In March, Blair asked the Performance and Innovation Unit (PIU), attached to the Cabinet Office, to determine how the £100 million should be spent. On its advice, Blair reveals that in addition to the £25 million for offshore wind, £15.5 million will go to farmers to establish energy crops, £18 million to energy crop technologies, £10 million to innovative photovoltaic schemes, £10 million to renewables that can be used directly in homes and businesses, £10 million for research into the next generation of renewable technologies, £5 million on wave and tidal, £4 million for metering and control technologies and £2.5 million to provide information and support for land use planning.
The PIU states that the greatest bang for the buck is achieved through investment in technologies closest to commercial viability. "Offshore wind falls most neatly into this category," it says. It could play a major role in delivering future renewable energy targets in the UK and across the world. "In addition, although Denmark and others currently dominate the market for wind turbines, there are specific aspects to offshore wind in which the UK could become a world leader, particularly given the size of our own offshore wind resource."
Viable this decade
Under the UK's renewables obligation -- which will require electricity retailers to contract for 3% of their electricity from renewables in 2002, rising to 10% by 2010 -- offshore wind could become commercially viable by 2010. But this is dependent on projects getting off the ground early in the decade. Creating investor confidence in offshore wind, however, will be difficult due to a range of uncertainties, states the PIU report. These include the cost of capital, imbalance charges under the New Electricity Trading Arrangements, the value of renewables obligation certificates (ROCs), the proportion of ROC value that accrues to the renewable generator, infrastructure requirements and development, and the planning process.
To overcome the hefty risk penalty, the new funding will be in the form of capital grants to the UK's first round of offshore wind energy projects. Eighteen sites have secured leases allowing developers to apply for consent to build wind farms, each of up to 30 turbines, representing a total of some 1080 MW of capacity. The new funding will be in addition to existing capital grant support worth £49 million from the government and national lottery funds, which should be able to support at least 300 MW -- at a maximum rate of around £0.006/kWh. The extra £25 million should ensure a further 150 MW of offshore wind -- guaranteeing early progress for nearly half of the leased capacity, the report says. This should be enough to reduce the risk element and create momentum for offshore wind to help meet the 2010 target.
The new funding will be allocated on a competitive basis by the DTI along with its existing capital grants program. Later it may be necessary to increase capital grants if further development of offshore wind farms begins to dry up once the current round of grants have been allocated, the PIU advises.
According to an analysis, commissioned by the PIU, of the likely deployment of renewables up to 2020, the UK could achieve a target for renewables of 20% of electricity supply by 2020. But penetration levels above 20% from intermittent generation, such as wind, could start to pose problems for the overall electricity system. In its review of energy policy -- due by the end of the year -- the PIU is to advise the government on efforts needed in the longer term to maximise the value of intermittent sources.