Weekend press round-up: National Grid to lose electricity role to independent body

In our latest review of sector coverage in the national newspapers, the government is expected to make an announcement on the future of the National Grid electricity system operator as soon as this week. Meanwhile, there are concerns that ministers have underestimated the cost of switching to heat pumps to the tune of £12 billion and green energy suppliers have hit out at plans to introduce a RAB model for nuclear plants.

National Grid to lose electricity role to independent body

The government is preparing to issue plans to strip National Grid of its responsibility for running Britain’s electricity system in favour of a new independent body.

The Department for Business, Energy and Industrial Strategy is planning to unveil a consultation outlining the creation of a “Future System Operator”, which would manage the country’s electricity system, alongside plans for a new governance framework for energy regulations. An announcement could come as early as this week.

As operator of the electricity system, National Grid has both day-to-day responsibility for keeping Britain’s lights on and an influential function advising on the long-term development of the energy network.

It is understood that the government will say that the challenges of meeting goals to tackle climate change have created the need for new technical roles and responsibilities in electricity and gas systems. Those roles include planning and developing future energy networks and increasing competition so that decarbonisation can be delivered at the lowest cost.

The consultation will argue that establishing an independent systems operator would also help the country reach its net zero ambitions by ensuring a more co-ordinated approach between government, the regulator and industry.

However, it is likely that the proposals will say that responsibility for running Britain’s gas systems should remain with National Grid.

The consultation follows recommendations from the energy regulator Ofgem this year that concluded the group should be broken up to avoid potential conflicts of interest between its role in running the electricity system and its other business, including owning the physical power transmission cables network in England and Wales.

The regulator estimated that separation could save consumers between £400 million and £4.8 billion between next year and 2050.

The Times

Green alternatives to gas boilers to cost £12bn more than government planned

Green alternatives to gas boilers will cost £11.8 billion more than the Government has budgeted for over the next four years because ministers have vastly underestimated the scale of home retrofits, The Telegraph can reveal.

Homeowners and landlords also face paying £17.8 billion in the next four years to go green, according to analysis from leading energy groups and think tanks.

The Government has committed to replacing oil and gas boilers at the rate of 600,000 a year by 2028 to help reach its net zero commitment. But campaigners say this will need to rise to 900,000.

However, the Government has underestimated how many homeowners can pay thousands of pounds to retrofit and install heat pumps, according to analysis from the Energy Efficiency Infrastructure Group (EEIG), which includes utility provider EON and the Confederation of British Industry.

The technology, which is similar to a refrigerator in reverse and runs on electricity, heats radiators to a lower temperature and often requires insulation, bigger radiators and underfloor heating to keep older homes warm.

The scale of the challenge to install them is immense. Energy efficiency retrofits, which the Government says it wants to achieve in around 17 million homes by 2035, are expected to cost £4,400 per house.

A heat pump ranges from £7,000 to £15,000, though manufacturers say they will be able to halve costs within 18 months. But a third of homeowners have no savings, according to the most recent English Housing Survey.

“UK homes perform shamefully when it comes to energy efficiency – and we simply have no more time to waste in making improvements,” said Alan Jones, the president of the Royal Institute of British Architects, a member of the EEIG.

The EEIG wants the full costs of installations in low-income households to be paid for, and grants of up to £6,000 for others.

Overall, the EEIG said, greening home heating would require £17.8 billion in public money, some £6 billion of which had already been committed by the Government.

The Government’s long-awaited “heat and buildings strategy” on how to decarbonise has stalled amid disagreement over how best to incentivise people to make the switch.

Daily Telegraph

Green energy suppliers oppose bills surcharge for new nuclear plants

Green energy suppliers are protesting at the prospect of having to add a surcharge to household bills to pay for new nuclear plants in Britain when their customers purposely choose not to support the divisive technology.

UK ministers are aiming to introduce legislation in the autumn that would allow for a large nuclear power plant proposed for Sizewell on England’s east coast to be financed via a “regulated asset base” model. The scheme would see households help fund the construction of the £20bn plant via a surcharge on their energy bills, regardless of their supplier.

Households already pay for a number of policy costs via their energy bills, such as subsidies for wind and solar schemes, yet a nuclear surcharge would prove particularly difficult to stomach for companies that offer their customers “100 per cent renewable energy” deals, which do not include nuclear power.

Dale Vince, the founder of Ecotricity, the first company in Britain to have offered customers green electricity, told the Financial Times: “It’s bonkers we would all have to pay this subsidy for at least a decade of construction and not for power generated.”

“The government is reluctant to fund nuclear projects itself, so allowing Sizewell [C] to access the RAB [regulated asset base] system is simply dumping the cost on consumers — even those who have gone renewable, and that’s just unfair,” added Vince.

Kit Dixon, policy manager at Good Energy, the UK’s first supplier to offer customers 100 per cent renewable electricity, said that “we should be deeply concerned” by the nuclear industry potentially being offered such a deal to build expensive new plants “with little incentive to deliver on time or within budget”.

“We’ve got to stop seeing customers’ bills as a sort of cash machine for folly projects,” said another energy chief executive who asked not to be named.

EDF, the French state-backed utility that is developing the Sizewell C plant in Suffolk, argues a regulated asset base model would lead to lower financing costs and ultimately “significant savings for consumers”. It says the “steady” upfront returns offered by the mechanism, which would be regulated, would allow it to attract financing from pension and infrastructure funds that accept smaller returns in exchange for lower risks.

The model is used to build other infrastructure in the UK including energy networks and the Thames Tideway “super sewer” in London.

EDF Energy, the UK arm of the French energy group, said it had conducted its own analysis that suggested “new nuclear can save up to £5bn per year compared to a low-carbon energy system without it”.

It added: “Pitching nuclear and renewables against one another risks putting extra costs on consumers and does the planet a disservice. Wind, nuclear and solar are all needed for a reliable net-zero future.”

Critics of the regulated asset base model warn that it would expose households to cost-overruns, which have proved common in the nuclear industry.

Environment groups oppose nuclear on the grounds that it is more expensive than technologies such as offshore wind and leaves a legacy of highly toxic waste that takes more than 100,000 years to decay.

Bulb, Britain’s seventh biggest supplier by market share, also warned in a response to a consultation on the regulated asset base model that using the financing mechanism for nuclear plants “doesn’t protect customers who choose to be on a renewable tariff but adds costs to their bills for a technology they won’t directly benefit from”.

The Financial Times

Net zero: offshore wind target ‘put at risk by planning rules’

The government’s target of quadrupling Britain’s offshore wind energy capacity by 2030 will not be met without an urgent overhaul of inefficient planning processes and network connections, the industry has warned.

The offshore wind industry also needs a more predictable supply of seabed leases and financial support contracts to help secure investment in new factories and jobs, Renewable UK said.

Dan McGrail, the wind trade body’s new chief executive, said that it would be a “huge challenge” to meet the 2030 target. Britain needed an approach to offshore wind akin to that used to deliver the coronavirus vaccine, in which “the rule book was torn up in terms of what was done when and by whom” with unprecedented collaboration between organisations, he said.

Britain is the world’s biggest offshore wind market, with more than 10 gigawatts operational, generating about 13 per cent of UK electricity last year. The government wants to quadruple capacity to 40 gigawatts this decade and estimates suggest that 75 gigawatts or more will be needed by 2050 to achieve net zero emissions.

Offshore wind farm developers must win a seabed lease from the crown estate, then get permission from National Grid to connect to the network and gain planning consent for the project, before winning a contract from the government to guarantee its revenues.

Seabed leases have just been awarded for a raft of new projects that could help meet the 2030 target, but McGrail said the next steps must be accelerated to deliver them in time. “You have huge public support for this but we have very long, drawn-out planning processes, and constraints around the grid,” he said, adding that planning processes were delayed by “significant resource constraints” at authorities and statutory consultees such as Natural England.

Developers also faced being offered connection dates for after 2030 by National Grid unless the government and Ofgem delivered on proposals for more co-ordinated planning of cabling both on and offshore, McGrail said.

The business department said: “We are exploring how greater investment, alignment and co-ordination of projects will help the UK meet our ambitious 40 gigawatts target for offshore wind by 2030.” Ofgem said it would work on plans for “a more co-ordinated offshore grid”.

The Times

How batteries can solve Britain’s big renewable energy problem

Sprawled across a field in north Wiltshire, dozens of large rectangular boxes on the outskirts of the village of Minety are the latest physical sign of the UK’s energy revolution.

Together, they form the biggest storage battery in Europe, providing 100MW of lithium-ion power to prevent blackouts and volatile costs caused by the country’s increasingly renewables-based energy system.

“We fully support the UK’s target of achieving a net-zero emissions society by 2050. Projects like this will enable that transition,” David Wells, vice-president of Shell Energy Europe, which is helping run the project, said last week.

Many more batteries like this will be needed as the country races to cut carbon emissions through measures including generating upwards of 75pc of power from renewable sources.

“We need to get these assets onto the network as soon as possible, really, because these costs are starting to take off,” says James Basden, founder and director of battery developer Zenobe.

The opportunity for battery developers is huge. In modelling published last week, National Grid ESO, responsible for balancing Britain’s supply and demand, said it expects 43GW of electricity storage will be needed in 2050, compared to 3.5GW today.

Not all of that storage needs to be in the form of batteries, but it would help if a lot of it was. Some can jump into the system in less than 150 milliseconds, responding to sudden surges. National Grid expects small-scale batteries that can supply power for two to four hours to play a crucial role.

That has encouraged several companies into the market, such as lithium-ion battery developer Zenobe and vanadium-flow battery developer Invinity Systems. Utilities giant EDF has also bought battery storage start-up Pivot Power.

The sector, however, remains small, with less than 2GW installed. It has not been seen as an easy investment case, particularly for smaller developers.

The Government has tried to promote wind and solar power by guaranteeing the amount developers will be paid for the electricity. Battery developers cannot qualify for those subsidy contracts and are reliant instead on less predictable and often short-term contracts with National Grid ESO, as well as trading power on the wholesale market.

In a note early this year, investment bank Stifel said revenue opportunities were “evolving” as National Grid’s need for the services changes. But it warned: “Ultimately, this all adds to the complexity inherent in the sector and why the investment case is not as straightforward as the high level picture would suggest.”

Matt Harper, chief commercial officer at Invinity, agrees the commercial models need to evolve. “The biggest inflection point in the solar industry was the development of 20-year purchase agreements,” he says. “If we could see that same level of reliability of revenue streams on the storage side, that would be a huge improvement.”

The market is becoming more welcoming. Changes to planning rules making batteries easier to build have helped give them an edge against other types of storage, such as pumped hydropower.

“When you look at the alternatives [to batteries], some of them can be quite complex,” says Rob Nickerson, electricity market modelling manager at National Grid ESO. “It’s a bit easier to bring battery projects forward.”

Costs of batteries have also come down, and the technology is improving. Between 2010 to 2018, battery cell costs fell 85pc from $1,160 (£839) /KWh to 176 $/KWh, according to Bloomberg Energy Finance. Battery costs are forecast to continue to fall between 20pc and 50pc over the next 10 years.

Jonty Lovell, investment manager at Foresight Group, reportedly spoke at an industry conference in March of a noticeable “turning point” in the sector over the previous six to 12 months, “where economics have started to become more viable, certainly for equity investors”.

Revenues from trading the power from batteries, rather than National Grid ESO contracts, are also seen as a growing opportunity, given expected spikes and troughs in power prices as the system evolves.

UK battery investor Gresham House Energy Storage Fund said in its April annual results that it expects trading to dominate its earnings longer term, “as volatility increases due to rising renewable generation and less gas-fired generation”. Trading made up about 10pc of its £19m revenues last year.

Ben Guest, lead fund manager at Gresham, says he expects there to be a gap between need and supply of batteries in the short-term, but believes the market is on course to deliver longer term.

“We are going to see a huge amount of offshore wind onshore and solar and batteries will not curtail at a rate that’s going to avoid big increases in balancing costs,” he says. “But if you look over the next five to ten years, I think we are on our way.”

Daily Telegraph

Green transport can only succeed with a greener grid

The challenge of decarbonising the UK’s roads, railways and flight paths will rely on harnessing the UK’s cleaner energy system to power the future of the transport sector.

Carbon emissions from the UK’s energy industry have tumbled in recent years, largely due to the shutdown of old coal power plants in favour of more renewable energy.

But senior energy industry sources have warned that the UK’s ambitious targets to drive down carbon emissions from the transport sector will require an acceleration of green investment in the energy system too.

“The energy industry has a huge role to play in facilitating the decarbonisation of transport,” said Graeme Cooper, the head of future markets at National Grid.

He says a green transport system will require a multibillion-pound investment to rewire ageing power grids and fit vast amounts of electric-vehicle charging infrastructure. Additionally, it will spur a boom in demand for green energy to produce hydrogen for heavy trucks, ferries and long-haul coach travel.

“There will be an uptick in demand for energy, so we need to ensure that we are future-proofing, putting the right wires in the right place for future demand. We also want to ensure that the energy we’re plugging in for the increased demand is as green as possible,” Cooper said.

The energy regulator, Ofgem, recently gave the green light to a £300m investment spree to help triple the number of ultra-rapid electric car charging points across the country over the next two years. Energy networks are expected to install 1,800 ultra-rapid charge points at motorway service stations and a further 1,750 charge points in towns and cities. It’s a taste of what’s to come if the UK hopes to meet its green transport targets.

The Energy Networks Association (ENA) estimates that by 2028 the industry will have needed to invest in enough grid connections for charging points to power 8.2 million electric vehicles. A green transport system will also require the equivalent of about 30 terawatt hours of hydrogen fuel per year by the middle of the century, which will require roughly a tenth of the UK’s current electricity use to manufacture, it says.

Peter Kocen at the ENA said the speed of the transition would require a new approach to regulation – one that helped energy companies invest in anticipation of the boom in green transport. “The regulatory environment sets out investment over a five-year period and requires energy networks to provide evidence of immediate ‘need’ for this investment. But energy networks also need to be able to be responsive to the energy transition, including investing before there’s the immediate need,” Kocen said.

Scottish Power is the only UK energy company that invests in the full energy “value chain” – from generating renewable electricity to running power transmission lines and electricity grids, and supplying homes. It believes the challenge ahead may be even greater. The company’s chief executive, Keith Anderson, told the Society of Motor Manufacturers and Traders this year that the company was preparing for more than 30 million electric vehicles to be on the road by 2040.

“By 2050, we’ll need something like 25 million private chargers and 3 million public ones,” he told the trade group’s international motoring summit last month. “That will only be possible if the electricity distribution networks are suitably reinforced to cope with all the additional demand, and a system of fair access for remote or deprived communities is in place.”

In addition, heavy transport “like bin lorries, big buses and boats, [which] are unsuited to battery power” will need green hydrogen – made using renewable electricity and water – to help heavy vehicles, he told the Observer.

The company plans to invest £10bn over the next five years in projects ranging from “wind and solar power plants to battery storage – from smart grids to EV charge points and hydrogen electrolysers” to help meet the need for car charging and low-carbon transport.

“In a couple of decades’ time, UK electricity demand will double, as transport, heating and industry all make the shift from carbon. In short, we need to electrify the hell out of everything over the next few years if we’re going to meet our net zero targets,” he said.

The Guardian

Southern Water boss’s £500k bonus criticised by MP

An MP has labelled a £550,900 bonus for the chief executive of Southern Water “ridiculous” after the firm was fined for dumping raw sewage into the sea.

With his base salary, pension and other benefits, Ian McAulay’s total remuneration was more than £1m.

A company spokesman said he was “the lowest paid of water utility bosses”.

Ashford MP Damian Green said he was very “angry” and added: “Getting a bonus when your company is being fined £90m is ridiculous.”

The salary figures, published in Southern Water’s Annual Report, come as the firm was fined £90m for deliberately dumping billions of litres of sewage.

Labour campaigner Charlotte Cornell said: “Huge bonuses like this just don’t belong in water.

“Water should be a publicly-owned amenity, I do not believe drinking water or waste water should be provided by private companies.”

Southern Water said there had been “profound changes” since Mr McAulay became CEO in 2017 and began “driving the transformation in people, processes and systems”.

The firm also added the chief executive was under a two-year pay freeze and bonus reduction, following his own request.

Southern Water now claims to be “the most transparent company” in the sector for self-reporting discharge incidents to regulators, and its rating has improved from one star to two, out of four.

However, it was the second-worst performing company for pollution incidents in 2020, with almost four times more incidents than Anglian.

During court proceedings earlier this month, the company admitted 6,971 illegal spills from 17 sites in Hampshire, Kent and West Sussex between 2010 and 2015.

The firm said it was “spending heavily to improve environmental performance”, has appointed a new director of environment and plans to reduce pollution incidents to zero by 2030.

Sebastiaan Boelen, Southern’s chief financial officer, was also awarded a bonus of £290,000 and a total pay packet of £650,000.

BBC News

Electric battery firm AMTE Power seeks gigafactory site

A recently floated maker of high-end batteries for electric vehicles hopes to select a destination for a new factory within the next 18 months.

AMTE Power is considering options in Scotland, England and Wales for its own gigafactory.

Kevin Brundish, chief executive, said access to reliable sources of renewable energy and government incentives were among the issues being assessed.

“All those things you would expect a company to be doing before putting a shovel in the ground, we have been doing,” he added.

The company hopes to extend its manufacturing to be producing batteries with a capacity of two gigawatt hours per year.

The AIM-listed firm has its existing fuel cell preparation site in Thurso in the far north of mainland Scotland. It is developing fuel cells that can provide bursts of power for high-performance motor vehicles and heavy plant machinery and is also looking at aviation markets. Jaguar Land Rover and Williams are among the companies it has worked with.

AMTE listed in March by placing shares at 175p in what was an oversubscribed fundraising where it raised £12.9 million of new capital.

Yesterday Brundish said the company had sped up its investment in people while trading was in line with market forecasts. WH Ireland, the broker, expects it to book about £2 million in revenue in the 12 months to June with an adjusted loss of £2.7 million.

Brundish confirmed it was using the facilities at the £130 million UK Battery Industrialisation Centre in Coventry.

The Times

UK competition watchdog to gain new post-Brexit powers

Britain’s competition watchdog is to be given new post-Brexit powers to levy huge fines on companies that rip off consumers, speed up antitrust cases and protect innovative small companies from predatory rivals.

Kwasi Kwarteng, business secretary, will next week propose streamlined and strengthened powers for the Competition and Markets Authority, intended to drive innovation and growth.

The reform comes two years after former CMA chair Lord Andrew Tyrie demanded an arsenal of measures to transform the watchdog into a consumer champion. Tyrie, who left the organisation last year following a boardroom coup, called for swifter enforcement against companies and directors, a new statutory consumer role and hefty fines.

The government stopped short of granting the CMA a new statutory role to protect consumers in its draft rules but proposed beefed-up powers including heavy sanctions for corporate wrongdoing and direct fines.

The CMA will be able to fine companies directly for breaches of consumer law without going through the courts, under the new proposals. Companies that rip off customers with misleading claims, unfair terms and conditions or hard-to-exit contracts would also be liable for fines of up to 10 per cent of global turnover.

To speed up the CMA’s cumbersome enforcement processes, Kwarteng is considering allowing the watchdog to widen its use of interim measures in order to combat harmful practices before an investigation is formally completed.

Under the new plans, the CMA could also accept binding, voluntary commitments from businesses at any stage of its investigations, leading to quicker results and lower costs for both parties.

Meanwhile, Kwarteng wants the CMA to have powers to protect fledgling companies from “killer acquisitions”, where a big company takes over a rival before it can launch a new service or product, for example a new app.

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.