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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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Tories see Ofgem as target for cuts
Saturday, October 31, 2009
The Conservative Party is drawing up plans for drastic job cuts at Ofgem, the energy regulator, as part of a sweeping overhaul of British energy policy, The Times has learnt.
Senior Tories said that the party was working on an energy policy document to be unveiled within weeks that would include a proposal to strip Ofgem of all its strategic powers on energy security.
The document, which is likely to be published in the run-up to the United Nations’ conference in Copenhagen in December, will set out plans for many of Ofgem’s existing powers to be reclaimed by the Department of Energy and Climate Change (DECC).
Ofgem’s new role would be reduced to that of a pure market regulator and consumer protection body closely aligned with the Office of Fair Trading (OFT). It is thought that as many as half of Ofgem’s workforce of 345 could disappear under the new structure and its £42 million budget could also be cut. Ofgem is considered an “obvious target” for spending cuts because the loss of part of Britain’s energy regulator is not expected to arouse popular anger, unlike frontline public services.
One person familiar with the plans said that the party believed such changes could be implemented “fairly quickly” — that is, within a few months. They could be included in emergency spending cuts as part of a 100-day Budget announcement.
One senior Tory said that a Conservative government would place a priority on having an explicit energy policy: “It should be the responsibility of ministers to set national energy policy not the regulator.”
Charles Hendry, the Shadow Energy Minister, insisted that the Conservatives had “no settled view” on the future of Ofgem. However, he questioned why some of its recent work, such as Project Discovery — a detailed forecast of Britain’s energy security over the next decade — addressed “pretty fundamental questions of energy policy”.
Ofgem declined to comment on the Conservative’s plans.
This story was featured in The Times Online.
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Eurelectric urges market measures to combat gas supply crises
Friday, October 30, 2009
Market instruments should be the first port of call for dealing with a gas supply crisis, according to Eurelectric.
That's the response of Europe's power industry trade body to a European Commission proposal to secure gas flows if supply security is under threat.
It welcomed the Commission's emphasis on a competitive and interconnected European gas market to prevent or cope with shortages, but urged legislators to give priority to market-based instruments in emergency situations and also in mitigating the effects of supply disruptions.
As well Eurelectric stressed that while member states should have some flexibility in securing supplies, this should not be allowed to distort the market.
Elsewhere in its response, Eurelectic argued mandatory fuel switching requirements should not be applied to power plants because "technical and environmental constraints on the operation of the plants might make it impossible or very costly to switch to another fuel". If they are imposed, plants should be compensated, it said.
The trade body also suggested some plants, such as gas-fired CHP units or heat-only boilers that feed district heating networks, should be included on the list of "protected customers" as axing their supply of gas would leave households without heat.
Finally, Eurelectric requested a number of the Commission's points to be clarified - in particular, improving the definition of "crisis levels" and spelling out what is and isn't permitted in each case.
This story was featured on the Utility Week website.
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Water sector operating profit up 7 per cent
Tuesday, October 27, 2009
Water company operating profit increased 7 per cent to £3.2 billion in the 2008/09 financial year, the result of higher revenues and reduced capital maintenance charges, according to new figures from Ofwat.
Operating expenditure was up 2 per cent at £3.6 billion, in part because energy costs increased by 25 per cent.
Total investment during the year was £4.6 billion, 14 per cent more than assumed in the 2004 price limits, but 6.8 per cent lower than 2006/07.
Pre-tax profit during the last financial year fell by 22 per cent in real terms to £1.8 billion, according to Ofwat. The regulator said this was due to the impact of reduced inflation on the value of company borrowings, which affected the financing adjustment.
However, industry observers have questioned the way Ofwat chose to report the figures.
James Leigh, utilities partner at Deloitte, said: "The use of current cost accounts, which attempt to correct more usual financial accounts for the effects of inflation, have declined over the past ten years and now Ofwat is the only utilities regulator insisting on the use of current cost accounts.
"It is not clear that many people really understand how these accounts are drawn up or what they show, and it is also not clear why Ofwat continues to require them."
This story was featured on the Utility Week website.
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Credit scoring drives up firms' energy bills
Friday, October 23, 2009
Thousands of small firms are facing higher energy bills because suppliers are increasingly using credit scores to filter out less profitable business customers and those they perceive as risky.
Experts warn that despite the near halving of wholesale energy prices in the past year, many small business customers are seeing rates rise while others may struggle even to find a supplier prepared to take them on.
Donnie Maclean, of Glasgowbased Business Cost Consultants, says suppliers are 'managing risks away' and cherry-picking customers.
Suppliers have always used credit scoring to assess risk, but the process has become more intense and finding a good energy deal is becoming ever harder for firms in sectors such as retail,' he says.
'In some cases suppliers are telling firms they don't want to renew their contract and giving them only three months' notice.'
In other cases, suppliers are moving firms on to 'deemed' rates, which is what they charge when businesses are out of their contracts. These can be two to three times higher than contract rates.
'If a business has a weak credit record they may be forced to accept much higher rates, though whether they can afford them is another issue,' says Maclean.
According to price comparison service makeitcheaper.com, a third of small businesses are unable to access the most competitive rates for business gas and business electricity because their credit score is considered too poor.
And even those with a good score may be affected as suppliers move away from businesses towards more profitable domestic customers, who pay higher rates.
Jane Stenning, 35, runs family business Hobby Ceramicraft in Hook, Hampshire, with her brother Matthew Sheppard, 33. The firm supplies kilns, glazes, clay and other materials to potteries and runs business workshops.
Keen to keep costs down, Jane contacted their supplier Eon only to be told that they were locked into its high-rate contract. Aware that prices had fallen substantially, Jane tried to negotiate a better deal, but with no luck.
She says: 'As a long-standing customer I thought we would be rewarded for our loyalty, but Eon was not interested in helping me.'
This story was featured on thisismoney.co.uk
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Wessex joins water fight
Sunday, October 18, 2009
The English firm becomes the latest licensed water provider in the competitive Scottish business market.
Wessex water will be the latest provider to gain a licence to operate in the competitive Scottish business water market.
The Water Industry Commission for Scotland (WICS) will next week approve the English firm to compete against five rivals to provide water to companies north of the border.
The Bath-based company said its foray into the Scottish market would let it gain experience before the larger English market is opened up to competition as expected.
Currently, water companies in England and Wales are allowed to compete only for large-scale businesses — only around 2,500 companies meet the specific criteria.
Keith Harris, director of finance and policy at Wessex, said: "We believe there will be great competition in the water market throughout Great Britain. It is important for a company to be in a position where it can compete for business and improve service levels and we are determined to be part of that.
"We feel that working in Scotland at an early stage will be good for us."
Alan Sutherland, chief executive of WICS, said: "Clearly, we in Scotland, and also companies such as Wessex, see the markets in England opening up as important.
"There are lots of customers which have branches and production facilities in Scotland and there are economies and benefits of scale which will be truly realised only when we have a bigger market."
Scotland's water market was the first to be deregulated when it opened up 18 months ago. Glasgow-based Aimera entered the Scottish market earlier this month, joining Business Stream, Ondeo, Osprey Water and Satec.
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Britain to rely on imports for half winter gas
Monday, October 12, 2009
Half of the gas used by British families to heat their homes this winter will be imported from overseas, the highest proportion on record, as production from the North Sea continues its steep decline, National Grid said last night.
In its annual Winter Outlook, on the state of Britain’s energy supplies, National Grid said production of the fuel from the UK sector of the North Sea would be 6 per cent lower this year than in 2008-09. That will leave Britain having to import 50 per cent of its gas supplies from countries such as Norway, Qatar, Trinidad and Algeria, a sharp rise from 27 per cent in 2007.
A spokesman for Centrica, owner of British Gas, said the UK’s ageing gas fields — many first tapped in the 1970s and 1980s — were no longer able to keep pace with domestic demand. “On the current trajectory we will have to import three quarters of our gas by 2015,” he said. Britain was still a net exporter of gas as recently as 2003 and was forced to import about 5 per cent of supplies in 2004 for the first time.
National Grid, the operator of Britain’s national gas and electricity network, said the decline would mean Britain had to import far more by ship as liquefied natural gas (LNG) this winter. The group forecast that about 40 million cubic metres of LNG would need to be imported to Britain every day this winter — representing about 10 per cent of peak winter demand.
That would be a fourfold increase from 10 million cubic meters a year ago. Further imports will be made via pipelines from Norway and Holland. The depletion of the North Sea’s gas reserves comes as the UK is becoming more reliant on the fuel for power generation. Almost 35 per cent of UK electricity now comes from gas-fired power stations, up from less than 5 per cent in 1990. But energy analysts said this growing reliance on imported LNG is set to compound volatility in UK gas prices, which could hurt consumers.
Nick Campbell, energy trader at Inenco, said that there were signs of growing speculative activity by hedge funds in the UK gas market because of the narrowing price differential between US and UK LNG cargoes. “The premium between the UK and US gas market has tightened recently and this means potential competition in the Atlantic Basin could increase for LNG cargos. The US hedge funds will potentially use this differential to gain by playing one market against the other.”
This increase in speculative activity is reflected in the number of UK gas contracts being traded on the Inter Continental Exchange (ICE). The number of traded UK gas contracts on ICE has increased from an average of 73,401 each month a year ago to 126,000 a month so far this year.
National Grid also said that daily gas prices this summer had been less than half those of 2008, averaging 26p per therm against 60p per therm then.
This story was featured on The Times website.
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Privatisation expert George Yarrow attacks Ofgem for ‘failing to protect consumers’
Friday, October 09, 2009
One of the architects of Britain’s energy market liberalisation has launched a withering attack on Ofgem, the industry regulator, for failing to protect consumers and accusing it of falling prey to political interference.
In an interview with The Times, George Yarrow, Emeritus Fellow of Oxford University and a former member of Ofgem’s supervisory board, compared the recent administration of Britain’s energy markets with a form of “Zimbabwean democracy”. He said that the watchdog was becoming increasingly “politicised” and was losing its legitimacy.
Professor Yarrow, who left Ofgem in April after a dispute over a policy on pricing that he said harmed competition, said that the key area in which Ofgem was failing was in environmental policy. He said that an inconsistent and ill-considered mix of initiatives was driving up consumer prices and eroding competition, with minimal environmental benefit. An “institutional void” was emerging over how to deal with global warming, which was creating “real, real problems”, he said.
He pointed to Britain’s Renewable Obligation Certificate (ROC) scheme, a form of subsidy designed to boost investment in wind and tidal energy, and the Carbon Emissions Reductions Target (CERT), which encourages utilities to spend money on items such as low-energy light bulbs, as examples of dysfunctional policies.
“Consumers are paying over the odds for carbon reduction,” he said. “The ROC programme and CERT are inefficient, bureaucratic and administrative approaches.”
He argued that Britain was on the wrong track and needed to ditch its current, centralised approach, which he said was based on a series of ad hoc policies with little coherence and which were distorting the market.
“The environmental problems are big, pervasive and complex and it is likely that they can only be tackled effectively by decentralised processes,” he said. Professor Yarrow, an academic economist who is chairman of Oxford’s Regulatory Policy Institute, is regarded as a leading world authority on privatisation after research that he conducted in the 1980s and 1990s, which paved the way for the liberalisation of the British gas and electricity markets.
As well serving as a senior adviser to the Cabinet Office and Ofgem from the mid-1990s, he co-wrote a book on privatisation with Sir John Vickers, a former member of the Bank of England’s Monetary Policy Committee and head of the Office of Fair Trading.
Professor Yarrow said that Ofgem had “lost its way intellectually” and was failing to stand up to political pressure. “As a regulator, you have to be ready and willing to say no,” he said. “It is not a job for someone who wants to be popular . . . Not to resist is to set aside, unilaterally, the original intentions of Parliament; and it can be expected to chill investment and innovation.”
He said that there were growing signs that the regulator was intervening in the market, where it threw up “politically inconvenient outcomes”. He said: “Ofgem should not jump in to fix the outcome in circumstances where the fix tends to undermine the process. That is just a little bit like fixing an election result on the ground that the democratic process didn’t quite lead to the right outcome.”
In a statement, Ofgem said that it had “listened carefully” to the arguments posed by Professor Yarrow and others and was working to address “imperfections” in the market.
Professor Yarrow has also advised the Organisation for Economic Co-operation and Development, the European Commission and regulators in Australia, Japan and New Zealand. He left Ofgem after disagreeing with its decision to force companies to scrap regional pricing in the UK. Ofgem initiated an investigation last year after a string of retail price increases had led to soaring gas and electricity bills. One of the changes that Ofgem proposed was to scrap “unfair pricing” — different charging structures levied on consumers depending on where they lived — unless these could be justified on cost grounds.
Professor Yarrow said that this would harm more consumers than it would help. By forcing all companies to adopt similar pricing structures, he said, there would be less competition and prices would be forced up.
An Ofgem spokesman said: “We are keenly aware of the impact of rising energy prices on people on low incomes. And we, like Professor Yarrow, are aware that markets have imperfections that can create difficulties particularly for vulnerable customers. Through our market probe we have introduced a package of remedies to imperfections in the market to make it work better for consumers.”
Ofgem also said that it was undertaking a review of the impact of environmental costs on affordability and security of supply. Details are to be published by the end of the year.
This story was featured on The Times website.
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Energy bills could rise by up to 60% without huge investment, regulator warns
Friday, October 09, 2009
Household energy bills could soar by as much as 60 per cent because Britain faces a bill of up to £200 billion bill to restore crumbling power plants and secure future supplies, Ofgem, the energy regulator, warned today.
Bills, certain to rise by at least 14 per cent, could spike as early as 2016 under a worst-case scenario laid out by the regulator.
Huge investment is required to fund the Herculean task of developing a reliable energy infrastructure and meeting stringent climate change targets, Ofgem said.
In the most comprehensive review of Britain's energy supplies carried out by the regulator, Ofgem called on industry to help meet the cost of developing reliable energy sources.
Consumers' gas and electricity supplies must be protected from an increasingly volatile global gas market, it said.
In its review, codenamed Project Discovery, the regulator looked at four energy scenarios for the next ten to 15 years: rapid economic recovery with Britain meeting its domestic renewables targets; slow economic recovery leading to more investment in the environmental sector; a strong global recovery with intense competition for energy; and a period of slow growth with low investment in gas and electricity.
In all four scenarios, Britain faces a number of serious risks to its energy security.
The country's rising dependence on gas imports leaves consumers vulnerable to price fluctuations in the global gas market or disruptions to supply.
Under the mildest scenario energy bills would increase by 14 per cent by 2020.
Alistair Buchanan, Ofgem's chief executive, said: "Britain faces a tough challenge in maintaining secure supplies while at the same time meeting its climate change targets. However, there is still time to act."
The regulator would be putting forward proposals in the new year for energy companies to start addresssing the challenges, Mr Buchanan added.
"These are big challenges. Consumers are already enduring high energy prices," he said.
Wind power, the renewable energy source attracting the most investment at present, may be too variable to satisfy the habits of energy-hungry consumers, while bills are almost certain to increase, especially if oil and gas prices continue the underlying rise seen since 2003, the report said.
Several nuclear power plants are expected to close in the next few years while "a significant amount" of coal and oil-fired power stations are due for removal under European law by the end of 2015. Both developments are likely to lead to a large fall in electricity capacity.
As many European countries become increasingly dependent on gas imports, recent events such as the Russia-Ukraine crisis have raised concerns about the security and price of future gas supplies, the regulator said.
This story was featured on The Times website.
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Decc refines and renames Carbon Reduction Commitment
Thursday, October 08, 2009
Businesses falling under the Carbon Reduction Commitment will be spared the costs of buying emissions allocations in the first year of the scheme, the Department of Energy and Climate Change announced today.
The department also gave the scheme a new name and added incentives for on-site generation and early action.
The Carbon Reduction Commitment - now to be known as the CRC Energy Efficiency Scheme - will eventually require companies to buy the carbon allowances they need each year, returning the cash with penalties or bonuses depending on whether they have cut emissions. The scheme will begin in April 2010.
The revised scheme will not require companies to bid for credits in the first year, only to report emissions. In addition, companies that have taken early action or that have on-site, low-carbon power energy generation will receive greater benefits.
The scheme also aims to add flexibility by allowing major subsidiaries to be considered separately from their parent company.
Energy and climate change minister Joan Ruddock said: "Large organisations have huge potential to achieve cost-effective energy efficiency savings. There are clear benefits from positive, immediate action to tackle climate change. Investment that takes place in the next few decades will have a profound effect on the climate in the second half of this century and in the next."
However, Danny Stevens, policy director of environmental trade association EIC, warned that the scheme was not ambitious enough. He said: "Our Members regularly report that opportunities to reduce energy demand are particularly high in the large non-energy intensive organisations covered by the Carbon Reduction Commitment, we do not believe, therefore, that a 7.6 per cent reduction from the scheme is an insufficient contribution to meeting the Government's target to reduce emissions by at least 32 per cent by 2020.
"EIC is, therefore, calling on the Government to urgently increase the ambition of the scheme to ensure that it makes a full contribution to meeting the UK's climate change targets. This must include a reduction of the coverage threshold so that more organisations can benefit from the energy efficiency improvements the scheme will drive. A more ambitious scheme with a lower coverage threshold is cost effective, particularly following the recent increase in the Shadow Price of Carbon."
The scheme applies to organisations whose annual half hourly metered electricity use is at least 6,000 MWh, but is lower than the energy-intensive industries covered by the European Union Emissions Trading Scheme. These companies typically spend £0.5 million a year on electricity. The Environment Agency will publish the qualification and registration guidance for potential participants by November.
This story was featured on the Utility Week website.
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Privatisation expert George Yarrow attacks Ofgem for 'failing to protect consumers'
Thursday, October 08, 2009
One of the architects of Britain’s energy market liberalisation has launched a withering attack on Ofgem, the industry regulator, for failing to protect consumers and accusing it of falling prey to political interference.
In an interview with The Times, George Yarrow, Emeritus Fellow of Oxford University and a former member of Ofgem's supervisory board, compared the recent administration of Britain’s energy markets with a form of "Zimbabwean democracy". He said that the watchdog was becoming increasingly "politicised" and was losing its legitimacy.
Professor Yarrow, who left Ofgem in April after a dispute over a policy on pricing that he said harmed competition, said that the key area in which Ofgem was failing was in environmental policy. He said that an inconsistent and ill-considered mix of initiatives was driving up consumer prices and eroding competition, with minimal environmental benefit. An "institutional void" was emerging over how to deal with global warming, which was creating "real, real problems", he said.
He pointed to Britain's Renewable Obligation Certificate (ROC) scheme, a form of subsidy designed to boost investment in wind and tidal energy, and the Carbon Emissions Reductions Target (CERT), which encourages utilities to spend money on items such as low-energy light bulbs, as examples of dysfunctional policies.
"Consumers are paying over the odds for carbon reduction," he said. "The ROC programme and CERT are inefficient, bureaucratic and administrative approaches."
He argued that Britain was on the wrong track and needed to ditch its current, centralised approach, which he said was based on a series of ad hoc policies with little coherence and which were distorting the market.
"The environmental problems are big, pervasive and complex and it is likely that they can only be tackled effectively by decentralised processes," he said. Professor Yarrow, an academic economist who is chairman of Oxford’s Regulatory Policy Institute, is regarded as a leading world authority on privatisation after research that he conducted in the 1980s and 1990s, which paved the way for the liberalisation of the British gas and electricity markets.
As well serving as a senior adviser to the Cabinet Office and Ofgem from the mid-1990s, he co-wrote a book on privatisation with Sir John Vickers, a former member of the Bank of England’s Monetary Policy Committee and head of the Office of Fair Trading.
Professor Yarrow said that Ofgem had "lost its way intellectually" and was failing to stand up to political pressure. "As a regulator, you have to be ready and willing to say no," he said. "It is not a job for someone who wants to be popular... Not to resist is to set aside, unilaterally, the original intentions of Parliament; and it can be expected to chill investment and innovation."
He said that there were growing signs that the regulator was intervening in the market, where it threw up "politically inconvenient outcomes". He said: "Ofgem should not jump in to fix the outcome in circumstances where the fix tends to undermine the process. That is just a little bit like fixing an election result on the ground that the democratic process didn't quite lead to the right outcome."
In a statement, Ofgem said that it had "listened carefully" to the arguments posed by Professor Yarrow and others and was working to address "imperfections" in the market.
Professor Yarrow has also advised the Organisation for Economic Co-operation and Development, the European Commission and regulators in Australia, Japan and New Zealand. He left Ofgem after disagreeing with its decision to force companies to scrap regional pricing in the UK. Ofgem initiated an investigation last year after a string of retail price increases had led to soaring gas and electricity bills. One of the changes that Ofgem proposed was to scrap "unfair pricing" — different charging structures levied on consumers depending on where they lived — unless these could be justified on cost grounds.
Professor Yarrow said that this would harm more consumers than it would help. By forcing all companies to adopt similar pricing structures, he said, there would be less competition and prices would be forced up.
An Ofgem spokesman said: "We are keenly aware of the impact of rising energy prices on people on low incomes. And we, like Professor Yarrow, are aware that markets have imperfections that can create difficulties particularly for vulnerable customers. Through our market probe we have introduced a package of remedies to imperfections in the market to make it work better for consumers."
Ofgem also said that it was undertaking a review of the impact of environmental costs on affordability and security of supply. Details are to be published by the end of the year.
This article was featured on The Times website.
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