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Interview The poor financial results for 2012 made "€100/MWh is not an easy change in government and they announced an increase to the supplementary corporathe Danish management shake things up and tion tax rate for oil and gas fields that effecchallenge. I think it's a focus on the core priorities of Dong Energy, which has resulted in "non-core assets", hell of an ask but our guys tively removed the entire value of the value allowance. such as Swedish hydro plants, being sold. "So then our investors – which to a large "Our focus is very much about being an believe there is a very good extent is the Danish government – said 'are offshore wind generator," Cheshire says. chance we can do that" they going to do this for wind?' One of the key goals of Dong Energy is to "That was an amber warning light as far drastically cut the cost of electricity generas we were concerned – so we were workated by offshore windfarms from their curing against that," says Cheshire, before moving into the rent level of about €160/MWh to below €100/MWh by current political situation and the effect it is having – in 2020. particular the long and slow development of Electricity "€100/MWh is not an easy challenge. I think it's a hell Market Reform (EMR). of an ask but our guys believe there is a very good chance "We would have liked it to have been much faster, but we can do that," says Cheshire. "We think the only way it has currently got some issues around it – again to use we can do this is by having a cookie-cutter approach, an American expression, there is still some hair on it. to use an American expression, where we keep this "But we are broadly comfortable with where it is machine moving forward, making incremental changes going." and incremental developments. Then Cheshire deals with the big political issue at the "But we also fund these massive step-changes in techmoment – Ed Miliband's price freeze promise, or threat, nology, in terms of bigger turbines. We originally drove and plans to reform the wholesale energy market and the 3.6MW machines. They wouldn't have happened replace Ofgem with a new, tougher regulator. without someone like Dong coming in because we signed "There is more and more noise coming out from difup to 500 of them before we had the projects, so that ferent political parties, which is making people slightly allowed Siemens to concentrate on them," he says. uneasy about how deliverable that will be and whether Cheshire also says the next generation of turbines, the people will actually stick to it or not. 6MW turbines that will be used for the Round 3 projects "I was over for a meeting with the very senior guys on in deeper water further offshore, are also being driven the main board last week, and as far as they were conforward by Dong Energy. cerned, that was yet another signal that there could be As for how big the turbines can get, he says he has a lot of uncertainty and posed them the question 'Do we read comments from some Japanese developers who really want to invest here?' believe they can develop 100MW machines. "Now, that is "I don't think anybody is helping themselves at difficult to envisage, but who am I to say?" the moment. It would be great if the politicians would What is even more difficult for Cheshire to envisage refrain from quite so many soundbites," he adds with a at this moment is Dong Energy branching out into the wry smile. domestic energy market, despite the company entering Despite these "amber" concerns, and boardroom the commercial sector with Dong Energy Sales. debates, Cheshire is convinced the UK is a good place for The retail arm of the business developed after the the Danish company to invest – although there is more takeover of Shell Gas Direct at the start of 2012, which that government could do to reassure the Scandinavian provides energy for customers mainly in Scandinavia and investors. the Netherlands, although Cheshire tells me it is starting "What we would like to see is the decarbonisation in the UK now with about half a dozen customers. target for post-2020. We think that just sets a very good "We've just put together an electrical offering along trajectory going forward, and then we can be more conwith our gas offering," he says. "So we've just put our toe fident and [so can] people who potentially might want to into the water." come here to make things." One of the areas within the retail area that Dong Cheshire also says that this stability is needed to help Energy is looking to develop in the UK is a green power bring the costs of low-carbon generation – referring offering similar to what it offers customers in Denmark. directly to offshore wind – in line with the costs of fossil "One of the big things we push in Denmark is our clifuel generation. mate partnership, so that is something we are beginning "We won't get parity on generation costs unless we to look at in the UK to see if there is anything we can bridge for a period of time to allow us to drive down do along those lines," Cheshire says, although he adds those costs – which we're trying to do." that at the moment there are barriers to achieving this But overall, Dong Energy is "here for the long haul" because of how the energy market works in the UK. because "it is a stable place to do business, despite the Despite this hurdle, Dong Energy is not a natural odd scare", says Cheshire. advocate of change. Indeed, one of the main attractions As the interview draws to a close, he says the energy of the UK is its political stability with regards to energy business is at a "fascinating crossroads" because of all policy. the infrastructure and generating capacity that needs to That said, the UK has had its wobbles and Cheshire be built and replaced. admits that he sometimes has a battle on his hands to Matter-of-factly, Cheshire concludes: "Somebody has reassure senior executives in Denmark that the UK is a to pay for it all. I think it is a dishonest argument to think stable and sensible place to invest. anybody can get away without paying for it. "We got a really big scare in the very early days here – "Ultimately it is going to end up being the end user, not because of wind but because of oil and gas," he says. either through tax or through their energy bill, because "We were developing the Laggan-Tormore oil and gas nobody is going to invest in a company that is going to be fields and had to build a huge amount of infrastructure running a business at a loss." – we got a value allowance, which was a tax allowance. He laughs, adding: "That is pretty basic really." "We committed to the project but then there was a 10 | 18th - 24th October 2013 | UTILITY WEEK