Submission from Carbon Trust
The Carbon Trust welcomes this opportunity to
contribute to the Committee's inquiry into renewable electricity
generation technologies. We are an independent company funded
by Government to help accelerate the move to a low carbon economy.
We do this by working with business and the public sector to reduce
carbon emissions, and to capture the commercial opportunities
associated with developing low carbon technologies. Since we were
set up in 2001, we have developed our expertise in renewable energy
technologies and low carbon technology innovation right across
the innovation spectrum from research, demonstration through to
early stage venture capital investments. Importantly, we have
developed good insights into the nature of low carbon innovation,
the various challenges faced by low carbon technologies and businesses,
and the options for policy instruments to overcome them and accelerate
deployment. For example, on our Research and Technology Accelerators,
the NAO's recent report on the Carbon Trust said:
"The Carbon Trust's Research and Technology
Accelerators appear to be particularly well designed to fill what
could otherwise be a barrier in the development of commercially
viable low carbon technologies. Our consultants noted that the
Carbon Trust's coordination of businesses and researchers to collaborate
on these accelerator projects appeared to be unique ..."
We therefore regard ourselves as being well
placed to contribute to the Committee's inquiry.
However, before setting out our responses to
the Committee's questions, we suggest it would be worth putting
the main focus of the Committee's inquiry, renewable electricity-generation
technologies, into the wider contextin particular, the
EU's target that renewables should contribute 20% towards all
energy consumed by 2020. We agree that it is important to develop
and deploy renewable electricity technologies in order to reduce
carbon emissions and help meet our security of supply objectives.
We also think it is equally important to pay much more attention
to decarbonising heat and transport fuels in addition to the existing
focus in the UK on electricity. The challenge of decarbonising
our heat and transport energy use is, some argue, even more demanding
that the challenge of decarbonising our electricity supplies.
Our response to the questions posed by the Committee's
inquiry is as follows:
The current state of UK research and development
in, and the deployment of, renewable electricity-generation technologies
Support for renewable electricity generation
technologies innovation, whilst improving, is still neither at
the scale required nor is it as strategically well organised as
it needs to be to make effective use of resources and accelerate
their development and deployment. Deployment of renewable energy
technologies generally is poor, compared with many other EU Member
On the basis of its analysis of and active participation
in renewable energy technologies innovation and deployment, the
Carbon Trust considers the following points are significant:
(i) the multiplicity of funders in the R&D
segment of the innovation space;
(ii) the persistent historic under-funding
of the demonstration and field trials phases of innovation;
(iii) the weak market for investment in renewable
energy technologies deployment;
(iv) the planning process, which limits the
rate of deployment not just of the generating technologies but
also the grid infrastructure.
On the multiplicity of funders, this
is not necessarily a "bad thing" provided there are
good communications between them, and that mechanisms exist to
ensure publicly supported work is complementary and not unknowingly
duplicated. In the Carbon Trust's view, diversity of support for
innovation, coupled with a diversity of experience of particular
renewable energy technologies, can become a strategic asset, especially
at this relatively early stage of technology development. Renewable
energy technologies are still new and emerging compared with conventional
fossil fuel based power generation technologies which have a pedigree
stretching back 150 years or more. We simply don't know, with
any certainty, what the power generation mix will be in the decades
ahead. We don't know what percentage different renewable energy
technologies will in the future contribute to our energy needs.
And, we don't know what the long run cost/kWh will be for renewable
energy delivered to end users. Against that background of uncertainty,
it is sensible to maintain a diversity of approach to ensure a
diverse portfolio of high potential renewable technology options
are brought forward to point that their long term potential can
be more fully evaluated. Once they evaluation is complete, decisions
about larger scale funding for major demonstration can be made
on the back of an appropriate fact base.
The recent report from the Pew Centre entitled:
"Technology and Innovation Policies: Lessons for Climate
Change", whilst focusing on US public support for low
carbon innovation, provides some insights which we think are relevant
more broadly. In particular it concluded:
"Just as competition in markets helps resolve
uncertainties and improves economic performance, competition within
government can improve performance in fostering innovation. The
messy and often duplicative structure of [R&D support] and
related policies creates diversity and pluralism, fostering innovation
by encouraging the exploration of many technological alternatives".
On the under-funding of the demonstration
and field trials, whilst several agencies support R&D,
few support demonstration and field trials. Demonstration etc
projects are an essential step to finding out how technology performs
in real life situationssharing the risk of technology innovation
with the private sector. The scale of public resources historically
is not commensurate with the scale of the challenge and the pace
at which we need to develop renewable energy technologies to help
reduce the carbon intensity of power generation sustainably. The
limited support for demonstration projects in particular (the
"valley of death" as it was referred to in the former
DTI's Renewables Innovation Review of 2003) is still hampering
progress from development to deployment.
The Carbon Trust's Technology Accelerators go
some way to bridging this gapeg for micro-CHP technologiessee
figure 1 below. However, resources limit both the scale and how
many Technology Accelerator projects we can take forward. Additional
funding, and wider use of this innovation instrument, would in
our view help to address the technical, commercial and market
barriers to take-up and provide the all-important confidence to
investors, technology developers and technology end user to invest
in these emerging low carbon technologies.
The Micro-CHP project report can be found at:
On the weak investment market for renewables
and their deployment, the UK's record is disappointingly poor
so far. Figure 2 below, taken from the EU website (http://ec.europa.eu/energy/res/index_en.htm),
shows the UK as ranking amongst the poorest performers in Europe.
Other Member States have managed to achieve much faster growth
rates from similar starting positions.
SHARE OF RENEWABLE ENERGIES IN PRIMARY ENERGY
CONSUMPTION OF EUROPEAN UNION COUNTRIES IN 2005 (IN %)
The data on renewable electricity is given in
Figure 3 below.
SHARE OF RENEWABLE ENERGIES IN GROSS ELECTRICAL
CONSUMPTION IN EUROPEAN UNION COUNTRIES IN 2005 (IN %)
It is important to recognise that these figures
include large hydro-power, which is a significant per centage
of the total renewable electricity capacity in the UK.
The banded Renewables Obligation Certificates
should help stimulate investment, but may not be sufficient to
do so at the volume and pace required. We suggest the efficacy
of this policy instrument be kept under review. Our collaborative
initiative on offshore wind with the Energy Technologies Institute
is a targeted intervention which is complementary to Renewables
Obligation Certificates. It seeks to overcome other barriers to
investment, for example technological risk.
On the planning regime, past experience
has shown that seeking planning permission for new generation
and the essential network capacity can take years. Whether the
Government's proposed reforms to the planning system can make
planning risk a thing of the past remains to be seen.
International collaboration can have a number
of distinct advantages, for example:
(a) working with international partners on
innovation projects. Provided the quality of project management
is good, partnership working can be an effective way of conducting
and financing large scale, complex projects where funding requirements
and the span of expertise required extend beyond what a single
country can provide; and
(b) ensuring that those innovation technologies
we choose to develop "at home" are well designed and
take into account developments overseas. Making sure we are aware
what others are already doing is essential to avoid duplication.
For example, when we devised our next generation solar photovoltaics
Research Accelerator last year, we consulted widely across the
EU, the US and Japan to inform the development of our project
specification. Similarly, for our offshore wind Technology Accelerator:
we interviewed industry and government players across Europe,
the US as well as the UK; we joined the European Wind Energy Technology
Platform; and we are engaging with the IEA Wind Energy Implementing
Agreement group. For our marine energy technology innovation,
we invited international interest from Sweden, Denmark and the
US. Currently, as part of our work to scope a sustainable bio-energy
Research Accelerator, we have engaged with leading international
researchers including the US New and Renewable Energy Laboratory,
Cornell University and the International Energy Agency.
Public funding, and other support, for the development
of renewable electricity-generation technologies and incentives
for technology transfer
The role of public funding and, more importantly,
public policy in the development and deployment of renewable energy
technologies has beenand still isa voyage of discovery
not just for the UK but for all countries with aspirations to
develop and deploy a new generation of sustainable energy technologies.
Though some countries have achieved, and spent, more than the
UK, no country has yet devised an effective set of policy instruments
to provide sufficient incentives for the market to invest in renewable
energy technologies innovation at the scale and pace required.
The UK has, however, developed and tried a number of policy instruments
which have been innovative in their own right. Monitoring the
effectiveness of these instruments would help inform the development
of policy to decarbonise electricity supplies.
The development and deployment of renewable
energy technologies is central to making the transition to a low
carbon economy. However, the market alone will only choose to
invest in those projects which deliver highest return at lowest
risk. Unaided, the market will not invest to develop bulk scale
renewable energy technologies. Public funds are insufficient to
take on the full burden of renewable energy technologies development.
The challenge we face, therefore, is to devise a policy framework
and support mechanisms which will harness the investment and commercial
power of the market to this end at lowest public cost. Thus, for
example, risk sharing at the R&D stage, is a well established
way of leveraging private funds and know how. Our own Applied
Research support is just one example of public-private partnership
in low carbon innovation. Another mechanism, not used as much
as it should be, is to use public funds to co-invest on commercial
terms at the early, higher risk stage of technology and company
development. Our portfolio of clean energy venture capital investments
shows how public funds can be used in different ways to stimulate
and gear up private sector capital investment in renewable energy
technologies. Compared with 50-50 grant funding for R&D, venture
capital has 10 to 1 leverage of private capital versus public
into renewable energy technologies ventures. This approach has
the potential to be highly effectiveas demonstrated by
the investment leverage and returns of the venture capital investment
made by the Carbon Trust.
The fact is that the market does not (yet) value
sustainable, low/zero carbon energy sufficiently to justify taking
the risks associated with renewable energy technology innovation.
Low investment return, generally risk averse, utility companies
are not the natural developers\investors in early stage, high
risk, low carbon technology development. Arguably, with sufficient
conventional generation technology available on the open market,
privately owned utility companies might justifiably ask whether
it is actually their job to put shareholders' money into low carbon
innovation. Coherent, consistent and committed public policy intervention
is therefore required to create incentives for private sector
engagement and in so doing share the risk (and potentially the
reward) associated with the development and deployment of new
and emerging energy technologies.
The establishment and role of the Energy Technologies
The Energy Technologies Institute (ETI) officially
came in to being in December 2007, with the agreement by its public-
and private-sector partners to form a Limited Liability Partnership.
The Carbon Trust welcomes the funding and expertise that the Energy
Technologies Institute brings to the low carbon innovation challenge.
We look forward to developing a close and productive relationship
with ETI and its members. Our first joint activity, on offshore
wind energy technology, has already been announced.
In collaboration with the ETI, we announced
last month a major new £40M research, development and demonstration
initiative in Offshore Wind Energy, which we developed together
in consultation with representatives from the offshore wind industry.
Details of this initiative are given in Figure 4 below.
This collaborative Offshore Wind Energy initiative
illustrates how we think we can work with the ETI to accelerate
the development and deployment of emerging low carbon technologies.
The Carbon Trust/Energy Technologies Institute's joint announcement
on offshore wind energy is the first of what we hope will be a
number of strategic engagements with the ETI. We are working with
ETI colleagues on marine energy and distributed generation, the
two areas which the ETI has prioritised alongside offshore wind
for its initial programmes. We are also sharing our insights on
the low carbon technology landscape, the status of technologies
and markets more generally.
However, we also recognise the distinctive features
of our respective approaches and the funding mechanisms we deploy.
For example, we do not fund projects 100%; and we prefer that
intellectual property arising is owned and driven by the organisation
leading the development of renewable energy technologies. As we
understand it, ETI can, if it wishes, procure R&D and pay
for it 100% (subject to State Aids rules); and ETI's preferred
approach is to own the intellectual property arising.
In addition to the formation of the ETI, there
are two other entities which, potentially, are relevant to renewable
energy technologies: the Environmental Transformation Fund and
the Technology Strategy Board. It is important that there is good,
strategic coordination between them and the existing innovation
funding agencies. The Carbon Trust, the Energy Technologies Institute
and the Technology Strategy Board are working together to explore
mechanisms to this end so that the sum of total effort delivers
greater benefit than would be derived from the individual parts.
We are also closely involved in the development and delivery of
the Environmental Transformation Fund.
Commercialising renewable technologies
The UK has some world class research capabilities
in a number of renewable energy technologies. However, commercialising
them has not been our forte. The reasons for this are complex.
A deeply rooted, cultural preference for research; a risk averse
approach to early stage investment; and an R&D community ill-equipped
to take on the challenges of renewable energy technologies' commercialisation
are three reasons well worth debating.
Many students of low carbon innovation have
looked at this space and have their own views about the UK's record
at commercialising renewable energy technologies. The Carbon Trust
has also looked closely at the low carbon innovation space and
has concluded that low carbon energy innovation faces particular
(i) the energy supply space is capital intensive
and investment returns are lower than in other higher value sectors;
(ii) deployment lead times are long and planning
uncertainties make investment in renewable electricity technologies
(iii) incumbent, large capacity plant are
the generation technologies of choice for the major energy companies;
(iv) the various innovation support instruments
are not well coordinatedthough there are signs that this
could improve going forward.
Private investment alone is insufficient to
increase deployment of renewable electricity technologies. That
is why policy instruments the Government devises and deploys are
so crucial. Our aspirations are high but our performance has been
uninspiring. Compare the achievements of the UK's renewables innovation
endeavours with those of Denmark, where public support for onshore
wind technology development helped underpin a world-leading industry,
and Japan, where a similar approach has created a world-leading
solar photovoltaics industry.
On the basis of our analysis, the Carbon Trust
considers that the UK is in a good competitive position to exploit
offshore wind, next generation photovoltaics, marine energy and
niche fuel cells.
The Carbon Trust considers that innovation support
for renewable electricity technologies (and low carbon technologies
more generally) should be considered more as an investment in
new wealth creating sectors. It should be adequately supported,
over time, and should span the entire spectrum from early-stage,
fundamental science/engineering to industry-led, large-scale demonstration
and on to business support and investment.
On innovation specifically, we are developing
a low carbon innovation model comprising four inter-laced, complementary
the technology journeyhow
a technology moves from being just a concept to a commercial product;
the company journeyhow a start-up
company or development division of a existing firm moves successfully
into the commercial phase;
the market journeyhow consumers
(individual, public sector and corporate) are persuaded to buy
technologieseither as early adopters, higher risk takers
or as mainstream consumers ready to purchase only when the products
have been proven commercially and they are being deployed at scale;
the regulation journeyhow
the market journey is supported by public policy instruments (eg
regulation) to meet government policy objectives.
These are outlined in Figure 5 below.
THE FOUR "JOURNEYS" OF TECHNOLOGY
The model outlined above is very much "work
in progress". Nevertheless the Carbon Trust hopes it will
be of value to the Committee in its inquiry. One key insight we
have learnt from our work on marine energy, advanced metering
and Micro-CHP is that a way should be found whereby the lessons
learnt from supporting innovation on the ground can inform policy
Intermittency of supply and connection with the
We refer the Committee to our network impacts
study published in April 2004 and also to the UKERC's study "The
Costs and Impacts of Intermittency" published in March
2006. The reports can be found at: www.carbontrust.co.uk/Publications/publicationdetail.htm?productid=CT-2004-03;
Our study highlighted the importance of: building
and sustaining investor confidence; and the need to speed up the
planning regime and investment in relation to grid network infrastructure
upgrades. Importantly, both studies dispel the myth, sadly still
alive in some quarters, that the intermittent nature of some renewable
energy technologies (eg wind) militated against their use. For
renewable capacities up to around 20%, both studies make clear
that the intermittent nature of the resource is not a factor which
should discourage take-up in the UK. (Virtually all intermittency
studies limit considerations to capacities of around 20% and therefore
it is not clear whether or not a higher percentage capacity could
be accommodated on the electricity system without detriment to
system reliability, supply etc). The Committee may also wish to
be aware of the following studies which broadly come to the same
conclusions: Renewable Electricity Generation published by the
Renewables Advisory Board; the Wind Power and the UK Wind Resource
study by ECI, Oxford; and the academic paper "Total cost
estimates for large-scale wind scenarios in UK" by Dale,
Milborrow, Slark & Strbac. In addition, National Grid's submission
to the House of Lords Science and Technology Committee report
"Renewables: Practicalities" is also relevant.
Government policy towards enabling existing technologies
to meet targets
No one should be in any doubt what a challenge
the various renewable energy technology and carbon emissions reductions
target areespecially the UK's target that by 2020, 20%
of our electricity should be generated from renewable sources;
and the EU's target that by 2020, across the EU on average, 20%
of all energy supplied should be from renewable sources. It is
hard to see how, at past rates of capacity building and technology
development, these targets can be achieved. We would need to increase
the scale of activity significantly to stand a chance of doing
so. The Carbon Trust has commissioned and published studies into
ways in which this could be achievedie: "Building
Options for UK Renewable Energy" in 2003 and "Policy
Framework for Renewables" in 2006. The reports can be
The former made the case for public intervention
in renewable energy technologies innovation and concluded that
to maximise the economic return to the UK, public support should
be targeted at technologies where the UK has competitive strengths.
Our assessments indicate that offshore wind, marine energy technologies
and next generation photovoltaics fall into that category. The
latter report concluded whilst the Renewables Obligation (RO)
provided market "pull" for onshore wind, the most mature
renewable electricity generation technology to date, it was ineffective
as an instrument to drive innovation in other earlier stage technologies.
We outlined how feed-in tariffs, with different levels of revenue
subsidy for different technologies, have been effective in other
countries; and in the UK would deliver more capacity at a lower
cost to the tax payer. The Government's banded Renewable Obligation
Certificates are an improvementthough whether that will
be sufficient to stimulate investment at the scale required in
for example, offshore wind, remains to be seen. The Carbon Trust's
view is that the UK could get significantly closer to achieving
its renewable and carbon reduction targets, and do so at a lower
cost per unit of generated renewable electricity, by replacing
the RO with a Renewable Development Premium (a fixed tariff on
top of the wholesale electricity price to each technology depending
on their state of development).
There is a view that a robust carbon price would
be a good way of stimulating investment in renewable energy technology
innovation. Whilst it is plausible that carbon prices could rise
to levels which would drive investment in existing energy efficiency
and low carbon technologies, it remains to be seen if they will
rise sufficiently, and remain high, to stimulate investment in
low carbon innovation. The carbon market has shown itself to be
capable of wide swings in carbon price. It is maturing but it
is not mature enough yet to underpin a firm, robust and stable
price for carbon sufficient to stimulate investment in low carbon
Important non-financial factors which need to
be addressed in parallel are: speeding up the planning process
and receiving timely planning consents; ensuring adequate investment
in grid infrastructure upgrades; and investment in the supply
chain to ensure component orders are met on the required timescale
to maintain momentum of deployment.
Whether the UK has the skills base to underpin
the development of renewable technology
Although the Carbon Trust has not carried out
studies into this question, it is aware of strong anecdotal evidence
that there are skills and volume gaps right across the spectrum
from high level graduate and post-graduate science and engineering
through to installers of renewable energy technologies. This skills
gap has a variety of origins one of which lies "upstream"
in our schools. For example, the Institute of Physics has reported
a decline in the number of physics teachers in secondary schools
which is impacting on the "pipeline" of students able
and willing to pursue a course of higher education in physics.
Through its membership of the joint Government
and industry Energy Research Partnership, the Carbon Trust contributed
ideas to the Partnership's Investigation into high-level skills
shortages in the energy sector, published in April 2007. Key findings
include: skills shortages are causing recruitment problems in
the energy sector; it is specifically technical skills that are
in short supply; it is the a shrinking pool of graduates which
is at issue rather than any concern that their quality is degrading;
and the problem is only at its early stageswithout intervention
this situation is anticipated to worsen to a severe shortage,
particularly when the extent of energy innovation and infrastructure
is replacement that are required are taken into account.
The Carbon Trust considers that skills shortages
are a serious factor which, if left unaddressed, will limit the
pace of and exacerbate the risk associated with making the transition
to a low carbon economy. These shortages are not only at the "high
level" but also across the spectrum including, in particular,
the building industry where we face one of the biggest challenges.
Buildings represent about 45% of the UK's energy consumption and
carbon footprint. Failure to address skills shortages in this
sector will slow down the pace of deployment and, more importantly
some might say, compromise the quality of installationswith
all that that entails for consumer confidence.