It is a pleasure to serve under your chairmanship, Mr Hollobone, in this important debate on the funding of wave-power innovation and technology.
Let me start by saying a little about the potential of this new industry. About 25% of all wave and tidal technology development is going on in this country. Our marine resource is second to none, and that is nowhere truer than in the south-west of England. The extraordinary resource around our coastline is backed up by lots of the skills and expertise that we need to develop the technology. The Carbon Trust has estimated that wave power could eventually meet 15% to 20% of our current power needs and that it might produce enough electricity over time to power 11 million homes. Furthermore, with the extraordinary development of this new energy resource comes a lot of economic potential. It is estimated that the industry could be worth £2 billion by 2050 and that it could create more than 16,000 jobs. Some estimates suggest that the wave and tidal power industries together might employ 10,000 by as early as 2020.
My constituency is home to the wave hub project, which is the first project of its kind anywhere in the world. It is the first time we will have a commercial-scale facility to test arrays of wave-power devices at deep-water locations. The project consists of a long cable 16 km off our coast at Hayle, with a plug anchored on the sea bed to take up to four arrays of devices for testing. Currently, the maximum power produced by each device is 4 or 5 MW, but it will be possible to expand capacity over time so that the wave hub could feed no less than 50 MW into the network. One company has already signed up to plug into the wave-power device. Ocean Power Technologies will test a commercial-scale version of its PowerBuoy system, which is one of the leading systems being developed.
My constituency is also home to the Peninsula Research Institute for Marine Renewable Energy, or PRIMaRE, to give it its short name. The institute is based at the Tremough campus near Falmouth. At the institute, academics from Exeter university and the Camborne School of Mines are doing a lot of important work, which is needed to support the development of wave-power technology. I visited last summer to see some of the work that is being done on moorings. The Cornish coast is famous for wrecking boats, and the sea can be quite choppy at times, so getting the strength of moorings for wave-powered devices just right is an important part of the development of wave power. PRIMaRE is also doing a lot of tests on new devices to see how each device works in commercial situations.
That brings me to a point about the importance of developing and funding technology innovation. The marine renewables deployment fund will be phased out in March 2011, although according to those in the industry, this £40 million fund was never very satisfactory. It was notoriously difficult to access; in fact, I am not sure whether anybody ever successfully accessed it. The reason is that one of the criteria stipulated that a device had to have been actively and successfully working in commercial situations for at least three months before someone was eligible to apply for a grant. However, the key thing about wave-power technologies is that developers need support before that point; they need support before they get to the stage of keeping a device in the water for three months, not after they have achieved that extraordinary feat. Some estimates suggest that the cost of developing and deploying a commercial-scale device is in the region of £30 million, so developers need support much earlier in the process.
Some improvements were made under the marine renewables deployment fund, which was deliberately designed to come in a bit earlier. However, we now need to think carefully about how we move from the proving stage—testing small devices at the European Marine Energy Centre—to the stage of developing wave power on a much bigger scale.
My hon. Friend is making a good case. In the previous Parliament, my constituency included the Hayle area, so I was involved in the development of the excellent project he is talking about. However, does he agree—I think he is coming to this—that if the project, which enjoys perfect conditions, is to become a commercial success, we need public sector support, such as renewables obligation certificates or other means, to bridge the gap between where it is now and where it needs to be?
Yes, I absolutely agree. Although the wave hub technically comes ashore at Hayle, my hon. Friend has told us once before that it is actually in St Ives waters, and we have both had discussions with representatives of the fishing industry, who have concerns about where the wave hub is located. However, I absolutely agree with my hon. Friend, and I was coming to the point he raises.
The Government have announced a review with the Technology Strategy Board. They have also announced the new idea of technology innovation centres. Those involved with the wave hub and the PRIMaRE institute at Tremough are keen to develop a TIC for offshore renewables in the south-west. What I want from the Minister today is some idea of the criteria that will be applied. We know that a technology innovation needs assessment—TINA, in the jargon of the trade—is being carried out for projects that want to put themselves forward for a TIC. I was recently pleased to hear the Minister repeat his pledge about trying to develop a marine energy park in the south-west, and there is no better place for that than Hayle. A lot of infrastructure improvements are being carried out on the north quay, and a small marine business park will be located near the wave hub project.
I am keen, however, to understand the criteria that will be applied. I am not a big fan of ring-fencing these budgets and pots of money. Some in the industry say that we should make x amount of the £200 million available for wave-power development, but it is much more important to apply the right criteria to determine where to allocate the funds. The marine renewables deployment fund failed because we were far too risk averse. The whole reason for having public subsidy and public investment in these areas is to bridge the gap between risk and potential. When it comes to wave power, we have extraordinary potential, with a source of energy that could meet 15% or 20% of our energy needs. However, there is also a large risk in that it is much harder to develop devices to use out at sea in difficult conditions. As I said, it can cost up to £30 million to develop these technologies. The Government’s role should be to come in and bridge that divide between risk and potential.
The second key point about the criteria is that they must look at what stage the development of the technology has reached. Those involved in wave power have just gone past the phase of testing devices in a tank in the laboratory and have moved to testing commercial-scale arrays, so the industry really needs some additional funds to help it make the next step. A lot of the other renewables industries that will be competing for the same funds are quite a bit further along the development road, and we should be making much tougher demands on them so that they start getting private sector investment. We should also remember that providing public sector investment can unleash a lot of additional private sector investment. The £100 million that the Government have already invested in wave power has brought in an additional £200 million of private sector investment. There is private sector money, but those concerned need to know that there is a commitment to develop things to the next stage.
Finally, geography is another factor to take into account in relation to the capacity to develop an industry, and I want to say a little about ROCs. In Scotland five ROCs per megawatt-hour are paid at the moment for wave power that is generated, but there is not the capacity on the grid to develop an industry there. We need to avoid a situation in which all the development of the industry takes place in Scotland, but in a few years we find that there is insufficient capacity in the grid to capitalise on the industry properly. It would be far better to develop the industry in the south-west where there is capacity on the grid to upscale and expand the industry.
I believe strongly that in addition to the right technology push we need the right support framework to create the pull conditions to enable the industry to go beyond the development stage. There is no doubt that the answer is to increase the number of ROCs that we pay on the commercial devices to five ROCs per megawatt-hour, so that we match Scotland. That would give a level playing field.
My hon. Friend has got to the nub of the biggest hurdle to taking the project forward. As the Government are reviewing the ROC regime it is clear that some intense negotiation is needed between the UK Government and the Scottish Executive, to give sense and sanity, and an even playing field across the border.
I agree with my hon. Friend. There was quite a bit of criticism of the decision by Scotland to go unilaterally for the five-ROC regime. Others in the industry say that perhaps five are not needed and perhaps three or four would be acceptable, but we need that level playing field, so that the people developing the technology can make rational judgments rather than just chasing those paying the highest amount of money.
We are clearly entering an era of energy needs in which there is no magic bullet. We shall need many different sources of energy to come on stream. The Minister once told me that wherever he goes, and whatever conference he attends, people say “This is the magic industry that is the future” whether it be biomass, anaerobic digestion, nuclear or something else. The truth is that we shall probably need a range of sources to supply our energy needs in the future. It is clear that wave power could be one of those important sources, but only if we are willing to back it to the next stage, to get it to a commercially viable situation.
Thank you, Mr Hollobone. I thank the hon. Member for Camborne and Redruth (George Eustice) for securing the debate. I want to make a couple of quick comments, as I understand that time is limited.
I fully support the points that the hon. Member for Camborne and Redruth made. There is wave and green energy creation in my constituency, at SeaGen at Portaferry, which is a very successful venture that took a lot of private enterprise spending as well as Government support. What discussions has the Minister had with the Minister of Enterprise, Trade and Investment in Northern Ireland, Arlene Foster? Have there been any discussions with her about how to introduce wave energy?
I am always concerned about the impact on the fishing industry, which the hon. Member for Camborne and Redruth alluded to in his speech—obviously the issue is of concern elsewhere, too. The fishing industry is not against wave energy but there is concern about and awareness of the need to maintain fishing stocks and fishing areas. I want to know what will happen in that regard.
We have European and Government targets for green energy, which we must meet. I am keen to support wave energy, and I keen that the Government should support it. I am also keen that something should be established to ensure that the fishing industry will not be disadvantaged. Wave energy is one of those on-tap resources of which we should take more advantage.
I congratulate my hon. Friend the Member for Camborne and Redruth (George Eustice) on securing the debate today. My hon. Friend is already known as a champion of his constituency, but he is becoming an experienced and articulate advocate for the wave and marine industry generally, which has huge potential not only as an energy source but as an employer and generator of wealth, particularly in the south-west. As I hope I shall show, we see that as something with real potential for the south-west, and—as I am sure that the hon. Member for Strangford (Jim Shannon) will be delighted to hear—all around the British isles.
My hon. Friend the Member for Camborne and Redruth began by talking about his constituency, which is famous for, among other things, being the home of Wave Hub. That is a good example, as he pointed out, of how the UK is currently leading the world in the nascent industry of wave and tidal energy development. It is a unique facility, as he said—it is the only grid-connected facility where arrays of commercial-scale wave energy devices can be tested in a live hostile environment. It is an important asset as we develop the sector, and one that the UK Government take very seriously. Together with the other UK marine energy testing facilities—the European Marine Energy Centre in the Orkneys, and the onshore marine drive train testing facility, which is being developed at the National Marine Energy Centre in the north-east of England—it helps to provide Britain with a unique offer to the emerging sector, which is already helping to concentrate the global focus on our waters. I believe that a globally competitive opportunity is emerging.
I am glad to tell my hon. Friend, if he did not already know, that the Secretary of State will be visiting Wave Hub later this month as part of a visit to the south-west, to see how the commissioning of the facility is progressing. I look forward to getting an update from him, and I hope in due course to have the opportunity to visit Hayle myself. I assure my hon. Friend that I am personally committed to marine energy and that I share his level of ambition. Not only that, but the coalition Government, who are determined to be the greenest Government ever, are absolutely committed to harnessing the benefits that a successful marine renewables industry can bring to the UK. Support for the development of the sector is explicitly written into the fabric of the coalition agreement. I also assure my hon. Friend that I am committed to leading the way to ensuring that that commitment, unlike others made by previous Governments, will be realised.
There are real gains to be had from creating a successful and vibrant marine energy sector in the UK. If we can capitalise on our natural coastal resources, those gains will be manifold. Marine energy can certainly contribute to our renewable energy generation mix and help us meet our longer-term carbon saving targets, but the benefits go beyond that to providing us with secure, clean electricity, which enhances our energy security. Certainly, in our appreciation of marine energy we need to look more widely at the sector than through the prism of our relatively short-term and narrow 2020 carbon targets. We need to take on board, as a Department and across Government, the opportunity to build a new manufacturing sector in the UK. However, that should be seen in the context of the coalition’s wider ambitions to rebalance the economy, recognising that among other renewable sectors it gives us the opportunity to create new jobs and more opportunities, both at home and globally.
We can capture that opportunity only if we capitalise on the hard work already done by that sector, ensuring that the right foundations and support are in place to build on its success. For too long, previous Governments have failed to provide the sector with a clearly articulated long-term vision of what they want to achieve in the marine energy sector. That needs to change, and we are determined to change it. That is why I have established the marine energy programme; and I want to create a dynamic new cluster in the sector with the establishment of a network of marine energy parks around the UK. I hope that the first marine energy park will be in the south-west.
We clearly need to give greater focus to our marine efforts. I recently attended a meeting at No. 10 with Eric Schmidt of Google, chaired by the Chancellor. Out of that came a sense that we can learn a lot from the growth of other sectors that are based on scientific innovation, such as IT. The clustering of companies in silicon valley in the US was a key driver of that innovation and growth, because it fostered information sharing and competition and ultimately led to a reduction in investment risk, the fertilisation of new ideas and an increase in investor confidence.
I am most encouraged. I entirely endorse the Minister’s saying that this Government should be the greenest Government ever and his commitment that, with this project, our country should lead the world in marine energy. That said, and with the £42 million investment in place and annual insurance for the project already being met, what can the Government do to ensure that wave devices are placed on that site? Ocean Power is the only company that proposes doing so, but we need more, and I believe that that needs Government commitment. What can the Government do to assist this project?
I shall endeavour to explain. The Government need to do a number of things.
Marine energy parks could draw together research and development, manufacturing and other sector expertise in one place to achieve that, not on an exclusive basis but as a hub with many spokes. In a number of locations around the UK that is already beginning to happen, and the building blocks for future marine energy parks are already beginning to form—for example, activity in and around the Pentland firth in Scotland, off the coast of Anglesey and in south-west England is creating exactly the right conditions for marine energy parks. As I have made clear, we see the south-west leading the way. It has the potential to be the first marine energy park, given its unique mix of renewable energy resource and home-grown academic, technical and industrial expertise in the sector.
At the first meeting of the UK Marine Energy Programme Board, which was held in Exeter last month, I set a challenge to stakeholders in the south-west and elsewhere to come forward with ideas on collectively creating a marine energy park that will be successful in attracting additional investment and helping to boost the UK’s offer on marine energy. I look forward to working with those stakeholders and harvesting their ideas. However, my hon. Friend was absolutely right to say that public sector capital is only the beginning. We need to ensure the long-term growth of the industry, crowding in private sector capital and creating the conditions in which such capital will dwarf what the public sector can provide in these hard times. That is the real opportunity that we have to play for.
We still have a lot to do to achieve the level of deployment suggested by my hon. Friend the Member for St Ives (Andrew George), and he was right to press the matter. Over the next three or four years, I want us to be talking about deployment and scaling up in real time. We need a big vision and clear leadership, but it really is rubber-on-the-road time when it comes to working collaboratively with the industry, so that we can make real progress on the ground and at sea. Marine energy has been a Cinderella industry for far too long, and we need a programme that will set out our vision and the key stepping stones for implementation. I hope that the Marine Energy Programme Board will help me during the next few months to marshal the various pieces needed to ensure an effective deployment programme.
Turning to energy market reform, feed-in tariffs and the renewables obligation, the message from the first Marine Energy Programme Board meeting in Exeter was clear. First, we need to focus on getting the right levels of revenue for the sector to attract investment. Secondly, investment in innovation to reduce risk is absolutely necessary. That investment must be pulled in and made available in the near future.
We are already consulting on whether to offer generators a choice of renewables obligation certificates or a new feed-in-tariff mechanism between 2013-14 and 2017, once the electricity markets review legislation is in place. That will give marine generators access to the new forms of FITs from the start, which will provide added certainty and a more stable revenue stream. It will be a while before the new FITs are in place, and the marine sector needs to be confident that appropriate support will be in place before then, so as to ensure that longer-term investments will be made.
The longer-term future of the sector is clearly tied up with the new FITs, but we shall deal with the immediate problem through the review of the current ROCs. The coalition Government acted immediately after coming into office to review the banding of ROCs. As a result, investors will have certainty about what support is available a full year earlier than previously planned, with a Government response this autumn and legislation in place on the new ROCs banding by April 2012.
I cannot prejudge what that review will say, but the message given by my hon. Friend the Member for Camborne and Redruth was echoed powerfully at the meeting in Exeter. I am well aware of what the industry needs in order to expand and go forward, but that clearly needs to be balanced by other factors and other demands for renewable subsidy, which is, in effect, what ROCs are. Evidence obtained from the marine industry will feed directly into the ROCs review, and I am taking a personal interest in it.
That brings me to technology. The history of the marine renewables deployment fund—the MRDF—and its failure to spend is well known, and my hon. Friend briefly cantered around that course. It is a real indictment of the previous Administration’s failure to turn good will into good progress. The MRDF has been sitting on £50 million of the environmental transformation fund since it was created in 2005—as my hon. Friend said, the fund will close in a matter of weeks at the end of this financial year. That budget was allocated for the current spending review period, and the Department will have to make decisions over the allocation of new innovation funding. We secured more than £200 million of innovation funding in the comprehensive spending review; to date, we have allocated £60 million for ports infrastructure, but there are other competing areas. However, we will listen carefully to the needs of the marine industry.
The development of criteria for technology innovation centres is being undertaken by the Department for Business, Innovation and Skills. However, my Department is working closely with our BIS colleagues to ensure that those criteria are effective, appropriate and sufficient to drive innovation and technology. Detailed proposals have yet to be developed, but an offshore-focused TIC would make a valuable contribution in moving the sector forward, and we are actively engaged with our colleagues in that dialogue.
One of the Britain’s great strengths is its expertise in research and development. That is particularly true in the marine energy sector. With the Minister for Universities and Science, I co-chair the low carbon innovation group, which brings together the key Government bodies that support low carbon innovation, which allows us to ensure that they act in concert. That group has been developing the technology innovation needs assessments referred to by my hon. Friend, and marine energy and bio-energy are part of that programme.
This is clearly an important time for the industry. I would like to give more detail, but time does not allow it.
Sitting adjourned without Question put (Standing Order No. 10(11)).