Ofgem chief seeks to calm row over UK energy groups’ returns
The head of Britain’s energy regulator has sought to defuse a row with network companies including National Grid over permitted profits, after being accused of risking blackouts and the country’s climate ambitions.
Jonathan Brearley, the new chief executive of Ofgem, has been the target of fierce criticism from energy network groups since July, when the regulator proposed to cut the annual rate of return such businesses would be allowed to make from April to 3.95 per cent.
This is the lowest level since privatisation, and nearly half the rate permitted under the current regulatory regime, which has been in place since 2013.
Ofgem also proposed to cut network companies’ spending plans by £8bn, leading to industry suggestions that the regulator was threatening jobs at a time the government was hoping to encourage a “green recovery”.
In an interview ahead of a series of public meetings about Ofgem’s proposals this week, Mr Brearley called on the companies to work with the regulator in a “spirit of co-operation”.
He said there was still an “open conversation” to be had, in particular over a mechanism to bring forward some industry projects that were initially rejected by the watchdog. Ofgem will make a final decision on its proposals in December.
“My experience with any commercial organisation is you can disagree but still do the necessary work together to uncover the problems and there’s companies that have given us a huge amount of information to think about and we are working through that now, particularly on an engineering basis on the sorts of projects that they might want to bring forward,” said Mr Brearley.
He added some of the network companies’ initial plans had lacked sufficient proof but they had since “submitted a great deal more evidence”.
“Certainly, wherever we come to in December, I think we are comfortable we have got what we need to make a decision,” said Mr Brearley, who took over as Ofgem chief executive in February.
Network companies, which recoup their costs from consumers via energy bills, were buoyed last month by a provisional ruling by the UK’s competition authorities in favour of four water businesses that challenged a similar crackdown by their regulator, Ofwat.
The network companies are hoping it may persuade Ofgem that it has been too drastic in its own proposals to cut annual returns.
Mr Brearley said it was too early for him to comment on last month’s ruling by the Competition and Markets Authority “in detail”, adding it was only an “interim finding”.
But he confirmed the ruling would form “part of the evidence we look at when we come to our final decision”, as water was one of the sectors it used as a benchmark.
The Financial Times
Britain to be plunged into darkness in 9 years as experts warn of energy crisis
Boris Johnson has been warned Britain will be plunged into darkness by 2030 unless he gets a grip on our future energy policy.
Experts believe shortages in nuclear power will overshadow the PM’s flagship pledge for every home to be powered by wind farms by the next decade.
Scientists and engineers say the lights will be flickering by then without an urgent plan to boost the National Grid with more nuclear power.
A Government White Paper setting out an energy strategy for the next few decades, promised “this autumn” after years of delay, has failed to appear.
There are fears of more hold ups because civil servants have been transferred to deal with Brexit and Covid.
One industry expert, closely involved in Whitehall talks, said: “We don’t know what Boris is up to.
“But there is one certainty: there will not be enough power to keep the lights on if nothing is done soon.
“The wind power plan will be nothing but hot air without nuclear and won’t fill the energy gap by itself.”
Only one of five nuclear power stations given the go-ahead ten years ago, at Sizewell C in Suffolk, is expected to deliver electricity before 2030.
Funding for two others has dried up as foreign investors pull out – including China, in what appears a tit-for-tat “consequence” of the bitter diplomatic row over Huawei’s exclusion from British 5G development.
Chinese state-owned company CGN wants a station in Bradwell, Essex, to be the first wholly owned and managed reactor outside China.
Wylfa in North Wales has been mothballed after Japanese firm Hitachi pulled out. British investors will not touch the nuclear industry because of the cost of building and waste disposal.
Sunday Mirror
How energy giants pay 30p to label their dirty fuel as green
Power companies are paying as little as 93p a customer for the right to claim that dirty energy tariffs are actually green.
There are 111 energy tariffs now classed as renewable out of 282 on the market, 39 per cent of the total, and the cost of these deals is falling. But a Sunday Times investigation has found huge confusion over what renewable really means because suppliers can “greenwash” fossil fuel energy by buying certificates.
No matter what tariff you are on, every household in the country gets exactly the same energy from the National Grid. So even if you have signed up for a 100 per cent green energy supplier, what you get is 40.6 per cent gas, 2.1 per cent coal and 17.3 per cent nuclear. Just 37.1 per cent comes from renewables, which includes wind, solar and bioenergy.
Green energy companies can claim their credentials by either generating their own renewable power (such as wind or solar), buying it directly from other companies that generate it, planting trees, or by buying Renewable Energy Guarantees of Origin (Rego) certificates issued by green energy plants such as wind farms and hydroelectric power stations.
A green certificate can be very cheap. Cornwall Insight, the energy analytics company, found that Rego certificates could be bought by suppliers from renewable energy generators for as little as 30p per megawatt-hour (MWh) of electricity consumed. The average household uses 3.1 MWh of electricity per year, so on average it costs suppliers just 93p to claim that a year’s energy use is green.
Exactly how green these certificates even are is a source of contention in the industry. Analysts say 20 per cent of power produced from suppliers of Rego certificates comes from biofuels, which can involve burning wood fuel pellets. Some of this is considered little better for the environment than conventional fossil power. In some cases firms are able to buy EU guarantees of origin certificates, which have no benefit in Britain. On top of this there are different types of Rego certificates, some for solar, wind and hydro, and others for biomass.
The price of the certificate depends on the scheme you are investing in. Many large suppliers, however, such as Shell Energy, will not say exactly which type of Rego they are buying. Many other firms fill their literature with jargon, leaving confusion for consumers who think they are using sustainable power.
Tom Steward from Good Energy, which generates renewable power from its own wind and solar farms, says many Regos are “more or less worthless”. He said this allowed some companies to supply dirty power but claim a green tariff by buying Rego certificates. Good Energy describes this as “classic greenwashing”.
“Many suppliers don’t actually buy any renewable electricity at all, they just buy brown power — which could even come from coal — and then buy these certificates to make themselves look green.
“These certificates are so cheap they provide almost no financial benefit to renewable generators. We calculated that for a large solar farm they would just about cover the cost of cutting the hedges around the edge of the site each year.”
Ofgem said that it took greenwashing very seriously. It said: “We expect all suppliers to clearly communicate the nature of the green energy they provide, and the source of energy the customer can expect. As part of our wider strategic focus, we will step up our monitoring in this area, shine a light on good and bad practice and hold suppliers to account.”
The Sunday Times
Green Homes Grant: homeowners frustrated by lack of installers
Householders trying to apply for the government’s £5,000 Green Homes Grants to make energy improvements have described how it is nearly impossible to find an accredited installer to do the work.
Homeowners in Cornwall have been pointed towards installers as far away as Scotland, Manchester and south Wales – who understandably, are not interested in quoting for their work.
The Green Homes Grant scheme, which was first announced in July, went live last week.
To gain the grants, which cover two-thirds of the cost of insulation or installing low-carbon heating, householders have to get quotes from contractors who are TrustMark registered and listed on the official Simple Energy Advice (SEA) website.
Large areas of the country appear to have no contractors willing or able to do the work – leading the founder of the Moneysavingexpert website, Martin Lewis, to warn that the scheme risks becoming a “postcode lottery” without immediate government intervention.
Some of the contractors listed on the site report they have been given little or no information on how the £2bn scheme should operate.
The lack of installers, the fact that all work has to be carried out in six months and the complicated way the scheme is structured are leading some applicants to consider giving up.
Lewis has called on the government to urgently fix the scheme’s “systemic design flaws”. He said the money should be released in tranches to allow those living in rural areas off the gas grid – arguably those who need the scheme most – a chance to qualify for the scheme.
Friends of the Earth said: “Insulating our heat-leaking homes is crucial for driving down household fuel bills, as well as reducing the UK’s contribution to the climate crisis. Participation in the scheme shouldn’t be a postcode lottery, and must be urgently addressed by the government.”
A government spokesman said: “Almost 1000 companies have signed up to the Green Homes Grant so far with more registering every day, including many businesses that operate nationally with substantial capacity to carry out work across the country. We are working closely with industry to ensure there are enough installers to meet demand.”
More than 9,400 applications had been made in the first few days of the scheme, he added.
The Guardian
Boris Johnson’s pledge of wind power for every home ‘could cost taxpayer £27bn a year’
Household electricity bills could double under Boris Johnson’s plans to power every home using offshore wind farms by 2030, experts have warned.
It is estimated that the Prime Minister’s pledge could cost taxpayers £27 billion a year because it is based on data that does “does not withstand even cursory scrutiny”.
Professor Gordon Hughes, who has completed one of the largest ever studies on the economics of wind power, found that, contrary to promises from politicians and the industry, the cost is actually rising.
It is feared the huge, foreign-owned companies that build wind farms will seek huge taxpayer or consumer bail-outs when the true “financial consequences” become clear.
Mr Johnson’s pledge to quadruple offshore wind capacity to 40GW within the decade, made at the Conservative Party’s virtual conference last week, could result in a doubling of consumer bills.
Prof Hughes told The Telegraph: “Any ambitious target is going to be expensive, because the system cannot deliver very large increases in capacity in a short period of time. It is like building the Olympics or High Speed rail – the costs just go out of control.
“Nobody knows exactly how much it will add to bills, because we are yet to see the detail of how it will be paid for, but I find it very unlikely that it would mean less than a doubling in household bills.”
He said the promise had to be seen alongside other pledges, such as the electrification of vehicles and heating, which could see household demand rise by 50 to 100 percent.
His analysis has been rejected by the Government and the renewables industry, which insists the UK’s power system needs to be updated and wind is the cheapest way to do so.
Mr Johnson may be forced to push on with his plan, regardless of cost, in order to meet the targets set under the Paris agreement to limit the global temperature rise to 1.5 degrees, set to be enshrined in the Brexit deal.
Dr John Constable, the director of Renewable Energy Foundation, a UK charity that will shortly publish Prof Hughes’ work, said: “The Prime Minister urgently needs an energy cost minimisation strategy to make a success of Brexit and to create an authentic economic recovery post-Covid.
“In his haste, he has seized the cost-maximising renewables industry by mistake. If Mr Johnson persists in this error, his successors, Labour or Conservative, will be clearing up the mess for decades.”
Sunday Telegraph
Dieter Helm: Putting wind power into the UK’s sails
The energy scene is littered with the debris of grand visions and bold initiatives. When you hear the words: “I can announce today that the UK government has decided to be a world leader in . . .” there is the ominous thought that winners are being picked again.
This time it is UK prime minister Boris Johnson’s turn. Last week, in a keynote initiative announced at the Conservative party conference, he championed offshore wind, hydrogen and carbon capture and storage — all accompanied by historical flourishes about the wind in Francis Drake’s sails and replicating in wind Saudi Arabia’s oil wealth.
Behind the hyperbole, though, is there substance to what Mr Johnson said, and was he right? The answer is that he mainly was, but not for the reasons he gave. Energy policy should not be a playground for short-term job creation schemes, which usually end badly. Energy policy must be long term, and climate change policy must be global.
The day of reckoning on energy and energy policy is fast approaching. The UK legislated for a unilateral net zero territorial carbon production target by 2050, its coal industry is now effectively closed and the nuclear fleet is ageing. With the climate change committee’s sixth carbon budget due before Christmas and the delayed COP26 global climate talks in 2021, something has to be done. The long-promised energy white paper must be delivered and decisions taken. Otherwise, the lights might go out and the carbon targets be missed.
If the prime minister wants to address global warming, developing offshore wind and CCS are among the greatest contributions the UK could make. Why? Because the shallow, windy North Sea is one of the best locations in the world for offshore wind turbines. It is also littered with empty oil and gasfields and pipelines, which offers an inherent infrastructure to help pioneer CCS.
The case for hydrogen and nuclear is less obvious. If Germany and France are going to concentrate on hydrogen, should we duplicate that, find a way to work with them, or simply piggyback on their technologies? A rational response would be to have a joint European project, pooling our expertise and money. But Brexit has probably torpedoed that option. As for nuclear, the UK government needs to make some decisions. Either we should do it, and do it properly, or forget it.
Offshore wind and CCS, and possibly hydrogen and more nuclear, are some of the “stakes in the ground” around which to construct a proper energy policy — after two decades of dither and uncertainty. What then needs to be done is to fill in the details? Mr Johnson is good at willing the ends, if only vaguely. But unless he also wills the means we will have just waffle, again.
When it comes to means, there are three big tasks: ensuring the infrastructure is in place to deliver them; setting the carbon price; and bedding all this within an appropriate regulatory and institutional structure.
None of this is rocket science. If electric cars are to be fast-tracked, then there must be a comprehensive charging network and adequate electricity transmission and distribution networks. If the depleted wells and pipelines of the North Sea are to form a CCS industry, planning and co-ordination are needed. If hydrogen is to play a serious part, it will need a system architecture and regulation. If nuclear is to be built, there must be a clear funding system.
All this requires a regulatory body and a government department fit for purpose. Ofgem and the Department for Business, Energy and Industrial Strategy are not, as they were designed for a different time and different priorities.
Energy taxation is a mess. Now is the time to introduce a carbon tax, common across energy, transport and agriculture, and applied at the border. Net zero cannot be delivered by the power sector alone. Transport emits the most and has made almost no progress since 1990. Agriculture, which accounts for just 0.6 per cent of gross domestic product but about 10 per cent of emissions, is the biggest relative polluter. Unilateralism can only guarantee that we no longer cause climate change if the carbon price applies to imports too, so there is a level playing field.
The Financial Times
Garfield awarded CBE
Liv Garfield, who runs Severn Trent, the Midlands water company has been appointed CBE in the Queen’s Birthday Honours.
Ms Garfield, 45, who is rewarded for services to the water industry, joined Severn Trent in 2014 after 12 years at BT, where she rose to head Openreach, overseeing the commercial roll-out of fibre broadband. She is one of the FTSE 100’s youngest chief executives.
Also appointed CBE are Richard Flint, 52, former chief executive of Yorkshire Water and John McAdam, 72, former chairman of United Utilities, the water company, and Rentokil Initial, the business services provider.
Meanwhile, Southern Water’s Dr Jim Marshall has been awarded an OBE for his work in his previous role at Water UK, helping to co-ordinate the industry’s response to the Covid-19 pandemic.