Centrica chief executive Chris O’Shea says Irish wind farms are where the £6.4 billion energy group can “add value”.
With £3.2bn of cash on its balance sheet, over 30% of the energy supplier’s spending went towards green activities in 2023 – up from just 5% a few years ago, and that figure is rising.
The owner of British Gas is turning its back on North Sea gas as it takes a bold step in the direction of fulfilling its green investment strategy and prepares to publish its Climate Transition Plan.
Energy Voice: How much has Centrica invested in its green-focused investment strategy to date (targeting up to £4bn over the five years to 2028)?
Chris O’Shea: We’re making good progress with our investment plan, but the aim was always to increase this over time. This year we’ve announced a £70m investment in Highview Power. We’ve also committed £1bn of investment in our meter asset provider business.
What investments does count as ‘green taxonomy’ and how does this strategy differ from business-as-usual for Centrica?
Our investments all support the energy transition in some way, but ‘green taxonomy’ very specifically refers to our company assessment framework, which is based on external best practice frameworks. However, this framework is evolving, and its “by-inclusion” format can be restrictive, so we occasionally justify our own independent classifications where appropriate.
In our trading update in December, we noted that for 2024, our capital expenditure is expected to be around £600 million, significantly higher than in 2023.
We also intend to publish an updated version of our Climate Transition Plan early next year. We want our customers to be net zero by 2050, and we’re on track to deliver this. In 2023, we provided energy, services and solutions that help cut the greenhouse gas intensity of the energy our customers use by 10% against the 2019 base year.
Is Centrica planning to invest more capital in large-scale offshore wind developments following the divestment of its stake in the Lincs windfarm to the Green Investment Bank in 2017?
I check what the electricity mix is each morning. Sometimes it is 85%, and sometimes it’s 15%. I wouldn’t rule out any investment opportunity but I’m always looking for opportunities that Centrica can bring value to. I’m not sure we can bring value to wind generation in the UK.
That said… Bord Gáis and Corio are exploring opportunities to supply green, reliable and renewable energy from offshore wind to Irish homes and businesses. Our partnership is in [the] very early stages, and we are still assessing the specific activities that we may look to progress, but I think we could add value in this market.
When there is no wind, we need to be able to provide consumers with the power they need. That’s why we’re supporting the build out of UK batteries and other storage technology. At the end of November, we acquired an 18 MW battery storage project in Belgium, and that’s really just the tip of the iceberg in terms of the work we’re doing in this space.
How much money did Centrica invest in wind power versus solar and energy storage in 2024? How important is energy storage to Centrica’s green investment strategy?
Energy storage plays as important part of our green investment strategy alongside new generation renewable assets and home energy management for our customers. Being able to store green electrons is key for the UK’s ability to decarbonise. In Centrica Energy we have 16GW of assets under management [which] include wind and solar assets.
You recently described the solar market as “challenged” — had you wanted to invest more? In which new areas is Centrica planning to invest in 2024/25?
What’s really important here is that the cost of capital and the rate of returns will vary heavily between investors. While the spread on solar may look favourable to some investors at the moment, as an energy company, our cost of capital means that solar doesn’t pass our benchmark. That’s not to say that won’t change in the future, it’s just to say that, generally speaking, solar is not right for us at the moment. We are still looking to invest £3bn-£4bn out to 2028.
You recently described gas as being “aligned” with Centrica’s green investment strategy — is Centrica investing any of the earmarked capital gas peaking projects to ease intermittency of supply?
There will be times where the wind doesn’t blow, or the sun doesn’t shine. At these times, we need energy storage and peaking plants to meet demand. So, gas does form part of our investment strategy, but this is done with the aim of supporting the energy transition.
We’re also investing in two new Peaker 100MW flexible gas-fired plants in Ireland. These are future proofed, as they are capable of 100% hydrogen conversion.
How does Centrica plan to keep the radiators, hobs and lights on this winter?
Our optimisation business has excellent capabilities to procure and balance the gas and electricity demands on behalf of British Gas and our customers. Additionally, the majority of our customers are on a price cap tariff which is set by Ofgem.
The risk of energy shortages shows the importance of our Rough gas storage facility, which is around 50% of the UK’s gas storage. Our future capital expenditure plans include flexible peaking generation and storage assets which can help the UK meet its demands.
Will Centrica develop or buy any new gas fields, including peaking capacity, in light of prime minister Keir Starmer’s statement at COP29 that the government is committed to issuing “no new North Sea oil and gas licences”?
Our North Sea gas fields are naturally declining and we’re not looking to invest in this area as we focus on our green investment strategy.
I believe there is an opportunity here for some of the ageing assets in the UK. For example, we are looking at ways to repurpose Morecambe Bay, transforming it into one of the UK’s largest carbon storage hubs, having received a carbon storage licence in 2023.
He added: The existing regulatory environment does not reflect the importance of these assets in a net zero future, so progressing these projects, which would create thousands of high-quality jobs in less economically developed areas of the country, will ultimately depend on the regimes put in place. We’re looking to work with the new government to demonstrate the value of these projects and to move them forward at pace.
If the UK government cuts off new oil and gas licences in the North Sea, how much longer can companies realistically develop oil and gas fields before the taps go off?
It is important to note that licences were granted in 2023, and it takes, on average, five years from a licence being granted to production. So even if no new licences are granted, companies with existing licences are still likely to continue development for several years to come.
What are the benefits and disadvantages of converting existing gas infrastructure to hydrogen storage at the Rough gas field?
At Rough, we continue to mature our plans to deploy more than £1bn to develop the world’s biggest single methane and hydrogen storage facility.
The UK is a country that sees demand at its highest when the weather is cold. We are not unique in this, but it does provide its own set of challenges. Rough helps answer those challenges. By storing energy, we can ensure that the UK can meet that demand. The redevelopment of Rough aligns with the UK’s net zero ambitions, provides scale in its energy storage, and ensures that this safety net continues to be used well into the future.
We are prepared to invest billions to redevelop and expand Rough, which we hope would become the world’s largest hydrogen storage facility. Not only does it make sense for the country, given the growing hydrogen market is expected to reach a value of £900bn globally by 2050, it makes good business sense too.
Would you say that Centrica is leading the industrial gas (to hydrogen and CCS) revolution?
We’re playing an important role [in] the changing approach to hydrogen and CCS. We currently have three hydrogen joint ventures in the UK and Ireland. The licence obtained by Spirit Energy for carbon storage at the Morecambe gas fields is another example of our leadership in this area. The Morecambe Net Zero cluster has the potential to become one of the UK’s largest carbon storage hubs. It has capacity to store up to a gigatonne of CO2, which is the equivalent of three years’ work of current UK C02 emissions.
Overall, we are uniquely positioned to make the case for innovation in this space. Our assets could contribute hugely to the energy transition if we get this right.
Will CCS and CCUS projects depend on a robust carbon price?
CCUS and CCS projects are critical for UK to achieving its net zero ambitions, but they do rely on a strong and stable carbon price to be commercially viable. These technologies are still expensive to deploy, and a robust carbon price is essential to provide the right incentives for investment and to ensure they can compete with other decarbonisation solutions.
How does Centrica plan to renew its profit margin in 2025?
As we set out in July, we’re on track to deliver our medium-term sustainable operating profit ranges for all of our Retail & Optimisation businesses by 2026. I’m also pleased that we expect Residential and Business Energy supply, Bord Gáis Energy, and Centrica Energy to reach their targets this year, two years ahead of schedule.
Does Centrica intend to conduct any mergers or acquisitions or to otherwise invest equity in renewable energy developers, producers or companies as part of (or separately to) the green taxonomy strategy?
We have a £4bn plan to invest up to 2028, but I’m quite relaxed about whether that is organic or inorganic. If you build something yourself, you’ve got unproductive capital for a while, you’ve got risks in project delivery, you’ve got other things that come with running big projects.
If you acquire something, you don’t have those risks, but you’ve got risks of integration, you don’t know what you’re acquiring, so I think we’ve just got to look at the balance of risk and we’ve got to look at the reward available.
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