Posts in category: Business Utilities News

Taking on customers whose energy company has collapsed will cost surviving gas and electricity firms approximately £700 more per new client.

Market giants such as British Gas, Octopus, and Shell have gained hundreds of thousands of retail customers from Ofgem’s supplier of last resort process – but it comes at a cost.

The price of ‘onboarding’ new consumers from defunct suppliers – known as ‘orphans’ – is estimated to be £700 more than the regulator’s £1,277 price cap based on average usage.

With Ofgem only reviewing its price cap on a twice per year basis, energy companies are set to bear the brunt of record wholesale prices and the limits on what customers can be charged this winter.

This follows the collapse of suppliers in the energy sector earlier this year, which has affected 1.5 million customers. In 2018, prior to the decline in energy suppliers, there were over 70 competitors in the market vying for consumers, after competitive reforms to the market that successfully reduced the influence of the former ‘Big Six’.

Simone Rossi, chief executive of EDF Energy, told the Financial Times that his company is currently is losing money with the acquisition of each new consumer.

He said: “Right now we actually suffering a loss… It’s a huge, huge issue for us across the industry.”

It is possible the biggest players in the sector could return to a dominant position in the market following the instability at smaller energy firms, provided they can ride the wave of on-boarding costs.

However, Laith Khalaf, head of investment analysis at AJ Bell, told CityAM that it will be difficult for energy suppliers to see the opportunity provided by new customers due to the current situation regarding costs.

He said: “It’s clearly hard for energy suppliers to view new customers positively when they are potentially going to cost them so much money as a result of the price cap. Longer term they may be able to turn a profit, but margins are actually pretty thin in energy supply, so it takes a long time to repair an onboarding loss.”

Commenting on possible resolutions, he added: “The price cap is clearly there to protect customers, but there’s only so long the energy suppliers can soak up costs before they have to pass them on, and any review of the price cap will take into account the increased cost of wholesale prices. The best case scenario is that energy prices fall back and make things more affordable, otherwise households are inevitably going to end up paying more.”

On 05 May 2021 the Gas and Electricity Markets Authority (“the Authority”) decided to confirm its proposal to impose a financial penalty of £100,000 on Symbio Energy Limited (“Symbio”) for its failure to comply with Standard Licence Condition 33 of the Electricity Supply Licence, the Feed-In Tariff  Order 2012, Articles 68 and 74 of the Renewable Obligation Order 2015 and Article 49 of the Renewable Obligation (Scotland) Order 2009.

The Enforcement Decision Panel made the above decision having carefully heard and considered representations from Symbio and third parties which were submitted in response to the notice of proposal to impose a penalty dated 27 January 2021.

The Authority gives notice of its decision under section 27A(5) of the Electricity Act 1989.

The Environmental Audit Committee (EAC) is calling for the introduction of a floor price above zero for the Smart Export Guarantee (SEG) to help support community energy.

This follows industry feedback gathered through a call for evidence regarding community energy issued by the EAC in February that saw 57 responses. Industry representatives told the committee that in its current form, the SEG – which came into effect in January 2020 and requires energy suppliers to offer an export tariff – is “flawed because it provides no minimum export price, and no long-term certainty beyond 12-month periods”.

As a result, the EAC is also recommending that the government extends the guarantee on the energy export price. These recommendations have been issued in a letter addressed to energy secretary Kwasi Kwarteng, detailing how while the SEG has replaced the feed-in tariff (FiT), it puts the community energy sector at a disadvantage to larger renewable energy projects which receive long-term certainty from Contracts for Difference.

Indeed, the sector’s feedback included how changes to the subsidies available over the past five years have negatively affected the financial viability of community energy projects, particularly small rooftop solar and urban projects. Prior to its implementation, the SEG – and in particular the policy gap between it and the FiT – faced criticism from across the industry, with the chief ask being the introduction of a minimum floor price for the scheme, most notably from Solar Energy UK (then the Solar Trade Association).

The letter goes on to express the disappointment of the committee that the energy white paper only mentions community energy once and local energy twice, recommending that the forthcoming net zero strategy emphasises the importance of community energy and that the Department for Business, Energy and Industrial Strategy develops a complementary UK-side community energy strategy including practical support measures.

Additionally, community energy and environmental groups, charities and electricity network operators suggested to the EAC that the current regulatory regime for energy distribution acts largely as a barrier for the growth of the sector in the UK. Grid connection costs and access charges can be too high for small groups and do not account for the wider decarbonisation benefits including education and social support that projects bring to their communities, the letter said.

‘Right of local supply’ was also identified as being in need of some work, enabling local energy markets to balance supply and demand at a community level and build energy resilience by harnessing edge-of-the-grid potential in the future.

Currently, the inability of a community project to sell their energy to their own community and accommodate local demand is a significant barrier to project development, according to the evidence gathered by the EAC, which said that while the Local Electricity Bill sought to address this, it will fall at the end of the Parliamentary session.

The government should therefore remove the regulatory barriers to allow community energy projects to sell their energy to their local communities, and Ofgem should also provide guidance to distribution network operators (DNOs) on how to incorporate community energy into the energy network.

EAC chairman, Philip Dunne, said that the committee’s continuing inquiry into technological innovations and climate change has shown there is no shortage of innovative ideas but “what is lacking is government support, a coherent plan and recognition of current barriers” with community energy no exception to that.

“For net zero Britain requires us to change our behaviour and adapt to a low-carbon lifestyle. Community energy can help achieve this – not only powering homes and businesses up and down the country but by engaging local citizens on the benefits of renewable energy and – in many ways – how we can do our bit to help keep the lights on ourselves.”

The government has set out a blueprint to switch 20TWh of the UK industry’s energy supply from fossil fuel sources to low carbon alternatives, as part of its £1 billion Industrial Decarbonisation Strategy.

To “kick start” this transition, the energy secretary today announced that £171 million from the Industrial Decarbonisation Challenge has been allocated to nine green tech projects around Britain.

Additionally, £932 million has been directed to 429 projects across England as part of the Public Sector Decarbonisation Scheme, which will fund low carbon heating systems such as heat pumps as well as technologies such as rooftop solar.

The final key part of the government’s strategy revolves around new measuring rules for energy and carbon performance for commercial and industrial buildings in England and Wales. These could save businesses around £2 billion annually on energy costs by 2030, as well as reducing carbon emissions by 10%, or 2 million tonnes, according to the Department for Business, Energy and Industrial Strategy (BEIS).

Energy secretary Kwasi Kwarteng said that the strategy showed the UK is “taking steps to be the first major economy to have its own low carbon industrial sector”.

“While reaching our climate targets will require extensive change across our economy, we must do so in a way that protects jobs, creates new industries and attracts inward investment – without pushing emissions and business abroad.

“Ahead of COP26, the UK is showing the world how we can cut emissions, create jobs and unleash private investment and economic growth. Today’s strategy builds on this winning formula as we transition low carbon and renewable energy sources, while supporting the competitiveness of Britain’s industrial base.”

Green tech winners: The hydrogen and CCS industrial clusters

The nine projects receiving a cut of the £171 million Industrial Decarbonisation Fund focus predominantly on hydrogen and carbon capture and storage (CCS). This builds on the National Infrastructure Strategy announced last November, which also had hydrogen and CCS at its core.

In Merseyside, HyNet North West will receive almost £33 million funding for 2 projects that look at capturing and storing carbon emissions from the operations of a low carbon industrial cluster and creating a hydrogen economy in the North West. This will include repurposing old oil and gas facilities in the area for the transport and storage of carbon.

It will reduce carbon dioxide emissions by a million tonnes a year from 2025, which will the increase to 10 million tonnes by 2030 and beyond. Local homes and businesses will benefit from green energy through blending hydrogen with natural gas.

“This is a once-in-a-generation moment to effect real change,” said Steve Fraser, CEO of Cadent, one of the consortium partners in HyNet.

“Replacing fossil gas with hydrogen will achieve incredible carbon savings, create thousands of jobs and position the North West as a world-leader in this technology. Cadent and the whole HyNet consortium is determined to make that happen.”

Beyond HyNet, Scotland’s Net Zero Infrastructure project based in St Fergus in Aberdeenshire has received over £31 million to conduct offshore and onshore engineering studies focused on accessing safe carbon storage resources in rock deep below the North Sea.

The Net Zero Teesside and the Northern Endurance Partnership is to get over £52 million for two projects set to decarbonise the Teeside industrial cluster in the mid-2020s. This will include both a world-first flexible gas power plant that uses CCUS, as well as offshore carbon transport and storage. These are set to capture around 2 million tonnes of CO2 annually from 2026 and decarbonise 750MW of power.

Zero Carbon Humber will get over £21 million to turn the Humber region into a net zero cluster by 2040. It will include H2H Saltend, one of the world’s first at-scale low carbon hydrogen production plants, as well as CO2 and hydrogen pipelines.

An addition £12 million will be awarded to project Humber Zero, which will create a CCS and hydrogen hub at Immingham, North East Lincolnshire. This will enable cost-effective and low carbon energy supply and storage, capable of providing services to National Grid.

The final project is the South Wales Industrial Cluster, which is to receive nearly £20 million to create a decarbonised industrial zone that includes deployment of hydrogen and the development of CCUS. It will create a sustainable plan for the region, utilising CCS for cleaner electricity production alongside hydrogen-rich nature gas.

Industrial Decarbonisation Challenge UK Research & Innovation challenge director, Bryony Livesey, said the £171 million funding is a “significant step” for largescale decarbonisation efforts, and they are “looking forward to working alongside the projects as they put their revolutionary plans into action”.

“The benefits to these regional clusters will be substantial, both in terms of the environmental impact, as well as the opportunity for jobs and increasing the global competitiveness of industry in the areas. It once again demonstrates the UK’s industry as being at the forefront of innovation and creating greener solutions for the future.”

Public Sector Decarbonisation Scheme: Solar and heat pumps key technologies

BEIS has identified over 400 projects that will receive a cut of the £932 million allocated for the Public Sector Decarbonisation Scheme across four key areas. The scheme was first announced in October 2020, when the government stated £1 billion of grant funding would be made available for heat decarbonisation and energy efficiency measures across the public sector, central government departments and non-departmental public bodies.

Greater Manchester Combined Authority is to received £78,236,986 for 15 bodies in the Greater Manchester public estate, including transport, fire and rescue services, police and the Royal Northern College of Music, as well as community buildings including 36 schools and 22 leisure centres.

These buildings will see significant green upgrades including air source heat pumps and solar installations, along with new lighting systems.

Leicester City Council will receive £24,253,008 to allow it to upgrade 93 buildings including 53 schools. Similarly, this will include replacing natural gas heating with air source heat pumps, installing solar panels and improving insulation.

Hertfordshire County Council will use £24,007,737 to upgrade 182 council buildings, including 74 schools and 23 emergency service buildings. Heat pumps, battery storage and solar panels will be installed at the sites, along with energy efficiency improvements.

Finally, Hull University Teaching Hospitals NHS Trust will use £12,640,760 to install solar panels, heat pumps and roof insulation. A mass replacement of lighting will also be undertaken, inefficient air compressors replaced and a new supply point to Castle Hill Hospital created.

Carbon pricing, skills training and ‘Project Speed’

Beyond these key areas of funding, the Industrial Decarbonisation Strategy has a number of key commitments for government and business. The government will use carbon pricing as a tool to ensure industry take account of their emissions within key decisions.

It will work to establish the right policy framework to ensure fuel switching is taken up by industry, while a targeted approach to mitigate against carbon leakage must be taken.

New products standards will be developed to allow manufacturers to clearly distinguish their products as low carbon. The government will explore coordinated action on public procurement for green industrial products to help also drive down costs.

The Infrastructure Delivery Taskforce, named ‘Project Speed’, will work to ensure land planning is fit for building low carbon infrastructure, and the Steel Council will help to set targets for near-zero emissions by 2035 to further help this buildout.

The skills transition will be supported, to ensure the current and future workforce benefit from new green jobs, with up to 80,000 jobs over the next three decades expected to be created as part of the green industrial revolution.

By following the pathway set out in the Industrial Decarbonisation Strategy, industrial emissions are expected to fall by two-thirds by 2035, and by at least 90% by 2050 on 2018 levels according to BEIS. Additionally, 3 megatons of CO2 are expected to be captured by 2030, compared to the minimal levels of today.

“The Industrial Decarbonisation Strategy marks another vital step in the UK’s plans to achieve its net zero emissions target,” added CBI chief economist Rain Newton-Smith.

“Creating and championing competitive low-carbon industries will ensure the benefits of a green economic recovery, and the longer-term transition to net zero, are shared across the whole country.

“Ahead of COP26, this is a welcome demonstration of the UK’s commitment to act on climate change, to make our post-pandemic recovery a green one, and to give businesses the certainty they need to invest in the technologies of the future.”