Select Committee on Environmental Audit Written Evidence

Memorandum submitted by Royal Dutch Shell plc

  1.  Shell shares the widespread concern that the emission of greenhouse gases (GHG) from human activities is leading to changes in the global climate. Our commitment to CO2 reduction is serious and demonstrable, as illustrated by our existing voluntary GHG target, which will see GHG emissions across all the facilities we operate 5% lower in 2010 than they were in 1990, even though our business has grown in that period. However the needed future global reductions will require a new set of technologies.

  2.  Shell clearly recognises that a major change in energy infrastructure and the way energy is used will be needed over the coming decades if society is going to address the issue of climate change. No single solution will deliver this major change. Shell has a long history in research and development of new technologies, which are an important element of our strategic direction around the world and we have developed the broadest new energy portfolio in the industry, with the largest investment in these technologies of the oil and gas majors.

  3.  We welcome the Committee's Inquiry into these matters. Although Shell does not have a position on nuclear power we would like to comment on some of the Committee's other areas of interest.

  4.  In expanding our energy portfolio we have invested nearly US$ 1 billion over the period 2002 to 2005. We are the number 2 wind company in the USA and number 7 in the world, powering hundreds of thousands of homes with wind energy.

  5.  Shell believes that wind energy has real potential for the UK, as the most economic and potentially environmentally acceptable large-scale renewable resource and we are focusing on the development and operation of offshore wind farms in the UK.

  6.  We are one of three companies that have been granted a Round 1 option to lease an area of the Irish Sea from the Crown Estate to develop an offshore wind farm near Blackpool. It will have up to 90 turbines with a project capacity of up to 324 MW. Development is dependent on the results of a full economic feasibility study and environmental impact assessment.

  7.  Shell is also part of a consortium called London Array Limited that has been granted an option to lease an area from the Crown Estate to develop an offshore wind farm in the outer Thames Estuary. London Array is a flagship project that is leading the Round 2 process and was the first of these projects to submit a planning application in June 2005. This £1.5 billion project will be built in four phases, with the aim of commissioning 1,000 MW by 2010-11. If fully developed it would meet 10% of the Government's 2010 renewables target and meet the electricity needs of 25% of London's households or the entire domestic supply for Kent.

  8.  We see the development and application of new technologies as part of our objectives in dealing with climate change and security of supply and believe that our two large offshore wind farm projects could make a material contribution to achieving the UK's renewable energy targets. It is also clear to us that the only technology that can deliver the anticipated shortfall in renewable energy capacity required by the UK's 2010 and 2015 targets is likely to be offshore wind. However under the present operation of the Renewables Obligation (RO) the economics of offshore wind projects are not attractive and are below the threshold at which such projects are sufficiently attractive for us to invest. In our submission to the DTI's recent consultation we identified the following points:

    —  We consider that the aggregate financial support envisaged under the RO scheme can be sufficient to deliver the desired outcome on renewable energy targets.

    —  However we believe that an adjustment to the mechanism is needed so that this aggregate is redistributed, giving relatively more support to more capital intensive technologies, specifically offshore wind.

    —  Unless this redistribution takes place there is a significant risk that insufficient offshore wind energy capacity will be installed to meet the UK's renewable energy targets. Offshore wind would be needed to contribute half or more of these targets. This could mean up to 10 projects would be needed, delivering about 4 GW of power in aggregate by 2010 and about 6 GW by 2015.

    —  We do not think there are ready alternatives to this offshore wind capacity that would still enable the renewable targets to be met.

    —  Redistribution of the available financial support could be achieved by a relatively simply mechanism. This would involve capping the "recycle value" of the ROC and applying the resultant surplus to support specific offshore wind projects. To give an order of magnitude, very broadly, the £1 billion or so of RO support planned around 2010 would have the effect of preferentially directing about £250 million of financial support to offshore wind and leaving about £750 million to support other renewable energy sources. We believe that this £750 million would be sufficient to support less costly technologies such as onshore wind.

    —  To support an investment made before 2010, it is important to have confidence that ROCs will have value into the 2020s and beyond. A means of enabling this would be to extend and increase renewable targets beyond 2010 and to confirm this soon.

  9.  It is our view that offshore wind is the lowest cost route to target delivery and can be delivered through the RO if adjustments are made. Offshore wind technology has already proven its ability to perform on a material scale and has started to demonstrate its ability to deliver a vital contribution to the UK energy mix.

  10.  We recognise that the challenge to reduce emissions of carbon dioxide will require significant and material contributions from a range of technologies. Shell is committed to delivering a number of these technologies and within this has firmly identified offshore wind as a priority. We have declared objectives to incorporate offshore wind as a material business within our business portfolio over the next five years.

6 October 2005

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