Memorandum submitted by the British Wind
Energy Association
1. The British Wind Energy Association (BWEA)
is the leading UK trade association in the field of renewable
energy, with over 470 corporate members representing the
large majority of the wind energy business in this country, both
large and small-scale. Wind energy is the fastest-growing renewable
technology in the UK, and it will make an increasingly significant
contribution to our electricity supplies over the next decade
and beyond. BWEA also represents the interests of the emerging
wave and tidal stream energy sector, building on its experience
in the development of offshore wind. We therefore welcome the
opportunity to submit evidence to the Committee on the subject
of Low Carbon Technologies in a Green Economy.
2. Most of the subjects being addressed
in this inquiry are discussed in BWEA's report Powering a Green
Economy,[4]
a response to Government's Low Carbon Industry Strategy: A
Vision document. We answer some of the specific questions
asked by the Committee below, but in general Members are directed
to BWEA's report.
3. What opportunities exist for the creation
of a green new deal whilst pursuing a low carbon economy? Which
technologies have the biggest potential? Has the government done
enough in its stimulus package?
4. The UK is well placed to take the lead
in a number of renewable electricity generating technologies,
given that this country is well endowed with resources of wind
and marine renewable energy. The UK also has advanced capabilities
in research and development in these areas, and a long history
of activity—for instance, BWEA was established over 30 years
ago. This country has a distinguished tradition of heavy electrical
engineering and capabilities in manufacturing areas such as aerospace
and motor vehicles which could be transferred. The expertise in
offshore structures and operations developed in the course of
extracting oil and gas from the North Sea is also very relevant.
5. While the technology and businesses associated
with large-scale onshore wind are and will most likely remain
primarily non-UK-owned, wind at the small and micro scales and
offshore offer major opportunities to British business. Given
our status as an island nation, the new marine renewable technologies
of wave and tidal stream power should also be motors for long-term
economic growth. In each of these areas, markets are at an early
stage of development, with much of the investment to build industries
yet to happen. Strong early action therefore holds the promise
of taking leadership positions in all of these technologies, repeating
the experience of Denmark in the area of onshore wind.
6. It cannot be stressed highly enough that
the most important factor in making a country a major site for
investment in low carbon industry is for there to be a strong,
stable domestic market for the goods and services required. This
has been the lesson from the wind industry in Denmark, Germany
and Spain, where world-leading manufacturing bases have been established
on the back of comprehensive policy support for the building of
wind power generation. If the market does not exist domestically
in the UK, or is considered unstable and risky, then this country
will not benefit from the investment that is inevitable if climate
change is to be tackled.
7. It is in this context that the stimulus
packages in the Pre-Budget Report and the Budget itself must be
judged. The Renewables Obligation is already in place and successful
in stimulating the market for developing renewable generation
projects. The measures to award extra support to offshore wind
help to unlock the value of the RO for this sector, while underlining
Government commitment to a strong market for the technology, which
is most welcome. Action announced in the Budget on accessing funding
from the European Investment Bank for onshore wind projects similarly
leverages the value of the RO. A focus only on the headline spending
figures in the Budget obscures the effect that the actions taken
will have on private investment, which will be a multiple of the
new Government spending.
8. In fact, some of the most pressing issues
for the renewable energy sector are non-economic barriers such
as planning. In this context, the Renewable Energy Strategy due
for publication in June will be more important than the Budget,
and BWEA awaits its conclusions with some anticipation.
9. For the purposes of building new industries,
the Budget announced new funding of £405 million, split across
a number of sectors, including renewable energy. We await further
detail on how this money will be spent, but there are useful indications
in Government's paper Investing in a Low Carbon Britain,
published the day after the Budget. In particular, BWEA welcomes
the focus on establishing a manufacturing "hub" port
for offshore wind. We note, however, that the wave and tidal stream
sectors need a long-term path from the Marine Renewables Deployment
Fund to the Renewables Obligation at 2ROC/MWh, which currently
does not exist: the new Budget funding will be aimed at filling
gaps in the innovation process up to the MRDF. This is an omission
that will need to be addressed sooner rather than later.
10. BWEA would also welcome some additional
targeted funding to overcome some key barriers. In particular,
we believe that Government needs to make resources available to
bring forward technical solutions to the problems of wind turbine
interference with radar signals: the industry has volunteered
£3.2m in difficult economic circumstances, while Government
departments have not committed funds, with the honourable exception
of the Ministry of Defence. Approximately £10m of additional
funding is required, which will unlock the 4.5GW of wind projects
in the planning system that are currently blocked by these concerns.
In addition, a small fund of £2m would be extremely useful
in supporting new small wind products through certification processes.
This would ensure UK companies continue to be world leaders in
the field, tiding them over to the point where a market supported
by the new feed-in tariff allows them to justify the expense of
certification. If money from the £405m fund is directed to
these two areas, it will be money well spent.
11. How realistic are the Committee on Climate
Change's projections for the use of different types of new technologies?
What is needed to achieve the development and deployment of them?
12. BWEA agrees with the CCC's overall assessment
that in the period up to 2020, the prime technologies that can
be deployed are energy efficiency and wind power.
13. Onshore, there are approximately 3GW
of wind power operating, nearly 1GW under construction and a further
3GW with consent. If two-thirds of the 7GW currently in the planning
system is consented, roughly the historic pass rate, then a total
of about 11GW of projects will result from projects already in
the system. This is more than three-quarters of the way to the
14GW that BWEA believes is a sensible contribution from onshore
wind to the 2020 electricity mix, and our members have considerable
appetite to bring forward the remainder in the intervening period.
The build rate required to meet this objective, under 1GW per
year, is less than has been achieved in both Germany and Spain
for nearly a decade, so on the face of it there is no reason why
the supply chain cannot deliver this capacity.
14. Offshore, there is further to go. The
Round One and Two projects total about 8GW, and some have not
even entered the consenting process yet. However, with the Scottish
Territorial Waters Round of over 6GW, and the 25GW expected from
Round Three, there will be nearly 40GW of projects in process
by the end of this year. So long as the consenting bodies are
well resourced enough, the planning process should deliver enough
capacity into the market to meet 2020 deadlines. The limiting
factor in this sector is more likely to be the ability of the
supply chain to deliver.
15. If the delivery of offshore wind in
the UK is ramped up to perhaps 3GW per year in 2020, out of a
wider European market of 6-7GW per year, then it is possible to
have 20GW of operating capacity in that year. Note that this size
of industry will require longer-term visibility of the market
than just to 2020. European Governments will need to articulate
their vision for offshore wind to 2030 if the sustained investment
required to bring costs down is to be brought forward. However,
we believe that the 20GW figure is a realistic and achievable
objective, and that Government should seek at least this amount
in the mix by 2020.
16. In this context, the CCC assessment
is too pessimistic about the amount of wind that could be delivered
by 2020, setting this at 26GW as opposed to the 34GW that BWEA
believes is possible. We are also concerned about the ostensible
"trade off" between wind and nuclear in the 30% renewable
or 25%-5% renewable/nuclear scenarios set out in the CCC report.
We do not agree with the CCC's assessment of the risks of under-delivery
of wind by 2020. Government needs to set one ambitious target
for renewables and stick with it—being seen to be "wobbly"
on this will deter investment and make the targets more difficult
to meet.
17. What are the most important drivers,
nationally and internationally, for a low carbon economy in the
UK? To what extent do the outcomes of the international negotiations
at Copenhagen matter?
18. Targets for carbon emission reduction
are clearly the most important driver to a low carbon economy,
but only if they are accompanied by action plans and timetables.
In that respect we welcome the Climate Change Act and its Carbon
Budgets. Copenhagen is vital in stepping up the ambition in the
EU from the 20% unilateral emission cut to the 30% that the Union
will move to if multilateral agreement is reached. This step will
further underpin the policy drive that is required to meet renewable
energy targets. Agreement at Copenhagen should also provide stability
and growth in the international markets that UK companies will
be able to address, so long as they have strong home markets from
which to build.
19. It is important to note that where policy
drivers are aligned, mechanisms can and should be used to promote
build in addition to carbon-only tools. A prime example of this
is the Renewables Obligation, which if viewed as purely a carbon
reduction measure looks expensive, but it also increases the UK's
energy security by reducing fuel imports, stabilises prices and
is a driver for UK economic growth. These latter values are not
captured by a simple carbon price.
20. How important is it to the UK economy
that it becomes a leading developer and exporter of low carbon
technologies? What government policy needs to be in place to do
this?
21. Energy is the largest business in the
world, and low-carbon energy the fastest-growing part of that
business. With the need to decarbonise our economies, low carbon
technologies will be dominant in the years ahead. Without a leading
position in these technologies, the UK will be left behind and
dependent on the goods manufactured by more pro-active countries.
With much debate on rebalancing our economy in the wake of the
credit crunch, this is a vital area of manufacturing that cannot
be ignored. Given the relatively early stage of many of the low-carbon
industries, there is still the opportunity to take leading positions
in key technologies. We point the Committee towards our Powering
a Green Economy report for a full discussion of this topic.
22. Are we seeing the impacts of a downturn
on demand and investment in low carbon technologies? If so, how
can this be addressed given the need to meet long term targets?
What obstacles to investment are there?
23. The UK onshore and offshore wind power
industry is ready to deliver a substantial proportion of the UK's
electricity supply in the next few years. There is a large bank
of "shovel ready" consented projects, but the financial
crisis and recession are threatening the industry's ability to
start building these projects. Offshore wind suffers further from
recent large cost increases, straining project economics. If these
issues are not addressed, there is real threat that growth will
stall, new and existing jobs will be under threat, and 2020 climate
targets will be far harder to meet. By acting in the short-term,
the Government can secure immediate benefits and maintain the
momentum built in recent years to meet the 2020 targets.
24. Consented, ready-to-build wind projects
are being hard hit by the cost and availability of debt finance,
increased equipment costs from the falling value of Sterling,
and decreasing power prices. The inventory of projects under construction
may appear superficially encouraging, but these deals were mostly
banked before the full onset of the credit crisis. There is a
need to act now to ensure that projects can be brought to financial
close in 2009 for delivery in 2010-11.
25. Bank lending has seized up for renewable
energy businesses, as it has for the larger business community.
BWEA has found, however, that banks continue to have a strong
interest in infrastructure lending in general and renewable energy
in particular. Despite the interest, lenders have become extremely
risk averse, imposing ever more conservative scenarios on a sector
that has an extremely low historical default rate. This has led
to high interest spreads over base rates—though this has
been partially balanced by the recent cuts in those base rates—more
onerous debt service tests and shorter debt tenors. In addition,
the amounts that banks will lend to any project are being restricted,
and underwriting of financings has virtually ceased, leading to
the need to painstakingly piece together "club" deals
even for mid-sized projects. The number of banks willing to lend
is falling, as non-UK lenders focus on their home markets.
26. The fall of the £ against the €
has hit wind projects hard, as turbines and much of the other
equipment needed are sold in Euros—in effect causing 20-30%
price increases Falling oil, gas, coal and carbon prices are driving
wholesale power prices down, reducing revenues just as the costs
rise. Although there is some evidence of softening turbine prices
in € due to slackening global demand and lower costs of commodities
such as steel, the exchange rate-related price increase is larger
than the savings to date.
27. The combination of these factors is
making some onshore wind projects uneconomic. Other onshore projects
could proceed were suitable finance available, but clearly at
lower returns to investors. The difficulties in arranging finance
are also delaying strong, viable projects.
28. Offshore the cost rises due to a lack
of competition in the sector, and greater realism about the costs
in light of early experience, has obscured the impact of the credit
crunch per se. But the current economic situation has made delivery
of these projects more difficult.
29. As noted above, the Budget solutions
for onshore and offshore wind should unlock the resources already
being directed at renewables, and are thus most welcome. We hope
to work with Government to ensure that the measures have the desired
effect, and to identify and implement any new measures that might
be needed to ensure continued growth.
30. What is the potential role for public
procurement and policies such as the 2016 zero carbon homes
target in driving investment, development and job creation?
31. The is a role for public procurement
and policies mandating installation of technologies, such as the
zero carbon homes objective. They will be small relative to incentives
such as the feed-in tariff for small renewable generators, however.
Public procurement can have a key role in providing early lead
custom for new products and services, allowing businesses to grow
to meet the larger challenge of the overall economy. Government
at all levels should be specifying buildings and equipment with
the best possible carbon performance.
May 2009
4 See http://www.bwea.com/pdf/publications/Powering%20a%20Green%20Economy.pdf Back
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