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‘A false start’: Green groups express disappointment in Boris Johnson’s ‘New Deal’ recovery package

Key members of the UK’s green economy have been offering their thoughts on Prime Minister Boris Johnson’s Covid-19 recovery package, the fundamentals of which have now been unveiled. The general feeling is one of dismay, following months of campaigning.

In a speech delivered in the West Midlands this morning, Johnson unveiled an initial £5bn for infrastructure and skills projects across the UK. He vowed to “build, build, build” and bring about a “New Deal” for the nation, in which the rebound from the economic crisis borne of the Covid-19 pandemic addresses key social issues.

But the New Deal is far from “Green”, key NGOs, think-tanks, trade bodies and thought leaders are warning.

Johnson has received a string of policy briefings and open letters in recent weeks, urging him to align the recovery package with the UK’s net-zero target and to prioritise funding for sectors spurring the low-carbon transition or working to protect nature. He and Chancellor Rishi Sunak have repeatedly assured the authors of such documents, as well as MPs, journalists and the general public, that policies to boost the manufacture of low-carbon goods and to decarbonise the nation’s most-emitting sectors would form a “vital” part of the Government’s recovery strategy.

Now, key figures are accusing Johnson and Sunak of overstating their “green” commitments and calling for better environmental provisions to be unveiled by the Treasury next month.

Here, edie rounds up the key concerns which the package has raised across the UK’s green economy.

Poor provisions for retrofitting

Buildings account for around 40% of global emissions and one-third of energy use in the UK and, while improved standards for new housing and business properties are forthcoming, the UK Government has repeatedly been accused of failing to support the decarbonisation of existing stock.

The Department for Education has this week outlined a £1bn package to retrofit schools, but Students Organising for Sustainability claims that £23bn would be necessary to ensure that all schools are net-zero by 2030.

More broadly, the Conservative Party had pledged £9.2bn for retrofitting in its 2019 general election manifesto – a figure which groups including the Sustainable Energy Association and Association for Distributed Energy (ADE) were keen to see come to fruition in the recovery package.

“Investing in a national buildings renovation programme will support local jobs and SMEs right now and will be an important part of the UK’s green economic recovery,” the ADE’s head of external affairs Lucy Symons-Jones said. “The £9.2bn promised in the Conservative Party manifesto will support the engineers and installers who are ready to deliver an immediate national building retrofit programme. Without this funding, these local skilled workers face redundancy.”

The EEIG has also expressed disappointment in the lack of energy efficiency provisions in Johnson’s speech. The body’s previous research claimed that 40,000 jobs could be created in the UK within 24 months, through an ambitious retrofitting programme, with a further 110,000 roles created through to 2030.

“Energy efficiency [is] perhaps the most urgent of all infrastructure priorities,” UKGBC chief executive Julie Hirogoyen added. “[It[ can create jobs right around the country, improve health and reduce costs to NHS, and increase consumer spending power by lowering energy bills.” 

A lack of movement on heat and flexible energy

11 months ago, Citizens Advice warned that the Government’s failure to implement a “credible” framework for the decarbonisation of heat for commercial and domestic use could undermine public confidence in the net-zero transition.

BEIS has since faced repeated calls to accelerate the development of a national heat strategy, particularly since Covid-19 was declared a pandemic.

While the Department announced a £25m pot for heat pumps this week, such a strategy still seems not to be forthcoming. Moreover, Johnson’s speech made no specific reference to heat.

Businesses including Flexitricity, SE2 and Lux Nova have warned that the UK is missing an opportunity here, not only to decarbonise, but to improve wellbeing and to reduce NHS costs.

Poor clarity on skills

Up to 2.2 million Brits could face unemployment unless the UK’s Covid-19 recovery package contains measures to reskill them for “green-collar” roles, Mayors and council leaders representing 25 million residents warned yesterday (29 June).

Calls for increased skills measures have also been made by the likes of National Grid, Oxford University academics and The Energy Transitions Commission – a body representing 40 global organisations including major employers like Heathrow Airport, BP and HSBC.

The UK Government was reportedly set to launch a dedicated fund for reskilling Brits to work in the renewable energy, cleantech and built environment sectors, coupled with additional investment in these sectors to assist with their expansion. The Conservative Party is notably targeting two million “green-collar” jobs in the UK by 2030.

While Johnson did make passing reference to skills in his speech, any green strings were notably absent.

“Jobs, skills and infrastructure are core to the UK’s green recovery,” the Energy Networks Association’s chief executive David Smith said. “Building ahead of need so that electric vehicles can be rolled out at pace, gas can be greened and industry can be decarbonised, creating the green collar jobs that will keep the UK at the front of the fight against climate change.”

“The Prime Minister’s speech rightly identifies the importance of ‘building back greener’ but this has to be rapidly backed up by support for shovel-ready projects and policy decisions that are aligned with the UK’s climate, environmental and clean growth goals,” Aldersgate Group director Nick Molho added. “Such an approach is not just needed to meet the UK’s environmental ambitions, but it is also essential to ensure that the UK’s recovery plan can address key public interest concerns around unemployment, regional inequality and resilience.”

Continued investment in high-carbon sectors

“A real Green New Deal wouldn’t just mean more spending on infrastructure,” campaign group Green New Deal UK tweeted during Johnson’s speech in Dudley. “It would mean a rewiring of the British economy to be climate-resilient, it would mean a pay rise for key workers – and it would mean spending enough money to meet the challenges in front of us.”

The tweet is alluding to the fact that the package contains a £100m pot for road building programmes, in addition to the £27bn promised in the 2020 Budget. Moreover, “green strings” relating to the package’s funding, either in full or in part, are yet to be confirmed.

In contrast, the  European Union has ringfenced 25% of its €750bn fund to help the bloc recover from the coronavirus crisis to mitigating the climate crisis.

“Johnson’s plan to ‘build, build, build’ includes a massive road-building programme and a deeply alarming deregulation of the housing market,” Scottish Green Party co-leader Patrick Harvie said.  “Both of these could cause enormous environmental damage, as well as increasing emissions.”

“Boris Johnson’s speech should have fired the starting gun on a healthier, more resilient future for the UK,” Green Alliance’s executive director Shaun Spiers said.

“Unfortunately, the PM seems to have got off to false start. This statement today is about putting shovels in the ground, but there is no point in that in the long term if it digs the UK deeper into trouble…Let’s hope the Chancellor is listening and ups the government’s game next week – putting people, climate and nature front and centre of the government’s recovery strategy.”

“To avoid catastrophe, we need a low-carbon nature-powered recovery, not one weighed down by tarmac and concrete,” WWF UK’s chief executive Tanya Steele added. “This is another missed opportunity – and we don’t have many chances left.”

Nature hanging in the balance 

On the “nature-powered” aspect, it is worth noting that a recommitment to reforest parts of the country by planting more than 75,000 acres of trees every year by 2025 has been made. A £40m fund to boost local conservation projects has also been announced, and is expected to create around 3,000 jobs while safeguarding 2,000 existing jobs.

Nonetheless, Johnson also said he would be willing to remove wildlife that presents an obstacle to building work on key infrastructure projects. 

“An economic recovery which puts investment in nature first would reap big dividends in tackling climate crisis – helping to absorb up to a third of UK emissions – as well as tackling health inequalities, and providing more jobs, skills and opportunities to support the next generation,” the Wildlife Trusts’ chief executive Craig Bennett said. 

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Millions of households set for energy bill break due to coronavirus crisis

But commuters who usually travel to work using rail season tickets could find themselves out of pocket because of ‘completely unfair’ rules

Millions of households could be given a break from energy bills as a growing number of companies have sent employees home amid the coronavirus crisis, The Telegraph can reveal.

EDF Energy, which has five million customers and is one of the biggest utility firms in the country, said it would consider offering delayed payments to anyone who is affected by the outbreak.

The news comes after the Government warned that as many as a fifth of employees could be off work at the same time, disrupting regular travel plans and increasing power use.

Consumer experts hit out at rail firms for only offering partial refunds to those who are told to work from home as offices across the country sit empty.

High street banks have already offered mortgage repayment holidays to affected customers as the financial toll of the crisis worsens.

The Telegraph understands that energy bosses are in regular communication with the Government and regulators to determine how best to support customers who may run into financial difficulty.

A spokesman for EDF said: “We recognise that over the coming weeks Covid-19 may have an impact on our customers, and we are prepared to offer these customers additional support and flexibility.

“Each case would be looked at on an individual basis, but additional support we could offer may include repayments made over a longer period of time, delay payment for a short period or offer alternative payment arrangements.”

Government advice is that anyone with persistent coronavirus symptoms should remain isolated for seven days.

Those who usually travel to work using a rail season ticket could find themselves out of pocket because of rules blasted as “completely unfair” by a consumer group.

Martyn James, from consumer complaints service Resolver, said the rules could mean many commuters lose out simply for following their company’s advice.

Customers can ask for money back, but they will not receive the full unused value of their and will have to pay an administration fee.

Those who have used the majority of their ticket would not be entitled to a refund.

Mr James said the period used to calculate the refund is arbitrary and may not reflect price variations over the year.

A weekly ticket from Brighton to London costs around £105 while a day return ticket can cost £44.

That means someone returning their ticket after four days of use would receive nothing back.

Customers are also charged an administration fee of up to £10.

Commuters can temporarily “suspend” their season ticket if they are ill. They will be refunded for the time for which they were unable to use it.

To receive their money back customers must supply a medical certificate.

Transport for London, which runs the London Underground, said it is waiving its £5 administration fee for those who need to self-isolate.

A spokesperson for the Rail Delivery Group, a trade body, said rail firms understand these are “exceptional times” and that travellers should check their entitlement with National Rail Enquiries.

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Millions more homes to be powered by renewables

Details of the next round of the Contracts for Difference scheme, which opens in 2021, have been set out today, Monday 2 March.

This latest round will be open to renewable technologies including onshore wind and solar, with proposals to include floating offshore wind. The scheme will also be changed to facilitate the deployment of energy storage.

Local communities will have a more effective voice on developments that impact them, through proposals for tough new guidance on community engagement for developers of onshore wind across Great Britain, also announced today. They will have a definitive say on whether projects are allowed to proceed. It will remain the case that no English onshore wind project can proceed without the consent of the local community.

The Committee on Climate Change have said that we need to quadruple renewable energy generation in the UK to reach net zero by 2050, and today’s announcement is a step in that direction.

Secretary of State for Business and Energy Alok Sharma said:

Ending our contribution to climate change means making the UK a world leader in renewable energy.

We are determined to do that in a way that works for everyone, listening to local communities and giving them an effective voice in decisions that affect them.

RenewableUK’s Chief Executive Hugh McNeal said:

The government is pressing ahead with action to meet our net zero emissions target quickly and at lowest cost to consumers and businesses. Backing cheap renewables is a clear example of the practical action to tackle climate change that the public is demanding, and this will speed up the transition to a net zero economy.

Today’s consultation outlines proposals to ensure the Contracts for Difference scheme can support the increased ambition required, including:

  • making the UK a world-leader in new technologies such as floating offshore wind, which would allow wind farms to be built further away from the shore and increase clean energy capacity
  • supporting our renewables supply chain to enhance productivity and increase competitiveness, boosting the UK’s world-class clean energy industry
  • improving the scheme to better support energy storage, so projects can provide power when the wind stops blowing or the sun is not shining

This is part of the Year of Climate Action, a defining year for our country and our planet, in the run up to the UK hosting the UN Climate Change Conference (COP26) in November.

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Electricity networks

Background to the report

Electricity networks take electricity from the power plants where it is generated, to homes and businesses where it is used. Each transmission or distribution network company (network company) serves a different region. To prevent network companies from overcharging their customers, and to ensure they provide a good service, their earnings are regulated by Ofgem, a non-ministerial government department sponsored by the Department for Business, Energy & Industrial Strategy (BEIS). Ofgem does this through price controls, which are multi-year regulatory settlements that provide network companies with allowances for their costs, and targets for performance. BEIS has overall responsibility for energy policy and ensuring the UK meets legislated targets for reducing carbon emissions.

Network companies have a crucial role to play to support carbon emissions reductions in the energy sector and the wider economy. By 2050, the overall amount of electricity flowing through electricity networks may need to double, to displace carbon-emitting fuels for transport and heating buildings. Growth in the overall demand for electricity and displacement of carbon-emitting fuels by renewables means that new investment is needed to upgrade electricity networks. While upgrading networks has traditionally meant reinforcing them with new cabling and substations, new technology such as battery storage may offer lower-cost methods of upgrading them. Using this technology will require significant changes to the way network companies operate.

Content and scope of the report

This report examines how effectively Ofgem is using RIIO (an acronym for ‘Revenue = Incentives + Innovation + Outputs’) electricity transmission and distribution network price controls to protect the interests of consumers and achieve the government’s climate change goals. It also comments on the strategic challenges BEIS and Ofgem will face in ensuring electricity networks enable the achievement of government’s climate change goals.

Conclusion on value for money

Under Ofgem’s current regulatory framework, electricity network companies have provided a good service, but it has cost consumers more than it should have. It is now clear that targets were set too low, budgets too high, and the impact of these decisions was compounded by Ofgem extending the regulatory period from five years to eight. In some cases, Ofgem did not use the best information available to it at the time: on financing costs, for example, where better use of evidence could have saved consumers at least £800 million. To Ofgem’s credit, it has sought to learn lessons from these experiences and design the next regulatory period differently.

Electricity networks now have a crucial role to play in helping the UK reach net zero emissions by enabling the system needed for low-carbon heat and transport. An intelligent approach to this transition could spare consumers from significant extra costs: this is illustrated by recent research which estimated that using flexible technology could help to reduce the cumulative electricity system costs, including increasing electricity system capacity, by between £17 billion and £40 billion by 2050. To maximise electricity networks’ value for money in future, Ofgem must ensure it sets stretching targets for network companies in the next regulatory period, while building enough flexibility into the price controls to respond to unexpected developments. The government must help to clarify future network requirements by bringing forward further policies for decarbonising heat and transport. And BEIS will need to ensure that the energy market is governed in a way that provides enough strategic coordination of its many actors.

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Over £50 million for clean energy projects across Africa

The UK has invested millions in clean technology across Africa, to support the continent’s growing energy needs.

  • over £50 million invested in innovative, clean technology as the UK works with African countries to develop sustainable energy sources, providing thousands of people with clean energy
  • UK will share expertise in green finance and science and innovation to develop solar farms and battery storage projects
  • African energy demand is set to rise 60% by 2040 – clean energy will be central in powering Africa’s growing economies and increasing access to electricity

Green energy supply in Africa is set for a major boost after the UK government announced winners of an investment package for the continent’s clean energy infrastructure at the African Investment Summit today.

Solar farms in Kenya, geothermal power stations in Ethiopia and clean energy storage across sub-Saharan Africa will receive funding and see leading UK scientists and financial experts working with their African counterparts to realise the continent’s huge potential for renewable energy.

With African energy demand set to rise by 60% by 2040, UK experts will help deliver green solutions for the continent’s growing energy needs, bringing clean energy to thousands of people and creating jobs and increased prosperity.

Business and Energy Secretary Andrea Leadsom said:

Our world-leading scientists and financial experts will work hand in hand with African nations to support their quest for energy security, powering new industries and jobs across the continent with a diverse mix of energy sources while promoting economic growth.

Speaking at the summit, Ms Leadsom emphasised the opportunity for many African countries to leapfrog coal power to cleaner forms of energy but stressed that more needed to be done to unlock investment.

A world-leader in reducing carbon emissions at home, today’s investment in global clean energy comes after the Prime Minister, Boris Johnson, announced the £1 billion ‘Ayrton Fund’ for British scientists last Autumn to help developing nations reduce reliance on fossil fuels and reduce their carbon emissions.

As part of the initiatives announced today, the UK will support African countries with the technical skills and expertise they need in order to attract investment in renewable projects, getting innovative projects like wind and solar farms up and running. Close collaboration with African countries will be key as the UK gears up to host the UN climate talks (COP26) later this year.

UK funded projects in Africa include winners of the Energy Catalyst Competition, which has seen solar plants, energy storage batteries and hydro-power built in countries such as Botswana and Kenya; a £10 million programme which matches UK based green finance experts with project developers from developing countries to facilitate investment in clean energy projects; and the Nigeria 2050 calculator, a modelling tool designed by UK scientists to support the Nigerian government’s sustainable development planning.

Kenya is also set to benefit from a £30 million government investment in affordable energy-efficient housing which will see the construction of 10,000 low-carbon homes for rent and sale. This will support the creation of new jobs in Kenya’s green construction industry and help tackle climate change.

Over 50% of the UK’s energy production came from renewable sources last year, and with London’s expertise as the global hub for green finance, the UK is best placed to be Africa’s leading partner and help it harness its wealth of renewable sources as it moves away from coal power.

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Electric shock: Could Brexit scar Britain’s energy landscape?

Britain’s exit from the EU, which will finally happen on Friday (31 January), has sparked fears of disruption to its electricity market, from higher bills to supply issues and stalled de-carbonisation efforts.

Britain depends on the European Union for much of its electricity supply.

Its own generation fell in 2018 by 1.6%, according to the latest available statistics.

This reduction stems from the gradual shutdown of coal-fired power plants, which is yet to be fully compensated by a rise in wind power.

Imports of electricity and gas have increased in response, predominantly from France, the Netherlands and Ireland, which now account for almost 40% of Britain’s energy consumption.

Britain’s imminent departure from the 28-member EU and its single electricity market therefore represents a risk for an already fragile network, which suffered a big blackout in August.

It will continue to benefit from existing arrangements during a post-Brexit transition phase, while it seeks a new agreement on everything from energy to security cooperation with Brussels.

But it is not clear if these talks will entirely resolve the issue.

British industry regulator Ofgem has said “alternative trading arrangements will need to be developed”, without giving further details.

It insists that whatever deal is struck, it does not “expect Brexit to interrupt the flows of electricity and gas”.

But at times of peak demand, Britain may find itself at the back of the line for electricity.

“EU countries could get preference,” Weijie Mak, of research company Aurora, told AFP.

As with other areas such as finance, agreeing so-called equivalence on things like CO2 emission rules – so countries who produce cleaner and more expensive electricity are not disadvantaged – will be key.

Price rise?

Uncertainty over equivalence and the possible return of tariffs or quotas if trade negotiations falter has left some sceptical that nothing will change post-Brexit.

“The electricity trade will become more expensive,” said Joseph Dutton, policy advisor at climate change think tank E3G. “It could mean higher bills for consumers.”

Trading in electricity across the Channel is currently based on an auction system, which could be upset by Britain’s EU departure.

Eurelectric, the association representing the industry at the European level, sees it as a “lose-lose situation” because of “less efficient gas and power trading”.

The hazy picture has seen the French government put on hold several interconnector projects aimed at better linking the electric power grids of Britain and the continent.

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OVO completes acquisition of SSE Energy Services

Today (15 January), OVO Energy has completed its acquisition of supplier SSE’s GB household energy business.

The acquisition was first announced in September, and approved by the Competition and Markets Authority (CMA) in December.

The move will see OVO become the second largest supplier in the UK, with five million customers. It said that gaining SSE’s smart technology and exceptional talent in the form of its 8000 staff will help to accelerate OVO’s strategy to bring clean affordable energy to more households.

OVO bought SSE Energy Services for £500 million, which comprises of £400 million in cash and £100 million loan notes. These loan notes will be issued by a member of the OVO group, have an annual interest rate of 13.25% payable in kind and will be due in 2029 if they have not been repaid earlier.

The transaction will be subject to a deduction of £59m reflecting debt-like items, SSE announced, including SSE Energy Services’ accruals in respect of the Capacity Market Mechanism.

Stephen Fitzpatrick, CEO and founder of OVO said that this marks the end of one chapter for OVO but “more importantly, the beginning of the next one together with SSE Energy Services”.

“We have an integration plan that leaders from both companies have collaborated on since September. There is a lot of work to do to bring the two businesses together, but we have a really strong combination of great talent, technology and customer centricity that will enable us to succeed.

“SSE’s history of excellence at scale combined with OVO’s innovative technology and our Plan Zero commitments mean that together, as one team, we can bring millions more people with us on our journey towards zero carbon living.”

OVO was formed in 2009, and has since grown to become the largest independent supplier in the UK. It has committed to eliminating its customer’s household emissions and fit five million homes with flexible, clean energy technologies as part of a wide-ranging carbon-cutting initiative dubbed ‘Plan Zero’ it announced in 2019.

It has continued to grow over the last year, investing in clean energy marketplace Renewable Exchange and energy technology start-up firm Electron. It also announced a partnership with automotive giant Mitsubishi motors last December.

OVO also claims that it installed the world’s first domestic vehicle-to-grid charger in a customer’s home.

The CMA launched an investigation into the company’s acquisition of SSE Energy Services in October, to ensure that it would not lessen competition in the UK.

Alistair Phillips-Davies, CEO of SSE said: “We are very pleased to have completed this transaction, which we firmly believe is the best outcome for the business, its customers and its employees.

“The sale is in line with our clear strategy, centred on developing, operating and owning renewable energy and electricity network assets, along with growing businesses complementary to this core.

“SSE enters the new decade as a more focused group, even better positioned to lead the low carbon transformation required to achieve the UK’s vital net zero commitment in the years to come.”

In a blog post today, Philips-Davies said that SSE’s strategic focus had shifted to developing, building and maintaining low carbon assets.

He continued: “For SSE, our core purpose in the years ahead is clear. We are providing the energy needed today while building a better world of energy for tomorrow.”

The company has struggled in recent years, with a loss of profit of £284.6m in 2018. It has started to bounce back, with its interim results statement in November reporting a 14% increase to adjusted operating profit.

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Sadiq Khan launches his own green energy company – London Power

Sadiq Khan has launched his own green energy company, claiming it will save the average household £300-a-year on bills.

The mayor of London today unveiled London Power, in conjunction with Octopus Energy, as a part of his Energy for Londoners programme.

Read more: New Octopus Energy tarif aims to slash the charging cost of electric cars

The company – which will only be available in London – will act as a non-profit company, with all profit “reinvested into community projects”.

The service will be provided by Octopus Energy and will rely on 100 per cent renewable energy.

Khan said the new energy provider would be within the cheapest 10 per cent of similar tariffs in the market and would save the average household £300 on bills.

“It is a disgrace that many Londoners pay too much to heat and light their homes, with more than a million living in fuel poverty,” he said.

“For the first time we have a fair, affordable, green energy company specially designed for Londoners.”

London Power enters a market that is already home to 64 active suppliers, according to Ofgem.

The energy market watchdog’s 2019 report on the energy market found 53 per cent of consumers had never switched energy companies.

However, the figure for London – where energy prices are among the most expensive in the country – is not known.

Peter Earl, head of energy at Compare the Market, said he welcomed the extra competitio, but that it may be difficult to attract new customers.

“It’s an industry challenge to activate the large section of people who have never changed their energy company,” he said.

“[Khan’s] got an offering that should be attractive to people, but it’s not going to be easy.”

The formation of London Power won plaudits from green energy advocacy groups the Renewable Energy Agency (REA) and National Energy Action.

REA chief executive Nina Skorupska said: “By adopting this model, City Hall has shown themselves to be one of the pioneers in the move towards a Net Zero UK.”

Caroline Russell, Green Party leader in the London Assembly, on the other hand said Khan’s plans did not go far enough.

She said the mayor should have set up the company without the help of Octopus Energy so City Hall could have greater power over the company’s energy resources.

Read more: Sadiq Khan has increased press office spending by 26 per cent in four years

“I’ve argued with him to set up a fully-licensed company – which means wholly owned byLondon – to get the best benefits for Londoners,” she said.

“The mayor seems cautious that there will be any profits to be reinvested, but a company owned and run by the Mayor would be able to support investment in green technologies and create green jobs.

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Energy users save £1 billion on bills in 2019

11 million customers have saved as much as £1 billion on their energy bills in 2019, according to new data to mark the first anniversary of the government’s energy price cap

  • government’s energy price cap safeguards 11 million people, often the most vulnerable and elderly, from overpaying on their gas and electricity
  • combined saving of as much as £1 billion on energy bills in the first year of the price cap
  • new data also shows 4.4 million electricity and 3.6 million gas customers switched supplier in first 9 months of 2019, saving even more

11 million customers have saved as much as £1 billion on their energy bills in 2019, according to new data to mark the first anniversary of the government’s energy price cap.

Research has shown that the cap has saved families on default energy tariffs around £75 to £100 on dual fuel bills this year. This comes as the government pledges to build on the success of the price cap and do more to lower energy bills including by investing £9.2 billion in the energy efficiency of homes, schools and hospitals and giving the Competition and Markets Authority (CMA) enhanced powers to tackle consumer rip-offs and bad business practices.

However, with around 60 suppliers now competing in the retail energy market, consumers who switch can still make the biggest savings. Around 4.4 million electricity customers switched supplier in the 9 months to September 2019. Around 3.6 million gas customers switched. Typical households would have saved an average of around £290 on their bills if moving to one of the cheapest deals.

In order to shield those least likely to shop around – including the elderly and most vulnerable – from being charged extra on their dual fuel bills the government introduced the energy price cap on 1 January 2019.

Minister of State for Business, Energy and Clean Growth, Kwasi Kwarteng, said:

Our bold action to ensure all consumers pay a fair price for their energy is making a real difference to the budgets of up to 11 million households and driving increased competition and innovation in the market which will help keep bills down.

Record numbers of customers have also decided to switch suppliers this year saving themselves an average of around £290 on their bills.

Chief Executive of Ofgem Dermot Nolan said:

The price caps give consumers who are on default deals peace of mind that they pay a fair price for their energy. Ofgem set the cap at a level which required suppliers to cut energy bills by around £1 billion.

Consumers can save more money this winter by shopping around for a better deal. While the cap remains in place, Ofgem will continue to work with government and industry to put in place reforms to get the energy market working for more consumers.

Notes to editors

Research by the Competition and Markets Authority has shown that consumers had been overpaying the ‘Big Six’ energy companies some £1.4 billion a year.

The price cap, continuing through 2020, is set by energy watchdog Ofgem, which review it every 6 months to reflect changes in the cost of supplying energy. This ensures those who do not shop around, often elderly and low-income households, are protected from paying over the odds.

The latest ceiling was set by Ofgem at £1,179 per year for a typical dual fuel bill paid by direct debit.

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Recession Fears Cap Oil Prices In 2020

Overall, I expect that oil and other commodity prices will remain low in 2020. These low oil prices will adversely affect oil production and several other parts of the economy. As a result, a strong tendency toward recession can be expected. The extent of recessionary influences will vary from country to country. Financial factors, not discussed in these forecasts, are likely also to play a role.

The following are pieces of my energy forecast for 2020:

[1] Oil prices can be expected to remain generally low in 2020. There may be an occasional spike to $80 or $90 per barrel, but average prices in 2020 are likely to be at or below the 2019 level.

Oil prices can temporarily spike because of inadequate supply or fear of war. However, to keep oil prices up, there needs to be an increase in “demand” for finished goods and services made with commodities. Workers need to be able to afford to purchase more goods such as new homes, cars, and cell phones. Governments need to be able to afford to purchase new goods such as paved roads and school buildings.

At this point, the world economy is struggling with a lack of affordability in finished goods and services. This lack of affordability is what causes oil and other commodity prices to tend to fall, rather than to rise. Lack of affordability comes when too many would-be buyers have low wages or no income at all. Wage disparity tends to rise with globalization. It also tends to rise with increased specialization. A few highly trained workers earn high wages, but many others are left with low wages or no job at all.

It is the fact that we do not have a way of making the affordability of finished goods rise which leads me to believe that oil prices will remain low. Raising minimum wages tends to encourage more mechanization of processes and thus tends to lower total employment. Interest rates cannot be brought much lower, nor can the terms of loans be extended much longer. If such changes were available, they would enhance affordability and thus help prevent low commodity prices and recession.

[2] World oil production seems likely to fall by 1% or more in 2020 because of low oil prices.

The highest single quarter of world oil production was the fourth quarter of 2018. Oil production has been falling since this peak quarter.

To examine what is happening, the production shown in Figure 3 can be divided into that by the United States, OPEC, and “All Other.”

OPEC’s oil production bobs up and down. In general, its production is lower when oil prices are low, and higher when oil prices are high. (This shouldn’t be a surprise.) Recently, its production has been lower in response to low prices. Effective January 1, 2020, OPEC plans to reduce its production by another 500,000 barrels per day.

Figure 4 shows that oil production of the United States rose in response to high prices in the 2010 to 2013 period. It dipped in response to low oil prices in 2015 and 2016. When oil prices rose in 2017 and 2018, its production again rose. Production in 2019 seems to have risen less rapidly. Recent monthly and weekly EIA data confirm the flatter US oil production growth pattern in 2019.

Putting the pieces together, I estimate that world oil production (including natural gas liquids) for 2019 will be about 0.5% lower than that of 2018. Since world population is rising by about 1.1% per year, per capita oil production is falling faster, about 1.6% per year.

A self-organizing networked economy seems to distribute oil shortages through lack of affordability. Thus, for example, they might be expected to affect the economy through lower auto sales and through less international trade related to automobile production. International trade, of course, requires the use of oil, since ships and airplanes use oil products for fuel.

If prices stay low in 2020, both the oil production of the United States and OPEC will likely be adversely affected, bringing 2020 oil production down even further. I would expect that even without a major recession, world oil supply might be expected to fall by 1% in 2020, relative to 2019. If a major recession occurs, oil prices could fall further (perhaps to $30 per barrel), and oil production would likely fall lower. Laid off workers don’t need to drive to work!

[3] In theory, the 2019 and 2020 decreases in world oil production might be the beginning of “world peak oil.” 

If oil prices cannot be brought back up again after 2020, world oil production is likely to drop precipitously. Even the “All Other” group in Figure 4 would be likely to reduce their production, if there is no chance of making a profit.

The big question is whether the affordability of finished goods and services can be raised in the future. Such an increase would tend to raise the price of all commodities, including oil.

[4] The implosion of the recycling business is part of what is causing today’s low oil prices. The effects of the recycling implosion can be expected to continue into 2020.

With the rise in oil prices in the 2002-2008 period, there came the opportunity for a new growth industry: recycling. Unfortunately, as oil prices started to fall from their lofty heights, the business model behind recycling started to make less and less sense. Effective January 1, 2018, China stopped nearly all of its paper and plastic recycling. Other Asian nations, including India, have been following suit.

When recycling efforts were reduced, many people working in the recycling industry lost their jobs. By coincidence or not, auto purchases in China began to fall at exactly the same time as recycling stopped. Of course, when fewer automobiles are sold, demand for oil to make and operate automobiles tends to fall. This has been part of what is pushing world oil prices down.Related: Why Pirates Are Giving Up On Oil

Sending materials to Asia for recycling made economic sense when oil prices were high. Once prices dropped, China was faced with dismantling a fairly large, no longer economic, industry. Other countries have followed suit, and their automobile sales have also fallen.

Companies operating ships that transport manufactured goods to high-income countries were adversely affected by the loss of recycling. When material for recycling was available, it could be used to fill otherwise-empty containers returning from high-income countries. Fees for transporting materials to be recycled indirectly made the cost of shipping goods manufactured in China and India a little lower than they otherwise would be, if containers needed to be shipped back empty. All of these effects have helped reduce demand for oil. Indirectly, these effects tend to reduce oil prices.

The recycling industry has not yet shrunk back to the size that the economics would suggest is needed if oil prices remain low. There may be a few kinds of recycling that work (well-sorted materials, recycled near where the materials have been gathered, for example), but it probably does not make sense to send separate trucks through neighborhoods to pick up poorly sorted materials. Some materials may better be burned or placed in landfills.

We are not yet through the unwind of recycling. Even the recycling of materials such as aluminum cans is affected by oil prices. A March, 2019, WSJ article talks about a “glut of used cans” because some markets now prefer to use newly produced aluminum.

[5] The growth of the electric car industry can be expected to slow substantially in 2020, as it becomes increasingly apparent that oil prices are likely to stay low for a long period. 

Electric cars are expensive in two ways:

1. In building the cars initially, and

2. In building and maintaining all of the charging stations required if more than a few elite workers with charging facilities in their garages are to use the vehicles.

Once it is clear that oil prices cannot rise indefinitely, the need for all of the extra costs of electric vehicles becomes very iffy. In light of the changing view of the economics of the situation, China has discontinued its electric vehicle (EV) subsidies, as of January 1, 2020. Prior to the change, China was the world’s largest seller of electric vehicles. Year over year EV sales in China dropped by 45.6% in October 2019 and 45.7% in November 2019. The big drop in China’s EV sales has had a follow-on effect of sharply lower lithium prices.

In the US, Tesla has recently been the largest seller of EVs. The subsidy for Tesla is disappearing in 2020 because it has sold over 200,000 vehicles. This is likely to adversely affect the growth of EV sales in the US in 2020.

The area of the world that seems to have a significant chance of a major uptick in EV sales in 2020 is Europe. This increase is possible because governments there are still giving sizable subsidies to buyers of such cars. If, in future years, these subsidies become too great a burden for European governments, EV sales are likely to lag there as well.

[6] Ocean-going ships are required to use fuels that cause less pollution as of January 2020. This change will have a positive environmental impact, but it will lead to additional costs that are impossible to pass on to buyers of shipping services. The net impact will be to push the world economy in the direction of recession.

If ocean-going ships use less polluting fuels, this will raise costs somewhere along the line. In the simplest cases, ocean-going vessels will purchase diesel fuel rather than lower, more polluting, grades of fuel. Refineries will need to charge more for the diesel fuel, if they are to cover the cost of removing sulfur and other pollutants.

The “catch” is that the buyers of finished goods and services cannot really afford more expensive finished goods. They cut back in their demand for automobiles, homes, cell phones and paved roads if oil prices rise. This reduction in demand is what pushes commodity prices, including oil prices, down.

Evidence that shipowners cannot really pass the higher refining costs along comes from the fact that the prices that shippers are able to charge for shipping seems to be falling, rather than rising. One January article says, “The Baltic Exchange’s main sea freight index touched its lowest level in eight months on Friday, weighed down by weak demand across all segments. The Index posted its biggest one day percentage drop since January 2014, in the previous session.”

So higher costs for shippers have been greeted by lower prices for the cost of shipping. It will partly be shipowners who suffer from the lower sales margin. They will operate fewer ships and lay off workers. But part of the problem will be passed on to the rest of the economy, pushing it toward recession and lower oil prices.

[7] Expect increasingly warlike behavior by governments in 2020, for the primary purpose of increasing oil prices.

Oil producers around the world need higher prices than recently have been available. This is why the US seems to be tapering its growth in shale oil production. Middle Eastern countries need higher oil prices in order to be able to collect enough taxes on oil revenue to provide jobs and to subsidize food purchases for citizens.

With the US, as well as Middle Eastern countries, wanting higher oil prices, it is no wonder that warlike behavior takes place. If, somehow, a country can get control of more oil, that is simply an added benefit.

[8] The year 2020 is likely to bring transmission line concerns to the wind and solar industries. In some areas, this will lead to cutbacks in added wind and solar.

A recent industry news item was titled, Renewables ‘hit a wall’ in saturated Upper Midwest Grid. Most of the material that is published regarding the cost of wind and solar omits the cost of new transmission lines to support wind and solar. In some cases, additional transmission lines are not really required for the first additions of wind and solar generation; it is only when more wind and solar are added that it becomes a problem. The linked article talks about projects being withdrawn until new transmission lines can be added in an area that includes Minnesota, Iowa, parts of the Dakotas and western Wisconsin. Adding transmission lines may take several years.

A related issue that has come up recently is the awareness that, at least in dry areas, transmission lines cause fires. Getting permission to site new transmission lines has been a longstanding problem. When the problem of fires is added to the list of concerns, delays in getting the approval of new transmission lines are likely to be longer, and the cost of new transmission lines is likely to rise higher.

The overlooked transmission line issue, once it is understood, is likely to reduce the interest in replacing other generation with wind and solar.

[9] Countries that are exporters of crude oil are likely to find themselves in increasingly dire financial straits in 2020, as oil prices stay low for longer. Rebellions may arise. Governments may even be overthrown.

Oil exporters often obtain the vast majority of their revenue from the taxation of receipts related to oil exports. If prices stay low in 2020, exporters will find their tax revenues inadequate to maintain current programs for the welfare of their people, such as programs providing jobs and food subsidies. Some of this lost revenue may be offset by increased borrowing. In many cases, programs will need to be cut back. Needless to say, cutbacks are likely to lead to unhappiness and rebellions by citizens.

The problem of rebellions and overthrown governments also can be expected to occur when exporters of other commodities find their prices too low. An example is Chile, an exporter of copper and lithium. Both of these products have recently suffered from low export prices. These low prices no doubt play a major part in the protests taking place in Chile. If more tax revenue from the sales of exports were available, there would be no difficulty in satisfying protesters’ demands related to poverty, inequality, and an overly high cost of living.

We can expect more of these kinds of rebellions and uprisings, the longer oil and other commodity prices stay too low for commodity producers.

Conclusion

I have not tried to tell the whole economic story for 2020; even the energy portion is concerning. A networked self-organizing system, such as the world economy, operates in ways that are far different from what simple “common sense” would suggest. Things that seem to be wonderful in the eyes of consumers, such as low oil prices and low commodity prices, may have dark sides that are recessionary in nature. Producers need high prices to produce commodities, but these high commodity prices lead to finished goods and services that are too expensive for many consumers to afford.

There probably cannot be a “one-size-fits-all” forecast for the world economy. Some parts of the world will likely fare better than others. It is possible that a collapse of one or more parts of the world economy will allow other parts to continue. Such a situation occurred in 1991, when the central government of the Soviet Union collapsed after an extended period of low oil prices.

It is easy to think that the future is entirely bleak, but we cannot entirely understand the workings of a self-organizing networked economy. The economy tends to have more redundancy than we would expect. Furthermore, things that seem to be terrible often do not turn out as badly as expected. Things that seem to be wonderful often do not turn out as favorably as expected. Thus, we really don’t know what the future holds. We need to keep watching the signs and adjust our views as more information unfolds.