Call for deep changes to the way Europe runs and regulates its electricity sector

Tobias Buck writes in the Financial Times how one of Europe’s biggest power companies sees the need for major reforms in order to better promote renewable energy.

Iberdrola calls for energy reforms to back ‘efficient’ renewables

The boss of one of Europe’s biggest power companies has called for deep changes to the way the continent runs and regulates its electricity sector, urging an end to fossil fuel subsidies and a renewed focus on “efficient” renewable sources of energy.

Iberdrola claims to be the biggest provider of wind power in the world, and Ignacio Galán, the executive chairman, told the Financial Times: “We are defenders of renewables — but we are defenders of renewables that are economically efficient. What we can’t do in Europe is what we are doing now: using immature technologies, fully subsidised, that are producing little energy and that cost a lot.”

He cited Germany, where power giants Eon and RWE have been hit hard by sweeping energy reforms, as an example of public policy gone awry. In a move to combat climate change by cutting carbon dioxide emissions, Berlin has provided generous subsidies for renewable energy, including for the installation of solar panels in homes, prompting a shift away from the large utilities to small-scale energy generators. But at the same time, Germany has accelerated the phase-out of its nuclear plants following the 2011 Fukushima disaster.

“Germany is the country with the highest price of electricity and with the biggest increase in emissions, because the back-up for solar is coal — which is cheap but also the most contaminating,” said Mr Galán. “I don’t see how we can continue burning coal and reducing emissions at the same time.”

Iberdrola is one of Spain’s biggest companies, with sales of €30bn and net earnings of €2.4bn last year. Profits fell 10 per cent compared with 2013 mainly because of the Spanish government’s decision to slash subsidies for renewable energy two years ago.

“The damage has been done, and now we are recovering from the damage,” said Mr Galán, adding that Spain’s accelerating economic recovery was now feeding through into the power market. “Optimism has increased and that is reflected in demand for electricity,” he said.

Despite the recent recovery in its home market, Iberdrola is now increasingly focused on expanding its businesses abroad. In February, the Madrid-based group announced plans to buy Connecticut-based utility UIL for about $4.6bn including debt, with the aim of listing all its US operations on the New York Stock Exchange.

Meanwhile, Iberdrola is investing another €2.4bn in wind parks in the UK, where it owns Scottish Power, as well as in Germany, Mexico and the US.

“Emissions at Iberdrola are 30 per cent below the average in Europe,” said Mr Galán. “We are committed to cutting emissions by another 50 per cent by 2030 and to be fully carbon-neutral by 2050. We will not be sending one single gram of carbon into the atmosphere by 2050.”

Iberdrola’s green stance is part of a broader energy sector effort to burnish its environmental credentials ahead of a closely watched Paris summit on climate change later this year.

The meeting is intended to produce a new binding deal to cut carbon emissions and halt the expected rise in global warming in the decades ahead. Business leaders have taken an unusually high-profile role in the run-up to the summit, including those in the oil and gas industry — the sector that has perhaps most to lose from tough new targets to cut emissions.

Mr Galán said Europe’s utilities had already made a “tremendous effort” to reduce emissions — and that it was now time for other sectors to step up. “Electricity represents roughly 30 per cent of worldwide emissions, but the other sectors — transport, industry, residential — are responsible for 70 per cent,” he said. “Actions have to be taken in all sectors. “Why not tax or charge transportation that uses oil instead of electricity?”

Europe’s shift towards renewable energy has prompted increasingly urgent concerns about the stability of power supply. Solar and wind energy are less predictable than power plants fired by coal or gas — which increases the risks of blackouts if, for example, there are prolonged spells with little sun.

To get around this problem, Mr Galán said Europe should introduce a mechanism that would encourage utilities to maintain spare capacity to balance out sudden drops in power from renewable sources.

“What is going to happen on days when there are too many clouds, or there is no wind or it snows too much? Who will fill that demand?,” he asked.

Power companies were ready to provide that buffer, he added, but would require a “market-based” incentive to do so: “Why should I leave a gas power plant running if no one pays me?”