Select Committee on Environmental Audit Minutes of Evidence


Memorandum submitted by the British Wind Energy Association

INTRODUCTION

  1.  The British Wind Energy Association (BWEA) is the trade body for the wind power industry in the UK, and also represents the interests of the nascent wave and tidal stream power sectors. It has over 310 member companies and is the leading renewable trade association in the UK (see www.bwea.com for a full list of our member companies). BWEA's members will be providing the bulk of the future growth in renewable electricity supply as wind is expected to provide the lion's share of such generating capacity up to at least 2020. As such, the Association is keenly interested in the subject matter of the Committee's inquiry, and welcomes the opportunity to submit evidence to the Committee. Not all the inquiry issues set out in the Committee's announcement are within the competence of BWEA; the text below sets out evidence in response to those issues where the Association has expertise and relevant opinions.

EXTENT OF THE "GENERATION GAP"

  2.  BWEA does not have anything significant to add to much-publicised views on the timetable for retirement of existing nuclear and coal-fired plant made by other power market commentators, and thus what any potential shortfall in power supplies there may be in the future. We would note, however, that an enhanced programme for energy efficiency would bring benefits in terms of reducing or perhaps even eliminating any shortfall.

FINANCIAL COSTS AND INVESTMENT CONSIDERATIONS

  3.  Other respondents will give estimates for fossil, nuclear and other renewable technologies, but BWEA can give data for wind, wave and tidal. Costs are discussed below, but in terms of timetable it is important to note that wind power is the only low-carbon generating technology currently available that can be installed in significant quantities for at least the next 10 years.

  4.  Onshore wind is already delivering: this year approximately 400MW of onshore wind should be installed, and BWEA expects that up to 2010 annual installation will be at this level or higher. There are already projects totalling about 1,200MW with consent but not yet built, and more are achieving permission all the time—700MW of new consents for onshore were awarded last year alone. We are confident that by 2010, 4,000MW of onshore wind capacity will be contributing power to the national grid. The Association expects considerable further development beyond 2010, though the full extent of onshore build will ultimately depend on new grid infrastructure being built out to areas of wind resource, and what level of exploitation is allowed under the UK's planning system.

  5.  Offshore wind is also starting to make a significant contribution, which should increase to ultimately overtake onshore wind. There are two projects in the water totalling 120MW, with another two under construction totalling 180MW. A further 900MW has consent, and these projects will be entering construction over the next 2-3 years. This scale of development pales, however, compared to the larger "Round Two" projects, which were awarded rights to develop sites at the end of 2003. A total of 15 projects adding up to 7,200MW are being studied; the first of these to apply for consent was the London Array project, which is sited in the outer Thames Estuary. At 1,000MW, it is the largest wind power project in the world to have officially requested permission to build. It will be capable of providing power for 1 in 4 of all the homes in London. A further five or six projects totalling about 3,000MW of capacity should submit their consent applications within the next three to six months. BWEA consider that it is technically possible to have 4,000MW of offshore projects (about 1,000MW of Round One and 3,000MW of Round Two) in the water by 2010.

  6.  Wave and tidal stream technologies should deliver in the longer term. Up to 2010, they will contribute some tens of MW, though given the correct incentives the sector should develop to deliver 500-1,000MW by 2015 and 5,000MW in 2025. These estimates should be treated with some caution as the marine renewable energies are at such a relatively early stage of development compared to offshore wind, and much depends on getting the policy framework right in order to bring them into the market. BWEA has recently started a project entitled "Npower Juice Path to Power", which will result in a comprehensive blueprint for the development of marine renewables, from the geographical areas that would be preferred to the policy measures (including the amounts of money required) that are needed to bring the technologies down the cost curve. This exciting project will report in May 2006. The intention is to engage with Government using the results of this work in order to lay down a clear path for the sector to follow so that the UK can secure the benefits of renewable power and a sustainable industry with significant export potential.

  7.  The best current estimates of the cost of new wind power are contained in the detailed and comprehensive submission by David Milborrow to this inquiry. Milborrow is a technical consultant to BWEA, and a former BWEA board member, as well as contributor to other respected analyses, such as the recent report on wind power by the Sustainable Development Commission. Wind power is already at the 50,000MW mark world-wide and the cost estimates in David Milborrow's submission are based on real-life experience which results in high confidence in his conclusions. BWEA generally supports his economic analysis, but would add the important issue of development costs. Developers in the UK have to expend time and money bringing several projects forward for each one that is successful. This means that within a development business, those projects that are built have to generate enough profit to offset the development costs of those that were unsuccessful.

  8.  It is important to note that the price that a renewable generator gets for its output (as distinct from the cost to it of generating that power) is set by the framework of the Renewables Obligation. This mechanism has been highly successful in encouraging investment in renewables, particularly wind power, and it is vital that it is allowed to operate without significant change so as to keep the confidence of existing investors and encourage yet more capital to the sector. Customers' bills are set to rise by about 5% to pay for the Obligation in 2010, an affordable increase which brings benefits of reduced carbon emissions, a more diverse and thus secure energy supply, and a new industry employing thousands.

  9.  BWEA notes that onshore wind is currently economic within the Renewables Obligation; however, offshore wind, due to the higher capital costs, requires additional intervention outside of the RO to make the project economics work within the framework of private project finance. The important issue of closing this gap for offshore wind is discussed below.

  10.  Wave and tidal stream costs are less well defined as for wind, on- and offshore. Those technology developers that are furthest advanced have made estimates of their costs going forward, however. Marine Current Turbines, for instance, who are presently testing an underwater turbine for capture of energy from tidal flows, have put the costs of their prototype 300kW generator at £4,340/kW. Their next development, a two-rotor, 1MW machine they plan to install at Strangford Lough in Northern Ireland, should come in at £2,800/kW, while a first-wave commercial project of about 5MW might cost £1,800/kW. For the latter figure, this translates to about 6p/kWh. Ocean Power Delivery, meanwhile, which is developing the Pelamis wave generator, has put capital costs for a 2MW development using their machines at £2,750/kW, dropping to £2,000/kW for a 10MW project and £1,500/kW for a 30MW wave farm. This last figure is comparable to the capital cost of offshore wind now, leading to similar costs per kWh. OPD is confident that further cost reductions can be achieved beyond this point.

  11.  There is no technical or physical reason why renewable energy, and wind power in particular, cannot deliver on the target of 10% renewable electricity by 2010 and the aspiration to double that contribution by 2020. Delivery of onshore wind at the level required has already been demonstrated in Germany and Spain, where build rates of up to 3,000MW per year have already been achieved. This is much more than is required for onshore wind to meet its expected contribution by 2010 in the UK, and there is no significant difference between the British and German wind sectors that would mean that such a build rate could not be achieved if required. What is required is for the current supportive policy to be continued: BWEA welcomes the recently-released statutory consultation on the RO Review as it proposes the steady evolution in the key Renewables Obligation policy, thus giving the necessary confidence that long-term support will be maintained.

  12.  The UK's programme to deliver up to 4,000MW of capacity by 2010 will be the largest ever delivery of offshore wind technology in the world, representing four to five times the entire current installed capacity offshore in the world. The turbine technology is an evolution of that used for onshore wind, and the UK has many companies skilled in offshore construction, so it is a matter of mobilising skills and capital that already exist rather than developing totally novel techniques from scratch. That said, it is still vitally important that those skills are honed through learning by doing, and thus the "Round One" demonstration programme currently being built out is providing valuable experience that, if backed by a consistent and strong home market, will be a hugely saleable commodity once offshore wind markets like Germany and Spain take off.

  13.  Investments must be made in the offshore supply chain so that the installation capacity required for meeting 2010 targets is there in time; in order for this to happen, the industry must have confidence that the projects will be coming forward to construction in a consistent and timely manner, and at a volume that allows for economies of scale and appropriate return on those investments. Government must therefore urgently address the issue of the current economic gap for the Round Two projects, which at present will not receive the capital grants awarded to Round One projects. BWEA is looking for a commitment in the current Climate Change Programme Review to solve this economic gap for Round Two and thus provide the confidence to developers and the offshore supply chain that investment now is justified. To ensure economic viability of Round Two projects, BWEA is urging Government to bring forward a package of measures made up of:

    —  Enhanced capital allowances.

    —  Providing greater certainty in the price of ROCs (especially beyond 2015).

    —  Mitigating offshore transmission costs and providing fair and equal treatment with the onshore grid.

    —  Direct government intervention through maintaining a capital grants programme for Round 2 projects.

  14.  In a sense, inquiring after the relative efficiencies of generating technologies is comparing apples with oranges. The efficiency with which wind turbines convert the kinetic energy of the wind into electricity has different implications than the efficiency with which a coal-fired power plant converts the chemical energy in the fuel into electricity. For the former, the "fuel" is free and does not result in carbon emissions, so the emphasis is on varying the operating regime and the physical robustness of the turbine in order to gain the most cost-effective power; for the latter, the efficiency is a key parameter in calculating a plant's economics and the impact that the plant has on the environment as this dictates its carbon emissions per unit output.

  15.  Micro-generation can make a valuable contribution to UK power supplies, but the sector is currently underdeveloped and will take some years to start fulfilling its full potential. If, for instance, 50,000 small wind turbines of 1kW each were installed (a number that could be installed by 2010, though with significant effort), then this would be equivalent to a wind farm of about 50MW; clearly valuable but only a minor factor in the overall power market. Over time, as micro-generation and efficient end use technologies are integrated into increasing numbers of new buildings, significant reductions in carbon emissions and demand for grid-supplied power will result, though this is unlikely to be a factor in large-scale power investment decisions until well into the next decade. BWEA is currently putting the finishing touches to its submission to the Micro-generation Strategy consultation, and will forward this to the Committee as soon as possible.

  16.  The onshore wind market has matured to the point that financial institutions are comfortable with making significant investments in the sector. This is of course based on the important assumption that long-term Government policy will remain stable. Offshore is at an earlier stage, where as-yet less well understood technical risks militate against the use of bank finance to construct projects—offshore projects built to date have been funded on the balance sheets of the developers. The larger Round Two projects will require independent finance due to their greater scale. We are confident that as Round One is rolled out, technical risks will become better defined and financial institutions will gain the confidence to lend the hundreds of millions of pounds required.

  17.  BWEA is agnostic about decisions to invest in a major programme of nuclear, or indeed any other low-carbon generating technology, so long as the current and future policy and financial arrangements necessary to deliver on our 2010 target, 2015 Obligation and 2020 aspiration are safeguarded.

21 September 2005



 
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