Energy market’s man in the middle seeks to foster a climate for change
When Jonathan Brearley was an up-and-coming civil servant he was asked by the environment secretary, then David Miliband, to establish a government office of climate change. “I knew very little and my permanent secretary Helen Ghosh asked me a very basic question on day one, which I simply didn’t have the answer to,” he recalls. As he struggled to muster a response about the EU Emissions Trading System, his new boss was unimpressed. “She rolled her eyes and gave me a book: Avoiding Dangerous Climate Change, by the Hadley Centre.”
It was 2006 and Mr Brearley had taken the role, expecting perhaps a six-month stint in energy and climate. “Reading that book changed my perspective. It laid out in a very clear and dry way the reason why we need to act. It made me realise this wasn’t tomorrow’s problem, this was something that we absolutely had to act on now.”
Fourteen years later Mr Brearley can boast plenty of action on climate change, from leading the development of the 2008 Climate Change Act that set Britain legally binding targets for reducing its carbon emissions, to six years at the Department of Energy and Climate Change overseeing legislation to decarbonise the electricity sector, unleashing a wave of offshore wind development.
Yet today, as the UK aims for a goal of “net zero” emissions, Mr Brearley, 47, finds himself accused of standing in the way of climate action. He is chief executive of Ofgem, the regulator for the energy industry, a role he took on in February. Last month he announced a crucial draft price control determining the investments that electricity and gas network companies can make over the next five years — and how much they can charge consumers on their energy bills to pay for it. The companies were furious.
“Ofgem’s draft determination fundamentally fails on net zero,” SSE cried. The plan “jeopardises the delivery of the energy transition and the green recovery”, National Grid claimed. “This was Jonathan Brearley’s first big test as the new Ofgem chief executive and he’s flunked it,” Scottish Power said.
They were unhappy for two main reasons. Firstly, Mr Brearley had slashed £8 billion from companies’ investment plans as “unjustified”, reducing the initial amount they can spend — and ultimately recoup from consumers — to £25 billion. A further £10 billion of projects to support net zero will only be approved if companies come back over the next five years and prove they are really needed.
“We want these things to happen, but we want to do it in a flexible way that makes sure we adapt to the world that’s out there,” Mr Brearley says.
Second, he plans to almost halve companies’ returns on investment to an “unprecedented low level” of only 3.95 per cent. While Ofgem boasted that the plans would save households billions on their energy bills, analysts at Bernstein doubted they were “financeable”.
Speaking via video call from his home a fortnight after the announcement, Mr Brearley is relaxed about the criticism, which he says was to be expected. “There’s a robust debate to be had, but there’s only one thing that will change our mind and that is clear evidence.
“I’m very aware that there is a need to invest to get to net zero, and it’s something I fully support. I would argue my career has really been about trying to support the country to get to net zero. But equally, my experience has shown me that if you don’t keep public confidence, then that investment becomes hard to sustain over time.” Ofgem’s role is “to get the balance right between shareholders and customers”.
Households get £85 bonus as cost of gas and electricity falls
A fall in the wholesale price of gas and electricity since the turn of the year is expected to reduce standard tariffs by about 7.5 per cent in October.
Ofgem, the industry regulator, will confirm in the coming days how a cap on default tariff prices, introduced in January last year, will be shifted to account for the costs faced by suppliers.
Eon, which supplies more than six million households, said that a dramatic fall in demand for energy during Covid-19 lockdowns in countries across the world had slashed wholesale prices.
The company estimates that the lower cap will reduce bills by the equivalent of almost four weeks’ energy use for an average home. The change would affect about 11 million households.
“People have used more energy at home whilst in lockdown,” Michael Lewis, the chief executive of Eon UK, said. “But the increase in domestic use doesn’t come close to the fall in industrial energy demand or the collapse of the oil price in the wake of global transport restrictions.”
Dormant offices and factories, grounded flights and millions of people remaining at home “caused wholesale energy markets to fall rapidly since the price cap was last amended at the start of this year”, Mr Lewis added.
“Because of this we expect a significantly lower level when Ofgem updates the price cap next month. Such a move also means customers should see the benefit of lower bills in time for the colder months of the year.”
When the price cap was last amended in April, Ofgem reduced it by £17 — from £1,179 each year to £1,162.
Jonathan Brearley, the chief executive of Ofgem, told The Times last week that the cap was “a really good mechanism” for protecting consumers from unfair pricing.
The Times
Open up offshore windfarm subsidy scheme, urges Scottish Power
One of Britain’s biggest wind power developers has called on the government to scrap the limit on its next offshore wind subsidy auction to help power a green economic recovery, claiming it will not lead to a rise in energy bills.
Scottish Power has urged government officials to open up next year’s offshore wind subsidy auction to as many new projects as possible in order to deliver a “huge wave” of investment and jobs following the pandemic.
In previous auctions the government has capped the amount of renewable energy that can win a subsidy contract, which is paid for through energy bills, to encourage developers to lower their costs.
Keith Anderson, Scottish Power’s chief executive, said there was “minimal risk” to household energy bills because the cost of sea-based turbines is so low the projects may even help to make Britain’s energy cheaper.
“At this stage you are guaranteed fantastic value for money. And what do you gain? A huge wave of investment into the UK supply chain companies and a major boost to the economy,” he said.
The government is consulting on new ways to run the renewable energy subsidy auctions, which could include setting the starting level, or reserve price, in line with forecasts for energy market prices so that energy bill payers are not called on to top up subsidies.
This could mean more windfarms winning a contract, at no extra cost to bill payers.
“Why constrain investment when we could be making the most of what we’ve got to grow the renewables sector?” Anderson said. “We know that we need more renewables, let’s just get the hell on with it.”
In the last auction round, in September 2019, the winning bids from offshore windfarm developers tumbled by a third to about £40 per megawatt hour, which is less than the price of electricity in the wholesale energy market.
Energy market experts said the record low subsidy levels could mean that households will not face extra costs to support the projects when they begin generating electricity, and might even help to bring down energy bills.
A Europe-wide study of wind power subsidies from Imperial College confirmed last week that UK projects were likely to be the world’s first “negative-subsidy” offshore windfarms.
Dr Malte Jansen, the study’s lead researcher, said: “Energy subsidies used to push up energy bills but within a few years cheap renewable energy will see them brought down for the first time. This is an astonishing development.”
The Guardian
Fuel cell start-up Bramble Energy secures £5m
Hydrogen fuel cell start-up Bramble Energy has raised £5m, just weeks after the EU said such technology would be key to the world’s decarbonisation.
Bramble has secured the latest tranche of funding from investors including BGF, IP Group, Parkwalk Advisors and the UCL Tech Fund.
It said the cash would be used to accelerate deployment of its hydrogen fuel cells, which, unlike other models, can be made using existing global manufacturing resources and so require significantly less time and investment.
Hydrogen fuel cells use hydrogen gas to develop electricity rather than fossil fuels. Among other things, they can be used to help cars run without producing greenhouse gas emissions.
They are seen as a key technology in cutting greenhouse gas emissions to zero and the European Union last month said hydrogen would be vital in its plans to shift towards greener energy sources.
It said it was pushing for hydrogen to be used specifically in sectors which struggled to decarbonise, and forecast that investments in renewable hydrogen in the bloc could hit bet ween €180bn (£162bn) and €470bn by 2050.
The UK, meanwhile, last year signed into law a pledge to reach net-zero emissions by 2050. This would require emissions from transport, industry and households to be completely stopped or offset by other measures such as tree planting.
This week, the National Grid said Britain would need hydrogen to meet its goal, although warned “immediate action across all key technologies and policy areas” was needed.
The Telegraph
New legislation set to accelerate renewable energy industry
The government is relaxing planning legislation to make it easier to construct large batteries to store renewable energy from solar and wind farms across the UK.
Removing barriers for energy storage projects, which are discouraging bolder investment decisions in larger battery facilities, could treble the number of batteries serving the electricity grid. It will help bring about storage cells that are 5 times bigger than those currently available.
The UK has the largest installed capacity of offshore wind in the world, however because the availability and speed of wind is not constant, energy can sometimes be produced when it is not needed and then lost.
The move will see ministers introduce secondary legislation to remove barriers for storage projects above 50 MW in England and 350 MW in Wales, meaning more clean energy can be stored and used all year round.
Energy storage has played a key role in balancing the UK’s electricity system during the 20 per cent drop in demand during the COVID-19 pandemic, ensuring what was produced was used efficiently.
Business News Wales
Ban SUV adverts to meet UK climate goals, report urges
Advertising of sports utility vehicles, which emit more greenhouse gases than other cars, should be banned so the UK can meet its climate goals, a report has said.
The large increase in numbers of SUVs in the UK and around the world is the second-largest contributor to the increase in global emissions since 2010, according to the International Energy Agency.
The size, weight and drag of SUVs means they consume more fuel and emit more carbon dioxide than the average car. But manufacturers are spending millions advertising the vehicles and increasing their share of the UK car market, according to the report by the New Weather Institute thinktank and climate charity Possible.
In the UK last year more than 150,000 new cars sold were over 4.8 metres long, too large to fit in a standard parking space.
SUVs make up more than 40 per cent of new cars sold in the UK – while fully electric vehicles account for less than 2 per cent. Globally, there are more than 200m SUVs, an increase of 35m in 2010, accounting for 60 per cent of the increase in the global car fleet since 2010.
The report, Upselling Smoke, found the global trend of rapidly increasing sales of bigger and more polluting SUVs was jeopardising climate goals.
It calls for a tobacco-style advertising ban on cars with average emissions of more than 160gCO2/km, and any cars exceeding 4.8 metres in length. This would cover the dirtiest third of cars sold in the UK, the report says.
Andrew Simms, co-director of the New Weather Institute, said: “We ended tobacco advertising when we understood the threat from smoking to public health.
“Now that we know the human health and climate damage done by car pollution, it’s time to stop adverts making the problem worse. In a pandemic-prone world, people need clean air and more space on town and city streets.” He said adverts promoting the biggest and worst emitting SUVs were in effect “upselling pollution”.
The report says the money spent on advertising by car companies – £1.2bn in the UK last year and $35.5bn (£26.6bn) across the world – is increasingly focused on pushing SUV vehicles. In the two years from September 2016 to 2018, Ford went from a roughly 50/50 split in its US advertising spend between cars and SUVs/pickup trucks, to allocating 85 per cent of its ad spend to the latter.
The report draws parallels between smoking and SUVs: “Tobacco causes damage to the consumers, and tobacco companies benefit from the way that they hook their most loyal customers … SUVs are marketed as providing protection for drivers, their physical size, weight and pollution levels create a more dangerous and toxic urban environment for both drivers and pedestrians.”
The Guardian
Bosses of four gas companies pocketed £31 million before axing 5,000 staff
Four gas company bosses have trousered £31million between them before firing more than 5,000 workers.
Many remaining staff at Centrica, owners of British Gas, were told they will be given new contracts with more hours and less pay.
Justin Bowden, the national secretary of the GMB union which represents gas workers, said: “Centrica’s top brass have been paid a fortune while presiding over the terrible decline of a once-proud company.”
The union says Centrica’s own figures show that its top directors have “pocketed an astonishing £31million”.
That sum refers to the cumulative salaries of the firm’s top four executives over the past five years.
Mr Bowden said: “The bosses are rewarded handsomely for failure while loyal engineers, call centre workers and admin staff fund it all with redundancies, worse working conditions and pension cuts.”
The union’s attack comes after three rounds of redundancies at the firm and a share price fall from 271p five years ago to 48.7p now.
Centrica’s most recent financial reports show it has lost 226,000 of its 13 million customers over recent years. Mr Bowden said: “It proves the only thing the bosses can look after is themselves.”
The Mirror
Investors are braced for BP to slash its dividend — possibly by as much as two-thirds — as the oil giant slumps to one of its biggest quarterly losses.
Bernard Looney, 49, the BP lifer who took the helm in February, clung on to the £1.6bn quarterly dividend at the first-quarter results in April — just days before rival Shell took the axe to its payout for the first time since the Second World War.
The markets indicate that the Irishman is under intense pressure to cut the dividend as he races to preserve cash in the face of an oil price buffeted by the economic fallout from the coronavirus. The price of US oil briefly turned negative earlier this year on falling demand and trade tensions, while a barrel of Brent crude plunged to less than $20 from as high as nearly $70. Last week, Shell posted the largest quarterly loss in its history.
“Consensus, the futures market and our own discussions imply a cut is widely expected among investors,” said analysts at UBS, whose investment bank acts as a broker for BP.
A dividend cut would take a heavy toll on pension pots as BP is one of the most-held stocks because of its generous income stream. It is closely watched by legions of private investors.
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.