Memorandum submitted by the Energy Technologies
Institute
INTRODUCTION
The Energy Technologies Institute (ETI) was
established in December 2007 as a unique partnership between
government and industry to deliver UK energy policy targets. The
ETI's purpose is to accelerate the development and deployment
of the technologies required to deliver affordable, secure and
sustainable energy to meet UK needs for heat, transport and power
within an integrated energy system, including an associated infrastructure.
The ETI is a Limited Liability Partnership,
governed by a Board comprising representatives from its member
organisations, with each private sector member entitled to one
seat on the Board. The founder industrial members are BP, Caterpillar,
EDF Energy, E.ON, Rolls-Royce and Shell. The UK Government has
committed to match support for four further Members creating a
potential £1 billion investment fund. The ETI's public
funds are received from the Department for Business Innovation
and Skills (DBIS) through the Technology Strategy Board (TSB)
and the Engineering and Physical Sciences Research Council (EPSRC).
These organisations, together with the Department for Energy and
Climate Change (DECC), are engaged directly in the ETI's governance,
strategy development and programme delivery.
In selecting projects for funding, the ETI is
aiming to achieve a number of key objectives, including demonstrating
energy technologies and systems, improving energy efficiency,
supply and generation and developing knowledge, industrial capability
and supply chains. The transformation of the UK Energy System
by 2050 to meet the energy needs of the UK population with
an 80% reduction in greenhouse gases represents a major challenge
and one which can only be addressed by major interventions at
"mass industrial" scale.
ETI's in-house strategic planning and modelling
activities are developing rapidly and are allowing us to start
to comment effectively on the issue of projections for the future
UK energy system—both in technical development needs, opportunities
and some aspects of potential economic impact.
ETI UK Energy system modelling
Over the last 12 months ETI has been developing
a techno-economic model of the UK energy system. This includes
recognition of the potential likelihoods of implementation of
particular technology developments across the UK and reflects
potential cost base, geographic and supply constraints. The model
is now largely operational and initial outputs are being obtained.
As the model is finalised and fully populated more specific and
robust outputs will become available. These will enable ETI to
provide a high quality input to queries such as those raised by
the Committee in this call for evidence—particularly on
technology implementation projections. The following statements
in response to the Committee's questions are based on our initial
findings through the first 18 months of operation of the
ETI.
1. 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?
Energy sector integration
Our understanding of the Committee on Climate
Change projections is that they appear very ambitious. We currently
see neither a comprehensive consensus within the UK about strategic
goals (other than the high level targets for greenhouse gas reductions
and renewable energy sourcing) nor integrated strategic planning
across the diverse sectors of power, transport, heat management
and infrastructural support. Critically, some important elements
are moving faster than others. For example offshore wind and low
carbon transport are progressing much faster than Carbon Capture
and Storage although all are likely to be critical elements of
the future energy mix and all are very long lead-time items in
terms of technological development, asset introduction and installed
life.
Establishing a long-term carbon price
The most important element in delivering them
will be a medium term (20 year) expectation that carbon prices
will reflect the value of these new technologies and that in the
short term (five to ten years) these prices will be packaged in
stable incentives appropriate to the development of each market
and which reflect the significantly higher costs and risks experienced
by first movers. Many respected commentators and agencies have
concluded that a price in the range £100-150/Te CO2 is
likely to be required. The ETI has not yet identified a package
of technologies that would drive the transformation at lower cost
than this.
Incentivising development and deployment
Any incentives will need to be targeted, as
there are many opportunities to improve at lower cost than that
required to drive the major changes.
Incentives also need to be tailored to the specific
application. The cost of making a major step forward in a wave
device design and testing it in the water is in the range £20-40 million;
the cost of building a meaningful scale CCS facility is ~£2B
(the recent Australian announcement is ~£2B for a 530MW unit);
individual householders make decisions about investments in their
property on a completely different basis than energy producing
companies.
2. 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?
Natural resource driven opportunities
The ETI would expect that areas where the UK
has significant natural resources compared to other industrialised
countries would be likely opportunities for creating competitive
advantage. The most significant of these are offshore wind, tidal,
wave and underground storage capacity for CO2 (ie
CCS) and natural gas.
Necessity driven opportunities
In certain areas the UK can create opportunities
through finding alternative uses for existing assets such as agricultural
land and waste streams. The potential for biomass as a fuel source
is significant but is likely to primarily be focused at regional
level and will lead to a potential rise in the rural economy,
although this must be reviewed in the context of potential displacement
of food production.
Opportunities are also already being created
to make better use of waste streams at both municipal, regional
and in some cases, national level with the additional benefit
of generally reducing landfill requirements.
Service level driven opportunities
The UK has a significant industrial and technological
capability in software development, control systems and information
management. Integration of these various capabilities with new
generation and demand technologies (including low carbon vehicles)
offers the potential for rapid introduction of smart-grid systems
with the potential for significant benefits to both plant operators
and users including the public consumers. Creating industrial
and economic benefit in this highly competitive global sector
is likely to require the rapid introduction and implementation
of a coherent strategy across a range of government bodies with
the focus on regulatory structures and business offerings just
as much as smart meter roll-outs and support.
This coherent integrated approach is starting
to emerge in the specific case of low carbon transport and plug-in
electric vehicles (all electric and hybrids). Linked with this,
a range of government initiatives at regional and national level
are underway with the next phases becoming better coordinated
as ETI strengthens its leadership role with industry and government.
Applying a similar approach to the "smart grid" aspects
of low carbon energy should yield similar benefits.
3. 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?
UK leadership on the matter of climate change,
coupled with the economic development benefit and ensuring security
of energy supply are key drivers. Establishing appropriate and
challenging targets ie 80% GHG by 2050 sets the right frame
for the UK. Copenhagen is a critical next step. We believe that
the risk of failing to address the twin challenges of climate
change and the depletion of North Sea oil and gas reserves is
probably greater than any other risk to a sustainable UK economy.
Addressing these challenges effectively should put the UK in a
small leadership group of nations.
4. Are we seeing impacts of a downturn on
demand and investment in low carbon technologies? If so, how can
this be addressed and given the need to meet long term targets?
What obstacles to investment are there?
There are signs that access to capital for investment
and risk equity for technology and business development is reducing
investments by businesses of every scale. Given the scale of the
capital requirements it is probably most effective to reduce the
risk and increase the expected return on these investments through
clarity and consistency of policy and the expectation of stable
and realistic carbon price equivalents.
Other specific interventions may also be required.
Investors require confidence in the UK's energy economy will look
like over the next twenty years and that investments in it will
be reasonably rewarded.
Other barriers to investment could include a
lack of regulation and standards (eg CCS transport/storage, infrastructure
development (market structure), and public perception of new technologies
(eg coal-CCS).
5. 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?
The scale of public procurement is such that
it should play a major role in building the demand for goods and
services that are closely related to consumer needs. Buildings
retrofit and energy management and low carbon vehicles present
the greatest opportunities. Minimum standards are also a powerful
way to improve the performance of consumer goods and services,
whether they are double glazing units, lights or refrigerators.
It will be important to ensure that these activities
are again part of a coherent national strategy; otherwise there
is a real risk that they will stimulate and incentivise unsustainable
or mutually incompatible developments.
June 2009
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