HC 1624 Energy and Climate Change CommitteeMemorandum submitted by the Technology Strategy Board
1. The Technology Strategy Board is a business-led organisation with a leadership role to stimulate technology development and innovation for the benefit of UK business in the areas which offer the greatest potential for boosting UK growth. The organisation operates across Government and advises on polices which relate to technology, innovation and knowledge transfer. The Technology Strategy Board is the prime channel through which the Government incentivises business-led technology innovation.
2. Energy generation and supply is one of the main priorities of the Technology Strategy Board. Within that broad heading the focus is on supporting UK business R&D and innovation in areas which include offshore wind, wave and tidal. The Technology Strategy Board has invested over £22 million over the last five years in wave and tidal R&D projects and has a current portfolio of projects in excess of £40 million, with business providing 50% of the funding.
3. We consider that the UK has excellent strengths in marine renewables and that it is an area where the Government needs to use all of its levers to support the sector to ensure the UK maintains a world leading position.
4. We make the following points in response to the specific questions raised by the Committee.
What are the potential benefits that marine renewables could bring to the UK and should Government be supporting the development of these particular technologies?
5. To set the potential benefits in context, it is important to consider the UK’s natural resource in marine renewables. The UK has a very significant wave and tidal resource and the scale of this resource means that wave and tidal power could play a significant role in the future electricity system of the UK, and as much as 27GW of peak capacity might be installed off UK coasts in the next 40 years, according to the Government’s renewable energy roadmap published this year. This can have significant positive effects for the UK in a number of ways:
5.1 Economic Growth: wave and tidal energy have the potential to create significant industries around them in the UK. Recent research by the Carbon Trust predicts that a global market of £48 billion could be generated in the period to 2050, or £3.7bn/yr by 2050, and that the UK could capture a significant part of that market, especially beyond 2030, much of which is likely to be export. The UK’s lead in this area is worth continuing to support and promote in order to give industry in the UK a head start in developing devices, supply chains, construction, installation and maintenance solutions for a future market.
5.2 Decarbonisation of the electricity system: according to the Committee on Climate Change (CCC), in order to meet EU and UK targets on decarbonisation of the energy system, it is anticipated that the electricity system will need to be largely decarbonised by 2030, in order to allow for the more difficult decarbonisation of transport and heat to run on a slower path while maintaining overall energy emissions levels against targets. In addition, the electrical system will need to supply more power than ever before with increasing electrification of heating and transport, this being the only long term way of decarbonising these elements of the energy system. With this context in mind, it is thought that marine power could supply 10–15% of total demand in 2050, according to the Carbon Trust, not a large overall proportion of the electricity needs of the UK, but potentially a significant one in its role in diversifying supply and reducing intermittency.
5.3 Diversity of Supply: while offshore wind will provide the bulk of the extra renewable generation, there is good reason to build a more diverse mix for the future. Firstly, more diversity of generation will help to minimise the variability of renewable energy generation. Tidal power for example is highly predictable and can be planned into the network easily. Wave power is driven by winds, but produces power out of phase with offshore wind by a significant time in most areas, since waves generated in mid Atlantic for example travel slower towards land than the pressure fronts themselves. The costs of intermittency of renewables are thought to be about 1p/kWh for relatively high levels of penetration according to the CCC, but these will be minimised by a diverse mix of renewable energy generation.
5.4 Balancing costs and benefits: public discourse currently focuses on cost rather than the relationship of cost and benefit. To judge whether government should support marine energy, both must be considered. The potential benefits of marine energy to the UK lie as much in export potential and domestic job creation as in carbon avoidance and renewable energy targets. The UK is likely to lead the way in deploying the first arrays, and will build a domestic industry around these deployments. Assuming that cost performance improves as thought possible, overseas markets are likely to emerge in the next decades, with the global market likely to double the UK market by 2030, and be about four times the UK market by 2050. It is critical to establish domestic capability in the UK now in order to reap the benefit in future decades.
5.5 Cost uncertainty: There is a high level of uncertainty over future cost performance of marine energy. Current forecasts and targets predict a challenging but possible trajectory to full competitiveness by 2050 with the ETI and UKERC roadmap for the industry setting a 5–9p/kWh target for levellised cost of energy. Wave and tidal energy are more likely to become competitive as deployment is scaled up and at the same time, we see offshore wind being forced further from the coast, conventional generation experiencing higher carbon costs and the impact of tightening emissions standards. However, the uncertainty over the cost of marine energy is very high, and the future costs of other generating technologies against which it will be compared also have relatively high uncertainty (eg nuclear, offshore wind, CCS). It is recommended (in line with the CCC) that public funding is needed as a minimum to get to a point where this uncertainty is reduced enough to see whether the potential benefits of marine energy can be realised on a large scale.
6. We believe the Government should be supporting the marine energy industry because the potential benefits outweigh the likely costs. We believe that it needs regular review over the next decade to check that this assumption remains correct as the future costs of wave and tidal power in relation to other low carbon generation options becomes clearer. It is however important to consider not only the issues of decarbonisation of the electricity system and diversity of supply, but equally the economic growth that the UK marine renewable sector can deliver though global market opportunities.
How effective have existing Government policies and initiatives on marine renewables been in supporting the development and deployment of these technologies?
7. The UK has a clear leading position in marine renewables, and this is down to multiple factors; a very fortunate scale of natural resource; historical research strength; and, a favourable policy regime. It may be argued that the research strength in the UK has emerged because of the natural resource around it, the enthusiasm of a few pioneers, and positive funding over decades. More recently broader support mechanisms have been in place to help pull through research into industrial reality.
8. The Renewable Obligation Certificate scheme has enabled the emerging industry to see the longer term revenue from marine energy, and has recently encouraged larger industrials such as Voith, Alstom and Rolls Royce to enter the market. These companies bring great value to an emerging industry, but will only move into a sector once future revenues are relatively certain. Uncertainties in the revenue support continue to slow investment in the industry. The level of ROC support to 2017, both in banding and total availability, and the level of support under the FiT post 2017 are currently creating a discontinuity in future revenue for technology and project developers.
9. While research has historically been strong in marine energy in the UK, the market has only recently become ready for the technology. While prototype wave devices were being developed in the 70s in Edinburgh, the perceived need for these technologies came and went with the oil crises of the 70s and 80s, but was never sustained for long enough for the technology developers to make progress beyond lab testing. It has only been with the advent of carbon targets and legislation to encourage renewables that marine power has made progress. This history demonstrates that new emergent technologies cannot thrive under varying market conditions, and that policy, when used advantageously, can create a steady market.
10. Public sector funding of marine energy technology development has come from a variety of sources. The Technology Strategy Board has funded 23 projects in the last five years, totalling £22.7 million of grant allocation with this funding matched by the participating businesses. Most of the leading device developers including Atlantis, Pelamis, Aquamarine, TGL and MCT have received Technology Strategy Board funding. DECC, Carbon Trust, ETI and RCUK have been the other main funders of device development. More recently, the Technology Strategy Board projects have focussed on underpinning technologies across the whole system, for example a pioneering foundation drilling technique recently demonstrated by Bauer Renewables Ltd, while the Carbon Trust marine energy accelerator has also taken a system wide approach. The ETI and DECC are now clearly focussed on reducing the costs and accelerating the deployment of first arrays respectively. This move of funding from device development and testing to deployment of individual devices, to system wide costs and lastly to array deployment has worked well in supporting the industry as it moves through the expensive journey from concept to commercialisation. We believe that public sector funding now is more aligned than ever in marine energy (see paragraph 19 for more details).
11. The Marine Energy Development Fund was a DECC fund that was planned to take deployment on to the next stage and is perhaps the only programme that was not successful in allocating funds after the industry failed to meet the criteria for funding within the spending review period. This discontinuity was very unfortunate and caused by financial phasing limitations in government combined with overselling of timelines by the industry. Better alignment will be needed in future to ensure this is avoided.
12. The development of world-leading test centres has been critical for the industry. The scale testing facilities in numerous universities and research establishments combine with Narec, EMEC and Wavehub to provide a clear testing route to get from lab to ocean. Public funding has been essential in setting up all of these facilities.
What lessons can be learnt from experiences within the UK and from other countries to date in supporting the development and deployment of marine renewables?
13. The UK leads the global marine energy industry, but Canada, USA, South Korea, Portugal, Spain, Norway and Ireland, Australia and New Zealand all have active programmes in marine energy. The UK lead comes as a result of the alignment of resource, research and testing strength, policy and relative market certainty, all of which are needed to maximise progress to commercialisation. It might be argued that none of the other countries involved have such good alignment of these four factors.
14. Parallels have been drawn between the marine energy industry today and the wind industry in the UK in the 1980s. At that stage the UK held a good lead in research and testing of wind turbines, but the policy support was not continued, and that lead in research was not turned into an industrial manufacturing industry. Instead, Denmark in particular supported their domestic wind power industry and emerged with almost 40% of the wind turbine market in 2003. One of the keys to success in Denmark was early adoption of Feed in Tariffs and capital support to its domestic market, as well as streamlining of planning legislation. These policies built a thriving domestic based industry which then was able to expand to service the emerging export market.
Is publicly provided innovation funding necessary for the development of marine technologies and if so, why?
15. Public funding is required for most new energy technologies, and marine is no exception. The investment size is enormous, and the timescales involved in getting from concept to commercial scale is very long. For example, it is estimated that it might take £30 million and 10 years to develop a wave or tidal device from lab scale to the point where it is producing steady revenue. This creates a high risk investment that most venture capital steers clear of, creating the investment “valley of death”. Research funding at lab scale is relatively small but is sufficient to develop and test initial concepts at very small scale. As testing scales up, the development costs rapidly rise as model size increases, testing protocols become more complex and project management complexity rises, yet the risk for investors is not significantly reduced until large scale testing, when risk is reduced enough for investors to be able to see a clear route to commercialisation. This has been seen in marine energy for the first time recently with investments by Rolls Royce in TGL, Alstom in AWS, and JP Morgan in Meygen, all of whom are in the latter stages of scale-up. The technology developers behind the devices in these companies have needed public support until this point.
What non-financial barriers are there to the development of marine renewables?
16. Barriers to be considered are:
Licensing, consenting and planning requirements.
Environmental unknowns in interactions of marine technology and the marine environment.
Supply of skilled workforce and resource availability. Location of resources vs. demand and the capability of the grid to transmit power to where it is needed.
To what extent is the supply chain for marine renewables based in the UK and how does Government policy affect the development of these industries?
17. At present, the supply chain for the marine industry is largely localised in the UK, but this is dependent on the sector of the industry as set out below:
Device: For UK devices, which make up about half the global total, the supply chain is largely UK based at the moment. Blades are supplied from the UK by composites specialists. Power Take-off is usually part of the inherent IP of the technology developers, and supply is often a mix of bespoke design with standard components eg generators, with many of the components bought in from abroad. Nacelle/body construction and assembly is again, normally localised at this stage of the industry’s development. Companies like BiFab near Edinburgh provide service in this area, and because these devices are significantly smaller than wind turbine nacelles, some of the limitations of UK supply chain in manufacturing large castings for example are not so problematic.
Electrical Infrastructure: Largely based abroad through companies like Siemens who have expertise and experience in supplying power electronics, transformers, switchgear. Cabling companies such as JDR have a presence in the UK but compete with Norwegian and other mainland European companies.
Foundations & Moorings: Largely localised to date, but very early in standardisation and development of fixation systems for marine energy. UK expertise in offshore engineering provides strength here.
Installation: Largely localised, with hubs of operation emerging around Orkney, and around the South West of England. UK’s maritime and offshore engineering history is a big benefit in this sector.
Operation & Maintenance: As for installation, but very early in the development of the O&M process at this point in time. It is expected that the UK will have the skills and the advantage of proximity to early UK devices to develop methods and practices ahead of other countries.
18. Policy can maintain a UK based supply chain in the following ways:
Ensure that the positive market for marine energy is maintained. As with the Danish wind power example, with strong market pull, the industrial base follows.
Be clear about where the UK has strengths and build on these to protect them. In this case, offshore engineering, installation, operation and management are likely to be the bedrock of supply chain for the UK.
Use innovation to insulate the supply chain by keeping one step ahead of the competition. Part of the Technology Strategy Board’s focus in the coming years is likely to target the emergence of an innovative supply chain in the UK.
Encourage local/regional hubs of activity, such as those emerging in the South West and around Orkney. The idea of Marine Energy Parks is good for building local industrial capability and focussing on building supply chains to support marine renewables in particular regions.
What approach should Government take to supporting marine renewables in the future?
19. Public funding must be made to work together towards a common goal. The different departments and bodies involved all have different individual goals, but currently, all have a common goal in driving down the levellised cost of energy (LCoE), since this is the main determinant of the future success of the industry. All the main funders meet together in the Low Carbon Innovation Group (LCIG), and recent discussion at that working group has led to the Technology Strategy Board leading an alignment proposal summarised in fig 1 below. This shows how all the public funding expected in marine energy over the next few years lines up to deliver the common goal of LCoE reductions through the acceleration of array deployment, and “learning by doing”, and technology innovation targeting system costs.
batch 1 folio 163.eps
20. Each programme has individual aims (for example the Technology Strategy Board and Scottish Enterprise (SE) will be keen to ensure UK business benefits from their programmes, while ETI will need to see value for its members), but all also have the common aim of cost of energy reduction. The Technology Strategy Board programme will provide building blocks for the DECC and ETI programmes, while breaking immediate barriers to deployment.
21. We believe that as long as it is well aligned, this multi-agency approach strengthens the landscape by bringing different skills and focus to the same overall aim, in a way that a single agency would not be able to do. In order to maximise alignment, and ensure the industry and funding landscape move together, excellent information sharing between the industry and funding bodies will be essential.
22. The Technology & Innovation Centre in Offshore Renewable Energy that is being established by the Technology Strategy Board (as one of a number of elite centres in the UK) is not located on fig1 at present since the application process is still open and its role still under development with stakeholders. But this new organisation will help provide an essential bridge between academia and industry and play an important role in information sharing in the future.
23. Policy should be maintained over an appropriate timescale. There is some concern that policy changes and spending review periods may get in the way for an industry that needs to operate over decade timescales. The failure of MRDF to provide funding is an example of government spending timescales matching industry’s timescales poorly. The more long term certainty in policy, the better the private sector can plan and the faster industry can progress.
24. In return for long term certainty, the industry must be able to demonstrate the progress it is making in reducing their LCoE. It is recommended that a roadmap of cost vs. time is adopted by the LCIG as a whole, and that this is used as a criterion against which a regular review is carried out with the marine industry. Progress against this roadmap can then be used to make rational decisions about future funding levels. The LCIG is the best forum to coordinate this review process.
Conclusion
25. The UK currently has a leading position in the development of wave and tidal devices. There is now the opportunity to capitalise on this and on the investments already made in wave and tidal, but to do so the UK needs to continue to provide well aligned public funding at appropriate levels, set clear LCoE targets against which progress can be reviewed and set a longer term policy environment which is supportive of the development of the wave and tidal industry in the UK. By enabling continued innovation and reducing the future uncertainties associated with the industry, the UK will be able to fully reap the potential benefits through decarbonisation of the electricity system and economic growth.
September 2011