In a small control room in a compressor station in Siberia, workers are staring at a mass of meters and computer screens, watching the flow of Russian gas from pipelines beneath the ground. They are waiting for a call from Gazprom in Moscow to tell them how much gas is needed today. With the flick of a switch, they can control the flow to customers as far away as Europe. Oleg Vasi, deputy head of Tyumentransgaz, the Gazprom subsidiary in charge, says demand is getting stronger. “Some 20 years ago we had only seven pipelines in Yugorsk,” he says. “Today there are seventeen. We’re now transporting a billion and a half cubic metres every day. This is a lot. The demand has multiplied.” They have been pumping gas here for more than 40 years. But as demand soars, Gazprom is struggling to produce enough. Its three biggest fields, some way north of here, are in steep decline. Gas production is virtually flat. “We are already short of about 10-15 billion cubic metres (bcm) of gas annually,” says Vladmiir Milov, former deputy Russian energy minister and Gazprom critic. “And with the decline of matured fields and increased demand it means that in a couple of years this will tremendously grow to about 40-50bcm a year. No one really knows the figure.” Gazprom’s biggest customer, Russian electricity supplier UES, is already feeling the impact. Last winter was exceptionally cold, but its power stations did not have enough gas to satisfy demand, resulting in power cuts.

Foreign investors have built a new $500m power station in St Petersburg – but there’s no spare gas to fire it. So why is it that Russia, a country that portrays itself as an energy superpower, is facing gas shortages? Mr Milov says the problem is a lack of investment. “The fact that the big fields are in decline is expected, it’s a natural geographic fact,” he says. “We have large reserves in remote underdeveloped fields way up north in the Yamal Peninsula. But the problem is that during the 1990s and in recent years, even now, these reserves are underdeveloped and not enough money is being spent. “If only these Yamal fields were developed on schedule we could already have had Yamal gas on the mainland.”

The potential shortfall is sparking concern in Europe, which relies on Gazprom for a quarter of its gas supplies amid growing demand. “The question,” says Marc Franco, the European Union’s ambassador to Moscow, “is: can Gazprom deliver? “If you look at Gazprom’s own production estimates, the forecasts in the near future the next four to five years – are not very promising. “It is clear from the figures that the short-term kind of company strategy is perhaps maximising short-term profits of Gazprom, but it’s certainly not contributing optimally to the development of the Russian economy.” Gazprom has been spending millions on a host of other assets, including the assembling of a Russian media empire. These, insists Gazprom head of exports Alexander Medvedev, are “a heritage of the past”. If that is the case, however, why does Gazprom keep buying more? “We are doing it in order that the project will be feasible,” says Mr Medvedev. “What we are acquiring could bring additional value to our assets. And I believe that if you look at the quality of the assets they are good.”

Within Russia, gas is very, very cheap, thanks to price controls imposed by the Russian government. And that is the crux of Gazprom’s problems. It barely breaks even on domestic gas sales. It makes most of its profits by selling gas abroad. Jonathan Stern from the Oxford Institute of Energy Studies says it simply has not made commercial sense for Gazprom to develop new fields. “During the 1990s, the price of gas in Russia were far too low to make large-scale investments in new fields profitable,” he argues. “Indeed, prices are still too low today. All these wrong estimates that Gazprom is under-investing are groundless. “These new fields require investments of $25-50bn. Now you don’t make those kind of investments unless you’ve got a pretty good expectation that you’re going to get your money back.” Now, though, the Kremlin has decided to raise domestic gas prices substantially over the next few years and Gazprom, in turn, says it is committed to making big investments in Yamal. “We have a full-scale production plan and development plan,” says Mr Medvedev. “I am rather sure that we will be in full compliance with this schedule and that we’ll see the first gas from the Yamal in 2011. That’s why all these wrong estimates that Gazprom is under-investing… they are groundless.”

He was not, however, prepared to put a number to the scale of the investment.

“The investment programme has not been fully approved by the Russian Government,” he said. “That’s why I don’t want to mention the precise figure – but we have presented for approval the sufficient amount.”

Increasingly, though, it seems that Europe is not so sure. Judging by the scale of Gazprom’s empire, there is no doubt that Gazprom really is a global energy giant, operating in some of the most inhospitable territory in the world. But it faces enormous challenges in developing Russia’s vast fields of the future – the so-called “crown jewels”. And Gazprom’s decisions about how it uses its resources in remote corners of Russia like Yugorsk will be crucial for millions of consumers living a very, very long way from here.

UK households are said to be responsible for a quarter of the UK’s total carbon emissions and the Energy Performance Certificate is the Governments latest step in attempting to change house-holders’ attitudes a greener home. TheRenewableEnergyCentre.co.uk today joined the debate surrounding the new Energy Performance Certificate (EPC) launching this year. The EPC’s are just one part of the controversial proposed House Information Pack (HIP) plan and from June 1st 2007 every house for sale will first need to complete an assessment for its carbon emissions and energy efficiency. Qualified Assessors will rate the properties on a rating scale of A-G and provide recommendations for improving the energy efficiency of the house and possible savings to be made. Although unpopular with many groups, it was a decision that the Government was forced to make in order to come in line with the EU directive commencing in 2009. The directive states that all homes must be rated on energy efficiency every 10 years. Although the EPC itself could cost homeowners up to £600, the government believes that it will increase public awareness regarding the running costs of UK homes. Furthermore, as consumer demands for greener houses becomes more prevalent house builders and developers will also need to introduce sustainable building practices. However, it has been argued that the EPC requirement may deter sellers from putting their properties on the market speculatively, due to the costs. There are also concerns that poor energy ratings on many older homes may cause a pool of undesirable houses and drive the price of these houses down. In reality the certificate grade will be unlikely to affect buying decisions if people find a house to meet their needs and wants. Richard Simmons, managing director of The Renewable Energy Centre and a property developer for over 30 years stated: “TheRenewableEnergyCentre.co.uk is an invaluable resource to any individual wanting to make environmental improvements to their home. It contains a fully comprehensive national & local directory of specialist products and suppliers in this arena. This is particularly useful for property owners when researching the options available to them in order to make informed decisions about home energy saving. He continued “Often only a few key areas such as loft insulation or draught proofing doors and windows need to be looked at before booking the assessment to ensure a good rating. The website also offers information on government grants and funding available to them for these types of improvements”. Although Home Information Packs are still under consideration and may be delayed further, the introduction of Energy Performance Certificates, are imminent. Whether for or against, homeowners, estate agents and environmentalists will soon see if the programme has the government’s desired effect on the UK’s carbon emissions.

About the Renewable Energy Centre:
www.therenewableenergycentre.co.uk
The Renewable Energy Centre: Saving Money, Saving Energy and Saving the Planet
The Renewable Energy Centre is committed to informing all online users about energy saving and renewable energy in order to:
• increase public awareness through accurate and informative resources
• create business opportunities throughout the UK through its’ local and national directories.

Wholesale gas market development will continue at a rapid rate in Europe, particularly after July 2007 when the markets fully liberalise. However, research indicates that the prospects for the development of these markets will continue to show enormous variation across the EU. As market liberalization continues, the importance of wholesale gas markets in Europe is set to grow markedly in the coming years. However, the development of these wholesale markets will continue to be at widely diverse rates across the EU. Factors such as new infrastructure development and current and future levels of market concentration will combine with the market opening process to drive forward the already established, and establishing, markets. Further to this, over the next decade, these factors create scope for the beginning of the emergence of wholesale markets in countries where they do not yet exist. The wholesale markets can be split into three groups the established grouping for markets that are both liquid and fully established, the emerging segment for markets with some, but limited, liquidity, and the nascent grouping for markets that exist but have little or no meaningful liquidity. Currently, there are only three markets in the established segment in Europe the UK’s National Balancing Point (NBP) (which accounts for around half of European established wholesale gas liquidity), the Title Transfer Facility (TTF) market in the Netherlands and the Zeebrugge market in Belgium. The NBP very much leads the way for European gas wholesale market liquidity and will continue to do so in the future. The NBP’s position as Europe’s most liquid wholesale market is largely attributable to the long history of market opening in the UK compared to elsewhere in Europe. With a number of players supplying both the residential and non-residential markets, the need for a wholesale market for players structurally short of gas to obtain supplies led to the development of the NBP. Other factors that have helped drive the development of the NBP have been the UK’s role as a gas producer, the variety of gas import infrastructure available in the UK and the presence of a strong financial services community willing to speculate on gas prices. While the NBP’s position as the leading wholesale gas market in Europe is undeniable, the role of Europe’s second most liquid wholesale market is less clear cut. In the past, Zeebrugge has taken second place to the NBP in terms of liquidity, although, increasingly, the TTF is challenging this position. Zeebrugge first emerged as a gas hub in 1999 and, whilst a liquid trading hub in its own right, relies on NBP arbitrages for a significant proportion of its trade. The TTF, which was launched in 2002, is seeing rapid growth in liquidity. Between 2005 and 2006, TTF traded volumes grew by around 80%, and, towards the end of 2006, the TTF edged past Zeebrugge in terms of liquidity for the first time. This pattern is likely to continue going forward. The growth prospects for the TTF appear to be stronger than those currently apparent for Zeebrugge. Liquidity at Zeebrugge continues to be curtailed by the dominance of Distrigas, while interest and counter-parties at the TTF continue to show continued growth potential. This continued growth in TTF liquidity will not come as a result of organic market growth alone. Various initiatives by both the Dutch government and the regulator all bode well for continued future development of the TTF.

There are currently two markets in the emerging markets category – the French Points d’Echange de Gaz (PEG) and the Italian Punto di Scambio Vitruale (PSV) markets. The PEG market began to emerge in 2004 with the creation of a number of notional trading zones. Initially, trading activity was extremely limited, although, more recently, there has been a renaissance in liquidity levels, with 25 registered users now trading. The creation of a standard trading contract by the European Federation of Energy Traders in December 2004 and the first brokered (rather than bilateral) PEG deal in April 2005 were both key developments in the maturity of the market. The PEGs are increasingly showing their ability to create market reflective pricing, rather than simply pricing relative to the TTF or PSV, thus making them more attractive to various market players. The PSV market came into being in October 2003 and, in common with the TTF, is heavily modeled on the UK’s NBP. After a lackluster start, traded volumes have developed rapidly, rising by more than 170% between 2005 and 2006. Going forward, both the PSV and PEG will grow strongly in liquidity. Growth in the PSV and PEG markets will see increased numbers of counter-parties seeking to source gas for their retail businesses. Further to this, there will be greater interest from speculative financial, rather than just physical traders. Within the short term, the PSV and PEG markets are likely to move out of the emerging segmentation into the established zone. In the nascent markets – Spain, Germany and Austria – the prospects for market development are much less clear cut. The Spanish Centro de Gravedad (CDG) market shows few, if any, prospects for meaningful liquidity growth in the coming years. While general market developments such as increased LNG capacity, spot LNG volumes and the arrival of new market entrants will help drive some added degree of liquidity, there is little to suggest this will be anything other than modest.

Similarly, the prospects for the Austrian Central European Gas Hub (CEGH) market also appear likely to remain modest. Despite a significant percentage increase in CEGH liquidity in 2006, absolute volumes remain modest. The gas release scheme will help drive liquidity to a limited degree, but meaningful liquidity growth remains a number of years away. The prospects for the CEGH are only likely to be significantly increased when a number of new infrastructure projects take place. Gas flows arising from projects such as a Croatian LNG facility or the Nabucco pipeline will help boost CEGH volumes, although these are much longer-term prospects, meaning that the CEGH will see only very limited growth in the short to medium term. The prospects for German wholesale liquidity growth are by far the strongest of all the nascent markets. Despite going back to 2002, wholesale gas trading in Germany only began to become recognizable in 2006 with the launch of a number of new hubs. The BEB hub, the three E.ON Ruhrgas hubs and the Gaz de France Deutschland hub have all shown considerable growth in a very short time period.

Changes to the entry-exit regime and a reduction in the number of pipeline zones will serve to facilitate easier pipeline access and thus give a fillip to German wholesale gas trading. Further to this, the planned launch of a German gas exchange by the EEX in October 2007 will serve to further boost liquidity. The short-term prospects for German wholesale gas trading are significant. It is expected to rapidly move out of the nascent segmentation and for liquidity levels to show significant, rapid and sustained growth in 2008 and beyond.

Britain’s biggest electricity supplier has been accused of misleading its customers with a phoney price cut. Npower boasted it would cut its electricity prices by an average of 3% from the end of next month. But it emerged yesterday that about half of its 4m electricity customers will not see a single penny cut. The German-owned company is cutting only in parts of the country where it has relatively few customers and hopes to attract more. London will see cuts of 14% but in the North, Yorkshire and the Midlands where Npower is already the main supplier, prices will be frozen or fall by just 0.9%. Adam Scorer, director of campaigns at consumer watchdog Energywatch, attacked the firm for boasting about a ‘fake’ price cut. He said: ‘They are rewarding loyalty with higher prices and just going after the new customers in other parts of the country. It is a fake price cut. ‘They must think to themselves: ”Why cut prices in areas where we are dominant? Most of the customers are going to stick with us because of inertia. We might lose some, but not many’.’ He said it was a ‘very, very disappointing’ trick by the company, which raised its electricity prices three times last year. The huge regional variations in Npower’s price cut mean it can accurately claim that the average electricity bill is coming down by 3%. The firm insisted it had not intended to mislead customers into thinking they are getting a great deal. It said: ‘There is nothing hidden about it. We have to compete more keenly in areas where nobody knows us.’ Consumers have seen four of the ‘Big Six’ energy suppliers announce price cuts in the past month. Only EDF Energy and Scottish Power are yet to follow suit. Both say they are monitoring prices but customers still have not been given an indication of when or even if they will see prices fall. Npower’s tactic of applying bigger cuts in some parts of the country than others illustrates the difficulty consumers can have when assessing the cheapest supplier.

Ofgem has published international network utility National Grid’s first consultation on UK energy supplies for winter 2007. The utility has reported that significant investment in new gas provisions should continue to ease the gas supply situation looking forward, but has warned against complacency. National Grid commented that while gas supplies from the North Sea are set to decline further, new sources of gas due to come on stream during 2007 will be able to deliver an extra 50 million cubic meters of gas a day. The utility added that this was over 10% of the gas Britain would use on a very cold day. These new gas sources include the connection of the Langeled pipeline to the new Norwegian Ormen Lange gas field which is due to take place this winter. Once connected, this source alone could deliver a fifth of Britain’s gas needs on an average winter day. National Grid also reported that the expansion of the new interconnector pipeline with Holland has increased capacity from 10 billion cubic meters (bcm) a year to 15 bcm a year, and that two new LNG terminals in Milford Haven will add another 16 bcm of potential gas import capacity. The utility added that a new storage facility is being constructed at Aldbrough and that the existing Hole House Farm gas storage facility is being expanded to increase the UK’s gas storage capacity. In its consultation, National Grid commented that the UK is becoming increasingly linked to the wider European gas market and the emerging global LNG market; connections that will greatly impact gas supplies to the UK. While this would appear to be positive, National Grid also warned that if there are supply shocks in other countries, prices in the UK may have to rise to continue to attract LNG and piped gas from Europe. Commenting on the report Steve Smith, Ofgem’s managing director of markets, said: “While National Grid’s preliminary report forecasts an increase in gas supply compared to this winter, there can be no grounds for complacency. No one can predict next winter’s weather, so customers and the industry must prepare for all eventualities.”

Total U.K. gas supplies for winter 2007-2008 are seen rising 14.9%, or 52 million cubic meters a day, to 402 mcm/day as a string of new pipeline and liquefied natural gas imports projects come on stream, said U.K. gas and electricity network operator National Grid PLC Tuesday. The rise in imports is seen more than making up for the expected 7% fall, or 16 mcm/day, in gas production from the U.K. continental shelf to 224 mcm/day, National Grid said in its Winter 2007/2008 Preliminary Consultation Report. These figures exclude gas flows from storage. But the report noted that if current low gas prices continue into next winter, then demand may rise faster than the 1% per annum predicted, particularly in the power generation sector. “As this level of supply will exceed the level of demand on most days within the winter, it is reasonable to expect major variations in the supply pattern,” said the report. Despite the good supply outlook, Steve Smith, Managing Director of Markets and U.K. gas and electricity regulator Ofgem said: “There can be no grounds for complacency. No one can predict next winter’s weather, so customers and the industry much prepare for all eventualities. “Questions remain about how much gas will be available from Europe and Norway. It is therefore vital that both British and European energy suppliers provide National Grid with accurate information about potential energy supplies for next winter.” National Grid’s assumption for gas imports from Norway is 70 mcm a day, an increase of 45.8% from the current winter. Additional flows from the new Ormen Lange field, which is due to begin commercial deliveries of 30 mcm a day on Oct. 1 will make up most of the increase, the report said. The Tampen Link, which is due to connect Norway’s Statfjord field to the St. Fergus terminal in Scotland is expected to bring in only modest quantities of gas, the report said. Gas flows through the Bacton-Balgzand pipeline connecting the U.K. to the Netherlands are expected to be little changed at around 25 mcm a day. National Grid sees import flows through the Interconnector pipeline to Belgium at 30-40 mcm per day. The biggest proportional increase in imports will come from new liquefied natural gas import terminals, the report said. LNG imports are seen more than doubling to an average of 46 mcm a day over the winter. The majority of the increase will come from the new LNG terminals at Milford Haven in South Wales, which National Grid said could to import a maximum of 65 mcm a day of gas. The extent to which this capacity will be utilized is not clear, the report said. “There is uncertainty over whether the U.K. will attract LNG next winter in preference to alternative markets, notably the U.S. where current forward gas prices are higher through to next winter and broadly similar for the key winter months,” it said. The report gave an initial assumption for flows of 20 mcm a day from each of the new Milford Haven terminals once operational, and a combined 13 mcm a day from existing LNG terminals on the Isle of Grain and Teesside. The report assumed weather-corrected peak power demand for next winter to be unchanged at 60.8 gigawatts, although this forecast was tempered with the acknowledgment that National Grid is still unsure why peak power demand fell by 0.5 gigawatts from winter 2005/2006 to 2006/2007. “Likely causes include increased demand management due to high end-user prices, increased embedded renewable generation and continued energy efficiency” the report said. “We would welcome views on…whether demand might be expected to decline further,” the report said. Available power generation capacity is anticipated to be 74.8 gigawatts, assuming a wind-farm load factor of 35%. This is lower than the previous winter due to the closure of nuclear reactors Dungeness A and Sizewell A and reduced capacity at the Hinkley Point and Hunterston reactors, representing a total loss of around 1.6 gigawatts of capacity. National Grid’s analysis assumes average weather conditions with overall temperatures across the winter at 7 degrees Celsius.

Britain still faces gas supply uncertainty next winter because new import facilities do not guarantee delivery and demand could be much higher, network operator National Grid said on Tuesday. Britain sailed through an unusually warm winter very comfortably supplied with gas and without really testing its improved import infrastructure, National Grid said. But new pipelines and liquefied natural gas import terminals cannot guarantee healthy supply at low prices if next winter is cold, because other countries could offer producers more money for their product, the power and gas network operator said in its preliminary consultation on supplies for Winter 2007/08. “Whilst developments in importation infrastructure continue, the supply-demand outlook for 2007/8 remains uncertain,” the grid said its report. “The range of potential supply availability is wide, reflecting not only the normal risks associated with major infrastructure but also commercial uncertainties associated with the utilisation of the infrastructure.” Stephen Smith, the managing director of markets at UK energy regulator Ofgem said that, despite a big fall in wholesale prices since new pipelines like Langeled from Norway and BBL from the Netherlands opened last year, there are a “number of risks and challenges” in the outlook for the winter. “It is unclear to what extent we can rely on the gas import pattern seen this winter being repeated in future years, particularly against different gas demand conditions in Continental Europe,” Smith said. While Britain’s ability to import enough gas to keep warm was greatly improved by new pipelines opened last autumn, the country also enjoyed its warmest winter since records began, meaning much less gas was needed for heating. Mild weather across Europe also meant there was little demand for gas on the continent and led to a slide in UK gas prices, reversing years of soaring fuel costs spurred by rapidly declining UK domestic output. Average wholesale gas prices during winter 2006/07 were nearly 60 percent lower than the average for winter 2005/06, according to Ofgem. Gas demand would have been even lower had it not been for long term outages at nuclear power plants and falling gas prices leading to more being used for power generation. “Last winter the operation of the electricity market was characterised by gas-fired generation displacing coal-fired generation,” National Grid said, adding that gas demand for power generation had far exceeded forecasts. Because gas was used as fuel for around one-third of all the power generated in the UK over the period, day-ahead baseload power prices have also fallen by about 50 percent year on year, Ofgem said.

Oil struck its highest level of 2007 near 64 usd in London as tensions with Iran continued to stoke supply fears. Yesterday, Iran shunned another attempt by the UN to force the country to halt its uranium enrichment programme, heightening already volatile tensions and sparking supply fears. At 10.22 am, London Brent crude for May delivery was up 64 cents at 63.82 usd a barrel, after adding 67 cents to settle at 63.18 usd on Friday. Prices had hit 63.97 usd earlier in the session. New York crude for May delivery was up 60 cents at 62.89 usd a barrel. The UN Security Council announced new resolutions on Saturday which ban Iran from exporting conventional arms and call for freezing financial assets abroad of 28 individuals and groups. Some of those affected are reported to be involved in militant movements outside Iran. “I can assure you that pressure and intimidation will not change Iranian policy,” said Iranian Foreign Minister Manouchehr Mottaki, after hearing the updated sanctions. “Suspension is neither an option nor a solution.” Energy market participants fear if the West takes draconian measures to stop Iran’s nuclear programme the country might retaliate by refusing to supply oil. Tensions were already high on news on Friday that 15 UK sailors and marines were seized by Iranian naval vessels in Persian Gulf waters. “The international incident brings into focus the tensions surrounding the oil producer and the West, coming as it does when the UN are discussing a fresh resolution on Iran’s contentious uranium enrichment programme,” said Paul Harris, Bank of Ireland analyst. Oil was also underpinned as last week’s snapshot of oil stocks in the US last week showed gasoline fell by more than the market had expected.

More developments in a protracted takeover battle in the European energy industry gave investors in Scottish & Southern Energy pause for thought today. Germany’s Eon and a combination of Italy’s Enel and Spanish property group Acciona are fighting for control of Endesa, the Spanish utility. This morning Eon raised its bid for the third time in an attempt to see off its rivals ahead of this week’s closing date for its offer. Eon is now prepared to spend €42.3bn on Endesa, up 45% from the original bid. Meanwhile Enel and Acciona said they were prepared to offer €41 a share, compared to Eon’s €40 bid. The relevance of all this to SSE is that many traders believe that if Eon does not win the day, it will turn its attention to the Scottish group, and the latter’s shares have moved sharply higher as a consequence. But today’s increase in the Eon offer indicates the Germans are not about to give up easily, and some of the takeover froth was blown away from SSE, which slipped 34p to £15.12 by mid-afternoon. Endesa later recommended the Eon bid.

Oil prices rose above US$62 a barrel in Asian trading Monday on continued tensions between Iran and the West following Iran’s detention of British naval personnel. British Prime Minister Tony Blair on Sunday called the Iranian seizure of the 15 sailors and marines “unjustified and wrong,” saying that London saw their situation as “very serious.” Iran suggested that the group may be tried for illegally entering Iranian waters. Light, sweet crude for May delivery rose 37 cents to US$62.65 a barrel in electronic trading on the New York Mercantile Exchange mid-afternoon in Singapore. The contract hit a 3-month high last Friday to close at US$62.28 a barrel after Iran detained the sailors, sparking concerns that an escalation in the conflict could cut Persian Gulf oil exports.

Brent crude contract for May delivery gained 38 cents to US$63.56 a barrel on the ICE Futures exchange in London. Western tensions with Iran also increased after the United Nations voted Saturday to impose new and tougher sanctions against Iran for its refusal to stop enriching uranium a move intended to show Tehran that defiance will leave it increasingly isolated. Iranian President Mahmoud Ahmadinejad vowed Sunday that the latest U.N. sanctions would not halt the country’s uranium enrichment “even for a second.” While the oil market may seem to have factored in the violence in Iraq and issues surrounding it, the latest events in Iran have kept oil prices elevated, said Andrew Harrington, an analyst with ANZ Global Natural Resources in Sydney. “Now we’re looking at a situation where some of that political risk premium is coming back into oil prices,” he said. “The tension between Iran and the U.K. adds another element which the energy market will have to take into account. It complicates issues. It is one of those unusual type of situations that then causes people to reassess where they stand,” Harrington said. The West strongly suspects Iran’s nuclear activities are aimed at producing weapons though Tehran says they are exclusively for the production of energy. In other Nymex trading, heating oil futures gained 1.29 cents to US$1.7240 a gallon (3.8 liters) while natural gas prices added a cent to US$7.279 per 1,000 cubic feet.

Firms keen to buy energy from renewable sources are being turned away by major energy suppliers who do not have the capacity to meet soaring demand for green energy tariffs. A Green Business News investigation has revealed that EDF, British Gas, npower, Scottish Power and Ecotricity are either sold out of renewable energy or close to being so as soaring demand for green tariffs outstrips supply. As a result several energy firms are now recommending that corporate customers only buy a small proportion of their energy from green sources. Green tariffs have become increasingly popular as more firms look for simple ways of limiting their carbon footprint. In theory green tariffs provide an easy mechanism for a firm to slash its carbon emissions – allowing them to bolster their CSR efforts and avoid the government’s Climate Change Levy tax by paying a small premium for electricity sourced from either renewable or low carbon sources. However, with only around 5 percent of UK energy coming from renewable sources industry insiders are warning that finding a supplier able to provide large corporate customers with a renewable energy contract is now proving extremely difficult. Jim Butler, head of marketing strategy at EDF, insists that demand is outstripping supply and green energy shortages are now common across the entire corporate energy market. “We’re looking after existing customers and allowing them to renew their contracts,” he says. “[But for new customers] we have low carbon energy available which is levy exempt, but not much green [renewable energy].” This scenario is being repeated at npower, where a spokesman claims that while existing green tariff customers were fine, the company would “have to think very carefully” about its ability to fulfill demand before signing up new green tariff customers. British Gas’ business division has also been afflicted by shortages with Simon Wallwork, SME energy products manager at the company, admitting that it has “sold out” of green energy and is unable to service requests for green energy until more comes online or contracts expire. Even specialist green energy supplier Ecotricity says it is struggling to meet demand from companies wanting all their energy to be sourced from renewable sources. “We have recently had to turn away a big business customer because they wanted 100 percent green,” says a spokeswoman for the company. “We do offer 100 percent green to business customers but only small ones – there simply isn’t enough [green energy] to go round.” Meanwhile, at Scottish Power a spokesman admits the company is “reaching the end of our output” for business customers, before adding that it is still able to buy in green power on the energy market in the form of the government’s renewables obligation certificates (ROCs) and that it has more renewable energy scheduled to come online soon. Of all the big suppliers only Powergen and Scottish and Southern Energy claim to be currently facing no problems meeting demand for green energy from new corporate customers. However, a spokeswoman for Powergen adds that such green energy is “strictly subject to availability, so its availability does vary from time to time”. Some advocates of green energy tariffs insist this gap between supply and demand is good news as it is driving up prices and increasing the incentive for energy suppliers to build more wind farms and renewable energy sites. But others argue that this is a far too simplistic interpretation of the UK’s green energy market. “It is a widely held misconception that demand [for green energy] will push the price up and stimulate supply, but it just doesn’t work like that,” explains Butler. “The government’s Renewables Obligation target is effectively a mechanism to subsidise the building of renewable energy sites. It means that if you are building a wind farm, for example, you get £40 per mwh back from the subsidy. Under green tariffs you get about £4 per mwh so the subsidy is ten times more valuable than the market price.” Butler argues that no extra wind farms are built because a company has paid for a green tariff, because there is no increase in the incentive for the power company to build more capacity. In fact, buying 100 percent green energy has negligible overall impact on the UK’s carbon emissions and simply drives up prices leaving another company without any green energy, he claims. Even if green tariff prices were pushed so high that they, rather than government subsidies, became the main driver for investment in renewable energy, experts agree that it would still have little impact as most power companies are already seeing many of their existing investments in new wind farms held up at the local planning level. To help manage this shortfall in supply EDF is recommending customers keen to buy green energy set themselves “sensible” purchasing targets, ideally in line with the government’s target to source ten percent of its energy from renewables. “If you try to buy more than is available you are simply robbing Peter to pay Paul and having no net effect on the UK’s carbon emissions,” argues Butler. It is a recommendation echoed by Juliet Davenport, chief executive of green energy specialist Good Energy, who also claims firms should take a more conservative approach to sourcing renewable power. “In the business market you can’t afford to be too prescriptive about what you want,” she advises. “Because demand is greater than supply you may not always be able to get a green tariff at a price you can afford and in that case it may be worth sourcing green energy for just a couple of sites a year from renewable sites or just buying a proportion of your energy from renewables, then, as the supply comes on line, you can increase your use of green tariffs.” You can catch the second part of our investigation on what to watch out for once you have found a green tariff next week.

Another price war looks to be getting under way in the energy sector, which has taken a battering from the press and consumer lobbyists over the past couple of years. As a consumer it is hard to reconcile average household energy bill rises of 69% since 2004 with the poor customer service, unreliable supply and aggressive sales tactics that have become indicative of the industry as a whole. Complaints about water companies in England and Wales rose by 10% in 2006 according to the Consumer Council for Water, and gas and electricity fair no better. It may be “too little, too late for those in fuel poverty” as director of policy at uSwitch Ann Robinson remarks, but the industry is responding. British Gas, which had the highest prices of the big six power companies, (losing 2.7 million accounts over the past three years or 2,471 a day) dropped its prices earlier this month and other suppliers have responded by announcing their own rate reductions. But even this has been criticised by Energywatch for not going far enough. The competitors merely bettered British Gas’ cuts of 17% for gas and 15% for electricity by as little as they could get away with. The price war is not living up to expectations. Several companies in the sector are rethinking-thinking their communications. British Gas is reviewing its direct marketing; EDF Energy its sponsorship and advertising (it is sponsoring the next series of Soapstar Superstar on ITV). Npower is reviewing its public relations, while Scottish Power and Southern Electric are among those launching loyalty schemes, discounts or incentives. Over 4 million customers changed energy suppliers in 2006, and the heat is on to win new customers or retain existing ones. But against this backdrop of poor performance, poor service and now price cuts, how big is the communications job to win back customer confidence? How negatively are energy companies actually perceived by UK consumers? 35 Communications constructed a scenario where some of the UK’s most recognised organisations were guests at a fictional dinner party. 35 used the scenario to ask a nationally representative sample of 1,400 people (aged 18 to 65) how they thought some of the best-known brands and organisations would behave if they shared an evening with them. As so many branding surveys are full of jargon, 35 felt that this scenario would enable it to probe key factors effecting customer relationships such as trust, reliability, responsiveness and appeal – the components that determine the reputation of an organisation in a straightforward way. The results serve as a wake-up call for marketers and brand managers, and are particularly alarming for those in the energy sector. Trust is at the heart of any brand promise, and yet nearly one-third of UK consumers distrust large organisations. Energy providers record the lowest level of trust at an average of 42%. Thames Water records the lowest trust level of all. Respondents feel that 70% of organisations provide a reliable service. Financial services is perceived as the most reliable industry. The energy sector is regarded as the most unreliable; Thames Water again plumbed further depths, being named as the worst-performing business across all sectors reviewed. The survey also finds that just over a half of organisations are likely to treat consumers in a courteous manner. In almost a quarter of cases consumers feel they are shouted at. In the energy sector, 18% of communications are perceived as “inaudible mumbling”, 29% of people feel shouted at and a staggering 10% feel as if they are metaphorically have the living daylights shaken out of them. Only 59% of consumers say they are treated like adults, 41% say they are patronised or insulted by the organisations they deal with, and 26% say they are treated like idiots by energy providers. Of the organisations surveyed, 17% are perceived to show no interest in consumer concerns. Insurance companies are better listeners than other sectors, with 47% of consumers believing they are genuinely interested in what they have to say. Contrast this with the perception that only 23% of energy providers care about customer concerns. Energy companies really have work to do in this area. When asked how they performed, an alarming 53% of people say that energy companies are more interested in “smoothing over” problems than listening to customers’ feedback. In terms of “brand phobia”, it seems that there is plenty of work to do for the UK’s brand managers with only just over a third of consumers welcoming an association with some of the most established companies in the UK. To highlight the extent of the challenge, this figure drops to 25% for the energy sector, making it the worst performing commercial sector.

Scottish & Southern Energy has announced another strong quarter of domestic customer gains. According to Datamonitor’s latest Residential Market Share Monitor, Scottish & Southern Energy has now overtaken E.ON as the UK’s second largest domestic gas and dual fuel supplier. Its successes have, however, inevitably put it in the firing line for a possible takeover. Despite implementing the most recent tariff increase in the UK’s residential energy sector, Scottish & Southern Energy’s (SSE) market share has continued to grow unabated over the past quarter. An aggressive price point for both its power and gas tariffs, successful cross-selling of dual fuel packages, and strong retention rates, have all combined to consistently expand SSE’s customer base since 2004. SSE usurped RWE npower as the UK’s third largest domestic energy retailer in early 2005, and now has second-ranked E.ON UK very much in its sights. Datamonitor’s latest analysis actually places SSE above E.ON in the smaller gas and dual fuel markets. The size of its Powergen electricity customer base is keeping E.ON’s nose ahead for the time being at least. If current trends continue, however, SSE will surpass E.ON’s electricity market and overall residential market share by the autumn of 2007. How has SSE managed to maintain this onslaught, largely in the face of soaring wholesale prices? The answer probably lies in a combination of prudence, judgment and luck. The Perth-based utility undoubtedly benefited handsomely from its astute purchase of the Fiddler’s Ferry and Ferrybridge coal-fired power stations in 2004. This not only enhanced its merchant generation portfolio, at a time of extreme profitability for this plant type, but it also freed up significant volumes of natural gas. Whether secured under long-term purchase agreements or through forward wholesale contracts, SSE appears to have temporarily enjoyed a distinct gas transfer price advantage over its rivals. Inevitably though, SSE’s low price point has dented its retail margin in recent years, particularly in gas retailing, where its lack of upstream presence exposes it completely to the NBP wholesale market. Its ability to accept this reflects the strength of its midstream and upstream power asset bases and it is these that, ultimately, make SSE a prized takeover target. With RWE recently stating a lack of interest in acquiring the independent utility, E.ON is now being touted as a potential suitor. The German monolith’s failure to acquire ScottishPower, and its ongoing struggle to secure Spain’s Endesa, may well put SSE on the radar. A combined SSE-Powergen would, however, raise serious concerns with the UK Competition Commission, as it would command over a third of the domestic power and a quarter of the residential gas markets. Seeking to take advantage of its healthy regulated income and its capability to issue debt, it appears that SSE’s success story will see it more likely to be targeted by financial institutions.

British Gas is close to launching its first venture selling household solar panels, the chief executive of its parent Centrica said on Thursday. Sam Laidlaw also called for greater clarity from government to help it plan investment in a range of cleaner technologies, particularly a 1 billion pound ($1.9 billion) clean coal plant in northeast England. The group is also investing in wind turbines, energy efficiency measures and household fuel cells. “We see rising demand for energy efficiency and green power as a real opportunity,” British Gas has teamed up with a number of local authorities, which have agreed to cut council tax bills by up to 500 pounds for customers who install solar panels. “Consumers need to be incentives to invest in energy efficiency,” said Laidlaw. “Incentives do work, and we would like to see the government supporting this kind of scheme nationally.” Centrica said last November it planned to build a big clean coal plant in Teesside, which will use synthetic gas produced from coal, capturing and storing the carbon by-product. The technology is seen as a quick fix for slashing the carbon dioxide emissions that contribute to global warming. “We’re committed to providing low carbon electricity to our British Gas customers, but before making major investments, the industry needs certainty on the longer term market framework, particularly the Emissions Trading Scheme, and what transitional support is available,” said Laidlaw. Power firms are pushing for government subsidies for carbon capture projects, arguing that it is nascent technology that needs to prove itself. Environmentalists say it should not be subsidized because it allows big energy companies to continue burning dirty fuels, rather than investing in truly clean energy. The captured CO2 is likely to be buried, possibly by pumping it under the North Sea to help push more oil out of the UK’s aging oil fields. “There is real potential for the UK to become a global pioneer and export the kind of clean coal and carbon capture technology being developed under our project to developing nations, who currently rely heavily on old high-emitting coal plants,” said Laidlaw. British Gas’s solar panel scheme from April 1 follows a successful scheme with 44 local authorities that agreed to cut council tax bills by up to 100 pounds for customers who insulated their homes. British Gas also has a deal with Ceres Power to develop domestic fuel cells, which would put mini power stations in customers’ kitchens. The project is likely to deliver in about three years’ time. Centrica will shortly start work on the UK’s largest offshore wind farm off the Lincolnshire coast. It is also a partner in the Barrow offshore wind farm in Cumbria and the onshore Braes of Doune wind farm in central Scotland.

Gas and electricity customers are struggling with debt and some even face bankruptcy because their energy providers are either neglecting to update charges, sending incorrect bills, or failing to communicate properly when problems occur. An Observer investigation has revealed that inefficient billing by utility companies is affecting all types of customers, from those who have pay-as-you-go meters to those who pay through direct debit, but small businesses are particularly badly hit. Small businesses, unlike households, have to sign up for their energy supply on long-term contracts, often lasting up to five years. Unlike retail consumers, they are not given a cooling-off period to get out of this contract and they have no protection from the sharp sales practices sometimes used to get them to sign up. Business prices, which are not as competitive as those in the domestic market, can be notoriously difficult to compare as there is no requirement for suppliers to publish them. The watchdog Energywatch is aware of the problem. ‘Small businesses are stuck in the middle,’ says its business services manager, Paul Savage. ‘Consumers are offered protection if anything goes wrong with their energy supplier, and big businesses have the know-how and the staff to deal with negotiating contracts.’ Julia and Colin Whitham almost lost their business two weeks ago after Powergen sent round a debt collection agency, which gave them a week to pay an outstanding debt. The Whithams, who run an 11-person operation in County Durham manufacturing frozen ready meals, had switched to a five-year contract with Powergen early in 2006. ‘Powergen set up a direct debit of about £450 a month,’ says Julia. ‘We pointed out that this was inadequate for our power needs and that we should be paying three times as much. Our account manager tried to contact them numerous times to change it with no response, until eventually they said they would cancel it and set up a new one.’ But Powergen failed to set up the new direct debit. ‘We never received a final demand or a phone call. We just received a letter from a debt collection agency saying they would be forcing entry the following week,’ says Julia. The Observer contacted Powergen, which then cancelled the debt collection action and agreed a new payment plan with the Whithams. Powergen said in a statement: ‘All debt action will be stopped immediately. We have apologised for not setting up the previous payment arrangement which then led to this action being taken.’ Another Powergen customer, Corinna Perry, who runs a bed and breakfast from her home in Kent, was put on a business tariff instead of a domestic one; Powergen told her it would be cheaper, she says. ‘We asked them to set up a direct debit for dual fuel payments and they took £110 a month as agreed, but after that we were sent two enormous gas bills, one for over £1,000 and then another over £1,200. Despite many fruitless telephone conversations and promises of solutions, all they did was to send us even higher bills.’ Powergen has since moved Corinna to the domestic rate after her MP intervened, she says. Matthew Knowles of the Federation of Small Businesses warns: ‘It is a very competitive market and you can understand why companies want to get people signed up, but the small business sector is closer to the domestic energy customer than to larger businesses. Some energy companies prey on that lack of legal expertise.’ Small businesses also need to give adequate notice often weeks before the end of a contract to renew or to switch suppliers. Failure to do this means they will be put on an ‘out of contract’ rate, which can be two or three times the price of the rate in the contract. Bob Murdens, who runs a wholesale company in Hull selling soft drinks and snacks, was recently put on an ‘out of contract’ rate with British Gas. ‘When I called British Gas they talked me into going with a new three-year contract at twice my previous rate.’ Worried that he might have acted in haste, Bob phoned around other suppliers and found a rate equivalent to the one he had previously with British Gas. He decided not to sign the contract but was told by British Gas that it was verbally binding. Bob is now thinking about closing the business one day a week to save money. British Gas said: ‘In this case, the revised offer was made to Mr Murdens despite the fact that he had not responded to our original terms of renewal a cooling off period did not therefore apply. In terms of prices, whereas wholesale rates have fallen, it’s possible that some businesses renewing contracts could experience price increases.’ Energywatch and the Federation of Small Businesses are running a campaign to change the way small businesses are treated by energy companies. They have a website with help and advice at http://www.smallbusinessenergy.org.uk/

Tips for small businesses

· Don’t agree to anything over the phone. Ask to see everything in writing first and always read the small print.

· Small businesses based at home will be better off remaining on a domestic tariff, as they will be better protected.

· Know when your contract expires. Call around well before it does for new prices. Try websites such as catalyst-commercial.co.uk.