Memorandum 61
Supplementary submission from the Department
for Business, Enterprise and Regulatory Reform
1. INTRODUCTION
1.1 This memorandum has been prepared by
the BERR's Energy Group in consultation with the Department for
Innovation, Universities and Skills (DIUS) and DEFRA, and it incorporates
their contributions. This is a supplementary memorandum to the
evidence provided by the department to the previous inquiry in
July 2007 (Memorandum 46). It includes updates to that evidence
and provides additional information on issues not covered by the
previous response to the inquiry.
1.2 The Committee should note some of the
information in this memorandum is provided at a time when renewable
energy policies are under review and the information provided
is current at this time but does not take account of potential
changes in the future.
2. CURRENT GOVERNMENT
ROLE IN
SUPPORTING R&D FOR
RENEWABLE ENERGY
GENERATION TECHNOLOGIES
2.1 Interrelation between public sector funding
streams
The Energy Technologies Institute (ETI), the
Technology Strategy Board, the Engineering and Physical Sciences
Research Council and the Carbon Trust are already working in close
collaboration, with each other and with BERR and other Departments,
to ensure effective coordination and coherence of research, development
and demonstration projects across the low-carbon energy sector.
The Research Councils continue to fund university-led conceptual
and pre-commercial research and related training through their
Energy Programme, and provide part of the public sector funding
to the ETI. The Technology Strategy Board (which became an executive
NDPB in July 07) provides funding for innovative industry-led
R&D.[243]
TSB has cross-cutting responsibility for business-led technology
development across all sectors. It will continue to fund energy-related
innovation as part of its portfolio, including both complementary
activities and in areas which are outside ETI's scope or focus,
as well as contributing funding to ETI. The ETI will focus specifically
on low carbon energy, and with a focus on R&D to accelerate
deployment of these technologies.[244]
As with TSB, it will operate largely in the development area with
an interest in (applied-end) research and small scale demonstration.
The Carbon Trust supports the development and commercialisation
of technology with the potential to reduce UK carbon dioxide emissions
and focuses on overcoming the specific technical barriers that
are holding back the next generation of low carbon technologies.
The Environmental Transformation Fund aims to bring new technologies
researched and developed by these funders and others closer to
market through full-scale demonstration and pre-commercial deployment.
Research Councils—additional paragraph
2.2 Energy research remains a priority for
the Science Budget with publication of the detailed Allocations
for 2008-11 on 11 December 2007.[245]
The Research Council Energy Programme, under which Councils will
spend nearly £300 million over the next three years, aims
to sustain the research portfolio in power generation and supply,
and grow the portfolio in demand reduction, alternative energy
vectors, transport, security of supply, research capacity building,
and international engagement. The Research Councils are submitting
a separate memorandum to the Committee.
Technology Strategy Board (TSB) This section replaces
and provides additional information
2.3 This paragraph replaces 2.4 from
previous evidence—With a business-led board and
a business focus, the Technology Strategy Board has been established,
as an executive NDPB since July, to play a cross-Government role,
advising on polices which relate to technology innovation and
knowledge transfer and in delivering a national Technology Strategy.
2.4 This paragraph replaces 2.5 from
previous evidence—The Technology Strategy provides
a framework and the opportunity for Government Departments, the
Research Councils, RDAs and DAs to work in partnership with the
TSB, to provide business with a coherent package of technology
and innovation support that is aligned to maximise impact.
2.5 Over the Comprehensive Spending Review
period, the TSB will develop and lead a strategic programme worth
£1 billion, in partnership with the Research Councils and
the Regional Development Agencies (RDA). This includes £180
million which will be earmarked by the RDAs and £120 million
by the Research Councils to spend jointly on activities with the
TSB.
2.6 To date it has supported collaborative
R&D programme projects in emerging low carbon energy technologies
worth £90 million of which approximately £40 million
is grant from TSB. It has also supported significant programmes
of work focused on reducing energy usage in transport. The TSB
has recently announced collaborative R&D calls of £12
million for "Materials for Energy" and £10 million
for "Lower Carbon Energy Technologies". The TSB is also
supporting Innovation Platforms focused on major societal challenges
and include work on low carbon vehicles and low impact buildings.
The Platforms are looking to link research to major procurement
opportunities.
2.7 The TSB, as part of developing a national
technology strategy, is currently developing a strategy focused
on energy technology and innovation.
Environmental Transformation Fund
2.8 The CSR settlement for this joint BERR/Defra
fund is £370 million for the three years from April 2008-11.
Of this the BERR settlement is £200 million and Defra settlement
is £170 million.
2.9 DEFRA and BERR are currently developing
the aims, objectives and governance structure of the ETF.
2.10 As part of the agreement with Treasury
on the ETF, BERR, DEFRA and DIUS are together developing a strategy
for a low carbon technology framework across the full energy innovation
system. It will focus on maximising the cost-effective potential
for cutting emissions in the UK and internationally, and be published
by summer 2008.
Market Pull Mechanisms: EU Targets/Renewables
Obligation/ETS
2.11 This paragraph replaces paragraph
2.11. from previous evidence—The Renewables Obligation
(RO) is the Government's key mechanism for encouraging new renewable
electricity generation and runs until 2027. Since its introduction
in 2002, electricity supplied from renewables has more than doubled
from 1.8% to 4.6% in 2006. It places an obligation on licensed
electricity suppliers to source an annually increasing proportion
of their sales from renewables. Suppliers can meet their obligation
by presenting RO Certificates (ROCs); paying a buyout price (£34.30/MWh
for 2007-08 rising each year with RPI); or a combination. Suppliers
that surrender ROCs receive a pro-rata share of the money paid
into the buy-out fund—acting as an incentive to invest in
renewables.
2.12 Additional paragraph—Alongside
the Energy White Paper BERR published a consultation document
on our proposed reforms of the Renewables Obligation. The consultation
included questions asking for comments on our analysis of the
costs of the various renewable technologies and the levels of
support in a banded RO. We received over 170 responses to the
consultation and attach a copy of our conclusions following this
consultation exercise.
2.13 Additional paragraph—In
Spring 2007 the UK played a key part in securing agreement among
EU heads of government to a binding target of 20% of the EU's
energy consumption to come from renewable sources by 2020. The
European Commission is expected to publish early next year a draft
directive to implement this target, including the contributions
to be made from each Member State. This will then be subject to
negotiation, with a final decision expected in early 2009. Therefore
we do not yet know what the UK contribution will be, but it is
clear that we will need to raise significantly the proportion
of our energy that comes from renewable sources. We will launch
a consultation next year on how we are to achieve our targets
and we will publish our full renewable energy strategy the following
spring once the EU directive has been agreed. In the meantime
the proposed changes to the RO allow us to make good progress
on this important agenda.
3. CURRENT STATE
OF UK RESEARCH
AND DEVELOPMENT
AND DEPLOYMENT
OF TECHNOLOGIES
3.1 Photovoltaics (PV)—additional paragraph
3.1.1 The UK government is now supporting
UK industry to participate in pan European R&D projects on
polymers for PV application through ERA-NET.
3.2 Wave and Tidal—additional paragraphs
3.2.1 The Energy White Paper 2007 recognised
the potential contribution that tidal power could make towards
meeting our long-term energy challenges of tackling climate change
and ensuring security of supply.
3.2.2 BERR is now conducting a feasibility
study of tidal range power in the Severn Estuary. Working closely
with a number of other Government Departments, the Welsh Assembly
Government and the South West RDA it will assess the costs, benefits
and impacts (social, environmental, economic and energy market
impacts, both national and regional) and consider whether Government
could support a tidal range development and on what terms.
3.2.3 The Severn Estuary is of National,
European and International nature conservation significance and
the work will look carefully at what could be done, with commitment
and imagination, to mitigate damaging effects on the rare and
protected environment of the Severn estuary and deliver a balanced
and acceptable package that is positive for the environment as
a whole. The estuary was notified in August 2007 to the European
Commission as a candidate Special Area of Conservation (SAC) www.defra.gov.uk/news/2007/070831b.html.
www.defra.gov.uk/news/2007/070831b.html. The study will also include
engagement with the people and organisations that would be affected
by any development".
3.3 Bioenergy—additional paragraph
3.3.1 In order to realise a major expansion
in the use of biomass in the UK, a major market push is required
in the sustainable supply of suitable fuels. In England, the DEFRA
Energy Crops Scheme provides support for bioenergy production
through grants for the establishment of short rotation coppice
and miscanthus. Operating as part of the new Rural Development
Programme England (RDPE), the scheme will run from 2007-13. Support
will be at 40% of actual costs, within a budgetary provision of
£47 million over the seven year period. Natural England will
administer the scheme.
3.4 Intelligent Grid Management and Energy
Storage
3.4.1 Replaces paragraph 3.7.6 from
previous evidence—Demand side management is essentially
a technique for deferring the use of electrical energy, ie it
is analogous to electrical storage. A number of initiatives in
the area of demand side management as a potential means to mitigate
the impacts of dealing with the variable output of some renewable
generation technologies in a more cost effective and carbon friendly
fashion have been supported. Notably, in the Summer of 2007 BERR
published a report into the potential of "dynamic demand"
as a means of mitigating the impact of intermittency and is supporting
further work in this area.
4. COMMERCIALISATION
AND CARBON
FOOT PRINT
OF RENEWABLE
TECHNOLOGIES
Please see paragraph 2.12 above for update.
5. OTHER RENEWABLE
ENERGY GENERATION
TECHNOLOGIES
Foresight
5.1 Replaces paragraph 5.2 from previous
evidence—On technologies for the future, in 2006,
Foresight in the Government Office for Science, carried out a
review of how science and technology could contribute to better
energy management. A number of state of science reviews across
the energy domain, including photovoltaics, wind and wave technologies
were commissioned. The overview report, state of science reviews
and other related reports produced by this review are available
from the Foresight website http://www.foresight.gov.uk/Energy/Reports/Mini_Energy_Reports/Energy.html
5.2 Additional paragraph—Currently,
Foresight is running a project on Sustainable Energy Management
and the Built Environment. The project is building on the findings
from the 2006 review as well as commissioning new material. The
project is planning to publish its findings in Autumn 2008.
6. INTERNATIONAL
COLLABORATION—ADDITIONAL
SECTION
6.1 International energy technology work
is an essential part of delivering UK goals and an extension of
the domestic strategy. The private sector is the main driver of
technology collaboration but there is a role for Governments,
as Stern notes, to help overcome barriers to development, widen
networks and communications, agree standards and priorities, share
learning and so on. There are a number of different multilateral
organisations, committees and contacts, the main ones BERR are
involved in are listed below:
International Energy Agency (IEA)
6.2 The UK is one of the 27 member countries
of the IEA. The IEA acts as an energy policy advisor to Member
countries in their effort to ensure reliable, affordable and clean
energy for their citizens. In pursuit of this objective, it has
provided a structure for international cooperation in energy technology
R&D and deployment. Within this structure there are Implementing
Agreements (IAs) of which BERR are involved in a number of renewable
technology specific agreements (eg Bioenergy, Ocean Energy Systems,
Advanced Fuel Cells and Photovoltaic Power Systems). Participation
in these agreements provides formal structures for international
collaboration. The meetings and participation provide a forum
to share ideas, work together on reports and areas of a particular
technology that need further exploring to either progress the
individual technology or provide an exchange of information and
ideas between the member countries.
6.3 BERR also sit on IEA's Committee for
Energy Research and Technology (CERT) and one of its expert bodies
Renewable Energy Working Party. CERT co-ordinates and promotes
the development, demonstration and deployment of technologies
to meet challenges in the energy sector The UK is currently chair
of the IEA Governing Board.
Framework Programme 7 (FP7) and Intelligent Energy
Europe (IEE)
6.4 Both Framework Programme 7 (FP7) and
Intelligent Energy Europe (IEE) have strong aspects of international
collaboration. All projects funded under both schemes have to
be made up of partners from different states. Under FP7 projects
need to have a minimum of three partners from three different
nations, two of these have to be member states whilst the third
can be a non-member state country. Under IEE again there has to
be a minimum of three partners again, These are usually member
states but other countries and organisations can participate as
the procedures and agreements allow. It is more common than not
that projects have more than three member states represented in
any project consortium in both FP7 and IEE. Under FP7 collaboration
with non-member states is encourages to spread learning further
than the EU, this can be done by "specific actions".
Specific Actions are where a call for proposals specifically states
that any proposals must be in cooperation with a specific country
and a balanced consortium between Member states and the specific
country.
6.5 As the global demand for renewable energy
accelerates and companies and Governments in new and emerging
markets seek to find expertise and guidance, it is only sensible
for UK companies with relevant capabilities to team up commercially
with others internationally where they can add value. BERR's Renewable
Energy Trade Promotion Service (RETPS) encourages this process.
For example at the last British Wind Energy Association Conference
in Glasgow in October 2007, a MOU was signed between Taiwanese
company Sinotech and UK company Garrad Hassan related to offshore
windfarm design work for Taiwan. The agreement was facilitated
by the RETPS.
7. THE ESTABLISHMENT
AND ROLE
OF THE
ENERGY TECHNOLOGIES
INSTITUTE (ETI)
7.1 The ETI will submit its own evidence
and this therefore represents a brief summary of development.
7.2 In the2006 Budget Statement, Gordon
Brown announced: "After discussions with some of the world's
biggest energy companies, they have agreed to work in partnership
to create, for Britain, a new energy and environmental research
institute, and for it to become, for Britain, at the cutting edge
of science and engineering". This envisaged a 50:50 public-private
partnership with a budget of up to £100 million per annum
for at least 10 years.
7.3 The Energy Technologies Institute (ETI)
brings together public and private sector R&D in the UK to
set strategic direction and fund its delivery. It aims to provide
the UK with a world-class means for delivering applied energy
technology research to underpin eventual deployment. The ETI is
bringing together some of the world's biggest companies—BP,
Caterpillar, EDF Energy, E.ON UK, Rolls-Royce and Shell. Their
funding contribution, along with Government, provides the Institute
with a potential budget of over £600 million over a lifetime
of a minimum of 10 years. Additional private sector partners are
being identified to match the Government's commitment of up to
£550 million over the next decade.
7.4 The Institute will operate on a "distributed"
basis with research undertaken by centres of excellence across
the UK and overseas, as necessary. It will focus on a small number
of specific industrially relevant R&D projects, both commissioning
and funding its own research and supporting worthwhile projects
run by third parties. A formal application for State Aid approval
for ETI and its operations was submitted in October 2007 and is
currently being considered by the EU Commission.
7.5 Following a competition to identify
a suitable location to host the ETI Chief Executive and support
staff, on 20 September the ETI Shadow Board selected the Midlands
Consortium (led by Loughborough University with Birmingham and
Nottingham) to host the ETI headquarters and appointed Dr David
Clarke as ETI Chief Executive. A Limited Liability Partnership
was signed and sealed on 12 December 2007 to formally establish
the ETI.
7.6 Detailed calls for proposals under the
first programmes focused on R&D in offshore wind, wave and
tidal energy were made on 17 December 2007 and ETI is currently
working up the next tranche of technical programmes.
8. UK SKILLS
BASE TO
UNDERPIN/SUPPORT
THE DEVELOPMENT
OF RENEWABLE
TECHNOLOGY
8.1 The skill sets required for renewable
energy cover a number of Sector Skills Councils, although Energy
and Utility Skills drives the mechanisms to meet the skills challenges.
The SSC has identified the following priority skill interventions:
— Analysis of the skills combination
needed for new technologies.
— Regional skills/resource needs for
new infrastructure to cope with things like Renewable Energy connection
to the Grid etc.
— Robust intelligence on skills, qualifications
and training provision.
— Critical areas will be the development
of Engineers and Scientists, who are able to provide innovative
approaches able to meet the environmental challenges.
8.2 The proposed outcome is to undertake
a comprehensive mapping of existing skills sets needs and the
identification of skills needed, so that a genuine gap analysis
can be undertaken. This work needs the creation of a definitive
cross-sector Functional and Occupational Map.
8.3 Researching the renewable energy workforce
has proved to be very challenging for the Sector Skills Network
because it overlaps with other skills sets, for example general
building trades—roofers, plumbers, electricians, gas fitters—where
workers spend much of their time on other things and where there
are large numbers of self employed. Across energy generally, skills
shortages are set to increase as retirement takes an increasing
toll of the workforce, while skills gaps are also increasing.
Thus there will be increasing demand for people across the sector.
Young people are attracted to renewable energy but might also
be attracted to bigger pay packets, say from oil and gas. We cannot
predict how this will play out.
8.4 BERR's analysis for the nuclear consultation
showed that direct competition for skills between power station
build (nuclear or otherwise) and renewables is limited. The availability
of people to undertake the network connections or offshore installation
for renewables will depend on the wider supply-demand situation
at the time.
8.5 Given the national and global situation
across energy, it would be surprising if skills shortages did
not impact on the development and deployment of renewable energy.
But this is only part of a general supply side lack of capacity,
with lead times for established technologies (eg wind) going up.
Manufacturing for other renewables is, worldwide, woefully short
of what is needed to make a difference. Developing the supply
chains, which need increased output at all levels right back to
the mines, is a huge challenge. It is possible that lack of supply
chain capacity will have a bigger impact than skills shortages.
8.6 The established energy sector is working
hard on skills—witness the National Skills Academies for
nuclear and the process industries (includes refineries) plus
the advanced plans of the oils and gas industry. Electricity and
gas distribution are also developing skills strategies, although
the presence of regulated industries in the footprint is presenting
some challenges.
8.7 The 2007 Energy White Paper tasked the
Sector Skills Network with reporting on skills across the energy
sector. BERR is working with the Network to deliver this report
in the first half of 2008. It will define the challenge, set out
what is already being done and make recommendations for further
action by employers and Government.
9. INTERMITTENCY
OF SUPPLY
AND CONNECTION
WITH THE
NATIONAL GRID
Transmission
9.1 The Energy White Paper 2007 announced
a review, to be undertaken jointly by Ofgem and BERR, of the electricity
transmission access regime in GB, in order to better support the
timely and cost-effective connection of renewable generation.
9.2 The UK Government has stated its firm
commitment to meeting its share of the European target as set
out in para 2.17 (this text is not quite right, but needs tweaking
to avoid repetition). This sets an unprecedented challenge for
our electricity networks and highlights the urgent need to tackle
any barriers to grid access for renewable generators, which is
the focus of the joint review.
9.3 To date, the review has focussed on
two key work streams—Access Reform and Operating and Delivering
Infrastructure. In early January BERR and Ofgem published an Interim
Report which outlined progress to date in removing barriers to
grid access, set out some initial conclusions and highlighted
the need for a strong and coherent package of measures to ensure
timely and efficient connection of generation and more optimal
use of transmission assets. The interim report also set out the
next steps in the review, which is expected to conclude in May
2008.
Distributed generation
9.4 We recognise that connection to the
distribution network is not always easy, and that this can disadvantage
smaller-scale renewable generators. DTI (BERR) and Ofgem published
a Review of Distributed Generation, alongside the Energy White
Paper in May 2007 which looked at the barriers effecting distributed
electricity generation (DG). The report highlighted responses
from a call for evidence which suggested Distributed Network Operators
(DNOs) could provide a better service with regard to the connection
of DG, with comments that in some cases they do not approach connection
applications in a sufficiently positive way, even though incentives
are now in place to encourage this.
9.5 As set out in the DG Review, work is
ongoing within Ofgem to encourage DNOs to facilitate connection
of DG, for example encouraging cost-reflective connection charging,
and providing cost recovery and innovation funding incentives.
However, concern remains that progress to remove barriers to connection
is not quick enough. Building on the DG Review, BERR and Ofgem
published a consultation "Distributed Energy—Initial
Proposals for more flexible market and licensing arrangements"
on 18 December 2007. This puts more pressure on DNOs, setting
out options to encourage them to come forward with positive measures
for DG within 12 months. If this is not delivered we will consider
taking action. A report on the outcomes of the consultation will
be published in May 2008.
243 The TSB criteria for investment are: size of
the global market opportunity; UK capacity to develop and exploit
the technology; right potential for impact in the right time frame;
and clear role for TSB to add value. Back
244
The ETI target outcomes are: contribution to reducing greenhouse
gas emissions targets; acceleration of development and deployment
of affordable low carbon technology solutions; increasing security
of energy supply in conjunction with greenhouse gas mitigation;
and increasing the level and capacity of the low carbon skills
pool-both in the UK and internationally. Back
245
Written Statement on Allocations-11 December 2007 Back
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