Select Committee on Science and Technology Minutes of Evidence

Examination of Witnesses (Questions 160 - 171)



  160. I think we did say we had moved from 2010 and I was actually going for 2020. So you would say the 10 per cent should certainly be achieved by 2020, probably more?
  (Dr Yemm) Not certainly achieved. There has to be the will and investment and commitment to it to do it. I think it is an achievable target and I think the buy-out price set by the DTI is sufficient to secure it.
  (Mr Thomson) Denmark is already achieving 18 per cent and they are hoping to move towards 50 per cent. We are not resource-limited, the technology is there and it seems to me it has been demonstrated, and therefore it is a question of how one solves the cost issues and how one deals with the costs.
  (Mr Fraenkel) There is a paradox in James Martin's evidence in that I completely agree with him the big problem is countries like India and China, but we have a Climate Change Challenge Fund grant to look at tidal currents in the Philippines where there is a huge future energy problem and we know the Pacific Rim is a particularly interesting area from our point of view. One of the inhibiting factors in taking this forward is we have not yet got operating pilot projects in the UK because they look to us for a lead before they take up the technology. So the two things go together. As has just been said by Richard Yemm, it is very important that we promote the technology. If we do not, we will not have the lead and we will not have the technology to export and we will not have the credibility to promote the technologies in these other countries. But the other point I would briefly like to make, to answer the question more directly, is that so far as meeting the targets is concerned, it all depends on what people are prepared to invest. Our own business plan envisages 300 MW of installed capacity by 2010, and we think that is absolutely feasible providing we do not have any serious financial constraints or any totally unexpected technical constraints, and that would be a significant contribution to the 2010 target. By 2020, it could be very much larger than that.

Dr Turner

  161. What is the cost per kilowatt hour of the electricity produced by your current schemes? What do you anticipate that cost to be in ten years' time? Is this only the purely local cost of generation, in other words the electricity coming out of your device, or is it the estimated delivered price to the customer? So does it involve all the transmission costs?
  (Dr Yemm) Obviously all of our costs are estimated at the moment, there is no device in the water so it is estimation only. Those estimates, I believe, are amongst the most sophisticated made for wave energy systems and they are quite complete in terms of the components in the economic model. Our contracted SRO price is just under 7p per kilowatt hour, under half what the original contracted price for wind was at the start of its life. That is forecast forward, assuming no major changes in technology, only economies of scale, to under 3p per kilowatt hour, at a 15 per cent discount rate by 2010. If we make the advances we expect to make in terms of control optimisation, and here wave is unique in its ability to offer very grand increases in generated energy from the same piece of equipment just through control, then we expect the cost of energy to fall down to a limit somewhere below 2p per kilowatt hour.
  (Mr Thomson) We currently generate under our SRO contract 5.95p per kilowatt hour and with our new technologies, which should be in the water in the next two years, that price should come below 3p.
  (Mr Fraenkel) We do not yet have any technology up and running, so the same caveat applies as Richard Yemm just said, but we have a fairly sophisticated model. Our technology is based largely on established engineering components and techniques and the DTI has just appointed Binnie, Black & Veatch to do due diligence on our model. In fact with our base line model, which is a 30 MW installation, we estimate about 3.8p per kilowatt hour when it goes commercial. Binnie, Black and Veatch, who disagreed with us on only a few small aspects, came out with 4.3p per kilowatt hour, so we are not very far apart on that. For the very first machines it is very scale-dependent, and obviously with a single one-off 1 MW machine we are looking at something like 7p per kilowatt hour, or of that order. I think all energy technologies on a small scale are going to be quite expensive but, longer term, we are looking at less than 3p per kilowatt hour with large installations.

  Dr Turner: How do the costs break down? What are the major elements? Is it generation at the device, high voltage transmission or low voltage transmission?


  162. Mr Thomson, you are generating, are you not? You answer.
  (Mr Thomson) We are, yes. On our ones, the capital plant, the simple structure, is the most expensive part. As you go offshore, the fixed cost for a single device changes across to the transmission cabling, which is the expensive part, although if you have, say, 50 units that is then shared, so it is not cost effective for a single unit.
  (Dr Yemm) I can give you some broad outline figures, if you wish. For a scheme of between 7 and 10 kilometres offshore, we are talking about total grid and cabling charges of 30 to 40 per cent of the project cost, the rest coming from machine costs, and we are talking about including in models anything between 5 and 10 per cent off scheme capital expenditure per year as operating costs.

Dr Turner

  163. Can you foresee a time when wave and tidal power can compete directly with fossil fuels? If so, how soon?
  (Mr Thomson) It already does in that diesel generation is already very expensive in the UK. I do not know the actual prices in the UK or on the remote islands but it is probably in the teens. On some of the islands off the East Coast of the States, believe it or not, it is about 30 cents per kilowatt hour. So it is already competitive in terms of diesel.

  164. I was thinking of mains supply to the mainland.
  (Mr Thomson) Certainly our company think we can get below 3p within two to three years, so very shortly I think.
  (Dr Yemm) The general point here is that you have to look at the starting points. Wind energy technology when it was first commercialised, at the beginning of the commercialisation phase, in Denmark was coming in at around 15p per kilowatt hour, that has fallen by a factor of five in 15 or 20 years. That is one way of looking at it. The other way of looking at it is the contracted prices under NFFO, which reflects the cost savings due to the large installed capacities elsewhere in Europe rather than in NFFO, and those costs fell by a factor of nearly three in eight years. So to start out from 6, 7, 8, 9, 10p is actually a very positive start, and there is absolutely no reason to believe we could not bring our costs down further because of these control issues.

Dr Iddon

  165. Perhaps I could direct this question to Mr Thomson in the first place because Wavegen have been generating. Mr Thomson, you have had direct experience of the Renewables Obligation and the certificates which grew from that. Do you believe that is the most effective method of encouraging renewables in general but wave and tide in particular?
  (Mr Thomson) In the early stages to move the technology forward the things which make the biggest difference are straightforward capital grants for demonstration projects. After that, once you have established the technology and the reliability and the cost of power, then the other market mechanisms are very effective.

  166. Would you make any changes to the Renewables Obligation? Do you think banding would help, as I think has been mentioned?
  (Mr Thomson) In the early stages, banding is very useful for emerging technologies, because at the moment it is the lowest cost supply which is what a generator would quite naturally buy for obvious commercial reasons.

  167. Do you think the electricity companies have a clear policy towards renewables, or are they just merely reacting to the Government regulations? What else do you think they can do to help you in this kind of generation?
  (Mr Thomson) I think they are clearly reacting to Government initiatives. There would be no other commercial reason to do so in that gas is cheap and nuclear power is apparently very cheap. I think they could help by grid access. That is always an issue, it is always expensive for individual units for any of our organisations, and when you have a generator working with new technology it also gives the capital markets the confidence it is worthwhile putting in money for returns many years downstream perhaps. A lot of it is to do with signals. The current Government signals are very positive and the signals from generators are also very positive.

Dr Jones

  168. Is the Government's Renewables Strategy the right one to achieve its greenhouse emission targets? In view of Dr Martin's evidence, will it have any influence in the global requirement to reduce CO2?
  (Mr Fraenkel) One of the biggest worries I have, and I think this is one of the biggest weaknesses of NFFO, is the hiatuses which occurred due to the take-up dates which occurred. The industry was up and down all the time and it was very damaging in that respect, whereas in countries like Germany and Denmark there has been a steady progress of installation. One of the things the Government needs to address is that future renewable obligations are handled in such a way there is the possibility of steady progress given suitable responses from industry or developers or whatever. That is my biggest criticism. I also think the banding issue is very important because new inventions have never finished appearing, there is always going to be something new coming along, and you have to give a fair chance to anything which looks as though it might have good possibilities, but it will not have an even playing field with the ones which are relatively well developed unless you give it some kind of advantage or chance to prove itself.
  (Dr Yemm) It has traditionally been sound energy policy in general to secure a mix of sources for your own energy, so you are not laying yourself open. At the moment I think we are laying ourselves very much at the mercy of gas prices. This has not been the case traditionally. Added to that, each of these technologies has received truly massive support in order to get the cost of energy down to the level it is now. If you look at the support offered to nuclear, I would be very surprised if all the support for all of the wind in the world totalled 1 per cent of the support offered to nuclear in terms of its installation, commercialisation and, who knows, onward costs. It really is just a case of different times, different technologies, and it would be very sad if new energy technologies as they emerge are not supported in a similar way.

  169. Dr Martin mentioned China and India as being areas where there was going to be need for energy development which is going to be sustainable. Do your technologies have much future in those countries? I know you mentioned the Philippines but what about mainland China and India?
  (Mr Fraenkel) China in particular looks very interesting, so do Japan, Indonesia, Malaysia and the Philippines. All those countries have tremendous tidal current resources. The Chinese in fact have been researching their tidal current resources. The Second Oceanographic Institute in Hangzhou has done quite a lot of work on measuring currents in the South China Seas. Taiwan also has enormous currents. It is because the Pacific is like a huge whirlpool, and where it interfaces with these islands near the coast, the currents squirt through any narrow gaps and there is an enormous amount of energy to be collected from there. India has probably less. I am sure there are resources there but they are less obvious because India is in a less favourable location from the point of view of strong currents.

  170. Going back to the targets for our own energy production, do you think the fact the target is hinged around 2010 is a hindrance to wave and tidal power development? Is there going to be a tendency to go for more established renewables and what should be done about it?
  (Dr Yemm) Absolutely. It is clear within the Renewables Obligation it will be on-shore wind in Scotland and probably landfill gas in England and Wales, with Scotland supplying more than its obligation south if the grid can cope with it. It is going to be very polarised. It seems like long-term, and politically 2010 is long-term, but energy policy is a very long term matter. At the moment there is not a word, not an inkling, of what is going to happen after 2010 and if there was, not a binding target but a strong indication of the likely progress along this line beyond 2010, that would be a great help to the longer term technologies like ourselves. We do not want to arrive at a situation where we have commercialised our technology, we are ready to go and that is the end of the line as far as installed capacity is concerned.


  171. That is a marvellous note on which to finish, I think. We have done very well, we are only two minutes over time. I thank you for your co-operation in the last quarter of an hour when we were running out of time, thank you for being so concise in your answers. I thank all three of you for the information you have given us to help us with this inquiry. We hope when our report comes out we are helping you with the work you are doing. We think that renewables are a very important aspect of this 21st century. We will have to wonder towards the end of this century where our energy is coming from if we do not have renewables providing a very substantial part of our energy demands. I know two of you have travelled a long distance to be with us, we do thank you for that, and we thank you for the submissions you made to us before you came today which helped us with the background information we have read and learned before questioning you. In conclusion, on behalf of the Committee, may I thank all three of you very much indeed for the help you have given us. Thank you, gentlemen.
  (Dr Yemm) Thank you for the opportunity.

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