Select Committee on Science and Technology Appendices to the Minutes of Evidence


APPENDIX 33

Memorandum submitted by PB Power

1.  INVOLVEMENT IN NON-CARBON ENERGY TECHNOLOGIES

  The non-carbon technologies which PB Power are involved with are those which have a commercial application in the world's electricity supply industries and are, principally:

    —  hydro-electric power production;

    —  wind energy devices.

  Other, relatively common, non-carbon technologies include photo-voltaic and solar technologies which find very little application in national electricity supply systems. Less commercially-advanced technologies include wave generation and marine current technologies, neither of which make any significant contribution to electricity supply in most, if not all, countries of the world.

2.  RESEARCH, DEVELOPMENT AND DEMONSTRATION

  PB Power is an organisation which acts, firstly, as a technical advisor on electricity supply and, secondly, as a project manager on large capital schemes eg power stations and transmission and distribution networks. About half of our corporate turnover is attributable to the former activity, the balance being on activities associated with project management. We undertake, therefore, very little practical research and development ie we neither design nor build experimental or prototype devices for research or manufacturing development purposes. We do, however, undertake "desk-top" research ie investigation into the performance, characteristics and costs of the newer, less—conventional, energy technologies as part of our technical advisory activities mentioned above. From time to time we advise those engaged in product research and development on required characteristics to satisfy market conditions.

  As far as demonstration of energy technologies is concerned, we would rank this at a relatively high level of importance in the electricity supply industry generally. We would go so far as to say that it is a critically important activity in the development of new technologies. It almost goes without saying that new technologies are brought to market because: they are more efficient at converting primary resources (such as fuel) into useful and versatile energy such as electricity; they have less of an adverse impact on the environment in which they have to operate; they are less expensive in terms of either or both of their capital costs and their ongoing operation and maintenance costs. One or all of these benefits have to be demonstrated to be applicable to the new technology if it is to find a buyer in the market place.

3.  THE CURRENT MARKET PLACE

  In many countries in the developed world, and in some countries in the developing world, there has been a relatively rapid shift in the last 10-15 years away from the old order of the national electricity supply industry being a department of the State where the taxpayer effectively supported the difference between the costs that the industry incurred and the revenue that it earned from sales of electricity. The new order takes the form of either the sale of the entire assets of the industry by the issue of shares (equity) or the solicitation by the State (who maintains ownership of the majority of the industry) of offers of private-sector participation in certain parts of the industry (most likely investment in the electricity generation part of the industry). This latter arrangement is generally adopted where the State has neither the means nor the inclination to invest in new assets. Long-term arrangements for the procurement of electricity from the private generator are generally offered as an inducement to participate in such an arrangement. Commercial arrangements will be put in place to ensure that the private generator honours his commitments to provide electricity when required.

  Where the entire industry is offered for sale (as was the case in the UK in 1990), all generation assets are owned by plcs and the generators sell their output to electricity retailers who are also plcs. Similar strict commercial arrangements exist between producer and retailer in this model as in the limited privatisation exampled above as being typical of the developing world.

  It is important that the commercial realities of such strict commercial arrangements are appreciated in the consideration of the place of or for non-carbon technologies in the real world.

4.  TECHNOLOGY RISK

  When the world's electricity supply industries were, for the majority of the developed and the developing world, state-owned utilities, they were funded from the Government exchequer and the risk of a new technology failing to perform in accordance with expectations were rarely quantified in financial terms—the exchequer would bear any losses.

  In the developed world eg in the UK prior to 1990 and in France up to the present time, many new technologies were introduced as experiments on a limited scale with the exchequer bearing the costs of the associated research and development. Sometimes such expenditure was proven in the long-term as money well spent, often it was not. The whole of the UK nuclear power programme was funded in this way.

  The privatised industries, however, take an entirely different view; risk, whether it be technology risk or any other of the risks they face in their day-to-day operations have to be quantified and offset or managed in some way. High risks have very little or no place in the highly-efficient and cost-effective private electricity supply industries of the 21st Century. Neither do these industries have large budgets for research, development or demonstration. Their profit margins do not provide for the allocation of funds for such activities and neither would their shareholders see any rationale for such activities. The only exception of this general statement occurs when private companies perceive that total absence of renewable generation in their portfolio may adversely affect their share price given growing public and government opinion in favour of such technology.

5.  ESTABLISHING CONFIDENCE

  It almost goes without saying that, in a changing world, the demand for new energy technologies which are more efficient, cleaner or less-expensive will increase from industries which are striving to maintain a competitive advantage in a free market situation. Opportunities exist, therefore, to bring forward new ideas and new technologies to fulfil this latent demand. Demonstration projects play an essential part in establishing confidence and allowing forward predictions of performance to be made and incorporated into business models. This begs the question as to who will bear the cost of the demonstration? The gap between the "test bed" and the full-scale "turn-key" commercial scheme is vast and the costs that can arise in bridging that gap are huge. The appendix[17] to this submission gives more details of this aspect of prototype technologies.

6.  DEMAND PULL

  It is arguable that the genuine demand for electricity produced from low or zero carbon sources, or renewable sources, is small, even though it is widely acknowledged that there is a potential threat to climate stability from global warming and that there is a connection between CO2 emissions into the atmosphere and global warming. The population of the market place are, in the main, disinterested in these esoteric scientific concepts and are much more interested in the price of the product ie the kWh of electricity than the environmental costs associated with its production.

  Conscious of obligations arising under the Kyoto Protocol, many Governments, including our own, are distorting this free market by imposing obligations on the retailers of the commodity ie the electricity supply plcs to secure a proportion of their sales from "green" or zero-carbon sources. In the UK this will amount to 10% of total electricity sales by 2010. Thus there is an intervention in the supply chain between the electricity producer and the retailer to induce the introduction of zero-carbon technologies. This arrangement called the renewable obligation has been in existence since April 2002 and there is now some evidence that it is encouraging the development and application of the new zero-carbon technologies. There is certainly evidence of many wind farm projects attempting to enter the market in view of this distribution by which renewable obligation certificates are trading at some 50% above par at 4/5p per kwhr.

  It should be appreciated that of all the renewable technologies wind is now regarded by many as mature. Others maintain that further economies of scale can be obtained by further development.

  Rather than distort the market mechanism to try to force zero-carbon technologies into the production sector, a more efficient mechanism could be adopted whereby the external costs associated with traditional producers were attributed to them as a "carbon/environmental tax" to allow the conventional price mechanism to operate more efficiently. The current situation in UK electricity supply in which a major non-carbon producer ie the nuclear power generators, are denied Climate Change Levy Exemption Certificates on their production, demonstrates the absurdity of the current "market".

7.  OTHER MATTERS

  I am of the firm belief that no worthwhile and sustained Research and Development over a long period can be contained by National boundaries. The Companies and Research Institutes capable of carrying out the work are all, without significant exception, organised on a global basis or at least with global connections. All major manufacturers (and therefore developers) of electricity-producing plant and equipment are global in their nature. They would not otherwise survive. The same in also true of Universities and other Research Institutes where globalisation is a pre-requisite to success.

  Much is said and written these days of the shortage of engineering skills and the corresponding shortage of those entering University Courses in Engineering. History has shown that the balance between supply and demand of these skills has always been far from perfect. It is also true that, when opportunities for interesting and rewarding R&D open up, the "market" somehow seems to fill the needs although not wholly from the conventional sources of the day.



17   "Test bed to turnkey-The Introduction of new Thermal Renewable Energy Technologies", IP Burdon, 2000. Back


 
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