Scottish Power chief executive Keith Anderson has questioned the apparent obsession with achieving ‘subsidy-free’ renewables, warning it will not happen any time soon in the UK for technologies such as offshore wind.
Anderson took part in a panel debate around ‘post-subsidy’ renewables at Aurora’s Spring Conference.
Asked which markets are most attractive to parent company Iberdrola in terms of ‘subsidy-free’ development, Anderson replied that he “hates the expression”.
“I can’t understand why the renewables industry has become obsessed with talking about becoming ‘subsidy-free’. Right now, nothing in the UK energy industry is being built without some form of support, so why in god’s name is the renewables industry running around desperate to [be seen] as subsidy-free?” Anderson asked.
“Everything has some form of support. If you think we are going build a £2.5bn offshore wind farm in UK at market risk, you’re bonkers.”
While power purchase agreements (PPAs) with large corporates are seen as a way of mitigating risk for developers, Anderson said the UK market for such deals is nowhere near mature.
“If the only thing out there is a corporate PPA, the market will slow down dramatically, because frankly, that market doesn’t really exist in UK [at the scale required],” he said. “That might change in 5-10 years, but it doesn’t exist right now.”
Anderson lauded the contracts for difference (CfD) support mechanism, which stabilises revenues for renewables and low carbon generators, as more successful than its predecessor, the Renewables Obligation.
“It has been fantastic at bringing real competition into auctions and driving down prices.”
The most recent CfD auction saw some offshore wind projects take a strike price of £57.5/MWh, around half the price of early offshore wind contracts. Anderson suggested prices would fall further due to supply chain investments, but reiterated his call for continued support.
“I caution against talking about subsidy-free world, or a world without a mechanism to underpin investment risk,” he said, pointing to the ongoing construction hiatus of unsubsidised large power stations.
“A gas plant is probably the easiest and quickest thing to build… but nobody is building those right now.”
Asked whether the Capacity Mechanism was viewed as a subsidy, Anderson replied that it was “meant to underpin investment risk”, but for large thermal plant such as combined cycle gas turbines, or CCGTs, “it is just not doing it”.
“So if you want that type of investment [CCGTs], you need to underpin that investment risk.”
Anderson added to calls from other renewables companies speaking at the conference to bring onshore wind into the CfD mechanism.
“If it is the cheapest form of generation, then underpin it with a market mechanism,” he said. “Why shouldn’t UK consumers get the benefit of that cheap energy?”