A clarion call for more strategic clarity from government on energy policy was sounded loud and clear by Britain's wind industry at its annual conference this year. The sector faces a period of uncertainty while the government's planned changes to its green energy support mechanism, the Renewables Obligation (RO), are debated and legislated -- and while barriers to site permitting and grid connection are dealt with. The overwhelming consensus among delegates and speakers was a demand for a long term energy strategy to provide the stable environment, consistency and clarity that investors and developers need to proceed with confidence.
The British Wind Energy Association (BWEA) held its 28th annual conference and exhibition in Glasgow on October 10-12, the days immediately following publication of the Department of Trade and Industry's consultation document on its proposals for changes to the structure of the RO. This stayed the hot topic of the event with much of the three days spent absorbing and discussing the contents of the consultation document.
Views were polarised on whether the RO should be interfered with at all, but all sides agreed that the industry needs a stable environment for investment. "The thing that business requires above all else from policy makers is clarity and consistency of approach," said ScottishPower's chief executive, Philip Bowman. "It is essential that the consultation does not create any additional concerns for investors and developers." Some may be enthusiastic over the incentives for offshore wind, he said, but he warned: "Without the pipeline of onshore projects sitting in planning or waiting to be built, it will be difficult for the UK to meet its green energy goals."
He pointed out that ScottishPower has plans to invest more than £3 billion in infrastructure and generation. Work had just started on the company's £300 million wind farm at Whitelee, south of Glasgow; at 322 MW and to consist of 140 Siemens 2.3 MW turbines, it will be Europe's largest. Investor confidence is a rare and delicate commodity, not one to be treated lightly, said Bowman. Unless managed very carefully, adjustments to the RO could erode that confidence, undermining the appetite of ScottishPower and other investors in renewables.
The Scotland factor
The Scottish location for BWEA 28, the association's last annual conference if its merger with the Renewable Energy Association goes ahead (box next page), was appropriate. Accounting for 70% of the onshore wind capacity installed so far this year in Britain, Scotland remains the location of choice for most wind developers.
Part of the attraction is the supportive environment created by Scotland's government. "I believe our focus should be in the renewables sector rather than the nuclear sector," said Nicol Stephen, Minister for Enterprise and Life-long Learning. New nuclear would require billions of pounds of government support; this could be better deployed in renewables, which can deliver more quickly, he said.
The country is on track to meet the Scottish Executive targets of 18% of electricity supply from renewables by 2010 and 40% by 2020, which will require 6 GW of renewables capacity. "That 40% target should not be seen as a cap; we can go further," said Stephen. Scotland already has 10 GW of onshore wind on its way, either consented, in planning or as pre-consent applications, he said. This is more than enough to meet Scotland's needs. Stephen added that some estimates show the country could hit 53% from renewables by 2020. "Scotland can be the renewables powerhouse in Europe."
Stephen was the first of four British politicians to state their commitment to renewables and their determination to tackle a key barrier to its deployment -- the lengthy and tortuous permitting system. From the opposition Conservative party, energy spokesman Charles Hendry promised to work with the current government to deal with permitting obstacles to wind.
"This will not become a political football," he said. The Conservatives would make promotion of renewable sources of energy a primary duty of the energy regulator. Hendry called for action to speed up connection to the grid. Connection dates 12 to 13 years down the line are "not supportable," he said.
Chris Huhne from the Liberal Democrats also called for action to speed up the consenting process. Like Hendry he argued for a change in energy regulator Ofgem's remit, to require the regulator to take into account the cost of carbon emitted by different generating options. "At present it merely brings the lowest cost generators on stream regardless of the carbon emissions," he said.
Meantime, the Scottish National Party would make it a priority to tackle the backlog of applications bogged down in the consenting process and awaiting decisions by the Scottish Executive, said the SNP's Richard Lochhead. He pointed out that over the past three years only nine applications have been processed by the executive; 32 remain outstanding. Average time for dealing with applications is 22 months, he said.
Geoffrey Norris, Prime Minister Tony Blair's policy advisor on energy issues, urged the wind community to follow up on the politicians' pledges, to ensure that the political parties are not only talking the talk but deliver at a local level by not obstructing projects when they are considered by planning authorities.
The political consensus across the spectrum is a big plus in the wind industry's favour, commented BWEA chairman Chris Shears. "That is a huge opportunity for us to grasp and build on some of these comments and go to government and say: you've got nowhere to hide on this, you've got to get on and sort out the issues quickly."
Shears gave the government's energy review green paper "six out of ten," calling the proposed measures for renewables "a bizarre cocktail of arrangements." The 20% renewables target was a good starting point for the sector, but the document lacks vision and a long term strategy. "The spin is there but the ambition isn't," he said. "There is a real risk that now we've got this renewable target, government will pat themselves on the back, say job done, what more do you want?"
But 2020 isn't far away, he warned. Grid infrastructure and measures to speed up site permitting need to be put in place now. There is a danger that when the 20% target is reached, renewables deployment will start easing off rather than ramping up and accelerating through to 30%, 40% and 50%, said Shears.
From ScottishPower, Keith Anderson agreed that what the industry needs more than anything else is a long term strategy. The energy review has merely proposed a series of short term changes to alter the direction of investment in UK renewables, he said. This has created uncertainty and put at risk investor confidence. "When I bring forward an investment case for a project, how can I possibly forecast a revenue stream when I don't know what the mechanism is any more?" It is easier for ScottishPower to invest in America where it understands the policy and the framework, he said.
Anderson is in favour of leaving the RO as it is. "The mechanism has been hugely successful in attracting investment to the UK." The reason that projects are not coming through the system has nothing to do with the RO, but rather with planning and grid issues, he said. "Our fundamental plea is: let the market run." The market will channel investment to the most efficient and most effective technology. There is more than enough capacity waiting to be built to achieve the government's targets from onshore projects and existing offshore projects. "What you need to do is allow it to go through the planning process, allow the grid infrastructure to be put in place and allow that investment to happen. It is nothing to do with switching finance mechanisms." Eventually investors will run out of onshore sites, he said. "That will push investment offshore. It's a natural course."
Benefits of a cocktail
But Centrica's Gearóid Lane took issue with both Shears and Anderson. "It seems to me we do need a cocktail of measures. We are going to have to pull a lot of different levers to get to the targets," he said. He saw no sign yet of companies scaling back their investment plans. "There's a lot of money around at the moment and renewables, nuclear, carbon capture and storage can find access to that money as long as they pass the economic tests." Onshore wind alone cannot meet the targets, he said. "Yes, there is a huge amount of onshore wind in the planning pipeline, but realistically there is a limit to how many wind farms people will want to see in Northern Scotland and there is a limit to how much grid capacity we can build north to south to deliver that."
Centrica is encouraged by the government's plans for Renewable Obligation Certificates (ROCs) of different values for different technologies to rebalance the equation between onshore and offshore wind, said Lane. Unless measures are introduced to deal with the RO's flaws, it will fail, he stressed, with particular relevance to the way the legislation has driven up the price of wind power. "The National Audit Office was already on the tail of this industry for delivering supra-normal returns to some existing investors whilst not stimulating the next wave of technologies to come on stream."
From Clipper Wind, former energy minister Colin Moynihan put a cautionary perspective on the politicians' warm words. "The idea that suddenly we have got all-party support is a complete misunderstanding of what has happened over the last 20 years," he said. Successive energy ministers of both the main political parties have argued for strong support for renewables, he said. "What we also had in common was the Treasury arguing time and time again against subsidising renewables and making life very tough for us."
Moynihan stated that the energy review dealt with a lot of the problems with the RO, but he warned that new legislation for implementing the reforms ran the risk of not being in place before the next general election. "We could have another government, another consultation and another four to five years of uncertainty," he said. "I believe we could short-cut a lot of the consultation exercise."
Turning to offshore, the challenge for the wind community is to bring down costs and develop new concept, larger turbines, he said. So far the industry has scaled up conventional architecture, but this has led to huge torque on the gearboxes and to gearbox failings. "How do we get past that with new architecture that can be scaled up on a linear increase in costs rather than an exponential increase in costs?" The UK has the opportunity to lead the world in offshore, he said. "But we need predictability and clarity in terms of the regulatory, the fiscal and the policy framework." It is now up to government to recognise that the North Sea is a hostile, deepwater, difficult environment in which to work and to put in place the right fiscal and policy framework to encourage industry to invest, said Moynihan.
Some six to eight gigawatts of offshore wind is vying to get to the starting post, the supply chain is poised and ready, but developers face two to three years of uncertainty while an energy policy is put in place, said Andrew Murfin of Shell WindEnergy. Shell is a partner in the London Array consortium, which plans a 1000 MW offshore project in the Thames Estuary. Murfin welcomed the government's plans to reform the RO: "I am not sure the RO would still be there in five years' time if we don't change it." But change is needed now, he argued. Some offshore developers are at a point where they need clarity to be able to invest in their projects. "Other markets around Europe are fighting for our capital and resources."
A big market
The RO is a high risk, complex mechanism and it is difficult to explain to the board of the company what the opportunities and risks are, says Murfin. But he does not accept that the review's proposals have added to the level of risk for investments under the RO. "Anybody in their right mind who wanted a low risk investment would go to another country," he said. "What we have is high risk, high opportunity. My problem is not that the RO is changing; my problem is the RO."
The RO upheaval comes at a time when the British wind sector is ramping up its delivery of new capacity. With a record year already for new build, the country is set to pass the 2000 MW milestone this year. The UK is in the second wave of European countries for wind, behind leaders Spain, Germany and Denmark, pointed out the European Wind Energy Association's Christian Kjaer. He predicts that by 2010 not only will the UK rank third in Europe for installed capacity behind Germany and Spain, it could well be Europe's biggest market for selling wind turbines into by then. "Once the 1000 MW milestone is reached, things seem to go more smoothly; that is what we are seeing in the UK right now," he observed.
Indeed, while the country took 14 years to achieve its first gigawatt of wind, the second gigawatt will take just 14 months, said the BWEA's Chris Tomlinson. "The number of new faces at this conference demonstrates the exponential growth of this industry." Onshore wind will be required to provide half the government's 10% target by 2010, but given rapid deployment could deliver 50% more again.
Tomlinson reported that some 2200 MW of wind is consented and awaiting construction, while 7200 MW -- equivalent to more than 5% of UK electricity supply -- is currently in planning; this includes 4500 MW of large projects awaiting decisions by the Scottish and UK governments. But while the amount of capacity in the planning system is increasing, so too is the length of time it takes to determine applications. In England it takes an average of 15 months before a decision, 22 months in Scotland and 23 months in Wales. The number of applications for consent is slowing, said Tomlinson. "Only 345 MW of capacity has been submitted under section 36 [for large projects] this year."
Scottish Executive official Sue Kearns stressed that the executive is trying to speed up the planning process. But it is dealing with some 5 GW of applications, with another 3 GW at the pre-application stage. Moreover, wind projects are becoming increasingly contentious and complex; the growing number of applications is a burden on the bodies that must be consulted by law, who often have to ask for more time to respond.
Project developers need to consult more with these bodies on tough issues before submitting a planning application, she said. "I continuously hear them tell us that if only developers had contacted them earlier in the project, many issues, blood, sweat and tears might have been avoided." She added: "Any applications which have addressed all the issues and concerns of interested parties and statutory consultees should go effortlessly through the system."