Select Committee on Innovation, Universities, Science and Skills Written Evidence

Memorandum 17

Submission from RWEnpower


  1.  RWE npower welcomes the opportunity to respond to the Science and Technology Committee inquiry into renewable energy technologies. We feel that the inquiry is timely, particularly given the recent publication of the government's energy white paper, "Meeting the Energy Challenge". Consumers, industry and government face difficult choices in responding to the need to provide secure and sustainable energy supplies for the UK. RWE npower are committed to engaging with government on this issue, and to playing a key role in helping to deliver against government targets for renewables.

  2.  Our written evidence submission provides detail on the current state of research and development (R&D) in, and deployment of, renewable technologies. In particular we highlight barriers to the large scale deployment of existing renewable technologies, namely UK supply, planning and grid.


  3.  RWE npower, part of the RWE Group, owns and operates one of the largest and most diverse portfolios of power generating plant in the UK with over 10,000 megawatts (MW) of large gas, coal and oil-fired power stations, cogeneration plant and renewables facilities.

  4.  Our renewables division, npower renewables, is an award winning renewable energy business at the forefront of the British renewables sector. We are committed to developing and operating onshore and offshore wind farms and hydroelectric power stations, producing clean and sustainable electricity for use in UK homes and businesses. We are also working with companies that are developing technologies to harness the power of our marine environment (waves and tides). To date, our projects' combined operating portfolio has the ability to generate approaching 500 MW of clean electricity, and we have many more projects under development and construction. A number of our conventional power stations also co-fire biomass.

  5.  RWE's retail arm in the UK is npower, one of the UK's leading suppliers of electricity and gas with over seven million customers. Serving the residential, small to medium enterprises and industrial and commercial sectors, npower delivers competitive, advanced solutions for its customers. npower also supports R&D into renewable technologies through its 100% renewable electricity tariff, Juice.


  6.  The table below sets out the renewable technologies which are supported through the Renewables Obligation (RO) and the Non Fossil Fuel Obligation (NFFO). The table also shows RWE npower's position with regards to each of these technologies, as well as the key barriers to overcome in achieving large scale deployment.

(MW): UK2
Key Challenges / comments

Onshore wind
Supply; Planning; Grid
Landfill gas
Limited opportunities for growth.
Hydro <20MW DNC
Limited opportunities for growth
Offshore wind
Supply; Economics; Grid
Co-firing of biomass
26 (c.10%)4
Supply chain
Economics; Supply chain
Sewage Gas
Limited opportunities for growth
Biomass and waste using ACT
(No comment—not close to RWE npower activities)
Waste using ACT
(No comment—not close to RWE npower activities)
Marine (wave and tidal power)
None at present
Full scale testing; Economics; Planning; Grid
None at present

1  Source: Ofgem list of stations accredited for the Renewables Obligation and Climate Change Levy

2  Source: Ofgem list of stations accredited for the Renewables Obligation and Climate Change Levy

3  Ofgem estimation calculation: ROCs are only issued for the percentage of electricity generated from eligible renewable sources. This qualifying percentage changes on a monthly basis for each station. This estimate of capacity is based on the number of ROCs issued in the latest month.

4  Calculated using Ofgem methodology.


  7.  Npower renewables is a leading developer and operator of onshore and offshore wind farms. We currently operate 18 onshore wind farms and 1 offshore wind farm with a total generating capacity of over 400MW; equivalent to almost 20% of UK installed wind capacity.

  8.  Built in 2003, our North Hoyle project was the UK's first major offshore wind farm. We are also committed to building our second offshore wind farm, Rhyl Flats. This 90MW wind farm will produce enough renewable electricity to meet the needs of around 56,000 homes. In addition, we hold options to build two further major offshore wind farms (each of approximately 1,000MW) as part of the second round of offshore licenses that were granted and we are working to develop these options further. We also have a strong portfolio of onshore wind farms in development and under construction.

Co-firing of Biomass

  9.  RWE npower co-fire biomass at a number of conventional power stations including Didcot, Tilbury and Aberthaw and have been a major contributor to co-firing under the RO.


  10.  We also operate hydroelectric power stations at 15 sites with a combined capacity of 59MW. We are committed to continuing to develop small hydroelectric power schemes.

Marine renewables

  11.  We are currently investigating the potential for a wave scheme to be located near the village of Siadar on the Isle of Lewis. The scheme is a joint project between npower renewables and Wavegen, a wave power company based in Inverness. The scheme would involve building a new breakwater similar to those used around our coastline for the provision of harbour facilities (thus also providing some protection for harbour facilities in the local community) and could generate up to 3MW of electricity, enough to supply around 1,500 homes.

  12.  We also support research and development of marine renewables through the npower Juice fund, created in 2003. Juice is npower's domestic 100% renewable electricity tariff, which is offered to customers at no extra cost compared to their standard electricity. Npower makes an annual contribution to the Juice fund of £10 for every customer that stays with Juice. In 2006, npower's contribution was over £500,000 and the fund is expected to grow to £1 million within the next three years. To date, the Juice fund has supported two major projects in addition to a number of smaller projects; namely the Regen South Wave project and The Path to Power report, in conjunction with the BWEA.


  13.  npower also promotes a range of microgeneration technologies to residential customers, providing advice on micro wind devices, ground source heat pumps and photovoltaics. npower have recently launched a photovoltaics (PV) product, npower solar, which provides information and advice about solar panel installation through an appointed installation contractor. The product encompasses a service whereby npower collects and passes through to the consumer the value of environmental certificates and enables customers to sell back excess electricity generated by the solar panels.

Research and Development

  14.  In addition to the npower Juice fund, which supports research and development into marine renewables, RWE has also committed significant investment into the research and development of low carbon technologies and renewable technologies notably clean coal technology. In 2006, RWE committed to spend just under £34 million on R&D, including £21 million on research into clean coal technologies and £1.7 million on renewable technologies.

Key challenges in research and development in, and deployment of, renewable technologies: Regulatory certainty

  15.  Investors are sensitive to political risk and regard frequent changes to policy as a source of significant uncertainty. As such, clear commitments from government and stable support mechanisms have a real role to play in the deployment of renewable technologies.

  16.  RWE npower supports the RO and believes that it has to date created a positive economic environment for growth in renewables in the UK and indeed has the potential to ensure that strong investment in renewables continues. We are supportive of the some of the proposals announced in the recently published consultation document, the Reform of the RO; recognising the need for structural changes to the RO mechanism such that it i) targets support where it will deliver large scale deployment of renewable generation capacity (principally offshore) ii) provides good value for money for consumers in terms of CO2 saved per £ paid into the RO.

  17.  It is our view that the current level of reform is appropriate but the graph below demonstrates influence of political risk on deployment rates, clearly showing the hiatus that occurred during the transition from NFFO to the RO.

  18.  In particular, we believe that the following are important in maintaining investor confidence during the current reforms:

    —  Delivering on grandfathering promises

  19.  The government outlined a commitment to the principle of grandfathering in the 2005 Review of the RO. With the exception of co-firing, any reduction in support applies only to future projects (operational after the date of implementation of proposed changes, 1 April 2009). We support the principle of grandfathering, but note that the proposed approach to banding risks reducing ROC values. As such, grandfathering does not protect existing investments, as only the volume of ROCs are protected and not their value.

  20.  Further, in the May 2007 RO consultation, the government have introduced an entirely new proposal (not outlined in any RO consultation or energy review documentation to date), which proposes to limit grandfathering to 20 years. Noting that not all projects are financed on the basis of a 20 year life, for example hydro, we are concerned that amendments to principle of grandfathering at such a late stage in the consultation process risk damaging confidence in government commitments.

    —  Providing certainty as to the frequency and nature of future reforms

  21.  The proposed banding of the RO necessitates that technology bands are reviewed in future to ensure that the level of support is appropriate and in line with changes in technology costs and electricity prices. Given that regulatory reform weakens investor confidence, we feel that it is important to provide confidence as to the logic and timing of future reviews. We therefore support the proposal to pre-set independent reviews in statute at five yearly intervals (in line with the EU ETS timetable), and to limit the circumstances which can lead to an ad hoc ("emergency") review, thereby providing clarity as to the frequency and nature of future reforms.

  22.  Further, we believe that the need for consistency and stability in support mechanisms currently rules out early harmonisation of support mechanisms across EU.



  23.  The DTI have recently published their working assumptions on the relative capital and operating costs of a range of renewable technologies in a report published alongside the Reform of the RO consultation[15]. This report represents the most up-to-date study available of the costs of renewable technologies. We broadly agree with the cost assumptions contained within this report, with the following notable exceptions.

  24.  We believe that the cost of biofuels has risen since this work was undertaken such that the "blended" biomass fuel cost of £3.70/GJ is lower that current cost of most biofuels. We would similarly comment that, since the DTI work was undertaken, our direct experience of the costs of building offshore wind indicates that there has been no let-up in the trend of increasing offshore construction costs. These costs have now broken the £2M/MW mark, so the DTI range (£1.37M to £1.71M/MW) does not capture the costs currently being experienced. The published capital costs for onshore wind appear to capture the correct range of costs (£1M to 1.4M/MW for <10MW sites and £0.88M to £1.2M/MW for >10MW sites), but we would add that our recent experience has tended to the upper end of these ranges.

  25.  The work undertaken by Ernst and Young should aid government in ensuring that banding is effective in providing sufficient support to encourage further deployment of "post-demonstration" technologies, namely offshore wind and dedicated biomass.

  26.  However, the RO was designed as a "near to market" technology support mechanism and we do not believe that it should be used to fully support emerging technologies, primarily because it is unlikely to provide sufficient revenue to support them without distorting the mechanism.

  27.  It is our view that emerging technologies should be supported through appropriately structured R&D funding, be it in the form of capital grant funding or revenue support. Further, proceeds from environmental taxes should directly fund R&D. We therefore welcome the proposal to use the Environmental Transformation Fund (funds generated from Carbon Auctions under EU ETS) in addition to the use of funds such as the MRDF to support emerging low carbon and renewable electricity technologies and energy efficiency measures. The proportion of auction revenues made available through the Environmental Transformation Fund will have an important bearing on the future direction of R&D into renewable technologies.

  28.  Whilst most studies focus on pre-tax costs, the corporate tax reliefs available to renewable generation projects, or the lack of them, are an essential part of assessing the overall economic feasibility of various technologies. Subject to additional specific comments below on R&D, we are concerned generally that the recently announced changes to capital allowances (including the abolition of Industrial Buildings allowances) could operate significantly to reduce the viability of certain renewable technologies. We have in the past[16] been assured, in the context of investment in renewable energy sources, that the government would remain committed to retaining a mechanism for delivering specifically targeted incentives. We therefore believe such incentives should be actively considered as new forms of renewable technology emerge.

Timescales and Progress

  29.  Whilst we are reassured that that primary Reform of the RO proposals (namely, the continuation of RPI indexation post 2015 and banding up of "post demonstration technologies") will go some way to addressing economic challenges encountered by renewable technologies, other significant barriers remain which impact on the speed at which renewable technologies can be deployed.

    —  UK Supply

  30.  Wind developers in the UK must compete for turbines in a competitive international environment. Demand for turbines, in particular, has risen dramatically over recent months and has contributed to rising project costs for both onshore and offshore wind. The aforementioned DTI report acknowledges that capital costs of wind projects have risen by circa 25% over the previous 12-24 months. Further, the costs of turbines, towers and blades are expected to increase in real terms until around 2010 as a result of supply / demand issues and rising steel costs.

  31.  RWE npower takes its role as a buyer very seriously. As such we actively seek to engage with manufacturers to develop opportunities in the UK. For example, npower renewables recently co-sponsored (with Business Link North East) "Meet the Buyers—Wind Energy". This trade fair in Northumberland aimed to bring together turbine suppliers, the construction industry and local contractors in order to build relationships between local and international suppliers. We support the development of voluntary approaches to developing opportunities for UK manufacturers that can be adopted by the industry as a whole and contribute positively to UK GDP.

    —  Grid

  32.  The availability of grid connections for renewable projects remains a major barrier to deployment of most renewable technologies, particularly wind and marine renewables. Designed for conventional forms of generation, physical grid access and the grid code inhibit, hence slow, connection of renewable assets to the grid. Further, UK grid code obligations are more onerous than in other European countries, and hence impact upon the technical requirements of turbines and impose unnecessary costs.

  33.  In the short to medium term, the constraints associated with grid queue management need to be addressed to enable timely connection of new generation. In the medium to long term, appropriate strategic investment in infrastructure will be necessary to prevent the transmission and distribution grids constraining current and future generation, and to provide for the changing nature of generation to include more distributed and embedded generation, in addition to existing centralised generation. Delivering additional renewable capacity will necessitate new grid infrastructure, which will need to include overhead lines. The UK government has a responsibility to ensure that local impact and cost issues associated with new infrastructure do not cause further delays. We are supportive of recent proposals to include necessary infrastructure in the planning process.

    —  Planning

  34.  The lengthy planning and consenting regime has slowed deployment of renewable technologies, in particular onshore wind. The UK government's energy review process recognises that the current process burdens participants with uncertainty, delay and sometimes significant upfront cost.

  35.  RWE npower generally welcome the proposal to replace Section 36 and 37 consent processes in England and Wales with an Infrastructure Planning Commission (IPC). We believe that this will provide a more efficient and predictable approach to planning and consenting. It is of note that projects below 50MW will be unaffected by the IPC and therefore the proposal does not address slow progress of many onshore wind projects. Further, as planning is a devolved matter these proposals will not impact upon devolved administrations.


  36.  Generally RWE npower are supportive of government involvement to date in funding R&D, for example through the work undertaken by bodies such as The Carbon Trust.

  37.  We believe that government can play a role in encouraging and facilitating technology and or knowledge transfer, for example in identifying synergies between industries (eg offshore wind and oil) or opportunities for knowledge transfer by publishing industry specific information.

  38.  We also support the government's commitment to raising the profile of research and development and trying to tackle the severe skills shortages in renewables R&D (and elsewhere). We look to the government to assist with funding mechanisms which will bring forward technology development and deployment.

  39.  We would encourage the government not only to maintain current corporate tax reliefs for R&D, but where necessary to broaden those allowances to ensure that they will apply to the development and commercialisation of early stage sustainable technologies, including carbon capture and storage as well as renewable energy geneation. Our concern is that the existing reliefs are either framed or interpreted in too narrow a way, such that they may have negligible effect on stimulating R&D and investment in this area.


  40.  We believe that the UK government has been effective to date in identifying and supporting the most viable and cost effective renewable technologies. Those technologies currently supported through R&D funding programmes, the Renewables Obligation and the Climate Change Levy represent those which demonstrate the greatest potential for large scale deployment, through which government targets can most efficiently be met. There remain significant barriers to the deployment of existing renewable technologies which the UK government must address. In doing so, it should be acknowledged that consumers will face difficult choices, for example in planning consent of wind farms.

  41.  Finally, whilst it is important that there is "blue sky" research into new renewable and low carbon energy solutions, we feel that the UK government should focus on tackling barriers to the deployment of existing renewable technologies, namely supply, planning and grid.

July 2007

15   Department of Trade & Industry, Impact of banding the Renewables Obligation-Costs of electricity production, April 2007. This report was commissioned by the DTI and prepared by Ernst & Young LLP. Back

16   Letter from HMPG, 2 February 2004. Back

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