Giant supertankers with cargoes of frozen gas can start heading for Wales from the Arabian Gulf next year after the controversial Pembrokeshire-to-Gloucester pipeline was completed yesterday. The liquefied natural gas (LNG) pipeline was officially finished when UK Energy Minister Malcolm Wicks opened a valve on the 193-mile pipeline at a compression station in Felindre, west of Swansea. The minister’s gesture marked the linking of the first (Pembrokeshire to Aberdulais) phase of the £1.4bn pipeline to the second and even more controversial cross-Brecon Beacons section which links it to a major gas distribution network at Tirley, Gloucestershire. Mr Wicks, dressed in safety gear, accepted the pipeline had it critics. But he said, “I’m very sensitive to people’s feelings. As Minister of Energy I am asked by people to turn down wind farms or energy plants and sometimes the answer is ‘no’ sometimes it is ‘yes’. “But if we listened to every protest group people would be very happy but they may well be sitting in the dark. “Wales can feel proud of and optimistic about the benefits this project will bring.” He added, “National Grid’s new pipeline will be able to carry 20% or more of the UK’s gas needs, once imports into Milford Haven start next year, and it will also help to secure Wales’ energy supply for many years to come. “In the past, Wales’ gas has been piped through England and Scotland. Now, for the first time, Wales is at the front end of the UK’s gas supply system.” From next year, the buried pipeline will take high pressure liquefied natural gas delivered from Qatar in the Arabian gulf to the world’s biggest LNG importing terminal currently being completed at South Hook, Milford Haven. Double-hulled vessels dubbed Q Max tankers will take the LNG from Qatar’s titanic North Field (the World’s biggest LNG reservoir) to South Hook at a temperature of -165C to keep it as a dense liquid, and therefore easier to transport. The Welsh terminals will be run by Exxon/Qatar Petroleum under the South Hook Terminal Company Ltd umbrella plus Dragon LNG which includes the former British Gas. They will re-gasify the LNG and send it through the pipeline under high pressure to tens of thousands of businesses and households across Britain and Europe. The “river deep, mountain high” pipeline took three years to lay and involved 1,300 workers, half from South West Wales. The pipeline, one of Britain’s biggest engineering projects, can be put down to Britain’s growing energy insecurity. In the UK, the depletion in North Sea gas and delays in getting new sources into the system sent gas prices soaring last year. And with debates over a nuclear future still raging, the need for new energy resources is reaching crisis point. But the pipeline was not universally welcomed. Pipe construction was hit by protesters at Trebanos, in the Swansea Valley, outside Brecon where contractors were forced to obtain an eviction notice to move protesters from inside the pipeline and families at Cilfrew near Neath went to the High Court in a bid to overturn planning permission for a sub-station “too close” to their village. And Paul Sinadurai, senior ecology and policy adviser for the Brecon Beacons National Park, which was among objectors to the pipeline, said, “It kind of leaves a bitter taste in the mouth. It’s always very easy to grass over a piece of land that has been ploughed previously. But where you cut through ancient woodlands or internationally important river systems we are not convinced there will not be a significantly adverse affect.” Meanwhile, safety fears over LNG were stoked by thriller writer Frederick Forsyth’s latest novel, The Afghan. It includes a plot in which terrorists hijack an LNG supertanker aiming to ignite it to burn to death innocent people. James Fay, a professor at the Massachusetts Institute of Technology, claims LNG pouring from a tanker at -160C would pool over a large area. If ignited, it would generate such intense heat that it could burn someone up to a mile away. It was this calculation which prompted protest group Safe Haven’s claim that LNG in Pembrokeshire could endanger 20,000 lives. But the South Hook LNG Terminal Company, which will operate the complex, has given assurances over safety. And pipeline project manager David Mercer says every inch has been built to stringent international safety standards.

Severn Trent, the UK water supplier, has received no ‘appropriate approaches’ from possible takeover suitors, said CEO Tony Wray today. Wray said that his concentration was focused on ‘delivery of efficient services’, declining to comment on any potential interest in the company. ‘If we had any appropriate approaches then we are aware of our duties and we would have announced so,’ Wray said. His comments come amid a flurry of speculation about M&A activity in the UK water sector, following Kelda Group’s acceptance of an offer from the Saltaire Water consortium yesterday. On the release of its half year results, the company was unable to be specific about the eventual cost of the flooding that occurred this summer, though so far it has cost 23.2 mln stg, brought down to 18.2 mln stg after 5 mln stg of interim insurance payments. The eventual cost is estimated at between 25 mln stg and 35 mln stg, with insurance covering between 10 mln stg and 20 mln stg. Inspections are ongoing at 150 sewage pumping stations, the outcome of which is not yet known. ‘We believe that most of this will be covered by insurance,’ said finance director Mike McKeon. ‘We can’t be more specific because we still have to do the work to ascertain whether there is any long-term damage to these stations.’ The company’s first half results were inline with analysts expectations. Pretax profit for the period rose to 161 mln stg from 142.3 mln stg. First half dividend was up 6.9 pct to 24.3p, from 22.8p, and earnings per share was up to 47.6p from 42.1p. The results threw up no surprises for analysts. ‘They flagged the costs before and we expected them to be that sort of size,’ said one analyst about the flooding. ‘They haven’t got all the bills in, but it’s in line with what they said previously.’ Severn Trent was last week charged by the Serious Fraud Office for the misreporting of leakage data between 2000 and 2002. The company is yet to receive details of the charges or a timescale for proceedings. ‘These things are out of our control,’ said Wray. ‘The first stage is that the charges will be listed in the Magistrates Court. Only then will we discern the nature of the evidence and only then will we be able to consider the company position.’ The UK water regulator, Ofwat, is currently in the early stages of developing the price review for the pricing period 2010-2015. Early suggestions from Ofwat are that price caps for water companies will likely benefit customers rather than shareholders. About the price review (PR09), Wray said: ‘PR09 is still two years away and we are in the early stages of consultations. What PR09 will clearly focus on is the best possible way to find the mix between maintaining the necessary investment and ensuring there is a fair deal for consumers, but also investors.’

Gazprom has given warning that European consumers should expect stiff increases in natural gas prices as the soaring cost of oil feeds through into contracts for the sale of Russian gas into Europe. The cost of wholesale natural gas will rise by between 15 and 20 per cent next year, Alexander Medvedev, the deputy chief executive of Gazprom, said. He added that even greater increases could follow if the European Commission pushes through measures to break up Europe’s gas grid. The Russian gas giant is at loggerheads with the Commission over its plans to strip European gas companies of their pipelines. The “unbundling” proposal, which is opposed by other monopoly suppliers such as Gaz de France, would affect Gazprom’s investment in downstream gas distribution in Germany. “The proposal will inevitably create a situation where prices will grow,” he said. “Liberalisation doesn’t work in such infrastructural industries as power generation and especially gas.”

The soaring price of crude oil, which this week flirted with $100 per barrel, will soon feed through into natural gas prices, stoking inflationary pressures in Europe. British consumers are unlikely to be spared the effects of a Russian price increase as the two markets are linked by an inter-connector pipeline between Norfolk and Belgium. In Britain’s free-for-all competitive gas market, contracts for gas are bought and sold daily on a futures exchange. However, Russian gas is sold under long-term contracts with big European energy companies such as Ruhrgas, owned by E.ON, and Gaz de France.

The price of gas sold under these contracts is not linked to a spot market but is indexed to a basket of alternative fuels, mainly crude oil and heating oil. Typically, the price is adjusted quarterly and is based on the average price of the fuel basket over the preceding six to nine months. Because of the time lag, the surge in crude oil has yet to affect European gas prices, but consumers already smarting from the soaring price of petrol will feel the full impact of expensive energy in their domestic fuel bills next year. Gazprom’s argument with the Commission over the unbundling of gas pipelines is set to intensify. The proposal to strip utilities of their physical infrastructure strikes at the heart of Gazprom’s strategy to extend its reach downstream into Europe. The Commission wants more competition and has taken steps to develop new supplies from Central Asia, promoting Nabucco, a vast pipeline project linking Baumgarten, a gas hub in Austria, to central Turkey.

http://business.timesonline.co.uk/

A Perfect 10:

Domestic energy prices set to soar by 10% says expert…

With the country descending into a cold snap any price rises in energy will be felt keenly by those with stretched finances as well as the elderly.

Domestic energy tariffs saw several rapid increases during 2006 with some suppliers even putting prices up three times during that period.

Since that peek domestic energy tariffs have been coming down this year. The prices have fallen as new projects to import gas have eased concerns about a supply gap caused by sliding output from the ageing North Sea fields. At the start of the year, following a mild winter and increased imports from overseas, we saw a sustained fall in wholesale prices by as much as 50% since the summer of 2006.

It was widely expected that with factors including additional gas supplies and a milder winter forecast for 2007, these should have worked to provide downward pressure on wholesale prices this year and it was anticipated that we would see further falls of about 20%.

The price that we pay for electricity is largely dictated by wholesale electricity prices. As approximately 40% of UK electricity generation comes from gas-fuelled power stations then wholesale electricity prices are in turn obviously affected directly by the wholesale price of gas.

During 2007, wholesale gas prices began to rise at an unprecedented rate. As the world economy has grown, demand has pushed wholesale gas prices through the roof. The UK’s North Sea fields have declined faster than predicted, so the UK has been forced to import more gas from Europe. The price of gas imported from the continent is linked to the price of oil, which peaked again this month. However the market for crude oil gas has been very volatile and the price could easily rise further.

Another main factor on the current supply is the forthcoming winter weather which will affect demand. The Met office is suggesting that this coming winter may be colder than usual.

The combination of these risks may become more serious as supply and demand plays a major factor in the market prices and any sustained cold weather will have an immediate impact on the price.

Chris Hurcombe, Operations Director, of Catalyst Commercial Services, warned yesterday that domestic prices may still go up. He said: “Prices of domestic electricity and gas look likely to go up again, a 10% hike in prices would add over a £100 to the typical gas and electricity bill. “The first to increase prices will probably be the catalyst for others to follow”

Hurcombe concluded “However recent reports suggest that 9.3 million households have still not taken advantage of competition by switching to a cheaper provider”.
_____________________________________________________

For interviews, quotes, photos or comments contact:

Mr. Christopher Hurcombe
Operations Director
Phone: 0870 710 7560
Email: info@catalyst-commercial.co.uk

Notes for Editor:

Catalyst Commercial Services Ltd

Catalyst Commercial Services (www.catalyst-commercial.co.uk) provides an independent energy procurement service for medium to enterprise businesses in the UK. We also provide energy management services and advice on smart metering technology.

Infinis, one of the UK’s biggest renewable energy companies, has pulled its flotation planned for this autumn. The flotation had been estimated to value the company at between £700m and £1bn, one of the biggest public offerings yet seen in the renewable energy sector. Infinis is owned by Terra Firma, Guy Hands’ private equity group. Alan Lovell, chief executive, told the Financial Times the planned flotation would not go ahead and that there were no plans to revive it for several years. He said the recent turbulence in the markets was part of the reason but added that Infinis had produced a five-year plan for Terra Firma, which resulted in the private equity group deciding to hold on to it for “the medium term” of three to five years. Infinis is one of the biggest “pure play” renewable electricity companies in the UK, producing more than a 10th of the UK’s total renewable energy. It generates most of its energy from landfill sites, capturing methane from dumps and using it to generate electricity. However, this business will reach natural limitations in the next decade, as most of the landfill sites in the UK suitable for methane recovery have been taken up. The methane produced by older landfill sites will gradually run out and the government is diverting waste away from dumps to recycling and incinerators. Infinis is also building up its biomass business, which involves burning wood and waste products to generate electricity, and is expanding into wind energy. However, Mr Lovell noted the high price being paid for wind assets in today’s markets meant Infinis was hampered in the search for wind acquisitions. He said a flotation would have provided the cash and equity necessary to fund such acquisitions but that buying existing wind assets in cash was too expensive. Instead, Infinis will focus on building wind farms on sites already in industrial use, where gaining planning permission should be easier. BT Group unveiled a similar strategy this summer when it said it would offer sites around its facilities to wind farm developers, a strategy expected to produce about 250 megawatts of wind power. Terra Firma bought Infinis as part of its takeover, for £531m, of the Waste Recycling Group in 2003, and expanded it by acquiring some of the landfill business of Shanks, the waste management company, for £277m. Terra Firma sold the rest of the Waste Recycling Group to FCC, the Spanish construction company, last year for about £1.4bn.

One of the country’s biggest water companies is to be charged by the Serious Fraud Office, it has been revealed. Severn Trent Water is being accused of lying about its leakage figures to the industry watchdog Ofwat – it faces substantial fines if convicted. Information given to Ofwat is crucial in determining how much water firms can charge households for water, waste services and the cost of repairing the network of pipes. The news comes a few days after it emerged that Southern Water faces fines of up to £20.3m for misleading Ofwat by deliberately misreporting customer service information. Severn Trent says it has been told that no individual member of its staff will be accused of any offence. The charges relate to information supplied by Severn Trent going back as far as 2000. In 2005 the SFO told the company it was undertaking a criminal investigation into “alleged reporting irregularities”. Ofwat had been carrying out is own investigation following allegations of false reporting against one of its employees in May 2004. It published its findings almost two years later – and Severn Trent had to apologise to customers and reduce its prices. The company has acknowledged that the regulator “may expect further amends to be made to customers”. It serves some eight million people across a large part of the country, from mid-wales to Rutland and Bristol to the Humber. Chief Executive Tony Wray said: “We will now study carefully the details of the charges, which relate to the responsibilities of a previous regime.” The group is also facing Ofwat penalties over “misstated” customer relations data and added today that it was “unable to give a reliable estimate” over the potential fines it faces. In April 2006, Severn Trent also said it had uncovered evidence of the “misstatements” going back over several years.

Oil retreated on Wednesday after earlier closing in on the $100 milestone in response to a new slump in the dollar. U.S. light crude surged to a record $99.29 early in the session but then edged off this peak to stand at $97.53, down 50 cents, at 4:23 p.m. London Brent crude was down 24 cents at $95.25. U.S. crude oil inventories fell by a surprise 1.1 million barrels last week, according to data from the U.S. Energy Information Administration. Analysts had predicted a rise of 600,000 barrels. But crude stocks rose at the key U.S. delivery point at Cushing, Oklahoma, which helped to depress prices. Distillates, which include heating oil, fell by 2.4 million barrels, a much bigger drop than the 300,000 barrel decrease that had been forecast. “The crude draw is bullish, however the market will be rangebound due to people being out for the holiday,” said Dan Flynn, analyst at Alaron Trading, referring to the U.S. Thanksgiving holiday starting on Thursday. Oil is up by about 45 percent since mid-August, driven by increased speculative investment, tighter supplies and a slide in the dollar. The dollar’s fall to record lows against the euro has spurred buying of relatively cheap dollar-denominated commodities. The dollar sank to a new record low against the euro and versus a basket of currencies on Wednesday after the U.S. Federal Reserve cut its growth outlook for next year, boosting chances of another interest rate cut in December. Worries about a U.S. slowdown helped trigger sharp falls on Wall Street, with the Dow Jones industrial average down more than one percent. High oil prices could intensify pressures on the fragile U.S. economy, which could ultimately hurt demand for oil. The rising cost of oil, for example, could force more than three-quarters of Americans to tighten their budgets by cutting fuel use or by slashing spending elsewhere, according to a Reuters/Zogby poll. Some 32.5 percent of people surveyed said they would drive less if oil prices kept rising, while 20.8 percent said they would try to conserve energy at home and 22.8 percent said they would cut spending on retail and entertainment. Gold and platinum have also rallied in response to the falling dollar, although copper and zinc have slumped to multi-month lows on concerns the U.S. mortgage crisis could slow economic growth and demand. U.S. Energy Secretary Sam Bodman has said producers need to pump more to bring prices down from levels that are close to a record in nominal and inflation-adjusted terms. But the Organization of the Petroleum Exporting Countries, which meets on December 5 in Abu Dhabi to chart supply policy, has said the market is well-supplied and it is up to consumer countries to curb speculation through regulation.

The Government should do more to promote the use of ‘smart meters’ to help cut energy use, a new report says. Installing the meters, which can tell a homeowner at a glance how much gas, electricity or water is being used, will be vital in facing up to climate change and meeting the Government’s target of cutting CO2 levels by 60 per cent by 2050. The environmental think-tank Green Alliance says in the report that smart metering can help change people’s behaviour by allowing them to see the benefits of energy saving. The report argues that too little research had been done in demonstrating the benefits of smart metering and most people knew nothing about the technology involved even though homes produce 27 per cent of all UK CO2 emissions. Smart meters track energy usage and can help existing homes far more energy-efficient and environmentally-friendly. The report calls on the Government to do more to raise the profile of smart features which it is hoped will be commonplace in homes in the next 10 years and to offer incentives to install them. Green Alliance says smart metering can be used to supplement more conventional options such as cavity wall insulation. They can measure ‘ energy consumption in ‘real-time’ allowing people to see how much energy is required to make a cup of tea or how much is used when a TV is left on standby. Intelligent heating controls, a step beyond smart meters, would allow people to refine their energy use to heat and cool their home in the most efficient way. “Changing consumer habits is vital if we are to cut our energy use and reduce the impact of climate change. Smart features make it easier for people to grasp the true extent of their energy and resource usage and take steps to reduce it,” the report states. Reducing the impact of older homes which did not have energy saving devices fitted was a serious challenge but they could be retrofitted with smart metering which offered significant benefits. A survey carried out by insurer More Than, to coincide with the report, found that 81 per cent of people questioned had never heard of smart meters. But once it was explained 43 per cent of people said they would be interested in having one installed, although just 26 per cent would be willing to pay for this themselves, with others claiming it was the job of energy companies and the Government to foot the bill. Nearly half of people also said the Government needed to do more to make people aware of the options available to them to make their homes more energy efficient. Stephen Hale, director of Green Alliance, said: “Smart features have not had much recognition as environmental solutions but our new report makes their potential clear. “They can make important contributions to the environmental challenges we face and we would like to see sustained research into this area. “The Government needs to recognise that smart electricity meters are the critical first step in introducing a wider range of green smart features into homes.”

The independent watchdog that protects the interests of U.K. gas and power consumers said Tuesday that there is widespread dissatisfaction over the service small businesses get from their energy suppliers and singled out British Gas Business for offering the worst customer service out of the six major U.K. utilities. “BGB customers get the worst service in every complaint category except sales where they come out top,” said Energywatch in a statement. Energywatch has received more complaints per 100,000 business customers about BGB than any other utility serving the same sector for the last two years. It remains the worst performing company in terms of customer complaints, although the gap with its nearest rivals has narrowed in the last six months. Out of Scottish and Southern Energy EDF Energy, a subsidiary of Electricite de France, Npower, a subsidiary of RWE, Powergen, a subsidiary of E.ON AG; Scottish Power, a subsidiary of Iberdrola SA; and BGB, a subsidiary of Centrica PLC; no company received a satisfied rating from their customers in the research carried out by Accent. Four out of ten customers said they would not recommend their supplier to another business. Paul Savage, Energywatch Business Service Manager, said: “The findings highlight widespread dissatisfaction among small businesses when it comes to their electricity suppliers.” Small businesses cite poor billing and disputes over contract renewal as the biggest source of problems with electricity providers, Energywatch said. Scottish and Southern Energy was the best performing company in all complaint categories.

Company Web site: http://www.energywatch.org.uk

Go back to your farms and prepare to fuel and feed the nation was the message delivered to the Future Farmers of Wales Conference, held at the Royal Welsh Showground in Builth Wells. The theme was Fuelling Our Future and the line up of radical, entrepreneurial, speakers gave an upbeat and stimulating slant on the industry’s prospects as the Government underwrites its commitment to renewable energy. Delegates daunted by a summer of devastating blows were told that Government incentives on fuel and electricity meant new opportunities were continually unfolding. They were urged to trawl the internet for new ideas to produce fuel. They shouldn’t discount anything. The future belonged to them and the Government is increasingly encouraging renewable energy production. “Farming in the next ten to twenty years is the thing to be in” urged Rural Business Planning and Grant Aid Consultant, John Cook, who has been closely involved with on farm anaerobic digestion projects. “The opportunities are great. Don’t discount anything. Energy and food production is the thing to be in. There are great opportunities and demand is rocketing. Following the introduction of capital grant aid and doubling of the Renewable Obligation Certificates for electricity from anaerobic digestion plants, there is no doubt that this is a profitable diversification opportunity”. Mr Cook shared his experience and ideas on how anaerobic digestion of farm and food wastes could produce biogas for generating electricity and heat. The process could help to cut costs on the farm and help to make a profit. He explained that the process involved digesting waste in an oxygen free environment to produce biogas. It had the added advantage of harnessing methane, a green house gas twenty one times more dangerous than carbon dioxide. Slurry was an excellent base and could be combined with a range of waste products, from grass clippings to abattoir fats, to produce carbon neutral biogas, which was then capable of generating electricity and heat. The advantages of on farm biogas production included the fact that carbon emissions were reduced, the energy supply was decentralised, odours reduced and less mineral oil used. It was also a useful diversification and served to secure energy supplies and strengthen the rural infrastructure. Mr Cook stressed that the technique offered big opportunities. There were about four thousand anaerobic digesters on German farms, while the UK had only about twenty. The German Government had shown an early commitment to renewable energy and put in a very good price for electricity produced on farm and provided good conditions for the supplying farmers. The returns on offer in the UK were ‘amazing’ he said. And he cited the example of a unit in Dorset which had cost approximately £750,000 to set up. It had an operating margin of £142,990 which translated into a 20 % return on capital which would take five years to pay back. The scene was set by Graham Redman, research economist with Andersons. He explained that the UK commitment to Kyoto and other climate change agreements meant that a rising percentage of electricity and road fuel had to come from renewables. It meant that there were incentives in the form of payments and penalties to persuade companies to use a given percentage renewable energy. Renewables which can be produced on farm include biofuels (bioethanol and biodiesel), anaerobic digestion, biomass, wind turbines, and hydro electric power. The Government’s Renewables Obligation encourages electricity providers to source some electricity from renewable sources. They will be obliged to produce or source 7% of total energy provision this year from a renewable source, rising to 10% by 2010. Mr Redman explained that they will receive certificates (called ROCs) for electricity generated from renewable sources up to this annual target. They will be penalised for any shortfall of certificates. Providers who prefer can, instead of producing their own renewable source, contract out that supply source or buy it in from the market place. “Farmers will be able to earn these certificates which they can then sell to mainstream electricity providers”, he explained. “These renewable energy certificates are tradable and this can provide a profitable diversification for farmers. Road fuels operate on a similar system of certification and there are also opportunities there”. Corwen farmer, Llyr Jones, told the conference that he had gone into biofuel production in response to climate change and the realisation that his beef and sheep enterprise was increasingly reliant on the Single Farm Payment. Fuel was also a factor, with diesel costing £1.10 a litre and likely to become even more expensive. “China and other countries are becoming wealthier and want more energy”, he added. “Then the Government is trying to get us to be as green as possible. “I also wanted to create jobs and commercial opportunities for our rural communities. I’m hoping to create five full time jobs”. Llyr will be producing biofuel from oil seed rape, processed on farm. He first saw it in practice in France ten years ago, but felt then that fuel was cheap and paid little attention. A visit to Ireland five years ago focussed his mind. Today he has installed three German presses in a converted hay barn and in a ‘very simple system’ will produce 364 litres of oil from a tonne of seed. The process will also soon yield approximatly 666 kilograms of cake, which can be fed to cattle. The oil will be used on farm and sold to hauliers and others who save enough money on conventional fuel to pay the £3,000 cost of a conversion kit for the engine in twelve months. An alternative is to mix the oil with 50% conventional oil and then use it without a conversion kit. Llyr Jones told the conference that there were many more opportunities. He was looking at a means of combining the meal byproduct with straw to make wood pellets. He was also hoping to process oil for other farmers. Future Farmers of Wales Chairman Geraint Hughes said delegates were going from the conference buzzing with ‘a new mood of optimism’. It was especially reassuring that the speakers were speaking with the experience of working at the coalface of these innovative techniques.

National Grid has had to call on Britain’s struggling power stations to increase output for the fourth time this month as spot gas prices soared to 62p a therm a level not seen since March 2006 and a jump of about 40 per cent on prices last month. National Grid asked generators three times yesterday alone to supply more power and put them on notice to provide an additional 1,900 megawatts enough to power 1.9 million homes for today, as cold weather sweeps the country. The warnings came because the safety margin of available electricity was about a third lower than it should be. The grid needs a comfort zone of between 2,000MW and 4,000MW available above peak demand. The notification of inadequate system margin (NISM) is calling for 1,300MW to 1,700MW more. Usually between eight and ten NISMs are issued each year, but sources in the electricity market have noted that there have been four since last month, despite the weather being reasonably warm. The problems have been exacerbated because three of the country’s eight nuclear reactors, which provide a fifth of the UK’s electricity, have been shut down. A spokesman for National Grid said that there was no cause for alarm. “This is one of the tools we use to get information to the market, to make sure that enough capacity is available,” he said. A spokesman for Ofgem said that this was a normal procedure to encourage more generating capacity back on-line. “We have a comfortable safety margin this winter of around 20 per cent,” he said. Concerns over capacity have led to spikes in the gas price recently and industrial users are bracing themselves for a difficult winter. Retail consumers also learnt yesterday that there was little chance of price cuts as suppliers are wary of high forward prices for the coming months.

Householders could benefit from reduced energy bills if they agree to run their washing machines, tumble dryers and dishwashers in the middle of the night. The proposal is part of a £6 billion British Gas plan, backed by rival energy companies, to change the way people use their appliances and run their gas meters. The company calculated that if people used their tumble dryers, washing machines and other energy-hungry appliances in the middle of the night, it could save 1,000 megawatts or almost two per cent of the country’s total energy usage. This is because, in effect, it takes two power stations simply to cope with the surge at peak times, such as 6pm when people come home from work, turn on the television and oven and put on a load of washing. British Gas and the other companies want to offer consumers a more sophisticated version of Economy Seven, a tariff pioneered in the 1980s that is still popular. Economy Seven gives householders a discount for running their boiler in the middle of the night. Energy companies could offer similar discounts to customers for using appliances during late mornings or mid-afternoon, when most people are at work. However, they could offer these discount schemes only if the Government approves so-called “smart meters” to replace existing gas and electricity meters. These would allow the energy companies to more closely monitor how much energy each family is using, and scrap the need for a meter reader to call at homes. Instead the reading would be sent electronically to the organisation’s headquarters. This should save the companies millions of pounds enough, they say, to eventually fund the £6 billion needed to provide the meters without consumers having to pay a penny. The Department for Business, Enterprise and Regulatory Reform is in favour of the scheme but has yet to agree with Ofgem, the industry regulator, how to make the meters available across the country at minimal cost. As part of the plan to persuade the Government to approve the scheme, British Gas has commissioned research to show how much energy could be saved by people using their appliances at off-peak times of the day. It estimated that smart metering could save each household £2.50 per year. Those opting for an off-peak tariff should enjoy far greater savings. Any pricing, however, has yet to be decided as the meters are not likely to be introduced until 2010 at the earliest. There are fears that if different companies, British Gas and Powergen, for example, installed meters in the same area, the cost of each sending an engineer to the same street could wipe out any saving to consumers. A British Gas spokesman said: “This is our chance to really revolutionise the metering industry. “If it is done properly, it could give the UK billions of pounds of benefits through cuts in energy use and better customer service.”

Centrica, Britain’s largest energy supplier, is planning to invest significant sums in new gas storage projects and could develop facilities in the Irish Sea, close to its main gasfields. The company owns the UK’s largest gas storage facilities, after buying the North Sea Rough operation five years ago, and has seen the value of these assets increase fivefold. However, it is frustrated by the difficulty of developing storage facilities onshore and believes that offshore might provide a better long-term solution. Sam Laidlaw, chief executive of Centrica, said: “We are now exploring options to make further investments in storage for the longer term, both offshore and onshore. As the UK increases its reliance on imported gas, and introduces the proposed legislation to streamline planning for new energy infrastructure, we think there will be more opportunities for investing in gas storage.” Centrica made £220 million operating profit from Rough last year and expects even better figures this year. This week, gas was flowing from storage facilties at Rough for the first time this winter. Gas storage has become a key tool in Britain’s efforts to maintain security of supply, but the country is undersupplied compared with other states in the European Union. Britain delivers only 5 per cent of its total demand from storage. Germany can supply 20 per cent of demand from storage and France 16 per cent. The need for gas storage arises because in future Britain will import gas through pipelines from Norway, the Netherlands and, potentially, Russia. Storage facilities are needed so that extra gas can be brought into the system to meet peak demand. By 2010, Britain’s gas storage capacity should have nearly doubled to meet about 9 per cent of the country’s annual demand. However, as many new power stations that are being built are gas-fired, there is a need for a bigger range of gas storage sites. One reason that Britain has been slow to develop gas storage has been because of the state of the North Sea gas reserves, which only now are becoming depleted. Another factor has been that when wholesale gas prices are low, there is no real incentive to invest in new storage. However, when prices are high, producers are reluctant to use gas to fill new storage sites and would rather sell it on the market. Planning has also been a significant impediment, with several onshore storage projects being rejected on planning and on safety grounds.

Operating profit in Energy Systems, including gas distribution, increased by 11.4%, from GBP184.5 million to GBP205.6 million, contributing 27.8% of SSE’s total operating profit in the first half of the year. In power systems, operating profit of GBP164.5 million was achieved, compared with GBP162.5 million in the previous year; in gas distribution, SSE’s share of the operating profit for Scotia Gas Networks (SGN) was GBP41.1 million, compared with GBP22.0 million in the previous year.

Southern Electric Power Distribution’s (SEPD) operating profit increased by 1.7% to GBP97.5 million. During the period, SEPD distributed 15.4TWh of electricity, compared with 15.6TWh in the previous year, a reduction of 1.3%. This reduction in the number of units distributed, which was principally due to the impact of the unusually warm weather experienced in April 2007, was more than offset by changes in the price of units distributed. The average number of minutes of lost electricity supply per customer was 33, compared with 34 in the previous year. The number of supply interruptions per 100 customers was 34, compared with 36 in the previous year.

Performance in respect of both minutes lost and interruptions was ahead of the targets set by Ofgem under its Quality of Service Incentive Scheme (QSIS), which gives financial benefits to distribution network operators that deliver good performance for customers.
Operating profit for Scottish Hydro Electric Power Distribution and Scottish Hydro Electric Transmission increased by 0.6% to GBP67.0 million. In the Scottish Hydro Electric area, 3.8TWh of electricity were distributed during the period, a very slight increase compared with the previous year. Changes in the price of units distributed also supported the slight increase in operating profit. The average number of minutes of lost electricity supply per customer was 28, compared with 34 in the previous year. The number of supply interruptions per 100 customers was 31, compared with 39 in the previous year. Performance in respect of both minutes lost and interruptions was ahead of Ofgem’s QSIS targets.

The Distribution Price Control Review for 2005-10 resulted in substantially increased allowances for capital expenditure to maintain and improve the electricity networks. Investment is therefore geared to renewing SSE’s networks, which were largely built a generation ago, and thereby reducing the number and duration of power supply interruptions. It is also geared to providing the infrastructure to accommodate demand for power. For example, the GBP16 million installation of two new 132kV underground cables between Bramley and Basingstoke is designed to ensure the electricity network can meet maximum demand for 650,000 customers served by the Bramley and Fleet grid supply points. The switchgear at the Inverary substation in Argyll and Bute is being replaced to accommodate the demand from local generation of renewable energy.
The replacement of a key underground cable in Cowes on the Isle of Wight is designed to improve the reliability of the electricity supply in the central part of the town.
Capital expenditure in the electricity networks in the first half of the year was GBP115.6 million, which takes the total for the first half of the current Price Control period to just over GBP500 million. This is 40% higher than in the first half of the previous Price Control period, to September 2002.

Having reached the mid-way point of the five-year Price Control, SSE forecasts that the Regulatory Asset Value (RAV) of its electricity distribution and transmission businesses should grow by around GBP500 million over the five years to March 2010, excluding any major transmission investment. Scottish Hydro Electric Transmission is responsible for operating, maintaining and investing in the transmission network in its area, which serves around 70% of land mass of Scotland. As the licensed transmission company for the area, SSE has to ensure there is sufficient network capacity for those seeking to generate electricity from renewable sources.

The project to replace the electricity transmission line connecting Beauly in the Highlands and Denny in the Central Belt of Scotland follows on from that responsibility. The Public Inquiry into the project began in February 2007 and was still on schedule at the end of October. Nevertheless, the Scottish Minister for Enterprise, Energy and Tourism stated in the Scottish Parliament on 19 September that Ministers do not expect to receive the report of the Inquiry until late in 2008 and that a determination is unlikely before early 2009.

Longer term, the new Scottish government is committed to having discussions with the government of Norway and the European Commission to take forward the concept of a North Sea ‘super grid’ to facilitate the export of Scottish renewable energy to the rest of Europe.

SSE said it is well-placed to contribute to the consideration of ‘super grid’ options and will continue to work on them with Scottish Ministers and officials and other stakeholders.
In September 2007, the European Commission published its third package of proposals to further liberalise the EU’s energy market. The package includes options for electricity and gas transmission networks: the full ownership unbundling of transmission from production and supply in both electricity and gas; or the designation of an independent system operator (ISO) that would operate, maintain and develop the networks, which would make it possible for existing vertically integrated companies to retain network ownership.

SSE believes that the ISO model in Great Britain has worked well and could be successfully replicated elsewhere in the E.U. SSE’s share of the adjusted operating profit* of Scotia Gas Networks (SGN), in which it holds 50% of the equity, was GBP41.1 million, compared with GBP22.0 million in the previous year. This result was achieved largely due to changes in prices for transporting gas (partly reflecting the under-recovery of revenue in 2006/07) and greater efficiencies yielding a reduction in operating costs.

In the six months to 30 September, the gas transportation volume for SGN’s network in Scotland was 20.2TWh and for its Southern network the volume was 30.5TWh. This compares with 19.4TWh and 33.5TWh respectively in the previous year. As in Southern Electric Power Distribution, the unusually warm weather experienced in April 2007 had a significant impact on units transported in the Southern gas distribution network.
SGN’s medium term objective is to be at the frontier for safety, customer service and efficiency in gas distribution. During the period, the company said it continued to make significant progress towards the achievement of this objective.

In September 2007, the number of lost-time injuries in SGN fell to 0.14 per 100,000 hours worked, compared with 0.18 in September 2006. The focus on customer service helped SGN deliver a reduction in the number of complaints about it sent to energywatch for resolution of 62%, to 10. The introduction of new front office management systems, reducing the total number of systems from over 50 to 11, has been successfully completed.

This means SGN now has free-standing systems which are capable of supporting more efficient deployment of resources. SGN also owns and operates SGN Connections and SGN Contracting and in August 2007 established SGN Metering. This means SGN is now an Ofgem-accredited Meter Asset Manager and it is just the second gas distribution company in the U.K. to become one. SGN now owns and manages a meter portfolio of around 40,000 gas meters which it has installed in the Southern and Scotland network areas and it will own and manage all new meters fitted.

The in-sourcing and expansion of gas network activities means that SGN now directly employs 3,750 people, compared with 2,000 when it acquired its two distribution networks in June 2005. During the period, SGN invested in excess of GBP150 million in capital and mains and services replacement expenditure works. The majority of the mains replacement expenditure was incurred under the 30:30 mains replacement programme which was started in 2002. This requires that all iron gas mains within 30 metres of homes and premises must be replaced over a 30-year period and in the first half of the year SGN replaced almost 550km of its metallic gas mains with modern polyethylene pipes.
SSE said it is the only energy company in the U.K. to be involved in gas distribution, electricity distribution and electricity transmission. It therefore participates in three price control reviews in every five years, which gives it ongoing involvement in price control issues in the U.K.

Over 90% of SGN’s income is still derived via the gas distribution price control and updated proposals for the five-year period until April 2013, were published by Ofgem in September 2007. Those proposals included a comparison of efficiency rankings in which Scotland Gas Networks was ranked the second most efficient of the eight distribution networks and Southern Gas Networks the third. This compares with seventh and sixth respectively when the two networks were acquired by SGN in 2005.

The stated aim of Ofgem’s proposals is to deliver ‘a safe, modern gas network while ensuring that costs to customers are kept to a minimum’. Ofgem said it is ‘keeping up the pressure on the gas distribution networks to operate more efficiently over the next five years’. Final proposals are expected to be published in December 2007 and a significant amount of detailed work remains to be done in advance of that to ensure there is an acceptable outcome to this process.

SGN’s objective is to ensure that the final proposals provide: an adequate framework for operational, replacement and capital expenditure (with progress on replacement expenditure being particularly important); opportunities to earn additional revenue through good performance; and an acceptable allowed cost of capital.

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