Written evidence submitted by Nova Innovation Ltd (CGE0044)

1. Nova Innovation is a tidal energy device and project developer, with offices in Edinburgh, Shetland and Wales. In 2016 we installed the world’s first offshore tidal array in the Bluemull Sound, Shetland. We are doubling the size of this array to six turbines and have recently installed batteries at the site to deliver the world’s first baseload tidal power plant. We aim to further develop our technology and grow our business by developing other sites in the UK and internationally, and have secured a second tidal array site off the Llŷn Peninsula in Wales. Our ambition is to be the world’s top tidal technology company.
2. The focus of this response is on: enhancing the benefits and value of our natural resources; the extent to which current and future technology – specifically tidal energy – can help to meet carbon targets; and how the development and deployment of tidal energy can be best supported.

Enhancing the benefits and value of our natural resources: the potential of the UK tidal energy sector

3. A recent report from the ORE Catapult[1] found that tidal energy could generate a net cumulative benefit to the UK by 2030 of £1,400m with the potential for new 4,000 jobs, many of which will be in coastal communities and regional economies. Exploiting the UK’s natural marine energy resources could reduce UK carbon emissions by at least 4 MtCO2 per year from 2040.

4. The UK is the undisputed global leader in tidal energy. There are 22 tidal energy technology developers active in the UK. Of 14 grid-connected tidal turbines installed worldwide, 7 are in the UK. Investing in UK tidal energy sector would position the sector to dominate the rapidly growing international market.

5. Tidal energy has the potential to make a huge contribution to both the UK carbon budget and the UK economy. However, without a route to market, the competitive advantage gained by UK investment in this sector will be lost.

6. UK electricity policy is currently focused on reducing carbon at minimum cost. This has motivated the removal of FITs for renewable energy, and the focus on competitive auctions under the CFD, which has played a role in driving down the cost of offshore wind.

7. Just under 50% of expenditure on UK offshore wind projects goes to UK companies[2]. However, in the much larger global market for wind energy the UK remains a very minor player. The UK has failed to fully capitalise on the potential of its renewable energy resources, while countries like Denmark have thrived.

A comparison of the UK and Danish wind energy sectors

8. In 2016, the Danish wind energy sector employed 32,000 people and exported globally EUR 7.3 billion of goods and services[3] – equalling UK defence sector exports in 2016[4]. In the same year, UK wind sector employed 14,000 with exports of GBP 0.27 billion (EUR 0.33 billion)[5]. Including imports, Danish wind was a net exporter to the tune of EUR 3.7 billion, while the UK wind sector was net importer of GBP 0.6 billion (EUR 0.7 billion).

9. This is despite the fact UK population is 11 times greater than Denmark, and UK wind resources dwarf those of Denmark, which in 2016 had only 5.5 GW of wind installed compared to the UK’s 19 GW.

10. Why do the Danes outgun the Brits so comprehensively? A clue lies in the breakdown of Danish exports, 88% of which are associated with manufacturing wind turbines and components[6]. Danish company Vestas, the world’s leading wind turbine manufacturer, has over 24,000 employees worldwide, 5,000 in Denmark. Siemens Wind Power, which originated as Danish wind turbine pioneer Bonus, employs 7,000 people in Denmark. In contrast, there are no major wind turbine manufacturers based in the UK.

11. This situation arose due to different policy decisions made by the two countries in the 1980s. In response to the 1970s oil shock, both the UK and Denmark invested in grant-funded wind energy R&D. Both countries invested similar amounts in R&D[7], and both focused on large, MW-scale wind turbines. These programmes correctly anticipated the direction of future wind technology towards larger turbines. However, the resultant devices were expensive, most performed poorly, and all were commercial dead-ends. They failed to appreciate the amount of “learning by doing” required before a successful, large-scale commercial device could be developed.

12. The crucial thing Denmark did differently from Britain in the 1980s was to establish market mechanisms to support wind energy. By introducing capital support in 1980, followed by fixed price tariffs in 1984, Denmark sparked an explosion of innovation and growth. Competition was fierce: 26 different Danish companies sold three or more turbines in the 1980s[8]. Starting with small- scale 15 kW devices, the turbines gradually increased in scale as the sector matured and the technology evolved.

13. As a result, by 1990 Denmark had installed 343 MW of wind power, compared to just 4.3 MW in the UK. Denmark was building the first offshore wind farm at Vindeby when the UK was building its first onshore wind farm at Delabole, Cornwall. Denmark had 4 major turbine manufacturers who had each sold thousands of devices; the UK had one remaining turbine manufacturer, Wind Energy Group.

14. The UK eventually introduced market support in the form of the Non-Fossil Fuel Obligation (NFFO). This was focused on delivering projects quickly and driving down costs – an approach which failed to foster a UK wind turbine industry[9], since Danish companies already had an unassailable lead. 80% of turbines installed under the first two rounds of NFFO came from overseas[10]. As the Welsh Affairs Select Committee stated: “it is doubtful that another mechanism could have been more successful in supporting a foreign industry than compelling all developments to occur within a short period of time when the domestic industry is in its infancy and anyway tied to one developer”[11].

15. By 1992, Danish companies had sold over 12,200 turbines, 72% of which were exports[12]. In 1998, the UK’s last turbine manufacturer Wind Energy Group was sold to Danish NEG Micon (now Vestas).

Lessons from wind energy for the tidal energy sector

16. The early bird gets the worm.  Denmark gained an early and unassailable lead in wind energy technology in the 1980s. By 1990, in terms of installed capacity, the UK was already 10 years behind Denmark. In tidal energy the UK has the global lead – it would be a huge lost opportunity if we threw this away.

17. Market mechanisms work. There is a “valley of death” between a promising idea and a commercial technology. Volume is required to drive down cost and exploit economies of scale. Grant-funded R&D plays an essential role in early stage technology development, but market mechanisms create successful companies. Market mechanisms bridge the gap between R&D and the commercial market. They have worked for wind and solar energy, and they will work for tidal energy too.

18. Hardware matters. 88% of Danish exports are related to turbines and components. This is based on supply chains that grew around turbine suppliers in the 1980s which persist to this day. These supply chains grew to service markets that were enabled by far-sighted government policy. The UK can emulate this success for tidal energy.

19. Should market mechanisms be technology neutral? If the goal is only to reduce emissions at lowest (short-term) cost then, yes. However, if the goal considers wider benefits, such as the potential to foster emerging technologies and invest in the UK economy, then it makes sense to focus on technologies where the UK has a competitive advantage.

20. Priority of new over existing technologies. Developing new technologies is risky. The Danes backed wind and were enormously successful. The UK poured huge investment into Advanced Gas-Cooled Nuclear Reactors and were not. As a nation, it would not be prudent to put all our money into one new technology. However, investing a relatively small amount in a portfolio of emerging technologies is a prudent investment strategy.

21. To quote the Clean Energy Strategy: “More nascent technologies such as wave, tidal stream and tidal range, could also have a role in the long-term decarbonisation of the UK, but they will need to demonstrate how they can compete with other forms of generation.”

22. We welcome this challenge. What we request is the opportunity to demonstrate our potential and compete. By creating a route to market, the UK can enable its world-leading tidal energy companies to raise investment, build projects, drive deployment, learn by doing and develop renewable technology to export to the world.

23. We would be happy to meet with the committee to discuss this response and the potential for tidal energy to contribute to the UK economy and carbon emission targets.

October 2018