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EON confident in assets swap with RWE as Q1 profit drops

German energy giant EON expressed confidence in its planned massive assets swap with RWE’s renewable energy subsidiary, despite weaker first quarter results released Monday.

Essen-based group EON, which suffered terrible losses from 2014 until 2016 due to restructuring and Germany’s abandoning of nuclear power, has since got back in the black, but its figures were down for the first quarter of 2019.

Between January and March, its adjusted net profit — which strips out discontinued operations in the renewables segment, as well as other non-operating effects — declined 11 percent year-on-year to 650 million euros ($730 million).

Its adjusted operating profit also fell eight percent to 1.17 billion euros.

The figures roughly tally with the expectations of analysts from financial services provider Factset, which expected adjusted net income of 626 million euros and adjusted operating income of 1.15 billion euros.

“Aside from the special case of the United Kingdom,” where capped prices and keen competition saw a sharp decline in the group’s profits, “our core businesses delivered a solid performance,” said chief financial officer Marc Spieker.

The German energy giant has confirmed its target for adjusted operating income for 2019 is between 2.9 and 3.1 billion euros.

The adjusted net income is expected to be in the range of 1.4 to 1.6 billion euros.

Last year EON announced plans to take over German rival RWE’s renewables unit Innogy as part of a complex asset swap deal set to shake up the energy sector.

“The planned transaction with RWE is right on schedule,” EON said of the deal that is expected to impact the two energy giants’ financials.

EON added that as expected, the European Commission in March opened an in-depth probe into the deal but that the company was “confident that it will obtain the necessary approvals in the second half of 2019”.

The redistribution of assets allows the two former rivals to specialise in energy distribution and production respectively.

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Yü Energy shares soar after FCA drops investigation

Yü Group’s share price climbed 66 per cent in early trading on news that the Financial Conduct Authority has discontinued its investigation into the company and does not intend to take action.

The business energy and water supplier revealed a hole in accounts last October related to revenue it had booked but that was not actually recoverable from clients. As a result, Yü said would post a loss for full year 2018 and a much reduced profit for 2019. Its share price collapsed by 80 per cent.

Yü then hired PwC and DLA Piper to conduct a “forensic review” of its books, and CEO Bobby Kalar said the company would be “more selective and prudent” about customer acquisition.

Bad debt is a longstanding issue in the business energy market, particularly at SME level. Drax-owned B2B energy suppliers Opus Energy and Haven Power reported a 72 per cent increase in bad debt charges to £31m for the year ended 31 December.

 

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Will Corbyn nationalisation kill the National Grid and SSE share prices?

Utilities companies like National Grid (LSE: NG) and SSE (LSE: SSE) have long been seen as reliable income providers, with great visibility of earnings and the ability to translate a high proportion of them to dividends.

National Grid, for example, is expected to provide a dividend yield of 5.6% this year, rising to 5.9% by 2021. SSE’s forecast yield is already even higher at 8.2%. But that would be nowhere near covered by an expected big dip in earnings, and is forecast to drop to 6.7% next year — but still pretty big, if relatively weakly covered.

Debts

SSE is already suffering with rising debts, and that’s added a bit of a drag to the share price. But both of these companies have suffered sharp share price falls in the past month — National Grid shares are down 6.1% with SSE down 7.4%, over a period in which the FTSE 100 gained 3%.

The recent dip was triggered when the BBC published an online article under the headline: “Labour to outline National Grid ownership plans,” reporting on Jeremy Corbyn’s apparent upcoming speech outlining his detailed nationalisation plans. It seems he changed his mind and decided to put off the subject until a later date, and the BBC pulled the article. But the damage was done.

Corbyn hasn’t spoken directly about SSE itself, but he has made clear his intention of nationalising the utilities business.

Popular

Whether Labour will win the next election is completely up in the air — but Corbyn’s chances might be high, with surveys suggesting around three quarters of the UK population are in favour of his nationalisation aims.

But it would be an enormous task. National Grid and SSE are the two biggest, with market capitalisation figures of £28.4bn and £11.8bn, respectively. Adding just the other FTSE 100 utilities firms to the list gets us a total of £56.9bn.

Then there are all the new upstart energy suppliers whose businesses will have to be bought out, and there are going to be plenty of other hefty costs too — so it’s going to be an expensive business.

Payment

Corbyn has mooted the idea of compensating shareholders with government bonds. Now, I don’t know about you, but I certainly don’t want any of those — though I suppose they can be sold easily enough.

One big uncertainty is what prices the companies might be bought out at. But it’s hard to imagine a possibility these days of the government being able to snap them up on the cheap at below market value. But those market values are already being damaged by Labour’s pronouncements.

A buyout of National Grid would be complicated by the fact that half the company’s business in in the USA, though that hurdle is not there with SSE.

Don’t panic

The two things that make me feel shareholders don’t have a huge amount to worry about is that there will surely be big legal challenges to anything institutional investors might feel is unfair, and that I expect it will all take a very, very long time.

In my view, either nationalisation won’t actually happen, or if it does, it will be at a fair price.

Financial Independence, Retire Early

If you’ve ever dreamt of retiring early, or if you’re already retired and protecting your financial independence is your aim, then this could be the report for you!

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Brexit … and your business energy costs

Brexit heralds a new dawn of uncertainty – so what does this mean for your business energy bill?

With potential restrictions on staff, commodities and exports across borders, there’s also the inevitable impact on your business energy tariffs.

Unpredictable energy prices

Whether you were Leave or Remain, there were clear advantages brought by open borders, frictionless trade, unrestricted worker movement, common tariffs and access to Europe-wide energy sources. This helped predict a steady flow of supply and demand. But this may all change soon.

Security of supply

Security of supply and access to energy could become hugely problematic for the UK according to the government’s website when they comment ‘it may be necessary to seek additional powers to preserve security of supply’.

Pipelines bring a large supply of gas into the UK from Europe and free flow of energy across ‘interconnectors’ is vital to keep competition up, and prices down. There is little evidence of a strategy that will address this issue once we leave. Although green and clean energy supply across the UK slowly increases, there is no way it will fill such a big void.

The negotiation period is being extended and we know businesses will be unsure what the future holds. Like yourselves we will watch with interest as the story unfolds. To read more blogs visit our website here.

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All-Ireland electricity market sparks negative pricing

The new all-Ireland electricity market that came into effect last October has led to increased volatility in prices in the wholesale market, and a number of occasions when power companies were forced to pay commercial customers to accept their excess energy, according to Dublin-based energy trading company.

Under the Integrated Single Electricity Market (I-SEM), designed to boost efficiency and align Irish energy costs more closely with those in Europe, all generators, including wind companies, are required to price and sell their electricity output 12 to 36 hours ahead of actual delivery.

However, wind companies are often unable to accurately forecast their output up to 36 hours in advance.

“[When] wind output is very high we begin to see more circumstances whereby conventional power plants begin to offer their output for a negative price in an effort to avoid switching the unit off and having to go through a maintenance intensive operation to restart the facility when they are required ,as wind reduces,” said Ronan Doherty, chief executive of ElectroRoute, a Dublin-headquartered energy trading company.

Mr Doherty said that there have been 556 half-hour periods of negative pricing between October and mid-April in a market for power that has not been traded in advance. This is known as the balancing market.

Smart meters

While big companies can take advantage of power market fluctuations and secure negatively-priced energy, this is not currently an option for households. Still, Mr Doherty said that advent of smart meters, which will give consumers greater control over energy use, may in time provide an opportunity for households to benefit from periods of negative pricing in the balancing market.

Every domestic electricity meter in Ireland is set to be replaced by a smart meter by the end of 2020, according to ESB Networks.

While negative pricing is a common feature of the European energy market, it is a new phenomenon in Ireland.

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Courts shut down renewable energy investment company

Darlington company that sold investment opportunities in renewable energy plants has been shut down after it failed to pay back millions of investors’ funds.

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Alternative heat solutions: converting a town to low carbon heating

Details

As part of its wider research into heat decarbonisation, BEIS commissioned Ramboll Energy to explore possible technologies able to convert a UK town to low carbon heating and to analyse the costs, practical constraints and challenges associated with each of them.

The technologies analysed were:

  • hydrogen with carbon capture and storage combined with electric cooking
  • hybrid heat pumps with gas cooking
  • electric heat pumps and electric cooking
  • district heating from biomass and heat pumps

Read more here:

https://www.gov.uk/government/publications/alternative-heat-solutions-converting-a-town-to-low-carbon-heating

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Ofgem threatens Avro Energy with customer ban

Ofgem has threatened Avro Energy with a ban from taking on new customers if it has not signed up to a new smart meter wireless network by the end of May.

The energy watchdog warned that the restriction will continue until it has become a user of the Data Communication Company (DCC), the operator of the new smart meter infrastructure.

To accelerate the installation of the next generation of smart meters all energy suppliers were required to become DCC users by November 25, 2017, however Avro failed to meet the deadline and is still not a DCC user.

The measure was part of a larger project to roll-out smart meters to all consumer and small business customers across the UK by the end of 2020.

Ofgem said smart meters that do not have a DCC connection will operate as traditional meters with customers needing to provide manual meter readings and unable to access the benefits of the new smart meters.

It said this could “cause consumer detriment” and “undermine consumer confidence in the smart meter programme and the switching process”.

The energy regulator said Avro submitted a plan to become compliant by July 25, but to “avoid the risk of harm to consumers”, Ofgem is considering issuing a final order to the company to ensure it becomes DCC compliant by that date.

The final order will be consulted on for 21 days before Ofgem may issue it to Avro.

Gillian Guy, chief executive of charity Citizens Advice, said Avro’s failure to join the DCC means it is “unprepared” for the smart energy roll-out, leaving customers with first generation meters that will lose smart functionality if they switch suppliers.

“Suppliers shouldn’t risk consumer confidence in the programme by giving their customers a sub-par experience. Smart meters are critical for the long-term development of our energy infrastructure and it is vital that we get it right.”

Ms Guy called on the Government to publish to a new cost-benefit analysis on the roll-out as there has been “substantial delays” and “costs are escalating”.

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Shell rumoured to be ‘keen’ on UK offshore wind

Oil giant Shell are rumoured to be keen on entering the UK offshore wind market, according the the firm’s new energy president.

Mark Gainsborough, executive vice president of Shell New Energies, told Reuters during an interview last week that his firm intends to buy up UK seabed leases or buy up stakes in existing projects.

Shell recently bought a majority stake in a floating wind project planned for 2020

Originally investing 33% in the ‘TetraSpar’ floating foundation demonstrator turbine last year, Shell will now own 66% of the project.

Shell also pledged up to £1.4billion in new renewable energies last year.

Mr Gainsborough told Reuters: “We absolutely would like to get a position in the UK offshore (wind) market.

“To make sure we stay relevant in the energy transition, we need to look at how we can bring lower-carbon solutions.”

He added that Brexit was unlikely to “dampen” his firm’s intention to move into the UK offshore wind marketplace.

Mr Gainsborough said: “The thing that is more important is there continue to be supportive government policies.”

In December, Shell and renewables developer EDP Renewables joined forces to compete for offshore wind projects as Mayflower Wind Energy.

A 50/50 joint venture, the deal will see Mayflower compete in upcoming offshore wind auctions.

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BILL HIKE EDF Energy to hike gas and electricity bills by 7.2% from June – adding £78 a year

It’s the second price rise in less than six months and it will add an average of £78 a year to bills for 1.5million customers