Wulf Bernotat’s corner office overlooking the Rhine is a long way from the
corridors of Whitehall, where the big decisions about British energy policy
are made. Yet from his ninth-floor perch at the Dusseldorf headquarters of
Eon, the chief executive of the world’s largest quoted energy company has a
clear view of Britain’s energy predicament.
“You have old nuclear plants, old coal, expensive gas, a need to invest in
renewables to reach unrealistic targets, and a slow [planning] process.
Doesn’t that sound like a problem to you?” he said. “The situation in the
energy sector in the UK is more difficult than a number of other countries
in Europe, without people fully realising it.”
Coming from the cigarillo-smoking German, arguably Europe’s most powerful
energy executive, it is a damning indictment. He has not been shy about
sharing his views with the government. “We have seen the energy adviser at
No 10,” he said. “We need a framework that enables and encourages
investment.”
His assessment comes amid fresh concerns about a looming energy generation gap
that some fear will mean blackouts across Britain. By 2015, nine coal and
oil-fired power plants will close due to tightening EU pollution controls.
Eight of the country’s nine nuclear plants will shut by 2020. All these
closures will take out about a quarter of our generating capacity. Yet new
stations to replace them are held up in the planning process, where the
average waiting time is nearly two years.
Bernotat, a former Shell oil executive, knows this only too well. He is trying
to build Britain’s first new coal-fired station in more than 30 years, a
£1.5 billion plant at Kingsnorth, Kent. Environmentalists camped out there
this summer in protest, and some MPs have argued against it. Nearly two
years after submitting its request for planning approval, Eon is still
awaiting a green light.
“The planning process takes too long,” said Bernotat. “We must be thinking
about supply security, affordability and environmental concerns, and
bringing those three factors together in a balanced way. It is very
difficult but that is the challenge.”
After years of foot-dragging, the government is listening. Last month it
created a stand-alone energy department, headed by Ed Miliband. A planning
reform bill that would set up an independent commission to approve large
infrastructure projects and remove local councils’ veto is expected to
become law next year. The energy industry argues it is vital if it is to
invest the £100 billion needed for new nuclear, coal and gas-powered
stations, wind farms, and upgrades of the ageing gas and power grids.
Eon is at the centre of those plans. In addition to Kingsnorth, Bernotat wants
to build one or two new nuclear plants at a cost of almost £4 billion each.
He is also one of three developers of the £3 billion London Array, the
world’s largest proposed offshore windfarm, in the Thames estuary.
But just as the government has accepted the urgency of Britain’s situation,
the credit crunch threatens to derail its best intentions. Bernotat said
last week that the company had decided to review its €63 billion (£54
billion) global spending plan . “There are a number of conventional
powerplant projects for which we have made no firm commitments,” he said.
“Component prices have just passed a peak and they may come down in the wake
of lower steel and other commodity prices. Thus keeping such projects on
hold looks the right thing to do.”
Kingsnorth, the Array and the nuclear projects all fall into that category,
though he said the company remains committed to them. Soaring costs forced
Eon last month to bring in Masdar, the Abu Dhabi renewable-energy investor,
as a partner in the Array. Royal Dutch Shell sold out of the project this
year because of its “questionable” economics.
The dearth of project financing has put all the utilities in a similar
position. Pressure is growing, meanwhile, to reduce household energy bills.
All the big six utilities pushed through two rounds of price rises as the
oil price, to which gas and electricity prices are closely linked, rose to a
record in July. It has lost 60% since then. Scottish & Southern Energy
was the first company to come out last week to say it would cut prices in
the new year.
Bernotat offers no such comfort, saying the UK retail business made a loss
year and will perform worse this year.
He still chafes at the mention of fuel poverty. Gordon Brown strong-armed the
industry this summer into funding a £1 billion package to help poor
customers. “Is this really something the provider of goods and services
should do something about? Is it not an issue where the state should find
mechanisms and systems to address it?” he said. “Where do you stop? Milk?
Bread? Petrol?”
Bernotat regards such measures as heavy-handed. Last year Eon made a profit of
€12.5 billion on €69 billion in revenue from operations in 30 countries. In
the grand scheme of things, Britain is small beer.
“We operate on a worldwide scale, so it is normal that we want to invest where
conditions are right so that we can make a good return,” he said. We are not
doing things on a national basis or as part of a government implementation
scheme. Principally, you go where you can get the best possible conditions.”
With the government’s decision on Kingsnorth imminent, Eon will remain
uncomfortably in the public eye in Britain. Miliband has been non-committal
on the project whereas his predecessor John Hutton had thrown his support
behind it. In September, the government-funded Environment Agency called for
a moratorium on new coal stations until carbon capture and storage (CCS)
technology is proven on an industrial scale. This is at least 10 years away.
Bernotat shrugs off the mixed signals. “Sometimes government behaviour isn’t
rational,” he said. Eon has entered Kingsnorth in a government competition
worth hundreds of millions of taxpayers’ money to build the first pilot CCS
plant in Britain. Even if it loses the competition, Eon has pledged to build
the plant - assuming it receives planning consent.
Nuclear power is no less tricky after the government agreed to sell British
Energy, holder of the keys to all the country's reactors and the most
desirable sites for new ones, for £12.4 billion to France’s EDF. The French
have pledged to build four new reactors, and said they will sell some sites
so that other companies can build more. Bernotat will believe it when he
sees it.
Eon wants to build at least one, possibly two new nuclear power stations in
Britain.
“The real question is whether EDF will be in a position to build all those
reactors. We are talking easily more than €30 billion in one market, one
fuel, all eggs in one basket. I am a bit more sceptical.”
