In our latest round-up of the weekend’s national news, a report by the Renewable Energy Foundation accuses wind farm owners of market manipulation, leading to customers being overcharged by £100 million. Elsewhere new analysis from the Energy and Climate Intelligence Unit claims consumers could face further energy price increases because the government is stifling the development of cheaper offshore wind power.
Wind farms investigated after ‘overcharging customers by £100m’
Wind farm owners are being investigated by the energy watchdog for alleged market manipulation after they were accused of overcharging consumers by £100m.
Ofgem is to examine claims that renewable energy companies artificially inflated compensation payments given to them for switching off their turbines on windy days when the grid did not need extra capacity.
It has been handed a dossier gathered by analysts at the Renewable Energy Foundation (REF), which suggests wind farm companies could be boosting the price of “virtual energy” they never actually generated.
An Ofgem spokesman confirmed that the claims had been received and an investigation has begun into whether any rules were broken.
John Constable, director of REF, a charity that has frequently highlighted excessive payments to wind farms, said: “Our evidence suggests that multiple wind farm operators have been charging over the odds to reduce their output on windy days, generating no energy but costing consumers a fortune.
“We estimate it added £100m to overall consumer bills in 2023 alone.”
REF claims that operators overcharged for constraint payments, the cash given to electricity generators to switch off wind farms and other assets when the national grid risks being overloaded.
Ofgem is already investigating a separate allegation of wind farm overcharging that is estimated to have cost bill payers £51m since 2018.
Earlier this month, the regulator ordered Dorenell Wind Farm in northern Scotland, which is owned by EDF Renewables, to repay £5.5m.
Ofgem said the firm had “charged excessive prices to reduce output where this was required to keep the system balanced and the breach pushed up costs for consumers”.
Dorenell accepted the findings and co-operated with the investigation.
REF said its analysis showed such problems went far beyond a single wind farm or operator and that the key cause was the wind farm owners were allowed to set their own price for the foregone power.
Lee Moroney, an REF analyst, said: “This is virtual electricity which never actually existed except on paper.
“Ofgem is allowing these wind farm operators to set their own prices for notional electricity without checking that the prices reflect their actual costs and lost income.”
An Ofgem spokesman said it disagreed with the Renewable Energy Foundation’s claim that wind farms could name their price for turning down generation, but confirmed an investigation was underway.
He said: “We already have a robust set of rules in place which explicitly exist to prevent generators from abusing the energy market in such circumstances. We have required several generators to make multi-million-pound payments in the last year alone where those rules have been breached.”
The spokesman added that REF’s allegations were now subject to investigation.
He said: “Ofgem works with to look into alleged improper behaviour of wind farms and other generators. We’ll consider all the facts and if evidence of a breach of market rules is found we will not hesitate to act.
“We are also currently consulting on whether any changes are required to the licensing rules in this area.
“We have passed figures provided by REF to our Generation Licence casework team, which will look into any report of potential market manipulation and assess each report on a case-by-case basis.”
The Telegraph
Energy prices may rise as Treasury ‘stifles’ offshore wind
Consumers could face further increases in the price of energy because the government is stifling the development of cheaper offshore wind power, a new analysis claims.
A large proportion of farms that could be built in the future will miss out on financial support in this year’s funding round, the Energy and Climate Intelligence Unit (ECIU) said, because the budget set by ministers is insufficient.
The budget for new offshore wind farms in this year’s contracts for difference auction, which will open to bids this week, has been set at a record £800 million. The Treasury’s “unrealistic” power price predictions for the coming years have in effect diminished the pot of money available to incentivise new projects, the ECIU said. This could “stifle” the number of new wind farms and lead to the UK being much more dependent on foreign gas imports, meaning that bill payers will face further rises in prices, the analysis suggests.
The government encourages renewable energy projects by offering contracts guaranteeing that consumers will pay a fixed price for the electricity the sites generate. When wholesale prices are lower than this level, users pay subsidies to top up the difference; when wholesale prices are higher, the developers pay the difference back to consumers.
The price required by offshore wind farms has fallen sharply over the past decade as the industry has matured and contracts awarded in recent years have been substantially below prevailing wholesale prices. A failure to reflect the fact that bill payers are likely to be paid back the difference by the wind farm developers means that the budget is lower than it could have been, the ECIU has claimed.
The government has set the budget for the latest auction round based on much lower wholesale power price assumptions than some market forecasters.
Jess Ralston, of the ECIU, said: “Treasury’s caution will likely backfire on bill payers, leaving households at the mercy of greater price volatility. By stifling British offshore wind farms at this next auction the UK could end up importing two and a half times more foreign gas. It’s a backwards step for UK energy security.
“This comes off the back of government fumbling the last auction leading to no new offshore wind farms being agreed.”
A spokesman for the Department for Energy Security and Net Zero said: “The budget for auction round six is over £1 billion, making it the largest ever for our contracts for difference scheme, with more than four times the budget available to offshore wind projects alone. Contracts for difference is designed to help protect consumers and businesses from future uncertainty in the energy market. Last winter, payments reduced the amount needed to fund our energy-support schemes by the equivalent of about £18 per typical household.
“The wholesale or reference prices used for contracts for difference do not significantly impact the running of the auction and which projects are successful.”
The Times
Sunak to announce ‘next generation’ of UK nuclear as he visits submarine shipyard in Barrow
The prime minister will herald the “next generation” in the UK’s nuclear industry as he unveils new investment to create jobs and boost skills.
Barrow-in-Furness in Cumbria will get £20m of public money to start with and £180m a year over the next decade.
The town is where four new Dreadnought-class submarines – designed to carry Trident nuclear missiles – are being built.
It’s also home to the Royal Navy’s Astute-class subs.
Firms such as BAE Systems, Rolls-Royce, EDF and Babcock will also invest about £763m in the area – and Downing Street hopes it will create about 8,000 career opportunities.
Mr Sunak, who will visit Barrow on Monday, said the investment would also help cut household energy bills by boosting nuclear power.
“Safeguarding the future of our nuclear deterrent and nuclear energy industry is a critical national endeavour,” he said.
“In a more dangerous and contested world, the UK’s continuous at-sea nuclear deterrent is more vital than ever. And nuclear delivers cheaper, cleaner home-grown energy for consumers.
“That’s why we are investing in Barrow, the home of UK submarines, and in the jobs and skills of the future in the thriving British nuclear industry.
“Today we usher in the next generation of our nuclear enterprise, which will keep us safe, keep our energy secure, and keep our bills down for good.”
Sky News
Chinese giant set to build UK’s biggest gigafactory
A Chinese company that makes electric vehicle batteries for BMW is on the cusp of investing billions of pounds into the building of Britain’s biggest gigafactory, it can be revealed.
EVE Energy, the world’s largest manufacturer of Tesla-like cylindrical car batteries, is understood to be in advanced negotiations to construct a 60 gigawatt-hour factory on the outskirts of Coventry.
The company will initially commit to investing at least £1.2 billion into a 20GWh gigafactory, according to sources close to negotiations. Subsequent phases of the works are expected to expand the site to 60GWh, which would make it almost twice the size of Nissan’s electric battery factory in Sunderland.
The West Midlands Gigafactory is planned to be the anchor tenant of a larger project called the UK Centre of Electrification, a joint venture between local councils and the owners of Coventry airport, where the works will be built.
The plant would create 6,000 jobs and thousands more in the supply chain in a region that exports an estimated £14 billion in cars and auto parts — almost double that of any other part of the UK.
EVE, said to be among the five biggest EV battery-makers in the world, is understood to have made “a multi-billion pound commitment” in a recent letter to Jeremy Hunt, the chancellor. Months of tightly guarded talks involving local and central government officials have taken place, sources said.
Talks are understood to be in an “exclusive and advanced stage”, according to sources familiar with the situation, and a deal could be signed “within weeks”. Negotiations are delicately placed. The investment is contingent on hundreds of millions of pounds in UK subsidies, likely to come from a £4.5 billion pot of aid for key manufacturing industries such as the automotive sector.
A deal would be a major coup for the Conservatives ahead of the general election, not least because the battery-maker has opted for the UK rather than the EU or the US, where the Biden administration is offering a series of incentives for green technologies under the White House’s Inflation Reduction Act.
It is understood that EVE has a carmaking customer or customers lined up to take its UK-made batteries. The name of the manufacturer was this weekend being kept under wraps. BMW, which will make electric Minis at its plant in Oxford, declined to comment.
A spokesman for the government said: “We are determined to ensure the UK remains one of the best locations in the world for automotive manufacturing as we transition to EVs, while ensuring taxpayer money is used responsibly and provides best value. We do not comment on speculation or the commercial affairs of private companies.”
The Sunday Times
Water companies told to install monitors on 7,000 sewage pipes
Water companies in England and Wales will be required to install monitors on an additional 7,000 emergency overflow pipes used to dump sewage into the nation’s waterways, the environmental watchdog has said.
The emergency pipes, which have so far escaped monitoring, are separate to thousands of combined sewage overflow pipes, which are only meant to release sewage during extreme rainfall and are designed to prevent flooding.
All of these had event duration monitors installed by the end of last year, the Environment Agency said.
By contrast the emergency overflow pipes are meant to operate only in urgent circumstances such as power outages and failures that are not “due to the act or default of the water company”, the EA said. Water companies will be forced to install monitors on them in stages from the beginning of next year initially targeting designated bathing and shellfish waters, as well as chalk rivers.
Helen Wakeham, director of water transformation at the Environment Agency, said it wanted “complete transparency on discharges of sewage to our water environment”.
“While 100 per cent of storm overflows in England are already monitored, we are also requiring companies to monitor all emergency overflows from 2025, not just those which impact on shellfish waters. As we transform the way we regulate the industry, this high level of transparency is critical,” she added.
Just 16 per cent of waterways in England and Wales meet minimum EU standards for ecological status and none meet the standards for chemicals, according to EA data.
Although companies often blame unpredictable weather and climate change for causing more frequent untreated sewage overflows, a study by Imperial College London last year found that by far the biggest problem was insufficient capacity at wastewater treatment plants, which meant they were releasing sewage into waterways even during dry periods.
The regulator is now investigating six water companies over concerns that they might have breached sewage regulation. The EA is also conducting its largest ever criminal investigation into potential widespread non-compliance by water and sewerage companies at more than 2,200 sewage treatment works.
Water UK, which represents the industry, said: “Water companies are committed to robust monitoring of storm overflows across England and Wales.
“Due in part to their operating outdoors and in all weather conditions, some monitors will occasionally be temporarily out of action while maintenance is under way. This has improved, and the regulator has taken tough new powers to ensure the highest standards.”
Financial Times
Energy firm’s blunders nearly shut down village butcher
When Andrew Johnson was wrongly switched to an out-of-contract energy rate, and issued a monthly electricity bill of nearly £5,000, it was just the start of his “Kafkaesque nightmare”.
Johnson, 59, faced a long battle with his energy provider Gazprom, now SEFE Energy, which refused to admit a mistake even though his bills were five times the correct rate. As his debt racked up to nearly £40,000, Johnson was forced to contemplate bankruptcy and closing his thriving butchers in the picturesque Leicestershire village of Woodhouse Eaves.
He said: “They just refused to listen. They don’t play by the rules.”
Eighteen months of stress ensued in which Johnson told staff he might have to let them go. It was only after the ombudsman found in his favour that Johnson paid only £5,000 for his electricity instead of the almost £40,000 that had been demanded.
Another business owner, Neil Davidson, 73, was also switched to the out-of-contract rate and faced bills of tens of thousands for his small physio company Bridge4. Npower, owned by E.ON Energy, sent bailiffs to his property and he was also forced to contemplate bankruptcy.
Davidson, who also won an ombudsman ruling, said: “You have to battle so hard even when it’s their fault. It was disgraceful. How many others is this happening to, who have to pay these outrageous bills or are just going bankrupt?”
The pair are not alone. Consumer groups and energy watchdogs have warned that many small businesses are facing “existential threat” over energy disputes which too often arise from administrative errors. Cases spiral into bankruptcy, they warn, because of poor customer service.
Johnson, who has run Johnsons of Woodhouse for two decades, said that he always made sure to shop around for new energy rates and better deals when his contract expired. His electricity and gas were due to expire in April 2022 but, without his knowledge, Gazprom wrongly switched him to the out-of contract rate in September 2021.
The first and second electricity bills were about £4,500, more than five times his normal rate, and afterwards it was up to £3,000 a month. Johnson said that he repeatedly informed Gazprom it was an error but it would not budge, and even took single payments of more than £1,000 from his gas account to settle the inaccurate electricity amounts.
It took until August 2022 for the company to admit he had a valid contract with lower rates between September 2021 and April 2022. But his nightmare became more “Kafkaesque”, he says, because it still insisted on charging him the higher rates from April 2022, when his original contract had been due to end, even though he had been prevented from switching supplier because he had an outstanding debt through no fault of his own, and the delays had been down to the supplier.
Once he complained to the ombudsman it took another year for a resolution, when SEFE was told to apply the contractual rate throughout. The firm apologised and he was given a payment of £150 as a “goodwill” gesture.
Davidson was also given a goodwill payment of £175 after enduring a similar experience. He owns Bridge4, a gym and physio business near Leicester, and had been a loyal customer of E.ON for about seven years.
Bridge4’s contract was renewed every September and E.ON began the renewal process in August 2021.
Unbeknown to Davidson, E.ON transferred the account to Npower, who wrote to Bridge4 the following month. The letter offered a three-year fixed price offer that had to be accepted on the day but contained fundamental errors such as the wrong business description, wrong billing address and wrong supply point. Davidson’s business partner thought it was a scam and ignored it.
Npower placed Bridge4 on out-of-contract rates that were three times higher than the usual rate, and repeated efforts to resolve the situation were rebuffed. Npower threatened the business with disconnection.
Over several months Bridge4 accrued a debt of £40,000, bailiffs were sent to the company as a warning and E.ON began proceedings in the magistrates’ court.
Davidson complained to the ombudsman, which rejected his complaint although he won later on appeal. Npower was effectively instructed to honour the three-year fixed-price contract it originally offered — Bridge4 paid just over £14,000 instead of the nearly £50,000 demanded by Npower.
SEFE said that it took complaints very seriously and had excellent customer service, but acknowledged it was “more difficult than it should have been for Mr Johnson to reach a resolution”. A spokesman said SEFE took full accountability for mistakes and all remedies recommended by the ombudsman were actioned promptly.
E.ON said that it had resolved the case and apologised for shortfalls in customer service: “As ever, we would urge any customer who has a query regarding their contract to contact us to discuss this.”
The 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.