Official Report 291KB pdf
The next item is the next session of our inquiry into Scotland's energy future. I welcome the members of our first panel, and invite them to introduce themselves before we open the meeting to questions.
I am associate director of emissions programmes for the Engineering and Physical Sciences Research Council—which, of course, covers energy.
I am director of research policy and strategy at the Scottish funding council, and I have responsibility across the piece for subject disciplines in Scottish universities and for research training and knowledge transfer.
I am head of the institute for energy systems at the University of Edinburgh, and a co-director of the energy technology partnership. I am also involved with the UK Energy Research Centre. I am also principal investigator in the SUPERGEN marine consortium, and I am here bringing experience of the community that delivers the research rather than funds it.
I am technology analysis manager at the intermediary technology institute, ITI Energy. I have been there for four years. I bring experience of the ITI Energy experiment.
And I am managing director of industries at Scottish Enterprise. I am responsible for our work with all the key sectors and the economic strategy. I am also currently the chief executive of ITI Scotland.
I thank the panellists for coming. We will try to keep this session to about an hour, because I know that a couple of the panellists have to get away. I ask committee members and panellists to keep their questions and answers as brief as they can. I remind the panellists that at this stage in our inquiry we are hoping to develop specific recommendations for our final report. If you wish to see any particular recommendations made, please try to mention them while answering questions.
It might be appropriate for me to give the committee an overview, and I will start with a broad analysis.
I will try to answer from a research project point of view. The ESPRC funds across the UK. We look for excellence in the projects that we fund and there is considerable leadership in those that we fund in Scotland. One of our flagship programmes is SUPERGEN—sustainable power generation and supply—and there is Scottish leadership and major engagement in at least half of the major SUPERGEN research consortia including wind, marine, storage and networks.
ITI Energy commissions research, and we have found research pooling to be tremendously useful. It has certainly strengthened Scotland's position in the projects that we have taken forward and has made an impressive shopfront for Scotland's capabilities. I would love that area to expand.
One of the features that distinguishes the UK and Scotland in our energy research is the collegiate manner in which it now proceeds. The SUPERGEN consortia and the research pools that Professor Gani referred to have brought about a new way of working that those of us who have been around for a while have not seen before. There is a synergy and a geometric addition of effort and outcomes that is perceived by European partners and countries around the world as exemplary. Many countries are trying to emulate the framework that now exists in the United Kingdom and Scotland.
I am interested in how we can translate research strengths in certain areas into support for the development of particular technologies. Where does the Energy Technologies Institute fit into that bigger picture? We are looking at a pipeline of support for different stages. The universities support the initiation of many projects, but the step up to the next stage is of critical importance, and I would like to know about the role of ETI in that regard. Perhaps Michael Weston could talk about the role of ITI as well.
It all starts in the universities and colleges, and there are a number of infrastructural requirements before you can get good value out of private and public investment in knowledge creation. We need excellent laboratories and the sorts of partnerships that have been referred to so that we can maximise the interaction. The arrangements must be multidisciplinary, particularly in relation to energy research. We need superb training facilities for undergraduates and masters students and particularly for PhD students in this area. Once all that is in place, there must also be industry pull—that is a generic comment—and in some areas of energy research there is good industry pull and good interaction. From that point on, there is an expectation that knowledge can be translated into applications that contribute to economic prosperity, but the public sector cannot deliver that on its own, nor should it.
I will have a first go at answering the question and Robin can add some specific detail.
Yes; I have participated in, rather than simply observed, much of the planning that has gone on. An example of that is what might be referred to as the third phase of the sustainable power generation programme, SUPERGEN. Well in advance of the period of transition, the funding councils are engaging the research community and the industrial sector in planning the appropriate next moves. There is now an inherent process that engages the wider community in the planning of the next priorities, which is very much welcomed.
I echo the important point that both Robin Wallace and Alison Wall have made about the innovation process not being linear. Scottish Enterprise—I will talk about ITI Energy as well—is involved much more heavily at the stage of proving development. Then there is demonstration in a commercial setting to allow the market ultimately to deploy the technology. We use a range of tools to do that, from our co-investment funding with companies to things such as the proof-of-concept activities that we undertake with universities. The role of ITI Energy is to take a market-focused view on where there are opportunities for Scotland regarding the technology base. David Gani made the point that Scotland's current corporate landscape does not have the amount of R and D investment from large companies from which other economies benefit. ITI Energy compensates for that by providing some means of promoting market-focused R and D in certain technology areas.
It is difficult for me to follow that. ITI Energy was set up to bridge the gap left by the lack of corporate R and D investment in Scotland. We have moved forward on that, but the amount of money that we receive is not sufficient to allow us to take programmes into the deployment phase—we always focus on the prototypes. To return to the question, any discussions that we have had with ETI have therefore focused on the idea that we will take a project so far and then pass it on to someone else for the deployment stage. As we move towards greater integration with SE, any potential gaps or drop-off points will be covered.
Has ITI Energy succeeded in meeting that objective over the four years for which you have been involved?
We have managed to take to the point of prototype programmes that have not required large amounts of money to take to the deployment stage. Some of our projects are now reaching that stage. The composite pipeline system is a good example of that, but it requires a serious amount of investment to take it to the next stage. So far, we have taken two programmes to an end point and licensing. In both cases, secondary investment was secured to take them forward. We feel that we can demonstrate that we have met that objective. Larger programmes will require larger investment and will require more integration with the next stage of funding, but we feel that we are making good inroads on that.
Essentially, you are saying that ITI Energy in its current form has been able to take projects forward over the past four years but lacks the capital to take them further.
That is pretty much what I am saying. We have the ability to undertake some projects but not others that we believe will have higher impact. Obviously, we face a classic risk-reward issue at the end of the day.
That is a valid point. If we think about the innovation spectrum, the ITI was never created to take ideas from inception to full commercial deployment. The ITI bridges a gap by identifying market technologies and creating and proving platforms that can then be deployed commercially in the marketplace. We recognise that commercial deployment might require considerable further investment from both the private and the public sector. The ITI was always designed to hand over activity to other parts of the public sector, such as Scottish Enterprise, which can use its R and D funding and investment funds for commercial companies to take things through.
However, ITI Energy was not intended to be a short-term fix or temporary arrangement. Michael Weston has described how ITI Energy has succeeded in bringing projects to the next stage, where they require additional funding. I do not understand why it has been decided—the minister tells me that the decision was made not by him but by Scottish Enterprise—to scrap or cease to operate ITI Energy. How will those early stage, pre-commercialisation projects be taken forward in the absence of a dedicated vehicle for dealing with them?
Let me answer that directly. We have not decided to scrap ITI Energy, but to integrate it into Scottish Enterprise's operations. We have been clear that we will continue with ITI Energy's core delivery programme and the other market teams that the ITI has in place, and to commission new programmes. We recognise that the gap that ITI Energy fills—and will continue to fill—is an important issue for the Scottish economy. We are certainly not scrapping the ITI in any shape or form.
There is clearly continuity between those activities. The question that the committee might ask is why, having seen the ITI as a valid standalone organisation for meeting a particular need over the past five years, Scottish Enterprise has now taken the opposite view.
I guess that the answer is that you are right that, when the ITI was established back in 2003, it was set up specifically as a standalone organisation. However, the ITI has always operated as a subsidiary of Scottish Enterprise. The ITI was a standalone organisation in one sense, but it was very much part of the Scottish Enterprise family. At that stage, Scottish Enterprise had a number of subsidiaries, not least of which were the local enterprise companies.
I have two simple factual questions to finish dealing with the issue with Paul Lewis. Does what you have said mean that you expect next year's funding to be increased from this year's funding for the areas that ITI Energy covers?
We are considering the budgets for the ITI, which we will confirm by the end of this month. I certainly expect new programme activity beyond what the ITI has run in the past year.
When the committee was in Aberdeen last week, it was clear from some of the people from whom we heard that the presence of ITI Energy so close to where the energy industries operate is hugely appreciated. Do you intend ITI Energy to continue to operate from Aberdeen?
The short answer is yes. Our energy team is headquartered in Aberdeen and ITI Energy will continue to be headquartered in Aberdeen. Both those groups operate pan-Scotland and it is important that they continue to do so, but Aberdeen is and will continue to be their base.
Let us assume that a project has reached the point of technical viability and that you want to put it into production. What if that can be achieved only by approaching a European company? In the North Sea oil period, we had Ferranti, GEC and so on. We no longer have them. Wavegen is now part of Siemens. Does that raise the problem of a different research culture, a different governmental relationship to research and different resources, which mean that production is likely to be developed further outside Scotland?
The way in which the ITI model operates—we can also talk about other strands of the research base in Scotland—means that, when a programme is considered, the key decision that needs to be taken is whether Scotland can pick up the technology and run with it. If the route to commercialisation is unclear, we in the ITI probably should not start the programme, because it will become an interesting research activity that does not reach the end point that we have in mind.
I have experience of working in a German Land with high mechanical engineering and electrical engineering performance. Relative to its population, Baden-Württemberg trains five times the number of technicians that Scotland does. Given that technological manpower—the spanner men who adapt such research for volume production—is much thicker on the ground abroad than it is here, I am afraid that the automatic response that will follow development, once a product is technologically feasible, is that adaptivity into practical production will go where it is available easily and with a highly skilled labour force. Scotland might have had such a labour force in the 1970s, but I do not believe that it does today.
There is a break point or watershed in the development of a technology where it moves from a concept in academia, through early small-scale proof of concept, to a product that increasingly has to take stakeholdings from other agencies and, eventually, realise private stakeholding. It is absolutely appropriate to try to ensure that we capture for Scotland and the rest of the UK as much of the commercial opportunity as possible to exploit new technologies and opportunities in the energy domain, and the universities have good legal, commercial and licensing organisations that protect a development from the outset to the end. However, considering some of the energy targets and the timescales within which we must realise them, we must not lose sight of the fact that we need world-class research output to create and underpin the breakthroughs that will give us the step and market changes. That kind of research might best be brought about by international co-operation with the best scientists in Europe, the United States and other places. We have seen as a feature of the past five or 10 years that the early funding agencies and research councils are keen to internationalise their programmes and activities to gain the benefit of experience across the international community.
Will there be any cost savings with ITI being incorporated fully into Scottish Enterprise?
Undoubtedly there will be some efficiency gains from integrating ITI with Scottish Enterprise.
I want us to think about the attraction of funds from UK sources for the kind of developments that we are talking about, bearing in mind the climate change targets, the geographical fact that 40 per cent of Europe's renewable energy sources are in and around Scotland, and the potential for carbon capture and storage here. Could you address the question of opportunities to attract funds from the UK's research councils and bodies such as the Energy Technologies Institute, and could you build up a picture of how well Scotland does? Do we know at this stage how much funding we attract into Scotland beyond what is initiated here by our collaborative research groups and so on?
It might be useful for me to start off. The Scottish funding council provides the main quality research grant, which is awarded as a result of the research assessment exercise. The grant is for staff and building facilities rather than for projects, and we spend about £200 million a year on it. On the basis of that investment, the Scottish universities go and get approximately another £500 million or £600 million from the UK research councils, charities and business. Although there is a little bit of overlap there, as of last year they also do £315 million of knowledge transfer activities—contract research, continuing professional development, licensing actitivies and the like—so they are pretty busy and they gear heavily on Scottish public investment and research.
We cannot give the figures because most of our major awards, such as those made through the SUPERGEN initiative on sustainable power generation and supply, do not go to a single university. Many of the major collaborations involve universities in Scotland, England and Wales, so it is not a trivial thing to sit down and work out the figures. I am not even sure that we could, because when we award the grant, we award it to one university to act as a financial hub. There is a set work programme on day one, but we expect that to change, and to follow the most advantageous lines of research as the project develops over the four years. It is not a simple thing for us to get those figures.
We have the question of the Scottish collaborative research groups, but we ought to get a picture of the collaborative research that includes people in universities in other countries. Even some examples of that would be helpful to illustrate the points that you have just made. I do not know whether you can do that, but we could perhaps get those examples from other sources.
We will certainly give you the list of the grants that we funded—you are welcome to have a look and see who the partners are. If it is relevant to you, we can pull out from our database the co-investigators who come from Scotland, so that you can see the sort of work that is going on here. What is hard for us to do is to put the pound signs against it.
Perhaps this will help as a qualitative rather than a quantitative expression. I think that you are all aware of the energy technology partnership. As part of our early engagement on the international scene, we did a survey of the SUPERGEN consortia that we either lead or are part of. By our analysis, Scottish universities in the ETP lead six SUPERGEN consortia and are partners and contributors to—I think—another six. I think that there are now 14 in total. We are quite heavily engaged either in the leadership and direction of consortia or as participants in consortia that are led from elsewhere in the UK. That is a nice position. It is well earned, and we are justifiably proud to be there.
The energy technology partnership, which has been mentioned a few times this morning, is an example of research pooling with the explicit objective of developing international alliances. As Professor Wallace has described, China, India and Texas are particular areas of focus for the energy technology partnership at the moment.
I would like to explore a bit further with David Gani how well we are doing in Scotland at supporting energy-related research. What percentage of the funding that goes into energy-related research comes from the funding council? You have talked about the funds from the funding council attracting £500 million or £600 million from the United Kingdom. Does that funding attract any other matched funding from Europe or elsewhere?
I think that I can answer your first question, although my answer will not be very satisfactory. Because universities are autonomous institutions and we give them their quality research grant to use as they see fit in pursuing their own strategies, it would be difficult to track how much of that grant is spent on energy. Nevertheless, I want to give you a useful answer. If I were the vice-chancellor of a university, I might be able to identify as energy research certain areas such as the one that Professor Wallace is involved in. However, there would be other related areas—for example, in the social sciences—that might involve discussion of how pylons affect people's willingness to live in a certain area or what wind turbines look like if they are just outside someone's front door. It would be very hard to trace all the research projects that focus on the whole range of related issues.
I asked what European funding is attracted by the initial sum that you spend. However, I presume that your answer to that question will be the same.
No. Robin Wallace mentioned the interaction that takes place at an international level. Our infrastructural money from Scotland underpins universities' ability to undertake the research in the first place. They get project money from Alison Wall's organisation, the EPSRC, and other bodies. Increasingly, there are funding opportunities with the Technology Strategy Board, which now funds knowledge transfer activities very effectively.
I understood that from Robin Wallace's point. If you cannot quantify the amount of your funding that goes on energy-related research, I presume that it will be difficult to tell us how much European funding we attract. As universities work individually to attract that funding, you will not be able to give us an exact figure for European funding. We are trying to get a picture of how much money goes into energy-related research in Scotland—that is what I am driving at.
The reason why we might be able to tell you much more accurately how much comes from Europe is that there is a different audit trail that comes through our books at the funding council and through the UK Higher Education Statistics Agency. We might be able to tell you that. However, you are absolutely right that I cannot tell you what Scottish universities are spending.
I will try to help by making an observation and then setting out almost a case study. The joint research institutes that are part of the Edinburgh, Glasgow and northern research partnerships report through a board to the Energy Research Partnership. That reporting involves key performance indicators, which include issues such as new European funds that have been attracted. There is an osmotic process that accumulates the data, among a great deal of other data, and ultimately feeds back through the reporting structure to the advisory groups and the SFC. The data will emerge in due course, although, at the farthest edges, the information is fairly granular, so it perhaps takes some time to come together.
The committee appreciates that, because of the different funding channels, it will be difficult to get an accurate picture of exactly how much money is available for research into energy in Scotland. However, it would be helpful if you could provide us with information about specific issues such as European funding. Can Alison Wall give us a ballpark figure for how much the EPSRC funds in total? Roughly what percentage of that figure is spent on energy-related research?
I shall get back to you with the total funding figures, for the purposes of comparison. The total figures for energy that I have brought along are for all the research councils, as we all work together. Last year, we spent about £75 million in total on energy.
Is that spending across the UK?
It is for all the research councils—we have a joint programme and report our figures together. We hope that spending in the year that is just ending will be up at between £90 million and £100 million. We will produce the figures in a few weeks' time.
Does any of the funding go to research into energy efficiency, such as building research?
Some of it does.
Roughly how much goes to such research?
The figure is quite low—about £4 million per year. One of the targets and key priorities of the programme in this three-year spending review period is to grow spending on energy efficiency and demand reduction.
What part do Scotland's colleges play in this area? I know that they play a major role. It would be interesting for us to see what funding is going to colleges. I am mindful of the time, so you may come back to us on the question.
We are talking largely about a research agenda. Scotland's colleges are not funded for that.
I intended to ask a much bigger question about skills training, but Christopher Harvie covered some of that. My question is about collaboration. Christopher Harvie talked about the technician level, to which I am alluding. We have been told that there are shortages at that level. First, how much money is being spent in Scotland's colleges on training at technician level in the area? Secondly, when we were in Aberdeen, we heard that there is a pool of skills that could be transferred from the oil and gas sector into new technologies. Has funding been set aside for that, and, if so, how much?
The skills committee of the Scottish funding council is aware of the issues that you raise, and I know that they are being discussed. I read the Official Report of the committee's previous meeting, at which the issue was addressed, and will follow it up. I will do what I can to get back to you on the specific issue of how much is spent on skills that underpin renewable energy.
In his opening statement, David Gani painted a healthy picture of our research base. He suggested that it would be a good idea for the Government to carry out a gap analysis but was not in a position to expand on the matter at this stage. In its report, the committee could recommend that the Government carry out a gap analysis on our research base, specifically with regard to energy, or we could give examples of areas in which gaps were identified in evidence. Given the targets that we have for 2020 and 2050, can members of the panel tell the committee—either now or later, in writing—where there are obvious gaps in our research base for energy that need to be tackled fairly swiftly?
That is extremely useful because there are two dimensions to the issue, to which I referred previously. The first is the point that was made by Paul Lewis and others on the seamless transition from knowledge creation to its application in industry. That connects to my point about the reduction in opportunities for corporate-laboratory interaction. That is an activity gap. Universities are not explicitly funded to turn ideas into applications although, with the knowledge transfer agenda growing in the UK funding councils, including the SFC, and in the research councils, there has been a move in that direction.
I think that I would like notice. If I confine my answer to areas in which I have expertise, I can point to some gaps, which the second witness panel may be able to describe. I mentioned one, which occurs when a marine energy prototype must spend a year in the sea ahead of qualification for support from the marine renewables deployment fund. I suspect that that is a particular case, but developers and industry colleagues can cite the difficulties that that creates better than I can.
We are preparing to do a major international review of energy research in the UK. The review, which will probably happen in 2010, will be one of the research councils' periodic major reviews of subject areas.
It might be useful for the committee, in considering gaps, to have information on what my colleagues in ITI Energy are doing to have foresight of opportunities and markets in which Scotland could be competitive on a 10-year time horizon. As we consider the gaps in research, it is interesting to take a market perspective. In considering where Scotland's economic opportunities might lie, we need to ask whether we have the right research capabilities lined up to deliver on those opportunities. It is important to use that lens when looking at the question of a gap.
If anyone can come up with some specifics in writing following the meeting, I would be interested to read them. That would help me to think about the things that we should be including in our report.
Business expenditure on R and D is poor across the piece in Scotland. It is slightly better in energy, at least in the Aberdeen area, but the challenges of keeping a culture of investment going will be huge, given the economic downturn and given the need over the next period—I imagine—to move towards investment in R and D in renewable energies. Paul Lewis made the important point that we must ensure that overseas companies that wish to invest can locate in Scotland as we develop renewables. There are many very exciting technologies, and there needs to be a major increase in R and D expenditure by business in Scotland.
David Gani is right. That is a big challenge at the moment. It has always been Scotland's significant economic challenge, and it remains so. However, despite such challenges, we should continue, as he indicated, to support the existing corporate base in Scotland for investing in R and D. We have a variety of tools to deploy to support it, including R and D investment with companies that enables them to continue to invest and to move up the value chain of economic development. We should ensure that there is sufficient risk capital.
How would you describe the investment that the energy sector can look to attract from the Energy Technologies Institute over the next three years, say, in comparison with the funding from bodies such as the research councils, the Scottish funding council and Scottish Enterprise? What part of the overall pot will be contributed by the ETI?
I do not have an accurate answer or forecast. I can tell you that, through the constituency of the energy technology partnership in Scotland, the Scottish universities, using their connections with industry and with some ETI stakeholders, are sufficiently competitive to bid in virtually all the calls that will be made by the ETI. In those projects that we have already seen and engaged with, we have been quite successful. We have to maintain that success rate in subsequent calls. Ultimately, that provides the sort of answer that you are looking for, although it is a competitive process, so it is difficult to speculate on what that might mean in funding volume.
Essentially, we will have to ask the ETI.
I do not think that the ETI would know the answer at the moment. This is a very early stage. The first few projects have been announced; there are some more in negotiation, and careful analysis is going on to position the next set of projects. The ETI would have trouble making that projection.
With the current interest and adrenaline in the energy technology partnership to engage with the ETI, we will be pursuing every opportunity to its ultimate conclusion, where there is a legitimate prospect of success.
I am afraid that time has beaten us. I thank the members of the panel very much for their evidence. If you can give us any additional information in writing, please feel free to do so.
Meeting suspended.
On resuming—
We resume with our second panel of witnesses on the energy inquiry. This time we will concentrate on the emerging technologies—specifically, carbon capture and storage, offshore wind and marine energy. I welcome the panellists and ask them to introduce themselves and say briefly whom they represent.
I am a professor of renewable energy at the University of Edinburgh. I also lead the university's research programmes on wave and tidal current power. Outside the university, but still in the research sphere, I am research director of the SUPERGEN marine consortium, which looks at wave and tidal current power. I am also the non-executive director of research at the European Marine Energy Centre.
I am the business development director for Pelamis Wave Power. Our company currently employs 75 people here in Edinburgh. We recently moved into new premises in Leith docks. In February, we were pleased to announce the first-ever order for a marine project from a UK utility.
I am from Vattenfall, a utility in Sweden, Germany, Denmark and Poland, which is moving into the Netherlands and the UK. My role at corporate level relates to strategic R and D. I am programme manager for the R and D that we are doing on CCS.
I am CCS commercial manager with Scottish Power. We take carbon capture and storage extremely seriously. My primary responsibility is to look at the commercial opportunities and implications of CCS for Scottish Power. I had the privilege of speaking to some members of the committee at our Longannet power station, and I am grateful for a further opportunity to talk to you about CCS.
I thank the panel for their introductory comments. If members can keep their questions brief and panellists can keep their answers reasonably brief, I hope that we will be able to cover all the areas that we wish to cover.
We want to look first at the UK Government's competition on carbon capture and storage. How is it progressing? Can it be speeded up? How does Longannet compare to its competitors? Given that Scottish Power is the main Scottish hope, what might increase Longannet's chances of being successful? Does anyone want to kick off on any of those questions?
I will, if I may.
Does Göran Lindgren have a view?
Vattenfall is not part of the UK competition but, of course, when it comes to competing for European funding for projects, we have clear preferences when it comes to our own projects, which are currently in the planning stage in Denmark and Germany. We will see the first decisions on larger commitments to those projects later this year.
How can we compare those projects to the Longannet proposal? Can you give examples from Germany that compare with where Longannet is at the moment? We know roughly where it is.
I could not hear your question, because there was so much noise outside.
You mentioned projects that are being developed in Germany. Can we compare in some detail their state of development with what we know about Longannet?
I can only describe the status of our projects. We have done the first round of geological surveys and are into the preliminary engineering of the plans. We are ready to ask for commercial bids on the plans later this year. Our target is definitely to be in the commissioning phase of the plans in early 2014 or 2015.
The difference comes down to scale. The scale of most of the research and experimental work that is being done at the moment, which is primarily privately financed by energy and process companies, ranges between 1MW or 2MW equivalent up to 25MW: I think Schwarze Pumpe's project is 25MW, but we believe that the scheme for Longannet needs to achieve a minimum of 300MW.
I would be interested to hear how the Vattenfall projects are being financed. What is the input of the Governments of the countries that are involved, and how do you expect the economics of the projects to stack up as you seek to achieve the objectives by 2014-15? Again, a comparator with the UK model would be helpful.
We are going through a technology validation phase, which we decided to run largely on our own. Vattenfall is putting its own money into that, although we have received some small portions of public money from Germany to cover parts of the work. Our current activity is large-scale validation up to the 30MW scale.
You mentioned a €1 billion investment to carry the project forward to the demonstration level. What scale of public investment do you hope to obtain? Are you running your own competition to determine which of the host Governments will provide the finance to make the project develop? Is that part of your strategy?
We are looking mainly to the European Union for funding. Of course, there is also the possibility of working with member states such as Germany and Denmark, but we do not expect that they will support us with funding. The scale of funding that the EU has indicated—€100 million to €200 million—is a good stake.
I was struck by the expected €1 billion investment that will be required for a 300MW plant. Is Vattenfall trying to secure a first-mover advantage, irrespective of whether it manages to get any of the €1.3 billion that the EU has set aside for the construction of six or 12 plants, or does it intend to await the outcome of that competition before attempting to meet that scale of investment?
We can take some steps before we need to secure public funding. However, we cannot see any way forward without support.
There are two economic dimensions to CCS: the capital cost and the operational cost. A more intractable question is what the implied price of carbon needs to be to make the economics of all this stack up. I know that figures are available in the marketplace, but what do you think the carbon price needs to be in the next phase of the emissions trading scheme to make this technology viable?
The price of carbon is definitely going up, not down. We have not been able to specify what the exact price level will be in the first phase; however, we think that, in the long term—by which I mean after 2020—carbon will be about €30 per tonne at today's prices and we expect that, by that time, CCS technology will be competitive at between €20 to €30 per tonne of CO2.
There are various views on carbon pricing. One benchmark opinion that is currently in the public domain was published in September 2008 by McKinsey. It set out a cost development curve stretching from the pre-commercial or development phase to a mature market. Although it envisages a peak price of about €90 a tonne in the current—that is, pre-commercial—stage, it suggests that, in the long term and with market maturity and product development, the price level that will be necessary to incentivise investment in CCS will be €35 to €48 per tonne. However, that presupposes that we can kick-start the normal product development cycle for CCS. We are all still pretty much stalled on that; we really need the scale breakthrough.
The EU recovery package is currently being considered—I think that some discussions on it are being held today. Will Longannet be in a position to bid for accelerated funding for CCS projects if the package is approved?
We are certainly looking at that, but we have not come to any firm conclusion yet. As with a number of such things, the devil will be in the detail, primarily around eligibility criteria and the deployment timeframe. We are watching what is happening keenly. We expect some sort of outcome towards the end of this month. We will formulate a way forward once we see the detail.
I want to explore that further, given that the matter is critical for CCS in Scotland. What are the barriers to your being able to participate in the projects that are accelerated? I think that perhaps five or six of the original 12 projects might be accelerated.
Again, it comes down to the scale of the support that is on offer: €200 million sounds like a lot of money but, in the context of a full-scale demonstration scheme, it really does not come close to the mark. We are, however, involved in a number of other CCS research projects that could benefit from investment at that level. The difficulty that we face is that the original annex C that accompanied the proposal listed Longannet as one of only four eligible UK entries. In a recent discussion with DECC, we argued that that annex be reopened—which, it so happened, would allow the French and Italian proposals to come in—to allow in either smaller-scale schemes or projects that address specific aspects of the chain, such as storage exploration or transportation infrastructure, and which would benefit from that level of investment. It would, in such cases, likely be a more appropriate incentive than it would be for a full-scale, full-chain commercial scheme.
It is important to make it clear that two of the UK competition bids are based in Scotland. Hunterston is involved as well.
One of the other consortia includes Peel Energy, RWE and DONG Energy. Information in the public domain suggests that the original scheme was based around a new build at Hunterston. However, RWE is now a partner in the consortium and we do not know what impact that is likely to have on the choice of site that the consortium may develop. Tilbury, which is an RWE site, was named in the context of the European proposal and no reference was made to Hunterston.
I am not going to ask you to comment on the competition, but I am interested in the possibility of more than one commercial-scale demonstration being developed in Scotland or in the UK. The evidence that we received from Göran Lindgren suggested that the UK is well in advance of other European countries in terms of support for projects on that scale. Is there potential for other types of project to come forward, and would those attract public funding? Should the Scottish Government consider supporting additional demonstration opportunities, or is their scale simply too great for that to be realistic?
There are a range of opportunities. The Scottish Government has already supported work on the Scottish regional carbon capture study, which has concluded its first phase and is about to report its findings. There are proposals on the table for a second phase, which would focus on further categorisation or investigation of storage sites, particularly saline aquifers. There are opportunities in the central North Sea that we could exploit on the back of that. There is certainly room for further support and advancement in that area.
The principle of carbon capture has been around at least since 1993. It was in the public domain when I finished my book on North Sea oil, so it has taken some time for us to make progress on the issue. I want to ask about the precedents that existed and the extent to which the lessons learned from them have been applied to the current programmes.
No. It extracts gas out of the ground, which is separated, and the CO2 goes back into the ground.
Ah, yes. I think that it was used for powering the on-deck combined-cycle generators.
No. After extraction, the natural gas is cleaned before it is taken out to the grids. A lot of CO2 has to be taken out.
The other project was the Peterhead project, which BP was taking forward but then cancelled in May 2007, I think. Does evidence from the preparatory work for that project come into your view or do you proceed on totally different lines?
There are some similarities between the approaches, but there is a principal difference in the technologies. I believe that the original Peterhead DF1 project was based on a gas power station. In the first instance, we are looking at what we can do with our coal station at Longannet. In macro process terms, the chemical processes for removing CO2 are broadly similar, but what we do not know and are trying to understand is how efficient that process is on the specific exhaust gases from a coal power station. The lesson that has been learned from Sleipner concerns the integrity of long-term storage, if we can call 12 years a long term in geological terms. CO2 has been stripped out of the natural gas there for around 12 years, and around 1 million tonnes a year have been reinjected back into the aquifer. The behaviour of the CO2 has been monitored through that time, and information has recently been released that shows yet again that the behaviours have been as predicted and expected. That should give us at least an inkling of confidence that the theory works in practice. It is clear that there are concerns about the extremely long-term implications for storage, but we should take a reasonable degree of comfort from the work that has been done on Sleipner to date.
May I ask a question about Pelamis?
We will come to that.
Right. I will reserve my question until then.
I ask Max Carcas and Ian Bryden to be patient. We will deal with CCS issues and then come on to offshore issues.
On CCS, how much use can be made of the existing pipeline networks in the North Sea, conceivably as a means of pumping CO2 back into oil-bearing strata?
In principle, the existing infrastructure can be reutilised. Work has been done at Newcastle University on the implications of pipeline change of use. There are questions about the effect that CO2—particularly wet CO2, if I may call it that—would have, principally on elastometer joints, but in principle, the existing infrastructure can be reutilised, although we would have to consider each individual pipeline and I think that some kind of remediation or refurbishment plan would be required.
Surely, in practice, a lot of the infrastructure in the North Sea would have to be replaced because of the risk of corrosion from CO2?
We do not know the answer to that—that is what the research is designed to find out. The initial findings suggest that it would not necessarily be the case that everything would have to be scrapped and replaced. I take your point, however, that some of the infrastructure will be more fit for purpose than other parts will be.
Is there an estimated timescale for CCS in the North Sea? How much time will we have before its full capacity has been used? Is that information available?
There have been some initial estimates based around early research on aquifers, but the general opinion is that those are somewhat optimistic. The Scottish regions study will publish more detailed estimates of storage capacity in its report. Our view, which is based on the depleted gas and oil fields, but more on the saline aquifers in the central North Sea, is that we have sufficient capacity to develop the idea of a European storage hub for CO2 in the long term.
How long is long term?
Our view, in operating terms, is that CCS is a transient technology. Perhaps 100 years from now, our successors will look back and laugh at the fact that we had to generate power from coal in the old days. The timescale will certainly be for as long as we have fossil fuel in the generation fleet in the UK and worldwide, so for at least the next 40 to 60 years.
The witnesses are no doubt aware of the public debate on CCS, particularly on the national planning framework and the longer-term viability of the coal-fired power stations. One argument is that CCS should be mandatory and nothing else will do, and the other is that a CCS-ready approach should be taken.
It is, frankly, dangerous to mandate anything that we do not yet fully understand. We hope that policy would be framed around the evolution of such understanding, given the UK competition and the other research activities that are going on. My colleagues are already dealing with the capture-ready approach in the plans for Cockenzie and Damhead Creek.
In general, mandatory cleaning is a good idea if the economic impact can be assessed, and if that impact is similar for the different facilities. The cost of implementing CCS at different sites will vary a lot—it will be totally unfeasible for many sites, but very feasible for others. We are speaking, therefore, in favour of a more market-based system for introducing CCS, such as the emissions trading scheme.
What might be the best system of financial incentives to accelerate the investment in CCS on a commercial basis? For example, should more capital grants be available through schemes such as the EU scheme, or should the price of carbon be forced up so that CCS is more economically viable? Alternatively, will people decide that CCS is not commercially viable and that they will therefore not go down that route?
What would give us the confidence that we need if we, as a power generator, are to invest in CCS? We need to understand how it operates at scale, how long it takes to build the infrastructure and how we integrate that infrastructure into a power station. Further, we need to be sure that we have got the infrastructure that we need if we are to remove the carbon and store it in the long term without, at some future date, having it come back to haunt us in the form of an unexpected emission liability.
It is, of course, important that we see very clear legislation for the operating time of the plans. We think that the ETS system is perfect for the phase that is to come but, with regard to the demonstration phase, we need to share the risks with the public. It is not possible to indicate the level of funding that we will need for such plans, but we cannot take it all on by ourselves.
That concludes our questions on CCS. I thank Stephen Adamson and Göran Lindgren for their evidence and invite them to contribute, if they have something that they want to say, to the next part of our session, which is on offshore renewable energy.
My first question will be of interest to Göran Lindgren because of Vattenfall's engagement in the Aberdeen wind farm project. However, I am interested in the views of Ian Bryden and Max Carcas on the research, development and demonstration aspects of that project, with regard to the European funding that is on offer, and, by comparison, their views on the effectiveness or value of the European Marine Energy Centre in Orkney and the way in which it has played a demonstration role in wave and tidal power.
There is certainly a case for demonstration centres in which full-scale technology can be tested in representative environments. EMEC—in which, as I said earlier, I hold one of the non-executive directorships, with specific responsibility for research—has enabled the testing of full-scale wave and tidal current devices in situ and has given developers access to a working environment, which would be impossible without the level of infrastructure that EMEC provides.
I echo that. Our experience is that EMEC was invaluable to the demonstration and development of our first prototype, which first generated electricity for the UK grid in 2004. If EMEC had not existed, the process would have been much harder. Of course, on the back of that, we were able to secure our first commercial order, which was for a project in Portugal that involved the world's first wave farm. The experience that we gained from building and operating that enabled us to secure the first order for a marine project from a UK utility company, which was from E.ON. We are working on that in Leith, but it will eventually go to EMEC.
It would be interesting to hear about the funding partnership arrangements at EMEC, which involve the Scottish Government, the UK Government and one or two others, and what the relevance of that model might be for the offshore wind project in Aberdeen. At the moment, I believe that there is a funding offer only from Europe, but there might be other potential partners in the wings.
There will be differences. The EMEC project receives much of its infrastructure-related funding from Highlands and Islands Enterprise. It therefore has a direct regional role, as well as a national and worldwide role.
I cannot answer on the Aberdeen wind farm, but a public-private partnership approach is required to develop the technologies and to get over the hurdles and high costs that are associated with early demonstration projects. Pelamis Wave Power has received about £3 million in public funding support since 1998. On the back of that, we have brought in about £50 million of private sector investment, a very large proportion of which has been spent in the Scottish economy, has been retaxed and has gone back to national coffers. Our experience is a clear example of how a partnership approach can be not only enabling but beneficial economically; we are keen to develop and build on that.
My next question relates to an issue that was raised to some extent in this morning's session on research, but was highlighted particularly in the report on renewables by the Institution of Mechanical Engineers. I refer to the funding gap that appears to exist at pre-deployment or full-scale demonstration stage. The institution estimated that the gap is in the region of £30 million to £50 million—I am not sure whether the figure relates to one year or a longer period. Do you agree that that is where the gap lies? Who should be helping to plug it?
There is a gap in that area. I do not know its exact size, but I have read the institution's report and recognise the issues to which it refers. At the early stage, there is inevitably an emphasis on research funding at university level. That does not go away—it must always be there to continue supporting a developing industry. There is also a focus on the machines in the water. There will always be a gap between those two areas, because it is not immediately obvious to outsiders that funding at pre-deployment stage is required. However, the issue screams at insiders, who know that such funding is crucial.
One would need to double-check, but when I last checked in Hansard how much Westminster funding had been spent on wave energy devices, the total was about £7 million since 1998. That figure must be put in the context of what we are trying to achieve with marine technologies. We think that wave energy could play a substantial part in our energy mix in the future; the issue is how quickly we want to advance that.
You say that some funding streams have not been used because the criteria are wrong. Do those criteria require amendment? If so, will you tell us now or in writing how those schemes should operate?
The market is the key. If we assume that what is now before Parliament is passed, that will be a tremendous step towards creating an incentive for progress. In the market, certain issues must be tackled. As I said, we have secured our first order in the UK and moved into new premises, all without any public support. We employ 75 highly qualified engineers in Edinburgh, who contribute taxes. We pay a substantial rates bill in Leith. Measures could assist us and enable us to move forward more quickly. For us, it is all about pace. We need to build on our momentum. One of the biggest killers for a company such as ours is delay, because that means having to fund ourselves to stay still. A range of initiatives could help companies. As for employment and the infrastructure, we need to build on developing a manufacturing location.
Ian Bryden mentioned the wave and tidal energy support scheme, to which about £13 million was allocated in 2006-07—correct me if I am wrong. I understand that that money is still being spent and that those projects are still proceeding. When will that money run out? Will a gap exist between the spending of that money and the award of the saltire prize in 2015? Would the money that has been put aside for that prize be better spent on a follow-up initiative to the WATES scheme that would operate when that scheme ends?
The scheme and the prize are very different entities. WATES was intended to allow the accelerated development of specific concepts, and one of the conditions was that those would be deployed at EMEC. I do not think that the saltire prize is in that part of the developmental spectrum. I understand that it is meant to be a focus and a target rather than anything else. I do not believe that the saltire prize is attempting to fill anything like the gap that we are referring to, whereas WATES was at least orientated to that part of the spectrum. I do not think that we can compare the two.
Does that mean that the saltire prize is not contributing to the developmental spectrum, leaving the gap unaddressed?
It is not contributing directly to that. It is a target rather than a specific funding route; I do not believe that any developers will take it into account directly in their developmental plans. The gap that we have referred to still exists and is crucial to EMEC because investment in EMEC is directly associated with that gap—it is investment at that stage of development. When the technology is in prototype form it can be tested at EMEC, but the problem lies in getting it to prototype form and then in taking it beyond that. EMEC sits in that gap as well.
How soon will the original prototype that was funded by WATES be ready for the next stage of support? Can we date that at this stage?
That is probably a question for Max Carcas.
A range of people are developing different concepts and technologies. At the moment, certain projects have been allocated funds and others are coming forward. There is always a need to continue with the good precedent that was set by that scheme. The issue is also about how we enable as much private money as possible to enter the process. I return to my point about project development. It is best to encourage the usual suspects who would own projects—the utilities and energy companies—to move forward on that.
Can I press the point about the WATES funding? No doubt, you have taken advantage of some of that funding. When do you expect that funding to dry up? In other words, when will a Government decision be required on whether that good work is to be continued to the next phase?
A range of people have got grants under the scheme and it depends on how quickly they are able to move forward. Some will not be able to move forward—that is the nature of the beast. A project must secure some support and then try to bring in other money, but some projects will fall by the wayside. Consideration should be given to renewing the scheme as soon as possible.
I will try to reposition WATES a little bit. If everything works according to the original plans—of course, few things do—a WATES project can and should take a developer to the point at which they can start considering the marine renewables deployment fund. If the project does that, it has successfully filled the gap. The MRDF is intended to produce not just capital funding but a contribution towards the market pool, which would start to encourage private investors to consider the options in a developer's business plan. In principle, there should be a full spectrum of projects, but the filler in the middle in this case was perhaps smaller than the gap that it was intended to fill, and it was specific and regionally dependent.
That is helpful.
I have a couple of points on the technology itself. We saw the water tank in Inverness where Wavegen, which is now part of Siemens, is testing. It was pointed out to us that it is thinking in terms of a 4MW installation for the Siadar wave energy project on Lewis. How big is the installation in Leith that you are working on?
Our project in Portugal, for example, is 2.25MW and comprises three machines. That is a next-generation machine, which builds on what we have done so far and produces 0.75MW. The idea is to build 10 or 20MW projects, so we intend that machine to be the workhorse for the future. We have an order for it, whereas the Siadar project only has planning permission. The next step is to begin the process there, if the partners wish to do that.
The manufacture of the plant?
Yes. It has to be ordered.
But there is an experiment somewhere in Iberia—in the Basque Country.
That is correct.
Engineers have pointed out to me that the great problem with anything hydraulic is seals. I do not mean the lovable, head-bobbing ones, but the seals for hydraulic transmissions. Is it right that it takes a long time to work out that problem?
If I were you, I would not fly in an aeroplane because all hydraulic systems depend on the same kind of seals. We could have an engineering discussion, but the technology is well proven. Many hydraulic systems—for example, brake systems and aerospace systems—operate in the same way as ours.
Would Pelamis have problems extracting electric connections at sea rather than on the shoreline?
We are offshore because that is where the major resource is. It is a bit like considering whether to put a wind turbine in the bottom of a valley or on top of a hill. We want to be where the resource is, and the difference between offshore and the coastline can mean losing two thirds of our energy. It is also a question of where there is more space. There is a place for both offshore and coastline schemes, but it is widely recognised that, to deliver large-scale wave energy, we need to be offshore.
Time is running short, so we will move on to Rob Gibson to talk about commercial potential and then Marilyn Livingstone to talk about the industrial base.
We have to get a good picture of the commercial potential. Mr Carcas referred to a 2.25MW project. One of the offshore wind turbines in the Beatrice project is 5MW, and commercialisation is expected on that basis. We must work out the time that it will take to develop projects for particular uses in order to assess whether they can meet the various Government targets—particularly those for 2020 and 2050. The committee needs to get a handle on how renewables will contribute their share, whether we are up to speed and what needs to be done. Will you give us some thoughts on the commercialisation phase?
It is a question of what you put in versus what you get out. The Beatrice project took about £45 million of funding—our entire funding for the past 10 years—but on the back of it we are building two commercial projects and we have built five machines. You have to put any projects into perspective.
I do not know the reference so that does not help.
I was being slightly obtuse.
We heard earlier about the need for partners who want to invest their money here to exploit the technology that we have developed. One example is the Pelamis development that could lead to a wave farm off Marwick Head in Orkney. What will it take to do that from the current position? Do you need a partner to bring enough money to allow the development to commercialise to the scale of a wave farm of however many megawatts? We need to know about those commercialisation arguments. Perhaps you could tell us a bit about the process and timescale.
It is everything that I have already mentioned. The company needs funding in order to continue our research and development work. Generally speaking, as a technology provider we are not a project owner: we sell our machines to energy companies and utilities, which develop the projects. For them to do that, the investment decision has to stack up and they have to be satisfied with the risks associated with the technology.
We need to compare that with offshore wind, which is seen by Scottish Enterprise, HIE and so on as having great potential. The commercial development of offshore wind is aided by the current round of licences. Ian Bryden might like to answer this question: by 2020, will offshore wind provide more energy than onshore, or any other offshore technology?
That is one of those questions that are easy to ask but difficult to answer. By making different assumptions, I could probably give almost any answer.
How well developed are Scotland's industrial base and supply chain for offshore renewables? What infrastructure is needed?
That question is probably one for both Max Carcas and me. Scotland has the industrial capability: we have a long legacy of marine engineering and development, although some of it might not be in exactly the right shape to be redeployed from the oil, gas or shipbuilding industries.
We have very good capabilities in Scotland. For our recent order, as with previous orders, a large part of the money that we receive will go straight through to our supply chain. I could read out a list of 15 different suppliers with whom we have placed contracts for building the project. We have a wide range of suppliers in Glasgow, Aberdeen, Edinburgh and Fife that deal with steel fabrication, paints, transformers, cranage, transport, electrical systems and hydraulic systems. All of those things are at the high-tech end of the spectrum. We have a tremendous base on which we can build—even in Portugal, we used vessels from Shetland—and if people have their R and D base and centre of manufacturing here, they are likely to use suppliers that are close by.
My next question follows on from that. Do you feel that there is a need for the oil and gas industry to diversify further?
That is probably a question for representatives of the oil and gas industry rather than the marine renewables industry.
We put it to them in our previous evidence session.
There are opportunities for companies in the oil and gas industry. The contractors have much of the skills base that will be necessary to tackle the big issues involved in the installation and maintenance of marine renewables systems—an issue that interests me intensely. Occasionally, I talk to colleagues in the major oil companies, which are keen to stress that they are energy companies. I have not yet seen a change of direction in the big petroleum companies that suggests that they are about to move quickly into marine rewewables, but I hope that discussions are going ahead. It is interesting to see that the electricity industry has made a move before the oil development industry has.
There are many synergies between renewables and offshore oil and gas. If companies in the supply chain see that there is a commercial opportunity, they will be keen to be involved. For example, Neptune Deeptech in Peterhead, which has traditionally been an oil industry supplier, is keen to build on what we are doing. Further down the line, there is the potential for synergies between power generation offshore and enhanced oil recovery. Given the need for energy offshore, there could be some interesting developments over time.
Rob Gibson has a very brief question on port facilities.
It is important at this stage to ensure that the infrastructure is in place—that lesson was learned in setting up the oil industry, which required jackets for offshore rigs and so on. Are the port facilities currently available in the areas where there will be work? I am thinking about Scrabster and the potential for projects in the Pentland Firth. Ports are multipurpose but, if they are to support renewables, they need to be funded.
I agree. We need fairly modest facilities, but we must have access to them. In Orkney, we have used an unused pier at Lyness, the formal naval base. It is a very rudimentary set-up and, if things develop, an awful lot of investment in facilities will be required.
So they should be being planned and developed now.
Yes.
We are about to hear from the minister on renewables obligation certificates, which have a clear relevance to your sector. If you were to say one short thing to the minister about ROCs, what would it be?
Go for it.
I fully agree.
To put it in context, I think that I read in the draft Executive note on the subordinate legislation that the cost to the Scottish consumer of implementing the scheme will be less than 0.1 per cent of a typical Scottish household's energy bill. It is an important step, but if we want to reach our targets we must accelerate what is being done on a number of fronts.
Thank you for your evidence, which has been very helpful to our inquiry. We look forward to visiting EMEC in a couple of weeks and the CCS Schwarze Pumpe plant in Germany at the end of April.
Meeting suspended.
On resuming—
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