Weekend press round-up: KKR and Macquarie in talks to buy UKPN

In our latest review of sector coverage in the national media, there is speculation about a takeover bid for UK Power Networks. Meanwhile, Cadent faces possible strike action and a group of MPs has called on the government to improve the UK’s energy security by sharply increasing its target for floating offshore wind.

KKR and Macquarie in talks to buy UK Power Networks

KKR and Macquarie Group have held talks to buy Britain’s largest electricity distributor UK Power Networks from companies controlled by Hong Kong’s billionaire Li family, two people with knowledge of the matter said.

A proposed joint deal led by the two investment firms, backed by investors including Ontario Teachers’ Pension Plan, could value the business at about £15bn and would provide a fresh sign of the private equity industry’s appetite to buy into UK infrastructure.

Hong Kong billionaire Li Ka-shing’s CK Infrastructure Holdings, which bought the business in 2010, said in a stock exchange filing on Friday that unnamed parties had expressed an interest in all or part of its stake in UK Power Networks.

It said the approach had “yet to be properly analysed” and there was no certainty a deal would go any further. Bloomberg first reported the parties’ interest. KKR, Macquarie and OTPP declined to comment.

The move is a sign of a “completely different strategy” compared to private equity’s buyout deals, one person with knowledge of the potential deal said.

KKR would not be “looking at fixing it up and selling it in a few years”, the person said. Instead the group could own it for a decade or more. In that time they would “get fees for owning and managing it, and every few years they could take a dividend” by taking on debt at the company level, they added.

The Financial Times

Cadent Gas faces strike threat over pay

The threat of strike action is looming over Britain’s largest gas distribution network company.

The GMB union will launch a strike ballot for more than 2,000 members at Cadent Gas after employees “resoundingly” rejected a below-inflation pay rise of 4 per cent. Union bosses said that the offer amounted to a “massive” real-terms pay cut and added that the “cost-of-living crisis is hitting Cadent workers hard”.

Cadent is the largest of the four gas distribution network companies, maintaining the network to 11 million homes and businesses in England in the northwest, the Midlands, South Yorkshire, eastern England and north London. It made an operating profit of £901 million in 2021, the GMB said. The union also said that Steve Fraser, the company’s chief executive, was paid £1.4 million in 2020-21.

Gary Carter, a GMB national officer, said that Cadent had reduced the pay and conditions for new staff in recent years and that “this has come back to bite them . . . People are leaving and those remaining have had an enough of low pay and poor conditions for skilled work. Cadent workers aren’t going to sit back and let their skills be devalued.

“They keep gas flowing into people’s homes. It’s skilled and hazardous work and Cadent needs to value its employees and give them a better pay rise. The company made hundreds of millions last year. It can afford to treat workers better.”

The Times

Tory MPs urge bigger ‘floating’ wind target to boost energy security

A group of Tory MPs has called on the UK government to improve the UK’s energy security by sharply increasing its target for “floating” offshore wind farms, which can be built in deeper waters.

In a letter seen by the Financial Times, backbenchers belonging to the Conservative Environment Network (CEN), urged business secretary Kwasi Kwarteng to grasp “the massive opportunity” presented by the relatively new type of wind turbine technology, in which the UK is a world leader.

It argued that floating offshore wind farms would help the government meet its goals of securing more sources of domestic energy supply and protecting British households from highly volatile international gas markets.

Last week, Kwarteng declared that the more “cheap, clean” power the UK generated at home via renewables and new nuclear reactors, the less exposed the country would be to gas imports and volatile prices.

Gas prices, which were already high, have soared since Russia’s invasion of Ukraine. Although the UK is less exposed than European allies to gas from Russia — the world’s biggest exporter — it is tied to the pricing of international gas markets.

Meanwhile, almost 40 Tory MPs and peers have written to Boris Johnson urging the UK prime minister to adopt a different path to boosting Britain’s energy security by reversing plans this month to plug shale gas wells in Lancashire with concrete.

The letter, organised by Steve Baker and Craig Mackinlay of the Conservative Net Zero scrutiny group, opposes the government’s moratorium on fracking, which led the Oil and Gas Authority, the industry regulator, to order the sealing of the wells.

But writing in the Mail on Sunday Kwarteng said Britain had no gas supply issues and that even if the ban on fracking were lifted, it would take a decade to extract sufficient volumes of shale gas.

He added: “No amount of shale gas from hundreds of wells dotted across rural England would be enough to lower the European price any time soon.” Kwarteng’s allies defended the plan to seal the wells, saying that leaving an “open 300m hole in Lancashire is not very safe”.

Even before the 2019 moratorium, some scientists had suggested the geology in many of the areas of the UK fracking had been proposed was not suitable for the commercial production of shale gas.

CEN’s letter pointed out that although the UK was planning to quadruple its offshore wind capacity to 40 gigawatts by 2030, only 1GW of that was for newer floating turbines. It said that goal was “unambitious” and should be raised to 15GW by 2035 to give investors confidence to back floating technology at scale.

The Financial Times

Energy crisis needs crisis measures argues Octopus chief executive Greg Jackson

The brutal collapse of nearly thirty suppliers over the past six months has driven both Downing Street and Ofgem to desperate measures.

Chancellor Rishi Sunak rolled out a whopping £9bn rebate scheme to protect households from spiralling costs, following the regulator’s painful  decision to hike consumer bills over 50 per cent to an eye-watering £2,000 per year.

There are now raised fears Russia’s invasion of Ukraine could see the price cap spike again next winter to £3,000.

With continued debate over how to resolve the current crisis, Greg Jackson, chief executive at Octopus Energy, argues the best model for the energy market has already been established in the UK, and can be taken off the shelf.

He told City A.M. the markets that serve consumers best are supermarkets.

Jackson explained: “In the case of supermarkets, you’ve got a relatively small number of companies totally focused on competing to drive down costs for customers to innovate, and to bring them new, better and cheaper products and services.”

When questioned over whether a tighter, smaller market would reduce consumer choice, he said this was preferable to the current setup, which peaked in 2018 with 80 suppliers.

Jackson compared it to walking through market day, with desperate vendors heckling questionably low prices to passers-by.

He said: “The energy market has been built with a completely false understanding of consumer choice. It resembled market stalls, with dozens of traders setting up at  virtually no cost, piling it high and selling it cheap. Then, when the tough times came, packing up and disappearing.”

The Octopus boss considers insufficient hedging to be the primary cause of widespread instability in the energy market.

He argued industry challengers had to be comparable to Aldi and Lidl in the supermarket space, which arrived with a “new proposition” and a “new angle of competition” for the larger retailers.

He is now pushing for the industry to “work on short and long term problems at the same time”, with hedging controls and market reforms going hand-in-hand with an immediate ramp up in renewables and cutting down the UK’s reliance on natural gas.

He said: “We need to treat the energy crisis with the same sense of urgency we did the Coronavirus crisis. The way that we deployed vaccines that normally take 15 years in one year, we need to deploy energy solutions at that pace now.”

City AM

Severn Trent Water faces backlash over 7.1% bill rise

A water company is facing criticism from MPs and members of the public for increasing its average bills by 7.1%.

Severn Trent, which supplies water to eight million people in the Midlands, said it had schemes available to support customers who needed it.

But Conservative and Labour MPs from the region said the rise was one of the biggest in the country.

The government said bill rises were carefully scrutinised by a regulator.

Severn Trent said the rise would mean average household bills would increase by £26 per year.

“That’s a big difference,” Peter Lee, from East Leake, in Nottinghamshire, told the BBC.

“We’ll have to start cutting down on other things. Perhaps we won’t go on holiday in future. We’ve got one booked in August but, after that, I really don’t know.

“What we can do about it… I don’t think the government can do a great deal, other than giving rebates and things like that, but who pays for that – us?”

Lee Anderson, Conservative MP for Ashfield, said the rise was among the highest in the country.

“I understand the argument they have extra costs, but a 7% increase when, in other areas of the country it’s about 3-4% – they really need to look at it again,” he said.

He called on the environment secretary to intervene over the rise.

“They make a hell a lot of money, the water companies,” he added.

“For some of the poor people in Ashfield that are on a minimum wage, living wage or living on benefits, this is really going to hurt them in the pocket.”

Nadia Whittome, Labour MP for Nottingham East, said: “This is yet another blow for people who have already seen their universal credit cut, food prices and energy prices rise, the National Insurance hike is due to come in and wages just aren’t keeping up.”

She called on private companies to be brought back into public ownership.

“Water has a monopoly which means people don’t have any choice about who their water provider is. Companies like Seven Trent can charge what they want and privatisation is actually costing us more money.”

“We know this is still a challenging time for many of our customers, especially for those whose circumstances have changed during the pandemic,” a spokesperson for Severn Trent said.

“That’s why we have a number of schemes available, to support customers who need a bit of help with their bill.

“Whether it’s financial help, a more personalised service, or just a bit of extra support, we’ve got lots of options available to help those who may need it.”

BBC News

Light … or blight? Anger rises at plan for Britain’s biggest solar farm

A proposed new £600m solar farm in eastern England – covering an area eight times bigger than Hyde Park in central London – faces opposition over claims it would be a “blight” on the countryside.

The scheme, which would provide power for up to 100,000 homes, will cover nearly 2,800 acres near Newmarket, more than 10 times bigger than any scheme built to date in Britain. It is one of more than 900 solar farms in the planning pipeline to help provide green energy.

Campaigners say the Sunnica energy farm, which will span several villages in Suffolk and Cambridgeshire, will change the unique character of a vast area of countryside shaped by farming and horseracing. Suffolk county council said last week it would not support the scheme in its current form.

Richard Rout, deputy council leader and cabinet member for finance and environment, said: “We recognise that renewable energy is a key part of delivering energy security but it can’t come at any cost or to the detriment of Suffolk or the environment.”

John James, 74, who owns Brookside Stud, near Chippenham, Cambridgeshire, said: “The solar panels will blight several villages and take farmland out of production.” He was particularly concerned over the fire safety of the vast batteries that would be housed near his stud in containers up to six metres high.

Finlay Colville, head of research at Solar Media, a business intelligence and digital media firm, said there are now about 910 possible solar farm projects in the pipeline in the UK, with numbers increasing by about a third in 2021.

More than 300 have already submitted planning applications or have already been approved. Colville said some of the largest projects might not be delivered but there were also many smaller sites that were being approved. “Solar farms can be built quickly, and it’s a quick win for firms and public bodies which want to have more renewable energy,” he said.

While many councils support renewable energy schemes, there are concerns about some large-scale projects, including the Cottam solar project on the Nottinghamshire and Lincolnshire border, covering 2,800 acres; the Mallard Pass solar farm in Lincolnshire and Rutland, covering 2,175 acres; and the Gate Burton energy park, near Gainsborough, Lincolnshire, covering 1,690 acres.

Sunnica said its scheme would make a “significant contribution” to help the UK meet its net-zero targets by 2050. It said it would respond to any concerns raised over its scheme in the planning process, that it took the safety of its battery storage system very seriously and thta it had a package of proposed safety measures to mitigate the risk of a fire.

A government spokesperson said: “We recognise the need to preserve greenfield land while protecting the environment as we work to generate more cheap, clean power in the UK. ​Solar energy developments, including these ones, are subject to strict planning controls to protect local communities and the environment. This includes the requirement to conduct environmental impact assessments and public consultations on planning applications.”

The Guardian

Want to save £85 a year on energy bills? Turn your thermostat down a degree

Turning down the home heating thermostat by less than a degree could save consumers up to £85 a year on bills, according to a consumer watchdog report.

Which? found that consumers can save hundreds of pounds by taking simple steps to save energy, such as turning down the thermostat and draught-proofing their home.

The energy price cap is increasing by 54 per cent next month, meaning bill increases of almost £700 for millions of average users, according to Ofgem, the energy regulator.

In addition, a further increase is expected in October, leaving many households facing a real financial struggle.

However, Which? said that while surging wholesale gas prices are outside the control of ordinary consumers, there are steps people can take to minimise energy use and keep bills as low as possible.

One of the simplest ways to save money is by turning down the thermostat. Lowering the dial by just one degree could reduce bills by about £80-£85 per year.

Adjusting central heating timers to switch off at night and during the day if the house is empty will also minimise fuel consumption.

For rooms such as bedrooms that stand empty throughout the day, people should consider turning the radiator down to the lowest setting without turning it off completely. Fitting reflective foil behind radiators on external walls will also help reduce the rate of heat loss in these rooms.

Which? also suggested taking a look at appliances that are not always in use and turning them off at the power if they are on standby. For a typical home, this could save £55 a year.

Lowering the temperature of washing machines is an eco-friendly way to save money. Which? found that even a 20C wash can do the trick in some cases, particularly when using liquid detergent rather than powder.

Natalie Hitchins, the head of home products and services at Which?, said: “Huge energy bill hikes are a cause of real concern for millions of households across the country, especially when many are already feeling the pressures of the cost-of-living crisis.

“Which? has found that everyone can make small changes to reduce their energy consumption – and most importantly save money. Several small steps taken together can add up to significant savings.”

Daily Telegraph

‘Many players in the renewable industry have yet to put a wind turbine out to sea’

Mads Nipper walks over to the standing desk in his glass-walled office in northern Copenhagen and picks up his mobile phone.

Checking for updates, the chief executive of Danish oil-turned-wind giant Orsted notes with curiosity the small rally in renewable energy stocks.

It is early evening on February 24 in Denmark and the world is starting to change. Russia’s attack on Ukraine, which began that morning, is rippling through global markets.

One week later and the attack is horrifying the world, triggering a huge backlash including corporate pullback from Russia. It has also set off a new sense of urgency over Europe’s energy independence and reliance on fossil fuels.

Nipper is helming a company that has long been at the heart of those questions. Orsted, 50.1pc-owned by the Danish state, started life in 1972 to manage the booming oil and gas reserves discovered in the North Sea.

Wind power has made huge advances in recent years, with turbines getting taller, more powerful and cheaper, and China embracing the technology as more countries try to cut emissions. Yet fresh challenges are emerging.

Low wind speeds in Europe hit developers last year, while supply chain disruption and inflation pose an ongoing threat. “We have seen very steep cost declines in the last few years in offshore wind,” says Nipper. “Now due to inflation that will very likely flatten and in some cases actually go slightly up.

“It all hinges on whether that sort of quite aggressive inflation is going to be something that will normalise. The tragic events happening these days and many other things could make that a reality.”

Amid a broader renewables sell off, Orsted’s shares have fallen about 40pc since highs in 2021. It is still valued at about £35bn on the Oslo stock exchange – about half BP’s value despite making just 10pc of its revenue.

Orsted won about a quarter of global offshore wind capacity auctioned last year, increasingly competing against deep-pocketed players keen to get a foothold in the booming industry.

BP and its German partner EnBW, for instance, are stumping up £924m for the option to develop two sites in the Irish Sea.

Without naming names, Nipper, 55, warns that throwing money at projects could damage the industry long term. “As an industry we must continue to do projects that are actually value-creating,” he says. “That’s the only way to ensure that capital keeps flowing long term and that we keep momentum of the green transformation.

“If somebody is making way too optimistic assumptions or, or just being desperate or eager to get in and paying whatever it takes, that may feel nice now, because countries will get cheap power and they will get high payments for seabed and so on. But the risk of that turning out to be non-value creating projects is relatively high.”

The full interview can be read here (subscription required)

The Sunday 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.