Examination of Witnesses (Questions 321-359)
Dr Gerry Wolff, Mr Derry Newman, Mr Jeremy Leggett,
Mr David Matthews and Mr Howard Johns
4 November 2009
Q321 Chairman: Can I welcome David Matthews
and Howard Johns from the Solar Trade Association, Gerry Wolff
from DESERTEC, and Jeremy Leggett and Derry Newman from UK PV
Manufacturing Association. Thanks for coming. You have come at
a very topical time with the discussion on green tariffs and the
implications for your industry and we will spend quite a lot of
time talking about that later on because I know there are strong
and different views around this and it would be helpful to tease
that out. Perhaps I could start by asking you about the financial
stimulus package that the Chancellor produced, the green part
of it, and how far it has helped the solar industry.
Mr Leggett: In general, of course,
this is a disappointment to us. Just 0.6% of the £20 billion
goes to green measures, which is a fraction of a fraction of 1%
of GNP I guess I will be speaking for quite a lot of people in
the new green industries if I say that this is a disappointment,
if you look at what other countries have been doing in terms of
their green new deals. Given the enormity of our challenges with
climate change and energy security and interfacing, we have to
chalk that up as a disappointment. As you may know, in one of
my extra-curricular activities I am part of the green new deal
group of economists and business people who produced a paper in
July 2008 under the auspices of the New Economics Foundation ahead
of the crisis, which talked about the need for a green deal and
what we could do there. Another disappointment is that contrast
between our use of oil income in this country and Norway's. I
guess everyone knows the statistics there. On the principle that
it is never too late to start, we were thinking in that group
that there is still scope for some kind of windfall income to
be brought to the stimulus process, the green new deal process,
from North Sea income above a certain oil price, and obviously,
if the oil price drops below then that will bring an outcome of
its own. Interfacing between the green stimulus and the feed-in
tariffs brought a wonderful opportunity to get people going in
these fast-growing job-rich industries, of which PV is just one,
our main activity at Solarcentury, and I suppose that foreshadows
the disappointment that we have that the targets have been tuned
so low with the feed-in tariff when we see so many exciting things
happening elsewhere in the world. Here I speak as someone who
sees this two ways. I personally see it in my day job and working
with Derry and Solarcentury and the excitement that we feel about
this technology and how much of a role it could play in the mix
of technologies going forward, but I also see it as a private
equity investor. I have a part-time activity as a director of
the world's first private equity fund investing just in renewables
run by a Swiss bank, and it has been a huge disappointment to
me, over the 10 years I have been doing this—as a red-blooded
Brit desperate to see a green industrial revolution on our islands—to
see so much money going pretty much everywhere else except the
United Kingdom.
Q322 Chairman: So if you were not
in the New Economics Foundation, if you were designing a package,
what would you put in it from your prescription?
Mr Leggett: The full package for
the prospectus?
Q323 Chairman: Yes.
Mr Leggett: We would have to start
with energy efficiency. There is so much scope there. I had the
privilege of giving a speech at the government's job summit as
one of two business leaders who were invited to give their perspectives,
and, rather than repeat everything I said in that speech, I would
be very happy to send a referenced version of the speech to the
Committee. To distil the thoughts that I offered there, energy
efficiency has vast opportunities and we are not here to talk
about that, so let me not go into detail, but a street-by-street,
house-by-house programme of energy efficiency would be a great
way of starting and that would maximise the bang for the buck
that we and others in this industry could all bring from our various
technologies and reduce the size of the challenge. These are job-rich
industries in energy efficiency and downstream renewables. I think
I would rather keep the answer generic if I may.
Q324 Chairman: We will look forward
to that. Colin is going to chip in in a minute but just in your
own evidence you said that solar is a forgotten technology. Sketch
that out a bit for us.
Mr Leggett: It is forgotten in
the UK, of course, but elsewhere in the world in 2008 the solar
photovoltaics industry grew 87%. It is one of the fastest growing
energy industries in the world, and you get a sense of the excitement
when you look at what is happening in Silicon Valley with investors.
In the first three quarters of this year, of the venture capital
that went into the 50 families of clean tech, more than half went
into solar photovoltaics, so Silicon Valley and people like the
investors in Silicon Valley and, indeed, people coming out of
the digital revolution and working in Silicon Valley, see this
as a huge business revolution. I am sure that members of the Committee
know the basic statistics but last year we installed 0.3% of what
was installed in Germany and Germany does not have significantly
higher sunlight than we do.
Q325 Colin Challen: I just wonder
for the record whether you could say what you think the potential
for solar PV is in the UK as its contribution to our overall domestic
electricity needs.
Mr Leggett: There are two answers.
There is the silly answer, which is the full theoretical potential,
and then the practical answer. The silly answer is that if we
put solar photovoltaics of existing efficiency on all surfaces
of all buildings, which of course is a fraction of the land area
and not including solar farms in the scrubland and so forth, we
could provide more electricity than the electricity-profligate
nation currently uses, specifically 460 terawatt hours, and the
Photovoltaic Manufacturers Association have done that calculation.
It is all referenced in the evidence that you already have. We
are not advocating that that be done, of course, because our technology
is not a magic bullet; there are no magic bullets. We are merely
one important member of a family that has got a considerable amount
of breadth. As for the answer to how much, at minimum our industry
association, the European Photovoltaics Industry Association,
calculates that on current trends we could be contributing 6%
of electricity in the UK but this industry association has a long
and not very distinguished track record of consistently underestimating
reality in the growth of our industry. That is why I set that
as a lower limit. I think the answer, and I do not have a figure
in my head, is significantly more than that. It is a very disruptive
technology with no real known constraints on it. You are melting
sand at the top of the value chain, the crystalline spectrum of
things, and that is 80% of the global industry. My personal belief,
and we have set this out in the book that we published earlier
this year, myself and my colleagues, is that many energy pundits
do not fully appreciate just how disruptive this technology is
and just how fast it can invade traditional markets to play its
role in the family of survival technologies. Forgive me for not
giving an exact answer but I would say somewhere between 100%
and 6%; it is more than most people think.
Q326 Sir Robert Smith: I wonder if
you could expand on that a little because obviously the conventional
wisdom is that on a nice sunny day you get lots of effect but
at night none. What would be that percentage effect seasonally
and weather-dependent?
Mr Leggett: I can speak from personal
experience here. I lived in the country's first solar roof tile
home for more than a year with constant occupancy all through
that year. It was a two-up, two-down in Richmond and we generated,
with 1.6 kilowatts of peak power on the roof, over 1,100 kilowatt
hours, which is roughly a third of the electricity average and
therefore electricity-profligate consumption in a UK home. We
brought consumption down with permanent occupancy and a daughter
with a very high power hairdryer in daily use to just over 1,000
kilowatt hours, so we generated more than we used over the course
of the year. What we advocate for people, at Solarcentury is not
to think about batteries at this stage of storage technologies
but to use the grid as a battery, so that you are feeding in during
the day and taking out at night. I remember one day a camera crew
was coming round and Wimbledon had been rained off, it was grey,
awful and miserable, and the export meter was going round impressively
fast.
Q327 Chairman: Mr Johns, do you want
to comment on that?
Mr Johns: About solar thermal?
Q328 Chairman: Yes.
Mr Johns: The effect of the Green
Stimulus package on solar thermal this year is the same; there
has not really been any. We have not seen any impact of the Green
Stimulus package on our industry, and solar thermal also is a
much underestimated technology in the UK with absolutely massive
potential. The European solar industry's trade federation. ESTIF,
recently did a study on where they think solar thermal will go
by 2050, bearing in mind that of all energy use in Europe 49%
is used for heating and cooling, ESTIF's estimates were that about
47% of that energy could be provided by solar thermal by 2050,
which is a staggering figure of potential. Of course, to do that
we are going to need the right support measures. Again, the UK
industry is in its infancy. We have somewhere in the region of
60,000 square metres of solar thermal being installed per annum
in the UK. In Germany last year there were 2.1 million square
metres installed, so they are absolutely streets ahead. There
are huge opportunities for growth in the technology, economic
benefits and long term jobs which are not to be underestimated.
Q329 Chairman: So what needs to be
done? What is your prescription?
Mr Johns: Currently what is being
worked on is the renewable heat incentive. We could have done
with it coming in at the same time as the feed-in tariff. We understand
that there is more complexity over a heat incentive, and in fact
it has never been done across Europe so it is quite an ambitious
project that DECC have undertaken, but we need that to be suitably
generous to really kick-start the industry and also to encourage
diversification in the industry. Currently, when people think
of solar thermal in the UK, they are probably thinking of two
to four square metres of panels on your roof to do 50 to 70% of
your domestic hot water needs over the year, whereas in continental
Europe, let us say in Sweden, Denmark, Germany, most houses are
having 10 to 20 square metres and it also feeds into space heating,
so in Germany you are getting a 50% solar house already, which
is where we need to be aiming. You are also seeing things like
district heating schemes being run from solar thermal and more
cost effectively than running them from any other source of heating,
be it biomass, gas or ground source. This is the sort of stuff
that most people in the UK have never even heard of, let alone
considered, so we have to have an incentive that does not penalise
innovation along those lines.
Mr Matthews: It is not just the
incentive. We always talk about a systems approach to growing
industry, and it is the classic way you grow an industry. You
have financial incentives, you have regulation for the new build
home, but you put together a whole training and accreditation
package suited to all these different technological areas and
you look at the broad picture. We are ready to go as an association.
We have got members who are doing solar ventilation that will
do 40% of an individual building's space heating load in winter,
and we have got members who are doing solar cooling. There is
a whole portfolio of measures. It is just working with government
and industry and the association to say how we grow it as a complete
package.
Chairman: We will come back and pick
some of these issues up later on, but let us turn now to sunnier
climes, Dr Wolff, and DESERTEC.
Q330 Colin Challen: I am just wondering
if, rather than ask you how practical it is, I could ask you about
the impracticalities. What technical practical problems are there
impeding the progress of DESERTEC? Perhaps there are not any.
I wonder if you could briefly tell us about any political difficulties
that might prevent DESERTEC from coming to fruition.
Dr Wolff: In terms of the technology,
there is always scope for refining technology but basically the
technology is there, so I do not see any particular obstacles
on that front. As far as potential political problems go, there
is a tendency for people to think, "This energy is coming
from countries in North Africa and the Middle East. Is this not
a bit dodgy?". We think those concerns are largely misplaced.
In terms of looking at the security of energy supplies under a
DESERTEC scenario in general, we have produced a document with
quite a lot of points in but I will not go over them all; I will
just mention three of them. The German Aerospace Centre are largely
responsible for the overall concept in the three studies that
they have done for this, and one of the points they make quite
strongly is that in their total scenario, which includes the development
of renewables right across the region, including Europe, wind
power, PV, wave power and so on, they say that up to 2050 the
imports would be up to 15% of Europe's electricity. If you take
the overall picture and compare it with the situation now, there
would be a reduction in imports of energy, so if you are worried
about imports as a security risk there is a reduction under the
DESERTEC scenario compared with the situation now. The other point
they make is that the range of different sources of electricity
would be increased, so the two things together mean that you can
say they give you greater security of electricity supplies than
we have now. That is one point. The second point first took shape
in my mind as a result of hearing a remark that Malcolm Wicks
made when he was interviewed on the radio. He used the phrase
"a global grab for energy" and that set me thinking.
If you got a colossal potential source of clean energy, as you
do in desert regions, and if you are worried about a global grab
for energy, the one thing you do not want to do is ignore a big
source of energy like that. If you can flood the world market
with what is expected to be relatively cheap clean electricity
that reduces the worries about a global grab for energy. The third
point I will mention, and, as I say, there are quite a lot more
points in this document which is referenced in the paperwork that
we have provided, is that part of the DESERTEC concept is the
idea of a large-scale, high-voltage, direct current, the so-called
supergrid, spanning the whole of Europe, the Middle East and North
Africa. In terms of security of supply that in itself is beneficial
because one of the several attractions of the supergrid is that
if there is a shortfall in electricity supplies in any one area
then you can get it from somewhere else. If the wind dies down
in Scotland, for example, if we have got connections to Norway
they have got this hydropower there; it is like a giant battery
for the whole of Europe, and, likewise, with all the different
renewable energy sources right across the region, if there is
a shortfall in any one area it is relatively easy to bring it
in from where there is a surplus. I just make those three points
on that front.
Q331 Colin Challen: This idea does
have quite a lot of support and I understand that the German government
is fairly supportive of it. Angela Merkel has spoken about it
quite enthusiastically. How would you characterise the support
from other governments, particularly that of the UK, for DESERTEC?
Dr Wolff: Particularly what, sorry?
Q332 Colin Challen: The support of
other governments. Germany is behind it. Is France behind it,
Italy, the UK? I know the UK has expressed an interest but we
express interest in lots of things and then do not do anything
about it.
Dr Wolff: I understand that the
lower House of the Dutch parliament had a vote on this subject
and it was decidedly in favour of the DESERTEC concept. President
Sarkozi of France is very keen on the idea of better integration
amongst Europe and countries south and east of the Mediterranean,
and that has resulted in the setting up of the union for the Mediterranean.
Part of that concept is a range of practical projects, one of
which is the so-called Mediterranean Solar Plan. I know that there
has been a lot of interaction between people in the main DESERTEC
group and officials in the French government. The Mediterranean
Solar Plan is firmly based on the DESERTEC concept, so in that
sense France, you could say, is behind this. I have not got the
details but the senior people in Morocco have indicated they are
keen on it. The President of Tunisia has made a speech in favour
of it. In practical terms Morocco, Algeria, Egypt and Israel are
all building CSP plants, so that is demonstrating their interest
in a practical way, and Spain, of course, and I believe there
is something going on on it in Italy. This is a practical demonstration
of support.
Q333 Colin Challen: More on a technical
level, Hermann Scheer, our colleague in the German Bundestag,
has raised concerns. I am not sure about outright opposition but
he is concerned about the idea that some of these companies that
are necessarily quite large, existing energy providers like E.ON,
RWE and so on, will see the creation of a supergrid as an entrenchment
of their position in the market and, of course, the supergrid
will serve other sources of electricity as well, such as nuclear
power. Its reach might be extended considerably using nuclear
power, and if these are the same companies that are also expanding
nuclear power then does Hermann Scheer have a point that this
might squeeze out the widespread introduction of micro-generation,
for example?
Dr Wolff: I find that very puzzling,
to be honest. My understanding is that historically one of the
problems in Europe has been so-called vertical integration of
the energy market, so that, just like we used to have in the UK
20 or 30 years ago, if you wanted to buy electricity you only
had one choice; it was local supplier, and then we liberalised
the market in the UK so that that immediately gave consumers a
much wider choice of potential suppliers. My understanding is
that in a similar way the European Commission is working to create
a similar single market throughout Europe. We would like to see
it extended to the whole of Europe, the Middle East and North
Africa. I believe, if that single market is going to work properly,
you really need the supergrid, and it seems to me that all these
trends will increase competition between suppliers and it should
not disadvantage things like PV on people's rooftops at all. I
do not see that at all.
Q334 Dr Turner: You are quite bullish
about the question of security of supply, but it is a fact that
the UK would be right at the end of the supply chain. Does this
not make it more vulnerable to interruption?
Dr Wolff: No. I know it seems
as if the Spanish will take their bit first and then the French
and then we will get a little bit at the end.
Q335 Dr Turner: Someone could throw
a switch anywhere along the line.
Dr Wolff: Or someone could throw
a switch. Let me take that last point first. As regards the possibility
of someone cutting off supply suddenly by throwing a switch, I
do not think that is realistic because you can design transmission
grids rather in the same way that the internet was deliberately
designed. The internet was originally a military project and it
was designed deliberately so that if part of the internet was
knocked out messages could find their way around the blockage,
and in a similar way you can design transmission grids so that
you would not have a single point where you could knock it out.
Potentially, theoretically, you could have some kind of solar
cartel; all the solar countries could all gang up together, but
personally I think that is highly unlikely. The range of countries
that have this resource is very large. It is basically going to
be a buyer's market so I do not see that happening. Can I go back
to the other point about us being supposedly at the end of a supply
chain? One point we have been trying to get across is that transmission
grids are a bit like a lake. If you could imagine taking a tanker
of water, you tip it into one end of the lake, you go to the other
end of the lake and you can take out a tanker of water. It is
not the same water that was put in at the first end of the lake
but in effect it is as if you have transmitted that water across
the lake. Going back to the solar situation, if you start feeding
solar power from the desert countries into Europe, and you imagine
the grid being a bit like a lake, it is a sort of cascading effect;
it is immediate right through the whole region, so that countries
like the UK are no more disadvantaged, they are no more at the
end of the supply chain than a country like Sweden or any other
country further north. If we had the single market, which I understand
is due to be completed in 2011, the kind of vision we have is
that, if you take a company like Marks and Spencer or Tesco, both
of which have indicated they are keen to green their operations,
companies like that with the single market could have a contract
with, say, Abengoa or any other solar supplier in North Africa
or the Middle East and immediately they could be getting their
supplies in a sense directly from North Africa. Hopefully, you
would go into Marks and Spencer and they would have little signs
up saying, "Our stores are powered by desert electricity".
That is our vision but it would be rather in the same way that
myself as a householder, if I want to buy my power from, say,
Scottish Electricity, I can. It is a similar idea.
Q336 Dr Turner: All the elements
of technology that are involved in DESERTEC exist but they have
never been deployed on this scale before. Are you confident that
there will not be any problems arising from the scaling up?
Dr Wolff: I am pretty confident.
The reason is that the technology is essentially modular, so that
once you have put up one module and seen that it works there is
nothing to prevent you from having a thousand of them or a million
of them in very much the same way that, once you have demonstrated
that a wind turbine works, you can have a dozen or you can have
a hundred or a thousand; it really makes no difference. Each module
is essentially independent, so it is not like scaling up a wind
turbine from, say, two megawatts to six megawatts. That is a major
technical challenge. This is different because each module is
independent. You can just roll them out in their thousands or
their millions.
Q337 Dr Turner: Given your ability
to do that, does that imply that the unit capital cost is going
to come down with this increased investment volume, so it is going
to be more affordable?
Dr Wolff: That is definitely the
expectation. The studies by the German Aerospace Centre have factored
into their scenarios and their calculations these fairly well-established
cost reduction curves and I think you can see why there is likely
to be this cost reduction. At the moment I think I am right in
saying that the worldwide installed capacity is actually less
than a gigawatt and people normally reckon you need to get up
to, say, five or 10 gigawatts and then as you scale up you get
economies of scale and you get refinements in the technology which
can bring the cost down. There is one particular aspect which
interests me, which is that some companies are deliberately targeting
this cost business in two ways. First of all, they are rationalising
the designs to make them suitable for mass production in factories,
so it is like creating prefabs, and then, once you have got the
prefab, again, it is a bit like an IKEA flat-pack. Once you get
them out into the field they are designed to be very quick to
install with a minimum of skilled labour. As I say, there is at
least one company and I think some others not only working on
this; they have largely achieved that effect, so I think we are
likely to see things like that which will definitely bring down
the cost.
Q338 Dr Turner: Have you got any
prospect that UK industry and UK jobs will benefit from DESERTEC?
Dr Wolff: Potentially, yes. There
is already a number of companies based in the UK; you specifically
call them CSP companies. They are specialising in this area. There
is also potential for what you might call general engineering
companies. One of the companies that interests us is Alstom. Normally
you think of Alstom when you get on the tube train and you see
their name on the step, so, "They make railway trains. What
has that got to do with solar?". Then you look on their website
and they make the so-called conventional island of a nuclear power
station, and you think, "Hmmm; what has that got to do with
solar?". You look on the website of the European Solar Thermal
Electricity Association, ESTELA, and there is Alstom. The point
is that the so-called conventional island of a nuclear power station
is almost exactly the same as the steam turbine and generating
plant part of a CSP plant, so the back end of a nuclear power
station and the back end of a CSP plant are almost exactly the
same. There is huge potential there. The market potentially is
going to be absolutely enormous.
Q339 Charles Hendry: I think it is
a fascinating concept. I think it is just the sort of big idea
which should be being explored. If you do not start the journey
the one thing you know for certain is that you are never going
to arrive at where you want to get to, so I think it is fascinating
work. You talked earlier about the countries which the power would
be coming from and whether these were necessarily countries which
we would feel absolutely confident about. Does not that at the
end of the day come down to the price which they are paid for
it? If there is a sense that this is their sunlight which is being
pinched by the rich Europeans they are going to be unhappy, but
if they get a good return for it they are going to be keen to
have a good trading relationship on this, particularly in terms
of the benefits it can bring them for desalinated water in property,
irrigation and issues like that. How do you plan to compensate
the countries which are providing the sunlight?
Dr Wolff: I agree very much with
the points you have made. There are great potential benefits for
the host countries. Obviously, with any kind of negotiation it
will be a matter of negotiation. There is the potential to do
it badly or do it well. In terms of what will actually happen
in practice, our group are all volunteers, we are not going to
be in the business of negotiating these things, but the people
that will be negotiating them—I do not know whether anyone
here knows this but there is a new consortium of blue chip companies
which is now known as the DII Consortium, which has been set up
just at the end of October and includes companies like E.ON, RWE,
Siemens, ABB, heavyweight companies like that. They have set up
this consortium with the declared intention of rolling out the
DESERTEC concept as it was developed by the German Aerospace Centre.
They say that they are going to be welcoming many other companies
into that consortium. The point is that when it comes down to
the nuts and bolts of negotiating with host countries they will
be the ones that will do it. From what we understand, they have
got long experience of working all around the world and having
good relations with host countries, and we have every reason to
have confidence that they will negotiate arrangements where everyone
will be happy.
Q340 Sir Robert Smith: You talked
about the liberalising of the EU market, but it is a long time
coming and it maybe reinforces that again, that it still has to
come. Just to get the mental picture, quite a lot of the public
image of this project is this huge one site somewhere in the desert
but, of course, from what you are saying, it could be a whole
range of sites dividing the risk amongst several of the countries
that have got this.
Dr Wolff: Yes, absolutely. For
the purposes of illustrating the potential we have got this map
showing these red squares in the desert to give you a mental picture
of relatively speaking how little desert you need to produce,
say, the amount of electricity that the whole world is using.
I think it is obvious but we always emphasise that you would never
do that in practice. You would spread this as widely as possible
and it would be in lots of different locations. As I have said
before, it is not all about solar power in deserts. It is about
integration of a whole range of renewables right across the whole
region of Europe, the Middle East and North Africa, and that again
is adding to the diversity and so forth.
Chairman: Let us move on and talk a bit
more about solar technologies in particular.
Q341 Dr Whitehead: Which of the various
solar technologies that we now know about do you think hold the
greatest promise for the future, first in terms of different photovoltaic
options that are now emerging in terms of thin film and different
forms of silicon generation; and, secondly, in terms of developments
in solar thermal, particularly static solar thermal in buildings,
for example?
Mr Johns: Can I just make one
point? Currently there is maybe a gigawatt of mainstream solar
panel. There are 121 gigawatts of PV across Europe already and
there are 145 gigawatts of solar thermal already in Europe, so
these technologies are huge already.
Mr Newman: Specifically regarding
the technology question, PV is a relatively well established semiconductor
technology now. There are systems working especially in Japan
that have been operational for more than 40 years using crystalline
technologies, thick layers of silicon. A more recent innovation
is thin film silicon which is a gas deposition, so you just layer
gas onto a glass layer. Both have validity in the market place.
Basically, thin film has a lower efficiency so therefore you need
more of it, so on buildings which have less space thin film is
less applicable, but it is applicable for large utility ground
mounted applications. Thick film, so crystalline silicon, uses
more so it is more efficient; therefore you get more power out
of a smaller area, so for buildings and places where space is
at a premium that is an appropriate technology. There are continuous
innovations going on in both technologies, but predominantly innovation
is driving economies of scale in cost efficiencies rather than
radical changes in technology right now, so we have got two streams
of innovation, both doing quite well in terms of their market
acceptance and reliability and the confidence that they will be
there for the long term, but both have quite distinct applicabilities.
Mr Johns: In terms of solar thermal,
people think of the collector and it is a fairly robust and well
developed technology that has been with us, again, for 40 years
or longer. There have not been massive advances made in the actual
technology itself, the stuff you put on your roof. It is already
very efficient. The key advances will be in how we apply it. I
will hand over to David.
Mr Matthews: On the collector
itself, and this is where the UK has been very good, the technology
is very mature. We can get over 90% efficiency on a collector,
but it is about how you apply it, so it is applying it on facades,
it is roof-integrated collectors, it is making it into tiles.
We have got one member who makes the whole roof as a solar collector.
The technological advantages are going to happen inside the building;
that is how you apply it. There are going to be a lot of solar
air collectors, so using ventilation. Heat is all about heat exchangers
and all the different areas you can use heat exchangers in. You
could be using it in industrial processing; you could be using
it for solar cooling. A lot of solar space heating we expect to
come through, and then the further south you go, the closer you
go to Italy and Spain, the more concentrated you get it, so you
get a whole number of different applications once you concentrate
the power. Sometimes it is pure electricity, but you can do more
and more industrial processing in different areas. Something we
have not done enough of yet, I believe, in the UK is exploit our
R&D technology. In solar evacuated tube technology we were
the leaders in glass-to-metal seals with the Germans as number
two, and yet we did not exploit that. We just kept that as evacuated
tube technology rather than taking it to the next stage and exploiting
it in concentrated solar power, and I think we are now swinging
back into that market but we have not always used our technology
to best advantage.
Mr Johns: Can I just jump in as
well? I think some of the key advances are going to be in how
we apply it across communities. In Germany you are already in
situations where, when they are retro-fitting the street, new
roofs on social housing or whatever, they are putting solar thermal
on every house, making the whole roof out of it, and they are
plugging it onto the district heat network and storing the heat
in the street. We are getting away from 100 litres of water in
your airing cupboard to something that gives you inter-seasonal
storage, so you start collecting heat in the summer and storing
it for the winter, and advances like that are crucial to applying
this technology. Other advances are things like how we store the
heat, so phase change technology, things like using wax to store
heat instead of water.
Mr Matthews: And that would spin
out. In the longer term we hope to have thermo-chemical storage,
so you will actually store the heat from the summer to the winter
in a chemical reaction. That is about 10 or 15 years away from
market but people are working on that.
Q342 Dr Whitehead: Of these technological
advances and refinements that we are talking about, what proportion
would you say really exist in terms of a serious UK research and
development capacity, and what potential would you say there is
for the UK to either take or retake the lead in a number of these
technologies?
Mr Leggett: Can I lead on that
and emphasise from the last discussion that I would be wary of
a sense of either/or here because you have got a family of technologies
that are advancing on a number of fronts and so great are our
problems with climate change and energy security that we really
need as many of these to work as we possibly can. They also work
often really well in strategic harness. For example, if you go
to our installation in Yorkshire on a South Yorkshire Housing
Association project in Rotherham, which is Europe's first solar-powered
street, you will see a wonderful row—and you can see the
pictures on our website—of both solar photovoltaic and solar
thermal roof-tiled homes. I visited that recently and was told
by the developer that one of the tenants there had got her energy
bills down to £5 a month with the solar photovoltaic and
solar thermal roof. This is what can be done, and I emphasise
that these technologies are made in Britain. We do not have that
much manufacturing left but they are manufactured for us by Sony,
for whom Derry used to work. Indeed, he was the Managing Director
of Sony in the UK in an outsourced manufacturing plant in South
Wales, so the potential is huge and I would be very wary of any
approach that tried to divisively make us say that it is better
to go for this and not for that, and even within photovoltaics,
thinking as a private equity investor, we are excited by both
crystalline silicon and thin film. You will find people who would
sit here and tell you that thin film is the solution or crystalline
is the solution. I do not think so. They are horses for courses
and there is going to be a role for both of them going forward,
just as there is for concentrated solar power and solar thermal
in all its different guises.
Q343 Dr Whitehead: I am aware, for
example, of the extent to which UK universities are continually
in the forefront of solar PV research and I am beginning to develop
a feeling of the extent to which these technologies can be firmly
implanted within the domestic research and development economy,
and to what extent that then may make up for what we know, as
it were, is the series of failures of development in previous
areas of renewable technology in past years.
Mr Newman: I would comment that
it is in the gift of the tariff to direct that, because markets
are very sensitive to how tariffs are constructed and that is
something that we know from evidence over the past few years in
Europe. If the tariff goes for a vanilla system and favours the
cheapest system, the majority of the technology will be imported,
there will be little R&D here because it will be done remotely
and the market will go for the lowest cost, simple, bolt-on system.
If the tariff encourages integration and encourages thermal and/or
PV and PV technology as part of the built environment, the building
industry is very parochial; most building products are made near
to market because of the rules and regulations in the market,
weather conditions are different, so the building industry tends
to put most of its R&D close to market. If we follow the building
industry example in that and look to make sure that the tariff
supports the building industry the better will be the built environment.
Then there would be more R&D and more job creation here in
the UK, because the product will have to be built here in the
UK to be part of that environment. If the tariff just says, "Let
us just bolt on", then the products will come from China.
That is the easiest way to define it.
Mr Matthews: Something which concerns
me on that point is that in Europe they form these technology
platforms to develop technologies, and ESTIF, the European Solar
Thermal Industry Federation, set up one called the ESTTP, the
European Solar Thermal Technology Platform, and we get involved
casually by people like myself and Howard going along to the meetings
and paying for ourselves, but it is very casual. We do not get
an active feed-in in the UK to this, and we get several people
in the UK who develop their own technologies and come up with
very good technologies, but by co-ordinating our R&D activities
with something like this technology platform we can see the strategic
opportunities and exploit those strategic opportunities, and I
would love to get a partnership with government going around these
issues and saying, "How do we get involved in the platform?".
Then the Commission turned to the ESTP and said, "That is
not good enough. You need to have a renewable heat technology
platform", so they had to change it, they had to bring biomass
on board, heat pumps on board, and now they have got a portfolio
of measures, but yet again it is such a casual approach from the
UK and we are such a big country in Europe that we should be very
actively involved in these platforms.
Mr Johns: For me it is all about
the scale. If you look at the scale in the industry in the UK
it is not surprising that there is not a lot of R&D going
on because there is not a huge amount of money going through this
industry. Compare it to the size of Germany and Austria. The innovation
is bound to be happening there because they have got a mature
industry. They have got factories in Austria that are producing
a million square metres in one factory per hour, which is more
than twice our entire installed capacity in the UK. It is not
surprising that there is very little R&D. From where I sit
this is all about deployment. Sure, R&D is very important
but deployment is really what this is about. We need to get off
and get it out there.
Q344 Dr Turner: We have already talked
about the topic of feed-in tariffs and the fundamental reason
for the situation in Germany, as you have just described, has
been the German feed-in tariff regime, plus other aspects of their
renewable energy legislation. The Germans created a market which
created the R&D and created the production. We are now consulting
on feed-in tariffs and micro-generation, and, as in the German
model, they vary according to the technology. Do you think that
the proposals set out in the DECC consultation for different technologies
are reasonable? Photovoltaics are 36.5p per kilowatt hour, which
is the top whack. Is that going to be enough to energise your
industry?
Mr Newman: No, would be the simple
answer to that. If we take it from a couple of angles quickly,
first of all I would say the feed-in tariff has been proved to
be an effective way of launching a market and we very much welcome
the fact that they are being introduced here as part of the Act,
so in nothing I say now am I trying to say that tariffs are wrong.
They are absolutely right; they have been proved and they are
by far the best method of getting micro-generation into the mix.
However, the way the tariffs have been set up, and 36.5p is for
the domestic retrofit and you are looking at 26p for the commercial
larger scale, if we take a look at those tariffs, in terms of
investment at which investors are interested in participating
in, the 26p gives one gigabyte or 1% return on investment and
36.5p gives about 4% return on investment. People are not going
to take an extreme amount of risk in terms of their own money
with those levels of return. There will be an uptake in the UK
for retrofit with those tariffs and that is good because people,
rather than wanting to do the right thing and not getting a rewarded
for it, will get rewarded for it, but it will not get the significant
uptake that we have seen in other countries. Putting it in context,
the tariffs are 40% lower than they are currently in France, 25%
lower than they currently are in Italy and 10% lower than they
are in Germany, and Germany is 40% of the world market. We are
saying that a UK tariff set at 10% lower than the world's largest
market is a problem in terms of this global market.
Q345 Dr Turner: In that case what
level of tariff do you think we need to be effective in this country,
what are the cost implications to the consumer of those tariffs,
and how long do you think it will be before the ultimate aim of
the feed-in tariff, which is to encourage sufficient production
so that you get cost reductions and bring costs down, comes into
effect?
Mr Newman: In terms of what they
should be, they need to be at a sensible rate of return. We have
argued through a coalition of the Federation of Master Builders,
the National Federation of Roofing Contractors and the Photovoltaic
Manufacturers Association that you need to see a realistic rate
of return, so if you add 10p to the tariffs across the board you
will get return rates in the 5-7% rate, which are still relatively
low but enough to significantly change the market. In a sound
bite, if you add, say, 25% to the tariff, you would get double
the power, that is roughly the kind of change we need to see,
so an extra 10p across those tariffs will get us twice as much
power in the near term over the four years of the tariff before
review, so that is an important point. The second point on the
tariff is the annual reduction rate, the derogation rate as proposed
is 7%. Whilst we understand that that is a control mechanism,
we are recommending that it is not used like that in the first
few years, because that limits any industry start-up in the UK,
hiring people and training the workforce, and our workforce in
the UK is not yet ready for transforming into a green economy
within a year. There was an Institute of Public Policy research
document yesterday that came out and was very timely on this in
terms of what we need to do in terms of the skill mix in the UK,
so if we drop the tariffs next year by 7% and invest money in
jobs and training, it would not be at the level that the industry
needs to get the workforce switched across to what needs to happen,
so 10p more is the first part of the answer to your question.
The cost to the consumer was the second part of your question.
We feel that with the cost to the consumer of +10p, by 2013, which
is the review point, we are talking about £2.50 a year on
the average domestic electricity bill, so the relative impact
on the individual is pretty low. We do not hear any consumer noise
in countries that which have even higher tariffs in terms of complaints
from consumers because they know where the money is going; it
is very transparent, so in terms of impact on the consumer, that
is not very big. Your last point was how long would it need to
be. Fundamentally, it needs to be there until the technologies
are mature such that the energy generated through solar is at
the same cost as energy generated through conventional means through
fossil or otherwise. That is getting close to the 2015/2020 point
where you begin to see the technologies coming down to cost point
where you need less and less support through tariffs. With the
derogation built into the scheme as proposed, the tariff will
be relatively low by then anyway if you are dropping it by X%
per year, so the system as designed will get to the point where
it is beginning to be realistic with the tariff that is coming
in. Those are the mechanisms. In summary, the tariff is good.
It is the right thing to do. It is not high enough to create a
UK industry of significance and get the R&D and the job creation
we need. With 10p more we are up to about 30,000 more jobs by
about 2013 and 2014, and those are jobs which cannot be outsourced
because they are real jobs close to the market. You need installers,
you need electrical contractors, you need roofers, you need maintenance
people, you need porters, you need designers. These are all jobs
that will be here in the UK; they cannot be whisked off to India,
so this tariff has a great social impact as well as an economic
impact if we get it right.
Mr Leggett: On a slightly wider
point on this as well, which is the one about bringing other players
to the party, what we would want out of this, obviously, is not
just a fast-growing solar photovoltaics downstream industry with
tens of thousands of jobs being created—which is what we
are talking about, that kind of elevated rate of tariff, albeit
still below the tariffs that exist in France and Italy, for example—but
also to bring financial institutions to the party so that our
disgraced banks have the opportunity to redeem themselves a little
bit by innovating around packages that they could offer to the
consumer that would actually make such an increase in the tariff
and a very small increase in the electricity bill fiscally neutral.
What we are talking about is lending packages for energy efficiency
so that the consumer can get the short payback rewards for that
and reduce energy bills overall while putting energy regeneration
into their homes. We have reason to believe, and we cannot elaborate
for commercial reasons on this, that the banks, as we are discussing
with them at the moment, will not come to the party as the tariff
currently stands but they would if it were something like 10p
higher.
Q346 Dr Turner: If you got the level
of the level of tariff that you want do you think that British
industry has got the capacity to respond to that market stimulus
or would it run the risk of simply sucking in imports because
you could not respond quickly enough?
Mr Leggett: The thing here is
that we would encourage the Committee to think of the PV industry
as a highly segmented field. There is the upstream where sand
is melted, the crystalline silicon end, and there is the solar
manufacturing. Then there is the downstream, which is the secondary
products that we do with Solarcentury, the roof tiles and slates
and everything else, and all the design around the incorporation
of the primary product, plus the basic solar thermal collector,
into the building product that is deployed. Here we really can
play to British strengths: British strengths in design, in architecture
and all the rest of it, and the support which we have as manufacturers
from roofers and their response to our training programmes, for
example, suggests that yes, absolutely we could build a dynamic
industry very quickly, and this is where it is particularly job-rich.
It is also job-rich upstream, many of which of course inevitably
are going to be in China.
Q347 Dr Turner: Despite this problem,
a feed-in tariff regime means fixed prices and energy prices are
notoriously volatile in practice, so do you see a problem with
giving fixed feed-in tariffs if the oil price rockets and energy
prices rocket with it?
Mr Leggett: Well, it would be
great if they could be fixed, but let me make one other point
here as well which I do not want to dwell on, but it is so important
that I do want to make it briefly, and that is that in the consultation
the assumption is through 2020 that the oil price will be $70
a barrel, and I think you are aware that a growing number of people
in the oil industry as well and around the oil industry, just
simply do not believe that this is going to be the case. I refer
to the UK Industry Task Force on Energy Security and our report
last year and the second report which will be coming out in January,
which we will be happy to send to the Committee, where we argue,
as a group of companies—including Virgin, Scottish &
Southern, Arup's: a range of companies across British industry,
including Solarcentury—we think that this industry has got
its net asset assessment wrong in the same way that the investment
banking industry did, sadly. Obviously, I do not want to go into
detail here, but I want to flag that up very quickly. On the massive
balance of probabilities, we think that the oil price will be
a lot higher, energy prices will be a lot higher, and of course
we are not alone in this, you just have to look at what the IEA
are saying and Ofgem recently, not about oil, but about electricity
prices with some of their scenarios. So that changes the economics
really fundamentally.
Q348 Sir Robert Smith: Whilst you
mentioned the renewable feed earlier on, I am interested in how
you see that working, but also you talked about new technologies
and you cited the German scheme and we saw the big district heating
scheme in Copenhagen. Do you think though that the feed-in tariffs
alone in the UK cultural, individual householder psychology are
going to actually deliver in the way that they can do in the way
that Germany and Denmark have done?
Mr Johns: Well, for a start, the
feed-in tariff is not going to have any effect on the renewable
heat incentive which is proposed for a year later, and we have
no insight into the tariff levels or the structure at this moment
of the thing which will incentivise. What I would say is that
I actually run a solar installation company and, from my experience
of installing solar in people's homes, they absolutely love this
technology because it gives them the power back in some way and
it changes their attitude to their home and to the energy that
they are using, so people who were once profligate in their energy
use do change their habits and do tidy up the energy performance
of their home, so I think it will sort of engender behaviour change
across the board. I think that, if we can package up societal-based
solutions maybe through the use of locally owned energy services
and companies, that sort of stuff, then things like solar district
heating for a street might become possible. I agree that there
are challenges around cultural norms, but there are challenges
around cultural norms in the traditional industries, for example.
Q349 Sir Robert Smith: It always
depresses me that every warm home, when they are putting in their
cavity wall insulation, they chain that wall to make sure the
neighbour does not get heat out of the cavity wall insulation,
yet, from the installer's point of view, doing the whole street
would be much more efficient.
Mr Matthews: Something that concerns
me with the whole renewable heat message is that Gerry started
with energy efficiency and, as an industry, we totally support
that, we want to see energy efficiency put into homes first, but
the second measure is that you put solar, hydro or wind into that
building, if you can, and that can be solar electricity or solar
heat. The third measure is that you then back it up with something
else, and that message has not been sent clearly enough into the
process. Things like fuel cell micro-CHP can be fantastic technologies,
and I do not want to knock them, I really think they could be
superb, but you do solar before you do micro-CHP, you do solar
before you do heat power and you do solar before you do biomass
as well because biomass is a fuel-based technology and there is
only so much biomass, so you get as much solar and wind as you
can, the pure technologies, and then back them up with something
else, and that message has not come across clearly enough and
we want to send it out again and again.
Q350 Charles Hendry: Can you tell
us anything about the impact of the time it is taking to set the
level for the renewable heat incentive? Is there a problem that,
because people are saying, "Well, in a year's time I may
get a much better reward for this", they are holding back
and that is going to have an impact on the industry at the moment,
or are they simply going ahead and making investments anyway,
even if it may well not be retrospective?
Mr Johns: Well, we know that it
is going to be retrospective, first of all, but probably not many
of the general population do. Secondly, the growth rate of renewable
heat in the UK is quite slow. In my experience as an active business
in the area, the market for PV currently is much, much stronger
than the market for solar thermal.
Q351 Charles Hendry: So it will be
retrospective to all existing installations?
Mr Johns: No, not all existing.
From July 2009 onwards, anything that is installed, either PV
or thermal, will be eligible, but all of our potential ambassadors
out there, the 100,000 people who have got a solar thermal system
and the 5,000 to 10,000 who have a PV system, are not going to
be eligible and this, to me, seems like an absolutely suicidal
move from Government. These people are the ambassadors, they are
the early adopters and they are the ones who are going to sell
this to their neighbours and sell it to their street and their
community and yet they are being penalised. They are not going
to be eligible for these tariffs, either the heat tariff or the
feed-in tariff, and that, to me, just seems like absolute suicide,
and there are going to be hundreds of letters to MPs as a consequence.
Mr Leggett: We would echo that
of course, but I appreciate it would put at least one member of
the Committee in a difficult situation.
Q352 Chairman: Why do you think the
level set in the consultation on feed-in tariffs is so low and
so disappointing? The consultation which has just finished on
feed-in tariffs, the levels for the feed-in tariffs are pretty
disappointing, to put it mildly. Why has the Department pitched
it at those figures?
Mr Leggett: There is a long answer
to that and a short answer.
Q353 Chairman: Give us the short
one.
Mr Leggett: We would like to see
more of our officials go on field trips to the places where these
things are happening. If they were to go to Silicon Valley and
talk to investors there about why the digital revolution is switching
out of the digital revolution and see the research facilities
and fabs that are being set up in and around Silicon Valley, and
talk to the investors about why it is that they are backing all
this with such alacrity, and why they are so sceptical of some
of the large conventional options that get so much discussion
in this country. I think that is really at the root of the problem:
appreciation. There is an element of "we would say this,
wouldn't we?", but there is also a component of seeing is
believing and I think that not enough people in our decision-making
community generally have seen enough to be able to believe the
way that we believe.
Mr Newman: Plus, the consultation
document set the peak of it at 2% of the energy mix, so it is
a self-fulfilling prophecy that, if you want to get the peak,
you set a lower target.
Q354 Dr Turner: Your comments about
the inadequacy of the proposed feed-in tariff levels would be
echoed by other sectors of power generation in terms of the ROC
regime. I assume that your industries have made representations
to DECC. In fact, the Treasury has a considerable restraining
role on the ambitions in this direction, so would it be a good
idea for you to make equally strong representations towards the
Treasury because, I suspect, they have a very strong undeclared
influence in this field as well and, if we could actually get
the regimes right for the feed-in tariffs, what contribution,
do you think, could your industries make to our renewables targets?
Mr Leggett: My earlier remarks
were really applying to Whitehall generally rather than just DECC;
I think it is something we would like to see across all relevant
ministries. I served for four years on the Government's Renewables
Advisory Board and there were a large number of ministries involved
in that because renewables touch on a lot of areas. There are
two other points relevant to that discussion. As you were speaking,
I thought of another thing that is concerning us greatly at the
moment and that is that for a long time in the energy policy debate
in the UK there has been a sort of collective understanding that
we need everything. The Government itself has the line that you
need nuclear and renewables both, but, as you will be aware, the
chief executives of at least two of the big six energy companies
have recently come out publicly and said, "Actually, you
can't have big renewables and nuclear": E.ON and EDF, and
by "big renewables" they mean 20% renewables in the
energy mix which is of course the European target, so we think
this is very dangerous, very wrong-headed and we are very worried
about it in the industry generally. It introduces the answer to
your final question which is how much could we do, and the industry
is very bullish here. A few months ago in Barcelona a group of
renewables companies got together and considered the question
of what it could do with a fair head of steam in terms of powering
the world, and the answer is we believe that we could do it alone
with the right mix right across the family of renewables technologies.
The consensus view out of that conference was that within 20 to
40 years, as little as 20 years, and I emphasise that that was
the consensus view and there are people who are even more bullish
because these are disruptive technologies and they can reach tipping
points, inflection points and can grow with some of the crazy
viral speeds that we see in communications and media, and we would
just love to be given a fraction of a chance to show whether this
analysis is correct.
Q355 Dr Turner: So the potential
is limitless if we can get the conditions right?
Mr Leggett: They are not called
"renewable" for nothing.
Colin Challen: I just want to probe a
bit further the government thinking because I imagine that, if
there were some Whitehall officials listening in to this exchange,
they—
Chairman: I am sure there are.
Q356 Colin Challen:— they would
say, "Just listen to those dreamers".
Mr Leggett: Enthusiasts, as Malcolm
Wicks calls us!
Q357 Colin Challen: They would say
that the whole object here is to decarbonise society, to reduce
our carbon emissions, and the way to look at that is how much
it costs per tonne to achieve that objective. It does not matter
where you get your energy from if you are decarbonising, so it
could be nuclear or whatever else, it is on a cost:benefit analysis,
and they will say, "Well, look at these figures. Photovoltaics
is going to get four times as much as biomass, twice as much as
hydro per kilowatt hour and substantially more than wind, and
then they are asking more, these PV people". They will say
that you are trying to be perhaps uncompetitive and squeezing
out other people for your own industry's advantage. On a cost:benefit
analysis, if you look at these figures, you can say that PV here
is actually getting favourable treatment.
Mr Leggett: I think you have to
view this in a holistic sense and look at the hundreds of billions
that have gone into the fossil fuels and still go into the fossil
fuels right across the board and look at what the nuclear industry
is really asking for in terms of support and compare what we are
saying in the light of that. The feed-in tariff regimes derogate
down. They are designed to bring these technologies quickly to
grid parity, at which time they will be stand-alone and we will
need no further subsidy, no further public support of any kind,
and that is a big difference with the nuclear industry of course.
As for when that will occur, if members were to phone round the
investment banks, all of whom have very expert analysts now working
on this industry, and take a poll of when they think grid parity
will arrive, of course there will be different opinions and they
will vary by market depending on the electricity price, but most
of those opinions will be spread through the decade that we are
going into, and that is assuming no big disparities at the time
we are talking about with the peak oil analysis or of the type
that Ofgem is talking about in its worst-case analysis of what
will happen to electricity prices. We will be at grid parity soon,
we will no longer need any sort of public support, indeed we will
be providing magnificent public services with all the fringe benefits
that come from renewables generally, a long list which I will
not go into, so we feel that our story is really compelling and
we are involved in a battle of ideas with traditional energy industries
who are increasingly fearing what is coming from renewables. You
all know, I am sure, that more renewable electricity capacity
came on stream in both Europe and America last year than fossil
fuels and nuclear combined, and we worry that some of the players
in the traditional energy industry are digging in, fighting hard
and increasingly fighting dirty.
Q358 Judy Mallaber: This is a very
small point from something that either Howard or David said several
sections ago in our questioning, which was that there was not
a common platform for developing technology. I am just curious
because we had the Energy Technologies Institute come to a previous
meeting who were meant to have been set up to try and develop
low-carbon technologies and they had one project, which struck
my mind because it involved Rolls-Royce also, where they were
investing in a tidal project. Have you had any connection with
them at all because I am worried as to why they are at a different
stage from others because I understand they were meant to be across
the board looking at new technologies?
Mr Matthews: It is very limited,
our connection with them, which could go, I have to say, either
way, but it is limited, our input into that process.
Q359 Judy Mallaber: So there is no
platform there for you to go into?
Mr Matthews: Not directly.
Chairman: This has been a useful discussion,
but we have run out of time, I am afraid. I know, Dr Wolff, you
wanted to make a point, so maybe you could drop us a note about
that and in return, I think, Jeremy, you are going to send us
some stuff. We will write to you, if we can, just asking you about
zero-carbon homes when we have had an opportunity to look at zero-carbon
homes and the contribution that solar technologies can make, and
there is quite a lively debate to be had within that. Sorry for
not being able to do any more, but, when you are sitting on your
bike pedalling home and you think, "I should've told them
that", do not hesitate to drop us a line and say, "You
didn't ask about this", but thank you very much indeed; it
was good of you to come.
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