Michael Fallon's keynote speech to the RenewableUK Offshore Wind 2013 conference.
I’m very pleased to be here today speaking at this important event.
This is my first speech to RenewableUK since I was asked by the Prime Minister to take on my energy role within DECC, whilst still retaining my responsibilities as Business Minister with the Department for Business Innovation & Skills.
This is a wide portfolio but it makes perfect sense. I believe that my role offers the opportunity to ensure that two of Government’s top priorities are taken forward in a co-ordinated manner. DECC has the vital task of ensuring that we have clean and affordable energy and tackle climate change, whilst BIS are responsible for helping to deliver our growth agenda. In offshore wind there are large synergies between these areas which I’ll mention later.
I haven’t come into my energy role totally cold as I have a personal history with the subject. Between 1987 and 1988 I was Parliamentary Private Secretary to the Secretary of State for Energy. A lot has changed since then particularly in relation to renewables, the realisation of focus on climate change, and changes in our energy self sufficiency as production of our oil and gas has declined.
Offshore Wind – a UK Success Story
Back in 1988 there was not an offshore wind industry anywhere. Now I’m speaking to you when the UK has more installed offshore wind than everyone else in the world put together.
UK leads the world.
The UK leads the world in offshore wind. This is a major success story and one we should all be proud of. One that you have helped contribute to.
Not only do we have more installed offshore wind we also have the largest wind farms and a real knowledge base about how to build offshore windfarms.
This year we have passed the 3GW mark for fully installed capacity. London Array, the largest offshore wind farm in the world, has become fully operational, Lincs and Teesside are nearing completion, Gwynt y Mor and West of Duddon Sands are installing at sea.
These are signs of an industry which is driving forward and making a real difference to UK energy.
So can I now stop there and say everything is obviously working well, exhort you to keep up the good work and leave it at that? Well no, I can’t.
There are a number of areas where Government and Industry have to work together, constructively, to ensure the sector maximises its potential. I will now spend some time talking about these.
The Economic Opportunity
As a Government our priority is ensuring long term economic growth. The economy needs to get going again. And to do this infrastructure is critical.
The scale of investment needed in energy infrastructure dwarfs that of any other area – including transport, telecoms or water. That’s because of a lack of investment to replace energy generation and energy networks that are now getting to the end of their normal lifetime.
Between now and 2020, 20 per cent of our energy generation will go offline, some of the coal plants and some of the old nuclear plants are coming off line, so we have got to replace that just to stand still.
And of course we need to invest in low carbon electricity generation in its many forms.
Between now and 2020, outside oil and gas; we believe there is £110 billion of investment we need to attract.
And we know if we are going to do that, to meet that challenge to upgrade the UK’s infrastructure, we have got to make sure that investors want to come to the UK. – This is one of the main reasons for our Electricity Market Reforms, and I am pleased to say the Bill received its 3rd reading in the House of Commons.
EMR will provide certainty to investors with long-term electricity price stability in low carbon generation. This will be achieved through Contracts for Difference (CfDs) within a framework that will allow us to treble the current levels of support for low carbon technologies to £7.6bn per year by 2020.
So our driving force is to make sure what we are doing creates a long term, stable, predictable framework backed by political consensus and a new legal framework.
I am committed to helping investment to come forward in advance of the Contract for Difference regime. That is why the Government launched the Final Investment Decision Enabling for Renewables project in March. Further details on the second phase of the process will be published shortly.
This will bring certainty to this transition period and will give investors the confidence to invest. And if they have the confidence to invest, the supply chain will have the confidence, in turn, to make investments and expand.
Increasing UK benefit
It’s not just about investment in generating capacity, we are determined to turn that investment into UK jobs.
In offshore wind, whilst there have been notable successes across the UK, I think we all agree that we need to deliver greater growth and opportunities for the UK-based supply chain.. UK content levels are low and we must do more. Consumers support offshore wind through their bills and expect there should be economic benefit in terms of UK jobs and value.
I share that expectation.
I can assure you this is of vital importance to the Government. The opportunity for growth and jobs is the reason why offshore wind is one of the sectors in which Government is developing a long term partnership with industry, through the Industrial Strategy programme launched last September.
The forthcoming Offshore Wind Industrial Strategy, which will be published later this summer alongside the EMR draft delivery plan which will set out draft strike prices, will set out how we will work together to deliver this growth, increasing investment in the UK supply chain and building a competitive advantage.
I passionately believe that UK industry can compete on price and on quality. Through the Industrial Strategy, we will deliver a coherent programme to enable UK industry to take advantage of the opportunities on offer.
Many of you here today have been involved in developing the proposals for action in the industrial strategy and I thank you for this.
We are not waiting until the strategy is published to deliver these actions. Tomorrow’s programme includes a Share Fair where a number of developers will present details of their upcoming projects and procurement process – giving greater visibility to supply chains is one of the priorities identified by the industrial strategy partnership. I strongly endorse this initiative and encourage supply chain companies to go to the Share Fair and find out more about the business opportunities available.
This concept is drawn from the oil and gas sector so this is an example of how we are sharing thinking between sectors through the industrial strategy programme.
Alongside enabling companies to diversify into the offshore wind market, it is vital to attract inward investment into the UK. Our country is the most attractive in the world for investment in offshore wind. And by attracting investment from the top tier of the supply chain it will open up opportunities for the deeper supply chain.
Today I can announce that we will be forming an Offshore Wind Investment Organisation to significantly increase the levels of inward investment to the UK. This Investment Organisation will be an industry-led partnership with Government, headed by a senior industry figure and complementing the work of DECC and BIS. It will be measured on tangible results and will focus on the offshore wind supply chain.
So we are making real progress now to deliver the ideas being developed in the context of the industrial strategy partnership. And we won’t stop after the strategy has been published. The real value will lie in the long term partnership between Government and industry.
The critical importance of cost reduction
Efforts to build the UK-based supply chain and increase competition also have the potential to play an important role in helping to reduce costs.
Offshore wind is currently more expensive than many other forms of electricity generation. This is a statement of fact. Whilst all of us here are well aware of the benefits of offshore wind we simply cannot ignore economic aspects.
Offshore wind is still a relatively new technology and new forms of energy generation tend to be more expensive and require support to until they become established. The Renewables Obligation, which has served the sector well, and the new Contracts for Difference recognise this.
But we should never lose sight of the fact that pressure on consumer bills is a real issue. Of course we all know that it has been rising gas prices that have been the main driver of increases to bills and that the costs of wind in an average household bill are relatively small. But it’s imperative that costs of offshore wind fall substantially.
If I can sum this up frankly, the further costs can fall the greater the potential for more offshore wind to be built.
So, can cost reduction be achieved?
The easy answer is that it must. I am very encouraged the Cost Reduction Task Force concluded that costs can be reduced to £100MW/h by 2020 and that the Offshore Wind Programme Board is now actively addressing the recommendations made by the Task Force. I am very pleased to note that RenewableUK are publishing, at this conference, an updated version of the project timelines for future offshore wind farms, a key recommendation from the Task Force This will provide clarity and confidence to the supply chain and help to aid and inform investment decisions.
Innovation in offshore wind also has the potential to deliver significant cost-reductions.
I am therefore pleased to announce three innovation projects we are supporting as part of our Offshore Wind Components Technologies Scheme:
- Power Cable Services Limited, based in Kent, have been awarded a £540,000 grant towards their high voltage subsea cable jointing technology project
- Aquasium Technology Ltd with partners Burntisland Fabrications Ltd and TWI have been awarded a grant of £769,600 towards their cost-effective fabrication project
- Wind Technologies Ltd (Cambridge) have been awarded a £728,355 grant to design, manufacture and test an innovative 5MW medium speed drive train concept
Ultimately our long-term vision is for low-carbon generation to compete fairly on cost, without financial support and delivering the best deal for the consumer. We must be clear on this point – we want the least cost approach to meet our climate change targets and offshore wind have to compete with other technologies.
Post 2020 role of the sector
Government also has an important role to listen, and I am well aware of the consistent messages you have given regarding the need to ensure there is a long-term market for offshore wind. This of course is very much linked to cost reduction and our industrial strategy.
We fully acknowledge that investors take long term decisions and that it doesn’t all stop at 2020. After 2020 we will still need low carbon generation and offshore wind will be an important part of a diverse and secure low carbon energy mix.
And last week Ed Davey announced that the UK has agreed to support an EU wide binding emission reduction target of 50% by 2030 in the context of a global climate deal and even a unilateral 40% target without a global deal. There is no doubt that we will need significant levels of renewable and other low carbon energy to meet such an ambitious target.
2030 Renewables target
I fully understand that many of you would prefer a binding 2030 renewables target. The government takes a different view. We want to maintain flexibility for the UK and other Member States in determining their energy mix.
This demonstrates that cost reduction, together with growth and jobs in the UK-based supply chain, really is the key to the future of the sector. Deliver significant cost reduction and the potential size of the sector increases dramatically.
Offshore wind is already a part of our diverse energy mix and is growing fast. Our future is low carbon and this Government is committed to delivering the right framework to ensure we attract the huge investment needed, and we will soon be setting out our industrial strategy to ensure that we reap the economic benefits.
I hope, by next year’s conference we can celebrate more supply chain successes and good progress towards cost reduction.
These challenges – reducing costs and increasing UK benefit – are not easy. I’m confident we can overcome them together.