Memorandum 63
Submission from npower renewables
EXECUTIVE SUMMARY
1. npower renewables, part of the RWE group,
welcomes the opportunity to respond to the Innovation, Universities
and Skills Committee inquiry into renewable energy technologies.
We also submitted evidence in July 2007 to the inquiry previously
announced by the former Science and Technology Committee. Noting
both the changed focus of the new inquiry, and recent organisational
changes of significance to npower renewables, we have updated
our evidence submission.
2. Consumers, industry and Government face
difficult choices in responding to the need to provide secure
and sustainable energy supplies for the UK. npower renewables
is committed to engaging with Government on this issue, and to
playing a key role in helping to deliver government targets for
renewables.
3. The UK Government has been effective
to date in identifying and supporting the most viable and cost
effective renewable technologies. The recent Government focus
on addressing the economic issues faced by renewable technologies
is welcome; npower renewables support the proposed reforms to
the Renewables Obligation (RO). Further, we feel that RO monies
are most efficiently used when directed to near-commercial technologies
with the potential for large-scale deployment, namely onshore
wind, offshore wind and biomass.
4. Existing renewable technologies have
the capability to meet a significant proportion of the current
targets. Indeed, many onshore and offshore projects have been
developed to an advanced stage and are now reliant on government
action, in particular in the area of consenting. Government policy
has a primary role in enabling this capability to be realised,
and in this regard we feel it is now appropriate to shift focus
from economic matters to other barriers.
5. This written evidence provides details
on the current state of research and development (R&D) in,
and deployment of, renewable technologies; government policy towards
enabling existing technologies to meet the targets; and, the commercialisation
of renewable technologies. In particular, we highlight some of
the barriers to the large-scale deployment of existing renewable
technologies, especially planning, transmission grid connection
and supply chain issues.
COMPANY BACKGROUND
6. In November 2007, RWE announced plans
that will enable the significant expansion of its renewable activities,
both in the UK and in Europe. From 1 February 2008, all RWE renewables
activities will be pooled in a new company, RWE Innogy. RWE intends
to invest at least €1 billion per year from 2008 onwards
in expanding its renewables activities. We anticipate that growth
will be aligned with the policy targets set at European and at
national levels, and that ambitious UK targets for renewables
will attract substantial investment by RWE into the UK renewables
market, where we will continue to pursue our commitment to organic
growth through investment. Our primary focus will be the development,
construction and operation of currently deployed commercial renewable
technologies where we have developed significant expertise: onshore
and offshore wind, hydropower and biomass. Innovation will also
be a central strand of our activities with a particular focus
and significant expenditure on the commercialisation of emerging
technologies, such as wave and tidal power from 2008 onwards.
7. From 1 February 2008, all npower renewables
UK assets, as well as our development and operational activities,
will be pooled into the new company, RWE Innogy. To date, our
operating portfolio has the ability to generate approaching 500MW
of clean electricity, and we have many more projects in construction
and under development.
8. Our previous submission to the Science
and Technology Committee provided detail on our operational assets,
activities in the development of wind, hydro and marine renewables
as well as activities elsewhere in the RWE group related to renewables
and sustainable electricity generation. For ease of reference,
this is included as a appendix to our submission.
The current state of UK deployment of renewable
electricity technologies
9. The table below sets out the renewable
technologies which are supported through the RO and the Non Fossil
Fuel Obligation (NFFO). The table also shows npower renewables'
position (RWE npower where appropriate) with regards to each of
these technologies, as well as the key barriers to overcome in
achieving large scale deployment.
|
| Technology[246]
| Installed Capacity
(MW):
UK[247]
| Installed Capacity
(MW): npower renewables
| Key Challenges/comments
|
|
| Onshore wind | 1,957
| 341 | Planning; Grid; Supply Chain
|
| Landfill gas | 839
| None | Limited opportunities for growth.
|
| Hydro MW DNC | 606
| 59 | Limited opportunities for growth
|
| Offshore wind | 394
| 60 | Grid; Supply Chain; Economics
(refer to #)
|
| Co-firing of biomass | 130[248]
| 10 (c 8%)[249]
| Supply Chain |
| Biomass | 309
| None | Supply chain; Economics
(refer to #)
|
| Sewage Gas | 79
| None | Limited opportunities for growth
|
| Biomass and waste using ACT | 5
| None | (No active RWE involvement in UK)
|
| Waste using ACT | 2
| None | (No active RWE involvement in UK)
|
| Marine (wave and tidal power) | 1
| None at present | Full scale demonstration; Economics; Planning; Grid
|
| PV | 0.5 |
None at present | Economics
|
|
| # Note that the economic challenges of offshore wind and biomass will largely be resolved by reforms to the RO under the Energy Bill, as detailed in paragraph 12 below. There remain, however, significant economic challenges for demonstration technologies such as wave and tidal which the RO reforms will not fully address.
|
Government policy towards enabling existing technologies to
meet targets
10. 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 RO 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.
11. We are confident that existing renewable technologies
have the capability to meet a significant proportion of the current
targets. Government policy has a primary role in enabling this
capability to be realised, as there remain significant barriers
to the deployment of existing renewable technologies which the
UK Government must address.
12. We are reassured that the Government has recently
progressed substantial reform of the RO mechanism that will enable
large scale deployment of existing technologies. In particular,
the banding up of "post demonstration technologies"
will go some way to addressing economic challenges encountered
by renewable technologies, in particular offshore wind. It is
now critical that Government ensure policy, and hence the support
available, is consistent across the UK.
13. Aside from economic issues, other significant barriers
remain which will inhibit the speed at which existing renewable
technologies can be deployed to meet targets. Without concerted
effort and radical reform in the areas of consenting, grid connection
and supply chain, existing technologies will not be deployed in
time to meet the targets.
Consenting
14. The lengthy planning and consenting regime has slowed
deployment of renewable technologies, in particular onshore wind.
The UK Government's Energy White Paper recognises that the current
process burdens participants with uncertainty, delay and sometimes
significant upfront cost.
15. npower renewables generally welcome the proposal
in the Planning Reform Bill 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 should
be noted that projects below 50MW (which we estimate comprise
30% of projects submitted to planning) will be unaffected by the
IPC and therefore the proposal does not address the slow progress
of many onshore wind projects. Further, as planning is a devolved
matter these proposals will not impact upon devolved administrations.
16. Consumers and the general public will face difficult
choices if renewables targets are to be met, for example related
to the planning and development of wind farms.
Grid Connection
17. The availability of grid connections for renewable
projects remains a major barrier to the deployment of most renewable
technologies, particularly wind and marine renewables. Designed
for conventional forms of generation, physical grid access and
the grid code inhibit, and therefore delay, the connection of
renewable assets to the grid. Further, UK grid code obligations
are more onerous than in other European countries, and impact
upon the technical requirements of turbines and impose unnecessary
costs.
18. 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
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.
19. Investment in infrastructure must be appropriate
and timely; we believe the best way to achieve this is to ensure
that investment is driven by the requirements of projects being
developed. npower renewables recognise that we and all other projects
developers have a responsibility to commit fully to infrastructure
development.
20. Delivering additional renewable capacity will necessitate
new grid infrastructure, which will need to include new overhead
lines and pylons. In this area, we feel that 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.
21. With regards to intermittency of supply, npower renewables
support the current approach of cost-reflectivity. That is, all
generators and grid users pay the costs that they impose on the
system. Intermittent generators, such as wind farms, are thereby
encouraged to manage such costs, for example by consolidating
their output (by pooling generation with other generators or by
netting generation against customer demand, in order to achieve
portfolio benefits) or by investing in more sophisticated forecasting
techniques.
22. Renewable generation also has certain inherent advantages.
Renewable generators can, for example, provide the grid with much
needed and valuable flexibility, such as the ability to switch
off or cap generation in order to provide frequency response at
times of low demand.
UK Supply
23. 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. 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. We also 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.
24. npower renewables 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, in 2007 we 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.
25. The issues currently experienced in obtaining grid
connections and the supply of turbines have a direct impact on
overall project costs. Whilst we believe the currently proposed
bands under the RO (to be introduced from 2009-13) broadly capture
the appropriate range of costs, it is critical that changes in
project costs are reflected in a timely manner to ensure consistent
deployment of renewables.
26. In summary, while 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 planning,
grid and supply.
Public funding and support for development of renewable technologies
and technology transfer
27. Generally, npower renewables is supportive of government
involvement to date in funding R&D, for example, through the
work undertaken by bodies such as The Carbon Trust.
28. We believe that Government can and should 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.
29. We also support the Government's commitment to raising
the profile of R&D 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.
Commercialising renewable technologies
30. Some emerging renewable technologies, notably marine,
face substantial economic and practical challenges before they
can be fully commercialised.
31. 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 will not provide sufficient revenue to support them without
distorting the mechanism (even with current banding proposals).
32. Emerging technologies should be supported through
appropriately structured R&D funding, be it in the form of
capital grant funding or revenue support (or a combination of
the two). Further, proceeds from environmental taxes should directly
fund R&D. We therefore welcome the use of funds brought together
under the Environmental Transformation Fund, including funds generated
from Carbon Auctions under EU ETS, to support emerging low carbon
and renewable electricity technologies and energy efficiency measures.
33. 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 renewables
technologies. 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. 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. Regarding
marine renewables in particular, the impact of the abolition of
industrial buildings allowances (for structures rather than machinery)
could seriously reduce their viability. We have in the past[250]
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.
Developing the skills base to underpin the development of renewable
technology
34. It is widely recognised that the energy industry
as a whole suffers from a skills shortage. It is critical that
an appropriate skills base is developed to underpin the continued
development and deployment of renewable technologies.
35. npower renewables already plays an important role
in developing the skills base of the renewables industry. We are
committed to recruiting and training new entrants into the industry,
with particular focus on technology, operations, and engineering.
We are keen to develop our relationships with UK universities
and colleges to encourage the progression of highly educated and
skilled individuals into the renewables industry.
36. We are also supportive of trade body initiatives
to help skilled workers access job opportunities through links
to the renewables industry.
January 2008
246
Source: Ofgem list of stations accredited for the Renewables
Obligation and Climate Change Levy
http://www.ofgem.gov.uk/Pages/MoreInformation.aspx?docid=27&refer=Sustainability/Environmnt/RenewablStat Back
247
Source: Ofgem list of stations accredited for the Renewables
Obligation and Climate Change Levy
http://www.ofgem.gov.uk/Pages/MoreInformation.aspx?docid=27&refer=Sustainability/Environmnt/RenewablStat Back
248
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. Back
249
Calculated using Ofgem methodology. Back
250
Letter from HMPG, 2 February 2004. Back
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