House of Commons - Science and Technology

Select Committee on Science and Technology Seventh Report

Cost of the energy (continued)

37. However, unlike some other renewable technologies, wave and tidal energy face large initial capital costs owing to the considerable civil engineering works usually needed. Depending on the technology, these could include driving deep piles into the seabed, foundations for the infrastructure, taking the power cable to the shore, and so forth, and often pose the single greatest cost for a company attempting to build a device. Once built, however, wave companies suggest that many of these structures could last fifty or more years, providing an excellent long-term investment. (The large metal defence structures built off the coast during the Second World War, many of which are still standing, provide a comparison for survival rates.) It has also been suggested that, with careful planning, some devices could also be incorporated into coastal defence schemes and other civil engineering works, such as road building.[84] This could help to reduce the costs, if means of securing contributions from bodies such as the Environment Agency and local authorities could be established.

38. We note that there is concern from some of those involved over the discount rate for project appraisal in the public sector, set by HM Treasury.[85] A high discount rate diminishes the value of future return, and so militates against high capital cost, long-life projects, such as wave and tidal energy generators. It is not known whether the usual discount rate of 6%, or a higher one, will be utilised for the assessment of wave and tidal energy projects. The Government should be conscious of the dramatic differences to the perceived viability of wave and tidal energy projects, which small changes in the discount rate can have. The Government should examine the implications of the discount rate on renewable energy schemes involving high initial costs.

EXPORT MARKET

39. In addition to the UK's domestic demand for renewable energy, there is potentially a huge export market for wave and tidal energy devices. Thomas Thorpe estimates the export market for wave, alone, to be around £500 billion, and other estimates indicate this could be much higher.[86] The benefits will be particularly large for the companies who develop the technology first; with opportunities to sell Intellectual Property Rights (IPR) around the world, for example, and perhaps exclusive arrangements with generating companies. The comparison with the multi-million pound Danish wind turbine industry is also valid in this context. The enormous potential export market for wave and tidal energy devices easily justifies the public investment now needed to ensure success.

SYNERGIES WITH THE OFFSHORE OIL AND GAS, AND SHIPBUILDING, INDUSTRIES

40. As we noted above (paragraph 24) there is considerable common ground between the technology and skills required in the offshore hydrocarbon industry and those required for wave and tidal energy. As the oil and gas reserves in the North Sea are expected to decline over the next few decades, the offshore industry is actively seeking to diversify into new areas of business. The Energies from the Sea Task Force Report concluded that wave and tidal energy could be one of the easier areas to adapt to, in terms of skills and technological cross-over. The DTI's PILOT programme (Oil and Gas Industry Taskforce) identified that offshore wind and tidal current systems offered major opportunities for diversification from offshore oil and gas.[87] Similarly, it has been suggested to us that the skills and facilities used in the shipbuilding industry could be relatively easily adapted to offshore wave and tidal energy device production.

41. We note that offshore oil and gas, and shipbuilding, are industries which are regionally concentrated in areas of relatively high unemployment. For example, there are currently 60,000 jobs directly dependent upon the offshore hydrocarbon industry in North East Scotland, and the numbers employed will steadily decrease as oil and gas are progressively depleted over the next 25-50 years. The losses in the offshore industry could be offset by the growth in employment in wave and tidal energy. We note that Denmark's flourishing wind energy industry employs more people than are now employed in the UK's coal mining industry.[88] Growth in the wave and tidal energy industry would help to offset unemployment in the declining offshore oil and gas, and shipbuilding, industries. Government investment in wave and tidal energy would thus bring significant economic and social side-effects.

THE UK ELECTRICITY MARKET

42. The nature of the privatised electricity market complicates the picture and creates difficulties for new technologies. Government cannot just express a vague hope that more wave and tidal energy devices will be deployed; it must create a market for them. Support provided via the NFFO and the Renewables Obligation appears to be achieving its aim of encouraging renewable technologies by creating a market for them - what has been described as a market-pull rather than technology-push situation.[89]

43. However, Ofgem, who oversee the Renewables Obligation, informed us that the current proposed "buy out" price for all electricity companies was 3 p/kWh - in other words, if a company chose not to buy the set proportion of renewable energy it would have to pay, in effect, a fine of 3 p/kWh. As the company would need to buy the electricity from somewhere else at a cost of about 2 p/kWh, a renewable technology would have to produce energy at less than 5 p/kWh before it would be worthwhile for a company to buy it. Ofgem concluded that "A single buy-out price means that the more expensive technologies, such as wave and tidal power, are unlikely to make a contribution to the overall target for renewables.".[90] It has been suggested, therefore, that renewable technologies should be 'banded' to provide the extra support needed to bring those further from full commercial deployment to a position where they can accumulate experience rapidly and then compete more effectively. Several of our witnesses agreed with this.[91] We note the DTI's "Analysis of the Responses to the Consultation Paper" on The Renewables Obligation Preliminary Consultation, in which the majority of respondents favoured banding as a means of encouraging newer technologies and ensuring "a shift away from the perceived current focus on the lowest-cost renewables selling at the highest possible price.".[92] We recommend that consideration be given to a system of 'banding' in the Renewables Obligation, with different prices being paid for different renewable technologies, to stimulate growth in key areas - especially promising, but as yet immature, technologies, such as wave and tidal energy.

44. Smaller generators (especially those based upon renewable sources and Combined Heat and Power) have expressed concern about the impact that NETA may have upon network access and electricity trading. Renewable plants with unpredictable output might have significant exposure to so-called 'imbalance charges' - where companies are fined if they are unable to match electricity demand and supply very closely. It is, as yet, too early to assess the long-term impact of NETA upon renewable energy sources such as wave and tidal energy. The evolving conditions in the electricity market and their implications for renewable technologies should be kept under close examination by the Government to ensure that the market is increasingly favourable to renewables.

CONSENTS PROCEDURE

45. Many renewable energy technologies in the UK, including wave and tidal energy companies, have experienced extremely lengthy, and costly, planning procedures to obtain consent for the siting of their devices. Wind farms have faced similar problems, but the difficulties for marine devices are even greater owing to the number of authorities concerned, both at sea and on the coast.[93] (The authorities could include county, district and local councils, wildlife trusts, DETR, the Ministry of Agriculture, Fisheries and Food (MAFF), Ports Division, Coast Guard, Crown Commissioners, the Ministry of Defence (MoD), local ports and pilotage officers, and groups such as local fishermen.) Wavegen estimated that it took at least 18 months to obtain all the necessary consents to put a device under the sea. While it is important that the environmental impact and effect upon adjacent communities are fully assessed, such additional penalties in time and money that obtaining consent incurs are an added burden, which an immature industry cannot easily bear.

46. The Government has begun to recognise this problem, and the DTI recently issued a consultation paper on the Government's proposals for streamlining the consents procedure.[94] While it was disappointing that "water driven generation" was only given a fleeting reference in the press statement, the Minister confirmed that the proposals were also aimed to help wave and tidal energy schemes.[95] We welcome the Government's decision to consult on the establishment of a 'one stop shop' for offshore renewable planning applications, and would urge it to act upon its findings as soon as possible.

Environmental aspects

47. While providing a clean, reliable source of energy, the installation of any artificial device into the environment will affect it in some ways. A number of concerns have been raised about the environmental impacts of wave and tidal devices. Among the most important of these are:

Effect on marine life. Concerns have been raised about the danger to marine animals, such as seals and fish, from wave and tidal devices.[96] We have had no evidence that this is a significant problem. Such devices may actually benefit the local fauna by creating non-fishing 'havens' and structures such as anchoring devices may create new reefs for fish colonisation.[97]

Effect on the sea and sea bed. By altering wave patterns and tidal streams, devices will undoubtedly have an effect, for example, upon the deposition of sediment.[98] Research carried out to date would seem to indicate that the effects would not be significant, and may even be positive, for example by helping to slow down coastal erosion. (This is particularly pertinent in light of evidence that waves have steadily increased in size in the recent past.[99]) The sea in the lee of devices would almost certainly be calmer than normal, but, it has been suggested, this would help in creating more areas for activities such as water sports or yachting.[100]

Effect on local landscape. Most wave and tidal energy devices would be invisible from the shore. They would have none of the problems of visual and noise pollution that older versions of wind turbines engender. The main impact would probably be from the extensive transmission lines needed to take the energy from the shoreline to final users.[101] As many of the best sites for tidal energy, in particular, are near Sites of Specific Scientific Interest (SSSIs), this problem would have to be addressed, possibly by using underground transmission lines.

Effect on fishing and shipping activities. Offshore wave and tidal devices would almost certainly require areas to be closed to fishing and shipping activities. The siting of such devices would have to be negotiated, therefore, with relevant local groups (for example, fishermen), as well as with national and international bodies.

48. The environmental impacts of any energy scheme should be considered carefully. More research should be funded to explore more fully the potential effects of the installation of wave and tidal devices, and greater consultation carried out with affected bodies and communities. Any local impact, however, should be balanced against the global effect of continued reliance on fossil fuel sources of energy: for every 1% increase in market share by a renewable technology, there is a 2% reduction in carbon dioxide emissions. Notably, wave and tidal energy is supported by bodies such as Greenpeace.[102] The adverse environmental impact of wave and tidal energy devices is minimal and far less than that of nearly any other source of energy, but further research is required to establish the effect of real installations.[103]

84 Evidence, p 114, paragraph 3.6. Also: evidence, p 90. Back

85 The discount rate is the annual percentage rate at which the present value of a future pound is assumed to fall away through time. It is used to compare quantities which are distributed over time by converting them to a present value. See: Appraisal and Evaluation in Central Government ("The Green Book"), HM Treasury, 2^nd Edition, 1997, pages 24-27, and 97. Back

86 Thorpe, Q 71. Also see: New and Renewable Energy: Prospects for the 21^st Century - Supporting Analysis, DTI, page 157, paragraph 3.3. Back

87 Sustainability through diversity: Prospects for the UK Oil and Gas Suppliers Industry, Pilot, DTI, April 2001, pp 7-10. Back

88 Evidence, p 52, paragraph 18. Back

89 Evidence, p 53, paragraph 18. Back

90 Evidence, p 108. Back

91 Salter, Q 88; Thorpe, Q 90; Martin, Q 123; Thomson, Q 166; and Fraenkel Q 168. Back

92 The Renewables Obligation Preliminary Consultation: Analysis of the Responses to the Consultation Paper, DTI, March 2001, page 11. Back

93 Fraenkel, Q 147. Back

94 DTI Press Notice: Hain trims red tape for offshore windfarms, 20^th February 2001, P/2001/91. Back

95 Hain, Qq 252-57. See also: HL Paper 78-I, paragraphs 215-18. Back