It has just been announced that one of the Big Six energy suppliers has struggled to maintain its previous level of profits from its domestic supply division and in fact during the last year SSE has watched them plummet by twenty one per cent.  This has been, to a certain extent, as a result of them having to pay higher wholesale prices coupled with a reduction in consumption.

Southern Scottish Electricity (SSE) has in the region of 9.5 million domestic and commercial accounts under different brands which include Swalec, Scottish Hydro and Southern Electric and is the UK’s second largest energy provider.  Even after this enormous reduction in their profit SSE still managed to secure a profit of approximately £271.7 million in its financial year ending 31^st March.

Every household contributed to SSE’s profits by an average of £30.  SSE says that its operating margin of 3.5% was lower than its medium-term target of 5%.  The company indicates that wholesale costs usually equate to approximately 50% of a normal bill for those consumers with dual-fuel accounts.  This, coupled with their delay in increasing their prices until September last year, is the reason given for their lower profits.

Less gas was used by consumers because of the general financial situation, and it was also usually warm during autumn.  This has resulted in SSE customers using about 21.5% less gas since 2007 and 16.7% less electricity.  In September SSE increased gas prices by 18%; however a reduction in wholesale gas prices wasn’t passed on to customers until 26^th March which was just a few days before the end of its financial year on 31^st March.  SSE has confirmed that there won’t be any further increases until, at the earliest, October.

The majority of profits for SSE resulted from its power networks, together with its wholesale arms.  This assisted the overall group profits to increase by two per cent to £1.33bn.  Less than twenty per cent of profits were from the retail supply of energy.

SSE has stated that it was only one of five companies which had a higher than inflation dividend growth every year from 1999.  It remained as part of the FTSE 100 index for over ninety per cent since then.  Its last whole year dividend increased by 6.8% to 80.1p.

Lord Smith of Kelvin, chairman of SSE said “For some people, profit and dividend are contentious words when it comes to energy, but profit and dividend allow SSE to employ people, pay tax, make investments that keep the lights on and provide an income return that shareholders like pension funds need.”

We are all very quick to point the finger at the Big Six energy providers when they increase their prices.  As soon as the bill arrives and we look at the figure which states how much gas and electricity we’ve used, we grumble and mutter about the profits being made by these companies.  Research just released from E.ON seems to indicate that approximately seventy five per cent of UK customers are losing out on savings of up to four per cent which can be achieved with the use of a smart meter.

The report seems to suggest some interesting information –

• Women are only half as likely as men to want to have a smart meter; however
• Women, when they can see the amount of energy they are consuming, are more likely to reduce their usage more than men.

The overall result suggests that almost sixty per cent of people would reduce their electricity and gas once they were able to see exactly how much energy they were using.

The research undertaken by E.ON indicates that there is still considerable confusion regarding smart meters with only about sixty per cent of people actually knowing what they are, and their benefits.  People aged fifty five as over are the most likely to properly describe what a smart meter is, but the 18-24 year group were identified as being the most enthusiastic about smart meters.  They know what it is, but less than fifty per cent were aware of the communication facilities between the energy supplier and the smart meter.

Jean Fiddes is E.ON’s Head of Customer Learning for Smart Meters, and said “Technology is playing an empowering role in our lives and our research highlights people are keen to extend this to their energy use.  Smart meters allow consumers to easily visualise their energy consumption daily, weekly and monthly, meaning they have increased transparency into their daily energy habits, providing accurate bills and greater management of their finances.”

The Way Ahead

The government expects that by 2019 there will be 28 million homes and 2 million businesses which have smart meters installed and although the official scheme isn’t due to commence until 2014, some energy providers have already started to roll-out these meters to their customers.

Energy Minister, Charles Hendry has been explaining the benefits to consumers and said “smart meters will provide accurate consumption information and bring an end to estimated billing – so no more nasty surprises for consumers – and will make switching between suppliers smoother and faster.  They will also help suppliers run their businesses more effectively.  New products and services will be supported in a vibrant and competitive market in energy and energy management services.”

Mr Hendry continued “The roll-out will also support the development of a smart grid delivering improved network efficiency and responsiveness and supporting the uptake of electric vehicles and microgeneration.”  He concluded “we want to ensure that the benefits of the programme are maximised and that consumers are protected….how data can be accessed and protected, which underline our determination to put consumers’ interests at the heart of the programme.”

A survey which was undertaken by the Forum of Private Business has suggested that UK small and medium enterprises (SME) are still extremely concerned with energy costs.  The survey was carried out within its own members and approximately eighty per cent confirmed that the costs of energy are “important” or “very important” for those people who own small businesses.  Seventy five per cent of responses also felt that dependability was essential.

The results of the survey have just become available at a time when businesses are looking to find alternative forms of energy to the expensive predictable fuels.

Planning now easier for Commercial Solar Installations

Earlier this year the government changed the planning regulations regarding commercial solar projects, thus allowing installations above 50kW to proceed without needing to wait for planning approval to be given before work could commence.  This change will remove any delay for new projects, but earlier installations which had been cancelled because of planning problems can now be revisited.

There is a considerable amount of interest which has been generated as a result of the amended planning regulations, and this is at a time when businesses are looking not only to improve their energy efficiency but to actually reduce their energy bills.

Solar energy company, Eco Environments, are encouraged by new businesses asking about solar technology.  Mark Buchanan, their commercial director said “We have already noticed a sharp rise in the numbers of enquiries since the planning changes came into effect at the start of April.  A major focus for us is increasing the amount of work we do with commercial customers showing them how a holistic renewable energy strategy can really pay dividends in terms of energy efficiency and financial prudency.”

David Hunt, Sales and Marketing Director of Eco Environments commented “More and more businesses are coming to understand how harnessing the right renewable energy solutions can help a business grow and prosper, particularly during these tough economic times and against a backdrop of ever rising energy costs.”

He continued “Manufacturing businesses traditionally operate on very tight margins so the slightest spike in the cost of energy usage can wreak havoc on a company.  The right renewable energy solution can help them start to take control of their energy costs rather than being vulnerable to fluctuations in the market.

Ensure that Your Solar Panels are Insured

There has been a huge increase in the theft of solar panels, and of course, as more installations take place, the numbers of crimes are also likely to rise.  It is important to ensure that all installations are fully covered by insurance, and it is essential to speak to the insurance company before the panels are fitted, so that any adjustments to the insurance policy can be made.  It is also worth having a qualified engineer to check the installation regularly to establish that there hasn’t been any interference or damage.

Any possible theft may well be avoided if it is obvious that security measures have been taken at the time of the installation.  As we know, a thief is likely to target the easiest option, and if your installation will delay him, it is likely that he will look elsewhere.

Centrica, the owners of British Gas, has just announced that they anticipate that the long-suffering UK consumers are likely to face another increase in their gas and electricity bills.  The energy provider attributes further price hikes to a combination of factors including higher wholesale gas and electricity charges together with higher costs of transportation and distribution.

Centrica is the largest of the UK energy providers with 15.9 million residential customers and although they reduced their standard electricity tariff by five per cent in January 2012, this was on the back of huge increases in August 2011.  At that time they increased their gas price by 18 per cent and electricity by 16 per cent.    

This new announcement is likely to infuriate the UK customers, who are still struggling with the effects of the last round of increases.  Another assault on the business or household budget may be the final straw for many customers.  Centrica is suggesting that “the trend for retail energy costs remains upwards, with wholesale gas prices being 15 per cent higher for next winter and other costs set to add £50 to the cost of supplying the average household this year.”

Centrica say that they are battling other increases in costs – these include green levies, metering and social costs.  Their trading this year is apparently in line with expectations, with them benefiting from “upstream” operations gained by higher wholesale gas and power prices.  However, this then assisted them to offset the milder weather conditions and energy saving initiatives in their “downstream” business during the first quarter of 2012.

In April the cold, wet weather boosted demand for gas and electricity, with the overall position for the first four months of 2012 leaving them one per cent higher than the same period in 2011, although their electricity was down by three per cent.

Since January the numbers of residential customers have remained approximately the same, and they say that this is due to the tariff cut in January.  Centrica says that this “re-established” them as the cheapest of the Big Six energy providers in the UK.

Business customers on average reduced their consumption of gas by one per cent and electricity by four per cent.  Profit margins were said to be “under pressure” owing to the recession.

Although at this time, Centrica is just alerting the customers of the likelihood of increased charges for gas and electricity, we are all aware that when one of the Big six energy suppliers increase their prices, the other five aren’t usually too far behind.  If that is the case we shouldn’t expect to wait too long before hearing similar warnings from the other large energy providers.  An upward trend in their energy bills isn’t what any householder wants to hear!

It is good that the debates which have been on-going can finally be laid to rest.  The reform of the energy market isn’t going to be delayed and should be completed in the next year.  In a short Queen’s Speech yesterday, there was the announcement that the government will “propose reform of the electricity market to deliver secure, clean and affordable electricity and ensure prices are fair.”

In addition to the electricity reforms which have been promised, there was confirmation regarding the introduction of the Green Investment Bank.  These pieces of legislation are hugely important for the UK in light of the energy crisis which had been expected to impact sooner rather than later.

In putting the energy reforms high on the list of priorities the government will be able to reply to the criticisms being directed at them.  There are rafts of proposals which are designed to encourage up to £200bn investment, and which will secure thousands of jobs.  The knock-on effect from that alone will assist the UK economy enormously.  There will be efforts to take on the challenges of climate change.

Central though is the object of keeping energy bills low – this is something which affects every business and every household in the UK.  Whilst we shouldn’t expect instant results, to know that this is now on the agenda and will be moving forward, rather than stagnating, and barring a catastrophe this bill should be finalised in the autumn, should be welcomed by all.

Large business organisations need to be prepared to support these reforms.   Of course there will be some areas which will require consideration and certainly every large business isn’t going to agree with all the changes which are being proposed.  However, there must be agreement in principle, at least, to enable the UK to move forward as a leading light of clean tech economies.

After the electricity reform has been finally agreed, the government will be in a better position to proceed to grow with a low carbon economy.  The Queen’s Speech didn’t go into any details – however there are gaping holes which will need a lot of attention once the Energy Bill has been passed.  Progress must be made on energy efficiency, microgeneration, biodiversity, carbon capture and storage – a huge catalogue of different page headings which are all still waiting for any substantial content.

Energy reforms made it onto the agenda – that was the easy part.  Writing a few words, in order to have them announced doesn’t make anything happen.  Now the time for talking is over, and action is required to ensure that the government perhaps, will be able to live up to their own hype that they are “the greenest government ever.”

Local business man Doug Prentice, is discussing with the Scottish Government his plans to involve local communities in investing in green energy power projects.  Mr Prentice feels that his proposals for “public, private and community” (PPC) investment can be more easily sustained than the private finance initiative (PFI) schemes.  The chief executive of GeoCapita, who is a green energy expert, has comprehensive plans for renewable energy projects and energy efficiency housing which is able to be funded by PPC investment.

GeoCapita, which has offices in London and Edinburgh, hope that this method of financing could be rolled out.  Mr Prentice said “The Scottish Government, which is probably ahead of anywhere else in the UK in this space, is very supportive of the PPC model.  They’re putting together some very innovative finance mechanisms, one example of which is their renewable energy investment fund.”

Fergus Ewing the energy minister, revealed the £103 million investment fund in March 2012, which is designed as an opportunity for rural businesses and their local communities, encouraging them to cultivate, support and grow renewable energy projects of their own.

Mr Prentice, who is a lecturer of renewable energy finance at Napier University, together with having thirty years of experience in the financial industry said “The Scottish Government wants to use the £103 million as a mechanism to leverage in much larger amounts of capital.  We’ve been asked, as have some others, to make a formal submission to set out which projects we can work on, using private and community finance.”

GeoCapita will also be presenting the PPC model to the Welsh Assembly as well and the United Nations.  There is a low cost fund management structure incorporated in the plans which is designed to attract small-scale investors together with increasing the community involvement in the funding of such projects.  Mr Prentice explained that a typical annual fund management charge would normally be somewhere between 2.5% and 3%, and there is an initial charge of anything between 3 and 6 per cent.  That is a large amount of money which is eaten up from the investor’s capital.  He continued “So we’ve designed a structure with a 1 per cent initial charge and 1 per cent annual charge, which makes it accessible to people with small amounts to invest.  We’ve set up a mechanism where individuals any invest anything from £500 upwards.  For those who don’t have that, or grandparents who want to set up something for their grandchildren, we could set up a monthly savings scheme of £20.”

GeoCapita is also looking for private sector finance, and there has already been a considerable amount of interest shown by many financial institutions.  The returns which can be made by investors can be seven per cent for Scottish solar schemes to as much as thirty per cent for hydro power.

Mr Prentice concluded by saying “For a blended mix, you’re looking at returns of 12 to 13 per cent.  We don’t just rely on sales people saying these schemes will generate certain amounts of electricity, we work with independent consultants and research institutes.”

Although Mr Prentice admitted that communities won’t instantly change from keeping their savings in the bank to investing in renewable projects, but the fact that the low risk model will generate a fixed income will surely sway them over a period of time.

It has been suggested that energy policy has been neglected and urgent action is required in order to stop the possibility of “lights going out” in the UK.  This bold statement was made by Tim Yeo MP, who is the chair of Energy and Climate Change Select Committee.  He stated that there mustn’t be any additional prevarication by ministers who are not acting quickly enough regarding vital energy issues.  Any further delays in decision-making may result in Britain struggling to attract investment.

Mr Yeo also said that new legislation was having a “negative effect on consumers” because of the slow progress.  He commented that “the whole policy area had been neglected in favour of other departments.”

After completing his speech at the UK Energy Summit he continued “I think it is low priority.  I also think that the Department of Energy is a small player in Whitehall terms.  It does not have the clout that other departments have.  The political pressures inside the coalition has forced the government to give much greater priority to other issues such as house of Lords reform, which is terms of meeting Britain’s needs is neither here or there.”

Mr Yeo added “There are many more important things that need to happen.  My fear is that if we don’t see an investment happening very quickly we may reach the situation in four or five years time where there is a strain on our generating capacity.  Later this decade there could be a capacity crisis and if we find that in order to meet it we have to rush through new constructions it would almost certainly cost more than if it were done in an orderly fashion.”

David Cameron, a week earlier had spoken about the need for more wind farms which would boost industry in the UK.   Mr Cameron, speaking to twenty energy ministers from around the world at the Clean Energy Ministerial conference said “he wanted more renewables to be built to keep the lights on while protecting the planet for our children and grandchildren.  Renewables are now the fastest growing energy source on the planet.  I am proud that Britain has played a leading role at the forefront of this green energy revolution.”

Mr Yeo said that it is essential that a suitable economic framework is created so that Britain is able to attract new investment in gas, renewables and nuclear energies.

The conference which was held in a hotel close to St Pauls in London attracted attention from more than 100 climate change protesters.  Five activists were arrested by police for breaching the peace, and another one was arrested on suspicion of the assault of a police officer.  The protesters have said that the police were heavy-handed in their actions to control them.