Written evidence submitted by the GFG Alliance (FEI 0055)
The SIMEC Group is an international energy, infrastructure and natural resources business; founded 50 years ago, with activities spanning renewable energy generation, mining, shipping and commodities trading through its key hubs in Europe, the Middle East, Asia and Australia.
Marble Power, also part of the GFG Alliance, is a sustainable and fast-growing energy supply business that trades all power and gas for the group’s industrial assets in the UK successfully managing over 1.5TWh of supply.
As part of the global GFG Alliance, SIMEC and Marble have a key focus on developing large-scale green energy capacity to support GFG’s low-carbon metals and industrials strategy – known as GREENSTEEL.
We welcome this consultation and hope that it provides a route for government to re-evaluate certain policy decisions to help deliver a low carbon, low cost energy system and secure energy supplies for the long term. As a business, we have invested over £400m to date to deliver 632MW to the domestic UK energy market. Our renewable energy portfolio is made up of a rich mix of sources including energy from waste, biofuel, hydro and tidal. We have a considerable development pipeline for further renewable energy products with a stated ambition to produce 1GW of power within the next three years.
Ongoing projects of significance to this consultation include:
- The Alliance is developing a wind farm on our Glenshero estates in the Highlands that will generate up to 168MW of energy following a total investment programme of up to £158m.
- SIMEC-Atlantis are leading the flagship 200MW coal-to-waste conversion of Uskmouth power station.
We are actively pursuing further investment opportunities across the UK energy sector and therefore welcome any attempts to improve access to finance for industry.
The UK’s long-term policy framework has driven growth in the renewables sector and encouraged investment. As a group, we have not focused on investing in particular technologies and going forward our investment decisions will continue to be driven by what can be most cost-effective for our businesses. In our experience, we have always favoured market prices and auctions wherever possible, as opposed to administered decision making and government ‘picking winners’.
We share Professor Helm’s view that the cost of energy is currently still too high. Industrial users have still not benefitted from the rapidly falling costs of renewables, a result of government support for the sector to this point, and welcome any move to combat this. This is why it is imperative that government utilise the right levers to ensure that investment in energy infrastructure in the UK is well placed.
A renewables mix is hugely important in securing the UK’s long-term energy supply and as a group we support this approach. The industrial strategy and clean growth plan both commit to upgrading the UK’s energy infrastructure and we are pleased to be working in partnership with government to achieve this. UK government has provided more long-term visibility than many other markets through regular Contracts for Difference auctions (CfDs) and we support the current system in place. We believe the current CfD system in place is working and has been successful in driving down costs in the renewable sector and encouraging investment, and thus support its continued use.
We are however concerned with some of the barriers that have been put in place to certain technologies. We remain hopeful that support may be offered for our windfarm in Glenshero from Scottish government but given onshore wind now has the lowest levelised cost of any current technology on the market in the UK, we fail to understand the continued opposition from Westminster to allowing onshore wind to participate in CfD auctions or gain access to an alternative route to market. As well as enjoying enviably high wind resources and high public support, we believe that we would now be able to table bids at a price comparable to the wholesale power price, meaning CfD backed onshore wind could be delivered at zero net cost to the bill payer.
Another of the key challenges GFG faces long-term is that the UK has consistently had some of the highest industrial electricity prices in Europe. The group has driven the combining of industrial production with renewable energy, in line with the government’s stated policy goals, and are therefore very susceptible to higher costs. The UK has topped this league table in all but one six-month period since January 2015 and UK prices for extra-large industrial users currently stand 90% above the EU average. With direct competitiveness and levels of investment both being affected, electricity prices have become a major ongoing concern for the sector and its long-term sustainability. This is another reason why further Government support for renewables must be open to the cheapest low carbon technologies: to minimise the incremental cost to industry of the next wave of decarbonisation.
We would welcome the opportunity to discuss our response with BEIS Committee at a time of your convenience.
Sean Parsons
Head of External Affairs – GFG Alliance
Consultation Questions
We believe the UK’s current energy needs can be fully met by renewables and that the case for further investment in nuclear technology cannot be justified, given the much lower costs of alternatives, such as wind and solar. It is widely accepted that renewables will be an important aspect of solving the energy trilemma: how to reduce carbon emissions, keep energy costs down and ensure security of supply. Given the rise of renewable power whose costs are rapidly falling, nuclear power is increasingly uncompetitive and therefore not the solution to the UK’s future energy system. The intermittency issues associated with renewables can be resolved by further investment in storage technologies which are increasingly low-cost, proven and easily accessible. Moreover, there is plenty of commercial impetus to keep innovation in storage technologies – not least from the switch to electric vehicles and battery storage technology, meaning the case for renewables may become even stronger.
Government support for the offshore wind sector has been consistent and an example of how renewable technologies can flourish when properly supported. Westminster has long eyed the sector, in which the UK is a genuine world leader, as a major growth opportunity for UK manufacturing and exports. It underscored this ambition with the release of the long-awaited Sector Deal, which sets out how government and industry can work together to grow the offshore wind sector towards a new goal of providing one third of UK electricity by 2030. This has resulted in rapid decline in offshore wind from the average £117.14 per MWh awarded in 2015 subsidy round to as low as £57.50 per MWh awarded in the last CfD auction.
Whilst this success should be celebrated, we fail to understand the continued opposition from Westminster to onshore wind and its continued exclusion from future CfD auctions. Onshore wind remains the cheapest form of new generating capacity in the UK and still enjoys high levels of public support and high wind resources. Add to that all the benefits to the UK economy that would flow through the investment. Supply chain contracts which will keep our steel mills rolling and bring jobs to the local communities in which they are built. We therefore call for a technology neutral approach from government going forward.
Through SIMEC-Atlantis, our renewable energy portfolio also includes significant tidal schemes, including the ground-breaking Meygen projects and a number of other projects across the UK. The Alliance also had a stake in Tidal Lagoon Plc, the business charged with developing the Swansea Bay Tidal Lagoon. We were therefore disappointed by the decision taken by ministers in Westminster not
to support the proposed development of the Swansea Bay scheme and would welcome government support for the industry whilst it matures. It is currently very difficult to seal financing for these pathfinder projects without a market ‘level playing field’. Tidal technology Is still relatively new, and costs will fall, as they did with offshore wind after learning from pioneering projects. Most technologies require a degree of government support whilst they mature and become cost-effective, yet nuclear power is now a well-established technology and costs still have not fallen.
The contracts for difference auctions are now the cornerstone of the UK energy sector’s decarbonisation policy and have been successful in achieving low bid for low-carbon technologies, especially offshore wind. We believe the current CfD system in place is working and has been successful in driving down costs in the renewable sector and encouraging investment, and thus support its continued use over a possible introduction of a Regulated Asset Base model. Costs will continue to be lower under CfDs because industry has now got to grips with the instrument and it takes away price risk. An introduction of a new policy will increase risks and costs whilst everyone in the sector becomes familiar with it. The CfD provides more long-term visibility than many other markets and have achieved large cost reductions since competitive tendering has come in, and we support the current system in place.
We do however support the Committee on Climate Change’s recommendation for onshore wind to be included in new Pot 1 CfD auctions. The key message to UK government is to support the simple, low-cost options as the route to meeting our climate targets which in turn would help reduce high energy bills and the costs to decarbonisation.
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