Memorandum by the Re-Generation Partnership
This evidence is presented to the Committee
by the RE-generation Partnership in Wales—RE-generation
is focused on raising the potential of renewable energy to
achieve sustainable economic development in the region surrounding
the Severn Estuary.
Our main objective in this paper is to highlight
the role that the Severn Barrage could play in achieving renewable
energy targets. In this context we question the consistency of
the EU's 20% target with the limited role that carbon pricing
is currently playing in achieving it. If an improved EU Emissions
Trading Scheme can be developed that leads to a stable and fair
price for carbon, then the Severn Barrage, along with other renewable
technologies, will become more feasible and attainable.
Currently, EU policies on renewable energy,
regional economic development and carbon pricing do not yet sufficiently
support each other and attention is required to improve matters.
Delivery of the targets will depend on the type,
scale and distribution of renewable energy resources, the speed
of planning decisions and the price competitiveness of alternative
technologies.
A further factor will be the capacity of the
industry—at regional and local levels—to deliver a
seven fold increase in energy from renewable resources over the
next 12 years.
Whilst proven technologies are available, the
investment capacity of households and small businesses, and the
planning regime for projects below 50MW, pose risks to the pace
at which small scale technologies can be integrated in the market.
Hence, in our view, emphasis will need to be placed on larger
renewable energy projects—like the Severn Barrage—if
the targets are to be met.
For example, the Welsh Assembly Government consultation—A
Renewable Energy Route Map for Wales—identifies potential
carbon savings from alternative technologies in kt/yr as:
| Type of Renewable
| K tonnes per year |
| Biomass | 600 to 800 |
| Severn Barrage | 1,050 |
| Other marine | 300 to 600 |
| Hydro | 80 |
| Waste | 128 |
| Wind | 1,150 |
| Microgen | 90 |
The Severn Estuary could be responsible for over 1 million
tones—almost 40% of all potential carbon emissions savings
from renewable energy resources in Wales.
A Barrage is not the only option for developing the renewable
energy resource of the Severn Estuary and various marine energy
technologies are likely to be developed in and around the Estuary.
However, in our view, the Barrage is the only option with the
ability to better integrate the Welsh economy into the EU transport
system whilst also keeping upstream property assets insurable
against sea level rise and tidal surge. (See the Annex on the
Economics of the Barrage).
Indeed pitting the Severn Barrage against alternative tidal
projects serves only to miss the point—a fleet of projects,
on land as well as at sea, will be needed in the region over the
next few decades to meet EU carbon reduction targets.
The carbon savings in the Estuary have potentially a very
significant value. According to OFGEM, the cost per tonne of carbon
dioxide saved under the UK Renewable Obligation varied between
£184 to £481—far higher than other policy measures
such as the EU Emissions Trading Scheme at £12 to £70
a tonne, the UK Climate Change Levy at £18 to £40 a
tonne and the Energy Efficiency Commitment which prices carbon
at around £60 a tonne.
On these figures, each tonne of carbon saved as a result
of operating the Severn Barrage (in total just over 1 million
tonnes p.a.) would be worth between £12 and £481 to
the Welsh economy. That could mean over £400 million of investment
funding becoming available each year, depending on the shadow
price of carbon adopted by various government schemes.
However, to encourage investment in renewable technologies
the price of carbon needs to be fair and stable. This is not a
difficult task. For example, it should be possible through a reformed
EU Emissions Trading Scheme to establish a reasonably stable price
per tonne for carbon of around (say) €50 by 2010.
Such a scheme would need to auction the initial tradable
permits and it might be possible to introduce ceilings and floors
around the price by issuing more or less permits as the market
evolved. A successful scheme will require the participation of
other countries—particularly the USA. If the EU or UN were
to set more stringent carbon reduction targets, then the ceiling
price of carbon could be allowed to rise each year until it reached
(say) €100 per tonne by 2050.
Once it became clear that a robust, market-driven price could
be established and maintained then it would be possible to securitise
future revenue streams from carbon trading (alongside those from
future electricity sales), and create tradable "Severn Estuary
Bonds" to facilitate construction, operation and maintenance
of the Barrage.
In this context, the €50million plus per year income
from carbon emissions trading (perhaps rising steadily up to 2050)
could be added to the major benefits that the Barrage would bring
in terms of direct jobs, indirect jobs and international reputation.
This raises the question why different carbon reduction schemes
are sending such conflicting price signals to the market. Discrepancies
on carbon pricing on this scale have costly economic consequences
and will undermine long term investment in renewable technologies.
It indicates the need for urgent EU action to help the market
determine a single EU price per tonne of carbon and establish
predictability through futures trading. A stable carbon price
would greatly assist the development of the Severn Barrage.
The RE-generation Partnership has been established
in Wales in order to highlight the potential benefits for local
businesses and communities of major renewable energy projects
and programmes in the Severn Estuary. The potential economic benefits
of the Barrage are set out below in the Annex.
Annex
THE ECONOMICS OF THE SEVERN BARRAGE
In economic terms Wales and the South West are at a tipping
point. Prosperity levels are below the UK average, there is heavy
reliance on the public sector and productivity levels are low—partly
because of a lack of capital investment in infrastructure. Things
are not expected to improve in the near future.
Indeed massive investments in roads, railways, airports and
other infrastructure projects (eg the Olympics) in the rest of
England will pose further problems for the competitiveness of
the Welsh and the South West economies.
Harnessing the green energy of the Severn offers a solution
to the economic decline of the region because a Barrage will deliver
much more than just green electricity.
1. Firstly it will produce energy that is predictable,
reliable and carbon free for perhaps 100s of years which will
generate a significant income stream.
2. Secondly it will create thousands of new jobs—making
a significant contribution to the economic development of the
whole region. To put things in perspective, in addition to the
direct expenditure of around £15 billion, the project would
generate between £3 billion and £4 billion of indirect
and induced expenditures—these indirect "spin-off"
expenditures will be capable of creating over 35,000 jobs.
3. Thirdly the barrage is likely to increase the bio-diversity
of the estuary rather than decrease it—slowing down the
tide will introduce more light and oxygen, turning the estuary
"blue" (it's currently a murky brown), encouraging the
growth of micro organisms. Hence more fish will be attracted which
will support a greater and more diverse bird population. This
will enhance the appeal of the estuary to tourists.
4. Fourthly, the Barrage could have a beneficial impact
on the visual environment. The Design Commission could ensure
that it reflects international standards of design and create
a "WOW" factor for the region—certainly people
find well designed bridges extremely attractive and the Thames
Barrier has become a tourist attraction in a poor part of London.
5. Fifthly, and most importantly for economic regeneration,
by carrying new road and rail links over the estuary the barrage
could create a new regional economic powerhouse—the "Severn
Gateway"—integrating the economies of South Wales and
South West England. (The rail link would be the first to enable
Welsh products to travel directly to the European mainland—currently
Severn Tunnel height restrictions preclude this—and no-one
knows how long the Severn Tunnel will remain operational.)
These factors together will boost the tourist sector and
attract international investment into the region. In this sense
the Barrage has the potential to create an iconic sustainable
city-region on the west coast of Europe—outside the "hot
banana" area.
Various marine energy technologies are likely to be developed
in the Severn Estuary but the Barrage is the only option with
the ability to better integrate Wales into the EU transport system
whilst keeping upstream property assets insurable against sea
level rise and tidal surge. Such significant additional benefits
might offset the potential negative impacts of the barrage, including
the problem of access to Bristol docks.
Pitting the Severn Barrage against alternative tidal projects
serves only to miss the point—a fleet of projects, on land
as well as at sea, will be needed in the region over the next
few decades to meet carbon reduction targets.
Finally, the Barrage will not need large Government subsidies.
Despite the credit crunch there are still huge funds in the City
looking for good, long term projects in which to invest. The funding
options would be greatly assisted by the development of an efficient
market in tradable permits that set a stable price for carbon.
If the Government supports the Barrage through the planning process,
then the returns from predictable, long term, reliable, green
energy will ensure that the capital cost will be funded by private
investors.
The challenge for the region will be to develop the 21st
century equivalent of the South Wales coal field. However, this
time, the aim will be to build the foundations for a new industrial
base across the region that retains the wealth, protects the environment
and creates a competitive economy with sustainable, healthy communities.
To address this challenge the "RE-generation Partnership"
has been formed—it will focus on maximising the economic,
social and environmental benefits of the marine energy in the
Severn Estuary.
Achieving this goal will require a good understanding of
the supply chains needed to deliver local economic impacts. Efficient
supply chains with skilled competitive businesses will be needed
to counter the prospect of footloose global project teams arriving
to exploit the opportunity and export the wealth.
RE-generation will develop and support practical options
that harness the green energy of the Severn and at the same time
promote sustainable development and local SME growth.
One option will be to develop a supply chain club for "Severnside
SMEs" to ensure local companies and communities benefit from
all marine energy projects—keeping the local pound, local.
A related option is to ensure that the PPP contract with
prime contractors includes a "framework agreement" that
includes as many competitive regionally based companies as possible—many
of these firms will go on to serve global markets.
RE-generation will be developing options that harness
green energy and simultaneously generate economic growth—an
important goal in a region crying out for new jobs and opportunities.
RE-generation Partnership—includes representatives
from the Welsh Assembly Government, CBI, ICE, Universities and
the private sector.
21 April 2008
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