ABOVE: the Pelamis Wave Energy Converter
Renewables, like so many other industries, have suffered some severe knocks in the last year. But the sector remains confident, and Britain’s developers now lead the world in many areas, including wave, tidal, offshore wind and parts of the microgeneration market. In the long term, however, is the outlook quite so optimistic?
Britain’s recent success in renewables comes despite a rather late start. Two decades ago the opportunity to take the lead in the onshore wind industry was squandered; instead, Denmark and Germany seized the chance to create manufacturing bases, producing turbines and the associated parts which left Britain far behind. The closure earlier this year of the Vestas factory on the Isle of Wight highlighted how Britain’s industry never recovered from failing to win enough private and public backing early on—not only was it the last major wind turbine manufacturing plant in the country, but it was also owned by the Danes.
Yet despite its lack of a significant manufacturing base, Britain’s renewables sector is now showing signs of heath. Many companies with bases in Britain—most, though not all of them, British owned—are building up an enviable portfolio of exports. Renewable Energy Systems (RES), part of the British-owned Sir Robert McAlpine Group, which in 2008 had a £383m turnover, is now the second biggest constructor of wind farms in the US. In 2008 Britain took over from Denmark as the country with the most offshore wind capacity in the world and, later this year, Britain is expected to become the first country to have more than 1,000 megawatts (MW) of offshore wind capacity—enough to supply electricity to 750,000 homes.
While Britain has taken the lead in offshore construction, it still has to buy in most of the hardware from foreign companies. But this could change over the next decade. Offshore wind farms, without any neighbours to upset, can be built much bigger than land-based operations; taller and more powerful turbines are already in development. This may be a moment for Britain to seize control of manufacturing base. Key to this will be creating of one or more hubs of activity, like Jutland in Denmark and Bremen in Germany, towards which companies and investors can gravitate. Aberdeen, the main British base of the oil and gas industry, is among the places to have already expressed an interest. Other candidates include Blyth (close to where the Britain’s first operational offshore wind farm was sited), the Humber, and Lowestoft, which has already been identified as the base of operations for the Greater Gabbard offshore wind farm.
The recent expansion of the sector has been driven largely by the government’s decision to sign up to tough renewable targets. By 2020 Britain must acquire 15 per cent of its energy from renewable sources, and greenhouse gas emissions must fall by at least 34 per cent; if they don’t Britain faces hefty fines from the EU and considerable political embarrassment.
But the path to achieving this is problematic. Next year there is likely to be a lull in construction, at least onshore, because the banking crisis has severely limited available funding. This year the government, heeding warnings that this could bring the industry to a standstill, doubled the Renewables Obligation Certificates (ROCs) available for offshore wind generation, which has been vital to continued development. Under the obligation, energy suppliers are compelled to get a proportion—now close to 10 per cent—of their electricity from renewable sources. Certificates are awarded to generators for each megawatt they produce to prove they are meeting their obligations—and Ofgem can fine them if they don’t.
Yet many renewable technologies are still waiting for adequate assistance. Heat loss is one of the biggest forms of electricity wastage, but the government is yet to provide a financial mechanism to encourage its capture for use. The case is similar with regard to solar. Ground-source heat pumps and small-scale wind technologies designed to generate electricity in homes and businesses are still waiting for the “feed-in tariff” to be introduced—under which generators are paid a set rate for the electricity they put into the grid. They have been promised it by April 2010, although the the feed-in tariff will only apply to projects with a maximum 5MW capacity.
In Germany the feed-in has encouraged the installation of hundreds of thousands of household solar panels and hundreds of anaerobic digestion plants to generate electricity from waste; in Britain there are only a dozen or so of the latter (see Tristram Stuart's article in October's Prospect, "A load of rubbish"). Similarly, Portugal has offered generous feed-in tariff rates which has attracted enough green investment that it now gets more than 40 per cent of its electricity from renewable sources, including hydro, wind, solar and geothermal power.
ROCs are currently the main support mechanism for the sector, and the good news is that they have played a significant role in providing the market with the predictability that investors want. Ofgem attributes much of Britain’s year-on-year increases in capacity since 2003 to them, especially as without them the costs of establishing renewable energy can be prohibitive.
But ROCs remain controversial; critics say they are too expensive. In 2008 they cost £307m, with the charges being passed on to the consumer by their electricity suppliers. Furthermore, except in cases where the government stepped in and increased the number awarded per megawatt, ROCs have been of limited protection against the shortage of investment cash in the economy. The development of renewables by big companies such as E.ON and Scottish & Southern Energy has ensured some new onshore wind projects will go ahead next year but, according to Gordon Edge of the British Wind Energy Association, not a single independent developer has signed up to a finance deal in 2009. Such is the strain on finances for new projects that the European Investment Bank is now considering calls for support in bankrolling the sector’s developments.
Wave and tidal projects have suffered a similar shortage of funds and, with little of the technology ready to generate electricity on a large scale, revenue support is in crisis. British companies have a decent lead in both the emerging wave and tidal technologies: companies such as Pelamis which installed the world’s first commercial-scale wave farm off Portugal, and Lunar Energy, who holds a contract in Korea to develop the world’s biggest tidal energy scheme, are ahead of anything being developed by foreign competitors. But with other countries like Spain and Portugal moving boldly ahead there are concerns the advantage will be lost if British development is slowed.
Despite the rapid growth of renewables, and Britain’s natural advantage due to its vast coastlines, the future of the sector is on a knife-edge. In this year’s budget Alastair Darling announced a further £405m to help low-carbon technologies develop. It was recognition not just of the importance of reducing greenhouse gas emissions, but that renewable technology in Britain is still at an early stage in its development. If it is to establish itself as a world leader, it needs to be nurtured.
Renewables, like so many other industries, have suffered some severe knocks in the last year. But the sector remains confident, and Britain’s developers now lead the world in many areas, including wave, tidal, offshore wind and parts of the microgeneration market. In the long term, however, is the outlook quite so optimistic?
Britain’s recent success in renewables comes despite a rather late start. Two decades ago the opportunity to take the lead in the onshore wind industry was squandered; instead, Denmark and Germany seized the chance to create manufacturing bases, producing turbines and the associated parts which left Britain far behind. The closure earlier this year of the Vestas factory on the Isle of Wight highlighted how Britain’s industry never recovered from failing to win enough private and public backing early on—not only was it the last major wind turbine manufacturing plant in the country, but it was also owned by the Danes.
Yet despite its lack of a significant manufacturing base, Britain’s renewables sector is now showing signs of heath. Many companies with bases in Britain—most, though not all of them, British owned—are building up an enviable portfolio of exports. Renewable Energy Systems (RES), part of the British-owned Sir Robert McAlpine Group, which in 2008 had a £383m turnover, is now the second biggest constructor of wind farms in the US. In 2008 Britain took over from Denmark as the country with the most offshore wind capacity in the world and, later this year, Britain is expected to become the first country to have more than 1,000 megawatts (MW) of offshore wind capacity—enough to supply electricity to 750,000 homes.
While Britain has taken the lead in offshore construction, it still has to buy in most of the hardware from foreign companies. But this could change over the next decade. Offshore wind farms, without any neighbours to upset, can be built much bigger than land-based operations; taller and more powerful turbines are already in development. This may be a moment for Britain to seize control of manufacturing base. Key to this will be creating of one or more hubs of activity, like Jutland in Denmark and Bremen in Germany, towards which companies and investors can gravitate. Aberdeen, the main British base of the oil and gas industry, is among the places to have already expressed an interest. Other candidates include Blyth (close to where the Britain’s first operational offshore wind farm was sited), the Humber, and Lowestoft, which has already been identified as the base of operations for the Greater Gabbard offshore wind farm.
The recent expansion of the sector has been driven largely by the government’s decision to sign up to tough renewable targets. By 2020 Britain must acquire 15 per cent of its energy from renewable sources, and greenhouse gas emissions must fall by at least 34 per cent; if they don’t Britain faces hefty fines from the EU and considerable political embarrassment.
But the path to achieving this is problematic. Next year there is likely to be a lull in construction, at least onshore, because the banking crisis has severely limited available funding. This year the government, heeding warnings that this could bring the industry to a standstill, doubled the Renewables Obligation Certificates (ROCs) available for offshore wind generation, which has been vital to continued development. Under the obligation, energy suppliers are compelled to get a proportion—now close to 10 per cent—of their electricity from renewable sources. Certificates are awarded to generators for each megawatt they produce to prove they are meeting their obligations—and Ofgem can fine them if they don’t.
Yet many renewable technologies are still waiting for adequate assistance. Heat loss is one of the biggest forms of electricity wastage, but the government is yet to provide a financial mechanism to encourage its capture for use. The case is similar with regard to solar. Ground-source heat pumps and small-scale wind technologies designed to generate electricity in homes and businesses are still waiting for the “feed-in tariff” to be introduced—under which generators are paid a set rate for the electricity they put into the grid. They have been promised it by April 2010, although the the feed-in tariff will only apply to projects with a maximum 5MW capacity.
In Germany the feed-in has encouraged the installation of hundreds of thousands of household solar panels and hundreds of anaerobic digestion plants to generate electricity from waste; in Britain there are only a dozen or so of the latter (see Tristram Stuart's article in October's Prospect, "A load of rubbish"). Similarly, Portugal has offered generous feed-in tariff rates which has attracted enough green investment that it now gets more than 40 per cent of its electricity from renewable sources, including hydro, wind, solar and geothermal power.
ROCs are currently the main support mechanism for the sector, and the good news is that they have played a significant role in providing the market with the predictability that investors want. Ofgem attributes much of Britain’s year-on-year increases in capacity since 2003 to them, especially as without them the costs of establishing renewable energy can be prohibitive.
But ROCs remain controversial; critics say they are too expensive. In 2008 they cost £307m, with the charges being passed on to the consumer by their electricity suppliers. Furthermore, except in cases where the government stepped in and increased the number awarded per megawatt, ROCs have been of limited protection against the shortage of investment cash in the economy. The development of renewables by big companies such as E.ON and Scottish & Southern Energy has ensured some new onshore wind projects will go ahead next year but, according to Gordon Edge of the British Wind Energy Association, not a single independent developer has signed up to a finance deal in 2009. Such is the strain on finances for new projects that the European Investment Bank is now considering calls for support in bankrolling the sector’s developments.
Wave and tidal projects have suffered a similar shortage of funds and, with little of the technology ready to generate electricity on a large scale, revenue support is in crisis. British companies have a decent lead in both the emerging wave and tidal technologies: companies such as Pelamis which installed the world’s first commercial-scale wave farm off Portugal, and Lunar Energy, who holds a contract in Korea to develop the world’s biggest tidal energy scheme, are ahead of anything being developed by foreign competitors. But with other countries like Spain and Portugal moving boldly ahead there are concerns the advantage will be lost if British development is slowed.
Despite the rapid growth of renewables, and Britain’s natural advantage due to its vast coastlines, the future of the sector is on a knife-edge. In this year’s budget Alastair Darling announced a further £405m to help low-carbon technologies develop. It was recognition not just of the importance of reducing greenhouse gas emissions, but that renewable technology in Britain is still at an early stage in its development. If it is to establish itself as a world leader, it needs to be nurtured.
