Weekend press round-up: Green energy stampede sends prices sky-high

In our latest review of sector coverage across the national newspapers, concerns are raised about a bubble forming in renewable energy. Elsewhere, National Grid discusses plans to link North Sea wind farms directly to interconnectors; the implications of water trading are set out and there are accusations that the UK’s public electric vehicle charging network is not growing fast enough to meet demand

Green energy stampede sends prices sky-high

BP boss Bernard Looney took to Instagram last Monday to post an image of a giant offshore wind turbine. He had just won the right to dot the sea off the coast of north Wales with hundreds of them.

“While we might be new to offshore wind, we’re not new to offshore,” wrote Looney. “We have spent more than 50 years working on complex, demanding projects out to sea. It’s what we do.”

One year after taking over as boss of the oil giant, Looney sent tremors through the energy world with two knockout bids for seabed leases to build wind farms in the Irish Sea.

It was BP’s first foray into the world’s most advanced market for wind power, under Looney’s strategy of shifting the fossil-fuels business away from hydrocarbons and into renewables to hit the company’s target of net zero carbon emissions by 2050.

It was also one of the most expensive debuts. BP teamed up with German electricity company EnBW Energie Baden-Württemberg to secure a total capacity of three gigawatts (GW) — enough to power about 2.8 million homes. Their bids blew rivals out of the water. They committed to pay the Crown Estate £462 million a year just for the option to develop the seabed. That means parting with £1.8 billion in the four years BP reckons it will take to get to a final investment decision.

BP’s bids — won during more than a week of blind auctions — were so bullish that a rival had to ask the Crown Estate, the Queen’s property company, to double-check the numbers because they thought an extra zero had accidentally been added.

That option fee was 73 per cent higher than the amount committed by the next-highest winning bidder, Germany’s RWE. It was also roughly 20 times the price paid in the previous auction to secure seabed rights, in 2009. Only once they start generating power will that fee shift to 2 per cent of turnover.

Another successful bidder in last week’s auction was the French oil major Total, which won 1.5GW in a joint bid with Macquarie.

Under pressure from shareholders and climate campaigners to clean up their emissions, the oil giants are pouring billions into an already crowded market.

Shell last week joined BP in setting a target of hitting net zero by 2050. It, too, will invest in low-carbon businesses such as wind, solar, biofuels and hydrogen, although spending will be dominated by oil and gas for the near future.

The stars have aligned politically: both Boris Johnson and Joe Biden have made renewable power central to their ambitions.

However, the green rush has raised concerns about a bubble that could force down returns in renewables or push up costs for consumers as bidders try to recoup the cost of exuberant bids.

Keith Anderson, chief executive of Scottish Power, said: “It’s good for the UK, it’s good for the entire offshore market to have companies looking to build offshore wind. The challenge is that they’re all a bit late to the party. And when you’re a bit late to the party you sometimes become a bit desperate.”

Scottish Power’s Spanish owner Iberdrola was unsuccessful in last week’s auction, as were a number of other established players in the wind market, such as Danish company Orsted. They balked at paying prices that would crush their usual returns, requiring huge upfront costs before a watt of electricity has been generated.

Even bigger hurdles lie ahead of the oil giants, from carrying out bird surveys to getting planning permission, lining up construction companies and turbine makers, and securing power connections to the grid.

Also, to obtain a guaranteed price for their wind power, BP and Total must bid into another kind of auction: the contract for difference (CfD) scheme. At these reverse auctions, held every two years, bidders undercut each other to offer the government the lowest price for their electricity, in return for a guaranteed price for their power for 15 years.

In the last CfD auction, in 2019, bidders set a record low price of £39.65 per megawatt hour — below the current average wholesale price of about £45 per MWh, and a far cry from the £150 per MWh secured by the first offshore wind projects. At that price, new offshore wind projects become effectively subsidy-free.

Barclays analyst Dominic Nash wrote: “These huge upfront costs will put up barriers to entry for utilities and oil and gas companies without very deep pockets.” He added: “These inflated costs will be borne by consumers, and the Crown Estate can take whatever economic rent it likes.”

Read the full article (subscription required) here

Sunday Times

National Grid plans to link offshore UK wind farms direct to continent

North Sea wind farms could be connected directly to continental Europe via giant power cables beneath the English Channel under plans to improve the trade of renewable electricity between Britain and the EU.

National Grid, the UK utility, is examining a plan that would make it more efficient to export such renewable electricity generated in British waters in an effort to boost energy trading with Europe after Brexit.

The UK has the world’s biggest offshore wind market and Boris Johnson, the prime minister, plans to quadruple capacity to 40GW by 2030.

The UK left the EU’s internal energy market on December 31 but energy trading has so far continued largely unaffected.

Companies such as National Grid have built subsea cables known as interconnectors, which both import and export electricity to countries including the Netherlands, France and Belgium. They hope these can enable them to capitalise on growing demand for clean energy as key sectors, such as transport, switch away from fossil fuels.

National Grid, which also oversees Britain’s electricity system, says it has signed an agreement with its Dutch counterpart TenneT to explore linking North Sea wind farms directly to interconnectors. Individual offshore wind farms already connect directly to British shores but this deal could enable a giant offshore North Sea network, according to National Grid.

The plan, which is in the early stages, could also reduce the number of subsea cables running into British coastal communities — an issue that is causing increasing friction in areas such as Norfolk.

“Although we’re not part of the internal energy market, the commitment to co-operation [between the UK and Europe] continues,” John Pettigrew, chief executive of National Grid told the Financial Times.

“If you don’t need the offshore wind in the UK it could be directed to Europe and vice versa so from a trading perspective it might be a more efficient way of optimising renewable energy across Europe,” Pettigrew added.

The Financial Times

SSE in £15bn plan to become global windfarms giant

Renewable energy giant SSE has launched a plan to become Britain’s first global windfarm business as it invests up to £15billion over the next decade.

Chief executive Alistair Phillips-Davies said he is looking to ‘branch out from the UK and Ireland’ to build windfarms in continental Europe, the US and Japan.

Last month, SSE submitted a bid to develop Denmark’s largest offshore windfarm, called Thor, in partnership with Danish investment fund Copenhagen Infrastructure Partners.

‘There is nobody on the planet building more offshore wind businesses than we are right now,’ Phillips-Davies said.

‘Between now and the end of the decade you could easily see £14billion, £15billion of investment being spent by us.’

SSE’s investment in a global expansion would be multiplied by further funding from investment banks and other project partners, he added.

The FTSE100 firm has the largest offshore wind development pipeline in the UK and Ireland including the £9billion Dogger Bank windfarm off the coast of North Yorkshire. Dogger Bank will be the world’s largest offshore windfarm when complete in 2026.

The firm plans to treble its renewable energy output by 2030 by investing about £1.5billion each year, allowing it to compete with global windfarm businesses including Denmark’s Orsted and Germany’s RWE.

SSE is also developing carbon capture and storage projects along the east coast of England and Scotland to help decarbonise other industries and move Britain towards a hydrogen economy.

Phillips-Davies said he would be keen to partner with BP and Shell on renewable projects as they transition towards greener energy.

‘They are two of a number of parties we are speaking to,’ he said. ‘We currently work with two of their competitors, Equinor and Total. It would be nice to see more British companies coming into that sector.’

SSE’s renewable energy projects have created 1,000 jobs since lockdown. Phillips-Davies said he will recruit another 2,000 to 2,500 employees in the next 12 months with many of the jobs located in remote areas.

Mail on Sunday

Lake District tranquillity shattered as England’s water shortages take toll

David Weeks has a sweeping view from his home above Keswick in north-west England’s Lake District national park: from the fells of Latrigg and Skiddaw down to the shimmering lake Derwentwater — but it is interrupted by four giant blue valves set in concrete outside his kitchen window.

The valves are part of a £300m project by water company United Utilities to lay 100km of pipeline to supply coastal towns after it was forced to stop extraction from the river Ehen.

The river is home to protected species, including the freshwater pearl mussel, and UU says the Environment Agency, a government body, will withdraw the abstraction licence for the area in 2022.

Such disruption could become commonplace across rural England as utility companies seek alternative water sources as weather patterns change. Southern England is at risk of regular droughts by 2040, according to the National Audit Office, and companies will need to cut by more than 3 per cent the amount they extract from rivers and lakes to maintain water catchments and support wildlife.

Water trading – moving water from wet areas to drier areas — is an increasingly appealing solution.

Ofwat, the regulator, recommended in 2015 that utilities do it more often as a means of easing water shortages more cheaply than, for example, building reservoirs. Last year it established a £469m fund to encourage the industry, made up of privatised water companies covering distinct regional areas, to work together.

Anglian Water, for example, which provides water to 6m customers in the east of England, is seeking to use the fund to build a new reservoir in south Lincolnshire to take pressure off other parts of its network and allow it to make transfers to Affinity Water, which supplies parts of Essex and Hertfordshire.

It already pumps around 50m litres to Affinity Water every day and is building a 500km pipeline to move water more freely around its own region.

UU, the company for north-west England, began work in 2017 on a project to move water from the Thirlmere reservoir in the Lake District through more than 100km of new and replacement underground pipes to Workington and Whitehaven on the west coast. There will also be new water treatment works, pumping stations and underground service reservoirs.

But farmers who make a precarious living while obeying tight restrictions on maintaining the landscape said the pipeline was costing them money, although UU has promised full compensation at the end of the project in 2022.

While the work has gone smoothly in some areas, dozens of farmers and residents are facing disruption.

Read the rest of the article (subscription required) here

The Financial Times

UK public charging network not growing fast enough to meet demand

The Government “green” agenda has been put at risk because Britain’s charging network is failing to grow fast enough to keep up with the surge of new electric vehicle sales.

Sales of battery-powered cars surged 186pc last year, with 108,205 new vehicles registered, according to figures from the Society of Motor Manufacturers and Traders (SMMT).

By contrast, a total of 4,270 new public charge points were installed during the 12 month period, representing a 26pc increase.

Estimates from Rho Motion suggest Britain needs to develop as many as 12,000 new public fast chargers per year in order to maintain a viable ratio of charge points to cars. London-based consultancy Capital Economics has said Britain will need as many as 25m charging points by 2050 in order to service the country’s fleet.

Charlie Jardine, the chief executive of EO Charging, which builds plug-in stations for private companies including Sainsbury’s and DHL, said the public infrastructure was not being installed fast enough to cope with demand.

“While the best scenario for electric vehicle (EV) drivers is to be able to charge at home or at work, this is not always possible,” he said. “It’s vital that we develop an extensive and reliable public charging network for private and business road users.”

Mr Jardine said without a proper charging system, it would “risk putting people off” switching to electric.

EVs form a crucial part of the Government’s plan to wean the country of diesel and petrol. Boris Johnson brought forward the ban on the sale of internal combustion engines to 2030 last year.

Adam Panayi, managing director of EV data firm Rho Motion, said that not enough attention had been given to the development of charging infrastructure.

“People talk about a ban on internal combustion engines in the UK by 2030,” he said.

“But if you’re going to have that level of state intervention in the vehicle market, there has to be some degree of intervention in the charging piece as well, because you can’t have one without the other.”

Mr Panayi said the ratio of electric vehicles to charging points was likely to get worse before it gets better over the next three years.

“What happens is when there are more EVs on the road, the business case for investing in these charging points increases,” he said. “So you always have that demand before supply.”

Daily Telegraph

UK to set up green finance research hubs in London and Leeds

The UK government will set up a new green finance research centre based in London and Leeds to advise the private sector on sustainable investments.

The £10m hubs will “provide world-class data and analytics to financial institutions and services such as banks, lenders, investors and insurers” to “better support their investment and business decisions by considering the impact on the environment and climate change”, according to the Department for Business, Energy and Industrial Strategy (Beis).

It will be called the UK Centre for Greening Finance and Investment and will launch in April.

Beis said the new centre could give financial institutions “the latest environmental and scientific intelligence” to guide their investment strategies.

The new centre comes after Rishi Sunak last year unveiled a swathe of green finance initiatives, including the launch of UK green bonds this year and a new regulation making financial institutions report on their climate impact by 2025, as a part of the government’s net-zero by 2050 target.

City minister John Glen said: “We’ve set the ambition for net zero – now we must ensure our financial sector has the tools and information to get behind the transition.

“We’re already improving the climate data available by mandating TCFD-aligned disclosures across the economy and implementing a green taxonomy.

“This new centre will advance the UK’s leadership in green finance and bring forward the day when firms can access environmental data and analytics for every place on Earth, past, present and future.”

CityAM

Utility Week’s weekend press round-up is a curation of articles in the national newspapers relating to the energy and water sector. The views expressed are not those of Utility Week or Faversham House.