Centrica CEO: Offshore Wind Too Pricey, Energy Efficiency a Priority

Centrica chief executive Sam Laidlaw spoke at the FT European Gas Summit in London.

Addressing the conference on ‘Europe’s energy challenges’, Mr. Laidlaw spoke of the downward shift in wholesale gas and oil prices and the consequent benefits for European consumers and businesses.

He pointed to longer term causes for the price change: new supplies such as US shale coming on stream , new LNG projects delivering them to market, and increased energy efficiency.

But he warned against complacency, saying that a revival in economic growth in developing markets or geopolitical shocks could reverse the downward trend.

He said: “Questions remain about whether lower wholesale energy costs are a blip or something more structural.

“What is clear though is that some of the assumptions we have made in Europe about sharply increasing fossil fuel prices need to be revisited.

“That in turn prompts the question of whether policymakers should reconsider some of the choices they have made about energy.”

As an example, he pointed to the incentives offered by successive UK governments to renewable and low-carbon technologies meaning that UK consumers are unlikely to enjoy the benefit of lower power prices.

Take the Contracts for Difference on offer to developers of renewable energy projects. I am not questioning the need to develop alternative sources of power or to cut the carbon emissions from our electricity. But a UK offshore wind project coming on stream in 2018 will be guaranteed a strike price of £140 per Megawatt hour. That compares to an estimated market reference price for power in 2018 of just over £50 per Megawatt hour.

By the end of this decade, under current plans, we’ll be spending £7.6 billion a year through the levy control framework, much of it to support wind turbines that have not come down in cost. It is only natural for UK bill payers to question why they are being faced with the prospect of subsidising power prices which are well above the market rate. They will also ask whether this is a cost-effective and sustainable way of reducing carbon emissions.

“Affordability must be the watchword if we are to achieve an energy policy which is both green and sustainable, because without popular support it will fail.”

“In the real world, there are trade-offs that have to be made between decarbonisation, security of supply and affordability – the energy ‘trilemma’ of our time.”

However, Sam said he remained optimistic, outlining the path set out in Centrica’s ‘Energy Choices for the UK’ report published earlier this year.

This sets out a practical and achievable way to meet long-term carbon reduction targets without placing unnecessary costs on households and businesses.

Offshore wind, as I set out earlier, requires three times the current wholesale price. We do need renewable electricity, but renewable heating could be more cost-effective, and so should be prioritised too. We must make energy efficiency a priority. I know I have made this point many times before. But if there is any legacy I hope to leave as Chief Executive of Centrica from my contribution to the energy debate, it is a wider appreciation of the difference that energy efficiency can make.

He concluded: “The challenge for governments is to have an honest conversation about our precious environment and to set a framework that has broad support. Then let the markets and innovation deliver.” 

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Press release; Image: Centrica