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In Britain, a green utility company sees winds of change  

Credit:  By Stanley Reed | The New York Times | Feb. 19, 2016 | www.nytimes.com ~~

KEADBY, England – A wind farm here, along the River Trent, cranks out enough clean electricity to power as many as 57,000 homes. Monitored remotely, the windmills, 34 turbines each about 400 feet high, require little attention or maintenance and are expected to produce electricity for decades to come.

“They’re very well behaved,” said Sam Cunningham, the wind farm’s manager, as she drove around the almost three-square-mile site.

The owner of the wind farm, the British electricity company SSE, has been betting big on turbines as well as other renewables for years, with multibillion-dollar investments that have made the utility the country’s leading provider of clean power. In theory, last year’s United Nations climate accord in Paris should have been a global validation of the company’s business strategy.

But instead of doubling down, the utility is rethinking its energy mix, reconsidering plans for large wind farms and even restarting a mothballed power plant that runs on fossil fuel.

The moves reflect the existential debate faced by many major power companies, as they grapple with real-world energy economics and shifts in government policy. The calculus for fossil fuels can be more favorable at a time when energy prices are low and countries like Britain are rethinking subsidies on renewables to keep electricity prices down.

In this environment, it might be hard for even the most clean-minded power companies to help countries meet the goals set in the landmark Paris climate deal.

“The profitability of renewables is lower than a few years back,” said Deepa Venkateswaran, a utility analyst at Bernstein Research in London. “If power prices fall, their revenues fall.”

Under the deal agreed to in December, 195 countries committed to reducing global greenhouse gas emissions. Utilities will have to play a major role, by shifting from fossil fuels like coal, oil and natural gas to renewable sources of energy.

Even before the deal, SSE was at the forefront of the shift, producing about 43 percent of its power from clean sources. That proportion could grow, as the company plans to shut down almost all of its remaining coal-fired production this year.

But sharp declines in energy prices have forced the utility and others to think twice before beating a hasty retreat from fossil fuels. In SSE’s case, lower natural gas prices have resulted in a 20 percent fall over the last year in the price it charges for one of its main product, wholesale electricity.

“We obviously need to be pragmatic,” said Lee-Ann Fullerton, an SSE spokeswoman. “It’s for government to set the policy and us to get on with delivering.”

Across its portfolio, SSE is making adjustments.

Adjacent to the Keadby wind farm is a 1990s gas-fired power plant that the company closed in 2013 when cheap coal and high natural gas prices made it a money loser. Now gas prices are plummeting and coal is being phased out in Britain under a government mandate.

So the company is bringing the gas plant back into service and is considering doing the same with others. Last summer, it also agreed to spend 915 million pounds, or $1.3 billion, for a 20 percent share of Laggan-Tormore, a giant gas field off the Shetland Islands near Scotland’s north coast. The field is operated by the French energy company Total.

An even bigger factor in SSE’s decision making is the British government’s shifting stance on renewable energy.

For years, London has subsidized various forms of clean power, including onshore wind farms, to wean the country off its heavy dependence on high-pollution coal-fired power plants. In response, SSE invested about £4 billion from 2007 on wind and other low-carbon sources. Partly as a result of those subsidies, about 11 percent of Britain’s power is now generated by wind, compared to 1 percent in 2006, according to Renewable UK, a trade group. Germany, which has made a major commitment to renewables, generated about 13 percent of its energy from wind in 2015, compared with about 5 percent in the United States.

But since winning an outright majority in parliamentary elections last spring, the Conservative government of Prime Minister David Cameron has been shifting focus. It has talked up the benefits of natural gas as a cleaner-burning replacement in power generation for the coal-fired plants it wants to close and backed nuclear power as a long-term source of low-carbon energy.

The government is also trimming subsidies for renewables, and onshore wind farms and other clean sources like solar power are taking a direct hit. Subsidies for new onshore wind projects will be halted this spring, a year earlier than planned, as the Conservatives look to please their rural constituents by honoring election pledges to halt support for land-based windmills.

The government instead wants to focus on offshore wind projects, which are usually less contentious because they are out at sea, and often out of view. Offshore projects also offer enormous scale by deploying bigger turbines in larger numbers than is practical on land. Britain is the world’s largest market for offshore wind, and the government views the industry as a source of jobs, especially along the northern coast, where the oil and gas industry is faltering because of falling prices.

According to Amber Rudd, the minister for energy and climate change, there is already enough onshore wind capacity built or in the pipeline to meet the government’s targets. Wind subsidies also cost £800 million a year.

“We could end up with more onshore wind projects that we can afford,” she said.

SSE is not abandoning wind energy. It is proceeding with three onshore projects under construction, and it is planning a vast offshore wind farm in the Moray Firth, a large bay off northeast Scotland that could have as many as 84 turbines and cost £1.8 billion.

But the economics are rapidly changing.

Even without subsidies, onshore wind is the cheapest of the major renewable technologies to build in Britain, costing around $85 per megawatt-hour for the power generated over the life of a project, according to Bloomberg New Energy Finance, a market research firm. By comparison, building a natural gas power plant in Europe costs almost 40 percent more.

Offshore wind is far more expensive to build and operate because of the difficulties of sinking pilings on the sea bottom and keeping equipment functioning in a hostile marine environment. The estimated costs are more than double that of onshore wind.

The subsidies can often make or break a project.

The government has guaranteed a price above the $175 per megawatt-hour offshore costs for a Danish company that is going ahead with a multibillion-pound project off northeast England. The three onshore wind farms that SSE is building in Scotland will also still qualify for subsidies.

Two other large onshore facilities the company is planning – including a giant 67-turbine farm called Stronelairg – probably would not.

So far, having a large renewable portfolio is working in SSE’s favor. For the six months to the end of September, operating profit for the power-generating unit, which includes both renewables and fossil fuel plants, increased to about £142 million from £11.8 million in the comparable period in 2014.

Neil Richardson, a company spokesman, said SSE agreed with the government that “offshore wind and gas have a major role to play” in Britain’s transition to a lower-carbon energy mix, but he said issues including a guaranteed price for power and the future price of carbon were still unsettled. “We want to continue to invest,” he said, “but need certainty.”

Source:  By Stanley Reed | The New York Times | Feb. 19, 2016 | www.nytimes.com

This article is the work of the source indicated. Any opinions expressed in it are not necessarily those of National Wind Watch.

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