Ofgem to step in amid energy chaos
The energy regulator could win powers to veto the sales of energy companies to address the turmoil in the market.
Fourteen household gas and electricity suppliers have collapsed since January last year, with up to nine more predicted to fold this winter amid fierce competition and volatile wholesale costs.
The watchdog is concerned that stronger rivals could try to cherry-pick profitable customers from failing companies, leaving the industry safety net to pick up the bill for those in debt, or that customers might be sold to companies where they are then switched to more expensive deals.
Mary Starks, Ofgem’s head of consumers and markets, wrote to energy bosses this month to warn against sales that could “subvert or distort” its procedure for dealing with bust companies. Ofgem appoints a new supplier, which can then recover costs from the industry.
Starks warned bosses to “carefully consider the timings” of sales and said Ofgem would take “robust action” against sales that failed to protect customers. “We are . . . considering whether . . . there is a case for strengthening our powers to veto such transactions,” she said.
A consultation on the power of veto is due to start next month as part of the regulator’s wider review of supplier licences. The review aims to tackle concerns that new entrants often lack the resources or experience to stay afloat.
Sales that harm customers might also be taken into account when handing out licences, Starks said. “Such action would reflect poorly on a supplier’s willingness to act in consumers’ interests.”
Stronger intervention from the regulator is likely to be controversial. One industry source said: “Ofgem has learnt there is an issue and it is acting quickly to prevent there being a big one.
“You’ve got to say, you shouldn’t be able to sell off the gold and then pass the crap to the market.
“We definitely want to prevent any abusive transactions — we just need to make sure it doesn’t become a way to interfere in genuine transactions.”
Sunday Times
Scrap Hinkley Point: nuclear plant is expensive and out of date, says Ovo Energy chief
Britain’s next nuclear power plant should be scrapped because it is wastefully expensive and out of date, according to the boss of Ovo Energy.
The industry should instead look to the future with ever-cheaper renewable energy, said Stephen Fitzpatrick, the founder and chief executive of the group that will soon be the UK’s second-biggest supplier as Ovo acquires SSE’s consumer business.
“We should just call it a day. I thought at the time the deal was struck at £92.50 per megawatt hour (MWh), inflation-linked, that it was a bad deal for customers. Unfortunately the technology, the design it is based on, is unproven,” he said.
“Looking at the cost for customers of renewables, solar, and wind, the cost just keeps coming down. The cost for nuclear keeps going up. It strikes me that this does not represent value for money for consumers, never more so than this week when the cost went up by £2.9bn.”
The Hinkley Point C reactor will cost up to £22.5bn to build as costs keep rising above initial plans.
Mr Fitzpatrick would prefer the industry to invest in restructuring the energy network to handle more renewables, including the variable supply of wind and solar. This could be handled in part with a “smart network” using batteries to handle shifting supply and demand.
“If you think about the £39/MWh that was achieved at the last auction for offshore wind, and when Hinkley Point goes live it is going to be about £100 more per MWh some time in the late 2020s,” he said.
“If we make smart decisions and focus on value for money and what is best for the end consumer, I am quite sure we can keep costs under control.”
EDF Energy, which is behind Hinkley Point C, said the project is an important part of the UK’s plan to decarbonise the energy network, that nuclear costs will fall in future as more plants are built, and that the additional construction costs revealed this week do not affect the end cost to consumers.
“Wind and solar can’t get us to net zero alone. A significant element of reliable low carbon power is needed alongside renewables if we are to build a manageable, secure and affordable energy system,” said Paul Spence, a director at EDF.
“When the strike price for Hinkley Point was agreed, some renewables projects (which are beginning to operate now) were awarded contracts of £140MWh. Experience and scale has brought those prices down.
“Studies show that the repetition effect is the same for nuclear. Countries building series of reactors find they progressively become lower risk, and therefore cheaper to build and finance.”
Daily Telegraph
Green gas buyers face bigger bills
The cost of green gas certificates has shot up amid demand from companies keen to display their environmental credentials.
Industry sources say the price of Renewable Gas Guarantees of Origin (RGGOs) has gone from a few pounds to £9 each in recent months, pushing up bills if the costs are passed on to consumers.
The certificates are issued by the Green Gas Certification Scheme to biomethane producers for each KwH produced, to verify the source of the gas. They are then sold on, either alongside the gas or separately. Utilities and transport companies are big buyers of both.
Household energy suppliers such as Green Energy UK are increasingly providing biomethane, which is released in the decomposition of landfill or by the use of anaerobic digestion systems. But demand far outweighs supply as it is difficult to produce.
Green energy certificates are designed to incentivise supply of low-carbon energy, but have run into controversy due to concerns over “greenwashing”.
A survey for consumer group Which? last week found that some energy companies were using an Ofgem certification system for green electricity supply to tell consumers they were buying renewable electricity without directly buying from renewable sources.
The green gas certificate market is less ripe for distortion as certificates are more expensive and there are fewer on the market.
One source said: “It’s operating in a way that the electricity market is failing to: demand is being passed back to the generators.”
Producers say the increase in price is helpful and will encourage more projects.
The non-profit Green Gas Certification Scheme is run by a subsidiary of the trade association Renewable Energy Association.
Sunday Times
South West Water owner Pennon hints at break-up
South West Water owner Pennon could be set for a break-up after the waste management and water company announced a review of its business.
Experts believe Pennon’s recycling arm, Viridor, could be spun off as a separate business to create better value for shareholders.
Viridor has enjoyed soaring success as concerns over waste has helped fuel a boom in cycling.
The division has more than 32,000 customers and works for about 150 councils and businesses in the UK.
Earlier this year it unveiled plans for a new £65m recycling plant in Avonmouth, near Bristol, which will have the capacity to recycle 8pc of all plastic waste.
Pennon said: “Given the strong financial performance and operational progress of Viridor and South West Water… the Pennon Board has concluded that it is an appropriate time to conduct a full review of the strategic focus, growth options and capital allocation policy for the group.”
Daily Telegraph
Eon ponders how to treat Npower’s open wound
“Life is like a box of chocolates,” Eon boss Johannes Teyssen told his new employees from Npower on a phone call, channelling Forrest Gump. “You never know what you’re going to get until you open the box.”
The 59-year-old, newly in charge of Npower after its takeover by the German giant was completed this month, is right to feel apprehensive: Npower has been haemorrhaging customers and money, with losses of €250m (£220m) expected this year. In a less sugary turn of phrase, Teyssen described it as “an open wound that is bleeding profusely”.
He has been left holding Npower after a planned merger of the UK company and its rival SSE fell through late last year, and it was lumped into an asset swap between Eon and Npower’s old owner, Germany’s RWE.
Teyssen, a lawyer who rose through the ranks in the German power sector to take charge of Eon in 2010, must now decide what to do with the business, known in Europe as “the English patient”. He is set to make a statement within weeks, affecting not only Eon and Npower but the shape of the UK retail market.
“All options are open to them, ranging from selling, shutting it, or integrating it with Eon UK,” said Deepa Venkateswaran, an analyst at Bernstein. “
“Their first priority is to stop the bleed.”
Sunday Times