The company’s formula for success is astonishingly simple – it sold oil at much higher prices, compensating for losses in its other businesses.

Oil prices at an average of $109 per barrel, up from $88 per barrel the previous year, led to Shell to announce profits of £18.1 billion in 2011.

The company warned of falling profit margins and decreased production in other areas of the business however, with its downstream operations (petrol station and refining) suffering significant losses in the fourth quarter of 2011.

Shale of the century?

Shell recently announced its latest strategy, with $30bn of investment planned this year, mostly on upstream operations, including new exploration and extraction of oil and gas.

Shell’s oil and gas fields produced 3% less in 2011 compared with the previous year.

Oil and gas production will be increased, the company says, especially from unconventional sources such as oil and gas shale.

A report commissioned by the EU recently found that the various regulatory frameworks in place are sufficient for fracking activity to continue in the UK.

The controversial new method of extracting gas by hydraulic fracturing (fracking) of rocks deep below the Earth’s surface is already covered by existing water and drilling regulations, and no new rules are needed until the technology reaches a commercial scale, the report says.

An article in The Guardian today notes that there are already four different highly complex regulatory frameworks that apply to shale gas. Here they are, with links to the official pages:

1. EU Water Framework Directive
2. EU Groundwater Directive
3. Mining Waste Directive
4. Registration, Evaluation, Authorisation & restriction of CHemicals (REACH) (HSE)

While fracking is controversial, and there have been suggestions it could pollute the water table and cause minor earthquakes, the fact remains that to discover more about it, we must continue to explore the possibilities around it. That means fracking and drilling, and not placing restrictive new rules that would be tantamount to banning the technology before it is even developed.

We’ve already seen the price of gas double in the UK in the last couple of years, as we import more and more from outside the UK, at much higher rates.

Shale gas may not turn out the be the miracle many people think it is, but the world seems to be waking up to the fact that wind turbines and solar panels will not power the world now or in the future, and shale certainly seems like an area we should be encouraging more investment in, rather than discouraging or trying to ban it.

Summary of 2011 energy price rises compared to early 2012 price cuts

All of the largest players in the energy market have now cut their standard domestic tariffs to some extent, but all of them have made reductions that amount to a fraction of the price rises they made in the latter part of 2011.

The reductions have been in the 4-6% region, and only on electricity or gas, when the price rises were mostly around 10-20% and affected both products in all cases.

The price cuts seem more like token gestures to generate publicity and keep watchdogs and the media off the suppliers’ backs, rather than anything significant.

The suppliers will however be keen to prove that they are only passing on wholesale costs to consumers, with Ofgem investigating the big six for generating such large profits.

Supplier by supplier

British Gas (BG) have only reduced their electricity prices and only by 5% after a 16% increase last year (they sell much more gas than electricity). They say they cannot reduce gas prices, which they upped by 18% last summer.

Scottish & Southern Energy (SSE) have reduced their gas prices by 4.5% after hiking them 18% last year. Electricity stays the same after an 11% increase.

Electricité de France (EDF) seems to be trying though – they have reduced gas prices by 5%, after a 15.4% rise. Electricity stays the same after a small 4.5% increase.

E.ON have reduced electricity prices by 6% after an 11.4% rise. Its gas prices stay the same after an 18.1% increase in September 2011.

ScottishPower (SP) reduced their gas prices by 5% after a 19% rise in August, electricity stays the same after a rise of 10%.

Npower (NP) reduced their gas prices by 5% after a 15.7% rise, electricity was only raised by 7.2% but still gets no reduction.

All of the suppliers raised gas prices by about 15-20%, and 4 of them have cut gas prices by around 5%. The other two both cut electricity prices by 5% and 6%, but did not reduce gas at all, which they hiked by 18%.

We reported on each of the price rises as they happened last year:

ScottishPower announce large price rises – Jun 8th, 2011
British Gas prices raised – Jul 11th, 2011
Scottish and Southern raises prices – Jul 22nd, 2011
E.ON Energy announces price rise – Aug 8th, 2011
Npower to increase gas and electricity prices – Aug 17th, 2011
EDF Energy announce price rises – Sep 15th, 2011

The Public Accounts Committee (PAC) is responsible for overseeing government expenditures to ensure that they work in the public interest. The Smart Meter rollout is expected to cost £11.7 billion, and the PAC has published a set of 6 conclusions and recommendations that are summarised at the bottom of this page.

The Rt Hon Margaret Hodge MP, Chair of the Committee of Public Accounts, said:

“The idea of smart electricity and gas meters is a good one, but [the installation programme] is both challenging and subject to significant uncertainty.

Consumers will benefit from smart meters only if they understand the opportunity to reduce their energy bills and change their behaviour… Otherwise, the only people who will benefit are the energy suppliers.

Consumers will have to pay suppliers for the costs of installing and operating smart meters through their energy bills and no transparent mechanism presently exists for ensuring savings to the supplier are passed on. The track record of energy companies to date does not inspire confidence that this will happen.” (bold added)

Read the full statement by Margaret Hodge MP

Conclusions and recommendations

1. Consumers will have to pay energy suppliers for the costs of installing smart meters through their energy bills, but many of the benefits will pass in the first instance to the energy suppliers.
2. The benefits of smart meters can only be fully realised if there is widespread take-up and consumers use them to reduce their energy bills, yet the role of suppliers in helping to achieve this remains undefined.
3. The benefits from smart meters may not reach vulnerable consumers, those on low incomes and those who use prepayment meters.
4. Trials so far have been inconclusive about consumers’ willingness to cooperate with the installation process and to use smart meters to reduce their energy consumption.
5. The data communications service required to link smart meters to suppliers is a complex IT project that may cost as much as £3 billion.
6. The Department and energy suppliers face significant challenges to install smart meters in every home in the country.

Read the full text of the committee’s Conclusions & Recommendations

Links:
Public Accounts Committee
Margaret Hodge MP

Dial meters like this one will be replaced by Smart Meters with digital displays, but is forcing them on consumers too much?

As we reported back in March last year, the DECC has already set out its plans for a nationwide smart meter rollout during the years 2014 – 2019, calling it “a crucial step in delivering the UK’s energy security and low carbon future”.

Currently we are in the ‘foundation stage’, where domestic consumers and businesses have to choose to install a smart meter, with the costs of installation and hardware built in to their bills or paid for upfront. However, the government is planning a forced ‘mass rollout’ from 2014 – the proposed second stage.

The DECC said that during the foundation stage “the Government will work with industry, consumer groups and other stakeholders to ensure all the necessary groundwork is done for the second stage”. This has clearly failed so far if the largest consumer watchdog (Which?) is campaigning publicly to get the proposals looked at again.

“The government must not write a blank cheque on behalf of every energy customer, especially at a time when millions of people are struggling to pay their bills.” said Richard Lloyd, Executive Director of Which?

Cost effective?

Which? says the campaign was sparked due to consumers raising concerns about the cost effectiveness of programme. The DECC said back in March 2011 that the average household would save “around £23 per year on their energy bill as a result of smart metering”. All of the big six suppliers hiked their energy prices again this winter, by around 10-20% in most cases, pushing annual bills up towards the £1200 mark.

Business users will also be required to have smart meters installed after 2014. At Utilities Savings we have implemented many smart meter installations, but usually they are due to the business using enough energy to warrant the costs of installation – the savings are large enough and the payback period is reasonable, so the company chooses to do it for financial reasons.

If you are only spending £1,000 a year and it costs £500 to buy and install the meter, then most companies would rather just keep on top of their meter readings to prevent inaccurate estimated bills. What do you think?

Sources:
Which? – Time to stop and review the smart meter rollout
DECC – Press Release 31/03/2011
DECC – Smart Meters

Germany once had the biggest solar industry in the world, providing around 150,000 jobs by 2010, but that bubble seems to be starting to burst, as demand for solar technology drops, government subsidies are cut and competition from cheaper Asian competitors has increased.

According to Reuters, new incentives brought in by the coalition of Social Democrats and Greens a decade ago turned Germany into the biggest producer of solar panels in the world within a few years, but many of the start-ups it spawned that quickly became global leaders in the solar industry have now gone belly up.

It’s Not Just German Solar Firms Going Bust

Germany is not the only country watching its solar industry decline though. As we reported earlier in the year, Solyndra went bust taking 1,100 jobs with it in the US. Solyndra was being called the ‘Solyndra Scandal’ by some, as it managed to waste $535 million of US taxpayer subsidies. Clearly, when Barack Obama said “The future is here” when visiting the plant in 2010, he was wrong. But what did go wrong?

Other similar companies in the US have also gone under, many also receiving government subsidies or loan guarantees. 2011 saw other US solar firms SpectraWatt Inc., Beacon Power Corp. and Evergreen Solar go bust, all citing competition from China as the main reason for their demise.

In Germany however, a combination of competition from China, cuts in subsidies and a lack of demand are all being raised as reasons for the sharp decline in the industry. With the cuts in feed-in-tariffs being implemented in the UK, the government is realising it can no longer support an industry with taxpayer money, so we may experience a similar situation in the coming months.

Let’s hope it’s not all bad news for the solar industry as a whole though. The world’s largest solar power plant has just opened in Andalusia in Spain, and the Independent is confident that the sun hasn’t set on renewable energy yet. On the other side of the world though, China is said to be ‘restructuring’ its solar industry due to declining demand, as reported here. We’ll be following these ones closely.

It seems at first glance to be the perfect solution to an ever-growing problem. Like the sun, the wind never ‘runs out’, and each turbine we build in the UK provides a little bit more energy to meet our needs.

Unfortunately, the situation is a little more complex than that.

In the UK, we already have about 3,500 wind turbines that generate 1-2% of our electricity. Energy & Climate Change Secretary Chris Huhne recently announced plans for the future of Britain’s energy security. To the dismay of many they didn’t include shale gas, but instead he favours a mixture of nuclear and wind turbines – 32,000 of them to be precise.

Now, there are too many arguments for and against wind power to list here, but there is one overriding one that nobody can ignore: You can not control the weather, and you can not store electricity in large amounts.

In Germany (where they are phasing out nuclear power by 2022), they already have 22,000 wind turbines, but they only generate 6% of the country’s energy.

So what’s the problem?

As this page on wind turbines explains very well, the fact is that no wind turbine will ever have a consistent output, due to variations in wind speed and direction, so all the energy generated by wind turbines must go directly into the grid and be used at the time it is generated – this is how electricity transmission works. You can’t store it up when the wind is blowing strongly and then use it when the wind has died down. The strongest winds also tend to coincide with the lowest demand, meaning that we need them the most when they are at their least useful.

What this essentially means is that no matter how many turbines we build, we will always need a backup power source for when the wind stops. This means gas or coal-fired power stations, because they can be switched on quickly to balance the load on the grid, making sure there are no power cuts. Nuclear power can’t be turned on this fast, so cannot be considered backup for renewables. Not at the moment anyway.

As business owners we all know that the threat of power cuts could be devastating to production and can mean the difference between hitting a deadline or not, keeping a client or losing one.

Bizarrely enough, it seems the Duke of Edinburgh may be right on this one.

A week ago it looked likely that talks would fall apart as they did in Copenhagen , seemingly with China, India and the US all at loggerheads over signing the new climate change treaty, Kyoto II.

However, agreement was eventually lashed out in the early hours when a “huddle” including female ministers representing Europe and India was formed as a last-ditch attempt to get a deal done.

The extremely unorthodox method of political debate that transpired has been dubbed “the 10 minutes to save the world”.

What is really in place however, is essentially an agreement to make an agreement – all parties agreed to ‘Kyoto II’ in 2015 – committing to reducing their carbon emissions by an as yet unspecified amount. The agreement will then become legally binding by 2020.

The Durban Platform

This is a significant step forward though, as India was refusing entirely to even consider what it sees as measures that will cripple its economic growth. This meant that China and the US would not agree either, but in the end everyone has agreed to cut carbon emissions around the globe.

Critics including climate scientists and green groups are already saying that the agreement will essentially be ‘too little, too late‘ and that we may already have damaged the Earth beyond repair.

South Africa’s foreign minister Mate Nkoana-Mashabane saw it differently however, saying “We have saved planet earth for the future of our children and our great grand children to come. We have made history”.

The BASIC Truth?

As always though, opinions are divided on whether this ‘Durban deal’ will have any significance. The Global Warming Policy Foundation has said that essentially, the BASIC Countries (Brazil, South Africa, India, and China) ‘played a blinder’ by delaying any actual talks for another 4 years, by which point the political arena could be a vastly different place.

In the same article the author is also at pains to point out that the Kyoto Protocol agreed in 1997 has not worked – emissions for the UK are still rising, so whether Kyoto II would even have any effect is up for debate.

Resources:
The agreement explained – The Telegraph
Durban Platform Fulltext – The Guardian

Annex B Countries are the developed nations of the world. Source: Wikipedia commons

With global carbon emissions higher than ever before, the UNFCCC is pushing hard for a successor to the Kyoto Protocol, but the two fastest growing economies in the world do not seem keen to agree to legally binding targets to reduce their carbon emissions.

The current situation is that the US won’t even start to discuss anything unless China and India both agree to sign up to the same legally binding emissions targets as everyone else. India is outright refusing to agree to anything that damages its economic growth, and China is unlikely to play ball if India does not, so essentially we have a stalemate situation.

China and India were not included in Kyoto I, as they were classed as ‘developing countries’, but now the EU bloc is seeking to get India and China to both agree to legally-binding emissions reductions, along with all other ‘developing countries’.

While western economies are deep in recession, India and China’s economies have been booming.

China now has the largest carbon footprint in the world, and India’s economy is estimated to have grown by 10.4% in 2010 alone. Understandably, the Indians are seeking a similar deal as they got in Kyoto I – the richest countries in the world cut emissions while the developing nations carry on as normal.

Economic power, but still in poverty

India’s population is now an estimated 1.2 billion people – most of whom still live in severe poverty. For this reason it sees no reason to sign the treaty, as the recent increases in their carbon emissions has led to a massive decrease in the number of poor.

It’s a controversial subject, but burning fossil fuels in China and India has recently given millions of these people access to electricity for the first time ever – something we all take for granted in the west, so much that we only seem to argue about the source that generates it.

Meanwhile, Rajenda Pachauri, Chairman of the Intergovernmental Panel on Climate Change has been highlighting new IPCC research that says that the Himalayan glaciers, which supply water to 1.3 billion people, may be melting.

However, similar claims were made in the IPCC’s third assessment report in 2001 about the snow cap on Mt Kilimanjaro years ago, which is now returning, proving it was never anything to do with climate change in the first place.

In a press release on Monday, Ofgem proposed new measures designed to shake up the business energy market, and encourage energy suppliers and brokers to provide a better service.

Ofgem are continuing their review of the business energy markets this week, proposing major changes for the business utilities industry.

The new measures include improved standards of conduct for suppliers, more protection for small businesses, more protection for businesses using a broker, and investigating supplier conduct during the switching process.

Utilities Savings has worked to a strict Code of Practice since October 2009. We fully welcome this news, having taken part in the consultation by Ofgem earlier this year.

We are particularly pleased with the intention to create a new accreditation scheme for business TPIs (Third-party Intermediaries). Utilities Savings is one of around only 30 brokers in the UK accredited by the Utilities Intermediaries Association (UIA).

Currently, there is no way of enforcing standards of conduct for all energy brokers in the UK. The UIA is an independent body designed to set standards and build confidence for those companies that use a business energy broker, but membership is voluntary.

Click on each of the 4 headings below to read more about each element of the reform.

Ofgem market reform in detail:

Ofgem documents:
Ofgem Press Release 21/11/11 | Ofgem Factsheet 110 – Protecting businesses