"Energy is Big and Sexy" - BBC. Well, Yes

As you will imagine I have been idly watching the Beeb's Powering Britain, not in the hope of learning much, but rather to see how prime time TV covers - or dodges - some meaty issues.  Needless to say, for the most part the four episodes have been lavishly-photographed tourist guides, our breathless reporter always being gushingly overwhelmed by the scale and sheer sexiness of the whole thing.  Big Engineering always has that effect - if you steer people away from dirty, leaky old kit and fix their gaze firmly on the shiny new stuff.  Helicopter rides are generally quite fun, too (on a day when the weather's ok ...)

All in all, a massive PR opportunity for the firms involved (SSE, Drax, Spirit and EDF) which naturally they've seized with both hands and immense gratitude.  Can't have done the whole industry any harm, either - give folks an idea of the scale of what it all means; romance of engineering & commerce, etc.  Indeed, if a similar series had been run on commercial TV or a newspaper, you'd assume it was paid-for advertorial stuff.   

And not a Green in sight!   Dear me no - we're all quite green enough without letting Swampy or Greta come on with their whingeing and wimpering.

Controversy has barely been acknowledged: just the once, really, over Drax.  The SSE episode was about the world's biggest offshore windfarm and its onshore receiving station - including the merest hint (which probably passed unnoticed to most) about what's fast becoming a cause célèbre, the culpably chaotic business of digging big cable corridors, generally through highly sensitive coastal geography & habitats etc, with no obvious sign of planning / coordination on the part of National Grid.  Otherwise, it was just 100% jaw-dropping Big Kit on display in breathtaking marine vistas.  And no mention of what happens when there's no wind? ...

The Spirit episode featured their huge Morecambe Bay gasfield and its onshore gas processing plant.  (If you haven't heard of Spirit, it is a Centrica spin-off, one of the many new 'end-of-field-life' specialist O&G producers who manage upstream assets when development risk is long since past and the original developers - in this case British Gas - have better uses for their capital.)   Big offshore installations are pretty mind-blowing, so no shortage of gawping to be done here.  What controversy might have been expected?  Well, there are some people for whom even mention of fossil fuels in any other sentence than "we are closing this thing down as fast as humanly possible, ideally tomorrow morning".  But the Spirit PR team had put clever words into the mouth of the plant manager, who simply said that we'll need gas for a few more years on the path to Net Zero Carbon (tacitly answering part of the question left by the SSE programme), and that they were there to do their bit.  The Beeb felt no need to qualify that with any sort of counterpoint voice-over.  

The last episode was on EDF's nukes at Heysham, and the nuclear fuel plant at Springfields down the road.  They didn't explicitly use it to answer another part of the unasked SSE / wind question.  Obviously, they could have filled the entire slot with nothing but controversy (see, for example, the Public Accounts Committee report published today); so they ran with more-or-less none whatsoever.  Fair play, it had to be that way, really: though arguably they might have mentioned the cracks in one of the boilers and some of the fuel bricks ...  So it ended up quite pedestrian to my view.  I was, however, entranced to hear engineers talking in "thousandths of an inch" (it was the same in the Drax episode) which jars a little.  Then again, I imagine they run the plant on Windows 98 or some such.

So what about Drax, then?  Yet again, they didn't use it to answer the SSE / wind question (- it actually contributes to both parts, in fact); but, yes, they really couldn't - and they didn't - fail to mention that burning trees to generate electricity is controversial.  Which it bloody is - an outright scandal, in fact, compounded by the risible official "green" carbon-accounting convention which allows Drax to ignore CO2 emitted at the point of combustion, and hence to qualify for 9-figure sums in annual "renewables" subsidies despite emitting more CO2 than in the days when it was burning coal (and vastly more than if the same electricity was generated instead by gas) with the distant prospect of maybe that CO2 being maybe absorbed by replacement trees (maybe) 50-100 years hence (maybe).

They've got me started now.

Anyhow, all four episodes are labelled "Series 1" so perhaps they'll follow up with more later.  There's no shortage of energy companies with big PR budgets, interesting stories to tell, and photogenic kit to display.  One thing we may predict: there will be a lot of Greens who are furious at the easy, glossy ride the Beeb has given the industry in these programmes, and will be pressing to get more *balance* into any subsequent series.

ND

When the Big 6 becomes Big 5

Over the years we've often suggested that the way government and regulators cheerfully beat up on the big 6 energy suppliers isn't terribly clever.  It's very handy for them to have big corporates to do their daft bidding in energy and climate-change policy; but simultaneously allowing them to be popular whipping-boys, and loading them up with onerous social and policy-delivery obligations, is inviting them ultimately to jack their hands in and step away from the table altogether.

It has also been clear that not all of the Big 6 necessarily have the financial stamina for the long haul, never mind the stomach for it.  Margins in the residential sector are lousy, and the risks are great.  Hanging on in there as a 'last-man-standing' strategy isn't a work of commercial genius.  (Though, since most of the suppliers are still engineer-heavy at the top, and with truly dreadful track-records on both customer service and, perhaps counterintuitively, IT - trust me on that latter, I've dealt with all of them - commercial genius isn't necessarily to be expected.)

Three years ago we noted that RWE / NPower / Innogy (pick you prefered brand-name) was occupying the bed closest to the door, and so it has proved.  They and SSE have had enough, and intend to merge their portfolios of residential energy customers and float them off.

Having reduced the competition at the big end of the sector by one sixth, will the government be inclined to think again, and cut them some slack?  I doubt it.  May seems determined on some kind of price cap.  Ofgem is ecstatic abut how many tiny new entrants there are in the residential sector, notwithstanding their very patchy performance, inherent financal weakness, and parasitic dependence on the Big 6 keeping the main show on the road.  (One of the canniest decisions Sadiq Khan has made was stepping back from a manifesto promise to set up a publicly-owned, fully-fledged London energy supplier.)

In all this mess, then, it's little surprise to see NPower and SSE look for an exit strategy.  Of the rest:  Centrica is, after all these years, still a remarkable survivor as a UK inde.  It had shrewd and genuinely commercial management from the day it de-merged from the old BG 20 years ago.  We've had issues with them over the years (check the Centrica thread from the tags below) but they're OK.  EDF's continuing to play the game is of course 100% strategic for the French based on making sure nothing prejudices Hinkley.   Right up until they decide that game's not worth the candle, either.  On paper, EDF is bust already if you factor in all their nuclear liabilities.  But the French government won't let them go under.  (Check the EDF tag too, for various C@W stories over the years - starting with this pivotal one from 10 years ago which explains plenty.)

That leaves E.on and Iberdrola (Scottish Power).  Neither are as strong corporately as they were when the turned up in the UK; and I can't see the UK being strategic for the Spanish.  E.on are corporately sharp, mostly clear-sighted, and can be quite decisive when it comes to restructuring.   But, EDF's special circumstances apart, they are the strongest of the lot.

Newby tiddlers notwithstanding, the landscape hasn't changed much for a decade, i.e. since EDF came to town in a big way.  I couldn't begin to guess what it will look like in 5 years.  But I can tell you electricity prices will be higher.

ND 

Those Wicked Energy Companies - SSE Breaks Ranks

... and offers a 2-year price freeze.  That'll be interesting, both for them and their shareholders.  Because the underlying wholesale energy costs they face are anything but frozen, as a glance at the graph of what happened to prices in 2008-9 will confirm.  So what have they done - hedged a very large chunk forward?  But what if they attract many more customers - or will they just stop taking new accounts?  And what if they lose a heap of customers, and the hedge goes out of the money?  One trusts they have thought this through.

Because at the very same time as taking on this fairly substantial forward spec position, they are also effectively giving a profits warning, suggesting a reduction in their resilience to future shocks.  Breaking ranks, or breaking the bank?  Maybe that lies behind the parallel announcement of a voluntary separation of the business into independent companies: put all the risk in one of them at let it sink if necessary?

The politics of this are amusing.  It's pretty obvious how Ed "he's had a bad week so far" Miliband will spin this - he's started already - but he needs to watch out because (a) SSE has explicitly linked their retail play to big job cuts plus abandonment of a serious tranche of offshore windfarm development - the inevitable consequence of putting the squeeze on the Big 6, as we have said here many times before.  Wonder what his green and Union friends think about that particular trade-off.   And (b) it's easy for the Tories, and indeed Joe Voter to say: well then we don't need Mr Miliband's freeze at all  We might add (c): SSE itself attributes its move partly to the coalition's lifting of various green impositions, exactly as Cameron is crowing.

Yesterday's referral of the Big 6 to the CMA is, on balance, probably a good thing, because it should result in better focus than Ofgem has managed on improving wholesale market liquidity:  That is 99% of what needs to be done on the regulatory front; and breaking up the verticals may have to be the way to do it (another oft-rehearsed C@W topic).

But the Big 6 do need to get their arses into gear.  If one compares the switching service provided by telecomms firms (and even the bank these days) with what you get from the energy co's, it is not a happy comparison.  They just haven't made the step-change needed to provide 21st century customer service, despite laborious incremental improvements on their 1990's-vintage set-ups.  Their systems are crap (believe me, I know about this) and they've just limped along.  How SSE or any of their peers fix their share of this problem at the same time as slashing staff numbers is anyone's guess.

Still, perhaps this is a bit of a watershed.  Just in time for Cameron to claim some credit ?  Probably not :  but hey, he might do so anyway!

ND