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.
LONG-TERM
POLICY FRAMEWORK
3. The right long term policy framework
will incentivise investment in low carbon technologies and help
maximise environmentally positive opportunities. 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.
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.
PUBLIC SPENDING
5. Government should be supporting industry
to help it respond to environmentally positive opportunities,
developing the UK's existing technological, manufacturing and
skills capability and attracting new inward investment. This will
help to tackle the recession, whilst also taking advantage of
employment opportunities that may arise. Support can be 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.
6. 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.
7. The effect of the economic downturn has
varied across sectors but it has adversely affected the economics
of some projects and as such 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.
8. 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
INDUSTRIAL STRATEGY—SUSTAINABLE
DELIVERY MODEL
9. 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. This will help create sustainable economic growth.
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.
10. 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.
11. Focus on green industries will provide
both economic and social benefits. E.ON is committed to changing
energy and as such is heavily engaged in partnerships and groups,
which collaborate on different aspects of the challenge of commercialising
new and emerging technologies. 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.
12. 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.
13. Where policy is not yet fully defined,
as is the case with coal and CCS or smart meters, Government decisions
need to be reached quickly so that policy can be translated into
firm investments.
JOB CREATION
14. 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.
LOW CARBON
SKILLS BASE
AND GOVERNMENT
POLICY TO
SUPPORT DEVELOPMENT
15. 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 coordinated and focussed 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 very unlikely 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.
16. Smaller scale renewable and low carbon
heat and power technologies: small scale renewable heat technologies
such as ground and air source heat pumps are some of the lowest
cost options for delivering the 202 UK renewable energy targets.
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.
17. 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 both a highly cost efficient and carbon effective way
of providing heat and hot water. By sourcing heat from the air
or ground, 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.
18. 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 3,000kWh
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%.
19. 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.
20. 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
21. Wind: the UK has some of the
best wind resource in Europe and we therefore expect onshore and
offshore wind to be major contributors to the delivery of the
UK's 2020 renewable energy targets, with Government support. 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 and its skill base is potentially well placed to
attract new and existing entrants.
22. 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.
23. 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 full potential requires development of
the supply chain. Furthermore, the forthcoming renewable heat
incentive 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.
24. 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 an important
role for 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.
25. 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 both 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 3.5m in diameter, 180
metres long and weighs in the region of 750 tonnes. This device
has been designed and developed in the UK. Government and the
marine generation industry needs 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.
26. CCS: carbon capture and storage
has a critical 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 main 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 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 base required for
this and it presents an opportunity for the UK to show leadership.
27. Nuclear: nuclear is a large
scale source of low carbon electricity that 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 instrumental
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.
28. 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 improve 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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