Yü Group CEO Bobby Kalar is planning more acquisitions, having taken on Bristol Energy last month.

The firm’s share priced climbed 20 per cent in early trading on the back of strong results following a significant restructure over the last two years.

While it posted an Ebitda loss of £1.8m for six months to 30 June, the company appears to have put its troubles to bed. Kalar said £1.6m of that loss was Covid-related. Meanwhile he said customer energy consumption in August was back up to 90 per cent of pre-Covid levels, cash collection is “equal or better than billed monthly revenue month on month”, and new business is stronger then the prior period.

Fall and recovery

Yü discovered a major hole in its accounts in October 2018, leading it to post a £6.3m loss for that year. Its share price collapsed, auditors were brought in and the Financial Conduct Authority launched an investigation into the company.

The problems stemmed from booking revenue that was not actually recoverable from clients. It had tried to grow too fast without sufficient checks and balances.

The resulting clean up (the FCA dropped its investigation in May 2019) led the firm to “reset” its business, said Kalar. But the process appears to have left Yü in a stronger position to navigate Covid than most business-to-business energy suppliers.

“It absolutely prepared us for Covid. Two years of resetting, a root and branch wash-through has stood us in very good staid. We strengthened our governance and put in place systems and markers that allow us to check the pulse of contracts all the way through,” he added.

That said, given the uncertainty facing businesses about whether to bring staff back into work, plus issues around clean air, social distancing and occupancy rates, bad debt across the industry is likely to get worse before it gets better.

Meanwhile, balancing costs have soared, while other non-commodity costs have been kicked down the road. That could lead to challenges across the market in 2021, but Kalar said Yü is prepared.

“We have a lot of brains in the business. Our approach to trading risk management allows us to flex pricing. We know the [non-commodity] price increases are coming and we have factored that into the price stack and taken it into account for both 2021 and 2022,” he said, “though I must caveat these are draft figures.”

Moreover, Kalar pointed out that soft wholesale market prices have negated some of the cost increases elsewhere.

Kalar admitted that “some customers have been worried about volume tolerance clauses”, given many have used less power and gas than stipulated in their contracts. But he said that Yü’s response is to try and negotiate longer-term contracts for better prices. As a result “in most cases” it has not had to enforce those clauses.

“Given the environment, [both sides] have been very fair,” said Kalar. “If they don’t have the money to pay, we don’t get the business.”

Buyers’ market

Yü reported that the integration of Bristol Energy into its business had been “text book”, which Kalar also attributed to the business overhaul undertaken since October 2018.

“We bought a business during lockdown. We put 40 per cent more meters into our operating platform over a weekend with negligible cost. That demonstrates we can go out and buy thousands of meter points with stressing the business – or our cash position,” said Kalar.

Yü intends to repeat the trick at the first opportunity, with many smaller suppliers likely to welcome an approach given the headwinds they faced even before Covid hit.

“I see more market consolidation. We are buyers and we have Smartest Energy backing [following an exclusivity and credit deal struck last year] which allows us to scale,” said Kalar. “So yes, it’s a buyers’ market and yes, we are constantly on the lookout for an acquisition.”

As majority shareholder, Kalar took a big hit when the company’s problems were unearthed in October 2018, sending its share price to around 100p. A month earlier it had been trading at 975p.

Asked whether and when it could regain that position, Kalar was dismissive.

“As CEO, I don’t measure the heartbeat of the business by its share price. My responsibility is to get the business back to where it can get to. It is up to shareholders to follow that story.”

The post After Bristol Energy, Yü CEO eyes more buys appeared first on theenergyst.com.

The group, convened by National Grid ESO at Ofgem’s request, has spent two years working out how to better allocate grid balancing charges, which are increasing as the power system decentralises and decarbonises. The more effort required by the ESO to balance supply and demand and system stability, the more it is likely to have to spend.

Balancing Services Use of System Charges (BSUoS) are currently calculated as a flat tariff for all network users. The ESO provides a monthly forecast which energy suppliers use to help manage pricing and recovery.

The Task Force recommends that they should in future be set on a volumetric, or £/MWh basis.

It thinks National Grid ESO should set this charge 14/15 months ahead of time, so that everyone knows what they have to pay. The ESO takes volatility risk. While that creates a risk of over or under recovery of costs by the ESO, it gives suppliers some certainty.

Ofgem will now consider the full report. The Task Force said the regulator should give two years’ notice ahead of agreeing changes to the charging methodology.

Details here.

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The three-year contract covers clean energy supply, including a 70GWh power purchase agreement (PPA), plus energy efficiency services across John Lewis and Waitrose. Under the agreement Engie will deliver ISO50001 accreditation for the retailer.

The John Lewis Partnership has pledged to be net-zero carbon for its entire operations by 2050 at the latest, without purchasing carbon offsets. It aims to reduce energy usage across its physical estate by 25 per cent by 2028.

The John Lewis Partnership has also outlined sweeping plans to decarbonise its fleet. Read an in depth interview with general manager of fleet, Justin Laney about its approach here.

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Dynamic Containment is designed to bring frequency back to 50Hz as fast as possible. Maintaining system frequency is an increasing challenge for the Electricity System Operator as large thermal plant retires or runs less often, and more renewables come onto the power system.

Without lots of big spinning turbines from thermal power systems to help provide  inertia as a bi-product, the effect of lower system inertia is that frequency can change much more quickly – a small wobble can have large impacts if not quickly addressed.

So the ESO has developed Dynamic Containment, a service that kicks in after frequency has started to deviate. It will become a 1GW day ahead marketplace that brings procurement closer to real time.

Providers with assets that can act very quickly to address frequency excursions, such as batteries, are being onboarded this week. From Thursday (1 October), they can start bidding for contracts, with National Grid ESO initially running tenders seven days a week for low frequency services only up to 500MW. High frequency auctions for up to 500MW will follow next year.

Dynamic Containment will run in parallel with firm frequency response (FFR).

The ESO has indicated Dynamic Containment will not initially impact FFR procurement targets, though service providers will be watching carefully to see how the two services start to impact bidding behaviour within different frequency auctions and the Balancing Mechanism (BM). Providers can stack DC and BM services provided they can deliver their obligations.

See details here.

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The energy industry is watching the case closely after regulator Ofgem proposed much lower returns for electricity transmission networks and gas networks than it allowed under the previous regulatory framework, with electricity networks also nervous about the regulator’s demeanour.

Anglian, Bristol, Northumbrian and Yorkshire all challenged Ofwat’s price controls via the CMA. They want to be able to spend more and get a better return on the capital they deploy to manage the network to supply water and sewerage services, and for related responsibilities, such as resilience.

The Authority is minded to allow them an extra 0.54% on cost of capital, at 3.50% versus 2.96% set by Ofwat.

Overall ‘totex’ (total expenditure) would increase by £263m over five years under the CMA’s provisional plan.

The CMA will now consult on its provisional findings, and a final decision is expected by the year-end.

Citizens Advice said the CMA had bowed to industry pressure.

“When the expected cost of maintaining industry infrastructure is set unrealistically high, bills are inflated unnecessarily,” said CEO, Dame Gillian Guy.

“We call on the CMA to look again at all the evidence before it makes a final decision.”

If rubber stamped, the CMA’s ruling will likely encourage energy companies to challenge Ofgem’s price controls, which the likes of National Grid and SSE are currently considering.

However, Ofgem’s proposed rate of return, at 3.95%, is still significantly higher than the rate proposed by the CMA for the four water companies.

CMA provisional finding here.

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The firm counts Bosch and China state-owned Weichai Power as commercial partners and key investors. The two injected a further £49m of equity into Ceres in January. As of 30 June, that left Ceres with £108m in cash to invest in further growth. Reversing its technology to produce hydrogen via electrolysis is high on the agenda.

Bosch push

Bosch is now manufacturing cells under licence for its own stacks and systems in Germany using Ceres’ technology – the first third party to do so.

“We view Bosch’s decision to increase its investment in Ceres in January 2020, from 4% to 18% of the enlarged issued share capital, as a strong signal of its intention to move towards future scale up to high volume manufacture of [our] SteelCell,” stated CEO Phil Caldwell.

The company plans to scale up the size of its fuel cell systems in the coming years, moving from 30kW to hundreds of kilowatts, added Caldwell.

Hydrogen

More broadly, Caldwell said Germany’s commitment to hydrogen and the EU’s strategy published in July presents significant opportunity, alongside core markets such as China, Japan and South Korea.

As such, the company is increasing its investment in developing its technology as a solid oxide electrolyser – essentially reversing the fuel cells to produce hydrogen from renewable power.

“Over the past 18 months there has been significant momentum around the potential for hydrogen,” said Caldwell. “Ceres has a credible path to participate not only in delivering hydrogen at scale but also, due to the characteristics of higher temperature electrolysers, in utilising waste heat making this technology particularly useful in decarbonising industrial processes such as steel and refineries.”

He said more than a quarter of the company’s technology patents could equally apply to using the fuel cells to produce hydrogen.

Meanwhile, the company is also working on a “strategic relationship with a global engineering consultancy with engineering services and business development capability” in order to drive growth.

Ceres posted revenues of £19.9m, up 21 per cent, though a higher adjusted Ebitda loss of £6.5m (£5.9m the prior year) which it said reflected continued investments to enable growth.

Scale grail

Caldwell told The Energyst that the company aims to be the “the ARM of the clean energy sector”, scaling its business through partnerships and licensing. Hence seeking to secure a partnership with a global engineering consultancy.

“We’ve been very successful in getting partners on board, but if we want our technology to become the go-to standard for fuel cells, we need it to be adopted much more widely by the world’s engineering community,” said Caldwell, adding that the company hopes to make announcements in the coming months.

In terms of scaling the capacity of its units to hundreds of kilowatts, Caldwell said there is “technically nothing holding that back”.

“We’ve gone from single kilowatts to tens of kilowatts, the next logical step is hundreds of kilowatts,” said Caldwell. “We can deliver higher power in response to market demand – and that is where it is going.”

Hydrogen ready?

Ceres’ power generation systems can already run on natural gas, hydrogen or blends. “So that is our stance, we can already generate power more efficiently and more cleanly – and the technology is hydrogen ready for the future,” Caldwell added. “There is no risk of stranded assets.”

On the flip side, Caldwell said the company’s push into electrolyser applications using its technology is some years from commerciality.

“It is the same technology running in reverse… A lot of same patents apply,” said Caldwell. “It’s early days, but we see it as a pathway …. something for partners to licence from us in three to five years.”

While Ceres’ business is almost all export, Caldwell suggests it “wouldn’t take much” from the UK government to build on the commitments to hydrogen around the world, and more recently in Europe, where Germany and the EU have outlined multibillion investment frameworks.

“It just needs clear commitment and policy targets. Then private money will follow;  institutional investors and the big corporates will start to develop products,” said Caldwell. “But the rest of the world is not awaiting for the UK – it’s already happening.”

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The firm also has permission to build a 470MW combined cycle gas turbine power station on the site, adjacent to its existing CCGT and an open cycle gas turbine commissioned last year.

Intergen has planning permission to build an even bigger battery, a 1.3GWh behemoth at London Gateway Port.

The two sites combined would deliver 500MW/2GWh, according to the firm, which plans to use lithium-ion chemistries at both developments.

Other firms are building increasingly large batteries.

Penso Power, originators of the 100MW China-backed Minety Project, plans to take the development to 150MW. CEO Richard Thwaites said earlier this year that it has two more 100MW schemes in planning and may go larger still.

Meanwhile, Statera-owned Thurrock Power is planning a 150MW/600MWh battery alongside a gas power station, though must negotiate with RWE, which owns the adjacent Tilbury site, over access rights and land acquisition.

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The scheme, owned by Muirhall Energy and WWS, is one of the UK’s first subsidy-free wind farms and according to the firm is the first of its kind to enter the Balancing Mechanism, National Grid ESO’s main tool to balance supply and demand close to real time.

As well as enabling a flexible PPA structure for output, Limejump also aims to enter the wind farm in the Capacity Market (CM), which pays generators for firm capacity. Government has been working on rule changes that enable wind and solar to bid for CM contracts, though significantly de-rated.

Limejump senior business development manager Kristina Rabecaite led the deal. 

“Bringing subsidy-free wind into the Balancing Mechanism is a red-letter day for the industry,” she said. “Our collaboration with Muirhall Energy and WWS is part of the new era of maturity in onshore wind and the power trading landscape.”

Muirhall has built 120MW of onshore wind in the UK and aims to build a further 300MW within two years.

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Germany and the wider EU last summer committed billions to hydrogen investment, but the UK has yet to show its hand. An energy white paper is expected before Christmas.

Renewable UK wants cross-departmental support for hydrogen, commitments to gigawatts of electrolyser capacity and a financial support mechanism for producers, or ‘hydrogen CfDs’. Transport, it suggests, should be the priority for hydrogen growth in the short term.

True colours

Most of the world’s hydrogen production is ‘grey’, largely produced using pressurised methane and steam in reformer vessels with a nickel catalyst. It produces high levels of greenhouse gases.

‘Blue’ hydrogen adds carbon capture to the steam reformation production process. Gas producers and grid operators are keen to build out carbon capture and storage infrastructure to enable a blue hydrogen economy. But CCS infrastructure does not come cheap and the carbon has to stay stored.

‘Green’ hydrogen is produced via electrolysis using power from sources such as wind and solar. As such, it is genuinely clean gas, though costs are currently high due to lack of scale. However, it does provide a natural buffer to weather-dependent power generation. Using excess renewables to produce hydrogen would also help smooth power prices and reduce system balancing costs.

Cost curves

According to Renewable UK’s report, hydrogen produced via renewable power currently costs about £8/kg.

The cost of electrolysers themselves are also high, around £800/kW at 10MW scale (around £8m for a 10MW electrolyser).

However, ITM Power with partners including Ørsted and Linde are building a manufacturing base in Sheffield that aims to produce a gigawatt of electrolysis capacity every year. The ‘Gigastack’ project is expected to cut costs by 50 per cent.

“Further innovation in the energy efficiency of electrolysers and innovation means that overall costs will fall from £8 per kilogram of renewable hydrogen today to £2/kg by 2030 and less than £1.50/kg by 2050,” states the report.

Renewable UK wants government to commit to targets of 5GW electrolyser capacity by 2030 and 10GW by 2035.

Pointing to the cost reductions in offshore wind financial support, from £120/MWh to around £40/MWh within four years via the CfD mechanism, Renewable UK said government should consider a similar approach for hydrogen.

See the report here.

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Awarded one of five contracts by National Grid ESO last year, Welsh Power is building a synchronous flywheel and condenser to provide inertia. It is also working with Siemens and Western Power Distribution on the project, and will deliver services to the local grid operator as well as the ESO.

When commissioned next year it will be able to provide “approximately one per cent of the inertia needed to operate the grid safely – with zero emissions,” according to Welsh Power grid services director, Chris Wickins.

The ESO has historically relied on inertia from the large spinning turbines of thermal power stations. It needs more inertia as these plants run less frequently as renewables penetration increases.

According to ESO director, Fintan Slye, inertia “has been taken for granted” and will become much more important in a renewables-dominated power system.

Statkraft and GE are also building a type of flywheel to deliver similar services.

Quinbrook Infrastructure Partners is funding the project. It appears to be taking a keen interest in the UK flex market, earlier this month acquiring UK flexibility aggregator Flexitricity for £15m via subsidiary Reserve Power Holdings.

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Government thinks its plans for a biogas levy will add no more than £6.90 per annum per meter – both for businesses and households.

The Green Gas Support Scheme is due to launch in Autumn 2021. It will be funded by the Green Gas Levy, which will pay biogas producers, largely anaerobic digestion operators, over a 15-year period.

Government’s thinking is that suppliers will initially collect a flat-rate levy based on meter points, via a pence per meter per day charge. It may then move onto a usage-based levy in 2024/25 though is also working on alternative plans, given the challenges with fluctuating gas consumption and the extra risk management this would entail.

The Department for Business, Energy and Industrial Strategy (Beis) favours collecting the levy from suppliers on a quarterly basis, which may help to avoid fiascos encountered with the Renewables Obligation Buyout scheme. Collected annually, the RO fund has been left short by as much as £206m, due to late or non-payments, with a spate of failed or failing suppliers having spent the money trying to stay afloat.

Suppliers will also need credit cover for 100 per cent of the next quarter’s bill and Beis and Ofgem will work on an appropriate penalty regime. As well as the usual threat of loss of licence, this may include fines of up to 10 per cent of turnover, additional fines where turnover is low and automatic late payment interest set at a government determined rate.

Beis has considered tiering the costs based on industry consumption bands, e.g. households and microbusinesses; SMEs; large businesses. However, it said it couldn’t find a tiering structure that significantly cut bills for households without risking “disproportionate” cost increases for some businesses. As such, it favours the flat rate.

Per the consultation: “Whilst this means that domestic consumers will be paying the same as larger businesses, bill impacts are relatively low, and we will implement robust budgetary controls to ensure costs do not rise unexpectedly”.

Beis seeks industry input on its Green Gas Levy proposals. Details here.

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The plan involves simultaneously connecting 4GW of British and Dutch offshore wind, providing an additional 2GW of interconnection capacity between the countries.

By developing a multi-purpose interconnector, rather than point to point links, the aim is to reduce cost and environmental impact.

Beis and Ofgem currently seek views on how to better co-ordinate offshore grids and whether regulatory change is required to facilitate them.

If National Grid and Tennet’s plan proves feasible, the TSOs hope to make the link  operational by 2029.

Details here.

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The regulator’s framework regularly seeks such feedback, but this year’s review may be more interesting than most, given the events and challenges National Grid ESO has faced.

Since lockdowns in late March the ESO had to manage exceptionally low demand. In April it sought to clarify emergency powers to order disconnection of distribution connected generation, which Ofgem granted while noting that the legal text that required such urgent changes had been in place for years.

The ESO also quickly launched a new footroom service, which it used over bank May holidays to pay people to help keep the system stable.

Meanwhile it struck and then extended a contract with EDF to halve the output from Sizewell B.

Despite unprecedented challenges, the ESO has kept the lights on.

However balancing costs have risen by hundreds of millions of pounds as a result. While not in scope for the first half review, suppliers are growing increasingly concerned at actions which seem perverse, such as the Capacity Market Alert issued last week, given EDF is still being paid to reduce Sizewell’s output and demand is virtually back to normal – for now at least.

As well as day-to-day running of the system, Ofgem seeks views on the ESO’s delivery of its broader remit.

The regulator seeks views by 16 October.

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The electric carmaker, equipped with a new electricity generation licence and its recently launched autobidder platform, bid the 7.5MW Holes Bay battery storage plant into the BM, National Grid ESO’s main market for balancing supply and demand close to real time.

In launching the new API, National Grid ESO aims to make it easier for smaller assets such as batteries and small distributed generators to bid into the BM. By bringing in more providers, the idea is that competition will deliver better value to bill payers.

Since rule changes kicked in last year, generators and aggregated loads as low as 1MW can bid into the BM. Wider access arrangements developed by Elexon and the ESO have also made it less onerous for aggregators to bring their portfolios into play, though it remains “hard work and quite slow” to become a virtual lead party, or VLP, according to some that have taken that route.

Others say the VLP approach will become more meaningful if proposals to enable individual asset meters located ‘behind the boundary point’ to be used for settlement purposes – a rule change proposed by Elexon – is agreed. That is, measuring what has been provided into the BM at an individual asset level, rather than at a site boundary point, where “noise” from other assets can cloud the picture.

Industry appears confident the modification proposal – P375 – will be given the green light from the industry parties who set the rules, with Elexon CEO Mark Bygraves telling Energyst’s sister title New Power that it has “unanimous” support and should be in play by spring 2022.

Roisin Quinn, head of national control and chief engineer at National Grid ESO, welcomed Tesla into the BM and said the wider access initiative is a key part in helping the ESO keep an increasingly renewables-driven power system stable. 

She said: “The API will open the market to a wider range of providers and technologies, increase competition for balancing services and bring better value for consumers – and it will take us a step closer to being able to operate the grid with zero carbon by 2025.”

Tesla Motors acquired a power generation licence in June and aims to amass a virtual power plant. It is not yet clear if its cars are part of that plan.

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Firefighters last night had to extinguish a blaze at Ørsted’s 20MW battery storage scheme at Carnegie Road, Liverpool.

The Danish firm commissioned the site, it’s first standalone system, in late 2018. It consists of three containers and converters supplied by NEC.

A spokesperson for Ørsted said:

“We can confirm there has been a fire at our Carnegie Road battery storage facility in Liverpool. This facility does not have permanent members of staff and no-one was on-site at the time of the fire.

“We would like to thank the firefighters at Merseyside Fire and Rescue for their rapid response and professionalism in getting the fire under control. It is too early to speculate about the cause of the fire but as soon as we can get on-site we will be conducting an urgent review to understand what has happened.”

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