Scottish Power shifts to 100% wind generation after £700m Drax sale

Scottish Power has ditched fossil fuels for electricity generation and switched to 100% wind power, by selling off its last remaining gas power stations to Drax for more than £700m.

Iberdrola, Scottish Power’s Spanish parent company, said the move was part of its strategy to tackle climate change and would free it up to invest in renewables and power grids in the UK.

The deal also marks a significant expansion and diversification for Drax, whose main business is a coal- and biomass-fired power station in North Yorkshire.

Included in the £702m sale are four gas power stations in England, two hydro schemes and a pumped storage plant in Scotland. That leaves Scottish Power producing all its power from windfarms.

While it has many onshore, the firm’s growth is in offshore windfarms, including East Anglia One, which should take the crown of the world’s largest when it opens in 2020.

However, the company’s five million domestic customers will still be supplied with a mix of green and brown electricity, with some bought from other coal and gas power plant operators.

The ScottishPower chief executive, Keith Anderson, said: “We are leaving carbon generation behind for a renewable future powered by cheaper green energy.”

Asked why the firm was selling off its hydro assets too, given they generate green energy, he said that it was partly because they were in the same company as the gas plants and made the sale simpler.

But it was also because investment in new hydro was a “difficult, complex and slow process” compared to wind and solar, Anderson said.

Drax will see an immediate boost in its earnings, adding an estimated £90m-£110m profit in 2019. The company made a profit of £229m in 2017.

The acquisition positions Drax as a key player to fill in the gaps in the UK energy system at times when solar and wind power output is low.

It also means that if the company fails to secure the subsidies needed for the new gas power station it wants to build at its North Yorkshire site then it will still have a broad portfolio.

The chief executive of Drax Group, Will Gardiner, said: “As the system transitions towards renewable technologies, the demand for flexible, secure energy sources is set to grow. We believe there is a compelling logic in our move.”

He added that the deal was “much more about the water than the gas”. While the gas plants were relatively old and would therefore be beaten out of the market as and when new gas plants get built, the hydro plants would keep “running for a long time”, he said.

But the four gas plants acquired by Drax, in Kent, Hertfordshire, Sussex and Lancashire, also give the company what Gardiner called “attractive options” to build further new gas units, if it can make the economics work.

Industry watchers said they thought Drax had paid a high price for the power stations. Deepa Venkateswaran, an analyst at Bernstein, said the £702m was “significantly higher” than what it valued the portfolio.

Green groups said the deal showed the government should back renewable energy firms rather than fossil fuel and nuclear companies.

Kate Blagojevic, head of energy at Greenpeace UK said: “Big utilities across Europe have been shedding their dirty fossil fuel infrastructure because it makes economic and environmental sense.”

The deal is due to complete at the end of the year.

Adam Vaughan

This article first appeared on the Guardian