11 FEBRUARY 2004

Mr Alan Moore, Mr Chris Shears, Mr Rob Hastings and Mr Alan Mortimer

  Q167  Chairman: Good afternoon. Thank you very much for coming along to speak to us. At the beginning may I remind you that these are public proceedings and that this afternoon we are being broadcast live as a web cast, only for sound. Could we begin, please, working from one end to the other, perhaps from the left, by asking you to identify yourselves, say who you are and what you do and then we will go into the questions.

  Mr Hastings: My name is Rob Hastings. I work for Shell Wind Energy, Vice President of Shell Wind Energy UK. I am also a Director of BWEA and a member of the Renewables Advisory Board.

  Mr Mortimer: Alan Mortimer, Head of Wind Development for ScottishPower in charge of developing new wind business for the company and also Director of BWEA responsible specifically for Scottish issues.

  Mr Moore: My name is Alan Moore. I am Chairman of the BWEA. I am Managing Director of National Wind Power, which is the UK's largest wind farm owner-operator. I am a member of the Renewables Advisory Board and a member of the Distributor Generation Co-ordination Group.

  Mr Shears: I am Chris Shears. I am Development Manager with Renewable Energy Systems, who are one of the main developers in the UK and internationally and part of the Sir Robert McAlpine Group. I am also Vice Chairman of the British Wind Energy Association.

  Q168  Chairman: Could I just emphasise the point that the acoustics in this room are extremely bad. If you see me doing that it means please speak up because we cannot hear you properly. May I kick off and ask you whether you think that the Government's targets for the contribution from renewables to electricity, namely 10 per cent for 2010 and, indeed, 20 per cent for 2020, are likely to be met? In your view, how will the present rate of construction of wind farms contribute to this? What are the main obstacles that those are encountering?

  Mr Moore: We had a little warning of that particular question so in the last week or so we have undertaken a survey amongst the leading players within the wind industry to make sure that we have a consensus view on how much wind could get built. I have to say the time horizon we looked at was up to 2010, we did not look past that, but that is far enough into the crystal ball, if you like. When we take a consensus view across the industry, recognising that this is a cautious view, and I am sure we can talk later on about the Renewables Obligation review that is due in 2005-06, if we did not expect a lot of change out of that review then I think the consensus is that we could be pretty sure about delivering between six and six and a half gigawatts of wind capacity before 2010. You may be interested to know how much of that is onshore and offshore. Once again, the consensus view is very slightly more onshore but roughly 50/50 is the view. Clearly everybody has to take a different view of the market but there is a surprising degree of unanimity amongst us.

  Q169  Lord Sutherland of Houndwood: I want to follow up in relation to that prediction, whether you thought the bulk of the development would be in large scale projects, perhaps in Scotland, because clearly different forms of latching into the consumer is very important there?

  Mr Moore: Offshore, in Round One, we have been building projects which are typically in the 60 megawatt to 100 megawatt range. In Round Two the size of the projects is much larger than that, typically 300 megawatts and greater. My own company has announced a project of 1,200 megawatts. Projects will get very large when we get to the back end of the decade in Round Two. Onshore I expect there to be a mixture of projects in terms of size. The average size of projects which have been coming through in the last few months has been about 25 megawatts. That is ten or more turbines. I think there is space for some of what we tend to call wind clusters, two or three turbines, in particular locations. I have to say I think there will be a tendency towards larger capacities in general, onshore as well as off.

  Q170  Lord Sutherland of Houndwood: To meet the six to six and a half gigawatts? That will be a larger capacity rather than small.

  Mr Shears: That is right. If I could just add to that. I think that part of the process we see onshore is a spread of projects around the whole of the UK and inevitably some areas are more populous than others and, therefore, there is a physical constraint on the size of the project which is appropriate. Perhaps you will see in an area such as the West Midlands or the South East, for example, which both have a reasonable wind resource which should be utilised, we believe smaller projects may be appropriate for a number of reasons.

  Q171  Lord Sutherland of Houndwood: Can I just follow up on that. Is the cost of the connection hugely variable? Supposing you have a lot of small projects, does that put up the connection costs very dramatically?

  Mr Shears: An individual turbine, for example, may be two megawatts and you may be able to connect that at the 11KV voltage which should be viable for that particular project. As the schemes go up to perhaps ten megawatts a 33KV connection and the costs go up proportionately to a 132KV connection. Probably as a rule of thumb if you can keep your grid costs at somewhere within five to ten per cent of total project costs then you should have a fighting chance.

  Q172  Chairman: Your six and a half gigawatts prediction was as a result of your usefully taking soundings from the industry. Did you get any feeling for what the regulating factors were in all this? Was this the ability to have monies available for capital, planning permission? How did these things trade off?

  Mr Moore: I think the answer to that is a yes.

  Q173  Chairman: All of those?

  Mr Moore: All of those things have historically been constraints and will continue to be constraints to a certain extent, although some of the changes that have been made in recent months and the last couple of years may not have demolished those barriers, but they have certainly lowered those barriers. As a result of that we are expecting between 400 and 600 megawatts of wind farms to be built in 2004. That compares with what we have achieved in the last 13/14 years, which is 650 megawatts. So we are achieving almost as much in one year as we have achieved in the previous decade. Clearly those barriers are falling, if not fallen. Let me develop the issues of the Renewables Obligation and ask my colleagues to join me if they wish. The Renewables Obligation has been an enormous incentive to renewables and wind power in particular. As I say, we have seen an enormous increase in activity in wind farming since its introduction. The extension of the Renewables Obligation out to 2015 I think it is fair to say was as a result of lobbying from the renewables industry in terms of giving us an extended period, ten years or more, when we could actually do our economic sums and see if we were making a decent return. The problem when the Obligation only went out to 2010 was the period between now and 2010 was getting shorter and shorter and, therefore, the certainty with which we could estimate the value of the Renewables Obligation Certificates and the value of our electricity was getting shorter and shorter and was reducing to a point where it was shorter than the simple payback period of the investment. The extension to 2015 was a major breakthrough. For that same reason the outcome of the Review of the Obligation in 2005-06 that was announced in the Energy White Paper will be equally important because once again we will be getting to a period when we will have less than ten years of relative certainty in terms of how the Obligation will work, the value of Renewables Obligation Certificates, and we will be looking as an outcome of that Review to see where we go in terms of 2020.

  Mr Shears: If I can just add to that. We are pretty certain that we have quite a good build rate for the next two or three years. Beyond that, the 2005-06 review and the 20 per cent target we think is very important. In canvassing our members there is clearly a view that towards the back end of the decade, 2009-10, we will have a significant ramping up of offshore development and for many reasons we believe that is wholly possible. The one potential thorn in that is if the RO target is not extended because that will not give the financial security to allow those projects to proceed. Certainly at this moment in time a lot of investment is going into those projects on that basis.

  Q174  Chairman: Can I just be clear that we understand the figures you are giving us. The six and a half gigawatts is installed capacity.

  Mr Moore: Yes.

  Q175  Chairman: So working on, say, a 30 per cent load factor or something like that, we are looking at about a third of that as a contribution to the grid?

  Mr Moore: It is 8,760 times 6,500 times about 30 per cent in terms of megawatt hours.

  Mr Shears: You need to bear in mind that obviously all technologies have different load factors.

  Q176  Chairman: The answer is we are not going to get ten per cent.

  Mr Moore: I was doing some rough sums in terms of—

  Q177  Chairman: That is what I was trying to do as well but I am only about half way through.

  Mr Moore: The six and a half gigawatts is a number we felt confident we could deliver and it is a minimum. Let us take that number for a while. That six and a half gigawatts delivers about five and a half per cent of the ten per cent, roughly.

  Q178  Chairman: That is what I thought.

  Mr Moore: We have got the co-firing of biomass which has been announced and that will be around one per cent.

  Q179  Chairman: That is absolutely fine. I think our back of the envelope arithmetic agrees in that case. It is about five per cent of the ten and if the ten is to be met it is going to have to be met from other sources.

  Mr Moore: Yes.

  Mr Shears: Just to caveat that, the key period is this back end of the decade when offshore really comes to the fore. If we had an extension of the target beyond the 2005-06 review it is wholly within reason that we could achieve a lot more with wind. I think we are quite conservative in these estimations.