Iberdrola chairman denounces EU energy rules as ‘Kafkaesque’
Group says government incentives encourage the retention of polluting coal plants
The chairman of Iberdrola has denounced Europe’s energy regulations as “Kafkaesque”, and warned the current regime encourages utilities to keep polluting coal plants running rather than invest in green power generation for the long term.
“There is not enough capacity to satisfy expected demand,” Ignacio Galán told the Financial Times. “What is happening now is that we are artificially preserving power plants that are obsolete and that would be closed if it were not for [government] incentives [to maintain capacity]. At the same time, we are not building new gas-fired power plants.”
Iberdrola is one of Europe’s biggest utilities, with a large presence spread across the US, Brazil, Mexico, Spain and the UK, where it owns Scottish Power. The Madrid-based group, which claims to be to the largest generator of wind power in the world, is due to publish full-year results on February 22.
Mr Galán’s comments highlight frustration in the industry as power groups struggle to balance competing demands from politicians to combat climate change and keep the lights on without raising consumers’ energy bills.
“The European system is pretty Kafkaesque,” said Mr Galán. “On the one hand the system tells you that prices must not rise, and on the other side regulators place more and more burdens on you that you have to include in the tariffs.”
He also pointed to growing concerns about power shortfalls at moments of peak demand, or at times when there is little sun or wind. To cover that risk, governments have provided subsidies to keep old power stations running, including heavily-polluting coal and diesel plants.
Mr Galán singled out the UK as a country where the need for more generation capacity was especially acute.
“The country in Europe that has the most problems with reserve capacity is the UK,” he said. “They have not built new power stations for many years. They haven’t got the incentives. If you don’t offer long-term incentives to build new plants you won’t get new plants. You are putting at risk the system. That is the reality.”
Scottish Power on Friday became the latest UK energy company to increase electricity prices, raising its standard tariff by almost 11 per cent.
According to Mr Galán, British consumers “should not be surprised” by rising energy bills, pointing to the effects of higher oil and gas prices, the slide in sterling’s value after the UK’s vote to leave the EU, and the steady increase in regulatory costs.
“If we want to lower energy costs we have to remove all the non-energy related costs from the bills, as is the case in the US,” he said. “The energy bills we pay in Europe — almost half the total comes from items that have nothing to do with energy or energy transportation, such as taxes, regulations and subsidies.”
Coal-fired power stations operated by Vattenfall at Jaenschwalde in Germany © EPA
Iberdrola’s share price suffered a hit in the immediate aftermath of the Brexit vote, but the group has since managed to calm investor concerns. Mr Galán said Iberdrola was fully hedged against any impact from the fall of sterling both in 2016 and 2017. In spite of the political turbulence, “our theme is business as usual”, he added.
Iberdrola’s investment plans for the UK — which amount to £2bn a year from 2016 to 2020 — are unchanged. “We don’t see that Brexit will have a negative effect on our business,” Mr Galán said.
He sought to project the same equanimity with regard to political changes in the US, where Iberdrola has expanded rapidly in recent years and now ranks as the second-largest producer of wind energy. President Donald Trump and some of his closest advisers have repeatedly questioned whether climate change is happening, while promising to revive the US coal industry.
“President Trump has been in his job only for a few weeks,” Mr Galán said. “Let’s see how things turn out. We have to give him time. I see no concrete sign that suggests the US will not lower its emissions.”