Interview: Steve Riley, CEO & president, GDF Suez Energy UK-Europe

“Now is probably the first time after 20 years of a privatised industry where we have almost closed the circle again.”

I first meet Steve Riley on a jaunt to north Wales for the 50th anniversary of Ffestiniog Power Station in August. It has the air of a school trip, as assorted folk from the GDF Suez London office and minority shareholder Mitsui pile into a minibus at Llandudno Junction and it winds through the valleys. Unlike with schoolchildren, there is a certain anxiety to justify the day out of the office, with everybody reassuring each other of the importance of seeing what the business is really all about. Or perhaps that was just me.
Ffestiniog and neighbouring Dinorwig pumped hydro stations were born in the era of the Central Electricity Generating Board (CEGB) and have provided storage and flexible generation ever since. As more inflexible nuclear and intermittent renewables come on the system,
their services will become “increasingly important”, Riley says.
Now chief executive and president of the snappily titled GDF Suez Energy UK-Europe, Riley has mapped a similar course through the industry. He joined the CEGB after completing an engineering degree and PhD at Liverpool University, in his native city (although please note, he is an Everton fan). Through privatisation and various splits, mergers and takeovers, he has stayed put while the market has changed around him.
He is now responsible for a portfolio totalling 4GW in the UK and 2.9GW across the rest of Europe and Turkey. That makes his division the largest independent generator in the UK by capacity and second, after Drax, on output. It is a diverse mix both in terms of scale and technology, from a 1MW solar farm in Spain to a majority share in the 1GW Rugeley coal power station in Staffordshire.
When we meet again, in the more conventional surroundings of his HQ near Mansion House, London, Riley ruminates on the turning of the tide towards greater government control. “Now is probably the first time after 20 years of a privatised industry where we have almost closed the circle again… If you go back to the 1990s, there was massive overcapacity in the market. The market structure was fine to encourage new entrants, but at the same time you could see National Power and Powergen closing old, inefficient plant. This is the first time the market has had to be redesigned to encourage investment. It feels as though we are in an area that is much more regulated.”
Riley is wary of this shift. “I think you would find most people in the industry still believe in the free market. In that context, any intervention should be treated with caution. I do think there is a danger we are going slightly too far.”
In particular, he is critical of National Grid’s “supplemental balancing reserve”, a short-term measure to ensure sufficient spare capacity in the coming few years, before longer-term arrangements to support security of supply kick-in. Riley says this will encourage inefficient plant to stay on the system while dampening market signals to bring on new generation. “It is fine to think about capacity markets – that is a long-term solution that is thought through – but this is just a bit knee-jerk.”
Beyond the UK, GDF Suez is one of the “Magritte” group of ten European utilities lobbying for an end to renewables subsidies and a Europe-wide capacity mechanism to avert the risk of blackouts. The backlash follows the closure of an estimated 51GW of combined cycle gas turbines (CCGTs) across the Continent that have become unprofitable in a market flooded with subsidised wind and solar.
Is the Magritte group fighting the inevitable? A recent analysis by Citi concluded the available market for European power utilities will halve in the next 20 years, as distributed generation and demand reduction squeeze them out. Unsurprisingly, Riley disagrees. “On the basis of what is happening in Europe – if you take Germany, say – yes, there has been a big increase in distributed generation and we have seen the impact on thermal plant. I still believe there are economies of scale in thermal generation that distributed generation won’t be able to replace.”
Conventional generation in the UK is not in quite such a parlous state, renewables growth having been slower than in some European neighbours. Nonetheless, despite an anticipated shortage of spare capacity mid-decade, short-term price signals have led to the mothballing or closure of a number of gas-fired power stations. GDF Suez has officially closed its mighty 1,875MW Teesside station.
“On the positive side, the UK government is ­trying to address the fact that the market is not ­encouraging ­new-build,” says Riley. “It is taking a lot longer than anticipated,” but government plans to introduce a ­capacity market to pay generators for being available, even if they only run part-time to back up renewables, are “a good idea”.
In any case, Riley’s focus in the UK is on making the most of existing assets. There are no immediate plans to build new CCGTs, although “in the medium term, it is probably still the technology of choice”. In fact, the only projects under construction are 41MW of onshore wind, which he sees as relatively low risk. “We have had the review of the Roc [old subsidy] regime, so there is that stability in the short term and it is a more mature technology than offshore… We think onshore wind will continue to be part of our growth focus in the UK.”
The company must also decide in the next couple of years what to do with Rugeley, as European legislation limiting coal emissions takes effect. It has ruled out ­converting it to run on biomass. That would entail setting up a new supply chain, with all the associated port arrangements and logistical complexities. It would be “an exciting industrial project”, says Riley, but there is “still not an altogether clear regime for the reward”.
Then there is the question of whether to invest to keep Rugeley running on coal, which has been complicated by a recent Lords addition to the government’s Energy Bill. GDF Suez has provisionally told the government it is minded to install the NOx abatement kit needed to keep the plant open under the Industrial Emissions Directive. However, peers have voted to extend the Emissions Performance Standard from new coal plant to old ones making “significant upgrades”. That would limit the running hours of plant opting in to the directive.
“The amendment is designed to get even opted-in coal plant to close earlier,” says Riley. “It cuts coal out of the mix, where it could otherwise contribute to security of supply. We understand the need for decarbonisation, but believe coal can continue to play an important role.”
The Lords amendment, which was something of a surprise addition to the Bill, could yet be reversed by the government in the Commons. “It would have an impact if it was not overturned,” says Riley. “I am not sure we fully understand the details at this stage… but it would mean there is no benefit to upgrading NOx equipment. Our understanding is that [the Department of Energy and Climate Change] is not in favour.”
One of the things Riley is hoping for from government reforms is a more liquid and transparent market. While he defends the vertically integrated companies from the commonly levelled charge of rip-off profits, he says they should be more open for the sake of trust in the industry. “We don’t have the direct interaction with residential customers, but we are certainly affected by the reputation of the industry at large. While there is not much we can do in terms of interface with the residential customers, we certainly need to be engaged in the debate. To that end, I don’t think the margins that the big six make are extortionate, but perhaps the industry needs to develop more transparency.”
Outside the UK, Riley’s main interest is in Turkey, which is starting to shift its electricity market away from state backing and control. GDF Suez has stakes in two gas-fired power stations and owns a gas distribution network in the country. There is a chance to pass on the UK experience of liberalising the market, he says. “With those long-term assets, they will come out of contract at the end of the decade, so we will need to be in a position to market that power in a free market. That is the focus.”
As the UK turns back to state intervention, Turkey is opening up. It’ll be just like the good old days, maybe.