Around 58,000 people work in the energy and environment sectors in Wales, generating over £4.8 billion in revenue. Rapid innovation is taking place in areas of marine energy initiatives and low-carbon projects. Wales currently has 86 operational wind farms, the potential to generate around 10 GW from marine energy, a wide mix of hydro-related companies, a mature solar energy sector and a tidal range capable of providing significant generation opportunities along the Welsh coastline. Renewable generation capacity has grown from 789 megawatts (MW) in 2010 to 3,540MW in 2019, an increase of 449%.
However, further growth will be needed in the near future with ambitious targets set by the UK Government for carbon emissions to be reduced by 78% by 2035, and by the Welsh Government to meet 70% of Wales’ electricity demand from Welsh renewable energy sources by 2030.
On 23 November 2020, we launched our inquiry into Renewable Energy in Wales. The inquiry focused on how the UK Government, in co-operation with Welsh Ministers, can best support the development of renewable energy in Wales. Our report looks at the following areas:
Opportunities for Wales
Wales faces significant opportunities across a broad range of renewable energy sources, including onshore and offshore wind, solar and wave and tidal energy. Our report pays particular attention to the role that The Crown Estate plays in helping to unlock some of this potential. Our report acknowledges the crucial role that The Crown Estate plays in managing the UK’s seabed and the difficult balance it has to strike between protecting our natural resources and in providing opportunities via seabed leases for economic development to take place in British waters.
Over the course of our inquiry we heard significant demand from energy companies for additional seabed leases to be made available, and our report welcomes the recent announcement from The Crown Estate of a new leasing opportunity for early commercial-scale floating wind projects in the Celtic Sea. This new leasing opportunity will be particularly significant for the marine sector in Wales and, through its focus on projects of circa 300MW in scale, will be an important step towards the UK Government’s ambition to deliver 1 GW of floating wind by 2030. We encourage The Crown Estate to continue to work proactively with developers to ensure that adequate leasing rounds continue to be offered on a regular basis in the future. We also recommend that the Department for Business Energy and Industrial Strategy work with The Crown Estate and energy developers to explore how there can be greater alignment of timeframes for, as well as clearer communications about, leasing opportunities.
Subsidy schemes and finance
The Contracts for Difference (CfD) scheme is the UK Government’s main mechanism for supporting low-carbon electricity generation. CfDs incentivise investment in renewable energy by providing developers of projects with high upfront costs and long lifetimes with direct protection from volatile wholesale prices, and they protect consumers from paying increased support costs when electricity prices are high.
While we conclude that the Contracts for Difference (CfD) scheme has been highly successful in supporting renewable energy development in Wales, our report argues that emerging marine technologies such as wave and tidal require additional support to bridge the gap between innovation funding and CfDs. Our report recommends that the UK Government must address the funding gap for emerging marine technologies or risk negatively impacting their development.
Another subsidy scheme in this sector was the Feed-in Tariffs (FiTs) scheme. FiTs were hugely successful in attracting investment in small-scale renewable electricity generation. The scheme allowed applicants to apply to get payments from their energy supplier if they generated their own electricity, for example with solar panels or a wind turbine. The FiTs scheme was closed to new applicants in April 2019 and was replaced by the Smart Export Guarantee (SEG) in January 2020.
We express concern, in this report, that the Smart Export Guarantee has been widely criticised by small-scale renewable developers as being too limited in scope and for its apparent lack of ambition. This is in marked contrast to the success and popularity of the FiTs scheme. We call upon the UK Government to explore re-introducing generation tariffs to the Smart Export Guarantee in order to adequately support small-scale renewable energy generation. The UK Government should also examine bringing back a fixed tariff to incentivise further small-scale energy generation.
Renewable energy and the local economy
Our report explores the implications of the shift to net zero for local communities and for local workforces. The shift to a net zero economy will be one of the most significant economic transformations in decades. It will have far reaching consequences for communities and individuals across the UK, for livelihoods and lifestyles. However, while this decarbonisation journey offers potentially rich rewards, it also contains significant risks for the Welsh economy.
Our report therefore calls upon the UK Government to work with the business sector and stakeholders including the Welsh Government to develop a comprehensive strategy for upskilling the current workforce, leveraging new opportunities and tackling the barriers, including grid constraints, that currently threaten to undermine the potential gains from the shift to a net-zero economy. As a sign of the UK Government’s commitment to securing progress at the COP26 summit, as well as of its broader net-zero agenda, we also call on the UK Government to convene, prior to the COP26 summit this Autumn, a high-level panel of stakeholders to begin work on a reskilling strategy.
The UK Government’s Ten Point Plan pledges £12 billion of government investment and envisages up to three times that from the private sector to create and support 9,000 jobs in clean energy across the UK within the current Parliament, and up to 250,000 by 2030. Our report notes that Wales’s natural resources, coastline and all round renewable energy potential should mean that it benefits significantly from the UK Government’s Ten Point Plan for the Green Industrial Revolution. However, we are concerned that the UK Government has provided no information on how many of the jobs envisaged by the plan will be located in Wales. Our report calls for a clear vision, and a specific plan, for job creation from the UK Government. Using the Ten Point Plan as a starting point, the UK Government should develop a Wales specific plan that provides a detailed route-map and aspirations, including in terms of job numbers, for the Ten Point Plan in Wales.
Issues facing the renewable sector in Wales
The final chapter of our report looks at a number of issues with implications for Wales’ ability to meet its renewable energy generation potential.
One such issue is intergovernmental relations. Our report emphasizes that effective collaboration and co-operation between the UK and Welsh governments will be essential if Wales is to achieve net zero by 2050. Significant issues such as grid capacity and port infrastructure, in particular, require cross-government working if they are to be resolved, and there are a number of key areas where there are common interests and opportunities for further collaboration between the UK and Welsh governments. We call on the UK Government to focus on maintaining a close working relationship with the Welsh Government, and recommend that, where renewable energy projects in Wales are under consideration, the UK Government should invite Welsh Government Ministers to attend and participate in the Ministerial Delivery Group.
Grid capacity was another issue raised by a number of witnesses. We received a considerable amount of evidence arguing that grid capacity issues are currently significantly hindering renewable energy deployment throughout Wales, and are likely to continue to do so in the future. We call on the UK Government to work in collaboration with Ofgem to plan anticipatory investment in Wales, so that the significant uplift in renewables generation which is likely to occur is not handicapped by our currently severe grid constraints.
Finally, our report discusses the issues with the supply chain and port infrastructure that must be addressed if the country wants to take advantage of the opportunities available for Wales as a potential renewables powerhouse. We call on the UK Government to make clear the likelihood of further funding of ports infrastructure in Wales to support the emerging offshore wind sector. Our report notes that Freeports are one current area where significant investment is being discussed by the UK Government, and our report urges the UK and Welsh governments to reach agreement, as soon as possible, on the funding arrangements for a freeport in Wales. We recommend that, if these discussions can be unblocked, the competition process for a Welsh freeport should place a heavy emphasis on renewable and net-zero considerations and should look to facilitating investment in the development of renewable energy generation.
Our report also acknowledges the importance of Wales looking elsewhere for best practice. In particular, we recommend that the UK and Welsh governments, as well as port operators, and energy companies with developments in Wales, should work together to learn the lessons from the North East of England, where a clear strategy, focus, and public and private sector investment have led to the Port of Blyth becoming a hub for renewable energy development and jobs.