Examination of Witnesses (Questions 400-419)
MR BRIAN WILSON, MP AND JOHN DODDRELL
WEDNESDAY 24 APRIL 2002
400. Why are we allocating less capital grant, then, into some of those projects?
(Brian Wilson) At the moment I would say it is because it is demand led, and at the moment we are still stimulating interest in wave power rather than being overwhelmed with applications from wave power.
(John Doddrell) There are not the huge projects on wave power coming forward at the moment for support in the way that there are for offshore wind. We have had 18 offshore wind projects obtaining leases from the Crown Estates. They bid into our Grant Support Scheme for offshore wind and we are hoping to get well in excess of 1GW from those. Perhaps I could clarify the earlier figure I gave for Scroby Sands: it is 70-80MW for that project. A larger figure of 1.5 to 2GW is for the 18 initial first phase offshore wind projects, but they are at a very exciting phase and actually building on the Blyth project that has already been commissioned and going ahead with a lot more large projects. Wave energy is not yet at that stage of development.
401. That is not true of biomass, is it? You are putting quite a lot of money, relatively speaking, into biomass, and yet for biomass there is not the demand there; there is not a lot of interest; there is not a lot of potential in biomass.
(Brian Wilson) We think there is potential in biomass because again biomass breaks down into a number of subheadings and different technologies to invest in, so we have given a lot of priority to biomass in the Capital Grants Programme. I do not think there is any of these technologies where people are queueing up with projects and we have underestimated what we need to invest in order to back these projects. Roughly, the programmes which we have are in proportion to where the demand is coming from, and if that changes, then the programmes can be changed. If there is a technology which is clearly emerging with great potential then we will be right in there and backing it.
402. When the Committee went to Germany to make a comparison we saw that the Germans have invested in wind in a serious manner. They already have a great deal of onshore wind and they are now talking about large scale offshore wind, very large scale wind farms 30km into the Baltic. You have just talked about 18 potential offshore wind farms which would produce at 1GW in the sun, but even if you could get all of those done and even if you could get all the planning consents and get them built within the next 7 years, that is still less than one conventional power station in terms of output, and because you only get about a third of that capacity from wind anyway, because you know the wind is not blowing at full strength all of the time, the point is that wind potentially is a very useful resource and the Germans have really geared up seriously and are really pushing for it. One of the reasons that they have done that is because the German Government has given them a lead. It has picked a winner. It said that the winner overwhelmingly was wind and German industry is now investing as a result. You have not picked a winner. You have kept your options open, and, as a result, industry here is much more hesitant, is it not?
(Brian Wilson) I would not share that analysis. There is obviously some basic factual truth in it that Germany has invested in wind in a very large way and for its own particular reasons. There will be a ceiling on what Germany can do with wind in the same way as Denmark is beginning to find there is a ceiling to what they can do with wind. It is also an extremely expensive way of generating electricity on that scale, and I do believe, as I said in my opening remarks, that you have to take public opinion with you. I think that if we were going at a pace which was going to displace other generation sources and increase the cost of electricity in the way that that kind of programme would suggest, even if it was technically applicable in the short term, it would have other ramifications as well. I think to have 18 offshore projects waiting to be in the starting grid, to be putting in place a strategy in order to identify the other locations where offshore wind is going to be feasible, that that is a proportionate programme and one which will help us to meet our targets.
403. A quick factual question: when will the first of those offshore wind farms actually go live and contribute to the grid?
(Brian Wilson) As I said, Scroby Sands as of last week is approved and they are raring to go, and it is as quickly as the technology can be put in place. My guess would be in about 18 months it would be up and running. But can I just say in all of this: knowing where I want to go, this is not where I would have liked to have started from. But the fact is that we are inheriting a very, very low level of activity and we are trying to accelerate that at a pace which is going to achieve
404. I was interested that you mentioned manufacturing earlier on as one of the subsidiary elements or reasons why we should be pursuing a Renewables Obligation. We visited a wind farm yesterday in Scotland where the windmills were manufactured in Denmark, and it is clear that we have lost the lead that we had 20 years ago in wind manufacture. Are we not also, by keeping as many options open as we are doing at the present time, missing the possibility of giving a lead to the manufacturing industry to try and develop, for example, areas like solar power within this country?
It seems at the present time that we are behind the game in wind power and the manufacturing opportunities that exist in countries like Germany where they have huge investment in solar power, which is precipitated by their decision to rule out the nuclear option. Are these being avoided here because long term business is not getting the clear lead from Government?
(Brian Wilson) With respect, business and particularly the manufacturing industry is getting the clear lead from Government and let me
405. That is not what they are telling us.
(Brian Wilson) I am happy to develop the discussion, but what we are telling them is that the Renewables Obligation is going to create a multi billion pound market. There are vast opportunities for manufacturing industry, and of course we do not have the same industry as Germany or Denmark has because we have not done that up until now. We lost the lead in wind; we are now running very hard in order to catch up, and, therefore, there is an existing manufacturer of wind towers in Wales, there is one where a Danish manufacturer, Vestas, have been attracted into Macrahanish in Scotland, and therefore we do have an embryonic manufacturing industry. But the absolute certainty, whether it is wind or any other technology, is that unless you have a domestic market, then you will not have manufacturing industry to supply it. That is why we start at this very low point, because we have had a very modest domestic industry until the present time. I tell you this, it is worse than that. What I find really pathetic is that while we are now getting into the business of manufacturing the towers for windmills, there is nobody in the UK making turbines. All of these towers that are built, we will have to import the turbines unless, and I have some reason for believing that this will be remedied, unless that is addressed. That is the position that we start from, so nobody is making any pretence about where we start from, and I am not particularly interested in recriminating about past history but you just cannot leap from A to Z in one go. You have to build, and that is exactly what we are doing now.
406. I would like to declare a constituency interest, if I may, and on this point about manufacturing, say how important it is that if the DTI knows of people who wish to invest in this whole renewable energy side of things, that they look to sharing that information so that where there are possibilities like there are at Chatley Whitfield, we could see how we could get manufacturing off the ground. The context in which I raise this is really to say it is all chicken and egg, is it not? One decision relates to the decision that was made previously, which relates to the direction of Government policy, which relates to the framework which the PIU Report has actually set for Government. Looking at the frustrations that there are about how, having started from somewhere you would not wish to be at, how we can now make good what should have happened a long time ago, and all of those things need to be done at all one and the same time. What I really want to get from you is a kind of feel of, if you are going to be given a lead towards perhaps not ending nuclear production in the way that it currently has been, that is going to prevent, if you like, the clear lead to be given to renewables. It is really about how are we going to get people making the contribution that they need to make in whichever sector they are now operating so that it is not just everything being done on a case by case basis, and it is how we can actually have that public debate which is not just about the stakeholders in terms of energy producers or suppliers or industry you are using in terms of energy, in what they manufacture, it is really about how this real public debate can take place with people looking at it from the point of view of the long term. I just wonder how you intend, through the White Paper, to really get that debate up and running so it is not just a few privileged people having that debate or a few people with a vested interest, it is actually about how there is going to become a complete shift of culture about what we are going to do to meet the targets that are set out. How are you planning to make this something which everybody is actually a part of and wants to contribute to so that we can change things together?
(Brian Wilson) Painting a bleak picture of where we start from is realistic. I certainly do not want to paint a bleak picture of how things are now developing because it is my daily job and I find it really exciting and encouraging. I find it really exciting to go to Blyth and see what has been done there, a tremendous initiative. I find it exciting to go to a conference in Manchester where there is a North West Renewables Initiative being launched and about 500 people from companies are involved in that, looking at how they can get involved in renewables, and particularly in manufacturing. The same story can be repeated in different parts of the country, and although a lot of companies have come late to the opportunities in this, it is now happening and there is a recognition that this is not something at the fringes, this is something very big and something they can be part of. So on that side of things, I think it is going extremely well and at an accelerating rate of awareness. I was at the first Global Wind Power Conference in Paris two or three weeks ago. Britain was extremely well represented by companies, and it was a useful reminder that during the famine yearsthere are still some very good companies that have developed on the basis mainly of overseas business. We do have an embryonic industry and I think it is about to expand in a very healthy way. I thoroughly agree with what you say about the benefits of that coming to traditional manufacturing areas. Some of these jobs and some of these opportunities are going to go to the peripheral parts of the country where the resources are, but there is absolutely no reason why many of these benefits should not come to traditional manufacturing areas.
407. Like Stoke-on-Trent?
(Brian Wilson) Like Stoke-on-Trent. I am always happy to oblige entries to the local newspaper. As I said in Blyth, I think there is a lovely symmetry about the idea that Blyth, a place which has given so much to the country's energy needs historically, and is now in a depressed state, that its resurgence should be based on another form of energy. I think that in every traditional energy producing area that is something that is well worth pursuing.
408. Just in order to be able to make that happen, do you feel that the new Renewable Obligation Certificates are going to be able to work properly to be able to provide the investment that people in areas like Blyth or Stoke-on-Trent might need in order to be able to invest? Do you think that that is sufficiently ready and waiting to be taken up as a proper alternative to what was previously there under the Non-Fossil Fuel Obligation?
(Brian Wilson) The investment is being committed by the energy companies and by other construction companies and so on on a scale that has never happened in the past. I was at an event in Scotland recently where two Scottish Utilities, Scottish Power and Scottish and Southern, between them and they have committed £1 billion to renewables. It is a huge scale of investment which is available, and in addition to the Renewables Obligation which obviously underwrites that commitment, we also have a programme of capital grants of about £260 million in order to stimulate developments, particularly in those technologies which are at a relatively early stage of development.
409. Do you think that there is enough capacity out there to be able to know how to access that money that you have available for the capital grants, or do you think that there is sufficient understanding of the certificates to be able to give the certainty for people to be able to make investment decisions on that?
(Brian Wilson) Yes. Again, I attended a conference in London last week, organised by the Renewable Energy Association when it was this market in ROCs and investment and renewables which was being discussed and the audience was from financial institutions.
410. That is interesting, but nonetheless, what we have heard from banks is that the advantage of the NFFO contracts was that they were long term and you had a clear bankable 15 year contract which a small generator could take as a source of finance. The problem with the ROCs is that you do not have that, the value can change, and this militates against a small generator. Would you agree with that?
(Brian Wilson) I think that the market has changed since NFFO was introduced, and that now we need an approach which is going to stimulate the deployment of projects and the market led approach that I have described.
411. Why insert this uncertainty?
(Brian Wilson) I do not think it is inserting uncertainty to create a 25 year obligation which means that that premium price of electricity is going to be guaranteed for that 25 year period. I think that is a pretty high level of support.
412. That is from the Government's point of view. From the point of view of the small generator, the value of Renewable Obligation Certificates may fluctuate, whereas in the NFFO contract, they did not.
(Brian Wilson) As I said earlier, we think the market has to play a part in this. Every project will be taken on its merits. Of course we think that the price of electricity is going to fluctuate, but the advantage to renewables in each of their forms is going to be sufficient to give a very strong guarantee of viability to people who invest in it.
413. But the danger is that bankers will wait to see how this market develops, and you are therefore just at the point when you have a lot of potential purchasers of potential schemes on foot. There will be a hiatus, and people will actually not do what you want them to do, namely, actually make these projects viable and come to the market.
(Brian Wilson) I am aware of the danger. I think we have to watch the workings with any scheme that is put in place. We have to watch how it is actually implemented, but I would again point to the investment decisions which the big companies are making, which very often would be in cooperation with the smaller companies.
414. On this question also of the banding of the Renewables Obligation, in your Memorandum you say you did consult on that, and the problem at the moment is that if you do not have any sort of banding, then the cheapest provider of renewables always wins. That is wind, and you do not, therefore, get any stimulation of the other types of renewable sources. Why did you not go for banding of the Renewables Obligation?
(Brian Wilson) Could I ask you to reply, Mr Doddrell, simply because it predated my own arrival?
(John Doddrell) The aim was to meet these renewables targets in the most cost effective way. So we set an overall target as to what we want to achieve from renewables and leave it to the market to meet those targets in the best way it can. I do not think that will mean wind in all cases. There are other technologies that can do well under the obligation. There is hydro, land fill gas, some biomass, and other technologies that are developing that have an important role to play, and there is also the complimentary Capital Grants Scheme that I mentioned that will bring forward technologies like biomass to help us to build early demonstration plants of these technologies. From that learning, the costs will fall, and in a few years' time, we can expect to see many projects coming forward under the Renewables Obligation, so that was the thinking.
415. But the situation we are in, I think, is something the Committee is putting to you constantly, some elements of the renewable energy are quite well advanced technically, others are not. It may well be the case that the others have the greater potential, but if you always go for the demand driven market solution, the lowest cost price, you will never get, as you were saying, Minister, this visionary approach, the Tom Johnson approach, where, as in Germany, as in France with nuclear energy, as in Denmark, the Government of the day got hold of the thing and produced a solution which benefited future generations. You may just find that once again, Britain lags behind everybody else because we have taken a low level, cheap solution. Do you see the point?
(Brian Wilson) I see the point. I think that it is safeguarded against. I am very willing to take the point on board and to look closely at how this all begins to operate, and I think that we have safeguarded against that by also having very substantial Capital Grants available to support the developing technologies. If I go back to wave power for a minute, there is now a series of projects being developed which I hope will be in the water pretty soon, and will actually have a commercial application. Each one of them will take the process a little further on and we will be aheadwe are ahead of the game in wave power at this stage. But I have absolutely no doubt that if we need more money to be expended, and wave power is beginning to fulfill its potential, and if we want to put more into wave power, then we have to juggle the figures, we have to make sure that there is that support available for larger scale projects.
416. There is next to nothing out of Capital Grants going into wave and tidal power at the moment.
(Brian Wilson) But as I say, it is demand driven at the price in time.
417. It is a chicken and egg argument, is it not?
(Brian Wilson) No.
418. The existing structure there, Minister, that is the point we are trying to make. That just concentrates the existing structure we have. Unless you open that market up, then you are never going anywhere.
(Brian Wilson) To the best of my knowledge, nobody is waiting with a wave machine or a viable wave power option which is not being supported by the DTI, and you take it
419. You do need Research and Development to get to that point.
(Brian Wilson) You need the Research and Development, and that is exactly what is going in, therefore, I have personally encouraged Wavegen who are one of the most successful developers of this technology, to bring forward further proposals and to get them into the water, get the technology advanced, get into manufacturing, because I believe that could be a huge growth area which would attract relatively little public opposition. You need to be a petty enthusiastic objector to oppose a wave power machine.