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Gossage: Gossip June 2016

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Half angel, half bird

My many thousands of devoted readers will recall I have long been sceptical about the practical effects of the government’s Contracts for Difference flagship scheme. All too often it has been a case of the taxpayer generously subsidising electricity generation that would have occurred regardless. So, just nice little earners for supply companies.


However in the 2014 round, the 448-megawatt £2bn Neart na Gaiothe project (off the Forth estuary in west Scotland) was one of seven offshore windfarms awarded subsidy contracts, and one of just two to win subsidies in competitive auction. Its contract guaranteed it a price of £114 per megawatt hour for its electricity, making it one of the cheapest off shore wind projects around. The only caveat being the developers, Mainstream Renewable Power, had to agree to follow a critical path timetable, to ensure the full project was under construction by 2018, and in operation by 2020.

The Scottish government swiftly gave planning consent. All seemed fine and dandy. Until the Royal Society for the Protection of Birds lodged a judicial review against that planning consent, arguing insufficient attention was being paid to our feathered friends.

The court case was heard back in May 2015. But the judge, Lord Stewart, has yet to issue his ruling. Everything is stalled. Which in turn has led to the government agency overseeing the subsidies, the Low Carbon Contracts Company, to cancel the contract as Mainstream Renewable are now in breach of their critical path timetable. If this is confirmed, it means almost one-quarter of the renewable energy facilities promoted by Contracts for Difference will not now be delivered.


Nice work if you can get it

Fancy being an electricity consumer being paid over £100 for each megawatt hour you consume? If so, you should have been a German electricity user during the daytime of Sunday May 8.

That morning of fair weather and high winds saw wind, solar and hydroelectric power plants (of various sizes) producing 54.6 gigawatts (GW) of power, roughly 80% of the 68.4 GW being consumed across the network. As a result, the price of power plummeted.

Between the hours of 7 in the morning until 5 in the afternoon, the price dropped dramatically. It fell so far that, by around lunchtime, it bottomed out briefly at the negative cost of 130 euros per megawatt hour.

On a normal day, renewables produce just under half of all the electricity consumed in Germany. But because it was a Sunday, and so without factories running, the optimum weather conditions led to a disproportionate surge in supply from renewables. Causing that temporary reversal in conventional supply-and-demand payments within the marketplace.

Mind you, at a time when certain Nordic financial institutions are offering negative interest rates to savers- i.e. you give us your money to hold and we shall charge you for doing so – it does suggest we now live in very strange times.
But how very counter-intuitive it is to be being reimbursed for consuming electricity.

First shall be last

Don’t expect First Utility managing director Ed Kamm to be amongst the first invitees to meet Alex Chisholm.  Who is Mr. Chisholm? Why, on 4 July he will become only the third person ever to take up the role of top civil servant – the Permanent Secretary – of the Department of Energy and Climate Change.

First Utility is the most successful of all the new entrants to the electricity supply business. As such, it has been very vocal about the size of the average household fuel bill when supplied by one of the established Big Six suppliers. The company warns on average each of the 85% of households still with one of the legacy companies is “overspending” by £293, which is £59 up on last year. In total, this means that customers are paying £4bn more than necessary every year.

Ed Kamm believes “the Big Six have been exploiting customers’ loyalty for far too long.” You will recall this was a line of argument that the Coalition Government found so persuasive that, back in 2013, it asked the newly formed Competition and Markets Authority (CEMA) to examine whether customers were being overcharged. And if so, by how much.

After much deliberation, the CMA finally reported this spring. They said, yes, tariffs are a bit too expensive. And nationally as much as almost £1.7bn a year might be saved.

Repeating his £4bn loss assessment, Mr. Kamm jibed “the scale of the problem has been vastly undervalued.” This is obviously not the view of the DECC Secretary of State, Amber Rudd. She was most impressed by the work of the CMA. As indeed were the Big Six, who had feared far greater retribution. Anxious as ever to appease the dominant incumbents, “Forever” Amber has just appointed as her new top civil servant Alex Chisholm. Who moves over from running – guess what? – the ever-gullible CMA itself. As I say, no red carpet at DECC for First Utility.

To fall like Lucifer

Charles Hendry was the energy minister who in May 2012 signed a deal for the UK to get geothermal electricity generated by Iceland. Having left the government, within the year he was installed in a £1,000 per day job as director of Atlantic Superconnection, a firm building the 650-mile undersea cable to carry that electricity. The Guernsey-based operation boasts that the ex-Minister had been “instrumental” to the project.

As a minister, Mr. Hendry trumpeted the financial benefits of the UK signing an energy partnership with two Norwegian companies, Statkraft and Statoil, and the German RWE. He then tooka job up a £4,000 a day chairman of Forewind, a consortium of Norwegian firms building the world’s largest offshore windfarm off the Dogger Bank. He stood down very recently.

I know all my devoted readers will wish to join with me in saluting this selfless former public servant.

Elinore Mackay

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