Members present:

Dr Ian Gibson, in the Chair
Dr Brian Iddon
Dr Andrew Murrison
Dr Desmond Turner


Memorandum submitted by The Carbon Trust

Examination of Witnesses

MR TOM DELAY, Chief Executive, and DR DAVID VINCENT, Technical Director, The Carbon Trust, examined.


  1. Mr Delay and Dr Vincent, you are very welcome. Thank you for coming along to help us in our inquiry. You know roughly what we are looking into, changing the world again on energy, something that your organisation is playing a major part in. If there are some questions that we do not get to, perhaps you would be kind enough to reply in writing. You are in your second year of operation. That is right, is it not?
  2. (Mr Delay) That is right.

  3. How is the portfolio developing?
  4. (Mr Delay) Slowly.

  5. Why is that? What have you encountered? Why have you not resigned?
  6. (Mr Delay) The Carbon Trust came into being in March of last year. As an operational entity, it did not get going until about six months later. At the time of the launch, the funding had been agreed but there was no resource in place to implement the funding, develop programmes and the like. Starting as of last autumn, we developed a number of programmes, a strategic framework against which our delivery programmes are based, and we started building a resource base and a team to implement them.

  7. Are there any other problems in running it? What are the frustrations?
  8. (Mr Delay) I do not think there are any particular frustrations. It is very much the first year one would associate with an organisation of this kind, starting from scratch. It has taken time to build the right team. My own belief is that it is very important to get the right people involved and to get the relevant functional expertise in the key positions. That has taken time. We have relied very much on bringing in functional expertise in conjunction with sectoral expertise where appropriate. I think it is very important that we took our time in building our team, building the programmes. This is a very long term endeavour that we are part of and undue haste at this point would have been misguided.

  9. Where are you localised?
  10. (Mr Delay) Our offices are directly alongside the law courts in Clement's Inn.

  11. You got into them on day one, did you?
  12. (Mr Delay) No, we did not. We sat in Romney House for the first six months or so in a single office until the point at which the health and safety officer suggested we leave because we were a hindrance to the operation of the building. At that point, fortunately, we found vacant premises in Clement's Inn and that worked very well.

    Dr Murrison

  13. What are your tangible achievements to date?
  14. (Mr Delay) We have done a number of things in parallel that normally one would have done in sequence in setting up an organisation or company. We have created a team of 50 or so professionals who now work on a full time basis against the objectives of The Carbon Trust. We have drawn in the vast majority of those people from the private sector, with particular emphasis on the technical expertise and financial expertise necessary to execute some of our transactions and so on. We have created the infrastructure around an office with all that that implies but, more practically, we have taken a long, hard view as to what we believe is the sensible transition to a low carbon economy. We spent about four months at the back end of last year developing a strategic framework that has been published that looks at the technologies necessary to make the transition to a low carbon economy from where we stand today over a timescale of about 50 years. That work was undertaken in conjunction with a number of partners, including Imperial College, and was extensively peer reviewed in a number of stakeholder reviews towards the latter end of last year. Based on that work, we developed implementation programmes very specifically targeting what we believe to be some of the gaps that we could be material in addressing. Those programmes have now all been launched. We launched the low carbon innovation programme, which essentially is an investment programme in low carbon technologies, on 16 May this year and a lot has been achieved since that time in terms of bringing in proposals that we are about to disburse against. We have also taken over a number of programmes for the government including the energy efficiency best practice programme that has become the action energy programme, the technology list for the enhanced capital allowances scheme that we are the custodians of and we have extended and launched a loan scheme for small businesses in England and Wales to go alongside those already in existence in Scotland and Northern Ireland.

  15. Could you expand on the loan scheme for small businesses?
  16. (Mr Delay) Absolutely. The enhanced capital allowances scheme that is already in place across the UK is an effective scheme but is of limited value to very small businesses that may have neither the capital to make the investment in energy efficiency goods in the first place, nor may make profit against which the benefits in terms of corporation tax can be realised. There has been for some time a scheme available in Northern Ireland and Scotland disbursing small loans on an interest free basis to companies. That has proved to be very successful and we have extended that loan scheme with loans of between 5,000 and 50,000 as the lower and upper limits to small businesses to invest in energy efficiency technologies. We have extended that scheme essentially to England and Wales.

  17. That is presumably by way of being a pilot, is it, with the funds available to you?
  18. (Mr Delay) It is. We have taken some of the funding that we had received by recycling receipts from the climate change levy and we have set up within our own plan an initial funding of 10 million for that purpose.

  19. Has it been successful?
  20. (Mr Delay) It really is too early to tell. Having launched the scheme, we are now in the process of setting up the appropriate management of the loan scheme. It is important to ensure that the default rates are kept as low as possible; otherwise the cost of the scheme will soar. We are also very keen to ensure that loans are only given out to companies who have already taken certain steps in terms of showing commitment to energy efficiency. That would include engaging in a number of site visits through the action energy programme.

  21. If it were to be successful, when would you know? When would you make that assessment?
  22. (Mr Delay) We will probably know within three months.

  23. Say it was successful. Presumably you would then be coming cap in hand to the government to ask for stacks more dosh, would you?
  24. (Mr Delay) We would first want to carry out a thorough assessment of the programme to ensure that it is cost effective. We believe from our forecast that an interest free loan scheme can be very cost effective as a means of stimulating change in this area. On the basis that the numbers turned out to be as we forecast, then yes, we would make a strong case to government that this really is a cost effective way of stimulating energy efficiency and the deployment of technologies.

  25. Can you think of anywhere where you might get the money from?
  26. (Mr Delay) There is no one obvious source of funding.

  27. It has been suggested that the climate change levy should go exclusively into this kind of thing, has it not?
  28. (Mr Delay) There could be a case made to say that the climate change levy could be recycled more fully towards the purposes of climate change mitigation. If that were to be the case, building up a more significant loan scheme, because we have to recognise that ten million as a loan fund is a pilot, would be most probably a cost effective way of doing that.

  29. Can I ask you about what checks, balances and quality control measures you take to ensure that the R&D you fund is okay?
  30. (Mr Delay) I will defer on the detail of this to David Vincent, our technical director, who has been essentially in charge of the legacy R&D activity of The Carbon Trust that we have taken over from government as part of the energy efficiency best practice programme and is also leading our work in terms of research and development funding that we now associate with the low carbon innovation programme.

    (Dr Vincent) The process whereby we invite R&D proposals is a transparent one. It is on-line access via The Carbon Trust website. We describe the process and the criteria which applicants would need to meet so that there is every assistance given to make sure we get good quality proposals. We do not specify particular technology areas. It is an open call into low carbon technology R&D from energy efficiency measures in buildings through to renewables and fuel cells. In terms of our first call, which we issued in May this year, we obtained the response of around 159 applicants. They responded in the form of short, outline propositions to us so that we could then carry out a sift procedure using our expert contractors against the criteria that had been published. That whittled down the numbers to 47. We then invited the 47 to submit detailed proposals and we are considering those now. In response to the invitation for detailed proposals, we received 41. Those are nearing completion of the consideration process and we hope very much to be making offers subject to contract shortly. In the near future, we will be issuing a second R&D call. Again, it will be open in terms of no particular technological bias. The criteria will remain the same and we hope very much to get the same kind of response rate because 40 out of 159 is a pretty good response rate.

    Dr Iddon

  31. What do you say to those critics who say that there are too many funding bodies in the energy field and that perhaps The Carbon Trust and The Energy Saving Trust should merge?
  32. (Mr Delay) The Carbon Trust works very closely with The Energy Saving Trust and we do have a number of joint programmes that we manage on an absolutely equal basis with joint management teams we have put in place so in particular our work on community energy, the community energy scheme, is jointly managed by The Carbon Trust and TEST. Likewise, our work with small businesses, SMEs, is entirely managed on an open basis between the two trusts and jointly funded between the two trusts. On the areas of overlap and the grey areas between the remits of TEST and The Carbon Trust, I think there is very effective, very real cooperation in the way in which we are working on those two programmes. It is a strong working relationship. There are no major issues. Going beyond the grey areas where our remits do come very close to one another, we very much believe it is important to address markets, businesses and the public sector with the most appropriate and relevant expertise to those markets. TEST focuses very much on the mass markets looking at domestic and transport. We focus very much on the business markets. We focus on businesses, small and large, the investor community and the public sector as a consumer of energy. In terms of aligning skills to meet the needs and challenges of those markets, they are quite distinct. Whether or not that capability is delivered through two trusts or through a combined trust, you would nevertheless end up with specific skills addressing specific markets.

  33. You mentioned your partnerships with business. Apart from the CCL, does industry or commerce provide any other money for the work that you do through the partnerships?
  34. (Mr Delay) No, it does not. We are entirely funded by government grant.

  35. What is your relationship with the research councils?
  36. (Dr Vincent) We have a very healthy relationship with research councils. We run a small liaison group comprising engineering and physical sciences research councils with an action in environmental research council and an economic and social research council plus DTI, the Transport Department, the Environment and Food Affairs Department, looking specifically at low carbon technology RD&D. We have run this since the start of The Carbon Trust and we have used that forum to keep abreast of each other's programmes and also some specifics -- for example, the way in which calls are formulated and the kind of response rates we are getting to make sure that a 41 hit out of 159 applications is reasonable. It is very much in line with the kind of response that the EPSRC have. In particular with the EPSRC, we have formed a somewhat closer relationship, looking at the ways in which we can harness the R&D capacity of universities to deliver a business-led R&D objective. We hope very shortly to be making an announcement about a large, cooperative initiative where we will be putting new money into low carbon energy R&D.

  37. Some of the evidence we have seen suggests that the government funding for R&D in the energy area is too fragmented. Would you agree with that or disagree?
  38. (Dr Vincent) Is this fragmented in respect of spreading across too many technologies or too many funding bodies?

  39. I think both.
  40. (Dr Vincent) I can only answer in respect of The Carbon Trust programmes in terms of too many technologies. We have adopted an approach of not spreading our resources thinly across the whole technological range. We carried out a low carbon assessment study recently which we will be publishing shortly, which looked at around 49 technologies across the piece from fusion to fuel cells, to assess where the carbon savings potentially would be and where The Carbon Trust's investment would be material, bearing in mind that we have around 25 million a year of the low carbon unification programme budget envelope. It is not a huge amount of money. It would therefore make any endeavours we might have had in the fusion area, for example, particularly irrelevant because our numbers are not in the same league as fusion research expenditure, but it does make sense in areas like novel forms of PV, organic polymer PV. It makes sense in terms of looking at energy efficiency measures in buildings and in the process plant area. It obviously makes less sense in the area of nuclear fission because of the sheer scale. We have adopted an approach which looks at where we can be most material and have an impact. That means a subset of the low carbon technology that we are more interested in than others.

  41. Do you support the concept of a National Centre for Energy and what role would you see yourselves playing in that?
  42. (Dr Vincent) As we understand it, that was certainly one of the recommendations which the Energy Research Review Group made as part of the PIU process. A decision rests with ministers as to whether that National Energy Centre goes ahead. If it does go ahead, we would very much welcome the opportunity to participate in its formulation. We think there is a role to play, given that the role of energy per se in the life blood of the nation is so important and given the increasingly important drivers that are taking energy policy forward. To have a national focal point would be a good development, provided that focal point had good links and networks with existing skill centres. Quite obviously, a single energy centre could not span in great detail all the aspects of energy R&D. One which had good networking would be a good asset.

    Dr Turner

  43. You were saying you did a survey of renewable sources and technologies. What were your conclusions in that about the contribution that marine resources could make and whether you should be involved in supporting them?
  44. (Mr Delay) The premise against which the work was carried out was to consider the potential for carbon abatement and the materiality of The Carbon Trust in making that happen in reality. We are very keen to ensure that we do not spread our resources too thinly and that we do indeed focus on the areas where we think we can be material in moving the game forward, as it were. With regard to marine technologies, be they wave or tidal, they came out relatively well positioned in terms of our materiality funding going into wave and tidal research. Demonstration and commercialisation is at a relatively low level and there is no doubt that, given the kind of envelope of investments that we are considering, with a total portfolio investment of about 25 million per annum, it is quite conceivable that we will end up investing in marine technologies, wave and tidal.

  45. You have not yet?
  46. (Mr Delay) We have not as yet.

  47. You have 95 million to spend over the next three years. Of that, less than half is going into R&D and, from what you have said so far, it rather suggests that only some of that will go into the supply side of any of the R&D. Roughly how much?
  48. (Mr Delay) It is very difficult to tell. When we put together our strategic framework, looking at the likely pathway to a low carbon economy, there were two simple conclusions. The first is that it is technically feasible to achieve a low carbon economy using current and emerging technologies. Secondly, it will be very difficult to achieve that without sustained innovation for a very long period of time. Thirdly, to achieve the deep cuts required in carbon emissions will almost certainly need about an equal measure of energy efficiency or reduced energy demand and reducing the carbon intensity of the energy supplied through renewables and other sources. I would imagine that our funding overall will be split roughly in line with that balance although to some degree we are subject to the proposals that we see coming forward this year and in years to come, the quality of those proposals and the degree to which we can be material in supporting particular technologies.

  49. If you are splitting that 50/50, that does not leave very much for demonstrator machines, does it? You have already talked about your identification of technologies. What about the problems that proposers find in getting funding? Am I right that only one in four people who bid to you are successful in getting funding, which is the same sort of figure as the EPSRC?
  50. (Mr Delay) The hit rate on the R&D calls thus far is slightly higher than that, but it is very much in line with EPSRC funding.

  51. Do they go to both of you?
  52. (Mr Delay) No. We have fairly extensive consultations not just between ourselves and the research councils but also with the DTI. In a number of areas where there is clear and possible overlap, we have a very close relationship. One example would be on fuel cells where in practice there are only a very limited number of companies and research organisations active in the fuel cells area. We have therefore a very open sharing of information with the DTI on that.

  53. Does this mean that a lot of high quality proposals are not being funded at present?
  54. (Mr Delay) At the moment, we are not budget constrained so if the proposals are truly of high quality, offer very real potential for carbon abatement for different technologies through to demonstration and market, there is no reason why they would be excluded.

  55. Are they in practice at the moment?
  56. (Dr Vincent) The funding currently available is not a constraint on the R&D portfolio. What is the constraint is the number of proposals which meet both the primary and secondary criteria.

  57. Can we assume that the other 57 million is spent on administration? If not, how much?
  58. (Dr Vincent) May we clarify that question?

    Dr Turner: Take out the 18 million that you set aside for R&D, 20 million for financing and demonstrating; that leaves you with 57 million.


  59. What are you doing with it?
  60. (Mr Delay) The low carbon innovation programme has four steps to it and we have only considered two in reaching those figures. The first step is R&D where we are looking at two forms of support. One is direct and the second is through our collaboration with the EPSRC. The second is a demonstration fund which looks specifically at demonstration projects and currently, under the state aids clearance, we are waiting. We are limited to essentially carrying out demonstration projects with public sector bodies only. The third area is one that we have entitled "carbon finance" and that is where we will directly fund businesses, typically small, as they seek to get from R&D through to commercialisation.

  61. Incubators?
  62. (Mr Delay) Indeed. Incubators, equity shares in small companies, as they seek to move from R&D, through demonstration, to being able to raise private capital.

    Dr Turner

  63. Deployment?
  64. (Mr Delay) Yes. The fourth category at the end is what we call market diffusion. Essentially, it looks at the non-technological barriers to creating a low carbon economy, training, capacity building. It has considered, amongst other things, proposals that look at aggregating the interests of smaller organisations in the public sector in being able to take part in the emissions trading scheme and so on. There are four sections of work of which I think your figures only considered two.

  65. Two $64,000 questions: the government's target for renewable energy is 20 per cent by 2020. Do you think that the current policies, the current amount of development that is going on and the current amount of investment are going to be adequate to meet those targets?
  66. (Dr Vincent) As I understand it, the government currently has a target of ten per cent of electricity renewables by 2010.

  67. I am talking about the targets in the PIU report.
  68. (Dr Vincent) That is going to be a challenge.

  69. Do you think it would be a challenge to meet even the 20 per cent target?
  70. (Dr Vincent) Yes.

  71. Given that, what do you think is making that challenge quite so difficult? Are there not any policy mechanisms that we could employ to reduce the extent of that challenge and encourage the more rapid development and exploitation of new technologies?
  72. (Mr Delay) There are four barriers that we would like to consider very briefly. There are very major issues with regard to planning and the planning system as it affects the deployment of particularly renewable technologies. Second, there are a number of issues related to grid connection, again for small scale embedded generation renewable technologies. The third, which is a rather larger issue, is the question of infrastructure and who pays for it and indeed the degree to which the charging mechanism for renewable power should be deep or otherwise. The fourth area is the overall level of funding available to technologies as they move through from R&D to market, which is relatively low in the UK by international standards.

  73. Would you agree that the current structure of the liberalised energy market in Britain is a fourth barrier? Do you think it is possible to address all of these issues in such a way as to make the larger renewables targets achievable, given the political will?
  74. (Mr Delay) I think, in terms of the first three barriers, the second and third are directly related to the structure of the energy market in the UK, the charging mechanisms in place, the grid connection issues and so on. Those two issues plus the planning constraints that apply in the UK I think are very real inhibitors to private sector investment in the sector. Lifting those three barriers is well within the remit of policy makers in considering both the Energy White Paper and beyond. Lifting those barriers will kick start to some degree the level of private investment that we are all looking for.

  75. What do you think would be the percentage achievable by 2020 if you could optimise the environment in which we are working on all of these factors?
  76. (Mr Delay) Our own work suggests almost exactly 20 per cent.


  77. You made a speech recently on 25 October in which you talked about the need for more innovation. Would you like to elaborate on that? It sounded as if there was some frustration in that speech. How do we get that innovation? I know The Carbon Trust is trawling around for it. How can we encourage more of it?
  78. (Mr Delay) The most important thing is to recognise that a lot of the work that is going on is on a very small scale. To be effective in building up renewable capacity to anything like 20 per cent in years to come and making what is a major transformation to a low carbon economy, we need two things, both of which I would put under the innovation heading. The first is very straightforward. It is huge private investment on a scale that we find very hard to envisage at the moment.

  79. Would you like to put a figure on that?
  80. (Mr Delay) We need to be talking of many billions. It is private investment that needs to be leveraged in at the lowest possible cost to the public purpose. There is absolutely no doubt that the more efficient the market mechanism is at bringing in the private capital the less the public will need to disburse and support that investment. At the moment, the inefficiencies in the system do mean that it is relatively expensive to attract private capital. One of the major challenges for policy is to bring down the cost of public contribution to this process. The second point on innovation is to recognise that moving to a low carbon economy is not just a technological challenge; it is a very real challenge in terms of changed management in the broader sense, impacting on everybody from investors to consumers to businesses at large. I think there is a very real need for innovation, institutional and otherwise, to support that change over many, many decades. Probably the most important thing that we need to consider is to create a stable platform to attract that private sector investment. I think both institutional change and other matters will follow.

  81. Who are the champions who are going to get that moving? Is it going to be the government? Is there something we are missing? Is there a champion out there who is saying this in a speech somewhere, really making it happen, twisting arms, seducing, whatever it takes?
  82. (Mr Delay) Hopefully, the government's Energy White Paper will consider a number of the issues that we have been discussing this afternoon and move them forward materially. There is definitely scope within the general understanding of policy measures and what is working and what is not working to make some of these changes happen. It is very difficult to look at anybody and say, "That is a success story that we can follow." In many ways, we need to recognise that our policy measures in the UK are amongst the most complete of any developed country in terms of effective coverage, but nevertheless are imperfect. They are also very recent policy measures. Almost all the policy measures that we are considering today and reflecting on have been deployed within the last three years. They have barely had time to mature and evolve.

    Dr Iddon: What about the criticism that perhaps Britain is trying to do too much? We are just back from Japan and they did not talk to us about wind power, wave power, tidal power, because of geographical considerations. There is no continental shelf on which to put offshore facilities easily around the islands. It seems to me their government have made up their mind where they are going quite firmly, even subsidising the installation of solar power in domestic circumstances particularly. It seems to me we are floundering about here, wondering where we are going. Is that right?


  83. I might add that the Japanese economy is a bit of a mess as well.
  84. (Mr Delay) Firstly, we need to set the premise that we can make the transition to low carbon economy at little or no cost to the economy as a whole, so long as we consider a long enough time frame. That is very much the case. We do need to consider it over 30 or 40 years. In the short terms, there will be costs. In terms of are we focused enough, some of the thinking that we have been doing around the materiality of our own investment -- 25 million to invest is not a great deal and therefore we have to think very carefully how do we use that most effectively -- could be extended in many ways to a national or even an international approach, recognising that there are some technologies that really will only succeed if managed and invested in on a collaborative basis between nations, companies and so on. There are other technologies that are absolutely within the scale of UK investment and indeed technologies against which you could say that we are advantaged. I come from a business background where the mood has very much shifted from simply being competitive is good enough to only play where you are advantaged. I think there is a case to say: focus UK funding in areas where the UK would be advantaged but ensure at the same time that the technologies that we will require to build a low carbon economy can be brought in, if they are not domestically sourced, at good cost from elsewhere.

    Dr Turner

  85. Which are the areas where you think we will be most advantaged?
  86. (Mr Delay) That is a very difficult question and it is not one that we have considered in any great depth.

  87. Should we be placing our resource strengths in energy terms offshore?
  88. (Mr Delay) I think that is a fair comment.

    Chairman: Thank you very much indeed. We do wish you well. It is hard having no history but we are very impressed by what you are trying to do and we will send you our report. Thank you for helping us concoct it.

    DR NIGEL BRANDON, Chief Executive Officer, Ceres Power Ltd, MR JOHN ACTON, Chief Executive and Director of Engineering, Compact Power Ltd, DR ANDREW GARRAD, Director, Garrad Hassan & Partners Ltd, MR PHILIP WOLFE, Executive Chairman, Intersolar Group plc, and DR TONY TRAPP, Managing Director, The Engineering Business Ltd, examined.


  89. Thank you very much indeed for coming. We only have a short period of time but we will write to you with some of the questions we do not get to and you are very welcome to write to us. You know what we are doing. We are looking into non-carbon technologies and so on. We are all part of the move into renewable energy and nuclear power. That debate is going on at the moment. This report will play a part in that major debate in the House in the next few months so what you will be able to tell us will be very welcome. What do you think of the schemes that the DTI and The Carbon Trust run?
  90. (Dr Trapp) We are a team put together by the Renewable Power Association and we are trying to represent all the technologies. Each of us has a particular speciality. I am wave and tide. My colleagues can probably introduce themselves. On the matter of the DTI, I do not know if you have read the notes we sent in?

  91. Yes.
  92. (Dr Trapp) Without them, we would not have done what we have done. They have absolutely enabled the start of our technology so I rate them very highly in relation to us. Other people may have different views.

  93. You have had no dealings with The Carbon Trust yet?
  94. (Dr Trapp) We have approached them but we are waiting for a response.

  95. Has anybody a bad word to say about them?
  96. (Dr Brandon) I can comment both from my own perspective and my experience of others I have spoken to. I come from a fuel cell background. The DTI have struggled to help those few companies that are involved in that sector. I know from talking to other companies, including Rolls Royce who I have a close association with because I used to work there, that they are quite frustrated at the moment.

  97. That is a bit euphemistic: struggled to help those companies. What does that mean?
  98. (Dr Brandon) It means that in terms of going beyond a fairly small, focused programme, there is a small, focused programme that has run for a number of years for the fuel cell sector specifically and that has been useful at getting a number of UK companies involved in that sector, but time has moved on. It is about how that area can be taken beyond a few small research programmes into more of the demonstration stage. That is an area that at the moment there has not been any funding made available for.

  99. Does that sum up all your views?
  100. (Dr Garrad) From the wind energy point of view, the DTI -- previously the Department of Energy -- was very helpful in getting things going. It is now pretty useless. The only lump of money that is available is to help offshore projects which are small enough to be demonstration projects. Otherwise, if you try to gain money from the DTI for R&D in wind, it is either too commercial or not commercial enough. We find it virtually impossible to find a meaningful route through the present DTI projects.

  101. Heads are nodding around you.
  102. (Dr Garrad) Historically, we have received a lot of support but it has pretty much stopped.

    Dr Turner

  103. Is that because you should possibly do it commercially?
  104. (Dr Garrad) There is a general feeling, which I think is misplaced, that wind energy is now mature and commercial, so we are getting very much the same message from the European Commission. The trend is now to cease to sponsor wind energy projects because it is felt that they have reached commercialisation, unlike the aerospace companies, the nuclear industry or road transport. Wind somehow is peculiar to this remarkable transformation from R&D to commercialisation in about 15 years. I think that is quite wrong. When you look at the size of the machines, they have moved over 15 years from maybe 10 metres in diameter to 115 metres in diameter. There are plenty of problems ahead and those do need R&D.

    (Mr Wolfe) This is a feeling that we believe applies across several technologies in view of the way in which follow through does not really happen. Quite often, there is R&D thrust at the beginning to get a technology up and started and all of a sudden the effort comes to a grinding halt somewhere short of commercialisation. You get to the stage where you need further support to take something through to commercialisation and the response comes back, "That is too near term in terms of the market. Industry should be paying for that." All of a sudden, all this good work founders just before you get to the stage where it is going to make a real impact on the market. We have found this across several of the technologies.

    Dr Murrison

  105. There is a slight non sequitur there, is there not? If you are saying this applies right across the whole of the sector, if your logic followed through, there would be sectors where the government is supporting you less -- for example, wind energy -- where you say there is a feeling that that is perhaps more mature than one or two of the others; but you are telling me that it is right across the field and the pain, if you like, is equally spread. Would that be accurate?
  106. (Dr Garrad) I do not think I can speak for the other technologies. One of the problems of the new structure for the market is that unlike NOFO, which was in my opinion pretty disastrous from almost every point of view, it had one major benefit which was so-called technology tranches, which protected the less mature industry technologies from the more mature. Now, with the ROC trading mechanism, all technologies are made to compete, one with another. I think that is misguided. Maybe I speak from a slightly privileged point of view in the sense that wind, at the moment, if it was left to the market, would win every time. The other technologies are left having gained grants from the limited money that is available in a somewhat arbitrary fashion to compete with wind. I am not sure whether it is right, but NOFO essentially killed the manufacturing industry for the wind sector at least. That was not to do with R&D; that was to do with the market. You need to look at the market and the R&D money together. One without the other will not reach commercialisation and will not allow you full exploitation of the potential that all these different technologies have. They are very much combined.

  107. You would associate those comments with the response we have from the DTI and The Carbon Trust, would you?
  108. (Dr Garrad) I do not have any contact presently with The Carbon Trust, so I am not in a position to comment on that.

    (Dr Brandon) Same here.

  109. Why is that? I am surprised at that.
  110. (Dr Brandon) For my part, it was felt that having chatted to them there was not yet any clarity of what they would fund. Therefore, given the fact that it takes resources on our part to go and bid for funding, that was not the best use of our time and effort in terms of having the opportunity to win funding. That is not to say that we would not go to The Carbon Trust. In my view, it was probably a bit early.

    (Mr Wolfe) My company has put in a proposal to The Carbon Trust several months ago and the response at that time and still to this day is that they have not yet sorted out their priorities between different technologies and even priorities within technologies and therefore are not able to give a response to the proposal.


  111. Do you think that is unreasonable at this moment in the game? Is it frustrating that they have not done that? Does it anger you?
  112. (Mr Wolfe) From their point of view it is early days. At the time when the proposal was made, it was suggested that a response would be forthcoming relatively quickly and it was not. That is obviously disappointing but it is early days for them.

    Dr Iddon

  113. Is that because the government has not made up its mind where it is going?
  114. (Mr Wolfe) My personal view is that strategically there are several pointers that the government has laid down in terms of the penetration of renewables generally and in the context of the cellular industry in particular they specified certain ground rules. They felt, for example, that we should promote thin film technologies, which is a view that I certainly would share, but those strategies do not seem to have worked through down the line in terms of the actual support that is given at the R&D level for companies and people active in the field.


  115. What would happen if the DTI concentrated its funding on some technologies, the winners, as it were? What effect would that have, do you think?
  116. (Mr Wolfe) I know this is always a difficult issue because I accept that government does not necessarily feel that its job is to pick winners, but certainly at the sort of funding levels that are available at the moment, I think it is incumbent on someone to decide that the number of fields to be supported is limited in some way so that a sensible quantum can be put into those that are. If we try and spread this limited pot of money over too many areas of approach, we will achieve nothing in any of them and I think that is a real fear, so I think at this level picking winners must be done.

  117. So you think they should do that then, the DTI. What would happen? Would you be a winner? Of course you are all going to be winners!
  118. (Dr Brandon) We clearly believe that we would be a winning technology or we would not be trying to do what we do.

  119. You could not possibly say anything else. I understand.
  120. (Dr Brandon) It is a difficult thing to do and I think I would support that comment. If you spread the butter very thinly, you will end up going nowhere. We will all do some work to keep ourselves busy, but we will not actually achieve anything useful and I certainly would rather be working to achieve something that has a chance of success rather than just be occupying my time.

    (Mr Acton) I represent the advanced thermal processing technologies and quite frankly we could not take the risk that we would not be decided to be the winners, so we have made our own independent arrangements. If you have got a lot of backing that you have obtained from other sources, it is terribly important that one continues to drive on and you just cannot afford to see if it can be adjudged a winner by an independent review organisation. It is just too risky.

    Dr Murrison

  121. I was going to ask a question that we have asked other quite dissimilar groups and that is about the skill base that you have with which to operate. Obviously yours is a high-tech area and the criticism we have had about the market from other groups and organisations is that we do not invest sufficiently well in this country to sustain our industry and I wondered whether you thought that might apply to your sector or not.
  122. (Dr Garrad) Yes. I can kick off on that. We are presently, the wind industry globally and my own company, expanding about 30 per cent a year. We have recently been advertising for people and we have received pretty well zero applicants with any experience, so we are resolved that we do, and we have for some years now done, our own training. The money spent by the various research councils on university courses and particularly specialist courses and also R&D has been disparate and it has been spread about geographically all over the place. Only very recently has the University of Loughborough established Crest, the Centre for Renewable Energy and Sustainable Technology, which has provided us with several people every year and that is the one bright light, I would say, in the university side from the point of view of training. From our point of view, the lack of skilled specialist personnel is certainly a limitation, though we get quite a lot from abroad.


  123. Has anybody else got a comment on the interaction with academia?
  124. (Dr Brandon) I can speak to that because I am also a full-time academic at Imperial College.

  125. It is a wonder you have got time to come because you are so busy!
  126. (Dr Brandon) It is a good job that this is later in the day. I can certainly vouch for the fact that those few students which are produced, and I am talking of the postgraduate level now, and at the undergraduate level we produce quite a significant body of engineers, and I am talking about engineers, but at the postgraduate level, being Masters and PhD level, we produce very few. Certainly the sector that I am interested in, the fuel cell sector, we probably in the UK produce two or three a year and there is a huge demand for those around the world, let alone here in the UK. We could produce more if we had grants available for good-quality UK graduates to study postgraduate courses and that would fund them adequately to do so rather than letting them go off and do other things. There is certainly a latent interest, in fact more than a latent interest, a significant interest in young engineers in working in this sector. I think people find it a very exciting sector, but it is having the funding available to support those people. They have come through four years of training, they are largely in debt, so to support and continue their studies is a difficult decision for them. The grants available are quite low, though they have increased recently, but they are still low and to study in London, for example, is an expensive game and you are asking them to commit to another few years and it is a difficult decision, so that does cap the numbers of people available. That is my own comment from a university perspective in part and I would also say from an industry perspective that they are not there and it is very difficult.

    (Mr Acton) I would just like to speak to that. We in fact are essentially an engineering company and we call upon all disciplines right across the professional level. We are particularly short of experienced and even at postgraduate level chemical engineers and process engineers in particular. There is a tremendous shortage that are available to small companies such as ours who are desperately in need of that particular skill. We do benefit, as has been said, by the fact that young, bright people are attracted to us because they perceive us as part of the renewables sector and that does in fact interest them greatly, so we do get a very good capture of good graduates, but we are particularly short on process and chemical engineering.

    (Dr Trapp) I would slightly differ from what you have just heard in that we, as an employer, have found that we have got a ready supply of engineers and we tend to have a fairly academic staff. Twelve per cent of our staff have PhDs and another 10 per cent have first-class honours degrees, chemical, electrical and civil. We advertised recently and I think we got about 300 applicants out of which we were able to select half a dozen people that we employed. We work very closely with a number of universities, particularly Newcastle University, and we take students on placements. We then transfer them and they come and work for us. It works out well.

    Dr Turner

  127. We have already, I think, established that you see financial resources as one of the barriers to completing the whole of your process from innovation to deployment. What about the other barriers and, for a start, the current state of electrical infrastructure, the distribution networks in Britain? What would you like to see to address that one?
  128. (Dr Garrad) I see that as the key to large-scale implementation of renewables. At the moment we have a goal of 10 per cent by 2010 and maybe 20 per cent by 2020. Wind could supply that along with others, but wind could, if necessary, supply it alone in terms of technical resource available, but it could not be connected. I think there is a perception amongst the supply side of the business and the distribution side of the business that it is not possible to connect this sort of quantity without a lot more work. Some of that work is R&D and some of that work is understanding how the system works and what you could actually connect under slightly different circumstances. I am anticipating that you might ask us what we would like to spend money on and my number one target would be that very point. We can select a site for 10 per cent of the UK's electricity and we can get the energy there and I believe mechanical plant essentially could be provided and installed, but it could not be connected. After something which is really not your remit at all, I guess, which is planning permission and permitting generally and the market, the first technical obstacle is definitely connection.

    (Mr Wolfe) Another area is the issue of distributed generation which applies to several of the renewable technologies. At the moment the entire infrastructure and frankly the entire mindset is centred towards large-scale, centralised generation feeding out into users out there somewhere and a lot of the technologies will actually focus on much smaller-scale generation embedded in the user network, like solar systems on rooftops, for example. At the moment not only the infrastructure, but even the mindset is not well suited to accommodating that sort of structure.

  129. You are absolutely right. On our visit to Japan we looked at some very nice zero-energy houses with solar roofs which were selling back to the supply companies during the day at the same rate as they bought it, but at the moment you could not do it.
  130. (Mr Wolfe) Exactly. Net-metering is a prime case in point and that would be a tremendous help.

  131. We are not into it and we do not consider the market outside our remit because it is the environment in which it has happened. I anticipate that you gentlemen might have something to say about the way that the market has been structured, the meter, et cetera, which may or may not be conducive to the development of renewables.
  132. (Dr Garrad) Well, I certainly feel, as we have already mentioned in answer to your question, that we have to look at technology R&D combined with the market and if you look at the countries where wind has been successful, it has been successful in a particularly benign market and that has allowed countries, which are really Germany, Spain and Denmark, to establish not only a considerable and installed base of wind, but also an industry and that industry has not been built largely off R&D money, but it has been built off the consistent market. The hindrance to large-scale exploitation and implementation of wind certainly is the lack of confidence in the long-term consistent market and by that I mean not so much the price, though the price is obviously important, but the ability to see that price going forward for a typical 15-year PPA to allow yourself to get bank finance and to allow yourself to make the investment. That applies both to the development of the specific implementation of renewables, but also to investment in setting up plant to make the machines. I think the introduction of the ROCs(?)is fine, but it needs to be seen to be going on and we need to be able to see it going on for 20/30 years, and I know that is difficult, but the establishment of that market for the long term is important. Secondly, if we look specifically at offshore wind, which I think is seen to be a considerable hope and I think correctly, at the moment the size of the projects being put in place, even though there are 13 of them, there are only 13 machines which is maybe about 60 megawatts at least and we should not be talking in megawatts, but we should be talking in gigawatts if we have any chance at all of meeting the Government's target. So there is definitely not joined-up thinking between those specific bits of implementation and the large-scale targets. The consistency of the market is the key and if you do that, then I think all sorts of investment follows. We are aware of all sorts of foreign players who will come and invest in plant here and will make machines here if they can see a consistent market. We are also aware of other conventional energy players who are looking very seriously at the wind business here and again will start making their own machines and their own plant here if the market is shown to be consistent.

  133. Do you feel then that the renewable obligation does not go far enough and would you like to see some sort of legislative base, let us say, like Germany's Renewable Energy Act in Britain?
  134. (Dr Garrad) I would love to have seen that. I think it is now too late. I think that sort of benign market, generous market, if you like, would no doubt have been very successful. I think we have probably got past that stage now and what we should be doing is probably adapting the system we have got to make it better. I think it is internationally politically acceptable to have this trading arrangement. I think the ROCs should be internationally tradeable eventually, though I know that is a big step. I am personally fairly happy with that system if we can see the obligation increasing some way into the future. There is an issue at the moment for gaining debt on projects relying on ROCs because the market in ROCs is yet to be established. That is an issue, so some sort of sustained buy-out price will be important. If we were going back two or three years, my answer to the question would be yes, I would have liked to have seen that from a very selfish point of view, but I believe that the market we have got now will work with some tweaks, but we do need bigger lumps, bigger projects and long-term consistency.

    Dr Iddon

  135. We are going to ask questions of the individual companies and I am going to start with Compact Power and Mr Acton. Were you disappointed, John, that in the Chief Scientific Adviser's energy research report there was no mention of energy from waste?
  136. (Mr Acton) Yes.


  137. Did you tell them that?
  138. (Mr Acton) We made numbers of representations not only individually, but also as consortia. It is very difficult at this stage when there are other drivers which are affecting our market, for example, the Landfill Directive, the Incinerator Directive and all these other things, and we felt that we could have done with some encouragement at that point to have been offered forward as a means of meeting the objectives that we are being forced into by external driving forces and energy from waste. My perception is that it is a political hot potato because it is too far down the recycling and reuse, the normal cycle that if somebody stands up and says, "We believe in energy from waste", they are actually saying that they are going to encourage waste being diverted into energy resources and I feel that that was really the pressure that came on perhaps from other sources.

    Dr Iddon

  139. I know you have got a specialised business producing gasified carbon fuels by pyrolysis to solid waste.
  140. (Mr Acton) Indeed.

  141. But my question really looks at incineration in the wider aspect than your specialisation. What do you say to those people, Friends of the Earth, Greenpeace, the green lobby in general who say that we should discourage incineration because it discourages recycling?
  142. (Mr Acton) That is really a continuation on from the point I felt is one of the drivers. There is always going to be a non-recyclable element in whatever we throw away and for which there is actually no further use with the best will in the world. I believe that it is inappropriate to put it to landfill in the hope that it may subsequently be of some use. I believe that the carbon capture, which is what we are driving after, or even the energy capture is of better benefit today rather than to go on as a landfill opportunity.

    Dr Murrison

  143. I am going to deal with Ceres Power. I am fascinated to hear about your fuel cell technology and I was wondering what the timescale is which you have for its commercial deployment.
  144. (Dr Brandon) Well, Ceres is one of a number of sort of new companies that we find in this country these days which has come out of the university system, so it is a spin-out company. As to when we would have a commercial product, that is a very interesting question. I would say in answer to that that the company can be quite successful for a few years without a commercial product. We would be looking to grow and expand the company and having it increase in value without necessarily producing a commercial product. We can do that with prototype units because we are coming from a base of essentially creating intellectual property and realising the value of that intellectual property, so what companies like Ceres Power are about is taking the first steps towards a commercial product which could take one, two or three years. The way that we turn that into a commercial product for a company like Ceres Power, which is not going to become a manufacturing company because no one will give us the money and no one will invest the money in a manufacturing company, is that we would have to work with manufacturing companies who do not have the wherewithal to develop the intellectual property, so I think it is a partnership ultimately. When would we look to have a product? I would have thought that we are looking at four or five years down the line and we are looking at significant commercial development to get to that point, so companies like ours I think are going to be one of the driving forces in innovation in this country. I think you are going to see increasingly companies like ours being set up whose sole purpose in life is to develop that piece of technology. I have sat in large corporates and they are not places for developing technology. However, they do have large sums of money and they are increasingly doing less R&D, so I think the model would be large corporates acquiring companies like ours and their equivalents and they will see that there are small companies out there innovating and pushing hard, and then they will evaluate and pick, as they see, the emerging technologies out of that rather than necessarily developing the emerging technologies themselves. So I think there is a change, as I see it, in the way that new technologies are going to be innovated.

  145. Your comments about nobody being interested in setting up a manufacturing company imply that you have looked and failed to find finance for such a venture.
  146. (Dr Brandon) When we were involved in raising finance, we took advice as to what was the best route by which we could raise finance. Our initial thought was that we could have the technology, we could set ourselves up and we could make it and it became very clear when we talked to the City that that was not a model that they would support. People will not provide large sums of money to build manufacturing plant which would tie up their capital for large periods of time when largely there is an overcapacity of manufacturing around the world, so they would say, "That is not what we would support. We would support focused spend on the high- technology side to develop the intellectual property and then you work with the manufacturing sector who have already made the capital investment". So that is the model we have followed and we were successful in raising finance on that basis.

  147. All this spinning off is quite interesting. For you obviously, as an academic, this kind of thing, I suspect, is quite new territory.
  148. (Dr Brandon) Yes.

  149. What sort of support have you had from the Imperial College, and I imagine the answer is quite a lot with the nature of the place, and also from government?
  150. (Dr Brandon) We have had no support from government. I guess I should just say that of course we have indirectly had support from government because our research has been funded for many years by the research councils. Essentially what the University is doing is realising on its intellectual property that it has created over the years via its research council funding, so in that sense we have had government funding through our research council funding, but beyond that we have had no government support. We have had significant support from Imperial College, which is one of the leading academic centres in trying to realise the value of its intellectual property through spin-outs as opposed to the more traditional route of licensing, in the sense of advice, help and guidance, no financial support, however, but putting people who are naive, like me, in touch with people who do know something and telling them what to look out for, so at that level we have had encouragement.

  151. Do you think in this country we are supporting R&D in fuel cell technology sufficiently? It is a bit of a leading question because the standard answer of course would be no, but please justify what you mean.
  152. (Dr Brandon) Well, there has been, as I said earlier, a DTI fuel cell focus since the early 1990s and I believe it was very useful in encouraging companies to get into fuel cells from a very low base, but its level of funding has not increased, to the best of my knowledge, certainly not substantially over the past ten years and it is, therefore, still only encouraging a few companies to play with the technology who will not take it any further than that. In terms of the underlying science base, I think in fuel cells as in other less developed technologies, for that technology to be a commercial success, there still needs to be technical innovation because the barrier to its development is its reliability and that can come down in volumes, but it will not come down enough without continued technical innovation. The volume will bring it down to a certain point, but it will still not be low enough without ongoing technical innovation. That science base at the moment in fuel cells is receiving no directed support. There is always the opportunity in this country to go to the research councils and the probability of success is one in ten on average. I have not written a research proposal on fuel cells for the last two years because I have not felt it worthwhile. The investment of my time, given that it takes me roughly two months to write a proposal, is not worth the effort. At the moment there is no directed programme, but there has been a directed programme, but the recent calls for proposals under Supergem(?), people agree that it is the EPSRC generator call for power generation which specifically excluded that technology because, the comment I have had from programme manager, fuel cells have received enough funding.

    Dr Iddon

  153. Dr Brandon, you worked for Rolls Royce. Do I take it that you are mainly interested in fuel cell technology in relation to transport or also in the domestic context?
  154. (Dr Brandon) No, my involvement with Rolls Royce was not with the automotive part of Rolls Royce, but it was with the power generation part of Rolls Royce, so my involvement there was on the stationary power side, solid oxide fuel cell hybrid systems in that particular case.

  155. As you have heard, we have just been out to Japan and we visited Osaka Gas and Sanyo and I got the impression, I do not know whether my colleagues would agree, that their technologies are so advanced that they are going to launch fuel cells for domestic use within two years. I just got the impression looking at the research and development particularly going on in those two companies that Britain is miles behind. My fear is that they will be selling us equipment before we can get a domestic derived product on the market.
  156. (Dr Brandon) There are a number of companies around the world, not just in Japan, which are developing micro-combined heat and power for residential locations. My own view, and this is an area that we are targeting our own development at, I should say, within Ceres Power, is that those technologies are not going to be cost effective. There are a number of technology programmes around the world, a number of them in large corporations, where the approach taken will never result in a cost effective product in today's climate. I think that for this technology to succeed - fuel cell technology I am talking about now - it needs to be cost effective. I do not think we are looking for subsidies on fuel and all this business because it has a number of unique features and if it is cost effective as well then it will win out. A lot of companies are locked in to expensive demonstrator programmes for a number of reasons, a number of them are political, a number of them are PR orientated and a lot of it is to do with the fact that they do not have to produce a saleable product for that company to succeed. I think there are technical decisions being made which will not result in a cost effective product.

  157. We are still in the game?
  158. (Dr Brandon) Yes.

  159. Britain is still in the game.
  160. (Dr Brandon) It is.


  161. Dr Garrad, you have mentioned already that your business is really outside this country, is that your strategy or is that forced on you by our attitude to the wind industry?
  162. (Dr Garrad) I would like to pretend that it was a strategy but it was necessary. We had a lot of work in the UK up until the second or third round of NOFFO when everything pretty much stopped. At that point we moved abroad and now we have about 85 per cent of our work from abroad. This last month I have just appointed somebody internally to look after the UK market which is a strange thing to do since we have been in business for almost 20 years, and we are based in Britain, but that is a sign of new activity as a result of the obligation. There has been very little for us to do here in Britain for the last seven years, say.

  163. The UK wind industry has missed the boat you would say? It has blown in the wind.
  164. (Dr Garrad) Without sounding too arrogant I hope, we are one of the key successes. We employ 100 people. If you look abroad to the Danes and the Germans, there are manufacturing companies employing several thousand people and the reason why that happened, which I alluded to briefly earlier on, was the result of NOFFO. There was a manufacturing industry around at that point but it could not compete because it was immature compared with the Danes particularly, and so because the main driver in NOFFO was price it was necessary to import Danish turbines which pretty much killed the manufacturing industry. Now there is another chance, and I think this is probably an important element of the development of the wind business here in Britain, which is the off-shore business, there is really no reason why British industry should not be a big part in that. The cost of an off-shore installation is roughly 50 per cent infrastructure and 50 per cent turbine. With the 50 per cent turbine, I think there is a very small chance - probably insignificant chance now - that there will be any real home grown British technology there but the off-shore installations certainly there is every chance and every possibility that will happen. I think in terms of manufacturing jobs there will be inward investment into the UK if there is a substantial UK market, there is no doubt about that, but the actual technology will probably be either off-shore or it will be software and other things like that.

    Dr Turner

  165. Dr Trapp, I am a marine enthusiast. Can you tell us a little bit about your Stingray? How successful has your demonstrator been? Have you finished evaluating it yet?
  166. (Dr Trapp) We are in the process still of evaluating it. The first thing you have to note about wave and tide is that actually there is not any of it. Successful technology deployed, there is not a watt coming out and we would all like a lot more money. A lot has been spent over the last 20 or more years, a lot of research has been done and there has not been a delivery, we are desperately trying to do some of the delivery. We started 14 months ago and what triggered it off was the DTI agreeing to support our programme, we do not have any other supporters. We designed and built and installed and operated this thing only briefly this summer, there was desperate struggle to get there before the end of the season. We have got a lot of data, we have analysed it. The main object of the demonstrator was to produce data which would validate our mathematical, economic and dynamic models so we can go on to project how we can move this business forward. It is very important to realise there is a long way to go with developing any of the wave and tide technologies, they are very early stages. The wind energy people talk very positively where they are with already low costs. We are ten or 15 years behind where they are but I hope we do not take ten or 15 years to catch up.

  167. Exactly. We took evidence from yourself and other colleagues in the wave and tide business two years ago when we produced this report and I am slightly sad to hear what you say because the message we were getting at that time was actually quite positive. There was a great deal of confidence coming from some of your colleagues: from WaveGen, Dr Hassan, Wind Turbines. I know for certain that Dr Hassan has come up with a demonstrator in the water. The wind machines have been going in the water. Can you give us an update on the performance of these machines, the loss of power and so on?
  168. (Dr Trapp) Yes, I am very wary of commenting about other companies' products.

  169. You are representing your sector of the industry.
  170. (Dr Trapp) I know. You have to notice that there have been more failures than successes. When I am talking about in the water, I am talking about in a real more than ocean environment, I am not including land based systems, shore based systems, we have just done that. For instance, there is a well known Portuguese scheme which has been in for two years now and is going in for a third year now, trying to get it installed. What you find when you get out there it is exceedingly difficult. We choose harsh environments deliberately where there are high currents in our case or high wave areas. The marine experience that is needed, the cost of doing that is large. I would not in any way want you to take away the idea that I am pessimistic about this industry, I am very positive. I am clear that we have to deliver pretty quickly. We have to start getting things in the water which show some sign of working and I believe we have done that. Of the scale, we have done it, I am not sure that there are any others who have done it. I think we have made tremendous progress, I am positive about it but you have to bear in mind that this will be quite a long and quite expensive process to get to anything which is commercial.

  171. Do you think I could suggest that you could follow up in writing with an update from yourself and your colleagues on the evidence that you have presented to us both orally and in writing previously in terms of the estimated generating costs when they are in commercial deployment, the timescale which you each envisage for commercial development and the possible potential in terms of gigawatt production within that timescale? Can you tell us right now what you think will expedite that deployment? Can I ask a question which I will be interested in all of you contributing to which is, leaving aside the political and market related barriers, do you think that your technologies between you can provide the 20 per cent renewable target by 2020 or do you think that could even be insufficiently ambitious?
  172. (Dr Trapp) Okay. Just about our technology, the potential is enormous and we will try to pull together a written report under the RPA banner. The potential is enormous. There is absolutely no doubt we can do it, it is only a matter of money. We started in the oil and gas industry, a lot of money was thrown at it and we made enormous progress, by comparison the amount of money that is being put into the renewable energy business is very, very small. We are trying to develop a new power station technology, a number of different power station technologies are on the table and that is an expensive process. The wind people are well ahead already but they have got considerable off-shore challenges which we are quite familiar with. On wave and tide, nothing yet really is in the water, it is extremely difficult. The potential is great. It would need significantly more money than is being put in so you could do it, you could accelerate it. We have a very powerful off-shore industry in this country. Certainly in relation to what we do we have a powerful manufacturing base. We could do it easily and actually it is one of those technologies where unlike you were talking about your visit to Japan, I think if you look at their wave and tide programme ---

  173. They do not have one.
  174. (Dr Trapp) They have not got a wave programme because they have not got any waves and tide. You will find that we have the potential absolutely to lead the world on this. We have the technology, we have the technologists but it is expensive and it will take a little time to get there. It is not academic research, it is developing the technology and getting it into the water and meeting all the challenges that you find when you try and do that.

    Dr Turner: The question of the targets, can you meet the targets given the right conditions?


  175. You can phone a friend if you want.
  176. (Mr Wolfe) Given the right conditions is it absolutely. Clearly technically it is possible to meet the targets and there is sufficient resource out there in terms of wind availability, sun availability, wave availability and tidal availability. These are mostly technologies which can be deployed relatively quickly and therefore to get them out there and generating by 2020 is technically possible. The issue is clearly that of infrastructure and cash. We are talking about a similar proportion of generation to that which nuclear represents currently, for example. Will you give us the same sort of financial resource that the nuclear industry has had in this period? If so I have no doubt whatsoever that as an industry we can deliver that and more. Certainly 20 per cent is on the low side technically.

    Dr Turner: Can I suggest that we might ask all of these interests to provide the updated information on generation costs, etc.?


  177. Yes. You can do that I guess?
  178. (Dr Brandon) Certainly in the fuel sector, which is probably the least well developed here represented, and probably comes from a slightly different perspective as well because it is not necessarily renewable technology, it is an enabling technology for some aspects of renewable fuels but does not rely on renewable technology.

  179. We will drop you a line with the question.
  180. (Dr Brandon) If you could. Yes.

  181. You have to put a stamp on it.
  182. (Mr Acton) Certainly from the waste sector currently we are disposing, as you know, of more than the 20 per cent which we could recover.

    (Dr Garrad) I just have to answer that question, not to be left out, the answer is yes.

    Dr Iddon

  183. Finally, Mr Wolfe, is UK R&D in the photovoltaic field the best in the world?
  184. (Mr Wolfe) Frankly no, we are a long way short of the cutting edge and partly because I do not think we have been very effective in converting the priorities that we establish through interaction actions. I think again in this area, as in others, we need to or have indeed already selected prospective winners but we have not converted that into R&D effort and support for the industry.

  185. Are we going to lose out to our huge foreign competitors like Sanyo whose efforts we saw and were very impressed with when we visited Japan?
  186. (Mr Wolfe) Unless something changes inevitably we will, yes. As I say, we have selected thin films as being the way forward, as have Sanyo. We have certain proprietary technology but at this stage the level of support that we are giving to the industry is less than ten per cent of what the Japanese industry gets and very significantly less than almost every other competitive nation that we are up against. As that changes we will do for the solar industry what we have done for the wind industry and that is missed the boat.

  187. That was the feeling I was getting as I drove round Japan. We saw a whole roof lowered on to a four bedroomed house, entirely fabricated in photovoltaic plates and adaptable with little platforms on to the roof and so on. 39,000 I worked it out, as I did my calculation. It is quite expensive, obviously.
  188. (Mr Wolfe) I would like to say if you go to Northampton you will see a whole roof made of what looks like slate but is in fact photovoltaic slate. It costs a lot less than 39,000.

  189. We noticed in your report that you have developed a solar roof slate.
  190. (Mr Wolfe) Yes.

  191. I presume that is your product, is it?
  192. (Mr Wolfe) Yes, it is.

  193. Do I take it from what you have just said that you have some interest, if not a considerable interest from the building industry to take that product forward?
  194. (Mr Wolfe) Yes. Our approach has been somewhat different from most others in that we believe the majority of the applications, certainly in this country, will be building integrated applications. We focus very much, therefore, on developing a product that is to all intents and purposes a building product but incorporates the photovoltaics. If you look at solar roofs in most parts of the world they are basically solar panels bolted on to roofs. That is an approach which I find relatively unattractive and it is not making full advantage of the economic potential because you are not really avoiding roofing material. With our solar slate, every solar slate replaces a slate which would otherwise go on to that roof so we get an economic trade-off which helps make the economic case for photovoltaics. Our approach has been very much focused on that and the building industry have responded to that. The project I talked about just now in Northampton is with Persimmon Homes which is the country's largest house builder.

  195. The Government is looking at prefabs at the moment - I do not mean prefabs as we knew from post war World War 2 - a new kind of prefab which can be erected very quickly. It seems to me that your product is highly suited to that kind of construction?
  196. (Mr Wolfe) It would suit that idea, yes.

    Chairman: Can I say thank you very much for bringing your knowledge to us. I suspect there is a lot of enthusiasm there still for your product and renewables too and I am very glad to have had the chance to listen to you this afternoon. I am sure the Committee have learnt a lot and you will have a significant part to play in our report.

    DR CHRISTOPHER ANASTASI, Senior Environment Adviser, British Energy, examined.


  197. Welcome, Dr Anastasi. It is nice to see you. You are on your own, that is grand. Can I say we will not be questioning you about the problems that British Energy has had. We recognise it has got nothing to do with you whatsoever, of course we are interested in that but we want to talk about research and development.
  198. (Dr Anastasi) Yes.

  199. There is no mention in the annual review of research and development, is that because you do not do any?
  200. (Dr Anastasi) Quite the opposite. Even in our years of problems, which we have had over the last two or three years, we have invested a significant amount of money in R&D. Last year it amounted to about 16 million in total and that is about the fourth highest in the sector. When you compare it with respect to sale, which is a standard kind of indicator, we are even higher than that. We have maintained our R&D spend quite successfully over the last few years, I think.

  201. In the current situation, what is the situation now then?
  202. (Dr Anastasi) That is a good question. All I can tell you is that we intend to continue spending at a reasonably high level. We have done so, as I said, under difficult conditions in the past and we hope that once we are out of our difficulties we will continue to do so.

  203. It would be a bit cheeky to suggest that technological innovation is not going to be high up the agenda, is it?
  204. (Dr Anastasi) It is. I think if there were problems of that kind before, we would have cut our spend significantly. There are all manner of things that we must do for safety reasons, to enhance productivity, for the material well-being of our plant so we are committed to doing that.

  205. Renewable technologies, are you going to be doing some of that? Which?
  206. (Dr Anastasi) We are interested in renewables. We announced a little while ago the Lewis Project in particular. I think the amount of R&D that one tends to do in this arena is quite small because wind is a well established technology, I guess as you have been hearing. There is the R&D spend on that area with the site specific issues, looking at migration of birds or looking at land issues, those kinds of things. We have spent a little bit of money on other aspects of renewables, for example John Hassards' piece of work, his tidal stream work, we did that some two years ago and we have an interest still in that work. We are interested in renewables, yes.

    Dr Murrison

  207. We have heard some suggestions that the UK has been slow in picking up and developing some renewables. Obviously you are potentially quite a key player in the development of start up companies, companies for example like Ceres that we heard about from your colleagues, those kinds of organisations which would need to be developed and brought into the manufacturing sector in order to make use of their product and develop it. It sounds to me as if perhaps you are very focused on one particular sector of renewables across the globe. I was wondering whether you felt that perhaps you might wish to pick up some of the other possibilities?
  208. (Dr Anastasi) I think the reason we have chosen the technologies that we have in renewables is primarily driven by the ten per cent demand on us. We have a supply business, and we have to have ten per cent of that by 2010 in renewables or pay the penalty. The quickest way to do that is to build wind and that is what most people are tending to follow. We are not thinking at this moment in time much beyond that. We have a small interest in some fuel cell work which has been done in Canada so we would like to see that grow, I think. As I said we do help universities on occasion where we see something which is particularly promising. Very much at the other end we do not expect to see the benefits of that in the short term, those are for the long term.

  209. I was going to ask about the regulatory framework in which you operate. It seems from what you have said in fact that framework could act against the pick up of other renewable sources. Would that be correct? If it is, how do you think the Government might tweak the rules which exist currently to bring on those other potential sources of renewable objects?
  210. (Dr Anastasi) It is absolutely true to say that the present RA system mitigates against some of the other renewable technologies beyond wind. Wind is a sensible one for companies such as ours because we can get the financial benefit back. In terms of how it might go about encouraging other technologies to the fore, we might think, for example, of a banded RA. At the moment there is a single value, you pay a penalty price of three pence if you do not get the certificate. It might be possible that you might want to band that to encourage some of the higher priced technologies which are out there. I am not sure that there are many other technologies out there which could be brought on stream on the kind of scale that you would need them to do to satisfy the ten per cent target. I think probably you have been hearing that in your evidence. People are finding that target is quite challenging of ten per cent by 2010.

    Dr Turner

  211. You are a fairly large company and you are in a position to benefit from R&D tax credits. Has this stimulated you into conducting more R&D?
  212. (Dr Anastasi) The tax credit system has only been applied to us this year. It is a recent innovation. I welcome it. I think it is a very, very good idea. It would be even better if it was on a parity with the small to medium enterprises of 150 per cent as opposed to 125 per cent. It does not help us currently as a company, of course, because we are loss making.

  213. Yes.
  214. (Dr Anastasi) We get no benefit at all. We do not get the cash back.

  215. We heard that.
  216. (Dr Anastasi) We do not get the cash back benefits that other small companies do.

    Dr Turner: I know we are supposed to keep off that particular question but ---

    Chairman: No, you do not need to, he might not give the answer.

    Dr Turner

  217. Do you think it reasonable to say that at the moment, given British market conditions for electricity, future nuclear deployment is uneconomic?
  218. (Dr Anastasi) I think if you look at present market conditions you would not build anything, frankly. You would not build gas, you would not build coal or nuclear, you might build renewable because of the subsidy that is there, I do not think there is any doubt about that. I think market conditions would have to improve significantly to entertain new build of any kind.

  219. When we visited Japan we found that energy research was highly subsidised by the Government. Would you like a regime like that, even if it came in the form of 150 per cent tax credits?
  220. (Dr Anastasi) We live in a liberalised market and private companies need to be encouraged to do research. I think the tax credit system is one way of doing that. I am not sure about subsidies, you could argue the tax credit is a form of subsidy. I am not sure about the EU law about subsidising such research. I think the tax credit system is a way forward, there might be other similar ways in which you could encourage companies such as us to do more R&D.

  221. Does DTI support impinge upon you at all? Do you think the DTI could do more to support and promote R&D in energy?
  222. (Dr Anastasi) Their budget seems to be growing, which I welcome again. Year on year over the next three or four years it is expected to grow. Clearly it has a mandate to encourage industry related R&D, not particularly in the nuclear sector, most of the growth is in the renewable sector and that is okay. The difficulty lies in the fact you have to match funding and some companies of course, smaller companies in particular, might find it rather difficult to find the funding and even we might find it difficult under the present situation. There is always this problem I think with the DTI in terms of it has the money but because the partnership requires half the funds to come from them it makes it somewhat difficult.

  223. Have you had any relationships with the EU framework programme? Do you propose to have any relationship?
  224. (Dr Anastasi) No, we do not do anything with respect to Europe right now. We do some work in the US and Canada, obviously, we have operations over there. We do take note of international developments nonetheless. There is a US led Generation 4 Project, which is looking at a fourth generation nuclear technology due to come out 2030 or thereabouts and we take a keen interest in that. It is in its fledgling state. I am not sure how it will pan out and what role we will play.

    Dr Iddon

  225. Can I ask you what is British Energy's view on fusion research programmes? Are you getting excited about that?
  226. (Dr Anastasi) I would not say that I am getting excited about them. Fusion is an ongoing subject for many, many people, of course. The British Government, of course, funds some research, international collaborations and so on, it does that research and we take note of what is going on. It does not seem likely that kind of technology will be ready for us over the time period that we need it. Thirty years is the minimum that people are suggesting for any kind of viable fusion project. We take note of it but that is about all.

  227. I am just wondering how close you are to BNFL and whether you are able to tell us how you view their research programmes in that field?
  228. (Dr Anastasi) I think that is a matter for BNFL. Obviously we do have a relationship with them.

  229. You collaborate with them, do you?
  230. (Dr Anastasi) On some issues. For example we have a Magnox programme, some of our research monies go towards what we call the Magnox programme. This is a joint project looking at some issues to do with materials or radioactivity issues and so on but that is about all.

  231. Waste disposal obviously is a big question in this industry and some government is going to have to grasp this like the Finnish Government just have. Do you think the level of research investment in waste disposal in the industry is enough to crack the problem?
  232. (Dr Anastasi) Is it enough? That is a good question. You could always spend more, I think. Perhaps more important is how the VMA - the new Viabilities Management Agency - pans out and how that is used. They will be the main group looking at R&D in the waste issue. There are lessons to be learnt from overseas and the Finnish experience is a very good one, I think. We could do a lot more in seeing what they do.

  233. Finally I just want to explore the question of skill shortages in the industry. I gather you might be having a problem with retention of staff and there is a question mark hanging over the future of the industry. We are pressing government to make some decisions because we appreciate your difficulties. Would you end finally on that?
  234. (Dr Anastasi) I am not sure about losing staff right now. I think you can see that if it was a very, very difficult future for us as a company clearly that would be a major concern. I do not think there is any point in skirting around that one. I would say, nonetheless, that we still recruit staff. Last year we recruited 36 new graduates and it costs us an enormous amount of money every year to train these staff. We are committed to taking new graduates in. We have a wider concern with respect to skills which is that the engineering pool from which we draw is getting smaller and that has ramifications, of course, for the whole energy sector, not just for ourselves. I think our concerns about our staff retention will become apparent over the next few months.

  235. France is very keen obviously on its nuclear energy programme. It appears that Japan is going to expand as well in nuclear fusion plants. Obviously the governments in those countries are supporting the industry. Do you think the British Government is supportive enough of the industry? Do you think they could be putting more Government research into various aspects of your work?

(Dr Anastasi) I think if there is a concern in the industry it is about level playing fields. I think this is something that we have talked about an awful lot, whether this industry is on the level playing field with a number of others, particularly with respect to the way that we deal with our waste and the externalities associated with the industry. We believe that we take care of by far the largest proportion of the externalities but we do not think we get recognition for that. Certainly we do not think the other actors in our sector are penalised in the way that we are. As far as the R&D goes, as I said, I think the Viabilities Management Agency will do a lot of that work. As that unfolds over the next year or two or three years I think that is where the Government can best do its job probably with respect to waste.

Chairman: Thank you very much indeed, Dr Anastasi. I am sorry we were a little late getting started. Thank you very much for your information which has been very helpful.