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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