Memorandum 18
Submission from E.ON UK
EXECUTIVE SUMMARY
— 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.
RESPONSES TO
SPECIFIC ISSUES
HIGHLIGHTED BY
THE COMMITTEE
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.
CURRENT STATE
OF UK RDD&D
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.
CURRENT STATE
OF UK RDD&D IN
SPECIFIC TECHNOLOGY
STREAMS
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.
Photovoltaics
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.
Bioenergy
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.
Networks
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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