Wind power has surged ahead of water-generated electricity in Britain for the first time, new figures on the UK’s energy sources show. Government statistics released today show five percent of the country’s power came from renewable sources last year, up from 4.6 percent a year earlier. A 27 percent increase in installed wind power capacity was seen across the year, as momentum grows in the sector. Gas production was down for the seventh consecutive year, dropping 10 percent in 2007, with imports exceeding exports for the third year in a row. Overall power supply dropped by 1.1 percent to 402 TWh. This was the first year-on-year fall since 1997.

The recent announcements by British Gas and the French electricity utility EDF, that they plan to increase gas and electricity prices by a third and a fifth respectively, have major, and worrying, implications for those on the edge of fuel poverty. This comes on top of industry-wide increases at the start of the year. Even in the balmy heat of midsummer, people are understandably worrying about their energy bills. Average bills now sit well above the psychological barrier of £1000 per year. This in turn raises the question of whether the Government’s target of eradicating fuel poverty by 2016 is any longer credible, or even meaningful. There are currently 2.5 million households so defined. As domestic energy prices have shot up, so too have the questions about whether they are a fair representation any more of the actual cost of supplying domestic energy. Indeed, the current vogue for many who want to tackle the problems of fuel poverty is to point to the major energy producers as a source of economic “rent”, which can be used to cushion the impact on consumers. Many people feel instinctively that there is something wrong when companies – such as BP this week – are reporting exceptionally high profits at a time when people are struggling to afford their energy and fuel bills. There are demands for a windfall tax. But this largely misses the point. The headline profits usually relate to global operations, of which only a modest part is in the UK. Even if there were a large UK-based windfall tax, the same logic would apply to wheat farmers, who have also benefited from rising world prices. What is more, all these arguments for a windfall tax ignore the inconvenient truth that North Sea producers already face a windfall tax. I appreciate that this argument offers no solace to those facing soaring household energy bills. There is, however, a separate argument about the electricity and gas companies. These companies benefit from a windfall received from phase two of the Emissions Trading Scheme. During phase two of the scheme, the vast majority of permits to produce carbon dioxide have been given away free, and energy companies can decide to trade rather than use these permits.

The energy regulator Ofgem has calculated that the collective windfall of energy producers from the introduction of free ETS permits amounts to £9bn over the whole of phase two (five years). At least some of this money is fair game: there is a difference between profits made because of increasing demand and profits made because of a government giveaway.

Indeed, the Government (and the industry) has now accepted this argument in principle, and will auction permits in the future in a way that their scarcity value accrues to government rather than to the industry.

The industry argues that the current arrangements were entered into in good faith and that they should not be taxed retrospectively. But it is not unreasonable to expect it to shoulder more responsibility.

Indeed, there are other arguments for taking a tough approach. The competitive market which once existed in electricity generation has largely disappeared, with six major vertically-integrated companies dominating it. Moreover, the claim that consumers can shop around for good bargains is undermined by analysis from the University of East Anglia, which shows that a third of switchers actually make themselves worse off, and half of customers never switch. Overall, there is a strong case for a Competition Commission referral.

In the absence of such a – necessarily long – inquiry, various actions should be insisted upon, under the watchful eye of the energy regulator, to ensure that costs are not passed on to consumers.

The first is to improve energy efficiency. According to the Local Government Association, at least 12 million houses are currently inadequately insulated, costing households around £200 in lost energy. Some companies, under the Carbon Emission Reductions Target, already have a rolling programme to insulate people’s homes, but this needs to be scaled up hugely. A 10-year rolling programme of £500m could ensure that not only are all British homes adequately insulated, but that household carbon emissions are reduced by a fifth.

Secondly, the most vulnerable customers face disproportionately high bills from pre-payment meters. Ironically, despite the claims to offer a “social tariff”, major energy companies charge a negative social tariff. According to recent research commissioned for Energywatch, those on pre-payment meters can pay up to £142 more than people on direct debits on their combined gas and electricity bills. With around a quarter of poorer fuel customers on pre-payment meters, this has to be a priority.

Rolling out social tariffs to ensure that the 2.25 million people on pre-payment meters are not unfairly penalised would cost the energy companies in the region of £275m a year. Given the level of their ETS windfall, this does not seem an unreasonable obligation.

Finally, through the introduction of smart meters, which display consumption costs, Energywatch has shown energy usage can be reduced by between 3 and 15 per cent through changes in behaviour. With a 5 per cent reduction translating into a bill reduction of around £35, this can also help reduce fuel poverty. What is more, the introduction of smart meters that can be read remotely could also significantly benefit the energy companies.

The energy companies have so far led something of a charmed life, with a windfall from the ETC and a regulator who is reluctant to enforce the full rigours of competition rules. They would be well advised to be generous to their customers. Otherwise they may find themselves subject to enforced generosity.

Energy companies are raising gas and electricity prices again, meaning yet more misery for those struggling to pay their bills. Many pensioners face the prospect of spending about a quarter of their income on basic utility services – and that’s on top of the increasingly unaffordable council tax. While political tension in the Middle East and high demand in Asia
are clearly partly responsible for high wholesale energy prices, government policies, driven by an environmentalist agenda, are making a difficult situation far worse. An increasing share of bills is being used to subsidise uneconomic renewable energy, such as wind power. By 2010, the Government’s renewables obligation will add £1bn a year to electricity prices. Proposals by the European Commission to introduce legal targets for green energy are likely to lead to bill increases of 10-15 per cent by 2020. Extra expenditure will also be needed to integrate wind power into the national grid. The planned offshore locations tend to be distant from the existing network so new capacity will be required. This means that stretches of coastline are likely to be scarred by unsightly pylons, or that consumers will subsidise the costly process of burying power cables underground. A further problem is that wind power is highly unreliable. Extra capacity must, therefore, be provided in conventional power stations to maintain supplies on calm days. And there is more bad news. The decision to build a new generation of nuclear power stations will further increase prices. When capital costs are included, nuclear generation is significantly more expensive than coal-fired. Construction overruns, as well as largely unknown decommissioning and waste-disposal costs, could further inflate bills. If the consortia building the new stations go bust, the Government could end up finishing the job with taxpayers’ money. Britain’s previous nuclear programmes have been economically disastrous – development losses amount to at least £20bn, while decommissioning is likely to cost another £75bn. Yet caution has been thrown to the wind in an attempt to appease the global-warming lobby. Environmental policies have also raised the cost of fossil-fuel generation. Some coal-fired power stations, such as Drax, near Selby, have been fitted with expensive desulphurisation plants – costing up to £1bn each in current prices. Yet this equipment may actually speed up climate change, since sulphur dioxide emissions are thought to have a cooling effect on the atmosphere. The desulphurisation process also requires vast quantities of limestone, which has meant additional quarrying in the Peak District. These sulphur “scrubbers” were designed to reduce acid rain, but it is now clear that the scale of the problem was greatly exaggerated by a coalition of environmentalists and European bureaucrats. Acid rain from UK power stations had a positive fertilising effect on many soils and actually improved agricultural yields. The damage to trees was negligible. But electricity customers have ended up paying dearly for measures that, in reality, have had little impact. True to character, environmentalists are strongly opposing proposals to build a new coal-fired plant in Kingsnorth, Kent. Yet such new capacity is needed desperately to keep bills under control. Electricity from coal power stations is cheaper than gas or nuclear, while new technology means that new plants will be 20 per cent more efficient than existing ones and release far less carbon.

Energy security would also be enhanced. Major coal exporters include Australia and the US – stable countries that are unlikely to threaten Britain’s supplies. And the world won’t run out of coal in the near future – reserves will last for hundreds of years. There is, therefore, a strong economic and environmental case for building new coal-fired power stations. Yet despite huge benefits – cheaper electricity and lower emissions – none has been built in the last 20 years. Whether it made economic sense to “dash for gas” in the 1990s is a moot point, but gas has recently been in short supply, and the market has responded. A new pipeline has been built from Norway to Easington, in the East Riding, and import capacity for liquified gas has been increased at Milford Haven, in Wales. The energy companies should also be given similar flexibility to exploit new coal-powered electricity generation. But an increased level of regulation is likely to make such adaptation more difficult in the future. As politicians and bureaucrats attempt to control how our gas and electricity is supplied, there will be reduced scope for the innovation and entrepreneurship needed to combine lower prices with lower emissions. The recent policy record does not augur well for consumers. Government interventions in the energy sector have achieved very little in terms of improving the environment but have been highly successful at raising bills.

British Gas owner Centrica has announced it is to raise gas prices by 35% and electricity prices by 9%.

The UK’s biggest domestic energy supplier said that the price hikes would take place with immediate effect. It blamed “soaring wholesale energy prices”, but added that standard tariff prices would not rise again in 2008. The move comes just a few days after rival EDF Energy put up gas prices by 22% and electricity prices by 17%, with other firms expected to follow suit. Watchdog Energywatch said it believed the 35% gas bill rise was the biggest single increase in the price of a utility seen to date. Centrica said the average dual fuel bill for a British Gas customer would go up by 25% – putting the average household bill at about £1,250. This is the second increase this year, after a 15% rise in bills in January. “We very much regret that we have had to make this decision at a time when many household budgets are already under pressure,” said British Gas managing director Phil Bentley. “The simple fact though is that we have entered an era of unprecedented high world energy prices.” A report prepared for Centrica earlier this month warned that annual average gas bills could rise from £600 to more than £1,000 early in the next decade. Centrica said that wholesale gas prices in the coming winter would be up 89% on the previous winter. It added that the UK was suffering from diminishing gas reserves, and estimated that the UK would import 40% of its gas this year compared with 27% last year. The price of gas has risen in recent months as it is linked to the cost of oil, although oil prices have started to fall again in recent weeks. British Gas, which has 15.9 million customers, said its profits for the first half of the year were down by 69% to £166m.

EDF’s planned takeover of British Energy risks creating serious competition problems in the UK electricity market, rival companies and customers have warned. A deal that values British Energy’s equity at about £12.5bn ($24.8bn) could be announced this week. It is backed by the UK government, which controls 35 per cent of the company and wants to get the industry moving on building more nuclear power stations. But electricity companies and industrial users have called for radical changes to protect competitors and consumers. The business and enterprise select committee makes the same call on Monday in its report on energy markets. An EDF deal would mean “essentially handing the British nuclear industry to the French government”, says Dieter Helm, an energy expert at Oxford University. EDF would have a dominant position in running Britain’s existing nuclear power stations and in building more. Another French company, Areva, leads a consortium that this month won the contract to run the fuel reprocessing and fabrication operations at Sellafield, north-west England. Areva also supplies pressurised reactors that EDF plans to build in the UK. Both companies are controlled by the French state.

EDF and British Energy are discussing a plan to let the UK company’s shareholders benefit from any future improvement in its business, as a way of bridging the remaining gap between the two sides. Although they are close to a deal, and still hope agreement can be reached this week, there has been a difference on price, with EDF unwilling to accept the 750p-a-share or more value put on British Energy by its board and shareholders. A possible solution is a deferred payment paid to shareholders later if British Energy performs well. It could help the government, which owns 35 per cent of British Energy, avoid accusations of having sold its stake too cheaply, as in the case of Qinetiq, the defence technology company. “If the ambition was to create a privatised market where we have companies competing against each other, we have taken one step in a completely different direction,” Prof Helm says. British Energy plus EDF will have about 21 per cent of Britain’s power generation capacity but a higher share of output, because nuclear power stations are in use more often. A greater concern is the effect on competition in the wholesale market, where generators sell to suppliers. Keith Munday, commercial director of Bizzenergy, an independent supplier, calls the move “a very significant step in the wrong direction”. The wholesale electricity market “is profoundly illiquid”, he says. “It’s bad now and it’s going to get worse.” Concerns about liquidity in the wholesale power market have been rising in recent years. A growing proportion of generation capacity has been tied up in vertically integrated companies such as EDF, Centrica, and Scottish and Southern Energy, which both generate and sell their own electricity. Independent suppliers and some customers say it is too hard for entrants to break into generation or supply. As Britain’s biggest generator, with no supply business, British Energy has played a vital role in the wholesale market. If bought by EDF, it risks losing that role. “A takeover of British Energy by EDF would move a huge chunk of generation capacity into an integrated group,” says Graham Paul of Electricity4Business, another independent supplier serving small and medium businesses. “It will do damage to the liquidity of the already struggling wholesale market.” Dorothy Thompson, chief executive of Drax, the coal-fired power generator, warned recently that the lack of liquidity in the wholesale market was preventing independent companies investing in new power stations. “There is very,very little liquidity or trading ability three or four years out, which means that in the time frame that it takes to build one of these stations there really is almost no price signal to show you what would be the returns once you started operating,” she said. “At the moment, there are only three players of significant size who trade through the wholesale market for most of their output. And that is International Power, British Energy and ourselves,” she told Platts Power UK magazine. “The concern that I would have is if more capacity was to come out – particularly with the sale of British Energy – the market could actually become quite compressed in terms of liquidity. And it is liquidity that makes a market effective.”

The involvement of Centrica, which is in talks to take a stake of about 25 per cent in British Energy, may help the public image of EDF’s bid, by involving a UK company, but risks making the impact on competition even worse, by tying another integrated group into the alliance. The European Commission will look at the acquisition, but EDF believes Brussels will not put any obstacles in its path. Prof Helm says the Commission is likely to “take an essentially benign view” of the deal. Other industry experts think EDF will be asked to sell some power stations to strengthen competition. British Energy’s seven ageing gas-cooled reactors will be hard to sell, partly because of safety regulations, partly because no other European companies see them as attractive assets. But EDF has gas and coal-fired power stations, and is building another gas-fired plant, and could sell one or more of those. Ofgem, the UK energy regulator, is conducting its own review of gas and electricity markets, which is set to conclude in the autumn, and there is a strong expectation in the industry that it will call for a full Competition Commission investigation. If that inquiry is called, the effect of an EDF/British Energy deal is likely to be one of the central issues for it to address. If the deal goes ahead*, the prospect that the inquiry would recommend structural reforms of the market will be that much greater.

Intro: The impacts of the drive to cleaner fuels and the exhaustion of domestic gas supplies are already impacting on the UK Energy Market. Global Energy Advisory – a specialist energy think tank and advisory business – fear that UK businesses have not set energy strategies to avoid, at best, forthcoming higher prices, and at worst, frequent interruptions to power supplies.

EU renewable targets require that the UK uses renewable energy sources for 15% of total power, heat and transport needs by 2020. This will require around 30-40% of power generation to come from, most likely, wind power. Unfortunately, the wind doesn’t blow all the time, therefore generation from wind turbines can be “intermittent” at best. This will cause considerable engineering challenges at times of high or low wind to maintain adequate power supplies.

Global Energy Advisory also predicts that 13GW of new gas power stations will have to be built to replace predominately coal power stations that will close on New Years Eve 2015. These closures are due to another European Directive called the Large Combustion Plant Directive. With such fundamental changes necessary to the UK electricity generation infrastructure, it is far from certain that the required investment will be made in time to ensure that the lights will stay on. It is also highly likely that prices will continue to rise and not everyone will be able to afford the energy lifestyle that is enjoyed today.

Currently the UK power generation mix is roughly 40% gas, 40% coal, with the 20% balance from nuclear and a small amount of renewable generation. By 2018, Global Energy Advisory forecast that this could change to become approximately 60% gas, 20% coal 10% nuclear and the remaining 10% from renewable generation – short of the EU target. These dramatic changes will give power companies investment and logistical challenges, but more worryingly, it will lead the UK to further increase it’s reliance on gas imports which, by 2017, are predicted to be 76%.

So where does this gas come from?

Last year 67% of the UK’s gas, 67bcm, came from the North Sea, but this source is depleting and this year will account for only 62% of total consumption. Norway is an important gas supplier to the UK, but there is also heavy reliance, with some concern, on gas flows from Europe and from Liquid Natural Gas (LNG) sources. Although the UK has invested in pipelines and LNG terminals, these are often unutilized as the gas does not flow on to UK shores. Last year the Grain LNG terminal was only utilized 17% of the time and the BBL gas pipeline with the Netherlands only 40%.

So where is the gas going to?

Some countries, such as Japan, rely heavily on LNG as a vital source of energy and are prepared to outbid other countries to secure tanker supplies. Soaring costs have stopped new LNG production projects and the International Energy Agency (IEA) predicts current delays could lead to a short fall in global LNG supply as soon as 2012. Worryingly, the IEA has also turned its global gas focus to security of supply. The agency describes gas as “vulnerable and expensive” and notes that the world does not have a “strategic store” of gas with the only global surplus existing in the LNG cargoes that transcend the globe: put very bluntly unlike oil, gas security of supply is inadequate and impossible to accumulate. The IEA also say that there is gas energy security only until 2015, by which time, Global Energy Advisory expects 30% of UK gas supplies to be LNG.

How Bad Can it Get?

The current European energy policy and the increasing dependence on foreign gas have put UK businesses and households at unprecedented risk. Factories and businesses will have to adopt energy risk management practices and find new ways of working if production and commercial operations are not to be impacted. Market reaction to the recent high energy prices has been to reduce costs and many firms are already shedding jobs.

But then what? Businesses particularly need to consider their energy future carefully and review or set a sustainable energy strategy which identifies, and aims to avoid, the numerous energy pitfalls that lie ahead. As seasoned energy market and risk professionals, Global Energy Advisory can assist firms in this important task.

France’s EDF and Britain’s nuclear generator, British Energy, are understood to have reached agreement in principle on the terms of an agreed bid. Although work on an offer is continuing, the French company is understood to be keen to finalise a deal next week, ahead of publication of its latest figures on Friday. The offer is expected to be pitched at around 775p a share, which would value British Energy, in which the UK government has a 35% stake, at some £12.4bn. EDF is in negotiations with Centrica, the parent company of British Gas, about the possibility of the UK company taking a minority stake, thought to be around 25%, in British Energy after a successful EDF offer. Centrica is keen to increase its own electricity generating capacity and to be part of the building of new nuclear capacity while its inclusion in a deal might help to offset any criticism that a key British asset was being sold to a state-owned French company. Last night none of the companies was prepared to comment. On Thursday, British Energy said it was in advanced discussions with another company, though it did not name its suitor, pushing its shares up 6%. On Friday British Energy shares were slightly lower on the day at 726.5p, well below the expected price, suggesting there may still be concerns about a last minute hitch. Setting a valuation on British Energy has proved tricky for the negotiators. The company was pushed into the bid spotlight when the government gave the green light for a new generation of nuclear power generators at the beginning of the year. British Energy has eight nuclear power stations as well as a coal-fired station, and its existing atomic sites were immediately seen as the most likely places to build new capacity. That has given the company a hard-to-value combination of existing non-fossil fuel generation, at a time of rising electricity prices, and the future value of the sites as places to build new generation nuclear plants. A number of European energy companies, including Spain’s Iberdrola and RWE from Germany, are understood to have looked at British Energy. EDF has already said it would be keen to be involved in the construction of a number of new nuclear plants in the UK. The success or otherwise of Britain’s nuclear build programme is seen as having an important bearing on such development in other countries, in Europe and elsewhere. In the UK, the government is keen to promote nuclear power as part of a portfolio of energy sources, including gas, coal and renewables, in order to increase security of supply and reduce the impact of rising fossil fuel prices on Britain’s energy bills. EDF has already had a bid of more than 680p rebuffed but even a significantly higher offer may not be seen as enough by some investors. “Based on $100 a barrel oil until 2012 and $70 a barrel thereafter, we value British Energy’s existing assets at 760p [a share],” Evolution analyst Lakis Athanasiou said. He added that though an offer of about 775p would be a good one for the existing assets, it “does not include any price for new nuclear”. EDF’s acquisition of British Energy would also raise competition issues. British Energy is the largest of the so-called merchant generators in the UK — electricity producers which sell their output into the wholesale market and do not have a retail customer base. On the other hand, EDF has its own generating capacity, amounting to slightly over 7%, as well as more than five million residential and small business customers. Other merchant generators are concerned that allowing EDF to acquire British Energy would increase the amount of UK electricity capacity held by vertically integrated companies.

EDF has surprised many in the sector who had expected the country’s biggest utility British Gas to be the first with a new price rise. Its rivals are trying to hold off. “There are absolutely no immediate plans to increase our prices and we will continue protecting our customers for as long as possible. That said, we are all under the same pressure,” said a spokesman for RWE npower, which was the first to move in the sector-wide price hikes early this year. A spokeswoman for E.ON UK, part of German utility E.ON, said the company had “no current plans to change our prices” but would continuing to monitor the market. Wholesale power and gas prices have fallen over the last week, led by a sharp drop in the price of oil which has been the main factor driving up energy costs globally over the last year. Despite the recent, and many believe short-lived, decline in oil, wholesale gas contracts for next winter are still more than 50 percent higher than they were in late January-early February. “Costs remain high, including coal and gas, and we continue to monitor our pricing structure against these factors and also against the market,” a spokesman for Scottish Power, the UK subsidiary of Spain’s Iberdrola said on Friday. Industry sources say it can take several weeks to prepare for changes to utilities retail pricing but say EDF’s competitors will likely hike prices before the winter sets in, driving up demand for gas and power. Because household demand for gas in particular is low during the summer, as it is mainly used for heating, the losses for suppliers more easily absorbed. But industry sources say suppliers will want to raise their prices before winter arrives to avoid much bigger hits on their balance sheets.

Householders and businesses face a 20% increase in the price of gas, the energy regulator said today. The Commission for Energy Regulation (CER) said it was “minded to approve” the interim increase which will take effect from September 1st. Prices for 2009 are to be reviewed in the autumn with another possible increase in January. The expected increase is further bad news for householders and small businesses, already suffering rising inflation amid the economic downturn. Electricity bills are to rise by 17.5% on August 1st, the CER said earlier this month. Ireland imports 90 per cent of its gas from the UK, where wholesale prices have doubled in the past 12 months. “Against this background, it is regrettable but inevitable that consumer gas prices will rise significantly for 2008/09,” the CER said in the statement. Bord Gais managing director David Bunworth said the unprecedented volatility of global energy costs had forced it to seek the increases over the coming months. “We understand the impact of such a sizeable price rise for our customers, particularly the more vulnerable, and are currently working with the relevant agencies and the newly formed Government Forum to address the issue of energy affordability,” he said. Today’s move will see €150 added to the average annual bill. The Labour party’s spokeswoman on energy, Liz McManus, called on the Minister for Energy, Eamon Ryan, to develop a strategy to help low-income families deal with escalating costs. “The Government must now accept that fuel poverty is now a major social problem,” she said. “Around 60,000 Irish households live in persistent fuel poverty and a further 160,000 or so experience intermittent fuel poverty. Low income housing, either social or private housing, is generally poorly insulated and inefficient in energy terms. The level of fuel poverty in the private rented sector is almost three times higher than that found among mortgage holders. It exists both in rural and urban settings.” Fine Gael enterprise spokesman Leo Varadkar said today’s news was a “double whammy” for families. “The 20 per cent rise will add 0.2 per cent to the rate of inflation and when taken into account with the recent rises in electricity prices inflation will jump a massive 0.5 per cent,” he said. “Instead of rubber stamping price increases, the regulator should be looking at how energy companies charge customers. For instance, the Irish consumer is forced to pay both investment and maintenance costs for the energy transmission network. This allows generating companies to pay off their capital debts on the back of over-charged consumers.” The Society of St Vincent de Paul said it is “very concerned” at the price rise, and warned it would have the biggest impact on the most vulnerable in the community.

“People on low incomes and dependent on social welfare spend a significantly higher proportion of their income on the basics of life – food and fuel,” it said. “Last year, SVP had to spend over €3.5 million helping people with fuel costs.” It said that the number of calls for help it has received in the Dublin area has risen 44 per cent on last year’s figures, with food and energy as the main issues involved. The organisation called on Bord Gáis not to include the standing charge in their price increase, and asked the Minister for Social and Family Affairs to help tackle the issue of fuel poverty among social welfare recipients.

Age Action called on the Government to ensure older, more vulnerable people would be protected from rising fuel prices. “This increase along with the recent increases in the cost of oil and electricity leaves many older people praying for a mild winter. They know if the winter is hash they will suffer.” Said Eamon Timmins, Age Action. It is calling for the increase in the fuel allowance to €30 per week in the upcoming Budget. Meanwhile, trade union Mandate called for flat rate pay increases, rather than percentage rises, for low-paid workers to help offset the rise in gas and electricity prices, saying such an increase was “essential”. General secretary of the union, John Douglas, said that any pay deal agreed under national wage discussions would have to take account of the rise in fuel and energy prices, saying that its low-paid members were struggling to make ends meet.

“Today’s announcement for a 20 per cent increase in gas prices, coupled with the announcement that electricity prices are to rise by 17.5 per cent will have a devastating effect on low paid workers in particular,” he said.

“A flat rate increase will help in some way towards lifting low earners out of fuel and food poverty whilst also compensating high earners for the increases in the basic necessities.”

Business groups were also expressing their concern at the planned price hikes. Ibec warned that the rapidly rising costs would have an impact on competitiveness in the enterprise sector.

“When trading in a global marketplace, small and open export-dependent economies, such as Ireland, must be extremely sensitive as to the negative impact rising input-costs can have,” said Donal Buckley, Ibec’s head of business infrastructure.

“Companies trading internationally are unable to pass on these increases and, in many instances, are receiving less for their products year on year.”

The Small Firms Association (SFA) condemned the increase. “If we are to accept the rationale outlined by the CER in its decision, then it is clear that the government has monumentally failed on its national energy policy,” said SFA director Patricia Callan.

“Whilst we all accept that energy prices are rising internationally and that this will have a knock-on effect here in Ireland, why is it that we are still so vulnerable to international price movements? Effective regulation of a market has to mean more than continuous prices increases.”

An environmentally-friendly plan to turn waste from a crisp factory into electricity has been approved. Farmer Philip Johnson wants to generate enough power for 1,200 homes using potato skins from the Walker’s Crisp factory in Peterlee, County Durham. His request to convert 1,000 tonnes of potatoes a year at his farm in Old Quarrington has been given the green light by Durham County Council. A generator, called an anaerobic digester, will convert the waste. Mr Johnson also aims to process 7,000 tonnes of agricultural crops and 2,000 tonnes of manure a year. The digester is expected to generate 500kw of electricity for the National Grid and 8,000 tonnes of fertiliser. The Bowburn and Parkhill Community Partnership and the Campaign to Protect Rural England had objected to the scheme saying it would ruin the landscape.

The firm, which supplies five million households and businesses mainly in the south of the UK, is putting up electricity prices 17% and gas up 22%. The increases will mean typical customers on a dual fuel tariff will pay £3.97 a week more for their energy. It is thought that other suppliers will soon follow its lead and bump up their own prices. French firm EDF blamed record wholesale energy costs for the increases, which come into effect immediately. Eva Eisenschimmel, chief operating officer of its customers branch, said: “Record world oil prices have continued to drive up wholesale gas prices. “Alongside unprecedented rises in wholesale coal and electricity costs, this has impacted hugely on the cost of supplying energy to our customers.” The company said wholesale energy prices had increased by 70% for coal, 63% for gas and 47% for electricity since it last increased its prices in January. Ms Eisenschimmel said: “We have been absorbing some of these costs in recent months, but we now have to pass on some of the resulting rise in wholesale costs to our customers. “While the rise in wholesale prices is out of our control, we have been doing everything possible to keep our own costs in check. “In this difficult economic climate we are very concerned by the impact any price rise will have, especially for those on low incomes. As a result, we have expanded the number of customers on our Energy Assist social tariff by a half, bringing the total to 100,000 customers. “We are also working with the Government on new initiatives to help low-income households this winter. We have also launched a new fixed-price tariff for our customers who want security in their budgeting. “In addition, we were the first supplier to align electricity prepayment customer tariffs to that of credit meter customer tariffs. “Further, we will also continue to help customers keep control of their costs through energy efficiency advice and our range of products including Read, Reduce, Reward.”

Crude oil rose from a seven-week low as some traders purchased contracts on speculation prices fell too far in the past two weeks. Traders acquired futures after oil fell more than $3.50 a barrel yesterday. U.S. supplies dropped in eight of the past 10 weeks as refiners delayed buying because of high prices. Israel’s top military commander said force may be needed to stop Iran’s nuclear research. “After the free-fall yesterday it’s no surprise that prices are rebounding,” said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. ” Crude inventories are falling because refiners don’t want to buy it at these high prices, not a shortage of supply.” Crude oil for September delivery rose $1.05, or 0.8 percent, to settle at $125.49 a barrel at 3 p.m. on the New York Mercantile Exchange. Futures touched $123.50 a barrel today, the lowest price for a contract closest to expiration since June 5. Oil is up 71 percent from a year ago. “A lot of bears are covering shorts because we’ve stopped getting any downside,!” said Tom Bentz, a broker at BNP Paribas in New York. “You are seeing some short covering, northing more. It will take a lot more than what we’ve seen today to change the bearish sentiment in the market.” Shorts are bets that futures contracts will fall on the hope of buying them back later at a lower price. Short covering occurs when investors buy commodities to close out a short position.

Iran’s Nuclear Program

Iran, which produced about 3.85 million barrels of oil a day last month, has warned it may blockade the Strait of Hormuz, the export channel for a quarter of the world’s crude, if it’s attacked. The country has the second-biggest proved oil reserves and is the second-biggest producer in the Organization of Petroleum Exporting Countries. “We all realize, both the Americans and us, that all options must be prepared,” Israeli Lieutenant-General Gabi Ashkenazi said in an interview from Washington on Israel Radio. “There is no doubt that diplomacy must be given priority.” Brent crude oil for September settlement rose $1.15, or 0.9 percent, to settle at $126.44 a barrel on London’s ICE Futures Europe exchange.

“We are just taking a little rest,” said Justin Fohsz, a broker at Starsupply Petroleum, a division of GFI Group Inc. in Englewood, New Jersey. “Prices have dropped $20 in just over a week and I think the downtrend will continue. We’ll probably try to test the $120 level soon.”

Electricity and gas bills look set for double-digit rises in the next few weeks as Britain’s second-biggest energy supplier said that it was under unbearable pressure to pass on rising costs. Wholesale gas prices have risen by 60 per cent this year and Scottish & Southern Energy (SSE) yesterday told investors that the soaring gas price would lead to substantially lower first-half profits than in previous years. Ian Marchant, SSE chief executive, said it was becoming increasingly hard to keep retail energy prices down, as wholesale prices soar. He said: “The extent of the energy shock with which the entire global economy is having to contend has been well documented, and its full impact on prices for electricity and gas in the UK has still to be felt. We are continuing to resist the pressure to put up prices for domestic customers, but doing so is becoming more difficult by the day.” British Gas, the UK’s biggest energy supplier, with 16 million customer accounts, is expected to move first to raise prices, possibly as early as next week when interim results of its parent, Centrica, are issued. Centrica last week published a report saying that with oil at about $140 a barrel, the price of gas for an average household could hit £1,000 a year over the next two years. Analysts expect Centrica to announce a sharp fall in profits for the first half next week. Overall the group will still report a profit but British Gas will not match last year’s £533 million figure and Centrica is expected to emphasise that the business will stay loss-making unless it can raise prices. Adam Scorer, of Energywatch, the consumer watchdog, said: “We expect to see major price rises from all energy companies before the year is out and probably before the autumn. “The companies have been out softening people up, saying that they cannot cope with [wholesale] prices at these levels, which usually happens before they raise bills.” Average gas bills have more than doubled from £310 in 2003 to £646 now, while electricity bills up from £244 to £412, taking the average dual fuel bill to more than £1,000 a year. Some industry experts say that average household energy bills will reach £1,400 by the end of the year. In past years, SSE has made most of its pre-tax profits in the first six months. However, this year the second half is expected to be stronger. SSE said in its interim management statement: “So far, 2008-09 has been characterised by extremely volatile wholesale markets for electricity and gas, and this may continue. Despite this, SSE still expects to deliver a modest increase in adjusted profit before tax in the year to March 31 2009.” SSE shares fell 55p to £13.90 on profit-taking after a rally in the past week. SSE, which has a number of coal-fired power stations, has been under greater pressure because of the huge rise in the cost of coal. The German-owned E.ON and nPower are thought to be in a similar position. SSE said it remained committed to at least 4 per cent real growth in dividend. The growth would be possible because of a step-up in investment, including opportunities arising from its acquisition of Airtricity, the Irish wind farm business, it said. BG Group, the oil and gas group bidding for Origin Energy in Australia, reported a 67 per cent leap in operating profits in the year’s first half, after rises in prices for gas and oil and increased production, particularly of liquefied natural gas (LNG). Total first-half operating profits were £1.3 billion, up from £793 million a year ago.

Half-year operating profits for BG’s exploration and production arm rose by £727 million to £1.9 billion, reflecting the high price of oil since the start of the year, although this was partly offset by a higher exploration charge. Production volumes have risen in the Buzzard field in the North Sea and the Tapti field in India. Operating profits of BG’s LNG business, which ships gas around the world, rose by £553 million to £762 million. British Energy’s long-running takeover talks are at an advanced stage, the company said yesterday, sending its shares up more than 6per cent to 729p, valuing the company at £11.7billion.

The Times reported yesterday that EDF was closer to winning control of the nuclear operator after it emerged that Centrica had resumed talks with EDF to buy a stake of up to 25 per cent in British Energy if the deal proceeds.

The company said: “The board confirms it is in advanced discussions with one party. However, there can be no certainty that the discussions will lead to an offer.” A deal could be struck shortly before or just after EDF’s first-half results on August 1.

Severn Trent, the UK’s second largest water company, today admitted it is concerned that cash-strapped customers may soon struggle to pay their water bills. The company, which has more than 8 million customers, mainly in the Midlands, warned that although it had not yet experienced any serious payment problems, the issue remained a risk for the rest of the year. Severn Trent said: “Given the current economic climate we continue to closely monitor our customer debt and cash-collection performance. “Whilst we have not experienced any material deterioration over the period to date, this remains a risk to our outlook over the remainder of the year.” Bad customer debts are a major concern to water companies after a Labour Party manifesto pledge in 1997 made it illegal for utilities to cut off customers’ water supply even if they failed to pay their bills. In the year to March 31, Severn Trent wrote off £22.7 million, up from £22.3 million, on what the company calls “doubtful debts”, including those of customers who cannot pay. The number of days it took the company’s debtors to pay was 37.4 days, down from 37.5 days. Severn Trent has not published any updated figures and a spokeswomen for the company said it would continue to monitor the situation closely. The company said that trading in recent months had been in line with expectations, sending shares up 51p to £13.98. It said prices had increased 5.07 per cent from April 1 and that it remains on track to deliver around a 3 per cent annual out- performance against the water regulator Ofwat’s target costs, unless there is a big rise in energy or chemical costs. However, the company warned that it believed a decline in consumption across its measured income base would cut revenues by between £12 million and £14 million in 2008/9. Severn Trent was fined £2 million earlier this month for misreporting leakage information in a case brought by the Serious Fraud Office. The penalty added to the £35.8 million imposed on the company by Ofwat for giving false information and for poor customer service.

Crude oil rose from a six-week low as a tropical storm headed toward the Gulf of Mexico and Iran, the world’s fourth-biggest producer, resisted demands to suspend nuclear research. U.S. forecasters said there is a 29 percent chance Tropical Storm Dolly may strengthen to a hurricane after it enters the Gulf of Mexico. Iran risks “further isolation” if it doesn’t respond in two weeks to the United Nations offer of economic aid in return for halting uranium enrichment, U.S. officials said July 19. “U.S. refinery operations in the Gulf of Mexico are safe at present, but Mexico’s oil operations are at risk,” said Robert Laughlin, senior broker at MF Global Ltd. in London. “If the direction was to change, a protective shut-in of production facilities across the Gulf of Mexico is likely.” Crude oil for August delivery rose as much as $3.17, or 2.5 percent, to $132.05 a barrel on the New York Mercantile Exchange. It was at $131.32 at 1:13 p.m. in London. The contract settled at $128.88 on July 18, the lowest close since June 5. Prices dropped 11 percent last week, the most in more than three years, on signs of slowing global economic growth and faltering U.S. fuel demand. Iran snubbed Western efforts to get it to suspend nuclear enrichment at talks in Geneva on July 19, setting the stage for new sanctions if the Middle East’s second-largest oil producer doesn’t respond to an existing proposal within two weeks. “We did not get what we were looking for,” European Union foreign policy chief Javier Solana said at a press conference following four hours of talks with Iran’s top nuclear negotiator, Saeed Jalili. “The assumption was the talks would take some pressure off the market, but they didn’t end as they were supposed to,” said Eugen Weinberg, an analyst at Commerzbank AG in Frankfurt. “Any escalation of aggression will definitely affect the price positively.” Iran, the second-largest producer in the Organization of Petroleum Exporting Countries, borders the Straits of Hormuz and has in the past threatened to close the waterway carrying about a fifth of the world’s oil deliveries. Brent crude oil for September settlement rose as much as $2.96, or 2.3 percent, to $133.15 a barrel on London’s ICE Futures Europe exchange. It was trading at $132.94 a barrel at 1:03 p.m. local time. The North Atlantic hurricane season runs June through November. September is historically the busiest month for storms and hurricanes. The northern Gulf of Mexico accounts for about 25 percent of U.S. oil production. Tropical Storm Dolly’s projected path over the tip of the Yucatan Peninsula takes it north of Campeche Bay, where Petroleos Mexicanos produces about 1.07 million barrels of oil a day. Dolly may strengthen again as it crosses the gulf on a path that may take it toward the Mexico-Texas border, the hurricane center said. There is a 43 percent chance it will remain a storm, with wind speeds between 39 and 73 miles an hour and a 12 percent chance it will dissipate before making land a second time around July 24.