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

Memorandum 18

Submission from E.ON UK


    —  Innovation within the energy sector is vital in contributing to new and novel methods of energy generation and supply that are sustainable, secure and competitive.

    —  E.ON UK strongly supports market-based mechanisms to incentivise investment wherever possible. However, market drivers are not strong or urgent enough to drive technologies through the innovation chain (the three phases of the innovation chain are represented by i) the research & development stage; ii) the demonstration stage, and finally iii) the deployment stage). Direct Government support throughout the innovation chain is vital.

    —  Current UK support mechanisms are complex and inefficient, and inadequate in areas—particularly for the demonstration stage of the innovation chain. Extended support is also needed during the early commercial deployment stage when market incentives are insufficient.

    —  Individual technology sectors would benefit from a coherent and focused set of objectives and roadmap.

    —  The focus of academic research needs to be better directed toward sector priorities.

  1.  E.ON UK is the UK's second largest retailer of electricity and gas, selling to residential and small business customers as Powergen and to larger industrial and commercial customers as E.ON Energy. We are also one of the UK's largest electricity generators by output and operate Central Networks, the distribution business, covering the East and West Midlands.

  2.  We are a leading developer of renewable plant, including Scroby Sands offshore wind farm, and are currently investing significantly in both tidal and wave demonstration technologies, and in demand-side technologies, such as ground source heat pumps.

  3.  E.ON UK invests at least £10 million a year into the research, development, demonstration and deployment (RDD&D) of energy technologies, and our CEO, Paul Golby, is the co-chair of the Energy Research Partnership (ERP). Launched in January 2006, the ERP provides strategic direction to UK energy RDD&D by bringing together key public and private sector stakeholders.

  4.  As leaders in this field, E.ON UK welcomes the Committee's timely inquiry into the RDD&D of renewable energy generation technologies. We are happy to discuss these issues in more depth with the committee if that would prove useful.


  1.  The current state of UK R&D in, and deployment of, renewable energy generation technologies including offshore wind, photovoltaics, hydrogen and fuel cell technologies, wave, tidal, bio energy, ground source heat pumps and intelligent grid management and energy storage.


  2.  Publicly funded RDD&D in the UK was reduced significantly in the late 1980s and 1990s due to the privatisation of the utility sector and national laboratory facilities. However, this does not take into account support from an increasingly wide range of RD&D players in the devolved administrations (Scotland, Wales) and the English regions. The volume of energy RDD&D is rising again, coupled with concerted attempts to make the research portfolio more coherent.

  3.  Additionally, a significant volume of energy R&D conducted in the UK is funded through the EU Framework Programmes while the UK is active in many IEA research and technology implementing agreements as well as other international collaborations.

  4.  Current national funding streams come from the Research Councils, Government Departments and the Carbon Trust. As noted above their activities are reinforced by an increasing number of other bodies, many operating at the sub-national level.

  5.  The Research Councils support high quality pure and applied research in all areas of energy RDD&D. Funding is provided through directed programmes and individual grants. The current expenditure on all energy related research and training is approximately £40 million and this is planned to rise to about £70 million by 2008.

  6.  The Research Councils Energy Programme (RCEP) led by the Engineering and Physical Science Research Council (EPSRC), acts as an umbrella for all Research Council activities. RCEP encompasses: the interdisciplinary Towards a Sustainable Energy Economy (TSEC) programme; EPSRC's SUPERGEN (Sustainable power generation and supply); the fusion programme at Culham; the Carbon Vision Programme (jointly with the Carbon Trust); and a number of other capacity building initiatives.

  7.  Government Departments support a large number of energy research programmes through the RDD&D innovation chain, and including major capital grants to assist the full scale deployment of nearer market technologies not yet able to compete on level terms with fossil fuels.

  8.  The Department of Trade and Industry (DTI) supports the largest number of schemes. Its Technology Programme, operated by the Office of Science and Innovation (OSI),[17] gives £20 million support pa into low carbon and renewable energy R&D. The marine energy challenge provides £50 million scheme for wave and tidal stream demonstration projects. Capital grants totalling £117 million have been made to offshore wind farms and £66 million allocated to biomass projects. The Major PV Demonstration Programme has provided £31 million support since 2002.

  9.  The Carbon Trust is an independent company, funded by Government and led by business. It aims to accelerate the transition to a low carbon economy in the UK by working with business and the public sector. Via its £20 million pa innovation and investment programme, relying on funds recycled from the climate change levy, it promotes the commercial development of new and emerging low carbon technologies. RD&D is about £5 million pa. Currently, the Carbon Trust has over 90 RD&D projects in its portfolio worth in total around £22 million.

  10.  The Energy Technology Institute occupies the middle ground between the longer-term research funded by the UK's Research Councils and the deployment of proven technologies. Core funding will be provided on a 50:50 public private partnership basis, with the ambition, when fully operational, to inject some £110 million per year into UK-based energy research.

  11.  The Government will provide 50% of the core funding of the Institute, up to an agreed limit. The Institute will have a lifetime of at least 10 years. A small number of major companies, including E.ON UK, have pledged a total of £32.5 million pa to support the ETI. The cross-government Environmental Transformation Fund provides further investment in renewable energies, supporting full scale demonstration and early commercial deployment activity.

  12.  There is a significant need to co-ordinate and focus the fragmented spectrum of energy RDD&D activity. The Office of Science and Innovation, sitting within the DTI, was created in April 2006 and has overall responsibility for the Research Councils.

  13.  The Energy Research Partnership, as mentioned above, is a public-private partnership co-chaired by the Chief Scientific Adviser and the Chief Executive of EON.UK, Paul Golby. It brings together key public and private sector stakeholders in UK energy RDD&D, promoting a coherent approach to addressing UK energy challenges.

  14.  The UK Energy Research Centre, a consortium of eight academic institutions, aims to co-ordinate a National Energy Research Network.


Offshore wind

  18.  Whilst wind energy is generally considered the most commercially advanced renewable energy technology, offshore wind, and particularly deepwater technology, is still far from competitive, so Government support across the entire RDD&D chain is essential.

  19.  The Renewables Obligation, and to some extent the EU Emissions Trading Scheme (ETS), is providing "market pull" to stimulate deployment of offshore wind technology, as is amply demonstrated by the number of offshore wind projects currently at the development stage around UK shores. E.ON UK is involved in developing a significant number of offshore wind projects in the UK, including the London Array and Solway Firth projects.

  20.  SUPERGEN is providing £2.5 million annually for R&D into offshore wind technologies, with the DTI technology programme covering both R&D and demonstration projects. In addition, three UK offshore wind demonstration projects have been given capital grants from DTI/Scottish Executive/EU totalling £40 million.

  21.  More work is needed to develop a clear strategy and roadmap for the UK offshore wind power sector. There is a major opportunity for the UK to capitalise on excellent offshore wind regimes and to utilise its extensive offshore engineering, construction and operations expertise, but there is currently a lack of wind R&D facilities and expertise, as well as a lack of wind industry equipment supply chain, located in the UK.

22. Crucially, more work is needed to develop a clear and focussed strategy and roadmap for RDD&D in the UK offshore wind sector.


  23.  It is generally considered that UK Photovoltaic (PV) RDD&D is lagging behind other leading countries due to a lack of emphasis and focus in key areas. The overall aim of PV RDD&D must be a dramatic reduction in costs in order to be competitive with other forms of electricity generation. This includes technological areas such as increased research emphasis on the manufacturability of devices, as well as increases in conversion efficiencies.

  24.  Specifically, it is E.ON UK's opinion that research support should focus on thin-film technology that offers multiple likely advantages including lower manufacturing and installation costs and less need for silicon, rather the crystalline silicon research that has predominated.

  25.  DTI is supporting a major PV demonstration programme with £31 million from the Low Carbon Buildings Programme (LCBP), and SUPERGEN has two R&D consortia worth £5.6 million. However, the UK lacks the central laboratory infrastructure that other leading countries have used effectively.

  26.  In general, it is our opinion that the UK PV community requires reorganisation, and the volume and nature of research funding needs improving. E.ON UK expects the ETA work stream programme to address this issue.

Marine (Wave & Tidal)

  27.  The marine energy sector is still in its infancy. There are significant uncertainties relating to cost, time to commercial viability, and the sector's ultimate power contribution. Support for RDD&D in this area is complex: SUPERGEN provides £2.5 million for R&D annually and the Carbon Trust Marine Energy Challenge provides £3 million for demonstration and deployment projects. There is £50 million of support from the Marine Renewables Deployment Fund, but little has been taken up. E.ON UK is aiming to invest a significant amount in marine energy demonstration projects.

  28.  The UK has excellent natural marine resources, excellent marine engineering expertise and supply chain, and active and innovative SMEs at work in this area. This could provide first mover advantages for the UK, but we need a long-term and focussed RDD&D strategy, focussing on maintaining the UK's research edge and ensuring support for commercial deployment of new technologies.


  29.  A wide range of public and private sector funding opportunities exist across the RDD&D chain for bioenergy technologies. Over £5 million is available to R&D annually from a combination of SUPERGEN, the "Towards a Sustainable Energy Economy Programme" (TSEC), and the ERA—Net Carbon Vision Industry, as well research grants from the Carbon Trust and the DTI Technology Programme. More than £120 million is available for deployment phase projects from DTI Capital grants and directly from the RO., whilst a number of further programmes provide support for demonstration projects. E.ON UK is investing directly in dedicated bioenergy generation plants, as well as having configured our current coal fleet to co-fire biomass.

  30.  However this complexity does not necessarily provide the focus required to ensure the deployment of the most effective bioenergy technologies for the UK, though we expect the ETI to address this issue. Sustainable bioenergy requires a stable policy framework and good cross-sector co-ordination. There is also no current incentive to drive heat generation from biomass technologies.


  31.  RDD&D into networks is essential in enabling the deployment of new generating technologies required to achieve the UK Government's energy and environmental goals. The significant risks associated with large-scale demonstration or deployment of novel network technologies are potential barriers to innovation.

  32.  Regulatory incentives to promote innovation—such as the Innovation Funding Initiative (IFI) (restricted to less than 0.5% of a network operator's turnover)—are starting to make a positive impact, though co-ordination of the increasing number of cross-cutting initiatives will be vital to drive the strategic direction of networks innovation.

2.  The feasibility, costs, timescales and progress in commercialising renewable technologies as well as their reliability and associated carbon footprints

  33.  E.ON UK is actively involved in a number of projects estimating potential costs, timescales, carbon abatement potential, and commercialisation of new energy technologies. Summary data is available on these issues in the Appendix. It should be noted that these data represent a view under a single-set of specific circumstances and constraints, they do not necessarily represent E.ON's accepted view of the future.

3.  The UK Government's role in funding research and development for renewable energy generation technologies and providing incentives for technology transfer and industrial research and development

  34.  The Government's role in the RDD&D innovation chain is not only to provide appropriate funding, but to provide co-ordination and focus in order to achieve a specific set of objectives.

  35.  Energy research activity in the UK is framed by the UK's energy strategy goals:

    —  cut CO2 emissions by at least 60% by 2050;

    —  maintain reliability of energy supplies;

    —  ensure that every home is adequately and affordably heated; and

    —  improve UK competitiveness.

  34.  Because of their long-term nature, these goals must be underpinned by RDD&D and technological innovation. Traditional science and engineering RDD&D has a key role to play, but the policy emphasis on environmental progress, social objectives and the role of markets underlines the need for a "whole systems" perspective, with the inclusion and integration of relevant social, economic and environmental research.

  35.  It should also be noted that the above energy policy objectives do not explicitly include RDD&D focus on renewable energy generation technologies per se, nor should they. The term "renewable energy" is difficult to define, and a prescriptive approach to RDD&D—Government picking winners via differing support streams—is inferior to a technology-neutral approach aimed at achieving the above energy policy goals.

  36.  The current RDD&D landscape is highly fragmented and complex. E.ON UK would suggest that this diversity is not necessarily most effective at adding value to UK RDD&D in to renewable energy generation technologies and would warrant review.

  37.  The organisations recently created, such as the Energy Technologies Institute and Energy Research Partnership, are well placed to advise on high-level strategic focus and direction for energy RDD&D in the UK, aimed at supporting the UK energy policy goals in a technology-neutral, market-led fashion, as well as aiding the co-ordination needed to achieve these aims.

  38.  The development of a strategic vision by key stakeholders has been considered very useful in certain technology areas, and should be extended to cover all priority areas.

  39.  Current EU State Aid rules restrict support for large-scale demonstration phase projects. E.ON UK would support Government efforts to engage with key stakeholders to review the appropriateness of these rules.

4.  Other possible technologies for renewable energy generation

  40.  E.ON UK believes support for RDD&D should be technology-neutral, and aimed at supporting all the government's energy policy goals. Definitions of "renewable energy technologies" inevitably stifle innovation as new and novel technologies await recognition through definition. All forms of energy generation technology should be encouraged on their merits to help achieve the UK energy policy goals.

July 2007

17   E.ON UK note that Government organisations and support mechanisms may change due to the reorganisation by the new PM. Back

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