Welsh Affairs Committee
Oral evidence: Floating Offshore Wind in Wales, HC 827
Wednesday 26 October 2022
Ordered by the House of Commons to be published on 26 October 2022.
Members present: Stephen Crabb (Chair); Simon Baynes; Virginia Crosbie; Wayne David; Ben Lake; Rob Roberts; Beth Winter.
Questions 22 - 38
Witnesses
II: Henrik Pedersen, Chief Executive Officer and Executive Director of the Board, Associated British Ports; and Tom Sawyer, Chief Executive and Executive Director, Port of Milford Haven.
Examination of witnesses
Witnesses: Henrik Pedersen and Tom Sawyer.
Chair: Good morning and welcome to Henrik Pedersen, who is the Chief Executive Officer of Associated British Ports, which owns Port Talbot and a number of other ports in South Wales and around the UK, and Tom Sawyer, who is the Chief Executive and Executive Director of the Port of Milford Haven. Welcome to this second panel of our session on floating offshore wind in the Celtic Sea. Simon Baynes will kick off the questioning for this part.
Q22 Simon Baynes: Thank you, Chair, and welcome. Thank you very much for giving us your time this morning. Starting with Mr Pedersen, what is your role in the development of floating offshore wind in Wales?
Henrik Pedersen: Certainly. We heard in the previous panel the word “ports” mentioned many times. It is widely known now that floating offshore wind in Wales will take off only if we repurpose and build out Port Talbot, simply due to the infrastructure that surrounds the port. It has a big, sheltered water area down there. It has a deep basin. It has the characteristics that we need for the big structures, which were also mentioned by the previous panel. Simply, the infrastructural characteristics of the port are what we need to further repurpose for the industry. The port will play a card in our role.
Q23 Simon Baynes: I take that point. Could you expand a little bit about the role of the ports within the industry as well?
Henrik Pedersen: Yes. When I look at it from a port point of view, I have done port projects all over the world. This year is significant and we heard that in the previous panel. In ABP we will have to invest around £500 million to make this work.
If I take a step back and look at this holistically, I look at it as a once-in-a-lifetime chance for Wales in terms of jobs, inward investments and new technology that will be around for decades. That is my starting point.
Then I look at it and I have come to this meeting here today to figure out where the ambition level is. Is the ambition level up here? Where are we going for assembly and also the manufacturing level? Do we set that up here? Maybe we undershoot it by 5%. Or do we set it down here and go more for the assembly? That we have seen for fixed bottom, and we miss out on an abundance—I would say thousands—of manufacturing jobs. When I take my decision in terms of investments, I am trying to gauge where we are with the industry.
I also heard from the previous panel very much not about the next 4 gigawatts but about the certainty of these 20 gigawatts. My investment will reach far into that as well. The investment I can make will not make up for it if we have only 4 gigawatts. I am trying to look at it like that.
The role of the ports will be determined by our ambition level for FLOW because we will repurpose the ports so they can handle the assembly. In simple terms, do we continue to manufacture the components overseas, import it here to Port Talbot and then assemble it, or do we repurpose the port for what I really hope we are going to do, which is to bring in a lot of manufacturing. That is what people refer to as local content.
My decision-making will be very much dependent on what we decide collectively is the ambition level. I know where I want this to end and that is why I have said to our board that this year is the biggest investment opportunity we will get in Wales. However, I have also said to a lot of people in Wales, and to politicians as well, that this is probably the single biggest investment opportunity you will see in Wales. Depending on where we are, we will do what we need to do on the port side, but of course it will also need to come at pace, which the previous panel also discussed.
Q24 Simon Baynes: Thank you. Mr Sawyer, the same question to you but from the point of view of the Port of Milford Haven.
Tom Sawyer: Our key contribution right now every day is how we keep the lights on, houses warm and transport moving. That will be the case for the next 25 or 30 years as we go through this major period of energy transformation. The first step is that we have to keep normal business going and, while we are keeping normal business going, also being leaders and agents for change across the whole south-west Wales area, working with ABP at Port Talbot. We recognise that in south-west Wales, to address the opportunity and the scale of what is required of the Celtic Sea array, it needs to be a dual port solution.
In terms of what else we do; we look to integrate our value proposition. We see Port Talbot very much as the centre because of the scale and size of the place and the area where a lot of the manufacturing and assembly will take place. We see a role for ourselves in the value chain as a place that will have continuing large volumes of LNG moving for probably another 25 years, while also using our close proximity to the Celtic array to fulfil a role that we characterise as operations and maintenance.
That is not just what you understand as current day electrical and mechanical engineering but—turning to the question that was asked earlier—this is about growing great content for the south-west of Wales in terms of jobs, technology and innovation.
One of the previous speakers spoke about the subsea aspects of what the UK is particularly good at. We see a role for us in the acceleration of the deployment of the array in seabed preparation, seabed survey robotics, automation, autonomy and all that potentially goes with that.
We already do green and net zero at the Port of Milford Haven. The Pembroke Dock marine project is a £60 million programme. We invested £15 million of our own money into that programme. It comes under the Swansea City Bay deal. We work with partners to create a lot of the technological test sites, the engineering test sites and early developer capacity, so that new technologies can be experimented, fielded and derisked.
We also look at developing the shoreside facilities so that, when the early-phase deployment starts, we can use our close proximity to the field to support that with crew transfer vessels, laydown, office space and a lot of the infrastructure required in those early phases. The answer to your question is: quite a lot.
Q25 Ben Lake: Thank you, gentlemen, for joining us this morning. Mr Pedersen, you mentioned the level of ambition. For the sake of today’s discussion, let’s set that ambition. We want the manufacturing jobs. We want everything to be assembled and manufactured in Port Talbot, Wales, and then out to the Celtic Sea array. If we take that as the plan and the ambition, when it comes to the some of the developers, you have both mentioned that you need to develop some of the facilities at the respective ports.
Give us an idea of the potential scale of the works required for different aspects of that to realise that ambition and, also, the level of investment that you might need to make. I know that we are talking hypotheticals here, but humour me.
Henrik Pedersen: If we look at the ambition level being high also in terms of the manufacturing, for us it would probably be around £500 million. If they were asked yesterday people would say that was probably on the optimistic side. With inflation, it might be higher. Also, remember that that is only for the port infrastructure. When I talk about the high ambition level, that is of course to create the manufacturing sites and so on. That, for me, would be literally billions more in investment, as was also mentioned here earlier this morning.
You will see a need for vastly transforming the ports. As a port operator, £500 million is a big cheque to write. Also, as mentioned, remember that the platforms will be as big as football pitches. They are 100 by 50 metres in either steel or concrete. That is a floating pontoon. Then you put a 300-metre tower on top. These are huge industrial structures. The port needs to handle one every week or maybe two or maybe three every three weeks. This has not been done at this scale before. That is why ABP has already, even though we do not know what is coming, hired a head of programme down there. We are spending money now in ramping up the project, simply to make sure we do not miss the boat timing-wise, even though we have some questions.
For me, it is more about whether we attract that manufacturing. I am in the port industry, not in one of the energy companies, but when we talk about ambition levels, if there are no teeth in that local content, then I look at all the ports we compete with and all the countries we compete with. By and large, they all have hard requirements for local content. Then you can talk about EU rules or not, but they have those requirements. If we do not have these requirements, from a port side I fear that we will never be able to host these manufacturing sites.
Our ambition level is good, but we also had high ambitions, I believe, for the fixed bottom. We have to be clear in this area if we are going to see manufacturing in Port Talbot.
Tom Sawyer: I have chickens and eggs and white elephants in my head at the moment. Ambition without a realistic plan is just a dream. As the port, when looking at that whole south-west Wales picture between Milford Haven and Port Talbot, when the developers set the demand signal, we will be able then to shape in detail what that glittering, irresistible port services offering will be.
That is the game we are in. We are in the game of making sure of what we have on the shoreside in terms of access to deep water, quay length, quay capacity and quay strength. I recently read that for every gigawatt, you are talking about 20 kilometres of blades and something like 10 kilometres of towers. A single anchor chain link weighs about a quarter of a tonne. The scale is enormous.
We know that, from the perspective of the Port of Milford Haven, our infrastructure ambitions are already underway. We will get what I would call, in my old life’s language, an interim operating capability that we think will service the early needs of early-phase experimentation, fielding, concept design and O&M support for early field and seabed preparation. As the demand signal is set through the CFD and seabed leasing process, the developers will then come to us and we will have more earnest discussions with them about how we develop that.
The challenge we have is—I have dealt with the chicken and egg, but this is where I come back to the white elephant—we do not want to be in a position where our money or, worse still, public money has been used to create something that ultimately is not used or does not realise its return on investment, either in direct business terms or in terms of a societal benefit. We are a trust port, so how we deliver our social contract to the communities around us is incredibly important. We always have that creative and healthy tension in our decision making.
Getting to a number, collectively, in the partnership created, Pembroke Dock Marine, a £60 million spend gets us to that IOC. We think the next phase of that, which gives us an additional 100 metres of quayside length, access to deep water and some more useful laydown space is probably another £12 million to £25 million, depending on whether it is permanent or semipermanent in nature.
That links to the importance of the flow manufacturing investment scheme. FLOWMIS is important to us. Of course, that pot will be shared across two nations and potentially across a number of sites in Wales. We are also conscious of that. We have to make sure that what we are arguing, in terms of our part of that investment, absolutely makes sense and that we can argue it and then back it off with delivery on the promise that we expect to make, and that would be expected of us to make, to Government investment.
Q26 Virginia Crosbie: Thank you. Good morning and bore da, gentlemen. I set up and chair the Anglesey freeport bidding consortium. I have been working on the freeport bid for Anglesey for more than two years with Stena and other stakeholders. I am looking forward to putting the bid in on 24 November.
Some people are not supportive of freeports because they come from the UK Government and for other reasons. One of the concerns is disinvestment. What would you say to these people who worry about disinvestment? By that I mean taking investment from other parts of Wales to the freeport. That is a question to Mr Pedersen, please.
Henrik Pedersen: Freeports will be one of the important levers to get FLOW into the south part of Wales that does not exist anywhere today. It is definitely not a displacement. Either we bring it into Wales or it is done in Spain, France or elsewhere on the Continent.
You have to be careful that you do not misinterpret the word “freeport”. It just happens to have the word “port” in it, For us in the port sector, FLOWMIS is much more important because that is supporting the seed investment for the infrastructure. Otherwise, we cannot make this work. The freeport is set up to bring manufacturing into the country. That is one of the big enticements around the freeport. You can call it many names. You could call it a freeport. You could call it an investment zone. You could call it a free trade area or whatever you want. However, it is the whole manufacturing piece and innovation that goes into this.
For me, when I talk about creating these manufacturing investments, one of the good things about the freeport is that it has these tax acceleration rules. Earlier, the Government also tried to do that in their budget but only for two years. Of course, that does not work because nobody takes these big investment decisions in two years. However, the freeport scheme allows that. For me, when I think about freeports, it is not for the port itself. It is about how that helps to bring other industries and other manufacturing into the port so that they can capitalise on this.
Part of the freeport is also that there should be more access to better planning. I do not talk about less planning. I do not talk about less environmental regulation. I talk about a faster process. Then you are back to it again with our £500 million in the ports. When I talk about how we need the local content, to see if it is actually coming, we need to look at these 20 gigawatts to see if that is forward looking. It will not work if the planning inspectorate is not staffed up. Nobody will make the investments. It will not work either unless we are all collectively starting to build the skills and set up these schools. We are talking about thousands of jobs, sometimes in new industries as well. Of course, for us, from a port point of view, it is also about the FLOWMIS scheme because now we have given input to the RFI. However, if that is starting to waver, it shows something about the ambition level. I keep coming back to that. When I talk about the ambition level, it is whether we have the confidence in investing.
Q27 Virginia Crosbie: Thank you. Tom, the research I have done on freeports around the world leads me to the conclusion that the average salaries are higher in freeports. One of the gentlemen before you mentioned the skills and colleges, like Coleg Menai in Anglesey, that are working to make sure that we do have these skills. In your experience, would a freeport mean the average salaries are higher?
Tom Sawyer: The overall packages would be better. If I could loop back to the question you asked Henrik a second ago. As part of our day-to-day activity—we do it every day anyway—and as part of our freeport proposition, the upskilling of the workforce in the vicinity of south-west Wales and across the ABP Port Talbot and Milford Haven and Pembroke Dock areas will be a significant part of what we do to enable our business. After making that significant investment, why would we want a situation where that skillset migrates? It is in our interest to attract great people and to keep great people there. In an industry that is buoyant and is growing rapidly, I agree that the general trend in salaries would be upward.
In terms of the conditions that would prevail and in terms of workers’ rights and so on, the Welsh prospectus is strong on this. As a port, we start from a good position. We are a real living wage organisation. In terms of the future generations Act, while we are not bound by it, we use it as an ethical, cultural, workforce and business culture handrail. We expect to live the values within a freeport construct that we try to live every single day in terms of delivering a brilliant business that people want to come and work in and then stay in over the long term. Those values sit well with freeport status.
When it comes to investment, a lot of that will be down to setting the right conditions in terms of the business case qualification process after the proposals are submitted. My sense is that central Government is increasingly mature in how it can make sure that the protections are put in place to ensure that levels of investment are maintained.
Then there is the fact that the authorities that we are involved with will be expected to reinvest their business rate retention money in general improvements in society, be that joint ventures in the business context, improvements to education, communities and so on. Certainly, in our case, in terms of our collective bid, I expect that to be absolutely a central theme.
Q28 Virginia Crosbie: Thank you. I want to finish by asking you both about hydrogen. If we decarbonise the transport sector, there is a lot of talk about hydrogen being the holy grail. One of the benefits of nuclear is using that excess heat to do electrolysis for hydrogen.
I have Morlais in my constituency and the Holyhead hydrogen hub. They are looking to work together to do green hydrogen. Have you looked at FLOW working to do green hydrogen? If so, what are the ramifications on the grid structure, Mr Pedersen?
Henrik Pedersen: I am not a hydrogen expert so I am probably coming at it more from the port side. We have some developers already asking us for what they call power-to-X plants and how they will look to take the excess electricity off the floating offshore wind to produce green hydrogen. Of course, we hope Tata will go into electric arc furnaces in the future.
I keep coming back to this. It is holistic, but you could see the closed-loop cycle in South Wales. You have the second-biggest emitter of CO2 in the UK today in South Wales because you have all the heavy industry down there. That is why I keep coming back to the ambition, but this is where it starts. What do we want to retain in South Wales through the energy transition? Floating offshore wind can not only be used for electricity but could also make green hydrogen. Then you have a lot of companies down there that can use it. In the Humber, we are building a port that will be able to import green ammonia and break that down to green hydrogen. In the Celtic Sea, we could produce it right at our doorstep. This is interesting.
Tom Sawyer: It is an interesting question. I admit the same level of an enthusiastic but interested and engaged amateur overview of it. My final note that I wrote down on my pad when I was preparing for this was, “Live demonstrations at scale of green hydrogen”. That needs to be done. We are involved in a hydrogen car project in partnership with Catapult. We have vehicles driving around and refuelling in a hydrolyser. We are part of the Milford Haven and Energy Kingdom project, which is looking at the practical applications of this, including the heating of some of our buildings.
On the one hand, people have suggested to me that batteries will be the Betamax of the future energy world and that hydrogen will be the VHS. I can see some logic in that. Fundamentally, though, this is about finding the right balance between renewable molecules and renewable electrons, what the base load needs to be and how we manage that across the United Kingdom, with scale demonstrations of what is possible—some town-level and large-scale business-level green hydrogen experimentation projects. That is where we start to see the art of the possible.
Going back to one of the questions that was asked earlier about whether this is a question of leadership, notwithstanding the mobilisation of the FLOW taskforce and so on, we are at a point where this needs to go on to a national campaign footing. Significant elements of experimentation, science, research and development need to take place to inform some fairly major investment decisions about the choices that we will take as a nation. It feels like, maybe across all of the Governments, there is not quite the upgunning that will be required to move this forward at pace.
Q29 Wayne David: What you have both described is pretty exciting and it presents a holistic vision of how these developments could all work together. Are there any good examples across the globe? Mr Pedersen, you have had tremendous experience of working in different places. Are there any specific areas that we could learn a lot from?
Henrik Pedersen: I have personal experience from running a 10-year power project in Costa Rica. We had basically nothing to begin with and built a new power project and created all these jobs that simply did not exist before. That was considered a deprived area in Costa Rica. We ended up investing £1 billion in the port.
When you invest, you are a global company at that time, but it is all done by local construction workers and you source material locally and so on. In making the investment, you spread the rings in the water. For me, it is so important that we use this opportunity here to attract as much as possible because it will create these jobs in Wales.
A lot of times around the world, in a lot of places, you see a port being a catalyst for making these changes, but the port is only part of it. Now we are talking about ports to transport energy, but in other places it is transporting goods. It is more that the ports also give way to other industries to come in. That is why I keep coming back to manufacturing. I do not want to lose it because I do not want to see that placed somewhere else. That is losing the trick. That is why I keep coming back to it. Many other countries have some hard requirements and local concerns because they see that these port developments, together with manufacturing, create a lot of economic activity. This is a once-in-a-generation chance for Wales.
Q30 Beth Winter: Mr Pedersen, you have answered this question in a roundabout way. I welcome your emphasis on the need for local involvement and community benefit. I can feel that you are genuinely committed to that. However, the evidence shows that there are significant barriers to us achieving that. Can you elaborate on the key barriers and how we can overcome those in terms of generating locally sourced employment, good jobs and so on?
Henrik Pedersen: When I talk about developing local economies, what I have seen around the world—both in developed economies and in emerging markets—is that it fundamentally always comes down to education. Do you have the right skills? If you do not, things either do not happen or happen slowly. For me, it is very much about the skills locally and having the framework around it. We have talked about FLOWMIS today. We have talked about freeports. We have talked about local content. We have talked about planning. However, if I single one out, you have to have the skills there. Otherwise, it is hard to make it happen.
Q31 Beth Winter: Thank you. Mr Sawyer, in terms of local involvement?
Tom Sawyer: Fundamentally, for us, the approach we take day to day will be the approach we will take under a freeport construct. Does what we are doing make us feel proud and does what we are doing positively impact the communities that sit around us? Our organisation has to have a prosperous, commercially viable engine at the heart of what we do. If we do that, we can discharge our trust port contract in many different ways. We see the freeport arrangement enabling us to do that, to cross a much broader area with a broader range of partners and with much greater impact.
We are good at having high levels of intimacy with partners, with clients and with communities, understanding the needs. We are intimately engaged with education organisations, training providers and start-ups. We have a good understanding of what our communities require around the whole of the waterway—all 22 miles of it up to the weir in Haverfordwest. That motivates us as a business. It is making sure that, within the freeport company construct, we do not lose sight of that. We are all about that strong commercial engine, but we are also there to recognise that a key feature of our proposition is, yes, around FLOW, yes, around hydrogen, and also around increasing people’s life prospects and the security and resilience of future generations.
Q32 Beth Winter: Do you have good networks with local suppliers across Wales? Are those links already there?
Tom Sawyer: We are going through a bit of a realignment at the moment. We became a real living wage organisation, which means that we need to coax, force, cajole and support our supply chain in reflecting our values. It would be unfair to do that at the turn of a switch. We try wherever possible to buy locally.
A micro example of that is something as simple as where we hold our Christmas parties. We will use local facilities to do that and try to buy as much as we can—and we buy quite a lot—in the local economy and from local sources. That will extend right across the scale and breadth of our supply chain where it is possible to do that, either locally or within Wales. As freeports, we need to seek to encourage organisations to move and come on that journey of upskilling and of knowledge transfer into Wales with us, rather than outsourcing into other parts of the United Kingdom to achieve that.
Q33 Beth Winter: Is there local procurement as well?
Tom Sawyer: Yes. There is room for improvement, I hasten to add, in every aspect of what we do. However, in terms of the localised procurement, it is absolutely a priority for us, yes.
Q34 Wayne David: Are local authorities important partners in your development or could more be done at a local level?
Tom Glover: In terms of procurement or more generally?
Wayne David: More generally.
Tom Sawyer: I can speak for our relationship with Pembrokeshire County Council. We have strong relationships. We are represented on all of the sub-working groups of the public sector boards. We have a voice and we have an ear in all of those. We actively support, where requested, Pembrokeshire County Council initiatives for water access, water safety and STEM. By virtue of our membership of those boards, that also draws us into contact with academic institutions, training institutions, volunteering groups and foodbanks. We discharge an awful lot of our social contract with information and demand signals that we get through that public sector board.
We are moving to—and this is where it will become more refined—trying to figure out, rather than doing lots of smaller projects, what the bigger, needle-moving improvement programmes are, which may be a much smaller number but will have an impact across a much broader range of the community. We feel strongly about that as Milford Haven Port Authority.
Q35 Beth Winter: Could I dig a bit deeper into Mr Pedersen’s comment about how this truly could be transformational? There seems to be consensus across the piece. Greenpeace last week commented about the opportunities to commercial businesses like yours. This could and should be our new industry. How would we achieve that? What needs to be done? Is it investment? Is it links at an early stage with the supply chain?
Henrik Pedersen: I look at it a little bit simplistically and in the next panel we can talk about it in more detail, but if you do not have some teeth in the requirement for local content, you will limit the probability that this will happen, despite the ambition level. All other countries have teeth in this and you will produce this where it is cheapest and will use underutilised capacity around the world. I fear we are not being good Boy Scouts. We see a lot of wind being generated in the Celtic Sea and a lot of manufacturing jobs developed overseas. I am as much a free marketeer as anybody in this room, but that is my view on it.
Chair: Thanks. Simon has a line of questioning exactly on this.
Q36 Simon Baynes: That is a perfect way into my question, which is the final question to you both. Would you support mandating a minimum quantity of UK-produced content in FLOW projects? I will go to you, Mr Pedersen.
Henrik Pedersen: As I said, I am very much for free enterprise, but I also see what other countries are doing. If we do not mandate some hard requirements in there, the probability that this will happen will greatly reduce.
Simon Baynes: Do I take that as you supporting it?
Henrik Pedersen: I will, yes.
Q37 Simon Baynes: Mr Sawyer?
Tom Sawyer: Yes, I support it with a managed pathway to achieving that that is realistic and does not interfere with the acceleration of the delivery of the programme. To mandate 60% off the bat would be difficult and so we would need to grow that. Some capabilities would need to be grown.
I come back, though, to the point that the way we make all of this happen is with some muscular command and control at the top of the Government, to drive this forward as a major project of national significance and interest. I cannot think of a better time to make that case.
Henrik Pedersen: To add, I do agree with Tom that you need to scale it up, but I slightly disagree. If you have time, that is the first priority. Then you say that time is more important to get this deployed than the manufacturing. What will happen is that these manufacturing plants will be built overseas and you do not get a second chance. There you have a balance into it. Once these manufacturing bases are established elsewhere, it will take 20 years before the next wave will roll in. For me, coming from the outside and looking in, fixed bottom is a perfect example of what you should try to improve on going forward. For me, that is important.
Tom Sawyer: That tension will need to be managed because, as a manufacturing base, there will be certain drivers. As a service delivery base, we would have perhaps slightly different views.
Q38 Chair: Thank you very much. One final question from me. This vision that we are talking about this morning of this new industry seems to fall exactly in that intersection between UK Government responsibilities and Welsh Government responsibilities. The Welsh Government have competence for ports and local authorities and the UK Government for big-ticket energy projects.
In your conversations with the Welsh Government—assuming that you are having conversations with the Welsh Government—are they buying into this vision? Are you getting a sense from them that they support and want to work with the UK Government on delivering the plan? Perhaps Mr Sawyer first.
Tom Sawyer: I argue that it is probably the most apolitical, widely supported initiative on the political agenda at the moment. The method is perhaps where the tension is. The end state is absolutely recognised. There may be some variations in terms of the scale of that end state and the scale of that ambition, and perhaps the paths to it that require the work. For our part, all we can do is make sure that our propositions are as strong and supportable and attractive to you as the political leadership as they can be and then over to you.
Chair: Thank you.
Henrik Pedersen: Yes. We have engaged a lot, both here in London and also down in Wales, with different party colours. Everybody I have met has the same ambition level, but now it is also time to execute. Will the FLOWMIS happen? Will the freeport happen? Will more planning resources be hired and so on? Otherwise, it will be one voice but no action. We have everything in front of us to play for now.
Chair: Great. That was helpful. Thank you to you both and we will move across, as efficiently as possible, to the third panel. Thank you, colleagues.