Switching off power could be lights out for energy companies
Energy companies could go bust because of a surprise £500 million bill for keeping the lights on during the coronavirus pandemic, SSE has warned.
National Grid is spending more than twice as much as usual balancing Britain’s power network as the national lockdown hits electricity demand and forces it to pay plants to switch off.
SSE said that this sudden jump in so-called balancing costs — which normally are passed straight on to generators and suppliers — would have a “significant commercial impact” and could lead to “some parties being unable to continue to operate”. If generators were to go out of business, this would harm security of supply, while more supplier failures would damage competition, the FTSE 100 energy group said.
In an urgent request to Ofgem, the industry regulator, SSE argued that the £500 million bill for extra costs that National Grid had incurred dealing with recent low demand should be deferred until next year.
National Grid’s control rooms must keep supply and demand balanced in real time to prevent blackouts. During the pandemic, it has created a new scheme to pay small wind and solar farms to switch off, which it used this weekend as demand fell to historic lows. It also has paid EDF, the French-owned power company, to halve output from its Sizewell nuclear plant.
Power producers and sellers generally price their electricity and tariffs to reflect the forecast balancing costs bill from National Grid, enabling them to recoup this money from homes and businesses through their energy charges.
SSE, which owns gas plants and wind farms and also supplies energy to businesses, said that the £500 million jump in forecast costs was a “profound change, arising from Covid-19, that could be neither forecasted or expected by market participants”.
It said that the “extremely short notice” meant that suppliers would be “unable to fully recover the amounts via retails tariffs given fixed price contracting and price caps” and that generators would be unable to recoup the costs via the wholesale prices that they charged, “given that most sales for May-to-August generation have already been made”.
It was not clear last week whether National Grid would be forced to shoulder the extra £500 million hit of balancing charges in the short term if SSE’s request to defer the balancing costs was granted.
Ofgem is considering the request and has agreed that it is urgent, but also has said that it does “not necessarily agree that the entire forecast increase in over historic levels is unprecedented, or unexpected”.
A spokesman for National Grid’s electricity system operator said that it was “working hard to minimise the cost” of the extra measures it was taking.
The Times
Energy suppliers call for state bailout: ‘Without help, we’re powering towards a bloodbath’
As the economic crisis intensifies, more households and businesses are finding themselves unable to pay their basic household bills.
In the corridors of the country’s largest energy suppliers, executives have been watching anxiously as bad debts accumulate, prompting calls from some for a pre-emptive government bailout.
Although there is limited public data available from the lockdown period, anecdotally half a dozen industry chief executives and energy veterans have said that “delinquency rates” among business customers are soaring, while the number of households cancelling their direct debit remains relatively low.
Industry executives have offered a stark warning. As more businesses close and domestic customers lose their jobs, bad debts are set to spike sharply and many suppliers are simply ill-equipped to weather the storm.
“If I was solely in the business sector, I would have a proper issue at the moment, because volumes could be down 60pc or 70pc,” says the chief executive of one energy supplier.
Unsurprisingly, pubs, restaurants and others in the hospitality industry have been particularly hard-hit, the chief executive says. “That’s a problem. They’re closed, and no one is at the office. You can send as many emails as you like, if the guy doesn’t want to pay his bills he won’t reply and he won’t answer his phone.”
The industry watchdog has told energy companies to halt debt collection activities during the Covid-19 crisis, limiting the ability of suppliers to chase late payments.
In some cases, businesses are incurring no charges at all, since their offices or premises are completely closed. Other customers, however, are in a more tricky situation.
“I am sure though that there are other businesses which are still consuming energy as normal whilst being financially challenged by poor sales, and they’ll default in due course,” says Tom Bent, an energy consultant and member of TUME, an advisory and recruitment network for the power sector.
And some businesses that hadn’t paid their bills for energy they had consumed before lockdown are also likely to default on those.
This poses a threat to suppliers and already signs of stress are beginning to appear. Drax, one of Britain’s biggest power producers, has a large commercial supply division, selling electricity to offices, shopping centres, and hotels. It has provisioned £60m for bad debts, sources say.
German supplier E.ON has also acknowledged that its volumes have dropped substantially. On the domestic front, the situation is more complicated. The chief of one of the largest energy suppliers in Britain says that both commercial and residential defaults are on the rise.
For many industry veterans, the end of April was a crucial time. Direct debits are taken once a month, and many were watching to see if the end of the first full month of lockdown would see a wave of households unable to pay.
In the end, according to several industry sources, the problem was not as severe as predicted by some.
“To the best of my knowledge,” says Bent, the energy consultant, “domestic suppliers are not seeing a very significant pickup in delinquencies yet.” But for Bent, the direct debit system has created a lag.
“It feels inevitable that with unemployment rising so fast issues will emerge,” he says. “Direct debits go out once a month, and it might take people a month or two to be desperate enough to cancel them.”
There is some good news, however. Because most of the country is stuck at home, energy consumption is up in most cases, allowing domestic suppliers to offset some of their losses.
This uplift in volumes may translate into increased profits, Bent says, due to low wholesale gas and power prices, from those who do pay.
Such turbulence across the sector has made many increasingly uneasy, however. Several prominent energy suppliers – including Bulb and Octopus – incurred millions of pounds of losses last year, in a relatively stable economic environment.
Now, the calls for a state-backed bailout are getting louder. Some companies are asking the Government back a loan scheme worth £100m a month, in order to offer customers payment holidays.
Others are furious about the prospect of badly run businesses being bailed out at their expense.
“Without help, we’re set for a bloodbath,” says Elchin Mammadov, an energy analyst at Bloomberg Intelligence.
“But I believe that they will want to avoid a surge in bankruptcies of energy retailers by offering them financial support or by offering cash directly into business customers affected by the crisis,” he adds.
“I prefer the latter option as it will avoid supporting reckless and inefficient suppliers.”
Daily Telegraph
UK approval for biggest gas power station in Europe ruled legal
The UK government’s approval of a large new gas-fired power plant has been ruled legal by the high court. A legal challenge was brought after ministers overruled climate change objections from planning authorities.
The plant, which is being developed by Drax in North Yorkshire, would be the biggest gas power station in Europe, and could account for 75% of the UK’s power sector emissions when fully operational, according to lawyers for ClientEarth, which brought the judicial review.
The planning inspectorate recommended that ministers refuse permission for the 3.6GW gas plant because it “would undermine the government’s commitment, as set out in the Climate Change Act 2008, to cut greenhouse emissions” by having “significant adverse effects”.
It was the first big project rejected by planners because of the climate crisis. However, Andrea Leadsom, who was secretary of state for business, energy and industrial strategy at the time of the planning application, rejected the advice and gave the go-ahead in October.
The government’s actions to tackle the climate emergency are under particular scrutiny at the moment as the UK will host a UN summit in early 2021. At the meeting, nations will need to dramatically increase their pledges to cut carbon emissions to avoid a disastrous 3-4C rise in global temperatures. For the summit to be successful, experts say, the host nation needs to take a leadership role at home.
Sam Hunter Jones, a lawyer at ClientEarth, said: “We’re very dissatisfied by today’s judgment, rejecting our arguments against the lawfulness of the government’s decision and of its approach to assessing the project’s carbon lock-in risk. We will consider an appeal.”
A Drax spokeswoman said: “Drax power station plays a vital role in the UK’s energy system, generating reliable, flexible electricity for millions of homes and businesses. The development of new high-efficiency gas power would support the UK’s decarbonising energy system.”
She said the company’s ambition was to remove, not add, carbon to the atmosphere by 2030. It would do this by burning wood or plants and then capturing and storing the emissions. The gas plant is capable of having carbon capture technology fitted in the future, the company says.
John Sauven, the head of Greenpeace UK, said: “Building new gas-fired power stations when the UK has a net zero carbon target is hardly showing climate leadership. It also makes little economic sense. The costs are already higher than for renewable options like wind and solar. Investing money to increase pollution may still be legal but it’s no longer defensible.”
The Guardian
EDF submits £18bn nuclear plan
Energy giant EDF is poised to submit plans for an £18bn nuclear power station on the Suffolk coast, stoking tensions over China’s role in Britain’s critical infrastructure.
EDF is expected to submit a development consent order (DCO) to the planning inspectorate on Wednesday — a crucial stage in building Sizewell C, which will supply 7% of the country’s electricity.
China General Nuclear (CGN) is funding 20% of the Sizewell development, with the French state power company shouldering the rest of the cost, although sources said CGN may opt not to fund its construction.
EDF intends Sizewell to replicate its delayed and over-budget Hinkley Point C power station in Somerset. However, it faces concerns about the affordability of nuclear power as well as the role of the Chinese state.
CGN recently held talks with the business minister, Nadhim Zahawi, about government support for nuclear power, and about China’s involvement in the industry.
Sunday Times
Britain’s largest solar farm poised to begin development in Kent
Britain’s largest solar farm, capable of generating enough clean electricity to power 91,000 homes, is poised to receive the greenlight from ministers this week.
The subsidy-free renewables park is expected to reach a capacity of 350MW by installing 880,000 solar panels – some as tall as buses – across 364 hectares (900 acres) of farmland in the Kent countryside.
The project is expected to be constructed one mile north-east of Faversham close to the village of Graveney and may also include one of the largest energy storage installations in the world.
The developers expect to receive a development consent order for the £450m project from the business secretary, Alok Sharma, on Thursday almost three years after talks began with local stakeholders over plans for the park.
Once it has the final go-ahead from the government the developers hope to begin building the Cleve Hill solar farm from early next year, and begin generating clean electricity by 2023.
Renewable energy is considered a crucial element in the UK’s plans to end its contribution to the climate crisis by building a carbon neutral economy by 2050, and it could also help spur economic growth in the wake of the coronavirus.
The UK’s growing fleet of solar panels has produced record levels of clean electricity in recent weeks, reaching fresh highs of 9.68GW last month and helping the UK energy system to its longest stretch without coal-fired power since the Industrial Revolution.
The renewables industry believes the UK’s solar power capacity could rise to 27GW by 2030 after the UK government dropped a block which prevented solar farms and onshore wind projects from competing in subsidy contract auctions.
A boom in battery projects could mean the electricity generated by solar panels during the day could help to keep lights on at night too, helping to cut carbon emissions and domestic energy bills.
The development partners behind the scheme, Wirsol Energy and Hive Energy, believe the project could help cut the UK’s carbon emissions by 68,000 tonnes a year while generating £1m of revenue for the Kent and Swale councils every year.
But local activists have voiced concerns that the scale of the solar park, which is the equivalent of 600 football fields, could do more harm than good for the local area.
Helen Whately, the Conservative MP for Faversham and Mid Kent, said the scale of the development would have a “devastating” impact by “industrialising” the countryside.
“We’re not talking about a few fields – this would destroy an entire landscape. I want to see us reach net-zero by 2050, but this should not come at any cost,” she told the Sunday Telegraph earlier this month.
The Campaign to Protect Rural England in Kent has also warned that the proposed battery storage facilities are five times the size of some of the largest storage projects in the world, which could raise the risk of explosions and fire.
The developers have rebutted claims from its critics that the project has failed to give due consideration to the safety concerns of local residents, or the impact of the local environment.
Cleve Hill won the support of the Planning Inspectorate earlier this month after putting forward plans to preserve native woodland and scrub within the bounds of the site by hosting a habitat management area of more than 138 hectares – including a new bat roost.
The Observer
Danish groups join forces to deliver green hydrogen project
Six of Denmark’s biggest companies are teaming up to launch one of the world’s largest green hydrogen projects as they look to create emission-free fuels suitable for ships, trucks, aircraft and heavy industry.
Container shipping group AP Moller-Maersk, airline SAS, logistics group DSV Panalpina, ferry line DFDS, Copenhagen Airports and renewable energy company Orsted are aiming to open their first hydrogen facility powered by offshore wind by 2023 and reach full capacity by 2030 as they try to help Denmark achieve carbon neutrality by 2050.
No details were given for the value of the financial investments in the project.
Henrik Poulsen, chief executive of Orsted, the world’s largest wind farm developer, said that while direct electrification through batteries made sense for cars it did not work for heavier forms of transport and industries such as steel and cement.
“In order to have a chance of reaching net zero by 2050 we’re going to have to find scalable decarbonisation tools for both road transport and aviation. One of the keys to getting these sectors on to a reduction path is green hydrogen,” he said.
The project would use renewable energy to produce hydrogen instead of the current way of using natural gas, before using it to make methanol that could be used in ships and aircraft by 2027.
At peak capacity employing a 1.3GW electrolyser to make hydrogen from water, the project could save 850,000 tonnes of carbon emissions annually but would need a 3GW offshore wind farm — one of the world’s largest — to power it.
Royal Dutch Shell is spearheading a similar project in the Netherlands that could increase to 10GW of offshore wind power by 2040 to help provide green hydrogen for heavy industry.
Soren Skou, chief executive of Maersk, the largest container shipping line, said that if it wanted to meet its own target of being carbon zero by 2050 it needed to order ships from 2030 that were powered by renewable energy as the lifespan of vessels was 20-25 years.
“We are of the view that batteries are not the solution for shipping,” he said because of their weight and ships often being a long time between ports.
Mr Skou added that Maersk thought three fuels — alcohol, ammonia and bio-methane — were the most likely solutions.
Mr Poulsen conceded that green hydrogen was highly expensive currently but pointed to offshore wind where prices had dropped by about three-quarters in the past decade. He added that Orsted was in pilot projects in the UK, Germany and the Netherlands as it saw significant possibilities for green hydrogen.
Mr Skou underscored that shipping was in “a unique situation” where thanks to a global regulator — the International Maritime Organisation — regulations set what type of fuel all container ships need to use.
“If we can find a fuel that we can burn in our ships that is renewable and does not emit CO2, we can also regulate that we have to use it on a global scale, even if it’s more expensive,” he said.
The Financial 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.