Welsh Affairs Committee
Oral evidence: Floating Offshore Wind in Wales, HC 827.
Wednesday 23 November 2022
Ordered by the House of Commons to be published on 23 November 2022.
Members present: Stephen Crabb (Chair); Virginia Crosbie; Ben Lake; Beth Winter.
Questions 59 - 87
Witnesses
I: Rt Hon Graham Stuart MP, Minister for Climate at Department for Business, Energy and Industrial Strategy; and Dr Nicola Higgins, Offshore Wind Programme Director at Department for Business, Energy and Industrial Strategy.
Witness: Graham Stuart and Dr Nicola Higgins.
Q59 Chair: Good morning and welcome to this session of the Welsh Affairs Committee. I am delighted to be joined this morning by the right hon. Graham Stuart MP, from the Department for Business, Energy and Industrial Strategy. It is great that you are with us speaking in your capacity as effectively the Energy Minister. We are continuing our short inquiry into floating offshore wind in the Celtic Sea. I am delighted to see here as well Dr Nicola Higgins, who leads on offshore wind strategy at the Department for BEIS.
We will try and move as quickly as we can through the areas we want to cover. There are Wales questions later on in the main Chamber, so we all have an interest in moving as briskly as possible.
Can I start, Minister, by asking you about the UK Government vision for floating offshore wind? When we last looked at this issue as a Committee on 26 October, we heard from several panels of witnesses that included potential developers, the Crown Estate and Tim Pick, the Government’s offshore wind champion. We heard a pretty consistent message from them about the enormous low-carbon energy-generating potential of floating offshore wind in the Celtic Sea. We also heard from them about the enormous industrial potential. Is that a vision that is aligned with the UK Government’s thinking on floating offshore wind?
Graham Stuart: Thank you, Chairman, and the other Committee members for inviting Nicola and myself to give evidence today. Globally, 92%—Nicola will correct me, as she may be able to do on a number of technical aspects of my evidence today—of offshore wind capacity is in the floating sector. We are unusual in a way by having our shallow continental shelf, which has allowed us to lead the world in fixed-bed offshore wind. There is this gigantic global opportunity, and we think that the UK can benefit enormously.
We are proud of what we have done on the fixed-bed, a lot of it going on off the coast of my constituency, as it happens. We brought in the contract for difference scheme and the first allocation round back in 2015 had £120/MWh. They stuck these things out into the inhospitable North Sea with an aim of driving costs down over time. We did not know how possible that would be but it was a 70% reduction. We have transformed the economics of offshore wind for the world.
When I was a Trade Minister, I went from Taiwan to America to other places talking about how the UK supply chain could come in. When you see that 92% of it is in floating and you see—reinforced by the illegal invasion of Ukraine by the Russians—the desire all across the world to deliver the stuff, it is a huge potential. Right now, as you know from your inquiry, we lead the world in floating—in this nascent technology—and the UK Government thinks that it is a tremendous opportunity.
Having sat there in rural east Yorkshire watching that happen in fixed-bed—a tremendous success, but not really seeing the industrial capability in the UK that I would like to have seen going with it—if I had one personal driver, other than the massive challenges of accelerating the deployment of all these energies to get us on the road to net zero, it would be, with your help, to get the right policies in place so we maximise the number of jobs and long-term prosperity that we can generate from tackling net zero. It should not be, and for us it does not need to be, a tension between driving net zero and delivering prosperity in the long term. They should go hand in hand, and that is what we want to get right.
Q60 Chair: Minister, that is very encouraging to hear. Would you agree with what we heard previously in our last session on this, which is that there is a window of opportunity for the UK to capitalise on first-mover advantage to really develop the industry and lead the world in that?
Graham Stuart: Yes, I absolutely would. The UK currently has 78 MW operational. Hywind Scotland has 30 MW, Kincardine has 48 MW, and they are respectively the world’s first and largest floating wind farms. Both of course are located in Scotland, but we are committed to building on the UK’s world-leading position and placing the UK at the forefront of the development of what is an exciting new sector.
Q61 Chair: Are you satisfied that the targets that the UK Government has set specifically for floating offshore wind are ambitious enough, provide enough long‑range certainty for this nascent industry and really provide that strong signal that we heard the industry is looking for from Government to give it the confidence to unlock the investment and actually start doing this?
Graham Stuart: That is exactly the right question. Again, we saw it with fixed‑bottom wind. It was the pipeline part of it that gives sufficient confidence. If you want supply chain to be invested in the UK, you have to give sufficient certainty of future orders while maintaining competitive tensions as well. It is a balancing act. It is something we have to constantly question ourselves about, but the pathways to our net zero obligation that BEIS and the Climate Change Committee have set out give pretty high-level confidence on that.
The commitment is underlined by our announcement in the British energy security strategy of our ambition to deploy up to 5 GW of floating generation by 2030, which is more than 60 times current installed capacity. It has come up, and you will doubtless want to question me beyond that, but given the nascent status of the technology—we are in 2022 and there are long timelines—the 5 GW does give a pretty good starting point.
We have set out ambitions for the longer term, in terms of net zero. The Crown Estate, whether in England, Wales or indeed Scotland, are talking about up to 24 GW potentially in the Celtic Sea, but we will continue to look at how we give the right signals precisely in order to deliver the kind of supply chain confidence that will help deliver the industrial capacity we would like to see.
Q62 Chair: It would be helpful to look again at the targets and see whether they are aligned with what industry needs in terms of building that confidence.
Before I start bringing in Committee colleagues, Dr Higgins, could you describe how floating offshore wind is being led within Government? We heard from Tim Pick, who the previous Prime Minister but one, Boris Johnson, appointed as the Government's offshore wind champion. He talked a bit about his role. Does he still have the same role under this latest iteration of the Government? How is floating offshore wind being driven as a project within Whitehall?
Dr Higgins: Absolutely, Tim Pick is still here and has the same role. Tim was brought in after the publication of the British energy security strategy to help drive forward the acceleration of offshore wind. In terms of giving confidence going forward, specifically on floating offshore wind but also more broadly on offshore wind—because a lot of the supply chain for example is the same and the turbines are the same—we are working very closely with industry to look at how to commercialise floating offshore wind.
At the moment it is more expensive than other technologies. As the Minister says, we have had a lot of success using our contracts for difference scheme to bring that down. The first CfD project came forward, and that was in the Celtic Sea in the last CfD round, which was in July. We are looking to how we industrialise this, how we build a supply chain and how we bring the cost down going forwards.
One of the key things we need to do that is to provide the ports and the manufacturing. We have set up a number of ways in which we work very closely with industry in doing this and also with the Crown Estate, which is key in giving that future look forwards. As the Minister said, they have set those 24 GW up to 2045.
Alongside the Minister, Tim chairs the offshore wind acceleration taskforce, and that looks at various ways to accelerate offshore wind, including looking at the planning and incentive processes which go across the piece. It also has a subgroup on supply chain and infrastructure that is specifically looking at how we build the supply chain and the infrastructure needed.
There is also a taskforce with the industry—a floating offshore wind taskforce specifically—which has commissioned a commercialisation and industrialisation road map to see how we get to 2030 in the first instance, and then what we do to build on establishing a mature industry up to 2050.
The people on those taskforces all work very closely together, and there is a lot of crossover between those different groups to make sure they focus on specific elements of that journey and there is no overlap.
Chair: That is very helpful. Thank you very much.
Q63 Beth Winter: Thank you for your time this morning, Minister and Dr Higgins. I just want to ask a bit more about the Crown Estate. You have touched on it. We have taken evidence from the Crown Estate and others, and concerns have been raised about the targets and request for acceleration of the programme by people like RenewableUK. By what means, Minister, do you feel the Crown Estate can be held to account by UK Government for delivery of its programme?
Graham Stuart: First off, BEIS officials meet regularly with the Crown Estate, in particular in partnership with the Crown estate’s offshore wind evidence and change programme—the OWEC programme, another acronym you can add to your list—which is an ambitious strategic research and data-led programme designed to facilitate the sustainable and co-ordinated expansion of offshore wind in the UK.
The Crown Estate is a public corporation with statutory independence, and it operates under the Crown Estate Act 1961. It is charged with maximising the value of its assets and the revenue derived from it. Its profits are paid over annually to the Exchequer, and the Act tasks the Treasury in particular with providing oversight and scrutiny of the Crown Estate. I should not use language about quasi-independence, but it has statutory independence.
The Crown Estate operates to a multi-year strategic plan, which is approved by Treasury Ministers. Treasury Ministers also approve targets for the Crown Estate on a more regular basis, while Treasury officials meet the organisation’s executive team very regularly to discuss their results and progress. The Treasury also oversees appointments to the Crown Estate’s governing board, and the CEO is accountable to the Treasury’s permanent secretary as the principal accounting officer of the Treasury group.
Dr Higgins: As the Minister said, we talk regularly. I talk to my counterparts on a weekly basis and the directors of marine on a monthly basis, and the Crown Estate sit on the offshore wind acceleration taskforce. They are a key partner that we work with in this remit.
Q64 Beth Winter: Were you aware of some of the concerns in the industry about the speed with which the Crown Estate is moving and also about the consistency, clarity and transparency? Is that part of your discussions with them?
Graham Stuart: In the offshore wind acceleration taskforce, which I co-chair, on every front we are trying to get all these different parts together, some of which are statutorily independent, some of which are not, and we have the devolved Administrations. There are a plethora of taskforces, and it sounds like a busy institutional landscape, but it is precisely in order to bring people together. There are frustrations and tensions across the piece, and that is what it exists to do—to accelerate that.
Going back to what the Chairman commented on earlier, we recognise there is window: we must not make the perfect the enemy of the good, and we need to move at speed. We are trying to get those balances right and make sure, through our engagement with the statutorily independent Crown Estate, that we work in as co-ordinated a fashion as we can, knowing that every single delay costs us in terms of meeting our net zero commitments and in terms of our competitiveness globally.
Q65 Beth Winter: Hopefully, the report from this Committee will contribute to that discussion as well in terms of moving forward. We have also heard that the ScotWind programme has a competitive advantage over the Celtic Sea programme. Minister, what are you doing to establish a level playing field between the two programmes?
Graham Stuart: ScotWind is ahead from that point of view. Having come into this job relatively recently, people say, "We think this is better than that," but we pretty much need them all. We need it all. We need the Celtic Sea. The nature of floating offshore wind—not that I am an expert, but fortunately Nicola is—is the sheer size of this. It makes proximity absolutely fundamental to delivery. Our view is that Scotland is not going to scoop everything up because it is successful. There is plenty of scope for communities around the Celtic Sea to benefit as well. We need both, and it is not one or the other.
A follow-up question would be, "Is it going to squeeze out investment?" I do not think it is. If we get our frameworks right and we have our targets and the demand signals right, there is no reason at all to feel that somehow Wales, and anyone else around the Celtic Sea, is going to be a poorer partner.
Q66 Beth Winter: You are proactively taking action to ensure there is a level playing field in terms of the two.
Graham Stuart: You would probably need to identify the way in which it was not level. They might be ahead, but as I say, in terms of the Celtic Sea—Nicola may be able to help me out here—we do not see that there is some significant disadvantage that needs to be overcome.
Dr Higgins: The Climate Change Committee has said that we need around 100 GW of offshore wind to meet net zero by 2050. We currently have 11 GW, so there is quite a long way to go. That is the challenge in terms of 4 GW or even 17 GW in the recent ScotWind proposal. Neither of those alone are going to take us there, so it is absolutely right that we need both of those.
Particularly for floating offshore wind with the large foundations, we need the port infrastructure near to those two geographies, because while at least with fixed‑bottom wind you can move it large distances across the sea, the huge scale of floating wind foundations makes that harder. You need the ports near Scotland, you need the ports in the Celtic Sea as well, and we need both to deliver the challenge that we have ahead in terms of renewable energy.
Q67 Chair: Thank you. Minister, in your opening answer you talked about how, with fixed‑bottom offshore wind, we perhaps did not capture as much of that industrial capacity as we should have earlier on. Keeping in mind this question of how much economic value we can hold on for the UK and for Wales from this new industry, how concerned are you—you might want to bring in Dr Higgins to help answer the question—that the Crown Estate has the right auction process to really maximise domestic content and help build supply chains?
Graham Stuart: They have asked for local supply plans as part of their programme.
Chair: Do those have teeth?
Dr Higgins: The details of them are still being worked out by the Crown Estate. The good news is this is the first time they have done it. They are joining us on that journey about trying to encourage supply chain investment at a much earlier stage of the process than we can do with the CfD at the moment. They published their announcement on that in October, and they are working through the details of that at the moment.
Graham Stuart: What we have to do is set it up in a way which is compliant with our legal obligations in terms of the World Trade Organisation. You cannot just specify local content, but we do everything we can using all the levers we have within those constraints to encourage and support investment in the UK.
It is a balancing act between requirements that observe those rules and keep fair competition—and thus also help keep prices down for consumers—while also providing that pipeline certainty, especially in products which are so vast, and use that to make it more likely that more of the supply chain exists in and close to where they are deployed. In this case that means in Wales and surrounding communities.
Q68 Virginia Crosbie: Welcome to our Committee. I was really excited about you both coming, particularly because I have BP Mona and BP Morgan in my constituency of Ynys Môn. To put into context how transformational that could be, for not only Anglesey but the whole of north Wales and Wales, BP Mona and BP Morgan will be 1.5 GW each. That will be £3.5 billion-worth of investment each, and that would be 1,500 to 2,000 construction jobs and around 250 to 300 long‑term jobs. It is not actually that far away. We are looking for the DCO next year—2023—a decision on that in 2025 and FID in 2026. What I am trying to say is it is a really big deal for Wales.
The question I want to ask is about supply chain. We know we can get turbines from GE, Siemens and Vattenfall in Germany, I think there is a company on the Isle of Wight, and from Scandinavia, France and South Korea. How are you going to ensure that local communities like those on Anglesey will actually benefit from these supply chains?
Graham Stuart: Thank you for your question. As I have already addressed, we are doing everything we can to make sure that we encourage it with the supply chain plans, which we strengthened over time, and learning from the fixed bed to bring to floating. One of the reasons for having the offshore wind acceleration taskforce and the floating wind taskforce is to look at any barriers to deployment and enable collaboration with industry, to create the right environment for the investment in Wales to support this. As part of our contract for difference process, supply chain plans help ensure developers make the investments we need in upgrading supply chain capability, competitiveness and productivity as well.
Dr Higgins: We recently had the £160 million offshore wind manufacturing investment scheme, where the industry did research to identify the gaps in the UK supply chain market. Through this and looking at blades, turbines, monopiles and foundations, we did bring companies into Great Britain and that was open to Wales. So far none of those companies that we announced are in Wales, but we continue that work. We have the supply chain infrastructure taskforce, and looking at what we can do with the supply chain is an ongoing journey. We work closely with the industry and with DIT to see how we can bring more of the supply chain to local communities in the UK.
Graham Stuart: I have seen numbers specifically for floating, because it is somewhat nascent. By 2030, including our ambition for 50 GW, which includes 5 GW of floating, we believe it will support 90,000 direct and indirect jobs. One of the fortunate aspects of our geography and of where much of the net zero investment and development can take place is that they are the very parts of the country that we want to level up. If we can make this work then we will be bringing well-paid jobs and prosperity to communities which had historically been reliant on high carbon and are currently looking at a bleak future. This brings hope.
Q69 Virginia Crosbie: It is about not only the supply chains for the turbines and the companies like Tratos for the cabling, but also the port infrastructure. As you know, ports like Holyhead are devolved to the Welsh Government. There are ports that need to have this investment so that we can take advantage of these assets. These are huge turbines that do need to be built. The breakwater in Holyhead needs an upgrade so that companies like BP Mona can invest there. How are you working with the Welsh Government to ensure that they invest in upgrading these ports?
Dr Higgins: Shall I speak about how we work with the Welsh Government? I have talked in governance terms about the groups we set up with industry and Government; the Welsh Government sit on those. The Welsh Government officials sit on the offshore wind acceleration taskforce, the floating taskforce and the supply chain and infrastructure working group. As officials we also talk to the Welsh Government very regularly, and my team talk to the ports directly in order to understand their business and investment needs and how the Government might be able to help unblock issues as part of that ongoing discussion.
Q70 Virginia Crosbie: One last question from me. Tomorrow is a very, very important day for Wales because it is the deadline for the Welsh freeport bids. My understanding is that there are five bids from Wales, and hopefully at the top of that list will be my bid for Anglesey. Is it your understanding that freeport status in these areas, such as Anglesey, would be very, very positive for production and manufacturing and mean that we would have excellent, highly paid jobs in a very critical growth sector?
Graham Stuart: That is exactly the idea. You asked about co-operation with the Welsh Government and freeports is a classic example. We have an agreement, reached between the UK and Welsh Governments, to collaborate and deliver one new freeport in Wales—
Virginia Crosbie: At least one.
Graham Stuart: That is backed by £26 million in UK Government funding. As you say, Ms Crosbie, the freeport will support the regeneration of communities in Wales by attracting new businesses, jobs and investment, as well as growing the Welsh economy. Bidders have been asked to show that they will create high-quality employment opportunities offering good salaries and conditions and meet the Government’s shared climate commitments to reach net zero by 2050. One of the requirements for a freeport bid is to show that net zero compliance.
It does make Wales an ideal location for a freeport to roll out floating offshore wind for the benefit of local communities and the wider economy, both collaboratively and at pace. The bidding process opened on 1 September and closes on 24 November. It is expected that the successful freeport location will be announced in spring next year, with operations beginning later next year. Officials from the UK and Welsh Governments will jointly assess the bids in a fair and transparent selection process to ensure the best possible sites come forward and that it delivers the maximum benefits to communities across Wales, as well as supporting the delivery of net zero targets.
Q71 Virginia Crosbie: Thank you. I know this is not a nuclear session, but it would be remiss of me not ask: when you are coming to see Wylfa?
Graham Stuart: Thank you—it would be remiss of you. I thought for a moment when you said you had your last question and it was not on nuclear that you were somehow going let it go by, but as we have been unable to pass in a corridor or indeed in the tearoom without you mentioning it, I would expect you to do so today. I hope I will be able to visit sooner rather than later.
Virginia Crosbie: Thank you.
Q72 Chair: In our previous evidence session on floating offshore wind, we heard from the witnesses that Port Talbot in particular, but also Milford Haven, are emerging as the lead of ports in Wales and the south-west of England for this nascent industry to begin. Is that a view shared by UK Government?
Graham Stuart: As much as I am sure you, as the MP for Milford Haven, would wish for me to make specific comments on that, I cannot comment on particular ports.
Q73 Chair: I am sorry, Minister, but why not? I am not asking about the freeport bid. I am asking about the plan for delivering floating offshore wind and decisions that need to be taken very soon. I am sorry to cut across you, but if we are going to capitalise on this I would have thought choosing an initial port to actually start doing these things from should be at the top of your list of things to think about.
Graham Stuart: As a former Committee Chairman myself, I have to say that you are particularly polite; I was always cutting across and I appreciate your forbearance. The next steps to FLOWMIS—the floating offshore wind manufacturing investments scheme—will be set out in due course, following the completion of the request-for-information process, which took place this summer.
I am hesitating because, within that context and funding, it is unwise for me to start saying that one port is ahead of another, when that process needs to take place in an objective and transparent manner. We understand the importance of ports for the development of funding offshore wind to support the opportunities that the industry offers. We will set that out soon and I know of no one in Parliament, with the possible exception of Ms Crosbie, who will push more firmly or regularly to promote the interest of his ports than the Chairman of the Committee.
Q74 Chair: There are two particular opportunities for the ports. There is the FLOWMIS funding that you have just talked about, and there is a process in place for the allocation of that. It is not clear how much will go to help the ports in Scotland and how much will come to Wales. Obviously as a Committee, we are hoping that Welsh ports will attract a good chunk of that investment.
There is also the freeport process, and I am not expecting you to comment on that. In fact, as we speak, Port Talbot and Milford Haven are launching their freeport bid specifically to help deliver floating offshore wind. In terms of an overall plan for this new industry that we hope will emerge in the Celtic Sea, we did hear some quite strong evidence that Port Talbot is being looked at as an initial hub for manufacturing lay down.
Dr Higgins: As the Minister has said, we have to be careful what we say because we cannot prejudge the outcomes of the competitive FLOWMIS scheme. Obviously, we talk to all the ports in Wales and in the Celtic Sea area, including Port Talbot and Milford Haven, and we know the work that they are doing, both independently and also with RWE. I want to emphasise that no decision on funding splits have been made for the FLOWMIS scheme yet. As the Minister said, we recognise that we need the local infrastructure for both the Celtic Sea and the ScotWind projects.
Chair: That is helpful, thank you very much. Ben, you have been very patient.
Q75 Ben Lake: Thank you, Chairman, and thank you, Minister and Dr Higgins, for joining us this morning. As you have already alluded to somewhat in answers to previous questions, I am wondering whether you could perhaps elaborate on some of the lessons that have been learned from the onshore wind rollout and how they may have influenced your approach to offshore wind.
Graham Stuart: First, you need to send strong signals about the Government’s desire to see local supply chain, and we do that through plans demonstrating that we have experience, have learned how best to do that and work with industry. That is what the offshore wind acceleration taskforce is about. Along with representatives from industry as well as from devolved Governments and others around the country, we discuss the barriers and what it takes. We then understand that cause and it feeds in.
Not only do you have to give the signal, the push and then build the understanding, you also then need to look at the pipeline. How do we make it more programmatic? We try to keep up competitive tension through the round so we can have the lowest price. If people are going to invest here, we want to get the best value for the UK in balance. An area to look at is how we maintain sufficient competition to keep prices low and protect consumers.
We also need to give sufficient confidence that they are going to have contracts for years to come, so that they will invest and that the supply chain will invest in the facilities here in order to deliver. Otherwise, if you have a limited horizon and confidence about winning contracts, the classic thing would be simply to keep buying and expanding an existing facility, perhaps in another jurisdiction, rather than establish one here.
If people knew then what we know now about offshore wind in the UK, many more companies would probably have moved operations here, but they did not. Working our way through that and ensuring we get the right balance is something that we are in the early stages of doing and that we are challenging the Department to look at all the time. From next year we are moving to our annual rounds of CfDs. An area I really want to focus on is how to get the right balance, while adhering to our international obligations, that allows people to invest here and obtain more jobs.
Q76 Ben Lake: We recently received evidence from some of the industry that suggested that perhaps the priorities of the Crown Estate leasing rounds are not always aligned with some of the pressures of the CfD bid process. How do you intend to ensure that the priorities for both processes are more closely aligned? Industry stakeholders particularly will struggle with regard to that tension between ensuring local procurement and many local contracts versus the inevitable pressures of price that come into the CfDs.
Graham Stuart: They have moved, as shown by the introduction of the supply chain plans into their processes, and their membership of the offshore wind acceleration taskforce, among others, which has helped them to have a better understanding of broader Government and industry aspirations. We can see evidence of this starting to impact their decision making, while recognising their statutory independence. That work is going to continue.
I was given two graphs when I first arrived in the Department. One showed offshore wind in the UK—fantastic, leading the world. Then another graph showed how long it takes from the start of a project to getting the turbines actually spinning. Most of the processes taken in isolation looked perfectly reasonable, but taken together, instead of three years from start to spinning it was taking 10. We want to ensure that we avoid duplication, that we are proportionate, and part and parcel of that is ensuring we have co-ordination with the Crown Estate as an important player and their auction process.
There are interesting questions as to the auction and monies generated from that as to the impact on the long-term pricing of energy and where that places us as a country competitively. Of course, that is Treasury management and I would not deign to go near it, but it is important to understand all these pieces together, not only in terms of deployment but also ultimately of the outcome.
I would personally not only like to have an enormous industrial sector generated from us leading the rest of the world but also, if possible, looking to be the most competitive electricity and indeed energy market in Europe. That would mean not only that we have the industry directly from delivery, but that we could be in a position where we attract other industry because we are one of the most competitive, as well as the first net zero compliant industrial base in Europe. That is where we want to be, and we have to pull these pieces together and ensure that we are not looking at them in isolation. We have to look at the Crown Estate, the money to the Treasury and the subsequent stages as a whole.
Dr Higgins: It might be worth emphasising that the Crown Estate, as the Minister has said, are evolving their process, as are we—we evolved the CfD. This is the first time we are bringing supply chain plans for floating offshore wind projects, so we are both somewhat evolving in the same way. The Minister talked about speeding up the consenting processes and the Celtic Sea leasing round. The Crown Estate are looking at doing the environmental assessments at an earlier stage, which will save delays later down the line.
At the same time, we are working very closely with DEFRA to put in place an offshore wind environmental improvement package—legislative—that will enable strategic issues around the environment to be looked at from an earlier stage so that they do not act as blockers right at the end. Both the Crown Estate and ourselves are working closely as we look to improve on what we already have.
Q77 Ben Lake: In endeavouring to speed up the consenting process, does it really entail greater co-ordination?
Dr Higgins: One of the main things we are doing through the offshore wind environmental improvement package is called strategic compensation. At the moment, through an HRA—the habitats regulation assessment process—you have to do no harm. If you cannot avoid doing harm, then you need some compensatory measures to improve the environment. This has to be done on a project-by-project basis, so each individual project has to resolve this for themselves, and it can become a blocker towards the end of the DCO process. So what we are trying to do is to put in place structures so that those conversations happen at a much earlier stage of the DCO process and so that something called strategic compensation can be put in place so that projects can work together on environmental protections.
We are also setting up a marine recovery fund. The idea is that once some of these measures have been worked out for various areas of the sea, industry can pay into that fund and that counts as the discharge of their environmental measures. Those will be implemented by another organisation. That is an example of the work that we are doing—not reducing the environmental protections, but looking at them in a more strategic way so that they happen earlier in the process and projects can work together with the support of Government to deliver them more effectively among multiple projects.
Q78 Ben Lake: That is very interesting—thank you. It is very useful information. Where potential sites might be located within areas of Welsh Government competence in terms of NRW—Natural Resources Wales—and the habitats regulation assessment, is there early consultation and co-operation with them to ensure that there are no miscommunications or further delays down the line?
Dr Higgins: Yes, we are working very closely with our Welsh and Scottish counterparts to pull together the legislation.
Q79 Chair: Is there a resource issue here when it comes to the consenting bodies having to make decisions? Presumably if this industry takes off in the way that we have been talking about, and in the way that we hope, that will place an enormous pressure on consenting bodies to take timely decisions. Are you satisfied that they are adequately resourced and staffed to be able to do this in a timely way?
Dr Higgins: It is a discussion that we are having both with industry and with our counterparts in DLUHC and DEFRA, that own those arm’s length bodies, so it is an ongoing conversation.
Q80 Chair: There is a discussion there around Natural Resources Wales as well. We have already picked up some concerns from within the industry in Wales that Natural Resources Wales may not have the capacity to take timely decisions. Is that a conversation you are having with them? Is there a way for some sharing of resource, making sure you have the right teams available to provide the specialist support to take good decisions?
Dr Higgins: I cannot sit here and say we have the solution at the moment, but it is an ongoing conversation. As you say, certain elements are devolved in Wales. It is quite a complex picture in terms of planning and environmental legislation— what is devolved and what is not—but we work very closely with DEFRA who obviously have links to Natural Resources Wales as well. That is probably the best answer at the moment.
Chair: Thank you, that is helpful. We are going to move on to grid capacity now. I invite Ben Lake to begin this section again.
Q81 Ben Lake: Thank you. Another concern we have had quite a bit from industry is good connection, which is probably a general issue in Wales, but specifically when it comes to offshore wind. What engagement are you having with the Welsh Government and other stakeholders on preparing the grid for a further 20 GW of floating offshore wind post 2035?
Graham Stuart: I mentioned earlier that we need practically everything from floating wind to fixed-bed wind, we need SMR, we need gigawatt-scale nuclear, we need hydrogen carbon capture—we need all of those deployments. Under all that is the grid, and National Grid say that, on a UK basis, they are going to need to invest six times more in the next seven years than they have in the last 30. It is an enormous financial, logistical, supply chain and deployment challenge, and it is an enormous political challenge because this is going to require change. It is going to require a large amount of infrastructure, not all of which is going to be popular. We have to manage that, and if you do not have the grid then all the other stuff is not going to function and we are not going to be on target. For me, in my recent arrival in this role, grid is right up to the top of a list of priorities.
In terms of what is being done to ensure the grid in Wales has the capacity for future floating offshore wind projects, measures include moving to a more strategic approach and planning the network for efficient identification of infrastructure needs, including through the recently published holistic network design. That should have been No. 4, but we did the HND 1, and we have HND 2, which is going to be looking very much at the Welsh and the FLOW elements of that in the first quarter next year.
Because of this transformation we need to make, perhaps historically, if I have understood this correctly—Nicola will correct me if I have not—projects have effectively just been linked in a sort of linear fashion to shore. That is why we are looking for the holistic network design so we can minimise negative impacts on land. More can be done off offshore. There are legislative changes: the energy security Bill, which has been proceeding through the Lords, has elements around these multi-connectors, offshore connectors. So there is a lot of work going on there.
The aim is that Ofgem expedite approvals for new network build, including exempting certain projects from competition. Sometimes everything is stopped by the competition system. We need to revise national policy statements to ensure joined-up approaches and the speeding up of planning and consenting processes. Through the British energy security strategy—the BESS—the Government have committed to accelerating electricity network delivery, including speeding up regulatory and planning processes. We will speed up regulatory and consenting processes for network projects, reducing timelines by three years and aspiring to halve the end-to-end process by 2025.
As I say, the HND—the holistic network design—published in July provides a first and significant step towards a more centralised and strategic approach to network planning. For the first time, offshore and onshore networks are being designed together and holistically to support the UK ambition of 50 GW of offshore wind capacity and, of course, up to 5 GW of floating. We are going to have the HND follow-up exercise reporting, which will be shared with developers in March covering the Celtic Sea. The new strategic approach to network planning includes upfront consideration of community and environmental impacts, which should provide more certainty in the planning and consenting process and reduce consenting times and project development risk. That is where we are at.
Q82 Ben Lake: Does the Department have a view as yet on whether the good connection for the projects in the Celtic Sea should come on to land, as it were, in Wales, as opposed to say, north, Devon? Has your thinking developed into that area yet?
Dr Higgins: That thinking is done as part of the holistic network design. As the Minister said, the first one of those has been published, and that has 1 GW of Celtic Sea in it, because that was what the Crown Estate were planning on leasing at the time. An update to that has been done to take account of the further 4 GW that the Crown Estate are now leasing as well as some of the ScotWind projects, which were also not in the first one. Through that process there will be an assessment of where projects should come online. It is literally a map of how to join things up. That is the process through which the optimal location in terms of environment, cost and communities will be looked at as to where to place those onshore landing points.
Graham Stuart: Just to add on that, given the importance of the grid, it is important that we carry communities with us so they understand what we are trying to do, and that we also listen to communities and hear their messages. It is not just an engineering and financial challenge; it is also a challenge to ensure what we do goes with the grain of local communities.
Dr Higgins: There will be a consultation on that early in the new year on community consulting, which was committed to in the BESS, and options for how a community benefits from onshore networks. That is coming in the new year.
Graham Stuart: We can go with the grain and provide benefits where, in essence, necessarily there will be some disruption and we should show—at least where we cannot find a way of eliminating that—that we are listening and providing compensation and working with them rather than just riding roughshod over them. We are not going to be able to do something of this scale without that. Sometimes Governments give the impression that it is so important we just make it a central priority and we will just ram it through. Anyone who thinks that we could ram this through against the grain of communities does not understand how a democratic country works. Working with this Committee, it would be really useful to ensure we do it in Wales in a way that people are proud of what has happened, feel compensated for where they are disrupted, but generally buy into it.
Dr Higgins: The idea of the HND process is to reduce the number of landing points, which obviously helps community engagement.
Q83 Ben Lake: One of the things the Committee has heard recently—it is quite an exciting suggestion—has been that of making the most of this opportunity in the Celtic Sea, and especially the landing points in south Wales, to work with industry to produce green hydrogen, and then to almost create a sort of closed-loop system. It is quite appealing to us as Welsh MPs because, historically, we had such a closed loop between fuel source and industry back in the coal days and it strikes us that, potentially, there is an opportunity here now with offshore floating wind to produce green hydrogen, which could then, potentially in future, be an alternative to industry in south Wales and further afield. I am interested to know whether that is part of the Department’s planning, and whether you have had any representations or discussions with industry about such a proposal.
Graham Stuart: The first thing to say is, as we set out in the hydrogen strategy update to the market in July, we recognise that electrolytic hydrogen projects can bring significant system-wide benefits by locating them in an optimal position to help manage network constraints, or by using excess electricity that would otherwise have been curtailed or constrained because, of course, we pay for generators not to generate at certain times. If, as we massively increase our capacity, we have issues around storage to do with the intermittency and fluctuations in demand then to be able to channel that into something like green hydrogen is, obviously, a very positive outcome for us.
In that update, we committed to assess the expected impact on the electricity system of electrolytic hydrogen deployment and build evidence to ensure our position remains appropriate and facilitates economy-wide decarbonisation. My understanding is that, if you look at industry, there are certain parts where there is pretty well no route that anyone has to decarbonise it other than hydrogen and in partnership for other parts of it with carbon capture.
What we need is hydrogen and carbon capture in tandem, potentially coupled with negative emissions. If we can have sustainable biomass, then that could, as part of a network, provide negative emissions and, overall, give us the potential to create genuinely net zero industrial clusters, which would secure those jobs that we have in the long term. If we are a world leader and can create Europe’s leading centres where some of these major players with their commitments know they will be part of a net zero industrial cluster, then certain companies would feel this was the place to come and establish their manufacturing and other facilities. That is an enormous benefit in itself, especially if we develop it first and then build capacity here and then export it, but the bigger benefit might be that if we lead on creating competitive and affordable net zero industrial clusters, we can help re-industrialise areas that have lost their industry and that could be an exciting prospect.
Dr Higgins: The Crown Estate have noted that they are happy to look at hydrogen projects as part of the Celtic Sea leasing round offshore wind projects that want to link up with hydrogen production.
Ben Lake: Thank you. That is very useful to know.
Q84 Chair: Minister, just on that point, will contracts for difference need to be tweaked or amended to take account of projects that are linked together—floating offshore wind and hydrogen—so they are not being assessed purely against a floating offshore wind project? Perhaps Dr Higgins can help.
Graham Stuart: I think it is a very good idea to give it to Dr Higgins.
Dr Higgins: We are always looking at how the CfD needs to evolve to support—
Chair: Innovation, right?
Dr Higgins: Innovation in new technologies. As we say, the first floating wind farm came through in the last auction round, so that is pretty novel to start with. I do not have a direct answer to that but yes, we always keep the CfD under review to look at what it needs to do to support the technologies as they move forward.
Q85 Chair: On grid capacity, we, as a Committee, recently produced a report on grid capacity in Wales, and we look forward to the reply from your Department.
Graham Stuart: Next month, I believe.
Chair: We look forward to it, but I guess one of the punchlines from that report was really recognising that what is needed is not just an incremental improvement in the timeframes for delivering new grid connections and capacity, but a massive step change and really calling for the Government to be very energetic and ambitious on improving the grid.
Graham Stuart: I cannot anticipate our response to the Committee, but you can tell from everything I have said that that is exactly what I think we need. Essentially, we have had a reactive system which has served us pretty well, looking to do the minimum necessary at lowest cost over time and respond. We now need—I think the term is—anticipatory investment, but in order to do that and not end up creating orphan assets, you need to have a joined-up spatial strategy.
As I say, we have the holistic network design process starting with that. We might, arguably, need something above that because we are going to have marine protected areas in the North Sea. We are going to have hydrogen; we are going to have carbon capture. We are going to have floating offshore and fixed offshore wind. Who knows what else? The North Sea is this tremendous asset, along with the Celtic Sea, of course, all around the country and we need to plan it. If we are going to put the grid infrastructure in place, we need to have a strategic plan rather than just leaving it to the market and leaving it to developers to do it. It will need more co-ordination because it is going to be such a crowded landscape.
Q86 Chair: That is an important point that came up both in relation to the grid inquiry that we undertook and also this current one into floating offshore wind: the extent to which things cannot just be left to the market, industry and the private sector to do, and the extent to which a Government plan is needed with somebody at the very top of the tree, if you like, lacing together the strategy. Minister, is that you, in relation to floating offshore wind? Are you that person? Earlier in the session you talked about a complicated institutional landscape, I think, in relation to floating offshore wind. Are you the person that is ultimately bringing this all together?
Graham Stuart: As the Minister for Energy, I think my title is morphing. I am appointed formally, but I think it is now the Minister for Energy and Climate, obviously under my Secretary of State who is the boss of the Department, but yes, through me, that is where we need to look to help come up with an overall approach which fulfils those strategic needs.
I should not morph off too much, but if you look at nuclear, interestingly, in a sense we had a kind of development-led approach and decided that did not work and that is why we are setting up Great British Nuclear—again, it will be a state-led organisation—to help recognise how hard it is for the private sector at their own financial risk to battle through all this complexity when what they really want to do and what they are good at, hopefully, is building a nuclear power station and running it.
Great British Nuclear is there to try and de-risk that as much as possible, which ultimately should mean that there is lower risk, lower financing cost, a better focus on what the operators are best at, and lower costs for the consumer in the end. You could make the parallel—I cannot leap to say we are going to do this as we have no such plans at the moment—that this needs holistic joined-up leadership, which can probably only come from Government and, therefore, currently that is me.
Q87 Chair: I was aiming to bring this session to a close by 11 am and we are on track to do that. You mentioned the timeframe for a freeport decision. Did you mention what the timescale is for deciding on allocation of FLOWMIS? Or has that not been decided within Government yet?
Graham Stuart: We have not. We are still processing the request for information; hopefully it will be sooner rather than later. I think we originally indicated that we would hope to do something by the end of the year. The end of the year in Government terms often means March in my experience but, hopefully, we might stick to the calendar as conventionally used by others.
Chair: Thank you very much. Any final questions or remarks from colleagues? No. Minister, thank you. Dr Higgins, thank you very much for giving us your time and expertise.