Energy companies’ network costs estimate 10 times larger than Ofgem’s

  • 22 Nov 2013, 15:00
  • Robin Webster

Government plans to upgrade the electricity and gas grid could add as much as £180 to energy bills over the next decade, according to a report promoted by the energy industry last week. But energy regulator Ofgem suggests the cost could be less than a tenth of that. 

At its  annual conference last week, industry body Energy UK presented the conclusions of a report that suggests the costs of transporting electricity and gas will increase by more than 50 per cent by 2020. 

The claim comes from financial services company  UBS. Ofgem - which sets controls on the amount of money network operators can charge suppliers to use the grid, projects that network costs will go up by just a fraction of UBS's prediction, however.  

How network costs work 

Energy suppliers pay to transport electricity and gas around the country using the electricity networks and the gas grid. The money is paid in the form of rent to the companies that own the grid. 


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Can coal be compatible with emissions cuts?

  • 18 Nov 2013, 15:50
  • Mat Hope

Poland is hosting two international meetings this week, with seemingly contradictory goals: It is convening the latest round of international climate talks at the same time as giving industry a platform to claim increased coal use is compatible with climate goals.

Environmentalists have  criticised the Polish government for the scheduling clash, accusing it of allowing the the climate negotiations to become framed on the coal industry's terms.

Carbon budgets

The Polish government today released a joint statement with industry group, the World Coal Association (WCA), saying:

"There are many misconceptions about coal and its environmental impact. Many believe that the use of coal is incompatible with meeting the challenge of climate change. We disagree."

The organisation calls on governments to implement policies encouraging the immediate rollout of "low-emissions coal combustion technologies" - meaning any new power plants would be built to the most state-of-the-art specifications. It says development banks should find a way to help developing countries pay for the more efficient - but more expensive - new plants.

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How energy companies make profit: A closer look at the data

  • 11 Nov 2013, 16:10
  • Mat Hope

Two of the UK's biggest energy companies - SSE and British Gas - are expected to release their latest financial statements this week.

The media will be paying closer attention than ever to see how their profits are faring after both companies announced significant price hikes in October.

Energy companies make some profit from the energy they supply to households, as anyone who has had a bill clunk through their letter box will no doubt be aware. But they also make money by generating the power supplied to the UK's homes and businesses.

Companies which generate energy and supply it to consumers are described as 'vertically integrated'. All of the UK's big six energy companies are structured in this way.

The recent slew of headlines has largely been concerned with the bit of the businesses that supply power to consumers. But some of the energy companies make most of their money by generating and selling energy wholesale. Market regulator, Ofgem,  estimates that while supply profits are around 5 per cent, generation profits can be as high as 30 per cent.

We take a closer look at where the big six make money, how they differ, and what that could mean for future UK energy policy.

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Fossil fuel subsidies and the economics of energy transformation

  • 08 Nov 2013, 12:45
  • Mat Hope

The government gives the fossil fuel industry billions of pounds a year, according to a new thinktank report. With the costs of energy currently at the forefront of UK politics, the analysis has made a few headlines.

The Overseas Development Institute (ODI)  suggests the UK government subsidised the fossil fuel industry to the tune of £4.3 billion in 2011 - around £7 per taxpayer. The UK ranks fifth on a global list of countries by total financial support given to carbon-intensive energy industries, the ODI says.

With the UK government legally  committed  to reducing greenhouse gas emissions by decarbonising the power sector, you might wonder why it is financially supporting the fossil fuel industry. But a closer look at the UK figures in the report suggests a more complicated picture.

Fossil fuel support

The ODI's report is based on data from the Organisation of Economic Cooperation and Development (OECD). It estimates how much financial benefit fossil fuel industries - from coal power generators to oil refineries - get from a range of government energy policies.

The OECD estimates that the UK fossil fuel industry received £4.3 billion of support from government tax breaks and assistance toward infrastructure development in 2011.

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Rising costs or corporate greed? Exploring retail and wholesale energy price data

  • 05 Nov 2013, 18:00
  • Mat Hope

Politicians have been queuing up in recent weeks to interrogate the UK's big six energy companies after a spate of bill hikes. Last week,  energy bosses faced a group of MPs to justify their companies' profits, while the government announced the 18th energy market investigation since 2001. And today, the Labour leader renewed his assault on the sector, saying the recent price hikes were down to a  "broken market" and corporate greed.

Companies regularly justify swelling household bills by claiming they have to account for rising wholesale energy costs. But a  number of politicians and  newspapers have disagreed. They  point to data suggesting wholesale costs have increased by 1.6 per cent on average this year, while bills have increased by nearly 10 per cent, and have accused the companies of making excess profits.

Digging into the data suggests the relationship between costs and profits isn't as simple that criticism implies, however.

Wholesale versus retail prices

Working out how much profit energy companies are making requires untangling how much it costs them to supply energy.

Energy companies say the money from household bills has to cover a lot of costs, with a bit of profit for the big six's shareholders on top. In particular, the big six say they spend a lot of money buying gas and electricity to supply the UK's 26 million households.

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Climate scientists don’t think we’re heading for another "Little Ice Age"

  • 29 Oct 2013, 17:00
  • Roz Pidcock

From time to time, we're told by parts of the media that earth is headed for another 'little ice age'. Today was the turn of The Daily Express, in an  article urging us to "get ready" for erratic and extreme weather in the UK.

The paper claims experts warn Britain "faces a new mini-Ice Age with decades of severe Siberian winters and washout summers". But the scientist the paper cites tells us he feels "very misrepresented".

Inside out

The piece is loosely based on comments made by Professor Mike Lockwood from the University of Reading to BBC weatherman Paul Hudson for last night's  Inside Out programme.

The BBC programme looks back over recent cold winters in the UK and opens with the claim, "Scientists are warning that we could be heading towards a mini-ice age".

Hudson wrote up his take on the interview  here, beginning:

"It's known by climatologists as the 'Little Ice Age', a period in the 1600s when harsh winters across the UK and Europe were often severe. The severe cold went hand in hand with an exceptionally inactive sun, and was called the Maunder solar minimum.

Now a leading scientist from Reading University has told me that the current rate of decline in solar activity is such that there's a real risk of seeing a return of such conditions."

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Wholesale energy and the network grid: the parts of our energy bill politicians can't control?

  • 14 Oct 2013, 16:30
  • Robin Webster

Energy minister Ed Davey says it's "impossible" for politicians to stop consumer energy bills going up because more than half of the costs are beyond his control. Is he right?

Media commentary has focused largely on the role of government levies intended to support renewable power and increase energy efficiency in driving up energy bills. But in an interview on the front page of today's  Times, Davey argues the rising wholesale cost of energy and increased network charges mean "energy bills will continue to soar", whatever decisions ministers make. 

Wholesale energy costs 

The wholesale cost of electricity and gas accounts is the biggest component of the prices customers pay for their energy - making up around half of the average bill, according to energy regulator Ofgem: 

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How much of SSE’s energy bill hike is due to green subsidies?

  • 11 Oct 2013, 14:20
  • Carbon Brief staff

From this morning's front page  headlines, you could be forgiven for thinking energy company SSE put up its bills yesterday entirely as a result of subsidies for green energy. Analysis by one thinktank indicates that they only account for a small portion of the rise, however.

SSE put the cat amongst the pigeons yesterday by announcing a price increase that will amount to an extra £93 on the average bill. It blames a variety of changing factors, including the changing wholesale price of energy. But  media commentary focused largely on the role of government levies - intended to support renewable power and increase energy efficiency - in driving up bills.

So why has SSE pushed up prices?

Covering costs

SSE says bills will go up by £93 on average from November 2013, but doesn't say how the total breaks down in pounds and pence. Left-leaning thinktank IPPR has attempted to do that job. Its analysis indicates green measures are responsible for £15 - or about 16 per cent  - of that increase.

SSE says wholesale gas and electricity costs make up around 50 per cent of the bill, network charges around 25 per cent, government schemes around 10 per cent, and VAT around five per cent.


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The Daily Mirror predicts winter power blackout; National Grid confident it won’t happen

  • 08 Oct 2013, 13:20
  • Mat Hope

Credit: Jason A. Howie

Panto season has come early to the Daily Mirror's front page. The UK's energy infrastructure is in such a state that this winter will see a return to "  blackout Britain", it declares today - receiving a firm "oh no it won't" from the grid operator in response.

So is it time to start stockpiling candles? Probably not. National Grid is confident the tools are in place to keep the lights well and truly on this winter.

Winter concerns

National Grid released its annual Winter Outlook report yesterday, outlining how it will ensure the UK has enough power to meet increased demand as the weather gets colder and days get shorter.

The 'blackouts' theme is popular with some  papers. Stories claim  coal plant closures, gas import dependence, intermittent renewable electricity, and a  lack of investment to build large new power plants creates energy shortages that are worst during winter.

But Chris Train, National Grid's director of market operations, said in a press release accompanying the report that he was sure "the market can meet demand in cold weather".

So why is National Grid so confident? In a word: planning.

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Sunday Telegraph front page marks return to ‘green taxes’ debate

  • 07 Oct 2013, 17:15
  • Mat Hope & Ros Donald

'Green energy to cost consumers £400 over next five years', claims the front page of the  Sunday Telegraph this weekend. Newspapers' efforts to highlight the amount we pay for so-called green policies had  fallen out of fashion of late. But a new-found focus on the cost of living appears to have resuscitated an old favourite. We take a look at the new claims - and what a refocus on energy bills may mean for the climate debate.

Labour leader Ed Miliband recently promised to freeze energy bills to help households cope with the country's "cost of living" crisis. Energy companies countered with the suggestion that if only the government stopped requiring payments to help cut power sector carbon emissions, bills would be lower. It looks like the current government may be thinking the same way:  Rumour has it the Treasury wants to find a way to cut 'green taxes' on consumer bills, too.

Enter free market campaign group, the Taxpayers Alliance, whose analysis gives the Sunday Telegraph its headline. It says the government's policies will fund renewable generators to the tune of £22 billion in the coming years. The Sunday Telegraph calculates that up to 2019, households will pay £425 on average towards this total.

£400 per household - over five or six years

First, let's look at the Sunday Telegraph's number. £400 per household seems like a lot - but how does that break down?

The Sunday Telegraph's £425 figure comes from adding up all the money households will pay toward contracts for difference.

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