Weekend press: Shapps to slash energy bill support

Utility Week's roundup of stories over the weekend includes Grant Shapps distancing himself from supporting household energy bills this winter; Keir Starmer hitting out at the Conservative's energy policy; and a look through the lessons to be learnt from the privatised water industry.

Help with UK energy bills unlikely this winter, suggests Grant Shapps

Grant Shapps has suggested it is unlikely the government will step in to protect households from rising energy bills this winter.

The energy secretary said in an interview with the Times that once inflation had fallen the government would “absolutely” need to cut taxes.

But he said it was unlikely the government would be able to shield people from steep energy bill rises with a price guarantee.

The government introduced an energy price guarantee last year, which kept the average dual-fuel energy bill at £2,500 a year over the winter.

The scheme came to an end in June, after the government postponed a cut in support that would have ended in April. A separate support scheme that paid about £400 a household from October last year, also came to an end last month.

Shapps said: “We don’t want to be in a position … of having to constantly pay energy bills.

“We’re having to tax people in order to pay it back to people … that money doesn’t come from nowhere.”

Shapps’s remarks come after the Bank of England raised interest rates for the 14th consecutive time to 5.25% while warning businesses and households that the cost of borrowing would remain high for at least the next two years.

Rishi Sunak, who has vowed to halve inflation by the year’s end, has come under increased pressure from Conservative MPs to boost the UK’s struggling economy and lower high inflation rates.

Shapps said: “You need to sort out the macro picture, get growth into the economy, bring down inflation and deal with the longer-term debt. Once you’ve done that you can set your path to lower taxes.

“We absolutely need to show that we understand the future for people in this country is to be a lower-taxed economy. Absolutely it’s in our DNA, in our heart, it’s in the prime minister’s heart as well.”

Analysts and energy firms have said stubbornly high energy bills are here to stay for the coming winter.

Earlier this week, the government announced 100-plus new drilling licences to extract as much oil and gas from the North Sea in a “maxing out policy”, a move which the prime minister described as being significantly more efficient than shipping gas and oil from other countries.

The announcement prompted concern from industry experts that the plans would “send a wrecking ball” through the UK’s climate commitments and led 100 energy firms to voice worries about the country’s over-reliance on gas and diversion from the country’s green agenda.

Labour has pledged to block all new domestic oil and gas developments and proposed heavy investments in renewable sources, such as wind and nuclear power, should the party win the next election. Shapps called the plans the “most absurd Just Stop Oil rent-a-policy I’ve ever heard”.

The Guardian

Keir Starmer: Rishi Sunak’s climate failure is a gift to Putin

Last year President Putin put his boot on the world’s neck by using energy as a weapon of war. But it is Conservative failure over many years that left Britain paying a heavy price.

David Cameron was told to ignore the long term and “cut the green crap”. He went along with it and oversaw a collapse in gas storage, prevented onshore wind, abandoned energy efficiency measures and stalled new nuclear projects. Each cut corner has added to today’s energy bills, piling up costs for every family and business and forcing the government to borrow more.

The tragedy for Britain is that rather than learn from his predecessors’ mistakes, Rishi Sunak is making them all over again. What we have witnessed in the past week is a Conservative prime minister once again putting short-term political tactics over the long-term national interest.

Rishi Sunak’s path will see less investment into the UK, the jobs of the future grabbed elsewhere and working people facing higher energy prices. We should have investors pouring money into the UK, knowing they have a stable partner in government with a long-term plan to deliver clean energy and industrial renewal. Instead, business leaders are threatening to pull investment from the UK over “clickbait” climate policies tailored to divide the electorate rather than deliver for Britain.

When it comes to the climate and the transition to net zero, I know there are those — from both the left and the right — who want it to be an ideological identity issue. That’s not my way. Any future Labour government I lead would always approach this in a pragmatic, hard-headed way, driven by what is best for Britain’s working people. We will treat the transition as a national mission with a relentless focus on cutting energy bills, revitalising Britain’s industrial heartlands and boosting our energy security.

This is the lesson that others — from President Biden in the US to countries across the EU — have learnt. They are getting on with investment into new industries of the future and reaping the benefits in jobs, economic growth and lower inflation. But Britain is being left behind, saddled by a government unwilling and unable to lead.

Take the Conservatives’ ludicrous onshore wind ban, which now means every family in the country is paying £180 more on their energy bills. Every turbine we fail to build is a gift to Putin, who has strangled the international gas market we are hooked to.

The missed opportunities are not only in energy. Last week we had cabinet members arguing against all new cars being electric or hybrid by 2030, undermining the investor certainty we need to ensure a wide range of affordable vehicles with the charging infrastructure to support them. That’s why Labour’s plan will give these manufacturers clarity, turbocharge the rollout of electric vehicles, increase the availability of charging points and lower costs for households in the process.

I will not trade the nation’s long-term interest for short-term political gain. I’m not going to allow working people to pay the price of this transition as the Conservatives did the last. The likes of Just Stop Oil want us to simply turn off the taps in the North Sea, creating the same chaos for working people that they do on our roads. It’s contemptible. So is saying you want clean energy as we move away from fossil fuels and then opposing nuclear power, even though it is vital to any viable plan to lower energy bills and deliver energy security for working people.

On the North Sea, Labour’s plan is pragmatic and fair. To secure a managed transition, we will need our existing oil and gas fields for decades to come. We will work with the sector to make sure that happens. A Labour government would also crowd in investment in future energy production in the North Sea alongside newer technologies like carbon capture and storage and hydrogen.

We won’t revoke any licences issued by this government because, unlike them, we take investor certainty and legal obligations seriously. But nor will we issue new licences to explore new fields — because they are not necessary for a managed transition to a future in which we have lower bills, more energy security and long-term secure jobs for those working in the North Sea. We know that new licences won’t boost energy security because the yield will be sold on the international markets. And we know “maxing out” every last drop from the North Sea, the government’s new position, will accelerate the climate crisis. The prime minister’s argument is bogus and he knows it

If we want lower bills, good jobs, and energy security then the path is obvious: a national mission to make Britain a clean energy superpower by 2030. It will require the government to lead. It will require big planning changes. It will require doing things differently. But if we do it, we will be ahead of every other big economy in the world in the race for the jobs of the future, over a million jobs created in ten years. And household energy bills will be cut by up to £1,400.

Rishi Sunak wants to give up on the greatest economic opportunity of the 21st century because it requires taking on his party. He is prepared to leave our children and grandchildren to face the consequences of his weakness because looking for short-term wedge issues is easier. I will never let that happen.

As prime minister, I will grasp the opportunity of lower bills, good jobs and energy security with both hands. I will lead a mission-driven government that gives Britain its future back.

The Times

What Britain can learn from its polluted waterways

Anyone casting around for a metaphor for Britain’s fractured political economy need look no further than its waterways and beaches. Blinkered devotion to the market has been the lodestar of the nation’s policymakers. The costs are being counted in the raw sewage dumped daily into its rivers and coastal waters.

The privatisation of the water industry in 1989 was seen as a high point of Margaret Thatcher’s economic revolution. Britain had been labelled the “sick man of Europe”. The prime minister’s cure was to roll back the boundaries of the state. Electricity, gas and telecommunications were shunted from the public to the private sector. So, too, were ports, airports and the national airline. Why not water supply and effluent disposal?

Privatisation would generate the energy and capital to renew an industry trapped in its Victorian-era sewers. That was the plan. Instead, Britain’s rivers, lakes and beaches are awash with untreated effluent.

The privatised water utilities, having pocketed large profits, are now looking financially fragile.

Amid speculation about the health of Thames Water, talk has turned to renationalisation. The best the government can offer is to require reduced sewage overflows by 2050. Yes, 2050. The story is not a complicated one.

The companies were sold off debt free to maximise the immediate return for the Treasury. The new owners then loaded them up with debt while paying shareholders — many of them overseas wealth funds — hefty dividends. This financial engineering produced payouts to shareholders of more than £74bn. Where they refurbished the industry’s infrastructure, the cost was passed directly to consumers in higher bills.

The Environment Agency says there were an average of 825 sewage spills every day in 2022. These coyly-named “storm overflows” lasted a total of over 1.75mn hours. They are legally permitted during exceptional weather conditions but exceptional has been redefined as everyday.

Discharges recorded have more than doubled since 2016. And the financial music has stopped. Higher interest rates have made the industry’s accumulated debts unsustainable.  The risks were always obvious. Water supply and effluent disposal are not susceptible to competition.

The privatised companies would seek to exploit their regional monopolies to maximise profits. For years, Ofwat, the regulator set up to prevent that, had inadequate powers. It has been defined by weak leadership and a reluctance to confront the operators.

Regulatory capture, I think this is called. Polluted rivers and filthy beaches speak to the much bigger problem of political culture. The legacy of the 1980s reaches well beyond the water industry. The market-knows-best solution has become a national reflex.

This was visible when the Bank of England’s light-touch regulation of the City of London amplified the 2008 financial crash. The privatised railways have consistently failed to run a half-decent service. Billions have been wasted in an effort to inject “competition” into the NHS.

Even now, the Treasury holds it as an article of faith that the state is bad and the market good. Public investment comes first in the list of spending cuts.  The answer is not to head straight back to the past.

The 1970s was not a golden era. Beyond water and rail, the case for renationalising industries is at best contestable. The old, nationalised, BT was scarcely a model for state ownership. The sorry state of the gas industry is as much about bad government policy as ownership.

The state does not have all the answers. And the market has a pivotal place in the efficient allocation of resources. But a fundamental shift of mindset is needed. Everyone agrees that a return to sustained economic growth in Britain requires a step change in productivity.

That, in turn, demands a much higher rate of investment in the national infrastructure. The market has a big role but so does the state.

A change in Downing Street is a necessary, but insufficient, condition for the required rebalancing. The next government, whatever its political colour, will have to make the case for sustained public investment — and the tax rises needed to pay for it.

The Treasury will have to be deprogrammed of the ideological certainties of the Thatcher era. Britain has come full circle. It is once again the sick man of Europe; it’s no accident that Europe’s more successful economies have chosen not to privatise their water industries.

Blowing up the economic relationship with the EU through Brexit has accelerated our decline. But the ideological lurch to anything-goes capitalism laid the groundwork.

The Financial Times

BP plan for subsidy-free wind farms

BP is considering building two huge offshore wind farms in British waters without government subsidy contracts in what would be a first for the sector.

Bernard Looney, the energy group’s chief executive, said it could start building the Morgan and Mona projects in the Irish Sea as soon as “late next year” and may not seek contracts from the government to guarantee their revenues. The wind farms together would boast up to 214 turbines about 20 miles off the coasts of north Wales and northwest England and could power 3.4 million homes.

Looney’s comments buck a gloomy mood in the offshore wind industry as it battles soaring costs, with other developers lobbying for increased subsidies and scrapping some projects. However, his ambitious timescale was met with scepticism from industry experts, given that BP has yet to apply for planning consent, which can take several years to secure.

BP is a FTSE 100 oil major that is moving into offshore wind as it pursues decarbonisation goals. It has faced calls to invest more of its profits, which hit a record $28 billion last year, in green energy. The government is aiming to more than triple offshore wind capacity by 2030.

Every big wind farm in UK waters to date has been built with some form of subsidy scheme, with projects in recent years supported by “contracts for difference”, awarded through government auctions. The contracts guarantee that consumers pay a fixed price for electricity from the wind farms, topping up market prices with subsidies when required and offering valuable revenue certainty to developers.

However, BP believes it can make use of much of the electricity itself, such as to supply electric vehicle chargers and to make “green” hydrogen through electrolysis, which could obviate the need for such a contract.

Looney, 52, said: “We may not enter any [contracts for difference] auction actually, because our strategy is to use the electrons [electricity] for our own use where we can. There’s a lot of green electricity demand for us in the UK.” BP planned to invest £1 billion in electric vehicle charging in Britain and to build green hydrogen plants on Teesside, he said.

The Times

UK offshore wind at ‘tipping point’ as funding crisis threatens industry

Britain faces being left with no hope of meeting its crucial climate crisis goals and losing its status as a world leader in offshore wind energy without an urgent overhaul of government support, ministers are being warned.

The sudden halting of one of the country’s biggest offshore windfarm projects last month could signal a “tipping point” in the construction of new sites unless ministers intervene, a number of senior energy industry figures told the Observer.

They warn that a swathe of new projects, which Britain is relying on to meet key climate targets, could also become economically unviable under the existing regime. While the industry has been hit by huge price inflationary pressures, it warns that the government has failed to adjust the scheme that guarantees the price it is paid for energy.

“If the government doesn’t do something, there’s a very real risk that, come September, just before party conferences, the story won’t just be about getting rid of the ‘green crap’ – it’ll be about failing to deliver on the projects they’ve already said that they wanted,” said one industry insider.

Offshore wind developers have experienced soaring construction costs as inflation has raged. At the same time, the government has been trying to hold down electricity prices through the contract for difference (CfD) scheme designed to provide investors with certainty over new projects.

For the latest bidding round, which concludes in September, the government set a maximum price of £44 per megawatt hour based on 2012 prices – similar to the previous round that took place before many of the inflationary pressures hit.

Jan Matthiesen, head of offshore wind at the Carbon Trust thinktank, said: “The UK offshore wind industry is at a tipping point. The maximum prices set are now too low. Last month, we saw Vattenfall withdraw from the Norfolk Boreas windfarm. This may be the first of many if bold and swift action is not taken.”

Adam Berman, a deputy director of Energy UK, the trade association for the energy industry, said: “To put it simply, if we have any hope of reaching the ambitious targets that the government has set, we cannot afford more major projects to delay or to stop altogether.”

He added: “If we fail to put in place a financially sustainable regime, we do run the risk of underdelivering. We are running the risk of the first CfD round that might actually not procure a major offshore wind project.”

Ana Musat, executive director of policy at RenewableUK, said that even with a modest increase in the maximum price of offshore wind energy, it would still remain a cheap energy source. “It’s a perfect storm of factors changing, difficult economic circumstances and still having this really narrow focus on driving down prices,” she said.

Shapps increased the subsidy pot for new renewables projects by £22m last week in an attempt to tackle concerns.

Tom Glover, UK country chair for the renewables company RWE, said the increase was “at least a step in the right direction”, but added: “It seems unlikely that the additional funding will materially change the dial on procurement volumes. Given the UK’s ambitious renewables targets, it is essential that the CfD process maximises every opportunity to deploy clean, affordable and reliable green energy.”

Officials signalled this weekend that the government could intervene. “The contracts for difference scheme, which has helped secure this huge progress in offshore wind, is designed to protect generators against price fluctuations, and compares favourably to other international schemes,” said a Department for Energy Security and Net Zero spokesperson.

They added: “The move to annual auctions was introduced in response to calls from industry and is set to bolster further investment and increase developer confidence in the sector every year. However, we understand there are supply chain pressures for the sector globally, not just in the UK, and we are listening to the sector’s concerns.”

The Guardian

Canadian pension scheme shorts UK water companies

One of the world’s biggest pension schemes has emerged as a leading short-seller of the biggest water companies listed on the London stock market.

The £336 billion Canada Pension Plan Investment Board has amassed bets against the share prices of Severn Trent and United Utilities, according to data compiled by the Financial Conduct Authority.

It is the only investor with an outstanding short against United Utilities that is large enough to require disclosure to the City regulator, and is one of only two funds that have bets disclosed against Severn Trent. The FCA requires investors to publicly report their shorts if their bets reach 0.5 per cent of a company’s issued share capital.

The Toronto-based group is betting against the pair despite having a large investment in Britain’s water industry through its 32.9 per cent stake in the privately owned Anglian Water, which it has backed since 2006. The Anglian investment is run by a separate part of the pension fund, however, and unrelated to its short positions on Severn Trent and United Utilities.

Short-selling enables investors to profit from falling share prices. Like many others, the Canadian fund uses shorting as a hedging strategy to offset potential losses on investments elsewhere in its equities portfolio.

The Canada Pension Plan Investment Board did not comment on its short positions.

The Times

Publicly owned energy company launched in Wales

A new, publicly owned energy company has been launched by the Welsh government.

The company is part of the Labour government’s co-operation agreement with Plaid Cymru.

Ynni Cymru will be based at the M-Sparc site on Anglesey and aims to expand community-owned renewable energy initiatives.

Sir Keir Starmer announced in June that Great British Energy – a clean energy company – would be established in the first year of a Labour government in Westminster, with its base in Scotland.

The Welsh government has announced £750,000 has been allocated for a total of 11 projects.

The payments will be made in the form of grants over the next three years.

The Welsh Conservatives have said more should be done to remove barriers to privately owned schemes.

Climate change minister, Julie James, and Plaid Cymru’s designated member, Siân Gwenllian, visited the Anafon Hydro project in Abergwyngregyn, Gwynedd.

Almost one GWh of electricity is generated each year from its base in Eryri National Park.

The projects which are set to receive funding over the next three years include Cwm Arian for the “heart of Dyfed power unlocker” project on the border between Carmarthenshire, Ceredigion and Pembrokeshire, and the Dyffryn Ogwen Gynaladwy project in Bethesda, Gwynedd.

Julie James said the “market-based approach to the energy system is not delivering decarbonisation at the scale or pace necessary for the climate emergency”.

“Local use of locally generated energy is an effective way to support net zero and keep the benefit in our communities,” she added.

Siân Gwenllian added: “As we face multiple challenges of a climate crisis and high energy bills, it is more important than ever that we develop renewable energy projects that have local benefit and ownership as a core aim.”

The Welsh Conservatives’ shadow climate minister, Janet Finch-Saunders, said she welcomed the investment but accused Labour and Plaid Cymru of “ignoring the elephant in the room”.

“There are hundreds of watercourses running through privately owned land in Wales,” she said.

“Alongside support for community-owned schemes, the Welsh Government should be removing barriers to privately owned schemes.”

Sky News

The humble heat pump blows a green wave across Europe

When one village resident wanted to join the green revolution by installing a heat pump in his English countryside home to replace an off-grid oil boiler, he had a frustrating year-long wait and paid a hefty bill. Lord Adair Turner of Ecchinswell, the chair of the Energy Transition Commission and former UK government climate adviser, spends his professional life promoting the clean energy shift to the wider population. “The most difficult challenge is figuring out how to enable millions of households to do what I’ve just done,” said Turner. Governments across Europe are dealing with the same challenges of scarce supply and high costs in an effort to eliminate the burning of fossil fuels by gas central heating. Heat pumps are a leading alternative, praised for their efficiency. Drawing warmth from the outside air or ground, they can produce 3kWh or more of heat for every kWh of electricity used to power them.  Yet the rollout is not as straightforward as that equation might suggest. Switching heating systems is costly and complicated for homeowners, holding back demand.

Governments attempting to force the necessary change have not been rewarded, however. Germany’s plans to in effect double heat pump sales are up in the air after a fierce backlash over a Green party proposal to ban gas and oil boilers, which has left the government in crisis. “People call it the heating massacre,” said Alice Weidel, co-leader of the far right AfD party, after the proposed ban contributed to its first district election win, in Sonnenberg in June. Just under 6 per cent of the 21mn heating systems installed in Germany are heat pumps; the vast majority of households use oil or gas boilers. Berlin wants newly installed systems to be at least 65 per cent powered by renewables from next year. Greater success has come in countries where the financial incentives are clearer.

The gas price crisis in Europe last year helped trigger a “tipping point”, the European Heat Pump Association said: sales grew by 39 per cent in 2022 with almost 20mn pumps now installed in Europe and the UK. National rates vary hugely, generally depending on energy costs, existing heating stock and the mix of carrot and stick applied by governments. Norway might have become rich on being a big oil and gas producer but the nation started moving away from oil-fired heating after the 1973 oil shock, and banned oil and paraffin for heating in 2020. With its vast hydropower reserves, it has shifted towards direct electric heating and heat pumps. Climbing electricity prices last year boosted uptake, according to Rolf Hagemoen, secretary-general of the Norwegian Heat Pump Association, who recently installed one in his mountain cabin. “It provides everything I need,” Hagemoen said. “I only use wood now if I want the cosiness.”

Poland was another leading adopter last year, with installed heat pumps doubling. Clean air rules as well as subsidies covering up to 90 per cent of the cost of boiler replacement have helped. As has solidarity with Ukraine. “I didn’t want to fund Putin,” said Pawel Lachman, at Port PC, the Polish heat pump group, who installed a ground source heat pump after Russia invaded Georgia in 2008. In Italy, tax credits worth up to 110 per cent of the cost of energy efficiency upgrades have boosted sales to be the seventh highest in Europe last year. “In terms of comfort I prefer it now,” said father-of-three Federico Musazzi, whose landlord in Milan installed a ground source heat pump, although he adds that the relatively high cost of electricity in Italy limits savings. Companies are starting to ramp up production to meet the rising demand. China’s Midea has laid out plans to grow in Europe by building a heat pump factory in Italy.

Read the full article in the Financial Times

Used electric car prices plummet

Now could be a good time to snap up a used electric car as prices for second-hand vehicles fall sharply.

Concerns about battery life, a lack of public charging points and high costs have dissuaded many drivers from going electric. But an increase in the number of used electric cars on the market has made them more affordable, which has had a knock-on effect on sales.

Prices have dropped by more than a third in a year. “Electric vehicle prices have been artificially high for years because there have been so few second-hand ones around,” Stuart Masson from The Car Expert, an advice website, said. “But there are a lot more coming on to the market, meaning, inevitably, prices start to come down. For prospective buyers it’s great news.”

Over the past year the price of second-hand electric vehicles has fallen 35.4 per cent on average, according to the data firm Cap hpi. Petrol cars, on the other hand, cost 0.5 per cent more than they did a year ago, it said, while diesel cars cost 0.1 per cent less.

The sale of new petrol and diesel cars will be banned from 2030, and customers are opting to buy electric vehicles before that deadline. About 267,000 battery electric vehicles were registered in 2022, the Society of Motor Manufacturers and Traders (SMMT) said, up from about 15,000 in 2018.

About 23,010 new battery electric vehicles were sold in July, an increase of 87.9 per cent compared with last year, figures from SMMT show. Some 5,687 diesel cars were sold, a fall of 8.4 per cent on last year, and 58,150 petrol cars, a rise of 13.4 per cent.

How much does it cost?

The average price of a second-hand car with an electric battery was £31,567 in July, according to the online marketplace AutoTrader, down from £40,728 the year before. On average, second-hand petrol and diesel cars cost about £16,500.

Prices for many popular electric cars have dropped considerably this year. The average cost of a three-year- old Renault Zoe that has done 30,000 miles has fallen from £16,933 a year ago to £8,388, according to Cap hpi, a drop of 50.4 per cent. The cost of a used Nissan Leaf has fallen from £20,481 to £12,163 over the past year — a drop of 40.75 per cent. The cost of a used Tesla Model 3 has fallen from £40,600 to £27,025 — a drop of 33.3 per cent.

“The industry has experienced a perfect storm, pushing prices down, and cars that have experienced the big falls in value are starting to look quite reasonably priced,” Derren Martin from Cap hpi said. “That has put price pressure on less aspirational cars — you are not going to pay for a Renault Zoe if for a few more pounds a month you can have a Tesla.”

Read the full article in 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.