ScottishPower: the journey to renewables

14 January 2019 (Last Updated July 28th, 2020 21:57)

One of the UK’s biggest utilities ScottishPower has announced that it will switch to 100% renewable energy. The move has been hailed as touchstone moment and a good example for any big utility seeking to shed its fossil fuel legacy, but does the move make economic sense, and if so will more utilities follow?

ScottishPower: the journey to renewables
ScottishPower’s move highlights the maturity of wind technology as a reliable but also economic source of energy.Credit: Courtesy of Vincent van Zeijst

For the first time in the UK, one of the big six energy companies has divested from fossil fuels. ScottishPower has sold off its gas plants and invested heavily in broadening its wind power profile.

“Energy companies must be part of the solution to climate change,” said Ignacio Galán, chairman and chief executive of ScottishPower’s parent company Iberdrola, announcing the move. “We are acting now to cut carbon emissions 30% by 2020 and be carbon neutral by 2050. The sale of these generation assets is consistent with our strategy.”

ScottishPower became part of the Iberdrola Group, one of the largest integrated utility companies in the world, a decade ago. Although it has its roots in thermal generation, the giant has been working to reduce emissions and grow its renewables portfolio over the last 15 years. It is now the cleanest energy company in the US, producing almost net zero emissions, and has reduced its emissions in Europe by 75% since 2000.

This move could mark the beginning of an integral shift in the energy market in the UK, which still relies on fossil fuels for much of its electricity generation. ScottishPower, along with EDF, British Gas, E.ON, Npower and SSE, make up the Big Six energy companies, which dominate the market in the UK, making up as much as 79% of market share. For one of these companies to put its future entirely in renewables – and wind technology specifically – speaks volumes about the anticipated energy market of the future.

But will the other big five follow suit?

Going green: selling off coal and gas projects

To make the transition, ScottishPower has sold off 2,566MW worth of coal and gas generation business, as well as other assets, to Drax Smart Generation. “This is a pivotal shift for ScottishPower as we realise a long-term ambition,” said Keith Anderson, chief executive of ScottishPower. “We are leaving carbon generation behind for a renewable future powered by cheaper green energy. We have closed coal, sold gas and built enough wind to power 1.2 million homes.

“Every working day we are investing over £4m to deliver cleaner, smarter power for customers. From today we can focus solely on making energy generation cheaper, cutting carbon quicker, building smart grids and connecting customers to renewable electric future for transportation and heating.”

Drax has vastly increased its portfolio through the deal, gaining four gas power stations, two hydro schemes and a pumped storage plant. This £702m deal cements Drax as a major UK energy supplier, and ScottishPower as a green energy company.

The move has, unsurprisingly, been welcomed by environmental groups. “Big utilities across Europe have been shedding their dirty fossil fuel infrastructure because it makes economic and environmental sense,” said Kate Blagojevic, head of energy at Greenpeace UK.

“This move by ScottishPower shows that the same maths adds up in the UK too. Climate science could not be clearer that renewables are the future for powering our world. We need the government to give renewable energy industry its full backing rather than propping up the fossil fuel and nuclear companies.”

Building up its wind power

ScottishPower is already one of the biggest wind power producers in the UK, but as part of the move it is also investing £5.2bn over the next four years to expand its wind portfolio and clean grid technology. The move highlights the maturity of wind technology as a reliable but also economic source of energy.

The company is currently completing the construction of the world’s largest offshore wind farm, located off the coast of Suffolk. East Anglia ONE is set to go live in 2020 with a capacity of 714MW.

Elsewhere, the company is turning its attention to onshore wind. “As the cheapest source of new power, there is an alternative, albeit niche, route,” said Lindsay McQuade, CEO of ScottishPower Renewables in a recent blog post. “Onshore wind projects delivered through Corporate Power Purchase Agreements are likely to become a part of the landscape in the energy sector. It’s great to see household names realising the value that investing in technologies like onshore wind can bring and they’re not just doing it because they want to be green. It makes economic sense.

“ScottishPower is setting a great example by generating 100% of its electricity from wind,” said RenewableUK’s head of external affairs Luke Clark. “The UK has the potential to more than double the amount of clean, affordable power that we generate from wind in the decade ahead, especially with the next offshore wind farms coming online in the North Sea much further from the coast, where wind speeds are even higher.

“Wind is set to become the backbone of the UK’s modern clean energy system, so it’s increasingly important in the portfolios of companies of all sizes. The fact that onshore wind is the cheapest source of new power, and the cost of offshore wind has dropped by 50% in two and a half years, mean that the economic case for developing our excellent wind resources is compelling.”

The UK’s energy future

In many ways the move has been unsurprising, given the increasing role wind has played in ScottishPower’s portfolio for years and the constantly dropping cost of the technology.

Globally, ScottishPower is not the first company to turn its back on fossil fuel generation in favour of green generation. DONG, the Danish Oil and Natural Gas Company, changed its name in October 2017, to account for how dramatically its portfolio had shifted to renewable energy. Ørsted, as it is now known, reduced its coal consumption by as much as 73% by 2017, replacing it with wind power. The company is now an offshore wind energy leader, with a 25% share of the global market, providing 9.5 million people with clean wind power.

“The reason for the name change is that after the comprehensive strategic transformation from black to green energy, our old name no longer matched the company,” said Thomas Thune Andersen, chairman of Ørsted’s Board of Directors. “Ørsted is a signal of our Danish roots – and our vision of creating a world that runs entirely on green energy. The new name has already been well received in Denmark and abroad.”

The company plans to continue expanding its wind power profile and completely phase out its coal power plants by 2023. Already its efforts have meant Ørsted has more than halved its carbon emissions, and will have reduced them by 96% in five years’ time.

The success of Ørsted’s shift and the increasingly low cost of wind power make it unsurprising that going green is an attractive option for companies like ScottishPower.

A trendsetter or a one of a kind?

Whether ScottishPower’s shift to green generation could spark a trend in the UK is uncertain. While companies together with government, industry and consumers are pushing to increase the amount of renewables, their intermittency means predictable baseload power is still in high demand, making gas power plants attractive assets.

There are also fears that such shifts will simply increase energy prices for consumers, many of whom are already struggling. Scottish Conservative energy spokesman Alexander Burnett warned about the expense of the shift: “It’s important they now reassure their many customers that this will not result in increases to energy bills. Fuel poverty is already far too widespread in Scotland – something all energy companies need to think about – and we can’t afford for that to get any worse.”

ScottishPower has already raised electricity prices twice in 2018, causing many people to struggle with payments. With such concerns as whether to pay an electricity bill or go food shopping, a pressing concern for people, the greening of energy sources simply isn’t a priority, Burnett suggests.

Citizens Advice Scotland offered a similar warning. “Our consumer surveys show that the majority of people in Scotland think that climate change needs to be addressed now,” says Jamie Stewart, energy policy manager. “To that end we hope that ScottishPower’s focus on renewable generation can help to reduce carbon emissions. However, energy prices have been rising steadily recently and are unaffordable for some. ScottishPower should ensure that their shift to renewable energy will reduce costs to its customers.”

The good news is that the cost of wind is plummeting. Between 2015 and 2017, subsidy-free wind power dropped by as much as 50%, falling to £57.50/MWh from the previous average of £117.14/MWh. Such reductions could ensure that ScottishPower is able to reduce energy prices in the coming years, easing concerns over the financial strain greening electricity could cause.