Ofgem under pressure to rethink crackdown on UK energy networks
A UK gas business controlled by the Hong Kong infrastructure investor CKI has warned that its shareholders are “facing the prospect of zero cash returns” under plans by the British regulator to slash earnings for companies that own the country’s energy networks.
Wales & West Utilities, a business that covers about a sixth of the UK, is the first privately held company to weigh into a fierce row with Ofgem after the regulator proposed to dramatically decrease returns many energy network owners can make from April next year.
Since it revealed its proposal in July, Ofgem has faced a fierce backlash from the public companies that run the UK’s energy infrastructure, including National Grid, Iberdrola and SSE. They claim the plans will threaten jobs as well as the stability and security of Britain’s energy system, and will undermine the country’s ability to achieve its legally binding 2050 net zero emissions target.
The attacks increased over the weekend as the companies fought to persuade Ofgem’s new chief executive, Jonathan Brearley, to change tack before the regulator makes a final decision in December. A consultation on the plans closed on Friday.
According to Ofgem’s plans, the baseline rate of return on equity will be set at 3.95 per cent for the five years from April, down sharply from 7-8 per cent under the current regime, which has been in force since 2013. The regulator also cut £8bn of planned spending from network companies’ proposals, claiming the plans had not proven they would provide value for money.
But in a document published over the weekend, Wales & West, which was bought in 2012 by CKI, warned that Ofgem has made “inadequate” allowances both for the costs of its debt and its equity, which could leave its shareholders with “zero cash returns”. The company also said cuts to its proposed spending in areas such as IT and cyber security would have an impact on the “integrity and security of our network”.
Sarah Williams, director of regulation at Wales & West, added separately that Ofgem’s plans raised the “likelihood of disruption to gas supplies — which is not in the interest of domestic consumers, business or heavy industry”.
Frank Mitchell, the head of networks at ScottishPower, owned by Spain’s Iberdrola, also criticised the regulator’s plans, saying they could prompt his parent company to prioritise investing in energy infrastructure abroad. Returns on US energy networks are “at least twice as much”, Mr Mitchell told the Financial Times.
“When money is looking to go where it has to go . . . what’s the benefit of coming to the UK versus the US?” he said.
Alistair Phillips-Davies, SSE’s chief executive, suggested to Mr Brearley that there was “still time for us to work together” to unlock “billions of pounds of investment”.
Ofgem insisted it was lowering allowed rates of returns to “levels consistent with current evidence and market conditions for similar sectors such as water”.
“The evidence makes clear that networks can attract investment at much lower rates of return and remain a stable and attractive proposition to investors,” it said.
The Financial Times
Nuclear closures pose power puzzle
More nuclear power stations could close early as EDF wrestles with problems with patching up its ageing plants — just as Britain makes a big push to cut carbon emissions.
The French power giant owns Britain’s fleet of eight nuclear power stations together with British Gas parent Centrica. They generated about 17% of the UK’s electricity last year.
Early closure of the nuclear plants, built between the 1960s and 1980s, will heap pressure on ministers to explain how they plan to replace that electricity.
Experts say the boom in electric cars will require much more zero-carbon electricity — but just one new nuclear power station is being built, Hinkley Point C, in Somerset.
EDF said last month that Hunterston B in Ayrshire would close about 15 months earlier than expected, by January 2022, because of cracks in its graphite core. It is also understood to be considering the early closure of at least two more plants — Hinkley Point B in Somerset and Dungeness B in Kent. Together the three sites are capable of generating about three gigawatts of electricity — almost as much as the new Hinkley Point C.
Hinkley Point B is earmarked for closure in early 2023, but EDF is understood to have warned staff in recent days that it may happen sooner. It is currently not generating while its graphite core is inspected. EDF is due to make a decision on its future in November.
Dungeness B has been offline since 2018, but now there are fears that it may never reopen because of problems with its boilers, which EDF has spent about £100m trying to fix.
Ministers are set to make a decision on whether to fund more nuclear stations within the coming months, with the publication of a much-delayed energy white paper.
The Sunday Times
Feargal Sharkey criticises water company for ‘dumping’ ‘thousands of hours’ worth of sewage in river
A celebrated punk singer has accused Thames Water of “dumping” thousands of hours’ worth of sewage in a river.
Former lead frontman for the Undertones, Feargal Sharkey OBE, said the 12,734 hours of waste disposal in the River Kennet last year was “utterly shocking” and potentially illegal.
Admitting to the discharges, the water company claimed that rainwater from storms had made the sewage ‘heavily diluted’ and letting it flow into rivers prevented homes and streets from being flooded.
The Northern Irish singer said: “The UK Government was taken to court in 2012 regarding dumping sewage and allowing water companies to dump sewage into rivers.
“The court ruled that that should not be allowed to happen, and in fact ruled that it should only possibly ever happen in what the court referred to as ‘exceptional circumstances’.
“Using Thames Water’s own monitoring data, we now know that last year they spent 12,734 hours dumping sewage into the River Kennet.”
On Twitter, Sharkey described the 46-mile river – a Site of Special Scientific Interest (SSSI) which runs from Marlborough, Wiltshire, to Woolhampton, Berkshire – as “one of the rarest habitats on earth”.
A Thames Water spokesman said: “We work hard to minimise storm discharges, while also looking at how we can improve the system for the future, including reducing groundwater infiltration and increasing capacity.
“We’ve also invested heavily in monitoring equipment to understand how frequently spills occur and help us plan improvements.”
Daily Telegraph
More than 500 new chargers a day needed for UK to be EV-ready, trade body says
The UK will need to install 507 electric car charging points a day to be ready for the phase out of petrol and diesel vehicles by 2035, according to new research by the motoring industry.
The country will require 2.8 million charging points to be EV-ready by 2035, when the Government has said it will end sales of all new petrol, diesel and plug-in hybrid cars, according to research by the Society of Motoring Manufacturers.
There are currently only around 19,300 public car charging points across the country, and reaching that goal would require installation at the rate of 507 new charging points a day, at a cost of £16.7bn according to the research conducted by consultancy Frost and Sullivan.
“To a certain extent, it’s oversupply, because we need to overcome that reticence about uncertainty that feaThe Government is consulting on bringing forward the ban on sales of new ICE cars to as early as 2030, but the SMMT said even the current deadline would not be possible without further support.
It is calling for the extension of Plug-in Grant subsidies for new purchases of EVs, and its extension to plug-in hybrids, which it says is a “critical” transition technology.
It also wants VAT exemptions for all zero emission capable cars, which it calculates would save families an average of £5,500 on a battery electric and up to £9,750 on an SUV. It estimates this could drive 2.4 million sales in the next five years.
Demand for electric and plug-in hybrid cars has more than doubled over the past year, but they still represent only 8 per cent of new car sales.
The upfront costs for a new electric car are falling, but are still significantly more than average cost for a similar petrol vehicle, although studies show EVs are cheaper for consumers over their lifetime.
The research came as a new poll for AA and ITV suggested that 47 per cent of drivers say they will consider buying an electric vehicle, but 7 in 10 say lack of charging points put them off.
The SMMT’s call was echoed by Paul Morozzo, transport campaigner at Greenpeace UK, who said: “It’s hardly surprising that people are still wary of buying an electric car while there aren’t enough charging points to service a mass market.”
But, Mr Morozzo added: “The best way to drive down the price of electric vehicles is to bring the ban on new petrol and diesel cars and vans forward to 2030 – and make sure that hybrids, which are still mostly powered by fossil fuel, are included in this ban.r of being caught short,” said Mike Hawes, the chief executive of the SMMT.
Daily Telegraph
Green power needs to account for all its costs
The Germans have a word for it: dunkelflaute (Jonathan Ford writes). It means a period in winter when the wind does not blow and the sun does not shine.
We have always had them, but they were never a big deal: just another windless and chilly spell in a largely gloomy season. At least that was before we started depending on the weather for an increasing chunk of our electricity. Now, with ever more power coming from wind and solar, it matters greatly if these plants can’t function, or can produce only a fraction of what they normally pump out.
In January 2017, Belgium faced the prospect of blackouts when it experienced a whopping nine-day calm and dull spell. Despite having just 9 per cent of its capacity from renewable sources, the country’s network had to scramble to supply sufficient electricity to avoid disruption.
Even without the dunkelflaute — generally a European phenomenon — other renewables-heavy systems have had problems. California recently imposed rolling blackouts on its citizens after a baking hot spell led to power shortages.
How to manage intermittency is one of the challenges of weather-dependent low-carbon electricity. It is not simply about paying for back-up for when nature refuses to play ball. Sometimes blazing sun and gusting winds can cause the opposite problem: too much electricity. Then plants must be paid to shut or turn output down to stop them overloading the network.
However, there is one melancholy constant in all this balancing and back-up activity: it generates additional so-called system costs.
A recent report by the UK’s business and energy department, Beis, shows how, when these are factored in, they can change the relative economics of different low-carbon energy sources.
The report sees this trend continuing. By 2035, it estimates an offshore wind farm might on average produce power for as little as £41/MWh; and large-scale solar just £33. However, these figures exclude those system costs, mainly because the solar or wind developer does not have to meet them. At present, these are simply spread across the network as a whole.
When you add them in, as the Beis report does, attributing them to the generating source that caused them, the picture changes. Take the 2035 figure of £41/MWh for offshore wind. With estimated system costs on top, Beis believes the all-in price is closer to £59 to £79 (43-92 per cent higher). For solar, £33/MWh becomes £45-£61. In each case, the range depends on how widespread the use of these renewables is, although does not set out the precise assumptions it is using.
Essentially, the marginal cost of each extra renewable on the system keeps going up as their use increases. Not only does this erode their advantage over other alternatives such as nuclear and as-yet unproven carbon capture and storage (CCS). It suggests that getting to 100 per cent renewables could be expensive.
Could these costs be shrunk? Some argue that it could be possible by expedients such as building more interconnectors with other countries to bring in power when it is needed, or using electric vehicles for distributed battery storage. The idea being that when you plug your car in at night, the charge can be reversed at times of need to feed power back into the grid. While technically possible, it would require infrastructure and a far larger fleet of EVs.
But all of these innovations will still cost money to fix the issue of intermittency. Unless that expense is priced into each solar, wind, or CCS project, there is a risk we could end up with a more expensive decarbonised system than we need.
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.