Written submission from Marine Energy Council (DPS0056)

Business, Energy and Industrial Strategy Select Committee: Decarbonisation of the power sector inquiry

Marine Energy Council Response

Introduction

The Marine Energy Council (MEC) welcomes the opportunity to respond to this timely inquiry into the decarbonisation of the power sector. 

The MEC is the representative body for the UK’s tidal stream and wave energy industries. Established in 2018 the MEC has over 60 members representing technology and project developers, consultants, associations, manufacturers, and small and medium sized enterprises working in the supply chain. Our vision is for the marine energy sector to support a secure, cost-effective, and fair transition to net zero, enabling investment, exporting great British innovation, and levelling up with employment opportunities across the UK.

The decarbonisation of the power sector in a secure manner will require a diverse energy generation portfolio. As the amount of intermittent generation increases from wind and solar deployments the need for predictable generation will increase. The Committee should strongly consider that:

• Tidal stream energy is entirely predictable and can provide 11%[1] of the UK’s electricity demand. This baseload style energy resource can directly displace dependence on imports. Tidal can be deployed rapidly, with the construction time of a consented tidal stream farm being less than three years.
• Wave energy is more predictable than solar or wind and could provide up to 15%[2] of electricity demand. In addition, its harmonious relationship with wind means that wave energy will support a more cost-effective and efficient energy system.

Supporting these two sectors will mean the UK is strongly positioned to benefit from an export market forecast to be worth £76bn annually by 2050.[3] Denmark has demonstrated that through its early support of the wind sector that there are significant export opportunities being created in the transition to net zero, and it now benefits from an industry that creates €7bn in annual exports for its economy.  The UK should learn from this example, by capitalising on its existing supply chains, capabilities, and expertise to enable its economy to export rather than import the technologies that will be a corner stone in delivering net zero.

Predictable renewable generation, in a system that becomes increasingly reliant on intermittent sources, will be critical in delivering the UK Government’s 2035 ambition, and in ensuring opportunities are created and shared in coastal communities and beyond as we transition to a net zero future.

Summary

The Energy Security Strategy restates the UK Government’s intention to aggressively exploring opportunities afforded by its geography. This is welcome and the MEC is committed to working with the UK to turn ambition into action and build on the £20m Allocation Round 4 (AR4) tidal stream ringfence.

MEC advocates the UK Government take the following actions to support a secure a cost-effective net zero transition that creates opportunities for UK’s coastal communities and beyond:

Maintain ringfenced support for tidal stream in upcoming CfD allocation rounds.

• This will unlock economies of volume, scale, and accelerated learning. As observed in other renewable industries when there is a clear pipeline of projects and route to market, bulk orders, reduced production cost, improved efficiencies, learnings, and ongoing design optimisation accelerates cost reductions. 
• For wave energy, developers are currently considering development of 5MW, 30MW, and 100MW projects this decade. The Government should maintain dialogue with the sector to ensure that these developments are understood and supported.

Increase ambition for the sector through raising the ringfenced amount to £30m

• AR4 is expected to deliver 34MW of capacity. The tidal stream industry is confident it can deliver over 50MW, and in the process sustainably grow UK supply chains and expediate delivery of tidal stream benefits.

Work with industry to expediate the consenting process to increase the amount of eligible capacity that can bid into future allocation rounds.

• 124MW of capacity was eligible to bid into AR4. In tandem with increasing the size of the ringfence amount the Committee should recommend that the Government work with the industry to expediate the consenting process. This will be key in maintaining the competitive nature of the CfD process.

Set a target to reach 1GW of wave and tidal stream energy capacity by 2035

• Tidal stream will be cheaper than new nuclear at 1GW of deployment, and around £80MWh at 2GW of deployment,[4] and is entirely predictable and provides renewable baseload-style energy.
• A 1GW target will accelerate technology and project investment, deployment, cost reduction, and bolster the UK’s energy security by reducing dependence on imports.

Ensure the wider benefits of renewable technologies are captured in the policy framework

• Tidal and wave projects are being delivered with up to 90% UK content, whereas the domestic content of early offshore wind has been around 32%.[5] The Government is right to seek a cost-effective transition to net zero for UK energy customers, and this should be managed in a way that creates jobs and opportunities across the UK rather than increasing reliance on imports.
• The Resolution Foundation in its Economy 2030 report notes that technologies like tidal ‘are not only likely to generate relatively high national economic returns, but also have the potential to contribute to regionally balanced growth.’[6] Investments in wave and tidal technologies in less innovation-intense regions generate strong returns for those regions.

Prioritise delivery of a diverse energy generation portfolio to support energy security and unlock system benefits.

• As the UK becomes increasingly dependent on intermittent energy resources the wider system benefits that wave and tidal stream’s predictability provides will be increasingly important. Research by the University of Edinburgh shows that 1GW of tidal stream and wave energy will provide £114m of system benefit and 113kton of carbon emissions savings per annum.[7] This benefit is not captured effectively in the current CfD mechanism.

Address the lack of clarity around R&D support in the UK

• The Horizon scheme has been invaluable in supporting renewable technologies at different stages of development. In total UK marine energy companies have benefited from c. £50m of capital grant support over the past 5 years, and a further c.£100m is being made available to support tidal stream and wave energy through this programme over the coming 2 years.
• If the UK is unable to continue participating in Horizon, the Government should ensure this funding is replicated and it is not left behind by investment opportunities being diverted elsewhere.
• Ensure that renewable energies are supported as we transition from the European Regional Development to the Shared Prosperity Fund.

Ensure the policy framework allows for innovative approaches to renewable deployment

• In its Energy Security Strategy, the Government stated it will support solar co-locating with other functions in the future. This is a welcome commitment and should be expanded to other areas in particular wave and wind.
• The UK Government should maintain dialogue with the sector and consider how the CfD process encourages innovate approaches to renewable deployment in future allocation rounds. This will support efficient use of critical infrastructure.

To achieve a decarbonised power sector by 2035 will require a diverse portfolio of energy generation. By tapping into the potential of its seas and tides the UK Government can enable a secure, cost-effective, and fair transition to net zero that creates opportunities across the UK.

MEC Response

Is the proposed future electricity mix, as announced in the Energy Security Strategy, the most efficient and cost-effective way to deliver power sector decarbonisation by 2035? Are there any further policy details and/or legislation required by the end of this Parliament to achieve these goals?

1. The Energy Security Strategy increased ambitions and targets for key technologies in the net zero transition. For marine energy the Strategy stated:

‘As an island nation surrounded by water, we will also aggressively explore renewable opportunities afforded by our geography and geology, including tidal and geothermal.’

2. MEC welcomes the Government’s commitment to continuing to explore the opportunities that is afforded by the UK’s geography. However, it is disappointing that further information is not provided on what this means in practice.
3. The UK Government demonstrated welcome international leadership when it announced in November 2021 the ringfencing of £20m in AR4 of the CfD scheme. The UK can build on this important first step, and support the delivery of a homegrown UK renewable sector, with supply chains across the country through the following three actions:

Maintain ringfenced support for tidal stream in upcoming CfD allocation rounds.

4. Tidal stream energy has the potential to provide 11% of the UK’s electricity demand, and therefore has significant potential to reduce reliance on oil and gas. [8]  Through sending a clear message to the industry the UK Government will create the environment necessary to enable deployment of a technology that can provide near-baseload style energy to the energy system.
5. Maintained support will unlock economies of volume, scale and accelerated learning. As observed in other renewable industries when there is a clear pipeline of projects and route to market, bulk orders, reduced production cost, improved efficiencies, learnings, and ongoing design optimisation accelerates cost reductions. 
6. The wider benefit of maintained support will be felt tangibly in the UK economy. Nova Innovation’s Shetland Tidal Array was delivered with over 90% of its supply chain spend with UK SMEs. Rather than importing renewable technologies the UK has an opportunity to create over 4,000 jobs by 2030 with a significant amount of the economic benefit expected to be generated in coastal areas (50-60%).[9] For comparison domestic content of early offshore wind has been around 32%.[10]
7. For wave energy, developers are currently considering development of 5MW, 30MW, and 100MW projects this decade. MEC believes the Committee should advise the Government to keep an open dialogue with the wave energy sector in advance of decisions on AR6, to ensure they are aware of the significant progress being made. For wave energy projects to be delivered, a suitable minima and strike price will be required.

Increase ambition for the sector through raising the ringfenced amount to £30m

8. The AR4 ringfence is expected to deliver 34MW out of around 11.5GW of tidal stream potential. The UK Government can rapidly tap into this resource by increasing the ringfenced amount in future allocation rounds.

Increasing the ringfence will support the UK’s energy security

9. Tidal Stream is highly predictable and can be accurately forecasted years ahead of time, unlike other renewables like wind and solar. It is also completely decoupled from other renewable resources, providing resilience against extreme weather events.
10. A recent report into the wider energy system benefits of tidal stream found that as the UK reaches its net zero target, tidal stream has the potential to reduce natural gas capacity required by about 40%.[11] As more than half of UK gas is imported, a baseload-style renewable energy resource like tidal stream will be key in supporting the UK’s energy security.[12]

Increasing the ringfence will reduce the carbon intensity of the energy system

11. The UK Government is right to raise its ambition for solar and floating and fixed offshore wind. However, as its energy system becomes increasingly dependent on intermittent energy resources the wider system benefits that tidal stream’s predictability provides will be increasingly important. Research by the University of Edinburgh shows that 1GW of tidal stream and wave energy will provide £114m of system benefit and 113kton of carbon emissions savings per annum.[13]
12. By increasing the ringfence amount to £30m per allocation round the Government will expediate realising these benefits and accelerate the transition to a secure domestic net zero energy system.

Set a 1GW target for tidal stream and wave energy by 2035

13. The BESS increased targets for nuclear, wind, hydrogen, and ambitions for solar. Targets are an important tool in providing clarity of direction and purpose that stimulates private investment. The 1GW target itself will also have significant benefits for the UK energy system
14. Supporting marine energy will create a fair transition to net zero, creating jobs in coastal communities and throughout supply chains. The creation of long-term sustainable jobs will be critical in delivering the UK’s levelling up agenda. The turbine construction programme would also feature strongly in the National Shipbuilding strategy. Analysis by Catapult ORE revealed that 50-60% of the economic benefit of marine energy, via jobs and GVA, is expected to be felt in coastal areas.[14]
15. The UK Government is right to seek a cost-effective transition to net zero. Tidal stream is forecast to be cheaper than new nuclear at 1GW of deployment, and around £80MW at 2GW of deployment.[15] These cost reductions will require consistency and clarity from the policy sphere that can be achieved through committing to ongoing ringfenced support in the CfD mechanism.
16. Setting a 1GW 2035 wave and tidal stream energy target therefore will accelerate the investment into both technology and project development, speeding up both deployment and cost reduction, bolstering the UK’s energy security and reducing dependence on imports, realising UK Governments ambition to fully exploit the potential of tidal power.

What are the key challenges faced by each generation technology regarding their deployment and scaling up within the current policy framework? What can be done to overcome these challenges? What generation capacity is required and what role will each technology play?

The policy framework should seek to account for and capture the wider benefits of different technologies.

17. The CfD process has been successful in driving down the Levelised Cost of Energy (LCoE) for renewable technologies. However, by focussing on LCoE alone the added and wider benefits of other technologies are not captured. This could leave the UK missing out on first mover advantages in developing industries that will be critical to achieving net zero.
18. As previously noted tidal and wave projects are being delivered with up to 90% UK content, whereas the domestic content of early offshore wind has been around 32%.[16] The Government is right to seek a cost-effective transition to net zero for UK energy customers, and this should be managed in a way that creates jobs and opportunities across the UK rather than increasing reliance on importing.
19. The Resolution Foundation in its Economy 2030 report notes that technologies like tidal:

‘are not only likely to generate relative high national economic returns, but also have the potential to contribute to regionally balanced growth. Investments in these technologies in less innovation-intense regions generate strong returns for those regions.’[17]

20. The European Marine Energy Centre (EMEC), which has been at the forefront of testing new wave and tidal devices, has generated approximately £306 million gross value added (GVA) to the UK economy between 2003 and 2019; that includes £127.4 million GVA to the Highlands and Islands region alone.[18]
21. These added benefits will be secured by supporting UK supply chains and jobs, whilst unlocking cost-effective baseload-style renewables. As noted at the point of 1GW of deployment tidal stream will be cheaper than new nuclear, whilst providing baseload-style benefit to the energy system.
22. As the energy system becomes dependent on intermittent energy resources, predictability will be increasingly important. Research by the University of Edinburgh shows that 1GW of tidal stream and wave energy will provide £114m of system benefit and 113kton of carbon emissions savings per annum.[19] This benefit is not captured effectively in the current CfD mechanism.
23. The UK Government should work with industry to ensure the policy frameworks account for these wider societal and system benefits that tidal stream and wave energy delivers.

Policymakers should seek to provide clarity and certainty to renewables

24. The decision to go from bi-annual to annual auctions for CfDs is welcome, however, providing more details on how these will be managed in advance will provide industry with the requisite time to prepare to submit bids.
25. Long-term certainty will create the necessary environment that has driven cost-reductions through:

• Economies of Volume – as observed in other industries as there is a clear pipeline of projects and a route to market enables bulk orders, reduced production cost and ongoing design optimisation. In addition, this will support and sustain supply chains being developed for the sector.
• Economies of Scale – larger projects unlocking improved efficiencies in the construction and operation of smaller sized projects, including exporting to shore, installation, and project management.
• Accelerated Learning –opportunity for accelerated learning as each doubling of capacity, which underpins learning-driven cost reduction, is achieved quickly with smaller capacity per unit.

26. A clear commitment, for example by setting a target or maintaining a ringfence for successive CfD rounds will give investors the confidence and certainty they need to invest in supply chains and create sustainable, green jobs in coastal communities and across the UK.

Address the lack of clarity around R&D support in the UK

27. The MEC welcomed the inclusion of UK participation in Horizon Europe as part of the Cooperation Agreement with the EU. However, as this has not yet been implemented the long-term participation of UK projects in the scheme is uncertain.
28. The MEC agrees with the conclusions of the House of Lords European Affairs Committee, which warned delays in finalising the UK’s association were having a chilling effect whereby UK projects are being stalled and a clear route to accessing funding is causing significant disruption.[20]
29. The Horizon scheme has been invaluable in supporting renewable technologies at different stages of development. In total UK marine energy companies have benefited from c. £50m of capital grant support over the past 5 years, and a further c.£100m is being made available to support tidal stream and wave energy through this programme over the coming 2 years.
30. If UK projects do not have access to this funding in the future, it risks being left behind and investment that would have taken place in the UK moving to other countries. In the absence of the Cooperation Agreement being implemented the Government should consider what guarantees it can set out to provide similar funding mechanisms for wave and tidal stream energy.
31. The UK Government does not currently have a specific funding stream for R&D for wave and tidal stream energy technologies. A demonstrator project specifically targeting wave and tidal, as provided for floating offshore wind, will be an important intervention in providing confidence in the UK’s commitment to R&D and supporting UK innovation. This should be delivered through expanding the Net Zero Innovation Portfolio.

Ensure the policy framework allows for innovative approaches to renewable deployment

32. In its Energy Security Strategy, the Government stated it will support solar co-locating with other functions in the future. This is a welcome commitment and should be expanded to other areas in particular wave and wind. As part of the Floating Offshore Wind Demonstration Programme, the Government awarded just under £3.5m to Marine Power Systems to demonstrate all aspects of an innovative floating offshore wind platform that also harnesses wave energy.
33. This is an important first step in understanding the benefits of wave and wind co-location. The UK Government should maintain dialogue with the sector and consider how the CfD process encourages innovate approaches to renewable deployment in future allocation rounds.

What are the challenges for the current grid infrastructure in delivering the proposed energy mix by 2035 and how can these be overcome in a cost-effective manner? What role does digitisation of the grid infrastructure play and developing a smart electricity network? Are current regulators enabling this transition and flexibility within the system? What role will storage play? Please consider this question from generation source to in the home.

The MEC strongly supports electricity networks strategically investing to avoid unnecessary cost in the net zero transition

34. To bid into the CfD process a project requires a grid connection offer. This can be a significant cost barrier to new projects creating eligible capacity. The MEC welcomes any actions that can be taken to reduce this cost burden and welcomes the Energy Secretary’s letter to Ofgem that the regulatory regime should be aligned and compatible with delivering net zero.[21] We look forward to further detail being published shortly.
35. The UK’s net zero commitment could potentially treble electricity demand.[22] The Government can assist electricity networks preparing for an increase in electricity being generated by tidal stream and wave energy projects by setting a clear target.
36. The recognition that setting a clear target for a sector can reduce costs and send a clear message to investors is reflected in the UK Government’s decision to set a target for floating offshore wind. Policy signals are a powerful driver in increasing investment. The announcement of tidal stream ringfencing alone led to a significant increase in international investor interest in the UK.
37. The level of anticipatory investment that is required should be aligned to the Climate Change Committee’s (CCC) recommendations and the ‘Leading the Way’ scenario as part of National Grid’s Future Energy Scenarios. Investing in infrastructure to avoid repeatedly having to increase capacity in a piecemeal manner will avoid £34bn of unnecessary expenditure by 2035.[23]

Tidal’s predictability creates opportunities for smart storage solutions

38. The predictable nature of marine energy means it can have a valuable role in bolstering UK energy storage. EMEC has launched a world-first project combining flow battery technology with tidal power which can produce continuous green hydrogen.[24] EMEC’s Invinity Energy Systems stores electricity generated by tidal turbines during high power periods and discharges during low power periods. This smooths tidal generation to create continuous, on-demand electricity to turn into hydrogen using EMEC’s 670 kW hydrogen electrolyser. This will optimise hydrogen production at the site to enable tonnes of green hydrogen generation each year.
39. Combining predictable renewable power with storage creates opportunities to displace diesel generation in coastal areas. Nova Innovation offer electric vehicle charge points on Shetland that is entirely powered by tidal steam.[25]
40. Whilst tidal can work with storage solutions it also can creates opportunities for efficient investment in storage. A diversified renewable energy mix can lower the total installed capacity that is required, and the energy storage required to supply electricity when intermittent sources are not generating.

Wave energy has higher predictability than wind or solar improving an energy system security

41. The UK’s wind and solar sectors have grown exponentially in the UK’s energy mix. However, both sources present challenges due to intermittency and limited predictability, resulting in volatility in electricity markets. At times of low wind and solar generation, prices spike when supply doesn’t meet demand. Naturally, with increasing penetration of intermittent renewables, price volatility is likely to become more pronounced.
42. By contrast, wave energy has a much more consistent and predictable production profile. Created by weather systems, built up over several days across large oceans, the energy content is concentrated and smoothened. This delivers a consistent power profile to coastlines offsetting the intermittency of wind and solar. With little or no visual impact, wave farms can be built close to the main consumption centres, along coastlines where most people live, reducing transmission capacity.
43. In order to deliver the lowest-cost, zero-carbon electricity systems we must combine complementary renewable energy sources such as wave, tidal, wind and solar. Working in unison they require less storage capacity compared to a pure wind, solar storage system, while also offering a natural balancing solution. This creates a more reliable and lower-cost alternative to stabilize low-carbon electricity systems in many parts of the world.
44. Due to its grid-balancing value, wave energy will be competitive in the utilities market without subsidies at a higher LCOE compared to wind and solar.

Does the Government’s strategy incentivise investment that enables decarbonisation of the power sector by 2035? Do current financing mechanisms allow for the required investment? What are the risks for taxpayers and/or consumers? Are there national security and investment considerations we should understand?

45. The Government is right to make the delivery of net zero in a cost-effective manner a priority. However, by focussing on LCOE there is a risk that opportunities to develop UK supply chains and export opportunities are missed.
46. Support for wave and tidal stream energy now will mean the UK is strongly positioned to benefit from an export market forecast to be worth £76bn annually by 2050.[26] Denmark has demonstrated that through its early support of the wind sector that there are significant export opportunities being created in the transition to net zero, and it now benefits from an industry that creates €7bn in annual exports for its economy.  The UK should learn from this example, by capitalising on its existing supply chains, capabilities, and expertise to enable its economy to export rather than import the technologies that will be a corner stone in delivering net zero.
47. One of the significant challenges the Government faces is in getting the balance right between needing to rapidly scale up renewable capacity whilst maintaining a competitive auction process. The importance of the £20m ringfence cannot be overstated. The tidal stream sector is ready to respond should the Government decide to increase this ringfence to £30m in AR5. This will deliver over 50MW of predictable capacity each auction round and provide certainty to the industry to grow and deliver the benefits this response has outlined.
48. To achieve a decarbonised power sector will require a diverse portfolio of energy generation. MEC supports the Government in setting ambitious targets for wind, solar and other low-carbon energy sources. However, tidal and wave can have a crucial role in ensuring that this transition is; secure, tidal stream is entirely predictable, and wave is more predictable than other renewables including solar and wind, providing 11% and 15% of the UK’s current electricity demand respectively; and cost effective, tidal stream will be cheaper than new nuclear at 1GW of deployment, and research by the University of Edinburgh shows that 1GW of tidal stream and wave energy will provide £114m of system benefit and 113kton of carbon emissions savings per annum.[27]
49. Finally, wave and tidal stream with high levels of UK content in project delivery represent a unique proposition in providing indigenous generation delivered by indigenous supply chains. It therefore has a compelling role to play in supporting the UK’s energy security.

How should Government work with industry to ensure proposed projects are ready when needed and on-budget? Are there domestic or international examples of time- and cost-effective delivery of large-scale power generation schemes?

50. Delivering net zero will require coordination between industry and government. It is welcome that a Floating Wind Task Force has been launched, including the UK, Scottish and Welsh Governments, and key organisations such as the Crown Estate and Crown Estate Scotland. The Marine Energy Council believes a similar task force should be established for the tidal stream and wave energy sectors.
51. This taskforce could have a key role in ensuring the regulatory, policy and industry spheres are aligned behind a common target, and work together to identify how potential barriers could be addressed.
52. MEC strongly supports the UK setting a 1GW by 2035 target for tidal stream and wave energy. This target will only be possible if there is a significant increase in the amount of eligible capacity that can bid into the CfD process. For sites to be generating by that target, and without changes to the external environment, Agreements for Lease will need to be in place with the Crown Estate or Crown Estate Scotland by 2025. These long lead times are not appropriate in the context of rapidly scaling up renewable deployment to meet the UK’s net zero targets.

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