Andrew Whalley is a strange mix of boiling frustration and cool confidence. The chief executive of the UK’s largest onshore wind developer, Renewable Energy Generation (REG), is a true blue Tory who feels he has been betrayed by a prime minister who “casually” announced a moratorium on his core business, first in April 2014 then in February this year and again in the recent Conservative manifesto. But he’s sanguine because, he says, no matter who leads the next government, there is no road to a decarbonised economy that does not include more onshore wind.
Pointing to a ring-bound document on his desk containing examples of a variety of renewable and low-carbon generating technologies, including their cost and capacity, Whalley triumphantly concludes: “The only one that is capable of making up the gap is onshore wind. If you give it up you might as well forget all your renewable energy targets. It’s impossible – and onshore wind is cheap.”
REG is an AIM-listed renewables development and asset management outfit with revenues of £11.6 million in 2014. It is made up of three subsidiary businesses working across bioenergy, solar and, primarily, wind. It is also a preferred partner of Blackrock – the world’s biggest fund management organisation. It understands Blackrock’s needs, having launched as a fund management company itself before changing to an operating model under the intractable influence of the recession.
Whalley joined REG in 2005, spurred on by a tip from a pal – former SSE chief executive Ian Marchant – that “wind is the future”.
The early strategy was to buy operating or near operating windfarms across Europe and “play the convergence game”. The idea was to extract money for shareholders by refinancing them and becoming “a kind of yield plate”.
“We were a bit like Green Co but ten years ahead of our time,” Whalley muses.
Memorable projects during this period included a junior partnership in Poland’s biggest windfarm at the time – Tymien – which Whalley describes as “a hoot” but “difficult”. Developing windfarms in Canada following an acquisition of AIM Powergen proved an easier and more lucrative enterprise and REG thrived on its immense development portfolio of 5GW.
But then the recession hit and REG, developing windfarms across two continents and dabbling in a new bio-fuel venture with “a tiny balance sheet”, was sent reeling.
Whalley recalls his “fairly apocalyptic view of the world” in that time of global financial meltdown. “We decided we needed to sell the Canadian business and focus on our home market, which was more in keeping with our balance sheet and P&L,” he says. But it was a decision easier made than executed when the buyer, International Power, “embarrassingly for a FTSE 100 company”, ran out of money.
Eventually though, the deal was achieved for “quite a good price” – about $130 million. “We’ve been focused on the UK ever since,” says Whalley with an air of relief. “We run 11 operating windfarms in the UK – not very big, about 35MW – but also have a partnership with Blackrock, so whenever we need extra cash we sell a project to them and recycle the proceeds back into developing our own portfolio of projects.
“Over the next few years, the idea is that, CFDs and RO regimes allowing, we’ll build around 100MW of our own projects. That’s the plan as far as anyone can have one in renewables.”
Whalley’s composed manner as he references the mire of shifting subsidy regimes and political camp-shifting that has beleaguered the UK renewables industry over the past decade or more, suggests he has learned to simply chalk up their impact to fate. But his apparent equanimity belies a fervent belief in the role of onshore wind in a decarbonised society and a passionate incredulity about Conservative efforts to thwart its progress.
“If you remove onshore wind from the mix – forget it. How can you get to 41GW ?”
Whalley even-handedly allows that Michael Fallon’s claim, made when the now defence secretary held the energy minister hot seat, that there is enough onshore wind in the planning system to allow the technology to play its rightful part in decarbonisation, is credible. But he cautions, “that assumes you don’t run into issues with radar, that the grid’s available and that you don’t get ‘Pickled’” – a reference to the now infamous interventionism of the Conservative communities secretary.
“If the government embraced it – as the Scottish government has – then you could make onshore wind very successful. If we embraced tip heights like they have in Germany we could make it really, really cheap.”
Convinced that the strategic development of more onshore wind in suitably windy locations around the UK would accelerate the UK’s journey towards meeting both its emissions and renewables targets in a cost-effective and relatively low-risk manner, it infuriates Whalley that its progress has been hampered by political whim and an apparent refusal to accept the reality of public support for this form of renewable power generation.
“When Cameron comes out saying the ‘people have had enough of this’ it’s patently untrue. Seventy per cent of people, according to the government’s own figures, like onshore wind.”
Entering into a spirited one-man dialogue with an imagined Conservative naysayer, Whalley continues:
“Oh well, people in the vicinity of windfarms don’t like them.”
“No, 60 per cent of people – again your own figures – living in the vicinity of windfarms, like windfarms. Not just put up with them, like them. That compares with 29 per cent for fracking and 49 per cent for nuclear.”
“Oh well, we’ll put a moratorium on it.”
“You’re going to put a moratorium on a form of generation that delivers power for £75-80 per megawatt-hour? And it’s an indigenous resource. And people like it.”
Breaking out of character, Whalley throws up his hands and sighs. “This is what makes me cross.”
Luckily, REG’s other business interests provide some relief from this clearly frustrating environment. In particular, REG Biopower, which opened its first power station, fuelled with used cooking oil, in 2008.
Since then it has built three more, including its latest and largest investment in Whitemore, Yorkshire, which started generating in February 2014. Whitemoor is an 18MW facility that comprises ten “huge” Caterpillar engines that run on REG’s patented and Environment Agency-certified fuel LF100.
About 250,000 tonnes of cooking oil is used in the UK every year and, at present, most is used to make biodiesel, which Whalley says “in truth is not very renewable”.
He suggests that LF100 represents a better use of the resource. It’s is made from processed used cooking oil that REG collects from restaurants, an operation Whalley, laughing, says is “a world away from generation. There’s a lot of tattoos and transit vans”.
The oil is “sedementised” in 30-tonne vats to “get rid of chefs’ fingers and bits of batter”, then filtered. The resulting fuel is about 10 per cent less efficient than diesel but is cheap and, Whalley adds, “we get one and a half Rocs as well.”
Whalley wants REG to build 100MW of Biopower generation in the UK by 2017 when the Roc runs out. “This is about the optimum amount before we start to cannibalise our own return,” he explains.
REG’s Biopower fleet participates in National Grid’s Stor (short-term operating reserve) mechanism, a long-running means of providing extra capacity through either generation or demand reduction.
The technical requirements for participating in Stor are: the ability to provide 3MW or more of generation, or steady demand reduction (this can be from more than one site); the ability to deliver full MW in 240 minutes or less after receiving instructions from National Grid; and the ability to provide full MW for at least two hours when instructed. Or, as Whalley more simply explains, “when there’s a dip in the system a bloke in the control room in Woking presses a button and we rumble into life”.
The final part of REG’s enterprise is a grudging but significant play in the solar market. REG Solarpower opened its first solar farm alongside its Goonhilly Downs windfarm in 2013. In 2014, waste management giant Veolia approached REG with a proposal to open a windfarm on land previously used for landfill in Essex, but solar generation proved a better proposition for the site.
The Ockenden development, which is still in progress, will be REG’s largest solar farm, spanning 250 acres and with a capacity of 36MW. Setting up solar panels on an old landfill site felt like “a good option,” says Whalley who admits he otherwise has “a personal view about using up good farmland ”.
To gain better efficiency from its solar assets, Whalley adds that REG has been exploring the potential to link the panels to electricity storage assets – a technology area he’s cautiously enthusiastic about in a broader sense.
“We like storage – we have strategy days every so often and we’re really interested in storage. Blackrock is interested in storage as well. The problem is that the battery technologies are still massively expensive – cryogenic storage and hot sand and so on. Conceptually we’re keen on it – but we don’t take on technology risk.”
It’s a perennial problem for emerging technologies, but an understandable position for a firm that has enough trouble pacifying the concerns of its investors in a relatively proven technology.
Returning to the trials of onshore wind development in the UK, Whalley concludes with a potent insight into the impact of political ambiguity on his business.
“We’re one of really only two companies listed in this arena. We’re very good at buying and developing wind projects, we’ve got the world’s biggest fund manager backing us and the world’s biggest engine manufacturer (Caterpillar) backing us. Yet we’ve just done an investor road show and almost without exception, investors are saying: ‘We’ll buy you after the election. We’ve heard Mr Cameron say he’s putting a moratorium on windfarms’. Our shares are trading at probably half their intrinsic value because of this. It completely screws you up.”