Stadtwerke München

I was looking through the press release for the consortium that will build and operate Gwynt y Môr to try and get some idea why Wales only obtained contracts of £2.2m in a scheme with an overall investment value of £2bn.

The consortium comprises three partners:

•  RWE Innogy ... the energy company, holding a 60% equity stake

•  Siemens ... the manufacturer, which holds a 10% equity stake, but has been awarded the main contract to supply, install and maintain the wind turbines and grid connexions worth over €1.2bn

•  Stadtwerke München ... the Munich Municipal Utility, holding a 30% equity stake

RWE won the original Round 2 bid and are the energy company driving the scheme, but they were looking for venture partners to take up to a 50% share. It is not unusual for a contractor in such a large project to have a limited equity stake: if nothing else it gives them an incentive not to get too "contractual" with their client as they both win or both lose together. But the third partner is rather more interesting.

Stadtwerke München, as we can read here, supplies power, water and other utilities to the Munich area. It is hard to see what Stadtwerke München is actually contributing to the project other than money, plus of course the kudos of being able to present Munich as a "green city". It's odd to read that their aim is for Munich to have all its electricity supplied from "green" sources, but that they are quite prepared to include projects in other countries as a way of fulfilling that aim:

By 2025, SWM even wants to produce enough green electricity to cover the consumption rate of the entire Munich power requirement – 7.5 billion kWh. To attain these ambitious goals, SWM has started the Renewable Energies Expansion Offensive.

SWM is engaged locally, regionally and in the regions of Europe, in which there is corresponding potential. Since the yield is limited in Munich. The wind blows on the sea more strongly and constantly, the sun shines more intensively in Southern Europe and more often than it does here. The electricity is supplied there, where it is produced, in order to avoid losses in the lines through long transport routes, among other things. Nevertheless, the environmental effect is advantageous for those living in Munich. Since the European electricity grid can be compared to a gigantic sea. Anyone who produces electricity feeds into this “sea of electricity”; anyone who uses electricity removes something. The same everywhere. Each additional kilowatt of green electricity prevents greenhouse gases and makes the “sea” cleaner.

Stadtwerke München website

Obviously Gwynt y Môr fits that bill, and SWM also includes the Andasol 3 solar power plant in Andalucia as a way in which it fulfils these aims, saying that its 48.9% share is providing energy for 33,000 homes in Munich. It's not exactly "wrong" to say this but, as with all "offsets" of this kind, things are very prone to get double counted. The Gwynt y Môr consortium proudly boasts that it will provide enough energy for 400,000 homes in Britain but—if it applies the same standards—SWM's next glossy brochure will no doubt claim that its 30% stake is supplying 120,000 homes in Munich with green electricity. In the meantime most of the electricity actually being generated in Germany will probably still be coming from coal and lignite, with plans for expansion in the number of coal-fired plants.

OK, that could be considered to be more Germany's problem than ours, but it's hardly doing much for the planet. Thanks for the investment, but no thanks for the double standards.

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But there is something else about Stadtwerke München that makes its involvement in Gwynt y Môr remarkable. It is a company that is completely owned by the city of Munich. Now of course the mutual benefit is obvious because the main contractor, Siemens, is based in Bavaria and it is therefore for the general good of the city that private firms in the region get as much work as possible. But it surely must raise questions about whether this is in effect an indirect subsidy with what is effectively public money because, like all public bodies, a city can't exactly go bust.

I've got nothing against Munich, and I've got nothing against this being a German consortium; but I can't help but feel that Wales has missed a trick. The quid pro quo for Munich's involvement must surely be an understanding that as much manufacturing work as possible will be based in Munich and the surrounding area. This, more than anything else, probably explains why Wales has only had contracts of £2.2m in a £2bn project and why we shouldn't expect to get much more.

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But if Munich can do this through a wholly publicly owned company why can't Wales do the same thing?

Munich is a city of 1.3m people with a metropolitan area of maybe 5m. This means it is more or less comparable with Wales. If we wanted to be really serious about making sure that Wales got a larger slice of the manufacturing and supply opportunities that come from multi-billion pound investments in renewable energy round our own coast we should consider trying to develop a similar vehicle.

We cannot change what the UK government has already landed us with. Tenders have already been made for the Round 3 Irish Sea zone, which at 3,715MW will probably have at least six individual windfarms of the size of Gwynt y Môr. The same is true for the 1,500MW zone in the Bristol Channel. But the financial reality is that the successful bidder/s will almost certainly have to seek venture partners once a detailed scheme has won consent, as has been the situation with Gwynt y Môr and the London Array in the Thames estuary. The projects are too big to handle in any other way.

In essence all that SWM has done is provide money rather than any service or expertise, but providing some of the money enables you to call some of the shots. There are many companies to whom RWE Innogy could have gone, most of whom would have undercut SWM, since SWM are themselves going to have to raise their share of the capital from other companies or institutions. But for SWM the name of the game was not just to get a commercial rate of return directly, but to get a much more valuable indirect return through ensuring that Munich got a large chunk of the work. Perhaps they will make some direct profit from the investment, perhaps they will only break even or run the risk of making a loss; but the indirect profit—the benefit of securing local work—outweighs that risk.

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It's clever, but the Germans don't have a monopoly on clever ideas. It might even be bending the rules a little ... though not breaking them. I'm not crying foul. I'm simply making the point that if the city of Munich can do it through a company in which it is the sole shareholder, why can't we in Wales set up something similar in order to ensure that Wales gets more than £2.2m out of the next £2bn contract?

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2 comments:

Welsh Ramblings said...

Goes against the "public sector bad" narrative doesn't it? I've also noticed that almost all economic activity in Wales by the private sector is being driven by public sector bodies or the state- This is one example but we also have to factor in the UK subsidy regime that makes renewable energy economically possible in the first place. Wales isn't unique in this, there was a report that stated that the majority of all jobs outside of London and the SE in the past decade had been created by the state or by the state handing payouts to private enterprise. In Wales the percentage of purely private sector jobs was higher than some other parts of the UK and was by no means the most "bloated".

It goes to show that the EU state aid rules are ideological and certainly don't match reality. The pretence around economic liberalism should be abandoned as soon as possible.

Plaid Panteg said...

I do wonder whether the pro-market power brokers in our politics do irony. We also now have state run companies from other European countries running our 'private' transport companies...

I have to agree with Ramblings, my issue with EU is that it wholly supports liberalisation of markets which can prove damaging and a barrier to alternative solutions to the market.

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