Weekend press round-up: Offshore power ‘will fail without subsidies’

In our latest review of sector coverage in the national newspapers, SSE calls for support to extend the lifetime of windfarms, while a coalition of energy firms urges the government to increase the scale and frequency of Contracts for Difference auctions. Meanwhile, Southern Water’s latest financial results show profits down by a third.

Offshore power ‘will fail without subsidies’

Most wind farms in Britain will not be economically viable when existing subsidies end and will close prematurely without further revenue support, new analysis suggests.

A report commissioned by SSE has found that the huge expansion of wind power in the UK is likely to push wholesale electricity prices so low on windy days that most wind farms will be unable to cover their operating costs simply from selling power into the market.

This could lead to mass early closures of offshore and onshore wind farms when their existing subsidy arrangements end, primarily from the 2030s. Building new wind farms to replace them could increase the costs of hitting Britain’s net zero target by £20 billion, the report says.

It argues that it would be far cheaper to offer continuing revenue support to extend the life of the existing projects or upgrade them, such as “repowering” existing sites with bigger turbines. At present, only brand new projects are eligible for such support.

The recommendation is one of several that SSE claims could cut the costs of hitting net zero by £48 billion, based on the report from LCP, a consultancy. It recommends scrapping plans for more new nuclear plants beyond Hinkley Point C in Somerset and calls for a “renewables-led energy system supported by decarbonised gas and long-duration storage”.

The recommendations reflect SSE’s own business interests. As well as operating and building wind farms, the FTSE 100 energy group wants to build hydrogen power plants or gas plants with carbon capture technology and wants support to build more pumped hydroelectric plants. It also operates power networks.

Alistair Phillips-Davies, SSE’s chief executive, said: “A high-renewables system centered around the UK’s offshore wind resource and backed up by technologies like carbon capture and storage, hydrogen and long-duration storage can achieve a faster and cheaper route to net zero than one including any more new nuclear projects.”

The Times

Renewable groups push for larger UK clean energy auction

Renewable energy companies are pressing UK ministers to raise the amount of clean electricity capacity they intend to secure through a critical auction later this year by 25 per cent, warning it is “vital” if the country is to meet its climate targets.

Chief executives and senior figures from large clean energy groups including ScottishPower, Vattenfall, Orsted and trade association RenewableUK are urging the UK government to increase the capacity they intend to procure from an ambition of 12 gigawatts to “at least” 15GW.

Several of the organisations backing the call were also signatories to a letter to the G20 heads of state last week warning they would fall short of the wind energy capacity required for carbon neutrality by 2050 by 43 per cent, based on current forecasts. The UK’s 2050 net zero emissions goal is legally binding.

Ministers said last year that 12GW could provide sufficient clean electricity to power 20m electric cars on the UK’s roads in any year.

Government auctions that guarantee renewable energy developers an agreed price per unit of electricity for 15 years only take place every two years in the UK. Companies say they are critical for securing financing to build projects and that unsuccessful bidders in the highly competitive process risk being forced to delay much-needed projects for several years.

In an interview with the Financial Times, Dan McGrail, the new chief executive of RenewableUK, which represents more than 400 companies, estimated projects with a total potential capacity of 23GW could be ready to enter this year’s auction, which starts in December.

He also urged ministers to move to annual auctions, which are known in the industry as “contracts for difference” rounds. “Accelerating the speed and scale of the energy transition is vital,” McGrail said.

Britain’s climate advisers have said the electricity grid needs to be fully decarbonised by 2035 to meet the 2050 net zero target.

Danielle Lane, UK country manager for Vattenfall, said “pushing forward more projects now through a larger . . . auction sends a clear signal that the UK is serious about reaching net zero”.

Keith Anderson, chief executive of ScottishPower, part of Spanish energy group Iberdrola, said investor appetite to develop renewable projects in the UK had “never been higher”.

“To capture this . . . the UK needs to look at more frequent auctions, potentially annually, but crucially, without imposing inflexible limits on the amount of renewable energy that can be deployed,” he added.

The Financial Times

Billpayers to help fund electric car chargers under controversial plans

Households face higher energy bills to cover the cost of expanding access to electric car chargers, as Britain races towards a ban on petrol and deisel engines in 2030.

The energy regulator is exploring plans under which companies building public charging points will no longer pay some of the costs of connecting to the grid.

Instead, the network companies that provide the connections will be able to recoup those costs from customers via their regular electricity bills.

Anecdotal reports suggest grid connections can cost as much as £1m in some places where more cabling is required, such as some rural service stations.

It is hoped that moving some of those charges on to bill-payers could encourage more charging points to be built in areas such as workplaces and car parks.

Ofgem believes the costs will be relatively small, about £380m over 17 years, which works out at about £22m per year.

However, the plans are an early indication of how the efforts to overhaul the nation’s transport to cut carbon emissions could be paid for.

The arrangements would also apply to the costs of new connections to the grid for other purposes, such as heat pumps or factories that need more power. Both will be in greater demand as the country tries to cut down on fossil fuels to meet its legally binding target of net zero carbon emissions. In consultation papers, Ofgem says current arrangements risk slowing down that effort.

Ofgem said: “Our proposals will reduce the cost of installing charging stations, which will be vital as more people move to electric cars as Britain moves closer to reaching its net zero carbon emissions targets.

“We always look at the impact of changes on consumers – both households and commercial – when considering changes.”

Daily Telegraph

Penalty for manipulated water samples sends Southern Water profits down drain

Profits at Southern Water fell by a third last year as the water company was forced to cut bills as part of a customer reimbursement plan agreed with regulators in 2019.

The company, which supplies water to 2.6 million homes and businesses in East and West Sussex, Kent, Hampshire and the Isle of Wight, generated an operating profit of £138.8 million in the year to the end of March, down from £212.3 million a year earlier. Revenue fell 11 per cent to £784.2 million.

Bosses said that the drop-off in performance was principally because of the £126 million penalty it accepted from Ofwat two years ago. The regulator found that Southern had manipulated water samples between 2010 and 2017 to hide the “true performance” of its sewage treatment works. The company was criticised for underinvesting, which led to “equipment breakdowns and unpermitted spills of wastewater into the environment”.

Ofwat determined that £123 million of the penalty should be repaid to customers, which Southern agreed to do between 2020 and 2025. Because of the reimbursement, the average Southern Water bill fell to £391 last year.

Southern’s domestic customers used £22.2 million more water than predicted during lockdown, but its business customers’ water use was £30.8 million down on forecasts.

The Times

UK looks to remove China’s CGN from nuclear power projects

The British government is exploring ways to remove China’s state-owned nuclear energy company from all future power projects in the UK, including the consortium planning to build the new £20bn Sizewell nuclear power station in Suffolk, according to people close to the discussions.

The change in mood at the top of government also affects proposals by China General Nuclear to build a new plant at Bradwell-on-Sea in Essex using its own reactor technology and raises questions about the future of the UK’s nuclear energy programme.

It follows the chilling in relations between London and Beijing in recent years over issues including China’s clampdown on dissent in Hong Kong, its repression of the Uyghurs and other Muslim minorities in Xinjiang and its handling of the initial Covid-19 outbreak in Wuhan.

Foreign secretary Dominic Raab said last year the UK could no longer conduct “business as usual” with Beijing. The most high-profile action has been the government’s decision to force Chinese telecoms equipment maker Huawei out of Britain’s 5G network.

The move to reconsider nuclear power partners comes as the US and its allies in Europe and Asia are increasingly looking to prevent China from obtaining sensitive technology and to protect their own supply chains or critical infrastructure from over-reliance on Chinese technology.

The collaboration on nuclear power dates back to a 2015 agreement that was endorsed by David Cameron, then-British prime minister, and Chinese president Xi Jinping.

That deal envisaged that CGN would become a 20 per cent partner in the development of the planned Sizewell C plant on the Suffolk coast, with an option to participate in its construction. It also sealed Chinese investment in the 3.2 gigawatt Hinkley Point C nuclear power facility, which is currently under construction in Somerset.

Under the agreement, CGN also became the lead developer of the proposed Bradwell B plant in Essex, in which it plans to install its own Hualong HPR1000 reactor technology.

The design is undergoing the UK regulatory approval process. But one person familiar with the matter said Chinese plans to build the power plant on the coast just 50km from London were now a non-starter.

“There isn’t a chance in hell that CGN builds Bradwell,” the person said, adding: “Given the approach we’ve seen to Huawei, [Downing Street] aren’t going to be letting a Chinese company build a new nuclear power station.”

Discussions were already taking place with the lead developer of Sizewell C, the French state-backed utility EDF, about whether it could find new partners for the project, the person added.

Another person close to the discussions said Number 10 did not want CGN involved in either project but hoped the company would withdraw without a confrontation. Both CGN and EDF declined to comment.

The Financial Times

No 10’s ‘net zero’ carbon target is in disarray as Rishi Sunak baulks at the £1.4trillion cost

Proposals to reduce emissions to ‘net zero’ as part of Boris Johnson’s plan to make the UK a ‘world leader’ in green policies have been thrown into disarray after Rishi Sunak raised objections to the eye-watering cost to the Treasury.

As part of the net zero plan –which would decarbonise the economy by 2050 – No 10 had been expected to publish in the spring details of the strategy for moving away from gas boilers ahead of Glasgow’s COP26 climate change conference in November.

But this has been delayed until the autumn amid mounting alarm about the bill.

The Chancellor – who is already looking for ways to pay back the £400 billion cost of the Covid crisis and the £10 billion a year required to reform long-term care for the elderly – is understood to have baulked at estimates of hitting net zero at more than £1.4 trillion.

The independent Office For Budget Responsibility (OBR) calculated the cost of making buildings net zero at £400 billion, while the bill for vehicles would be £330 billion, plus £500 billion to clean up power generation and a further £46 billion for industry.

After energy savings across the economy, this would leave a £400 billion bill for the Treasury.

The OBR also warned that the Government would need to impose carbon taxes to make up for the loss of fuel duty and other taxes.

The Prime Minister is considering issuing millions of households with ‘green cheques’ worth hundreds of pounds to compensate them for the cost of becoming more energy efficient.

Mail on Sunday

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.