the issue well while 49 per cent think it is not.

Asked whether they would support or oppose a law that prevented water companies from paying dividends to shareholders unless they reduced the amount of pollution they allow, 80 per cent said they would support such a measure and only 6 per cent said that they would oppose it.

Analysis by The Times in August found that 15 water companies in England had paid dividends to parent companies in the previous year totalling £1.1 billion, up 18.7 per cent on the previous 12 months.

There is only lukewarm support for renationalising water companies, however. Thirty per cent of people asked thought that nationalisation would reduce pollution but 40 per cent said that it would not.

The Times

Britain’s flagship nuclear plant scrambles to avoid cash crunch

The builder of Britain’s flagship new nuclear power station is scrambling to prevent a cash crunch as fears grow that its Chinese partner will withhold extra support.

EDF said there is a high likelihood that state-owned China General Nuclear (CGN) will not want to contribute to a crucial fresh round of funding for the Hinkley Point C project in Somerset.

It leaves EDF on the hook for billions of pounds at a time when the French state-owned business’s balance sheet has been stretched by outages on its nuclear fleet at home, which have worsened Europe’s energy crisis.

EDF added that Hinkley Point C is now expected to cost £32bn owing to inflation, up from a previous estimate of £26bn. The project was initially expected to cost £18bn when approved in 2016.

CGN was persuaded to help build new British nuclear plants by then-chancellor George Osborne in 2015 as part of their plan for a “golden era” in Anglo-Chinese relations.

The company was initially supposed to be involved in three power stations – Sizewell C, Hinkley Point C and Bradwell B.

However, last year it was bought out of Sizewell C by EDF with UK Government funding amid concerns about the Chinese regime’s involvement in sensitive infrastructure.

It is thought that as part of this deal, it is no longer expected to provide extra voluntary funding to Hinkley Point C. CGN is also now highly unlikely to be involved in Bradwell B.

The Daily Telegraph

Does Grant Shapps’ plan for the cheapest energy in Europe add up?

Grant Shapps has had less than a fortnight to get to grips with his new-look department but the energy secretary is buzzing with ambition.

“My very simple objective is to create the economy with the cheapest wholesale electricity price by 2035,” he says. “That’s what I’m going to be all about. Let’s have Britain with the cheapest energy in Europe.”

As the head of the new Department for Energy Security and Net Zero, Shapps has been asked to concentrate his resources on three tasks: bolstering energy supplies for next winter, reducing spiralling household bills and speeding up the transition to greener forms to hit net zero by 2050. All three have assumed greater urgency since President Putin’s invasion of Ukraine sent household energy bills skyrocketing and western nations scrambling to wean themselves off cheap Russian oil and gas. Shapps believes all three are connected.

“It was wrong for us to stop investing in nuclear,” Shapps says; together with wind and solar it will get Britain’s energy costs down and revitalise the economy.

“I have had this conversation with the prime minister and chancellor many times,” he says. “The most successful economies in the world are the ones that have cheap energy prices.”

While Britain was once a global leader in civil nuclear power — Calder Hall, the world’s first commercial nuclear power station, was opened in Copeland in Cumbria in 1956 — the failure since the Seventies of successive governments, both Labour and Conservative, to reinvest has sent the sector into long-term decline. No new nuclear power station has been completed in the UK since Sizewell B in 1995, with electricity production from nuclear falling from 25 per cent then to 15 per cent now. Of the five power stations still functioning, four are due to be decommissioned by 2028.

“I think it was wrong of us to stop investing in nuclear,” Shapps says. “Labour did it for political reasons because they didn’t like nuclear for a large part of their existence. Perhaps because of the coalition government as well, which wasn’t super-keen on nuclear, we weren’t able to progress even when the Conservatives came in. So it’s taken a while but we’re on the right track.”

Last year, in the face of soaring energy bills, Boris Johnson vowed to tackle the nuclear problem. Setting out a new strategy for British energy security, he pledged to triple domestic nuclear capacity to 24GW by 2050 — a quarter of the UK’s projected electricity needs — by building eight large new reactors alongside the development of small modular reactors (SMRs). This has continued under Rishi Sunak, who in November confirmed the government would make an initial £700 million investment in Sizewell C, a new plant on the Suffolk coast to be built in partnership with the French energy giant EDF. Hinkley Point C, in Somerset, is already under construction.

Within the industry, however, there is growing concern that the action taken to date falls far short of what is required. These fears were compounded by the delayed launch of Great British Nuclear (GBN), Johnson’s brainchild to deliver the next generation of reactors and SMRs by identifying potential sites, developers and investors.

“You can take the establishment of an energy security department as a pretty clear guide or indication that we will be moving ahead with GBN,” says Shapps, adding that the long-anticipated launch is coming within weeks.

Asked if Johnson’s ambition to build a new reactor every year for a decade remained intact, Shapps is more equivocal: “I’m never quite sure with Boris’s ambition. I think he was including SMRs when he said that.”

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Shapps appears more surefooted on renewables, in particular offshore wind.

“The good news is we are already on the road, we’re not just starting on the journey today,” he says. “What I intend to do is ensure it’s accelerated and put real emphasis and oomph behind it. We now have the world’s largest offshore wind farm and the second largest and the third largest and soon to have the fourth largest. We’ve seen offshore wind go from one of the most expensive technologies to being one of the cheapest ways to produce power.

“We’re producing more wind than pretty much anywhere else in Europe. I’ve just looked at the bidding that is likely to take place for the next round. These wind turbines are so large, that the space they turn around in is the equivalent of seven football pitches stitched together. It’s extraordinary. What you’re seeing is a scale that has been unimaginable until now.”

In his long-term energy strategy, Johnson committed to delivering up to 50GW of power from offshore turbines by 2030, up from approximately 14GW of capacity now. Shapps says it is likely he will raise the target further. “The reason I say that,” he adds, “is I can already see 76GW in the pipeline. It may be that some of those just don’t come off or the economics change. But I think the other thing that is happening is that the technology is becoming so much better.”

He seems less keen to discuss onshore wind, which until recently produced a similar amount of energy. Sunak had sought to keep David Cameron’s effective ban on onshore turbines in place but in recent weeks was forced into a climbdown by backbenchers close to Johnson and Liz Truss. The door to more onshore wind may now be open — but what is the government doing to exploit it?

“I think it’s a slightly artificial argument as long as you’ve got local consent. Often, particularly if it leads to benefits for local communities, you get that.”

But is the government prepared to put money into onshore wind, as it has with offshore? Again, Shapps deviates, arguing that state support for offshore wind is largely confined to price guarantees.

A third component of the plan is solar. Shapps is eager to point out that Britain can harness as much energy from the sun as parts of France and Spain. He is working with Michael Gove, the levelling up secretary, to ease rules to allow more solar panels on roofs through permitted development rights — meaning planning permission is not necessary. At the moment this only extends to 50kW.

He is eyeing up reforms to encourage large companies such as Amazon to cover their “vast warehouses and sheds” in solar panels. While this could lead to hundreds of mini-solar plants springing up on rooftops across Britain, Shapps says lengthy delays in connecting them to the National Grid is hampering progress. He is in talks with Hunt and others about solutions.

The Times

UK ‘risks losing billions’ in green energy investment

Britain risks missing out on £60 billion in green investment by the end of the decade as the United States and Europe engage in a subsidy war to fund clean energy, an industry body has warned.

Energy UK, a trade body made up of power companies, said the announcement of $369 billion in US subsidies for green technology “is already pulling investment away from the UK” and urged the government to respond.

The Biden administration angered its international allies at the end of last year with an unprecedented package of tax breaks and incentives for companies to build electric vehicle factories and battery plants in the US.

The UK, European Union, Japan and South Korea have warned Washington that the Inflation Reduction Act will lure their domestic companies to shift production to the US and is in breach of international free trade rules.

While the EU has relaxed its state aid rules and speeded up green investment licensing, the UK has not yet responded.

Emma Pinchbeck, chief executive of Energy UK, said not protecting domestic green investments would be “unforgivably complacent”, adding: “This is a once-in-a-generation opportunity and if we don’t seize it now, we will miss out not just on cheaper and cleaner energy but on the huge boost to our economy such investment will bring in terms of growth, jobs and other benefits.”

The Times

Energy crisis warning as UK firms face ‘cliff edge’ when Government support drops

Experts have warned that businesses are facing a “precarious cliff-edge” over energy costs once Government support becomes less generous in April. Under the energy bill support scheme, the Treasury has been shielding companies and households from the full extent of high wholesale energy costs sparked by Russia’s war in Ukraine. Running from October until the end of March, the scheme is set to provide far lower levels of support when it changes in April.

This is despite gas prices plunging to pre-Ukraine war levels, and this week hitting an 18-month low. Despite this, Chancellor Jeremy Hunt has previously said he will not budge on keeping price caps for households and businesses at current levels.

This is partially because prices are still around three times the level they were before the start of the pandemic. This has put a major strain on many businesses, particularly energy-intensive ones, as bills remain at record highs.

Now, energy consultancy Cornwall Insight has warned of a “precarious cliff edge when the business support scheme comes to an end”. It added some businesses could face see their gas and electricity bills rise by as much as 70-80 percent.

Robert Buckley, Cornwall’s head of relationship development, said: “Companies were going to have to get used to a high energy price environment, but for some this could have a catastrophic, house of cards effect.

However, the extent of the price rises will depend on individual contracts signed. Despite this, the declining Government help will most heavily impact businesses that locked in rates at the peak of the market in last August.

Mr Buckley said: “There will be a small number of customers who have scrimped and saved over the summer to buy at a certain price and now aren’t benefiting from lower wholesale prices.”

Tina McKenzie, policy chair of the Federation of Small Businesses, has appealed for support for “vulnerable” firms, arguing that energy retailers should let them to renegotiate their contracts to reap the benefits of the latest dip in wholesale prices.

The FSB is also calling for Westminster to introduce a Help to Green voucher worth around £5,000 to help firms slash energy costs and boost their clean power simultaneously.

However, according to Torsten Bell, chief executive of the Resolution Foundation, Mr Hunt may be forced to change tack on his reluctant stance against extending the energy bill relief scheme.

He said: “Despite headlines saying “Energy bills extra support ruled out by chancellor”, the Chancellor will have more to say on the topic.

“The solution is pretty obvious. The Treasury can – and almost certainly will – delay the increase in the Energy Price Guarantee for three months to give wholesale prices time to feed through.”

But before the drop in gas prices, which came as a result of European nations filling up their gas reserves, securing liquified natural gas from alternative producers (not Russia) and mild weather, Mr Hunt made clear that the current levels of support were not sustainable.

He told business leaders it was always limited to run for six months and that extending the scheme in its current form could “cost tens of billions of pounds”, depending on the price of wholesale energy. That figure is now likely to be lower now that prices have dropped.

And not all businesses are so concerned about the scaling back of the energy bill relief scheme. The Confederation of British Industry (CBI), for instance, has said that “the scheme will provide respite for many firms at the start of the year and help them plan ahead for the next 12 months with more certainty”.

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.