Green Jobs and Skills - Environmental Audit Committee Contents


Memorandum submitted by the Renewable Energy Association (REA)

SUMMARY

  The renewables industry welcomes this inquiry and urges the Committee to underline the distinct benefits of investment in renewable energy in terms of energy security and climate change mitigation, in addition to employment and direct economic opportunities. The exceptionally productive benefits of renewables investment at this time were recognised by Lord Stern in recommendations to the G20 (and by a WWF report). The net economic benefits of investment in renewable energy growth (ignoring climate and security of supply benefits) have recently been set out by EC DG Energy &Transport. Broadly the REA is satisfied with the direction of the UK policy framework, although details need to be set out and, key support mechanisms urgently expedited (as well as access to project finance). Concerns remain however, on the strategic direction for enabling infrastructure which requires substantial investment. There is no doubt, drawing on solid continental experience, that renewables offer a high-value industry that the UK jobs market—at all skill levels— could benefit from significantly in future. REA welcomes the Low Carbon Industrial Strategy and the new spirit of industrial activism. However, the strategy needs to be expedited and to properly recognise the exceptional benefits (and sometimes the great complexity) of successful renewables investment and commercialisation. The UK's serious engineering skills shortages must be addressed. Above all, policy needs to be clear, consistent and long-term and recognise the role of all forms of renewable energy.

1.  The Renewable Energy Association (REA) warmly welcomes this important inquiry. Investment in renewable energy has an important role to play in tackling the recession. In this context we set out our Green New Deal asks for the Low Carbon Summit earlier in the year. We believe the role of renewable energy in particular needs to be given specific emphasis, given the role of renewable energy not only in offering immediate employment and high-value training opportunities, as well as increasing economic benefits, but because of its vital role in safeguarding national energy security and tackling climate change.

  2.  Investment in renewable energy is an active investment that works to displace future import costs and increase energy security. The REA commissioned a study from Delta EE that showed that the UK's proposed push for energy efficiency and renewables could result in a trade balance benefit for the UK economy of up to £12.6 billion per annum by 2020 (assuming modest increases in fossil fuel prices). The report's findings add to the jobs and export benefits already identified by eg Stern, UN, Green New Deal group etc. and contributed to the burgeoning economic case for investing in renewables and energy efficiency in the UK budget.

  3.  The report copied (more modestly) a comprehensive cost/benefit study carried out by the German Government on their green energy programme in 2007, showing net savings for industry and households of 5 billion Euros by 2020, as fossil fuel imports drop. No such study has been carried out by the UK government prompting the Renewable Energy Association to commission the energy balance of trade report from Delta EE. The analysis of the German sustainable energy measures showed that by 2020 the avoided imports saved €36 billion, against an implementation cost of €31 billion leading to savings for German industry and consumers. The German analysis assumed very conservative oil and gas prices of just $65 per barrel. The German programme aims to cut CO2 by 40% and increase renewable energy to 20% of total energy by 2020. The findings were published by the Federal Ministry for the Environment, Nature Conservation and Nuclear safety. It was calculated therefore that each tonne of CO2 emissions avoided represented a €26 saving to their economy. Renewable energy made the biggest saving to CO2 cuts. See "Climate protection programme will lead to savings of five billion euro" published at: http://www.bmu.de/english/current_press_releases/pm/40276.php

  4.  The UK is anticipated to be reliant on imports for 80% of its gas requirements by 2020 at a time when Europe will be dependent on imports for 70% of its gas needs. IEA are increasingly warning of coming fossil fuel "energy crunches", which have serious implications for the future cost of energy and UK competitiveness—they do not consider the impact of the global recession to be sufficient to revise these warnings. Fossil fuel instability over the past year has caused concerns to business and consumers—this instability is likely to increase as the UK becomes increasingly dependent on imports with potentially serious implications for future UK security and prosperity. These considerations need to be weighed alongside the study set out in 5) and 6) below.

  5.  The net economic benefit of investment in renewable energy across Europe has recently been set out by the EC DG Energy & Transport; http://ec.europa.eu/energy/renewables/studies/renewables_en.htm. Please note that this study on the macroeconomic effects of investment in renewable energy excludes the economic benefits associated with climate change mitigation and increased security of supply. Purely on direct economy benefits alone the study demonstrates that investment in renewable energy leads to a net increase in employment and GDP. In 2005 1.4 million people were employed across Europe in renewable energy. If the EU meets its 20% RE target by 2020 the study estimates the sector will employ 2.8 million people and raise GDP by 0.24%. The net effect on jobs—taking on board how investment in RE affects the economy as a whole—is 410,000 additional jobs and added value to the economy. The study says that if climate change mitigation and security of supply benefits had been included, "the economic benefits of RES would probably be even higher."

  6.  This EC study says that stronger policies are needed to reap the maximum economic benefit from RE. Biomass and onshore wind are expected to generate the most near-term employment and economic growth. However, investment in pv, offshore wind, solar thermal and 2nd generation biofuels are also needed to achieve the 2020 RES target and increase employment and GDP benefits in the mid-term. The report says; "policies promoting technological innovation in RES are therefore essential to strengthen the first mover advantage of Europe's RES industries."

  7.  REA was particularly impressed with Lord Stern's "7-point plan" for the G20. Stern recognised that renewables are the ultimate economic and social multi-taskers, delivering jobs, employment, growth, innovation while locking-in future energy and climate security. That is why renewables were given the maximum investment ratings by Stern and also in the Ecofys report on green stimulus for WWF. Stern's comments in his report for the G20 Summit included: "Green recovery measures promise to be superior to deficit-financed spending on consumption from a public finance perspective, because tax-payers implicitly receive compensation for higher future taxes in the form of decreased expenses on energy and lower costs of abating GHG emissions." He also warned; "If firms supplying [sustainable] technologies were to collapse in the current crisis, society would not only lose employment and growth opportunities, but also stocks of technology, human capital and organisations that are difficult and time-consuming to rebuild".

  8.  Governments around the world have been injecting $100 million into their renewables sectors in response to the "triple crunch" (recession, climate and energy security). The UK industry must receive sufficiently similar levels of investment in order to be able to continue to compete internationally and ensure the UK economy and jobs market can take a stake in the growing international sector.

  9.  Like many OECD countries, major investments are urgently needed in the UK's ageing generation and network infrastructure and the UK cannot afford to "lock-in" to outdated long-life assets. Thus the UK actually faces a "quadruple crunch", considering that in addition to economic, climate and energy security woes, the UK also faces the pressure of infrastructure replacement. Given this expenditure must be incurred in any event, it presents an opportunity to move towards a low-carbon system in an economically efficient manner. It is therefore vital that infrastructure redevelopment is guided by an explicitly low-carbon strategy—see our concerns under 21) below.

  10.  Improving the UK's infrastructure will broadly improve UK competitiveness by increasing efficiency, as advocated by Dieter Helm.

  11.  The REA was satisfied with the main provisions in the budget, in the circumstances. However, in terms of public money, there was a continuation broadly of existing levels of spending for practical renewables programmes, rather than any increase in response to offering green stimulus. We also require further detail on several promised measures.

  12.  The availability of project finance is now a major issue for the industry for all types of technology and for projects at all scales. We are still awaiting a meeting with the Treasury to discuss the £4 billion apparently secured for loan finance for renewables projects from the European Investment Bank. The situation is urgent for many of our members. We do not understand, particularly given the huge leverage the UK government now has over major banks, why the access to loan finance problem cannot be dealt with quickly and effectively in the UK.

  13.  We are unclear what proportion of the £405 million allocated from the Strategic Investment Funds and Environmental Transformation Funds will be made available for renewable technologies in particular. Lumping renewables together with "low carbon industries", important as they all are, fails to identify the exceptional benefit of investments in renewable energy and the urgent need to tackle climate change and energy security. When money is scarce it is vital that what money is available is spent to optimise public benefit.

  14.  Our members were particularly dissatisfied with the delay on a comprehensive support framework for renewable heat which we had hoped would be addressed in the Budget. REA had advocated for the Heat and Gas Tariff to be expedited to be brought in alongside Power Tariffs in 2010.

  15.  If policy is to be effective it must be clear, consistent and long-term. This is vital, both to encourage UK-based companies to invest in renewables and to attract and retain international investment.

  16.  Transport biofuels have been particularly badly hit by the Government's policy changes in 2008. The Renewable Transport Fuel Obligation came into force in April 2008 and less than three months later, with the publication of the Gallagher Review, the Government announced that the original 2010-11 target of biofuel 5% use will not now be hit until 2013-14. This was followed in the Autumn by the discovery of a drafting error in the RTFO Order which effectively halved the first year's targets. The effect for investment in the UK, big and small, has been severe. Some plants have closed or been mothballed, plans have been abandoned and there are no new large-scale projects coming forward. It is ironic that the failures of UK policy have most undermined UK production, since the figures from the Renewable Fuels Agency show that biofuels made from UK-produced feedstock out-perform the average by a wide margin, on both sustainability and carbon savings. According to the most recent figures, UK fuels offer 66% GHG savings relative to fossil fuels (average 46%) and 99% meet stretching environmental standards (average 19%).[65]

  17.  Despite signing up to the binding target in the Renewable Energy Directive that 10% of energy used in transport (roughly 13% by volume) must be renewable by 2020, the Government seems unwilling even to consider revising the targets. On the present course, the most likely outcome of this is that UK consumers will still be obliged to pay for the biofuel needed to meet the targets, but that very few of the jobs created (or fuel security benefits) will come to the UK.

  18.  We fear the current enthusiasm for electric vehicles could follow a similar path. We believe that they are likely to have a key role to play in reducing GHG emissions in the transport sector but much of the comment about them neglects the fact that they are only as green as the electricity they use. There are other sustainability concerns that will need to be addressed, such as the disposal of the batteries and whether there are enough raw materials available to make them. It is a mistake to see this as an either/or choice—we need to use the full range of options available, including energy efficiency, demand management and behavioural changes. In particular, electric vehicles are unlikely to be available in large quantities before 2020, making it particularly important that the UK secures a supply of sustainable biofuels.

  19.  In other sectors, the REA is broadly happy with the Government's long-term policy framework although key parts of its still need to be defined and delivered, particularly for renewable heat, renewable gas and local renewable power (which together could supply half the UK's EU 2020 targets). Assuming Tariffs for these measures are implemented successfully, the REA would be pleased because the Tariff framework offers a clear long-term stable framework for investment. This is a huge improvement on stop-start grant schemes which have clearly failed to build sufficient capacity in the UK onsite industry. The merchant power industry is satisfied with the RO as a support mechanism, particularly now the banding provisions have come into effect and can be adjusted as required.

  20.  Evidence from Germany is clear that the long-term framework provided by a long-term scheme like Tariffs does indeed help the industry expand and invest substantially, with huge employment benefits. They estimate 249,000 people are employed in their renewables sector. Germany last year achieved the levels of deployment that the UK needs to match to meet its 2020 targets.

  21.  Where there is more uncertainty is over the regulatory framework for the industry going forward, which results in complications around eg network access and network charging for our members. This has caused delay, frustration and increased costs for many of our members. It is frustrating that eg networks for offshore wind, have not already been planned ahead of need. REA sought to align the remit of the regulator Ofgem to the Government's stated energy policy objectives under the Energy Act 2008, but achieved only limited success on this complex and highly political area. On the positive side, there does seem to be greater political awareness (namely from Miliband at DECC) that greater intervention is needed in "the market" to ensure sector investors receive the right signals to invest in low-carbon technology and infrastructure. Business as usual will simply not deliver the strategic redevelopment necessary for a low carbon system, and the lack of a clear strategic framework is a real concern given the vast and pressing infrastructure and generation investment needs.

  22.  There is no doubt that the renewable energy sector offers substantial potential economic benefits. A study by IPPR/Greenpeace estimates the offshore wind sector alone could deliver 70,000 jobs. We anticipate meeting the 2020 renewables targets could deliver over 200,000 jobs. We anticipate these jobs would range from the highly skilled for major engineering projects and network development work, right through to the manual trades, particularly in the bio-energy sector for fuel-stock, where increased rates of waste sorting and recycling, forestry management and farm and commercial waste collection are needed. Many of the trades in difficulty given the collapse of the construction sector, for example, plumbers, electricians and heating engineers can be further trained in onsite renewables installations. However, the very highly skilled jobs in particular are likely to attract international candidates, particularly given the serious shortage of engineering skills in the UK.

  23.  One well known innovative member of the REA based in Scotland has provided us with a breakdown of the manufacturing components sourced by the company. It may be possible to provide this to the Committee, but we would need to check. The long list clearly illustrates the direct manufacturing benefits UK renewables offer to diverse manufacturing companies across the UK.

  24.  A survey carried out with our members, to which over 100 responded, indicated that for each £1 million of turnover the on-site sector employs 10 people. We roughly anticipate that each direct job leads to around two more in associated manufacturing, installation and other related jobs.

  25.  REA welcomes the new spirit of industrial activism. We are keen to see the Low Carbon Industrial Strategy expedited. Much more could be done to ensure the UK can better translate its academic and engineering expertise into commercial successes. REA is particularly concerned that the UK does not lose out in the marine renewables area, where we still retain a global lead, having lost the lead on wind and solar in the past. Unfortunately accessing the Marine Renewables Deployment Fund meant meeting insurmountable criteria meaning firms could not access the funds. Now that Scotland have completed their Strategic Environmental Assessment, the Crown Estate bidding round for projects in the Pentland Firth have provided an exciting insight into the growing vitality of tidal technologies with 38 applications for projects up to 300MW in size. REA is urging the UK government to act with a greater sense of urgency and undertake not the preliminary study proposed, but a full Strategic Environmental Assessment for England so similar activity south of the border can start as soon as possible. The industry is also concerned about the impact of the Marine Bill on the industry, both broadly in terms of the uncertainty introduced, but also in detail, for example in relation to environmental monitoring costs which are significant for an emergent industry.

  26.  The Marine example shows how the Low Carbon Industrial Strategy will need to carefully understand the development status of the renewable technologies it seeks to assist and the often specific and complex types of barriers that each may face.

  27.  We also hope that the Low Carbon Industrial Strategy will take a proactive approach to encouraging manufacturing opportunities.

  The Renewable Energy Association (REA) is the largest industrial body representing the UK's renewables industry. Its 600 members cover all renewable energy types and all scales from the energy majors to emerging companies in new energy technologies. The REA has proposed budget measures for centralised and decentralised renewables and for infrastructure and training, estimated at a total of £695 million. See: http://www.r-e-a.net/policy/REA-policy/EnergyDeal

26 May 2009







65   RFA running totals April 2008-February 2009. Data are provisional and may be revised. http://www.renewablefuelsagency.org/reportsandpublications/rtforeports.cfm Back


 
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