Iberdrola chief Galan: grid investment must match renewables 'dollar for dollar'

Europe can still consolidate its 30-year lead in offshore wind, but the onus is now on policymakers to put in place the regulatory frameworks that will nurture the required investments in grid networks, according to the head of Spanish renewables giant Iberdrola.

While extolling the European renewables industry for “demonstrating, proving and leading” offshore wind over three decades, Iberdrola executive chairman Ignacio Galan acknowledged that the sector has faced headwinds due to rising costs, and argued that governments need to respond.

“As an industry, we have been forced to renounce some [power purchase agreements] because the world changed... interest rates moved from zero to 5% or 6% or 7%,” he said, referring also to soaring prices for inputs such as steel, copper and electronic components.

Turning to Europe’s mood of self-doubt over offshore wind, Galan was bullish, recalling Iberdrola’s role in developing wind turbine manufacturing through Gamesa, now Siemens Gamesa.

"We are the pioneers and world leaders in offshore wind technology.... I expect things to improve as we revise pricing formulas. Our wind technology is not going to disappear, but we need to adapt to new circumstances,” Galan said at this week's BNEF Summit in London.

“Things have changed and some countries don’t like to recognise that things have changed but they are finding out that unless you change the rules all of us, we are saying, can’t go ahead because the projects are not financeable.”

Galan referred to the UK, where Iberdrola’s ScottishPower subsidiary is still developing the 1.4GW East Anglia 3 wind farm but, like all of its peers, snubbed the country’s A5 offtaking round for contracts of difference.

“We told the government that the this auction would not receive support unless the rules were changed and this is what happened because the strike price was too low. But there is a solution,” he said, referring to the example of changes in Ireland allowing adjustments pre-FID and during the life of assets.

“Self-sufficiency has become more important. We can’t be dependent on third parties to keep our lights on,” he added.

Galan said a more streamlined permitting system was part of the equation. “In a country like Spain it can probably takes five to seven years from the auction before you are ready to start building. In the past this was because of the learning curve but now the focus has to be more on the construction side.”

Lower opex

Galan said he remained optimistic about the capacity of wind technologies to help drive decarbonisation and provide power more cheaply.

“The capex needed for a new coal power plant is similar to the capex per megawatt needed for an offshore wind farm, and the amount of capex needed for a new combined cycle gas plant is about the same as for an onshore wind farm, but in both cases, the opex for wind power is much lower,” he said.

“So, in Europe, the demand is there. European wind technology is not going to disappear but we need to make sure that auctions are adapted to the new circumstances.”

Galan argued that Europe has the “technology and the track record” to take advantage of this for this but, he said, needs to put in place the right regulatory framework.

In this regard, Galan pointed to Iberdrola’s own strategy of investing just as much in grid networks and storage as in renewable power generation, with a total of €140bn spent along the way.

“When I joined the company in 2001 we started investing in grids as a natural match for renewables and this was at the heart of our international expansion,” he said. “We have faced criticism over the years but we strongly believe that investment in the grid is crucial for energy transition.

'Dollar for dollar'

“Now it is more widely recognised that almost for every dollar invested in renewables another dollar is needed in grid and distribution. Why? Because it is much more difficult to manage distributed generation than concentrated generation,” he added.

Galan said ambitions such as promoting moves from gas boilers to heat pumps or electrification sometimes leans the debate toward installation issues rather than the crucial question of powering this transition, and delivering the electricity.

“I want to be positive. For years, regulators in most countries did not understand what was happening and what was needed. Now in most countries, things are moving in the right direction to get the huge investment that is needed,” he said, referring to the growing number of big interconnection projects around Europe.

"In Europe we have technology, capabilities and the money and do not need to depend on others. What regulators need to be ready to provide [is] the stable framework for investments that will provide infrastructure for the next 40, 50 or 60 years.

"Fortunately most countries are moving in the right direction and we are expecting the European Commission to publish a document on this in the next few days."

US gloom

Galan also referred to the US where 3.2GW of wind farm capacity representing about one-fifth of the pipeline has stalled due to claims of power purchase agreements becoming economic.

The 804MW Park City Wind array, that was to be developed by Iberdrola’s Avangrid unit, joined the ranks of the fallen last week when the Connecticut Electric Distribution Companies agreed to terminate its PPAs.

Earlier this year, Avangrid cancelled PPAs for the 1.2GW Commonwealth Wind offshore wind project by agreeing to pay a $48m penalty to the Massachusetts electric distribution companies.

But Galan flagged progress on 800MW Vineyard array, a joint venture between Avangrid and Copenhagen Infrastructure Partners (CIP), as an example of a project that is actually getting built in US water and is expected to start production at the end of the year.

The company also has offshore wind projects in France and Germany and major renewables in Brazil through the Neoenergia subsidiary.