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Business Breakfast RECAP: £840m Network grid upgrade for Hinkley Point can be cheaper, says Ofgem

Good morning and welcome to the Business Breakfast live blog for Wednesday, August 30.

I’m Jonathon Manning and I’m running the live blog this week, to bring you updates on all the breaking business news from across the North East and beyond.

This live blog covers the latest big stories from the North East business community as well as national news and FTSE announcements – anything and everything from the world of business basically.

Britain’s energy regulator has raised major questions about the £840m cost of a network grid upgrade that is being used to connect Hinkley Point nuclear power station.

Ofgem said today that it is challenging around 20% of National Grid’s proposed costs, in particularly those relation to the treatment of how severe weather could delay construction.

And struggling tool supplier HSS Hire has seen its half-year losses nearly quadruple to £30m, up from £7.8m a year earlier. The results cover the six months ending July 1 2017,

The company said its recovery plan had helped return the group to profit in June and increased revenue in its rental division. However progress had been “materially slower” than expected.

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Over eight million families charged £853 extra for energy

UK households have forked out an extra £7.3 billion over the last five years by remaining customers of the Big Six energy firms, a new report shows.

Ofgem data compiled by energy provider Bulb found that families who held accounts with the biggest firms – including British Gas, SSE, E.ON, Npower, EDF and Scottish Power – for at least five years paid out an average £853 more than they needed to over the period

The report explained that while Big Six firms tend to offer cheaper fixed tariffs in order to “entice” new customers, those tariffs tend to expire within one to two years.

At that point customers are usually transferred to standard variable tariffs, which cost up to 30% more than their original plan.

The report went on to calculate the so-called “loyalty fee”, which measures the annual price difference between the average standard variable tariff at a Big Six firm compared to their cheapest tariff.

It found that the average loyalty fee for a UK household was £852.75 over five years – with an astonishing 8.5million British homes staying with one of the Big Six firms and not switching.

Bulb co-founder Hayden Wood said: “Loyalty towards a brand is often rewarded, yet households who’ve put their trust for years in a single energy company are being forced to subsidise others who switch every 12 months.”

He added: “These latest numbers show that so-called standard tariffs no longer have the customers’ best interests at heart. The Big Six need to show that they’re putting customers first, instead of profits.”

A recent poll by uSwitch found a third of Brits are already concerned about paying their energy bills this winter and more than half are struggling with their household finances.

British Gas became the latest Big Six energy supplier to hike prices at the start of August, when it confirmed that it was ramping up the cost of electricity by 12.5% for 3.1 million customers, despite falling wholesale prices.

The company had promised in December that it would freeze tariffs until summer 2017, while rivals including Scottish Power, E.ON and EDF raised their own bills near the start of the year.

Competitor SSE raised dual fuel prices by 6.9% in April, while Npower came under fire in February amid plans to hike gas and electricity prices by 9.8% – a move that added £109 to annual dual fuel bills.

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Solar panel capacity to overtake nuclear energy next year in historic landmark

Solar panel capacity is set to overtake nuclear worldwide for the first time within the next few months, according to expert predictions.

The total capacity of nuclear power is currently about 391.5 gigawatts but the total capacity of photovoltaic cells is expected to hit 390 gigawatts by the end of this year with demand growing at up to eight per cent per year, according to GTM Research.

While this would be a landmark moment for renewable energy, nuclear still generates much more electricity than solar – nearly 2.5 million gigawatt-hours a year compared to the latter’s 375,000 gigawatt-hours

Stephen Lacey, writing on GTM’s website, said: “It’s still going to be a record-breaking year for new solar capacity additions – yet again.

“The 81 gigawatts expected this year are more than double the amount of solar capacity installed in 2014. And it’s 32 times more solar deployed a decade ago. (In the year 2000, global installations totaled 150 megawatts.)

“One of the most telling statistics: By 2022, global capacity will likely reach 871 gigawatts. That’s about 43 gigawatts more than expected cumulative wind installs by that date. And it’s more than double today’s nuclear capacity.”

While solar accounts for about 1.8 per cent of global electricity generation today, the International Energy Agency has predicted this could rise to 16 per cent by 2050 under a “high-growth scenario”, which would make it the largest source of energy in the world.

And Mr Lacy said: “In the last three years, growth rates and cost reductions for solar have far exceeded projections. Meanwhile, high costs, slow construction and competitive renewable alternatives are causing the global nuclear industry to falter.

“The trend lines are becoming clearer every year.”

The Sun delivers enough energy to the Earth in an hour to provide humans with everything they need for an entire year

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Steady start for new water retail market – but more still to do

There have been more than 36,000 switches in the first three months since the launch of the newly competitive water retail market according to data published today by the market operator, MOSL.

Figures also released today by the Consumer Council for Water reveal that during the same period, there were 370 complaints from non-household customers (compared to 232 in the same quarter last year), with billing-related issues remaining the most common cause of complaint.

Commenting on today’s figures, Ofwat Chief Executive Cathryn Ross said:

“This first set of data is important because it gives us a baseline to monitor against and helps us to identify and address emerging issues.

“It is early days, but we are seeing some encouraging signs with new retailers, new deals, and, crucially, customers saving money and water.

“There have been more than 36,000 switches and around 60 per cent of those have come from low water users – more likely to be SMEs. That is significant, because we want to make sure this market works for all customers, not just the very large companies with specialist procurement divisions.

“In addition to those who have switched, we have heard that many others have agreed new deals with their current retailer.

“More needs to be done however; comparing offers is still not as easy as it needs to be and we have told retailers they must remedy this.

“We will continue to monitor the market closely to make sure it works for all and continue to meet and listen to customers, whose views will shape our work.”

 

Energy prices to soar by £400 in July as deals end – are YOU on one of these tariffs?

ENERGY prices in the UK set to soar, uSwitch energy has revealed. USwitch UK found 50 deals are ending this month, including those from EDF and Npower, meaning households could see a bill hike of up to £399.]

 

Households could be hit with the whopping sum of £399 if they don’t remember to switch to another deal this summer.

Fifty deals are set to end this summer compared to 33 in the same period last year.

A number of popular deals from eight well known suppliers including EDF and Npower are set to end this month.

This means families on these tariffs risk being automatically shifted onto a much pricier tariff.

There are fourteen of these fixed deals ending.

USwitch claim households could see a bill hike of up to £399 – a whopping 51 per cent – if they roll over to an expensive standard variable tariff.

The company is urging consumers not to get caught out this summer.

There are more fixed energy plans ending this summer than ever before according to uSwitch.com.

The average price increase for customers whose deals end in July is £274 per year, but some customers risk price hikes of up to £399.

If they take no action, the customers facing the biggest hikes are those with npower (£399), First Utility (£364) and EDF Energy (£360).

Ofgem’s rules allow customers to switch suppliers without paying exit fees from 42 days before their plan end date, so consumers are free to shop around without being penalised.

Claire Osborne, uSwitch energy expert, says: “But with so many bills set to rocket this month, it’s vital to act now to avoid being rolled onto sky-high tariffs.

Tariffs that are changing uSwitch

USwitch claim households could see a bill hike of up to £399

Switching tariff is incredibly easy and is definitely worth ten minutes online, on the phone or on an app.

“Don’t join the 16 million households languishing on poor-value standard tariffs.”

Energy bills are costing the majority of British customers much more than necessary, as providers keep them on the most expensive tariff without informing them cheaper options are available.

Currently, 17 million Britons are on the most expensive standard variable tariffs (SVTs) – dubbed a ‘rip off’ tariff by consumers.

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Post-Brexit: Calls for close UK-EU ties on climate and energy

Failure to collaborate with the EU post-Brexit on energy and climate policy could raise energy costs for the UK, hitting consumers and unnecessarily complicating UK carbon emissions reductions. That’s according to the Green Alliance, which is calling on the UK government to continue to co-operate with the EU on energy and climate post-Brexit, claiming that it is “strongly in the national interest, particularly in relation to the growing low carbon economy.”

The independent think tank says that this sector already represents two to three percent of the UK’s GDP, and over 55 percent of trade in low carbon technology is with the EU.

Negotiating Brexit, from think tank Green Alliance, highlights Brexit risks and proposes establishing a “Paris co-operation track,” using the Paris Agreement on climate change, an international mechanism ratified independently by both the EU and the UK, as the basis for future collaboration with the EU on climate and energy.

According to the Green Alliance, the five main areas at risk are:

• Electricity interconnection with the EU which meets seven per cent of UK’s electricity needs and keeps consumer energy bills down. National Grid’s “two degrees” scenario for UK electricity sees interconnectors providing 17 percent of UK peak demand by 2023. A doubling of existing interconnection could save up to £1 billion a year in reduced wholesale prices by 2020, but leaving the EU’s internal energy market would put this at risk.

• Northern Ireland’s energy integration with the Republic of Ireland. If the UK leaves the internal energy market, it will disrupt the £6 billion (US$7.87 billion) Irish energy market.

• Favorable finance terms from the European Investment Bank. Current loans from the EIB are worth £8 billion (US$10.5 billion), more than double the finance previously available from the Green Investment Bank for UK energy infrastructure over the past five years. This favorable finance has underpinned the success of the UK offshore wind and electric vehicle sectors.

• Maintaining product standards and, in particular, vehicle standards which UK car manufacturers must comply with, as they export 80 percent of their vehicles, half of EU consumers. Divergence in a vehicle and other product standards would undermine UK exporters and risks turning the UK into a dumping ground for inefficient and shoddy products that aren’t fit to be sold in the EU.

• Delivering the carbon budgets where 55 percent of required emissions reductions to 2030 are expected to be delivered through EU-derived legislation with risks to effective transposition and future compliance and governance.

The study identifies several actions for the UK including to reconsider the hard line on the role of the European Court of Justice (ECJ), which governs the shared energy and climate rules across the EU and countries in the wider Energy Community.

“The UK’s concerns about the ECJ should not lead us to forego the benefits of high levels of cooperation: greater energy security and faster and cheaper decarbonization. Several options are available to address potential concerns over the role of the ECJ,” says the Green Alliance.

It suggests that an “association agreement” with the EU is a potential alternative, which would minimize the ECJ’s role and could achieve the necessary outcomes.

It also wants to retain access to the internal energy market for electricity and gas to maintain barrier-free trade. The internal energy market and its rules and principles have served British interests well, according to the think tank, and Britain should negotiate continued participation in the market and the technical bodies proposing the rules.

The Green Alliance also urges the UK to stay aligned with EU product standards and environmental principles as a significant divergence from these could undermine UK competitiveness and the ability to trade in low carbon goods and services, as well as weakening health and environmental safeguards.

“Sustained cooperation will mean that the UK can continue to stand with the EU at the forefront of international leadership on climate. It will also maximize the benefits of low carbon trade with Europe and support the shared vision of long term energy security. Not least, it will secure clean and cheap energy for UK consumers,” says Chaitanya Kumar, Green Alliance’s senior policy adviser on low carbon energy, and author of the analysis.

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Is there enough electricity? National Grid reacts to fossil-fuel vehicle ban

National Grid has welcomed the plan to make electric or zero-emission cars and vans account for all new sales from 2040, but said the government and industry now faced big decisions on how the extra power was provided and demand for it was managed.

The grid recently warned that, by 2030, electric cars could require 3.5-8GW of additional capacity, on top of the current peak demand of 60GW.

By comparison, the nuclear power station being built at Hinkley Point in Somerset will add 3.2GW of capacity to the system.

By the middle of the century, when it is assumed almost all cars will be electric, that extra peak demand could be up to 18GW.

The lowest estimates of extra demand assume that drivers charge their cars at off-peak times. Smart meters and time-of-day tariffs could incentivise owners to charge when wind and solar power are plentiful and electricity is cheaper.

Energy networks could also manage demand via automatic time-shift charging, whereby a car plugged in at home at 6pm is not actually charged until the early hours of the morning, when demand is low.

Ministers have already urged drivers to think carefully and avoid placing extra pressure on the grid.

James Court, head of policy at the Renewable Energy Association, a trade group, said: “We need smart vehicle charging and price-reflective tariffs if the future electric fleet is to be a huge benefit and not a hindrance to our grid.”

Regardless of how sensibly the extra demand is spread across the day, electric cars will require investment in new power generation.

The energy analyst Wood Mackenzie estimates that if one in three cars sold in 2035 is fully electric, the vehicles would collectively account for 3% of the UK’s total electricity demand. Building 400,000 charging points for them all would cost £30bn, the group has said.

National Grid said the extra power would be generated from gas, windfarms, imports and nuclear reactors – not from coal, which is scheduled to disappear from the UK’s power mix by 2025 at the latest.

And the switch to electric vehicles could even provide an eventual boost to the grid.

The government recently announced £20m of funding to support research on vehicle-to-grid technology, where the grid could call on the power stored in the cars’ batteries to help cope with fluctuations from intermittent wind and solar farms.

Since you’re here …

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industry Household batteries will be key to UK’s new energy strategy

Batteries and renewable power sources are on the verge of bringing about an “epochal transformation” of the UK that could make energy clean, abundant and very cheap, according to a cabinet minister.

As the government unveiled plans for a more flexible energy system and £246m of funding for battery research, Greg Clark told the Guardian that a smarter grid would “radically” bring down bills.

“Energy, for the last 100 years, for good reasons, we’ve rationed the consumption of [because] it’s been very expensive and environmentally-damaging to consume fossil fuels. [But] given the possibilities we are on the cusp of at the moment, we might move to a world where energy is clean and abundant,” said the business secretary.

Storing intermittent renewable power in batteries so it was ready when the grid needed it would bring down costs for everyone, including vulnerable and low income energy consumers, he said.

“If only we can capture it [power from the sun and wind] then we can go from energy being a worrying cost to people, to being, if not free, then very cheap,” Clark said, speaking in Birmingham on Monday as he put energy at the centre of the government’s industrial strategy.

But the variable nature of wind and solar power generation means that local energy networks and the National Grid need more flexibility to cope with those fluctuations.

Batteries, and the ability for energy firms to automatically reduce electricity demand from willing businesses and households, are at the heart of a plan published by government and Ofgem.

Ofgem said using technology to flatten out peak demand and avoiding the cost for reinforcements to energy networks would save consumers £17bn-£40bn by 2050. The regulator said that the 29 changes to energy regulation announced on Monday, which will come in over the next 18 months, would also encourage new, tech-savvy entrants into the energy market.

Andrew Burgess, an associate partner at Ofgem, pointed to emerging smart appliances that could automatically turn down electricity use at peak times, and make it possible for companies to aggregate the solar power from householders’ rooftops and sell it to local power grids when needed.

The changes should also make it easier for companies to aggregate and trade services from people who have fitted solar panels or batteries at home – selling households’ electricity to power grids at times of need.

“For individual consumers, I think the opportunities are for businesses coming in, for the Amazons and Netflixes of the world coming into a traditional sector and offering different ways for consumers to engage,” Burgess said.

The smart grid plans came as ministers launched the Faraday Challenge, pledging £246m of funding for battery research, £45m of which will be used to create a national battery institute,which will be a virtual grouping of universities across the UK.

“Its work will quite literally power the automotive and energy revolution, where the UK is already leading the world,” said Clark.

He added that the national battery centre would be a fitting way to mark the 150th anniversary of the death of Michael Faraday, the scientist who undertook groundbreaking work on electricity.

The energy industry, carmarkers and green groups welcomed the push on smart grids and batteries. Phil Sheppard, National Grid’s head of network strategy, which already runs schemes where businesses are paid to turn down electricity consumption when demand peaks, said: “Today’s report provides clear direction on how we move to a secure, low carbon, flexible energy system, using efficiency and innovation to help keep costs down for bill payers.”

WWF said the moves would accelerate the rollout of renewables and electric cars. Gareth Redmond-King, the group’s head of energy, said: “Battery storage is a clear game-changer in our ability to produce clean power from renewables.”

Nissan, which makes the batteries for its leaf electric car in Sunderland, said the government plans, combined with having more cars plugged into the grid, would have “a fundamental impact on the shift from fossil fuels to renewables”.

But some industry watchers said that while the changes were necessary, they risked creating a two-tier energy system of haves and have-nots, if adequate protections were not put in place.

Jon Ferris of Utilitywise said: “Today’s announcements will be transformational for the energy sector, but are not a panacea for the challenges of maximising energy productivity and accommodating increasing renewable generation.

“Some domestic consumers may save money, but there is a risk that only consumers able to afford new appliances, solar photovoltaics and storage will benefit.”

However, Clark was adamant that the plans would reduce rather than increase inequality in the energy market.

“[There] should not be a class of people who are excluded from these possibilities on the way to a big, abundant future,” he said, adding he would make it clear to energy suppliers that they had an obligation to help vulnerable customers access new technology.

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UK green gas ‘could boost decarbonisation goals’

Decarbonising the UK’s gas networks could play an important role in achieving the targets set out in the Paris Agreement.

That’s according to a new report from Imperial College London’s Sustainable Gas Institute (SGI), which says the existing natural gas system will need to be replaced with a greener solution if the UK is to effectively decarbonise.

Although this role could be taken over by electricity storage, the SGI suggests green gas storage would likely prove a better option.

They believe this would have the advantage of repurposing the valuable assets such as gas pipes that are already in place and would match up with the preferences of consumers, who generally like using gas appliances.

The group adds technical issues need to be explored before the costs of such a system conversion could be accurately calculated but claims low carbon gas can be relatively easily and inexpensively stored.

This gives it the benefit of increased flexibility over electric alternatives which the SGI says are more technically challenging.

The researchers estimate biomethane might cost around 8.1 pence per kilowatt hour (p/kWh) on average, with hydrogen predicted to cost slightly more at an average of 9.3p/kWh.

To compare this to current energy systems, in 2015 the equivalent EU price for electricity was 17p/kWh and the average EU natural gas retail price was 5.4 p/kWh.

Dr Paul Balcombe, a Co-Author in the SGI, said: “The timeframe for the potential conversion of the gas network could be in the late 2020s.

“Decarbonised gas will be most useful to domestic consumers in urban environments with dense populations who have limited amounts of space to use other low carbon options.”

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UK electricity and gas networks making ‘unjustified’ profits

Companies that run Britain’s electricity and gas networks, including National Grid, are making “eye-watering” profits at the expense of households, according to a well-known consumer group.

Citizens Advice believes £7.5bn in “unjustified” profits should be returned to consumers who pay for network costs via their electricity and gas bills, although its figures have been contested by the energy industry and regulator.

Ownership of electricity and gas networks came under the spotlight in the run-up to June’s general election, after the Labour party said in its manifesto it would bring both national and regional grid infrastructure to back into public ownership over time. Electricity sector privatisation began in 1990 and the gas industry was privatised in 1986.

Energy network companies — which own and operate the cables and wires that help deliver electricity and gas to homes and businesses — are in effect monopolies that are regulated by Ofgem.

Ofgem evaluates what their costs, including the cost of capital to finance investments, might be over an eight-year “price control” period.

Citizens Advice claims many of the regulator’s calculations for the most recent price control went “considerably in networks’ financial favour”. It believes assumptions Ofgem made about factors such as the future path of interest rates and returns on government bonds were too generous, as was the regulator’s assessment of the risk associated with operating a network company. 

These “generous” assumptions will lead to network companies making average profit margins of 19 per cent and an average return of 10 per cent for their investors at the expense of consumers, Citizens Advice claims in a report published on Wednesday, which recommends a shorter price control period to allow for more accurate forecasting.

“Decisions made by Ofgem have allowed gas and electricity network companies to make sky-high profits that we’ve found are not justified by their performance,” said Gillian Guy, chief executive of Citizens Advice.

Ofgem defended its regulatory regime, saying it helped to cut costs, improve reliability and customer satisfaction. 

“Ofgem has already cut costs to consumers by 6 per cent in the current price control and secured a rebate of over £4.5bn from network companies and is engaging with the industry to deliver further savings,” said Dermot Nolan, chief executive of the energy regulator.

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Mr Nolan insisted the next price controls would be “tougher for investors”. The current price controls for the gas and electricity transmission networks, plus gas distribution, run until 2021 and until 2023 for local electricity distribution networks. 

“While we don’t agree with its modelling and the figures it has produced, the Citizens Advice report raises some important issues about network regulation which will be addressed in the next control,” Mr Nolan said.

The Energy Networks Association, a trade body, refuted the claims of Citizens Advice, insisting that costs had fallen by 17 per cent in real terms since privatisation. The current regulatory framework was established after a public consultation, it said, adding that today’s report repeated several old claims that had previously been rejected by the Competition and Markets Authority.

“Our energy networks are among the most reliable and lowest cost in the world and their performance has never been better. In the next six years energy network companies are forecasted to deliver £45bn of investment in the UK economy,” a spokesman for the networks association added.

National Grid said that since 2013 it had generated savings of £460m for bill payers. “National Grid makes up just 3-5 per cent of the average bill, which pays for the transmission networks that transport energy across the country and our ability to balance the system second-by second. But even though it is only a small proportion we are always looking for new ways to reduce costs further,” it said.