Water Bills Cut:

UK households should see the average annual water bill cut by £14 to £330 over the next five years, according to the regulator’s proposals revealed today. The before-inflation cuts were set out in Ofwat’s draft pricing limits for 20010-15, but are likely to meet resistance from water companies. Water companies had been hoping to increase prices by 5% next year and 2.5% over the whole of the next five years, an average £28 above inflation hike with many counting on the rises to fund capital spending on water and drainage infrastructure. But the regulator said its draft determination would still allow water companies to ‘invest extensively’ in the network and spend almost £21bn over the five-year period. More than £4bn will be invested in improving drinking water and protecting the environment, Ofwat said. Water bills have more than tripled since privatisation in 1989, rising faster than inflation and the rate of increase in other utilities. Average bills in the South-West are the highest at £450 a year while those of Thames Water are the lowest at £280.

EDF Energy Networks Fined:

The British energy regulator said Friday that it has fined EDF Energy Networks 2 million pounds for failing to meet mandatory targets for connecting customers to its electricity network. EDF is a monopoly provider of certain connection services in London, southeast England and eastern England.

OFGEM, the Office of the Gas and Electricity Markets, said there had been more than 100 cases since 2006 in which EDF failed to make a connection offer within three months as required. “Customers should not have to accept poor service in any part of the energy market,” said Sarah Harrison, the agency’s managing director for corporate affairs. “We recognize that EDF Energy has now taken steps to improve its connections service, but they should have taken this action some time ago,” she added. EDF Energy Networks is part of the Paris-based EDF Group.

Electricity Bills:

Who supplies the energy of the United Kingdom? Energy is so important, and a bit like money, not for its own sake but because of the uses to which we put it. Households, organisations and businesses need energy to heat their premises and water, to power their appliances and machinery, to cook food and to make their lives clean, healthy and comfortable. The energy companies supply the current or the gas that does these things, so they play an essential part in our lives.

We all buy the energy that they produce, which is of equal good quality and reliability. They all have annoying call centres that are equally unhelpful and they all have equally complex tariffs which seem to be designed as a deliberate maze to obscure pricing.

This equality of product (high quality) and of service (poor quality) means that for users the only way to buy your energy is on price; we all aim to buy it as cheaply as we can and that is not an easy task to fulfil.

Most of the United Kingdom’s energy is sold by six companies. The tiny amount of self owned renewable energy, such as solar systems and small wind turbines and “green” energy is so small that it has no impact on the six energy companies. I have excluded from these statistics heating oil and heating gas made from oil, which affects around 14% of UK homes, and concnetrated on centrally distributed electricty and natural gas.

These six companies have grown since energy was denationalised as part of an inevitable trend.

You might have been confused about the various names that have appeared on your energy bills over the past few years. This is how the energy companies have formed themselves and I have also set out their market shares, according to Ofgem, the electricity and gas regulator.

EDF Energy has acquired London Electricity, Seeboard and SWEB. It is in effect owned by the French Government and supplies 14% of the nation’s electricity and 7% of its gas.  E.on/Powergen includes East Midlands and Eastern and supplies 19% of our electricity and 13% of our gas. It is German owned. RWE/Npower includes Midlands, Yorkshire and Northern. It supplies16% of our electricity and 12% of our gas. It is also German owned.

Iberdola includes Scottish Power, Manweb and South of Scotland and supplies 12% of our electricity and 9% of our gas. It is Spanish owned.

Scottish and Southern Energy includes North of Scotland Hydro, Southern and SWALEC and gives the nation 18% of its electricity and 13% of its gas. It is still UK owned.

Centrica is also UK owned. It comprises British Gas and Scottish Gas is the largest giant amongst these giants, supplying 21% of our electricity and 46% of our gas.

All of these companies are linked to electricity generation and fuel in that they have their own power stations and fuel sources. EDF, for example, has just bought British Energy’s nuclear electricity generating business with all its nuclear power stations. E.on/Powergen proposes to build a new coal fuelled generating plant at Kingsnorth.

It can be hard to discover the prices that the energy companies buy wholesale, because they often either buy from themselves or from fuel supplies and the prices at which they buy are not published. We have to try to guess the pricing at which they buy from prices in the wholesale markets and by the bottom line profits of the energy companies, again not an easy task.

They all seem to be running their businesses well, by ensuring constant supplies and by making good profits. As you would expect most of the price comprises the cost of generating and distributing the energy, although it is very hard to isolate how much of your energy bill is actually profit margin, because of the lack of transparency in the energy companies’ fuel costs.

Part of your bill, probably around £38 on average, goes towards the Government’s Carbon Emissions Reduction Target (home insulation and the odd low energy light bulbs to you and me) and this money, added to our bills, is given to the energy companies to spend, in the expectation that they will wisely use the money to reduce energy demand. They do their best to do this, of course, but it is somewhat like asking turkeys to vote for Christmas.

In addition there is the Renewables Obligation – another in effect charge on the poor consumer which add around £11 a year to the bill, which the energy companies have to spend on the generation of renewable electricity. The energy companies spend this money on the large wind farms, mainly, so when you see one remeber that we have paid for it.

Finally, there is the value added tax of 5% on energy; the higher the energy prices go the greater amount that each household has to spend on value added tax, on its energy bill. If you have experienced a price rise of £200 in total energy cost this year about £10 would have been a windfall for the Treasury who get the extra tax simply because prices rise.

That is the broad statistical picture of energy in the United Kingdom. Since energy was denationalised, there have been savings in efficiency, but many of those savings – call centres, do it yourself accounting by the customer and so forth, might well have happened in any event.

One effect of denationalisation is that these six energy companies are competing for a limited market against a legislative requirement to reduce energy use where each companies supplies exactly the same product with exactly the same service.

What happens is that in these circumstances the energy companies compete for a limited market in the only way that they can – by trying to increase their share of the market. The only way to do this is by advertising. They do introduce special and new tariffs as a hook for the advertising but it is very hard for a consumer to make an informed choice on what price is best because prices rise all the time and what is a good price today may well be a bad price next month or next year.

The advertising costs are of course an expense of the energy companies and this expense adds to the overall cost of energy, like CERT, the Renewables Obligation and VAT.

Is this the best way for a developed nation of 60 million souls to organise it energy? I doubt it. We are moving in turbulent times and, as in banking which supplies money, that other great item that you need not for its own sake but for what it does, turbulence will sort out whether the system works well in the national interest.

Climate Change Agreement:

The British Plastics Federation (BPF) is in the final stages of entering into a climate change agreement (BPF CCA) for the plastics sector with the Department of Energy and Climate Change (DECC). This Agreement has the potential to save the UK plastics industry more than £50m per annum in climate change levy (CCL) payments until the year 2017.

For companies with a qualifying site in the UK the agreement can result in an 80% discount on the CCL they pay on electricity and LPG. This scheme will be attractive to companies consuming in excess of 250,000 kWh per annum. 

Strict entry deadlines have been put in place by DECC and the BPF director-general, Peter Davis, is calling on all plastics firms to act now to start the registration process for claiming their levy discount. “At last the plastics sector has been put on a level playing field with other materials that already have CCAs,” said Davis. “Furthermore, the discount afforded by a CCA will go straight back into investment to improve further the efficiency and competitiveness of the industry.

“If companies are to benefit from this unique opportunity they must act now and begin the registration process. So far almost 100 companies have had the foresight to apply for the scheme and will benefit from the discount from the earliest possible opportunity.”

If a company starts the application process now it may benefit from the CCA discount as of the entry date of 1 October 2009. The absolute cut-off for DECC accepting completed CCA applications for the current scheme year is 31 October 2009 and if companies miss this deadline then the next entry point to the scheme will be 1 April 2011.

Clean Energy Cash Back System:

Essentially, it is government legislation which guarantees a fixed, premium rate for renewable electricity fed into the national grid. The power companies are obliged by the government legislation to buy the renewable electricity, the additional costs of which are passed onto the customers.

The UK government is committed to reducing its carbon emissions through the adoption of renewable energy sources, particularly in regards to the generation of power in order to combat climate change. The Energy Act of November 2008 set out a series of provisions in order to help the government meet its targets. The need for a clean energy cash back system comes from the fact that it is far more expensive to produce energy from green sources than it is from fossil fuels. This of course renders the retail price of fossil fuel electricity cheaper than that from renewable producers. In order to attract renewable investors, it is therefore necessary to incentivise those wishing to invest in the installation of renewable plant.

The UK government’s Clean energy cash back proposal would fix an above market rate for utility companies to buy electricity from renewable energy producers. It could therefore mean for example that if the retail price of fossil fuel electricity were 15p per kWh, then the rate for renewable electricity could be up to 60p per kWh. In this case, the 45p difference per kWh would be spread across every customer of the relevant utility company. It is this fixed tariff paid by the utilities which makes renewable energy an attractive prospect for investors as it guarantees them a return over a long period and has been highly successful at attracting investment where it has been implemented across Europe. Germany for example now produces over 14 per cent of its energy from renewable sources, something which has been attributed to the generous and comprehensive clean energy cash back system implemented by the German government.

This clean energy cash back system has already been in place in many states such as Germany, Israel, the US, Spain and Australia for some time now and has been instrumental in the success and growth of renewable energy operations there. The recent Energy Act (November 2008) includes specific provisions for the implementation of clean energy cash backs in the UK by 2010 although at the moment the precise details of the kWh threshold and tariff price has not been set.

Despite the current lack of clarity, it is believed that as we move towards 2010, the government will set a cash back tariff which allows renewable energy to be a viable option to investors. The government has established the new department of Energy & Climate Change (DECC) headed by Ed Milliband, whose job it is to reduce carbon emissions and help the UK meet the targets set out in international agreements such as Kyoto. They will see it as absolutely fundamental that the provisions for a clean energy cash back allow the UK to have the legal infrastructure for investors to feel safe in the knowledge that any investment they make is protected in the long term as it is in other states with strong clean energy cash back systems.

In a December 2008 report titled The Renewable energy country attractiveness indices by consultants Ernst & Young, the UK ranks highly as a potential target for renewable investors. Indeed, citing the falling value of the Pound and the iminent introduction of clean energy cash backs, Ernst & Young now rate the UK as joint fifth in a list of countries in terms of their attractiveness to investors. Germany rates top of this report, a success which is attributed to their excellent clean energy cash back system.
 

Smart Meters Accelerate:

Bglobal Plc, a provider of smart meters for the UK energy market, said it agreed to accelerate the introduction of smart meters to the business customers of npower, the British unit of German utility RWE . “Smart meters”, which give data on energy use, in every British household by 2020, would cut energy bills and help the country achieve its green target.  Britain’s target is to cut greenhouse emissions by 34 percent by 2020 compared with 1990 levels. Bglobal, which looks to benefit from the UK government’s drive to introduce smart meters in every home, has installed several thousand smart meters for npower’s large corporate energy customers in the year. The increase in the rollout of smart meters for npower’s customers should help its business as the smart metering programme expands, Bglobal said in a statement.

Energy Companies Fined:

Two of Britain’s leading energy companies have together been fined more than £950 million for illegally carving up their own domestic markets on the Continent. E.On, and French giant GDF Suez have each been fined €553 million for artificially fixing prices. It is the second-largest cartel price-fixing fine in European Union history. The two have been found guilty by the European Commission’s Competition directorate of agreeing not to challenge the other in each other’s domestic market. “Market sharing is one of the worst types of antitrust infringement,” said Competition Commissioner Neelie Kroes. “This agreement deprived customers of more price competition and more choice of supplier in two of the largest gas markets in the EU.” E.On is one of Britain’s biggest electricity generators and household suppliers. GDF Suez is a leading trader of electricity and gas to UK business consumers, and has power station and gas import and storage facilities in Britain.

BGlobal Smart Meter Updates:

As part of war on climate change, or at least as part of the PR game of trying to look as green as possible, the Government is trying to get us all to have smart meters installed in our homes to measure our energy use. The Department for Energy and Climate Change reckons the smart meter market is set to be worth £9bn by 2020, and one company believes it has got a head start on many of its rivals.

However, even the Aim-listed BGlobal, which manufacturers smart meters, concedes that one of the problems facing the smart meter industry is that customers can change energy provider. Utility companies are therefore reluctant to pay for the meters and leave them in the homes of people who then opt to use other providers.

The solution is to sell the meters to specialist asset investors, and last week BGlobal managed to raise £15m from Barclays Asset & Sales Finance. BGlobal’s chief executive, Tony Barnes, says the money will be used to further develop the group’s meters. The group has contracts with three major energy providers to put meters into homes.

Bglobal has also launched a new campaign for business customers seeking to comply with UK Government directives on carbon reduction. The company, which on Friday secured £15m of financing from Barclays Asset & Sales Finance to fund a further roll-out of its products, saw its share price march higher still on Monday as it unveiled its “Energy Counts” campaign, a smart metering solution to companies’ requirement to reduce carbon emissions.

As part of the government’s Carbon Reduction Commitment (CRC) scheme, money collected from participants for carbon emission allowances will be channelled back to the participants based on their overall performance. “Therefore, a company that achieves significant energy and carbon savings is likely to receive a payment greater than the cost of purchasing their allowances,” Bglobal said.  “The message is clear - be ready or pay the penalty. Installing Bglobal smart meters is the first step towards getting ready for the CRC challenge,” said Toby Barnes, Bglobal’s chief executive.

Wholesale Electricity Prices:

Like any other traded commodity, the energy markets experience fluctuations in price which are determined by a variety of factors. The volatility of the energy markets is ultimately responsible for the fast-changing electricity prices which affect how much you pay for your utility bills. Whilst for residential home-owners there is very little that can be done to respond to the volatility of electricity prices apart from to switch electricity supplier, business customers have much greater control over their energy purchasing power.  Business clients are offered quotes from electricity suppliers based on the wholesale price of electricity at any given time on the market. If you are responsible for managing your company’s utility bills, finding the best electricity prices based on when market wholesale prices are at their lowest is quite a skill.

The people who determine wholesale electricity prices are market traders who analyse the relative supply of electricity against current demand. If there is a surplus of electricity when demand is low, then the wholesale price will go down. On the other hand, if demand is high and there is a shortage of supply, then prices will go up.

The relationship of supply and demand is affected by many things, although it is mainly driven by the price of related commodities, such as oil and gold. Other factors that can alter the relationship include weather forecasts, the current state of the economy and key international events such as political unrest, war or natural disasters. Such is the volatility of the energy markets that wholesale electricity prices can fluctuate by up to 5 per cent in any one day, so much so that  electricity prices, halved in the final quarter of 2008.

With such volatility, it is important for businesses to be ready to capitalise on a good price while it lasts. Energy suppliers will quickly withdraw quotes that are not accepted if the price of electricity jumps. With this is mind, make sure you read all the terms and conditions of a supplier’s standard quotation before getting a quote. Do as much preparation beforehand as possible. Shop around for a good quote but do not deliberate once you find a reasonable price then send a reply as soon as possible to be certain of securing the best deal for your business.

E.ON Cuts Gas Prices:

Around 1.8 million E.ON customers will see their gas bills cut by 3.3% - saving them around £25 a year, the energy giant has announced today.  E.ON said the gas price reduction, which follows a 9% decrease for electricity tariffs on March 31, would take effect on Saturday.  It is also scrapping the standing charge for gas prepayment in a move affecting more than 200,000 meter customers. The removal of the standing charge for meter gas customers follows a pledge by the firm to scrap it late last year. UK utility groups have been slammed in recent months over their treatment of prepayment customers amid claims they have overcharged those on meters.

E.ON, which has a total of 5.5 million UK customers, said it was “committed to offering competitive energy prices at all times and delivering on our promises” But it comes after E.ON hiked gas prices by 45% and electricity by 27% last ye