|Home | Advisory Board & Executives | Case Studies | Journal | Contact|
Montrose Journal Summer 13
THE UK WIND BUSINESS: AN ILL WIND THAT BLOWS NO BLOODY GOOD -MAGNUS MACINTYRE
In 2002, I was drinking something green with an umbrella in it at the Cannes Film Festival and bragging to another independent film producer about how brilliantly I was doing in the movie business. He was bragging to me about how brilliantly he was doing when I suddenly realised I couldn't be bothered self-aggrandizing anymore, and told him I wanted out. "Everyone's a shark in this business," I said. "You can't make any money unless you have no taste and no morals, and these drinks are incredibly expensive and quite nasty." To my surprise, he agreed with me and we decided to go into business together developing wind farms in Scotland.
Wind farming was a laughably tiny business in the UK a decade ago. You might have characterised it as "in its infancy" if you were being generous, and "incubating" if you were being honest. It was very difficult to raise funding, despite the UK being the windiest country in Europe, and the ambitious government targets.1 City money knew of the opportunity, but they all wanted to invest in a riskless way – by lending money to build wind power stations once they had achieved planning permission. Risk money for development was scarce, even if the risk was spread across a portfolio of sites, and my company ended up being funded by amateurs and angels.
As soon as we started, we realised that we lacked certain things that make a business work, namely enough money and any expertise. We got in some people who knew what they were doing, paid them with equity, and discovered something rather interesting. There was more money than we thought to be made as a result of the incentives set up initially resulting from John Major's signing of the Kyoto Agreement, and reinforced and extended under the subsequent Labour government. And there were plenty of companies (mainly large utilities) who were quietly going about the business of making a fortune. All that stood in our way of joining them was the profoundly unscientific business of chatting up the people who own all the empty and windy bits of Scotland.
It is a remarkable thing about Scotland that half of it is owned by just 500 people.2 Common land was appropriated (or stolen, depending on your point of view) many years ago, and the land hasn't changed hands very often since then because mostly the land hasn't been very useful for anything. The latter is part of what makes it excellent for wind farming. Not only is it generally very windy, it is also rather more empty than the English and Welsh countryside, and dealing with just one landowner (even if they are richer than Croesus and posher than God) is so much easier than dealing with two or more. We got planning permission for our first wind farm in 2008, and signs were encouraging for the others in our pipeline.
Now it is a different story. The wind industry is in deep crisis, and has been since about a year after the last general election. With a Liberal Democrat Secretary of State for Energy and Climate Change, the assumption by most developers of wind farms in 2010 was that irrespective of Conservative backbench instincts, the energy policy as laid out by the last government would remain largely intact. Encouraging and broadly favourable, but with decisions taken (initially at least) at the local level. With a Prime Minister and Deputy Prime Minister who also both clearly believe that the threat of climate change requires action in regard to CO2 emissions targets, the general thought in the industry was that the playing field would remain level.
This has not proven to be the case. One developer's comments are indicative of the general mood in the industry: "if [the government] were very clearly screwing renewables, it might be better than what we have now. All we've got at the moment is conflicting signals and prolonged uncertainty… Money is pouring out of the business."
With many wind developments in the English shires being successfully opposed by a vocal minority, MPs have found it useful to stir up trouble in regard to wind and other renewables developments. The right of centre press has particularly stoked this fire, and who can blame them? After all, "People Like You In Uproar Over Threat To Nice Things" is a much better headline than "Broadly Indifferent Population- As-A-Whole Gives Lukewarm Approval To Essential Infrastructure Project".
As a result, there has been much encouragement to other "anti" groups elsewhere in the UK where the developments are more suitable, and local councillors in remote areas have found themselves heavily pressured by this minority to vote against developments that bring jobs, money for community projects as a result of planning gain, and other infrastructural benefits, as well as going some way to achieving climate change targets.
The government is also now hedging its bets by forcing energy companies to hand over ownership of part of the development to local communities. Some in the industry are furious about this. "The government doesn't encourage community ownership of the local supermarket, or a new housing estate. Why slant the market in this way for electricity?" asks one. More soberly, another says: "You tell me that something needs doing. I take both the risk and the reward. That is the way business works."
The conflict between energy policy and planning policy might be deemed to be a good thing. Everyone has their say, and generally sense ends up being the result. That may be the theory, but recently sense has not prevailed, and it's all about big "p" Politics. It is not generally pointed out in the national press just how stark the difference between the parties is on this. So I asked a senior industry insider whether this crisis is because, at heart, the senior partner in the Coalition government doesn't like wind power. His response was interesting.
"Tory voters are perceived not to like wind," he said. "The constituent groups that get upset about wind developments are made up of mainly retired people who have nothing to do with their time but this, and they are in the main Conservative voters. It's the way the party has grown up: to be resistant to change in the place their members have chosen to retire. And they also don't really buy the idea of global warming because it is not in their interests… But Conservative politicians think that that their supporters don't like wind on principle, and [the politicians] are going in a big way for fracking. But they're going to get a shock, because the same people will hate fracking even more." Maybe this is a calculated political gamble. After all, shale gas has been found largely in the north east and north west, where Conservative candidates rarely stand much of a hope anyway.
One energy commentator also adds that "the Electricity Market Reform is not good in the form it's designed, and now you've got Eric Pickles [the Communities Secretary] getting involved, overturning planning decisions on energy made at the local level. That has the potential for departmental war."
Another way in which policy is going awry is in regard to the national grid. The grid is, essentially, thin in remote areas, and well-connected where the population is heaviest. This requires investment in order not just for renewables to work, but for the new model of local power generation of whatever kind. We in the energy business are happy to pay for our connection to the grid, and for the upgrades required, and nobody wants huge power stations – they are a security and a supply risk. But the speed of infrastructural change to the grid is tectonically slow.
The bureaucracy involved is antediluvian, and Ofgem is no help, even though it is supposed to be. It doesn't act in the interests of the market, and only very short term in the interests of the consumer. (I leave it to the reader to judge whether a good job is being done.) Before the election, by the way, the Conservatives said they were going to dismantle Ofgem. Since 2010, Ofgem has increased staffing by 50%. A spokesperson from Ofgem told me in their defence that "this is because we are being required to do a lot more work by the government".
Perhaps it may be different in Scotland if the referendum results in a "Yes" and gets a little more autonomy. First Minister Alex Salmond – being an energy economist by background – has led from the front, convinced that Scotland could benefit hugely from being at the forefront of renewables. But it doesn't take an economist to tell you that it's windy and wavy in Scotland, and that there's a lot less people, and still the industry is suffering.
Prospects for a coherent policy seem to me to be gloomy, and not just because of the craven, inconsistent and inexpert policy framework. One energy journalist suggested (like all my sources, quoted anonymously so as to loosen tongues), that these decisions should not be made at the local level. "The concept of localism just doesn't work. Resistance to change is too deeply rooted. So deeply rooted that NIMBYs don't seem to realise that that's what they are. They think they are tackling a specific injustice, and when asked about policy in general they are much more in favour of development."
So what is the answer? What is the public going to demand?
Everyone (well, 88% of people interviewed by the Department of Energy and Climate Change) says they are worried about their energy bills, but half of those people confess that they often waste electricity. This would seem to indicate that for most people, although prices are worrying, they are not worrying enough to warrant doing something about. Other than this, though, the public seems to be more consistent in its attitudes than those it has elected. Eighty per cent view a mix of energy sources as the answer to both climate change and energy security considerations.3 They also support renewables (82%)4, are torn on nuclear (46% support), and while becoming increasingly aware of fracking, are in the main not prepared to express a view given their lack of detailed knowledge. How encouraging is that? The Great British Public has decided not to have a view until it knows what it's talking about and knows what it wants. If politicians could only learn from that.
"Whirligig" (published by Short Books in April 2013, priced £7.99) is Magnus Macintyre's first novel, and is a wind-farming comedy. He is also the founder and a non-executive director of the Wind Energy group of companies.
|Home | Advisory Board | Case Studies | Journal | Contact © 2003-2020 Montrose Associates. All rights reserved.|