Utility Week

16 | JUNE 2023 | UTILITY WEEK Interview of any reforms, particularly if there is a change of government, given Labour's commitment to a net-zero emissions elec- tricity system by 2030. "If Labour got in, they have said they want a net-zero system by 2030," he says. And the government's wholesale reforms must be seen in the context of other countries upping the pace of their own low-carbon generation deployment. "Everybody else is doubling down, and over the past six months we are just putting more uncertainty on the table. It's not just REMA, it's the generation levy, it's the Energy Prices Act, which had some quite interventionist powers," he says, referring to both the so-called windfall on low-carbon generation and the emergency energy market legislation which was introduced last autumn. None of these measures individually will put off investors but combined they cool sentiment, he says, noting that just two days before we meet, one of RWE's international investors had told him that it was putting a scheme on the backburner. UK remains an attractive market This doesn't mean that the UK is no longer a good place to invest in low-carbon energy, Glover says: "The UK still remains an attractive market. It's probably gone from being the most attractive to one of the top five. "RWE still thinks the UK is a good market to invest in: we still have an ambition to invest £15 billion in UK low- carbon investments by 2030 so it's still a high priority market, but I can't deny that convincing our group that they keep on allocating that money to the UK gets more and more difficult." An example of a small but "good faith" gesture, which could bolster investor sentiment, would be scrap- ping the sweeping powers that the government gave itself in the Energy Prices Act last autumn, he adds. Other steps that would bolster confidence would be to enhance capital allowances for renewables projects and increase the budget for the current Contracts for Difference (CfD) allocation round, he says: "If you want to maintain or increase the amount of renewables deployed, you have to increase the budget." The government may be anxious that increasing the budget would weaken competitive pressure, which has delivered plunging renewable electricity prices over suc- cessive CfD auctions. But deploying the maximum possible renewable generation is the long-term route to lowest costs for consumers, Glover says: "They [government] might say that an extra one or two pounds per megawatt-hour isn't worth it. We would say that one or two pounds an hour is worth it because you're deploying stuff much faster and the consumer gets the benefit of that low marginal cost power for the next 15 years." Meanwhile, other renewables developers, like SSE, have been warning that projects procured with rock bottom strike prices in the most recent CfD allocation round (four) will be difficult to deliver in the current environment of high inflation and rising interest rates. RWE didn't have any CfD-winning projects in the fourth round, but based on his experience of the Sofia North Sea offshore wind project, which the company won a CfD contract for in the previous round (three), Glover can understand why developers are finding it hard to make their sums stack up. It was "extremely, difficult" to get Sofia, which is due to deliver 1.4GW of power when complete and is based on a similar strike price to projects in the fourth round, to final investment decision, he says: "We're very happy with it but it's difficult. I can only presume if they are looking at the same figures that it's extremely chal- lenging for those companies to get there." Even if companies do proceed with CfD projects, Glover cautions the government against being lulled into assuming that low strike prices for contracts are sustainable. By the point of final investment decision, projects have so many "sunk costs" that proceeding is generally the sensible option. However, if companies have had to effectively write-off substantial amounts of money to get projects over the line, they are bound to have second thoughts about getting involved again, he says. "That is not a sustainable way to have an industry." Meanwhile, Glover is cautious about the govern- ment's proposals, outlined in a call for evidence published in March, about putting more emphasis on non-price factors when awarding CfD contracts. Injecting these non-price factors, like providing sup- port for the ports that serve offshore wind projects, into the process will have only a limited impact if the timing of CfDs stays the same, he says: "When we're bidding into the CfD, we've already tried to work out our supply chain and we've already got a very well thought out plan because we've got to put a number on the table." What could help most is to bring forward the timing of awarding CfDs "much earlier", one of the recommen- dations in the government's offshore wind champion Tim Pick's recent report or incorporating non-price fac- tors into the lease award. Front-loading the process this way gives a greater chance of influencing the development of supply chains that take "years" to develop, Glover says. And while in principle favouring a more robust UK supply chain, there are tensions surrounding a shi¥ to a greater home-grown element, he warns. "Everybody wants everything. They want a local supply chain but they also want it as cheap as possible to the consumer and they want it delivered as fast as possible. Those things actually have some element of conflict." The other weakness in the existing CfD system is that it is still focused too much on individual projects when pieces of infrastructure, like port facilities, will probably be used by several different developers. He says it would make more sense for wind developers to pay into a shared pot to deliver these large pieces of infrastructure. There's little point in winning CfDs, though, if it's not possible to secure a grid connection, which has been an ongoing gripe for Glover, like many renewable develop- ers, over the past two years. Initiatives like Ofgem's Accelerated Strategic Trans- mission Investment grid upgrade programme are "really good" and "difficult" to criticise, he says. At the time of our meeting, RWE has yet to see any of its stalled grid connection applications move forward. Joking that RWE ran out of patience with grid connec- tion delays long ago, he says: "It's very positive that it's been addressed. "It feels like it's going the right direction. The proof is in the pudding: when I actually get the connection dates, I will declare success." "Everybody wants everything. They want a local supply chain but they also want it as cheap as possible to the consumer and they want it delivered as fast as possible." continued from previous page

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