Bloomberg’s Energy Highlights
How should your company position itself for change in the energy industry?
Bloomberg’s invite-only conferences are a useful indicator of the energy industry’s prevailing mood. Last year’s meeting was an optimistic affair which showed how Europe’s enthusiasm for electric vehicles was beginning to register with providers. This year’s get-together was less upbeat, dominated as it was by concerns about shifts in the generating mix, and their implications for the roles of the utility companies.
Speaker after speaker at Bloomberg’s New Energy Finance conference offered perspectives and solutions, providing plenty for the alert business customer to chew over. A particularly toothsome morsel concerned the cut-throat competition in the renewables sector. Like most industry junkets, these conferences are wide-ranging but generally polite, so it was a shock to hear Irene Rummelhoff of Statoil use her time at the podium to lambast sections of the wind farm industry.
“The offshore wind industry needs to be careful,” she said. “If they’re not able to build the projects, it will ruin [their] reputation.”
Ms. Rummelhoff was referring to initiatives by Energie Baden-Wuerttemberg and Dong Energy, who upset their peers earlier this year by contracting to deliver cheap wind energy to German consumers *without* the support of green taxes, levies or subsidies. Dong has made similar undertakings in relation to new UK ventures, where it promised prices as low as £57.50/MWhr.
Compare that with the notoriously steep £92.50 strike price agreed for Hinkley Point output! Whatever is going on?
The reason the EnBW and Dong offers ruffled feathers is that some are skeptical these projects will ever become a reality. Allan Baker of Societe Generale blandly dismissed them as “an option on future capacity.” It was left to Francesco Starace of Italy’s Enel SpA to spell out the kind of gamesmanship in which his competitors were indulging. “You need to have a diversified portfolio, you need to be able to say: No, I don’t like this project, I have another three coming,” he commented. “If you only have one project and that project is everything you need for growth, that is not a good thing.”
In other words, those particular wind farms may not get built… but try not to let it bother you. They’re still having a positive impact.
Sig. Starace’s brisk analysis would fit any situation where businesses compete in the absence of decisive technical or financial advantage. But in the context of the London conference, it’s remarkable… because it demonstrates just how thoroughly renewables have entered the mainstream. The same economies of scale which saw solar panels going head-to-head with gas turbines on price-performance ratio are now having a similar impact on wind energy. The cheapest solar and wind contracts may never be realized, but their collective effect is to drive down prices.
“[It’s] the slowest trainwreck in history,” commented Steven Martin of General Electric, in a separate but closely-related discussion. “We’re going to reach some point where the marginal cost of energy is zero.”
All about the base(load)?
Of course, the prospect of a smart grid delivering bountiful free energy is very appealing… provided you *don’t* run a utility company! Mr. Martin and his peers presumably heaved a collective sigh of relief when they realized that the necessary changes to our infrastructure will have to take place in piecemeal fashion, as investment gets diverted from existing forms of generation and distribution.
Indeed, some of Europe’s utilities are likely to enjoy something of a heyday in the immediate future. Bloomberg’s own Jonas Rooze showed why, despite the rapid growth of renewables over the next 15 years, there’ll still be a requirement for fossil fuel ‘despatchables’ like gas turbines. But he also foresaw a breakdown in the prevailing distinction between ‘baseload’ and ‘peaker’ generation. In the near future, local renewables will do the grunt work, with centralized despatchables coming online only when required. That’s a near-inversion of the existing model, and it’s bound to produce winners and losers.
Your business will need new and more flexible energy buying strategies to cope with these conditions… and that’s where we come in. At Planet9 Energy, we help our customers deal with the momentous changes in Europe’s energy markets. Give us a ring to learn more.