08/08/2019: Steady up as she goes!

Although it got little media coverage, probably the stand-out event from last week was the statement from BEIS that confirmed that the UK’s Carbon Emissions Tax of £16/tonne of carbon emitted would apply from 4 November 2019 in the increasingly likely event of a no deal Brexit. This would be a short-term fix and presumably is additive to the current £18/tonne carbon price support already in place.

Looking over the longer term, a government consultation considering the options for carbon pricing following an exit of the EU closed on 12 July. A response on the consultation will be published in “due course”, but it’s hard to glean much on the future direction of policy at this stage.

Responding to the government’s consultation, the London School of Economics Grantham Research Institute publishes a policy brief on lessons from global approaches, which should help crystallise thinking. It claims that creating a separate UK emissions trading scheme would be the “worst outcome” of the available options for carbon pricing systems. Instead it advocates a carbon tax, “starting low and rising over time”. It should take into account complementary carbon polices (e.g. innovation support) and existing fiscal measures. It must be based on clear rules and not subject to political pressure. The UK should also take the opportunity afforded by Brexit to extend the coverage of the scheme.

All in all it’s a very useful 8-page primer.

The 588MW Beatrice Offshore Wind Farm was officially opened last week by Prince Charles. It’s the biggest offshore wind farm so far in Scotland, and the fourth largest in the world (in GB only Walney and London Array are bigger). SSE operates the site and owns 40% of the project. Partners are Copenhagen Infrastructure (35%) and Red Rock Power Ltd (25%). Construction started in May 2016 and the cost was £2.6bn. It has a £158.73/MWh CfD awarded a part of the initial wave of investment contracts.

Looking forward to future low carbon build, the EMR Delivery Body confirmed last week that the sealed bid window for Contracts for Difference AR3 will commence on 9 August. All projects subject to a review have now qualified. Results will be available early September. The overall capacity cap is still 6MW – despite industry calls for this to be increased – for delivery in 2023-24 and 2024-25.

In the run up to this week’s reset by Ofegm, the domestic energy supply price cap was again in the news. Speculation has been rife that the new PM and other key ministers are keen to remove it as soon as possible. Naturally Labour criticised such a suggestion, saying it would “remove the lifeline for households”.

But despite analysis by my colleagues at Cornwall Insight that the default cap would fall in the autumn (which has since been confirmed to be correct), the Competition and Markets Authority issued its own decision to update the prepayment price cap so that it uses an amended version of Ofgem’s default tariff cap methodology. Confusingly for consumers, that “improvement” will lead to a rise in the cap.

There is a growing sense that the current approach is overly-mechanistic and not sustainable should caps be retained (which we hope will not be the case). To further muddy the waters, there has been a lively debate on social media around research findings recently published by Ofgem on an arguably more cost-reflective cost pass-through tariff (or CPT).

Centrica experienced another dreadful week. It announced yet more dire results, indicating at the same time that CEO Iain Conn will step down next year. The interim financials published on 30 July showed an operating loss of £446mn for the first half of 2019. They also showed that a revenue reduction of 2%, decreasing from £14,020mn in H118 to £13,808mn at H119.

This led to a hefty cut in dividend from 12p to 5p/share, triggering an immediate 20% reduction in the company’s share price. Conn described the dividend “rebase” as a result of the UK energy price cap and increased cashflow demand. The former was expected, the latter terrified shareholders with many finding the indicated sale of Spirit Energy was not enough.

Centrica has decided to press on with its consumer-facing strategy. Management now has to convince a sceptical City. To quote Peter Atherton in Energy Spectrum: [The City] was braced for bad news, but these results were worse than many expected.”

Also last week Iberdrola announced its latest results. And despite an increase in group profits, UK generation and supply revenues and profits also fell.

Problems continued to mount for another of the Big Six groups. Last week RWE confirmed it would close the 1,560MW Aberthaw B coal-fired power station in Wales, referencing “challenging market conditions”. It will transfer outstanding capacity contracts for the coming and the following winter to third parties and other RWE assets. This will mean only three large coal stations will remain in operation (Drax, West Burton and Ratcliffe, plus there’s Kilroot in Northern Ireland).

Locally I continue to develop thinking around New Anglia Energy and Smarter Norwich. I took some ideas around a Rural Community Energy Fund project and EV charging infrastructure in remote areas to the County Council. This will now be developed into something a bit more joined up.

I also took part in a workshop organised by the Solar Trade Association with help from Loughborough University on connected homes. The conclusion was how much work needs to be here to ensure joined up demand-side solutions. The role of refocused building regulation and energy performance certification could be key, but the real elephant in the room is the lack of consumer engagement across large swathes of the household market. Technology will be an enabler but not for all in a very segmented market. Something here to reflect on.

The week ended on a real high with the start of the EFL season, and a resounding 2-0 win for Blackpool against Bristol Rovers. One of my bits of trivia knowledge is that BR used to be called the Pirates and played at Eastville. But now they seem to be called the Gas. Why? Answers on twitter, please, to @newangliaenergy, please.