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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