Truss team hold talks on freezing energy bills
Liz Truss is to announce a vast support package to deal with surging energy costs as her allies and officials discuss plans for a gas and electricity price freeze with industry leaders.
The foreign secretary is expected to be confirmed as Britain’s next prime minister today and will move rapidly to set out a new economic policy. The package to deal with growing energy bills this winter is understood to be on the scale of the Covid furlough scheme.
Senior Tories lined up for appointments in Truss’s cabinet have been told “in no uncertain terms” not to scorn the idea that energy bills could be frozen.
Industry sources said that a price freeze for consumers was “the only conversation that anyone was having with the government”, including discussions involving Kwasi Kwarteng, who is expected to be Truss’s chancellor.
“The plan is to introduce some kind of artificial price cap for consumers combined with a mechanism for reimbursing suppliers,” one source said. “Plans are reasonably well advanced and involve not just civil servants but also ministers lined up for jobs by Truss.”
The level of the price cap has not been set and businesses, particularly hospitality and retail, would need separate support, the source added.
One senior government figure said the scale of the package being looked at would “at least” be in the region of the £69 billion cost of the furlough scheme and “could be more”. “No one has come up with any option to do it for less,” the source said.
Truss herself did not deny yesterday that the total cost of the package could reach £100 billion. She refused to detail her plans but carefully declined to rule out freezing bills.
“I’m not going to go into details of what a putative announcement would be before because I think it would be the wrong thing to do now,” she said.
But she added: “I understand that this is a huge problem. And I understand people are worried and I want to reassure people that I am absolutely determined to sort out this issue.”
Truss said yesterday she would set up a “council of economic advisers” to help to tackle the crisis. Gerard Lyons, an economist who advised Boris Johnson as mayor of London and who is close to the Truss campaign, is said to be in line for a place on the panel and yesterday he backed the idea of capping the price of wholesale gas.
Under the proposals being discussed, the government would either refund energy companies directly for the cost of buying wholesale energy above the price cap charged to consumers or underwrite commercial loans taken out to cover the shortfall. The money could then be recouped over many years as and when energy prices eventually fall.
One source said the exact mechanism for the price cap had yet to be agreed but said it had become increasingly clear that only a “bold” move would be sufficient.
“This is not a new idea but it is one that has become increasingly inevitable as the crisis goes on and gets worse,” the source said. “This is not something that we can any longer deal with by one-off handouts to help people get through winter.”
The Times
Water watchdog’s independence in question as revolving door with polluting private firms revealed
Nearly all major water companies in England employ former government regulators, Telegraph analysis has found, prompting calls to clamp down on the revolving door between Ofwat and the firms it oversees.
At least seven of the nine water and sewerage companies currently have senior staff in regulatory or strategic roles who have previously worked for Ofwat, the industry regulator.
This includes Cathryn Ross, Thames Water’s strategy and regulatory affairs director, formerly the chief executive of Ofwat, and the company’s director of regulatory policy.
There is no suggestion that individuals or water companies have breached civil service rules around the appointment of former regulators. But there have been calls for the rules to be tightened amid concerns that the close links between Ofwat and the industry are affecting the independence and authority of the regulator.
Dieter Helm, a former government adviser, said the exchange of staff between water companies and their regulator had led to “a huge emerging consensus” and questioned whether “this rather cosy world of close relationships is good and healthy for regulation”.
“Let’s take the thorny issue of executive salary. Are you really going to say it’s unacceptable for someone to be paid £3 million a year, and it’s unacceptable for them to take a £500,000 bonus if you may benefit from such salaries in the future, and you may have benefited in the past?” he said.
He warned that if rules around appointments were not “cleaned up”, it would strengthen arguments to nationalise the industry, which has been criticised in recent months for its failure to tackle sewage pollution and leaks, and for the scale of its profits and dividends.
“The rules are pretty lax,” Mr Helm said.
Water companies “have to make the case to the wider public, who now apparently want them all nationalised, that actually they’re better than that. And that requires exemplary behaviour.”
Mr Helm, a professor of economic policy at the University of Oxford, who has advised the Government on energy and water regulation, questioned why no water company had had its licences revoked, despite serious wrongdoing.
“In a revolving door world, there’s a kind of consensus that you don’t do things like that.”
Tim Farron MP, the Liberal Democrat environment spokesman, said: “This revolving door between Ofwat and the water firms is further proof that the system is broken.
“When will ministers get a grip and finally get tough on these companies? Every day of inaction results in more sewage being dumped into our treasured beaches and lakes, causing untold damage to the environment and wildlife.”
He called for the Government to “take responsibility instead of passing the buck to a pointless regulator.”
Attention has focused on high-profile appointments such as Ms Ross and Jonson Cox, the former chairman of Ofwat who spent six years as chief executive of Anglian Water.
But analysis by the Telegraph suggests that hiring between the regulator and the industry is commonplace at less senior levels. It is particularly common for water companies to hire former Ofwat staff to oversee their own regulatory compliance.
Jonathan Read, who joined Thames Water this year as the director of regulatory policy and investigations, had previously worked for Ofwat between 2018 and 2020, where he led a team evaluating water companies’ five-year business plans, according to his LinkedIn profile.
Andrew Beaver, director of regulation and assurance at Northumbrian Water, was Ofwat’s director of strategy and policy until 2016. In that role he was responsible for developing Ofwat policies and ways to ensure water companies were complying, according to a job advertisement for the role released after he left.
A Thames Water Spokesperson said: “Thames Water employs some staff with experience of working for the regulator and we believe this enriches the skill set at Thames Water to enable us to work more collaboratively and efficiently with our various stakeholders.
“All staff currently employed by us who had a role with the regulator have followed the public appointment rules.”
The Telegraph also found several Ofwat staff who had previously worked for one or more water companies, including some in senior roles. Ofwat declined to comment.
The Daily Telegraph
Factories mull shutdown as gas prices surge
The City is braced for gas prices to soar by as much as 50 per cent tomorrow (Monday) after Russia turned off a key pipeline to the West, piling more pressure on factories to cut production to a four-day week.
Major manufacturers, from chemical plants to steel companies, are planning to cut back on production to save costs after facing rises in gas and electricity bills of up to 600 per cent.
The last-minute decision by Kremlin-controlled Gazprom to stop the crucial Nord Stream 1 pipeline reopening means prices could shoot up to new highs this week. Trevor Sikorski, head of natural gas at consultancy Energy Aspects, predicted prices would surge by as much as 50 per cent tomorrow. He said: “Gas prices were signalling that Nord Stream 1 would only be shut for three days. And then all of a sudden at 5.30pm on Friday you get that announcement. The market will look at it and think ‘That is it for Nord Stream 1’.”
Analysts at Goldman Sachs predicted gas prices would see a “significant rally from Monday, potentially mimicking the August highs”.
Liam Conway at Control Energy Costs, said that a fifth of his clients were already cutting back on production — and 70 per cent were considering it. “We have clients who are going from six-day working weeks down to four already,” he said.
While Britain gets just 4 per cent of gas through Nord Stream 1, the importance of its supply to Germany means it affects the overall price on the wholesale gas markets. It is the single biggest pipeline of gas from Russia to Europe and can deliver 55 billion cubic metres of gas a year.
Importers are also facing increased costs from the weakness of the pound.
Companies in energy-intensive industries such as steel said they were looking at “load shifting”, moving production to hours when electricity is cheaper in the late evenings and overnight. A spokesman for Tata Steel UK said: “We will continue to reduce our load on the grid at peak times to help balance demand between industry and society.”
Alasdair McDiarmid, at the steelworkers’ union Community, said: “We are concerned about the impact this is already having, including in some cases production having to be paused or moved to irregular times. If the crisis continues it will have a significant impact on the security of jobs.”
Stephen Elliott, chief executive of the Chemicals Industry Association, said that medium to large producers facing four-fold increases in energy bills would have to start looking at cutting production.
David Stevens, who runs NHS supplier Peacocks Medical Group, said he was looking at starting night shifts for the first time to use power when it is cheaper.
In hospitality, pubs are preparing to cut opening hours. Lobby group UKHospitality said at the start of the year that energy accounted for 4 per cent of the sector’s sales. It is now close to 20 per cent. Food prices risk rising as the Lea Valley Growers Association said that virtually none of its 80 members would plant fruit and vegetables in greenhouses this winter because they were being quoted prices of about £7 a therm for gas, compared with the typical price of 50p per therm.
The Sunday Times
Tax renewable energy and burn more oil and gas, Tory think-tank tells new PM
Boris Johnson’s replacement should burn more coal, slap a windfall tax on renewable firms and launch a campaign urging families to cut energy use this winter, a Tory-linked think-tank claims today.
Measures recommended by Onward include speeding-up the rollout of the £400 Energy Bill Support Scheme so households receive the full amount before Christmas and handing every family £1,000 off their dual fuel bills next year – rising to £2,000 for those on means-tested benefits.
Onward warns: “The new Prime Minister’s handling of the energy crisis will make or break their premiership.”
Its latest report, published today, Onward claims “existing proposals to address high energy prices – including those from Labour, the Lib Dems and the UK’s energy suppliers to freeze prices – are irresponsible and unaffordable”.
Instead, it controversially recommends the new Government “diversifies energy supplies through greater use of oil and coal in the short term”.
Burning more fossil fuels to generate electricity would enrage environmental activists and trigger claims ministers were failing to honour climate change commitments.
Similarly, hammering green energy companies with a windfall tax – like the one-off levy on North Sea oil and gas giants earlier this year – would prompt accusations the Government was targeting clean power producers.
Yet Onward calls for the new PM to introduce “a windfall tax on low-cost electricity generators like wind, solar, nuclear and biomass, to raise between £4billion and £10bn next year”.
It adds: “The stakes could not be higher.
“Failure to get the Government’s energy plan right now will cost lives, damage the economy and could lose the Prime Minister the next election.”
Onward’s head of energy and climate Ed Birkett said: “The energy crisis will define the start of the new Prime Minister’s term in office.
“The challenges are huge, with high energy prices demonstrating that the UK is not immune from Russia’s decision to ration gas supplies to Europe.”
“To get through the crisis, everyone will have to be pragmatic.
“The new Prime Minister will have to do some things that they won’t want to do or which are politically difficult, like the windfall tax on electricity generators or telling households and businesses to save energy this winter.
“Green campaigners will need to accept measures to diversify supply, and households will inevitably pay more.
“But with the right plan, there is a way through this crisis.”
Daily Mirror
‘Thousands will die’: Fuel poverty in the UK will lead to humanitarian crisis, study warns
With fuel poverty in the UK soon to reach epidemic levels, “thousands” of people will die early and the development of millions of children will be “blighted”, a new review has warned.
Current forecasts project that if no interventions are made a horrific 55 percent of the UK’s households — some 15 million people — will fall into fuel poverty come January next year. A household is defined as being in fuel poverty if it has above-average energy costs and the price of meeting such pushes their remaining income below the official poverty line, or 60 percent below the median household income after housing costs. According to the experts, fuel poverty is driven by three main factors: household income, the current cost of energy and the energy efficiency of a home.
Review author and epidemiologist Professor Sir Michael Marmot of the University College London (UCL) Institute of Health Equity warned that fuel poverty will have significant consequences for the nation’s health and will render the Government’s “levelling up” goals even harder to achieve.
He said: “Warm homes, nutritious food and a stable job are vital building blocks for health.
“In addition to the effect of cold homes on mental and physical illness, living on a low income does much damage.
“If we are constantly worrying about making ends meet it puts a strain on our bodies, resulting in increased stress, with effects on the heart and blood vessels and a disordered immune system.
“This type of living environment means thousands of people will die earlier than they should and, in addition to lung damage in children, the toxic stress can permanently affect their brain development.”
Sir Michael continued: “Over the last decade, the UCL Institute of Health Equity has laid out clearly, in repeated reviews or health inequalities, what needs to be done to ensure everyone has the opportunity to live a long and healthy life in dignity.
“In a rich country like the UK, the idea that more than half of households should face fuel poverty is a sad judgement of the management of our affairs.”
He added: “The Government needs to act and act right now.
“It’s clear we are facing a significant humanitarian crisis with thousands losing their lives and millions of children’s development blighted, leading to inequalities that will last a lifetime.”
Sunday Express
Strains mount in European power market as UK generators call for help
More governments will need to intervene to relieve the strains on Europe’s power market, officials and industry figures have warned, after Sweden and Finland launched emergency backstops for their energy producers and UK electricity generators called on the British government to help.
The Nordic states this weekend both announced emergency financial liquidity measures for their energy generators, which are facing rapidly mounting calls for collateral as a result of extreme volatility in energy prices.
Russia’s announcement on Friday evening that it would no longer supply gas through the Nord Stream 1 pipeline is expected to trigger a sharp rise in energy prices when markets open on Monday morning, adding urgency to the pleas for government support.
Electricity producers in Britain are “really concerned about the situation this winter in relation to liquidity”, warned Adam Berman, deputy director at Energy UK, a trade body that speaks for around 100 energy companies.
“Fundamentally the energy market is not designed to deal with the scale of market volatility that we have seen over recent months,” Berman said as he urged the UK government to urgently investigate and “understand the scale of the challenge that generators” are facing as wholesale prices remain at historically high levels.
A UK government spokesperson said it was working with regulators to “monitor closely” the functioning of energy markets.
Sweden, which sounded the alarm about the problem on Saturday, said on Sunday that it would provide up to $23bn in credit guarantees to Nordic utilities to help them avoid technical defaults.
“This is a problem that is Europe-wide . . . liquidity is probably an issue in many countries. It may be the case that other countries will have to follow suit,” Max Elger, Sweden’s financial markets minister, told the FT.
Finland on Sunday proposed a €10bn loan and guarantee package. Sanna Marin, the prime minister, said it was designed to protect companies that were essential for the functioning of society.
“The nervousness in the market is strong,” Finnish economy minister Mika Lintilä told a press conference. “Here were all the ingredients for the energy sector’s version of Lehman Brothers,” he added, referring to the collapse of the US bank during the 2008 global financial crisis.
Germany — which has already provided access to government-backed funding for energy companies — said on Sunday it would impose a windfall tax on electricity generators to help fund a €65bn package of support for households and companies grappling with soaring energy bills.
Some energy traders expect gas and power market prices to breach new records in the coming week.
“We’re expecting a significant jump on Monday and for the market to test new highs this coming week,” said James Waddell, head of European gas at the consultancy Energy Aspects.
Sweden’s finance minister Mikael Damberg said authorities were forced to act as the expected rise in electricity prices is likely to lead to a big increase in margin calls on Monday, and “we were worried that utilities in the Nordic region would technically default in their relationship with Nasdaq Clearing”.
Deepa Venkateswaran, European utilities analyst at Bernstein, said financial illiquidity wasn’t “just a Swedish issue” and “in general rising collateral requirements across the board” in Europe.
Traders said existing short-term credit facilities with banks were in danger of becoming tapped out, while lenders are hesitant to increase their exposure to the energy sector by tens of billions of euros without additional government guarantees or support.
One electricity industry executive warned it would be easy to envisage scenarios where it takes “only a matter of days for not only small but large generators” to topple because of liquidity problems.
EU energy ministers will consider taking bloc-wide steps at an emergency meeting on Friday, according to two officials briefed on the discussions.
The Czech Republic, which holds the rotating EU presidency, has prepared a wide-ranging series of options which will be presented for consideration, including pan-European credit line support, modifying rules around margining or even temporary suspensions of European power derivatives markets.
The preparatory document, seen by the Financial Times, also suggests temporarily splitting electricity production from gas for price setting and co-ordinated cuts to electricity consumption, among other measures. So far, officials in Brussels have been more supportive of the need for price caps and demand cuts at a bloc-wide level but say there is less appetite for EU-wide support for electricity markets.
The Financial Times
Energy crisis: Can Britain weather the winter without blackouts?
Pray for rain. Pray for wind. But, above all, pray for a very mild winter. That is the mantra in Whitehall, for rarely has the weather been so important.
The country needs plenty of rain to refill depleted reservoirs and avoid a drought next year; we need blustery days to keep the wind turbines spinning and the lights on; and we need mild temperatures to keep heating use down amidst the biggest energy crisis in a generation.
The weather is a key player in Russia’s energy war with Europe — a war that was stepped up on Friday night when Moscow indefinitely suspended the reopening of the Nord Stream 1 gas pipeline to the West.
With energy prices at an all-time high, and electricity supplies predicted to be tight in December and January, experts are increasingly concerned that a cold snap could result in blackouts in the UK. Not since 1973, when the miners’ strike forced the government into imposing a three-day week, restricting consumption, has the chance of energy rationing been so high.
Kit Malthouse, the cabinet office minister tasked with preparing the country for winter, visited the Met Office in Exeter last month to discuss the crisis and inspect its forecasting technology. The Met Office’s long-range forecast doesn’t yet shed much light on the matter.
The seasonal outlook, which runs to November, says a warm autumn is “twice as likely” as a cool one, with average temperatures “most likely”. But it adds: “Some colder spells are possible at times, bringing a risk of wintry hazards later in the season.”
The severity of those “wintry hazards” is all important. “The difference between a mild winter and an extreme winter is significant,” said David Jenkins, professor of energy and buildings at Heriot-Watt University in Edinburgh. “A mild winter would put far less strain on our energy system.”
A cold, hard winter, however, raises a real chance of blackouts. That risk rises if a cold spell is spread across Europe, leaving multiple countries scrapping for energy supplies.
Government departments are already planning for power outages. A cabinet office source insisted blackouts are extremely unlikely, but added: “We have been planning for the worst case scenario.” This includes ensuring that all schools and hospitals have generators and that they are fueled and ready to use.
On Wednesday civil servants carried out Operation Noble Birch, an exercise to test the government’s ability to keep operations running in the first six to eight hours of a national power outage. A second exercise will take place in October before a full-scale dress rehearsal in November.
If the worst does happen, and energy usage does exceed supply this winter, what could the government do to avoid such disruptive blackouts?
Reducing demand — which is usually referred to as rationing — is seen by experts as a relatively benign option, but for politicians it is toxic. Prime ministerial candidate Liz Truss, speaking at a leadership hustings on Thursday night, refused to countenance rationing this winter. But she was immediately ridiculed.
Michael Gove insisted rationing for some must remain an option to prioritise supplies to ensure sufficient energy is available for the most vulnerable. Gavin Barwell, Theresa May’s former chief of staff, suggested Truss was “crazy” to rule out rationing, warning that the alternative would be “random blackouts”.
Energy peaks last a few hours, usually between 4pm and 7pm each evening. Asking consumers to turn off their dishwashers and tumble dryers at these times might be a better solution than risking cut-offs. Suppliers have suggested discounting prices or even paying customers to reduce demand at these times.
In the UK, experts believe heavy industry is likely to be asked to reduce energy usage before domestic residents have to start rationing.
Jim Watson, professor of energy policy at University College London, said: “I think the priority will be to try to manage it through industrial energy demand first.”
Matt Brown, vice-president of energy at Afry, an engineering advisory service, agreed. “What is more likely than the whole system being shut off is a planned ‘brown-out’ which is where the system operator decides which sectors of industry have to be turned off in order to maintain security of supply for everyone else,” he said. “At that point the operator has to prioritise different sectors and different needs so that the whole system does not become overwhelmed.”
But the high energy prices may mean the problem is taken out of the government’s hands. “As you see the prices hit sky-high, people will turn down their thermostats, won’t use the same appliances and will adapt how they live,” Brown said. “I also think there will be quite a lot of ‘demand destruction’, where high prices will shut down businesses entirely, which will in turn ease demand.”
Ministers hope things will not get that bad. In the meantime, they are watching the weather.
The Sunday 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.