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Britain’s Bix Six energy suppliers stem customer exodus as prices rebound

gas flame photoBritain’s ‘Bix Six’ energy suppliers – British Gas, SSE, RWE Npower, EDF Energy, Eon and Scottish Power – have been given the opportunity to win back ground lost to smaller rivals and slow down the number of lost customers through a rebound in wholesale gas and power prices this year, helping to recover more than a billion pounds in lost revenue last year.

Falling energy prices last year hit the profit margins of the ‘Big Six’ hard and enticed customers to smaller, independent suppliers that could offer cheaper tariffs and better customer service. Smaller energy companies, such as First Utility, Ovo Energy or Utility Warehouse were able to offer cheaper rates as they buy most of their energy needs in the short term market, therefore enabling them to take advantage of the 20-30 percent tumble in prices in 2015. Larger suppliers purchase most of their requirements in the longer-term market, typically hedging a few years ahead, which meant they were unable to take advantage of last year’s price falls.

However, due to a rebound in prices this year, smaller providers are having to increase their tariffs to cover the increase in wholesale prices, thus giving an opportunity to the ‘Big Six’ to reclaim customers, or at least slow down the flow of customers leaving.

Market prices for this winter, which runs from October through to March and is typically the highest demand period of the year, have risen by almost 30 percent since April due to a recovery in the oil market and concerns over gas storage availability for the coming winter period.

This has seen the rate of customer switching from the traditional ‘Bix Six’ supplier, in favour of a smaller, cheaper supplier, slow down, with industry data showing it fell to its lowest level since April 2015. RWE Npower gained an extra 200,000 new customers in July, returning its customer base to levels not seen since the end of last year, while number 2 supplier SSE reduced customer losses to 50,000 between March and June, from 90,000 over the same period a year ago.

In contrast, according to uswitch, a price comparison site, smaller suppliers such as Ovo Energy and Co-Operative Energy have lifted their tariffs by 3.6 percent and £103 respectively as a result of higher wholesale prices.

According to Ofgem, the UK’s energy watchdog, smaller players, such as the ones mentioned above, had increased their electricity market share to 13 percent by March this year, while increasing their share of the gas market to 14 percent, both up from the 10 percent recorded in 2015. Apart from the price of gas or electricity, frustration with customer service levels at ‘Big Six’ firms has also seen consumers switch their energy supplier.

In the face of increasing market prices however, smaller rivals are moving to strengthen their balance sheets. Good Energy, which specialises in renewable energy, raised £3.1 million in a share offer in June, while some of the biggest independent providers, such as First Utility and Utility Warehouse have hired established trading firms, such as Shell and Npower to carry out their hedging and trading on their behalf.

Many other independent suppliers declined to comment on their strategies due to commercial sensitivity, however, should wholesale energy prices continue to rise, smaller suppliers with deteriorating balance sheets could be encouraged to take more drastic action in the future.

Source: Reuters

What is district heating and why do you need to know about it?

copenhagen_district_heatingWith a new district heating project under way in Fife and further major investment in Scotland on the horizon, it is an important time to ask the question: what is district heating and why do you need to know about it?

While district heating is nothing new, gaining prominence in the UK after World War II, the importance of it has grown as issues of peak oil and sustainable energy sources become ever more important.

In brief, district heating is the process of supplying space heating and domestic hot water to a large number of buildings – be it homes or government and commercial properties – from a central source. In other words, rather than having 100 homes with 100 heat sources, district heating can allow the use of one heating source for all 100 homes.

The mechanism of providing this heating from one central energy source to a large number of properties (the largest district heating system in Copenhagen supplies 275,000 households) involves a network of insulated pipes from the point of generation to an end user.

The heat supplied can come in various energy forms including:

  • Power stations
  • Energy from waste (EfW) facilities
  • Industrial processes
  • Biomass and biogas fuelled boilers
  • Gas-fired CHP unites
  • Fuel cells
  • Heat pumps
  • Geothermal sources
  • Electric boilers
  • Solar thermal arrays

Scandinavia are leading the way when it comes to district heating with between 50 and 60 per cent of its heating coming from a centralised source. This foresight to implement an efficient, sophisticated heating system, however, may have come more from necessity, rather than perspicacity. Scandinavia has few natural resources such as coal and oil and was greatly affected by the oil crisis of the seventies.

Therefore, the geography of Scandinavia determined the need to be proactive about its energy source and usage, and the region is now widely regarded as a world leader in sustainability.

In the UK, Scotland is leading the way in terms of generating energy from district heating. It is a key component of the Scottish Government’s approach to meeting its climate change targets and securing a low carbon economy in Scotland.

Since 2011 the country has implemented its District Heating Loan fund which has provided £10million in low-interest loans. This money has helped save 220,000 tonnes of lifetime CO2 and supplied heat to over 700 homes.

And now a potential new district heating network is being developed in Fife as part of the Glenrothes Heat project which will look to use heat from a nearby RWE Markinch Biomass CHP plant, which is 90% fuelled by waste wood.

So what plans are in the insulated pipelines for the rest of the UK? The British government is trying to increase the number of households connected to district heating networks, while the Greater London Authority is aiming for 25 per cent of its energy supply to come from a centralised source in 2025.

Other cities such as Sheffield, Nottingham and Bristol are also investing in district heating with Bristol developing the local city centre enterprise zone to entice potential businesses with guarantees of lower heating bills.

So while the UK is not on a par with Scandinavia or other European countries like Germany just yet, the imperative that was laid down to Scandinavia in the seventies is now upon us. Sometimes it takes extreme circumstances to bring about improvement. And improvement in the energy supply of our heating is certainly on the horizon.

Source: Saul Bush – One

National Grid cancel emergency power reserve tender

Power grid operator National grid has canceled an emergency power reserve tender due to a lack of willing participants in the scheme. The tender proposed that companies would be paid not to use electricity during peak times this coming winter with the goal of directing power towards households.

The Demand Side Balancing Reserve (DSBR) scheme has been introduced to handle tighter winter power supply margins after weaker electricity prices resulted in the closure of a number of power plants in recent years. The issue has been compounded by harsher environmental regulation that will see the UK completely phase out coal-fired power generation in the UK by 2025. The DSBR is a number of measures that National Grid utilises to manage times of emergency and invited large users of electricity such as hospitals and factories to voluntarily reduce their power consumption during winter evenings.

In a letter to industry on 22 August, National Grid stated that is would not be procuring DSBR for the winter of 2016/17. It is instead likely to procure extra generation from a separate initiative that compensates power plants to remain on standby in case of higher demand.

Source: Reuters

Where did it go wrong for Hinkley Point C and why is it being delayed?

hinkley_pointIn our last blog post we asked the question what is Hinkley Point and why is it important? Now, a few weeks later, we are left asking the question: where did it go wrong for Hinkley Point C and why is it being delayed?

Nuclear power issues are rarely black and white, and in a post-Brexit, post-Cameron political climate, the case of Hinkley Point is more nuanced than most.

There have been question marks raised against the cost of the gargantuan multi-billion-pound project; there have also been concerns about China’s involvement; along with renewed questions about the need for nuclear power plants in the first place.

These are just some of the uncertainties delaying the Hinkley Point project from officially starting. In this week’s blog post we look further into these questions and hazard a guess at what the government’s final verdict will be.

Why nuclear?

The Northern Hemisphere requires a vast amount of energy during the months of January and February. The base load – that is, the minimum amount of energy required – in these winter months is an amount that solar and wind-powered energy alone cannot supply. This is where the question of the energy mix comes in to play. If there were a way to store the amount of energy generated during hot and windy days, the question of nuclear would not be so pertinent.

How has Brexit affected Hinkley?

Sources such as Nuclear Engineering International magazine have stated that Brexit made an uncertain plant still more uncertain. Would Hinkley still be subject to State aid rules that prevent EDF or its partners benefitting from public funds? As both those within Britain and those within Brussels make sense of the new landscape, Brexit has certainly been a large factor in delaying the final verdict on Hinkley.

Who will the costs fall to?

The project is set to cost upward of £18bn but, like a lot of grand-scale projects, time and costs invariably fall foul to the planning fallacy and run over. EDF, along with its partners are due to foot the bill, with Chinese partner China General Nuclear (CGN) fronting one-third of costs and maintaining a notable share in the project.

How is China involved?

The state-owned Chinese company CGN will supply some of the parts and workers for the proposed project. This has raised concerns with the UK’s intelligence agencies who are said to be suspicious that a ‘back door’ could be built in to allow China access to control systems. Conspiracy theories aside, others have raised concerns about China’s human rights record, and whether such a long-term project is wise to have so many external stakeholders.

What next?

Plans for the project have been delayed until September. What will the verdict be next month? The safest answer we can provide at this point is: we don’t know.

Uncertainty is rife following Brexit, Theresa May is still settling in at Number Ten, and the divisive project has even caused a member of the EDF board to resign. At this point, the grand scale project that could create 25,000 new job opportunities looks likely to be delayed further still.

Rather than a definitive yes or no, there is a strong chance that the verdict in September will bring more delays. The government set the Hinkley Point C ball in motion back in 2008. It has taken eight years for the EDF board to approve the project, it is unlikely the final decision will be made imminently. The most we can say at this point is… watch this space.

Editor: Saul Bush – One

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OFGEM proposal to cut National Grid’s RIIO allowance by £185m

Electricity Pylon PhotoA mid period review by OFGEM has led to proposed to reduce the budget for the National Grid’s RIIO-T1 price control framework.  The consultation that was published on 18 August saw regulator OFGEM explain the proposal by stating that since the beginning of the RIIO-T1 price control in 2013, money that had been allocated to National Grid for several uses had required a revision.  OFGEM further proposed to reduce National Grid’s fault level protection allowance by £38.1m and increase its system operator allowance by £21.5m in order to ensure optimal management of additional balancing services.

The RIIO-T1 model (Revenue= Incentives+ Innovation + Outputs) was one of the first price controls to reflect the new model. The RIIO framework is designed to promote smarter gas and electricity networks as part of carbon reduction efforts, with the framework is set to last until 31 March 2021.

OFGEM will collate responses until 6 October, with any proposed changes following OFGEM’s consultation to take effect from 1 April 2018. Full details and the consultation document can be found here.

Source: Cornwall Energy, OFGEM