Utility Week

UTILITY Week - 12th February 2016

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Finance & Investment This week Lack of CCS strategy risks climate targets 'Knowledge, investment, assets and expertise in the UK will all be lost' without a clear strategy Ministers must commit to a clear strategy for carbon capture and storage (CCS) or risk missing the climate change targets agreed at the Paris COP21 summit, a report by the Energy and Climate Change Committee has warned. The report, released last Wednesday (10 February), said if the government does not come up with a clear strategy soon, "knowledge, investment, assets and expertise in the UK will all be lost". It warns that this would make it more challenging and expensive for the UK to meet its international climate commitments. The committee's chair, Angus MacNeil, said: "[The Department of Energy and Climate Change (Decc)] must devise a strategy to ensure CCS technology can start delivering carbon savings by the 2020s. "Only last week ministers rejected the need for such a strategy, but the industry and investors are crying out for this certainty." It follows a last-minute decision in November to pull the plug on a £1 billion competition to develop CCS, which damaged the relationship between the govern- ment, the industry and investors, according to the report. The report calls for a number of issues to be addressed in the strategy, including whether contracts for difference will be available in the next Levy Control Framework and which new gas plants Decc expects to be retrofitted with CCS. It further recommends that Decc works with the National Infrastructure Commission to explore options for the development of CO2 transport and storage. TG WATER Mitsubishi to buy South Staffs stake Global investment firm KKR has agreed to sell a 25 per cent stake in South Staffordshire Group – parent company of South Staffs and Cambridge Water – to Mitsubishi Corporation (MC). The proposed transaction, whereby MC would indirectly acquire a quarter of South Staf- fordshire's shares, is subject to approvals. MC will also receive customary governance rights consistent with its stake. No financial terms were disclosed. The sale relates to the regu- lated and non-regulated water services provided by the Group. South Staffordshire Water and Cambridge Water were bought by KKR in May 2013. ENERGY Investors call for clarity on LCF future Investors have called on the government to provide clarity on the Levy Control Framework (LCF) beyond 2020. At an Energy and Climate Change Committee meeting on investor confidence in the energy sector, Alejandro Ciruelos, Santander's head of UK project and acquisition finance, said the framework had been a "helpful policy tool" in terms of under- standing the total spend on low- carbon technologies. But he said an important question remained over "whether that £7.6 billion cap will be increased or upsized and then what is going happen beyond 2020/21. It's the most important policy variable for us". Glennmont Partners technical director Peter Dickson agreed it was a "major concern" that there was no specific target beyond 2020: "That overall commitment that we know what we'll be working towards is important." Decc withdrew subsidies for some forms of renewable gen- eration following the revelation it had overspent the £7.6 billion LCF budget by £1.5 billion. WATER 50% incentive boost for Severn Trent Severn Trent Water has said the net reward expected from outcome delivery incentives for financial year 2015/16 has risen to £15 million from the £10 mil- lion indicated at interims. In its latest trading update for the nine months to 31 December 2015, the water and wastewater company said the increase was down to continued investment in operational improvements. The statement reiterated that the £372 million savings required in Ofwat's Final Determination have already been locked in, with more being sought; a further £50 million was indicated at the time of the interims, with an update to be given with the final results. MacNeil: 'industry and investors need certainty' UTILITY WEEK | 12TH - 18TH FEBRUARY 2016 | 23 Stock watch 200 195 190 185 CENTRICA SHARE PRICE, 3 - 9 FEBRUARY 3 Feb 4 Feb 5 Feb 8 Feb 9 Feb 300 250 200 150 CENTRICA SHARE PRICE, FEBRUARY 2015 - FEBRUARY 2016 Apr 2015 Jul 2015 Oct 2015 Jan 2016 Shares in Centrica continued to fall this week aer the company announced 500 job losses as part of a major restructuring of its British Gas business. Aer having started the month at 205.1p, shares had fallen to 189.0p by Tuesday aernoon. The company plans to cut its headcount by 4,000 over the next few years as part of a strategic overhaul and refocus on retail. Centrica releases its 2015 results on 18 February.

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