Low-carbon energy will hit customers in their pockets

Published Date: 19 March 2009
By Peter MacMahon
Business Editor

HIGHER electricity bills will be the price people have to pay for the massive investment needed to equip Scotland with a modern low-carbon electricity generation and transmission system, Ignacio Galán, chairman and chief executive of Iberdrola, the Spanish owners of ScottishPower, signalled yesterday.
His warning came as he expressed extraordinary confidence that ScottishPower will win the UK government competition to build Britain's first demonstrator carbon capture and storage project at Longannet power station, Fife.The project, thought likely to cost more than £1 billion, is only a small part of the estimated £100bn estimated as needed to be spent in the next decade in the UK to replace ageing nuclear power stations and clean up existing coal-fired stations.About £8bn also needs to be spent on upgrading Britain's transmission system where the industry regulator Ofgem currently caps the return on investment at 4.8 per cent. This is lower than the current cost of capital, Sr Galán said, and would need to rise to between 10-11 per cent to attract the necessary funds.This is a relatively small part of what eventually makes up customers' bills. But in a world where funds for investment have become scarce, similar higher returns will also be demanded for the tens of billions needed to finance new power stations, implying that electricity bills will rise even if the costs of fuel – the major factor in determining electricity prices – do not.Galán was talking to journalists in Bilbao, where Iberdrola is based, ahead of the company's annual shareholders' meeting tomorrow.He said that ScottishPower, which is competing with E.ON and RWE Npower, to win the carbon capture contract, is now Iberdrola's centre for researching and developing clean coal technologies.ScottishPower is partnering with Norway's Aker, a gas technology company and oil firm Marathon, which hopes to transport captured from Longannet and pump it into storage in a depleted North Sea oilfield.Galán said: "The British government wants to have this plant in operation by 2014 and ours is the only one which complies with that requirement." The rival bids are believed to involve building a new power station, but ScottishPower will use one of the four existing generating units at Longannet, cutting several years off the time needed to complete the project."The only place in the group for all our technologies in coal will be Scotland. We will not make another thing in any other country," he said underlining the prospect that ScottishPower success in this project could have a huge spin-off in creating lots of jobs in building and selling clean coal technology.