Utility Week

Utility Week 18th October 2013

Utility Week - authoritative, impartial and essential reading for senior people within utilities, regulators and government

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Finance & Investment This week Energy regulator to consult on how to build c onfidence in the market through transparency Ofgem to revisit issue of profit transparency Ofgem has caved into demands by MPs that it should force energy companies to be more transparent in reporting profit, less than six months after dismissing such a move as "intrusive". In its response to a July report by the cross-party Energy and Climate Change (ECC) Select Wright: formerly said move would be 'intrusive' Committee, the energy regulator said: "Given the committee's recommendations and continuing consumer concerns about profit levels, we intend to revisit this issue. We plan to consult later this month on how best to build confidence in the market through greater transparency around revenues, costs and profits." Ofgem said it remained "not persuaded" by the case for forcing greater transparency out of the energy firms and warned that the costs of doing so "will be borne ultimately by consumers in higher bills". Its response came only days after energy company SSE unveiled an 8 per cent hike in its prices. Giving evidence to the ECC committee in May, interim Ofgem chief executive (at that time, head of markets) Andrew Wright said: "There's no reason to expect the companies are not giving a fair picture of their profits or that profits are being taken out into trading businesses." He said forcing the companies to provide a fuller picture of their profit would be "intrusive in terms of requiring companies to do a lot of analysis". The latest figures published, under Ofgem rules, by the six largest energy supply firms showed their average profit before tax and interest in 2012 was just under 3.3 per cent, ranging from a 1.3 per cent loss to a 6.6 per cent profit. Stock watch National Grid shares fell last week following the company's winter forecast. While it said there was "no cause for alarm" over capacity, certain media channels interpreted its warning of a tightening margin as a Domesday scenario. The share price quickly recovered, although it is still on a broadly downward trend as fears of a dividend cut linger. Electricity Second fall for clean tech investment Global investment in clean technology is dropping for the second year running, according to the latest figures from Bloomberg New Energy Finance. In the third quarter of 2013, $45.9 billion (£28.8 billion) was invested worldwide in renewable energy and technology including smart grids, efficiency, storage and electric vehicles, the research company said. That was 20 per cent lower than in the same period last year. It is "almost certain" the 2013 total will be below the previous year's $281 billion (£176 billion), which itself was an 11 per cent drop on the 2011 record. Bloomberg New Energy Finance chief executive Michael Liebreich said: "After the slightly more promising second quarter, we now have a very disappointing third-quarter figure for investment; $45.9 billion is still a substantial amount of money, greater than that invested in the whole of 2004, but the loss of momentum since 2011 is worrying. "The latest setback reflects policy uncertainty in Europe, the lure of cheap gas in the US, a levelling-off in wind and solar investment in China, and a general weakening of political will in major economies. Governments accept that the world has a major problem with climate Nat Grid share price, 7-11 October change but, for the moment, appear too engrossed in shortterm domestic issues to take the decisive action needed." Quarter on quarter, most major countries saw a slump in investment. The UK bucked the trend with a rise from £1.0 billion in Q2 to £1.6 billion in Q3. Energy Opinion key to Drax biomass success The future of power producer Drax and all that follow its coalto-biomass conversion lead in the UK hinges on public opinion of the sustainability credentials of biomass, according to a recent "add" note from investment bank Investec. Investec analyst Harold Hutchinson described Drax's plans to convert three of its six generators to woodchip burning as "a relatively cost-effective, environmentally friendly and secure way for the UK to adapt its capacity mix". However, he warned: "Public opinion on these issues will have an over-riding influence on the future of Drax's profitability, and hence on prospective returns to shareholders." Hutchinson said a part-coal, part-biomass Drax will face commodity volatility and biomass supply chain as well as regulatory risks. But he said the critical challenge for all biomass plants was to "garner public acceptance for the renewable status of biomass". Nat Grid share price, 16 September – 11 October 765p 750p 760p 746p 755p 750p 742p 745p 740p 738p 735p 734p Date 730p Oct 07 08 09 10 11 Date Sep 16 23 30 Oct 7 11 UTILITY WEEK | 18th - 24th October 2013 | 17

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