Centrica set to be dumped out of the FTSE 100
Centrica is due to crash out of the FTSE 100 for the first time since Britain’s former state gas monopoly was broken up more than two decades ago.
The British Gas owner, spun off from BG Group and Transco in 1997, is well below the threshold for automatic relegation into the FTSE 250 ahead of this week’s reshuffle.
Losing its FTSE 100 spot would be a striking fall from grace for Centrica, which can trace its history in the blue chip index to the privatisation of British Gas in 1986. The company has suffered a long malaise, compounded in recent weeks by the Covid-19 market crash and a slump in oil prices.
This weekend Centrica has a market cap of just £2.1bn, making it the 140th most valuable company on London’s main market.
The reshuffle will be based on Tuesday’s closing price. Under FTSE’s rules, any company falling to 110th place or below is automatically relegated, while any smaller company that can reach 90th place or higher is promoted to the blue chips.
Daily Telegraph
The days of coal powered energy aren’t as numbered as they seem
Drax unit 5 went dark at exactly 11:35pm on April 9.
The belching coal power plant in North Yorkshire was powered down as demand for heating and electricity dropped to near-record lows, prompted by unseasonably high temperatures. Then exactly a month passed and a record was broken. Britain had gone its longest stretch since the Industrial Revolution without coal power.
As climate campaigners rejoiced, energy veterans pointed to an uncomfortable truth: the UK has relied on coal power for most of this past winter. On some days, coal contributed as much as 9pc to electricity and heating demand.
The system is “still very much reliant on coal”, says Kathryn Porter, an energy consultant at Watt-Logic. Fossil fuel is, of course, in decline, according to Porter. “The economics of coal-fired generation are dire,” she says, pointing to the number of plants that have closed, or announced they plan to close, ahead of the October 2024 deadline for the end of all coal power in Britain.
Cutting out coal – the dirtiest, most polluting way of producing energy, according to Greenpeace – is a key step in the shift towards preventing cataclysmic climate change. In 2019, the country went a total of 18 consecutive days without any coal and 83 days across the year as a whole. “This was hailed as a great turning point,” says Porter – a “sign that soon there would be no more of this highly polluting fuel on the system at all”.
But, she adds, a closer look at the enduring use of coal points to a more complicated situation. Data from the National Grid and compiled by Sheffield University on their portal Gridwatch Templar shows overall demand for coal has fallen sharply over the past five years, but there remains a stubbornly persistent demand for coal on a day-to-day basis.
This is because parts of the country still rely on the security and stability of coal power – particularly in the winter, when demand can spike unexpectedly and is essential to ensure continuity of supply to households.
Coal is dirty. But it’s also reliable. Of the four remaining coal-fired power stations, three have agreements with the National Grid to deliver power until as late as 2024, Britain’s deadline to go coal-free. The grid will strike agreements in advance with power stations to provide extra power during periods of peak demand to ensure the flow of energy remains steady.
West Burton A, in Nottinghamshire, has a commitment to sell coal power until September 2021, while Drax has said that it will end its coal operations in the UK by September 2022. Coal plant Ratcliffe-on-Soar won contracts in February to deliver power up until 2024, with no current plans to close.
“While it is surprising to see coal winning new capacity contracts in this year’s long-term capacity auctions, with coal still running regularly even in the summer, there are real questions as to whether the system can actually cope without it,” says Porter.
Falling use of electricity and growing investments in renewable energy, along with the implementation of climate change mitigation policies, have driven the collapse in Britain’s demand for coal. And yet the country is unable to fully wean itself off the most environmentally damaging fossil fuel, which produces about a third more carbon dioxide than oil.
Even the much-celebrated record run without coal earlier this month may not be truly what it seems. “While we welcome latest coal-free record, we need to acknowledge this has been in part driven by the drop in demand caused by Covid-19,” says Andy Bradley, a director at research consultancy Delta-EE.
Until the long-delayed nuclear plant Hinkley Point C comes online, experts say the UK may start to see emissions rise once more. Currently, the country gets around 20pc of its energy from its decrepit fleet of nuclear reactors. These are all scheduled to be decommissioned by 2030, leaving a gaping hole in Britain’s ability to generate sufficient power.
“If we don’t replace these nuclear power stations with low carbon capacity – new nuclear or renewables – we would expect to see emissions rise,” says Rob Gross, director of the Centre for Energy Policy and Technology at Imperial College.
The National Grid says that by 2025, it will be able to fully operate the country’s electricity system with zero carbon, but with Hinkley Point C behind schedule and possibly not ready to come online until 2026, this seems less likely.
Porter says: “With only three plants remaining and Hinkley Point C unlikely to open before 2025, we can expect National Grid to be calling on reserves more often.”
Daily Telegraph
Scottish Power boss drives his electric dreams
Scotland is rapidly heading for an electric car revolution, with investors queuing up to fund charging infrastructure to reduce emissions, says the head of Scottish Power.
Keith Anderson predicted that huge, upfront private investment in sustainable transport infrastructure would help to get Scotland and the UK out of the economic crisis after the pandemic. However, he called for faster progress in phasing out petrol and diesel vehicles.
From 2035, it will be illegal to sell new petrol, diesel or hybrid cars. Power companies will make a return on charging infrastructure as a result of the payments motorists will make to refuel their electric vehicles.
“It is vital to look at what our towns and cities will look like beyond this crisis, and to rethink transport needs with more people working from home,” said Anderson.
“We need to get people out of fossil-fuel transport, harnessing private money to build an electric vehicle transport network and to do this quickly. Investors are looking for places to invest.
“This will create skilled jobs on shovel-ready projects without the requirement for massive government expenditure, with the costs spread over 40 years.”
With confirmation that the Glasgow COP 26 conference on climate change will take place in November 2021, and as climate change moves up the agenda, Scottish Power says it will play its part in achieving UK and Scottish government targets of net-zero emissions of all greenhouse gases by 2045.
Last week, SSE called on the UK government to bring forward the ban on sales of new petrol and diesel vehicles to 2030. The energy company also said UK businesses should be compelled to decarbonise their vehicle fleets within 10 years.
Sunday Times
Electric car scientists use nuclear tech to chase a 10‑minute charge
For all the advantages of electric cars, there is one big disadvantage. If you want to go further than, say, London to Durham, you have to factor in spending 45 minutes at a motorway service station to recharge.
A new technology based on research into nuclear fusion may have found a way to cut that recharging time by two thirds, meaning that electric car users will barely have time to enjoy the facilities at a Welcome Break before they are back on the move.
The British engineers behind the innovation believe that they can achieve this because they have found a way to solve the chief bottleneck on speedy charging. Batteries take a long time to be replenished not because it is hard to get energy in but because it is hard to get a different kind of energy out.
“One of the big problems with charging quickly is that they generate a lot of heat internally,” Jack Nicholas, the cofounder of the Qdot engineering group, said. “And no one’s yet come up with a way of basically taking that heat out fast enough.”
As luck would have it, Dr Nicholas has some experience of dissipating heat in an even more extreme environment than a Tesla engine. He did his PhD at Oxford University on designing the exhaust of fusion reactors. “A fusion reactor is very hot,” he said. “It is five times the centre of the sun.” This means that what comes out needs to undergo a rapid temperature drop. “With the exhaust it is pretty much critical to have a high-performance cooling system.”
The solution he found was to use metal plates drilled with a precise geometry of holes. As well as increasing the surface area for heat loss the pattern, which is a commercial secret, allows heat to keep flowing, and be lost evenly through the plate.
He and his colleagues claim to have shown that the same technique can rapidly speed up the cooling of batteries. Rather than the present technique of placing plates on the outside of the battery, where it takes longer for heat from the inside to reach the exterior, they connect directly to the centre, drawing heat away.
“We’re using them like highways to get the heat out faster,” Tsun Holt Wong, Qdot’s other co-founder, said.
The Faraday Institution, Britain’s battery research collaboration, has backed the team. Ian Ellerington, the institution’s head of technology transfer, said he hoped that the system could be in cars in five years. “This is a device that can take out very large amounts of heat using a very small area,” he said. “If this can drop charging to ten minutes, suddenly it’s equivalent to refilling a petrol car — that’s the goal.”
Dr Wong said that if the technology can be proved its benefits would go beyond faster charging. “There are three main problems that people complain of with electric cars,” he said. “The first is they don’t charge fast enough, the second is they don’t go far enough, the third is they are expensive.
“This directly answers the first. On the second, if you need to go 300 miles you have two options. Either you get a car that can go 300 miles, so you don’t have to stop at all. Or you get one that can go 150 miles and stop once for ten minutes. So you effectively increase your range, and also almost halve the price — as batteries are the main cost.”
The Times
Britain needs new nuclear, and the government should fund it
It is almost a year since Britain became the first country in the world to pass laws to end its contribution to global warming by 2050 (writes Jonathan Ford).
But as yet there is no coherent plan for how it is actually going to get there. Despite the impressive vehemence of ministerial advocates, great areas of policy remain sketchy. What technologies will replace the fossil fuels we presently rely on for so much of our energy? How much can be wrung from efficiency steps?
There is also the question of the new electricity system. Clearly there is a big role for renewable generation. But should we not be building more nuclear? And given the time involved in such projects should we not be starting in earnest pretty soon?
On nuclear, the UK is still pottering along on the piecemeal basis that it might keep the sector somehow ticking over, replacing on a like-for-like basis the 15 gigawatts of capacity that is presently on the system sometime before it is all decommissioned over the next two decades.
That is despite the need for a substantial hike in capacity to deal with the decarbonisation of transport and heating.
The Committee on Climate Change has identified a need for 150GW of new green capacity, of which it thinks some 30-60GW should be “firm power”. That requires far more than a one-for-one replacement by nuclear, assuming that the gap cannot be filled by some other non-weather dependent technology such as carbon capture and storage or long-term battery storage. The snag here is simple: no such proven technology that is commercially viable presently exists.
If more nuclear is required, as seems certain, if only as an insurance policy, a big question concerns the funding model. The UK’s first new nuclear project — at Hinkley Point in Somerset — is a by-word for extravagance. To get the private-sector owners to take on the risk of a £22bn “first of a kind” project, a strike price worth some £110 per megawatt hour at current prices was guaranteed and indexed for 35 years. (Pre the coronavirus slump, power prices were between £40-£50/MWh).
Getting that down is vital if the economy is not to be saddled with uneconomic energy. True, that means lower construction costs, but the more pressing need is actually to reduce nuclear’s cost of capital. While construction accounts for about 20 per cent of the total cost of a plant, capital amounts to close to half.
EDF, the French utility, has come up with an answer. It proposes a mechanism that would impose a form of tax on electricity consumers, requiring them to pay up front for electricity they had yet to receive. Known politely as the “regulated asset base (RAB) model”, this allows the project to avoid rolling up interest during the long construction phase, cutting the amount of compounded debt to be serviced and paid off during the life of the asset.
Applied to EDF’s proposed project at Sizewell, an identical follow-on project to Hinkley for which the planning application was announced last week, that could reduce the 9.3 per cent capital cost of Hinkley to something closer to 5 or 6 per cent.
Critics have raised concerns about this structure, such as whether it saddles consumers with risks they cannot themselves control. But a more pertinent question is whether it is really a pointless halfway house. Taxpayers and electricity consumers are essentially one and the same people. So why not substitute the complexities of the RAB with direct government finance? After all, the UK government’s cost of 30-year money is less than 1 per cent.
Granted, the reduction would not be quite as wide as those numbers imply. Capital expenditure still involves equity risk that must be funded. But state funding would bring down the electricity prices needed to service a project’s financing pretty sharply.
It would allow the UK to tender for a series of reactors from a wider range of suppliers. At present there is a danger that the only “private sector” player which can finance new nuclear projects might be CGN, a Chinese nuclear company. Meanwhile, building a series of stations in sequence would allow the creation of a deep supply chain, speeding new build and reducing construction and equipment costs.
There would, of course, be complexities, such as the need to apply cumbersome state procurement rules. But these are not insuperable. Direct state financing of construction would not mean recreating the Central Electricity Generating Board. Projects could be sold on to investors at completion if that made economic sense.
As the coronavirus crisis has shown, politicians need to plan for contingencies. Britain’s economic competitiveness ultimately depends on the decisions around energy transition. With so much at stake, nuclear cannot be dropped.
Financial Times
Investors, scientists urge IEA head to take bolder climate stance
Fatih Birol, the head of the International Energy Agency (IEA), faced renewed calls to take a bolder stance on climate change on Friday from investors concerned the organisation’s reports enable damaging levels of investment in fossil fuels.
In an open letter investor groups said an IEA report on options for green economic recoveries from the coronavirus pandemic, due out in June, should be aligned with the 2015 Paris accord goal of capping the rise in global temperatures at 1.5C.
The more than 60 signatories included the Institutional Investors Group on Climate Change, whose members have 30 trillion euros of assets under management, scientists and advocacy group Oil Change International.
“Bold, not incremental, action is required,” the letter said.
The Paris-based IEA said it appreciated feedback and would bear the letter’s suggestions in mind. It also said it had been recognised for leading calls on governments to put clean energy at the heart of their economic stimulus packages.
“We have backed up that call with a wide range of analysis, policy recommendations and high-level events with government ministers, CEOs, leading investors and thought leaders,” the IEA said.
Birol has faced mounting pressure in the last year from critics who say oil, gas and coal companies use the IEA’s flagship World Energy Outlook (WEO) annual report to justify further investment – undermining the Paris goals.
Birol has dismissed the criticism, saying the WEO helps governments understand the potential climate implications of their energy policies, and downplaying its influence on investment decisions.
Reuters
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.