UK renewable energy target 'naive' says Wulf Bernotat

Robin Pagnamenta

Wulf Bernotat looks cold — and sceptical. “Are you sure we are making any money out of this?” the chief executive of E.ON, the world’s largest utility company, asks one of his employees. “This is a business, you know.”
Mr Bernotat is in the gritty Swedish city of Malmö, standing in a windswept former dockyard that E.ON has helped to convert into a “zero-carbon city”.
Hands thrust deep into his overcoat pockets and with his collar turned up against the biting air, he is being lectured on the merits of a solar-powered district heating system that pumps hot water to hundreds of local homes. “You tell me later — in private,” he says, one bushy eyebrow raised ever so slightly.
One of Europe’s most powerful energy barons, Mr Bernotat, who presides over a global behemoth with nearly 88,000 employees and revenues of €87 billion (£79 billion) last year, has an equally blunt message for Britain’s politicians.

Through its subsidiary E.ON UK, the Düsseldorf-based group wields huge influence over British energy policy. It was to invest nearly £1 billion a year in wind and nuclear-generated electricity in the UK “for the foreseeable future”, so its decision this month to freeze plans for a new coal-fired power plant at Kingsnorth in Kent for up to three years sent shockwaves through Britain’s energy industry.
Mr Bernotat seems genuinely exasperated by what he regards as fanciful policymaking that bears little relation to the realities of running a business. Above all, he believes that Britain’s target of generating one third of its electricity from renewable sources, such as wind and wave energy, by 2020 is naive and he says that politicians need to do far more to “adjust expectations . . . There is a big mismatch with what is achievable. I think it is even bigger in the UK than in Germany. Politicians need to be more realistic.”
His argument is that without bigger state subsidies or a higher price for carbon emissions, E.ON cannot afford to make the investment necessary to meet such ambitious targets. “The carbon price is too low to support any accelerated investment in carbon abatement. Every investment must deliver an acceptable return.”
The same focus on pure economics over ideology is behind E.ON’s decision to put the Kingsnorth development on hold. The announcement exposed divisions within Britain’s environmental movement. While many hailed it as a victory, others saw it as a disaster, warning that it would delay E.ON’s plans to invest in new carbon capture and storage (CCS) equipment — key technology in the battle against climate change, a battle in which the Government wants Britain to be a world leader. Mr Bernotat quickly brushes aside any suggestion that E.ON yielded to outside pressure from green groups. “It was simply a reaction to market developments,” he says, adding that the recession has pushed back the need for new plants in the UK to about 2016 because of plummeting electricity demand. “Demand is not developing at the same speed and we just felt we had to adjust our investment programme.” Kingsnorth, he says, is only one of a string of investments that E.ON is deferring because of the recession, which he says will leave depressed demand for electricity across Europe for another two years.
Certainly, Mr Bernotat, a powerfully built German with a taste for afternoon cigars, does not come across as the kind of executive to bow easily to the demands of a few protesters, which might be a disappointment to those environmentalists responsible for violent protests at E.ON’s coal-fired power station at Ratcliffe-on-Soar in Nottinghamshire over the weekend. A spokesman said that the company was “incredibly disappointed” that the protest had not remained peaceful: “It’s clear that there are no winners or losers here.
“While the power station continued to run over the weekend, many protesters seemed more interested in pulling down fences than in having a debate about the vital energy issues that we face today — how to keep the lights on while ensuring energy is affordable and low-carbon.”
Mr Bernotat is keen to emphasise that E.ON, whose UK subsidiary has eight million customers and generates 10 per cent of the nation’s electricity, is no laggard when it comes to green investment. For example, the company is a key backer of London Array, the world’s largest wind farm, which is being built in the Thames Estuary at an estimated cost of £3 billion. Indeed, Mr Bernotat is in Malmö to promote E.ON’s plan to increase the proportion of renewable energy in its portfolio of global power stations from 13 per cent to 18 per cent by 2015 and 36 per cent in the longer term.
The company expects to pour €8 billion into renewable energy projects in the five years to 2011. But the former Shell executive, who is due to retire next year, is under no illusions about the difficulty and cost of doing so. “Even in times of climate change, energy is not only an ecological but also still an economical and social matter. [It] needs a balanced consideration of security of supply and affordability for consumers.”
Later, Mr Bernotat gazes out across the grey seas that separate Malmö from the Danish capital only 10km to the west, a stunning view framed by the spinning turbines of the Lillgrund offshore wind farm and the soaring heights of the Öresund Bridge that connects Malmö with Copenhagen. It is here, in just over two months, that ministers from around the globe will converge for a United Nations meeting on climate change that will address many of the concerns that Mr Bernotat expresses and could determine some answers.
Mr Bernotat says that he is an optimist, but he offers what seems to be a gloomy assessment of the prospects for a global deal on climate change in December. “Copenhagen cannot set higher carbon prices, it can only create a framework to do so,” he says.
“One should always be an optimist, but realistically the expectations for Copenhagen should not fly too high. The Americans will pay some lip service to climate control but not much more. We will see some nice words but less content.”
Johannes Teyssen, E.ON’s chief operating officer, takes over from Mr Bernotat in nine months. It will be up to him to steer a course for E.ON in the world beyond Copenhagen — however different that may be.
E.ON
— World’s largest utility company by sales (not by market value or profits)
— Based in Düsseldorf
— Formed in June 2000 by the merger of VEBA and VIAG, two of Germany’s largest industrial groups, dating from the 1920s
— Employs 88,000 people globally, of whom 17,000 work for E.ON UK (formerly Powergen)
— Group earnings before interest and taxes of ¤5.7 billion (£5.18 billion) in first half of 2009
— Owns power generation, gas and electricity distribution businesses across Europe, Scandinavia, Russia, and in North America