In the mix

Springboarding from the Radlinger Group, RW Energy has upped the renewables game. COO, Kevin McCullough explains the industry’s need for a mixed energy portfolio to actualize carbon-emitting targets.

“The aviation industry and the automotive industry are already using their carbon footprint or their sustainability impact very cleverly to competitive advantage”
-Kevin McCullough, COO of RW Energy

For a long time, RW Energy's (RWE) growth in the renewables market was limited entirely to the UK, the business model was matured and honed over several years, but it wasn't until certain changes were introduced within the company's executive board in Germany that trends were shifted. Predominantly the company had been what Kevin McCullough explains as, "A very carbon-heavy player within the energy sector," but in order to stay on top, the company quickly recognised the changing times and the need to move away from its traditional carbon-based technologies.

"The decision was taken with the introduction of our new group Chief Executive, Juergen Grossman, to up the game in renewables," says McCullough. "We had a very solid base on which to build that from RWE npower renewables in the UK and the role has been to try and extrapolate that throughout Europe, and to build it slightly different from jurisdiction to jurisdiction. The business we have in Spain is a different business model to the one we have in Italy, Poland and the UK, but it was important to take that experience and knowhow and grow it."

The company wasted no time in moving quickly. RWE and Westphalia-Lippe Agricultural Association signed a cooperation agreement for biogas, and a deal was struck with REpower Systems of a framework agreement on the supply of 250 offshore wind energy units for the Nordsee 1 project. McCullough notes that fast innovation is the key to success in such implementations. "If you are going to stick to what you've always done, you'll stay doing what you've always done. That market will decrease because others will eat away; because we were a little later than most of our competitors in getting into large volume renewables, we had to make some fairly bold moves quickly," he says.

"A typical example was the formation of a strong partnership agreement with one of the major wind turbine manufacturers globally- we secured a contract with REpower Systems for up to 250 five- or six-megawatt turbines that we could deploy in a range of offshore projects around Europe. Once all of the 250 turbines are procured and paid for, the value of that project is in excess of $2 billion.

"We commit to that contract with terms and conditions that we can live with so that we can be flexible when projects come to fruition. We can apply those turbines into those projects and therefore move quickly, and that gives us a very real market advantage, as well as giving us a credible voice with the many politicians that we speak to in an individual country jurisdiction. It's one thing to say that you're going to develop large scale, offshore wind in particular, but a gigawatt of offshore is likely to cost in excess of €2.5 to €3 billion, so it's not for the fainthearted. You have to show that you are really committed and have the means to back that commitment up. Those framework agreements and getting them ready in place quickly is fundamentally important," he says.

Offshore projects

McCullough adds that there have only been minimalist lifestyle changes towards energy, and current policies of low carbon and low price are highly ambitious: renewables involve typically expensive technologies and skimming on the cost involved will see the continuation of energy sourced from fossil fuels. He notes how onshore wind is now beginning to find party with gas and coal turbine plants, whereas offshore wind still remains in a different league.

"It's at least 50 percent more expensive than onshore wind in pure capital of cost because of the amount of infrastructure that sits beneath the waves, but then when you look at the life of an asset 50 to 150 kilometers from shore, it's a square area the geographical size of the city of London. To maintain that over 20 years lifespan is significantly different from simply driving to a turbine in a field or in a valley that you can gain access to, so we're beginning to learn the full lifecycle cost. If we want a low carbon economy we all must ultimately find a means for society to pay for this low carbon economy. It will be a combination of the types that we have to charge but balanced in a way that we have support for those schemes not yet directly competitive, such as offshore wind, so we can encourage them to be brought on, and therefore we have a balance to our portfolio."

RWE is participating in the British Offshore Wind Accelerator Initiative, launched by the Carbon Trust, and is one of the original utilities to begin building commercially viable, offshore wind farms. In 2003 the company built North Hoyle, which has continued to operate since then and is regarded as the best performing offshore wind farm in British waters. McCullough advises that the company's technical availability is at around 90 percent, making it significantly more advanced than that of RWE's competition and proving its expertise to the Carbon Trust and Offshore Wind Accelerator Program in order to develop innovative new products.

Combining innovative products with cost reductions is highly important. The company is currently developing ways into lowering production prices and making the supply chain in the manufacturing process more efficient, for both its onshore and offshore activities. Working alongside the Carbon Trust, RWE is developing how electricity is to be taken from those wind farms and deployed into the national grid, simultaneously learning how these operations can be made cheaper.

However, the company has not been secretive of its findings, opting to share the developments with the industry rater than remaining precious of the intellectual property that has been created. "We have to be a little sensitive on some of the information regarding the commerciality of any particular project, but it's in our interest to share information about how we maintain our assets, how we benchmark our assets - how do we know that we're actually the best of something that we do without sharing that information? We're very active about sharing the basic concepts of good practice, such as health and safety initiatives and maintenance philosophy," explains McCullough.

"If we and all our competitors did that in complete isolation then UK, PLC and EU players would take a lot longer to see the benefits due to the parochial nature that that would support. We don't believe in that, we want to open our doors. The North Hoyle project is a classic example of this: most of the round one offshore wind projects have had full public visibility, partly because they were initially funded by a capital grant. For the first early years of their life we had to be very transparent with that learning experience, and that's a philosophy that we should try and extend where we can so that as we go further offshore and develop bigger projects, we share that information so that the sector can benefit. Ultimately, that benefits us. We can build more wind, hydro and biomass projects and for less money. That is in my interest, and it ultimately will be in the consumers' interest."

Energy mix

Consumer interest is fast catching onto the global emphasis of green energy, and understanding how to provide a mix of energy types and getting that mix right for its consumers is an issue facing nearly all utilities worldwide. McCullough discusses how the company is administering these choices and points to the example of the large combustion plant directive in the UK, which is placing pressure on the energy gap - the capacity of generation ability and the level of demand at any one time.

"We have the Magnox fleets shutting down now," he explains. "The AGR's will follow, and at any point in time today we have investment decisions to make to replace some of those assets that will be affected by schemes like that. We have to do it in a way with the best knowledge that we have available at any given time, but we try and spread the risk so that we're not putting eggs in one basket.

"We see real strength in playing as an energy generator portfolio as opposed to a single party player. With the technology that's available currently today I don't believe in a world that is 100 percent renewable backed, nor do I believe in a world that's 100 percent nuclear, coal or anything else. When you look at things like carbon capture and storage with sequestration they have the potential to be very viable projects, but only on a project-by-project basis.

"Not only does that take very high efficiency coal plants close to 50 thermal efficiency, but by adopting the technology to strip out the carbon dioxide, it reduces our thermal efficiency closer to 30 again. Then you also have the sustainability issue of taking that CO2 and transporting it vast distances, with all of the steel pipe work, infrastructure and compression plants, and storing it for somewhere between 30 and 100 years. However, with the climate change dilemma you have to ask whether a wholesale basis for every coal plant is sustainable, so the answer is not completely CCS; it's not completely nuclear. It has to be a selection of these technologies so that we can make the best of everything we have available and stop trying to find this silver bullet that frankly, in my experience of 25 years in the energy sector, doesn't exist," he says.

Whether Europe's transmission and distribution network is strong enough to cope with the rise of micro generators and the transmission of renewable energy from point of generation to point of use remains to be seen. McCullough believes the network to be sufficient to cope with a large penetration of renewable energy, and not only that but also to successfully distribute energy too. Smaller scale energy is made in a more distributed nature via combined heat, power plants and generation, be it micro, domestic or small business scale. He notes the example of Germany, which has historically been a centre of large points of generations, similar to that in the UK. They already have 23,000 megawatts of wind installed, and although there are numerous complaints from the system grid operators regarding managing the base load environments, McCullough regards the difficulty as not impossible.

"It means that we have to actually adapt to how we think about a new form of rules as to how we regulate and manage the grid," he explains. "When you look at 23,000 megawatts installed in Germany and look at the very significant percentage of penetration that is in the market, then look at markets like the UK that are down in the single digit percents and very low numbers at that, there's a vast amount of room to go at before we really run into problems. Will we run into problems? We might, but let's actually make the progress towards that hurdle rather than not starting and stopping now before we get there. We can't continue doing nothing."

2010 will see the extension of carbon-reducing emission targets not only in utility companies but almost every other industry, but will this communication of energy politics together with healthy performance in that scheme actually be a competitive advantage to the utilities? "The aviation industry and the automotive industry are already using their carbon footprint or their sustainability impact very cleverly to competitive advantage," says McCullough. He sees no reason as to why this could not be practically applied in a smaller environment and on a much smaller scale. "Clearly, if you have multiples of messages being given by individual businesses, then you have the potential to confuse or even create an apathy amongst the customer base where the message is repeated, so often it becomes diluted and we're already beginning to see something like climate change fatigue.

"People struggle to know how to react to it. Businesses are selling themselves now, trying to differentiate themselves to be better at managing that aspect of their business than their next competitor, but already there's the critical path that always follows, the euphoric, "Yeah, we get it. We get it. Let's do something about it,' and then apathy sets in, and we have this green wash.

"Communication's absolutely key. Again, take the heralded new nuclear building in the UK that the country absolutely needs, and look at the legacy that nuclear suffered. Nuclear was born out of the Cold War, it was effectively built for weapons grade plutonium with heat as a huge byproduct that some clever people thought we can build energy from. And of course more clever uses of that nuclear technology became civil nuclear reactors, but when they were built, the whole paradigm of why they were put there was completely different from those reactors that we're actually thinking about building today, which are designed to be decommissioned, designed for very long asset lives, designed for a commercial environment as opposed to being retrofitted and emerged over a very clumsy period of time. Yet the legacy of the PR effect has been enormous and is still there, so getting that message right in terms of communication being fundamentally important, and whilst we've learned that lesson, we still meet pockets of resistance.

"We always will. We'll always have the NIMBY's and BANANA's - the 'not in my backyards' and the 'build absolutely nothing anywhere near anything' brigade - and unfortunately if we all had a nation full of BANANA's where would we be? So we need to be a little bit more forward thinking than that," he says.

The solution to this problem is education. Consumers need to be continually educated, as do the utilities that serve them, for as McCullough explains, "Our consumers are our lifeblood and you ignore your consumer at your absolute peril. We're living in an age now where the consumer has never been as informed as they are today, everything from the internet to the ability to actually swap a supplier when the needs of that supply service agreement are not met. No longer do we have captive audiences, and that's a good thing, especially for competition. It's a good thing for keeping our service practices sharp - most of the time we get that right in the utility sector. Sure, we're still seen as the big, bad utility guys, but it is a transition period, and the winners will be the ones who can really turn that model around and link with the consumer so that it becomes a partnership and a relationship."

However, he is not oblivious to the difficulties in the current regulated environment. RWE's domestic consumers are only compelled to retain their relationship with the utility for 28 days, during which time the company must help to encourage money saving on energy bills and establish a consumer desire to continue the relationship into the long term. The relationship between the utility and the consumer is tentative, and long-term status is built with trust, which in McCullough's view is done by providing "excellent customer service, which is what we strive for."

So how exactly is Europe to move forward on renewables in a cohesive manner and what is the importance of a common policy? McCullough notes the commonality already seen throughout continental Europe, due to the region's very close connectivity. "We have some connectivity by the channel links into France and the like, but it's a more crucial issue in continental Europe than it is in the UK. There is already a lot of common thinking about system loads and demand flows. There has to be because of the interconnectivity of those grids. You are seeing an increasing amount of discussion, via the EU Commission, to harmonise the way we think about energy flows and services, and that clearly enters the wires business, and the transmission and distribution network operators.

"We're not currently near a tipping point; it's more tight in areas like onshore Germany where you have quite a mixed portfolio already and in order to actually go to the next stage there, you need to go offshore and do something else. Other countries, including the UK, have headroom to utilise the grid infrastructure that we currently have. Do we have to reinvent the rules to do that or rethink the rules to do that? Yes, we do.

"We have to be more innovative, but we can still do much more than we're doing at the moment with the limitations of the transmission and distribution systems that we have, so we're a long way from being at a tipping point where you have to think more radically. Again, if you waited for every single answer before you did anything, mankind wouldn't progress. We have our part to play in this, we need to take steps along the road, and we can do it. We've got a lot of headroom, and we've got some clever people around that can actually help us work out the next stage of solutions as we take steps."