Inward Investment in Wales

Written evidence submitted by RWE npower and RWE npower renewables

1 SUMMARY

· This submission is from RWE npower and RWE npower renewables, part of the RWE group, a German owned energy business, and one of the largest inward investors in Wales.

· RWE npower and RWE npower renewables comprise our UK based generation and retail businesses.

· We have a diverse portfolio of electricity generation sources, we sell gas, electricity and a range of energy related services.

· To obtain investment capital from our parent company we need to demonstrate and deliver project returns that represent the best use of a limited resource.

· This requires a predictable regulatory regime and projects that are delivered to plan.

· Energy policy is not a devolved responsibility but the Welsh Assembly Government have a key role in facilitating delivery with responsibility for planning, economic development and the environment.

· The additional complexity that devolution may sometimes bring must not be allowed to create barriers to investment.

2 Investment, current and under development.

2.1 RWE is a German integrated energy business, generating electricity and supplying gas, electricity and related services to customers across the UK through RWE npower and renewable energy through RWE npower renewables. We are one of the largest inward investors in Wales where our current portfolio comprises a large coal-fired power station, two combined heat and power plants and numerous renewable energy schemes including both onshore and offshore wind and hydro generation.

2.2 We are also investing in:

· an option to build a new nuclear power station at Wylfa (circa £8bn) through Horizon Nuclear Power, a joint venture between RWE and E.ON UK

· development of the Atlantic Array offshore wind farm (circa £4.5bn)

· construction of Gwynt y Mor offshore wind farm (circa £2bn)

· developing a new high efficiency gas fired power station at Pembroke (circa £1bn)

· development of a demonstration array of tidal stream turbines off the Anglesey coast

2.3 In total, our current Welsh capacity represents around a third of the electricity consumed in Wales and, equally importantly, our investments create local employment opportunities and community benefits. We currently have over 350 employees based in Wales and our policy is to recruit and train people from the local community where feasible.

2.4 We have a long history of investing in the development and operation of generation in Wales. Aberthaw power station was designed to burn local coal and contributes over £50 million to the Welsh economy each year. It is also the site for our new 3 MW pilot carbon capture plant which will be operational in 2011.

2.5 Our investment in a new nuclear power station on Anglesey through the Horizon joint venture will require a highly skilled workforce of up to 5,000 during the peak construction phase. It will bring investment and mean opportunities for jobs in Wales and we aim to retain and provide training for the local workforce. At Wylfa we want to: help create long-term education and training opportunities and develop a skilled Anglesey workforce; help establish a world-class supply chain; make improvements to the road infrastructure where required; work with and help develop the Isle of Anglesey County Council’s Energy Island programme; build a new visitor and education centre; and, ensure the demand for goods, services and employees benefits the local economy.

2.6 We are currently constructing a highly efficient 2,000MW gas-fired power station in Pembroke which, once operational, will be the largest combined cycle gas turbine (CCGT) power station in Europe. At the peak of construction, around 1,500 people will be employed at the site. The long-term operation of the power station has created approximately 80 long-term jobs and we have made every effort to recruit people from South Wales. The power station is a significant investment, costing around £1 billion to construct and it is estimated its operation will bring a long-term benefit to the local economy of around £10 million each year.

2.7 Our renewable energy business, npower renewables, has over 300 MW of operational wind and hydro capacity, a further 576 MW under construction and over 2000 MW under development, mainly offshore wind. We have 17 community benefit packages investing nearly £0.5m each year with a further £1.8m planned for new schemes. Around 90 staff (a third of total) are employed at five offices.

2.8 In Wales, RWE npower has already spent over £20 million supporting programmes for fuel poor households. This means that for every household that we supply in Wales with electricity or gas, we have spent at least £250. This includes energy efficiency measures, social tariffs, debt relief and the Warm Wales and Health through Warmth schemes.

3 The role of the Welsh Assembly Government (WAG) and the regulatory regime

3.1 A coherent UK Energy policy remains the responsibility of Westminster and WAG has a key role in the implementation of such policy in Wales. Essentially it is that policy framework that will establish the incentive to invest in the UK energy infrastructure. Where those investment opportunities to invest are located in Wales then WAG will have a key role in facilitating delivery and with its responsibility for planning, economic development and the environment there is significant scope for influence.

3.2 It is inevitable that devolution complicates the process of investing in Wales, with an increase in the number of government departments, regulatory bodies and NGOs involved. This additional complexity should not, however, be a barrier provided that there is sufficient co-operation throughout the process. Whilst we would agree that all bodies need to preserve a level of independence and transparency this should not detract from the ability to co-operate and avoid unnecessary workload, bureaucracy and delays.

3.3 We feel it is important to recognise that investment decisions in large companies like RWE have to balance investment resources against other factors such as the predictability and complexity of planning and regulatory frameworks. To succeed in attracting RWE investment, Wales effectively has to compete in a European (if not global) market. In particular, given the current economic circumstances our UK businesses have to convince our parent company, RWE AG, that projects in Wales will provide a better return than alternative projects across Europe and that they can be delivered and provide the expected returns.

3.4 The key condition for us is a stable and predictable regulatory regime that provides us with the confidence to make the case to invest in Wales. We need to be able to deliver projects on time and to budget with no surprises or unnecessary delays that erode the confidence of our parent company. Experience gained in any country will influence the level of country risk that investors build into future investment appraisal calculations.

3.5 We need to be able to work with national, regional and local government and the regulatory agencies in a constructive and transparent way to develop plans and deliver them.

3.6 Whilst we accept that major infrastructure projects must be properly assessed to ensure no unintended consequences we have experienced additional work load and project delays due to poorly managed interfaces between environmental agencies and we will closely follow proposals for the merger of Environment Agency (EA) Wales, CCW and Forestry Commission Wales. This infers a greater separation of EA Wales from the EA in England and we would be concerned if this led to greater complexity through the adoption of different approaches across the UK.

3.7 As an example of the complexity, time and cost of developing infrastructure projects the following headlines summarise what was required for the Gwynt y Mor offshore wind farm.

- Site Award 2004
- Submitted Section 36 Application November 2005
- Section 36 Consent Awarded December 2008

- Section 36 Consent - Awarded by DECC
- Coast Protection Act Consent - Awarded by DEFRA
- FEPA Licence - National Assesmbly for Wales
- Cables and Substation Consents under TCPA - Conwy CBC and Denbighshire CC

- Other key consultees were:
- Countryside Council for Wales
- Maritime Coastguard Agency

- BHP Billiton Gas Platform
- Fishing Interests
- Dredging interests
- Civil Aviation Authority/ NATs

- The consenting budget was around £12 million including Meteorological mast installation and a team of 6-8 developers were working on this by the end of the project.

November 2010