Examination of Witnesses (Questions 160
- 171)
WEDNESDAY 21 MARCH 2001
MR PETER
FRAENKEL, MR
ALLAN THOMSON
AND DR
RICHARD YEMM
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?
Chairman
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.
Chairman
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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