Weekend press round-up: Millions of taxpayers ‘face bailing out Bulb’

In our latest review of sector coverage in the national media, there is widespread coverage of the challenges to be discussed at COP26. There is also speculation on the future of Bulb, warnings from National Grid about energy prices over winter, an interview with Ovo founder Stephen Fitzpatrick and analysis on whether Macquarie can effect real change at Southern Water.

COP26 coverage

The Financial Times reported on the struggles companies are facing to implement credible decarbonisation targets, with investors often left confused as to what published net zero goals actually mean.

iNews had a special analysis on why the world remains hooked on coal – and what needs to be done to clean up our energy supply.

The Guardian analysed the results of several public opinion polls showing overwhelming support for tackling climate change, with UK respondents calling for a carbon tax on polluting industries, higher levies on flying and grants for heat pumps.

The Telegraph carried an opinion piece by energy secretary Kwasi Kwarteng, who stressed Britain must develop its own “homegrown, sovereign renewable energy system” to end its reliance on other countries.

Meanwhile, COP president Alok Sharma said young people “have every right to be angry because world leaders collectively over time have failed to deliver.” Sharma accepted the fury of young people who heckled him on Saturday at a youth conference on climate change.

Various titles

Bulb collapse: Millions of taxpayers face bailing out firm as ‘unprecedented’ crisis hits

The Government is believed to be speeding up plans for the collapse of Bulb, the country’s seventh-biggest energy supplier. If the company falls into administration in the coming days, it could be up to the taxpayer to keep it afloat through a temporary nationalisation, it has been speculated.

It is understood the Department for Business, Energy and Industrial Strategy (BEIS) and the Treasury are working on contingency plans to use taxpayers’ money if the search for new funding, in hands of investment bank Lazard, turns out to be unsuccessful, according to reports.

A Bulb spokesperson said on Friday: “Our discussions with multiple parties to secure additional funding continue to make good progress and we’re encouraged by the drop in wholesale energy prices.”

According to Sky News, industry sources said talks with a small number of potential buyers were ongoing but that others had pulled out in recent days.

If Bulb does not secure its own funding, it is understood Ofgem will seek a so-called Supplier of Last Resort (SOLR). This would involve other energy companies bidding to take on Bulb’s customer base.

Bulb, launched in 2015 by Amit Gudka and Hayden Wood, commands a 6 percent market share of the household energy market with an estimated 1.7 million household customers.

Given its size, the prospect of a SOLR is unlikely.

If no other firm has absorbed Bulb, the Treasury and the taxpayer will become responsible for financing the firm, according to reports.

Daily Express

Ed Miliband refuses to say whether Labour would nationalise energy companies

Ed Miliband has refused to say whether Labour would nationalise energy companies if it won the next election.

The shadow business secretary said the party would set out its approach to “common ownership” of utilities in advance of the next election, and played down apparent divisions between himself and Sir Keir Starmer on the issue.

Speaking to the BBC’s Andrew Marr Show, Mr Miliband said there were various components of the energy sector that could benefit from more state involvement.

“There’s supply, there’s generation, there’s distribution and there’s the grid,” he said.

“The energy market clearly isn’t working. We’re going to take a step back and look at what the right way of modelling our energy system is in the future.

“So there’s a role for common ownership, but we’ll set out at the election what it is exactly.”

Labour has so far refused to explain what its model for utilities would be if it won the next election, with Sir Keir promising during the last party leadership election that he would commit it to common ownership of rail, mail and water.

Daily Telegraph

National Grid urges us to brace for a long cold winter of high energy prices

John Pettigrew turned Boris Johnson green last week. National Grid, an anchor sponsor of the Cop26 climate summit that gets underway in Glasgow today, marked the occasion by lighting up Downing Street with tinted LED bulbs on Thursday evening.

Pettigrew, chief executive of the FTSE 100 utility giant, has been involved in a plan — to be announced by Johnson and Indian prime minister Narendra Modi at Cop — for a global network of solar-powered “green grids” linking 140 countries. More prosaically, the former state monopoly is also taking the opportunity to tell consumers that plugging in household appliances at different times could save thousands of tonnes of carbon a year. Using tumble dryers at specific “cleaner” times would save 164,250 tonnes, the equivalent of taking 78,214 cars off the road, National Grid reckons. Doing the same with washing machines would save 76,650 tonnes.

Speaking from his office overlooking Trafalgar Square, Pettigrew said he would not be travelling to Scotland this evening “expecting or hoping there’s going to be yet more big targets and ambitions set” at Cop, which has had a troubled birth and may be shunned by Chinese president Xi Jinping. “Actually, there’s been pretty good alignment and lots of targets and ambitions set already,” Pettigrew said. “An awful lot of the effort now is in the detail. So, what are the barriers to offshore wind? What are the barriers to running grids entirely green? What are the limitations on developing countries, and what support do they need?”

From reports of rats and rubbish on the streets of Glasgow, to a warning from developing countries that a push for global net-zero emissions by 2050 would “exacerbate further the existing inequalities” between rich and poor, Cop has been overshadowed by doubts.

National Grid has had to contend with a few issues of its own, too. The £34 billion company, which owns and operates the electricity transmission cables in England and Wales and the gas transmission pipes across Britain, has been locked in a dispute with the energy regulator over the returns it is allowed to make. Last summer, Ofgem proposed to halve network owners’ returns and capital spending allowances, largely backtracking on the spending point after Pettigrew warned that Britain would be put at risk of blackouts due to under-investment.

The watchdog settled on permitting total returns of 4.3 per cent a year over the next five years — the lowest rate ever. National Grid and Scottish utility SSE appealed to the competition watchdog, which last week struck out a small part of Ofgem’s calculations, raising the rate to almost 4.6 per cent; over the last regulatory cycle, National Grid was able to make 7 to 8 per cent. “We’ve seen almost a halving of returns, and quite a substantial shift in the way that regulation works. So it doesn’t feel very predictable or very stable,” Pettigrew said.

Separately, critics accuse National Grid of having been slow to react to an energy revolution that will eventually feature electric cars arriving in most driveways and heat pumps in most homes (more of which in a moment). And in the short term, the utility, which is responsible for making sure that gas is transported to consumers and businesses around the country, has had to watch as wholesale prices have spiked, busting more than 10 energy companies supplying two million people.

To read the full interview (subscription required) click here

The Sunday Times

Can Macquarie stem the flow at Southern Water?

Just weeks after Southern Water was fined a record £90m for deliberately dumping billions of litres of sewage into rivers and coastal waters, a torrent of storm water and effluent poured into the sea near Hastings, closing beaches and once again stoking public anger against England’s water companies.

“It happens all the time,” said Jo Godden, one of the founders of South Coast Sirens, a group of swimmers turned protesters who carry out their own water testing for E.coli and other health-threatening bacteria. “We’re outraged that we can’t swim when we want to, and we’re outraged that we are paying our water bills and that the contract hasn’t been honoured.”

No one knows exactly how much effluent Southern Water or any other of England’s nine large water and sewage monopolies are pouring into the country’s rivers and seas.

Hundreds of the combined sewage overflow pipes, which discharge a rancid mix of storm water and effluent, are not monitored, and the UK government has since 2009 relied on water companies to report their own outflows, though some of this is permitted under Environment Agency rules.

But if the quantity of effluent pouring into England’s waterways remains murky, Southern Water’s history of rewarding financiers even as its infrastructure deteriorated is clear.

Since 2007, the utility has been owned by a consortium of infrastructure investors through a complex multi-layered structure involving 12 intermediate holding companies and whose ultimate parent is Greensands Holdings, which is incorporated in Jersey. The largest shareholder in Greensands Holdings was until September a Cayman Islands registered infrastructure fund, advised by JPMorgan.

Although England’s regional water monopolies were privatised free of debt and given a “green dowry” of £1bn in 1989, by the time Southern Water’s most recent owners took over in 2007 its debt pile had swollen to £2.7bn, and then more than doubled by March 2021 to £6.3bn.

Southern said that these “debts are Greensands Holdings’ liabilities, and that it is used to invest in capital projects”.

But the interest and hedging costs on this debt have totalled £3.9bn over the past 10 years, equivalent to 48 per cent — or nearly half — of its total revenues of £8.1bn from Southern Water customers during the period.

Southern said it was “open and transparent about its financing arrangements and only 15 per cent of customers’ bills [which average £391 this year] goes to servicing finance costs”.

Now a white knight has stepped in, promising change. In August, Southern Water received a £1bn emergency equity injection from the Australian infrastructure manager Macquarie. More than £500m of this went into the regulated company, with the remainder used to reduce leverage at holding companies. The deal dilutes existing investors’ shares by giving Macquarie’s investors a 62 per cent stake.

Macquarie has pledged to invest £2bn over the next four years — equating to £1,000 per Southern Water household. By 2025 it plans to have upgraded half the treatment and sewage networks, 50 per cent of which were built before the 1970s. It will install more than 30,000 sensors to monitor for system failures so engineers can respond to and predict where the network is not working. All of which, it said, should halve pollution incidents by 2024 compared with 2019, while ensuring bills do not rise by more than the price of inflation.

Martin Bradley, senior managing director at Macquarie Asset Management, acknowledged that a “significant step-change” was needed, adding that given the level of investment required just to keep the works running, more cash would be essential. “We recognise the need for Southern Water to significantly improve its performance, financial resilience and relationship with customers,” he said.

But the Australian infrastructure bank has its own controversial history, as the owner of Thames Water between 2006 and 2016. It, too, presided over a series of pollution failings, culminating in what was in 2017 a record £20m fine for tipping raw sewage into the river Thames.

Ofwat said it would ensure Macquarie remained “accountable to us and its customers”. Water UK, the industry lobby group, said that although it recognised the need for accelerated investment, privatisation had brought billions of investment “into an industry that was previously starved of cash”.

The Financial Times

Ovo’s billionaire chief Stephen Fitzpatrick on why the energy market is broken

In an interview with the Sunday Times, primarily focussed on his “air taxis” venture, Vertical, Ovo Energy founder Stephen Fitzpatrick shared his views on the energy retail market.

He says: “If we’re to be successful in going through this energy transition and helping consumers make the switch to zero-carbon energy in their homes, we’ll need a well-functioning and well-regulated energy market. At the moment, we are very far away from that.”

He adds that the government must get a proper ministerial grip on the situation, rather than letting responsibility lie within Kwasi Kwarteng’s sprawling Department for Business, Energy & Industrial Strategy.

“We need a dedicated government department for energy transition and climate change. We need to spend hundreds of billions of pounds over the next two decades — and right now we are not set up to execute this well.”

To read the full article (subscription required) click here

The Sunday Times

Whitehall ‘resistance’ could derail Boris Johnson’s pledge on hydrogen

Boris Johnson’s pledge to make Britain the “Qatar of hydrogen” risks being derailed by resistance in Whitehall to the plans, it was claimed on Saturday.

Government sources said ministers were having to “push back” against opposition among civil servants to so-called “blue” hydrogen, which is produced from natural gas.

In a 22-page document listing official events being held by the UK Government at the Cop26 climate summit in Glasgow, there is no mention of hydrogen, despite Mr Johnson’s insistence that the gas should become a key part of Britain’s energy supply.

One government source claimed that officials in the Cabinet Office’s Cop26 unit refused to promote hydrogen because of its adoption by oil and gas giants like BP and Shell.

Ben van Beurden, Shell’s chief executive, said the firm had been told it was “not welcome” at the UN climate summit, “so we will not be there”.

Craig Mackinlay, the leader of the net zero scrutiny group of Tory MPs, said: “I would have thought hydrogen would have been more of a cornerstone of the Cop26 offer than it is. It seems to have been entirely sidelined.”

Another source close to the Government claimed that civil servants “made a bet several years ago on electricity” being the best form of energy to dominate the market as fossil fuels are phased out of all areas of life, including heating.

“Much of what the civil service is doing now is reinforcing the decision that they made years ago at the expense of hydrogen. But it is the wrong horse,” the source claimed.

Officials are said to have told ministers that it will be impossible to carry out an idea floated in the Government’s hydrogen strategy, published in August, to fully replace methane with hydrogen in the existing gas network.

A source in the Department for Business, Energy & Industrial Strategy insisted that the document and ongoing trials demonstrated the Government’s commitment to hydrogen.

To read the full article (subscription required) click here

Sunday Telegraph

Bamfords seek firmer foothold in UK green economy with hydrogen deal

The family behind JCB, the British maker of iconic yellow diggers, have struck an agreement to import millions of tonnes of green hydrogen to the UK by the end of the decade in the Bamfords’ latest push to gain footholds in all aspects of the UK’s hydrogen economy.

Under a memorandum of understanding signed before the start of COP26, the Bamfords would receive 10 per cent of the 15m tonnes of the zero-emission fuel that Australian billionaire Andrew Forrest and his mining group Fortescue Metals Group are targeting to produce by 2030.

The supply could be used to power trucks, buses and industrial machinery and could fill the tanks of about 100,000 lorries a day. It would cost about $7.5bn to import that volume of green hydrogen in 2030 assuming it is priced at around $5 per kilo.

The global hydrogen market is about 70m tonnes a year, but most of it is ‘grey’ hydrogen produced using natural gas without emissions capture. ‘Green’ hydrogen uses renewable energy to electrolyse water.

While a formal contract is yet to be signed, the first delivery of green hydrogen is expected to take place in 2024, Jo Bamford, the heir to JCB, said.

The agreement is the latest prong in the Bamfords’ strategy to build a UK hydrogen business empire across the supply chain of the clean fuel’s production, distribution and use.

JCB, led by Lord Anthony Bamford, has developed hydrogen-powered combustion engines to power its construction machinery. His son Jo runs Ryze, a hydrogen fuel distribution company, and Wrightbus, one of the UK’s three large bus manufacturers, as well as launching a hydrogen investment fund last month. The family also holds shares in ITM Power, a Sheffield-based producer of electrolyser machines.

“Think of it like this: China has done a pretty good job on batteries,” Jo Bamford said in an interview. “How they have done it is by driving up the volume, government subsidies and bringing down the cost but they also brought the whole supply chain into their economy.”

The Financial Times

Hydrogen high street: could these homes change the way we keep warm?

In the remote hills of Cumbria, a few miles north of Hadrian’s wall, three nondescript terrace houses stand side by side, quietly offering a glimpse of a low-carbon future.

The houses are intentionally unremarkable in every way but one: they are the first in the UK to run on a blend of clean-burning hydrogen as part of the most sophisticated hydrogen testing facility in the world. Welcome to Hystreet.

Engineers at the five-hectare site are testing whether hydrogen can safely replace the fossil-fuel gas pumped through transmission pipes and local grid networks into British homes as part of the government’s efforts to meet climate targets.

“Ninety-nine percent of people don’t think about where their gas comes from, or how it gets there,” says Antony Green, National Grid’s hydrogen tsar and head of the FutureGrid project. His task is to create a realistic replica of the UK’s gas system to test whether the same pipelines that have carried gas from the North Sea into homes since the 1970s could transport low-carbon hydrogen in the future.

Heating British homes accounts for 15% of the country’s total emissions, meaning a low-carbon alternative will be crucial to cut emissions to net zero by 2050. But the testing site is also key to understanding how hydrogen can be transported to major factories and industrial clusters to help tackle emissions from polluting factories and power plants.

“The evidence we have built over the last few years shows that we can do this,” Green says, walking along the length of a giant gas pipe. “It’s all very well and good doing the paperwork. But you still need to prove it.”

To read the full article, click here

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.