Enterprise and Culture Committee, 18 Jan 2005

Meeting date: Tuesday, January 18, 2005

Official Report 302KB pdf

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Renewable Energy

We move to item 6. I welcome the Deputy Minister for Enterprise and Culture and his colleague Wilson Malone. I am glad to see that the roads to and from Kilbirnie are unblocked. It is nice to see you, minister. Would you like to say a few words by way of introduction?

I do not think so; we have recently debated the subject extensively. I am familiar with the committee's on-going inquiry and I hope to be able to add some value to it. At the end of the exercise, I am sure that our paths will cross as they have done in the past. I am here to answer questions as best I can, but if I cannot answer them directly, we shall make sure that the information is sought out and provided to you subsequently.

I remind committee members that in the debate on renewable energy last month, the minister agreed to come to the committee to answer outstanding questions and supplementaries. A paper has been circulated to committee members. We thank the minister for keeping his promise. Three members, so far, are indicating that they wish to question the minister. We will start with Chris Ballance.

Minister, will you comment on the committee's recommendations on developing marine energy? We regard marine energy as key to future Scottish export potential. The main companies at the moment are Wavegen Projects Ltd, which is working to develop a device commercially in the Faroes; and Ocean Power Delivery Ltd, which is working to develop a device commercially in Portugal. Both those companies are getting huge interest abroad, but neither feels that there is enough United Kingdom support to allow them to start developing commercially here.

Given that those are key companies, will the minister at least give a commitment to meet representatives of the companies to hear more about their potential and their concerns about what is holding them back at the moment?

I am pleased to give you that commitment, Chris. In the short time that I have been in this job, I have made a commitment to go out and meet as many companies, operators and others in the renewable energy field in Scotland as possible. Most recently—between Christmas and new year—I met two of the largest companies in Scotland that are involved in marine energy technology. We had a very fruitful discussion about the companies' developments.

As members know, the Executive supports a broad range of renewable energy technologies, but we have especially high hopes for marine renewable energy technology—wave and tidal—and we are determined to become, if possible, world leaders. To that end, I am pleased to take part in discussions with any companies, or others in the field.

We are currently involved in discussions with the Department of Trade and Industry on the marine energy fund and its possible usages. I hope that the outcome of those discussions will benefit the marine energy technology sector here in Scotland.

Thank you, minister—that reply is very helpful. Can—

I am sorry, but before you carry on, Chris, I think Murdo Fraser wants to ask about the same issue.

I was interested in that answer, minister. A major part of our report was on the fact that we want additional incentives for marine technologies. We considered the situation in Portugal, where I believe the development of marine technologies is leading the rest of Europe. We understand that that development is driven by tariff subsidy.

We have in front of us the Executive's response to our report, and paragraph 6 deals with renewable obligation certificates. It is rather disappointing that the Executive does not share the committee's view that those certificates are the correct mechanism to encourage new technologies. The evidence from Portugal seems to be contrary to the Executive's position. Will you explain the Executive's position?

I am not sure that all the evidence is contrary to our position. We believe the existing mechanisms to be supportive of the development of renewable technologies generally and marine technology specifically. We will shortly be consulting on a review of the renewables obligation in Scotland. We will take that opportunity to seek views on the use of mechanisms to support developing technologies.

On your specific point, the industry's view was that there is an argument that such support is best provided separately from renewables obligation Scotland support. I am mindful of that, and the issue features in our discussions with the DTI on the marine energy fund. As I said to Chris Ballance, I expect that the outcome of those discussions will address some of the concerns—if that is the right word—in the industry.

Thank you, minister. I encourage you to look closely at the Portuguese model.

We referred to it in the debate, and I responded in part to those concerns when they were raised at the time. I am mindful of them. As I said to Mr Ballance, we are anxious to ensure that whatever mechanism we put in place will be one that will best exploit the marine resource.

Richard Baker has a question to ask before we return to Chris Ballance, if that is okay.

That was a key issue in the evidence that we heard from a number of people, and members certainly heard about it when they went to Orkney for a case-study visit to the wave energy test centre. From the research and investment by the Executive and the DTI and investment in EMEC, it is clear that the Executive and the Government are taking a lead, but the industry and those who are involved in academic study in the area have emphasised heavily the need for a market stimulus and incentivisation to ensure that we have the best technology. In fact, we might already have the best technology, but market stimulus is the key.

Can you reassure the committee that the Executive is considering carefully—and certainly is not ruling out—greater incentivisation through the ROC system to encourage marine technology? I believe that that could be done without disincentivising or having a detrimental impact on the wind energy market. Further, can you assure us that the Executive is considering with the DTI other ways of continuing to support research and development?

I agree with you and make it clear, if I have not already done so, that we accept that the emerging technologies—in this instance, marine technology—are likely to need support beyond ROCs. One option that we are discussing with the DTI is making available as revenue support the greater part of the marine energy fund—to which I referred in my answer to Mr Balance. That would be in parallel with the support that is provided by ROCs. I hope that that gives Richard Baker the assurances that he and the rest of the committee seek. Our discussions with the DTI and others are very much in line with the representations that the committee has received and, indeed, has made to the Executive.

Chris Ballance may resume his questions.

That was a helpful follow-up, for which I give my thanks.

I stress that the committee's representations have been taken on board. When we meet industry representatives, they are obviously anxious—as we are—to see that marine technology gets beyond the drawing board and becomes a practical reality. Given the proximity of the marine resource, Scotland is well placed, irrespective of what might be happening in Portugal or anywhere else on continental Europe. Major companies are involved in the technology's development here. If we cannot do things here, there must be doubts about whether they can be done.

Yes, indeed. It is worth emphasising how thoroughly impressed members across parties were by the potential. What you have said today is excellent news.

In response to the committee's recommendation that there should be

"clear measurable targets for the reduction of energy consumption in the Scottish domestic heating and transport sectors",

you point out that there are targets for reducing the number of homes that have poor energy efficiency and for renewables development. However, you do not refer to the target that we specifically recommended. Given that your response almost accepts that targets are a good thing, is there any chance that the Executive will accept the rationale behind the targets that we argued for? I believe that you are about to spend £20 million per annum on energy efficiency. Do you have a clear idea of the amount of energy that that funding will save?

In December, we announced our intention to develop an energy efficiency strategy for Scotland that would establish a framework, define objectives—which I think is what you want us to do—and perhaps create a more joined-up approach to energy efficiency and the interventions that we might make across the public sector, the housing sector or whatever. We are seeking views on the content and scope of that strategy—on the objectives and targets, if you like—as part of an on-going consultation on the Scottish climate change programme that is being undertaken by my colleague in the Environment and Rural Affairs Department.

As part of that process and in other programmes such as the central heating programme, we have attempted to equate our investment and its outcomes with reductions in CO2 emissions. In 2002-03, which is the last year for which figures are available, the predicted annual reduction in such emissions for the central heating programme, for example, was about 30,000 tonnes.

The purpose of the energy efficiency strategy and the framework that has been developed as part of it is to give greater information on and insight into the outcomes for CO2 emissions as a consequence of the programmes. Obviously, that is not the only outcome of the central heating programme; another important outcome is that people have warmer homes. I simply want you to understand that there is a read-across between departments in relation to programmes' impact on our sustainable development objectives.

Given that you produce every kilowatt at 30 per cent efficiency, if we take into account the fuel's calorific value; that another 5 to 10 per cent is lost in transmission; and that we need to take into account the initial energy expenditure of building the wind power or nuclear power station, the committee was clear that energy efficiency had to be at the heart of the Executive's strategy. Do you completely accept that?

I certainly do. Work that the Scottish Energy Efficiency Office and the Carbon Trust carried out on precisely those outcomes and targets indicated that a potential saving of 220,000 tonnes in CO2 emissions could be made. In developing our energy efficiency strategies, we conduct a read-across with the Carbon Trust on potential savings in CO2 emissions.

I point out that reducing demand for energy is as important to climate change as ensuring that we produce more energy from renewable sources. The do a little, change a lot campaign was designed to show that every individual—not just Government—can make a contribution to meeting climate change targets and objectives by reducing their energy usage. That campaign was useful in persuading people to change their opinions and attitudes to energy efficiency.

After such a big inquiry and so much cross-party consensus, many of us were deeply disappointed with the initial Executive response, which seemed to say, "We are perfect at everything," and to ignore much that came out in the inquiry. The follow-up response and the comments that you have made today have been helpful and take us forward. Will you keep us in touch with any further developments in Executive thinking that appear to chime with the recommendations that we made in the inquiry?

I think that there was a misunderstanding, in that I do not believe that the officials' initial response responded fully to the points made by the committee and those made in the debate. I hope that Mr Wallace's subsequent communications restored relations—if I can call it that—between us. I assure you that I want to work completely and comprehensively with the committee on its inquiry. The department and I await with interest the outcome of the committee's deliberations.

From the spirit of the debate and your response to it, it is clear that we all accept that.

I did not share Chris Ballance's deep disappointment, but I acknowledge that there are issues that were not covered in the initial response and which have now been dealt with.

The more that I look at what is being done in the renewable energy sector, the more the whole thing changes. I have four questions and they are all about support for the sector.

First, paragraph 7 at the top of page 3 of the supplementary response is about biomass and mentions making

"recommendations about a range of issues facing the sector, including financial support."

Has your thinking developed any further from last November when we last discussed the issue of energy crop grants?

Secondly, on co-firing—mixing biomass or other substances with coal—has the Executive taken a view on or given any consideration to the appeal court decision in the case of Scottish Power and co-firing with sewage sludge?

My third question is about an answer that I got from your predecessor on the £10 million that is currently lying with the Office of Gas and Electricity Markets, which I understand is to be made available to the Executive for use on renewables. Has the legislation been finalised that will allow that money to be transferred?

Finally, paragraph 8 of the supplementary response refers to

"the processing and development of bio fuels"

and making the licensing regime less onerous. How far has that developed?

The FREDS report on biomass is complete and is expected to be published at the end of the month. I was at the debate on green jobs when we talked about the grants that are available for energy production. The Forestry Commission currently operates such a grant, and I gave that information during the debate. The FREDS report discusses that and will recommend that the Forestry Commission keeps the situation under close review.

Indeed, that is something that I want to do. I have recently been in discussion with biomass companies and we are keeping in close touch with them about their needs and the development of their sector, which, like the marine sector, we are keen to exploit. With something like 70 per cent of the nation's forestry resource, Scotland has substantial biomass resources. As a result, there is tremendous potential for producing energy from biomass sources.

As for the fossil fuel levy surplus that you mentioned, it is not the case, as some quarters have claimed, that we have ignored such funding. The fact is that it has become available only recently through the enactment of provisions in the Energy Act 2004. When it is secured, that funding, which is in addition to the considerable total funding that we make available for developing new technologies, could of course be used for biomass developments. We have been looking at such developments in the south of Scotland and in Methil—I acknowledge your interest.

In summary, we are consulting the industry on the best way of developing the biomass resource in Scotland and the funds that you referred to can be used for that purpose.

You also mentioned Longannet and co-firing.

Yes. What about the decision on the burning of sewage sludge?

I watched the hearing with some interest and note that the Minister for Environment and Rural Development was questioned on the matter at last week's meeting of the Environment and Rural Development Committee. I do not want to comment on the outcome of the particular case, because the decision is subject to appeal by Scottish Power—I suppose that the correct terminology is that the matter is still sub judice.

My final question referred to the biofuels licensing regime. You said that you are considering the best way of resolving the matter. Have you made any progress on that?

Given Scotland's biomass resource, there is tremendous potential to address climate change predictions and greenhouse gas emissions. Biofuels are a vital component of the entire strategy. Incentives for their development are available nationally via the Exchequer and we are working with colleagues to ensure that the licensing process in Scotland is as amenable as it should be to companies that are involved in developing those technologies. Biofuels represent an important development that could have a tremendous benefit for Scotland.

I know that you are aware that the Forestry Commission grant is considerably less than the specific grant given in England for the production of energy crops. Is that a separate issue that will be considered in the FREDS report?

Did I not mention that?

No.

I believe that the commission's grant is 50 per cent of the English rate. We will ask it to consider the matter.

I want to return to the fossil fuel levy and its use in the development of biomass technology and so on. In fact, the energy crop grant is a case in point. Believe it or not, £10 million is very small beer indeed compared with the direct investment that the Executive or the DTI makes in developments in renewable technology, such as those at the European Marine Energy Centre in Orkney and elsewhere, or through energy grants. Indeed, if we consider the investment that generators and others involved in energy supply are making, it is clear that substantial sums of money are being made available for renewable energy across the board. For example, that £10 million would be a tenth of a single company's investment to date in such energy and a fiftieth of its potential investment in renewable technology. However, the moneys are important in getting the technologies from the drawing board into commercial practice.

Do you have any other comments to make?

I do not think so, convener.

Your evidence has been extremely helpful in clearing up outstanding issues. We thank you for your written evidence and your helpful answers to our questions.

Let me just say that we want to work closely with the committee on these important areas of potential development.

Thank you very much indeed. I think that we should have a five-minute break for a cup of coffee.

Meeting suspended.

On resuming—