Extracts from NATTA's journal
Renew, issue 144 July- Aug 2003

2. Select Committee bites

The review of Non Fossil R&D produced by the House of Commons Select Committee on Science and Technology was, as noted in Renew 143, very critical of the governments approach. It claimed that ‘the sums invested in public RD&D lack focus and are wholly insufficient in helping the UK meet its renewables targets, in absolute terms and in comparison with the UK’s competitors’. Consequently ‘there is no prospect of achieving the target of 10% renewable generation by 2010 or the aspiration of 20% by 2020. There is no chance of meeting the Government’s targets for CO2 reductions if current policies and market conditions remain in place’.

It argued that the programme was over-complex, and fragmented and that ‘not only is the technology push feeble but the market pull is inadequate. The Renewables Obligation creates incentives only for technologies close to market, the Climate Change Levy is a blunt instrument and the Government’s confidence in the European emissions trading scheme is misplaced.’

In order to impose some order and direction, they called for the establishment of a Renewable Energy Authority (REA) with UK-wide responsibility for co-ordinating and promoting RD&D in renewable energy and disbursement of funds for that purpose. It would encompass the numerous public or quasi-public bodies currently involved in renewable RD&D such as the Carbon Trust and the newly proposed UK Energy Research Centre (see later). They also proposed a radical new carbon tax system ‘which distinguishes between fossil fuel sources and carbon-free or carbon neutral sources at different stages of development’. The Climate Change Levy and the Renewables Obligation would thus be replaced by a ‘unified Carbon and Renewable Energy Tax to be levied on electricity generators, the yield from which should be hypothecated to the REA’. The tax should provide for credits for new renewable technologies at different stages of development, on a sliding scale. Thus they wanted to introduce a tax incentive that ‘distinguishes between: fossil fuel with carbon capture; carbon neutral technologies; nuclear fission and mature non-carbon technologies; maturing non-carbon technologies 10 to 15 years into the market; non-carbon technologies 5-10 years into market; and nascent renewable technologies in their first 5 years of commercial use’.

It was certainly an aggressive report. While welcoming the recent allocation of more funding, it says that so far ‘the Research Councils’ expenditure on energy research has been pitiful’ and it weighs in heavily against the governments programme. ‘Despite recent increases in Government energy RD&D funding, investment is pitiful in absolute terms and in comparison with out international competitors. We believe the UK should be investing more, on economic grounds and to ensure that the technology is suited to Britain’s national needs and takes advantage of our strengths. By repeating the not picking winners mantra, the Government has failed to take a lead.’

But its recommendations may not be so welcome to all. While it said that we should be focussing on offshore technologies (wind, wave and tidal), it also wanted support for nuclear fusion and nuclear fission. ‘Offshore technologies should be funded at least on a par with fusion (currently £23.5 million a year) and fission should be funded at £10 million a year to fund participation in the Generation IV Forum and boost the academic skills base’ adding that ‘nuclear fission should enjoy the full status of a carbon-free technology. Renewable sources of power are not coming on stream fast enough and nuclear power must fill the gap. The Government’s decision to delay a decision on nuclear leaves the UK with an energy shortfall which will only be made up with fossil fuels.’

Tim Yeo, the Conservative trade and industry spokesman, described the report as a "damning indictment" of the Government’s energy policy.

The section below reviews the detailed comments, and the Review section of Renew 144 looks at some of the evidence and oral submissions made to the Committee.

Select Committee on Research funding

The Committee noted that five of the UK’s seven Research Councils, (who fund research and researchers in universities and within their own research institutes), have interests in energy research. Between them, in 2002-03, they will spend an estimated £11m on low and non-carbon energy technology. The largest contribution comes from EPSRC, which expects to spend £9m on low carbon energy technologies in the year 2002-03. The Council’s total budget for 2002-03 is £460m; generally energy research represents around 2% of its expenditure. The expenditure on non-carbon energy related research has increased in recent years, reflecting the budgetary increases to the EPSRC, and indeed all the Research Councils. The committee commented that ‘the EPSRC has a large area of science to fund but it is hard to accept that energy research, given its economic and environmental importance to the UK, should receive such a small slice of the cake’.

The Committee also noted that the EPSRC directs its energy funding to priority areas rather than responding to the interests of researchers, but felt that it was not clear how the Research Council arrived at its priorities. For example, 23% of its funding last year was on "conventional technologies"- e.g. clean coal, and electricity transmission. The Committee commented ‘We appreciate that the EPSRC must be sensitive to the needs of its user industries but spending such a high proportion of its research funding on "conventional technologies" where there is an established industry seems curious, especially when nuclear fission research funding is negligible and none of this is targeted at new reactor technologies. The EPSRC decides its research priorities with inputs from a Technical Opportunities Panel, comprised largely of academic researchers, and a User Panel with industrial representatives. There is a danger with the latter that it steers the EPSRC’s research priorities towards areas with which it is familiar. Half the membership of the EPSRC’s council is from industry and we fear that this may lead to conservatism. We regret that technologies with the potential of wave and tidal or hydrogen are given so little funding. The EPSRC should be given a stronger lead by Government to ensure that investment is consistent with wider energy policy.’

They also quoted Professor Dennis Anderson from Imperial College, who was concerned that because of the low success rate for Research Council grant applications "many researchers do not submit applications given such a high probability of rejection and the time and effort entailed, and many projects that are financed are under funded".

It was also not too happy with the role of the Carbon Trust. It wasn’t just that its funding was probably too meagre, but the Committee did not understand ‘why the functions of the Carbon Trust could not have been taken on by existing Government bodies. We suspect that its formation was primarily a political gesture to bolster the Government’s green credentials’.

But the real venom was directed at the DTI. Its approach, they said, ‘betrays a simplistic view of the innovation process’, especially in terms of needing ‘proof of market failure’ before any public investment was made. ‘The DTI seems to be looking for reasons not to invest in RD&D. The Government must be doing more than filling in the gaps left by the private sector and drive forward important technologies’. In addition, the Committee added, that while ‘the Government has expressed its concern that the UK does not derive sufficient commercial benefit from the excellence of its science base... the DTI’s inability to fund properly energy RD&D projects is a clear case of its policies betraying the fine words of its Ministers’.

The committee felt that ‘the UK is spending much less than its competitors on energy RD&D’. And it presented comparative figures for 1999/2000 to make the point. The Netherlands spent $107m, Switzerland $112m, Italy $240m, France $434m, Japan $3580m- as against just $64m in the UK. But we did beat Finland at $62m, Spain at $36m, Denmark at $29m, Norway at $26m and Portugal at $1.4m, but hardly on per capita basis.

Picking Winners

The Committee was unhappy about the lack of focus in the renewable energy programme. ‘We appreciate the Government’s nervousness about saddling the wrong horse. It would be roundly condemned if it were to put millions into a technology which the market would not support. One need look no further than the nuclear industry for instances where this has occurred. Nevertheless, it is reasonable to ask how the Government can have an energy RD&D policy that does not embrace a vision of which technologies should be backed.’

It added ‘One cannot find a ‘winner’ without picking some losers: finding solutions to problems requires the research community to explore all reasonable paths in often unknown and risky territories, and inevitably some will be dead ends or ‘dry holes’. Thus risks have to be taken; the right strategy is to pull out once an option has been explored and is a proven ‘loser’. The Government has the option of creating a framework of incentives, such as tax credits for RD&D, which will devolve the responsibility for picking winners (and inevitably some losers) to industry; but it also has to make choices and take risks too, especially in its support for RD&D, where it cannot avoid setting some priorities. The Government has an important role in identifying those of Britain’s strengths that are consistent with the industrial environment and the market. It should provide a clear and unambiguous focus.’

It went on ‘The Government seems nervous of being accused of picking winners. As a result tough decisions have been avoided. We should be selecting all of those research projects for funding which we have the capacity to execute and which have a reasonable chance of delivering solutions and significant benefit for UK society.’

Brian Wilson had told the Committee "everything I do suggests to me there are too many organisations with functions which are not all that dissimilar and which is a maze for people to find their way through, and they are organisations with big budgets".

The Committee clearly took this to heart and commented ‘Britain’s energy structures are too complicated. As a result, efforts to stimulate RD&D are fragmented and directionless. No public body or Minister is taking responsibility for driving forward technological innovation and deployment. Much bolder action is needed to make non-carbon technologies play a significant contribution to the UK’s energy mix. For this reason, we recommend the creation of a Renewable Energy Authority. It should emulate the function of UKAEA in driving the nuclear industry after the World War II. The Authority would subsume the UKERC and the Carbon Trust, the DTI’s energy programme and the energy policy unit. It would:

* conduct applied research and development in selected technologies;

* conduct demonstration programmes, usually but not exclusively in collaboration with industry;

* provide a fast-track planning service to non-carbon energy applications;

* and supervise infrastructural modifications to the grid and distribution netwoks to facilitate the connection of distributed generation’.

The Private Sector

Before privatisation, British Gas and the Central Electricity Generating Board had corporate RD&D facilities that conducted a large amount of energy RD&D, typically several hundred million pounds per annum. However, the Committee heard that private sector R&D funding had not expanded to take up the slack. The Committee took oral evidence from Innogy, Powergen, British Energy and BNFL and received written evidence from TXU, before its UK operation was purchased by Powergen. Of these, only BNFL is investing significant sums in new generation technologies. The Committee commented ‘It is our impression that generating companies are doing very little beyond improving efficiency of existing power plants or positioning themselves as informed purchasers of technology’.

Power Technology’s Director, Dr Derrick Farthing, told the Committee that only £3 million was spent on pure RD&D. Innogy’s Chief Executive Brian Count said that "I do not believe that electricity companies are set up to be developers of technologies or manufacturers of technologies".

The Advanced Power Generation Technology Forum, a Foresight Associate Programme, commented that privatisation has had a "negative effect" on RD&D, claiming that the generation companies "are increasingly risk averse". Professor Ian Fells from the New and Renewable Energy Centre in Newcastle argued that the liberalisation of the energy market has "wholly malign" effect on RD&D. The Institution of Electrical Engineers agreed, as did the Building Research Establishment in relation to energy efficiency: "Privatisation of the gas and electricity utilities has resulted in a catastrophic loss of a number of major centres of expertise in the UK associated with energy utilisation research. Energy price reductions, although advantageous to the economy, have had the effect of reducing interest in developing new energy sources and improving energy efficiency".

The PIU had also noted that ‘there is some evidence that increased competition has shortened the time horizons for R&D expenditure creating a focus on short-term commercial goals rather than long-term investment’.

The Government however disagreed, and the Committee noted, attributed this decline in expenditure to ‘the maturation of a range of important technologies and a shift to energy providers in the North Sea and the renewables sector’. There was also the argument that some of the research done by the old public research organistations like the CEGB was cost-inefficient, compared to what now occurs in private companies.

The Committee however felt that ‘the fall in private sector RD&D expenditure has been higher than would have been expected from simply improving its focus’ and were ‘puzzled by the Government’s assertion that privatisation and liberalisation has not led directly to a decline in energy RD&D- it has led to a dramatic decline, by far the largest decline in all OECD countries’. They added that they were ‘concerned that the Government is poorly placed to stimulate energy RD&D investment in industry if it is in a state of denial over its causes’.

Overall the Committee was concerned that ‘The Government has failed to encourage an environment that encourages technical innovation, to provide sufficient direct investments and to make any significant response to the scale of market failure’.

It also felt that the labour market was problematic- in that there was a shortage of people with the necessary skills. That’s something we will be taking up in Renew 145.

The Technology Options

The Committee was keen to press on with new renewable technologies. ‘If the UK is to stand a chance of reaching its renewables target, it needs to stimulate development of less mature technologies now. The Renewables Obligation fails to provide this incentive. It should be reformed or replaced with a mechanism that will’.

It scampered through the various sustainable energy options and systems, dispensing some wise words and suggestions. For example, on carbon sequestration it said ‘We consider CO2 sequestration to be a necessary part of the transition to a non-carbon fuel economy. Nevertheless, it is important that its use should not act as a disincentive to the elimination of carbon-based fuels’. And on wave and tidal power it commented that these sources had ‘enormous potential and can deliver a clean and predictable energy supply. We recommend that the UK should make a major investment in this niche market and aim to generate at least 5% of its electricity using wave and tidal technologies by 2020.’ And on embedded generation it recommended that the Government ‘establish demonstration projects to establish how distributed sources of electricity generation can be incorporated into local networks, in particular the development of metering systems to allow domestic generation to export power to the network’.

However, the Committee also backed nuclear power. It said that the White Paper ‘ducked a central issue- whether to provide a future for the nuclear power industry- and failed to give a lead’. It noted that Greenpeace had argued that allowing new nuclear reactors to be built will weaken the impetus to introduce renewable forms of energy generation, and the Committee admitted ‘This is a risk, but the risk of failing to reduce our carbon emissions is also great. In our view the only strong grounds for the Government to oppose any new build by BNFL or British Energy is that the companies are not on a sure enough financial footing to be able to guarantee safe operation for the lifetime of the reactors’ adding a little tortuously, ‘the ability of BNFL and British Energy to compete successfully in the market depends on the Government’.

It concluded with the following rationale ‘It is right that nuclear generators bear the external costs of their generation, but it is must remembered why we are discussing this subject at all. It is largely because the use of fossil fuels for energy has started to have a dangerous effect on global climate. CO2 should be seen as waste and the Climate Change Levy barely begins to account for the external costs of dealing with it. It is hard to imagine that the nuclear legacy will ever be as serious as global climate change’. That’s debatable of course. If we stop emitting it, the residence time of the current excess CO2 in the upper atmosphere would be a few decades, whereas some nuclear materials have half-lives of many thousands of years.

The Committee admitted that ‘public opinion is a major obstacle to new nuclear build but this should not preclude the funding of research which could go a long way to addressing public concerns into the waste and safety of existing systems. We believe that the Government should not underestimate the public’s pragmatism and should not be afraid of people’s ability to balance its legitimate concerns with the great dangers posed by climate change.’

And to round things off, it also backed fusion as a possible longer term option: ‘The next generation of fission reactors is likely to be the last. Nuclear fission power should be used to keep the UK’s CO2 emissions as low as possible until fusion power and other non-carbon technologies are commercially available’.

See the Reviews section in Renew 144 for more. The full report is at at:

www.publications.parliament.uk/pa/cm/cmsctech.htm