Utility Week - authoritative, impartial and essential reading for senior people within utilities, regulators and government
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14 | 8TH - 14TH JANUARY 2016 | UTILITY WEEK The year in review Review Water surges, but energy sags A general election, key regulatory rulings, endless U-turns on energy… 2015 was an eventful year. T he stand-out performers in a lacklustre market have been the two largest water companies, Severn Trent and United Utilities, even though widely- trailed bid activity has not produced any actual offers. Pennon's shares, though, have fallen back on depressed waste prices. Nonetheless, with many other sectors falling well short – notably oil and mining – the water companies have offered a safe haven for dividend- seeking investors. The electricity sector has faced infinitely more daunt- ing challenges. However, the leading player, National Grid, underpinned by its eight-year UK regulatory deal, has performed solidly, and its shares are slightly up on the year. SSE's shares have proved more volatile, especially in the run-up to the general election and, more recently, because of the uncertainties attached to renewable energy subsidies. SSE's investors have also been affected by major changes to its generation portfolio – some coal- fired plants are being closed – and to regulatory rulings on its networks assets. The worst performer by far has been Drax, whose shares fluctuate depending upon the latest biomass subsidy announcement – whether from the government, from the EU or from the courts. The damage from all this uncertainty has been considerable – its shares have almost halved over the year. It should be added that other members of the big six have seen lousy share price performances during 2015, with only Iberdrola, the owner of Scottish Power, buck- ing the trend. RWE, in particular, has seen its shares plunge: they are now almost 90 per cent off their December 2007 peak. And EDF, the planned lead investor in Hinkley Point C, has also struggled, especially in trying to reach a workable agreement with the cash-strapped Areva. Undoubtedly, prior to the general election, Centrica was the most exposed to Labour's attack on energy prices. But despite the election result and effective exoneration by the Competition and Markets Authority, its shares have fallen by almost a quarter over the year. Weak oil and gas prices are mainly responsible. Further- more, Centrica is embarking upon a new strategy, which will result in substantial oil divestments – the sale prices may not impress investors. For 2016, generation will be a key issue. How should the government encourage the building of new base- load gas plants and will Hinkley Point C go ahead or be canned? Nigel Hawkins, director, Nigel Hawkins Associates Independent energy supplier market share Independent suppliers had a good year, seeing profit, customer numbers and market share continue to grow, reaching 14.4 per cent by the end of 2015. As disillusionment with the major companies continues, the new entrants and smaller suppliers are looking to make the most of the situation and continue to expand. Investment Last year billions of pounds were earmarked for major infrastructure projects and the construction of them will begin in earnest this year. In August, a deal was struck for Bazalgette Tunnel to take on the £4.2 billion project to build and deliver the Thames Tideway Tunnel. The special purpose company is made up of Allianz, Amber Infrastructure Group, Dalmore Capital Limited and DIF. Work on the first pier near Blackfriars Bridge has started as the group strives to deliver the project two years ahead of the forecast completion date of 2023. EDF Energy and the UK's nascent new nuclear indus- try received a boost when the Chinese company CGN struck a £6 billion deal to take a 33.5 per cent share in Hinkley Point C. This marked the start of a wider deal paving the way for the Chinese company to develop a second new nuclear plant at Sizewell and a nuclear plant of its own design in Essex in which it will take a two-thirds stake. With the government also ploughing money into research and development for small modular reactors, 2016 marks the beginning of something big for the UK's nuclear sector. €2bn National Grid and Stattnett to build the NSN Norwegian interconnector £1bn The Swansea Bay tidal lagoon approved £24.5bn estimated cost of the Hinkley Point C nuclear plant £4.2bn the cost of the Thames Tideway Tunnel Source: Cornwall Energy 31/01/2012 30/04/2012 31/07/2012 31/10/2012 31/01/2013 30/04/2013 31/07/2013 31/10/2013 31/01/2014 30/04/2014 31/07/2014 31/10/2014 31/01/2015 30/04/2015 31/07/2015 Number of active suppliers Share outside major suppliers Active suppliers and market share of companies outside major suppliers – electricity Active suppliers and market share of companies outside major suppliers – gas 12% 10% 8% 6% 4% 2% 0% Share outside major suppliers 30 25 20 15 10 5 0 Number of active suppliers 31/01/2012 30/04/2012 31/07/2012 31/10/2012 31/01/2013 30/04/2013 31/07/2013 31/10/2013 31/01/2014 30/04/2014 31/07/2014 31/10/2014 31/01/2015 30/04/2015 31/07/2015 12% 10% 8% 6% 4% 2% 0% 30 25 20 15 10 5 0 Number of active suppliers Number of active suppliers Share outside major suppliers Share outside major suppliers