Memorandum submitted by E.ON UK
SUMMARY
1. E.ON is one of the world's largest investor-owned
power and gas companies, with operations in more than half of
the EU member states and in the United States. Its role in developing
and investing in low carbon technology is an important contributor
to meeting climate change targets. E.ON seeks to contribute to
both the affordability and security of energy supply through improving
diversity of fuel supplies for power generation. In the UK, E.ON
is investing in a range of low carbon technologies including offshore
and onshore wind, biomass, marine devices, micro CHP, heat pumps,
carbon capture and storage and nuclear energy.
2. The UK has set some demanding domestic
targets for CO2 reduction under the Climate Change
Act. While these will impose additional costs on the UK economy,
it also provides a range of economic opportunities for the development
of new low carbon industries which can provide the UK with a competitive
advantage within the global economy as other developed and developing
countries shift to lower carbon technologies, can support employment
and ensure the UK has a diverse and resilient economic base.
INTERNATIONAL CLIMATE
POLICY
3. This shift to a low carbon economy in
the UK will be provided by the right long term policy framework
which incentivises investment in low carbon technologies. In our
view the EU ETS should be the main driver of investment in low
carbon technologies in power generation across the EU, but additional
policies are required to support emerging technologies which are
not yet commercial in their own right. A robust international
climate change deal is needed at Copenhagen to drive a carbon
price capable of incentivising investment in the technologies
required. In particular an agreement is required which will enable
the EU to commit to a 30% reduction in GHG emissions by 2020 which
will in turn lead to a tighter cap on emissions under the EU ETS
over the period and a more robust carbon price.
NATIONAL CLIMATE
POLICY
4. Downstream, a mix of policy measures
is required, including minimum standards, tax incentives and specific
incentive mechanisms. The renewable heat incentive and the feed-in
tariff (FIT) will have a crucial role in incentivising new low
carbon technologies. Planning policy has a key role to play at
all levels. This approach will help create a market to which manufacturers
and others can respond.
5. In the energy sector, the UK should look
to develop technologies which will contribute most effectively
to the UK's energy goals of low carbon, secure and affordable
energy supplies. It should also take account of the timescales
for delivery of the UK's longer term GHG emission reduction goals
to 2050 and the technologies that will be required to deliver
this over that period as suggested by the Climate Change Committee.
This means supporting technologies which are or have the potential
to be economically viable in the UK energy market, are low carbon
and can contribute to fuel diversity. In the past this has tended
to favour technologies which can make use of the UK's indigenous
energy resources where these are economic to exploit, such as
coal, oil and gas. In the future we would expect the UK's natural
renewable resources, such as wind, wave and tidal, to play an
increasingly important role, but the UK will need access to a
range of technologies in which the UK has a range of industrial
capabilities. Our views on individual technologies are set out
below.
6. The Committee on Climate Change has put
together a comprehensive view in its report "Building a Low
Carbon Economy" on how the UK can meet its 80% GHG target
by 2050. It shows that the key to delivering a low carbon economy
is through a substantial increase in the generation of low carbon
electricity, which will then support decarbonisation of much of
the remaining economy. The projections on the use of each of these
technologies are driven by a number of assumptions around the
demand for electricity with substantial increases coming from
both the transport and heat sector through technologies like electric
vehicles and the deployment of ground source heat pumps. The level
of this demand in the transport sector is contingent on suitable
incentives being delivered to drive the take up of electric vehicles.
UK SUPPORT MEASURES
7. Government should be supporting industry
to help it respond to these opportunities, developing the UK's
existing technological, manufacturing and skills capability and
attracting new inward investment. This can be both through financial
and non-financial incentives. Implementing robust and efficient
systems for planning and the grid will reduce potential bottlenecks
and provide more confidence that there will be a steady stream
of projects and demand for projects requiring a supply chain.
This will enable more UK based companies to win business but they
need to do so on the basis of the quality and competitiveness
of the products and services they can offer rather than any predetermined
preference for UK products which would in any event be unlikely
to comply with EU law. The UK should not aim to be self-sufficient
in all technologies but should focus on those where it can draw
on or develop existing skills and capabilities or transfer these
to new markets.
8. E.ON is heavily engaged in partnerships
and groups, which collaborate on different aspects of the challenge
of commercialising new and emerging technology concepts. Notably,
we are involved in a leading public-private partnership via the
Energy Technologies Institute (ETI), which is specifically addressing
the perceived gap in funding and effort received by technologies
which have emerged from R&D as proven concepts, but not yet
reached a point of being fully-commercially viable. E.ON is currently
working on a pioneering project, within the ETI, for example,
to develop a next-generation offshore wind turbine with Rolls
Royce. The ETI will also be addressing technologies such as carbon
capture and storage and electric vehicles. Traditionally, E.ON's
R&D department (E.ON Engineering) has also been involved as
active members of bodies including the Engineering and Physical
Sciences Research Council (EPSRC) and the Electric Power Research
Institute (EPRI), which include a wide industry membership base.
E.ON conducts collaborative research with industry partners through
both public funded means (eg via the Technology Strategy Board)
and private partnerships with original equipment manufacturers
(OEMs) such as Alstom and Doosan Babcock, as well as other utilities.
E.ON's UK business also benefits from coordinated R&D activities
across the E.ON Global Group, bringing new ideas into the UK.
Furthermore E.ON's R&D department is also participating in
an East Midlands Development Agency effort to co-ordinate the
development of skills for the future, to help position the region
for future market developments.
9. The UK has a high technology manufacturing
capability in a number of areas relevant to low carbon energy
production. These include aerospace, offshore oil and gas production,
information and communication technologies and software sectors
as well as more traditional technologies such as boiler manufacturing.
The UK also has a well developed science and engineering base
in its universities but this capability has not been fully exploited
and translated into commercial products. For spin-outs and start-ups,
the critical issue is cash flow as they go from small scale prototypes
to commercial deployment. What may help is public sector support
(eg soft loans) to take technologies from the stage where their
development costs start to escalate to the level of commercial
demonstration when industry will have the confidence to make larger
investments. The investment community can help here, but often
the investment models used mean they take a shorter-term view
which is often not in the best long term interests of the technology.
Typically this involves a rush to premature commercialisation,
followed by technology failure, which damages industry confidence
and sets back progress, allowing better supported competitors
from overseas to become market leaders.
ROLE OF
PUBLIC PROCUREMENT
10. To the extent that the UK needs to fund
shorter-term public and private sector investment to reduce the
impact of the current downturn and to increase employment, intervention
should be focussed on measures which will accelerate the investment
required to meet our longer term goals, or support the development
of new technologies which have economic potential for the UK.
The effect of the economic downturn has varied across sectors.
The down-turn in the new-build housing market has been profound
and has detrimentally affected microgeneration and decentralised
energy schemes. In the offshore wind industry it has been the
decline in the value of sterling against the euro which has led
to a deterioration in the economics of projects which has not
been offset by lower prices from overseas suppliers. We welcome
the Government's decision to propose an increased level of support
for offshore wind projects under the Renewables Obligation which
will provide necessary incentives for offshore wind projects.
Also, where policy is not yet fully defined, as is the case with
coal and CCS or smart meters, decisions need to be reached quickly
so that policy can be translated into form investments.
11. Public procurement has an important
role to play particularly in terms of reducing the carbon emissions
associated with buildings, supporting the market for energy efficiency
and renewable technologies and providing anchor loads for district
heating whether supplied by fossil fuels or biomass. This is particularly
significant at the current time, as the private sector has much
less capability to invest. If the public sector is encouraged
to be less risk-averse, it could enable the pull-through of emerging
technologies to be developed at taxpayers' expense in universities.
However, this would require all stakeholders to accept that some
projects would fail, and public sector procurement staff would
require skilled support to ensure that these risks were managed
to an acceptable level.
LOW CARBON
TECHNOLOGIES
12. Energy efficiency: from an energy policy
perspective, investment in improving energy efficiency is amongst
the lowest cost options for reducing CO2 emissions.
The UK has particular capabilities in organic light emitting diodes
(OLEDs) and optoelectronics for lighting and displays. The UK
needs a more focussed and coordinated approach to the roll-out
of energy efficiency measures and to the upgrading of its existing
housing stock, complementary to its objective of zero carbon homes
for new build. We believe it is extremely unlikely that a conventional
market will deliver the step change in activity required to deliver
2020 and 2050 targets. As such, we favour a regional
franchise approach to upgrading the UK housing stock from 2013 onwards
in which a single organisation is charged by Government with delivery
within defined geographical area supported by the availability
of low interest loans for consumers.
13. Smaller scale renewable and low carbon
heat and power technologies: small scale renewable heat technologies
such as air and ground source heat pumps are amongst the lowest
cost options for delivering the UK's renewable energy targets
for 2020. The UK has particular capabilities in small-scale wind
and fuel cells but the renewable heat incentive needs to be structured
to support investment in these emerging technologies.
14. Decarbonising heat delivery in the built
environment: particularly for existing buildings, needs to be
a key objective of Government energy policy. For new buildings
and retrofits, E.ON sees a big role for heat pumps. Heat pumps
represent a highly cost efficient and carbon effective way of
providing heat and hot water. By sourcing heat from the ground
or air, using a grid electricity input, the heat pump is able
to convert one unit of heat and in the right conditions produce
up to three units of heat in return. Heat pumps are highly effective
heat-led solutions in hard to treat locations off the gas grid.
Further technical improvements are likely that will considerably
enhance the performance of heat pumps and, with an increasingly
low-carbon electricity grid, could make these an effectively zero-carbon
heat source in the future.
15. We see micro-CHP (combined heat &
power) technology as promising in addition to heat pumps, especially
fuel cell micro-CHP. Micro CHP replaces the gas boiler in a central
heating system. It burns gas to produce space and water heating,
whilst simultaneously generating around 3000kWh of electricity
annually. E.ON sees micro-CHP as a highly effective energy efficiency
and carbon mitigation technology for housing. Given that fuel
cell micro-CHP can deliver electrical efficiencies in excess of
60%, and the technology makes use of the existing gas infrastructure,
micro-CHP is well suited for the UK:
(a) E.ON is actively supporting the development
of small scale low carbon heat technologies through our micro-CHP
portfolio. E.ON has a partnership with UK based technology manufacturer
Energetix-Genlec to support them in the commercialisation of their
wall mounted organic-rankine-cycle micro-CHP unit. We are co-funding
Energetix-Genlec to support the development of a product designed
specifically for the UK market. In addition to this, we are working
closely with them to develop a robust and efficient supply chain
around the core product.
(b) E.ON also has a partnership with the New
Zealand based micro-CHP manufacturer WhisperTech to commercialise
the Stirling engine WhisperGen micro-CHP unit and deploy it in
the UK. We also have a partnership with Australian based Ceramic
Fuel Cell Limited (CFCL) where we are funding the development
of a fuel cell based micro-CHP unit for commercialisation and
launch in the UK marketplace. The fuel cell unit installed by
CFCL has proven itself to be the most efficient solid oxide fuel
cell in the world achieving an electrical efficiency of 60%.
16. Smart Meters: smart meters have an important
role to play in changing customer consumption behaviour by providing
them with information about their consumption patterns. We welcome
the Government's commitment to rolling out this technology to
all households within ten years. Smart meters and advanced "time
of use" tariffs could create much greater flexibility in
power demand, which would enable demand to be more responsive
to the increasing volumes of variable renewable generation which
will result from delivering the UK's renewable energy targets
for 2020, reducing the need for back up generation. This could
play to UK innovation capabilities in smarter technologies in
buildings and appliances.
17. Industrial combined Heat and Power:
combined heat and power on an industrial scale continues to have
a very important role in ensuring the more efficient use of fossil
fuels. We welcome the Government's announcement in the budget
to extend the climate change levy exemption for CHP to 2023.
LARGER SCALE
RENEWABLE TECHNOLOGIES
18. Wind: the UK has some of the best wind
resource in Europe. We therefore expect both onshore and offshore
wind to be major contributors to the delivery of the UK's 2020 renewable
energy targets. Currently the major manufacturing capability for
onshore turbines is in Continental Europe. This is a mature market
and as such we believe there is a limited opportunity for UK companies
to achieve a reasonable market share in the manufacturing process
across the various stages of the supply chain. In contrast, the
offshore wind industry is very much in its infancy. Current capacity
for offshore wind turbines is insufficient to meet expected demand
in the near future. Increasing manufacturing capacity could be
achieved through the expansion of existing factories or through
the construction of new factories in coastal regions of Europe.
It is likely a combination of both will be required. Given the
size of its potential offshore wind market, the UK is potentially
well placed to attract new and existing entrants.
19. A key factor in the decision making
process will be the infrastructure at ports and nearby land. In
addition, a clear strategy to address the barriers to investment
in the UK market, including planning and transmission issues,
will help create a longer-term market which manufacturers can
respond to positively. The capability in the UK also exists in
the construction of turbine foundations. Current designs are not
fit for purpose for Round Three offshore wind farms and the cost
of transport suggests that the manufacturing of foundations should
be nearer to the wind farm. With the skills and capabilities that
already exist in the oil and gas sector, we see these as being
transferable to the offshore wind sector.
20. Biomass and biomethane: the UK has sustainable
indigenous feedstock which can support biomass development to
a certain scale but a large proportion of this has already been
exploited. There may exist an opportunity to support a higher
level of biomass capacity in the UK. Nevertheless it has to be
recognised that to achieve this will require some dependence on
imported biomass feedstocks. The UK has considerable input material
from organic waste, energy crops and manure to support the injection
of biomethane into the existing gas infrastructure network. To
exploit the potential fully requires development of the supply
chain. In addition, the forthcoming renewable heat incentive that
is due to be in operation from April 2011 will need to create
the right commercial environment in order for businesses to be
willing to invest in this new market. E.ON is one of the leading
operators of biomethane plants in Germany.
21. From a community carbon reduction perspective,
we see renewable biomass or, biomethane based community CHP plants
playing an important role. Local planning authorities have a key
role to play in integrating and applying the right mix of low
carbon technologies in a community context through effective spatial
planning has a key role to play. To provide the impetus to open
up this market, we strongly believe that there is a key role in
the Government, through the public sector, providing the anchor
thermal loads for these schemes. In turn this will bring confidence
to the private sector developers to increasingly invest in this
market.
22. Marine: The UK has substantial tidal
and wave resources and marine technologies have potential long
term benefits but are at an earlier stage of development than
onshore and offshore wind. E.ON is scheduled to deploy a Pelamis
wave generation device in 2010 at the European Marine Energy
Centre in Orkney. The Pelamis Wave Energy Converter is rated at
750kW and will be approximately 180 metres long, 3.5m in
diameter and weigh approximately 750 tonnes. This device
has been designed and developed in the UK. Government and the
marine generation industry need to continue to work together in
order to identify the challenges the industry faces and ensure
the sector achieves parity with comparable technologies. This
will happen through technology delivery cost reduction and appropriate
support mechanisms.
23. CCS: carbon capture and storage has
a vital role to play in enabling fossil fuels to be used for energy
supply while minimising CO2 emissions. This is
relevant to the UK in enabling the continued use of coal for power
generation, reducing the UK's exposure to imported sources of
gas, and is also vital to reducing CO2 emissions
globally where coal demand is expected to grow substantially.
The key priority is to demonstrate the technology at scale and
we welcome the Government's decision to support up to four demonstration
projects announced at the time of the budget but we urgently require
Government to provide further detail on the competition, how the
projects will be assessed and funded as without this support mechanism
CCS will not progress further. The UK can therefore be at the
forefront of this technology in terms of supporting commercialisation
and the market needs to respond to this. The UK already has the
skill set required for this and it presents an opportunity for
the UK to show leadership.
24. Nuclear: nuclear is a large scale source
of low carbon electricity which is economically attractive in
a market environment of high fossil fuel prices and where a substantial
carbon price is factored into energy prices. E.ON and its joint
venture partner RWE intend to develop at least 6GW of new nuclear
capacity in the UK, with the first station coming online at around
the end of the next decade. It is important that the UK Government
continues to provide confidence to potential investors through
delivery of its programme of facilitative actions, particularly
the Generic Design Assessment process for prospective technologies
and the Managing Radioactive Waste Safely programme. UK industry
has some capability in a number of areas required for development
of nuclear power stations such as civil engineering and component
manufacturing, yet there is much opportunity for improving manufacturing
capacity and increasing the number of suitably skilled workers
if the UK is to take full advantage of the expected programme
of investment.
25. Electric vehicles: transport is second
only to heat in terms of total energy consumption and represents
36% of the total energy consumed in the UK (DUKES 2008) The vast
majority of this is oil based and therefore has relatively high
carbon emissions, requiring significant imports. Road transport
alone (mainly light goods vehicles and passenger cars) represents
26% of the total energy consumed the UK (DUKES 2008). In the short
term there is the opportunity to pursue more efficient conventional
petrol and diesel technologies (including the use of biofuel)
whilst the first alternatively fuelled vehicles are brought to
market. Electric vehicles and electric hybrids in particular have
the potential to significantly decarbonise road transport, reduce
total pollution and improved transport fuel security of supply.
Even with the carbon intensity of today's generation grid mix,
significant carbon savings can be made using electric vehicles.
These benefits will be significantly enhanced as the generation
mix is further decarbonised with renewable generation, nuclear
power and coal with CCS. Transport energy can then be decarbonised
at the point of generation and allow transport to be emission
free at point of use. We welcome the recent Government announcement
to support take-up of electric vehicles and continued support
will be required to support adoption of such a beneficial technology.
May 2009
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