Offshore Wind Infrastructure Competition

Charles Hendry Excerpts

Tuesday 12th October 2010 Westminster Hall

[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.