Conventional sector turns slowly green

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A survey of European electric utilities and the world's major oil groups reveals that all have strategic plans to increase their renewable energy holdings. To judge by their actions some are more convinced about a green future than others while only one oil major appears to have got the wind message

Gas may still be the favoured fuel for new power station construction in Western Europe, but increasingly utilities are investing in wind and other renewable energy generating capacity. Furthermore, the evidence suggests the move into renewables is not just a public relations exercise. Rather it forms a key component of long term corporate strategies, says "Renewable Energies at European Utilities and Energy Concerns," a report from analysts at the Hamburgische Landesbank in Germany.

The utilities and major energy companies that have established dedicated green energy divisions or subsidiaries (such as Shell) are sending a clear signal that renewable energy development is serious business, the analysts say. These companies are not responding simply to political and environmental pressure, but instead accept that renewables will become a significant component of the future fuel mix.

future development

Outlining the results of a survey of 12 European utilities and the world's five largest oil companies, the bank report reveals that between them they expect to install a combined total of 12,500 MW of renewables, mainly wind, by 2010. It is a chequered landscape, however. Some utilities have well-developed activities, while others have virtually none at all. A few concentrate on their home markets and others have a strong international presence. Of the five major integrated oil groups -- ExxonMobil, BP, Chevron Texaco, Royal Dutch/Shell, and TotalFinaElf -- only the three European companies have taken substantial steps into the renewable energy sector. Only one of these, however, has wind power leading the way. Shell plans 3000 MW of wind development in Europe and the United States in the coming years, while the others have wind taking a backseat to solar power developments. BP appears firmly entrenched in solar, while TotalFinaElf, which has invested in both solar and wind energy, is in its renewable infancy compared with the other two.

lack of support

The smaller European oil companies such as Eni, Repsol-YPF and Statoil are, the Landesbank adds, still novices in the renewable energy sector, but are committed to reducing CO2 emissions. The report warns, however, there is little likelihood of the American oil majors taking up significant renewable activities due to the lack of political support in the United States for ratification of the Kyoto protocol.

Of the utilities surveyed, the two Spanish utilities, Iberdrola and Endesa, are speeding ahead of their European competitors on the wind energy route. Together they have the most ambitious development plans for the coming years. Iberdrola has development of 2256 MW of wind in the pipeline by 2006 (adding to its existing 1213 MW) while Endesa expects to add 1295 MW to its 825 MW. In both cases the projects are largely located in Spain, but Endesa, Spain's biggest electricity utility, has initiated activities abroad including Argentina, while Iberdrola has taken steps in Canada (Windpower Monthly, December 2001).

The UK's Scottish Power also has impressive plans -- it will install 2785 MW of wind by 2010, an enormous advance on its existing 185 MW. Like the Spanish utilities however, the company appears wary of venturing into markets in which it has no home base. Of its planned capacity, the lion's share (2000 MW) is destined for the United States, pushed ahead by its regulated business in the US, Pacificorp. The remaining 785 MW will be split between onshore and offshore projects in the UK.

Looking abroad

France's EDF, which already has a massive 20,400 MW of hydro capacity, is more enthusiastic about spreading its wings. Of the 490 MW of wind it expects to install by 2004, 250 MW will go up in France via its subsidiary Siif Energies. This includes participation in three offshore wind stations under development with Shell. But the other 240 MW will be installed abroad, again developed by subsidiaries. These include Le Group which is participating in a 100 MW station off the eastern coast of Norfolk in the UK, and an involvement in offshore development in Sweden -- a result of Siif acquiring members of the Swedish development team of collapsed Enron back in 2001.

In contrast to the Spanish, UK and French utilities, German utilities have no substantial onshore home market left to develop. After 15 years of succulent grazing by private companies it is now almost barren. RWE, through its renewables subsidiary, Harpen, is instead focussing its wind activities on the Spanish, French and Italian markets. It expects to install 771 MW of onshore wind energy by 2010. The company has abstained from offshore involvement at home, but National Wind Power, a subsidiary of RWE's UK company Innogy, is developing offshore wind activities around Britain's shores.

E.on, RWE's major rival in Germany, has been more daring and has plunged into German developments at sea through subsidiary E.on Energy Projects. But although it has taken stakes in two sizeable German offshore projects it seems cautious about predictions on when these projects will be realised. The Landesbank study reveals only a forecast of 60 MW of new wind power installations for 2003. Through its Swedish subsidiary, Sydkraft, E.on also has a 20% share in the Danish Rødsand offshore project currently under construction, while its UK subsidiary, Powergen Renewables, has substantial wind developments underway. It remains to be seen what Powergen's US division, including LG&E in Kentucky, will pull out of the renewables bag.

Scandinavian utilities

Norway's largest utility, Statkraft, has also got the renewables message. It has a 240 MW wind project underway at Smøla and expects to build another 144 MW of wind capacity in the country by 2005. Also Denmark's Energi E2 is developing its wind portfolio, with plans to add 158 MW to the 183 MW it so far owns in Europe.

Sweden's Vattenfall, the fifth largest of Europe's electricity utilities, is keeping silent and did not divulged details of future renewable plans to the Landesbank analysts. The company, which does have a substantial 11,500 MW of hydro capacity on its books, has acquired three German utilities and moved ahead with plans to expand into Poland over the last 18 months. While it may currently be preoccupied with these activities, the company's heavy use of lignite generation in eastern Germany may signal that a renewable energy counterweight can be expected, suggests the Landesbank. Vattenfall owns a miserable 28 MW of wind.

The picture then is mixed. The report notes that the 9563 MW of renewables plant these 12 utilities plan to install by 2010 (8379 MW of which is wind) represents just 17% of their existing renewable capacity (including large hydro). This will not be enough to meet political targets, it says. With annual electricity consumption predicted to increase around 1.6% annually to 2010, the report says growth of renewables' share in electricity consumption will be small unless the utilities significantly increase their activity in the sector.

The wind market is fast moving and utilities are, in fact, already increasing their future activities -- mergers and acquisitions to acquire greater know-how and project volume are becoming increasingly common in the marketplace and the analysts predict this trend will "pick up strength and speed" over the coming years. Furthermore, the report adds, while activity in the wind sector is still limited, it can be expected to grow significantly as ageing conventional power stations are further decommissioned.

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