The continuing energy crisis dominates the headlines in our latest round-up of the weekend’s national news coverage. With experts now predicting a £6,000 price cap, business secretary Kwasi Kwarteng is reported to be preparing to rein in the profits of renewable energy producers and has promised that “help is coming” for those struggling with soaring bills this winter.
Elsewhere, the continuing government administration of Bulb is forecast to cost £4 billion and Scotland’s first minister has said the renationalisation of energy companies should be “on the table” to tackle the crisis caused by rising power costs.
Kwasi Kwarteng to rein in green profits as energy price cap set to soar to £6,000
Kwasi Kwarteng is planning to clamp down on wind and solar energy firms as a new forecast predicted the energy price cap will hit £6,000 in April.
New analysis from the energy consultancy Auxilione said the energy price cap will hit £6,000 in April, after rising to £3,576 in October, and £4,799 in January.
Auxilione said the energy prices would not fall until next July, when the cap would drop by a tenth to £5,486.
The increase will mean bills will still be almost triple their current level this time next year, as inflation squeezes household budgets by up to 13 per cent.
The Telegraph can reveal Mr Kwarteng, the Business Secretary, is also preparing to intervene in the energy market in an attempt to stabilise the “crazy” profits of renewables firms.
Around a third of wind and solar producers are on inflexible legacy contracts, which have earned them billions from the high price of electricity during the energy crisis.
Mr Kwarteng is planning to offer the firms a favourable fixed-term rate at which to sell energy to suppliers for 15 years if they agree to stop selling cheap renewables at high wholesale prices.
Ministers are under pressure from Tory MPs who argue that renewables firms have made enormous profits from the price of electricity because they can produce it at a cheaper rate.
Danny Kruger, who is among those lobbying Mr Kwarteng to end the legacy Renewable Obligation (RO) contracts, said they were “the biggest avoidable driver of inflation we have” and called on ministers to “move as fast as possible to change the rules”.
The Telegraph understands firms on the old contracts, which were signed between 2002 and 2013, who have made billions from the energy crisis will instead be offered deals that pay a fixed rate for power.
If the companies refuse to switch, some will remain on the variable-rate contracts until 2037, but government sources said such a deal would “help with financial planning and investment decisions” in the long run, while bringing prices down.
The RO scheme, which has allowed renewable producers to make billions in profit, is funded by a green levy that costs the average bill payer £75 each year.
A Whitehall source said: “Gas generators are making an absolute killing by flogging their electricity to consumers.
“The problem is, older renewables are forced to sell their electricity at the market price too, which is set by gas.
“Given renewables are dirt cheap and gas is eye-wateringly expensive, we need to decouple the price of renewables from gas so households fully benefit from all forms of cheap renewable energy.”
The Telegraph
Bulb bailout cost set to top £4bn by spring
The cost to UK households of bailing out nationalised energy retailer Bulb is expected to soar to more than £4bn by the spring unless the government achieves a sale, saddling every home with an additional £150 or more on its bills next year.
The new forecast from energy consultancy Auxilione illustrates the spiralling costs of supporting Bulb’s 1.4mn customers as wholesale gas and electricity prices surge. The company’s administrators are hamstrung by government rules that restrict hedging against rising energy prices.
The bailout of Bulb, which collapsed in November last year, is expected to be the most expensive since the rescue of RBS during the financial crisis. Unlike 2008, the government plans to make households absorb the cost through higher energy bills rather than funding the rescue through general taxation as it is doing currently.
The decision is politically charged as households are already braced for much higher energy bills because of the record price of gas and electricity, with forecasts they could reach £5,000 for the typical home by the spring — more than four times the level a year ago.
Although most customers of failed suppliers have been transferred to larger competitors, Bulb was considered too big so it was instead nationalised. Households are already paying about £94 a year to cover the lossmaking customers transferred to other suppliers, but the total could be far higher once Bulb is included.
The government’s failure to agree a deal with potential buyers has caused costs to mount as Bulb’s administrators have not been able to hedge the rising price of wholesale energy.
Auxilione’s estimate is based on forecasts for losses made under the price cap, chiefly the rising wholesale price of gas and greater use by customers over the winter.
In March the Office for Budget Responsibility estimated that the Bulb bailout would cost £2.2bn over two years, but wholesale gas prices have more than doubled since June after Russia slashed supplies to Europe. Auxilione expects additional losses under the price cap will be about £420mn between March and October when energy use is lower, and more than £1.6bn over the winter months.
Gas prices are now more than 10 times the level they averaged over the past decade, and could increase further if Russia severs supplies or it is a particularly cold winter. In August alone UK wholesale gas prices have risen 35 per cent.
Energy retailers normally buy wholesale gas and electricity in advance to protect against changes in prices, particularly as the UK price cap stops them passing on the full cost to consumers.
But government rules restrict state-owned companies from hedging, leaving Bulb’s administrators — and ultimately UK households — hugely exposed as prices have marched higher.
MPs on the business, energy and industry strategy committee have criticised the government’s decision to prevent Bulb from buying energy in advance.
Tony Jordan, director at Auxilione, said the government “was paying a high price for the lack of hedging, and costs could rise even higher if gas prices continue to soar”.
Octopus Energy, the UK’s fourth-biggest supplier, has offered to take over Bulb’s customers on the condition that the government starts buying the gas and electricity for them in advance at a cost of about £1bn, according to two people familiar with the matter. It has also offered a profit share arrangement should the customers turn profitable in the future.
The Financial Times
Nationalised energy should be an option, says Sturgeon
Nicola Sturgeon has said renationalising energy companies should be “on the table” to tackle the crisis caused by rising power costs.
Scotland’s first minister warned a “looming disaster” was set to get worse if the next household energy price cap rise comes into effect in October.
Ms Sturgeon said Ofgem’s next increase, to be announced on Friday, should not be allowed to go ahead.
The UK government said struggling households will receive some support.
Last week the Scottish government estimated 36% of homes will be in fuel poverty.
It is defined as the cost of heating a home being more than 10% of household income, after tax and housing costs have been deducted.
Based on an Ofgem price cap of £2,800, by October the status would apply to 906,000 of all households across Scotland.
Ms Sturgeon is to convene a summit this week with energy companies on improving advice and support for people struggling with energy bills.
Scotland’s major energy suppliers, including Scottish Power, OVO Energy, Centrica, Octopus and E.ON, will attend, as well as industry bodies and anti-poverty groups such as the Poverty Alliance and Energy Action Scotland.
Ms Sturgeon told BBC Scotland’s The Sunday Show: “I want us to come together to call on the UK government to take the action only it can take.
“There is a looming disaster that is already unfolding but it is going to get worse.
“This is going to cause destitution and devastation, this will cause loss of life if real action is not taken to stem this crisis.”
She called for a cancellation of the next increase in the energy price cap, and for the financial support already offered by the UK government to be doubled.
Ms Sturgeon added: “This further increase in people’s energy bills can’t be allowed to go ahead because it is making it impossible for people to provide the basics for themselves and their families, but it is also continuing to fuel inflation, which, of course, is causing the problem in the first place.”
‘Focus on reality’
The first minister said renationalisation of energy companies “should be on the table”, but Scotland did not have the power to do that.
Ms Sturgeon said she had argued for these powers to lie with the Scottish government but they needed to “focus on reality” as it stands now and push the UK government to act.
She said: “Let’s focus on getting them to exercise the powers they have campaigned to keep in their hands rather than constantly deflect the questions to a government that doesn’t hold these powers.”
Boris Johnson has agreed to talks between the UK and devolved governments over the cost of living crisis but no date has been set for the discussions.
BBC News
Britain’s likely next Chancellor, Kwasi Kwarteng, has promised families that ‘help is coming’ on the cost of living.
The Business Secretary said work was urgently under way on ‘the best package of measures’ so that the next Prime Minister would be able to ‘hit the ground running’ the moment they assume office.
The Liz Truss supporter also appeared to rule out a future windfall tax on energy companies, saying he would prioritise domestic energy production.
Writing in The Mail on Sunday, Mr Kwarteng said: ‘No country is immune from rising prices – least of all Britain. I understand the deep anxiety this is causing. As winter approaches, millions of families will be concerned about how they are going to make ends meet.
‘But I want to reassure the British people that help is coming.’
Team Truss is putting together an emergency Budget, which, if she becomes PM, would aim to help Britain weather the extraordinary economic storm that could ruin many households and businesses.
The leadership hopeful has in recent days appeared reluctant to announce details of her energy package beyond revealing that she would scrap green levies and reverse a national insurance rise.
However, last night she hinted that more help for families struggling with their energy bills would be coming shortly – and appeared to row back on her previous refusal to consider one-off payments.
She told The Sun on Sunday that every Government ‘has to make sure life is affordable for people’ and that she was ‘looking across the board’ at help, including support for businesses, which do not benefit from the energy price cap.
But she doubled down on comments that she would help people in a ‘Conservative way’, adding that she would not ‘reach first for the handout’ before looking at the causes of soaring energy bills.
She said: ‘What I really object to is taking money off people in tax and then giving them the money back in benefits. That doesn’t make sense to me.’
Her rival, Rishi Sunak, has already said it is wrong to rule out direct support for households given pensioners and the vulnerable will not benefit from her current plans.
Setting out his views yesterday, Mr Kwarteng appeared to rule out a windfall tax on oil and gas companies, which he described as ‘punitive’.
He also championed domestic energy production so the UK is no longer held to ransom by ‘rogue petrostates’.
‘We need to crack on with more nuclear power stations, back British-made small modular reactors, invest in cheap renewable energy like offshore wind, and lift the ban on shale gas extraction in England where there is local consent,’ he said.
‘We also need to maximise North Sea oil and gas production… I appreciate windfall taxes are sometimes popular. But popularity won’t keep the lights on.’ He added: ‘Energy produced in Britain is by far the safest option.’
In October, Mr Kwarteng is due to issue a new round of permits for oil fields in the North Sea, the first since 2020. Sources close to the Business Secretary said that the controversial Sizewell C nuclear plant in Suffolk would receive full Government approval.
It sets the stage for a future disagreement within Team Truss over the estimated £20 billion project, as some in the campaign are said to be angered by a Government decision to buy a stake in the project costing billions of pounds.
Chief Secretary to the Treasury Simon Clarke is reported to have written to Boris Johnson and Chancellor Nadhim Zahawi about the move.
Mr Clarke, who may replace Mr Kwarteng at the Department for Business, is said to have warned them the decision would compromise the new PM’s ability to cut taxes or spend more on the cost of living, according to the Sunday Times.
Asked about her cost-of-living plans, sources said it was ‘hard to lean in at this stage’, adding: ‘Until you’re in the chair in the PM’s office and have looked at the books, it’s very hard to say where we’re going to land.’
They said the Government was working on ‘lots of things’ but cautioned they are likely to be ‘very, very expensive’.
Mail on Sunday
Sizewell C nuclear plant funding approved despite Tory split
Boris Johnson has approved funding for a new nuclear power station at Sizewell in Suffolk in the final weeks of his premiership, but some of Liz Truss’s senior allies are split over the decision.
The prime minister and the chancellor, Nadhim Zahawi, approved financing for the construction of two new reactors known as Sizewell C, enabling private funding of about £20-30bn to be raised.
However, Simon Clarke, another key Truss ally and a Treasury minister, warned in a letter leaked to the Sunday Times that the decision could limit Truss’s economic vision.
In the letter, he said the costs of Sizewell C were “sufficient to materially affect spending and fiscal choices for an incoming government, especially in the context of wider pressures on the public finances”.
In an article for the Mail on Sunday, Kwasi Kwarteng stressed the need to “crack on with more nuclear power stations” in order to increase Britain’s energy security.
He gave development consent for Sizewell C in July, but negotiations over the government’s investment decision had been ongoing.
A Whitehall source said Boris Johnson had taken the decision to press ahead with Sizewell several weeks ago. However, he dismissed the idea that the move would tie the hands of the next prime minister, following reports that the Truss campaign was worried that it was irreversible.
“In the next few weeks, we will announce a government investment decision on Sizewell C where the government formally commits to the project’s financing. It allows the project to raise private capital in the markets. But it’s only at the point of the final investment decision in early 2023 that the government would formalise any equity share.”
Johnson’s decision over Sizewell was challenged by a campaign to stop the nuclear reactor being built.
A spokesperson for the campaign, Stop Sizewell C, said: “Whatever way you look at it, this is a very dodgy decision. Has it been made by a lame duck PM who is not supposed to tie the hands of his successor, or was it in fact made before Sizewell C was granted planning consent, lending serious weight to our conviction that this was a prejudiced, political decision?
“Our next prime minister should call Sizewell C in. There are so many better ways to spend billions of pounds of taxpayers’ money than on a project that won’t light a single lightbulb for at least a decade.”
Truss has not stated a clear position on Sizewell C, but hinted last year at concerns about the involvement of China’s state-owned energy company, CGN, as part of a consortium providing funding for the preparatory work at the nuclear plant. She told the Telegraph at the time: “I think it’s very important that we don’t become strategically dependent and I think it’s important that we make sure that we’re working, particularly in areas of critical national infrastructure, with reliable partners.”
The Guardian
Christmas energy shortage looming because ministers are ‘too scared’ to act
Millions of households will be plunged into Christmas blackouts unless ministers immediately order energy rationing across Britain, some experts fear.
The nation is facing ‘crisis’ winter power shortages because the government is too scared of ordering the public to slash use, former government energy advisers claim.
They added urgent ‘war gaming’ worst-case shortage scenario is needed and MPs must start using an ‘army’ of workers to roll out an emergency programme of insulation and efficiency in the nation’s homes.
Adam Bell, ex-head of energy strategy at the Department for Business, Energy and Industrial Strategy until 2021, said: ‘This government is wary of being seen to tell people what to do.
‘But this is a crisis – it is absolutely the right moment for government to provide people with the information that they need to make decisions to help protect their families, and also to help reduce our overall energy demand.’
Now at the Stonehaven consultancy, Mr Bell added ministers were ‘absolutely not’ doing enough – warning: ‘By not educating the public about how they can best lower their demand, they’re increasing the likelihood of a security of supply issue.’
He said households need to be advised to lower thermostats, cut boiler flow temperatures and install draughtproofing.
Guy Newey, energy adviser to Greg Clark when he was the business and energy secretary, said: ‘The most important thing you can do to improve security of supply is reduce demand.’
He urged the government to send an ‘army of trained experts’ into people’s homes to ‘help identify where they can reduce their heating demand’ and install maximum amounts of insulation.
Mr Newey, chief executive of the Energy Systems Catapult, is convinced there is ‘definitely an increased risk of security of supply’ and urged: ‘This needs to be a national effort that reflects the size of the crisis.’
Tom Edwards of consultants Cornwall Insight said the ‘risk to security of supply is real in a cold and still winter period’ and called for an ‘emergency push’ on insulation and efficiency.
Swathes of Europe have already been taking measures to cut energy demand, including putting out lights at public buildings – but such moves have so far been snubbed by Whitehall.
The government has repeatedly insisted the UK’s ‘secure and diverse energy supplies will ensure households, businesses and industry can be confident they can get the electricity and gas they need’.
Despite the public claims, officials are said to be privately planning for disruption and controlled blackouts to preserve national supplies.
Analysts say the risk of blackouts is the highest it has been in decades as electricity generation that relies on gas could be hit by Russia’s curtailing of supplies.
The Metro
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.