Boris Johnson’s UK energy strategy stalls as Sunak resists new spending
Boris Johnson’s promised energy security strategy has been delayed again, as chancellor Rishi Sunak continues to hold out against big new spending commitments. Sunak, under fierce pressure to do more to help families through the cost of living crisis, has told colleagues he wants to turn off the spending taps and that every “marginal pound” should go towards tax cuts. His tough stance has put the brakes on the energy strategy, which was originally due for publication last week and then again at the start of this week. Officials close to the process said they did not expect an announcement this week and that April 4, during the Easter parliamentary recess, was now the earliest date.
Sunak is under pressure to put more money into a new generation of nuclear power stations, to bolster the rollout of wind power, and to cushion heavy industry against the spiralling costs of energy. Last week Johnson appeared to add another potential cost, saying: “I will be bringing forward a British energy security strategy that will address the needs of British steel, British ceramics and the whole of British industry.” Sunak forced a delay in the publication of the strategy this month to give him more time “to engage” with it, according to one official close to the process. “He doesn’t want to provide any new money,” the official said. The chancellor was heavily criticised last week for failing to do enough to offset the cost of living crisis; he is expected to go much further in the autumn amid fears that the energy price cap could rise to £2,800.
But with tax levels rising to their highest level since the 1940s and debt interest surging to £83bn next year, Sunak’s fiscal room for manoeuvre is limited and he wants to bear down on extra spending. The Financial Times revealed this month the government would take a 20% stake in a new vehicle developing the Sizewell C nuclear plant in Suffolk, as Chinese state-backed energy group CGN is eased out of the project. But Johnson wants nuclear to provide 25% of the UK’s electricity by 2050, implying potential further British government participation. A big scaling up of wind power is also planned in the strategy. To add to Sunak’s pressures, British heavy industry has warned that companies will have to pay tens of millions of pounds in extra energy costs from next week if ministers do not extend an important support scheme.
Executives from some of the heaviest industrial energy users said they were calling on the chancellor to act before the scheme finishes at the end of March. Under the scheme, the government compensates certain energy-intensive sectors, such as steel and chemicals, for carbon costs that are passed through in the price of electricity. Ministers last year extended the compensation for one year from January 2021 to March 2022 in the wake of Britain’s exit from the EU and subsequently launched a consultation on the programme in the summer. Britain’s chemical producers face extra costs of more than £27mn on their electricity bills this year if the relief is not extended, according to estimates by the sector’s trade body, the Chemical Industries Association.
Steve Elliott, the CIA’s chief executive, wrote to Sunak after Wednesday’s Spring Statement, asking the government to confirm its plans given that there were “only a few days left to the end of March cessation of the current compensation regime”, according to the letter that was seen by the FT. Andrew Large, director-general of the Confederation of Paper Industries, said his industry would stand to lose compensation worth £22mn per year if the scheme was not extended. Large said the industry had enjoyed good support from the business department on the issue but added: “It is a really ridiculous state of affairs that it has been allowed to get so close to expiry. It is causing enormous challenges for businesses who are trying to plan.” A government spokesman said it remained “absolutely determined to secure a competitive future for our energy-intensive industries”. “We have provided them with extensive support, including more than £2bn to help with the costs of energy and to protect jobs.” Uncertainty about the scheme is the latest challenge for energy-intensive users that have been hit by soaring wholesale gas and electricity prices.
The Financial Times
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Hinkley Point C faces more delays amid Ukraine crisis
The UK’s £23bn new flagship nuclear power plant is at risk of becoming more expensive and being plagued by delays as its developer EDF blamed challenges including the conflict in Ukraine.
EDF is carrying out a “new comprehensive review” of the costs and timeframes of Hinkley Point C, which it is building in Somerset with updates expected in the summer.
The majority French state-owned company had already raised cost estimates in 2017, 2019 and again in 2021 amid the pandemic, with the project currently set to cost between £22bn and £23bn and start generating power in mid-2026. It was originally forecast to cost £18bn.
The developers have to foot the bill for cost overruns at the project, but it comes as EDF is in talks with the UK Government about building a second new power plant, Sizewell C in Suffolk, which could see households take on more risk for overruns.
Boris Johnson wants to put new nuclear power at the heart of his energy supply strategy, as countries across Europe try to cut reliance on Russian energy imports.
However, the Prime Minister’s pledge, which was originally due to be published last week and then again at the beginning of this week, has been delayed again as the Chancellor puts off any major spending decisions as households and businesses battle a cost-of-living crisis, the Financial Times reported.
Most of the UK’s current ageing nuclear fleet is set to shut down within the decade, but the Prime Minister is believed to want nuclear power to supply about a quarter of Britain’s electricity by 2050.
That could imply about six large stations similar to Hinkley will be needed by 2050. In a sign of its commitment to the technology, the Government is planning to take a 20pc equity stake in the Sizewell C project.
In documents filed with French financial authorities, EDF said of Hinkley Point C: “Due to the difficulties encountered by the project, notably on civil performance and marine works, and the increase in risks such as the Ukrainian conflict, Brexit, Covid, supply chain disruption and inflation, a new comprehensive review to update the costs and schedule estimates announced in January 2021 is underway and is expected to be finalised by summer 2022.”
Sizewell C nuclear power station: Government to take 20% stake
French developer EDF will also take a 20% stake in the Suffolk power station.
Ministers hope the confirmation of two cornerstone investors will encourage infrastructure investors and pension funds to take up the remaining 60%.
Sizewell C is a key part of the new UK energy strategy, anticipated this week. However, no decision is expected yet on the future of Wylfa, in north Wales.
Government officials say new nuclear facilities at Wylfa could – like Sizewell – be one of the “big bets on nuclear” the prime minister has said are integral to plans to reduce UK reliance on fossil fuels over time.
It’s not yet clear whether these additional ambitions will include large-scale plants, smaller reactors based on nuclear submarine technology, or both.
The government’s strategy will also include plans for solar and wind power, as well as stimulating additional investment in oil and gas fields in UK waters.
Legislation allowing construction and financing costs to be added to customer bills, as Sizewell C is built over the next decade, is due for a second reading in the House of Commons next month. It made it through the Lords unamended and is expected to become law in the coming weeks having received strong support from MPs.
EDF has insisted the amount added will be relatively insignificant, at about £2 a year for the first phase, rising to a peak of £12 a year.
The total cost of Sizewell C is expected to be about £20bn. That is slightly less than the plant currently under construction at Hinkley Point, in Somerset, as Sizewell C will be a near-identical replica, creating cost savings.
However, those numbers are expected to rise as global inflationary pressures affect prices of steel, cement, wages and the large amounts of energy required to build plants of this size.
Spin for victory: are you ready for more wind turbines?
There is a Boris Johnson quote on almost any given topic, and on wind turbines there are several. In 2012 he called them “white satanic mills” whose “collective oomph wouldn’t pull the skin off a rice pudding”.
A year later he bemoaned the “colossal seaside toys plonked erratically across our ancient landscape”, likening the “moaning seagull-slicers” to a “disease”.
“No one seriously believes that wind turbines are the answer to our power shortages,” he wrote in The Sun on Sunday. His column also featured a prescient warning: “Do we want to go on buying our gas from the Russians, ensuring that our economic windpipe is forever beneath the thumbs of that nice Mr Putin?” His suggestion at the time was a French-style programme of nuclear expansion — and fracking.
A decade on, however, and the prime minister is now blowing very hot on wind power, telling The Sunday Times last weekend: “We’ve got to accelerate the drive for renewables and go twice as fast as we possibly can on wind.”
At Thursday’s Nato summit, it was even suggested as an economic weapon to be used against Vladimir Putin. Johnson said he would help wean Baltic nations off a diet of Russian gas, and onto wind: “It is the way forward.”
This comes just six years after David Cameron — a man who at the peak of his greenmania applied for planning permission to attach a miniature turbine to the roof of his home in north Kensington, west London — banned subsidies for onshore wind, having said he wanted to “rid” the countryside of the “unsightly” structures. A year earlier he had changed the planning system in England to allow councils to object to them, virtually outlawing new schemes: applications have fallen 96% since. He saw it as a vote-winner: people don’t want massive, noisy, ugly wind farms on their doorstep.
But are attitudes changing? Could the call to hobble Putin by spinning for victory persuade Britain’s Nimbies that we need to accept more turbines being built in our back yards — not just offshore, where most of our wind power comes from now, but on our green and pleasant land too?
It is a Johnsonian cliché that has previously been used to describe Texas, North Dakota, New Zealand — but the UK does have a good claim to be the “Saudi Arabia of wind”.
More than 52% of our electricity was supplied by turbines on February 20, albeit thanks to the storms that battered northern England. It was a taste of things to come: a decade ago just 5% of our power came from wind, yet by 2030 — if all goes to plan — offshore turbines alone will be supplying every single home in Britain.
The Times
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Gazprom UK boss quits as energy supplier seeks rescue
The founder of Gazprom’s British business has quit the Russian state-controlled gas giant as the company slides towards insolvency after the Ukraine invasion.
Gazprom Marketing & Trading’s (GM&T) managing director Andrey Mikhalev has resigned as a director of the company, which he established in 1999, as it looks to distance itself from its Russian parent.
It comes as Gazprom races to solve its crisis in Britain, where it has an international gas trading business and an energy company. Gazprom Energy supplies a fifth of non-domestic energy to customers such as NHS trusts, councils and businesses including McDonald’s.
Government officials are on standby in case both the trading and energy supply businesses collapse. The energy business would most likely need to go through a special administration such as the one used to rescue retail supplier Bulb, which collapsed in November and is being propped up by the taxpayer while a buyer is sought. The cost of rescuing Bulb, which has 1.6 million customers, was last week estimated to be £2.2 billion.
The Sunday Times reported last week that Gazprom Energy was scrambling to find a buyer to avoid going bust as customers quit in the wake of the war. However, rivals are unlikely to be willing to hand over cash to Gazprom, which is controlled by the Kremlin.
Other options include a possible management buyout by the British bosses at Gazprom Energy, which was formed in 2006 when it bought Pennine Natural Gas.
Gazprom’s chief executive, Alexei Miller, a close ally of Vladimir Putin, has been sanctioned, but the company itself has not.
Mikhalev, 60, was GM&T’s first employee when he started the British business in May 1999 from a tiny serviced office opposite Richmond station in southwest London. It expanded to employ more than 400 people in the trading arm and more than 300 at Gazprom Energy.
The Times
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Sewage has left my river devoid of fish, says lord
When Lord Cavendish of Furness inherited his family estate in Cumbria at the age of 31, he decided to go and see the eight-mile River Leven, well-known for its salmon and trout, which runs through the land.
His first experience on the river bank was not a welcoming one – he was greeted by a “military person” who criticised his clothing as unsuitable for a fisherman. “Of course then I didn’t go back for 30 years,” he laughs.
When he did return in his sixties a love affair with fishing bloomed. But his attachment to the river has led to disquiet in recent years as the once vital Leven has shown signs of severe decline.
Once lively, fruitful and bubbling with fish, the Leven is now often grey, low and listless, locals say.
Standing in mud-coated boots on the bank of the upper Leven, Lord Cavendish, now 80, who retired from the House of Lords last year, says he once regularly caught 4lb trout from the river.
Very occasionally he still sees fish of that size – but “usually unexpectedly”, where before they were plentiful.
“The behaviour of all kinds of creatures has changed, and there has to be a reason,” he says. “Things do change, I accept that. But we’re going through a whole series of bad changes.”
On the edge of the Lake District, a World Heritage Site, and draining from England’s most famous lake, the state of the river is “intolerable,” he says – so much so that he and the other locals believe “a catastrophic environmental disaster could be imminent”.
The Leven’s problems form part of a national crisis that has seen Britain’s rivers decline under pressure from sewage and agriculture pollution. Not one is now in “good” condition.
David Lewthwaite, 80, who has fished on the lower part of the river for 25 years, says no-one in his club of 12 regulars has caught a single fish for two years.
He used to reliably catch a flatfish, eel or trout every time he went down, once or twice a week, he said – but no longer. “The river is devoid of life down here,” he says.
Last December, officers from the Environment Agency visited the river but found no evidence of sewage pollution, it told Mr Lewthwaite’s MP Tim Farron in an email. The river has “good status” for fish, the email said.
But a combination of sewage from United Utilities works upstream and an estimated 1,900 septic tanks used by a growing number of tourists visiting the lake is poisoning the water, local charities and scientists say.
A study carried out between 2017 and 2020 by the group Salmon and Trout Conservation found that the Leven was under “intense stress” from excess phosphorus caused by sewage.
Phosphorus pollution causes harmful algae to grow out of control, harming fish and invertebrates and the larger mammals like otters that feed on them.
The water company must also pay more, he said. “The overall national problem is enormous and it’s going to involve sending bills to people.
“The correct way is to get all of us to pay our part. United Utilities have got to be asked to invest more – though they have invested a lot,” he says.
A £40 million project to improve treatment works and cut the use of storm overflow drains was completed in 2020.
A United Utilities spokesman said: “Storm overflows contribute a very small fraction of the phosphate that causes algal blooms in the lake.
“More than 60% comes from other sources like private septic tanks and run-off from farmers’ fields. It’s a complex issue and one we have already invested in to bring about improvements.”
The Telegraph
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Gazprom Arm Risks Rattling Energy Markets From U.K. to Singapore
The trading arm of Russia’s gas giant Gazprom PJSC is under increasing pressure as clients and peers flee in response to the war in Ukraine, posing a risk for energy markets from the U.K. to Germany and Singapore.
Gazprom Marketing & Trading is facing liquidity problems as banks delay its transactions and peers refuse to deal with it, according to people familiar with the matter. But its failure would upend markets beyond its U.K. domicile: the firm is one of Europe’s top gas and power traders, has units in Asia and North America, and traded more than 100 liquefied natural gas cargoes in 2020.
Little known to the general public, Gazprom Marketing & Trading has revenues almost on par with the trading arm of Centrica Plc, the U.K.’s top energy supplier. If it goes out of business, it would bring down its U.K retail arm, a supplier to the National Health Service. The threat is so acute that the government made plans to nationalize the business, known as Gazprom Energy.
A unit in Germany is also at risk. The trading arm holds billions of euros worth of hedges for Wingas GmbH, a sister company that’s one of Germany’s largest gas suppliers, said the people, who asked not to be identified because the information is private. Losing these transactions would force the Kassel-based company, owned by Gazprom’s German arm, to purchase energy for its clients at current high prices.
The backlash to Gazprom Marketing & Trading is happening even though the company hasn’t directly been hit by Western sanctions. The U.K. this week included Gazprombank — which processes some energy deals — in its list of banned entities. While European countries including Austria and Germany have so far opposed penalties on oil and gas, traders fear the trading unit could be next.
Gazprom Marketing & Trading said it sources gas “in the European wholesale markets in exactly the same way as other market participants, and since the first quarter of 2021 we have not received gas under long-term contracts with Russia.” Wingas declined to comment.
European energy markets have been extremely volatile, with gas prices surging as much as 79% in just one day earlier this month. Chaos would worsen if the company — with revenues of £2.6 billion ($3.4 billion) in 2020 — fails, potentially defaulting on deals and forcing customers to step into the market to buy gas and electricity at prices several times higher than normal.
The LNG market would also feel the pinch. Gazprom Marketing & Trading has a subsidiary dedicated to trading the super-chilled fuel. In 2020, that unit had an international portfolio of supply and purchase deals including accords to take cargoes from the Sakhalin Energy plant in Russia’s far east and Yamal LNG in the country’s Arctic. It is also the sole marketer of product from a floating liquefaction plant in Cameroon.
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.