Memorandum 58
Updated submission from E.ON UK
EXECUTIVE SUMMARY
— E.ON UK supports the role of market-based
mechanisms such as the EU Emissions Trading Scheme to incentivise
development of these technologies, but direct Government support
is also required if they are to be brought to market with the
level of urgency warranted by the need to take early action to
reduce the impact of global warming.
— As a core partner in the Energy Technologies
Institute (ETI), E.ON will be investing £5 million each year
over the next ten years in the initiative. This partnership will
provide risk sharing opportunities, accelerate routes to market
for new technologies and will ultimately help to ensure a low
carbon future.
— A focussed and coherent RDD&D
strategy is needed to support delivery of the UK's energy policy
goals including the provision of affordable and secure supplies,
as well as mitigating and adapting to climate change. The Energy
Research Partnership (ERP), co-chaired by E.ON UK Chief Executive,
Paul Golby, is well placed to advise Government on the strategic
direction.
— E.ON UK notes that a key strategic
challenge for the industry will be training and recruiting a sufficient
number of high calibre scientists and engineers. The ERP has completed
a study examining the scale of this challenge.
— Significant investment in the national
transmission network and storage solutions will be required if
existing 2020 targets for intermittent generation are not to cause
adverse impacts on supply security.
INTRODUCTION
1. E.ON UK is one of the largest retailers
of electricity and gas, one of the UK's largest electricity generators
and operates Central Networks, the distribution business covering
the East and West Midlands.
2. We are a leading developer of renewable
plant, including offshore and onshore wind and dedicated biomass
generation, and are currently investing significantly in tidal
and wave demonstration technologies. Through our Sustainable Energy
Solutions (SES) team we also support a range of mid and micro-generation
demand-side technologies such as ground source heat pumps, micro
wind, mini Combined Heat and Power (CHP), solar thermal and solar
PV.
3. E.ON UK invests at least £10 million
a year in 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. The following paragraphs respond to the
specific points raised in the Committee's call for evidence:
Current state of UK research
5. There are currently a number of R&D
funding streams for the development of renewable energy technologies
both at an EU level (EU Framework Programmes and IEA research
and technology implementation agreements) and within the UK from
the Research Councils, Government Departments and the Carbon Trust.
In addition, the Energy Technology Institute (ETI) and the Environmental
Transformation Fund (ETF) provide sources of funding supporting
the development and deployment of renewable energies.
6. However, despite a significant level
of research designed to facilitate the development, demonstration
and deployment of renewable energy technologies, there has been
an absence of co-ordination across the public and private sectors.
The Energy Research Partnership now provides the opportunity to
increase the efficiency and effectiveness of UK research by providing
a co-ordinated and coherent approach to addressing UK energy challenges.
7. E.ON UK's Chief Executive Paul Golby
co-chairs the ERP, with the Chief Scientific Adviser. The Partnership
combines the expertise of public and private sector stakeholders
and delivers a strategic direction for UK energy RDD&D.
International collaboration
8. E.ON is realigning its business in a
number of areas on a functional rather than national basis. It
has formed an E.ON Climate and Renewables unit which will operate
internationally and will lead to a considerable increase in E.ON's
investment in renewable energy sources in the coming years. It
will also be investing in international climate protection projects.
9. E.ON has recently merged its technical
and engineering expertise in Germany and the UK under the E.ON
Engineering banner to better co-ordinate it's R&D in renewables
and other fields. It is known that other energy companies are
increasingly operating on an international basis in this area.
Outside of the private sector international collaboration is generally
poor.
Public funding/support for the development of
renewable electricity generation and incentives for technology
transfer
10. Energy research in the UK is framed
by the UK's strategic energy policy objectives. Essentially these
seek to:
— Combat climate change through the
reduction of GHG release (especially carbon dioxide).
— Ensure affordable energy for all
consumers.
— Ensure security and reliability of
UK energy supplies.
— Promote the competitiveness of the
UK economy.
11. Achievement of these objectives and
the attainment of a long term, financially sustainable and co-ordinated
energy research community are mutually reinforcing goals.
12. The breadth of energy policy objectives
necessitates a co-ordinated and holistic approach, with social,
economic and environmental research complementing the traditional
scientific and technological research. For instance whilst the
current favoured generation technologies are CCGT, coal (&
CCS), nuclear and renewables, the factors determining how each
of these technologies will develop in the future go beyond technological
barriers and include public acceptability issues.
13. The long term nature of the energy policy
goals combined with the confluence of scientific, social scientific
and economic factors make predicting the potential development
of differing renewable generation technologies highly complex.
For these reasons it is essential that Government does not seek
to pick "technology winners". Instead a technology neutral
approach provides the most efficient and flexible route to achieving
strategic energy objectives.
14. Following the privatisation of the utility
sector, research activities were undoubtedly fragmented and public
funding was significantly reduced. However, research activities
(funded through a variety of sources as noted earlier) are once
again gathering momentum. This is particularly true for renewable
generation technologies, as research seeks to support national
and international policies to protect the environment through
the way in which we generate, transport and consume energy.
15. The work of the ETI and ERP now provides
an opportunity for Government to benefit from advice on the strategic
focus for energy RDD&D in the UK, restoring a clear direction
and supporting the UK energy policy goals in a market-led fashion.
Establishment and role of the Energy Technologies
Institute (ETI)
16. The core partners to ETI have developed
a set of agreed high-level outcomes from the organisation:
Address UK and Global Energy Challenges by:
(i) Reduction in greenhouse gas emissions
through demonstration of technology to enable timely commercialisation.
(ii) Development, demonstration and (in some
cases) initial deployment of affordable low carbon technology
solutions.
(iii) Realisation of security of energy supply
in conjunction with GHG mitigation.
(iv) Delivery of a step change in funding
for Energy R&D in the UK.
17. The Institute will focus on delivery
of effective R&D support for a strong, low carbon, energy
innovation chain through delivery of targeted programmes of applied
research and early stage demonstration. It will also seek to maximise
collaboration and partnerships and act as an "incubator"
for technologies. The Institute will also work to develop new
human capacity and deliver trained personnel with appropriate
skills, leadership and talent to meet commercial investor needs
to enable full deployment of new technologies.
18. From an E.ON perspective, engagement
in the ETI as a core partner brings a number of benefits, including
enhancing the company's strategic development through provision
of "risk sharing" opportunities, accelerating routes
to market for the new technologies we will be reliant upon, and
by providing additional benefit through gearing and deliverables
that supplement existing internal programmes.
Commercialising renewable technologies
19. As noted within our response to the
committee's previous inquiry, E.ON UK is actively involved in
a number of projects estimating costs, timescales carbon abatement
potential and commercialisation of new energy technologies. A
summary of this data was provided with our original evidence.
Intermittency of supply and connection with the
National Grid
20. According to UK ERC's 2006 report on
"The Costs and Impacts of Intermittency", the
current design of the UK transmission system should be able to
accommodate up to 20% of the country's annual electricity demand
from intermittent renewable energy resources. Above this level
significant network stability issues are likely to be encountered.
The recently announced binding EU target to deliver 20% of energy
consumption from renewable energy sources by 2020 suggests that
this upper limit will be breached. Therefore significant investment
in transmissions network and energy storage solutions will be
required on the same timescales to avoid adverse impacts. Specifically
the main issues are:
Voltage control
The technology exists and some measure of voltage
control is already provided by wind turbines. However these will
need to be improved (extended in range) by improving generator
design or addition of extra equipment. There needs to be clarity
on responsibility for paying for this.
Frequency support
Wind turbines can provide frequency support
and are generally faster at reacting than conventional steam plant.
The biggest challenge is responding to frequency dips which require
more power to be generated. Wind power plant can achieve this
only by running most of the time at less than optimum output so
they can increase output slightly when called. This will result
in a significant loss of output. Alternatively some form of storage
is required. Nevertheless, as the proportion of intermittent generation
increases, the need for frequency support increases and the effectiveness
of the addition of further intermittent plant is reduced. Therefore
20 GW of wind will not produce twice the energy of 10 GW.
Upgrading the national grid
Renewable energy is generally available at some
distance from population centres, and much of it may be offshore.
It will be necessary to spend significant sums to strengthen the
grid to enable transmission of power from these sources. Getting
planning permission and other consents for overhead lines is increasingly
difficult, but using underground cables will magnify costs further.
Government policy towards enabling existing technologies
to meet targets
21. The recent CSR announcement identified
the domestic element of the ETF as "at least" £370
million over three years (the international element of the fund
represents a further £800 million over three years, to be
administered by DfID and Defra). This essentially brings together
BERR and Defra funding programmes for demonstration and deployment
of emerging energy and energy efficiency technologies. This £370
million is broadly allocated as £170 million to Defra and
£200 million to BERR. When existing commitments are taken
into account, the overall funding "uplift" provided
through the ETF is, therefore, only around £170 million over
the three years of the programme (£40 million for BERR and
£130 million for Defra).
22. The role for the ETF has been identified
as providing "support for large scale demonstration and deployment
of new low-carbon energy technologies which are close to market,
building on the work of the Energy Technologies Institute and
the Technology Strategy Board as a means of commercialising the
technologies that these organisations develop". These aims
are laudable. Our principal concern is, however, that the levels
of additional funding identified in the CSR will not be sufficient
to realise these aims.
23. Early discussions around the ETI identified
that the funding it was seeking to deliver (£110 million
per annum of "new" money) is insufficient to allow it
to adequately support all RDD&D activities. Therefore the
ETI is seeking to focus on applied research and early stage demonstration.
Whether the UK has the skills base to underpin
the development of renewable technology
24. There is a growing body of evidence
that there is a long term decline in the numbers of "next
generation" scientists and engineers available to support
UK industry and academia. At the same time it is evident that
there are major challenges in meeting national energy policy goals.
Achieving these goals is dependent upon having a sufficient number
of high calibre scientists and engineers.
25. One of the initial objectives of the
ERP was to "Address the high level skills shortages in the
energy sector", where high-level skills are taken to mean
those required to contribute to the research and development chain
that provides innovative new solutions to the challenges the UK
energy industry faces—and to deploy them effectively. E.ON
led the delivery of this study as part of our input to the ERP.
The key findings of the study were:
— Skills shortages are causing recruitment
problems in the sector with technical skills specifically in short
supply.
— Without intervention this situation
is anticipated to worsen, particularly when the extent of energy
innovation and infrastructure replacement that is required is
taken into account.
— It is the shrinking pool of graduates
that is the issue rather than any concern that their quality is
degrading.
— Organisations are looking abroad
for skilled resource, in part a direct response to worsening problems
in recruitment.
— The sector is seen to have a poor
image among young people, however it is recognised that we are
at a turning point in the sector with some very powerful tools
to change this.
— A significant "outreach"
initiative could influence future career choices among young people.
— Energy sector pay compares favourably
in engineering, but it is recognised this will never be a competitive
advantage versus other areas such as financial services.
— There is no evidence of post-training
attrition; retention rates in the sector compare very favourably
with those in other sectors.
— The sector has strong competitive
advantages, projects are engaging and exciting and, once recruited,
labour does not tend to leave the sector.
— A key recommendation of the report
is that harnessing the above advantage by interacting with young
people at a very early age could make a significant impact on
the number of recruits coming through, and improve general public
perceptions.
It is recognised there are individual organisational
efforts, but the scale of the problem is likely to require additional
activity, the form of which will need careful design and implementation.
January 2008
| 
