The big 6 energy companies

The big 6 energy companies (Centrica, EDF Energym, E.ON, RWE Npower, Scottish and Southern Energy and Scottish Power) met today with the Energy and Climate Change Committee, with the results being available online. To save you listening to it all, I've done it.

In summary expect more short time price drops, but then probably nothing for a while (the wholsale price of gas is not seeming to drop in the longterm). Also expect lots more gas fired power stations (up to about 60%), applications for planning permission for nuclear within 18 months - 2 years, and government legislation over smart meters.

09:20 - Eon are hopeful of cutting prices soon
09:27 - so will the other three who have yet to cut prices (commercial decision which has not yet been made).
09:29 - Wholesale prices rose by 75% whereas domestic prices rose by 30%, so the energy companies shouldn't have a windfall profit.
09:36 - Ofgem has found that prices don't follow wholesale prices up quickly but down slowly
09:39 - Summer 2010 wholesale prices are 10% up on summer 2009 prices. Centrica want to reduce prices, but don't expect to be able to do so based on current projected wholesale prices
09:52 - EDF are convinced that Nuclear is an essential part of the UK energy mix
10:06 - Pre-payment cost is around £100 extra per customer (ofgem figures) - made up of cost of meter (10-12 times more expensive), cost to serve the customers more often, cost to run the point of sale system. Extra profit is £97 per person.
10:09 - OFGEM state that the average dual fuel prepayment customer is £11 less profitable than the profitability of a direct debit customer.
10:16 - After 3 years of consultation by government we still haven't had smart meters. They are already in Italy and Holland where the government managed to consult within 18 months.
10:17 - Payback on smart meters is 5-6 years, but churn is 20% - so companies who install meters will not see their investment returned - hence they don't want to fit at the moment.
10:18 - 10 000 normal meters are installed every day.
10:19 - Electricity companies can't even get in the same room to debate this, so government please mandate us. "We're fighting like ferrets in a sack, someone needs to come and shake the sack".
10:20 - Companies really can't agree on what needs doing - will keep on fighting on this, it must be a regulated government decision.
10:25 - The OFGEM inquiry has reduced the cost recovery associated with prepayment meters by about £20 - from about £120 to £100.
10:32 - Remember the direct debit increase fiasco (a few months ago)? The suggestion is that this is because customers use more over the winter than the summer, so direct debits should increase over the winter.
10:37 - Dual fuel discount isn't a discount, it's a premium applied to customers who only take gas.
10:38 - 40% of customers who switch tariffs end up paying more than before they switched (remember that some customers switch at bad times or onto fixed tariffs).
10:50 - Absence of certainty about carbon price is key problem regarding new build
10:52 - 14 GW needed by 2018, 7GW gas being built, 6GW gas getting permission. Coal being worked up, 1GW of biomass being worked up plus extra 1GW of something else being worked up. We will end up with a gas system.
10:52 - 5GW (46 projects) of renewables under construction. Credit crunch pushes capital price up by 30%. Can raise money, it's available.
10:53 - Short term economics damaged by 1-2%, although equipment prices have stopped increasing, they not reduced. Slow down in announced investment because of this.
10:54 - £100 million invested in gas storage in Yorkshire. If everything goes ahead we will have more daily delivery than anything we have ever seen.
10:54 - Taxation, 75% tax on gas that is put into storage - energy companies want to make this money back. Suggest that government could help with this.
10:56 - By 2020 60% of our electricity will come from gas, 80% will be imported (by 2018). Eon are investing £500 million to try and help this - so are others.
10:58 - If planning system works renewables might make up to 30%. Massive grid investment is required, and regulated rate of return is not enough to make people want to invest into grid connections. It is a fixed regulated rate of return and is not enough when priced against the cost of money.
11:00 - Feed in tariff is required for up to the community level. Want to set up businesses to address micro generation and micro heat. RO is most successful policy intervention since privatisation.
11:01 - Spending more on R&D than have ever done so since privatisation (before privatisation it was almost a little wasteful). RO has boosted R&D spend.
11:02 - RO banding is not quite enough to support some of the largest projects (especially offshore wind). E.g. London array is being scaled back - "function of economic reality". If returns / regulatory uncertainty isn't there Europeans will spend elsewhere.
11:03 - Scottish power will spend same in 2009, 2010 on renewables as they did in 2008, regardless of current economic climate.
11:05 - This industry is investing £10bn a year, in this country, for the foreseeable future.
11:08 - Nuclear profitability is set by carbon price and planning. First onstream by 2017. Other three units built in years that follow that by the same team. Coal and CCS must take a role, which it can.
11:09 - Existing plans are for a like-for-like replacement.
11:10 - Planning is the major issue with nuclear - a CCGT at Pembroke took more than four years - what will it be for nuclear? Dreadful?
11:11 - Hopefully fewer delays with new planning laws. Absence of a decision (presumably from government) is the problem.
11:11 - First few reactors must be being built by 2013 - 2014. No nuclear reactors currently in the planning process. If past is guide to the future will not get as many reactors as hoped. Expect planning requests to be submitted next year / 2011.
11:13 - Skills shortage, but trying to fill it with UK companies (Rolls Royce, Manchester Uni). Trying to pool skills for UK jobs.
11:15 - Large scale CCS is fundamental to coal. Beyond 2020 will not build power stations without it.
11:17 - If the competition doesn't complete then terrible signal to industry over coal. Competition appears to be slipping, target date should have been announced in June.
11:18 - We have been overtaken on CCS knowledge over the last four years.
11:18 - Coal is an absolutely fundamental part of the energy mix.
11:19 - Kingsnorth shouldn't go ahead without CCS (I think this was said by Eon).
11:20 - Why is there so much of a delay in bringing in CCS? Whose fault?
11:20 - 300MW can be put into longannet by 2014.
11:20 - Everyone involved in competition is "dreadfully frustrated" over the delays.
11:22 - Fuel poverty - "We are an energy company, we do not know who is in fuel poverty". Last year there were £10bn of unclaimed benefits - this should be the issue rather than international energy prices.
11:23 - Data sharing, which is coming on stream, should help - by data has not yet arrived.
11:24 - This is also a housing stock issue, rather than a benefits issue. £3.7bn from industry. That's a lot of money - a big commitment from the industry.
11:25 - One company is insulating about 1000 homes a day.

The CCS competition

The governments carbon capture and storage competition today took an interesting step with RWE purchasing Peel Energy - one of the three prequalifiers left in the competition (BP has pulled out).

This leaves Eon (Kingsnorth), RWE (Tilbury, but perhaps Blyth) and Iberdrola / Scottish and Southern (Longannet) - three massive, multi-national, companies.

The competition is now going to be fierce.

CCS competition

Interesting.

BP have just announced that they have pulled out of the governments CCS competition - leaving just three competitors (Kingsnorth [Eon], Longannet [Scottish & Southern], Peel power) in the mix.

What's even more interesting is that RWE are trying to force a judicial review to get their power stations back into the competition.

The competition does take a long time, and it's interesting to try and work out what could be fitted with CCS (by the competition) within the relevant timescales.

The answer is perhaps Blyth (or so I've heard), a proposed RWE power station in Northumberland; the competition is dragging so much that investement decisions have to be made prior to the outcome.
Whilst CCS can of course be retrofitted the companies just may not wish to go down this route.

Of course the EU's ban on coal fired power stations may just stop everything.

Price rises

Implementing low carbon electrical systems costs money - as does the need to fix the looming energy gap (as power stations reach the end of their lives and need to be decomissioned with new ones built to replace them).

Eon's biomass Bristol biomass press release was surprisingly candid about the investment program that they are undergoing, which struck me as odd at the time.

I now realise that they were warning the general population about forthcoming price rises - which were announced yesterday.

Two things stike me:

The price of gas is rising by more than the price of electricity. This suggests that we would do better to minimise our dependence upon gas within electrical generation (actually this is probably too simplistic since the price they can charge is set by the market, and is only marginally driven by costs - this can be seen by Scottish & Southern putting up their prices immediately after Eon announced their price rises).

We really now have a choice between cheap fuel and renewable energy - we can't have cheap renewable energy. I would hope that we would keep piling on down the renewable energy path as hard as we can - after all, if a rich nation isn't going to do it, how can we expect a poor nation to?

There really is only one way out of this problem - and a recent Friends of the Earth press release has hit the nail right on the head.