Five of Britain’s biggest energy companies were facing mounting pressure to cut prices last night after figures from Ofgem, the industry regulator, showed the average profits they earned per household leapt 40 per cent this winter to the highest level in five years.

Ofgem said that net profit margins earned by the so-called Big Six companies — British Gas, ScottishPower, EDF Energy, N-Power, Scottish & Southern Energy (SSE) and E.ON — widened from £75 per average dual fuel customer last November to £105 at the start of this month.
The figure represents the highest average margin enjoyed by the industry since 2004, although Ofgem said that the increase was likely to be short-lived after the decision by British Gas to trim its gas prices by 7 per cent. Its move is expected to open the floodgates to further cuts from rivals.
Nevertheless, the report triggered fresh criticism of the industry for failing to pass on wholesale price cuts sooner as Centrica, the owner of British Gas, prepares to report an estimated 50 per cent increase in 2009 profits to £550 million on Thursday.
Mike O’Connor, chief executive of Consumer Focus, the industry watchdog said: “Householders will no doubt wonder why margins have increased for the fifth quarter in a row, while wholesale costs continue to fall.”
Ed Miliband, Energy and Climate Change Secretary, also called for the remaining companies to reduce prices. “Householders facing high winter fuel bills deserve to see the benefits as soon as possible,” he said. “British Gas’s cut was a welcome first move, but we need to see all suppliers passing on the benefits of lower wholesale prices.”
Between 2007 and 2010, the average UK energy bill for a dual fuel customer soared from £912 to £1,223.
Andrew Wright, Ofgem’s senior partner for markets, acknowledged that the companies need to be profitable to afford huge infrastructure investments — estimated at £200 billion by 2020 — to secure supplies and reduce carbon emissions. But he added that Ofgem “would also expect recent falls in wholesale energy costs to be passed on to consumers”.
Britain’s energy companies reaped huge profits this winter because they left the prices they charge consumers largely unchanged from last year while wholesale prices they paid for gas and power plummeted in the recession. By the end of 2009, the wholesale price of gas had fallen to below 40p per therm, down from more than 100p per therm during mid-2008.
Demand for gas and electricity was also high because of unusually cold weather.
Christine McGourty, director of Energy UK, which represents the leading gas and electricity companies, said the Ofgem figures omitted many of the basic costs faced by energy companies.
MPs call for reform of "flawed" electricity marketBritain’s electricity markets are “inherently flawed” and anti-competitive practices may be forcing up the costs paid by consumers, MPs have said.
The study from the Energy and Climate Change Committee on the future of Britain’s electricity networks also called for the introduction of a more efficient “smart grid” capable of intelligently managing demand and supply.
Paddy Tipping MP, a committee member said: “Our existing regulatory and policy frameworks, along with the grid infrastructure we rely on, were developed to serve the fossil fuel economy of the 20th century. The future looks very different.”Mr Tipping called for a review of the British Electricity Trading and Transmission Arrangements, which have formed the foundation for UK power activity since 2005. He also said that by 2020 the UK network would need to accommodate a more diverse energy mix.

Source: The Times

Drax power plant suspends plan to replace coal with greener fuel

Britain’s biggest power station has suspended its plan to replace coal with greener fuel, leaving the Government little chance of meeting its target for renewable energy.
Drax, in North Yorkshire, which produces enough electricity for six million homes, is withdrawing a pledge to cut CO2 emissions by 3.5 million tonnes a year, or 17.5%.
The power station, which is the country’s largest single source of CO2, has invested £80 million in a processing unit for wood, straw and other plant-based fuels, known as biomass. The unit is designed to produce more renewable electricity than 600 wind turbines, but will operate at only a fraction of its capacity because Drax says it is cheaper to continue to burn coal.
Drax is also one of dozens of companies delaying investments in new biomass power stations because of uncertainty over the Government’s policy on long-term subsidies. Hundreds of farmers growing biomass crops may now struggle to sell their produce.
Drax’s decision will make it almost impossible for the Government to meet its commitment to increase the proportion of electricity from renewable sources from 5.5% to 30% by 2020. Renewable energy is a key component of Britain’s legally binding targets to cut overall emissions by 34% by 2020 and 80% by 2050.
In an interview with The Times, Dorothy Thompson, Drax’s chief executive, blamed the Government for failing to give sufficient subsidy to biomass to make it competitive with coal.
Drax has bought two million tonnes of biomass, but Ms Thompson said that it was considering selling it overseas because it no longer made economic sense to burn it in its six boilers.
Ms Thompson said: “We are not confident that the [subsidy] regime for what is one of the cheapest forms of renewable energy will support operating the biomass unit at full load. The UK is missing out massively on the potential for renewable energy from biomass. We want to run in a low carbon way but policy is against us.”
She accused the Department of Energy and Climate Change of lacking the skills to develop a successful biomass policy and focusing too heavily on expensive and unreliable wind turbines. “I think they simply have not put enough expertise into biomass. Wind is not a silver bullet; its benefits have been overstated.”
Ms Thompson said that the Government was holding back biomass by offering it only a quarter of the subsidy given to offshore wind farms and capping the amount of crops that can be burnt in coal-fired power stations.
She said that it was cheaper for Drax to pay for emissions permits to burn coal, the most polluting fossil fuel, than to switch to biomass.
Each megawatt hour of electricity costs Drax £31 to produce from coal and £40 from biomass.
Ms Thompson said that Drax would also be unable to proceed with its £2 billion plan for three new biomass power plants unless the Government offered longer-term support. “We do not believe we can create a credible investment case for our shareholders if there is complete regulatory uncertainty. This is a very serious issue because renewable energy through biomass is a key component for delivering the 2020 target.”
The Renewable Energy Association said that plans for more than 50 biomass projects, totalling £13 billion of investment, had been suspended because of uncertainty over policy. Lord Hunt of Kings Heath, the Energy Minister, said this month that the subsidy regime for biomass needed to be reviewed. Wind farm developers are guaranteed fixed subsidies for 20 years, but biomass investors could have the subsidy cut after four years.

Source: The Times

Oil shortages by 2020 due to Western 'profligacy', says energy boss

Drivers need to start treating oil as a scarce commodity and switch to green transport to avoid shortages by 2020, according to the chief executive of Scottish & Southern.

Ian Marchant, who heads the £10bn FTSE-100 company, is among a group of corporate leaders warning that the world's demand for oil is on the brink of outstripping industry's ability to produce.
"The West has been far too profligate in its use of oil and the price is going to say: stop it now and start using your oil as a scarce commodity," Mr Marchant said.
The energy boss is a member of the Industry Taskforce on Peak Oil and Energy Security, along with Sir Richard Branson, the aviation and media billionaire, Brian Sout, the chief executive of Stagecoach, and Philip Dilley, chairman of engineering group Arup.
They believe that it will be very difficult for the world to produce more than 100m barrels per day of oil.
Current output is around 87m barrels per day, but demand for petrol products is likely to surge as the standard of living increases in China and India.
"It's GCSE economics that if production is constrained and demand increases from emerging countries, the price will go up and up and up," Mr Marchant said.
He urged the Government to start dealing with the problem of limited oil supply by encouraging consumers to limit their energy usage.
"We can have a debate about which year this problem will hit us, but I would rather have a debate about how we avoid it becoming a problem," he added.
The electrification of the UK's transport system is likely to prove both a huge challenge and expansion opportunity for electricity companies and network operators in the UK.
Mr Marchant believes that most consumers will probably be driving hybrid or electric cars by the middle of the next decade.
"Driving two miles is a pretty low value use of oil," he said. "One car in China adds far more value than a second car sitting in the driveway of some house in the UK."
The industry group wants the government to explore electrification of the railways and overhaul the transmission and distribution network.
Chris Barton, a member of the Department for Energy and Climate Change's energy security team, insisted that the Government is already doing enough to encourage efficiency and green transportation under plans published last year.
However, Mr Souter, the transport boss, has proposed more radical solutions than incentives to buy green vehicles. He called for the abolition of the lowest bands of tax that hit those with problems paying their energy bills and the establishment of a tax on carbon emissions.
"This would help redistribute wealth and the people using carbon would be paying for it," he added.
Last week, Ofgem, the energy watchdog, warned that lack of power plants, insecure supplies of gas and underinvestment in the grid would all contribute to "unaffordable" energy bills without more government intervention.

Source: The Daily Telegraph

BP faces protest over oil sands development

BP has become the latest oil company to face a shareholder revolt over its investments in Canada’s controversial oil sands. A coalition of shareholders has tabled a resolution for the oil giant’s annual meeting on April 15 highlighting what they describe as the environmental and social risks of tar sands development.

The resolution, which follows a similar action taken by investors in Royal Dutch Shell, follows BP’s announcement last week that it is set to press ahead with a $10 billion investment in the industry.
Vast reserves of oil lie locked in the bitumen-rich sands of Northern Alberta but processing them into a heavy form of synthetic crude oil is an expensive and environmentally fraught activity which critics say is unsustainable and should be stopped.
Shareholders sponsoring the resolution, led by FairPension, include the Co-operative Asset Management, the Unison Staff Pension Scheme, Rathbone Greenbank, CCLA Asset Management and other fund managers, foundations and faith groups.
Niall O'Shea, head of responsible investing at the Co-operative Asset Management said: "BP, which previously made a virtue of its lack of exposure to oil sands, is now gearing up to exploit them. We believe that environmental costs may make an expensive business prohibitively so - without fundamentally addressing the issue of a large net rise in emissions. BP should reassure shareholders that what they're embarking on is fully costed, prudent and can withstand a more carbon-constrained world."
The resolution raises questions about the high costs of producing oil sands, and the risks to BP’s future profits presented by rising costs for emitting carbon dioxide as well as the legal and reputational risks stemming from environmental damage.
Andy Inglis, BP’s head of exploration and production, said the oil giant would make a final investment decision on its Sunrise oil sands project - a joint venture with Canada’s Husky Energy - later this year.
A spokesman for BP said: “We believe that this development is needed to meet the world’s growing demand for energy and we believe BP can do it in an environmentally sustainable way.”
At its results on Tuesday, chief executive Tony Hayward pointed out that BP was adopting a different technology from many other companies involved in the tar sands business which he said was preferable in terms of its environmental impact.
The technique, so-called “steam assisted gravity drainage”, is used to extract the oil in situ and avoids the mining of large tracts of land that have been adopted by some producers.
BP acquired a 50 per cent in Husky’s Sunrise project near Fort McMurray, Alberta in 2007 and at the same time sold Husky a 50 per cent share in its Toledo refinery in Ohio.
The announcement represented a clear break with the past for Tony Hayward, BP’s chief executive, whose predecessor Lord Browne of Madingley was an outspoken critic of costly oil sands developments.
He had sold off BP’s interests in Alberta in 1999, opting instead to focus on higher-risk but higher-return investments in countries such as Russia. Colin Butfield of the WWF said extracting oil from tar sands caused three times the carbon emissions of conventional production and had a “devastating” impact on land andf wildlife.
"Unconventional fuel sources may seem attractive in the short term but ultimately the economic and environmental costs are unthinkable,” he said.
BP estimates that 193 billion barrels of oil are contained in the oil sands - placing Canada second only to Saudi Arabia in a ranking of countries with the biggest proven reserves.

Source: The Times

Tullow nearing $2.5bn windfall

TULLOW OIL will this week sell half its $5 billion (£3.2 billion) stake in one of the biggest oil finds in Africa to a Chinese state company.

The landmark deal with China National Offshore Oil Corporation (CNOOC) will bring Tullow, the FTSE 100 exploration group, a windfall of up to $2.5 billion.
It will also end wrangling over the rights to develop the giant fields in west Uganda. They helped Tullow, founded in 1985 by Aidan Heavey, a former accountant, to double its stock market value to £10.2 billion in the past year.
Final details were being worked out this weekend with Total, the French oil group, which could become an equal partner in the fields with the Chinese and participate in their development. Tullow is expected to announce the deal after Yoweri Museveni, the president of Uganda, gives it his blessing, which is expected this week. The sale of the three blocks — worth between $4.5 billion and $5 billion — in the Lake Albert basin will be part of a larger development plan.
Eni, the Italian giant, had offered to invest $13 billion to bring them into production but cancelled the offer last week after Uganda switched its support to the rival Tullow/CNOOC plan. The deal is likely to include a secondary listing of Tullow’s shares on the Ugandan stock exchange.
The tussle for control began in November when Heritage Oil, Tullow’s 50% partner in two of the fields, sold them to Eni for $1.5 billion. Tullow matched the bid and gained key government backing.

Source: The Times

France's GDF to sweeten UK generator offer

GDF Suez, the French power giant, is considering a revamped bid for International Power (IP), a £5bn independent power generator.

Talks collapsed last month after GDF offered to transfer assets into IP in return for a majority stake. But IP, led by chief executive Philip Cox, believed that the bid undervalued the British company, which has stakes in more than 45 power stations around the world.
A source close to GDF said that it is thinking of returning with a sweetened offer, likely to include cash for shareholders. "The situation is being actively monitored and all options are being pursued, including a cash element," he said.
A market source close to IP said that shareholders might be "cajoled" into accepting an offer should they be offered some cash, but added that it would have to be "full and fair" and would have to include a premium on the company's current market value, which is just shy of £5bn.
There was speculation this week that GDF had decided against a bid, instead turning its attentions tobuilding a stake in Suez Environnement, which supplies drinking water to 76 million people worldwide.
However, a GDF source claimed that doing one of the deals did not necessarily preclude the pursuit of the other. Advisers Goldman Sachs, Rothschild and BNP Paribas are understood to still be calculating how best to structure the IP offer.
The deal remains important to GDF as it would help it expand into the UK, where it has limited operations, but is bound to raise security concerns over so much of the UK's energy supplies being foreign owned. The move would also mean that GDF kept pace with domestic rival EdF, which last year bought a stake in nuclear generation group British Energy for £12.5bn.
The move would also buttress GDF's position as the world's biggest independent power producer; it has annual sales of €83bn (£73bn), 200,000 employees and listings on the Brussels, Luxembourg and Paris stock exchanges.
Mr Cox was reported to have spoken directly to his GDF counterpart, Gérard Mestrallet, before Christmas. IP was believed to have brought in investment bank Nomura to work on defence tactics.
As well as European locations like Italy, Portugal and Spain, IP has operations in distant territories including Pakistan, Australia and Indonesia. The company announced last month that it had completed finance for a 110mW gas-fired plant in Thailand.
In its last full year results to 31 December 2008, IP's pre-tax profit was £915m, nearly double the previous 12 months. Its shares closed at 313.9p on Friday, down 3p from the start of the day's trading. A GDF spokesman declined to comment.

Source: The Independent

Hunt for dozens feared buried in rubble of power plant blast

Dozens were feared dead or injured last night after a huge explosion at a newly built power plant in Connecticut that shook nearby towns like an earthquake.

The Kleen Energy Plant being built in the college town of Middletown apparently blew up during the first test of its natural gas-fired generating system. Flames were seen shooting from a pipeline as a fireball lit up the sky and a huge plume of smoke hung over the scene.
Officials said that five people were known to have died in the accident and 12 injured, but they cautioned that many more could be trapped. Victims were feared to have been buried in the rubble when the rear of the largest building on the site collapsed.
“What I have been told by the owners of the project is that there could be 100 to 200 people working on the site on any given day. That is the starting point. That is the number they cannot nail down: how many were there,” Sebastian Giuliano, the Middletown mayor, told a press conference.
“They were purging gas lines all weekend,” Mr Giuliano added. “When they run the test most of the people who were there are evacuated from the building. So it is not like there were 100 people in the building when the explosion occured.”
“It is just horrible,” one worker told local WFSB-TV. “All I know is, I lost some union brothers. They are some close, close, personal friends. It is horrible. They were working. They were testing. They got little kids that are at home, and we lost them.”
Residents of towns up to 30 miles away reported feeling a blast. Ron Klattenberg, deputy majority leader for the Democrats in the local administration, said that the explosion could be heard 50 miles away. “I visited the site,” he said. “The walls, which they say were built to withstand tornados, were all blown away. The girders were still there but the walls were all gone.
“There was complete devastation. I was in my boatshed three miles away at the time. There was one huge blast. I thought it was an earthquake or that a tree had fallen on the shed.”
Lieutenant Paul Vance, of the Connecticut state police, said that a search-and-rescue team with dogs and thermal imaging cameras had been sent to the scene to look for survivors. “We have deployed an immense amount of resources,” he said.
The 620-megawatt power plant, on the bank of the Connecticut river about two miles from Middletown city centre, was expected to go online in the summer.
Kleen Energy Systems received approval to generate 520 megawatts, enough electricity for between 364,000 and 520,000 households, in November 2002. In 2006 the company sought approval from the Connecticut Siting Council to be able to produce 620 megawatts, enough for up to 620,000 homes.
Al Santostefano, the deputy fire marshal, said that the explosion was related in some way to natural gas, but that the precise cause remained under investigation. The blast appeared to have happened when operators attempted a “blow down” of natural gas pipelines to clear the gas. “It was a massive explosion,” he said. “It is possible that there might be people trapped in the rubble. There was a lot of steel, from what I could see.”
Bernadette Nyland, who was outside when she heard the explosion, told WTNH: “They were doing the firing of the engines this morning and so something went wrong and it blew up and flames came shooting up almost as tall as that stack.”
With temperatures hovering near freezing, the Department of Public Health was providing tents for medical treatment and shelter. The Red Cross said that it was setting up a counselling centre for victims’ families.

Source: The Times