CORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 1624 -i

HOUSE OF COMMONS

ORAL EVIDENCE

TAKEN BEFORE THE

ENERGY AND CLIMATE CHANGE COMMITTEE

THE FUTURE OF MARINE RENEWABLES IN THE UK

WEDNESDAY 2 NOVEMBER 2011

NEIL DAVIDSON, DR GORDON EDGE, CHRIS RICH and DR ANDREW TYLER

AMAAN LAFAYETTE, DAN PEARSON and ROB STEVENSON

USE OF THE TRANSCRIPT

Oral Evidence

Taken before the Energy and Climate Change Committee

on Wednesday 2 November 2011

Members present:

Mr Tim Yeo (Chair)

Dan Byles

Barry Gardiner

Ian Lavery

Dr Phillip Lee

Albert Owen

Laura Sandys

Sir Robert Smith

________________

Examination of Witnesses

Witnesses: Neil Davidson, Public Affairs Manager, Aquamarine Power, Dr Gordon Edge, Director of Policy, RenewableUK, Chris Rich, Finance and Investor Relations, Offshore Wave Energy Ltd, and Dr Andrew Tyler, CEO, Marine Current Turbines, gave evidence.

Q1 Chair: Good afternoon and welcome to the Committee. Thank you for coming in. Just to set the parameters, we have about 45 minutes with the four of you, if you could time your responses to our questions with that constraint in mind. There are a number of issues we would like to cover. Some of the Committee, including myself, have already been to Orkney to look at the European Marine Energy Centre, so we have some familiarity with what is happening there. It is probably useful to keep that in mind.

I wonder if I could start by asking you to tell us briefly about the companies that you are working for and the devices that you are developing.

Dr Tyler: My name is Andrew Tyler. I am chief executive of Marine Current Turbines. As the name suggests, we are purveyors of fine marine current turbines, and so are very much on the tidal current flow side of things. I took the liberty of bringing a couple of things to illustrate, because a picture does speak 1,000 words, so I will pass these around the Committee, if that is okay. They give an idea of the sort of systems that we are developing.

The photograph is of what we call the SeaGen unit, which is installed in Strangford Lough and has been there since 2008; it has generated just over 2.7 GWh to the grid. Our strategy going forward is to install a number of these devices in small-scale arrays at a couple of sites in the UK, to demonstrate the progression to the next, commercial scale of tidal current energy generation.

Neil Davidson: I am Neil Davidson from Aquamarine Power. We are a wave energy company based in Edinburgh. Our technology is called the Oyster, which is a simple hinged flap that sits in the near-shore area and moves backwards and forwards, generating hydroelectricity in a shore-based station. We were founded in 2005 and we successfully installed our first Oyster device at EMEC in 2009. That operated successfully through two winters, and we are currently installing our Oyster 800 device, at EMEC also, to form part of a three-device array. The Oyster 800 project has been supported by UK and Scottish Government funding. Our plans going forward are to develop small arrays in the UK and overseas. We have a 200 MW lease from the first Crown Estate leasing round and a 40 MW lease off Lewis, and we are looking to develop those concurrently.

Dr Edge: My name is Gordon Edge and I represent RenewableUK. We are the leading trade association for the wind and the wave and tidal sectors. I believe that we represent the large majority of the industry in the UK.

Chris Rich: My name is Chris Rich. I am working with Offshore Wave Energy Ltd, which is an early-stage technology developer. We were awarded a grant from the Technology Strategy Board last year, and we are currently in the process of trying to raise sufficient funding to build a full-scale demonstration device at the WaveHub in Cornwall.

Q2 Chair: The UK is seen as a leader-perhaps the world leader-in this general sphere. Which other countries are trying to catch up? Where is the competition?

Dr Edge: Certainly it depends on where the resources are. For instance, in Canada, they are very interested in tidal-they have somewhere like the Bay of Fundy, and there is a test site there. The west coast of the United States has significant wave resource, and there is some activity there. Places like France are taking tidal much more seriously now, and there is a project with OpenHydro being installed at the minute. As well, there are other wave resources in places like Australia and, until recently, Portugal and Spain, but I think that the economic situation there might have put paid to their ambitions at the moment.

Neil Davidson: We can also put west coast USA on the map; the US Government have put in place more than $50 million into marine hydrokinetic research, which includes wave and tidal.

A few weeks ago, I was in Chile for a marine energy conference; they are quite well advanced and are now looking to introduce a marine energy tariff, which they will put before Congress in the next couple of months. They are potentially pulling in funds from the UK-the International Climate Fund-and from the Inter-American Development Bank to develop some of the first arrays there. Obviously, Chile has tremendous resource, and they are looking to put a tariff in place in support of marine energy.

Q3 Chair: Given that we have a natural advantage in this country for both tidal and wave-but we are not the only countries-can we attribute the position that we have achieved so far to the actions of the Government or the interests of investors here? What has been the factor that has helped us get into the lead?

Dr Edge: There is a very significant history in this, going right back to the ’80s and beyond, when we established a kind of intellectual, academic lead in researching the resource and the technologies for exploiting that resource. So I think, really, we started from there. The Government funding we have had, particularly in the past 10 to 15 years, has been very significant in exploiting that academic lead. Also, the investment in the testing facilities has made a very big difference in allowing us then to go into the sea and really test full scale.

Q4 Barry Gardiner: In 2010, the marine energy action plan suggested that the Government’s view was that 1GW to 2 GW of installed capacity could be achieved over the next 10 years-by 2020. The Government’s most recent publication, the "Renewable Energy Roadmap", suggested in July this year that, in fact, they thought that that was now only 200 MW to 300 MW of capacity by 2020. Why is that?

Dr Edge: I am not sure why the Government were thinking quite so pessimistically because we do not see any reason why 1,000 MW or thereabouts is not a do-able figure by 2020. Perhaps they were taking a more pessimistic view of how the technology would develop, which is unjustified given the recent access of large OEMs into this space and the ongoing support by large utilities.

Q5 Barry Gardiner: Prior to the report coming out in July, what dialogue did they have with you? What indicators did you give to them about your anticipated amount of installed capacity that they should have drawn such pessimistic conclusions?

Neil Davidson: The marine energy programme board and a number of leading developers, including the people here in this room, provided information on their build-out plans that were certainly more ambitious than the 300 MW indicated by the DECC roadmap. To put it in context, 300 MW is six developers developing a 50 MW project, which most companies here would aspire to be doing within the next four to five years.

Q6 Barry Gardiner: What representations have you made to DECC since July to say politely, "Look, this may be a roadmap to 2015 or 2016, but it’s certainly not a roadmap to 2020"?

Neil Davidson: We’ve got a very good relationship with DECC, which has been extremely supportive of the industry. The interface through the marine energy programme board is very positive because it brings together all the players from technology developers to utilities to financiers to industrialists to present them with a holistic view of industry. The indicator of how quickly and how rapidly the industry will grow from that 300 MW towards 1,000 MW is very much predicated on the level of public sector support that the industry gets in the next five years.

Q7 Barry Gardiner: So is the fact that the Government have downgraded by up to 1,000% their original estimate, which you would have backed, indicative of the lack of trust that they have in your projections or is it indicative of a lack of commitment on their part in terms of the public incentives that they are prepared to put into the programme?

Neil Davidson: You would have to ask the DECC officials, I imagine.

Q8 Barry Gardiner: Oh, I will ask them, but I am asking you at the moment.

Dr Tyler: The way we would look at this is that it is not a hard target and, if we can exceed the target, we will do that and it will demonstrate that we were right. We are very focused on making sure that hurdles and barriers are not put in our way in the short term to get to the next step. If we are successful in the next step, we would expect success to breed success, and there are plenty of opportunities between now and 2020 to be revising targets upwards off the back of the success that we had.

Q9 Barry Gardiner: You should be talking to the Foreign Office, not to DECC, with such a diplomatic response. That is very nice indeed.

Dr Edge: It is the case that those are not hard-targets. They will be revising them on an annual basis. For the next iteration of the roadmap, we will certainly be engaging very strongly with them to ensure that we don’t get that kind of message again.

Q10 Barry Gardiner: The Technology Strategy Board suggested that DECC should adopt all that. It sets out how the costs of marine energy are expected to fall over time and to chart the industry’s progress against that, as a basis for the future. Is that something that you would welcome?

All Witnesses: Yes.

Q11 Sir Robert Smith: We talked earlier about other parts of the world with wave and tidal resources, although we are very well endowed in the UK. The industry has said that the next two to three years is critical for the development of wave and tidal power. Is it suggesting that, if we don’t get it right in the next two to three years, somewhere else will leapfrog us or is it that just the whole industry will be set back globally?

Neil Davidson: My view is that the UK has a global lead in a number of technologies. This is an opportunity for the UK, over the next three to four years, to enable a number of companies to get over the financial hurdle of putting in place the first pre-commercial arrays. If we get to that stage, then there is a global opportunity for UK plc. If we do not take that opportunity, it will be a setback for the industry, and it will depend whether other countries wish to step into that space.

Q12 Sir Robert Smith: At RenewableUK, you have argued that we need approximately £40 million to £80 million in capital support for arrays, plus continued support for prototype testing. How do you react to the Government’s idea of £20 million?

Dr Edge: Clearly, it was a disappointment that we did not receive more. We are very happy that the Scottish Government is also coming forward with a similar amount of money, and we are hopeful that that can be seen as a more coherent package between them. Certainly it gives more emphasis to the need to find other sources of funding to come into the sector.

We are very keen for the UK Government to work more proactively with the industry to access European streams of funding in particular, because we believe there are things out there that we can exploit to help the wave and tidal sector here in the UK, such as the new entrants’ reserve 300 programme, future calls under frameworks 7 and 8 and the European Commission research and development programme. Those are all areas where we could be supplementing the money that we do have. We are also looking to the green investment bank to come forward with suitable products that will help finance projects for arrays in the water. We are hopeful that we can get some progress on that.

Q13 Sir Robert Smith: What sort of co-ordination would improve the £18 million and the £20 million working together?

Dr Edge: Well, for instance, we are talking about a pre-qualification procedure for the £20 million that DECC has. If there were a joint pre-qualification, there would be a pool of projects to which either set of money could be allocated. You would have a common set of hurdles that projects would then jump over in order to be able to access either set of money.

Neil Davidson: DECC officials are already working very closely with Scottish Government officials with the goals of maximising growth within the industry and leveraging private sector investment. It is an important point to make that every £1 the Government has put into the leading developers to date has leveraged more than £5 in private sector investment. A Government looking for a growth agenda could look at the half-dozen or more leading marine energy companies, which all have utility backing and industrial interest. You could look at that grant money as a particularly good way of incentivising growth within the UK economy over the next five years.

Q14 Sir Robert Smith: Do you agree with the idea of focusing that £20 million on arrays rather than more prototypes?

Dr Edge: Yes, that is a key gap in the funding array of sources out there. There is nothing at that point, and that is where we need to go next.

Q15 Sir Robert Smith: You also wanted continued prototypes. What sort of funding do you think is needed to keep the prototypes coming?

Dr Edge: How much would you need, Chris?

Chris Rich: I am looking for a modest £5 million, but that is a selfish situation. The difficulty over the past 24 months has been that the private sector-venture capital and the private equity houses-has not been a good source of match funding or investment. That has created significant difficulties for businesses such as ourselves. Having said that, we would not have been able to get to the state that we have without Government funding throughout the 10 years of the company’s existence.

Dr Edge: It is worth pointing out the need for that continued innovation funding. It is by no means certain that we have found the right technologies to exploit these resources yet. Obviously, the leading technologies are getting to the point where we can find out, but there may be other ones that we still need to look at. Indeed, they might just bring further techniques that improve the leading technologies. It is very much necessary to keep the innovation funding going.

Neil Davidson: Another very useful development is the offshore renewable energy Technology and Innovation Centre, which will come into place to look at pan-industry solutions for things such as installation techniques, power take-off systems, new materials and so on. It will look at cross-industry solutions, which is a very positive development.

Q16 Dr Lee: Building on what Robert has been asking and what Barry said, if the figures are 5:1, as Mr Davidson said, why are you not getting support from Government? Is it because you are lobbying poorly? I hardly get anybody from your industry lobbying me. I get so many solar panel groups that I just get fed up with saying no, to be honest with you. I just wonder whether there is a responsibility for you to put your case more strongly.

Dr Edge: I think you’ll find we have been engaging very strongly with officials and Ministers on these subjects. Indeed, getting 10% of the £200 million that DECC had for energy innovation over this Parliament was significant in itself.

Q17 Dr Lee: Some of us have just returned from Orkney. What struck us, and struck me, was the enthusiasm, the complete commitment and total belief that it was going to return big time. One particular individual springs to mind, who thinks he will make his millions out of this. Yet, that does not seem to fit with where you fit in, in the energy mix with DECC at the moment, and I wondered about that disparity.

Dr Tyler: Broadly speaking-and okay, we would always like more money-the Government support that we have been getting has been proportionate to the phase of development that we have been in. The key issue now is that, as we move from devices in the laboratory to putting large devices into the real sea environment and then putting a number of devices into arrays, the requirement for investment goes up by a quantum each time. Instead of the odd million here or £5 million there, it is finding £50 million here and £100 million there, which changes the paradigm when it comes to raising investment.

Q18 Dr Lee: Sure, but has there been a significant increase in technological progress because of the funding you have had in the past 10 years?

Dr Edge: Yes.

Q19 Dr Lee: And if so, in view of the fact that quite a lot of this technology was being talked about in the ’70s and ’80s, if you had more money you would get more technological progress. Yes?

Dr Tyler: Yes, I suppose that has to be-

Q20 Dr Lee: So, if that is the case and, in view of the fact that we have significant resources-the Severn bore, the tide through Pentland Firth and so on-strategically, it would make more sense for us to be putting more money into this. Yes?

Dr Tyler: It is fair to say that the industry has done astonishing things with relatively small amounts of resource. Certainly, coming from the background that I had come from previously, in defence, it astounds me how much progress has been made from meagre resources. So yes, you are right, you could always put more in. However, when you look at the state of maturity of the business now, it is only in the last three years that we have got to the point where we have viable scale devices. When I say "scale", I mean those that are producing meaningful amounts of electricity that could be commercially viable. It is only in the last three years that devices of that sort of scale have come from a number of different players within the industry and are finding their way into a real sea environment.

Q21 Dr Lee: A final question. Looking at Wikipedia, I see that the first windmill producing electricity was built in Scotland in July 1887. We did not really do very well, did we, in terms of progressing that on in the next century? Are we in danger of doing the same thing with marine?

Neil Davidson: Was that question related to wind?

Q22 Dr Lee: I am just saying that we ended up developing and then we allowed the Danes to make all the money.

Neil Davidson: It is a very interesting comparison.

Q23 Dr Lee: I just wonder whether we are going to do the same with the Canadians.

Neil Davidson: Well, it is interesting, because we did a comparison with the Danish wind industry and what we did differently in the UK. In terms of R and D funding, we put in very similar amounts to Denmark, but what was different about Denmark was that it put in place a very early and very steady market incentive in terms of a market price for energy. You can see that the "hockey stick" of exponential growth in Denmark began earlier. They got an early advantage in that sector because they put in place a market incentive earlier.

That is why it is critical, and why it is terrific, that DECC has proposed putting in place five ROCs for marine energy for wave and tide across the UK. But it is also why it is vitally critical for the industry that the electricity market reform puts in place a suitable strike price for marine energy, because at the moment you are getting industrials and utilities looking at investing in the sector. They can see the picture to 2017, which is, to be honest, when the industry will just be starting, but they cannot see beyond 2017 to what the strike price for marine energy will be. The call from the industry is for the Government to give as early a signal, and as much detail as possible, on the future market price. That will be the big incentive for investment in the industry going forward.

Q24 Chair: So how much funding would you like to see for prototype testing?

Dr Edge: I don’t have that number immediately in my head, but it is in the region of tens of millions.

Q25 Chair: Tens of millions? Where should it come from?

Dr Edge: We see a role for EPSRC, the research council, to fund the fundamental research. The TSB should be there making moves on the more fundamental, prototype scale, and more programmes like the marine renewables proving fund or the WATERS fund up in Scotland are the kind of thing we are thinking of.

Dr Tyler: We should also say that having success at early commercial scale will provide the signal to the private investment community, be they utilities, original equipment manufacturers or other investors, to put money into prototype development, seeing that a ready market is starting to grow. That would be the strongest way to get the money for prototype development into the system.

Chair: Sure.

Q26 Albert Owen: If I can move on to renewable obligations, which Mr Davidson mentioned, what is the panel’s view on the outcome of the ROC rebanding review?

Dr Edge: The industry is pleased. Five ROCs is what we asked for. There is no overall cap on the amount of megawatts at which they can be received. A 30 MW project cap is something that we can live with. It has been favourably received by the industry.

Q27 Albert Owen: How important is it to attract further investment?

Dr Edge: It is absolutely vital to have a long-term market signal that there will be a pull into the market of a suitable revenue support mechanism.

Q28 Albert Owen: When we were up in the Orkneys, that was the big issue, but by the time we got back here it had been resolved. It was not solely down to us, but it did happen in that time frame. Moving on to marine energy parks, what is your view on the Government’s proposals to have a cluster and our own energy park?

Neil Davidson: The point is that all of the UK is a potential marine energy park. To take the example of the Oyster 800 project, which has had UK and Scottish Government funding, the installation vessels came from Fugro Seacore in Falmouth; we manufactured the piles in Arnish, in the Western Isles; the R and D was done at Queen’s University Belfast; and the installation was done by an Orkney firm whilst the company is headquartered in Edinburgh. The whole UK is the supply chain for marine energy. More than 90% of our device was sourced within the UK.

I would caution against overly incentivising one area of the UK rather than another, because by our project’s very nature we are using companies from across the UK. One area where marine energy parks might be useful would be in the marine environment, doing pan-industry environmental impact assessments and helping with grid infrastructure and transmission upgrades, which would enable developers to focus on an area in the sea that they could all work on.

Q29 Albert Owen: Are the rest of you broadly in favour of them?

Dr Tyler: I absolutely second that. There are a lot of areas where despite the competition within the industry between device manufacturers, and so on, we are of one voice. If we can achieve more streamlined planning, for example, and if we can achieve grid connectivity into an area, we will all benefit. We would far rather be pooling the resource and the effort together, because eventually we will all benefit. If a marine energy park might be a mechanism to facilitate that, we would be hugely supportive.

Q30 Albert Owen: When we were out and about, the Welsh Government, as you know Dr Tyler, allocated my constituency of Anglesey as an energy island enterprise zone. Enterprise zones are up and running in many parts of England. Do you think that the marine energy parks should have the same incentive as enterprise zones?

Dr Tyler: I would say so. I am impressed with the way the set-up in Anglesey has made things very easy. It has been easy to come to Anglesey and look to develop a project of this nature, more so than it has been in other areas, because they have put that package together. It is not called a marine energy park, but in essence it has many of the same features. I think it is a good model.

Q31 Albert Owen: What about the planning issues?

Dr Edge: That would require going further than the enterprise zone model, in which there is relaxed planning within the zone to develop supply chains. We are talking about resource areas in the sea, which is a different matter. If we could have enhanced grid connection and streamlined planning in those areas, it would be useful, but it is a slightly different model from the enterprise zones.

Chris Rich: The infrastructure picture in terms of the grid and planning is more important than the micro-level of the supply chain. That does not seem to be our biggest problem currently. It is not a business threat; the grid position is.

Albert Owen: Okay, we may come on to that.

Q32 Chair: Is it not the case, however, that the Government can confirm five ROCs in the review because they know perfectly well that the volumes likely to be generated by the industry between now and the end of the period are almost zero? Modest is the word we would use.

Dr Edge: The Government’s own analysis says 130 MW in that period, but I would be hopeful that we could do more than that-it is not a huge amount and it would certainly not break the bank.

Dr Tyler: That is why we made the point earlier that what follows in EMR is so vital. If we end up with five ROCs in 2017 and then we fall off a cliff, the five ROCs are pointless. We need to see that continuity and have a strong signal that we will see a continuum off the back of five ROCs. Obviously, we would expect what five ROCs represent under the EMR to fall with time as we bring costs down. But if there is a cliff edge in that, the investors will all run for cover.

Q33 Chair: Yes, I can see that. There is some encouragement to be drawn from what the Government have planned with the ROC regime for other technologies that have been tapering.

Dr Tyler: There is precedent, which is positive.

Q34 Laura Sandys: We have had quite a lot of evidence to say that there is a lack of co-ordination between Government and different agencies, which has been confusing, particularly because many of you are smaller businesses that do not have the capacity to manage all the relationships. I appreciate that the low carbon innovation group is there to help with that co-ordination, and I would like you to comment on that. But also, in light of the comments you have just made, why is DCLG not represented on that group? Obviously, planning is one of your key barriers, yet DCLG does not seem to be a stakeholder in that group.

Dr Edge: Well, DCLG would be responsible for onshore planning.

Q35 Laura Sandys: But with substations and certainly with the offshore wind sector, onshore planning has been a problem.

Dr Edge: That is a fair point, but the offshore stakeholders of the Marine Management Organisation and so on would perhaps be further a part of this. But are those kinds of stakeholders part of the Marine Energy Programme Board?

Neil Davidson: Not that I am aware of.

Dr Edge: The programme board has been useful in bringing more co-ordination to the sector, but perhaps we should recommend that it extends further.

Q36 Laura Sandys: Do you feel that there are too many different organisations? There are the Carbon Trust, ETI, TSB and the research councils, and the green investment bank will come online. Those are complex but layered organisations, possibly with competing-

Neil Davidson: I think the landscape is becoming clearer. There is much improved co-ordination between organisations. The industry has long asked for a continuum of funding so that from the earliest days with developers and all the way through, there are clear gates to go through and different gates to knock on and, potentially, open. TSB and Scottish Enterprise are collaborating at the moment, the offshore technology and innovation centre is very positive and there is much better co-ordination between those organisations.

Dr Tyler: I am very new in the industry, so I have been learning it from first principles for the last three and a half months. I have been pleasantly surprised by how relatively quickly one is able to get one’s head around how the different parts work together. It is quite a small community, which talks very freely among itself.

Laura Sandys: Good.

Q37 Dan Byles: Can I come back to grid connections? We have heard several times from different people that grid connections are a concern to the industry when you start scaling up into larger arrays. What must happen to ensure that we can physically connect what you are putting in the water to the grid?

Neil Davidson: Finance is the number one priority and the grid is number two, planning is probably number three. In terms of the main wave energy sites in Scotland-Orkney and the Western Isles-transmission upgrades are critical. There is a system under which potential developers must apply and underwrite the cost of the transmission upgrade. So the cost of those upgrades is number one-

Q38 Dan Byles: Does that risk limiting access to the larger players and stopping smaller companies that do not have the capacity to do that?

Neil Davidson: They can only build on the back of what has been asked for, so there is a need for large players to put in and put down big requests for grid infrastructure.

The other side of the coin is transmission charging. An awful lot of Government policy is directed towards encouraging more renewables, and often the best renewable resources are at the windiest and most exposed parts of the UK, at the periphery. But transmission charging, which is being looked at by Project TransmiT, charges the highest fees for generation at the periphery of the UK. It seems counter-intuitive that transmission charging is flying in the face of all other Government policy, which is trying to encourage more renewables. We would hope for a positive response from Project TransmiT, which would make for a much more level playing field across the UK in terms of transmission charging for renewables.

Q39 Dan Byles: How optimistic are you that Project TransmiT will produce what you want it to?

Dr Edge: We think it will give us a better result. At RenewableUK, our positioning is that while we are not against location charging as a principle, we feel that the skew of the playing field is way too high. I am hopeful from what I have heard coming out of Ofgem about Project TransmiT that there will be a much lower slope. I am really quite hopeful that we will get a decent result out of that.

Q40 Dan Byles: But if you cannot physically connect because people do not have the power to underwrite the transmission issue, the costs are irrelevant, aren’t they? How optimistic are you that there is a solution to the physical problems?

Dr Edge: There are processes in train and we have precedents from some years ago, when there were some renewable energy transmission studies-RETS. That gave Ofgem the permission to allow particularly Scottish and Southern Energy Group and ScottishPower to invest quite heavily in new upgrades. For instance, the Beauly-Denny line was a result of that.

Q41 Dan Byles: They were able to invest without that underwriting in place.

Dr Edge: As long as there is a process to be gone through that says there will be that need. There is now a refresh of the electricity networks strategy group’s 2020 vision going on. My understanding is that it includes an allowance for about 1,000 MW of wave and tidal, primarily in the far north of Scotland. That would further enhance the reinforcements-for instance, re-conductoring out to Dounreay, which is a line that already exists. Those kinds of investment would go ahead. I am hopeful that the issue has been seen. As long as Ofgem is continually being held to the fire, hopefully we can get a good result.

Dr Tyler: It is a problem that we share with other renewable energy types. Having organisations such as RenewableUK and the Renewable Energy Association seeing the purview across all renewables is very helpful to us in keeping this very high on the agenda. We have to accept the fact that this is a strategic realignment of a grid that started as a centralised energy generation grid and is now moving to be more federated. That is a big, capital intensive change in the structure of our grid that will take many, many years to physically do. What we need to do is to see that progress and open up the sites we need to get access to. At the moment, we have sites that are effectively disconnected and are unlikely to be connected for some time to come. Those are some of the choicest sites where we wish to develop our wave and tidal projects.

Q42 Dan Byles: Is there a danger that you are just too small, that the effort will go to the large offshore wind farms and that there will not be the incentive to connect to small marine sites?

Dr Edge: This is where the Pentland Firth round has significant power. When you have 1.6 GW of capacity in one lump, it starts being something that the transmission network has to take seriously.

Q43 Dan Byles: Is this an argument in favour of marine energy sparks?

Dr Tyler: Yes. We talked about the grid connection earlier; we would all love to have a very fat cable connecting Pentland and Orkney to the rest of the UK. That would benefit everybody universally.

Neil Davidson: A number of major applications have gone in for grid infrastructure in Orkney and that is triggering the process that will hopefully bring the grid to Orkney for 2016. Similarly, a number of large-scale wind developers have triggered the process for the Western Isles. Hopefully, we are looking at 2015 for that. Things are moving in those regards.

Q44 Dan Byles: Do you think Ofgem are taking this seriously enough?

Dr Edge: Yes.

Q45 Dan Byles: You are happy that they are?

Dr Edge: I would not say happy.

Dan Byles: Satisfied that they might be.

Dr Edge: They are doing more than they used to.

Dr Tyler: But we are talking about large capital sums of money being expended to make this happen. Obviously, one might feel that in the current economic circumstances that they are going to have to attract a lot of financing to get this done.

Q46 Laura Sandys: On the technology side, is there any linkage that you can make with offshore wind farms to in many ways maximise the connection? Are technologies being looked at that we would call micro wave and tidal, which can sit alongside, to utilise that corporate investment?

Dr Edge: I used to get this question a lot, but for some reason not so much now. Where you want to be for offshore wind and where you want to be for wave and tidal are quite different places. Whether it would be worth while trying to exploit the small amounts of wave or tidal that are at offshore wind sites is questionable.

Dr Tyler: But at a generic technology level, yes there is a lot of synergy. We are using a lot of systems, components and supply base, as the offshore wind industry is. If I were to speculate, I might feel that an offshore wind turbine manufacturing facility would be a good place to build tidal turbines.

Q47 Laura Sandys: Because there is a supply chain synergy.

Dr Tyler: Yes.

Neil Davidson: BiFab also does offshore wind jackets.

Q48 Chair: Going back to the grid connection issue, one striking thing on our visit to Orkney was its suitability-sparsely populated and very windy-for onshore wind. Although this inquiry is about marine renewables, nevertheless, in looking at building up capacity, I guess quite a lot of the sites that are suitable for either wave or tidal also have some landmass, which is very windy and not too heavily populated. It is usually the population that resists onshore wind applications anyway. When you are looking at the grid connection cost issue, are you talking to people involved in onshore wind to see whether there is an opportunity for cost-sharing or cost reduction?

Neil Davidson: That is exactly what is happening on the Western Isles.

Dr Tyler: When you are talking about the utilities and the OEMs, it is the same people.

Dr Edge: One of the benefits of representing both wind and wave and tidal is to have that dialogue. It is also important to point out that there are some useful synergies between wind and wave and tidal. We produced a report a couple of years ago that indicated that a mix of 120 TWh of renewable energy, if it was 70% wind and 30% marine, would reduce the amount of balancing power required by 2 GW and 200 million a year. There are some useful benefits there.

Q49 Sir Robert Smith: Dr Tyler, you mentioned the supply chain in passing. As offshore wind is expected to take off, are there going to be constraints for marine renewables-a sort of Cinderella-in terms of cable laying and positioning equipment?

Dr Tyler: That is a possibility but at the moment we are seeing it more as opportunity than threat. We are going to represent relatively low volumes for a while to come. We could probably get cost reduction advantages from the fact that there is a supply chain with the right skills, facilities and so on, and we are not having to create those ourselves. By the time we are getting up to the sort of full production capacities that we aspire to in a decade’s time, offshore wind might be coming off the back of the boom, and our timing might be just about perfect.

Q50 Ian Lavery: We all remember the initial outcry when wind power started to be developed on land. It hampered the development of wind power turbines in the UK for some time. It will be interesting to hear whether you have had any local opposition, and what public attitudes have been towards marine renewables, including the test devices that you have been installing in many areas.

Dr Tyler: I can tell you a little about the experience we have had in Strangford Lough in Northern Ireland, where for three years we have had a device in a sensitive site-I showed you pictures of it. It is a Natura 2000 site, so it is very environmentally sensitive; local communities are immediately proximate to where the device is.

The natural instinct when something new like that comes along, particularly in smaller communities, is to be a bit suspicious. We have found that a lot of very close engagement with the local community is vital. For that reason, I sacrificed myself to drink a lot of Guinness in a pub in Glenelg in Scotland the other night, so I could have conversations with the people who live immediately proximate to one of our proposed project sites.

We have had very little opposition, all the while the device has been in there. I would say that if you went and talked to the community which lives round that device today, it is universally supportive. They have seen two things, one expected and one not so. The first thing they have seen is direct income into the local economy, because local people are doing the maintenance and support of the device. It is local companies that are physically getting on the device every day and doing the maintenance. Secondly, although we were not expecting it, it has been a significant tourist draw. Now when you look at the boat trips that are run up and down the lough, one of the things they advertise is a couple of circuits of the tidal turbine. They would say there has been a net benefit to them in having the system there.

Q51 Ian Lavery: Is your experience the same?

Neil Davidson: I was going to make exactly the same point. The crucial difference between wind and marine energy is that the economic benefits of marine energy are closely hefted to where the devices are deployed. For us in Orkney, you probably got the sense that marine energy is very popular. We have looked at our numbers and we have spent more than £2 million locally already directly in the economy and have worked with more than 30 local businesses. A lot of that work with local businesses is around capacity building, HSE training for dive firms and the installation of Oyster 800. The first Oyster device was installed with jack-up barges from far afield. The Oyster 800 that was deployed this summer was done with two multicat vessels engaged locally. Again, there is a really close relationship between where devices are deployed, operations and maintenance and the communities where they are sited.

Q52 Ian Lavery: Are there any negative comments?

Dr Edge: I saw one objection to an array near Islay, which I think was a misunderstanding rather than anything else. So far the development has not gone far enough for people there to say, "I don’t like it" because it is just not happening yet. I would expect at some point to find some negative comment but I do not anticipate it being debilitating.

Dr Tyler: The one area where I think there is concern, and there is still a burden of proof on us, is environmental impact. What we can say is that everything we have put in so far has had a negligible environmental impact, but until you have put more devices of different types in different places, it is difficult to be conclusive on that.

Q53 Ian Lavery: On that issue, do you think that some of the environmental monitoring requirements for some of the equipment are too onerous and possibly too costly?

Dr Tyler: I think it is something we have to be very careful with going forward. It is one thing to have quite onerous environmental monitoring, as we have had, when you are at the prototype stage and you are putting devices in and you want to understand their impact on the environment. But if that becomes an expensive and enduring requirement on a commercially installed field, it will damage the economics very significantly. We are talking-the conversations are very constructive-with the statutory bodies about getting proportionality into both the planning side of the environmental issues and also, in particular, the amount of monitoring that is required post installation.

Q54 Ian Lavery: On a slightly different issue, what impact do you think the Government’s coastal communities fund will have on support for or, indeed, opposition to ordinary renewables?

Dr Edge: It can only be helpful to have the ability to bid to support the development of your community from funds that come from the development of the marine resource. So we are very supportive of that issue.

Neil Davidson: On a European scale, there is growing interest not just in the directorate-general for energy but also in DG MARE, which is for maritime affairs and coastal communities, as to the potential economic benefits that marine energy can offer to coastal communities. Again, you can see how we could potentially access European funding for marine energy developments not just from the green energy agenda but from the jobs and the economic benefit of that opportunity.

Q55 Sir Robert Smith: On the environmental impact, is there enough sharing of information between developers and agencies and so on, so that people do not have to reinvent the wheel in terms of understanding environmental TOE?

Dr Tyler: It is early days because there are not an awful lot of scale devices in the water capable of being environmentally monitored, but it is definitely in that category of information and knowledge which is not seen as commercially proprietary and therefore, in principle, I do not think that the developers will have a problem sharing it. We would certainly positively encourage the different agencies to share it because we would see that as the route to reducing our burdens in planning and monitoring.

Dr Edge: Similarly, if you take the analogy with offshore wind, we are keen that the lessons that are learned on all the offshore wind farms are then fed back so that consenting for the next set is not so onerous. We have that example to show to bring into the wave and tidal sector.

Neil Davidson: The UK Government have just brought in the Knowledge Transfer Network, with the principal goal of achieving exactly that: bringing all the players together to share information where that is feasible and possible.

Chair: Thank you very much, and congratulations on keeping your answers short enough to enable us to complete what we wanted to do. We are grateful to you for your time this afternoon.

Examination of Witnesses

Witnesses: Amaan Lafayette, Marine Development Manager, E.ON Climate and Renewables, Dan Pearson, CEO, MeyGen Ltd, and Rob Stevenson, CEO, Tidal Generation Ltd and Vice-president of Rolls-Royce Power Ventures, gave evidence.

Q56 Chair: Good afternoon and welcome to the Committee. I think that you were all present for the previous witnesses. Thank you for coming in. Perhaps I can ask you to start, as we asked the other witnesses to do, by explaining what your companies are doing in the field of wave and tidal energy. I should say that some of us saw the Pelamis in the water in Orkney about three weeks ago.

Amaan Lafayette: Good afternoon. My name is Amaan Lafayette and I am the head of the marine energy team based at E.ON. Our activity is covering both wave and tidal. We are a utility and we are very interested in the marine generation sector. We have been active since 2001. The machine that you referred to-the Pelamis machine that is deployed in Orkney-was one that we purchased from Pelamis Wave Power. We have deployed it at EMEC.

Rob Stevenson: A very good afternoon everybody. My name is Rob Stevenson and I am Vice-president of Power Ventures for Rolls-Royce plc. I am also the chief executive officer of Tidal Generation Ltd. Tidal Generation Ltd became a wholly owned Rolls-Royce subsidiary in December 2009. Since then we have been quietly working away. We were pleased to announce last week that we had generated our first 100 MWh from our 500 kW test turbine located at EMEC. That is part of the Rolls-Royce energy low carbon strategy.

Dan Pearson: Good afternoon, my name is Dan Pearson and I am the CEO of MeyGen Ltd, a company that was set up dedicated to the development of the Inner Sound tidal site off the Caithness coast in Pentland Firth. It is fair to say that we are the largest project from a megawatt perspective in the Pentland Firth Crown Estate leasing round. Our shareholders are Morgan Stanley, the investment bank, International Power, GDF Suez, as well as the technology developer, Atlantis Resources Corporation, whose device is at the EMEC facility. We are a 12-person team dedicated to developing the project. We are currently going through our EIA and front-end engineering design. Because of our size we are nimble and we are moving quite quickly. We would therefore like to be putting in our consents towards the end of the year for the first phase, which is 86 MW.

Q57 Chair: Good. You are all, directly or indirectly, part of much bigger groups now-serious players. Why do very large companies get interested in what, at the moment, looks like a fringe activity?

Amaan Lafayette: Generally, there is real confidence that there is a significant opportunity for marine generation. In the UK, it could deliver something in the region of 40 TWh a year for wave. It is a little more difficult to do for tidal, and Rob may be able to give you a better view of that, but it could generate somewhere between 20 and 100 TWh a year. There is a broader range on that, but it is a significant generation opportunity. As a utility, it is something that we are very interested in. A number of the benefits have been mentioned previously. We have a renewable portfolio that has onshore and offshore wind and biomass. We are obviously interested in a fantastic indigenous resource in marine renewables and the benefits that would offer in reducing the intermittency issues and that kind of thing. We are particularly interested because of the size of the opportunity, as well as the diversity it adds to the renewables portfolio.

Rob Stevenson: Rolls-Royce believes that the sector has tremendous prospects. You hinted in your early session-DECC have heard me say this many times, so it is not news to them-that the industry has been guilty of overselling itself in previous years. We firmly believe that it is time to calibrate expectations. We have to be quite clear that we have been active in this sector for a good part of three years, and it is extremely challenging. It is challenging both technically and financially. I again urge everyone to calibrate their opinions on where the industry is today. As we stand at EMEC today, our unit is the only one that is generating, so we have a long way to go.

The devices that will be put in the water as part of the £20 million will not resemble what you see going forwards, largely in the way that they connect to the system, so there is much work to do. From a Rolls-Royce perspective, we are a global energy solutions provider. We think this offers worldwide global prospects, but we emphasise to everybody today that there is much work to do. 40% to 50% of the capital costs of an array are nothing to do with the turbine. My point is that we have to get the R and D working across the entire system. That is our drive to achieve.

Dan Pearson: Speaking on behalf of our shareholders, I think that both Morgan Stanley and International Power have been looking into the sector and have been actively participating for about four or five years now. The key thing is that they have seen progression. They have seen positive signals from the Government, and they are obviously seeing the Government acting on that. With the progression from the Crown Estate, which is leasing round now to five ROCs and what have you, it is now gathering momentum. The renewables sector in general is obviously the largest growing sector within the power sector. Being part of tidal, which is hopefully on the cusp of being commercialised-taking Rob’s points on board-they certainly want to be a part of that.

Q58 Chair: On the relationship between utilities, equipment manufacturers and financial investors, are they all compatible as partners?

All witnesses: Yes.

Amaan Lafayette: You are talking about the natural partners in the energy space already, so companies such as Rolls-Royce are companies that E.ON UK are used to dealing and working with. Clearly, we work together all the time, and our presence in the marketplace gives the visibility that we, as a utility, are serious about this and that we genuinely feel that there is a marketplace and an opportunity here. That puts a signal out there in the marketplace that shows the original equipment manufacturers that this is a sector that they need to be interested in. We need their participation if we are going to manage some of the inherent risks. Everybody has talked about how difficult it is and how complex the challenge is. Having partners who are used to the energy space and who have the competence and capability to deliver is a key element to de-risking it, so it is a natural partnership and it works. It is a good thing.

Q59 Dr Lee: There have been some claims that the Government’s renewable energy roadmap is too cautious in its ambitions for wave and tide. What is your opinion of that?

Rob Stevenson: To go back to my earlier comments, the roadmap is a good piece of work in that, when you write it down on paper, you get a feel for the size of the challenge of delivering it. From a tidal perspective, which I will speak on if you do not mind, the number for marine in the roadmap is roughly, as was referred to, about 300 MW. What we have seen currently is five ROCs, which is very good and we support that and want to talk about it a little bit more, and the £20 million. If we assume one tide and one wave project, that is 30 MW, so you have to multiply that by 10 to achieve the roadmap. The big issue there for us to put on the table now is that there is a huge danger of a vacuum in a clear indication to us on tariff support.

Five ROCs is excellent. There are some issues with it that I will talk about, but it is a start. As was mentioned in the previous session, we have to get the EMR debate out there, and we have to understand where it is leading us in terms of phased tariff support. We need a phased tariff support line to drive our cost base and to see, basically, if you can create a business. There is a huge danger, now that we have a few megawatts in the water, that will take between now and 2017 while we all sit round and wait for announcements on EMR. In my organisation, Rolls-Royce spends £950 million a year on R and D. The internal competition for R and D is huge and I have to fight for my money. My bosses look very carefully at where they will see their money best spent. My big plea is that we must have the debate-we have had a great debate with DECC over recent times, and we do not want to stop that. We must continue the discussion and get the issues out there. Some of it we will like and some we won’t, but at least we will have the debate.

Dan Pearson: I concur with Rob, inasmuch as it looks forward to 2020. Our project is a phased build-out from 2013-14 through to the 2020 mark, but the revenue support in those final three years is not known right now. Therefore, to make a financial decision to build out the larger commercial phase, we are obviously keen to see the EMR adhered to. As long as, I suppose, people hit the time scales for having that debate and Government are clear and transparent, as they have been so far, we look forward to contributing to it.

Amaan Lafayette: Will you go through your question again for me?

Q60 Dr Lee: It is basically about the renewable energy roadmap; do you think it is too cautious on goals for wave and tidal?

Amaan Lafayette: I can understand the perspective from the Department of Energy and Climate Change. There has been active and useful engagement, in which there has been a hard challenge process and it has brought a good consensus across the sector-from utilities, financiers, original equipment manufacturers in the early stage, and technology developers-to come forward with a view of what can be achieved. Obviously, you can expect that there are a lot of differing opinions on that, and DECC has to distil that down into something that it can put down on paper that reflects the opinion of the sector. It is a good piece of work, and it is the right thing from DECC’s perspective. It is up to us to try and beat that and go above it.

Q61 Dr Lee: Do you share the calls for greater political leadership? What do you expect? What is not being done that you would like to see?

Amaan Lafayette: I do not think it is as much what they are not doing, because a lot is being done in Government. What I would like to see more of, and you can see it when it works really well, is collaboration between different Departments. There is DECC, BIS, and Scottish Enterprise, and you can see Scottish Enterprise talking now with the TSB. When there is that dialogue, you see that it really starts to leverage the power of government and accelerate things. Through that dialogue with government, and through then forcing an equal dialogue from industry, it has been good to bring together all the opinions, get everybody talking, and get everybody who is required to make a decision in the room so that the messages, questions and answers are consistent, and it happens through a work-through position. What I like to see, and what works very well, is when Government are joined-up and working through all the different Departments that they have.

Q62 Dr Lee: In terms of big projects, you can look at Apollo, man on the moon, spin-offs, $14 for every dollar invested-we have all read the same things. If the Government were to commit to something as big as the Severn bore, do you think that would bring forward technological progress? Where would it make a significant difference to the way in which the industry developed over the next 10 years? Would it be a big project and would everyone want a piece of the action, or do you think that it would be the wrong thing to do at the moment?

Amaan Lafayette: Because my focus is pretty much wave and tidal industry and generation, that is a difficult question for me to answer. I realise its importance, but it is not something that I could answer for you today.

Q63 Dr Lee: It could be tidal, whether it is technology-linked or other.

Rob Stevenson: This is not a direct answer but I would like to say that again, we have to be extremely careful, and I keep using those words, in that tariff support-five ROCs, but it could be 10, if there’s nothing deployed. The point was made that as the Government said five ROCs, because five ROCs can be deployed, we have to get the capital-I will rephrase that. We have to get the devices to produce energy reliably and cost-effectively, otherwise it does not matter if it is five, 10 or 20 ROCs. One challenge that we face is that people come to OEMs, because OEMs can offer guarantees. When faced with a five-ROC tariff, you can get nowhere near offering the guarantee that these guys want, because, in essence, my device generates five times more revenue for him than a gas turbine does on land, so the significance of performance at five ROCs is five times more important. That has to be recognised in the work left to be done on ensuring that the devices coming through on generation one can actually deliver, because there will be a danger that we generate generation level one, but there is a bit of a hiccup and we have to go back to generation two. Revenue support is great-we applaud it-but we should not take our eye off the ball in terms of R and D activity.

Dan Pearson: I think from the Apollo 11 juncture and the Severn bore-obviously that is a tidal range issue, but we are obviously on a lower capital intensive project but nonetheless challenging-a key issue for us is the synergistic values you can have between oil and gas and offshore wind, and the kind of skill set that is developed north of the border and across the southern North sea and the UK generally. The skill set in the UK can certainly be deployed to have the diversification of skills, and obviously vessels and electrical equipment. From our perspective, I think that is one area that we can really focus on, and on which we are focusing, in our engineering and design for what is, essentially, almost an Apollo 11 project.

Q64 Dr Lee: Denmark’s success in building a wind industry is often mentioned. I met a famous Norwegian capitalist, who told me that you need to build an industry, and perhaps that is what this is about. On wave and tidal, what can we do more than we are doing? Are we doing enough to create the industry that UK plc can benefit from in terms of exports?

Amaan Lafayette: It is a very challenging area and the costs are high-everybody knows that-so money is particularly important. Of the £200 million that was available, for marine renewables to get access to £20 million is very positive, but it is not the only thing being done at the moment. The offshore renewable energy technology and innovation centres are going through and there is also the work that industry is doing through the ETI, and that is in partnership with Government. Money is being made available, and, yes, more would be useful, but delivery from the sector to match that is also important.

You can see early-stage technology going into the water and you will have the opportunity to go to EMEC and see that people have deployed. There is success there- moving on to the next phase of arrays and proving that the technology can deliver, and then you are into a dialogue, saying, "We’ve delivered this and it is the right time to talk about more." I think it is clear that it is expensive. In this particular instance, where you are talking about the benefit to UK plc, if we as an industry can, with Government, make the argument for the benefit to UK plc, then we are into another discussion about the right thing for Government to do to secure that opportunity for UK plc.

Now we are talking about the delivery of these first-scale arrays, but if you are talking about a different debate, which is the argument about UK plc, that is a new debate. We can have that too and talk about what is right for Government to do to secure that. If it is accessing more money through Europe or what is happening in Scotland and working collaboratively with the industry, then that is the right thing to do.

Rob Stevenson: I agree entirely; it is about building an industry. At the minute, the industry is focused on the prime mover. We have to open our horizons up, because it is about the installation, the maintenance, the cabling and how we get the power to shore. It is all of those things combined, and as yet, we do not have everybody working on those pieces of the puzzle. Again, I think we need funding, but I think we need targeted funding. People in the room have proved the physics-we can extract energy from the tide or waves. We can do it, but that does not mean that we can build a commercial business, so the next phase has to involve all those people in the puzzle and target precious support-let’s be honest, we all realise money is tight-where we can show progress.

Q65 Albert Owen: May I develop a little further this point about Government support? We have been told in evidence that Government support is a make-or-break issue when it comes to attracting corporate investment. Do you agree? On a second issue, Mr Lafayette, you talked about the £20 million that is being provided from the £200 million, and it is easy for a large company such as yours, which has different portfolios, to deal with that, but isn’t that amount of money chickenfeed for the marine sector itself, when compared with some of the other renewable sectors?

Amaan Lafayette: I understand the point. I would not use the same words. Yes, renewables power generation is an expensive area in which to deliver projects-everybody is aware of that. Marine renewables are an area where we as a business are learning, and that is the reason for the early involvement. Get involved early, try to understand the dynamics and see whether you can do things cost-effectively-that is why we are involved. We are in learning mode, and as we go on, we begin to understand some of these issues.

Yes, we can make representations to DECC about what we see as the current situation and the likely cost curve associated with it. Through that dialogue and dialogue with Government, we can give clarity on what we think the costs are and how they are going to come down. £20 million right now is good news. The sector requires capital investment for the very intensive capital investment that is required up front. Having that capital is extremely important; getting access to that money, getting machines out there in the water and proving the case puts you into a new discussion about this being the right thing for the UK Government to be doing and the right thing for UK plc. Let’s talk about what additional support there is and what is right at that point in time.

Dan Pearson: The £20 million is focused on arrays. On Rob’s point, that money will not necessarily focus on the turbine side of things; we will actually focus mainly on the balance of plant, the cabling back to shore and the directional drilling that you will most probably need to do. What we are trying to do is to pull together pieces of proven technology. We are not trying-not right now, at least-to invent new equipment for the balance of plant; we are trying to integrate systems. That can be done. You have a lot of learned companies like ABB, Siemens, Rolls-Royce and GE, for example, which are all interested in the sector and which are all quoting and giving prices to the sector to contribute.

For the first phases, the £20 million will obviously help a lot. You are also seeing other money-not in isolation-coming through from the Scottish Government for similar deployments, which is also very welcome. One of the issues we have mentioned briefly is the European part, and we need to make more effort to access money from there. We need to help lobbying institutions and industry to get into the EU and extract more money from research funds such as the NER300. We need to focus the Government on lobbying the industry through that route as well.

Q66 Albert Owen: Mr Stevenson, is Government support make or break?

Rob Stevenson: The way I see it, if I understood your question right, is that Government capital support in the short term is extremely important to the early developers of the projects, which is why the OEM group supported that position. That is the £20 million. But that is for relatively small demonstration devices, and as discussed, it might only be one for the type.

Albert Owen: Sure. I coupled two questions.

Rob Stevenson: Long term, I see my customers as the utilities. We are not playing in the project development circle, because we stick to our knitting, in that we deal with device development-I leave project development to the utilities. In terms of capital injection for small SEM-type projects that are trying to develop projects to stimulate cash and get some leverage in, I can understand the argument. The argument sort of goes away when you get to larger scale. What these guys will need are the guarantees from us so we can justify the investment.

Q67 Sir Robert Smith: And as you said earlier, a guarantee that the market is going to be at a value that makes the investment looks attractive. The signal from renewables obligation to feed-in tariffs is absolutely essential.

Rob Stevenson: Absolutely essential.

Dan Pearson: It is in everyone’s interest to reduce the cost of energy. We are all looking at how we can do that, but essentially we do not want to see a cliff face off the ROC regime suddenly go down from five ROC support to brown energy price parity. We are very encouraged by what the Government are saying and how they are acting, but the quicker we can get EMR to dictate what those others are is best.

Rob Stevenson: It is the lead time. The lead time for the device manufacturers is three years in, so the project developer’s spend profile kicks in a lot later than ours. We are having to speculate now to secure a market going forward. What we can’t do because of reputation and customers is not deliver stranded assets. I cannot commit to building a 1,020 MW project in 2015, 2016 or whatever if I do not believe there will be a market there in 2017-18, otherwise I will have to support that asset for 25 years-because that is what we do.

Q68 Sir Robert Smith: With £20 million being spent on arrays, do you agree with the other witnesses about prioritising arrays?

Amaan Lafayette: Yes.

Rob Stevenson: I think so. It would become apparent to anybody that, as soon as they put a device in the water, their learning starts there.

Q69 Sir Robert Smith: I must remind the Committee of my interest in the oil and gas industry. Mr Pearson, you mentioned trying to take a lot of the skills. Given that there is a skills shortage in the oil and gas industry and there is the offshore wind as well with a similar environmental skills sense, do you think that you have the financial backing to compete for those skills?

Dan Pearson: We have been encouraged by a lot of initiatives that are going on in universities, for example. Near to us in Thurso, the University of the Highlands and Islands has basically set up courses-it recognises the skills gap-to encourage the operations and maintenance side mainly, once the projects are built. The manufacturing sites are able to make turbines and pull turbines together, and the foundations and the steel work that would be required. If you look at a lot of the fabrication locations in Scotland, England and Wales, they can cope with that. It is perfectly within their capabilities. It is more what happens afterwards and how you operate and maintain the projects and the skills there which are in short supply.

The installation side is the key element, and trying to reduce costs of the installation is one of the biggest factors in our cost model. Currently, we are factoring costs incurred from DP3 vessels-massive oil and gas vessels that can hold station in tidal flows. The day rates can vary from about £80,000 through to £200,000 per day depending on the spot market for oil and gas. You are competing almost with the oil and gas market in that regard. A lot of research and activity is going on at the moment to be able to focus on how to maintain that capability of being able to hold station, but also being able to reduce costs.

Rob Stevenson: The answer is that you have to engineer it out.

Dan Pearson: Exactly.

Rob Stevenson: It’s got to go.

Amaan Lafayette: I agree that Dan is right. It is a good challenge point that sometimes you are competing for resource and, if you are competing with oil and gas, they have much deeper pockets and they can pay bigger fees so it is very competitive. But that pushes and forces innovation. With the technology that we are working with, they were struggling with that to begin with so they engineered away from that solution and went from using anchor handlers and very expensive vessels that were over £50,000 a day down to a vessel that is now £2,500 to £3,000 a day.

That is a vessel that we at E.ON have shared between our offshore wind activity and the delivery of this particular machine into operation. You can see that as the innovation kicks in and as you work towards it, you can engineer out certain solutions and bring in things. You are then using a vessel that is a work-class vessel for an offshore wind farm. When it was finished there, it came to us and was doing work for the deployment of a wave machine.

Q70 Sir Robert Smith: Some of the Pelamis machines had their engineering done in Stonehaven from subsea oil.

Amaan Lafayette: That’s right. They have leveraged a lot of their skills and the expertise that exists in that marketplace already to do some of the welding that requires certain offshore-level codes that those places can do. So there are some benefits.

Q71 Ian Lavery: The majority of the supply chain for marine renewables is based here in the UK. A percentage of the supply chain, however, is currently based outside the UK. Can you give us any information on what those components are and where they come from?

Rob Stevenson: The truth about the marine supply chain is that there isn’t a lot there at the moment. We review what we can put through our internal supply chain and what we have to go external for. We are also talking to people with a lot of synergies in the wind industry about how we can integrate into their supply chain.

Tidal devices are very heavy-140 tonnes for a turbine-so you want to be making it close to where you install it. It goes back to the question, "Where are we going to install volume?" Everybody who picks up the phone to talk to me wants to know where I’m going to build my factory. That is the first question they get to very quickly. Our serious answer is that we don’t know yet. It will depend where the volume is, but certainly for the heavier parts, you have to build them close to where you are going to do your installation.

In terms of percentage, we have a 500 kW device in the water, and we are currently building a 1 MW. I would say that the 1 MW is 99% UK, but it is not a production machine. Obviously the big question that is coming is, "How much is this stuff going to cost?" We are going to have to look very hard at the supply chain to deliver quite a lot of those savings.

It’s early days yet, but the prospect for the UK is huge. We believe that there is 10 GW of deep-water tidal resource in the UK, out of a world resource of about 23 or 24 GW. We are probably close to 50% in the UK.

Q72 Ian Lavery: What do you think it will take to encourage those in the supply chain outside the UK, or just new manufacturers, to set up in the UK?

Rob Stevenson: It is easy to answer-I keep repeating myself-that it is confidence in the ability to deliver volume. Is there a market there? If there is a market, we will get a supply chain. We will have no trouble with that; we will get it UK-based. It is back to the EMR question and tariff confidence. Will there be a market post-2017? That is what everybody needs to know.

It has to be said, and I will say it in this forum, that the current taskforce on wind is to reduce the cost of wind to £100 per MW by 2020. Getting tidal to that point will take a lot of work, part of which is the supply chain and the incentives being offered to the wind industry. We need to look at tidal as a genesis industry, but above all, we need to get the R and D in place at this early stage, otherwise you spend your money twice. If you are going to engineer costs out of a product, you have to do it on day one. If you do it on day three, it costs you five times as much.

Amaan Lafayette: The delivery of single units in places such as the European Marine Energy Centre has created a lot of interest in the sector. As Rob has mentioned, the sector has done a very good job of talking itself up, so there is interest from people who are looking to diversify and to see whether there is an opportunity. There is often a feeling that the sector is perhaps the next wind industry, so there are lots of places that have become involved in the marine renewable sector and we need to encourage that. Looking at things such as the offshore renewable technology and innovation centre, which has been proposed by the Technology Strategy Board and is on its way through, a key component of that will be to energise the supply chain and to bring them in. There are ongoing things and activities that will start to do that, but it really is about the visibility of projects, and those projects coming through at scale, that will excite people, energise them and bring them in. Rob is right that because the technology is large-generation-scale equipment-it needs to be delivered very close to the point of generation. There is a massive opportunity because the resource in the UK is so fantastic.

Dan Pearson: We are quite encouraged by the number of calls we get from supply chain and large manufacturing centres. There are a lot of ports and steel manufacturing that can do the work. Most of the turbines so far have been built in the north-east, by Rolls-Royce in Bristol and what have you. You have seen it demonstrated; it can be done. We are also encouraged by agencies such as the Highlands and Islands Enterprise and other RDAs who are almost working on our behalf trying to organise the supply chain in the background. We are working closely with them to try to make sure it is done in a fair and orderly way instead of sporadically, which we are trying to avoid. I think there is great potential.

Rob Stevenson: Small projects are one thing, but volume is different.

Amaan Lafayette: I am seeing the interest from the supply chain to get the sector to the place where there is volume. They are engaging now to try to understand what it will take to get to volume, for the balance and plant side of things, which means all the electrical infrastructure and all the switchgearing cabling, and that kind of thing, as well as the actual components themselves, and people who are adept at steel manufacture and others who are good at assembly, and all the rest of those kinds of things. Pelamis are a great example of that. They had a lot delivered in that factory in Leith in Scotland. They did really well at that and so there is an opportunity for that. I visited the manufacturing facility up in the north-east, which is SMD, where the Atlantis machine was being delivered. There is a lot of work for a number of the turbines and wave energy machines that have been delivered in the UK through the supply chain that exists here already. They are energised to do more but the visibility of scale will do more.

Q73 Chair: There are some environmental impacts from both wave and tidal energy. I believe that in the four different jurisdictions in the UK there are different agencies involved in licensing and so on. They may adopt a different approach. Does it make a big difference to you whether they adopt a precautionary approach or a deploy and monitor approach? Is that a factor in your challenges?

Dan Pearson: From our perspective in Scotland, what we have seen first hand is that a top-down approach is being applied by the Government to try to streamline as much as possible the process for deploy and monitor. We encourage that. We think it is a great move. There are just some things that you cannot theoretically guess without putting turbines in an array in the water. So we are working very closely with Marine Scotland, Scottish Natural Heritage and a few other key departments to make sure that we live up to the obligations they put to us. In respect of other jurisdictions such as Wales and England, it is tough for me to comment because of my lack of exposure.

Rob Stevenson: We are not acting as project developers so we are not actively involved in the side where we provide information to the developers. We just encourage consistency because it helps all the way down the chain.

Amaan Lafayette: Our current engagement with Marine Scotland is good. They are moving more towards the deploy and monitor approach. That is extremely positive. I think that the trials that all of us are deploying will provide information. We are doing research and development work with a number of partners in Scotland-EMEC is one and some of the other educational establishments in the area-to extract information from that trial and make it available to Marine Scotland so that they can start to build their experiences too. We are working in partnership. Deploy and monitor is extremely important. The dialogue is very important as well. They have guidance out at the moment and that is useful. As soon as the information that we as a sector can provide them with allows that guidance to move from just being guidance to being what is required, it will be very helpful. But in making the move from its just being guidance to being, "This is the process and this is the procedure", we need to make sure that we do not damage the opportunity to deliver in the future by being overly cautious and putting in place some things that are particularly expensive or difficult to achieve. We are at the point when we are precedent-setting, so we need to be very careful. That is the message.

Q74 Chair: To the extent that data are being collected by the monitoring process, is that information now shared?

Amaan Lafayette: In designing any R and D programmes where we will be trying to get environmental data, we have tried to engage with Marine Scotland, to let them know what our plans are and allow them to offer advice and guidance on what they would like to see as part of that process. Therefore, the information that we gather and recover will be relevant and valuable to Marine Scotland. That is the approach that we are trying to take at the moment. That is one of the things about the sector that is very good; people are working collaboratively. We are working collaboratively with ScottishPower Renewables and with Aquamarine Power, as well as with Pelamis Wave Power and the local educational establishments, to try to deliver some of that work.

Dan Pearson: As a developer, and as a first mover in the industry it is an area where you spend a lot of money on. It is the price you pay. We do not want to hide any of the information that we get, because it is for the benefit of the industry that we are finding it. I am encouraged to see that everyone else is playing the same game. There is no real protectionism around it.

Chair: Good. That concludes our questions, so thank you very much for coming in.