CORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 648-iiiHouse of COMMONSMINUTES OF EVIDENCETAKEN BEFOREEnergy AND climate change COMMITTEE
LOW carbon technologies IN A GREEN economy
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Transcribed by the Official Shorthand Writers to the Houses of Parliament: W B Gurney & Sons LLP, Hope House, Telephone Number: 020 7233 1935 |
Oral Evidence
Taken before the Energy and Climate Change Committee
on
Members present
Dr Alan Whitehead, in the Chair
Charles Hendry
Judy Mallaber
Sir Robert Smith
Dr Desmond Turner
Mr Mike Weir
________________
Memoranda submitted by Carbon Trust and Energy Savings Trust
Examination of Witnesses
Witnesses: Mr James Wilde, Director of Insights, Mr Mark Williamson, Director of Innovations, Carbon Trust, Mr Rob Lewis, Strategy Manager and Ms Marian Spain, Director of Strategy, Energy Saving Trust, gave evidence.
Q145 Chairman: Good morning and welcome to our evidence session on Low Carbon Technologies in a Green Economy inquiry. I believe Mr Wilde is unfortunately delayed but I hope you will understand if we make a start as we have a substantial number of questions to get through. I would be grateful if you could introduce yourselves for the record.
Mr Williamson: Mark Williamson, Director of Innovations at the Carbon Trust.
Ms Spain: I am Marian Spain; I am Director of strategy at the Energy Saving Trust.
Mr Lewis: Rob Lewis, Renewable Energy Strategy Manager at the Energy Saving Trust.
Q146 Chairman: Perhaps I could start by asking you what you think the main objectives and priorities should be of any green stimulus. What would be the priorities in your view for such a programme?
Ms Spain: I think the perspective of the Energy Saving Trust is always on the domestic scale and the consumer scale of energy efficiency so that has probably helped to frame a number of points we might make. One of the key objectives of this type of stimulus package which perhaps has not been picked up as robustly as it might be is to think about the demand management end of future technologies. A lot of the investment to date is going into the supply side but even within the supply side of future energy generation a lot of the thinking to date has neglected the opportunities for small scale generation such as micro-wind and so on. That is perhaps a theme we will continue to return to at risk of repeating ourselves ad absurdum, but I think there is a very real issue to think about, to take a very strong signal from the work of the Climate Change Committee where they make it very clear that in order to hit 80 per cent carbon reduction targets we cannot afford to only think about one solution. We need a range of solutions from energy efficiency and demand management through new systems of generation, through to new technologies to deal with the carbon we still generate such as carbon capture and storage. The main issue for us is to make sure that a technological investment package does not neglect technologies that meet the consumer need as well as business need.
Mr Williamson: It is worth differentiating between measures which can have a short term economic stimulus - which is clearly one aspect of your question - and also perhaps what we might think of as medium to longer term measures and activities that can deliver economic benefits in the broader term. I think there are clearly some activities and much needed investment of support which meets both those needs, both as a short term economic stimulus but also creating longer term economic benefit and of course carbon savings. In itself, just focussing on what we can do in the near term to address the current economic climate and create a green recovery does not get us as far as we need in terms of putting us on a path towards our 2050 targets. There are clearly some things in the short term that both create jobs and stimulate the economy and tie into our longer term carbon targets. A great example there is in the construction sector. The building sector has been incredibly hit by the economic downturn. We know we have massive challenge with the existing building stock in terms of the significant proportion of emissions which come from buildings and indeed the extent to which those are predominantly from the existing stock. Clearly there are things that we could do that would both create and support the re-generation of the construction sector in the short term that would clearly also set us on a path towards our longer term targets. We can go into those in more detail if that would be of interest. There are also some priority sectors that we see having economic benefits both in the short and longer term as well as delivering carbon savings. Offshore wind is a technology that we have looked at in some detail and I hope that Committee members have had a chance to see a report we published this week on how and whether the UK should prioritise low carbon technologies and, if so, using what framework. James has now arrived and he will be able to give us more insight that. I think it answers some very relevant aspects of your questions. To think that we can just stimulate the economy in the short term with a recovery package and get all of the low carbon technologies that we need on track is not right. There are measures that we must invest in now and certainly in building the next generation of lower cost, more scaleable technologies which is absolutely vital towards our medium and longer term targets.
Q147 Chairman: How would you prioritise between those two particular issues, the short term immediate stimulus issue and the long term investment issue in terms of what a package might look like?
Mr Wilde: We have done a little bit of work on that prior to the budget
coming out. You are absolutely right,
there is the short term problem of how do we save carbon now versus long term
future, and also balancing the economic stimulus effect in the context of the
New Deal. We put together a series of
about 13 concepts that could span those two areas. A couple that came out very strongly on short
term stimulus, carbon now and jobs right now were loans to the private sector
and to the public sector, given the shortage of capital in the market
place. The government subsequently
decided to do that and put £100 million into their fiscal stimulus package. That could be extended. When we did the original analysis we thought
that you could put in £300 million over two years into interest free loans and
that would help you save about £500 million per annum and create about a
thousand jobs, as well as saving a lot of carbon (about five million tons of CO2). Another big opportunity we
identified was in the building industry with public procurement and public
sector leadership. There are display
energy certificates now for all public sector buildings. There are about 40,000 buildings with those
certificates. One could enforce or
mandate that all public sector buildings implement the cost effective
opportunities linked to those certificates.
In doing that you would save around a billion pounds per annum on energy
bills and save about 23 million tons of CO2 and really stimulate the supply chain in the buildings industry
which, at the moment, is one of the hardest hit sectors. Those were two measures we thought - carbon
now, getting a stimulus happening straight away - were very sensible things to
do. On the technologies for tomorrow,
getting ourselves ready for economic growth longer term, we start moving into
low carbon technologies and the government did put £405 million into a
technology fund to invest in that kind of area.
The kind of concepts we came up with there were wind and, as Mark was
saying, wind is a critical opportunity for the UK if we are going to be a
global lead market for wind. It is not
necessarily clear that the manufacturing would need to happen in the
Ms Spain: I think the danger is that minds immediately leap to new technological solutions and the need for investment in new things. We have just been doing some work in the south-west where barely half of lofts and cavity walls are insulated so the housing stock has not even done the things that are so common now that we barely think of as technology. If those lofts and cavity walls were insulated in the next three years we would create 11,400 jobs now and save bill payers in that region £154 million, so that is £154 million not spent on energy that goes back in as an economic stimulus.
Q148 Judy
Mallaber: There has been an estimate that
only seven per cent of the
Mr Lewis: I would tend to agree with Lord Stern's figure which was around £11 billion, 0.8 per cent of GDP. When you compare the scale of investment in green initiatives compared to the £2.3 billion that the car industry received in stimulus funds you actually get to see a sense of where the government's priorities still lie. Obviously there were some positive things like the extension of the Low Carbon Buildings programme to come out of the green stimulus and the budget but actually, whilst we see those, we actually need to see a step change in the scale of investment in these kinds of initiatives. On the other side, when you are looking at non-green initiatives - non-green parts of the stimulus package - it cannot just be a business as usual getting you to invest in the traditional industries and the car industry which have historically been big CO2 emitters. We need to massively ramp up that scale of investment in green technologies and some of the points that have been made and then create a shift in where we invest in our economy.
Q149 Judy Mallaber: How politically realistic do you think it is for multi-billion pound packages - you are talking about expanding it hugely - during an economic recession?
Ms Spain: To reinforce a point that Rob made, it is not just about investing in new green technology, it is about making sure that investment in a range of existing business technologies such as vehicles is done with a very firm green agenda. So it is not spending more money, it is spending the same money on the right things. An example of where we think there has been a huge missed opportunity in the recent package was the car scrappage scheme which could have been defined in such a way as to require that the new vehicles bought with that public investment had a significant lower CO2 emission. As a colleague of mine put it, at the moment you could trade in your ten year old mini for a range rover and increase your emissions hugely, whereas it would perhaps have been reasonable and people would have expected government to put some sort of signal about the fact that this investment should also lead to lower emissions as well as the vehicle industry stimulus.
Mr Williamson: My perspective on the matter is that we are not investing sufficiently in a move to a low carbon economy and in fact the green stimulus is a once in a generation opportunity to focus funds with that dual opportunity to both rebuild the economy and move us towards that trajectory that we need to be on for low carbon. Where those objectives in terms of stimulus and green objectives do align then we should have done everything we could. I would argue that some of the opportunities - certainly some of the ones that James has mentioned - have not necessarily been followed through so, for example, the extent to which we could significantly upgrade the existing public sector building stock has not happened to the extent that it could have done and that may be a missed opportunity. There are of course parts of the stimulus package which has broader objectives than just the low carbon economy that clearly do not align and I think potentially a missed opportunity there was when we make broader investments in the economy as part of the stimulus there was an opportunity to have a green focus on that so even though it is not necessarily related to low carbon if there is a public procurement or industrial investment you can potentially have a lower carbon and a higher carbon way of meeting those aims and we have perhaps missed an opportunity to add in some filtering criteria to all of our investments to say that we are re-building the economy so let us make sure that we choose the lowest carbon option in investing.
Q150 Dr Turner: We have talked about the £405 million of new funding and we have talked about the £4 billion of new capital from the European Investment Bank which was a budget announcement, but to the best of my knowledge not a single euro has changed hands yet. Indeed I believe that we are waiting for the publication of the Renewable Energy Strategy and the Low Carbon Industrial Strategy before we will have any idea how it will work in practice. Do any of you have any views on the ways in which the £405 million should be used in practice and the access to capital from the European Investment Bank?
Mr Wilde: On the £405 million I think the couple of areas I mentioned before
would be prime opportunities, offshore wind kick starting those with the
innovation of the manufacturing clusters that are required. They have already been put in place in
Q151 Dr Turner: You do not differentiate between offshore wind and marine in that context and are suggesting throwing a large amount of it at offshore wind. However, there is a big difference because offshore wind has got its two ROCs; offshore wind has got its market and can therefore get investment. Marine has not and therefore needs very much more.
Mr Wilde: They are fundamentally different technologies. They are at different stages of technologies as well. We are talking about investing up to £75 billion over the next 11 years in offshore wind, a very significant investment and large scale deployment of a technology that really needs to learn as well to bring down the cost. In marine it is a very different technology. We are not necessarily sure which device is going to win through. The costs are significantly higher than for offshore wind so it is still at the proving stage; it is still firm farm and there is absolutely a funding gap. There is a funding gap for the development of new concepts that are still in the lab; there is a funding gap for the first farm as well. Those first farms are going to be at a completely different order of magnitude to the offshore wind farms. Two ROCs in terms of an incentive mechanism would not be sufficient to make those investments fly for the first farms.
Q152 Dr Turner: What incentives do you think would be sufficient to generate the first tidal stream farms, for instance? Secondly, I have not heard any suggestions from any of you about access to the European Investment Bank funds.
Mr Williamson: In terms of the first tidal stream farms, we have worked in the
marine energy space for about six or seven years now. We have analysed the economics extensively
and we have a methodology for looking at any wave or tidal stream device and
comparing apples and oranges to some extent under a common methodology to say
what would the pence per kilowatt hour cost of this device be in a current or
future scenario. We are able to say
which of these devices could be most effective under what conditions with pretty
robust assumptions. The first point to
note is that there is a range of devices both on wave and tidal. They vary in their actual attractiveness in
terms of the longer term economics and of the two categories of technology
tidal is the more cost effective than wave at the moment. Tidal is probably around 15 pence per
kilowatt hour; waves is probably north of 20 pence per kilowatt hour in our
assessment of central costs. Both of
those need to come down a long way. With
the ROC support that is in place for tidal stream it may well be that we can
see cost effective developments over the next five years. The problem we have had is that we have not
had devices with sufficient time in the water for people to be able to build
their first full scale model and indeed their second, third or fourth full
scale device to actually validate that.
The government has a Marine Renewables Deployment Fund which has not
really been spent to date because devices have not got that far. One of the major gaps is support to help
devices that have got their sub-scale prototype to be able to build that first
full scale device, to get the three months in the water to understand how it
works and therefore be able to qualify for that fund. There is a proving phase if you like to say,
"Does this work at scale?" It is this
Q153 Dr Turner: What about the European Investment Bank? I cannot get an answer from any of you on that.
Mr Williamson: From my perspective one of the biggest issues of the current downturn has been access to project finance for building large scale renewables projects. The change that has been made to enhance the renewables obligation for offshore wind to put it up to two ROCs on a short term basis definitely helps the economics of those farms. If you are a project developer that is not a utility and therefore does not have a big balance sheet to use for accessing the financial markets, getting access to the bank financing that you need to build a large offshore farm is either much less available and certainly much more expensive than it was prior to the credit crunch. We have seen projects being delayed and I think we will continue to see that over the next year and beyond. Potentially the European Investment Bank can play a role in terms of providing finance for promising and potentially commercially viable farms whose returns have been damaged by the cost of financing.
Q154 Dr Turner: How do you think that is actually going to happen in practice? Put yourself in the place of an SME who was about to build, say, the first tidal stream farm project which would have a total cost of £50 million. That would qualify for what we know about the European Investment Bank fund so far but what would actually happen when they knocked on the door of the European Investment Bank? Would they need government sponsorship? How would it work in practice?
Mr Williamson: I am not familiar enough with the European Investment Bank criteria so I would not be able to answer that.
Ms Spain: The other area where there are opportunities for that kind of
stimulus and one of the technologies that we would wish to back in future would
be small scale wind. Tomorrow we will be
publishing the results of our trials on small scale wind, the first ever
Chairman: I think the door of the European Investment Bank will remain unlocked for the time being. Perhaps we could move to look at low carbon technologies more generally and policies to support them, and particularly the question of picking winners or whatever we might like to call it. Charles?
Q155 Charles Hendry: I was intrigued by the paper which the Carbon Trust produced last week and the suggestion that there should be a fundamental shift of policy approach and the government should not be technology neutral but it should start to pick winners. One of the facts of picking winners is that you are also picking losers and so in boardrooms around the country where you talked about biomass, wind and marine there will be cheers going up. However, in other companies which are involved perhaps in solar thermals, solar PV, energy from waste, biogas, heat pumps, geothermal, biofuels and a whole range of other areas they are going to be saying that they have been put on the back burner. Are you essentially saying that the support should be withdrawn from those areas because you do not see them as being likely to deliver the success and the change which you think can happen in other areas?
Mr Wilde: There is a very significant opportunity in the move to a low carbon
economy both domestically and internationally in the markets for these new low
carbon technologies but I think it has to be recognised also that it is a very
significant challenge to take a leadership position in any given technology
area. It does separate along the lines
of the two technology types we talked about before. One can create multiple options in early
stage technologies because they are relatively immature and need investment in
the orders of tens of millions to keep that option alive. Once you start moving to large scale supported
development we are talking almost an order of magnitude more investment. The
Q156 Charles Hendry: That support would only go to the technologies which you suggest should be highlighted.
Mr Wilde: Absolutely.
Q157 Charles
Hendry: There will be no support for the
other technologies where you did not feel that
Mr Wilde: I think that is right. What we have done to date is to look at six representative technologies and really try to understand where they might come out on that prioritisation in terms of need for that technology and meeting carbon targets and whether or not it is going to be available elsewhere in time, and then also the comparative advantage we might have and the net economic benefit. There are 50 technology families, as I said; you cannot make a fundamental decision on that prioritisation unless you have looked at all the technologies. At the moment we have not said that one should not be supporting this technology over another. For a number there is actually a choice; that option might seem compelling once you have compared it to all of your other options. However, just like a business needs to prioritise which of its business development opportunities it looks at, we need to do that if we are really going to take a leadership role and get comparative advantage out of the move to a low carbon economy.
Q158 Charles Hendry: The last time we tried doing this we built an airplane which was commercially unviable and there is always an anxiety about picking winners in that way.
Mr Wilde: Absolutely.
Q159 Charles Hendry: I realise the priorities will be slightly different this time, but in terms of how it rolls forward and the actual drive for change, what will they be? Would it be enhanced ROCs? Is it feed-in tariffs for smaller scale technologies? You have referred to the Marine Renewable Deployment Fund and said it is not really being spent. Are those the sort of drivers or are there new drivers which need to be introduced as well?
Mr Wilde: On the first point about picking winners and how do we learn from
the past, we did look historically at the development of policy in
general. You are absolutely right, in
the 1960s and 1970s there was a move to pick winners, pick specific companies
and support them. Then you have almost
got a lock into that company and you have no competition in your policy support
for innovation. In the 1980s, 1990s and
early 2000s there was a move to pure market mechanisms which were very
effective in a number of ways, particularly driving down costs in the private
sector. However, that technology
neutrality, as I have mentioned, makes choices in the RO; offshore wind did not
prosper and onshore wind did and actually could have made excess returns as a
result of the policy mechanism. Moving
to a technology focussed policy stimulates competition within a technology family. It is not about not having competition. It stimulates competition between device
types. As Mark mentioned, there are
loads of different device types in marine.
In terms of the types of policy mechanisms for that customised support,
it varies fundamentally by technology depending on the need. Solid state lighting is a really interesting
example that we looked at; it is very important from a carbon perspective for
the
Mr Lewis: Although I would agree that we need some focus in terms of
investment on research and development, we also need policies which do support
a wider range of technologies, for example things like the zero carbon homes
and maximising on-site renewable energy, use of regulation and also providing
financial support to people to enable them to invest - communities and
individuals - in renewable technologies.
Some research we did last year showed that there could be a five per
cent cut in carbon emissions through micro-generation technologies by
2030. It is important that we focus on
it and allow communities and individuals to invest as well. We also need to provide them with the
impartial advice, support and information that they need to enable them to make
the decisions which are best both economically and environmentally. Also we need to focus on energy efficiency
measures. A big one is the solid wall
insulation. We still have not really
cracked that, how we are going to roll this out into the millions of properties
that have solid walls in this country.
Unless we can really invest in things like solid wall insulation and
work out how we are going to make it work, then we are going to be missing huge
opportunity to reduce the
Q160 Mr Weir: Just following up on that, you talk about micro-generation in the domestic sphere, but one of the problems I found was that local tradesmen had great difficulty in understanding some of these technologies. I was told I would have to rewire my entire house probably to get a windmill to work but nobody was quite sure how it worked and how to do it. How do we get over that problem?
Ms Spain: I think you have hit on one of the big barriers to the creating demand end. There is a danger when we think about investment in that we immediately think we need new technology. A lot of the investment we need at the moment is to create the market demand for the technologies we already have or to make those technologies more consumer acceptable. I think micro-generation is a good example of that. The barriers that people tell us they come against in micro-generation all the time are, first of all, financial. That is a bit of a no-brainer because not many people are prepared to invest £10,000, £15,000 or £20,000 without a second thought. Even those who are financially able are still looking to government to send a signal that they should be investing so they are looking for interest free loans - they are not looking necessarily for a direct capital subsidy - so there are issues around the finance. There are issues around information, people are not understanding it. I think your comment on builders is an absolute prime example and it is something we come up against over and over again. People have taken the decision to do this, they phone our advice centres, they talk to our staff and understand what they need to do. They then cannot find anyone competent to do the work. So another investment opportunity is to think about the skills and ability of the small building industry because they will be the people who actually do most of this work. The micro-power certification scheme is starting to include things there; they are looking more and more at the competency of the installers and the appropriateness of the technology, but there are not enough people coming forward to be certified at the moment. Another stimulus opportunity we have missed so far is not necessarily public investment in builders changing their skills but public signals, long term policy intents and long term targets which will give the industry the confidence to invest itself.
Q161 Mr Weir: Following on from that, you also say in your recent report that the government must take a role in low carbon technologies through public procurement. What sort of things should they be doing to do that?
Mr Lewis: Firstly I think a lot of public buildings are excellent base loads for things like CHP systems. We should be looking at public buildings and government should obviously be setting the example and doing a massive, upscaling of their efforts in terms of both making their buildings more energy efficient but also looking to promote these technologies and looking at the viability of things like CHP for their buildings. That would be a good starting point. Also they have the money to invest more in long term measures that will benefit them.
Q162 Mr Weir: How far through the public procurement process should this go? For example, a lot of emissions come from transport and the government here have a policy for making more government transport electric cars or hybrid. The Scottish Government have a target for making all government vehicles electric vehicles by 2020. Are these the sorts of things the government should be pursuing and how effective do you think they would be in reducing emissions?
Ms Spain: I think there are three reasons why government should do this. One is the sense of leadership that the people we talk to tell us over and over again, that if the government really wanted us to do this then they would be doing it themselves. I think there is a sense of giving visible leadership. Even if the immediate government action is relatively small in carbon terms, the signal it sends to the domestic consumer market is very powerful. The second issue is just reinforcing one that Rob made. The presence of a large building, something like a school or a community centre, is the stimulus to make community scale generation, district heating and so on. It is part of the stimulus of bringing the community together. It is also needed in technological terms to help with the demand management and the loading across generation and power use. I think the third area which we have not perhaps thought a lot about is the market transformation potential and the government fleet is a good example of that. We see this with business fleets. Fleets that are invested in either by business or the public sector become the consumer fleet in the second hand market, so if government is investing in low energy cars those cars not only become the norm for the people who use those in their working day, they then become the cars that the normal consumer buys on the second hand market.
Mr Lewis: One of the things that is often overlooked is behaviour change. While I think it is great that government is investing in electric vehicles and putting together the infrastructure to enable that to happen, we also need to look at a modal shift, getting more people to cycle and walk for example where possible. Very little investment has gone into actually doing that.
Q163 Mr Weir: You mentioned the public buildings at the centre of a district or community scheme, but again schools are built by local authorities by and large so obviously we have to get the local authorities involved here. A local authority I am sure will tell you that there is a cost implication in any of this and they are all under budget restraints. Does the government need to take that into account and give local authorities a better deal for incorporating these schemes within their buildings and perhaps social housing attached to it?
Ms Spain: There are already incentives for schools to invest in low carbon technologies. There are low carbon building programmes for schools and communities, so it is not necessarily about a capital investment. When feed-in tariffs - as we hope them to be designed, certainly as about to be consulted on - will be at a scale such that community groups will benefit as well as individuals, that is where I think there is a crucial element of the feed-in tariff process. So I do not think it necessarily needs more capital investment. Thinking about local authorities, a lot of the issue there is about awareness of the people who actually make the decisions. A low carbon culture has not yet trickled down from central government to local government so there is again an effort of not just investing cash in the decision making made by local authorities on investment, on planning decisions and on community leadership. That is another area where it is not a case of spending money, it is just a case of government sending the right signals.
Mr Lewis: It is still not central to everything local authorities do. Some local authorities really get the whole climate change agenda into sustainable development, reducing carbon emissions, but others just have not embraced it and it is not intrinsic and mandatory that they do at present.
Q164 Sir Robert Smith: In this shift that you are looking for towards incentives, I am presuming you still believe that the bigger picture of emission trading and trying to get a price on carbon is a crucial pull factor. In trying to pick the right devices or focus government support or kick start things do you think the machinery of government has the right tools to be able to deliver that wish that you have for it, and do you think the resources are there within government to actually deliver effectively the agenda that you are trying to suggest?
Mr Wilde: The technology focussed approach I was describing before is exactly in line with the Stern Review view of the world. You need to the carbon markets to set a price for carbon and that is driving cost effective opportunities or near market opportunities essentially. You need the barrier removal, the regulation of information and then you need technology support. The technology focussed policy approach covers both those, the regulation of information and the incentive mechanisms to get that technology viable under the carbon price within the carbon market. The government's ability to deliver is a really important question. When one looks at the integrated solution for any given technology area it really does become all-encompassing and covers the remit of a number of different government departments. If one looks at, say, fuel cell micro-CHP you would have to look at the kind of incentive mechanisms that might be put in place and the proving funding if you wanted to do a demonstration programme for fuel cell micro-CHP would fall under DECC but building regulations are a potential barrier for micro-CHP and that falls under CLG. Getting coordination across government is one of the challenges when you look at overcoming all of the obstacles for the development and commercialisation of any technology. The other key issue is really having that level of accountability and leadership so that the private sector can have confidence in making those very significant long term investments because they need to know that this market is going to be around for a while and that the government is serious about unlocking all of those barriers. In offshore wind with the complexity of the number of actions that need to be put in place historically the private sector have not been prioritising it; it is under five per cent of their revenues of all of the key players across the supply chain. They will be able to respond if there is a clear market, and the market will be sizeable if we decide to push in the direction of offshore wind. They are only going to invest at the scale that they need to - 30 factories in each element of the supply chain, around about five billion in the factories, more than manageable for the kinds of companies we are talking about; there are only two turbine manufacturers in the offshore wind market at the moment - if they know that this market is going to be around and the government are going to unlock all of those barriers and there is a clear plan for doing so.
Chairman: We would like to come to offshore wind and renewable electricity in a moment.
Q165 Dr Turner: The government have traditionally shied away from picking winners but I totally agree with your analysis, James, that we have to, if not pick individual winners, at least focus on technology areas. One of your raisons d'être is to advise government, do you feel that government is taking your advice?
Mr Wilde: It is interesting because it is a direction we are moving in gradually in any case. Things like the CCS competition in a sense would prioritise CCS. We need to take a step back and explicitly decide whether we are going to prioritise small scale wind and all of these other technologies and then when have prioritised them we really need to make a move. It has started to happen. Historically that language of picking winners has had a negative reaction. Actually I think the recession and this shift to starting to think about how can different countries prosper in the transition to a low carbon economy has moved thinking across government, across key stakeholders, NGOs. This approach is logical and there is very little opposition to it but the challenge is how we make it real and make some of those difficult choices that we referred to earlier. It is difficult to make those choices and they need to be objective and fact based.
Mr Williamson: It is vital that the evidence that leads to those decisions is seen as robust and to some extent independent - independent from the political process and independent from interest in industry in terms of incumbent industries in particular - and that raises questions as to who is best to do that analysis and how best that sits. You need to have a clear view on where that analysis is carried out and the extent to which it has visibility both politically and with industry but also independent from that.
Q166 Dr Turner: Do you think we are going to see some of the fruits of this analysis next week when the strategies are published?
Mr Williamson: We can certainly hope that some of the technologies that have come out in the technologies we have looked at in terms of offshore wind and wave and some others will be part of a wider support package.
Mr Wilde: What I would also say is that I would hope there is an acknowledgement that we need to take that step back from explicit prioritisation across all 50 technology families; it is a significant effort to do that but it needs to be done quickly.
Chairman: I think we need to move on now to talk a little bit about offshore wind and renewable energy. Charles?
Q167 Charles Hendry: We have talked a bit about the hard choices and choosing technologies. There is another issue about how you realise the targets. You have talked about 29 gigawatts potentially of offshore wind; the government talks about 33 gigawatts and the BWEA talks about perhaps 20 gigawatts because of supply constraints. Is there not a bit of an elephant in the room here about having wonderful sounding targets but no road map for how you are going to deliver them? If you make a comparison with nuclear, the Office of Nuclear Development has set out a road map and you can look at any particular month and that is what should be done by now. However, with these we are going to be out there at 2017 with a challenging target and wondering what to do about it. Should we not have a road map from now for how they are going to be reached in order to believe that those targets are actually realistic in the first place?
Mr Wilde: I could not agree more. You
are absolutely right, it is extremely challenging. Our central estimate of what is required is
29 gigawatts. That was based on ten per
cent of heat coming from renewable sources, ten per cent from transport, both
relatively conservative actually. That
leaves 40 per cent for electricity. When
you look at what the other different technologies could deliver you could need
29 gigawatts of offshore wind, you could need 36 or you could need about 23,
but the fundamental answer is that 23 gigawatts - the lower estimate - is a
step change in investment and the kind of actions and road map it will need is
very similar. In terms of that road map
there are a number of critical elements that need to be on there for offshore
wind. As I said before, the investment
could be up to £75 billion. It is a
relatively immature technology; people are basically putting large onshore turbines
off the sea. The have not optimised the
installation and maintenance, et cetera and the reliability of these
turbines. You can reduce that capital
investment by about £14 billion if you help them innovate and get to a sensible
learning curve. You can also reduce that
amount by about £16 billion by making the most cost effective sites available
and that is something the government should take leadership in. There is a very significant variation in the
viability of the different sites based on the depth, distance from shore and
the wind speed; there is a £16 billion price tag on that. We have talked a little bit about the
incentive mechanism. There needs to be
longevity in that incentive mechanism.
Importantly as well it needs to be at the right level but it also needs
to be tapered down as the cost reduction happens because otherwise we would be
over-rewarding the technology and putting increased cost on the consumer. That is not a good thing. Also electricity prices have been
fluctuating; a year ago they were double what they are now, over £80 per
megawatt hour and now they are round about £40 per megawatt hour. Unless you index to electricity prices and
allow for those variations again you could get a stop-start approach and the
road map would be invalidated. The grid is
critical. Far less reinforcement of the
main stream grid is required than what one might imagine, particularly if one
can effectively manage and share the existing grid. However, one does still need to make
connections from the shoreline to the main grid infrastructure and ensuring in
the road map that there are no delays in making that happen is absolutely
critical. There should be clear time
lines for making that occur. The
industrial component is key, as I mentioned before, because a large part of the
supply chain - the turbine manufacture and all the ancillary supply chain could
come in from continental ports. We need get
the port infrastructure right, stimulate inward investment of turbine
manufacturers, get the rest of the supply chain co-located with those
manufacturers, give them an impetus to get involved in that innovation
challenge as well in the process and get some competition around it. That would really help to increase job
numbers in the
Q168 Charles Hendry: You talk about need, but we also need to be persuaded that it is a realistic objective, that it can be delivered.
Mr Wilde: Yes.
Q169 Charles Hendry: What we hear is that there is a real pressure on the supply chain; there are not enough ships, there are not enough cranes, there is not enough skilled labour, there are not enough turbines, the price of turbines and basic equipment is going up because of what is happening in the United States and demand there, and a whole range of other pressures including financial pressures on the market at the moment. What do we need to do to try to ensure that that target can be reached because there are an enormous number of elements in there?
Mr Wilde: Absolutely. I think your
analogy of the road map is absolutely right.
If there is a clear market that is sizeable the private sector will
invest in this market and at the moment they are not because, as I mentioned
before, it is under five per cent of the revenues of any member of the supply
chain. Turbine manufacturers are making
very nice returns out of onshore wind and big growth markets like the
Q170 Dr Turner: We have been talking about what is needed to fulfil the renewable energy target and the bulk of it is clearly offshore wind for the foreseeable future. However, how much do you think, given the right circumstances, other x technologies - notably marine technologies - can contribute to that target?
Mr Wilde: In our estimate we have had around 11 gigawatts of onshore wind coming in. It is still a very important technology. Obviously there are limitations on where we can site it, but onshore wind is a crucial technology in meeting the targets. The issue with marine is that it is an early stage technology and is still at that proof of concept phase, it is still first farm phase. The real expansion of marine one would expect post-2020 but it will make a contribution by 2020. They are some of the central technologies in getting this to the renewable electricity component. If you look at the renewable energy strategy other technologies like micro-generation make a contribution as well but again they are at an earlier stage at the moment. There might be options for some of them to come in more aggressively if they are proving more cost effective.
Q171 Dr Turner: How much scope do you think there is for enhancing the contribution of these technologies if we get the support and incentive mechanisms right?
Mr Williamson: If we do not get the support and incentive mechanisms right in
something like marine then you are not going to see any contribution by
2020. I think the 2020 target is
incredibly helpful to drive us on this first phase of our move to the low
carbon future but clearly we also need to invest in things that continue to
deliver significant carbon reductions beyond 2020. Wave and tidal stream are examples of
technologies that are a very good fit for the
Chairman: We are running up against time a little bit. I am anxious to make sure we ask you all the questions that befit your knowledge and wisdom. Mike, could I ask you to lead on specific low carbon technologies? The DECC memorandum that we received focuses on five. We have talked about wind generation, marine energy, nuclear energy, low carbon vehicles and CCS.
Q172 Mr
Weir: Both the
Mr Lewis: I do not think it would be right to put all your eggs in that
basket. I was recently talking to
somebody from the Climate Change Committee and we see it as important that we
invest in carbon capture and storage; I have no arguments about that. If we build all these coal fired power
stations and CCS is not economically or technically viable by 2020 we are not
just going to be able to shut those power stations down. We do need to heavily invest in these other
technologies. I would concur that on-
and offshore wind is going to be a huge part of that. A couple of other things, we have mentioned
about the potential of small scale wind, solar and the long term grid parity
could be reached by 2013, so the actual potential for people to install that
quickly without issues to do with planning is very high. Then also CHP according to Pöyry's report Securing Power last year there is huge
potential in the industrial sites for CHP and generating electricity for householders. Finally, I think we also need to focus on
demand management. We have talked a lot
about how we are gong to generate the energy but firstly we need to ensure that
we are using electricity far more efficiently through more energy efficient
appliances and perhaps fewer appliances although it is arguable whether we can
achieve that. Secondly, we need to look
at things like dynamic demand, actually how we use the electricity. I think that will become increasingly
important with an increase in renewables in the
Q173 Mr Weir: Of the five technologies mentioned nuclear is very controversial. What is your view on whether nuclear has a part to play in a low carbon economy?
Mr Wilde: The Carbon Trust's view on nuclear is that it is a commercial technology and therefore it needs to compete on a competitive basis but the obvious issues linked to nuclear need to be sorted out, in particular the planning around the sites and the dealing with the waste afterwards. If it can compete on a commercial basis and be a viable technology it does have a role in a low carbon economy.
Ms Spain: We are also neutral on nuclear, I think it is fair to say. A consumer insight that we have from some recent market research looking at people's opinions of green tariffs where the energy companies are selling apparently green energy sometimes at a premium under the current regulations, of the people we spoke to about 75 per cent of people would like to be able to choose green energy, about 64 per cent of them would be prepared to pay a little bit more but they do not think that that includes nuclear. Green does not equate with nuclear in the public opinion. I do not think that is the sole driver for public policy but I think it is important that we take into account some of those issues of public opinion and also the potential for pull, the consumer demand for more renewable energy would not include consumers wanting to buy more nuclear.
Q174 Mr Weir: Rob mentioned the problem with CCS and building new coal fired stations, and many of us are worried by this apparent position we are getting ourselves into where we either have nuclear or new coal stations to provide a base load for renewable technologies. I was just wondering what your view was on that. Is that a problem we are getting ourselves into? Are you confident that renewables - onshore wind, offshore wind and all the rest - can provide our energy sources?
Mr Wilde: Managing the grid and dealing with intermittency or variability is
an important issue. When you add the 29
gigawatts, 11 of offshore and 11 of onshore you are into 40 gigawatts of wind
in total. This is a significant
proportion of the overall electricity generation in the
Q175 Mr Weir: Balancing the grid is an interesting point because both of you have made the point that micro-generation has a part to play, but when I visited the National Grid they expressed concern about micro-generation and feed-in tariffs, about how they knew what energy was coming on the grid at any one time and how they perform that balancing act. With a conventional power station and an offshore wind farm or whatever have a fair idea of when energy is coming on but from small micro-renewables it is much more difficult. Do you have a view on that and how that problem is dealt with?
Ms Spain: I can entirely understand that perspective but I think it is perhaps a mindset of thinking about what our energy generation and usage mix is from a slightly different perspective. I do not think we would claim that micro-generation will ever be the solution to energy supply; what it will do is reduce the demand on the grid, not necessarily sell into the grid. There is a sense from the National Grid that micro-generation will not work because we cannot guarantee how much it will create. What we can work out is how much demand reduction there will be because we will be drawing less off the grid and the models are pretty robust now. There is enough micro-generation in place for us to start to have a lot more confidence in what it will actually do. The other issue for bodies like the National Grid who are thinking about meeting that demand (this is going to reiterate a point we have made several times) is not to forget the demand management side of the equation. If we are looking at future energy supply the thinking of bodies like the grid at the moment tends to be where do we get the new supply from. The other half of the equation is how do we reduce the demand. Our headline figure on this just from the domestic sector, if domestic emissions are 40 per cent of the carbon emissions current technology just about achieves 60 per cent. If we did everything we could with the current technologies with the British housing stock we could reduce that 40 per cent by 60 per cent. It is a chunk; it is not a nice to do add-on. It is a significant part of demand management. I think that is one of my great concerns, that we immediately start to think about how we increase supply or how do we find alternative supplies rather than asking how we reduce the amount of supply we need in the first place.
Mr Lewis: I think that problem is also reflected in the fact that the grid is very old and not set up in a way which would deal with renewable energy as a whole and also micro-generation. It is symbolic of the fact that we need to invest heavily in the whole grid infrastructure and that is both because of micro-generation but more because of the decentralisation of energy and renewable technologies such as big scale wind and marine perhaps in the future.
Q176 Mr Weir: That is a fair point but the grid point, if I understood it correctly, was not worry about where we get the energy from but worry about the tripping mechanisms that exist within the grid at the moment where they can turn off power stations if there is too much energy in the grid or whatever. What will happen when the use of micro-generation is expanded?
Ms Spain: Micro-generation is never going to be more than about five per cent
of the energy supply mix; it is significant but it is not going to make or
break the grid. We know where most of it
is. We will know increasingly where most
of it is because the vast majority of people do not think micro-generation will
be involved in the feed-in tariff. It
will be relatively easy to build not just the model but the actual factual note
of where the systems are. We are also
finding out increasingly what power these systems are actually generating. The report I mentioned earlier on small scale
wind trials, part of that is not only looking at how they are performing but
part of the report also looks at how much energy they could generate. What the report tells us that about 450,000
households in the
Mr Lewis: One of the ways we can also overcome that is by encouraging people to use the electricity that they generate on site. The way in which we can do that is through feed-in tariffs, actually rewarding people to use the energy, so you pay on generation and you therefore save a significant amount of money through not having to import that electricity. That will also help to decrease the problem you have mentioned.
Chairman: Can we briefly turn to how we meet all the targets as a result of these discussions and innovations in technology? Robert?
Q177 Sir Robert Smith: Obviously the target for the country is overall on energy and a lot of the conversation has been about electricity. DECC have suggested that we need to power ten per cent of our transport by renewables in 2020. Do you have any thoughts as to how this should be achieved in terms of which technology solutions? Is it biofuels? Is it electric cars? Or is there another way?
Mr Williamson: Like the broader low carbon question in general, transport
specifically is another of these areas where there is a portfolio of options
where we need a number of different technologies to come together. I think in the run up to 2020 biofuels will
certainly play a major role and the renewable transport fuel obligation is
designed to ensure that they do. Clearly
there has been a range of sustainability and broader concerns around biofuels;
they are very serious and should be looked at seriously and further action is
required to address that. We do see a
next generation of biofuel technologies coming on line in the period before 2020
but also beyond which can generally offer carbon savings we believe in a cost
effective way and, most importantly, without having the sustainability
concern. A great example is making use
of waste biomass to create fuel. We are
looking at a number of exciting technologies which could potentially take waste
that would otherwise have gone to landfill and generated methane and converted
that into a component that can be blended alongside conventional fuels to
de-carbonise part of that fuel supply, along the lines that current biofuels
are. The carbon benefits, when you are
avoiding methane emitted in landfill and using that to displace fuel, are
incredibly strong, much better than first generation biofuels. We are working on a number of technologies that
can potentially deliver much better lower carbon biofuel solutions in the run
up to 2020 and beyond. Looking further
beyond, there are technologies again where the
Q178 Sir Robert Smith: Are the right levers in place at the moment?
Ms Spain: Certainly in terms of vehicle efficiency we have just missed an opportunity in the new EU regulations where the regulations will not maximise the technological potential there is. There is technology available to get vehicles down to about 80 milligrams quite easily but current recently re-defined EU legislation will not require that. In policy terms we have missed an opportunity to drive technology and I think to reinforce what Mark has said, perhaps even before we start to think about new fuels there is more to be done on fuel efficiency and perhaps also more to be done on demand management. Again we leap into how we make vehicles more efficient; the other part of the policy mix needs to be how do we think about where we do not use it vehicles, when we think about travel policy in its broadest sense.
Mr Lewis: I think it is hard sometimes to take the government target seriously. We are talking about ten per cent of transport by 2020 on renewables but at the same time we are heavily subsidising people like Land Rover to make new cars and they have historically been huge emitters of carbon, very inefficient so we really need to have a more holistic view on it. I would re-emphasise Marian's point on modal shift being really key. About 60 per cent of car journeys are actually under five miles so we need to make a significant proportion of those change the way that people use transport, getting them on to trains rather than flying, especially domestically, and then also again encouraging a modal shift onto bikes and walking.
Q179 Mr
Weir: We have talked a lot about
micro-generation technologies. Which of
them have the capacity to be zero-carbon and how much could they contribute to
the
Mr Lewis: We mentioned five per cent carbon reduction by 2030. That was based on the growth potential of the
micro-generation report which was done in a consortium including ourselves and
also BERR at the time. The technologies
which would be zero carbon would be solar thermal and PV. They are the main zero carbon ones you think
of. Then you also have things like heat
pumps which obviously use electricity but as the grid de-carbonises ground
source heat pumps and air source heat pumps especially will become more and
more beneficial in terms of carbon reduction.
We have mentioned the potential of wind, especially stand alone
turbines, as having real potential in rural areas, especially in places like
Q180 Mr Weir: Given the current economic situation are you seeing a continued take up of these new micro-technologies?
Mr Lewis: In terms of the low carbon buildings programme which we administer we actually are seeing no slow down in take up of micro-generation although we are still talking at quite a small amount of take up. I think that will significantly increase when the feed-in tariff comes in. Where we have seen a decrease, according to my colleague, is on phase two which is community, businesses and charities where people are failing to get the financial support to meet the additional funding required to put in slightly larger installations.
Q181 Sir Robert Smith: You mentioned PV was zero carbon but do we not have to be realistic in this and look at the life cycle of all these technologies and recognise that that has to be built into our understanding.
Mr Lewis: I agree. I was just talking about during its usage that it is zero carbon, but pretty much everything we manufacture has carbon in it so that addresses the broader issue that we need to de-carbonise everything starting with manufacturing and generation of energy.
Chairman: Thank you, that is a good final summary of the overall imperatives that we need to face over the next few years. Thank you, James Wilde, Mark Williamson, Marian Spain and Rob Lewis for your extensive evidence this morning.
Memorandum submitted by Energy Technologies Institute
Examination of Witness
Witness: Dr
David Clarke,
Q182 Chairman: Welcome, Dr Clarke. You have us to yourself for the next three quarters of an hour. You are our fifth witness but you are covering the same area all by yourself. Perhaps you would like to introduce yourself for the record.
Dr Clarke: I am Dr David Clarke, Chief Executive of the Energy Technologies Institute which I will henceforth call ETI for simplicity.
Q183 Chairman: Could I invite you to start by reflecting on the main objectives and priorities of any green stimulus? What do you think should be the areas of concentration of the green stimulus and what would be your view about the relationship between short term stimulus and longer term investment?
Dr Clarke: If I could start by saying that to my mind across this whole space there are three critical issues and that plays into what you are talking about. The first one is in terms of deployment of new energy technologies, what we are talking about here is very much a mass scale deployment, this is not niche application. The first thing to recognise from the point of view of stimulus is that the deployment across the breadth of the UK is really going to relate to major industrial groups and they can provide both the deployment capabilities but also the support in terms of operation and maintenance on whatever the systems are that we end up talking about. The second thing is that having said that those companies do not necessarily have the innovative ideas and the technology base in some cases to actually put that capability into practice to start with. There is a big challenge in terms of having to find ways of making sure that innovation gets pulled through from small and medium enterprises and from academia in a collaborative win-win way into those companies. The third thing very much I would say is around the support side - this is probably the most critical issue across the piece -we have to have sustained support for long term incentives around energy deployment but also around the skills development and the regulatory framework that goes with it. So those are the three things I think are the key items in actually taking the green economy forward in the UK but each of those is amenable to a different kind of stimulus approach and a different kind of set of incentives. I think it is very difficult to give you one answer when actually we have to look at this in the round and find incentives and mechanisms that hit all of those three areas.
Q184 Chairman: We will perhaps look at some of those more specific incentives in a
moment. Overall what is your view of the
extent of the
Dr Clarke: I guess I look at it from the point of view of whether it is
actually seven per cent. If I looked at
what would probably be classed as a stimulus package it probably is about seven
per cent and at that stage I would say it is inadequate. If I then looked at everything that is going
on in the
Q185 Chairman: You say there should be clear goals. What might those consist of and particularly to what extent do you envisage those re-entering the territory of picking winners and focussing as again we have heard about this morning?
Dr Clarke: If you look at the goals today superficially what would you find? For the 2020 target you would find a percentage of renewable energy, 15 per cent for 2020; you would find a CO2 reduction target; you would find a transport biofuels target; you would find building energy efficiency targets and so on. I am not sure I would find anything about affordability of energy; I am not sure I would find anything about security of energy in terms of security of supply both from a geographic point of view and from an intermittency point of view. Once you step into those kinds of areas it is difficult and challenging. I think that is the critical issue you have to try and set: what is the level we are actually trying to achieve on some of those things? It may not be absolute but the reality, from an economic development point of view - whether that is a 'business as usual' economic development or whether it is wearing a more green economy badge -is that it is critical to be able to offer affordable, secure, sustainable energy. If you do not have that you cannot develop the industrial base because it will go somewhere else. I think the fundamental is how do we set targets in those kinds of areas so that people can understand (by people I mean governing bodies as well as the public) why those targets are there and then we can then shoot for those in a sensible way. That is the piece that is missing. It is very, very difficult to do and does not at that stage get you into picking technological winners necessarily but it does get you into a space of economic planning without a doubt.
Q186 Chairman: Let us take briefly one of those three imperatives you mentioned, affordable. One of the arguments that has been widely put forward is the question of the extent to which there needs to be carbon price mechanisms within a future energy economy which will in turn stimulate investment and development of new green technologies and also other mechanisms to maintain an energy price at levels which will more broadly do that which appear to push against the imperative of affordability. How would you balance those in terms of your views of imperatives?
Dr Clarke: You are quite right because fundamentally if you look at almost any
renewable energy source today it will be more expensive than central generation
from the point of view of the national energy price. That is the challenge we have got. The only way you can mitigate against that
fundamentally is by setting a realistic carbon price which has a floor on
it. At the moment clearly we have a
carbon price which, to all intents and purposes, has no floor on it. I think that is the kind of challenge we have
going forward and probably going into
Q187 Dr Turner: How would you suggest the European Investment Bank's £4 billion is best used? Who would you lend to?
Dr Clarke: I have dealt with the European Investment Bank before; if you operate in the right style it is not a difficult debate. They would view a good credit as research and development in major global industry where they can see that fundamentally they will get a return.
Q188 Dr Turner: In practice if you are looking to use that money to support renewable technologies they tend to be developed by SMEs, not major industries. How are you going to make them the beneficiaries of the European Investment Bank?
Dr Clarke: Going back to what I said at the start, development of technology is one thing; deployment of technologies on that scale -----
Q189 Dr Turner: I am talking early stage deployment here.
Dr Clarke: Deployment at mass scale is a different story. An SME will not be capable of doing
that. If you look around the industries
that we are talking about at the moment (you have had a lot of conversations
about offshore wind and marine), marine is a very good example. Right now if you want to transport a marine
device up the coast of the
Q190 Dr Turner: Can you see any sign of these partnerships developing?
Dr Clarke: Yes. If you look round the industry right now we are starting to see a few big players who are aligning themselves with specific SMEs in these current spaces. Some are what we class as major industrial engineering companies and some of the power utilities who have started to take that alignment, to make it happen. I would stress that it is challenging for both sides.
Chairman: Could we now look at some of the specific low carbon technologies, particularly those mentioned in the memorandum to us from DECC: CCS, offshore wind, marine energy. I appreciate it is not within your remit to look particularly at nuclear energy, but it mentioned also low carbon vehicles and the like.
Q191 Mr Weir: What potential do you think carbon capture and storage has to contribute to a low carbon economy and in particular to the 2020 targets?
Dr Clarke: In terms of 2020 targets it is clearly going to be a relative small
part. You would have to say the same about
nuclear. Unlike some of the previous
speakers I am quite happy to give you a statement on nuclear. The position on some of the big technologies
- if I can call them that, these are the very large plant technologies - is
that in the main the deployment and implementation of them is not constrained
by technology, it is constrained by supply chain and then issues around
planning, the grid and more usual things, but the critical ones are in the
supply chain and then the planning side.
The supply chain is the main one.
When you look at carbon capture and storage - and nuclear would be a
very similar story - it has not yet been fully demonstrated anywhere in the
world. All the elements have been
demonstrated in different places but they need putting together in one place in
a complete, full scale unit for demonstration.
The estimate for that is something in excess of £2 billion per
unit. How many of those can we actually
implement world-wide by 2020? Not many;
a few tens perhaps. The reality in terms
of what we can do in the UK is we are probably in the one to ten space
somewhere, hopefully it is significantly more than one but it is difficult to
see it being in excess of something like ten.
That would account for only, at the very best, probably ten per cent of
Q192 Mr Weir: How about low carbon vehicles? What do you think they can contribute to a low carbon economy? What could the government do so support them?
Dr Clarke: Low carbon vehicles is a very interesting area. I will talk primarily about light vehicles
rather than heavy goods vehicles but the situation is to some extent
similar. Light vehicles - cars, light
goods vehicles - produce in excess of 50 per cent of the CO2 emissions from
Q193 Mr Weir: As regards electric vehicles, what is the interaction with the de-carbonisation of the electricity supply? If we having difficulty because of the technology in that, is the introduction of electric vehicles perhaps going to exacerbate rather than help the situation overall?
Dr Clarke: That is a very good question. If you did nothing from today and you introduced electric vehicles then clearly the demand for electricity is going to rise. In essence, even taking into account our energy savings efficiency measures and so on, that says that we will have to install additional electricity generating capacity just for electric vehicles. How fast can we do that? I can see nothing dramatically changing before about 2017 or 2020, so clearly by 2020 the benefits of putting in a lot of electric vehicles in pure CO2 terms is actually going to cost more. The benefit will start to ramp up after that if we continue to de-carbonise the electricity generation side in the way that we expect we will have to do and that is why nuclear has to be part of the equation, as does coal and CCS, because the electricity demand is going to rise significantly as we go more and more towards electric vehicles. As a consequence you simply say, for all sorts of reasons, that you will have to have a degree of base rate generation which runs as background and that realistically means coal with CCS, gas with CCS and nuclear.
Q194 Charles
Hendry: Can I say first of all that I think
your answers have been incredibly helpful and you are speaking not as somebody
with aspirations but as somebody who is talking absolutely in terms of delivery
and how you bring about change. I think
that is really useful for us. I am
concerned about the disconnect between some of the talk that there has been
about low carbon technologies and the delivery.
When we started talking about carbon capture and storage here four years
ago we probably were leading the world in some of that thinking but now we have
seen that lead being taken by the United States, Canada, Abu Dhabi, Australia,
China and we are slipping behind. I am
concerned about how we get back in front of that movement again. In the marine technologies we have had some
really brilliant British companies developing some of those technologies but
something like Polamis are now looking to
Dr Clarke: I will talk about CCS and marine in a second. What needs to be done to regain leadership, I
think fundamentally we have to recognise that there is a distinction between
energy systems which are very suitable for deployment in the UK versus things
that we may have the design and manufacturing base for in the UK but which
fundamentally are going to be an export opportunity. Those two things are different. In some cases they overlap and are the same,
but in some cases they are different and we have to be quite careful about what
answer we are trying to discuss. In
terms of technologies in CCS and technologies in marine and the whole system,
CCS is going to be a global market; it already is, as you said yourself. Australia, China, the United Kingdom, Japan, America
are all very interested in CCS for obvious reasons; everyone has coal and
everyone in those geographies is pretty reliant on coal from a history point of
view and from a future energy supply point of view going forward. CCS is going to be a major global
market. The companies that provide the
equipment and technology will be global players and they will operate
globally. It will be the well-known
names in the engineering supply industry and energy supply. How do we re-gain the lead in that area where
we are now talking about having to operate on a global basis? I think we have to be realistic about how
many of those global players currently have what I would class as design and
manufacture in the UK? The answer is not
many of them, if any. The question
becomes: how do you incentivise those kinds of companies - the big
multi-nationals - to set up those operations in the
Q195 Charles Hendry: We have established that these new technologies are very challenging and therefore probably going to be very expensive. We talked earlier about some of the targets and the nature of those targets. As an engineer are there any of those targets which you think are going to be impossible to achieve without compromising the other requirements you talked about in terms of affordability and security of supply?
Dr Clarke: If we are in the marine sector it is what I always class as
"do-able"; it is difficult but we can do it and we can do it for the
Chairman: Can we now turn to the question of the extent to which we can mitigate some of those costs, for example, of increasing electricity supply by means of energy efficiency, smart grids and associated matters? Robert?
Q196 Sir Robert Smith: Given the make up of your board I should remind the Committee that my entry in the Register of Members' Interests is as a shareholder in Shell. How realistic do you think the target is for all new homes to be zero carbon by 2016?
Dr Clarke: My answer on this kind of thing is very straightforward. If you are prepared to pay for the house it is do-able. Is there an affordability question? Right now, if you want a zero carbon building, we can do that but you will have to pay an awful lot of money for it. We can deliver zero carbon housing by 2016 but my question is whether people will be able to afford it? Fundamentally there is a cost reduction required on a whole range of technologies going into those types of development. The question is not can it be done; it is what is going to be the price of doing it? I do not know the answer to that.
Q197 Sir Robert Smith: Looking at the housing market, when the developer is selling they want to put in as little investment into the house and sell it for as much as possible. The buyer pays a mortgage to cover the cost of the house and then pays the running costs of the house. Do you think our market is not fully developed enough where people are able to see that actually if the developers put more in and they paid more for the house, the overall running cost of the house would actually be cheaper?
Dr Clarke: Yes, but capital up front drives a lot of thinking. It does not matter whether it is houses or whether it is offshore wind farms or gas fired power stations, people generally want to expose as little capital as they can at the front end. That is the reality. Yes, is the answer to your point, but I do not know whether it is actually practical.
Q198 Sir Robert Smith: In fact even if we did get new homes to be zero carbon by 2016 that would only be the tip of the iceberg because people would be living in existing homes.
Dr Clarke: The real challenge is to find ways of retrofitting the existing housing stock to improve energy efficiency on it. We turn over about one per cent of the housing stock a year so by 2016 we are going to be making pretty small inroads, even after that, in terms of energy efficiency in buildings from that point of view. The challenge is implementing retrofit technology into houses and doing that in a way that is both affordable to the owner (or whoever is paying for it) and secondly in a way they find socially acceptable from the point of view of disruption and what changes it physically makes to their building and anything else. That is partly mindset and it is also partly about perceived commercial value and so on. Those are the two issues. The one that we are trying to address at ETI is the issue around how do you actually find ways of implementing packages of technologies as a retrofit rather than just somebody coming along to do the insulation and then somebody else at some other stage comes along and does something else. We are trying to see how we can actually implement packages of technologies to give the maximum benefit to any particular building and owner, and how do you then implement those very quickly so that there is minimal disruption and it is practical to actually say, "We need your house keys on Monday; you can keep the upstairs until Wednesday; we will do upstairs Wednesday to Friday and then we'll be gone". That is the kind of challenge we are trying to address on a mass scale because doing one is no good. We have to make this available at community level; it must be mass deployment on thousands of buildings.
Q199 Sir Robert Smith: Is there more that the government should be doing to incentivise this?
Dr Clarke: We have not looked specifically at government incentives in this area yet; we are looking at it from a technology point of view at this stage about how difficult this is and how could we make it attractive to the consumer. When we get that far, if we can identify what I would class as reasonably low cost approaches to that then I suspect the question would still come: how do we then turn a reasonably low cost option into a very low cost option? I think that is where the government incentive and regulation will come into it. We are not there yet.
Q200 Sir Robert Smith: One of the other things you mentioned was the need for a coherent integrated approach to smart grids. Is there one at the moment?
Dr Clarke: Not yet, no. That is for a
number of reasons, one if which is that we do not yet know what the question
is. Going back to the point about low
carbon vehicles, it is only over the last nine months where we have been in the
process of bringing together a whole range of groups across the industry from
the car manufacturers to the National Grid to electricity suppliers to what
would be classed as a systems integrated service type provision people, the
kind of people who run the congestion charge network here in London. We need to bring all of those groups together
to actually understand how might this grid look in the future and how might it
operate. Actually the big issues are
probably not at National Grid level; they are down at a distribution network
level so it is seeing what happens here in
Chairman: Could we briefly consider the question of the barriers to this investment and changes in deployment of resources, particularly in respect of the recession?
Q201 Dr Turner: What effect is the recession having on investment in low carbon technologies?
Dr Clarke: I would say that it is having three effects. There is a greater demand for support from what I would class as the industry in the sense that clearly people are finding it difficult to get credit and are now looking for more support in general from a range of investors, whether it is grant giving bodies or whether it is technology investors such as ourselves, venture capital or whatever. People are looking for money. Clearly that is one issue. Then the real effects we are seeing are people being much more focussed about what they want and why they want it but they are starting to be more flexible around what they are prepared to accept. As an example, a company came to me looking for investment recently. I was prepared to consider that but on the basis of first auditing their engineering capability because I was not totally convinced it was what we needed. One of my engineering company members carried out an audit of that company on an engineering capability base. I should say that the company did not really want to have this happen for reasons you can probably imagine because they perceived a risk in this. The potential upside was that they got a tick from a major global engineering company. They got the tick. As a consequence their standing has gone up significantly not in the formal sense (the credit rating kind of question) but from an engineering point of view. They came to us, we have audited them and we have said that this is something we are prepared to look at. It has been audited by a major engineering company and they can tell the people that. What we are starting to see is that people need money; you can argue they see more challenges in getting money but they are prepared to be more flexible to get the funding that they need and as an impact of all of that things are starting to move faster and in a more focussed way.
Q202 Chairman: We are running out of time this morning I am afraid. You have given very useful and extensive answers. Can I just ask you one brief question? How important do you think energy from waste will be to meeting the 2020 targets?
Dr Clarke: In simplistic terms, very important. There is no doubt that the biofuel question
and the biomass question - you can include waste in that - is a big opportunity
for the
Q203 Chairman: Do you see that as a long term approach, particularly in terms of de-carbonising the gas supply for example?
Dr Clarke: I would class it as reducing the carbon in the gas supply. De-carbon tends to imply zero. I cannot see that kind of feed stock
provision for the
Chairman: I think you have at the very least set us a challenge for some of our future inquiries in terms of those longer term thoughts which are extremely important. Thank you very much for your very comprehensive evidence this morning which has been very helpful to our inquiry. David Clarke, thank you very much. That concludes our business this morning.
[1] Note from the witness: "Four million or more"