Wind, water, Wylfa and work: Wales’s low carbon energy future
David Jones's speech on the future of energy generation to the Wales in London event.
Wales is an energy rich country. Our landscape and natural resources have meant that for generations we have been at the forefront of energy supply in the UK.
We now have the potential to build on this expertise, exploiting energy potential and ensuring that Wales is at the forefront of the transition to a low carbon economy.
The theme of this event is wind, water and Wylfa – 3 areas of energy generation where Wales can lead the UK as we move to low carbon generation.
The need for investment
Infrastructure investment is central to the UK government’s plans for growth, and the scale of investment needed in energy infrastructure dwarfs that of any other area.
We need more investment in energy than we do in the transport, water and communications sectors put together.
For around a decade, the previous government had no credible energy policy, with no plan for how we would meet our increasing energy needs.
It was very late in the day when they finally recognised that nuclear energy needed to be part of the mix. It was not until 2008 that they finally gave the go ahead to build a new generation of nuclear power stations.
A lack of investment to replace the energy generation and energy networks meant that generating plants are now getting to the end of their lifetime - with no replacements in the pipeline.
Between now and 2020, 20% of our energy generation will go offline. We need to replace that much just to stand still. But our energy consumption is also increasing – so standing still is not an option.
Economic challenges with investment
We recognise that these are difficult times for investors with a landscape of uncertainties and competition with other sectors.
Finance is constrained and there are lower levels of liquidity since the financial crisis.
Traditional funders of power generation face strained balance sheets and new challenges to accessing finance. But this is creating opportunities for independents, different types of investors and new sources of capital to enter the market.
UK must compete with international markets for limited resources and capital; we are doing this by providing a long term, transparent and stable regulatory regime, by providing the right conditions for investment.
Without government support and clarity, and the right incentives; investment in low carbon will not come forward at the scale and pace we need.
We need as a government to lead by example and provide the long-term visibility that investors need.
Investment in Wales – Wylfa
Wales has already begun to attract investors. Hitachi’s decision to build a new nuclear power station at Wylfa highlights the attractiveness of Wales as a place to do business and invest.
I am pleased that Alan Raymant is with us tonight, as this is currently one of the most important infrastructure projects in Wales.
During my visit to Japan in April I was delighted to meet with Hitachi executives to get a clear understanding of the operation of Hitachi’s global supply chain.
I want to ensure that UK, and in particular Welsh companies, take advantage of this unique opportunity, and use it to springboard into other international markets.
Welsh businesses must step up to this challenge and seize the opportunities it presents. It is important that we show we are amongst the very best suppliers, and demonstrate the quality of our work and the value we can offer so that Welsh businesses can reap the economic benefits on offer.
The investment also brings excellent opportunities for the workforce and for our young people. A new specialist training centre at Coleg Menai, which is benefiting from state of the art equipment provided by Hitachi, will help to train and inspire our young people so that they are ready to take up the opportunities the new power station will provide.
Investment in Wales - wind and water
We already have offshore wind sites such as North Hoyle, Rhyl Flats and Gwynt y Mor with new developments in the pipeline such as the Atlantic Array and the Centrica Developments in the Irish Sea Zone off North Wales.
To support the development of this new generation of offshore wind power the UK government will deliver a new offshore electricity grid.
With 1,680 miles of coastland in Wales the opportunities which come with harnessing the tidal power are clear and it is technology I want to see more of.
Wave power is more predictable than wind power and it increases when our energy demands are highest – during winter.
I am very pleased that we have with us tonight Mike Shorrock of Swansea Bay Tidal Lagoon – which has the potential to supply electricity to over 120,000 homes whilst saving 216,000 tonnes of CO2 per year.
Also joining us is Mark Parker of RWE. As part of Sea Generation Wales Ltd RWE is developing an innovative tidal stream array off the coast of Anglesey.
The project represents huge potential in the marine sector and in February this year was successful in securing a share of the UK Government’s £20 million Marine Energy Array Demonstrator Scheme.
What is the government doing?
Whilst it is the private sector that will deliver the investment we need, government also has an important role to play.
The Planning Act 2008 began some important changes, but this government has taken it further. We have made the planning system clearer, more democratic, and more effective. We are ensuring that major projects are dealt with efficiently and do not get held up for years before decisions are taken.
Electricity Market Reform
Electricity market reform is a central component of our Energy Bill – providing certainty to encourage the investment needed to replace ageing energy infrastructure and meet projected electricity demand.
Contracts for Difference will support investment in new low-carbon generation, by reducing the risks faced by generators by giving certainty about revenues.
At the same time the Capacity Market will ensure security of supply across all energy generation, protecting consumers against the risk of supply shortages.
It provides a predictable revenue stream to providers of reliable capacity. In return, if capacity is not provided when needed, companies will face financial penalties.
Renewable Roadmap
The Renewables Roadmap set out how the UK will generate 15% of our energy from renewables by 2020.
In Wales we currently produce 1.1GW of renewable energy – but we can do more.
We will publish our 2013 update shortly and it will demonstrate our continued commitment to supporting renewable energy whilst emphasising the benefits from an economic growth, energy security and tackling climate change perspective.
This is more than we have ever generated from renewables – but we can do more.
Conclusion
Like all great opportunities, they will not come without their challenges, and I want us to start facing these head on.
That is why I am hosting an Energy Summit early next year for businesses to come together and discuss the practical steps we can take to maximise the benefits to Wales from the energy sector.
We must not forget the role that the Welsh government has to play. Not just consenting on small projects, but ensuring that environmental permits are considered in a way that is user friendly to developers. A way that balances the importance of environmental protections and the need to have a predictable process that supports growth.
It is essential that investors, who are investing hundreds of millions of pounds, have certainty, particularly over planning decisions. Whether the UK or Welsh government is responsible, investors must have confidence that Wales is a great place to invest.
But in the end it is also down to the private sector to step up to the plate, to grasp the opportunities here in Wales and show that once more Wales can be the leader in the energy sector.