MPs probe energy meltdown as cost hits £100 a home
A powerful committee of MPs is poised to launch a sweeping review of the energy market as taxpayers face a £3 billion bill – £100 per household – for failed suppliers.
The Commons Business, Industrial and Energy Strategy committee will discuss plans for an inquiry on Tuesday, The Mail on Sunday can reveal.
Once it gets the green light, committee chairman Darren Jones aims to launch the probe ahead of Christmas before grilling Ministers, regulator Ofgem and energy bosses early next year.
The inquiry will scrutinise the role of Ofgem and the energy price cap to protect customers from soaring energy bills triggered by a spike in global gas prices.
Analysis for the MoS by price comparison site TheEnergyShop indicates the failure of Bulb and 26 other energy suppliers since January, hitting more than 4.2million customers, could cost taxpayers £3billion – just over £100 for each of Britain’s 28million households.
The bill includes a £1.7billion Government bailout to fund Bulb through the winter after Britain’s seventh largest supplier, with 1.6million household customers, collapsed into special administration last Wednesday.
Jones said: ‘This £1.7billion liability is yet another burden on people’s energy bills. Are there going to be others? How much of a cheque is the Chancellor writing to the Business Secretary to be able to underwrite this?’
Jones said Ofgem’s chief executive, Jonathan Brearley, would be called to give evidence in public alongside Business Secretary Kwasi Kwarteng, Energy Minister Greg Hands and energy industry bosses.
He added: ‘There will be some fairly tense discussions. We need to understand what happened and how we improve things. We don’t want to have a punch-up with Jonathan, but there will be significant questions the regulator will need to answer.’
Jones said the inquiry will examine whether Ofgem needs a more ‘interventionist’ approach to suppliers reporting financial distress and whether the ‘misleading’ price cap should be reviewed.
‘Consumers don’t really understand what it is,’ he said. ‘We need to cut through the commercial positioning and understand what really works for customers.’
The inquiry’s findings would likely help inform a new Energy Bill next year.
A Whitehall source said Ministers recognise market reform is inevitable, adding: ‘Once the fog has lifted, and global gas prices have returned to normal, we will need to look at the retail market more seriously.’
Mail on Sunday
Centrica axes no frills British Gas Evolve brand
Centrica has ditched its no-frills supply brand British Gas Evolve little more than a year after launching it.
Britain’s biggest energy supplier started signing customers to the “low-cost, digital-first” brand in October 2020 in response to fierce competition from cut-price rivals who have poached millions of customers from its core British Gas business over the past decade.
It said that it aimed to “take what we see has worked from these successful disrupter brands” and to “evolve a new business that will win back customers and help Centrica grow”.
British Gas Evolve supplied about 250,000 customers, including about 50,000 who were transferred to the brand from Simplicity Energy after it went bust in January.
However, with more than 20 smaller rivals collapsing over the past few months, the company claims it has now decided that customers prefer British Gas and is shutting the Evolve brand.
The Times
National Grid to probe high prices in key electricity market
National Grid has launched an investigation into very high prices in one of the most important energy markets it uses to keep Britain’s lights on.
National Grid ESO, the part of the FTSE 100 company in charge of Britain’s electricity system, said on Friday that in recent weeks “there have been some very high-cost days” in the so-called balancing market used by the company to correct mismatches in supply and demand. The prices were not always easily explained.
The group has to ensure supply and demand match on a minute-by-minute basis. Most energy capacity is procured in advance, but National Grid uses the balancing market to correct any mismatches close to real time.
Given that the costs of balancing Britain’s electricity system ultimately feed through to consumer electricity bills, National Grid said “it is important to fully understand the factors driving the market”.
Last year, the most expensive day in the balancing market was £10 million, but costs have soared this year. Total costs on Wednesday, for example, reached £65m.
National Grid ESO said that “there are many issues that can, and will, have contributed to the high costs”.
“Our review will seek to ensure that, at a time when households’ budgets are under strain, consumers can continue to have confidence in the market.”
But some analysts have pointed to profiteering on behalf of power generators, particularly when the margin between supply and demand has looked very tight, such as during periods of low wind or if there are outages at nuclear or gas-fired plants.
Analysts said some power generators have not been entering the markets where capacity can be secured by National Grid earlier. Instead, they said, generators are holding off and entering the balancing mechanism, where they believe they can achieve higher prices.
The Financial Times
Bulb chief used government advisory role to ‘brief against’ rivals
Collapsed energy supplier Bulb Energy appears to have used its role advising ministers on green business to exaggerate its own environmental credentials, while playing down rivals’ progress.
Bulb’s chief executive, Hayden Wood, used a meeting of the Council for Sustainable Business (CSB), attended by key government officials and MPs, to highlight its green progress ahead of the Cop26 climate talks and boast about £4.5m it has donated to organisations fighting climate change.
Bulb this week became the biggest energy supplier casualty of the gas price spike, when it was taken over by the British government via a so-called “special administration”. That means the effective nationalisation of the company, which has 1.7m customers, and could cost the taxpayer more than £1.7bn over the winter, as the government underwrites its power purchases.
Wood, 38, who co-founded Bulb in 2015, is still running the company during the administration on a salary believed to be £113,000 – something that has stoked further controversy given that he was the architect of Bulb’s meteoric but heavily loss-making growth.
The briefing paper, seen by the Guardian and dated January 2021, has infuriated rival energy companies which claim that Bulb Energy was effectively able to use its privileged role at the CSB to gain special access to ministers and “brief against” its rivals. The CSB is made up of senior business figures and led by Severn Trent’s boss, Liv Garfield. It reports to Department for Environment, Food and Rural Affairs (Defra).
It is understood that Bulb, which played a key role in a number of government-led business initiatives and hosted Boris Johnson at its headquarters in July, presented directly via video link to a number of key policymakers within the government’s environment department, including Zac Goldsmith, Rebecca Pow and George Eustice.
Other energy companies were invited to give their views on progress towards the UK’s climate goals to the CSB at a later date, in a process moderated by the industry trade body Energy UK.
Bulb briefed the MPs on the plans of nine of its rivals, including Scottish Power and Octopus Energy – but failed to mention their multibillion-pound investments in renewable energy projects vital to meeting the UK’s net zero projects and appeared to criticise the absence of net zero targets.
One senior energy industry source, who asked not to be named, said: “It’s a bit rich for a company which presented itself as a ‘disruptor’, acting for the benefit of their customers, to be taking shots at rivals which invest billions in clean energy while it spends its money on expanding overseas and leaving UK taxpayers in the lurch when the gamble doesn’t pay off.”
Bulb has been accused of greenwashing because it does not invest directly in renewable energy projects such as wind turbines, and relies on controversial green energy certificates and carbon offsetting to market its energy as clean.
The source added: “It’s not the case that you need to be a big supplier to invest in the renewable energy projects which supply your customers. Good Energy has been a great example of a small company which plays its part. But Bulb has not spent a penny on building new renewable energy capacity so why has the government handed it a platform to run down the companies which do?”
Bulb Energy said the company was asked to present information about initiatives “to encourage more businesses to set net zero targets in the energy and technology sectors”. “The information in the presentation looked specifically at companies’ net zero strategies, based on information publicly available on their websites at the time,” said the statement.
The Guardian
Two energy suppliers offered rival plans to Bulb’s government bailout
At least two energy suppliers pitched plans that would have allowed the customers of the collapsed group Bulb to be transferred to alternative providers at less cost to consumers and taxpayers, according to people familiar with the plans.
Bulb has been bailed out by UK taxpayers to the tune of £1.7bn after Britain’s seventh biggest energy supplier admitted on Monday that it would no longer be able to withstand the high wholesale gas and electricity prices that have triggered the worst crisis in the sector for 20 years.
Senior industry executives told the Financial Times that several suppliers had approached the regulator Ofgem with plans that would have allowed Bulb’s customers to be dealt with via the usual safety net for failed energy companies rather than a “special administration”.
Bulb was placed into special administration on Wednesday, marking the first time the mechanism, effectively a quasi-nationalisation, has been used for an energy company.
Under Ofgem’s normal safety net, known as the “supplier of last resort”, customers are quickly transferred to an alternative provider so as to ensure the least disruption. It is being used for the 24 other energy suppliers that have collapsed since the beginning of August as high wholesale prices have exposed deep vulnerabilities in many suppliers’ business models and hedging strategies.
Processing Bulb’s 1.6m customers via this route would have cost considerably less than a special administration, according to several people familiar with the process.
One senior industry executive told the FT it was a “fundamental lie” that it was “impossible” for any other supplier to take on Bulb’s customers.
UK business secretary Kwasi Kwarteng told the House of Commons on Wednesday that Ofgem had advised him that using the supplier of last resort mechanism was “not viable . . . because of the size of its customer book”.
Ofgem declined to comment directly on the rival plans, insisting that “protecting the consumer is always our first priority and we have robust systems in place to make sure every feasible avenue is explored”.
“As the taxpayer would expect, this was a thorough process and the ‘supplier of last resort’ option was considered but was not feasible,” the energy regulator added.
The Financial Times
Water profits surge even as leaks and spills wash away public trust
The last of Britain’s three FTSE-listed water companies is due to report its financial results this week, but there’s little doubt any news on the performance of Pennon will be drowned out by a wider crisis in the industry.
Pennon, which owns South West Water and Bournemouth Water, is expected to set out an increase in revenues following a boom in holidaymakers to the West Country over the last year that bolstered water volumes. But beyond the regulated returns a set of troubling, but familiar, issues have welled up for the sector.
Water companies have faced calls to be renationalised for years because of ongoing concerns over their financial engineering, tax avoidance, hefty investor payouts and a long list of crimes against the environment.
In simple terms, they are regional monopolies whose prices are set by regulator, Ofwat, every five years to make sure water is readily available at an affordable price. This allows well-run water companies to achieve reasonable and fairly predictable financial returns, and has helped to make listed water companies a favourite of utility and infrastructure investors.
In return, water companies are expected to be responsible custodians of the beaches, reservoirs and waterways they manage. But this fundamental element of the social contract between water companies and the communities in which they work has been repeatedly soiled by the pollution, leaks and spills that have marked their record in the UK.
Following each moment of reckoning the industry has promised a watershed moment of accountability that will result in a more sustainable future. But each time, as sure as the tides, water companies plunge back into scandal.
A recent report, by Surfers Against Sewage, found earlier this month that water companies spilled raw sewage into the coastal bathing waters used by holidaymakers and families over 5,500 times in the last year, a surge of more than 87% from the year before.
Just weeks later water companies were plunged into the centre of a major investigation by the financial and environmental watchdogs after several of them admitted they may have illegally released untreated sewage into rivers and waterways.
The investigation by Environment Agency and Ofwat is expected to demand that water companies reveal the scale of any illegal releases of sewage from their treatment plants, and to explain how environmental performance and compliance has been taken into account when deciding on paying out dividends and executive bonuses.
The companies included in the investigation have not yet been named. But they are likely to include Southern Water – the supplier for 4.2 million customers in Kent, Sussex, Hampshire and the Isle of Wight – which was fined a record £90m over the summer for deliberately dumping billions of litres of raw sewage into protected seas over several years for its own financial gain.
The Observer
Gas crisis: Europe could tap into emergency supplies as stocks run low, say experts
Europe may have to tap into emergency gas supplies normally considered off limits because the continent is entering winter with historically low stocks, experts have warned.
Near-record high energy prices have put 25 retail suppliers out of business and meant soaring bills for households. Further spikes in wholesale prices are expected in the coming weeks as temperatures drop.
Sustained cold weather like the Beast from the East in 2018 could see Europe’s gas storage completely emptied by February, analysts say, pushing prices up further and increasing pressure on companies and governments to draw on emergency stocks.
“If we have a cold winter we could run very, very low on European storage,” Graham Freedman, principal analyst at Wood Mackenzie, told The Independent. “Especially if Asia has a cold winter as well because that would take more liquefied natural gas out of the market.
“We could end up in an extremely tight position, so much so that Europe could use cushion gas.”
So-called cushion gas is held at storage sites across the continent but is never normally used because extracting it poses safety risks and could permanently damage the underground reservoirs where gas is kept. A certain level of gas is needed to maintain pressure in the wells at all times.
“These are exceptional circumstances,” said Mr Freedman. “There is an additional reserve sitting in the ground that isn’t normally considered. It has only been used at very small scale in the past.
“The difference here is that we are potentially looking at quite a large scale. If everything goes wrong, we could be using it by February.”
The proposal comes as Europe enters the coldest part of the year with around 15 per cent less gas in store than it would normally have.
Around 83 billion cubic metres (bcm) are in storage, compared to an average of 97bcm at this point in the past five years. Using 10 per cent of the continent’s cushion gas would free up another 15bcm, potentially averting a situation where storage runs empty, according to Wood Mackenzie’s calculations.
Wood Mackenzie’s team of analysts suggested that if storage runs close to zero, governments may have to relax rules to allow companies greater freedom to use cushion gas.
A source at one major UK storage company did not rule it out. “There are protections in place because of the potential safety impact on site. Cushion gas is fundamental to integrity of the salt caverns where gas is stored,” the person said.
“We will weigh up those factors but it would be a significant decision for us to take.”
The Independent
Ecotricity boss slams Good Energy over wind farms sell-off
Dale Vince, the new-age traveller turned green-energy entrepreneur, has launched a furious attack on the directors of a rival renewable power company that he has been trying to buy.
Vince’s firm Ecotricity owns 27 per cent of competitor Good Energy and has repeatedly tried to acquire the Aim-listed company this year.
Over the summer, Vince offered 340p a share for the company, and in September, increased his bid to 400p — a price valuing the business at about £66.5 million. But Ecotricity’s approaches were rebuffed by Good Energy, which said they were “opportunistic” and undervalued the group. The shares are now just 275p.
Vince said: “I speak as the largest shareholder in Good Energy. I have seen a serious destruction of value to Ecotricity’s shareholding in Good Energy, along with all other shareholders.”
The latest chapter in the fracas between the two companies erupted after Good Energy told investors on Thursday that it was planning to sell its wind farms and other generation assets, and instead focus on services for electric vehicles. This would include its Zap-Map platform for electric cars.
Vince said the moves made “no sense” and that he should have been told when he was trying to take over the company. “We will be considering what steps are now available to both prevent this value-destroying disposal … and to hold the directors of Good Energy properly to account,” he added.
Good Energy did not respond to requests for comment.
The Sunday Times
BP plans to turn Teesside into first green hydrogen hub
BP plans to build Britain’s biggest “green hydrogen” facility on Teesside to produce the clean fuel for use in new hydrogen-powered lorries and other transport.
The oil giant said its HyGreen Teesside project aimed initially to develop 60 megawatts of electrolyser capacity to produce zero-carbon hydrogen by 2025 at an estimated cost of about £100 million. This would produce enough hydrogen for 1,300 new lorries to run on the green fuel, replacing ones that burn polluting diesel.
BP then aims to expand the electrolyser capacity to as much as 500 megawatts by 2030 under plans to turn Teesside into the “UK’s first major hydrogen transport hub”.
Matthew Williamson, the BP executive leading its hydrogen projects in the UK, said: “We are talking about a broad range of transport applications: it’s trucks, trains, buses, boats, cars and planes.”
BP is already planning to develop a 1 gigawatt facility on Teesside to produce “blue hydrogen”, which is produced by processing natural gas and capturing most of the waste carbon dioxide, in a process that’s low-carbon but still has some emissions. The so-called “H2Teesside” plant could cost £1 billion, excluding the offshore carbon storage infrastructure.
Combined, BP’s blue and green hydrogen facilities could provide about 30 per cent of the UK’s target of developing 5 gigawatts of low-carbon hydrogen production capacity this decade. However, the development of all the projects will be dependent on the government confirming subsidies or other support to make them economically viable.
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.