Britain’s cheapest household electricity and gas supplier walked into an energy rip-off storm today as Scottish and Southern Energy reported profits soaring through £1bn for the first time and a massive increase in handouts to shareholders. SSE, the supply company trading in London as Southern Electric, has long trumpeted itself as the country’s cheapest energy provider. However, financial results out today show while it remains cheapest on annual dual fuel bills, its charges have enabled the group’s generating and supply business to increase profits by 45% to £642m in the year to March, which alongside profits from running electricity and gas mains networks, helped group pre-tax earnings swell 24% to £1.08bn. On the back of that, dividends for the year are being boosted bymore than 18% to 55p a share. Chairman Sir Robert Smith defended SSE’s figures. ‘This excellent financial performance, with profit before tax exceeding £1bn for the first time, is a result of the implementation of a strategy to deliver strong operational performance along with our policy of responsible pricing, helping us to gain more than one million additional customers,’ he said. ‘SSE’s first responsibility to shareholders is to deliver sustained real growth in the dividend.’ SSE’s policy of being the cheapest supplier prompted this spring’s household energy price war and it is nowo ne of the country’s leading providers, with 7.75m customers. However, consumer campaigners have loudly criticised SSE and the country’s five other main suppliers, accusing them of profiteering by continuing to charge prices that still generate huge profits. SSE’s strong performance will have focused the eyes of the big beasts of the European power and gas industry. SSE and British Gas group Centrica are the only independents still in the market. Following Spanish group Iberdrola’s acquisition of Scottish Power last winter, SSE is seen as a sitting duck for takeover by the likes of German giants RWE and E.On (respective owners of npower and Powergen), French group ED (which has already carved up large parts of London and the South), or Gazprom, the ambitious Russian behemoth. SSE today pledged to give credits of up £100 to households that cut consumption by 10%, buy energy-efficient appliances and insulate their lofts. It also promised to cut carbon dioxide emissions by 20% over the next 10 years from its power stations. They produce up to 10 gigawatts of power, accounting for nearly a one-sixth of the UK’s generating capacity.

Power giant Scottish and Southern Energy today said it was planning a new incentive scheme that could help ‘green’ customers save about £100 a year on their bills. The company said it was launching a system of ‘energy efficiency credits’ which its 7.7 million customers could earn through measures including cutting gas and electricity costs by 10 per cent, buying low-energy appliances and installing loft insulation. Customers will be able to use the credits towards their SSE energy bills or on further energy efficiency measures. The initiative came as SSE the UK’s second largest electricity generator set itself a new target to cut CO2 emissions from its power stations by 20 per cent by 2015/16. The Perth-based company also unveiled underlying pre-tax profits of £1.08 billion for the year to March 31, more than 23 per cent ahead of last year and marginally stronger than expectations. SSE is the company behind Southern Electric, Scottish Hydro Electric and Swalec in Wales. Its Chief Executive Ian Marchant said: ‘We need to change the way we consume electricity and gas in the UK. Our homes account for a quarter of the UK’s carbon emissions. ‘It may seem odd for a company to actively work to reduce demand for its core products, but we believe that it’s the only way forward that is sustainable for our business and for society as a whole.’ SSE added that its new CO2 target would save an estimated five million tonnes of carbon emissions if achieved by 2015/16. It added that its policy of not passing on the full impact of recent rises in wholesale energy costs had seen it gain more than 3.3 million customers over the past five years – a 74 per cent increase. The company reduced gas bills by 12 per cent and electricity bills by 5 per cent in March in a price war which has gripped the energy sector since British Gas first unveiled reduced tariffs in March.

Electricity giant RWE npower is to build a £600 million gas power station. The company will press ahead with plans to construct the new combined cycle gas turbine plant at Staythorpe in Nottinghamshire. Chief executive Andy Duff said: “With a quarter of UK power plants due for closure over the next 10 years it is vital that generators commit to the construction of large scale plants to ensure the UK has a secure, affordable electricity supply into the future. “Staythorpe will be a modern, highly efficient plant and will produce less than half the Co2 per unit of electricity than an existing coal station.” Staythorpe Power Station received planning consent in 1993 and initial construction began five years later but was put on hold in 2000 because there were enough power stations to meet the UK’s electricity demand. The new power station will have four generating units with the combined ability to generate enough power for almost two million homes. Construction is expected to start later this year and the first unit should be operational by 2010. RWE npower is the UK’s largest electricity supplier with about 6.8 million customers.

The UK arm of the Russian state-controlled gas giant Gazprom made record profits last year after selling 60 per cent more gas than in 2005. Gazprom Marketing and Trading (GMT) increased pre-tax profits in 2006 by a third to £33.4m compared with the previous year. Overall revenues almost tripled to £1.5bn. The results, to be announced this week, come as GMT’s parent Gazprom faces hostility in the UK over its perceived links with President Vladimir Putin. Gazprom sells a quarter of all gas used by Europe’s domestic suppliers, such as British Gas. Writing in The Times last week, Tony Blair said: “We are now faced with countries, like Russia, who are prepared to use their energy resources as an instrument of policy.” On the same day, the Government published its energy White Paper warning of the pitfalls of relying on gas from unstable countries. Russian authorities are in the process of stripping BP’s Russian subsidiary of its licence to operate the huge Kovykta field, which could be sold to Gazprom instead. Gazprom expanded its UK presence last year when it bought a small energy retailer, Pennine Natural Gas, which supplies business customers including the retailer Bhs. GMT, which trades gas and carbon emission allowances, wants to build gas power plants in the UK. The Health minister Andy Burnham confirmed last week that the NHS energy purchasing team had met GMT to discuss the supply of gas to large hospitals. A Gazprom spokesman said: “We have been supplying gas to the UK for the past 30 years and have also invested in infrastructure. We have seen our customer base grow enormously in the UK. Despite the political rhetoric, people seem happy to do business with us. If you do not look to us, you have to look to somewhere like Iran. We are possibly the two countries with the most gas to sell.”

Ian Marchant will issue on Thursday a firm “hands off” warning to potential predators eyeing up Scottish and Southern Energy (SSE). He will then outline his ambitious plans to grow the business in new areas at the same time as announcing a fat dividend increase and a breakthrough in annual profits to above the £1 billion level for the first time. The chief executive, who has already sanctioned a £2bn capital investment programme to produce more clean energy, is due to confirm that the Scottish Hydro operator is interested in joining a consortium to operate nuclear power stations and is talking to regulators about forming a new Scottish retail water company, among other moves. Amid the general optimism, though, the SSE boss is having to abandon one of his pet projects £1bn joint venture with BP to generate carbon-free electricity from hydrogenata revolutionary plant near Peterhead because of government delays. advertisementThe results come at a time when SSE which includes Scottish Hydro and Atlantic Energy and Gas among its trading names has been trading at near peaks in the stock market on continuing speculationthattheUK’sthird-largestenergy company could attract a takeover from the German E.on group or even the Russian Gazprom in further global consolidation following the Spanish capture of Scottish Power. But directors will demonstrate their abilities to thrive as an independent with news that annual profits jumped from £896 million to around £1.07bn last year, helped by a surge in customer numbers as a result of the company’s freeze on prices. Analysts say the figures would have been still better but for an unusually mild winter across much of the UK, and look for profits of more than £1.2bn in the current period, despite the recent dip in energy charges. At the same time, directors are due to confirm that they are hoisting the final dividend by 22% in a move described as “a potential pre-emptive bid defence” by Barclays Wealth analyst Peter Caldwell. WhilesomeofSSE’s7.7million customers are likely to claim that cash for the dividend payment could have beenusedformore price cuts, the group can point to findings by uSwitch that it is stil lScotland’s cheapest provider for most customers, despite two well-publicised price cuts by Scottish Gas. GeoffSlaughter,energyproducts director at uSwitch, believes that there could be one or two more price cuts to be announced as the energy companies jockey for position. But he warned that prices could well be on the rise again by the end of the year as a result of the recent increase in the cost of oil. As things stand, analysts believe that theSSEdirectorswillbeableto announce more gains at thisweek’s results presentation after winning over 1.05 million customers last year – taking its electricity base up to 4.95 million and gas up to 2.98 million. SSE also believes it is attracting new business through its green credentials in producing increased energy from its hydro plants and rapidly expanding wind farm operations. The one major disappointment on renewables, however, is likely to be an SSE decision to abandon plans for the new green plant at Peterhead. It follows partner BP’s warning that storage facilities at its depleted Miller Field in the North Sea would no longer be available by the time the government sorts out funding, some time after 2008. SSE declined to comment on the situation last week In total, the group is now believed to have a total renewable capacity of about 1700 MW, still only about three-quarters of the electricity generation capacity of one of its larger power stations such as its giant Fiddlers Ferry operation near Warrington. Directors stress that this side of the business is growing rapidly and its new hydro plant at Glendoe,nearFort Augustus, alone will produce enough electricity to power a city of the size of Glasgow. Despite the heavy spending, analysts believe that SSE’s net borrowings are unlikely to be much more than £2bn, compared with a current stock market value in excess of £13bn, leaving ample scope for further expansion. One obvious area is in nuclear generation after the Westminster government’s go-ahead formore development ,and SSE is understood to have a team looking at the potential to make its debut as part of a consortium that would include British Energy. At the same time, Ian Marchant is keen to make a splash in the water industry after a test trial down south in supplying a new housing development in Wiltshire.

Gazprom, Russia’s gas monopoly, has drawn up ambitious plans to seize control of 10pc of the UK gas market by 2010. As part of the plan Gazprom is considering building power stations in the UK in partnership with other energy firms, Vitaly Vasiliev, chief executive of Gazprom Marketing and Trading (GMT) told The Daily Telegraph. However, despite rumours that Gazprom considered bidding for UK domestic gas supplier Centrica, Mr Vasiliev said that his company has no plans to enter the residential market. “Our strategy is to stay where we are supplying business and industrial users and grow organically,” he said. Gazprom’s expansion in Britain may nevertheless increase unease about the company’s influence on the energy market. The UK’s growing dependence on imported gas coupled with suspicion about Russia’s emergence as an energy superpower have put the spotlight on Gazprom’s activities in western Europe. The company no longer just takes gas to the Russian border and sells it to the highest bidder. In the past few years, Gazprom has struck a series of supply deals and asset swaps with Europe’s energy companies, and is investing in a pipeline network to enable it to deliver gas direct. Gazprom’s growth is underlined by figures just released showing that UK-based GMT, which trades in gas, oil and carbon emissions throughout Europe, had revenues of £1.5bn last year. This compares with £594m in 2005 and £324m in 2004. Gazprom supplies 25pc of Europe’s gas, with almost 4pc coming to the UK, up from 2pc at the start of last year. GMT also brings in almost 4pc from other sources, mostly gas from Norway. But Vasiliev expects supplies directly from Russia to the UK to top 10pc by 2010-12, with gas brought in from other sources to also rise sharply. The company has become an established supplier to some 2,000 small businesses in the UK as well as Headingley cricket ground and York Minster. But the extent of suspicion Gazprom generates was evident last month when it bid for supply contracts with the National Health Service. There was talk of “potentially horrendous” implications because the company was not a reliable gas supplier and Russia’s president, Vladimir, Putin could not be trusted. Vasiliev, 34, is conciliatory, but slightly frustrated: “I understand certain sensitivities of supplying gas to the NHS. But I was surprised by certain interpretations that Mr Putin can take the decision to supply the NHS, or not to supply it; or take a decision to switch off gas supply. “The UK market does not work like that. We as a commercial organisation bid for contracts against competition from many other sources. If, for some reason, supplies were stopped, gas would be supplied by the wholesale market and we would have a lot of [financial] penalties,” Vasiliev said. Gazprom faced deeper opposition early last year amid speculation that it sounded out politicians and regulators about a possible bid for Centrica. While the Government’s public position was that Centrica’s future would be left to market forces, behind the scenes there was concern.

Mr Vasiliev is equivocal about the Centrica story, saying first that Gazprom “did not even talk about it” and then that “it looked at all possibilities in the UK”. So, did Gazprom consider bidding for Centrica, yes or no? “Let me put it this way,” he says. “Gazprom looked at the different opportunities in the UK to try to understand what made sense for us. Based on these considerations, we have decided to grow organically.” Gazprom did buy a company, a tiny gas supplier called Pennine, which Vasiliev said gives his company the skills needed to build its European trading arm. “We now have what we need in terms of the people and IT systems to build our position in the market,” said the Moscow-born executive. One strategy might be to build power stations in the UK. Gazprom has signed such deals in mainland Europe. “I am not excluding this type of project in the UK with a partner. But we do not have a detailed project now which I can announce to the public,” he said. Does Vasiliev understand that this, rightly or wrongly, would encounter opposition in some quarters? “When I open the newspaper, I see images of this big bear coming to get you in Britain. I understand certain concerns because you in Britain have never worked with Gazprom, with Russia,” says Vasiliev. “The UK is learning about Gazprom, and Gazprom is learning about the UK.”

And yet it is not just in the newspapers, or in British political circles, where concerns have been voiced about Gazprom’s expansion and influence. Throughout the European Union there is unease about Russia’s growth as an energy superpower.In January 2005, Europe woke up to its reliance on Russian gas when supplies were disrupted briefly in a dispute between Moscow and Ukraine. The knock-on effect hurt the UK, with gas prices rising sharply. Other disputes have intensified suspicion. The company has supplanted Royal Dutch Shell as majority shareholder of the vast Sakhalin-2 gas field. And Gazprom looks like emerging as the principal beneficiary of a dispute over the Kovykta project, run by BP’s Russian joint venture. For Vasiliev, whether such events are good or bad depends on “interpretation, where you put the accent”. He says: “There are certain issues between Britain, the European Union and President Putin. But my job is not to be a politician and solve problems on that level. My job is to be a businessman.” It was the same with questions about whether the Litvinenko poisoning might damage business relations between Britain and Russia. “You are mixing politics with business. What I am trying to do is separate them,” Vasiliev said. Yet, Gazprom knows it has an image problem. Last week The Daily Telegraph disclosed Gazprom documents admitting that it must overcome hostility by politicians and the media if it is to grow a successful business in the West. “Of course I recognise that there are concerns,” Vasiliev says. “Our potential clients may read things and they will be a little bit cautious. But with our existing clients our name is strong. They know professionals.” For Vasiliev, Britain has too many stereotypes about Russia and Gazprom. “It is not right to judge Gazprom without meeting us and understanding our strategy. It is not black and white. There are colours. And it is only through dialogue that you can see the colours.”

Today the Government announced its energy strategy and this is the response of the Energy Retail Association on behalf of Britain’s main electricity and gas suppliers. Comments can be attributed to Duncan Sedgwick, Chief Executive of the Energy Retail Association. Today the Government announced its energy strategy and this is the response of the Energy Retail Association on behalf of Britain’s main electricity and gas suppliers. Comments can be attributed to Duncan Sedgwick, Chief Executive of the Energy Retail Association. Smart Meters – Is this a Golden Opportunity Lost? We welcome the Government’s recognition of the need to encourage people to be more energy-aware. We are also pleased to see that Government and industry share the view that “within the next 10 years all domestic energy customers will have smart meters”. However, the Energy Retail Association is disappointed that the Government did not use this golden opportunity to fully promote the roll-out of interactive smart meters which would have revolutionised the use of energy in homes across the country. Energy suppliers fully support the implementation of intelligent smart meters as they can provide accurate information, to the customer and supplier, on the energy being used. We have been pushing for this for some time as they will allow us to move on from estimated bills, replace token meters and bring about the end of meter readings. Instead, the Government appears be talking about electricity display devices which are a gimmick measure as they do not address the real challenge at hand – they only work for electricity (not gas) and they give time-delayed information (rather than real time). There is also a very real concern over the dangers if they are installed incorrectly and we want to make it clear that the industry will not be liable for this decision. Doubling Energy Efficiency Tax on Fuel Bills We fully support the Government’s commitment to incentivise the energy industry to move away from selling energy to embracing an energy services model. It makes sense for the industry, the Government in its bid to tackle climate change and for energy-conscious households. The Government has today announced that it wants to see a “doubling” of the energy efficiency commitment (EEC) on industry between 2008-2011. This means that the EEC obligation on suppliers has moved from GBP300 million from 2002-2005, then GBP700 million from 2005-2008 and now over GBP1bn for the next three year period. We believe that in order to be transparent, the Government needs to make consumers aware that they want to double the energy efficiency tax on each and every household energy bill. This is particularly important while we try to address the issue of fuel poverty and supporting those on low incomes paying their energy bills. Winter Communications Strategy – Working with the Home Heat Helpline. We welcome the Government’s proposal for a “cross-Government communications campaign in time for winter 2007/2008, so that all the help currently available, be it energy efficiency, benefits advice, tariff advice or advice on how to stay healthy in winter is coordinated and easily accessible”. The energy industry established the Home Heat Helpline (0800-33-66-99) in October 2005 to provide a central point of contact for vulnerable customers worried about their energy bills and it has received over 50,000 calls. The Home Heat Helpline is now backed by over twenty leading charities and has received support from nearly 100 Parliamentarians. We have been talking to the Government for some time about the benefit to consumers of using a single point of contact and we look forward to hearing its imminent decision on what role the Home Heat Helpline will have this winter in this communications campaign.

Notes to Editors

1. For further information, please contact Nicola Bowles, Head of Media and Communications on +44-207-930-9181 or Claire Gibson, Press Officer on +44-207-747-5432.

2. The Energy Retail Association represents Britain’s main domestic electricity and gas suppliers; British Gas, EDF Energy, npower, Powergen, Scottish Power, and Scottish and Southern Energy. For more information please visit www.energy-retail.org.uk.

3. The Home Heat Helpline (0800-33-66 99) aims to help vulnerable customers who have problems heating their home. It is the only service for all customers who have difficulties with heating their homes or paying for their energy bills no matter who their energy supplier is. The Helpline, which is run by the Energy Retail Association and funded by Britain’s energy suppliers, is staffed by expert advisors, including former health professionals. It can also take calls from intermediaries calling on behalf of vulnerable people, such as friends, family, carers, social workers or health visitors.

The government is determined to build a new generation of nuclear power stations, arguing that they are the best way of providing the country with secure, low emission power. Currently, Britain’s electricity generation comes from the host of sources, each with their own benefits and drawbacks.

Nuclear: A total of 20.5% of the UK’s electricity was generated by nuclear power in 2005 the last year for which figures are available according to Department of Trade and Industry statistics. Nuclear plants have supplied power to the national grid since 1956, when the Calder Hall site in Cumbria first went into service. There are currently 19 reactors operating at 10 power stations around the country. Advocates of nuclear power Gordon Brown among them argue that it can play a major role in cutting carbon emissions and make the UK less reliant on imported energy. Some environmentalists, among them the veteran climate change expert James Lovelock, agree. However, critics insist the technology has much longer-term environmental problems and has always tended to end up being far more expensive than planned. A study commissioned by Greenpeace, released earlier this month, claimed that the average nuclear power station comes in four years behind schedule and runs three times over budget.

Gas: Natural gas is currently the most important single fuel for electricity generation, accounting for 38.5% of the UK total in 2005. The liberalisation of the UK gas market in the 1990s saw gas prices fall sharply, prompting electricity providers to switch from coal-fired power stations to gas-fired stations. This in turn led to a reduction in greenhouse gas emissions, because gas is less polluting than coal. However, the production of domestic North Sea gas is falling as reserves tail off, leaving Britain more reliant on imports with all the political uncertainty this can bring. The problem was starkly illustrated in late 2005, when a bitter dispute with Ukraine saw Russia reduce gas pipeline flows, affecting supplies to the EU.

Oil: Despite its unchallenged primacy as the fuel most consumers come into contact with directly, oil plays only a minor role in generation, providing just 1.4% of total output. It suffers similar drawbacks to those of gas environmental impact, falling domestic supplies and the insecurity of relying on imports.

Coal: Although coal-fired power stations still provide 34% of total electricity, the domestic coal industry is a shadow of its former self. While there were 180,000 people working in the coal industry before the 1984 miners strike, the current figure is just 5,600. The UK does still have economically viable coal reserves, but these are expected to run out with 10 to 15 years. Already, half the coal used in the country is imported. Coal-fired power stations are less polluting than they once were, but still produce large amounts of greenhouse gases. However, some believe the emerging technology of “carbon capture”, in which emissions are not released into the atmosphere, could see a new lease of life for coal.

Hydro: Power from running water currently supplies 1.25% of the country’s electricity, providing virtually emission-free power once the initial impact of building the plant has been taken into account. Unfortunately, hydroelectricity is most heavily dependent not on technology or political will but on a factor beyond the control of any government – geography. While Norway can produce virtually all its electricity through hydro stations, much of the UK’s potential in this area has already been used.

Wind: For all the many arguments for and against wind turbines, they are only a negligible player in total electricity production, making up just 0.75% of the national total. Wind is something the UK possesses in abundance, and the government is committed to building more wind farms to add to the 140 or so currently in operation. According to the DTI, wind energy will “make the main contribution” to the government’s eventual target of producing 10% of its energy via renewable sources. However, the issue divides even environmentalists, some of whom worry about the impact on the natural landscape of large-scale wind farms.

Other sources: Around 3.6% of electricity comes from other sources, two-thirds of this renewables such as biofuels, wave and solar power, and the remainder from the likes of burning landfill gas. Some have hailed biofuels as a potential environmental saviour, but others worry the scale of production needed to meet large-scale energy needs would cause more problems than it would solve.

The government thinks building more nuclear power stations will help tackle climate change and secure energy supplies. Energy efficiency is at the heart of the government’s energy white paper, unveiled by ministers this lunchtime. Trade and industry secretary Alistair Darling told the House of Commons that it would not be easy to implement the proposals, which seeks to tackle environmental and energy security issues by focussing on energy efficiency. Among the goals set by the white paper are tripling the amount of electricity from renewable sources by 2015 and cutting emissions by up to 33 million tonnes of carbon by 2020. It hopes to achieve these aims by introducing new real-time ‘smart meters’ from 2008, publishing a biomass strategy, legalising the storage of natural gas underneath the North Sea and funding for the development of low carbon vehicles. “Every action set in train by this white paper is important, and none will be easy. Nor can we become a low carbon economy in a single step,” Mr Darling told the Commons. “But if each of us acts we can start to deliver the low-carbon economy vital to our prosperity,” he said. The government stopped short of a full endorsement of nuclear power in a bid to avert the expected fierce debate between policymakers and environmentalists. Instead ministers framed nuclear power stations as an environmentally-friendly energy source but avoided making concrete decisions on the issue, launching a new consultation. Conservative shadow trade and industry secretary Alan Duncan contrasted Tony Blair and Gordon Brown’s strong commitment to nuclear power with the white paper’s less clear preference, saying the difference reflected the “confusion” at its heart. “The government says that certain things must be done, but its policy, at best, says that they might be done,” he said. “It offers nothing definite on nuclear or anything else, it heralds the collapse of carbon capture, it continues an irrational regime for carbon penalties and incentives, it provides little or no prospect of hitting renewables targets, it does not offer the security we need. “Ten months after the energy review it is still content free, not carbon free,” he concluded

Ofgem, the energy regulator, is to be given a new role analysing the long-term energy outlook, to address concerns about security of supply. The energy white paper, to be published on Wednesday, will reflect the government’s concern over the reliability of supplies of gas, oil and electricity and will take forward plans for new nuclear power stations drawn up by the outgoing prime minister, Tony Blair. In a further bid to tackle climate change, associated with the burning of fossil fuels, the white paper will also propose that the UK adopt a world-leading carbon emissions trading scheme. Ofgem will be given res-ponsibility to assess the outlook for energy supplies to inform long-term policy and investment decisions. Other countries and international bodies produce trategic assessments of supply and demand, but there has been no equivalent in the UK. Worries about Britain’s access to oil and gas were sharpened on Tuesday by a US government assessment that North Sea oil production was set to decline faster than it had thought, and predicting European gas production would decline steadily after the turn of the decade. Britain became a net importer of gas in 2004, and could be importing 90 per cent of supplies by 2020, as North Sea and other domestic production declines. New terminals are being built to bring liquefied natural gas from countries such as Qatar and Egypt, and there are new and expanded pipelines connecting Britain to Norway, the Netherlands and Belgium. But Britain is increasingly linked to the continental European gas market, which is dependent on Russian supply. As for oil, the US Energy Information Administration has predicted that Britain’s production will fall from a peak of 3m barrels a day in 1999 to 500,000 b/d by 2030. The UK became a net importer of oil last year for the first time since 1980. Electricity supply has been rising up the agenda, as concerns grow at the expected loss of about a third of generating capacity over the next 20 years. Old nuclear plants are coming to the end of their lives, and old coal-fired power stations will have to close because of European Union pollution controls. Eon UK, the British arm of the German utility, said yesterday it was “keen to take leading nuclear role in UK”. But new nuclear power stations are seen as unlikely to come on stream before the end of 2017 at the earliest, leaving a potential gap in electricity supplies earlier in the decade. Paul Golby, Eon UK’s chief executive, said: “To keep UK plc’s lights on we need to look at all our options and not just at one. “That means we need new gas stations, new cleaner coal stations, clean coal with carbon capture and storage, renewables and nuclear, and we also need more energy efficiency and decentralised generation.”

The Government is due to publish the Energy White Paper at 12.30pm on Wednesday 23 June. Consultations on nuclear energy and on renewables obligations are also due to be announced on the same day. Roger Higman, Friends of the Earth Campaign Coordinator, said: “The White Paper must start to deliver the cuts in carbon emissions which are needed if the UK is going to play its part in tackling climate change. This means much larger cuts in emissions than Ministers have so far talked about. Government targets for a 60 percent cut in emissions are simply not going to be enough. A recent scientific paper shows that if every country in the world delivered cuts on this scale we would still see devastating climate change with a temperature rise of 4 or 5 degrees centigrade [1].”

“To deliver the cuts in emissions which are needed, the paper must promote energy saving measures – aimed at cutting emissions from homes and transport – as well as finding new ways to generate electricity. Unfortunately energy efficiency initiatives have so far been neglected in favour of hugely expensive proposals for a new nuclear programme; despite the fact Government’s own advisors have said that cutting emissions from other sources will be more cost effective and quicker. [2]”

Notes

[1] Tyndall Centre for Climate Change Research response to the draft Climate Change Bill’s carbon reduction targets:
www.tyndall.ac.uk/publications/briefing_notes/bn17.pdf (PDF†)

[2] Sustainable Development Commission “Is Nuclear the answer?” said of the Government “Their own advisors found that there was no justification for bringing forward a new nuclear power programme at present.”
www.sd-commission.org.uk/pages/060306.html

Oil surged more than a dollar to over $70 a barrel on Monday as unrest in Nigeria kept markets on edge for further supply disruptions ahead of the U.S. summer gasoline season. London Brent settled up $1.07 to $70.49 after trading as high as $70.83 earlier. U.S. crude gained $1.33 to $66.27 a barrel. Unknown assailants broke into an unused Nigerian oil well operated by Total on Monday, causing a minor spill, a company spokesman said. There were no injuries nor any impact on oil output. Rising violence in Nigeria since February 2006 has cut a third of the OPEC nation’s oil output and forced thousands of expatriates to evacuate. “The uncertainty over Nigeria oil production and the continuing worries over U.S. gasoline supply seem to be behind this latest rally on crude,” said Phil Flynn, analyst at Alaron Trading in Chicago. Ongoing refinery problems in the United States have drawn down gasoline stocks ahead of the peak summer gasoline demand season, propping up prices in recent weeks. Despite the prolonged Nigerian outage, oil ministers from the Organization of the Petroleum Exporting Countries were satisfied that demand for crude oil was being met. “The market is very well supplied, in fact it is oversupplied,” OPEC President Mohammed al-Hamli, who is also oil minister for the United Arab Emirates, told Reuters on Monday. OPEC is due to meet on September 11 to decide output policy. Prices also drew support as Iran, the world’s No. 4 oil exporter, pressed ahead with its atomic work. A senior Iranian official said on Saturday the country has started building its first domestically made atomic power plant a move which could deepen Tehran’s standoff with the West over its nuclear program. The West fears Iran’s atomic work is aimed at making weapons. Tehran says it only wants to produce electricity. “In the next decade Iran will be one of the most talked-about countries in the world regarding domestic nuclear energy,” Mohammad Saeedi of Iran’s Atomic Energy Organisation was quoted as saying by the ISNA news agency.

British power grid operator National Grid and its Dutch counterpart Tennet are to build a 1,000-megawatt link between the two country’s networks, the partners said on Tuesday.The roughly 600 million-euro ($806.9 million) connection will be only the second link between Britain’s electricty network and continental Europe. It will help to ensure security of supply and stable prices, executives from the project told reporters. “We believe it is a landmark project for Europe,” said Mathew Rose, leader of the BritNed project. “Security of supply will increase in both countries,” Mel Kroon, managing director of Tennet, said. “It will stabilise prices in both areas and lead to increased competition in both.” Construction will start this year and the 50/50 “BritNed” joint venture project is expected to start operating in the second half of 2010. The link, first mooted in 2002, will be made up of two parallel cables, buried two to three metres below the sea-bed BritNed executives said that if necessary the link could increase capacity by up to 20 percent above 1,000 megawatts, but that this could not be sustained. A 2,000-megawatt line already links Britain to France, allowing the two countries to buy or sell power to each other when convenient. Long-term capacity in the BritNed link will be auctioned in the same way as it is for the British-French connection. In addition, daily capacity will be auctioned by the Anglo-Dutch APX Group, which operates electricity and gas markets in both countries. The contract for the subsea cables has been awarded to Swiss-listed ABB Ltd and Germany’s Siemens is going to build two current converter stations, one in Isle of Grain in southern England and one in Maasvlakte, near Rotterdam.

UK gas prices at the National Balancing Point rocketed Monday as demand came in much higher than expected in a week when players expected reduced demand, traders said. Within-day was up almost 2 p/th from Friday to 25.5 p/therm during the morning, softening a touch to 25.3 p/th by midday BST (1100 GMT), while day-ahead was up over two and a half pence to 25.5 p/th by noon BST. Traders said they had expected a week of reduced demand as the Rough gas storage facility is unavailable for injection throughout the period, taking around 15 million cubic meters/day of demand away. But cold weather and high demand from continental Europe pushed demand up to around 20 million cu m/day higher than last week, traders said. National Grid data showed demand at 49 million cu m/day above seasonal norms at 1100 BST, or 274 million cu m/day in absolute terms. Demand last Thursday was 261 million cu m/d and Sunday night NG was forecasting similar demand for Monday. Traders said demand was up across the board, including both large and small consumers,although one trader said he expected higher prompt prices to
choke off some of the demand from power generators and other large consumers through the day. Higher demand was met by an increase in flows through the Langeled pipeline from Norway, which has provided erratic quantities over the past few weeks. Flows were up to around 35 million cu m/day at 1030 BST, which may be a response to price and may indicate that lower flows in the last two weeks are at least partly due to low UK prices. Other flows remained relatively stable, although one traders said there were a few “niggly field problems.” The system had been slightly long during the morning, at 1.4 million cu m long at 1000 BST, but this had fallen to 3.8 million cu m short by 1100 BST, while physical flows on NG’s website indicated a greater shortfall. The curve again took its lead from the prompt and June traded up level with within-day and day-ahead, reaching 25.5 p/th by midday BST up over 2 pence from Friday. July followed more sedately, trading to 23.5 p/th by 1200 BST, up only just over a penny from Friday. The seasonal contracts were also fairly bullish and winter 07 was up 1.7 p/th at 46.7 p/th by 1200 BST. Summer 08 traded up 1.1 p/th at 31.1 p/th, but was offered there at noon BST. Traders said capacity auctions had added only slightly to curve bullishness. January 2008 capacity at the Easington terminal sold for arorund 15 p/th Friday, well above the usual level, which tends to be under 0.5 p/th. Power was also very strong Monday. UK prompt power surged on a tight market and rising gas prices, traders said. “Every system that was around was short,” one trader said, indicating tight UK power and gas, as well as French and German power markets. “You get a flood of buyers and not a lot of sellers.” Day-ahead baseload opened at a heard GBP26/MWh and shot up to a trade of GBP28.50/MWh, while bids reached as high as GBP29/MWh before noon BST, traders reported. Day-ahead peak was heard traded at GBP45/MWh. Day-ahead base closed Friday at GBP22.1/MWh. The day-ahead baseload contract last touched GBP28/MWh on December 27,
2006.

ACROSS Britain, cities are plunged into darkness. In London, the Underground grinds to a halt, leaving panicked commuters stranded in oppressively hot carriages. In office blocks, lifts stop operating and the air-conditioning shuts down. Employees swelter in stifling conditions. This is not the postapocalyptic vision of some film-maker, but a realistic scenario as Britain grapples with a looming energy crisis. The statistics are frightening. In only eight years, demand for energy could outstrip supply by 23% at peak times, according to a study by the consultant Logica CMG. The loss to the economy could be £108 billion each year. “The idea of the lights going out is not a fantasy. People seem to accept that security of energy supply is a right. It is not. The industry will have to work hard to maintain supply and for that we need a clear framework,” said Simon Skillings, director of strategy and energy policy at Eon UK, Britain’s largest integrated energy company. This Wednesday, the government’s delayed energy white paper will attempt to provide some answers. It is a crucial document that will determine whether Britain can deliver on its pledge to slash carbon emissions by 20% from 1990 levels by 2020. The white paper will seek to tackle a host of tough issues – from nuclear power to energy efficiency, renewable power sources and clean-fuel projects. A planning white paper, due tomorrow, is also seen as crucial after a number of energy projects have been delayed for years or slapped down by local authorities. The scale of the challenge is immense. By 2015, Britain’s generating capacity could be cut by a third as ageing coal and nuclear power stations are closed. Britain is also moving from being self-sufficient in oil and gas as North Sea production declines. In 2005, the UK became a net importer of gas. By 2010, imports could account for 40% of British gas needs; by 2020, 80% to 90%. The most contentious area is likely to be nuclear power. Nuclear reactors account for about 20% of Britain’s electricity, but this will shrink to 6% in 20 years as ageing plants are closed down. By 2023, only Size-well B could be in operation. Already controversial, the government’s commitment to building new nuclear power stations became even more sensitive when the High Court agreed with the environ-mental lobby group Greenpeace that the consultation process was “seriously flawed”. The white paper is expected to give guidance on how the government would like to see new reactors built, but will have to stress that any decision will depend on a new, more detailed, consultation round. What the energy industry wants is clarity. Even so, energy companies, including RWE, Eon, Suez, EDF, General Electric and West-inghouse, have already held talks with British Energy about using the sites of its eight nuclear power stations to build new reactors. Combining the need to secure Britain’s energy supply and reduce carbon emissions will require £55 billion in investment in the next few decades, according to Logica CMG. Exactly where the money will be spent hangs in the balance. One of the big issues is how the government plans to encourage operators to build cleaner but more expensive power stations. To make the economics work, much will depend on the price of carbon and the credits power operators need to buy if they overshoot emissions targets. This falls under the EU emissions-trading scheme. If the EU cracks down and imposes higher penalties on “dirty” power producers, the price of carbon would in theory be pushed up. Centrica believes that carbon prices would need to double from the current €19 (£13) per tonne to make a £1 billion clean-coal project it is considering in Teesside economically viable. “If the UK is to hit tough targets on reducing CO2 emissions, it is vital that the structure of the EU emissions-trading scheme is optimised to encourage the building of really low-emitting power generation stations,” said Jake Ulrich, managing director of Centrica Energy. Another key area is carbon capture; this involves trapping carbon-dioxide emissions from coal or gas-fired stations and storing them underground, probably in old North Sea oil reservoirs. Schemes include Centrica’s Teesside proposal while BP is considering building a £500m power station in Peterhead, Aberdeenshire, in partnership with Scottish & Southern Electricity.

However, power-industry executives claim that each project would need several hundreds of millions of pounds in government support – far higher than the Treasury’s financing plans. Meanwhile, the government is under pressure to encourage desperately needed new gas-storage facilities. The UK has storage capacity to cover only two weeks of gas needs against two to three months for France and Germany. New objectives for renewable energy are also expected. The renewables obligation, where suppliers are bound to source a rising percentage of electricity supply from renewable sources, will be refocused to give more support to costlier offshore wind farms and biomass projects used to co-fire coal-powered stations. Britain is already struggling to meet its ambitious target of supplying 10% of electricity needs from renewables by 2010 and 15% by 2015. Today’s figure is about 2%. “The goals are very ambitious and we are currently behind the curve. Investment would have to be accelerated very substantially to have any chance of meeting those targets,” said Jayesh Parmar of Ernst & Young. Those targets are likely to get even tougher. In a little-noticed detail, the EU agreed in March to make it compulsory for 20% of all energy used to come from renewable sources by 2020. As for the British consumer, the white paper will underline the need for smart meters, which measure exact energy use and cost, to be installed in people’s homes. There is also support for microgeneration projects – small-scale wind turbines, solar panels and gas devices to create electricity. However, the sums are tiny – £12m in grants is up for grabs this month from the Department of Trade and Industry, in addition to £6.8m already paid out. The big question is whether the UK can act fast enough to tackle the looming crisis. Even if the government’s nuclear plans remain intact, it could be at least 10 years before the first new nuclear station is ready. A typical coal or gas-fired project could take between three and five years to construct.