Utility news
On this page you will find industry news about electricity, renewable energy, gas, water, fixed and mobile telecoms, and other stories. Our news is updated once per month. We cover items such as developing technologies, price changes in the utility markets, takeovers and company collapses, changes in tariffs, the results of investigations by the regulators and market trends.
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Industry news
Centrica plays its green card as profits soar
Friday, July 31, 2009
British Gas announced an 80 per cent surge in profits yesterday after steep falls in the wholesale cost of energy. At the same time Centrica, its parent, shrugged off calls for consumer price cuts, saying the cost of decarbonising Britain’s energy supplies would keep bills high for the foreseeable future.
Sam Laidlaw, Centrica’s chief executive, said that by 2020, consumers would be paying £250 extra a year on their energy bills to cover the Government’s aim of cutting carbon emissions by one third.
“Even if wholesale gas prices go down, the other part of the bill is going up as we meet our climate change targets,” he said. Mr Laidlaw added it was unlikely consumers would enjoy further price cuts any time soon because of the high cost of building wind farms, clean coal plants and other forms of low carbon generation.
“We are paying a lot of levies for decarbonising the UK,” he said. “That does not come free, unfortunately.”
Mr Laidlaw’s comments came as Centrica revealed an 80 per cent increase in profits to £299 million in the first half of 2009 from its British Gas division, which supplies gas and electricity to 15.6 million UK homes, against £166 million at half way in 2008.
The profit announcement immediately triggered calls for price cuts from consumer groups.
This story was featured on The Times Website.
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Digital Britain in jeopardy as power houses go abroad
Monday, July 27, 2009
Government plans to make Britain a world leader in the digital economy are under threat because high electricity prices are forcing companies to locate power-hungry data centres in other countries.
Under the Government’s Digital Britain report, published last month, every British home and business will have a minimum 2MB broadband link. However, Derek Webster, associate director of McBains Cooper, a building consultancy, said that British electricity prices, which are the third highest in Europe, are forcing developers to build the infrastructure needed for these plans in countries such as France, potentially undermining UK competitiveness.
“The main issue is power, power and more power,” he said. “Digital Britain will need massive data-centre capacity to accommodate what the Government is planning, but the average data centre uses as much power ... as a city the size of Leicester.”
Mr Webster said that capacity constraints on Britain’s electricity network, particularly in London and the South East, meant that it was often difficult to strike long-term power contracts with suppliers such as EDF Energy, E.ON and RWE.
The Greater London Authority is to discuss the problem on Wednesday. Some companies, including Yahoo!, have already switched their European headquarters from London to the Continent, citing high costs and a lack of the infrastructure needed to support their businesses. Santander, the Spanish banking group, recently scrapped plans to locate a big European data centre in London, opting instead for a cheaper site in Madrid.
“Ironically, Digital Britain may end up with its major organs being based in France, Germany, Sweden or Switzerland, because of power, cost and availability,” Mr Webster said. This meant, he added, that UK companies could miss lucrative opportunities to build, equip and service these facilities.
However, a more worrying result of outsourcing Britain’s data and processing needs to other countries concerns the competitiveness of the economy. More and more British companies depend on rapid communication between computers and fast access to data, but there is not enough high-capacity fibre-optic cable to support this.
This story was featured on the Times Website.
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EDF fined £2m for 'poor' service
Friday, July 24, 2009
EDF Energy Networks has been fined £2m for poor customer service, industry regulator Ofgem has said.
EDF had taken steps to improve its connections service but this should have been done earlier, Ofgem said.
Electricity companies have to provide an offer to property developers about the cost and details of connecting new premises to the network within 90 days.
The company, which completed more than 10,000 connection projects last year, said it "greatly regretted" the delays.
Developers
EDF Energy Networks has three electricity distribution networks and is the monopoly provider in certain areas of the country.
If new homes or business premises are built, the developer makes a request to the company for these properties to be connected to the electricity network.
As part of its licence, EDF Energy Networks is required by the regulator to make an offer on the cost and details of the connection to the developer within three months.
However, Ofgem's investigation found that since 2006, the company had failed to meet this deadline more than 100 cases between April 2006 and November 2008.
"All 108 customers concerned were contacted and we have made goodwill payments to them all," a statement from EDF Energy Networks said.
"Since these historic cases, we have made significant changes to ensure such issues do not arise again and that we deliver quotes for new connections within the regulatory timeframe of three months."
'Inconvenience'
A spokesman for the regulator said that the delays could cause "inconvenience" and lead to extra costs for property developers.
The company would have faced an even higher fine if not for the £450,000 in compensation it had already paid out to affected customers.
"Customers should not have to accept poor service in any part of the energy market," said Sarah Harrison, Ofgem's managing director.
"All energy companies should be in no doubt that if they are failing to offer good service, Ofgem will take tough regulatory action," she added.
EDF distributes electricity to 7.8 million customers in the south and east of England, where it operates and maintains the electrical supply system.
This story was featured on the BBC Website.
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Water industry prepares for price squeeze
Wednesday, July 22, 2009
The hard-up people who visit Brian Roberts’ money advice centre on the hilly outskirts of Plymouth know which way they want to see water bills go when Ofwat, the water regulator, lays out its five-year pricing plans on Thursday.
“If they’re complaining about bills, the water bills are always up there,” he says. “Most people in the west country think that we are unfairly targeted. We pay the highest bills in the country.”
The average unmetered water bill in southwest England comes to £672 a year. In Cornwall, just over the Tamar River from Plymouth, that amounts to more than 5 per cent of average take-home pay.
Three out of ten customers of Pennon Group subsidiary Southwest Water spend more than 3 per cent of their income on water, putting them in ‘water poverty’ according to the most common benchmark. Single people on the dole pay up to 16 per cent.
Southwest Water wants Ofwat to let bills rise at a further 6 per cent above inflation between now and 2014 - putting it below the average of the UK’s 24 water companies, who are looking for a 9 per cent rise above the current £320 annual bill.
At one end of the scale is Dŵr Cymru, the non-profit Welsh company, which plans to raise bills at the rate of inflation, while at the other Bristol Water wants a real-terms rise of 29 per cent.
Ofwat’s five-year price determinations must balance the competing interests of water customers and shareholders, and for the most part it is a zero-sum game.
The companies say that they will be unable to fund £19.1bn spending plans unless they are given what they want. Ofwat sets water utilities’ allowable revenues as well as their capital and operational spending: if the latter two figures are too high in relation to the first then companies must fund some of their spending from debt, pushing up their cost of borrowing and ultimately threatening their financial stability.
In the last five-year review in 2004, it was the consumers who felt hard done by. Ofwat estimated the companies could finance themselves at an interest rate of 5.1 per cent, just as a wave of much cheaper credit started to flow into the markets.
That helped the companies deliver some handsome returns on the back of inflation-busting bill rises, driving a wave of debt-financed acquisitions in the sector from private equity and investment funds looking for stable long-term returns.
“That period after the last determination was an incredible time for companies to raise finance,” says Matthew Parr of Indepen, a consultancy. “But we’re not in that world anymore.”
The most closely-watched figure that will come out of Ofwat’s draft determination will be its estimate of the water companies’ cost of capital - the interest rate on servicing their obligations to shareholders and lenders.
A high cost of capital means higher bills for customers - the Consumer Council for Water says that a 1 per cent increase will translate into a £20 rise in annual bills. A low figure may initially lead to smaller bills, but if it causes markets to take a dim view of profitability it will push up borrowing costs, which may ultimately be passed back to bills.
Calculating cost of capital is notoriously difficult at the best of times, and the aftermath of the biggest capital markets crisis in a generation is not the best of times.
“A key issue for investors will be how Ofwat takes account of the change in the funding environment in setting the cost of capital,” says Matthew Parr.
Interbank lending and government debt rates are currently around their historic lows, but there is considerable uncertainty about where this will go over the full five-year term of the price review.
Furthermore, companies’ borrowing costs are fixed while their revenues are set as a percentage above inflation. If inflation ends up close to or even below zero over the period, as many expect, some companies may find their returns severely squeezed.
Ofwat must produce a single cost of capital for the industry, but there is considerable variation in estimates even between companies, ranging from 4.7 per cent for Northumbrian Water to 5.25 per cent for Thames Water.
The customer-focused Consumer Council for Water has lobbied for a figure from 2.35 to 3.4 per cent, while most analysts’ predictions are in the range of 4.3 to 4.7 per cent. An informal poll at a recent water industry conference came up with 4.3 to 4.5 per cent.
The Water Industry Commission for Scotland, Ofwat’s cousin north of the border, came up with a rate of 4.1 per cent last month, although Scottish Water’s borrowing costs are lower than for most of the industry because the company is government-owned.
The political pressure is certainly on Ofwat to come down on the side of the consumer. Merrill Lynch believes that some companies may find Ofwat’s proposals “more akin to surgery than simple marginal amendments”.
Companies will be able to ask for a higher figure before Ofwat’s final determination in November, and after that they still have the right to take the issue to the Competition Commission - a threat already raised by Thames.
But even that path is by no means guaranteed to give companies the result they want. Sutton and East Surrey Water appealed to the Commission in March after Ofwat refused to allow it to increase bills despite unexpected increases in its energy costs and decreases in water usage by its customers, which reduced its expected income by more than 50 per cent.
The company was turned down in a provisional determination this month, with the Commission ruling that there was no need to increase bills as long as the company was able to finance itself adequately.
If anything, the presence of such safety valves increases the likelihood that the initial figure will be on the low side, say brokers.
“I can’t imagine that Ofwat will be happy if water company share prices go up, or even stay flat, on the day,” says one analyst. “That would signal they haven’t been hard enough. The press release will be written so that Ofwat can have headlines the next day saying: ‘Water regulator looks after customers’.”
This story was featured on the Financial Times Website.
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Bosses braced for water war
Sunday, July 19, 2009
BRITAIN’s water companies are heading for a showdown with Ofwat, the industry regulator, over its ruling to be announced this week on how much profit it will allow them to make for the next five years.
The 22 groups have plans to invest £19 billion to upgrade the country’s sewerage and water networks from 2010 to 2015. To pay for the work, many have demanded inflation-busting rises to household bills. Bristol Water came in with the highest – 29% above inflation.
Ofwat is expected to take a hard line after it was pilloried for the generous terms it granted in the last review. Hefty returns and cheap credit led to a takeover boom that has left several companies with mountains of debt.
Thames Water has threatened to haul the regulator before the Competition Commission if it does not allow it to make sufficient returns. It is planning to spend £5.5 billion and says it needs to increase bills by 17% above inflation to pay for it.
Ofwat’s key figure is the weighted adjusted cost of capital (WACC), which is the annual return made on assets. Though companies have widely varying investment plans, a single WACC figure will be applied across the industry. Company demands range from 4.7% from Northumbrian to 5.25% for Thames. Analysts expect Ofwat to offer about 4.5%.
Next week’s decision is provisional, with companies having until November to respond.
This story was featured on The Times Website.
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Gas firms fail to pass price cuts to customers
Saturday, July 11, 2009
Consumers are being denied the benefits of a sudden collapse in the price of natural gas that is bringing a profits surge to gas utilities.
Margins in the gas industry are reaching record levels, experts claim, because of an emerging glut of fuel in the wholesale markets caused by the recession and new supplies.
But utilities are failing to pass on the benefit of a fall, by two thirds, in the wholesale price. The gap between the retail price and the wholesale cost is expected to boost the profits of the residential business of British Gas by more than 50 per cent this year.
Wholesale prices are tumbling and are expected to fall further, says Niall Trimble, director of The Energy Contract Company, a gas consultancy.
"There is a lot of gas about and we are very over supplied. For three years we will have weak prices."
The gas glut and mounting evidence of increasing utility margins will put pressure on gas retailers to pass on the benefit.
Joe Malinowski, founder of The Energy Shop, a gas and electricity broker, thinks that the margin between the wholesale price and the average retail price has reached a record high.
"If wholesale prices stay where they are and retail prices don’t come down there will be question marks over what is going on," he said.
Consumer Focus, which monitors energy prices, predicts that households are being deprived of a potential £1.3 billion in savings on their gas bills.
According to estimates by The Energy Shop, a gas company would pay about 1.45p per kilowatt hour to supply an average customer for a year.
On top of that it would bear the cost of distribution, storage and marketing at about 1p per kilowatt hour. Today the average price charged to retail gas customers is 3.8p per kilowatt hour.
The effect on individual companies will differ, depending on how much gas they have on long-term contracts and whether they have hedged their exposure to price movements.
The price for "day-ahead" gas fell almost 10 per cent yesterday to 22.7p per therm and the spot price has fallen by two-thirds since February "These are the lowest prices for two years," said Edward Cox, of ICIS Heren, the gas market consultancy.
This article was featured on The Times website.
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Opec predicts slow oil demand recovery
Thursday, July 09, 2009
Global demand for Opec crude oil will take five years to recover to pre-financial crisis levels and investment spending on new production capacity will be sharply lower as a result, the cartel said on Wednesday.
Opec said that average consumption of its oil reached a peak of 31m barrels a day in 2008, before the crisis, and that it could be as late as 2013 before this is reached again.
“It is understandable that any country or investor would be unwilling to invest in capacity that is not needed, especially when they are affected by the global financial and economic crisis,” said Opec in its World Oil Outlook.
Opec said that it would now invest $110bn to $120bn in new capacity up to 2013, compared with $165bn previously planned.
The cartel’s members have delayed or postponed more than 35 projects, representing about 5m barrels a day of oil capacity, until after 2013.
Opec’s revised investment plans will intensify concerns that the world will face a supply crunch once the global economy recovers from recession.
In a report prepared for the G8 meeting of energy ministers in Rome in May, the International Energy Agency warned that there was a “real danger” that sustained lower investment in supply could lead to a shortage of capacity and another spike in energy prices in several years time.
The energy watchdog of the developed world said falling energy investment would have far-reaching and potentially grave effects on energy security, climate change and energy poverty, depending on how governments responded.
Crude oil hit a record above $147 a barrel last year and Opec said that “high prices observed in 2008 led undoubtedly to some demand destruction.”
As a result, Opec expects global oil demand to fall from last year’s 85.6m b/d to 84.2m b/d in 2009, but then to increase to 87.9m b/d by 2013, around 5.7m b/d less than previously expected.
However, Opec also expects non-Opec producers to continue to struggle to expand production. Supplies of non-Opec crude including natural gas liquids were projected to stay flat to 2013, when they will reach 45.1m b/d, a cut of more than 3m b/d compared with last year’s forecast.
Oil prices, extended their losses following the report. Nymex West Texas Intermediate lost 1.3 per cent to $62.08, while Brent crude, which a week ago hit $73 a barrel, fell 1.1 per cent to $62.59.
This story was featured on The Financial Times Website.
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EU fines E.On and Gaz de France
Wednesday, July 08, 2009
Energy giants E.On and Gaz De France (GDF) Suez have been fined by European Commission competition regulators for carving up gas markets between them.
The firms agreed in 1975 not to compete with each other in their national gas markets when they started to import gas through a pipeline from Russia.
"The Commission has no alternative but to impose high fines," it said.
"They maintained the market-sharing agreement after European gas markets were liberalised, and only abandoned it definitely in 2005."
EU Competition Commissioner Neelie Kroes said the secret carve-up had deprived customers of price competition and choice of supplier in two of the largest markets in the 27-nation EU.
"This decision sends a strong signal to energy incumbents that the commission will not tolerate any form of anti-competitive behaviour," she added.
Merger
The commission investigation - which was focused on the jointly-owed Megal pipeline from southern Germany to the French-German border - followed raids on the offices of the two firms.
The Megal pipeline is jointly owned and operated by E.On Ruhrgas and GDF Suez.
E.On had earlier said the alleged anti-competitive practices referred to agreements that had expired in 2004.
It also said that its business had been competitive for many years.
Gas supplier GDF merged with Suez last year to form GDF Suez, Europe's biggest utility by market capitalisation ahead of EDF and E.On.
Last week Gerard Mestrallet, the head of GDF Suez, said the group would appeal against any fine imposed by the Commission.
This story was featured on the BCC News Website.
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The environment: Businesses are making green moves – but why?
Wednesday, July 08, 2009
Is green IT about saving the planet – or saving money? In a recent survey of 620 companies across Europe, the US and Asia-Pacific, more than a third said they expect to spend more than 15 per cent of their IT capital budgets this year on projects they consider to be green IT.
But are their motivations less environmental and more economic, asks analyst Simon Mingay of Gartner, the IT market research company that conducted the survey.
“The reality of most so-called green IT programmes during the past 18 months is that the business case has been based on cost savings or cost avoidance. The green benefits are usually incidental or, at best, a nice bonus that strengthens the business case,” he says.
It is hard to find any organisation “going green for green’s sake”, says Mark Nutt, general manager at Morse, a systems integration company. “Whether or not green IT has become ‘real’ is debatable. I’ve not met many IT directors that are engaged in projects solely under the banner of green,” he says.
However, he says it is clear the IT operations of many organisations are becoming greener as a result of cost-saving projects, since they share the common objective of curbing energy consumption.
Take, for example, virtualisation projects, where the focus is on replacing multiple and often under-utilised servers with fewer, more energy-efficient, systems.
Implemented well, the technology’s main selling point is reduced energy bills, says Fredrik Sjostedt, director of products for the Emea region at VMWare, a virtualisation specialist.
“Most IT organisations are running at a server utilisation rate of about 10 per cent. I’ve seen large telcos that use less than 4 per cent of their available server capacity,” he says. “These organisations desperately need to cut their power consumption. They’re also running out of data centre space and facing constraints on the amount of electricity they are able to access from utility companies. These factors are more important to them than cutting carbon emissions,” he says.
Even so, virtualisation comes at a price. While costs may be recouped quickly, the expense may be hard to justify when budgets are limited. The environmental impact of manufacturing, shipping and installing new servers also needs to be taken into account.
In the UK, for example, the Greening Government ICT strategy is widely expected to tell public sector bodies to extend the lifecycle of existing IT assets, “where such extension will have environmental benefits across the product lifecycle”.
Economic and operational drivers, along with such compliance concerns, are weightier factors than corporate social responsibility efforts, says Andrew Lawrence, an analyst with the 451 Group, an IT market research company. Over the next 10 to 20 years, he expects all four drivers – economic, operational, compliance and CSR – to become stronger.
Worldwide progress on regulations, however, has been patchy, with most jurisdictions relying on the voluntary efforts of corporate IT departments, he says.
That is set to change in the UK in 2010, when a compulsory carbon reduction commitment (CRC) comes into force. At that time, any UK-based company using more than 6,000 megawatts per hour each year across their business will have to demonstrate regular improvements in energy consumption and trade carbon permits if they cannot meet targets for reduction.
“Data centre managers have been pretty slow to realise the importance of CRC, but by my reckoning, it will apply to most companies operating large data centres and quite a few with medium-sized ones too,” says Mr Lawrence.
It is a growing concern for commercial data centre operators such as hosting company Lumison. “We’re unhappy about the CRC,” says Aydin Kurt-Elli, chief executive. “It’s not a bad thing per se, but it looks like the associated bureaucracy will be substantial – so we will have to pay a fee to prove what we are already doing in terms of our investment in green and low-carbon technologies. Ironically, that looks set to leave us with less cash to invest in those very initiatives,” he says.
Regardless of compliance, organisations should be moving to a more sophisticated definition of what green IT entails, one that acknowledges the role IT can play in curbing emissions across the business, says Peter Graf, chief sustainability officer of enterprise software giant SAP.
The IT department, he claims, accounts for about 2 per cent of carbon emissions at most companies, but technology can do much to tackle “the other 98 per cent”. That was the impetus behind SAP’s May 2009 acquisition of Clear Standards, a provider of software tools that enable companies to measure and manage carbon emissions, water consumption and energy use.
“We miss the point if we continue to view green IT as something separate from the ‘greener business’,” agrees Keith White at management consultancy firm PA Consulting. “The nature of the debate has in itself created a distraction.”
Technology vendors have increasingly used green capabilities to market and promote their latest offerings and the majority of surveys on green IT have focused on the data centre as a major user of energy, he adds. “While this has perhaps been beneficial in making organisations aware of the role of technology in supporting green objectives, it has distracted attention from the contribution that a green IT strategy can make to the business and its overall environmental performance.”
It seems inevitable that other technology suppliers will seize on the marketing opportunities that a wider view of green IT provides.
But companies can also do more simple things: such as simply turning up data centre thermostats, says 451 Group’s Mr Lawrence. “For years, organisations such as Ashrae [the American Association of Heating, Refrigerating and Air-conditioning Engineers] in the US have been ridiculously conservative in their advice to data centre managers on how cool a data centre needs to be, to run effectively,” he says.
In December 2008, Ashrae revised its suggested temperature range from between 68 and 77 degrees Fahrenheit to between 64 and 80 degrees. “For every degree data centre managers turn the thermostat up, they could be saving thousands or even tens of thousands of dollars in energy bills each year,” says Mr Lawrence.
What is equally clear is that, as a marketing strategy, green IT will not fade away – nor should it, says Mr Mingay of Gartner.
The mid to long-term prognosis for climate change is one that no organisation can afford to ignore.
Climate change, he says, makes green IT a strategic priority for enterprises, not “an easily discarded fashion”.
This story was featured on The Financial Times Website.
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Make state-run banks invest in renewable energy, urges ex-BP chief Lord Browne
Tuesday, July 07, 2009
State-controlled banks such as Royal Bank of Scotland and Lloyds Banking Group should be forced to invest in renewable energy schemes, helping to kickstart a transition to a lower-carbon economy, Lord Browne of Madingley writes today.
In an exclusive interview with The Times, the managing partner of Riverstone Holdings, the private equity firm, and former chief executive of BP says that the Government’s commitment to build 25 gigawatts of offshore wind generating capacity by 2020 — equivalent to a fortyfold increase from present levels — is an “ambitious but achievable” target.
“The biggest obstacle is lack of credit,” he says. “This could be alleviated by directing state-controlled banks to lend more to projects in the supply chain and by working with the European Investment Bank to speed up implementation of its programme of green lending.”
Britain has 2,537 operational wind turbines capable of generating 3.6 gigawatts of electricity. However, plans to build new wind energy schemes have been hit by restricted access to finance over the past 18 months. Weaker oil prices have also undermined the economics of the industry.
A string of companies have cut their investments in the sector, including Shell and BP, which Lord Browne left in 2007. Iberdrola Renovables, of Spain, the world’s largest wind farm developer, has said that it will cut its investment programme in renewable energy from €3.8 billion in 2008 to €2 billion (£1.7 billion) in 2009.
Lord Browne believes that Britain has natural advantages in the field of offshore renewable energy: “As a crowded island with a complex relationship with its land, the obvious place to excel is in offshore wind and marine renewables, building on the marine engineering expertise found within the North Sea oil and gas industry.”
He says that it is important for politicians to be honest with consumers about the cost implications of the Government’s push to generate 35 per cent of Britain’s electricity from renewable sources by 2020. “The costs of deploying more low-carbon energy will be borne by consumers through higher household energy bills.”
However, Lord Browne says that the costs could be lower than some have claimed and may be limited to as little as a few percentage points over the next 20 years. This would be “significantly less than the double-digit increases in average gas and electricity bills caused by the spike in fossil fuel prices during 2007-08”. Lord Browne argues that energy efficiency is a win-win deal. “As well as reducing emissions, the net present value of most energy efficiency investments in our homes, offices and cars is positive.”
Ernst & Young estimates that it will cost more than £100 billion to build enough wind turbines to supply 20 per cent of Britain’s electricity.
Lord Browne says that establishing a price for carbon would be essential to achieving these aims.
This story was featured on The Times Website.
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France imports UK electricity as plants shut
Monday, July 06, 2009
France is being forced to import electricity from Britain to cope with a summer heatwave that has helped to put a third of its nuclear power stations out of action.
With temperatures across much of France surging above 30C this week, EDF’s reactors are generating the lowest level of electricity in six years, forcing the state-owned utility to turn to Britain for additional capacity.
Fourteen of France’s 19 nuclear power stations are located inland and use river water rather than seawater for cooling. When water temperatures rise, EDF is forced to shut down the reactors to prevent their casings from exceeding 50C.
A spokesman for National Grid said that electricity flows from Britain to France during the peak demand yesterday morning were as high as 1,000MW — roughly equivalent to the output of Dungeness nuclear power station on the Kent coast.
Nick Campbell, an energy trader at Inenco, the consultancy, said: “We have been exporting continuously from this morning and the picture won’t change through peak hours, right up until 4pm.”
EDF warned last month that France might need to import up to 8,000MW of electricity from other countries by mid-July — enough to power Paris — because of the combined impact of hot weather, a ten-week strike by power workers and ongoing repairs.
EDF must also observe strict rules governing the heat of the water it discharges into waterways so that wildlife is not harmed. The maximum permitted temperature is 24C. Lower electricity output from riverside reactors during hot weather usually coincides with surging demand as French consumers turn up their air conditioners.
One power industry insider said yesterday that about 20GW (gigawatts) of France’s total nuclear generating capacity of 63GW was out of service.
Much of the shortfall this summer is likely to be met by Britain, which, since 1986, has been linked to the French power grid by a 45km sub-sea power cable that runs from Sellindge in Kent to Les Mandarins.
A statement from EDF played down the heat problems, saying that the French system continued to meet customer demands — but similar heatwaves have caused serious problems in France in the past.
In 2003, the situation grew so severe that the French nuclear safety regulator granted special exemptions to three plants, allowing them temporarily to discharge water into rivers at temperatures as high as 30C. France has five plants located by the sea and EDF tries to avoid carrying out any repairs to them during the summer because they do not suffer from cooling problems.
France’s first nuclear power station was built at Chinon, on the Loire, in 1964. Other riverside plants include Bugey (on the Rhône), Tricastin (Drôme), Golfech (Garonne) and Blayais (Garonne). Britain’s ten nuclear power plants, which supply 16 per cent of the country’s electricity, are all built on coastal sites so they do not suffer the same problem with overheating. But long periods of hot weather do still add to stress to the network. Gas-fired plants, which form a big part of Britain’s generating fleet, also need to reduce output during hot weather.
However, the recession has led to a 6 per cent fall in the UK’s electricity requirements because of weaker industrial demand, so the margin of spare generating capacity in Britain has grown. EDF earns about €3 billion a year exporting electricity to countries including Britain.
This story was featured on The Times Website.
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Make state-run banks invest in renewable energy, urges ex-BP chief Lord Browne
Monday, July 06, 2009
State-controlled banks such as Royal Bank of Scotland and Lloyds Banking Group should be forced to invest in renewable energy schemes, helping to kickstart a transition to a lower-carbon economy, Lord Browne of Madingley writes today.
In an exclusive interview with The Times, the managing partner of Riverstone Holdings, the private equity firm, and former chief executive of BP says that the Government’s commitment to build 25 gigawatts of offshore wind generating capacity by 2020 — equivalent to a fortyfold increase from present levels — is an “ambitious but achievable” target.
“The biggest obstacle is lack of credit,” he says. “This could be alleviated by directing state-controlled banks to lend more to projects in the supply chain and by working with the European Investment Bank to speed up implementation of its programme of green lending.”
Britain has 2,537 operational wind turbines capable of generating 3.6 gigawatts of electricity. However, plans to build new wind energy schemes have been hit by restricted access to finance over the past 18 months. Weaker oil prices have also undermined the economics of the industry.
A string of companies have cut their investments in the sector, including Shell and BP, which Lord Browne left in 2007. Iberdrola Renovables, of Spain, the world’s largest wind farm developer, has said that it will cut its investment programme in renewable energy from €3.8 billion in 2008 to €2 billion (£1.7 billion) in 2009.
Lord Browne believes that Britain has natural advantages in the field of offshore renewable energy: “As a crowded island with a complex relationship with its land, the obvious place to excel is in offshore wind and marine renewables, building on the marine engineering expertise found within the North Sea oil and gas industry.”
He says that it is important for politicians to be honest with consumers about the cost implications of the Government’s push to generate 35 per cent of Britain’s electricity from renewable sources by 2020. “The costs of deploying more low-carbon energy will be borne by consumers through higher household energy bills.”
However, Lord Browne says that the costs could be lower than some have claimed and may be limited to as little as a few percentage points over the next 20 years. This would be “significantly less than the double-digit increases in average gas and electricity bills caused by the spike in fossil fuel prices during 2007-08”. Lord Browne argues that energy efficiency is a win-win deal. “As well as reducing emissions, the net present value of most energy efficiency investments in our homes, offices and cars is positive.”
Ernst & Young estimates that it will cost more than £100 billion to build enough wind turbines to supply 20 per cent of Britain’s electricity.
Lord Browne says that establishing a price for carbon would be essential to achieving these aims.
This story was featured on The Times Website.
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Electricity groups shocked by 16-fold tax rise
Sunday, July 05, 2009
The electricity industry has attacked the government over a proposed 16-fold tax increase that it says will hobble companies already struggling to cope with stringent emissions standards and a fall in power prices.
The Treasury has tabled a proposal to increase the penalties the industry pays to put ash from burning coal into landfill, from £2.50 a tonne to £40. The government says the rise is necessary for Britain to comply with a European Union landfill directive. The industry’s annual landfill bill would jump from £7.5m to £120m, according to the Treasury.
David Porter, head of the Association of Electricity Producers, said: “All this does is dump a great big bill on the industry for no environmental benefit. Coal-fired producers are under quite enough pressure already.” The AEP has met officials from the energy department and the Treasury but Porter said the reception to their plea was “mixed”. The consultation is due to end on July 24.
Each year the power industry produces about 6m tonnes of ash. Half ends up in landfill and the rest is sold to be used in asphalt for roads and breeze blocks.
The EU directive requires “active” waste to be separated from inert waste. Active waste, such as food and other organic material, is more difficult to deal with because when it degrades it emits carbon monoxide and other harmful gases. Inert materials require less upkeep. Reclassifying ash as active waste means it would be subject to the higher tax.
Because a lot of ash builds up in winter when construction activity is low, millions of tonnes are stored in open lagoons. The Gale Common lagoon, which takes ash from Yorkshire’s Eggborough and Ferrybridge plants, stores 35m tonnes.
RockTron, a company that has built a plant at Fiddler’s Ferry, Cheshire to break down ash for a variety of uses, estimates that there are more than 100m tonnes recoverable around Britain.
The proposed rule change comes at a difficult time for the coal-fired power industry. Drax, owner of western Europe’s largest coal-burning station, was forced to raise £108m in a rights issue last month after it was downgraded by credit rating agency Standard & Poor’s to BBB minus, one notch above non-investment grade or “junk” status.
Among S&P’s concerns was the company’s £2 billion plan to build three biomass stations. Analysts expect Drax’s profits to drop by a third this year because big users, such as cement makers and vehicle factories, have cut production.
In May, Welsh Power handed Uskmouth, a coal-fired plant in Wales, to creditors after it was unable to meet debt repayments amid falling wholesale power prices.
A Treasury spokesman declined to comment because talks are still in progress. He said: “The consultation will ensure the tax is robust and well placed to continue to make an important contribution to achieving environmental policy objectives.”
This story was featured on The Times Website.
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‘Rogue broker’ blamed for oil spike
Friday, July 03, 2009
The startling spike in oil prices to their highest level this year on Tuesday was caused by a rogue broker who placed a massive bet in the Brent oil market, triggering almost $10m (€7m) of losses for his company.
PVM Oil Associates, the world’s largest over-the-counter oil brokerage, said on Thursday it had been the “victim of unauthorised trading”. The privately owned company said that as a result of the unauthorised trades it had been forced to close substantial volumes of futures contracts at a loss.
London-based PVM said it had informed the Financial Services Authority, the UK regulator. But officials at the Commodity Futures Trading Commission, the US regulator, claimed they had been kept in the dark for several hours in spite of an agreement between the watchdogs last year to exchange such market-sensitive information spontaneously.
Oil traders in London and New York said the “unauthorised trading” explained the exceptional spike in business activity and prices in the early hours of Tuesday that some initially thought must have been caused by a geopolitical event. “Trading volumes rose overnight and prices jumped more than $2 a barrel without apparent justification,” a senior oil trader in New York said.
Prices rose in one hour from $71 to $73.5, the highest level for the year, according to Reuters data. In total, futures contracts for more than 16m barrels of oil changed hands in that hour – equivalent to double the daily production of Saudi Arabia, the world’s largest oil producer, and far more than the traditional 500,000 barrels for that time of the day.
Traders said the broker implicated had allegedly accounted for at least half of the unusual activity, with the rest the result of others chasing the rally. Oil prices on Thursday fell to $66.5 a barrel, down almost 10 per cent from Tuesday’s peak.
The Financial Times has identified the PVM broker as Steve Perkins. PVM declined to comment and Mr Perkins could not be reached. Fellow traders said Mr Perkins was considered an experienced broker, well-regarded in the market.
This is the second episode of rogue trading in the oil market this year. In May, an oil trader at Morgan Stanley was banned by the City watchdog after he hid from his bosses potential losses on trades made under the influence of alcohol.
The incidents come as regulators are considering tougher oversight of the commodities markets after policymakers complained that speculators fuelled last year’s surge in oil and agriculture prices.
The involvement of PVM is ironic considering the company’s head, David Hufton, has been an outspoken critic of speculators in the oil market, calling some of the exchanges “electronic oil casinos”. In 2006, he said that “if futures exchanges did not exist, oil prices would be a lot lower”.
The $10m loss is a heavy blow for PVM, which reported profits of just $5.6m in the year to July 2008, according to its accounts.
This story was featured on The Financial Times Website.
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Bosses slam upfront energy bills
Wednesday, July 01, 2009
EXECUTIVES from Britain’s top companies will warn the Big Six utilities next week that draconian contract terms, imposed to insulate them against the failure of business clients, will lead to further job losses unless they are urgently reformed.
The Major Energy Users’ Council (MEUC), a cross-industry group that includes the likes of Tesco, Rolls-Royce, BT and the NHS, has convened a crisis meeting for Tuesday in the Guildhall to address the issue. Representatives from the Big Six and credit insurers including Coface, Atradius, and Euler Hermes are also expected to attend.
The problem developed because credit insurers, who pay the bills of companies that go under, have pulled out en masse from certain industries as business failures have piled up in the recession. The lack of cover has led energy suppliers to start demanding upfront deposits equal to up to six months of energy bills, or requiring payment of invoices in as little as five days. Some companies have been threatened with having the power cut off if they do not comply.
Our Business Development Director, Donnie Maclean had this to say - "Energy companies are asking for up to 9 months of payments in advance, as a bond, then the bills are paid as normal. The energy company keeps that money and doesn't pay interest. This is what the MEUC are reacting to".
Andrew Buckley, head of member services at MEUC, said: “This has become a huge cashflow problem, especially for small and medium-sized businesses. We need to sort this out because it is a block on Britain working.”
The problem first arose late last year as credit insurers withdrew from hard-hit industries such as construction, cars and ceramics. It has worsened in recent weeks, however, and has spread to all industries. In some cases long-term supply contracts have been torn up by the energy companies and replaced with much more onerous deals, Buckley said.
The British Ceramic Foundation has warned that jobs are at stake if energy suppliers continue to deny power or offer only harsh terms. “ One of our members received a letter demanding £280,000 within seven days if he wanted the gas and lights to stay on. This is clearly untenable,” said Buckley.
This story plus comment from Donnie Maclean was featured on The Times Website.
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