Renewable energy in Wales Contents

5Issues facing the renewable sector in Wales

Competence over energy policy and intergovernmental relations

49.Energy is a policy area where responsibilities are shared between the UK and Welsh governments. The UK Government is responsible for regulating the UK oil and gas industry and the electricity industry, including the generation, transmission, distribution and supply. While the Wales Act 2017 devolved more energy policy responsibilities to the Senedd Cymru/Welsh Parliament, it is still largely a reserved policy area.

50.The Senedd and Welsh Government have responsibility for: the licensing and granting of consent for onshore oil and gas projects, all onshore wind projects, renewable energy projects under 350MW that are developed in the Wales inshore and offshore regions and the promotion of energy efficiency.51

51.There are some areas of energy policy that are shared between the two governments. For example, energy conservation is reserved, but with the exception of “the encouragement of energy efficiency otherwise than by prohibition or regulation”.52 In practice, this mean the Welsh Government can develop schemes that incentivise energy efficiency such as the Nest scheme which offers advice and support on energy efficiency. While energy is a largely reserved policy area, this distribution of responsibilities, highlights the importance of co-operation and collaboration between the UK and Welsh Governments.

52.As well as having separate responsibilities for certain energy policies, the UK and Welsh governments also have differing energy targets. The UK Government’s recent change to its climate change commitments, bringing forward the target to cut carbon emissions by 78% by 15 years (now 2035) has aligned itself more with the Welsh Government’s target of 70% of Welsh electricity demands being met by renewable electricity sources by 2030. However, the UK Government lacks a cohesive strategy to incentivise local ownership of renewable energy generation in the UK. By contrast, the Welsh Government has a target of at least 1GW of renewable energy capacity being locally owned by 2030. Currently, the Wales is 83% of the way there, with 825 MW of renewable energy capacity currently under local ownership. There is also an additional expectation for all new energy projects in Wales to have at least an element of local ownership from 2020.53

53.For the most part, renewable energy generators in Wales have been relatively reliant on subsidy schemes provided by the UK Government such as Contracts for Difference, Feed-in Tariffs and the Smart Export Guarantee. However, the Welsh Government also offers its own support schemes. The Welsh Government Energy Service (WGES) provides free technical, commercial and procurement support to develop energy efficiency and renewable energy projects. The energy service helps with financial planning and funding, for example interest free loans and grants. More than 70% of public sector bodies in Wales have benefited from using the WGES and associated Wales funding programme. Despite challenges posed by Covid-19, the service is on track to commit more than £15m to deliver projects in 2020–21.54

54.In December 2020, the UK Government’s Energy White Paper Powering our Net Zero Future was published. The White Paper sets out how the UK will clean up its energy system and reach net zero emissions by 2050, as well as how the UK Government plans to support and expand the clean energy sector.

55.The White Paper referenced the establishment of a “Ministerial Delivery Group, which brings together the relevant Government departments to oversee the expansion for renewable power in the UK”. Its remit includes, “development of appropriate network infrastructure to support future renewables deployment”.55 Written evidence from RenewableUK Cymru and RWE suggested that such a forum would benefit significantly from an inter-governmental remit. The group could then consider major energy systems challenges such as grid capacity, which will significantly impact the viability of the expansion of renewable power.56

56.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. Existing programmes and schemes to develop the supply chain’s capacity and capability through clusters such as the South Wales Industrial Cluster and Celtic Sea Cluster should continue to enable cross-border working.

57.The UK Government should focus on maintaining a close working relationship with the Welsh Government, particularly in regard to major energy systems challenges such a grid capacity and port infrastructure. To facilitate effective collaboration, 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.

Interconnection

58.Interconnectors are high voltage cables that are used to connect the electricity systems of neighbouring countries. They allow them to trade excess power, such as renewable energy created by the sun, wind and water. Interconnection has been shown to have clear benefits for decarbonisation. Analysis published alongside the Energy White Paper illustrated that an increased level of interconnection could result in considerable reduction in emissions in both the UK and the European Union to 2050.57 This is because interconnection supports the integration of intermittent renewables by enhancing the flexibility of energy systems, allowing excess renewable energy to be exported rather than curtailed.

59.6 gigawatts (GW) of interconnector capacity is currently installed in GB, including a 2GW and a 1GW connection to France, 1GW to the Netherlands, 1GW to Belgium, 500MW to Northern Ireland and 500MW to Ireland. Wales is currently connected to Ireland by EirGrid Group’s 500MW East West Interconnector (EWIC). Greenlink is a proposed 200km interconnector between Pembroke and County Wexford; the project is currently in the final stages of obtaining necessary planning permission and consents.58 Written evidence from RenewableUK Cymru suggested that the opportunity for export from Welsh waters to the continent should be considered in the future given the EU’s requirement for 300GW of offshore wind by 2050.59 The UK Government and the European Union have previously agreed to enhance their co-operation on renewable energy in the North Sea. This is intended to facilitate the development of hybrid projects that combine interconnectors and offshore windfarms and opens up the potential for a North Sea grid.60

60.RenewableUK Cymru have argued that this agreement is equally applicable to the Celtic Sea. They explained that there is an opportunity for the creation of a Celtic Sea Economic Zone, allowing the UK to benefit economically from sites being developed in Irish waters as well as using the sea to help deliver Net Zero.61 The Welsh Government, Irish Government and Cornwall & Scilly Isles LEP, along with numerous business stakeholders are already developing routes for greater co-operation on this issue.62

61.According to Simply Blue Energy, “a key opportunity for the Celtic Sea is to support the European Union’s aspiration for 300GW of floating wind by 2050”. Given the scope for cooperation proposed in the Trade and Cooperation Agreement reached with the EU, Simply Blue Energy went on to express hope that some of this could be provided by UK projects in the Celtic Sea, but also by projects in Irish waters delivered by the UK supply chain”.63

62.Interconnectors have been proven to provide strong benefits for decarbonisation, because of this the role of interconnectors is expected to greatly increase in the decades leading to net zero. As an interconnector in Wales would allow excess energy, which is likely to be created due to the abundance of wind energy in the country, to be exported rather than curtailed, there are clear opportunities for Wales to benefit. This is particularly significant for Welsh waters in light of the EU’s requirement for 300GW of offshore wind by 2050.

63.Further to the UK Government’s recent collaboration with the EU on a potential North Sea grid, the UK Government should consider the opportunity for further export from the Celtic Sea to the continent and the creation of a Celtic Sea Economic Zone.

Grid capacity

64.A lack of grid capacity in Wales is constraining the deployment and development of renewable energy installations of all sizes and, because of this, it was a recurring issue throughout the course of our inquiry. Areas of the country—including mid Wales in particular–have already reported power lines as close to full capacity, leaving developers of potential energy schemes facing prohibitive upfront costs to upgrade the local networks before they can start generating. This often results in projects being abandoned or being downgraded so that they are unable to generate to their full potential.64

65.Witnesses told us that onshore developments face existing constraints in the form of a lack of grid availability and considerable competition for connections. In their written evidence, Natural Resources Wales suggested that, “a lack of grid capacity is widely recognised as the single biggest constraint to further development of onshore wind and solar in mid-Wales and is a significant constraint to locations in both North and South Wales”.65 EDF expressed their concern that grid constraints were a significant contributing factor to blame for the reduced rate of renewable energy deployment in Wales, and therefore needed to be addressed as a matter of urgency.66

66.Written evidence from RWE stressed that, “there is an urgent need for capacity upgrades to the Welsh electricity grid if the expansion of renewable power necessary to meet net zero is to take place”.67 The constraints on Wales’ grid are likely to be exacerbated by the requirement for significant development of offshore wind generation (fixed bottom and floating offshore wind) within a short time scale (40GW by 2030).68 As Juliet Davenport, Chief Executive of Good Energy, summarised, “there is no capacity to connect renewables”.69

67.As the National Grid explained in its written evidence to our inquiry, “the increase of renewable energy generation, such as offshore wind, onshore wind and solar–required to achieve net zero, is often sited in remote areas where there is a lack of existing grid infrastructure”.70 Indeed, “there is currently no National Grid electricity transmission infrastructure within Mid-Wales. Any new energy generation in this area would need to be used locally, stored or transmitted”.71

68.Investments in grid infrastructure are currently limited by the regulator, Ofgem, through five-yearly price controls (called RIIO). Ofgem’s final determination in relation to the RIIO2 pricing period 2021–6 does, however, refer to the possibility that projects with a value <£100m would be able to apply for funding throughout each year of the pricing control period through the ‘re-opener’ mechanism. The net zero re-opener mechanism is intended to provide investment that developers can use to increase funding if unforeseen circumstances affect project development. The mechanism is able to provide upwards of £10bn for perceived good value projects and £450 million for strategic investment, with the potential to provide additional innovation funding if needed. Ofgem is also set to implement “a Net Zero and Re-opener Development ‘use it or lose it’ allowance to fund small Net Zero facilitation projects” and allow early development work on projects that companies intend to bring forward under the net zero and medium Sized Investment Projects (MSIP).72

69.However, Renewable UK Cymru have voiced concern that it is not known whether, in discussions with Ofgem, the Welsh Government have made clear the extent to which it has sought to make the case in relation to Wales’ future requirements to strengthen its networks.73

70.When we asked UK Government Ministers about Welsh grid capacity issues, the severity of the problem was not recognised. David T.C. Davies MP, Parliamentary Under-Secretary of State for Wales, told us that he was “not aware” of any grid capacity issues, and that it was “not a problem I see on the horizon at the moment”.74

71.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. If the UK Government is unaware of the severity of this issue, it would suggest that their engagement with stakeholders on issues affecting renewable energy development has not been sufficient.

72.The UK Government must recognise that Wales’ increase in renewable energy development and generation may be significantly hindered by grid constraints if action is not taken. To mitigate this risk, the UK Government must 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. The UK Government must also engage with key stakeholders to ensure that these constraints are adequately addressed in such a way that will not delay the Welsh decarbonisation roadmap.

Supply chain and port infrastructure

73.Wales is well-placed to generate a significant amount of wind energy. The Offshore Renewable Energy Catapult has advised that there could be as much as 50GW of electricity capacity available in the Celtic Sea alone,75 and the Crown Estate has recently announced a new leasing opportunity for early commercial-scale floating wind projects there.76 Given the potential of fixed bottom and floating offshore wind surrounding the Welsh coast over the coming decades, there may be opportunities for Wales to capitalise. In order for this opportunity to be realised, ports and their immediate inland infrastructure must be developed to accommodate the scale of projects which could materialise.

74.Numerous stakeholders have raised concerns over supply chain and port infrastructure capabilities to support new offshore developments. In their written evidence, EDF stated that the space requirements for floating foundation assembly, along with ‘wet storage’ (required until turbine components are ready for serial installation upon the foundations), are “likely to be a significant constraint to large scale deployment of floating offshore wind that captures significant elements of the supply chain”.77

75.Simply Blue Energy told us that there is “the opportunity for a collaborative approach to a port strategy in Wales to support renewables and Welsh Government and UK Government should identify areas for cooperation and potential co-investment”, pointing to the Pembroke Dock marine project which forms part of the Swansea Bay City Deal. According to Simply Blue Energy, the role ports will play in local supply chain benefits “cannot be overstated and currently there are challenges for Welsh ports to support, in particular, the fabrication and integration of platforms and wind turbines due to the scale and development of floating wind”.78

76.The Welsh Government is due to publish its recommendations for port infrastructure development in Wales sometime in 2021. In its own Ten Point Plan for a Green Industrial Revolution, the UK Government pledged to invest £160 million into modern ports and manufacturing infrastructure. This announcement followed the Government’s October 2020 announcement of a £200m investment fund for ports to invest in new infrastructure as part of the preparation for the end of the Brexit transition period.79 The first ports competition was won by Teesside and Humberside, who received funding. According to the Minister of State for Energy and Clean Growth, the Rt Hon Anne-Marie Trevelyan MP, this was because “the east coast is further ahead in its offshore wind activity”.80

77.One recent success story in terms of the sustained development of Port, and surrounding, infrastructure can be found in the North East of England. In February 2021, the Port of Blyth launched a new clean energy terminal with facilities for companies in the renewables and offshore energy sectors (the port claims to offer a ‘one stop shop’ for the offshore sector with facilities for building and maintenance of infrastructure available on site).81 The Port has been building a hub of companies in this sector for a number of years, and it is also located next to the Offshore Renewable Energy Catapult (OREC).82 The Port has been at the heart of Blyth’s regeneration into a magnet of investment and skills development in the renewables sector.

78.In light of the Crown Estate’s recent announcement of a new leasing opportunity for early commercial-scale floating wind projects in the Celtic Sea,83 stakeholders have called for funding of the Celtic seaports in future rounds.84 Stakeholders have also emphasised a need for the UK Government to recognise that, although different areas of the UK have different requirements and are moving at differing speeds, funding should support offshore wind development and ports infrastructure throughout the country.85

79.Wales is well-placed to benefit from the significant potential of fixed bottom and floating offshore wind around the Welsh coast. However, existing issues with the supply chain and port infrastructure must be addressed if the country wants to take advantage of these opportunities.

80.The UK Government should make clear the likelihood of further funding of ports infrastructure in Wales to support the emerging offshore wind sector. Further port investment should be encouraged for Welsh ports, particularly the Celtic Sea ports, in any future funding rounds. Freeports are one current area where significant investment is being discussed by the UK Government, and we urge the UK and Welsh governments to reach agreement, as soon as possible, on the funding arrangements for a freeport in Wales. 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.

81.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. If Wales is to make the most of its offshore potential, then her ports will need to have the right infrastructure and the skills base which can ensure that investment in energy development also results in investment in jobs and skills in Wales.

51 D. Hirst and N. Sutherland (September 2017). Energy in Wales, House of Commons Library - Debate Pack, No. CDP 2017/0163

53 Welsh Government (September 2019), Energy Generation in Wales 2018

54 Welsh Government (15 December 2020). Written Statement: Energy Statement

55 UK Government (December 2020), Energy White Paper: Powering our Net Zero Future, CP 337

56 RenewableUK Cymru. REW0031; RWE. REW0038.

57 UK Government. REW0044.

58 UK Government. REW0044.

59 RenewableUK Cymru. REW0031.

60 UK Government (December 2020), UK-EU Trade and Cooperation Agreement: Summary

61 RenewableUK Cymru. REW0031.

62 Marine Energy Wales (9 October 2019), Ireland, Wales and Cornwall combine to capture floating wind opportunity in the Celtic Sea

63 Simply Blue Energy. REW0045.

65 Natural Resources Wales. REW0010.

66 EDF. REW0033.

67 RWE. REW0038.

68 RenewableUK Cymru. REW0031.

70 National Grid. REW0035.

71 National Grid. REW0035.

72 RenewableUK Cymru. REW0031.

73 RenewableUK Cymru. REW0031.

75 Offshore Renewable Energy Catapult (2020), Benefits of floating offshore wind to Wales and the South West

77 EDF. REW0033.

78 Simply Blue Energy. REW0045.

82 T. Dillon (27 May 2020), Blyth drives UK’s renewable energy future, ChronicleLive

84 Simply Blue Energy. REW0045.

85 RenewableUK Cymru. REW0031.




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