“Was Eggborough the start of the journey or the end of the journey? It was the start of the journey.” So says Neil O’Hara, chief executive of Eggborough Power Station, and of Czech owner EPH’s burgeoning interests in the UK. O’Hara and his tight-knit group of colleagues have kept their vision alive despite some crushing setbacks, namely the government’s last-minute decision in 2014 not to award Eggborough any subsidy for its planned biomass conversion, bringing EPH’s plans to a sudden halt.
That’s history now, though. Today, O’Hara is calm, smiling, visibly in control as he invites Utility Week to his Mayfair office to hear about EPH’s more recent acquisition, Lynemouth, plus the company’s grand plans to build and acquire new capacity in the UK; and even a foray into the small and medium-sized enterprise retail market with soon-to-launch online marketplace Energy Scanner.
First up, Eggborough. O’Hara, a former British Energy man who joined EPH when it bought Eggborough in 2014, rarely loses his cool, but the smile falters just a little when he’s asked to recall how he felt when the carefully crafted plan to build the world’s largest biomass power station fell apart at the eleventh hour. “Surprised and a little perplexed,” he says cautiously, after a moment’s thought. “There’s no way we would have gone through the extent of the work that we had gone through in raising debt and equity if we thought there wasn’t a very strong chance of success.”
All is not lost, however. As Utility Week exclusively revealed last week, O’Hara has just signed a deal with National Grid for Eggborough to provide 775MW of back-up capacity as part of the Supplemental Balancing Reserve (SBR) over the winter of 2016/17. This will stave off the planned closure next month, and keep 235 jobs safe in the short term at least. “I’ve no idea what happens after that,” he says. “We’re basically running a business now year by year, and it’s up the powers that be in terms of looking at security of supply whether they want to create space for us to bid again.”
Eggborough dealt with, it’s on to happier ground, with EPH’s acquisition of Lynemouth power station from RWE in January. Unlike its ill-fated peer, Lynemouth has a cherished subsidy agreement, and having ceased coal production at the end of last year is set to make the transition to biomass in the next 24 months. That means a huge investment in re-gearing the power station and its workforce. But for EPH, the deal was a no-brainer: “Dusting down all those relationships and contracts and capacity for biomass was very easy for us. There are not that many people who would feel comfortable just with the fuel angle of Lynemouth alone… It absolutely consolidates all of the work and effort we put into Eggborough.”
O’Hara visibly relishes the opportunity to show that biomass can work, and to prove the naysayers of Eggborough wrong. Critically, he has the full backing – not to mention the deep pockets – of EPH behind him. The company, an established central European player in traditional generation, is a rarity. It combines the nous and vision of pure-play financial investor with the operational insight of an energy specialist. It boasts more than €10 billion in assets, €1.4 billion annual Ebitda and 10,000 employees.
“I’ve worked in quite a few different places, and this is the first time I’ve had this unique opportunity of working with people that both understand the industry and the challenges and risks in depth, but also think very much like nimble financial investors,” he says.
EPH has decided to focus its European growth ambitions on Italy, where it has acquired Eon’s interests, and the UK: “They’ve picked those two for very specific reasons around the fact they are at the end of the transmission and transactional value chain; they’re discrete, and have got some very interesting characteristics around supply, demand and policy.” In the UK, that translates to considerable ambitions for both the acquisition and new-build of power stations.
O’Hara is one of the brave souls planning to play in the capacity market. EPH is looking at a number of sites for potential new-build gas-fired power stations, he says, and would love to have one ready for this winter’s auction – “though it’s going to be tight”. There are numerous factors at play, from the size of the site to its potential for gas transportation links and its proximity to local towns. The ambition is there but O’Hara, who is something of a pragmatist, is clear about the challenges: “We’d be absolutely delighted to get one.”
He is also clear that something needs to change at a policy level. Only one new-build CCGT power station qualified at last year’s capacity auction, because the clearing price was so low. “If you want a sub-£20 clearing price and no new CCGT, you’ve got the outcome you want,” O’Hara smiles ironically. “Those economics won’t work . As long as that’s the outcome, we won’t be building new CCGT and I don’t think anyone else will. Something needs to change somewhere to achieve a higher price.” O’Hara looks forward to the outcome of the current government review of the auction, but suggests “it’s quite probable there’s going to be no change this year. They’ve got to think their way through this stuff carefully”.
That said, O’Hara believes the vision that energy secretary Amber Rudd set out last year, of an end to unabated coal by 2025, is achievable: “She’s left herself enough space to manoeuvre, though Plan A has to be new-build CCGT.”
Meanwhile, there are potentially more straightforward deals in the making, as EPH is also in the market to acquire, and is in the process of “several” negotiations. He says the company is “very comfortable” owning and operating existing plant, be it coal or gas, adding their experience with Eggborough has taught them valuable lessons. “While being in SBR is not where we would prefer to be, we’ve become experts in managing very low load factor coal stations, which isn’t easy. They aren’t meant to be run a few days a year. We’re very comfortable with taking on low load factor coal and dealing with some of the other issues around coal, through our preference is clearly going to be gas.”
This touches on one of O’Hara’s key themes, the closeness of EPH’s UK team and the depth of its operational experience. “We don’t have people who are theoretically, conceptually involved in running power stations. We’ve all been in the trenches.”
A seasoned media player, O’Hara won’t be drawn into quantifying EPH’s UK ambitions, either in terms of money or megawatts. “I wish I could, then it would be a really simple story. It’s opportunistic. They think in a different way – they don’t think scale, they think opportunity and value. It’s opportunity-driven, bottom up, and each decision is a marginal decision.”
Which brings us neatly to the real reason for today’s interview, the imminent launch of a very different type of venture: Energy Scanner, an online marketplace (emphatically not a price comparison website) for SMEs to transact with energy providers. O’Hara lights up as he talks about a project so close to his heart. He has been hankering to do something of this nature since his days at British Energy, he says, when he had to shut down the SME retail operation because he couldn’t find a way of making it pay. “I struggled with paying huge fees to intermediaries and didn’t have a relationship with the customer. It just didn’t work. We closed down, and that has been lurking in the back of my head ever since.”
O’Hara sets out the scale of the opportunity: 2.5 million SMEs in the UK; 95 per cent of them are unaware they’re paying fees to third party intermediaries (TPIs) for their energy; only 23 per cent of those able to switch have actually done so in the past year; and 36 per cent have never switched. This stickiness is a problem the Competition and Markets Authority highlighted in its recent provisional report on the energy market, together with concerns over the transparency of TPIs. O’Hara says this intervention has further convinced EPH is it is “playing in the sweet spot.”.
EPH’s solution, Energy Scanner, allows SMEs to transact their complex energy deals in just three minutes, thanks to technology sitting in the background which creates bespoke quotes for each customer from the pricing matrices submitted by suppliers. The supplier retains control of the pricing matrix, and owns the relationship with the customer, who is transferred to them post-transaction. Unnecessary repetitions of expensive processes such as credit checks are cut out of the chain, because they only need to happen once. Meanwhile, the customer gets to conduct their business online, with transparent fees that don’t favour any one supplier over another, and transact then and there with the contract delivered to their inbox.
It sounds simple, but O’Hara claims it is unique, offering value to both customer and supplier. The task now is get both sides on board. He says up to a dozen suppliers of all sizes have signed, or are about to sign, on the line; and plans are in place for a targeted marketing campaign for customer acquisition, including digital and local radio advertising. The key to success will be gaining critical mass on both sides. There is further growth in store too, with plans to get into the water market when that opens to competition for non-household customers next year. “No-one else is doing what we’re doing. We’re taking a complicated event, with huge price matrices, and we’re doing so much more than just a single price comparison. We’re creating the quote – it’s a very, very complex output. It’s amazing, we’ve got it so slick.”
It’s a neat solution – and O’Hara’s enthusiasm is contagious – but surely, it’s a long way from coal-fired power stations? “Absolutely – and that loops you all the way back to the top, which is EPH. They’re disciplined, analytical, but also understand the strategic side. What are we in the UK? We’re the opportunity funnel.”
And opportunities abound. As the conversation draws to a close, it’s clear that for O’Hara and colleagues, the journey that started with Eggborough has barely just begun.