Latest news with #DieterHelm
Mint
07-08-2025
- Business
- Mint
Can Britain untangle the mess in its water industry?
Bowing to the Byzantine financial complexity of privatised water in Britain, the government made an unusual choice for its 'once-in-a-generation" review into the troubled sector: putting a central banker in charge. Sir Jon Cunliffe, until recently of the Bank of England, released his interim findings on June 3rd. That same morning the industry laggard, Thames Water, announced that rescue plans had collapsed. After ten weeks of due diligence KKR, a private-equity giant, decided not to inject fresh cash into the struggling and over-indebted utility. Water is in the muck for two reasons. One is decades of underinvestment. The blame for that sits mostly with Ofwat, the regulator. Water is a natural monopoly, so the industry has a peculiar structure: Ofwat must approve firms' investment plans, and the bill rises that fund them. Companies' relationship with Ofwat has tended to be testy. Ofwat prioritised keeping bills low over funding more investment. After public outcry at sewage spills—amplified by a pandemic-era boom in wild swimming—Ofwat is now letting companies raise bills by 36%, plus inflation, to fund £104bn ($141bn) in investment. Five firms have appealed against that decision to the Competition and Markets Authority, another regulator, arguing that bills need to go up even further. Then comes Thames Water. Many in the sector loaded up on debt to juice water's slow-but-steady returns in the years after privatisation (see chart 1). The ramp-up in borrowing for Thames Water under its previous owners, Macquarie, an Australian investment firm, was especially stark. Thames is the only water company to have over 80% of debt relative to its assets. Ofwat recommends 55%; the industry average is around 70%. Ofwat has also flagged the finances of Southern Water and South East Water as worryingly fragile. Over the past few years a surge in borrowing costs and higher performance-related fines from Ofwat have shaken this model. Sir Dieter Helm, an economist at Oxford University, reckons the sector 'would have limped along without those shocks", even if the situation was ultimately 'unsustainable". Sir Jon's final verdict is not due until later in the summer, but his interim report offers a sense of likely reforms. Core to his vision seems to be a 'supervisory" approach akin to how financial regulators approach banks, with specific teams assigned to track individual companies. A gripe in the industry has been that Ofwat focuses on comparing companies against a 'notional" structure that doesn't match their own. He also wants to simplify the messy laws and duties governing water, and to make the sector more attractive to investors. That is a challenge. Sir Dieter calls the industry 'pretty close to uninvestible" in light of political and regulatory risk. (Labour has threatened to lock up water bosses.) Another worry for investors is uncertainty around asset health—whether the quality of water infrastructure is up to snuff. The number of Ofwat fines over the past few years suggest it may not be (see chart 2). The returns on offer have failed to entice much new capital. The global buildout of renewable power and data centres means there are ample investable projects elsewhere. Analysis by Vallorii, a technology firm, suggests default risk alone raises Thames Water's cost of equity from the 5.1% real-terms return that Ofwat allows to 13.7%. As a result, Thames Water is cash-starved and may not be far off special administration, a type of insolvency. The Ontario Municipal Employees Retirement System has already written its 31.7% stake down to zero. Distressed-debt specialists like Silver Point Capital and Elliott Management, known for seizing an Argentinian naval vessel during a decades-long court battle over sovereign-bond repayments, have swooped in. The government says it is still hoping to avoid special administration. If Thames Water went bust, calls from the Labour backbenches for outright nationalisation might be difficult to ignore. Not quite 'too big to fail", but at least 'too inconvenient to fail". Sir Jon's banking experience may come in handy after all. Correction (June 9th): A previous version of this piece used a draft figure for the returns allowed on capital provided to water companies. For more expert analysis of the biggest stories in Britain, sign up to Blighty, our weekly subscriber-only newsletter.
Yahoo
23-05-2025
- Business
- Yahoo
Net zero less likely to bring down energy bills, warns auditor
Net zero is less likely to bring down energy bills in the near future, one of Britain's auditing giants has warned, amid falling gas prices and the soaring cost of offshore wind. KPMG said it will become 'harder to argue' that the switch to renewables can lower bills in the near-term if such trends continue. Annual household energy bills will fall by 7pc on average from July 1 after Ofgem committed to lowering its price cap to £1,720, largely as a result of the seasonal reduction in the demand for gas, which sent prices lower. It means that the cost of subsidies offered to renewable generators – which are funded by taxes on bills – are becoming an increasing proportion of the cost of household energy. Such levies now account for up to 25pc of energy bills, according to Dieter Helm, professor of energy economics at Oxford University. Simon Virley, the head of energy at KPMG UK, said:'Today's decrease in the energy price cap is the result of falling gas prices and will bring costs back to where they were at the end of last year. This is good news for households still struggling with the cost of living. 'But with upward pressures on the cost of renewables, due to supply chain and other constraints, and if gas prices continue to fall, it will be harder to argue that switching from gas to renewables will help bring energy bills down in the near-term.' Mr Virley's comments reflect the recent turmoil in the renewables industry caused by Danish developer Orsted, which decided to abandon its massive Hornsea 4 wind farm project off the coast of Yorkshire due to rising costs. Orsted won the contract for Hornsea 4 only last year with a guaranteed minimum price of £85 per megawatt hour, which was higher than any other recent award. The renewables sector has been hit hard by inflation, including rising costs for steel and for the ships, cables and other equipment needed to build offshore wind farms. Mr Virley said that in the longer term the shift to renewables still made sense 'to remove our dependence on volatile global fossil fuel markets'. Other analysts say the shift to renewables, and the levies that support them, is costing consumers too much. A separate report, issued last week by Watt-Logic energy consultancy, found that green levies added £18bn to bills last year, a sum that will reach £20bn by 2030. Analyst Kathryn Porter said: 'My analysis indicates that had Britain continued with its legacy gas-based power system in the period since 2006, consumers would have been almost £220bn better off, even taking into account the impact of the gas crisis.' At the centre of such debates is the ever-changing price of natural gas. Its price is set partly by trading at the so-called TTF Hub in the Netherlands – a virtual point in the pipeline network where gas is bought and sold. In 2021, TTF prices – the benchmark for Europe – were hovering around €20 (£17). They soared to €340 at the peak of the energy crisis caused by the Ukraine invasion and have since fallen back sharply. Memories of this huge but short-lived rise – and the huge costs it imposed on personal and public finances – have fuelled the continuing political pressure for an accelerated shift to renewables. Over the last year gas prices have hovered between €31 and €58 – much lower than 2022 but not back to 2021 levels. This remains important for power bills because about a third of UK electricity is generated by gas-fired power stations. However power bills contain several other components besides gas costs. Other factors include network costs – covering transmission infrastructure – and green levies. As the amount of renewables on the network has grown so the size of those green levies has increased – both in cost and as a proportion of bills. This trend is set to continue, directly linked to the growing number of wind and solar farms added to the system. Ed Miliband, the Energy Secretary, repeated his calls to replace gas with renewables. He said: 'The fall in energy bills is welcome news for families across the country and will mean that working people keep more of their money in the coming months. 'But the only way we get long-term energy security is through our mission for cheap, clean home-grown power. Broaden your horizons with award-winning British journalism. Try The Telegraph free for 1 month with unlimited access to our award-winning website, exclusive app, money-saving offers and more.
Telegraph
23-05-2025
- Business
- Telegraph
Net zero less likely to bring down energy bills, warns auditor
Net zero is less likely to bring down energy bills in the near future, one of Britain's auditing giants has warned, amid falling gas prices and the soaring cost of offshore wind. KPMG said it will become 'harder to argue' that the switch to renewables can lower bills in the near-term if such trends continue. Annual household energy bills will fall by 7pc on average from July 1 after Ofgem committed to lowering its price cap to £1,720, largely as a result of the seasonal reduction in the demand for gas, which sent prices lower. It means that the cost of subsidies offered to renewable generators – which are funded by taxes on bills – are becoming an increasing proportion of the cost of household energy. Such levies now account for up to 25pc of energy bills, according to Dieter Helm, professor of energy economics at Oxford University. Simon Virley, the head of energy at KPMG UK, said:'Today's decrease in the energy price cap is the result of falling gas prices and will bring costs back to where they were at the end of last year. This is good news for households still struggling with the cost of living. 'But with upward pressures on the cost of renewables, due to supply chain and other constraints, and if gas prices continue to fall, it will be harder to argue that switching from gas to renewables will help bring energy bills down in the near-term.' Mr Virley's comments reflect the recent turmoil in the renewables industry caused by Danish developer Orsted, which decided to abandon its massive Hornsea 4 wind farm project off the coast of Yorkshire due to rising costs. Orsted won the contract for Hornsea 4 only last year with a guaranteed minimum price of £85 per megawatt hour, which was higher than any other recent award. The renewables sector has been hit hard by inflation, including rising costs for steel and for the ships, cables and other equipment needed to build offshore wind farms. Mr Virley said that in the longer term the shift to renewables still made sense 'to remove our dependence on volatile global fossil fuel markets'. Other analysts say the shift to renewables, and the levies that support them, is costing consumers too much. A separate report, issued last week by Watt-Logic energy consultancy, found that green levies added £18bn to bills last year, a sum that will reach £20bn by 2030. Analyst Kathryn Porter said: 'My analysis indicates that had Britain continued with its legacy gas-based power system in the period since 2006, consumers would have been almost £220bn better off, even taking into account the impact of the gas crisis.' At the centre of such debates is the ever-changing price of natural gas. Its price is set partly by trading at the so-called TTF Hub in the Netherlands – a virtual point in the pipeline network where gas is bought and sold. In 2021, TTF prices – the benchmark for Europe – were hovering around €20 (£17). They soared to €340 at the peak of the energy crisis caused by the Ukraine invasion and have since fallen back sharply. Memories of this huge but short-lived rise – and the huge costs it imposed on personal and public finances – have fuelled the continuing political pressure for an accelerated shift to renewables. Over the last year gas prices have hovered between €31 and €58 – much lower than 2022 but not back to 2021 levels. This remains important for power bills because about a third of UK electricity is generated by gas-fired power stations. However power bills contain several other components besides gas costs. Other factors include network costs – covering transmission infrastructure – and green levies. As the amount of renewables on the network has grown so the size of those green levies has increased – both in cost and as a proportion of bills. This trend is set to continue, directly linked to the growing number of wind and solar farms added to the system. Ed Miliband, the Energy Secretary, repeated his calls to replace gas with renewables. He said: 'The fall in energy bills is welcome news for families across the country and will mean that working people keep more of their money in the coming months. 'But the only way we get long-term energy security is through our mission for cheap, clean home-grown power.
Yahoo
23-05-2025
- Business
- Yahoo
Net zero less likely to bring down energy bills, warns auditor
Net zero is less likely to bring down energy bills in the near future, one of Britain's auditing giants has warned, amid falling gas prices and the soaring cost of offshore wind. KPMG said it will become 'harder to argue' that the switch to renewables can lower bills in the near-term if such trends continue. Annual household energy bills will fall by 7pc on average from July 1 after Ofgem committed to lowering its price cap to £1,720, largely as a result of the seasonal reduction in the demand for gas, which sent prices lower. It means that the cost of subsidies offered to renewable generators – which are funded by taxes on bills – are becoming an increasing proportion of the cost of household energy. Such levies now account for up to 25pc of energy bills, according to Dieter Helm, professor of energy economics at Oxford University. Simon Virley, the head of energy at KPMG UK, said:'Today's decrease in the energy price cap is the result of falling gas prices and will bring costs back to where they were at the end of last year. This is good news for households still struggling with the cost of living. 'But with upward pressures on the cost of renewables, due to supply chain and other constraints, and if gas prices continue to fall, it will be harder to argue that switching from gas to renewables will help bring energy bills down in the near-term.' Mr Virley's comments reflect the recent turmoil in the renewables industry caused by Danish developer Orsted, which decided to abandon its massive Hornsea 4 wind farm project off the coast of Yorkshire due to rising costs. Orsted won the contract for Hornsea 4 only last year with a guaranteed minimum price of £85 per megawatt hour, which was higher than any other recent award. The renewables sector has been hit hard by inflation, including rising costs for steel and for the ships, cables and other equipment needed to build offshore wind farms. Mr Virley said that in the longer term the shift to renewables still made sense 'to remove our dependence on volatile global fossil fuel markets'. Other analysts say the shift to renewables, and the levies that support them, is costing consumers too much. A separate report, issued last week by Watt-Logic energy consultancy, found that green levies added £18bn to bills last year, a sum that will reach £20bn by 2030. Analyst Kathryn Porter said: 'My analysis indicates that had Britain continued with its legacy gas-based power system in the period since 2006, consumers would have been almost £220bn better off, even taking into account the impact of the gas crisis.' At the centre of such debates is the ever-changing price of natural gas. Its price is set partly by trading at the so-called TTF Hub in the Netherlands – a virtual point in the pipeline network where gas is bought and sold. In 2021, TTF prices – the benchmark for Europe – were hovering around €20 (£17). They soared to €340 at the peak of the energy crisis caused by the Ukraine invasion and have since fallen back sharply. Memories of this huge but short-lived rise – and the huge costs it imposed on personal and public finances – have fuelled the continuing political pressure for an accelerated shift to renewables. Over the last year gas prices have hovered between €31 and €58 – much lower than 2022 but not back to 2021 levels. This remains important for power bills because about a third of UK electricity is generated by gas-fired power stations. However power bills contain several other components besides gas costs. Other factors include network costs – covering transmission infrastructure – and green levies. As the amount of renewables on the network has grown so the size of those green levies has increased – both in cost and as a proportion of bills. This trend is set to continue, directly linked to the growing number of wind and solar farms added to the system. Ed Miliband, the Energy Secretary, repeated his calls to replace gas with renewables. He said: 'The fall in energy bills is welcome news for families across the country and will mean that working people keep more of their money in the coming months. 'But the only way we get long-term energy security is through our mission for cheap, clean home-grown power. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
BBC News
16-03-2025
- Business
- BBC News
Thames Water set for crucial court ruling
The fate of debt-laden Thames Water will become clearer as soon as Court of Appeal is expected to decide whether the company's plan to borrow a further £3bn to avoid collapse can proceed or whether it upholds objections from a small group of creditors and Liberal Democrat MP Charlie it approves the plan, Thames Water lives on long enough to attempt a restructuring of its debts and garnering of new investment. If it approves the appeal, the company is likely to fall into a government-backed administration within weeks or outcome is guaranteed to generate a strong reaction. Customer bills and supply are unlikely to be affected - in either case, bills are due to go up. The company – and the vast majority of lenders - insists that a government rescue will end up costing taxpayers billions, set back the timetable to fix this broken business and send both suppliers and would-be investors running for the including Mr Maynard and academics like Professor Sir Dieter Helm, argue that the Thames plan mainly serves the narrow interests of its current lenders who stand to lose more of their money in an administration than they would if they can keep the show on the road – particularly since the extra money they want to lend them comes with a very hefty interest public interest is best served, they say, by using the same mechanism employed when energy company Bulb went bust. In that case, the cost was initially estimated by the Treasury to be £6bn but ended up costing close to zero as energy prices moved in the government's favour. So who is right? The answer depends largely – but not entirely – on how much one estimates a government rescue would cost itself has presented an estimate of up to £4bn. While Charlie Maynard has presented a figure of £66m. Others have said it wouldn't cost taxpayers a dime in the long run. A staggering the regulator, seems to have sided with the company. In submissions to the courts, Ofwat presented the £4bn figure and Mr Maynard's £66m and chose only to comment that Mr Maynard's figure was the least Secretary of State Steve Reed has said that government involvement "would cost billions and take years".Eminent economist and infrastructure expert Professor Sir Dieter Helm argues that it could end up costing the government zero as the proceeds of a sale back to the private sector would eventually cover the costs incurred in the short to medium term by the government.A person close to the situation said "the idea that SAR is cost-free is fanciful and dangerous. It's time for the reality to be recognised. SAR is not a good outcome."Most importantly, the BBC understands that a figure in the billions may be included in the OBR's official forecast under the "risks to the outlook" correct answer is that no one can be quite is uncontested is that in a so called Special Administration Regime (SAR), the financial and operational risks of the company transfer from the private to the public the short to medium term, the taxpayer will bear financial risks that are substantial. Thames has a plan to invest nearly £20bn over the next five years while it only has revenue of £2.3bn a year. The extra money comes from upfront borrowing that the company pays back through customer bills over many years. In a SAR, that upfront cost would be borne by the term, when the company is sold back to the private sector, that money could be recouped – plus interest - from the sale very hard to estimate what Thames would sell for. Well-performing water companies sell for around 50% of the value of their assets. Thames assets are worth around £18bn on paper – which would give a figure of £9bn. Given the age of those assets, the high operational costs of working around high population density and its miserable track record, it's very unlikely that Thames would sell for anywhere near the government rescues something with the intention of selling back to the private sector – it is always possible, likely even, they may get less money back than they put in. There are many examples of this - including British Steel and the far as the government is concerned, rescuing Thames comes with a cost that would affect the public finances negatively over the course of this parliament. Given the well-publicised but self-imposed constraints on the Chancellor, it's not hard to see why the government would like to avoid it if other argument advanced by Mr Maynard in his appeal against the £3bn private lifeline – is that it will well end up being paid for by customers. Ofwat again decided to intervene on this, writing to the court that the company would be barred from recouping financing costs from itself argues there are other reasons a SAR would not be in the public interest. New administrators parachuted in to caretake a vast sprawling business would be ill-equipped to take on the task of turning around a company whose new management insists had formulated a clear plan. Thames would be a company in limbo with little momentum to get on with the mammoth task. People close to that plan fear suppliers could also be wary of extended payment terms under government-backed arguments may be to prolong the life in its current form of a company laid low by years of under-investment, overgenerous pay and dividends, poor regulation and changing climate may be what many, including government officials and ministers, ask themselves is – what is there to lose by letting the company have a go at restructuring and potentially redeeming itself over the next few years?If it fails, it fails and Special Administration is a mechanism that's been built into the system since privatisation and will still be there in six months, a year – by which time we will know whether they can do it or not.
