Utility Week

UTILITY Week 26th June 2015

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8 | 26TH JUNE - 2ND JULY 2015 | UTILITY WEEK Interview called on the new government to respect the outcome of the probe to restore much- needed trust in the industry – for both con- sumers and investors. "The CMA investigation is the right way to determine the heath of competition in the UK energy market, to reassure investors, and to re-establish trust for customers. The UK utility sector has the highest political risk in Europe. That must change," he said. Specifically, Anderson said further investment is needed in pumped storage, a key technology that should emerge as intermittent wind deployment increases. "There will be a greater potential role for pumped storage to provide cost-effective balancing services. This view is supported by National Grid. They estimate that an additional 4.5GW of new reserve is required by 2020. But current market conditions will not support such investment, so the new government will need to look again at possible incentive mechanisms," Anderson said. But central to the need for trust and investment is a stable electricity market reform (EMR) mechanism. Anderson called for EMR to have time to "bed in". "It's vital that this pillar of the framework continues to be respected by whoever forms the next government," he said. But this hope, too, appears to have been dashed. Back in the present, Anderson's argument in favour of onshore wind is less about celebrating the sector's success and more about trying to safeguard its future. Scottish Power will be working hard with government to ensure the framework survives the latest assault on its credibility so future growth is still an option, he says. "What we're looking to do now is to take up the debate with the government and ask, 'what's the future, where do we go from here?'" Anderson says. "[The Conservatives] have the absolute mandate to implement what they said in the manifesto. But I think the debate is how do you implement what was in the manifesto in a way that shows quite clearly the Conserv- atives have followed through on their pledge but in a way that protects investors, gives the best deal for consumers and allows the industry to keep going on and growing." One way that the government may have hoped to limit the collateral damage is through the inclusion of a "grace period" that will allow a maximum of 5.2GW of onshore wind to progress under the RO aer the April 2016 clo- sure provided full planning and land rights are in place. Anderson says this is "helpful" but there will still be an impact on individual projects, the renewables sector and decarbonisation delivery beyond the next decade. "Like every developer there will be projects that we've spent money that won't access the RO so the next ques- tion is to go away and look at those, work out whether you think they will be in the CfD mechanism or whether you think there will be no support at all," he says. The CfD regime is now crucial. And with no decision on how it might change, there is everything to play for in convincing government that onshore wind should be included. Anderson is clear that there should be a place for onshore wind in the mechanism to help meet the UK's decarbonisation targets and drive down the overall cost burden on the levy control framework funding pot. Analysts have suggested that the 5.2GW grace period is generous enough to allow onshore wind to meet the consensus 2020 deployment forecasts. Others have added that decarbonisation targets are still achievable. But Anderson thinks this misses the point. "We've got renewable energy targets that we want the UK to achieve and that the UK has signed up to, but we'd quite like to see the UK go beyond those. The UK is in further conversation with Europe and the rest of the world about setting new environmental targets for the longer term so we would always encourage a government to look to the future rather than the next debate and the next target. Otherwise the danger is that you stall the industry and you stall the investment in the industry by restricting it. You need to look beyond the target to see where you go next." Short-termism comes at a cost, Anderson adds. "The conversation we're having with government is that if you allow onshore wind to continue to compete in the CfD auctions it will drive down the cost of the overall delivery of the programme because it will compete and it will make other technologies more efficient." Onshore wind costs have already fallen from over £100/MWh to £80 and Anderson says the technology could reach grid parity by the end of the decade. "If the wholesale power price and the cost of the capacity mechanism leave the overall power cost at around £60- 65/MWh then you can debate whether a CfD price of £70/MWh can really be considered a subsidy, he argues. Onshore wind isn't looking for a handout – but like all other generation types in the UK energy mix, it does still need the certainty offered by the contracts to remain competitive and cost effective." In the eyes of an investor, Anderson points out, an attack on onshore wind support not only raises the cost of decarbonising the power sector but is also a blow to the whole support mechanism intending to bring cer- tainty to a radical overhaul of the UK's generation mix. "The concern from companies like ourselves and from investors is that you're putting money at risk under an agreed framework that has a specified timeline and specified rules. What you don't want to see are sudden changes and unexpected changes to those rules and those timelines because that damages your confidence as an investor – and not just in that specific investment but in what might happen elsewhere," he says. The consent process for the next phase of its East Anglia offshore project, for example, will take over three years and £100 million to complete. "You need to be very confident that a government is not going to change its mind or change the rules of the mechanism in that three- year period it takes to get that projected consented." Much of the generation mix is already underpinned by subsidy mechanisms designed to bring certainty to an otherwise risky endeavour, and Anderson argues that onshore wind is only asking for what every other tech- nology is receiving. It's the only point at which he devi- ates from a message of solution-driven pragmatism to show genuine frustration. "Why would you come to a conclusion that the only generation technology in the whole of the United King- dom that somehow magically doesn't need any kind of support at all would be onshore wind?" But with just a few weeks of further government debate before the details of the next CfD auction is final- ised, Anderson quickly returns to the task at hand: meet- ing the Conservatives half way. "We can show that onshore wind should be allowed to carry on with CfDs and that by doing that we will make onshore wind as competitive as any other genera- tion technology in the UK – then the Conservatives will still have implemented their manifesto pledge." "You need to look beyond the target to see where you go next… short-termism comes at a cost"

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