EDF Energy’s head of corporate responsibility strategy, David Ferguson, explains the UK utility’s plans to tackle climate change and fuel poverty

EDF Energy, the £5.75 billion wholly-owned UK subsidiary of French power giant EDF, knows the pressures on its industry to address climate change, affordable fuel prices and energy security.

As head of corporate responsibility strategy, David Ferguson must prepare EDF Energy to face these challenges. His job, he explains, is to build a “culture of sustainability” across the business. Ferguson joined the company four years ago and works to implement a “sustainable future” project to make EDF Energy an industry leader on tackling climate change and helping vulnerable customers.

He is honest about the challenge ahead: “We have got the awareness. We have got the understanding. But we have not necessarily got the action yet.”

EDF Energy plans to address climate change by generating “a balanced mix of generally low-carbon energy”, Ferguson says. By 2020, EDF Energy wants to have an electricity generation portfolio that combines gas, renewables and nuclear energy sources – but not coal. The company’s aim, set out in its “climate commitments” of 2007, is to cut the intensity of carbon dioxide emissions from power generation by 60 per cent by 2020 (from a 2006 baseline). Carbon intensity is the amount of CO2 the company’s power stations emit relative to the number of kilowatt-hours of electricity that they generate. The target allows EDF Energy to continue to increase its electricity market share while at the same time reducing emissions.

Intense debate

Environmental campaigners question the carbon intensity measure. Greenpeace senior climate campaigner Ben Ayliffe says: “Carbon intensity is nothing more than a clever book keeping trick that allows EDF to talk tough on climate change without making the deep cuts in emissions we really need.”

Echoing a common view among companies and investors, Ferguson defends the relative carbon reduction targets. “We could meet an absolute emission reduction target by simply selling our power stations to someone else or switching them off – that reduces our emissions but doesn’t solve the problem of keeping the lights on,” he says.

Ferguson admits that investments in cleaner power generation will take time to kick in, but promises a “step change” in the company’s progress towards meeting its targets. In the meantime, though, EDF Energy will continue running its two coal-fired power stations to ensure continuity of supply.

On renewables, EDF Energy has far to go before generating the 1,000 megawatts – one fifth of its current total generation capacity – that it has promised by 2020. The two wind farms the company has up and running have a combined generation capacity of just 4.25MW. EDF Energy’s total generation capacity is five gigawatts (5,000MW), made up mostly of coal and gas. The company has agreed to buy 900MW equivalent of electricity generated from renewable sources from other generators. These power purchase agreements will help those generators get finance for their renewable energy projects.

Even so, nuclear power will have a major role in EDF Energy’s future generation plans. The company says it wants to build four nuclear power plants in the UK, with the first operational by the end of 2017, and has tabled an offer for British Energy, the nuclear power station operator that is currently more than a third owned by the UK government.

Ferguson explains that nuclear is a suitable power source to provide the national grid’s base-load – the minimum amount of power needed at any given point in the day. Gas can be turned on and off very quickly, he says, making it a useful source to fuel short-term spikes in demand.

EDF Energy also plans to help its customers cut their carbon dioxide emissions by 15 per cent by 2020. The company sells energy to five million UK households a year. Currently, 300,000 customers have signed up to its “read, reduce, reward” scheme, a tariff that rewards customers with nectar loyalty card points for cutting their domestic energy use.

Ferguson says: “It’s quite weird for an energy company to reward customers for using less.” Customers benefit by giving the company accurate meter readings, meaning they get more accurate bills and so a better understanding of their energy use.

As EDF Energy encourages customers to use less energy, it is changing its business model by moving into energy services – advising corporate clients on how to cut their energy use to meet European energy efficiency laws. It also advises UK customers on how to prepare for the proposed carbon reduction commitment, the emissions trading scheme for non energy-intensive industries such as supermarkets, banks, hotels and hospitals.

Ferguson says: “We’re making small steps towards the energy services model. What it requires is much greater engagement of customers with energy, [and] between us and our customers, than is really there at the moment.”

Vulnerable customers

UK energy companies are under strong regulatory and public pressure to help eradicate fuel poverty. Households are defined as fuel poor if they spend more than 10 per cent of their monthly budget on energy. There are four million such households in the UK today, but analysts fear that a million more homes could fall into fuel poverty by the end of the year as energy prices continue to rise.

EDF Energy does not know the exact number of its fuel-poor customers, Ferguson admits. He believes energy companies could do much more to share information on vulnerable customers. This could include gaining access to lists of benefits claimants, who tend to be in fuel poverty. The company says it will work with the regulator, Ofgem, and the government to find ways to better identify which customers should be on a “social tariff” – a cheaper energy rate for poor households.

The company was the first UK energy supplier, in 2006, to introduce a social tariff. The discounted rate saves 50,000 customers up to around £150 a year compared to standard rate electricity and gas customers. The company has helped a further 8,000 indebted customers pay fuel bills since 2003. Under its “social commitments”, a set of social targets launched earlier this year, EDF Energy plans to help another 15,000 customers who are in debt pay fuel bills from the fund by 2012.

Energywatch, the UK industry watchdog, credits EDF Energy with taking a lead on addressing the needs of the poorest customers. But Energywatch’s Patricia Ockenden says the industry should “get rid of the excessive premiums levied on those who need to use pre-payment meters”. These meters allow customers to pay for their energy upfront and are mostly used by the poorest customers. In its social commitments, EDF Energy says it will keep the extra costs of checking pre-payment meters to a minimum.

According to Energywatch figures, the average annual fuel bill for an EDF Energy customer using a pre-payment meter would be £1,037 (based on June prices). That is £72 more than the £965 bill for an EDF Energy customer paying by direct debit. This is the lowest differential in the industry. The largest is charged by British Gas, whose pre-payment meter customers must pay £176 more a year than those that pay by direct debit.

EDF Energy has a leading position in addressing the needs of the poorest customers. But with average UK energy bills already over £1,000 a year and rising, all energy suppliers will be under pressure to cut margins by refusing to pass on soaring wholesale oil and gas prices to customers on all incomes. How EDF Energy responds to this much bigger challenge could be the real test of its social commitment.

Renewables development

In June 2008 EDF Energy teamed up with French sister company EDF Energies Nouvelles to create EDF Energy Renewables – a 50:50 joint venture between the two companies. The new company will develop, acquire and operate wind farms and other renewable energy assets, both onshore and offshore, in the UK. EDF Energy will agree to buy power from these sources.

EDF Energy says it is commissioning new onshore renewable energy sites with a total generation capacity of 26 megawatts. The first will be operational by the end of July. The company also has planning consent to proceed with a 90MW offshore wind farm at Teesside, off the north-east coast of England.



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