Weekend press round-up: Octopus Energy calls rivals ‘desperate’ in bitter court clash

In our latest weekend press round-up, Octopus Energy trades blows with its rivals over its deal to buy Bulb’s customers, while experts raise concerns about the UK’s continued dependence on overseas power supplies. In the water sector, it is revealed that both Thames and Severn Trent Water still use dowsing to detect leaks.

Octopus Energy calls rivals ‘desperate’ in bitter court clash

Octopus has labelled its rivals “desperate” while British Gas has claimed the energy supplier benefited from “hugely advantageous” terms in landing a deal for Bulb, during a courtroom clash.

In a court hearing in London on Friday, the energy firms traded blows in the fallout from Octopus’ deal to buy Bulb from a government-handled administration last October.

British Gas, the UK’s biggest home energy supplier, claimed Octopus received offers of government support to take on the company that were not proffered to rival bidders.

British Gas, E.ON and Scottish Power have demanded scrutiny of the process that resulted in Octopus acquiring Bulb, which has more than 1.5 million customers.

The trio argue there has not been enough transparency over the process or the terms of the deal between Octopus and the Department for Business, Energy and Industrial Strategy (Beis).

A judicial review to examine the process will take place over three days next month, starting on 27 February.

On Friday, a judge allowed Octopus more time to make evidence disclosures at a hearing examining the evidence to be submitted for the judicial review.

Ahead of those hearings, lawyers have been poring over evidence to discern what was discussed in the run-up to Octopus clinching the deal.

A string of suppliers were initially interested in acquiring Bulb but it is understood just Octopus, British Gas owner Centrica and Masdar remained for much of the process, while Ovo revived its interest in the latter stages.

MPs have called for greater transparency over the process and rivals have claimed that Octopus has effectively received a “cash gift” or “dowry” in relation to the Bulb transaction and dubbed it “a mess-up worth billions” for taxpayers.

The Octopus chief executive, Greg Jackson, has insisted that it was a “fair deal for taxpayers” and a four-year profit-share agreement is in place with the government.

In documents filed to the court, British Gas Trading (BGT) argued that its analysis of evidence submitted during the discovery process suggests Octopus had discussed the government providing support for the deal before the company originally stated.

In its submission, BGT said: “This issue is of central importance in circumstances where Octopus has been the beneficiary of hugely advantageous arrangements which were not offered to other participants in the sale process, in particular BGT.”

BGT accused Octopus of failing to “comply with its duty of candour in respect of a critical part of the sale process” during court hearings.

A judge approved Octopus’s takeover of Bulb before Christmas but the deal could still be derailed by the judicial review.

An Octopus spokesperson said: “This court case looked vexatious to begin with, but now it’s clear that the government is likely to make a profit on the sale of Bulb to Octopus, this legal action looks even more desperate and the judge has rejected their fishing expedition in its entirety.

“Maybe if they focused on looking after customers instead of expensive court cases, they wouldn’t have won a wooden spoon for the worst service of any company in any sector, while Octopus is Which? recommended for the sixth year in a row.”

ScottishPower, E.ON and British Gas were among the worst-rated energy firms by customers in consumer group Which?’s annual survey last week, with Octopus coming out on top.

The Guardian

Rollout of overseas power link leaves UK reliant on neighbours for energy

From a remote field in Lincolnshire, teams of engineers are installing a high-voltage cable to carry electricity 765km to and from Denmark.

The world’s longest “interconnector”, the Viking Link will pass under the North Sea and four nations’ waters, dodging unexploded bombs and pagan burial sites along the way.

It will eventually have the capacity to supply energy to 1.4mn homes in the UK, or 2mn in Denmark where average consumption is lower. Interconnectors are crucial to Britain’s energy transition, in which the share produced from renewable sources has risen to 40 per cent from almost zero in 2010.

But they also highlight the country’s continued dependence on overseas power supplies.

The Viking Link, a joint venture between FTSE 100 group National Grid and the Danish government’s transmission system operator, will be able to bring energy from Danish biomass plants on days when the UK wind turbines refuse to turn, providing a fallback to help resolve the intermittency of the UK’s main supply of renewable energy. Britain already has eight electricity interconnectors — to Ireland, France, Belgium, the Netherlands and Norway — and capacity has risen to 8.4 gigawatts from 2.5GW in 2011.

Energy regulator Ofgem wants this to more than double to 18GW by 2030 as electricity demand rises to power cars, buses and trains and gas boilers are replaced with heat pumps. National Grid owns five of the eight. Ofgem in December gave “pilot project” status to interconnector projects to Belgium and the Netherlands, meaning they will undergo further assessments to decide whether they meet consumers’ needs.

But experts said there are drawbacks to the increase of the connections.

“It’s all part of creating a Europe-wide grid that is a back-up to renewables intermittency,” said Michael Bradshaw, global energy professor at Warwick Business School. “The downside is it’s exposed to energy security threats — it’s just like a gas pipeline except it’s electrons, not molecules.”

Observers said there are risks in remaining reliant on the goodwill of neighbours. Although the UK has since April exported more energy than it has imported, there is a question as to whether there will be sufficient supplies if the situation reverses and cold snaps drain European storage.

National Grid was forced to ask the Netherlands this week for an emergency increase in imports via the subsea cables to avoid blackouts in the south-east of England.

Dieter Helm, economic policy professor at Oxford university, said there was a “huge vulnerability in the UK relying on external energy supplies in the face of shocks”. “We are doing it with gas, where there is almost no storage and no back-up, which requires us to pay the highest price for LNG tanker loads, which is one reason the gas crisis hit the UK so hard,” he added.

“With electricity it is good to trade but if the great Brexit game is taking back control, the right answer is to make sure we have enough domestic generation capacity, especially with so much intermittency from wind.”

Brexit has also made it less clear what would happen if the EU decided to stop energy exports to non-EU countries to conserve their own supplies.

Before Brexit the interconnector flows between Britain and continental Europe were determined by an algorithm to ensure electricity flowed according to price differentials. Now it is conducted manually, adding to the complexity.

“Instead of being part of the development, co-ordination and rules of a pan-EU grid, we are playing a unilateral game,” said Helm. “The UK post-Brexit wants its cake and to eat it — it wants to benefit from the links to France and to north European countries, whilst not having to follow the internal energy market rules and regulations.”

The interconnectors could also be used as political bargaining chips, said Bradshaw. “It may sound a trivial point but it is not that long ago the French government threatened to switch the power off to Guernsey because it had a squabble over fishing rights.”

The department for business, energy and industry insisted the “concerns are unfounded”, saying “the trade of energy with our European partners over interconnectors is subject to robust regulatory and commercial arrangements, underpinned by international treaties with the EU and Norway”.

National Grid said there was “strong political support” for cross-border co-operation. “We don’t see this as a risk,” said Cordi O’Hara, president of National Grid Ventures. “There is a clear recognition that our interconnectors to Europe are mutually beneficial.” But any dependency could drive up costs.

In the UK, unlike most other European nations, interconnectors are owned by the private sector, most of which are protected from risk through a cap and floor system, where the government “tops up” revenue to a minimum level and collects excesses over a defined amount. Bradshaw has concerns over private sector ownership.

“One of the lessons of the energy crisis is that if everything is in private hands, it’s harder for government to influence control,” he said.

Financial Times

Wind farms backed by green subsidies could be paid more to switch off

Wind farms backed by government subsidies could be paid more to switch off than to generate power, The Telegraph has learnt.

A lack of grid storage and transmission infrastructure means that the UK is regularly producing more electricity from wind than it can use.

At particularly windy times, the National Grid pays producers to switch off rather than overload the local system, with the costs passed on to household energy bills.

Producers offer the price at which they are willing to switch off, which is normally around the market rate for electricity, currently at record highs because of the energy crisis.

Wind producers on newer government subsidy contracts are paid a fixed price, generally below current market rates, to generate electricity.

By switching off, producers may therefore be able to make rates well above their fixed prices.

Although the loophole only applies to about seven per cent of wind farmer producers on so-called “contracts for difference” (CfD) – the newer subsidy system – the issue could grow as new wind farms come online.

Developers of the newest wind farms have offered to produce power for a guaranteed price of as little as £37 per megawatt-hour (MWh).

That compares to wholesale electricity prices currently around £150/MWh, which are expected to stay at record-high levels for years to come.

Meanwhile, the National Grid forecast that levels of curtailment will grow fourfold in the next decade, from 3.8 terawatt-hours (TWh) in 2022 to 15TWh in 2030, with costs forecast to reach £2.5 billion a year

In 2022, consumers paid £215 million to turn wind farms off, and £717 million to buy gas-powered electricity to make up the difference, according to figures from the UK Wind Curtailment Monitor.

A government spokesman said: “The Government is currently undertaking a review of electricity market arrangements.

“Curtailment payments are used by the National Grid ESO, as well as in other nations around the world, to safely manage electricity supply on a day-to-day basis. Wind energy companies are not able to rely on these payments as a stable or longer-term income.

“As set out in our Energy Security Strategy and Electricity Networks Strategic Framework with Ofgem, the Government is committed to accelerating the delivery of improved electricity network infrastructure as new sources of clean and affordable electricity generation come online.”

The Telegraph

Ofgem under fire for delaying plans to tackle energy giants’ cash grab: Two-year wait to end £2.5bn charge on customers not using direct debits

Energy watchdog Ofgem is dragging its feet over a £2.5 billion rip-off by power giants which are slapping extra charges on customers if they do not pay by direct debit.

The regulator, run by Jonathan Brearley, has been under pressure to stop firms charging customers extra if they choose to pay their bill in cash, by cheque, or over the phone using a bank card.

But it says it will not clamp down on the practice for at least two years, meaning customers – many elderly or less well-off – will continue to pay through the nose.

Some prefer not to pay by direct debit as they fear energy firms will set the monthly figure too high. Companies have been accused of hoarding billions of pounds of customers’ cash and of putting up their direct debits even when they have large credit balances.

Those who choose another payment route pay a heavy penalty. The scale of the additional charges, which can be as much as £254 a year, was first revealed by The Mail on Sunday earlier this month.

With an estimated five million households affected, the levy is expected to raise about £1.25 billion in 2023. That is the same amount in one year as it hauled in over the previous three.

The charges have been widely condemned by campaigners. Many customers are unaware they are being hit by hefty penalties because of their method of payment.

The surcharge was previously capped at £79 a year. Since 2021, however, the maximum that suppliers can charge customers has quietly been hiked to more than three times that figure. The increase is calculated using an algorithm based on energy prices, which have risen rapidly due to the war in Ukraine.

Companies try to defend their cash grab by arguing it costs them more to process cash, cheque or phone payments compared with automated direct debits. Ofgem agrees. However, this has nothing to do with the price of energy and therefore there is no justification for an increase in the surcharge.

Tory MP Craig Mackinlay, a former member of the influential Work and Pensions Committee, said he was ‘appalled’ at the size of the charge. He said: ‘Ofgem is best placed to bear down on this. But the energy giants themselves need to not charge these excessive amounts, and I would call upon them to keep administrative premiums at a very bare minimum.’

A separate standing charge, which is meant to cover the cost of running the network, has also ballooned. Octopus, Britain’s third largest supplier, said it had refused to pass on the full increase to its customers – keeping it at £80.

Octopus chief executive Greg Jackson said Ofgem should do ‘all in its power to drive down the sinister, hidden costs creeping up on pensioners’. He added: ‘This surcharge has got out of hand. We’re asking Ofgem to review it as a matter of urgency.’

Ofgem said that the levy for those not paying by direct debit was under review as part of a ‘draft programme of work’ into charging policies. However, the regulator added that no changes would be made until ‘the winter of 2024-25’.

This Is Money

Thames Water and Severn Trent Water still use dowsing to detect leaks

Thames Water and Severn Trent Water still use dowsing rods to hunt for leaks, even though scientific studies show that they do not work.

Water dowsing, also known as water divining which dates back to at least the 16th century, involves a person holding two L-shaped or one Y-shaped rod in front of them. The rods, sometimes known as witching sticks or wands, are supposed to twitch or cross to indicate the presence of water underground.

There is no known force in physics that would account for how buried water would move the rods, and scientific trials have shown that dowsing is no more effective than guessing.

Experts have asked Ofwat, the water regulator, to stop companies spending money on it. Thames Water, which supplies 2.6 billion litres a day, has admitted that about a quarter, or 650 million litres, is lost in leaks. Severn Trent loses about 400 million litres a day. Last year’s official declarations of drought focused attention on the poor state of water infrastructure.

The two companies told New Scientist that their engineers used dowsing rods to find leaks; 15 water companies told the magazine they had abandoned the method. A spokesman for Thames Water said dowsing rods were used to find leaks, and to verify results from other equipment. “Some people they work for, some people they don’t. If they work for you, you come to trust it,” he said. “People are sceptical of it, and I was sceptical when I first saw it. I started using them because I saw someone else use them and I have found leaks.”

Severn Trent said that a small number of its “expert engineers . . . may still carry dowsing rods with their equipment.” However, it added that it did not issue them as it did not consider dowsing rods to be effective.

Experts have attributed belief in dowsing to confirmation bias: the tendency to forget times when the method failed and celebrate it when it appears to work.

Professor Richard Wiseman, a psychologist at the University of Hertfordshire, said that it was plausible that some dowsers picked up on signs from the environment, such as green patches of vegetation, to be led to water sources. “I’m not sure that there’s any evidence that this happens, but it doesn’t seem impossible,” he said.

“In studies where there are no environmental cues, it fails.” he added.

The Times

Nuclear industry calls for new UK reactors as ‘matter of priority’

Ministers are under pressure to launch a government agency to develop a new fleet of nuclear reactors in Britain “as a matter of a priority”, after delays caused by a funding dispute between the Treasury and business department.

UK engineering giant Rolls-Royce, US nuclear power group Westinghouse, the trade union Prospect and several cross-party MPs have written a letter to the government calling for the urgent launch of Great British Nuclear (GBN).

The new body was promised by former prime minister Boris Johnson last year when, in the months following Russia’s invasion of Ukraine, he set a goal of 24 gigawatts of nuclear power capacity by 2050.

This target was intended to meet a quarter of the UK’s projected electricity demand and bolster domestic energy security. Britain at present has 5.88GW of nuclear capacity.

GBN is intended as a delivery body with the funding to develop new nuclear power projects and help them get to a point where the government and investors can make a final investment decision and start construction.

Successive governments dating back to Margaret Thatcher’s administration in the late 1970s have promised large new fleets of new nuclear power stations but those ambitions have gone unfulfilled because of the costs and complexities of atomic energy, which have often driven private companies away from potential projects.

Nuclear power also remains heavily contested by environmental groups that argue it is expensive and leaves a legacy of highly toxic waste. Nuclear power companies and trade unions hope GBN will finally deliver a new reactor fleet as Britain’s five existing nuclear plants, which met 15.5 per cent of the country’s electricity needs last year, are ageing rapidly. Four out of five of the current plants are due to be retired by 2028.

But GBN’s launch has been held up by a dispute over funding between the Treasury and the Department for Business, Energy and Industrial Strategy. “We do not have time to spare,” warns the letter, organised by Prospect, a trade union that represents engineers, scientists and other specialists in both the public and private sectors.

The letter was signed by MPs including Charlotte Nichols, Labour MP for Warrington North; Mark Menzies, Conservative MP for Fylde; and Simon Fell, Conservative MP for Barrow and Furness.

“All but one of the UK’s existing nuclear reactors are due to retire by the end of the decade and this capacity needs to be replaced. Meanwhile, the global race for investment in next generation nuclear technologies is accelerating, spurred on by the Inflation Reduction Act in the US,” the letter reads.

“Britain must not sleepwalk into the familiar pattern of delays and broken promises that have held back our nuclear ambitions in the past,” it adds.

The letter’s signatories, which also include the Northern Powerhouse Partnership of civic and business leaders in the north of England, warned that GBN needed to be “fully funded” to deliver the country’s latest ambitions.

Financial Times

The gas-fired plants tasked with keeping UK lights on – but at what cost?

At the entrance to the old munitions factory, a pair of ornamental lions stand guard, each with a stone paw resting on a cannonball. The Coryton complex in Essex dates back to 1895, and its use has changed over the years. Behind the lions loom the grey girders of a gas-fired power plant capable of generating electricity for up to 800,000 homes – and substantial profits for its owner.

Debate is raging over the role of gas-fired electricity in the energy crisis. Coryton is one of a fleet of UK peaking plants, so-called because they tend to be fired up at peak consumption times, a backstop when other contributors to the grid, such as windfarms, underperform. But they also attract some of the highest rates per megawatt hour (MWh) of any power source, and those rates have jumped with the gas price since the invasion of Ukraine,leading to calls for their profits to be capped.

Another source of controversy is that unlike oil and gas extraction, peaking plant income is not subject to the government’s windfall tax.

The design of Britain’s energy market is under scrutiny as never before, as efforts to decarbonise collide with a need to keep the lights on during the Russian-inflicted gas shortage.

Ofgem will soon publish proposals designed to prevent backup generators from raking in “excessive” profits as part of their licence conditions. Supporters argue they are an essential rapid source of electricity supplies, and cannot be relied upon to produce reliable profits; detractors say they are owned by sophisticated traders maximising returns when the market is tight.

Last month National Grid paid a record £27m on a single day to get power stations to crank up supply at short notice, including £6,000 a MWh to fire up Rye House power station in Hertfordshire.

Rye House belongs to VPI, a subsidiary of the Swiss trading multinational Vitol. Like many other peaking plants, it has passed into the hands of overseas investors as some of the biggest UK operators have exited the market.

Coryton was owned by InterGen until last week. It now belongs to the Czech financier Pavel Hubáček’s Creditas investment group, which bought it from another Czech businessman and China Huaneng and Guangdong Energy.

Yet another Czech billionaire, Daniel Křetínský, owns EP UK Investments, which has a power plant collection that includes South Humber Bank and Langage – formerly owned by Centrica. Known as the Czech Sphinx for his aversion to publicity, Křetínský has varied UK interests, including stakes in Sainsbury’s and Royal Mail.

Prices paid for gas-powered electricity this winter are unprecedented. The average offer price for “balancing actions” – to align supply and demand – between the start of September and early January was £287 a MWh. Data from Elexon, which oversees the market, shows Rye House submitted the 20 highest winter bids – between £5,000 and £6,000 a MWh – for varying volumes of power on 12 December, setting new records. That day, VPI earned more than £11m, while InterGen received an estimated £12.6m from Coryton, according to figures from the market data platform EnAppSys.

InterGen said a rise in demand had produced a “particularly pronounced spike” on 12 December, and that it always acted “in line with regulations and guidance issued to the market, to provide energy to balance the grid and keep the lights on across the UK”.

Among the other plants bidding above-average winter prices were Uniper’s Ratcliffe-on-Soar coal-fired plant in Nottinghamshire and its gas power station Killingholme in north Lincolnshire, as well as Dinorwig, a pumped hydroelectric power plant in north Wales that is majority-owned by the French multinational Engie and is the fastest source of electricity in the UK.

Cowes power station on the Isle of Wight and the Didcot plant in Oxfordshire both bid at £1,500 for small volumes in October.

Controversially, none of these profits have been subject to the windfall tax introduced by Rishi Sunak when he was chancellor and expanded under Jeremy Hunt.

Companies House records showed VPI Holding’s pre-tax profits surged from £44m in 2020 to £204m in 2021, on turnover that more than doubled to £2.1bn. Reuters reported in September that Vitol made more profit in the first half of 2022 than in the whole of 2021 – close to $4.5bn (£3.6bn), compared with a net record of just over $4.2bn in the 12 months before.

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.