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
Conservatives propose energy-efficiency loans
Friday, November 27, 2009
The Conservative Party will offer homeowners up to £6,500 per home to fund energy efficiency refurbishments if it wins the general election next year.
Grant Shapps, Shadow Housing Minister, yesterday launched the ambitious “green deal”, designed to cut carbon emissions from the UK’s existing housing stock of 25 million homes, which contribute 27 per cent of all emissions.
Under the terms of the deal, eligible homeowners would have a “retrofit” paid for with finance from a mainstream lender. This sum would then be repaid with interest over 25 years, as part of energy bills. The idea is that the savings through the adaptations, such as energy-efficient lighting, modern boilers and cavity and loft insulation, will exceed the repayments.
The shadow minister said that the plan already had the backing of Marks & Spencer and Tesco, the retailers, which with utility companies and charities, could fund and provide the retrofit services to homeowners in return for income from the loan repayments.
Mr Shapps envisages that as with the mortgage market, lenders will compete by offering lower interest rates and eventually trade the loan books, creating a new kind of debt market.
Green charities yesterday criticised the proposals for not being detailed enough and failing to benefit homeowners who most need help with energy costs. Only homeowners who will save more on energy bills than they repay will be eligible for the funding, leading to fears that those in the most extreme fuel poverty will lose out.
The Building and Social Housing Foundation (BSHF) said that the average cost of a retrofit for households in fuel poverty, such as those living in stone cottages, is £8,820. The cap has been set at £6,500 because the Conservatives could not guarantee that funding above this level would be matched by a sufficient fall in energy bills.
To access the scheme, energy performance certificates (EPCs), which the Conservative Party would keep after scrapping home information packs, would come with “yes” or “no” tick boxes to allow homeowners to choose whether to apply for the deal.
Retrofit services would also be available in local supermarkets, while tenants would be encouraged to ask their landlords to sign up for the service to cut their bills. The 25-year repayment plan, which would appear on energy bill statements, would then apply to a property for the life of the loan.
The plan is similar to a “pay as you save” proposal drawn up in August by the UK Green Building Council, under which the Government would underwrite the risk of defaults on repayments. But under the Conservative proposal, the market would price in the default rate, less than 2 per cent on utility bills, to the loan costs.
This story was featured on The Times website.
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New British Gas billing aimed at cutting estimates
Wednesday, November 25, 2009
British Gas is giving customers the option of paying accurate energy bills each month, instead of relying largely on estimated meter readings.
The company says its research has shown that estimated bills are unpopular among its 16 million customers.
Customers, who will also receive a new energy-use monitor, will be asked to submit their monthly readings online or by text.
Watchdog Consumer Focus has welcomed the move but said prices should be cut.
'Frustration'
British Gas said there would be "no direct effect" on its team of meter readers, but said that the new system would allow people to pay for the gas they used.
"Instead of issuing you with a bill we will contact you by e-mail or text and ask you to submit a reading from the normal meter," a spokesman for British Gas said.
"Estimated bills were seen as a source of frustration by customers as they did not accurately reflect the energy they had used."
Customers who gave readings that were clearly inaccurate would trigger normal checks by meter readers.
The amount of time given to customers to pay bills, and the postal reminders system would remain in place, but British Gas said the new bills would be closer to the style of an itemised telephone bill.
Consumer Focus said that the aim to give customers greater control of their bills should be applauded.
But the watchdog warned that anyone switching from direct debit payments to the new system would witness seasonal fluctuations in their bills that reflect usage.
There was still room for energy companies to reduce their domestic charges, it said.
"High prices remain the biggest problem consumers face. Consumer Focus thinks that there is still scope for further price reductions and is urging all energy suppliers to cut their prices before winter sets in," said the watchdog's energy expert Audrey Gallacher.
Which? editor Martyn Hocking, said heralding accurate bills as an innovation was a "sad indictment" of the energy industry.
"Paying for what we have actually used is the least we should be able to expect from our energy suppliers," he said.
Some consumer websites said that the new British Gas system was not available for those on some of the cheapest tariffs, but British Gas said only 4% of its customers were excluded.
Monitor
People who sign up for the new service will receive a free monitor which will display their electricity use minute-by-minute.
The company stressed that the new monitors were different to the forthcoming smart meters that the government hopes will become universal.
The self-installed monitors will come in two parts: one attached to an existing meter in a house which will communicate wirelessly with the other part, the display, which can be plugged into a socket anywhere in the home.
"This tells you how much you are paying, daily, weekly or even monthly, and how much CO2 you are generating," the company said.
The new billing service does not involve cheaper tariffs, though the company predicts that people will be able to reduce their electricity consumption with the help of the monitor.
British Gas has also put adverts in a number of national newspapers, asking customers to join a 20-strong panel to write a report on how the company is operating.
This story was featured on The BBC website.
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Government feeds biomass supply industry with new GBP 1.5m grant
Wednesday, November 25, 2009
The biomass feed stock industry received a boost this week with the announcement the government is to extend its Bio-energy Infrastructure Scheme with the launch of a new £1.5m round of grants.
The Department of Energy and Climate Change said that round three of the scheme would be open to small and medium sized businesses seeking to develop wood chips from short rotation coppice plantations or energy crops such as miscanthus, switch grass and rye grass.
"As we approach Copenhagen we need to encourage business to invest in renewable energy," said energy and climate change minister, Lord Hunt. "We funded 75 projects in round two of this scheme and we will continue to work to ensure that the supply chain is in place to create a thriving bio-energy market in England, which is good for the environment and good for business."
Under the scheme, which is being administered by consultancy and research firm TUV NEL Ltd, applications for grants will be accepted from businesses, local authorities and charities operating in England. The deadline for applications is February 26 next year.
DECC said that the extended grant scheme will be followed by an announcement next month detailing the launch of the next round of the Bio-energy Capital Grants Scheme, which provides funding to larger scale biomass projects.
The news comes just days after a new report from research firm Verdantix warned that the growing number of biomass power plants in the UK could see supplies disrupted as a result of their reliance on imported woodchips from overseas. It argued that firms should focus on developing smaller scale biomass power plants that can draw on local supplies of wood chips and other forms of energy crops.
In related news, drinks giant Heineken last week launched its second UK biomass facility at the Royal Brewery in Manchester. The company said that it has now invested around £35m in two 4.7MW biomass plants, the second of which is located in Tadcaster, making it one of the largest non-utility firms to invest in renewable energy.
The two plants burn locally sourced wood chips and the company said that it planned to fit equipment in the future that will allow it to also use waste grain material from the brewing process.
This story was featured on the Enviromental Expert Website.
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Thames ready for legal challenge against Ofwat controls
Monday, November 23, 2009
Thames Water, Britain’s largest water company, is set to square up to Ofwat as the industry regulator unveils price controls that could cost the industry up to £1 billion in fines.
The private company, which supplies water and sewerage services to 8.5 million customers, is threatening to appeal to the Competition Commission if it considers Ofwat’s demands are unfair. Thames fears that Ofwat’s “final determination” could jeopardise its £5.5 billion plan to overhaul London’s Victorian sewerage and water infrastructure.
Ofwat’s ruling, to be published on Thursday, will fix the amount that Britain’s 22 water companies can charge consumers and spend on their networks for the period 2010-15, in effect placing limits on investment to keep customers’ bills down.
An industry source said that Thames was “seriously considering” a challenge but added that no decision would be taken until January. The Thames board will meet next week.
In a draft plan set out in July, Ofwat surprised the industry by calling on it to cut bills, rather than allowing price rises. Figures produced for The Times by Ernst & Young, the accountant, forecast that each of Britain’s top ten water companies could be hit by annual penalties averaging £20 million for the next five years if Ofwat fails to weaken its demands.
The regulator awards a ratio reflecting the spending performance of each of the companies, in which 100 implies a forecast the same as Ofwat’s. Richard Laikin, director in Ernst & Young’s power and utilities team, said that the average was 120, in a range between 107 and 130. A score of 120 would imply a fine of 2 per cent of revenues. In theory, a company can secure a score of below 100 and earn financial rewards, but this is unlikely.
Mr Laikin said: “At the industry level, it is not going to be materially different from the draft. Every single company looks like it’s going to be facing a penalty.” He added that on present trends, the fines would amount to about 2 per cent of industry revenue and would be levied on all companies that fail to meet tough efficiency and spending targets designed to boost efficiency.
After it has been published, the companies will have until January 26 to decide whether or not to appeal against the ruling with the Competition Commission. Thames and some smaller regional groups are thought to be the most likely to do so, although all will spend weeks poring over the document with lawyers and accountants before making a decision.
This story was featured on The Times website.
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What happens when the wind stops blowing?
Friday, November 20, 2009
Britain’s goal of significantly increasing its dependence on intermittent wind-power will not mean a substantial cost increase to bill-payers, according issue 162 EN3 of the Institution of Civil Engineers’ Energy journal.
Author and UK renewable energy consultant David Milborrow reports that even if wind energy was to provide all of the government’s 2020 target of 40% low-carbon generation, the additional cost of ‘windless days’ would only add around £6 per MWh to the cost of electricity at most; less than five percent increase to typical electricity bills.
Better demand-side management and wind forecasting, areas in which a lot of progress is being made, will reduce the uncertainty associated with wind-power and bring this cost down further.
David Milborrow said: “The problems that may arise when wind energy is absorbed into electricity networks are frequently debated. The overwhelming consensus – from the studies cited in this paper, the UK system operator and a review of relevant literature worldwide – is that there are no major technical barriers to the implementation of dispersed variable generating sources such as wind.“
Drawing on data from western Denmark, where wind farms generate 26 percent of national electricity consumption, the report shows that fluctuations encountered by system operators are measurable and manageable. It cites recent data from British system operator National Grid to estimate additional balancing costs.
Milborrow continued: “In a nutshell, the answer to the question ‘what happens when the wind stops blowing?’ is ‘not a lot’.”
This story was featured in the Energy-Online website.
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Ofgem publishes a comprehensive review of Britain’s energy supplies
Friday, November 20, 2009
Energy regulator Ofgem has today highlighted the challenges to Britain’s gas and electricity supplies.
Chief among these challenges are a growing exposure to a volatile global gas market and power stations nearing the end of their life. Ofgem has drawn up four energy scenarios to assess the energy security risks over the next 10-15 years. They reveal a range of potential risks to supplies when exposed to shocks. Further, Ofgem identifies the need for investment of up to £200 billion in power plant and other infrastructure over the next ten years to secure both energy supplies and climate change targets. The need for this investment arises at a time of volatile world energy prices and Britain’s increasing dependence on gas imports.
Ofgem chief executive Alistair Buchanan said: “Our scenarios suggest that Britain faces a tough challenge in maintaining secure supplies whilst at the same time meeting its climate change targets. However, there is still time to act. Ofgem will be putting forward proposals in the New Year based on today’s consultation to ensure that Britain’s energy industry can meet the challenges ahead.”
Ofgem’s four scenarios highlight a number of risks:
• Britain will face significant levels of gas imports, in particular for gas power plants to replace lost nuclear and coal-fired capacity. This increases our exposure to uncertainties in the global gas market, supply disruptions and potential price increases.
• Significant changes in the way in which we generate and consume power may be needed to manage the variability associated with increasing reliance on wind power.
• Given the massive levels of investment needed, there is a high likelihood of rising
consumer bills, especially if oil and gas prices continue their underlying rise since 2003.
“These are big challenges. Consumers are already enduring high energy prices,” said Mr Buchanan. “This is why we are consulting with consumer and environmental groups, the academic community and industry to ensure any policy proposals we make are grounded on the best evidence available. Early action can avoid hasty and expensive measures later.”
This story was featured in the Energy-Online website.
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Power plants sit on growing mountains of discount coal
Thursday, November 19, 2009
Britain’s coal mountain has soared to its highest level in nearly 15 years as power station operators stock up on cheap supplies of the fuel.
Drax power station in North Yorkshire, E.ON’s plants at Kingsnorth, Kent, and Ratcliffe-on-Soar, in Nottinghamshire, as well as Scottish & Southern Energy’s plants at Fiddlers Ferry in Cheshire and Ferrybridge in West Yorkshire are among those that have been taking advantage of the collapse in coal prices from a peak of $224.30 a tonne in July 2008 to $69 yesterday.
One industry insider said you “could ski down” the coal pile at one plant in the Midlands.
Coal plants usually hold about 30 days’ worth of supplies on site, but many stations are understood to be holding much more. Latest government figures show that coal stocks stood at 23.9 million tonnes in August, up from 15.9 million a year earlier and the highest level since January 1995.
The surge in British coal stocks, news of which comes days before the start of the United Nations climate talks in Copenhagen, raises questions about the effectiveness of government efforts to cut emissions and switch to low-carbon alternatives, such as wind and nuclear energy.
Nick Campbell, energy analyst at Inenco, said that lower prices were not the only reason for the stockpiles. “The recession has also cut electricity demand, so fewer coal units are running than normal, leading to a build-up of inventories,” he said.
While the price of coal has come down, gas prices have tumbled even further, amid talk of a global supply glut.
Coal is normally the cheapest fuel available and utilities burn it to produce “baseload” electricity, resorting to costlier gas and oil-fired plants to increase supply at peak times.
A spokesman for E.ON, which operates three coal-fired stations, said: “Coal is cheap right now so we have been taking advantage of that and stocking up . . . But the gas price has been even lower, so we haven’t been using as much of [the coal] as you would expect.”
A spokesman for Drax, Western Europe’s biggest coal-fired power station, declined to comment on the size of the group’s stockpile, but acknowledged that it was bigger than usual. Drax burns nine million tonnes of coal a year, or a trainload every 45 minutes when all six boilers are running at full pelt.
Another reason for the record UK coal levels is that coal for immediate delivery is cheaper than it is for delivery in 2011. As a result, some groups are buying coal now and selling it for delivery in a year. Profits are to be made because of the relatively low freight and storage costs.
Yesterday, in her annual speech to Parliament, the Queen announced plans for carbon-capture power plants, but it will take at least a decade for the experimental technology to be adopted.
Coal, which supplies about 35 per cent of UK electricity, is the most polluting conventional fuel.
This story was feauted on the Financial Times website.
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National Grid profits rise despite drop in demand
Thursday, November 19, 2009
National Grid, which operates electricity and gas networks in the UK and the US, has reported a 16 per cent rise in underlying pre-tax profit for the six months to the end of September in spite of a steep fall in energy use, demonstrating what the company describes as its extremely low-risk business model.
Pre-tax profits, excluding exceptional items and changes in the value of derivative contracts, were £649m in the first half, up from £558m in the equivalent period of 2008. The results were in line with expectations.
Steve Holliday, the chief executive, said almost all of National Grid’s assets earned regulated returns, giving it a high degree of certainty over its revenues even during a severe recession.
In the first half, the company benefited from the favourable effect of 2008’s high UK retail price inflation, which governs the charges that National Grid is allowed to earn from energy suppliers for using its networks.
The company was also helped by the steep fall in interest rates, as about a third of its £22bn debt is at floating rates.
That offset the impact of steep falls in demand for both electricity and gas caused by the recession. Electricity demand this year is down about 6.5 per cent in the UK and 4.3 per cent in National Grid’s areas of the US, compared with last year, while gas demand is down “substantially”, in the UK, although it has risen in the US because prices are now very low.
National Grid’s revenues fell by £28m to £6.044bn for the first half, but underlying operating profit was up 6 per cent at £1.149bn, helped by cost cuts in the US.
Savings from KeySpan, the $11.8bn US acquisition made in 2007, are on target to reach $200m per year, the company said.
The performance of National Grid’s US assets still lags behind its UK business, but Mr Holliday said that in large part reflected old regulatory settlements dating back to the 1990s, and the company was now engaged in renegotiating many of those settlements as they came up for review.
Across the group, capital spending was £1.5bn, in line with the company’s previously published plans.
Earnings per share rose 31 per cent to 22.5p, although the company warned that was affected by an unusually low tax charge, which was unlikely to be repeated.
The dividend was raised by 8 per cent to 13.65p, fulfilling the commitment to growth at that rate that National Grid made in 2008.
This story was featured on the Financial Times website.
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EDF sends invitation to potential £4 billion asset investors
Monday, November 16, 2009
French energy company EDF has started sending out documents to prospect buyers for its £4 billion power supply network in the UK. On offer are three electricity stations that serve about 20 million people in London, and the eastern and south eastern parts of England. The move is in line with EDF’s plan to lessen its financial debt by €5 billion by the end of next year.
Anticipated to be launched early next month, the sale will come after Ofgem, the UK energy regulator, determines the allowed proceeds of the Distributor Network Operators (DNO). EDF is expecting to receive the first bids around mid-January, with binding bids due by the end of next year’s first quarter.
The regulated cash flows of EDF’s assets are drawing profound interest from industry investors and infrastructure funds that are eager to join with business firms that have the experience on running DNOs.
Canada Pension Plan is searching for a reliable UK consortium to team up, while its Canadian peer Borealis had already collaborated with Scottish and Southern Energy. Meanwhile, infrastructure funds from 3i, IFM, Macquarie and National Grid are preparing bids as well.
More groupings are expected to come forward before the sale launch of EDF, as other major industry players like Alinda, Blackstone, GIP and RREEF are still deciding whether they will participate.
Colette Lewiner, head of the French consultancy firm CapGemini, informed that this year, European energy firms have sold over €60 billion of assets just to pay off their hefty debts.
This story was feature on electric.co.uk
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Investigation at Welsh Water as allegations of bribery surface
Monday, November 16, 2009
One of Britain’s biggest water companies is at the centre of an escalating investigation into alleged bribery, The Times has learnt. Welsh Water, chaired by Lord Burns, the former Treasury mandarin, has been visited by Ofwat, the industry regulator, who interviewed several employees.
James Strachan, a former chairman of the Audit Commission, an independent body whose mission statement is “protecting the public purse”, is a non-executive director.
It is understood that Ofwat’s visit came amid an internal inquiry led by senior management that had been going on for some months.
Welsh Water, owned by Glas Cymru, confirmed last night that there was an internal investigation regarding “allegations of irregular practices” at the company, which employs about 3,000 people and earned operating profits of £82 million last year.
The group provides water and sewage services to three million homes in Wales and is the sixth largest water company in England and Wales. It extols the virtues of its status as a mutual company where customers share in the profits of the company.
A spokesman for Ofwat said: “We understand that Welsh Water has received allegations of irregular practices within a sub-contractor. Welsh Water is undertaking an investigation into these allegations and is keeping Ofwat fully informed.”
The focus of the Welsh Water investigation is understood to be a series of improper supply deals struck with an unnamed subcontractor. Included in the inquiry are allegations that contracts were offered in exchange for gifts.
The source said senior managers at Welsh Water had become aware of the problems several months ago and had been conducting their own investigation when Ofwat became involved this week.
Welsh Water has no shareholders and reinvests all of its profits for the benefit of its customers.
In a half-year profits statement issued on Wednesday, which made no mention of any internal investigation, Lord Burns said: “The strong financial position that we have built up since 2001 means that we can afford to push ahead with our largest-ever capital investment programme, with over £360 million of projects expected to be delivered this year.”
The Welsh Water investigation will stoke memories of other investigations into misconduct within Britain’s water industry.
Severn Trent, the UK’s second-largest water company, became immersed in a corruption scandal over misleading the industry regulator and manipulating figures supplied to the regulator to fatten its profits.
In 2008 the company was fined £35.8 million by Ofwat for these offences and for poor customer service. The company was also fined £2 million at the Old Bailey for misreporting leakage information in a case brought by the Serious Fraud Office last year.
The latest inquiry into improper conduct at one of Britain’s largest water companies comes two weeks before Ofwat is likely to deliver its final verdict on price controls that will last for five years.
On November 26 Ofwat is expected to impose tough new price controls that will force water companies to clamp down on unnecessary spending.
The regulator is set to publish a final ruling this month that will dictate the amount the companies can spend on upgrades to the water and sewerage network from 2010 to 2015 and how much they are allowed to charge Britain’s 26 million households.
This story was featured on The Times website.
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Inquiry into electricity prices
Saturday, November 14, 2009
An inquiry into a 40% electricity price hike for business customers has been launched by the utility regulator.
The price of electricity for business users has risen substantially and they say there were not given enough notice.
The utility regulator met with business customers on Friday and said it would look into how suppliers communicated the change in charges.
The Consumer Council said there was "a lack of transparency in the electricity industry about price rises".
"Northern Ireland's business customers have the right to be concerned," said John French, the council's head of energy.
"The Consumer Council shares these concerns as it is more important than ever that businesses can plan ahead and the cost of electricity is an important element of this.
"We have already been speaking to energy suppliers about this issue and have written to the regulator expressing our concerns."
The regulator said it expected their inquiry to reach a conclusion in early 2010.
This story was featured on the BBC News website.
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British Gas comes in from the cold
Friday, November 13, 2009
Households have been returning to British Gas this year at the fastest rate in more than ten years after a round of spring price cuts, Centrica, the group’s owner, said yesterday.
Britain’s biggest energy supplier said that it had added an extra 200,000 customer accounts this year, nudging the total past 15.7 million and representing about 33 per cent of the combined domestic gas and electricity market. The growth in customer numbers followed price cuts of 10 per cent this year across both fuels, and marks the end of an extended period of decline when British Gas had been shedding customers to rivals such as Scottish & Southern Energy, EDF and E.ON, which were competing aggressively on price.
Over the four years between the end of 2004 and 2008, British Gas lost about 2.2 million customers, touching a low point of about 15.5 million at the start of this year.
A spokesman said most of the new customers had signed up since June. The number of service accounts, including contracts for boiler and central heating maintenance, rose by 100,000 to 8.3 million. “It’s because we are a lot more competitive on price than we were and have become more customer focused,” he added.
Mark Todd, a director at energyhelpline.com, the price-comparison site, said: “Of the big six energy providers, British Gas cut its standard prices the most and this has proved beneficial in attracting new customers.”
The news triggered protests from consumer groups, however, which claimed the company owed it to customers to pass on further retail price cuts after steeper falls in the wholesale price of gas and electricity this year.
USwitch, the comparison service, said the British Gas announcement “clearly demonstrated” the scope for further price reductions to help families with their winter fuel bills. Ofgem, the industry watchdog, said in September that supplier margins between wholesale and retail prices had increased for gas and electricity to £110 and £80 per customer respectively.
The announcement came as Centrica issued a trading update showing British Gas was on track for a 43 per cent surge in profits this year to more than £540 million, despite a 7 per cent fall in household energy consumption as families improve their home insulation and turn down their thermostats.
The company confirmed that its trading remained in line with City expectations of a group annual operating profit of £1.86 billion.
Centrica also said that it was making good progress in cutting costs and expected to achieve more than £100 million of savings by merging its Retail and Home Services divisions.
The company added that it was focused on cross-selling services, such as boiler maintenance and repair, to its customers.
Centrica said the integration of Venture Production, the North Sea gas producer that it acquired this summer, was proceeding well.
Peter Atherton, utilities analyst at Citigroup, said the results were in line with expectations and suggested the group’s business was “reasonably well balanced”.
He added that British Gas had benefited from its strong brand and focus on advertising during periods when it was hard to differentiate between the big six suppliers on price.
Scottish & Southern Energy reported on Wednesday that half-year profits were up 36 per cent from £302.6 million in September 2008 to £410.5 million in September 2009.
Centrica publishes its full-year results on February 25.
This story was featured on The Times website.
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SSE’s profit growth is ‘difficult to understand’ say critics
Friday, November 13, 2009
Consumer groups attacked Britain’s second-largest energy company yesterday after it unveiled a 36 per cent surge in profits on the back of higher household bills.
Scottish & Southern Energy (SSE), which supplies gas and electricity to nine million UK customers — second only to British Gas — said that profits were £410 million for the six months to September 30, up from nearly £303 million during the same period last year.
The higher profits come after a collapse in the wholesale price of gas and electricity, while SSE left retail prices virtually unchanged. Last year SSE increased its gas and electricity prices by 44 per cent, or £384 for an average dual-fuel customer to a total annual bill of £1,259.
On March 30 the company reduced prices by 5 per cent. Over the same period, spot gas prices collapsed: average prices fell to 24.5p per therm during the period, compared with 61.1p per therm a year ago, according to figures from Utilyx.
Wholesale electricity prices averaged £34.75 per megawatt hour during the six months to September 30, down from £84.95 a year ago.
Robert Hammond, energy expert for Consumer Focus, said: “Millions of customers struggling to afford their energy bills will find it difficult to understand how energy firms are making such healthy and increasing profits in the recession.”
Ian Marchant, SSE’s chief executive, denied that the company was earning at the expense of consumers. He pointed out that the figures were still far lower than in 2007, when SSE made an interim profit of £665 million at the same stage. Much of the group’s gas was purchased on long-term contracts at far higher prices. “We buy very little of our gas at spot prices. In fact, because our customers are using less than expected, we have bought more gas than we needed.”
Nevertheless, Mr Marchant seemed to rule out price cuts for the foreseeable future. He said there was a risk that, if SSE cut prices too quickly, it would be forced to raise them sharply relatively soon afterwards.
SSE has also confirmed its interest in bidding for EDF’s three British power distribution grids, valued at about £4 billion. It said that it was in talks with possible partners, including Borealis, of Canada.
International Power and E.ON also reported strong trading yesterday. E.ON said that its third-quarter net income had risen sharply, boosted by strong results from its energy trading unit and fewer costs than a year ago. The company earned $1.8 billion in the third quarter, up from $100 million a year earlier.
Centrica, the owner of British Gas, is due to give a trading update today.
This story was featured on The Times website.
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Accenture loses ruling in battle with British Gas
Tuesday, November 10, 2009
Accenture, the management consultancy locked in a £220 million High Court battle with British Gas, has lost an initial ruling for its role in a faulty IT system that the utility company claimed had reduced its customer billing service to a shambles.
British Gas, the UK’s biggest supplier of gas and electricity, with 12.5 million customers, welcomed the judgment, which was made in its favour on all of six issues and will pave the way for a full trial next year.
“British Gas is pleased with the judgment, as we feel it brings us one step closer to holding Accenture to account for the disruption caused to our customers,” the company said. “We look forward to moving to the full trial as soon as possible.”
Accenture said that it disagreed with the ruling and planned to appeal. In a statement, it said: “There has been no final determination of the case or any of the detailed underlying facts of this case. We remain confident that Centrica’s claim is baseless and that Accenture will prevail when the factual issues are examined in detail at trial.”
The 2006 IT project, known as Project Jupiter, was the cause of poor customer service that led to hundreds of thousands of people abandoning British Gas, according to a 2008 High Court writ. At the height of the problems, customer complaints trebled and British Gas was forced to employ 2,500 extra staff in an attempt to resolve the mess. British Gas is claiming up to £220 million in damages for costs and lost business resulting from the episode.
On Friday the High Court issued a judgment on the preliminary issues raised by Accenture, relating to the wording of a contract between the two companies and a warranty claim. The judgment from Mr Justice Field at the High Court in Winchester was in favour of British Gas on all six points.
During 2006 and 2007, British Gas was strongly criticised by consumer watchdogs over worsening standards of customer service when it was raising gas and electricity prices.
British Gas, which claims that six fundamental breaches of a contract caused a “severe adverse effect” on its business, is being represented by Jeffery Onions, QC, and Linklaters in the case; Accenture is being represented by Geoffrey Vos, QC, and Freshfields Bruckhaus Deringer.
Accenture was recently selected by the Department of Energy and Climate Change (DECC) to provide strategic consulting on introducing smart grid technology to the UK. It uses sensors and specialist IT systems to minimise energy waste and carbon emissions. The company will be responsible for analysing the grid network and will advise on adopting the technology in Britain.
This story was featured on the The Times website.
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All change as gas reserves soar
Tuesday, November 10, 2009
With coal being too dirty and wind farms and nuclear power plants arriving late, it seems the world is left with a stark choice: keep on polluting or turn out the lights.
Unless, that is, someone comes up with an alternative.
Energy executive Rune Bjornson thinks he has the answer.
"Natural gas, more than any other fuel, is an option we have here and now," he tells the BBC in an interview.
And, he adds, there is plenty of it around - unlike scarcer resources such as oil and coal.
Given that Mr Bjornson heads up the gas division at the Norwegian energy giant Statoil, it comes as no surprise that he should hail the virtues of gas.
But he is not alone in his predictions.
In June this year, the Potential Gas Committee, which is connected with the Colorado School of Mines, raised its estimate of gas reserves in the US by 35% to 2,074 trillion cubic feet (58.74 trillion cubic metres), the highest reserves since the group started tracking the information 44 years ago.
The upgrade came after new technology made it easier and cheaper to extract gas from shale rock, a prehistoric clay, which has hitherto been deemed too expensive and tricky to recover.
The implications for global power balances could be enormous, in both the energy and the geopolitical sense.
What next?
Upgraded shale gas reserves are particularly relevant ahead of the Copenhagen summit, as it could help the world meet the Kyoto targets for carbon emission cuts, Mr Bjornson insists.
Gas has very low carbon emissions when compared with many other energy sources," he says.
Indeed, he insists, gas - whether offshore gas reserves or from shale rock - is "not competing with" tomorrow's technologies.
The need to reduce emissions from energy production means nuclear power, carbon capture and storage, as well as wind and other renewable energy sources, will become leading power suppliers in the future as current energy production becomes unsustainable, Mr Bjornson predicts.
"It is no longer a question of whether climate change is real or not," he says. "That was yesterday's discussion. Now, it is a question of what we do next."
But while the world waits for wind farms, nuclear power plants and carbon storage facilities to be built, gas could deliver vast reductions in emissions, Mr Bjornson says.
"If Europe was to convert all coal-fired power stations to gas they would reduce emissions by 40%," he claims, pointing to how gas power stations emit about about a third less than modern coal-fired power stations and about two-thirds less than old ones.
Plenty of gas
Peter Dea, chief executive of Cirque Resources in Denver, Colorado, goes further.
He believes gas could not only replace coal as the main source of electricity in the US, it could deliver fuel for America's cars as well.
His optimism is based on a the Potential Gas Committee's estimate, which suggests the US has a 100-year supply of gas.
New techniques have been developed, where liquid, chemicals and sand is injected horizontally into shale rock to break open pathways for the gas to leak to the surface.
The shale gas reserves are expected to boost economic growth, help reduce carbon emissions and reduce US dependence on energy imports, Mr Dea predicts.
"It is truly a win-win-win situation," he says.
'Game changer'
Eager to take part in this development, Statoil last autumn joined forces with Chesapeake Energy to extract shale gas from the North East, Marcellus foundation that stretches across Pennsylvania and New York State.
"It has come as a surprise to the industry that the reserves were so good and that it was competitive in terms of cost," Mr Bjornson says.
"We look at shale gas as a potential game changer."
And not only in the US. "We believe there are huge resources in others areas, including Europe," Mr Bjornson says.
Shale reserves are believed to be vast in Poland, Germany, France and Sweden, and there could also be similarly enormous shale gas areas in India and China.
"But it hasn't gotten much attention," says Mr Bjornson. "It is an industry that is still young."
Exaggerated hopes?
Sceptics say there are good reasons why.
Arthur Berman, who was speaking at a recent energy conference in Denver, is one of them.
The Texas-based geological consultant believes the latest estimates are vastly exaggerated and suggests the shale gas reserves are neither as large as nor as profitable as many in the industry predict.
But "in the midst of a boom or a bubble, it's hard to sit on the sidelines", he says.
"If you're not in on these plays, Wall Street says 'well, what's the matter with you guys?'"
Others point to how shale gas extraction can damage the environment as the chemicals used in the pressure-washer style drilling methods can leak into the ground water.
Energy security
Such sceptical voices do not ring loud in energy circles, however.
Advocates argue that the ability of shale gas to help curb carbon emissions makes it a worthy, and in macroeconomic terms worthwhile, risk to take.
But what is really exciting executives and policy makers alike is shale's potential to unseat leading natural gas suppliers such as Russia, Iran, Qatar and Algeria from their dominant positions, elevating the US, Europe, India and China into pole positions.
This could help improve energy security across the world, leaving few countries reliant on gas imports from countries often governed by unstable regimes.
It could also hit current energy exporters where it hurts, namely in their wallets, as new gas sources send energy supplies soaring thus depressing prices across the world.
Falling prices
Already, there are signs of such developments in the US, where natural gas is priced at up to $4 per million British thermal units - equivalent to crude priced at about $23 a barrel. (A barrel of crude contains on average $5.80 MBTU).
That is a seasonal rise from an average spot price of $2.50 during summer 2009, sharply down from 2008 when rising shale gas supplies pushed the average gas spot price down from almost $14 to about £10 per MBTU.
"Longer-term, the cost of producing shale gas is estimated at about $6 per MBTU, equivalent to crude priced at $34.80 per barrel," observes Paul Sterne, managing partner of mergers and acquisitions advisers Sterne & Co, in an article published by Ground Report.
"Unconventional gas will exert downward pressure on energy prices for years to come," predicts Mr Sterne - in the US, as well as elsewhere.
"As shale gas fields come on line in the next five years, it is likely that European prices will drop in half."
Winners and losers
Consumers might find that an appealing prospect, particularly in some of the world's poorest countries. Such sharp price falls should go a long way to relieve fuel poverty and indeed hunger.
But elsewhere, notably in Russia, many ordinary people could also see their lives transformed in less-than-desirable ways as it could lead to a painful reversal of the country's recent economic prosperity, which was based largely on highly-priced gas and oil exports.
The geopolitical implications are both obvious and enormous, so it is far from certain that a sharp and sudden rise in global gas supplies will be a blessing rather than a curse.
But if the gas is there, do not expect such concerns to prevent it from being extracted.
This story was featured on the BBC News website.
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Nokia Siemens to reduce workforce
Thursday, November 05, 2009
Telecoms equipment maker Nokia Siemens Networks (NSN) says it may cut its workforce by 7-9% with up to 5,700 jobs being shed from its 64,000 workforce.
The move is part of a cost-cutting regime to "improve financial performance and return to growth".
The firm, which was set up as joint venture between Nokia and Siemens, aims to cut annual costs by 500m euros ($732m; £450m).
In October, Nokia wrote-off 908m euros reflecting the fall in value of NSN.
Nokia, the world's biggest mobile phone maker, also reported last month a loss for the July-to-September quarter after sales sank by almost a fifth.
The company made a net loss of 913m euros for the period, compared with a profit of 1.1bn euros in the same quarter last year.
This story was featured on The BBC News website.
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Water companies braced for battle with regulator
Thursday, November 05, 2009
Ofwat is expected to throw down the gauntlet to Britain’s water companies this month by ordering tough new price controls that could trigger a round of rights issues and a challenge from the Competition Commission, industry experts have warned.
The regulator is set to publish a final ruling this month that will dictate the amount the companies can spend on upgrades to Britain’s water and sewerage network from 2010 to 2015 and how much they are allowed to charge the country’s 26 million households.
Duncan Michie, utilities director at PricewaterhouseCoopers, the consultancy, said that the regulator appeared to be on collision course with the industry and was unlikely to retreat from stringent draft proposals it set out in July. He said: “There will be a very strong message coming out of Ofwat. I would be very surprised if there are not some companies that will go to the Competition Commission.” He said that listed companies were likely to be forced to pursue dividend cuts and rights issues to cope with the more austere spending regime.
While Mr Michie declined to comment on which companies might do so, industry insiders told The Times that Severn Trent and United Utilities were already considering different options for strengthening their balance sheets in the event of a harsh settlement.
Every five years, Ofwat sets limits on prices that water companies in England and Wales can charge. For 2010-15, it has proposed that, before taking inflation into account, bills should be reduced for many customers, bringing the average annual water and sewerage bill down by 4 per cent from £344 to £330 by 2015. The water companies had wanted a £28 rise to fund their business plans.
Ofwat was heavily criticised in 2004 for setting an overly generous return of 5.1 per cent for the 2005-10 period. The ruling led to a string of takeovers in the water sector.
While the regulator may offer some concessions to individual companies when it issues its final determination on November 26, Richard Laikin, director in Ernst & Young’s water practice, said that the industry as a whole was entering a challenging phase: “It’s going to be much more difficult over the next few years. I would expect that we will see some recapitalisation and balance sheet restructuring. The markets are betting that the listed companies will have to cut their dividends or pursue rights issues.”
A spokeswoman for Ofwat declined to comment but she said that the regulator had finished its consultation process with the companies and was drawing up a final ruling.
One water executive said: “We are heading into a period where we are looking at tough settlements, espec- ially in recognition of the economic cycle and affordiability for customers.”
Severn Trent and Northumbria Water, two of Britain’s biggest water companies, declined to comment.
Ofwat said in its draft ruling in July that more than £4 billion should be invested in improving drinking water and protecting the environment. It also wants to cut leakage levels and raise the number of metered households from 36 per cent to 50 per cent.
The water regulator’s ruling will set limits on how much companies can spend and charge consumers and will also impose a single permitted rate of return to be applied uniformly across the industry.
This story was featured on The Times website.
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Government cost cutting looks set to scupper £23bn Severn Barrage tidal project
Monday, November 02, 2009
Plans to build a ten-mile tidal barrage across the River Severn that could generate up to 5 per cent of Britain’s electricity are likely to be shelved under a government cost-cutting drive, The Times has learnt.
The Severn Barrage project, which would cost up to £23 billion to build, is set to be indefinitely postponed early next year when ministers announce whether to commit fresh public funding, according to Westminster insiders.
“They are moving towards a political fudge,” said one. “They will say they are delaying it, but in reality the lifeline on offer will not be worth very much.”
The vast cost and tight constraints on future public spending have led ministers to question the project’s affordability.
Government figures show that the cost of generating electricity from a barrage across the Severn or from a tidal lagoon could be as high as £317 per megawatt hour, compared with £38 for nuclear power and no more than £85 for offshore wind.
The news will be a blow for advocates of the scheme, including the Sustainable Development Commission. They argue that it would help Britain to meet its ambitious EU targets of generating 30 per cent of UK electricity from renewable sources by 2020.
However, under EU rules, to contribute to those targets, the barrage would need to be generating electricity by 2022. Because it would take up to a decade to build, that would mean construction would have to start as early as 2012 — requiring large infusions of public money within the next two or three years.
Matthew Bell, of Frontier Economics, the author of a report on the costs of the Severn project, said: “Given that the Government has only a limited amount of money and some very ambitious renewable energy targets, it wants to make sure it gets the best value it can — and the Severn Barrage is simply more expensive than any other form of renewable generation.”
The Department of Energy and Climate Change, which spent £3 million on the project last year, said that a feasibility study was continuing into the project. External consultants are working on the study, which includes an analysis of five options for how it could be built.
The group is led by Parsons Brinkerhoff, the company that built the New York subway. PricewaterhouseCoopers and DTZ are also involved.
The Conservative Party is understood to view the project as an obvious target for potential cost savings.
Two main technologies have been proposed: a conventional barrage, running between the English and Welsh coasts, and a tidal lagoon. Both would harness the enormous tidal range of the Severn, which, at 14 metres, is the second-highest in the world, to drive electricity-generating turbines.
A conventional barrage would have a capacity of 8,640 megawatts and an estimated output of 17 terawatt hours a year — providing about 5 per cent of present UK electricity demand. But such a link would involve moving 18 million tonnes of seabed to create a level surface and require 13 million tonnes of concrete and aggregates.
In July, the chairman of the Environment Agency, Lord Smith of Finsbury, delivered a blow to the plans, hinting strongly that the agency would oppose proposals for the barrage if environmental concerns are not addressed.
This story was featured in The Times Online.
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Massive call for mobile rate cut
Sunday, November 01, 2009
A campaign to lower charges for mobile phone calls between networks will hand telecoms watchdog Ofcom a petition with 114,259 signatures on Wednesday.
The Terminate the Rate campaign wants to see mobile termination rates (MTRs) slashed to reflect actual costs.
These rates are what mobile network operators charge to handle other networks' traffic.
Signatories, including 258 MPs and 60 businesses, are calling for the rates to be slashed from 5p to less than 1p.
The campaign was launched by groups including BT and mobile network 3. While charging MTRs generates some revenue for networks, they stand to gain from a reduction because they can offer more competitive prices to their customers.
The 258 MPs weighing in on the matter have signed an Early Day Motion in Parliament in another call for MTR reduction.
MTRs are said to comprise 14p of every pound spent on mobile call charges, and have long been the subject of scrutiny from Ofcom.
Ofcom outlined a programme in 2007 to address the rates, saying they would fall by about 25% by 2011. In May, it began a consultation to look into rates for the period from 2011 to 2015.
Though MTRs have been falling year on year, campaigners argue the charges are still far higher than the actual costs to mobile network operators.
The European Commission in May also called for regulators across Europe to cut the rates in order to drive competition.
"This petition is only the first stage in an ongoing campaign to show how MTRs stifle competition and increase the cost of calling mobiles," said John Petter of BT Retail.
"Our goal remains for them to be set according to what they actually cost."
This story was featured on The BBC News website.
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UK wind industry gets breath of fresh air
Sunday, November 01, 2009
Centrica, the owner of British Gas, has sold a 50 per cent stake in three British wind farms to an American fund management group, in the latest sign of renewed investor interest in the industry.
Centrica said that Trust Company of the West (TCW), a Los Angeles-based fund manager, was buying the stake in its Lynn and Inner Dowsing offshore wind farms off the Lincolnshire coast, and Glens of Foudland, an onshore wind farm in Scotland.
The £84 million deal comes amid rising interest in the wind industry, which was virtually paralysed in the credit crunch last year. Last week, The Times reported that multinational companies, including Google, were examining opportunities in the industry in the UK.
TCW, a subsidiary of Société Générale, the French bank, has $118 billion (£72 billion) in assets under management and is a well-known investor in energy projects. It has energy investments worth $7 billion in more than 250 energy projects in 27 countries.
Nick Hyslop, an analyst for RBC Capital Markets said: “It’s clearly a much better market than it was. The UK wind market is recovering and good projects have more chance of getting money.”
Sam Laidlaw, chief executive of Centrica, which also made a £50 million profit on the deal, said that the refinancing was a milestone in the group’s renewables strategy. The strategy was boosted in April by the Government’s decision to strengthen the subsidies available to offshore wind operators.
Analysts at Credit Suisse said that the announcement was “good news for the offshore wind industry, signalling that there are equity financial investors, aside from utilities and international oil companies, still looking at assets”.
Centrica has also raised £340 million in project finance from a consortium of 14 banks to fund the wind farms.
However, Andy Cox, energy partner in KPMG, said: “The challenge to finance offshore wind projects should not be underestimated. Capital remains constrained and the operating risks are still cause for concern. “The deal is definitely a step forward, but it’s dwarfed by the total amount of refinancing required to construct the 25 gigawatts of UK offshore wind projects in the pipeline, around £100 billion according to the Crown Estate.”
Centrica also said that it was to press ahead with a £725 million investment in another offshore wind farm to be built off Skegness.
This story was featured on The Times website.
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Shale gas numbers may not add up
Sunday, November 01, 2009
From one end of the known world to the other, which is to say from Boston to Washington and some points in between, there is a consensus among the well informed that one part of a national energy plan is in place.
Thanks to the discovery and mapping of huge reserves of gas in shale formations, we have an alternative to dirty old coal, and, possibly, imported oil for transport fuel. A 40 per cent increase in the country’s gas reserves! You can thank advanced American technology for that.
Well, you can thank advanced American something, but along with the technology you can also thank the advanced American ability to extract money from investors. The key element of this national characteristic is the willingness to listen carefully to determine what people with money want to hear, and then tell them that. Again and again.
Shale gas, the latest magic solution being financed with other people’s money, now appears to be costing more, and has much less certain prospects, than Wall Street, Washington, or their consultants around Boston, were counting on.
The historic problem with raising money from outside investors to pay for oil and gas drilling is the lack of consistent co-operation on the part of geology. Time and again, with all the three dimensional seismic imaging, reservoir engineering, and so on, people drill wells to 5,000 or 6,000 metres only to get a dry rock collection. Finding oil and gas requires a significant amount of trial and error. Bankers, brokers, and institutional investors do not want to hear this. They want to hear that the businesses they invest in are predictable.
The production of natural gas dispersed through shale rock plays well to this characteristic. There is a very large amount of shale reserves, and, in a given area, the gas tends to be somewhat more evenly dispersed than it is in, say, sandstone rocks. However, the shale rock is denser, with less of the natural porosity that makes it relatively easy to get gas out of sandstone.
This is where the technology comes in. Hydraulic fracturing, or “fracking”, is a technique to force liquids through a drill hole at high pressure to create cracks in gas or oil-bearing rock. The gas or oil flows through those artificial cracks to the wellbore. To keep the cracks open, the operator may mix in “proppant”, such as little ceramic spheres. It’s all difficult and ingenious, and requires a lot of expensive equipment and skilled people – including skilled promoters. Someone in Houston came up with the concept of shale gas production as “manufacturing”. The shale rocks are so uniform, you see, that the risk of a dry hole would be almost entirely eliminated. You just add money and water (fracking) to a known raw material, and watch the gas grow. It also involves technology, which means vague comprehension of the material world.
Ideas like that are why God made PowerPoint. The oil and gas industry took the idea and ran with it. For example, there are a lot of factors in determining the value of a gas well. One of them is IP, or initial production. Shale gas wells that have been fracked have a high IP, and the shale-oriented companies have focused on that number.
Now shale gas fields have gone from having about 15 per cent of the total gas exploration and production spending committed to them to well over half. Enormous reserves have been found. But how much can be produced economically, and how quickly?
The leading shale sceptic analyst is an independent geologist, Art Berman, often described as a “radical”. Rather soft spoken, though, he says: “I hope I’m wrong about shale.” The problem, as he sees it, is that the standard industry analysis about shale well Estimated Ultimate Recovery, or lifetime production, is too optimistic. “They have fantastic initial rates, but the question is whether the (rate of production) persists as they say.” For example, he says, in deep shale formations “the rock collapses as gas is produced, and crushes the proppant. And as the fractures are drained you have to frac and frac and frac.” Expensive.
Dan Pickering, director of research at the Houston investment firm of Tudor Pickering Holt, counters: “Berman’s decline curve analysis is looking too early in the production curves to judge where the decline (rate) will actually be. As for rising decline rates, I think exploitation techniques have improved, so rising decline does not necessarily mean worse economics.”
Ben Dell, of Bernstein Research in New York, whose work is respected by both sides in the debate, says: “The average well deteriorates more in quality, and more wells fail, than people believe. Still, I think a rise in prices would make more (shale prospects) economic. Plenty of plays work at $9 per mcf [1,000 cubic feet].”
This less-than-expected productivity in the leading gas sector tells Mr Dell that US gas production will decline on the order of 10 per cent next year, leading to $8-$9 gas, or $3 to $4 more than the forward curve anticipates.
Wall Street and Washington had better do more due diligence, right quick, on the shale gas industry’s insider debate.
The story was featured on the Financial Times website.
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