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Dr Alan Whitehead (Southampton, Test) (Lab)
I am delighted to conduct this debate because I think that it relates to a real and important part of our future. We are on the cusp of a revolution in our energy supplies—a green energy revolution that will surpass anything that we have seen so far by several orders of magnitude. It will primarily involve the manufacture, assembly, deployment and servicing of offshore wind energy, harvesting the wind around our coasts—and sometimes as far as 200 km away from them—so that by 2020, 20% of our electricity needs will be supplied from renewable sources.
We have passed some milestones along the way. Over the past six years, Britain’s offshore wind capacity has steadily increased, and 350 turbines have been installed offshore, collectively providing over 1 GW of installed capacity. During that period, one new turbine was installed every 11 days, and Britain is now the world leader in installed offshore wind. Over the next 10 years, that rate of installation will need to increase twentyfold. With the commitments outstanding from round 2 licensing competitions for UK coastal waters, and the recent allocation of blocks in round 3, about 6,400 turbines are projected to be installed at a rate of roughly one a day from now until 2016, with up to 2.5 a day between 2016 and 2020. As a result, there will be 30 GW of installed capacity offshore, which will come in part from deeper sea installations with larger turbines of up to 10 MW output per turbine at full capacity. Just four of those turbines, for example, could power all the homes in my constituency.
This is an enormous and ambitious challenge, but it is not just paper talk. The sites have been allocated, the companies developing them have been recruited, and the planning and finance is under way. It is not a matter of controversy between the parties; the process was started by the last Government, and it is set to continue under this one. The coalition agreement explicitly states:
“We will deliver an offshore electricity grid in order to support the development of a new generation of offshore wind power.”
If, as is widely stated, there is a determination to come out of the recession through green growth and investment, surely this programme is the epitome of such action. It will see the investment of perhaps £120 billion and the creation of over 55,000 jobs—perhaps 70,000 if substantial elements of the revolution are fabricated and sourced from the UK.
Will it really happen? In my view, it has to happen if we are to come anywhere near to keeping pace with targets on decarbonising our energy supply and, in terms of energy security, sourcing for ever and at no additional fuel cost energy that is securely delivered to the UK from the UK. It is good to see that the commitment is there and that the legal and administrative structures to guarantee deployment are in place. The renewable obligation to underpin the financing of this enormous roll-out is now guaranteed beyond the round 3 competition completion date, with the calm waters of investment security lapping around the turbines as they go up.
Unusually, the doubts come from a different angle. They are not due to politicians falling out with each other and devising contradictory schemes that destroy confidence, or because of a lack of technical know-how. They are not due to the debilitating morass of legal minefields, but are simply a question of how we as a country assemble the resources to build and maintain such an undertaking over the period in which we have to do it. In the face of international demands on resources, we will not be able to rely on others to come in and do it for us.
As has been observed, this programme will put other engineering feats such as the Thames barrier and the channel tunnel into the shade. It will require an efficient supply chain consisting of turbine blades, foundations and concrete towers, gear boxes for the turbines, 7,500 km of underwater high-voltage cable, the commissioning and use of vessels to transport, deploy and service the turbines, and the port estate that can serve to assemble, deliver and service those wind farms on which we will depend. If the supply chain is effective, it will produce jobs for the UK along its length and, if sited securely, much of the manufacturing and finishing of the supply chain components will be located in the UK.
If we do not tackle the problems and grasp the opportunities of that supply chain, and if we do not have the ambition to meet its challenges, one of two outcomes will be inevitable. We will either fail to deploy anything like the number of turbines that we need to supply the 20% of electricity from renewables to which we are committed, or we might get close to our target but find that the good offices of others step into the breach that we leave. Consider for a moment the construction of the largest present offshore wind farm in the world, the London Array. It was undertaken by overseas companies, using components for the turbines that were overwhelmingly sourced overseas, and managed and serviced not from this side of the channel but from Dunkirk.
We must get that supply chain fit for its purpose, sound and able to deliver on the ambitions that we have set for it. We have the facilities; there are some 200 ports around the coast of Britain and there is far more land and developed quayside than almost anywhere else in the world. Just as we turned around ports and port estates to assemble drilling rigs, receive and deploy pipelines, and service and supply production platforms during the last North sea energy revolution, so must we do it again in the new, green energy revolution.
Most of the investment for that enterprise will come from the private sector, but it must be primed so that the redirection of the ports that will play key roles in the supply chain gets securely under way. Once it is underway, there will be a great added-value outcome with clusters of manufacturing, servicing, component assembly and cable laying that will support the wind farms as they grow.
Industry estimates suggest that to complete the deployment of those 6,400 turbines by 2020, and to secure further development over the following decades, about five offshore wind turbine plants, five plants producing foundations and 13 cable factories need to be built in the UK, alongside and probably in the vicinity of those ports, scoping out the capacity to put all that manufacture to good use.
That was essentially the intention of the offshore wind infrastructure competition: to bring along that tremendous value-added outcome in the wake of some relatively modest pump-priming, in this instance some £60 million.
Alex Cunningham (Stockton North) (Lab)
Does my hon. Friend agree that any action by the Government to deny funding support for this industry and competition would fly in the face of the declaration made by the Prime Minister that his would be the greenest Government ever? Such an action would damage the prospects for tens of thousands of jobs in constituencies such as mine that have the expertise to execute massive contracts, and it would chase potential developers to European coastline areas where they could win big business equally well.
Dr Whitehead
My hon. Friend anticipates some of the comments that I am going to make shortly. It is right to say that not only do we need the Government to be the greenest ever in terms of their ambitions, but that to will the ends yet deny the means of arriving at those outcomes would be difficult to countenance.
The offshore wind infrastructure competition was first announced on 24 March this year. It was described in the following words:
“The competition will consider bids from site developers who have a viable plan for developing their site into a centre for offshore wind manufacturing and assembly. We intend to make funding available for the development of these sites...We expect that sites will need to demonstrate that they have the capability to provide: sufficient land capable of being developed into a manufacturing site for offshore wind turbines; access to facilities for the transport of large and heavy products; and heavy duty surfacing capable of bearing heavy loads. Bids will need to be supported by intent from a manufacturer(s) to locate on that site if the site is successful in the competition.”
Remarkably, on the back of that announcement, tectonic plates did begin to move. A day later, GE Energy announced that it intended to invest £90 million on turbine manufacture in the UK. Less than a week later, Siemens announced that it intended to invest more than £80 million in UK-based offshore wind turbine production. When we add to that Clipper turbines siting a 70-feet blade manufacturing plant on the Tyne, Burntisland Fabrications announcing two new factories building underwater jacket substructures in Fife, and Welcon producing 100-metre towers in Campbeltown, the surge in the direction of UK-based manufacturing and support seems to be under way if—I do not think that this is overstating matters—that priming process remains in place.
Peter Aldous (Waveney) (Con)
I am grateful to the hon. Gentleman for securing the debate. I share his enthusiasm for wind energy—offshore renewable energy—and ensuring that we make the most of the opportunity that it has presented to us for our industry and for securing manufacturing in the UK. To my mind, we need to be adopting a three-pronged approach—
Mrs Anne Main (in the Chair)
Order. May I gently remind the hon. Gentleman that this is a very short debate and he is supposed to make a brief intervention?
Peter Aldous
Thank you, Mrs Main. I was referring to the green investment bank, developing the skills base and Government—does the hon. Gentleman agree that Government acting as a catalyst to attract that investment is vital?
Dr Whitehead
I agree that Government acting as a catalyst—I mentioned pump-priming—is vital, not by providing underwriting and a subsidy for ever, but by priming the process whereby, precisely as the hon. Gentleman mentioned, manufacturing brings about the added value that I am certain will be part of the process in a relatively short time.
It is important that the pump-priming process remains in place, giving the manufacturers confidence that there is a future for them in the UK and that the plans for getting the supply chain in the UK right for wind are serious. However, the announcement of the competition, archived on the Department for Business, Innovation and Skills website, has, subsequent to its initial appearance, had this message affixed to it:
“Current policy under review. Site will be updated as soon as we have a clearer view of the new Government’s policy”.
That is it, in a nutshell. Will the competition now proceed? My view is that for all the reasons that I have outlined, it is imperative that it does. Cancellation or even a delay of the competition would seriously hamper the development of the infrastructure necessary to make what all sides are committed to, start to work in practice.
Caroline Lucas (Brighton, Pavilion) (Green)
Does the hon. Gentleman agree that if the funding is cut, that will show that the coalition Government have little or no real understanding of the returns to the economy and the environment from maintaining investor confidence in green initiatives such as offshore wind infrastructure, and that their savage spending cuts are causing uncertainty for people living near ports such as Newhaven, just up the coast from my constituency? Does he share—
Mrs Anne Main (in the Chair)
Order. May I ask the hon. Lady to keep her remarks brief?
Dr Whitehead
I thank the hon. Member for Brighton, Pavilion (Caroline Lucas) for her intervention. I am trying my best to be as nice as possible today in ensuring that the points that I think are essential with regard to the future of the competition are placed squarely on the table. However, it is correct that each of the different competitions, incentives and devices all add up to the question whether the present Government are serious about a green agenda; or are they prepared to will the ends but not the means as far as that agenda is concerned? That is a very important consideration in respect of all the issues that we are discussing.
Let us say that the competition is cancelled. It takes more time to re-establish those links and that confidence, once broken, than it does to establish them in the first place; and it is fair to say that as far as North sea wind is concerned, we do not have time to throw away.
Of course, I am aware, as everyone else is in the Room, that hard decisions about the future of public money and investments await us; and I am not one who will rush to the defence of every existing commitment regardless of its intrinsic merit. However, there is a clear distinction between those investments that work within themselves and those investments that work beyond themselves, and this one, as I have shown, will, I hope, work far beyond itself in terms of value added on money invested.
However, there is another factor at work. That relates to the very nature of round 3 itself. Round 3 is one of many stages in licensing processes of various kinds that have gone on in the North sea over the years. Those licensing competitions, under the auspices of the Crown Estate—the owner of the seabed around the British isles—are not charitable auctions. They raise money permanently from the licences that are issued. In the case of the Crown Estate, the money, after investment decisions have been looked after, goes directly back to the Treasury. That is what is required of the Crown Estate by statute.
In this context, it is instructive to consider the sort of sums that we are discussing. The Crown Estate altogether has contributed some £1.8 billion to the Treasury over the past decade. Last year alone, £46 million came the Treasury’s way from the Crown Estate as a result of its overall seabed activity. In its 2010 annual report, it stated:
“Revenue delivered by the renewables sector rose sharply by 44.4% to £2.6 million. From a low base, this part of our business is experiencing exponential growth and we expect it to provide a significant source of total income in the next 10 years.”
In other words, a good proportion of the £60 million for the infrastructure competition comes back to the Treasury through the licensing arrangements on the seabed that are a sine qua non of all the rest of the activity.
This is not a trivial point: we can say with certainty that the offshore renewables industry is providing, up front and as a sign of its intent, substantial sums of money before a single watt of power has emerged from its round 3 investments. Therefore, the investment by Government of that £60 million in port infrastructure can perhaps best be seen as a contribution in kind that jointly will unleash the value added outcome of £1.2 billion in investment as the licences reach maturity. We are talking, in the offshore wind infrastructure competition, not of a quango to cull, but of a world to win. I hope that the Minister, who I know cares deeply about these matters and has stoutly supported the development of offshore wind through its many vicissitudes, will be able to confirm that that is his view also, and that the little notice on the top of the announcement of the competition is shortly due for removal.
The Minister of State, Department of Energy and Climate Change (Charles Hendry)
It is a great pleasure to serve under your chairmanship, Mrs Main, and to do so on the subject of renewable energy, which I know is also close to your heart. I congratulate the hon. Member for Southampton, Test (Dr Whitehead) on securing the debate and on introducing it in such a constructive and thoughtful way. I am grateful to him and other hon. Members for the way in which they have taken part in the debate, which has enabled it to be constructive and positive.
I agree with the hon. Gentleman that we are on the edge of a green energy revolution, and that time is not on our side. I agree also with my hon. Friend the Member for Waveney (Peter Aldous) that the Government have to be a catalyst to making the green energy revolution happen. The potential is simply enormous and we are completely dedicated to making it happen.
My right hon. Friend the Prime Minister said that this would be the greenest Government ever. He said that on his second day in office and it goes to the heart of everything that we are doing as an Administration. Our ambitions are clear. We want Britain to be a global leader in the transition to a low-carbon economy and we are committed to reducing our carbon emissions by 80% by 2050.
I am sure that the hon. Gentleman would agree with me that the future of the UK’s energy supply must be secure, flexible and low carbon. It is not one against the other; all three elements must be part of the way forward. We envisage a mix of low-carbon generation that will be made up of new nuclear—the hon. Gentleman and I may part company on that one—coal with carbon capture, and renewable sources. We also envisage a substantial element of energy efficiency, as the cheapest energy of all is the energy that we do not use in the first place.
However, in moving to a low-carbon energy system, I am well aware that there are serious challenges ahead. Some of them arise because this change comes at a point in the cycle when we need radically to upgrade and update our energy infrastructure in any case. Ofgem and Ernst and Young have calculated that over the next 10 to 15 years, some £200 billion of new investment is needed in new generation, transmission and distribution systems.
Renewable energy is set to be a major part of our future energy supply and will consist of a wide range of technologies, some of which are well established, such as onshore wind, and some of which are emerging still, such as wave and tidal energy. However, it is clear that there is an important role for offshore wind in the UK’s energy future, and all of us taking part in the debate are united on that. The UK is a windy place—we have 40% of Europe’s wind resource, and a lot of land and a great deal of sea bed available for generation. Wind is a low-carbon energy source, which means it will play a major role in tackling climate change. As the hon. Gentleman said, it is also a domestic energy source, which means that it will make a vital contribution to our energy security as well.
Offshore wind is quickly making the jump from being an emerging technology to being a major part of the UK’s electricity supply. I am sure that many Members welcomed the formal opening of Thanet offshore wind farm three weeks ago by my right hon. Friend, the Secretary of State for Energy and Climate Change. With a hundred turbines, it is the largest operational offshore wind farm in the world, and a clear sign of the UK’s determination to develop this huge natural resource with which we are blessed. I agree with the hon. Gentleman: we are carrying forward work started under the previous Administration and seeking to build on it.
It is clear that the sector recognises how committed to deployment we are, and many companies are starting to gain access to this new and long-term market. The message is clear: if you want to be in the offshore wind market you need to move quickly, and the UK is the place to be. We will certainly learn the lessons from the past; we have seen too much supply chain activity going overseas. We do not want to look back in a few years’ time and see a most remarkable roll-out of such technologies, but with too many jobs and much of the investment having gone to other countries.
An important supply chain is already developing. Mabey Bridge in Monmouthshire and Welcon Towers in Argyll are making the towers that support the turbines. David Brown in Huddersfield is making the large gearboxes. Tees Alliance Group and Burntisland Fabrication, to which the hon. Gentleman referred, are making the foundation components. Harland and Wolff is being transformed into a centre for offshore wind and renewable technologies. Granada Material Handling in Manchester recently won a contract to supply 176 cranes for the Sheringham Shoal offshore wind farm. Prysmian Cables & Systems in Wrexham won a £15 million cabling contract for the Gwynt y Môr wind farm. Some key investments are coming through. We are already exporting key components—these are not just exercises for the domestic market—for example, Burntisland Fabrication has supplied foundations not only for the Greater Gabbard project off the Thames estuary, but for the German Alpha Ventus offshore wind project.
Although I note the enthusiasm of the hon. Gentleman for offshore wind manufacturing, I must be clear that I will not be announcing the outcome of the spending review. It may be tempting for me to do so but it would obviously be a bad career move to take the Chancellor’s thunder. We understand the issues that the hon. Gentleman and many others have raised, and the importance that they attach to the infrastructure project. We will be providing clarity on that and ensuring that the website message can be changed in the near future.
As the hon. Gentleman notes, the rapid deployment we need will pose a real challenge to the supply chain. The levels of deployment we are likely to see in the UK and Europe are far in excess of current production capacity, and rapid scaling up will be needed. There is no doubt that that offers potential for significant employment and economic benefits to the UK, as well as the opportunity to create a broad manufacturing base in a high-value-added sector, which really needs to be close by in Europe—partly due to the sheer size of the turbines—and I intend for it to be in the UK. Turbines used offshore are larger and have to be even more reliable than onshore ones. They have deep foundations and need undersea cabling, and their size means that they are harder to transport, and, realistically, a lot of the production has to be local to the market—and the UK is the market. We are already No. 1 in the world for offshore wind deployment, and, under all realistic scenarios, we will keep that position all the way to 2020 and beyond.
Until very recently, the production of offshore turbines was a niche market, but that is about to change. The industry is at an early stage of development, but is set for huge growth. The UK is well placed to make the most of it, and the Government intend to achieve that. We have a strong research and development capability, and some excellent engineering, technology and manufacturing opportunities. Our experience in the aerospace and engineering sectors, coupled with several decades of work developing the North sea oil and gas resource, and working in the very hazardous conditions there, means we have a pool of talent and experience to bring to this new sector. In short, we have a skilled work force and some excellent companies that are ready to diversify into this new market. It is an innovative sector, in which the technologies used are still evolving and improving, and innovative companies have the potential to be very successful in the supply chain.
I was pleased that back in July we were able to announce the first round of grants since the Budget for developing new-generation offshore wind technology, shortly after the coalition came to power. That emphasises the way in which we are keen to stimulate activity in the sector. To cite a few examples: JDR Cable Systems is working to develop high voltage export and array cables for distribution of power from next generation, multi-megawatt turbines; South Boats will look at the modular design of offshore wind farm support vessels; and Converteam will develop large-scale direct current conversion technology. The grants indicate the sheer breadth of the supply chain opportunities in the sector and the Government’s determination to move forward.
Deployment of offshore wind could require an investment of over a hundred billion pounds over the next decade. If we are to see that huge sum invested by the sector, one thing is clear: we also need to do everything we can to ensure that developers, investors and manufacturers have confidence in the market. They must see us as the most attractive place in the world to invest. We have tackled some of the barriers that have, until recently, held the industry back, for example, taking forward the work on planning and providing a stable regulatory environment to ensure swift consenting decisions. Ministers will decide major infrastructure projects within one year, in accordance with the clear policy framework provided by national policy statements. That will help to secure the confidence of investors by removing concerns about delay. There has been progress, and we are determined to move forward quickly.
The Crown Estate recently had a successful leasing round, with strong interest from developers, and it is also undertaking enabling actions, including aerial bird surveys and marine mammal research, to de-risk and accelerate development within round 3. My department has completed a strategic environmental assessment. We are ahead of the game on that aspect of marine spatial planning, and taking a proactive stance on the use of assessments as a means of striking a balance among promoting offshore energy resources, effective environmental protection and other uses of the sea.
I am aware that we need a form of financial support that works for offshore renewables. We will set out our proposals for reforming the electricity market later in the year, but we are clear that we will not change the ground rules for renewables obligations for existing investments—we are not taking a retrospective approach to that work. We are committed to securing a significant increase in investment in renewables, so that we can meet the legally binding requirement for the European Union energy target in 2020 and our other long-term decarbonisation objectives.
As my hon. Friend the Member for Waveney said, we are also planning to create a green investment bank to deliver financial interventions that address market failures specific to green investment needs, thereby supporting growth and environmental objectives. I chair the offshore wind developers’ forum, which brings together people keen to invest in the industry. Our approach is to look systematically at all potential barriers to investment, and ensure that we address them and move them on.
We are looking at how we can put in place the regime that will be most attractive to investment in offshore transmission. We consider that it will deliver cheaper and timelier offshore grid connections, encourage innovation through competition, and enable new entrants to compete in the market. Ofgem is taking forward much of the work; the first tenders for transitional—in other words, already constructed—assets were signed in summer 2009, and full implementation of the transitional regime followed in July.
I hope that I have been able to show that, on a range of fronts, we are taking forward the measures that will make this country attractive to investors in the offshore wind sector. We are in no doubt about its potential in terms of our energy security and moving to a low-carbon economy. We are equally in no doubt about the contribution that it can make towards the development of green jobs in Britain and to revitalising some of our port infrastructure. The hon. Gentleman will have to be patient for a little longer for the details of how we intend to take that forward. I hope that I have reassured him and other hon. Members of our absolute commitment to making Britain a world leader in this area.