Ofgem defends shock rise in families’ energy bills
When letters land on 15 million doormats this autumn alerting households to a rise in their energy bills, many families may wonder whether the government’s much-vaunted price cap is working.
The controversial policy was introduced in 2019 for 11 million households on default or standard variable tariffs, extending a cap for four million with prepayment meters. By setting a regulated maximum price, updated twice a year by Ofgem, ministers promised consumers fair pricing and an end to “rip-off” tariffs. Yet when it updates the cap this week the regulator has said it could increase the level by as much as £150 or 13 per cent — authorising what would rank as the biggest price rise in a decade.
Ofgem insists that the increase will be justified. Jonathan Brearley, chief executive, has said the expected rise will primarily reflect surging global gas prices, which have pushed wholesale gas and electricity costs in the UK to highs not seen since the Noughties. “When legitimate costs of supplying energy increase, this needs to be reflected in the price cap,” he said.
In fact, supporters of the cap say that tariffs would be even higher were it not in place. “Next week’s expected rise isn’t evidence the cap’s not working,” Gillian Cooper, head of energy policy for Citizens Advice, said. “People on default tariffs are still saving an estimated £75 to £100 per year. Suppliers are making less money than prior to the cap, as well as improving their efficiency.”
The government plans to trial “auto-switching” such customers to cheaper deals or suppliers but said last month it would legislate so it could extend the cap beyond 2023, as it did not believe the cap could be removed “without risk of returning to excessive loyalty penalties”.
Indeed, the biggest critics of the cap remain those who complain it is set too low and that suppliers should be free to charge more for their default tariffs.
“Prices bunch around the cap level because of zero margin, nullifying competition” said Utilita, which focuses on the prepayment market. Stephen Littlechild, the economist and former regulator, claims that the original CMA calculation was “a mistake”, requiring an “unrealistic” low level of costs.
According to Keith Anderson, chief executive of Scottish Power, “the price cap is falsely depressing the market right now”. He blames an “anomaly” in how Ofgem calculates the cap using historical wholesale cost data: the level from October will be based on actual prices between February and July. This means “the cap lags what’s going on in the marketplace”.
Suppliers buy wholesale energy for default variable tariff customers to match the way the cap is set, but typically buy energy for fixed-price deals closer to current market prices.
When wholesale costs were falling, that boosted competition: companies could easily buy cheaper energy to offer discount fixed-price deals to customers who shopped around, undercutting capped default tariffs pegged to historical higher prices. But in today’s steeply rising price environment the reverse is true: Anderson says fixed-price tariffs should be priced above the level of the default tariff cap if suppliers are to cover their costs of buying energy.
Some suppliers are indeed doing this; the price of fixed deals has risen sharply in recent months, reducing the discounts on offer from switching, and some are offering fixed deals at or above the level of the default tariff cap.
Proponents of the policy see this as evidence that loyal customers are no longer being ripped off. Anderson however regards the situation as “a bit bonkers” since it would encourage switching back to default tariffs. “The whole purpose of the cap was they wanted people switching off them.”
He argues the cap has set a “false ceiling” in the market, with many suppliers still offering fixed deals at or below the level of default tariffs despite facing higher wholesale costs. He claims this will “cause a bunch of companies to go bankrupt”.
Though others share concerns about the time lag in the way the cap is calculated, opposition to the policy seems less fierce than it once did. British Gas and Eon were two of the most vocal opponents of a cap at the outset yet neither directly criticised the cap when approached for comment in recent days.
The Times
Calls for social tariff on UK energy bills as rises push extra half million homes into fuel poverty
The government faces calls to bring in a social tariff to help struggling households pay their energy bills as soaring prices threaten to drive an extra half a million homes into fuel poverty this winter.
The regulator, Ofgem, is expected to raise prices by about £150 a year for 15m homes using a default dual-fuel energy tariff from October because gas prices have soared to 16-year highs in the past week.
The looming crisis threatens to deal a particularly heavy blow to families hard hit by the financial fallout of the pandemic by coinciding with the wind-down of government furlough payments by September.
“This is difficult news for all households,” said Jonathan Brearley, the chief executive of Ofgem. “Therefore, my message to energy companies is clear – you need to provide all available help and support to customers who are struggling as a result of this price change.”
Some of the largest energy companies including British Gas, E.ON UK, EDF Energy and Scottish Power have called on the government to legislate for a social tariff for energy, set below Ofgem’s price cap, to help households which are often forced to choose between paying their heating bills or buying food.
Michael Lewis, the chief executive of E.ON UK, said a social tariff should be “one of the top priorities” for new energy legislation next year, and would “signal the government’s intent to deliver a fair and just energy transition to net zero, ensuring no one is left behind”.
Keith Anderson, chief executive of Scottish Power, added that the social tariff should build on the government’s existing warm homes discount, which offers eligible households a £140 energy bill discount each winter but is a “blunt instrument” in tackling fuel poverty.
“I know it’s complicated, and a massive amount of work would need to be done into how it would work, but that’s a sensible place for the industry to get to,” Anderson said.
A social tariff funded by the industry could require each supplier to pay a sum into a central pot based on the number of customers they serve. A discount payment would then be paid back to suppliers based on the number of customers they have in fuel poverty.
For energy suppliers with more customers in fuel poverty, the scheme could add extra costs to their business. Octopus Energy said it would oppose calls for a social tariff. Bulb Energy said it would need to see a detailed plan before it could support a social tariff and Ovo Energy said it had not formulated a view.
An Ofgem spokesperson said: “We know that many families are suffering the economic impact of Covid-19 and that energy bills are on the rise. If anyone is struggling to pay their energy bills, we encourage them to contact their supplier who will discuss options with them.”
A spokeswoman for the government said it was continuing to make “significant progress” in tackling fuel poverty and would “invest £1.3bn to upgrade the energy efficiency of homes, helping low-income families significantly reduce their energy bills”.
The Observer
Boris Johnson’s green dream is already turning toxic
Earlier this year Paul Deighton, the chief executive of the London Organising Committee of the Olympics and a longstanding ally of Boris Johnson, picked up the phone to two old friends and asked for their help.
The Tory peer had been roped in by the prime minister at the height of the pandemic to solve the problems with PPE procurement. Now Johnson had another job for him — helping to save the climate change conference that will be a centrepiece of his premiership later this year.
Deighton called Greg Nugent and Godric Smith, masterminds of the marketing and communications for the 2012 Games, to ask them to look at the plans for Cop26, the environmental conference in Glasgow in November.
They advised that the government needed a full spectrum effort with central control, just as in 2012, to ensure the whole of Whitehall was singing from the same hymn sheet and reinforcing the goals of the conference. That meant opposing plans for a coalmine in Cumbria, which the local council had backed.
Since then large parts of the government have been working flat out on preparations for the event and on Britain’s strategy to reduce its own carbon emissions, to show the world that the UK is leading the way.
The only problem is that different parts of government and the Cop26 team are at daggers drawn over the details, with little of the spirit of 2012 in evidence. With just 100 days to go, public awareness of the conference is minuscule and the policy solutions are mired in disagreements over funding.
The government has already published an energy plan, a transport decarbonisation plan, an industrial decarbonisation plan and a North Sea plan, which deals with the future of the oilfields there.
Three big reports are now due to set out the UK’s approach before Cop26. In the third week of August the government will publish a hydrogen strategy, designed to shift consumption away from fossil fuels. Officials have looked at putting a levy on household gas bills to subsise hydrogen producers. But Johnson has decreed that consumers should be insulated from higher bills.
That will be followed by a heat and building strategy that will outline how consumers will be encouraged to swap their gas boiler for a hydrogen device or a heat pump, which draws heat from the air or the ground. Households account for nearly a fifth of carbon emissions. New gas boilers will be banned from 2035, with all gas boilers gone by 2050.
The boiler strategy had been due to be published a month ago but is now delayed until September amid rows about how to pay for it. Plans to supply “green cheques” to people to switch are regarded as a “non-starter” by the Treasury and the business department.
Instead, work is continuing about how to help the least well-off transition to new technology, landing the middle classes with higher energy bills, estimated at an extra £170 a year. The third report will be the biggest, the comprehensive net-zero strategy, which will tie together all the other strands and outline how the UK reaches the goal. “The bottom line is that someone is going to end up paying for it, either as consumers or taxpayers,” an official said.
Kwasi Kwarteng, the business secretary, who is Whitehall’s “net-zero enforcer” wants the strategy to be driven by market forces, with the government providing some initial capital for new industries and clear guidelines that force energy companies to develop new technologies and drive down prices. A heat pump now costs £10,000 to £15,000 but ministers expect demand and technology to reduce the price to that of a boiler.
Kwarteng and Rishi Sunak, the chancellor, have been examining the case for carbon border taxes, which would force polluting nations to pay for the transition here — with a carbon tax levied on Chinese goods unless they cut emissions. But officials say that has been vetoed as a subject for discussion at Cop26 by Sharma, who thinks it is too provocative and would prevent a deal with the Chinese.
Sharma’s Cop26 unit is referred to as “the United Nations” or “the blue helmets” in Whitehall, for what is seen by some as a prim and proper attitude.
In turn, almost everyone has strained relations with Sunak, who some Tories say is keen to resist excessive spending on issues where many backbenchers think there are no votes to be won.
The Sunday Times
UK’s target for net-zero emissions by 2050 is ‘too far away’
Britain’s target of reducing emissions to net zero by 2050 is ‘too far away’ and urgent action must be taken to stop global temperature increases by 2030, Boris Johnson’s climate change spokeswoman has claimed.
Allegra Stratton said the ‘science is clear’ that the country must change its carbon emission output ‘right now’ and called for faster action as the UK prepares for the COP26 summit in Glasgow in November.
Her comments are likely to alarm Tory backbenchers amid growing fears of the mounting costs of the Prime Minister’s net zero ambitions and the burden that will be placed on the shoulders of voters.
Speaking on BBC Radio 4’s World This Weekend, Ms Stratton said: ‘What I’m aware of is right now that we have a 10-point plan for a green industrial revolution, we have FTSE 100 companies pledging to go net zero and not only that, but we also have the NHS and hospitals around the country saying you know what, we’ll have a go as well.
‘And I feel at the point at which we can all of us see that we’re not doing it on our own, every part of society is moving in tandem towards this net zero in 2050… but let’s be honest, that’s too far away.
‘Net zero is the glide path, what we have to be doing more quickly – the science is clear – we have to be changing our carbon emissions output right now so that we can stop temperature increase by 2030.
‘We have to feel the fierce urgency of now. I feel the fierce urgency of now. We have to bring countries to COP26 in November in Glasgow with real substantial plans.’
Ms Stratton said that progress had been delayed by the Covid pandemic and said plans will be unveiled when Parliament returns in September for projects like replacement gas boilers with more climate-friendly alternatives.
She also admitted that ministers had to overcome distrust from voters in the light of fast-changing advice on issues like diesel cars.
The climate change spokeswoman said: ‘This is a long-term journey we are all on.
‘This is a journey to 2050. This is not going to happen overnight. This is going to be a conversation we have with the British people about what is fair, protecting vulnerable families from some of the more difficult decisions they will have to make.’
Ms Stratton declined to discuss reports that Chancellor Rishi Sunak is holding out against green taxes to pay for action on climate change.
‘What worries me and what worries members of the government is the extreme climate change and weather events that we are seeing in this country now,’ she said.
Daily Mail
Nuclear warning over taxpayers’ cash for Sizewell C
Ministers have been warned against taking a stake in the Sizewell C nuclear plant in Suffolk amid reports that they are looking to strip out Chinese funding.
Sir Ed Davey, the Liberal Democrat leader who as energy secretary in the coalition government helped to broker the nuclear deals with China, said heaping costs on to taxpayers would be “a total betrayal”.
The government remains in negotiations with France’s EDF, the lead operator, over how to fund the project and could take an equity stake if state-owned China General Nuclear (CGN) is removed.
Davey said: “The critical test will be whether this government sticks to the deal and keeps the British taxpayer out of this. Anything that passes nuclear’s costs on to the taxpayer … will be a total betrayal of taxpayers and cost every household in Britain a small fortune.”
The Financial Times reported last week that the government was exploring stripping CGN of its 20 per cent stake in the proposed Sizewell C plant, which is currently expected to cost £20 billion and would be capable of powering 7 per cent of Britain’s homes.
The Sunday Times
UK industry lines up for lucrative carbon capture projects
Ninety miles from Middlesbrough, a mass of sandstone beneath the North Sea that was once unsuccessfully drilled for oil will soon become a critical weapon in Britain’s fight to slash carbon dioxide emissions.
The 25km by 15km aquifer is at the heart of a £12bn project to create a giant carbon store into which 20m tonnes a year of the greenhouse gas could be injected by the end of the decade, locking it away from the atmosphere.
Big industrial companies and investors have been lining up to win backing for similar UK projects since Prime Minister Boris Johnson last year declared carbon capture, usage and storage technology “globally necessary” to slash emissions from some of the trickiest sectors to decarbonise.
Johnson’s support follows previous aborted attempts to get the technology off the ground in Britain. Companies have been examining carbon capture since the mid-2000s but the government has pulled funding amid cost concerns, most recently in 2015.
Detractors say CCUS is an expensive distraction that supports the continued use of fossil fuels and still results in some damaging emissions. Projects elsewhere have faced technology and financing problems as the cost of renewable energy continues to drop.
Critics also believe the government is more comfortable partnering with established industrial groups from the oil and gas sector, and potentially overlooking alternatives both in terms of technology and start-ups looking to drive the UK’s energy transition.
But UK ministers are expected in October to pick at least two of five multibillion pound projects under development in Britain with carbon capture at their heart to be up and running by the mid-2020s. On Friday the business department said all five proposals had passed the initial criteria, illustrating the strength of competition in the industry.
The prime minister wants four “clusters” to be operating by the end of the decade, with a goal of capturing up to 10m tonnes of carbon a year, although project developers say just one or two could easily meet that ambition.
Companies including BP, Eni, National Grid and Total are backing the “East Coast Cluster” project near Middlesbrough, aiming to transport carbon generated by industrial plants, power stations and hydrogen facilities in Teesside and Humberside via giant pipelines to the “Endurance” aquifer.
ExxonMobil, Royal Dutch Shell and a company backed by the Kuwait sovereign wealth fund and the JPMorgan Infrastructure Investments Fund signed provisional deals in July with Acorn, a project in Scotland to remove and store CO2 from gas terminals at St Fergus, north of Aberdeen.
Vitol and US energy group Phillips 66 have recently partnered with Harbour Energy, the UK’s biggest oil and gas producer, to bury carbon in the former Viking gasfield in the southern North Sea.
Two clusters are also under development in the north-west of England and south Wales with a strong focus on hydrogen production, although the latter relies on shipping CO2 to remote stores.
The developers say the UK must pick up pace given other governments — notably the oil and gas reliant economy of Norway — are also pursuing large-scale CCUS projects.
But the industry still has its doubters. They want British workers to ride the growth of a technology that already exists in countries such as the US at a smaller scale, notably for extracting hard-to-reach oil rather than as a solution to the climate crisis.
The Financial Times
Eggborough Power Station: Four cooling towers demolished
Four of eight huge cooling towers have been demolished at a former coal-fired power station in North Yorkshire.
The 300ft (90m) high structures in Eggborough, near Selby, were brought down shortly after 08:00 BST as part of a plan to redevelop the site.
It stood for 50 years in an area where all four Yorkshire counties – North, South, East and West – meet.
The Yorkshire Day demolition was watched by spectators who were dotted in fields around the rural site.
Police had closed roads and 40 security guards patrolled a 350m exclusion zone while contractor DSM carried out the work during drizzly conditions.
Billy Young, a technical director at the company, thanked members of the community for their patience and said it had been “a successful demolition”.
“We appreciate that a large number of Eggborough residents and businesses could have been disrupted by the work, but we have worked hard to communicate with them behind the scenes and by correspondence to minimise this in as much as practicably possible,” he said.
The 2,000-megawatt power station was decommissioned in 2018 because it was no longer financially viable.
It started generating electricity in 1967 and produced enough to power the equivalent of Leeds and Sheffield combined.
A year after its closure, the site was acquired by the St Francis Group, which is planning an industrial and distribution park on the site after the remaining structures are demolished, including a 200m (660ft) high chimney.
BBC News
Experts warn electric vehicle rollout could slow due to lithium shortage risks
The speed in the rise of UK electric vehicle (EV) sales could slow within the next few years due to a worldwide deficit in the lithium needed for car batteries, according to experts.
Since June, car giants GM and Stellantis, which owns Peugeot Fiat and Citroen have pledged 30 billion dollars (£21.6 billion) and 35 billion dollars (£25.2 billion) respectively in electrification investments in the next four years.
But core to this strategy is the need to secure a long-term supply of raw materials including lithium.
As a result lithium demand could triple by 2025 to one million tonnes per year and then double again to two million tonnes per year by 2030 – the year the UK plans to ban new petrol and diesel car sales.
With the typical lithium mine producing 30,000 tonnes per year of the chemical, this means the market needs approximately four new mines per year to maintain pace with demand.
But experts point out it takes five to seven years to discover, develop and put a lithium mine into production.
Chris Berry, president of Washington DC-based strategic metals advisory firm House Mountain Partners, warned: “The dramatic pace of UK electric vehicle sales growth runs the risk of slowing without a clear pathway to additional supply of lithium and associated battery metals.”
He added: “On top of sales, UK auto manufacturers risk being left behind by their Chinese, US, German, and Japanese auto peers who are in a race to ensure they have their electric supply chain in place for the rest of the decade.”
The UK is one of the fastest growing EV markets in Europe with plug-in vehicles accounting for 11% of the UK market.
But there have been concerns raised in Parliament that the UK’s charging infrastructure needs significant upgrades, especially for households with no off-street parking.
Last week, the Transport Committee of MPs also said charging must be fair, with public charge points significantly more expensive than tariffs for charging at home.
The Independent
Amazon-backed electric car pioneer Rivian mulls factory near Bristol
An electric car company backed by Amazon and Ford is in talks with ministers about building a factory in the UK.
The plant, near Bristol, would be the first outside America for California-based Rivian and could involve a big state-support package.
Talks with the government, which were first reported by Sky News, are understood to be at an early stage and focused on a vehicle manufacturing site rather than a battery factory.
However, Britain faces competition from Germany and the Netherlands as possible destinations for a factory.
Any investment by Rivian is likely to top £1 billion and would provide another boost to Britain’s carmaking industry, which has received several doses of positive news this summer after a prolonged period of gloom.
Last month, Japanese giant Nissan confirmed plans for a £1 billion investment in Sunderland, including a new gigafactory, while Vauxhall owner Stellantis announced plans to invest £100 million to build electric cars and vans at Ellesmere Port, Cheshire.
The Sunday Times