Weekend press round-up: Ministers warned of legal action over climate crisis

In our latest review of sector coverage in the national media, leaked documents show increasing concern over the lack of progress on net zero. Meanwhile, United Utilities will appear before the Supreme Court in a landmark case where it will argue it should not be held liable by private landowners and individuals for sewage spills. And Shell’s new chief executive has said America is now significantly more attractive than Britain for energy investment.

Cabinet ministers warned of legal action over UK’s failure to tackle climate crisis

Cabinet ministers have been warned by senior civil servants that they face court action because of their catastrophic failure to develop policies for tackling climate change, according to secret documents obtained by the Observer.

The leaked briefings from senior mandarins – marked “official sensitive” and dated 20 February this year – make clear the government as a whole is way behind in spelling out how it will reach its net zero targets and comply with legal duties to save the planet.

The restricted, highly sensitive documents are another severe embarrassment for Rishi Sunak, who originally planned to stay away from last November’s Cop27 climate summit in Egypt, but was shamed into attending after his predecessor but one, Boris Johnson, announced he was going.

Sunak then declared that acting to cut carbon emissions was a moral duty “because if we do not act today, we will risk leaving an ever more desperate inheritance for our children”.

Now, with just weeks to go before a crucial court deadline for the UK government to submit its latest climate plans, the damning leaked documents make clear the government is falling far short of its legal policy obligations to match its rhetoric with action.

The documents say that as a result of evident lack of policy there is an increasing “legal risk” facing the secretary of state for energy security and net zero, Grant Shapps – who is held responsible under law for failing to act.

At one point, officials at the Department for Environment, Food and Rural Affairs (Defra) state that their own department’s failure to develop policies for cutting carbon emissions “increases the legal risk on the DESNZ (Department for Energy Security and Net Zero) SoS (Shapps) if the reduced savings cannot be made across the economy, which DESNZ have indicated will not be possible.”

The papers, circulated by Defra officials to other senior Whitehall figures, will place particular pressure on environment secretary Thérèse Coffey, who was booed recently at a conference by farmers, who are already highly critical of the government’s agenda for agriculture post-Brexit.

The documents show Coffey’s department is by far the worst offender in failing to develop green policy, lagging a staggering 24% behind its official target, while the transport department has a gap “that is considerably over 5%”.

The documents show Coffey’s officials pleading with her to adopt an improved climate plan for the agricultural sector within weeks, not only to meet a legal deadline but also in response to stinging rebukes from the government advisers on the climate change committee (CCC).

They say: “The CCC has been calling for Defra to publish a decarbonisation plan since 2018 … The CCC has also criticised the ‘glacial progress’ in reducing emissions from agriculture.”

The papers add: “It is likely that if we do not commit to a plan in response to the CCC’s recommendations, we will be singled out for further scrutiny by the CCC and other stakeholders.”

Green groups say Coffey is nervous of triggering a bigger anti-Tory rural revolt if she announces policies that will force farmers to adopt more green ways of farming, such as enforcing limits on the size of livestock herds, large-scale tree planting and reducing use of fossil-fuel-based fertilisers on farms.

Coffey’s difficulties highlight a central problem with the green agenda for a Tory government, which draws much of its support from rural voters and communities, including farmers.

The high court ruled last year that by the end of March 2023 ministers must publish their workings on how individual departments plan to get on track to deliver net zero climate targets and be compliant with the Climate Change Act 2008.

As the legal deadline approaches, every Whitehall department is currently in the final stages of reviewing policies and counting up carbon savings before an expected new “Net Zero Growth Plan” set to be unveiled by the prime minister within the next month.

The Observer understands that No 10, the Treasury and DESNZ are angry that Defra is dragging down the whole government’s climate progress.

The Observer

Supreme Court to hear test case over sewage in UK waterways

One of Britain’s largest privatised water companies will appear in the Supreme Court on Monday in a landmark case where it will argue it should not be held liable by private landowners and individuals for sewage released into UK waterways.

The legal challenge is one of a number faced by water companies and the government as anger mounts over the mixture of storm water and raw sewage that is pouring into rivers and coastal waters, threatening human and environmental health.

United Utilities argues that the owners of the 129-year-old Manchester Ship Canal cannot seek redress for the release of “untreated foul water” without permission, and that only regulators can take action.

“This case has never been about avoiding accountability,” the water company said. “The aim was to clarify the regulatory position regarding storm overflows.”

Although the High Court has previously ruled in favour of United Utilities, the Environmental Law Foundation, supported by the Good Law Project, is intervening to support the Manchester canal, which is owned by Peel Ports, to try to overturn the decision.

“This case will have significant ramifications for how we can hold water companies to account — by opening up the opportunity for us to sue them and force them to stop polluting our rivers with huge amounts of raw sewage,” said Emma Dearnaley, legal director at the Good Law Project.

Colm Gibson, head of Berkeley Research Group’s economic regulation practice, said that in addition to fines and prosecutions, utility companies were increasingly vulnerable to class action claims.

“Customers are physically connected to companies’ networks and they have standard structures for charging households, making it easier to pass the legal tests for defining who is included in a ‘class’,” he said.

Gibson cited as precedent a £600mn claim faced by BT for allegedly overcharging 2.3mn landline-only customers.

Leigh Day, which is also running the “dieselgate” case against a number of car manufacturers in the High Court, has announced it is preparing claims to be brought in the Competition Appeals Tribunal on behalf of UK water bill payers.

It alleges that water companies are “unlawfully discharging large volumes of raw sewage into England’s waterways, and customers are being overcharged as a result”.

Fideres, an economic consultancy, has also appealed to the Competition and Markets Authority arguing that water companies have exploited the inability of consumers to switch away by providing poor quality services.

It argues that water companies may have overcharged consumers by £1.1bn over the past six years for sewage treatment services that had not been provided since the effluent was dumped rather than treated.

In another case, the Good Law Project is aiming to compel the government to rewrite its plan to reduce sewage discharged during periods of high rainfall. It alleges that the government’s current plan is unlawful as it gives water companies until 2050 to improve storm overflows and put a stop to industrial-scale sewage dumping, while all but excluding coastal waters from protection.

The slew of legal cases threatens to overhaul the regulatory landscape for water companies, which have already been forced to increase transparency as a result of previous court rulings.

The Financial Times

US is more attractive than Britain for energy investment, warns Shell chief

America is significantly more attractive than Britain for energy investment, Shell’s new chief executive has said.

Wael Sawan said the government should “take a page from some of the things that the US have done recently, through the Inflation Reduction Act”, a $369 billion package of subsidies to spur green investment in America.

Windfall taxes and other ad-hoc interventions, planning delays and uncertainty over subsidies were all making it harder for Shell to achieve its goal of investing up to £25 billion in the UK this decade, Sawan said.

By contrast, in America the Inflation Reduction Act was providing “ten-year clarity and tangible, fixed incentives that people know to bank on”. Asked how Britain ranked in terms of attractiveness for energy investments, he said the US was “ahead significantly” and that Europe was also ahead of Britain.

Shell, which made record global profits of $40 billion last year, is the UK’s biggest company and one of the biggest players in the North Sea.

Sawan said that he would “think twice about investing in more oil in the UK” as there were “more attractive locations right now”, such as the US Gulf of Mexico.

The energy profits levy, which has increased the tax rate in the North Sea from 40 to 75 per cent, was “fundamentally disincentivising the investment in new supplies which are critical if you want to build energy security for the long term”. Shell expects to pay more than $500 million of tax in the UK this year as a result of the levy.

Sawan said that the UK had seen more windfall taxes and fiscal changes during his 25-year tenure at Shell than most other countries, and this affected the wider investment climate.

“When you have such volatility, it fundamentally saps your conviction around your ability to be able to see the returns that are required on that investment, and therefore you move your capital to the areas where you see healthy returns at lower risk,” he said.

The Times

Why Britain is suddenly blowing cold on a wind power revolution

Ministers cheered last summer as wind farm developers competed to plant new turbines in UK waters, at ever cheaper rates.

Danish giant Orsted was among the energy giants who agreed to build new wind-farms that would generate state-backed revenues well below wholesale prices at the time.

“The more power we generate within our own borders, the better protected we will be from volatile gas prices that are pushing up bills,” Kwasi Kwarteng, then business secretary, said.

Less than a year later, however, and that optimism has all but evaporated, with developers warning that rising costs are making planned new projects unviable.

Orsted warned last week that its £8bn Hornsea Three development was no longer viable under the terms agreed with the Government and threatened to mothball the project without tax breaks to offset rising costs.

It comes as clean energy investors are being lured to the US by a $216bn (£178bn) package of tax breaks. The huge giveaway is putting pressure on Chancellor Jeremy Hunt to respond.

He now faces a balancing act as he tries to encourage investment in an industry critical for the Government’s push to net zero, while keeping a lid on state spending and household bills amid a cost of living crisis.

“I think there’s a bit of a game of jeopardy at the moment [with the Government] – who blinks first,” says Phil Grant, a partner specialising in energy at the consultancy Baringa.

Makers of wind turbines have been feeling the squeeze from rising costs in their supply chain for more than a year.

Henrik Anderson, chief executive of Vestas, the world’s largest turbine maker, warned in January 2022 of a “troubling and challenging” market, as lockdowns in China disrupted manufacturing, and the cost of steel, copper and other components rose.

Russia’s invasion of Ukraine in February 2022 added to the turmoil, with Vestas ending the year €1.7bn in the red and raising the average selling price of its turbines by more than one-third to €1.15m per megawatt (MW).

Jochen Eickholt, chief executive of rival Siemens Gamesa, warned in October that rising costs and supply chain disruption “could jeopardize the energy transition”.

Wind farm developers face higher costs for turbines as well as for the ships and labour required to install them. Slow timelines for planning permission and grid connections all add to the pressure given some prices are rising month-to-month.

Nonetheless, in June last year, wind-farm developers including Orsted, Vattenfall and Scottish Power competed to build new farms at record low revenues, in an auction for government subsidised contracts.

Under the Government’s “contracts for difference” (CfD) subsidy scheme, developers are guaranteed a fixed price of electricity for 15 years. If the wider market wholesale price turns out to be higher, they get the difference via a levy on consumer bills. If it is lower, they have to pay back the difference.

The scheme is key for offshore wind projects as it gives developers certainty over revenues, which helps them raise cash. It has helped the offshore wind industry grow from a standing start in the year 2000 to producing more than 11.5pc of the nation’s electricity in 2021.

In the CfD auction in June, developers agreed to build a massive 11GW of projects by 2027 at a guaranteed price of £37.35 per MWh. That was 70pc cheaper than contracts accepted by developers in 2012 and well below today’s wholesale rates of around £150 per MWh.

(The guaranteed price is in 2012 money, and is indexed to inflation, so would be about £49.96 per MWh if the projects were online today.)

However, industry leaders now fear that the price is too low, with cost increases outpacing inflation and higher interest rates also damaging investment cases.

Read the full article here (subscription required)

The Sunday Telegraph

Rivers at risk if summer drought strikes

England faces an ecological disaster if a severe drought strikes, with water companies turning to rivers to avoid drinking water shortages.

Analysis of firms’ plans reveals huge shortfalls in the case of a protracted drought if no action is taken, with Southern Water facing the biggest deficit of 188 million litres a day, followed by Yorkshire Water with 107 million and Affinity Water with 98 million.

England has just had its driest February in 30 years and is “one hot dry spell away from drought”, according to the National Drought Group (NDG), with hosepipe bans seeming likely.

The shortfall has been uncovered in resource management plans prepared by water companies in a joint investigation by The Times, the conservation group WildFish and the investigative journalism group Watershed Investigations. It found that if a severe drought hit this year, supplies would run out in parts of Essex, Kent, Sussex, Hampshire, Yorkshire, north London and Hertfordshire.

Taking more water out of depleted rivers during a drought is a “sticking plaster approach” that would be “disastrous” for wildlife, according to an insider at the Environment Agency. A source said: “We are underestimating the scale of the challenge. All the grief we had [in] last year’s drought was on the back of a scenario that wasn’t particularly extreme. We’ve been close to a national disaster a number of times.”

Last summer was the driest in nearly30 years, with areas of East Anglia, Devon, Cornwall and the Isles of Scilly still classed as being in drought status now, according to the NDG.

Water companies have been accused of repeatedly failing to plug leaks and invest in infrastructure. Their plans set out measures to cut demand, reduce leaks and create new pipelines, reservoirs and desalination plants, but most of these would not materialise for years.

Lack of water is already a problem for farmers. Guy Singh-Watson, the founder of Riverford Organic Farmers, said that last summer he ran out of water and “lost hundreds of thousands of pounds worth of produce”.

Janina Gray, head of policy at Wild- Fish, believes water companies’ plans to avoid future shortages are “misleading and obscure the truth”. “This will be an ecological disaster. We need transparency so people can make informed decisions before our rivers run dry.”

The Times

Britain’s leaky power cables add £100 on bills as UK wastes as much energy as it imports

Britain’s electricity grid has been leaking large amounts of power, with households footing the bill, Express.co.uk can reveal.

According to clean energy firm Enertechnos, the UK’s current grid infrastructure is not up to the many challenges the country is facing right now, as it moves away from fossil fuels like natural gas. According to Government figures, losses through these inefficient cables in the UK totalled 26,412 GWh, which is enough to power about seven million homes for a year, while the company notes that this figure is only set to increase with the growing number of electric cars and heat pumps demanding more electricity.

This is also a major issue for tackling climate change, as according to the International Energy Agency, globally losses in grids resulted in around 1 gigatonne of carbon dioxide emissions in 2018.

Speaking to Express.co.uk, Enertechnos CEO Dominic Quennell warned that because there were a lot of inefficiencies in the UK’s cabling, it was “leading to unnecessary losses in energy that’s been generated before it gets to the point of consumption”.

To tackle this problem, the IEA highlighted the need to have more efficient power lines. As a result, Mr Quennel estimated: “It’s never going to happen, but if the whole world were using our kind of cable, according to the IEA, we can probably reduce those losses by about 40 percent.

“We lose as much in a year in the grid as we import from outside, so everything that we import gets lost. It’s a colossal amount of energy.”

Figures show that in 2021, the UK imported 28.7 terawatt-hours of electricity, from countries like France, the Netherlands, Norway and Ireland. This figure is only slightly more than the 26.4 terawatt-hours of power that it wasted through leaky cables in 2019.

Over the past winter, scarce electricity supplies across Europe led the National Grid to warn that it could be forced to impose three-hour rolling blackouts if it fails to secure adequate electricity supplies.

Mr Quennell noted that as the UK installs more heat pumps and buys more electric cars, this problem “is only going to get worse because of the decarbonisation challenges that we have.

“It means that we’re going to be using more and more and more power to move around and to heat our homes. National Grid says that it’ll be somewhere between two and three times the energy being consumed in 2050 than we have now.

Comparing the UK’s electrical grid to a network of water pipes, he said that in order for the system to handle more electricity, authorities would need “a bigger pipe, that gets more water through”.

He said: “We’re not suggesting that they rip out the entire grid and put a new one in because that would be hugely disruptive.

“But actually, cable for grids normally is designed to last about 30 to 40 years. So you can replace it little by little and then by the time we get to 2050 we will have done an awful lot of it.”

He said: “Security of the supply is something which is actually surprisingly fragile at the moment. We don’t have a sufficient reserve margin of generation here to be sure that we can keep the lights on,” adding that a better grid would ensure that the UK avoid power cuts.”

Daily Express

New ITM boss targets overconfident culture after profit warnings

The new boss of ITM Power has vowed to turn round the UK hydrogen start-up, overhaul a culture of “overconfidence” and regain the trust of investors and customers after the company became London’s most shorted stock.

Dennis Schulz, who arrived at ITM in December from the engineering arm of Linde, its biggest investor, has laid out a 12-month plan to revive the Sheffield-based maker of hydrogen-producing electrolysers, which has issued three profit warnings in the past year.

“ITM was constantly in that mode of constantly fighting or putting out fires, which were emerging everywhere,” he said in his first media interview since taking up his new role. “Now we are slowing down and not looking for short-term fixes.”

The company’s valuation has plunged from £3.5bn in 2021 to £600mn after being hit by delivery delays for its flagship 24 megawatt electrolyser — one of the world’s largest.

ITM, whose investors also include Italian gas infrastructure group Snam and UK construction equipment maker JCB, is cutting headcount by a quarter, slimming its product range and introducing more thorough engineering processes.

The company’s turnround push come amid the fallout from the collapse this year of UK battery start-up Britishvolt, raising broader questions about the country’s ability to incubate clean energy champions despite the government claiming world-leading net zero policies.

However, the hydrogen equipment maker differs significantly from Britishvolt in already successfully developing products and securing orders, from customers including Linde, Shell and RWE.

ITM has raised £500mn, taking advantage of a frenzy in hydrogen-related stocks in 2021, but its cash pile is expected to fall close to £245mn this year with annual revenue of only £2mn.

The hydrogen mania has gone into reverse and ITM is now London’s most shorted stock, according to markets data site ADVFN, as inflation, supply chain issues and higher interest rates bite.

Renaud Saleur, a former trader at Soros Fund Management who now heads Anaconda Invest, is among the hedge funds shorting ITM, saying it has an “insane valuation”.

“The only danger in shorting it would be a full takeover by Linde,” he added.

Schulz, however, said his appointment was not a sign that Linde would attempt a takeover through the back door.

Schulz is aiming for the company to become profitable within five years.

On the factory floor, projects undertaken during the tenure of long-serving chief executive Graham Cooley are being unwound, with legacy products being dismantled for recycling. ITM will reduce its product range from 16 to three.

“What was the most shocking to me was the amount of products which ITM has been working on,” Schulz said.

Their removal will make way for robots and focusing manufacturing on the “stacks” that contain the special membranes in electrolysers rather than the container units that house them.

But given the depth of ITM’s slide in valuation, the tear-up by Schulz might not be radical enough for some investors.

The Financial Times

Britain must leave the Energy Charter Treaty

Chris Skidmore, chair of the UK’s Net Zero Review and a former energy minister, argues that withdrawal from the “outdated” Energy Charter Treaty is a test of the UK’s climate leadership and seriousness about getting to net zero.

Read the full comment here (subscription required)

The Financial Times

Paul Whitehouse: All is not right with our rivers

The Gone Fishing star investigates pollution in a new documentary — and says he’s still shocked that it’s legal to pour sewage into our waterways

Read the full interview here (subscription required)

The 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.