The Future of Marine Renewables in the UK - Energy and Climate Change Contents

4 Strategy and policy direction

22.  In this chapter we explore how wave and tidal energy fit into the broader picture of low-carbon technologies and examine DECC's overall level of ambition and aims for the sector. We also consider how well the various strategic funding organisations that are active in the sector are working together.

Low-carbon technologies

23.  The UK has adopted legally binding targets both to reduce emissions of greenhouse gases and to increase the use of renewable energy. The Government has suggested that 40-70GW of new low-carbon electricity capacity will need to be built by 2030, and 100GW or more will be required in 2050.[32]

24.  There is a range of low-carbon technologies that could play a part in delivering these long-term goals. These include nuclear, fossil fuel with carbon capture and storage (CCS) and renewables. The Government believes that 30% of electricity generation will need to come from renewable sources by 2020 in order to meet our renewable energy obligations. However, the Government has not specified what the mix should look like in the longer term, stating instead that it "would like to see the three low carbon technologies [nuclear, CCS and renewables] competing on cost in the 2020s to win their share of the market".[33]

25.  Some low-carbon technologies are relatively advanced; nuclear power is well established and onshore wind is nearing maturity. Other technologies, such as CCS, are still very much at the experimental stage. Wave and tidal stream energy are also still in the early stages of development. While some marine devices are now being demonstrated at scale, further testing in array formation will be needed before they can start generating electricity in any meaningful quantity.

26.  Most witnesses and witnesses agreed that wave and tidal energy was unlikely to make a significant contribution towards the UK's energy system in the near future. The Minister told us that even "with the best will in the world", wave and tidal energy will not contribute significantly to UK electricity generation before 2020. However, he went on to add that "in the 2020s […] and up to 2050, marine can make a very substantial contribution to our renewables portfolio".[34] Some other witnesses were more cautious about the role wave and tidal energy could play in a future energy mix; the Energy Technologies Institute (ETI) told us that wave and tidal might be considered as a "hedging option" as insurance against failure to deliver other low-carbon technologies such as nuclear and CCS.[35]

27.  Since the total amount of funding available to support low-carbon technologies is finite (DECC has a total pot of £200m to spend on low carbon innovation in the current Spending Review period and the Treasury has set a cap on the total amount of subsidy that can be provided through the RO), decisions will inevitably have to be made about how to make best use of the available resources. Trade-offs will have to be made between supporting the deployment of those (more mature) technologies that could help to deliver our 2020 renewables target and funding the development of those that are less mature, but could play a significant role over a longer timescale.

28.   DECC has so far allocated 10% (£20m) of its Low Carbon Innovation Fund to marine energy and is consulting on increasing the level of support offered through the RO (see chapter 5 for a more in depth discussion of these measures).

29.  While we recognise that funding is limited in the current economic climate, we nevertheless feel that the Government's funding for marine renewables represents a modest investment for what is a world leading industry with the potential to bring significant benefits to the UK.

Reducing the cost of wave and tidal energy

30.  Because marine renewables are still in the early stages of development, they currently represent an expensive way to generate electricity compared with established forms of generation. The Carbon Trust has suggested that the baseline costs are likely to be in the range of 38-48p/kWh for the first wave farms and 29-33p/kWh for the first tidal farms.[36] This compares with the current cost of 9-10.5p/kWh for onshore wind.[37] It is clear that the costs of marine renewables will need to fall significantly if these technologies are to compete effectively in the market.

31.  Cost reductions can be expected to occur naturally as more and more devices are deployed. This happens because larger production volumes bring economies of scale and "learning by doing" helps to improve efficacy and efficiency.[38] However, the Carbon Trust told us that a "continued focus on technology innovation" would help to bring down costs even faster.[39] Amaan Lafayette, E.ON Climate and Renewables, illustrated the point by describing how an innovative engineering solution had eliminated the need to hire very expensive vessels to install particular marine devices, thereby producing a significant saving on the overall cost of the project.[40] Other ways in which cost reductions might be achieved include improvements in manufacturing techniques, device reliability and durability (which reduce the need for maintenance work), anchoring technologies, and the integration of underwater electrical systems.[41]

32.  The Energy Technologies Institute (ETI) told us that the marine renewables industry would need to demonstrate the potential to move towards a cost competitive position compared to other low-carbon technologies in the next 5-8 years if it is to retain commercial investor engagement.[42] The Low Carbon Innovation Group (LCIG) (of which DECC is a member) has taken on this challenge and is already working towards the goal of reducing the cost of marine energy. However, it has not yet stated what rate of cost reduction is needed to demonstrate that marine technologies could eventually be cost competitive.[43]

33.  There may be a case for the LCIG to adopt a more specific cost reduction goal. The Technology Strategy Board (TSB) explained that if the Government set out clearly the extent of cost reductions that it expected the industry to achieve over a set timescale, it would be easier to assess the prospects for the sector and to make decisions and funding in the future. For example, if the industry is not able to meet cost reduction targets, this may raise questions about the feasibility of generating electricity in a cost competitive way in the long-term, which in turn would raise questions about the case for public funding.[44] Rob Saunders, TSB said:

There are two examples of cost-of-energy road maps [the ETI and UK Energy Research Centre roadmap and Carbon Trust Technology Innovation Needs Assessment] that we could use to track our progress as the marine energy sector evolves. The point I was trying to make was that we perhaps ought to do that a little bit more formally so that we know what progress we have made in five or 10 years' time and we are not sitting here again asking the same questions as to whether we should be funding it into the next 30 years, and we can demonstrate the progress that we have made against cost of energy.[45]

34.  In its marine energy roadmap, the ETI suggested cost reduction targets of 9-18 p/kWh by 2020 and 7-10p/kWh by 2030 in order to reach a long-term cost competitive target of 5-8p/kWh in 2050.[46]

35.  The Low Carbon Innovation Group is right to focus on reducing the cost of energy, but it should be more specific about the progress it would like to see. Without setting out its expectations clearly, it will be difficult to assess the efficacy of policies and to make decisions on the future funding for the marine energy sector. We recommend that DECC and the LCIG adopt a formal cost of energy target of 14p/kWh by 2020. This will give a clear indication of Government expectations to the industry.

Deployment targets

36.  DECC's Renewable Energy Roadmap suggests that there could be 200-300MW of marine capacity by 2020. This is significantly less than the 1-2GW that was forecast in the previous Government's Marine Energy Action Plan 2010.[47] The Minister told us the figure had been revised because the original targets were not "anything close to what was potentially achievable by the industry" and because he wanted a "much more realistic strategy for deployment, implementation and funding".[48]

37.  The industry however told us that the Roadmap was "too cautious" and "pessimistic".[49] SSE said "RenewableUK have estimated that this figure [300MW] is achievable by 2017 and SSE alone expects to be commissioning 200MW projects around 2020".[50]

38.  We heard concerns from the industry that a perceived downgrading of ambition from Government could have a negative impact on market confidence about the long-term future of wave and tidal energy in the UK.[51] Some witnesses believed that a firm deployment target would demonstrate commitment to the sector and would boost investor confidence.[52] Dr Wyatt (Carbon Trust) advocated the use of "stretch" targets (that are slightly above what the industry is likely to achieve on a business-as-usual trajectory) to accelerate deployment and boost confidence.[53]

39.  However, other witnesses felt that it was too early to set targets given that there was still a great deal of uncertainty about whether the technology would work in practice and whether the current high costs associated with the sector could be brought down.[54] The Minister shared this view and said that there were "too many uncertainties at this stage to set targets that would be credible beyond 2020".[55] Dr Clarke (ETI) advised that deployment targets should only be set once a certain level of cost of energy had been achieved (see paragraph 36 above).[56]

40.  As things stand, both the industry and the Department view the 200-300MW figure as a "soft target", which they hope will be exceeded.[57] The Minister said that setting a target for the longer term (beyond 2020) "may be something that we will want to revisit".[58]

41.  We recognise the Department's concerns about introducing a deployment target to soon in the development of the technology. However, we also recognise the value that targets can have in demonstrating political commitment to the sector. A more visionary approach from Government could help to boost confidence and to drive the pace of development of the sector. The Government should not rule out setting an ambitious deployment target for marine renewables in the future and should consider introducing such a target if cost reductions to 2020 remain on track (see paragraph 36).

Coordination between strategic funding bodies

42.  There are currently a large number of organisations involved in funding aspects of marine energy development. These include DECC, the Technology Strategy Board (TSB), the Carbon Trust, the Energy Technologies Institute (ETI), Research Councils, the Scottish Government and Scottish Enterprise.

43.  We heard several complaints that this funding landscape is too crowded and complex and that a better coordinated and more streamlined approach would be preferable.[59] Witnesses from the University of Edinburgh called for a system similar to that used in the USA where all government funding in the energy sector is administered by a single organisation.[60] On the other hand, one of the organisations in question (the TSB) argued in favour of the multi-agency approach, suggesting that there are benefits to be gained from different organisations with different skills focusing on the same overall aim.[61]

44.  A key risk associated with an overly complex funding landscape is that money may be wasted. As well as the potential for duplication and overlap between schemes, there are also inefficiencies associated with projects having to apply to multiple schemes and the administrative costs associated with running multiple organisations.[62]

45.  The Low Carbon Innovation Group (LCIG) was established to try to improve coordination between strategic funding bodies. The members of the Group (which includes DECC, BIS, TSB, ETI, Carbon Trust and Research Councils UK) believe that it has been successful: a common consensus on the key steps to reducing the costs of marine energy had been built among members, who were now better able to share strategic information and to integrate their plans.[63] There was some evidence that the industry also felt that coordination had improved.[64]

46.  However, the current membership of the LCIG excludes one of the UK's major funders of marine renewables: the Scottish Government. There is still a significant risk of duplication and overlap between UK-wide and Scotland-only programmes. This has been demonstrated recently by the announcement of two separate schemes to support the development of marine arrays—DECC's Marine Energy Array Deployment Fund and a new £18m fund to support marine arrays in Scottish Waters announced by the Scottish Government in October 2011.[65]

47.  A large proportion of the UK's marine renewable resources are located in Scottish waters. However, the allocation of powers between Westminster and Holyrood is complex. Energy is generally a reserved matter, but the Renewables Obligation in Scotland and responsibility for consent for power stations over 1MW offshore have been executively devolved to Scottish Ministers. However, the rights of ownership of Scotland's territorial seabed are held by the Crown Estate, a public body responsible to the UK Treasury. Surplus revenues (from leases, dues and fees charged to develop areas of the seabed) are passed to the UK Treasury.

48.  Officials told us that the Scottish Government was a member of DECC's Marine Energy Programme and had been involved in the development of the Marine Energy Array Deployment Fund through this forum. [66] Similarly, DECC had been invited to advise on the development of the Scottish Government fund through its Marine Energy Advisory Group.[67]

49.  The Minister acknowledged concerns about the complexity of the funding landscape. He told us:

If you look back over the last 10 years, the landscape has been far too complex and we have begun trying to simplify and harmonise that. Obviously there is a limit to the extent to which you can do that, given that some funding will come from Europe and some funding is going to come from the devolved Administrations, and those are important pieces of the jigsaw. […] I am sure we can continue to do better, not just for marine funding but across the board. I agree that the funding landscape is still too complex.[68]

50.  At a time when resources are limited, it is essential that money is spent wisely and efficiently. The complicated funding landscape for marine renewables creates a risk of overlaps and inefficiencies in the way the programmes are funded. We are pleased that the Minister acknowledged that the funding landscape is too complex and recommend that DECC take steps (beyond the creation of the Low Carbon Innovation Group) to address this problem.

51.  It is clear that—as with other types of renewables—coordination between DECC and the Scottish Government is very important. However, it was beyond the scope of this inquiry to investigate the relationship in detail.  

32   HM Government, The Carbon Plan: delivering our low carbon future, December 2011 Back

33   HM Government, The Carbon Plan: delivering our low carbon future, December 2011, p 73 Back

34   Q 175 [Mr Barker] Back

35   Ev 67; Qq 78-79 [Dr Clarke] Back

36   Carbon Trust, Accelerating marine energy, July 2011 Back

37   Figures for projects started in 2011, assuming 10% discount rate. ARUP, Review of the generation costs and deployment potential of renewable electricity technologies in the UK, June 2011, p 286 Back

38   Ev 53, 62, 78, 82, 88, 91, w39, w85, w119 Back

39   Ev 82  Back

40   Q 69 [Mr Lafayette] Back

41   Ev 62, w8, w54; Q 96 [Dr Clarke] Back

42   Ev 67 Back

43   Ev 78  Back

44   Ev 78 , Q 114 [Mr Saunders] Back

45   Q 114 Back

46   Energy Technologies Institute and UK Energy Research Centre, Marine Energy Technology Roadmap, October 2010 Back

47   DECC, UK Renewable Energy Roadmap, July 2011; HM Government, Marine Energy Action Plan 2010 Back

48   Q 175 Back

49   Ev w45, w102; Qq 4, 5 Back

50   Ev w102  Back

51   Ev w24  Back

52   Q 171 [Mr Callaghan] Back

53   Q 85 Back

54   Qq 171 [Mr Cook and Mr Huyton], 86 Back

55   Q 180 Back

56   Q 86 [Mr Saunders and Dr Clarke] Back

57   Qq 8 [Dr Tyler], 60 Back

58   Q 180 Back

59   Ev w1 , w39, w45, w52, w97, w102, w119 Back

60   Ev w1, w39 Back

61   Ev 78  Back

62   Ev 91, w1; Q 76 [Dr Green] Back

63   Ev 42, Ev 67, Ev 82  Back

64   Qq 36 [Mr Davidson and Dr Tyler], 76 Back

65   Ev 42, w57 Back

66   The Marine Energy Programme Board draws together stakeholders from across the marine energy sector and is chaired by Greg Barker. Back

67   Q 187 Back

68   Q 185 Back

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© Parliamentary copyright 2012
Prepared 19 February 2012