Tuesday, February 19, 2013

Turning Britain's lights off (safely) would save £1.192 billion each year

The cliché most commonly used to describe a guiding principle behind UK energy policy is "keeping the lights on". I say: let's turn them off instead. Based on what other countries have done, we could save £1.192 billion every year. And that's just the start of the benefits.

The French have just passed a law on the lighting of non-residential buildings.

Beginning on July 1, it requires shops and offices in France to turn off their lights one hour after the last worker leaves a building. All shop window displays will be turned off at 1 a.m. Shop windows may only be lit from 7 a.m. or an hour before opening time.

Necessary public lighting will not be lit before sunset. Exceptions will be made during Christmas and other significant events, as well as in some tourist and cultural areas.

This is expected to save about two terawatt-hours of electricity every year, about the same as the annual consumption of 750,000 households. Based on the average UK electricity bill that would equal £842.25 million.

It will also prevent the release of about 250,000 tons of carbon dioxide into the atmosphere. The French Environment Minister, Delphine Batho, hopes that the decree will change the public’s attitude towards energy-saving practices and make France a pioneer in preventing light pollution.

It will save money for companies and for local authorities. Should the UK follow suit? Could it go even further?

Turning the lights off in streets and non-residential buildings would have many benefits. Most species of bird use the position of the stars to migrate and to navigate at night, but artificial light can lead them off-track and away from their migration routes.

In Slovenia, they have spotted a direct connection between the lighting of public buildings, which began following independence, and the disappearance of insect life. There used to be 460 species of moths in a church on a hill in Kranj (in north-western Slovenia). Since it began to be floodlit at night, this has dwindled to no more than twenty.

Light pollution is opposed by the Campaign for the Protection of Rural England, since it ruins our appreciation of the night sky. The Clean Neighbourhoods and Environment Act 2005 made light nuisance subject to the same criminal law as noise and smells. It applies to "artificial light emitted from premises so as to be prejudicial to health or a nuisance".

It does not necessarily cover the nine million or so streetlamps found in the country.

And this is as far as the law goes in the UK: legislation says nothing about energy efficiency or nature conservation.

There is a clear case for public lighting to be curtailed dramatically, providing that safety is not compromised, for three reasons:
• Economics;
• Curbing carbon emissions; and
• Nature conservation.

Slovenia has the toughest light pollution laws in the world, the Slovene Light Pollution Law. It was passed in 2007, following 12 years of campaigning, and has resulted, five years later, in its capital Ljubljana replacing half of its street lighting with new, less powerful versions, saving an estimated 40 to 60% of energy.

Its fundamental principle is: ‘No lighting is allowed to shine above the horizon’. With a population of two million, it is expected that over the first ten years, up to €10 million worth of energy will have been saved.

But with new technology it is possible to go much further than either the French or the Slovenians. Smart, wireless technology can mean that street lighting, right down to individual lamps, could be controlled independently to take care of particular circumstances.

For example, they could be adjusted to respond to weather, individual need and the timing of events such as a concert or sports match.

According to Jacob van der Pol, of NXP Semiconductors in the Netherlands, a company which makes intelligent lighting: "If there is a football match, the lights in the area can be told to come on when everyone is leaving and dimmed after they have gone. The technology allows you to adapt to circumstance."

The German city of Dörentrup has been pioneering this type of solution. By default, every night at 11pm all street lights are turned off.

Inhabitants can then request a light to be turned back on as needed, by sending a code to a special phone number, called Dial4light. Each street has its own code, that can be found either on this website, or on each lamp-post.

It has been proved to be so successful that it has been extended to 11 other cities, but it has not been without controversy and consequent refinement.

Residents originally had to register on the website before being able to use the system, but this requirement met with protests and has been withdrawn. The arrangement even covers the lighting of sports facilities and parks. The request to switch on the light results in the light staying on for 15 minutes after which it goes off automatically, but that may be renewed, and the policy is subject to evaluation.

Following complaints from residents on inhabited streets about safety, the latest tests are confined to streets which are not inhabited. The city of Hennef reckons that, if applied to the entire city, Dial4Light could save about €300,000 in electricity costs per year for street lighting.

Hennef has a population of just 46,342. Based on this, if the policy was applied in a similar way to the whole of the UK (population 62,641,000), it would save the UK £349.52 million per year.

If the UK also adopted the French law, it would save a further £842.25 million, resulting in a total of £1.192 billion each year.

This is not to mention the other benefits on wildlife, light pollution and curbing carbon emissions.

Since cost pressures are forcing many municipalities to save on the lighting of public streets and roads, this would be an excellent and simple strategy to copy in the UK.

And for building managers, installing low-energy, high-performance LED lighting, with controls allowing them to switch off at night or whenever the building is unoccupied, would save a lot of money, reduce their carbon footprint and, done properly, have no negative impact on business operation.

It's an illuminating thought.

Friday, February 08, 2013

The companies who bring us electricity should belong to us

Many people have not heard of district network operators. They operate behind the scenes, separate from the National Grid and the transmission companies, and most people would not even suspect their existence.

These 14 companies manage the switchgear, transformers, cables and everything else that plays such a vital part in keeping the lights on and the machines running around the country.

The electricity suppliers, the people to whom you pay the bills, lease the use of these regional networks, in much the same way that other telephone companies lease the telephone network from BT.

As I exposed this week in this news story, the suppliers are forced to pay whatever charge is made to them by the DNOs, and this charge ends up as part of your electricity bill, which varies from region to region, but is on average 16%.

This is effectively a natural monopoly, which allows the companies owning the networks to set their prices at whatever level they see fit.

Moreover, we have found out that 85% of these companies are foreign owned, just as is the case with many of the UK's water and sewage utility companies. This is considered to be a way of bringing investment into the country.

This may be so, but no one will invest without wishing to make a profit, and it seems that most of the profit leaves the country.

This profit totalled over £1.2bn in 2011/12. The biggest profit by far in terms of dividend as a percentage of profit was made by Western Power Distribution, serving the South West, South Wales and the Midlands, whose owners, PPL, are in America. They made a pre-tax profit of £190m.

As Richard Hall from Consumer Focus comments: "The absence of competitors, and the certainty that there will always be demand for electricity, removes many of the incentives to keep performance up, and prices down, that most ordinary businesses face".

I am not necessarily criticising Ofgem, which seems to be doing its best to get a grip on the problem, but it is only two years into a price control programme, having failed to do anything of significance for many years previously.

What this topic needs is more exposure and public discussion.

Even more worrying than the fact that it is a monopoly, is that this business sector does not seem to have escaped the tendency found elsewhere in the economy, of large, especially foreign-owned companies, using tax avoidance schemes.

The company reports, which are all available on the Ofgem website, show that while some of them pay a reasonable amount of tax, others are paying nothing like the 26% rate of corporation tax that they should be paying.

For example, Electricity North West, owned in Australia and the USA, was actually given a rebate of £15m in 2011/12, and the previous year paid just 13% tax.

Eastern Power Networks, owned in Hong Kong, last year received a rebate of £10m, and the previous year rebate of £12m, or minus 57% of pre-tax profit. Its two sister companies, London Power Networks and South Eastern Power Networks, (the three make up UK Power Networks), paid 7% and 1% respectively.

Ofgem can do nothing about this, of course, it's up to HMRC.

But ultimately it's up to the government. I've written several times before about the scandals of poor investment and big profits being made by some water companies, and argued that the best model for utilities is a social enterprise one, as practised by Welsh Water.

This "not for profit" business structure sees not only Welsh Water making record-breaking investment in infrastructure, but taking on more workers and paying each customer, who is a shareholder, a bonus of £22 each, which amounted to £150m over seven years.

Mutual companies, like the Co-operative Banking Group and John Lewis, are sustainable social enterprises, owned by members, doing better than their counterparts in the fully private sector and, what's more, continuing to recycle their profits back into other UK businesses, as well as providing better value for customers.

As I keep saying, imagine all water companies and energy companies run this way. Even banks. It wouldn’t be a case of ‘us’ and ‘them’, but just ‘us’. It gives people themselves a level of responsibility for, and involvement in, the essential services that we need.

This feeling of co-ownership would help to put an end to the criticisms that are continually levelled against most banks, water and energy companies.

It's a myth that we need foreign owned companies to run our utilities in order to provide investment. What we need is good and responsible management. An effective way of achieving this is for them to be forced to become not-for-profit social enterprises, since their primary purpose is to provide a social service.

In the case of the DNOs, Ofgem has been wise to include on its independent panel that looks at customer relations Teresa Perchard, the director of policy and advocacy at Citizens Advice, and Malcolm Rigg, director of the Policy Studies Institute. They will hopefully bring some sensible pressure to bear, but it's a bit like using a spade to shift a mountain.

What's needed is a radical shakeup. But despite the clamour, the banking industry is largely carrying on as before the 2007 crisis. Government has proved itself ineffective in forcing them to become more responsible.

In the absence of any other regulation, we must look to Ofgem to force responsibility in this sector. Ofgem must be held to public account.

Exposed: The hidden monopoly that ramps up UK electricity bills

electricity pylons

UK electricity network operators are being accused of unfairly charging customers for the privilege of using the network to send electricity to consumers, and exploiting their monopoly status in order to make excessive profits.

Dale Vince, CEO of independent renewable electricity supplier Ecotricity, said: "On average these guys make an operating profit margin of almost 50%, and a pre tax profit margin of over 30% – that’s big by any standard, in any sector. And yet they are being allowed (by OFGEM) to impose price rises well above inflation – averaging 5.6% across the UK this year and as much as 11% in some areas".

Together in 2011/12, these companies made a profit of £1.2bn and gave a dividend of £1.5bn to their owners, who are mostly based abroad.

On average, 16% of consumers' electricity bills goes to the DNOs. This compares to 58% for the wholesale cost of fuel supply, and just 2% for the subsidies that go to renewable electricity.

Most people haven't heard of district network operators. But these are the eight companies that run the regional electricity networks.

Called Distribution Network Operators (DNOs), they are licensed by Ofgem, which, in 2009, began regulating the revenues DNOs can collect from network users, i.e. the electricity suppliers.

They effectively run a monopoly but their own company reports show that they only pay an average rate of tax to the Exchequer of 6% of their pre-tax profit. Almost all of these distribution companies (85% by turnover) are now owned by foreign companies. This means their profit leaves the country, as the following table shows:

Company Area Owner Country of owner
SSE Power Distribution Plc Northern Scotland SSE Scotland
Southern Electric Power Distribution Plc Southern Scotland SSE Scotland
SP Energy Networks North Wales ScottishPower, part of Iberdrola Spain
Northern Ireland Electricity Northern Ireland ESB Group (the Electricity Supply Board) N.Ireland
Electricity North West North West Owned by bankers, with HQs abroad: JP Morgan Investment Management Inc and Colonial First State Global Asset Management, part of the Commonwealth Bank of Australia Australia & USA
Northern Power Grid owns Northern Powergrid (Northeast) Limited and Northern Powergrid (Yorkshire) plc, North East A wholly owned subsidiary of MidAmerican Energy Holdings Company America
UK Power Networks South East, East and London Cheung Kong Infrastructure Holdings,40%, Power Assets Holdings, 40%, and The Li Ka Shing Foundation, 20% China
Western Power Distribution South West, South Wales and Midlands PPL, formerly known as Pennsylvania Power and Light America

Cheung Kong Infrastructure is controlled by Hong Kong-based tycoon Li Ka-shing.

These companies made the following profits and dividends in 2011/12:

Company Profit (£m) Dividend 

Dividend as % of profit 

SSE Power Distribution Plc 167 200 120
Southern Electric Power Distribution Plc 58 100 172
SP Energy Networks 152 95 62
Northern Ireland Electricity unknown
Electricity North West 70 62 89
Northern Power Grid 218 70 32
UK Power Networks 348 175 47
Western Power Distribution 190 804 1886.75
Total 1,203 1,508

I asked various consumer groups to comment on these revelations. Richard Hall, head of energy regulation at Consumer Focus said: "While consumers can shop around for their electricity supplier, they can’t choose which network brings it to their door.

"The absence of competitors, and the certainty that there will always be demand for electricity, removes many of the incentives to keep performance up, and prices down, that most ordinary businesses face.

"Consumers therefore rely on the regulator to put rules and incentives in place to ensure the networks deliver high quality services at a reasonable price. With energy bills doubling in the last seven years, it’s imperative that Ofgem wrings every drop of value it can out of the price controls it agrees with them."

The Consumer Association, Which?, and uSwitch. They responded that this was a new area for them, which they had not considered before, and they all felt unable to comment. uSwitch said: “It’s not an area that we have commented on previously and we don’t know enough about it to be able to add any particular insight or value”.

And yet the implications are potentially huge with vast sums involved. These companies are spending, and making, billions of pounds, away from the public eye, although under the regulation of Ofgem.

A spokesperson for the Department for Energy and Climate Change (DECC) commented: “Ofgem’s new framework for regulating network companies’ investment activities (“RIIO”) introduces outputs for the network companies to deliver and they will get incentives or penalties according to how well they deliver them. One of these incentives the Broad Measure of Customer Satisfaction stakeholder engagement incentive, is to encourage network companies to address key social issues such as fuel poverty and consumer vulnerability”.

Customer satisfaction is overseen by an independent panel, chaired by Ofgem. The last time this panel met, in summer last year, it was made up of:
  • Philip Cullum, Partner Consumer and Demand Insight, Ofgem (Chair)
  • Colin Browne (Communications Consultant)
  • Mary Fagan (Group Communications and Corporate Affairs Director at ITV)
  • Teresa Perchard (Director of Policy and Advocacy, Citizens Advice)
  • Malcolm Rigg (Director of the Policy Studies Institute), and
  • Andrew Whyte (Communications Consultant).
These individuals said they were "favourably impressed by the number of references to activities providing additional assistance to vulnerable consumers". However, "some DNOs had failed to meet minimum requirements", they said, mentioning no names.

All of the DNOs’ submissions, detailing their community work, are available from the above link.

RIIO, regulator Ofgem's transmission price control system, stands for Revenue = Incentives+Innovation+Outputs. It is supposed to place much more emphasis on incentives to invest in upgrading the network and customer satisfaction.

The current round of improvements to the network which Ofgem has asked for will add an average of 5.6% two bills, though the amount varies significantly region to region. This averages out at about £4.30 per customer per year.

Ofgem is also in the third year of its Distribution Price Control Review 5 DPCR5, which runs from April 2010 to March 2015. A new eight-year agreement will be set after this, and other companies will be entitled to bid to control the networks, though this is considered unlikely.

Ofgem says that when the new contracts come in, then those who do not perform will be penalised, while any that outperform will be made to pass on any savings to their customers.

One of the incentives is to encourage customer satisfaction, where a reward of up to 0.2% of "allowed revenue" is given to those companies which achieve a certain level, as judged by the independent panel. However, this is yet to happen.

An Ofgem spokesperson said that "the price controls are needed as these networks are natural monopolies and therefore there is no realistic way of introducing competition across the whole sector".

It insists that since "Britain’s networks are undergoing a significant upgrade and through Ofgem’s price controls this investment is being secured at a fair cost to consumers.

"To further ensure value for consumers, during the current price control Ofgem set the toughest rate of return ever set for a regulated company (4.7% vanilla Weighted Average Cost of Capital)," they said.

As far as Ofgem is concerned, this state of affairs attracts outside investment into the country. "In 2011, the investment in Britain’s electricity network was twice the amount that was awarded in dividends," they said.

Ofgem is monitoring the situation. "We are currently in a position to consider the financial information relating to the first two years of this five year price control. It is important to note that DNOs’ spending will vary over the five years."

They said that the last time the DNOs put in their bids, in December, Ofgem shaved off £5bn of their costs, a significant amount, saying that they could implement their work programmes for less money.

"In addition," they said, "at the end of the control any underspends or savings will be shared with customers. Overall, we anticipate that at the end of the current price control returns for the DNOs will be within our anticipated range but come down from current levels, while consumers will have benefited significantly from improvements in quality of service."

David Smith, the chief executive of the Energy Networks Association (ENA), the trade body that represents the networks, insisted that his members gave value for money: “The networks deliver the vital services that keep our lights on, our homes warm and our industry and business in operation. It is a service that society depends upon and the reliability of the networks in the UK is unique at 99.9996%."

He acknowledged that they were "natural regional monopolies" but said, "There is no other logical efficient way to deliver this kind of infrastructure," and made the case that "a substantial proportion of profits are being ploughed back into critical investment to deliver a smarter, lower carbon energy system," which needed updating since much of it was installed a long time ago.

“It is estimated that jobs in the network companies will increase one and a half times over the next 20 years," he said.

“Focusing on pre-tax profit margins is inappropriate and misleading as the DNOs spend many hundreds of millions of pounds in capital expenditure each year which does not appear on the profit statement. The cash flows received by the companies are much less.”

Now we know: £155bn: the cost of new nuclear power to consumers

It has been a bad week for nuclear power and the prospects of building new power stations.

Last week, Cumbria County Council voted against the area being used as a deep geological dump for existing nuclear waste, sending the whole process of looking for something to do with the country's stockpile back to the drawing board.

Looking after this existing waste takes up more than half of the annual budget of the Department for Energy and Climate Change. That's £1.6bn of public money every year.

On Monday, the House of Commons Public Accounts Committee published a damning report on the management of this waste, which said that "deadlines for cleaning up Sellafield have been missed, while total lifetime costs for decommissioning the site continue to rise and now stand at £67.5bn".

Margaret Hodge, its Chair, noted that: "taxpayers will have to foot the bill" and they "are not getting a good deal". Last year the consortium tasked with sorting out the mess, was rewarded with £54m in fees, despite only two out of 14 major projects being on track.

Also on Monday, Centrica announced it was ending its partnership with EDF, writing off a massive £200m and launching a share buy-back scheme to return another £500m of unused capital to its investors. As with RWE and E.ON last year, and, as Martin Horwood, MP, put it, "like any sane investor in my view, it has decided that it is not going to touch these new nuclear plans with a bargepole".

Finally, yesterday, MPs on the House of Commons Backbench Business Committee debated the question of the subsidy-by-another-name for new nuclear build in this country, contracts for difference, floated in the Energy Bill, but lacking detail of any sort.

The energy chief executive of Electricité de France, Vincent de Rivaz, told the Financial Times that the last thing stopping them going ahead with building a new nuclear plant at Hinckley and Sizewell “is the contract for difference. Once we have that, we’ll have a compelling investment case to attract partners into the project”.

In other words, as Martin Horwood told MPs, “If you don’t subsidise us, there is no business case.”

How much is EDF asking for? The negotiations have so far been shrouded in secrecy, but for the first time, some figures came out in yesterday's debate.

According to the Energy Fair group of energy consultants and academics, the real cost of nuclear power is at least £200 per MWh. This is much more than the cost of offshore wind power (140 per MWh) or that of onshore wind power (£90 MWh).

Based on this, EDF might be asking for something as high as £165 per MWh for the strike price. A similar figure comes from Steve Thomas of Greenwich University and Peter Atherton of Citi: a strike cost price of £161 per megawatt.

This compares to today’s wholesale price for electricity of around £51 per megawatt.

The government would have to enter into a 30-year contract life for the two proposed plants at Hinkley and Sizewell.

Over this period, then, the total cost to householders and businesses or taxpayers would be £155bn by 2050. That is without any of the additional costs, such as insurance and accident protection, dealing with waste, etc.

As Mike Weatherley MP said yesterday: "Imagine the renewable energy industry if we had invested over £155bn in it".

Much of this cash would leave the country as EDF is based in France.

We are talking about not some new technology like tidal power, but a mature and not very competitive industry started in 1956.

MPs were asking for the Public Accounts Committee to scrutinise the economic case for nuclear new build and contracts for difference. Unfortunately, its chair, Margaret Hodge told them that, much as she would like to do this, she couldn't, because the committee can only examine contracts after they have been signed. In this case, that would be too late.

MPs bewailed the lack of information that Parliament had been given about the negotiations with the EDF. Joan Walley said: "It is impossible to understand how Government policy is being taken forward in this area, because of the complete lack of transparency and of an evidence base."

This led Ed Davey to come before MPs and pledge that the House would be told the nature of any contract agreed with EDF before it were signed. Then why haven't they done that already?

Let's be clear, the Treasury’s levy control framework, which caps the costs that can be added to consumers’ bills, currently specifies a figure of £2.6bn a year. There are estimates that the cap would have to rise to £12.5bn or more to provide 16 GW of nuclear power by 2025.

I don't think the Treasury is going to agree to this.

EDF's Olkiluoto plant in Finland was begun in 2005 and should have gone on line in 2009. It is six years overdue and €4.3bn over budget. Its Flamanville facility is now four years late and and €4.8bn over budget.

Clearly, new nuclear cannot be built without a subsidy. Therefore, it should not go ahead at all. Instead, it should yield to other forms of energy, particularly renewable energy.

Ed Davey promised yesterday that "each contract will need to deliver value for money for the consumer and be compatible with state-aid rules". On present evidence, EDF is a not going to deliver this.

Waiting in the wings are Chinese companies. And do we really want state-owned Chinese companies entering into the British energy market and being privy to our nuclear secrets?