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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