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Industry news
Businesses face energy switch as supplier folds
Monday, October 27, 2008
ALMOST 3,500 small businesses across Scotland face having their utility bills switched to a "supplier of last resort" after Electricity4Business was placed in administration, writes Hamish Rutherford.
Milton Keynes-based Electricity4Business had around 140 staff, supplying electricity to 40,000 small and medium-sized businesses across the UK. Administrators PricewaterhouseCoopers said the company had run into trouble "as a result of volatility in the energy market".
Ofgem, the energy regulator, has guaranteed that none of the businesses will face disconnection because of a supplier being placed in administration, with all customers transferred to a "supplier of last resort"
While there is no guarantee the firms will not face higher emergency tariffs under the scheme, all of the companies are free to change suppliers.
Energy broker Make It Cheaper advised the affected customers to take a meter reading, cancel direct debit payments and use an independent broker to explain which supplier can offer them the most favourable rates.
Earlier this year Electricity4Business warned that the proposed takeover of nuclear operator British Energy by EDF would cause competition in the UK electricity market to be reduced.
This story was featured on the Scotsman Website
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Water boss says supply is priority
Monday, October 20, 2008
Competition in the water industry should focus on preventing shortages rather than increasing consumer choice, says the chief executive of one of the UK’s biggest water companies.
Heavy users of water in England and Wales – such as hospitals and factories – have the right to switch supplier. But the way that access to the water network is priced has meant new entrants have been deterred from joining the industry and no switching has taken place.
The government, through the Cave Review, and Ofwat, the water regulator, are looking at ways to encourage competition, including potentially allowing households to choose who they buy water from. But Tony Wray of Severn Trent said in an interview with the Financial Times that focusing on consumer choice would be wrong. “We believe there is a place for competition but it needs to happen in a way that genuinely helps solve some of issues in the industry, not just so that customers have a choice of who retails their water.”
Mr Wray said competition should aim to solve the biggest problem facing the water industry today – “having an excess of water in the north west and a shortage in the south east”.
South-east England receives less rain than other parts of the country but also has a growing population, which is expected to lead to increasing shortages.
“This is the fundamental challenge for water in the UK. Climate change will cause a worsening imbalance between regions.”
Mr Wray said it was not necessary to build a “national grid” for water, which would be prohibitively expensive but there should be more pipelines connecting the regions and a market for trading water abstraction rights.
“By allowing trading of abstraction rights and more interconnectedness of our networks, it could allow water to move more effectively [around the country]. It would be a lot lower cost than building new reservoirs or desalination plants.”
Severn Trent’s region stretches from Wales to East Anglia and the company is already bringing water in from wetter western regions and exporting water to the drier east. However, Mr Wray said water networks in England and Wales were very localised and more connections should be built.
Competition should also be structured in a way that freed up access to privately owned boreholes, said Mr Wray. “Only about 50 per cent of the impounded water in the UK is in the ownership of water companies. You need to have a freer and more competitive way of accessing these resources.”
The other 50 per cent is in the hands of councils, private companies, and landowners, a legacy of the water industry’s fragmented past. “There’s a huge unexploited resource out there,” Mr Wray said.
This story was featured on the Financial Times website
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Tesco hits out at high energy cost and Ofgem
Monday, October 13, 2008
Consumers are being hit by excessively high gas and electricity prices, Tesco has said, as it criticised Ofgem, the regulator, for not going far enough with the inquiry into energy markets it published this week.
Tesco feels that companies are paying too much for their energy, and is trying to drive its costs down as it and other retailers compete to cut prices.
The connection between the three prices is typically very close, but as oil prices have plunged since the summer, electricity and gas have remained stubbornly high, although the price of gas has fallen recently.
Lucy Neville-Rolfe, Tesco’s director of corporate and legal affairs, said: “We find that energy prices go up very quickly with the price of oil but are very slow to come down when the oil price falls. This is very costly and bad news for consumers.”
Gas prices in Britain have become more closely linked to oil prices in recent years. The decline of domestic gas production and the construction of new pipelines from Norway and the Netherlands has tightened the link to the Continental market, where the cost of gas is generally set by long-term contracts based on oil.
The price of gas in turn sets the price of electricity, because gas is generally the marginal fuel for power generation, used only when the price of electricity is high enough.
However, since the price of oil peaked in July, that link appears to have broken down, Tesco believes. Oil has dropped 44 per cent, but UK gas for delivery in the first quarter of next year has dropped only 18 per cent, and electricity for 2009-10 has also fallen 18 per cent.
Short-term problems with coal-fired power stations shutting in order to be fitted with equipment to cut pollution have pushed up the price of electricity for November, although it fell sharply Thursday.
The bigger issue is that prices for British buyers remain relatively high compared with Continental levels for the next two years in the futures markets.
Jeremy Nicholson, of the Energy Intensive Users’ Group, an industry body, said that put British industry at a competitive disadvantage. “For gas we are paying the same as Continental countries in the summer, and more in the winter, and for electricity we are paying more throughout the year,” he said.
Energy companies said there was always a lag of about six months between movements in oil and gas prices, so gas today could still be influenced by the run-up in oil in the spring.
They also said there was a premium in the gas price because of the low level of gas storage, which gives Britain a much smaller buffer against supply interruptions than most continental countries.
Some industry experts have questioned whether the wholesale gas and electricity markets are working properly. Niall Trimble of the Energy Contract Company said: “There is not really enough trading in the gas futures market, making it difficult for buyers to hedge their energy cost risks.”
Ms Neville-Rolfe described Ofgem’s report this week on energy prices as “a missed opportunity”, because it did not look into wholesale markets.
This story was featured on The Financial Times Website
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Companies 'need green directors'
Monday, October 06, 2008
Businesses must change their attitude to environmental issues if the tide of ecological decline is to be halted.
That was the message from Valli Moosa, president of the International Union for the Conservation of Nature, opening the World Conservation Congress.
The former South African minister said all companies should have directors with environmental experience.
The 10-day IUCN congress in Barcelona will debate global environmental problems and potential solutions.
The organisation numbers almost all the world's governments, environment groups and business representatives among its members.
'Immoral markets'
Mr Moosa spoke frankly about his view that unfettered markets and businesses are largely responsible for the world's current environmental ills.
"Leading entrepreneurs and markets have certainly contributed to the growth of the global economy; yet while individuals may be moral, markets are not," he told delegates.
"The damage industries and commerce do to people and the environment is real, it is considerable, and it is unacceptable." But, he added, it was also unnecessary.
Businesses had a short-term interest in saving money through saving energy, and every boss had a different kind of interest in leaving the world an environmentally sound place for their children.
Every business, he said, should include at least one non-executive director with a working knowledge of environmental issues, just as they should include someone with a working knowledge of accountancy.
But while business practices must change, said Mr Moosa, governments too had a key role in bringing about change if our global society was to switch to a more sustainable path.
One vital task was to reach a binding deal on constraining greenhouse gas emissions, he said - a task that looks more difficult now that eastern European countries are challenging EU moves to cut emissions and deploy renewable energy, and with a report out last week suggesting that emissions globally are rising faster than ever.
Shrinking sceptics
The congress, which marks IUCN's 60th anniversary, takes place against the backdrop of increasing evidence that almost all global environmental indicators point downwards.
This was the picture starkly painted by the United Nations Environment Programme (Unep) last year in its five-yearly Global Environmental Outlook.
The report concluded that the current high rate of species loss, climate change, deforestation, overfishing, desertification and pollution, coupled with population growth, meant that future generations would inhabit a less healthy planet.
Tamas Marghescu, IUCN's director for Europe, agreed with the diagnosis.
"The potential area for nature and biodiversity is disappearing, the foundation of our sustainable life is disappearing," he told BBC News.
"So my conclusion is that the world is not going in a sustainable direction, and we need a new paradigm of sustainability."
He suggested that part of the solution could lie in adequately valuing the services that natural resources perform for humanity, such as processing out waste, regulating the Earth's temperature and providing fresh water.
Just as the Stern Review outlined the economic costs of not mitigating climate change, a major exercise under the aegis of the European Commission is attempting to quantify the costs of not stemming the loss of species, estimated to be running at between 100 and 1,000 times the natural rate.
Mr Moosa suggested that the number of people and institutions sceptical of humanity's role in environmental decline was shrinking.
Within the last two years, he related, the World Economic Forum had signalled its concern on climate change, and the US Pentagon warned that consequences of global warming would include the spread of disease, harsher storms and environmental refugees.
"It seems as though the former sceptics are mainstreaming what we have always known," he said.
This article was featured on the BBC News website.
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EU needs stable energy policy, EDF warns
Sunday, October 05, 2008
Europe's governments must work together to deliver a "visible and stable" European energy policy or they will fail to attract the investment they need to meet sharply rising demand, according to Pierre Gadonneix, president of the World Energy Council and chairman of French energy group EDF.
The International Energy Agency has estimated that energy consumption will rise by 60 per cent between now and 2030, and capacity will have to double to meet demand. But Mr Gadonneix's warning comes as Brussels struggles to stop its member states from picking apart its attempt to forge a common approach on energy policy and climate change, including the plan to auction carbon emission permits.
Last month, the German government dealt a severe blow to the proposal to force companies to pay for the carbon dioxide they emit by backing an almost total exemption for industry. Other European Union members such as France are also pushing for concessions for certain energy-intensive industries.
But it also comes as the energy industry faces soaring costs on the construction of power plants and, in particular, on nuclear reactors whose return is longer-term and is so far unproven.
Mr Gadonneix admitted EDF was facing higher than expected costs on the construction of its new-generation EPR 1600 MW reactor in Flamanville, France. The initial estimate was €3.3bn ($4.5bn) but "we have probably passed this number now, given that it is in 2005 euros".
He said that Europe’s governments needed to agree common rules, especially on carbon trading, if investors were to invest in new power stations.
This was key for energy producers and "must be done at international level, otherwise there will be a distortion of competition", Mr Gadonneix said.
The EDF boss, fresh from agreeing the nuclear industry’s biggest takeover with the proposed deal to acquire British Energy for €15.7bn, also said he expected further consolidation in the energy sector.
"The restructuring has not yet finished. Only very big groups can assure the financing of the investment needed," he said, adding that nuclear power in particular required scale.
"When you build a plant you commit financing for 60 years. That can only be done by very large groups."
This article was featured on the Financial Times website.
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National Grid in £17.5bn upgrade
Sunday, October 05, 2008
NATIONAL GRID will buck market conditions this week when it unveils a £17.5 billion capital-expenditure programme, one of the biggest in the UK corporate sector.
The debt-fuelled £3 billion-a-year plan, details of which will be given at an investor day on Tuesday, represents a £1.5 billion increase on a previous forecast that projected a total spend of £16 billion between 2006 and 2012.
Having already invested £5.4 billion in the past two years, the company now expects to spend £12 billion more to upgrade gas and electricity networks here and in the US up to 2012.
Chief executive Steve Holliday said the beefed-up programme reflected the need to overhaul the UK’s gas and electrical-distribution grid.
“You’ve got to go back to when the national grid was first constructed in the 1950s and 1960s for a comparison,” he said. “We’re seeing growth beyond anything experienced previously.”
About 80% of the outlay will be spent on the UK, with the rest going to National Grid’s assets in America. The tenuous state of the UK’s energy infrastructure was highlighted last week when wholesale power prices jumped after the company warned that maintenance of several power stations would mean an unusually thin margin between supply and expected demand this winter.
The company will also lay bare the heavy cost of the government’s ambitious energy plans that put new nuclear power stations and large offshore wind farms at its heart.
National Grid expects to spend between £5 billion and £9 billion - beyond the basic spending programme - over the next 20 years to hook up the new power sources to the grid. Much of this will go on bringing offshore wind farms onshore and managing the spikes and troughs of wind production.
Holliday expects little trouble in raising the billions the programme will require. About 95% of the company’s assets are regulated, meaning its returns are set by the regulator and grow in tandem with the value of its assets. Investors see it as a safe bet.
This article was features on The Times Online website.
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Power cuts feared in UK nuclear plants crisis
Sunday, October 05, 2008
Six out of 10 of the nation's atomic stations are operating below capacity, throwing their future into doubt. In theory, at least, Britain now has 10 operating nuclear power stations, stretching from Torness on the Firth of Forth to Dungeness on the south Kent coast. Each has two reactors, and ministers boast that they supply about one-fifth of the power that keeps the lights on.
The reality, as an Independent on Sunday investigation shows today, is very different. The majority of the power stations are in dire trouble, and their failure is leading to the most acute concern in years that the country may run short of electricity this winter.
Two of the 10 have been idle for almost a year, with both reactors out of action due to corrosion. Another two have had one of their reactors closed down for months. And yet another two are having to run both their reactors at less than three-quarters of their normal power for safety reasons.
And even that is not the end of it. Of the four that are still in good working condition, one is due to shut down permanently in two years' time, a second is partially closed for routine maintenance, and a third is facing safety questions following the discovery of flaws in similar reactors in Japan.
The meltdown of Britain's nuclear capacity is largely responsible for an alarming tightening of electricity supplies that is forecast to start at the beginning of November, as demand rises sharply for the winter, and to continue until at least the end of the month.
An independent nuclear analyst, John Large, said last night: "It's all in a pretty sad state. The reactors are starting to break up; they are becoming knackered. There comes a point when you simply have to turn the things off.
"We have been lucky for two years with mild winters, but if we have a cold snap then I can see the lights blinking off."
The National Grid insists there should be enough power even if there is a harsh winter, though it admits to "a lot of uncertainty" in its projections. But independent analysts warn of a real danger of shortages, saying the nuclear crisis is largely to blame.
Ed Mayo, the chief executive of Consumer Focus – the new official consumer body, which started work last week – said that supplies would be "tighter over the coming period than they have ever been".
Britain has a maximum of 70-75 gigawatts (gW) of electricity available from its own sources. Last week, he added, 18gW of that was out of action – partly because of the nuclear crisis (which he called "very serious"), partly because of lesser problems with coal- and oil-fired plants, and partly through routine maintenance, bringing the total down to 52-57gW. Yet in a cold snap demand could rise to 60-62gW.
In the meantime, scarcity was joining with increased fuel costs to drive up prices; the wholesale cost of electricity for November was treble what it had been at the start of the year, which, said Mr Hunter, "gives some idea of the panic over availability". Eventually, consumers would suffer through higher bills.
Jeremy Nicholson, director of the Energy Intensive Users Group, said: "In ordinary circumstances nuclear would be running flat out during the winter. That's the whole point of it – to supply that base load."
Instead, the shutdowns and reduced power were causing "anxiety", he added. "We are all crossing our fingers, but I can't say we are too optimistic."
The crisis will reinforce both sides of the debate. Proponents of nuclear power will say that it underlines the need to build a new generation of reactors to replace the ones that are now running into the ground. Opponents will say that it proves the inherent unreliability of the technology, and point to construction problems, delays and cost overruns in the only two nuclear power stations at present being built in Europe, in Finland and France.
The two UK power stations that are completely out of action are Hartlepool in the North-east and Heysham One in the North-west. Both have been closed for almost a year because wire used to secure caps that allow access to boilers has become corroded, and may have to be cut out of concrete and replaced.
One of the reactors at the Dungeness B power station has been shut since the end of March because of defects in welds. The second closed for routine maintenance in July. British Energy claims that both will be back in operation by the end of December, but independent experts are sceptical.
Yet another reactor, at the Oldbury power station on the Severn, has been closed since July, with almost 100 dampers installed against the risk of fire. The entire power station is due to close, at the end of its working life, in December.
Both reactors at nearby Hinkley Point B and at Hunterston B on the west coast of Scotland are running at 70 per cent power, at inspectors' insistence, after developing cracks in the graphite core of their reactors. In the worst-case scenario, the cracked graphite bricks could break up and distort the nuclear core, trapping the highly radioactive fuel, which could overheat and melt.
There's more. Wylfa, on Anglesey, one of the minority of power stations where both reactors are operating satisfactorily, is due to close down permanently in December 2010. And cracks have been discovered in the steam generator at Sizewell B, Britain's most modern nuclear power station, resulting in the replacement of a reactor pressure-vessel head.
Sizewell B also faces questions over its future performance following the discovery of cracks in welds in four similar reactors in Japan. Experts say that it is now of an age at which it is likely to require a major overhaul that could see it out of action for six months, further crippling the contribution nuclear power is supposed to make to keeping the lights on.
This article was featured on The Independent website.
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Ofwat probe on water price plans
Friday, October 03, 2008
Water firms in England and Wales are to have their pricing policies examined by Ofwat after revealing how much they aim to hike bills for five years from 2010.
The watchdog Ofwat has revealed that bills would increase by 9% more than inflation between 2010-2015.
The average bill will be £355, before inflation is considered, by 2015, as firms look to boost investment.
"My job is to ensure customers get a fair deal from the water industry," said Ofwat boss Regina Finn.
"We need to balance investment in the future with what customers are able to pay now," she added.
"We will analyse the water companies' proposals rigorously and challenge them to justify all investment. We will protect customers from any unnecessary price rises."
Water firms proposed these increases to help pay for an investment programme of £27bn in the industry over the five-year period.
Ofwat said the capital investment programme was roughly 37% more than the current 2005-10 period, in which companies' investments totalled slightly under £20bn.
This article was featured on the BBC News website.
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