Examination of Witnesses (Questions 240-259)
Dr Gordon Edge and Ms Maria McCaffery
12 MAY 2008
Q240 Lord Powell of Bayswater: So
the figure is not funds available for investment, which was the
conclusion I drew from your statement, perhaps I misheard.
Dr Edge: The capital cost of installing
all that plus the capital cost of the manufacturing plant to make
it happen.
Q241 Lord Powell of Bayswater: Secondly,
on this question of manufacturing, I am on the board of one, and
on the advisory board of another, big manufacturing company, both
of which make turbines, both of which have looked at this area
and both of which decided there is not a sufficient return to
be made on it to be worth investing. Are they just wrong?
Dr Edge: Other companies like GE and
Siemens are taking a rather different view.
Q242 Lord Powell of Bayswater: GE
is not going to take much of it, Siemens has, I agree.
Dr Edge: Are we talking specifically
offshore?
Q243 Lord Powell of Bayswater: I
was talking specifically offshore.
Dr Edge: Siemens investors have taken
the view they are playing. There are a number of other companies,
including Multibrid, which is 51% owed by Areva of France, there
is REpower owned by Suzlon of India, and there are other companies
which we perceive to be coming down the track, who are planning
to make turbines specifically for the offshore space.
Q244 Lord Powell of Bayswater: We
were told when we made this visit that the rather specialised
nature of the turbines and the still relatively small demand for
them was a deterrent for major companies to invest in manufacturing
this particular sort of turbine.
Ms McCaffery: If I may comment on the
specific case of GE, GE is an American company and America is
the only country in the world with a support mechanism which is
more attractive to global investment than the UK. Also the potential
in the North American markets for their existing technology represented
a better strategic option for them at that time, but our understanding
of GE, one of our prominent members, is that they are keeping
a watchful eye on the potential for offshore wind.
Q245 Lord Powell of Bayswater: Lastly,
Shell very recently withdrew from the London Array wind farm.
Why do think they did that?
Ms McCaffery: Their official statement
was for exactly the same reason, they are refocusing their attention
onto onshore wind in North America. Just to comment on the perspective
that the media have attached to that, we are not able to give
sensitive and confidential information about the parties who have
expressed interest to us in taking over Shell's stake, because
the remaining two members of the consortium—E.ON and DONG—are
seriously considering making it a two-party joint venture rather
than a three-party joint venture. But had it not been for the
fact that this is a flagship project—ie the biggest being
planned, 1 gigawatt, and such a recognisable name as Shell attached
to it—we really do not think it would have been that newsworthy.
The members of the consortia for all of these big offshore projects
regularly change. Airtricity bought out Fluor's stake in the second
largest offshore wind farm, Greater Gabbard, and now SSE have
taken over Airtricity's stake, and this is happening all the time.
We just call it business as usual.
Q246 Lord Powell of Bayswater: The impression
I devised from talking to E.ON at the end of last week was that
if they were considering going it alone, as it were, with one
partner, this was a faute de mieux rather than because
they wanted to corner it all themselves. They were far from confident
there would be other investors to take Shell's place.
Ms McCaffery: We have had several approaches
asking us to field approaches into Shell. I would just like to
point out that from inside information we know that E.ON have
an ulterior motive in sending out a signal to the supply chain
manufacturers that enough is enough in terms of price rises, and
if they can introduce a question mark over whether or not they
want to proceed on a flagship project they are hopeful it will
oblige the overseas-based manufacturers to reconsider their pricing.
If that works, it will be of benefit to the whole industry.
Q247 Lord Powell of Bayswater: So
you are really persuaded that the industrial and investment appetite
is there to take forward offshore wind on a big scale?
Ms McCaffery: Indeed.
Q248 Lord Whitty: You said at the
beginning that the thing which was lacking was the political will.
By that do you mean the institutional framework and the structure
and the fact we have a marketplace ROCs system rather than a more
direct regulation of tariffs or subvention? Or do you mean that
this is not high enough up the political agenda and were it to
be a more clear strategic objective then major companies and financiers
would be more interested in this field, as they are in Germany?
Ms McCaffery: It is more a case of the
latter but until recent times we did feel it had taken the Government
a long time to wake up to the real potential of renewable energy.
A strong impression has been created that the real force was not
actually there and that the industry could not in fact deliver,
but that appears to have taken a step change in the course of
the last year to 18 months, where we have seen significant progress
towards overcoming the barriers. To put it in a nutshell, we need
two fundamental things. One is a robust, reliable and consistent
support mechanism, and we believe we have that in the Renewables
Obligation; it is doing the job it was intended to do, and no
doubt we will return to that issue. The other thing that is required
is a planning system which gives consistent, clear and timely
determinations and we really have suffered deplorably from the
regime hitherto.
Q249 Lord Whitty: Unlike other witnesses,
you are saying the ROC system should work and it is the planning
framework and the delays that has implied which has been the problem?
Ms McCaffery: Yes.
Q250 Lord Whitty: Not that there
are better systems for encouragement?
Dr Edge: Absolutely. Since 2002 when
the renewables obligation was introduced, 15,000 megawatts of
onshore wind projects have entered the planning system. It is
not the fault of the Renewables Obligation that we have only 2,000
megawatts of onshore wind currently generating, it is the fact
that over half of that capacity is still in the planning system.
That is the problem. To blame the Renewables Obligation for the
failure of both the planning and the grid system is perverse,
frankly.
Ms McCaffery: We think the time and the
opportunity for choosing between support mechanisms and either
the RO or a general Feed in Tariff was five years ago when the
choice was made. But having gathered the momentum we have gathered
to this point, we feel it would be absolutely disastrous and would
kill the existing momentum in wind energy in the UK to change
horses mid-race, which is effectively what we would be doing.
However, to be absolutely clear, BWEA does whole-heartedly support
the introduction of a Feed in Tariff for micro-generation and
for emerging technologies, but for wind energy we think it would
be disastrous to introduce it now or to switch to that mechanism,
and it certainly is not responsible for our relative position
with our near neighbours in continental Europe.
Q251 Lord Powell of Bayswater: So
you take a different view from our previous witnesses?
Ms McCaffery: Indeed we do.
Q252 Lord Bradshaw: You have identified
the planning system as the major obstacle, you know the Planning
Bill is before Parliament, does it give you optimism that things
will be better?
Ms McCaffery: We recognise that is the
intention and we do applaud that, but as far as onshore wind is
concerned the Planning Bill is not going to make the slightest
bit of difference, primarily because the threshold of 50 megawatts
is above the level at which the vast majority of remaining applications
are going to fall, so unless we were successful in persuading
the DCLG to allow for clusters of small projects in order to take
it over the threshold and make it the subject of an IPC decision,
it is not going to make any difference. Where we feel the IPC
could be of great benefit is in the desperately-needed development
and investment in the grid infrastructure. In offshore there will
not be anything under their threshold of 50 megawatts; all offshore
wind projects will be big.
Dr Edge: We do feel that with a few key
amendments the Planning Bill could be extremely useful for our
members. Maria has already referred to the ability to cluster
and refer to the Infrastructure Planning Commission. We are also
very keen that the national policy statements which come out of
this, particularly on renewables, will be given greater statutory
force and so influence those decisions on smaller projects under
50 megawatts under the Town and Country Planning Act. Currently
the Government is saying those national policy statements will
have the same force as current planning policy statements, but
PPS22 which covers renewable energy has not solved our problem
so it is therefore hard to see how a different policy statement
with the same force would make any difference.
Q253 Lord Bradshaw: And you have
some suggested amendments?
Dr Edge: We have. We have been applying
to DCLG to work with them and, to be frank, we have not had a
lot of joy.
Q254 Lord Rowe-Beddoe: In your opening
remarks you referred to your Association and memberships and its
interests being wind, wave and tidal. You have dealt with wind,
would you like to say anything about wave and tidal?
Dr Edge: We see these as being areas
of technology where the UK can make an enormous contribution.
We have the resource and we have the intellectual infrastructure
to make it happen. Simon Roberts talked about wave hub but that
is really at the end of the chain which starts with the university
research, NAREC in Blyth in Northumberland, the European marine
energy centre; there is this huge supporting structure for this.
What we need is the kind of support mechanism which will pull
it through with some certainty, and that is why Maria mentioned
we may support something like a Feed in Tariff for an emerging
technology like wave and tidal where the extra price certainty
would be really helpful and it is currently small scale. If we
can get the support structure right, then we can perhaps build
that industry which we have failed to do so far with wind—and
hopefully we can do that with offshore wind—and can be the
originators in the industrial power house.
Q255 Lord Rowe-Beddoe: Following
on another witness source—I do not want you to necessarily
comment on the veracity or otherwise of the numbers—I think
I am right that 36,000 megawatts of offshore wind power would
help us meet our targets for 2020 and we currently have over 300
megawatts installed. Would that be right, 36,000?
Dr Edge: The headline figure I think
you are grasping for is 33,000 megawatts.
Q256 Lord Rowe-Beddoe: Okay, 33,000.
Dr Edge: At present we have just over
400 megawatts capacity offshore, we have 550 under construction.
I anticipate the new projects coming forward will bring us to
somewhere in the region of 2,000 megawatts by 2010. Certainly
that is a big jump. We think that 33,000 is perhaps a stretch
too far. We certainly think that 20,000 megawatts is achievable
and would be a fantastic achievement if we got there, and if we
really push it we can go somewhat further, but that is the kind
of figure we prefer to talk about.
Q257 Lord Rowe-Beddoe: In that context
then you are talking of somewhere between £25 and £36
billion of investment for offshore?
Dr Edge: In the region of £40 billion
in projects, yes.
Q258 Lord Rowe-Beddoe: £40 billion?
Dr Edge: Yes.
Ms McCaffery: For 20 gigawatts.
Dr Edge: Our ballpark figure for the
capital costs is about £2 million per megawatt.
Q259 Lord Rowe-Beddoe: Which of course
is a substantial opportunity for a whole load of organisations
and pipelines, if they are prepared to take the opportunity, which
comes back I suppose to the commitment that we signal to this
industry that we are going to get it done?
Dr Edge: I think you will find there
are companies which are moving in the background, and I would
anticipate in the not-too-distant future we are going to start
seeing companies coming forward with investments in manufacturing.
It has just taken this amount of time for people to believe the
market to the point where they will invest like that.
Ms McCaffery: Yes, there is a huge disparity
between our current installed operating capacity and the target
but at this moment we have 19 gigawatts of wind energy in development
at all the different stages, either in planning, in construction
or with consent and going forward to operation.
Chairman: On that point we will end. Thank you very
much indeed. You have been extremely helpful and we are grateful.
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