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Energy in England’s North West - achieving sustainable growth A REPORT BY ENVIROS CONSULTING LIMITED: JUNE 2003

FinalDEVELOPMENT Report NORTH WEST AGENCY NORTH WEST ENERGY CLUSTER MAPPING & ACTION PLAN DEVELOPMENT

July 2003


NORTH WEST ENERGY CLUSTER MAPPING & ACTION PLAN DEVELOPMENT

ENERGY CLUSTER - EXECUTIVE SUMMARY Background Energy is both central and vital to the North-West. The energy cluster contributes around 53,000 jobs, over £5 billion in output and £1.2 billion in exports to the regional economy. A secure, reliable and competitive energy supply is essential to every person and business in the region. As this sector will experience change at an unprecedented pace over the next 10 to 20 years, the NWDA will need to take a lead to ensure that the business development opportunities and threats are recognised and addressed. The drivers for change are: legislative and environmental pressures step changes in the development of energy technologies ageing fossil and nuclear power stations depleting local oil and gas reserves the increasing accessibility of the market to new competition rapidly growing pressures on the energy infrastructure of the region. Against this background the NWDA commissioned a project to map the existing energy supply chain and to examine the economic and environmental implications of the key drivers. This wide ranging study has consulted over 150 companies, organisations and individuals representing all aspects of the North West energy economy.

Characteristics of the NW Energy Cluster The NW energy cluster is complex and diverse. It is interconnected both physically though the movement of energy down the supply chain and due to the common drivers and policy issues associated with global, UK and local energy markets. EEnneerg rgyy EEffic fficie iennccyy

Energy Cluster Supply Chain

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NORTH WEST DEVELOPMENT AGENCY

TTra rannssppoortrt FFuueels ls DDis istrib tribuutio tionn

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NORTH WEST ENERGY CLUSTER MAPPING & ACTION PLAN DEVELOPMENT

A summary of the Strengths, Weakness, Opportunities and Threats (SWOT) of the Cluster reveals.

SWOT of the North West Energy Sector Weaknesses

Strengths A world leading nuclear energy sector A major oil refinery Large-scale resources

renewable

energy

Leading players in gas energy systems Energy from waste (EfW)

Major Science resources

&

technologies

and

Low expertise in electrical energy conversion and transport technologies Skills shortage in manufacturing and services Fragmentation of R&D

Threats

A unified strategy for the region and a framework for support renewables

Flagship projects regional strengths

electricity

Technology(S&T)

Opportunities

Growth in efficiency

Limited capacity in transmission infrastructure Lack of local energy suppliers

Power distribution and systems

Energy efficiency services.

Cluster fragmentation and lack of a coherent vision

to

and

energy

demonstrate

Continued uncertainty in nuclear sector Ageing power generation plant Strong competition from other regions Low public interest/awareness Lack of support and funding

Development of the supplier base

Planning constraints

Co-ordination of R&D (Joule Centre)

Growing energy consumption and CO 2 emissions

Investment in the nuclear sector Investment in infrastructure

electricity

distribution

Impact of low carbon policy initiatives on energy costs

Building on the review of the North West and global markets, a full analysis of the economic growth, regeneration and infrastructure development opportunities has been undertaken. This maps opportunities against the regional strengths and is shown schematically in the bubble diagram below. This identifies the key energy sub-sectors where the most effort should be concentrated (top right of schematic). Note that the “bubble� size is proportional to employment in each sub-sector.

NORTH WEST DEVELOPMENT AGENCY


NORTH WEST ENERGY CLUSTER MAPPING & ACTION PLAN DEVELOPMENT

5 Energy Efficiency

Renewable Energy

4.5

Sector Attractiveness

4 Gas Equipment

3.5 Gas T&D

EfW

3 2.5

Power T&D

Elec Equipment

2 Oil & Gas

1.5

Nuclear

Conventional Power Generation

1 0.5 0 0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

5.5

6

North West Position

The Energy White Paper The central policy goal in the Energy White Paper of moving towards a 60% reduction in CO 2 emissions by 2050 and the associated emphasis on renewable energy and energy efficiency plays to a number of regional strengths. The challenge will be to demonstrate that the North West can make real progress in achieving CO 2 reductions by creating the conditions to stimulate renewable energy and energy efficiency investments and by building up a strong supplier base to reap the economic benefits. The White Paper stresses the need to develop the existing transmission and distribution networks to exploit both large-scale renewables resources and smaller generators. The North West is well placed to respond to this with its strengths, in both industry and its Universities, in power systems engineering and distributed generation including micro CHP. The nuclear option is kept open as a key means of reducing CO 2 emissions in the event that the twin-track approach of renewables and energy efficiency fails to deliver results. This raises important implications for the future of the nuclear industry as a major contributor to the regional economy. A range of key future low carbon technologies have been identified for focus including offshore renewables, biomass and waste, PV, fuel cells and hydrogen. There will be increased funding for R&D in such areas and the establishment of a National Energy Research Centre. The analysis of the region’s science and technology strengths shows that the North West is well placed in many of these areas and the establishment of the Joule Centre will help to ensure that region benefits from the available support.

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NORTH WEST ENERGY CLUSTER MAPPING & ACTION PLAN DEVELOPMENT

The White Paper highlights the importance of working closely with the RDA’s, local authorities and other regional stakeholders to achieve its goals. This project to develop a regional Energy Strategy and Action Plan demonstrates the importance placed by the NWDA on the energy cluster. The North West Regional Assembly is in the process of developing a sustainable energy policy for the regional which will address the key planning issues and the involvement of the local authorities. Hence, the region is well positioned to respond to the White Paper and to work with other stakeholders to develop and implement regional programmes to deliver economic, environmental and security of supply benefits.

Targeting the Priorities After thorough consultation on the results of this analysis, including hosting consultation events with the key stakeholders, the following sectors have been identified as having the most potential for the North West economy.

Priority Sector

Sub-sector focus

Rationale for North West focus

Key UK Market Drivers

Energy efficiency

Gas combustion and heating equipment Insulation products/services Controls/software Energy services Consultancy

Strong supply chain and major growth area

Kyoto targets White Paper goals Climate Change Levy Grants Energy Efficiency Commitment (EEC)

Renewable energy

Offshore and onshore wind Biomass Photovoltaics (PV)

Large renewable resource, Renewables North West, and major growth area

Kyoto targets White Paper goals Renewables Obligation Grants

Power transmission & distribution

Distribution systems Advanced power systems engineering

S & T base, strong supply chain and major UK player

White Paper OFGEM initiative Technology developments

Combined Heat & Power

Domestic and small scale Combined Heat & Power (CHP)

S & T base, strong supply chain and major growth area

Government targets

Nuclear

Fuel Reprocessing Waste management New generation nuclear power

Leading global capability

Kyoto/White Paper Legacy issues Supply diversity

Energy-from-waste

Landfill and sewage gas systems Gasification and pyrolysis Digestion/bio-gas production

Strong supply chain and export opportunities

Landfill Directive Energy recovery targets

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NORTH WEST ENERGY CLUSTER MAPPING & ACTION PLAN DEVELOPMENT

Priority Sector

Sub-sector focus

Rationale for North West focus

Key UK Market Drivers

Oil & gas

Global market opportunities for NW suppliers Potential for NW suppliers to diversify into renewable and other clean energy technologies

Strong supply chain and diversification opportunities

Maturity of the UK Continental Shelf Growth in developing countries New technology growth

Research & Development

Power systems engineering Wave/tidal power Micro generators Energy efficiency Built environment Fuel cells and hydrogen Assessment and modelling

S&T strengths in the HEIs and private sector

Increased funding for energy R&D

Joule Centre

Plans for National Energy Research Centre and Network (UKERC)

The Vision It is recommended that a vision for the energy cluster is developed which embodies and is driven by the following key principles: Economic development in the form of wealth creation and jobs Achievement of a greater diversity and security of energy supply Establishing a leading position in the field of environmental improvements.

Making It Happen The energy cluster in the NW is currently fragmented. The NWDA can help to encourage strong private sector involvement through the appointment of a Head of Energy with strong support from industry “champions”. An Energy Council, consisting of senior representatives from the key energy cluster stakeholders in the region, should be established to provide guidance and weight to the vision and strategy. It should be chaired by a leading NW figure from the energy sector. Implementation should be achieved as far as possible through existing regional bodies and initiatives with facilitation and co-ordination from the North West Energy Council and a Management Group. An important aim should be to consolidate resources where possible to reduce fragmentation in the support infrastructure. A recommended action plan and suggested opportunities for flagship projects have been developed. Already some of these suggestions are being implemented by the key stakeholders: ♦

To establish the North West Energy Council and Management Groups (Flagship project: Regional Conference)

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NORTH WEST ENERGY CLUSTER MAPPING & ACTION PLAN DEVELOPMENT

To create wealth through the development of the supplier base in the priority sectors

To invest in the energy transmission and distribution infrastructure (Flagship project: NW Distributed Energy Consortium)

To achieve ambitious but realistic targets for renewable energy supply (Flagship projects: Offshore wind, biomass, large-scale PV, wave/tidal demonstrations)

To achieve big carbon reductions through energy efficiency in the domestic, business and public sectors (Flagship projects: dCHP demonstrator, Eco-village, energy efficiency pilots, Kyoto Club)

To address the replacement of the region’s ageing power stations

To innovate in energy technologies and systems to deliver a future low carbon economy cost-effectively (Flagship projects: Joule Centre, UKERC bid)

To improve public awareness and attitudes towards energy (Flagship project: Sustainable Energy Park)

To address energy cluster skills shortages and training needs (Flagship project: training initiative for electrical engineers).

Each of the above action areas is covered in more detail in the Action Plan attached to this report. This makes recommendations on lead organisations, supporting players, priorities, timescales and costs. It is estimated that implementation of the Action Plan will deliver the following benefits over the next 10 years: ♦

The creation of 7,600 new direct jobs

A growth in sales of regional suppliers of nearly £800 million per annum

Additional investment of over £5 billion

A reduction in CO 2 emission of around 5 million tonnes (1.4 MtC) per annum.

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CONTENTS PAGE

1.

2.

3.

4.

5.

INTRODUCTION

1

1.1

Project Background

1

1.2

Project Objectives and Scope

1

1.3

Project Programme

2

1.4

Acknowledgements

3

REVIEW OF GLOBAL ENERGY MARKETS

4

2.2

World Energy Demand

6

2.3

Global Market Opportunities Overview

10

2.4

Major Global Players

12

2.5

Key Markets for UK Suppliers

17

2.6

Regional Initiatives

17

2.7

Key Issues and Lessons for the North West of England

23

UK ENERGY MARKET

24

3.1

Energy White Paper & Consultation Process

24

3.2

The Energy White Paper

24

3.3

Energy Supply & Demand

28

3.4

Industry Structure & Developments

28

3.5

Regional Initiatives & Clusters

35

NORTH WEST SUPPLY & DEMAND

37

4.1

Top Down Analysis of Energy Supply in the North West

37

4.2

Energy Transmission

40

4.3

Energy Demand

44

4.4

Potential for Energy Efficiency Improvements

47

4.5

Supply Demand Scenarios

58

4.6

Key Issues

66

STAKEHOLDER & SUPPLY CHAIN ANALYSIS

69

5.1

Energy Industries Structure & Overview

69

5.2

Oil & Gas Industry

72

5.3

Nuclear Industry

76

5.4

Fossil Fuelled Power Generation

79

5.5

Renewable Energy

80

5.6

Transmission & Distribution of Energy

82

5.7

Energy Conversion

85

5.8

Energy Efficiency Products & Services

89

5.9

Consultants & Contractors

91


CONTENTS PAGE

6.

7.

5.10 Feedback from Consultation Events

93

5.11 Energy Industry Representation & Current Initiatives

95

REVIEW OF THE ENERGY SCIENCE AND TECHNOLOGY BASE IN THE NORTH WEST

97

6.1

Background

97

6.2

SWOT Analysis

97

6.3

Existing and Future Potential Clusters

99

6.4

Industrial R&D

100

6.5

National Energy R&D

100

6.6

Further Developments

101

ANALYSIS & CONCLUSIONS

103

7.1

Cluster Scope, Definition & Analysis

103

7.2

Common Barriers & Issues

106

7.3

Energy White Paper Implications

107

7.4

Global Market Opportunities

108

7.5

Lessons from Other Regions & Countries

109

7.6

SWOT Analysis

111

7.7

Cluster Growth Potential

113

7.8

Scope for Intervention in the NW

116

7.9

Cluster Vision and Representation

117


NORTH WEST ENERGY CLUSTER MAPPING & ACTION PLAN DEVELOPMENT

1.

INTRODUCTION 1.1

Project Background

One of the key objectives of the North West Regional Strategy, published by the North West Development Agency (NWDA), is to develop world-class clusters of businesses, which offer outstanding employment and growth potential. Energy has been identified as a significant target cluster in this context. Some sectors of the energy cluster in the NW have already been analysed (e.g. renewable energy and the oil & gas sector) but information on others is limited and there has been no assessment of the complete energy supply chain as a basis for developing an overall energy strategy and plan for the region. The need for such a strategy and plan is vital since regional aspects of energy supply, infrastructure and demand are becoming more important in the pursuit of a secure, competitive and sustainable energy system for the UK. This is reinforced in the Government’s Energy White Paper which recognises the importance of the regions and Regional Development Agencies in the delivery of energy policy objectives.

1.2

Project Objectives and Scope

There are two main aims to this project: 1. To map the energy cluster in the North West and to evaluate its competitiveness in the context of global/UK industry trends and EU/UK energy policies. Key areas for emphasis include: analysis of the current and future energy supply and demand situation including the potential for improved energy efficiency assessment of the regional science and technology base in the energy field and the impact of new technology quantification of the size and scale of the energy cluster in the region and its contribution to the regional economy evaluation of the competitiveness of the energy cluster, and the associated supply chains, in the North West compared with other UK and selected overseas regions identification of the barriers to growth and the development and support needs of the cluster identification of the key market drivers and opportunities for growth. 2. To produce a strategy and plan for the future development of the cluster, taking account of the growth opportunities as well as the threats facing the industry, and its stakeholders, over the next 10 to 12 years. A key objective is to make practical recommendations on the actions, how they should be implemented and who should be involved. This includes recommendations on the support structures for the cluster and the organisations involved.

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NORTH WEST ENERGY CLUSTER MAPPING & ACTION PLAN DEVELOPMENT

The project has been carried out in parallel with work being undertaken by the North West Regional Assembly (NWRA) on the development of a Sustainable Energy Strategy for the region covering issues such as sustainable development, energy and land use policies, planning guidance and targets e.g. for energy efficiency, renewable energy and CHP.

1.3

Project Programme

The project has been undertaken by a team of consultants from Enviros Consulting Ltd and UMIST working closely with the Cluster Team within the NWDA. The programme of work has consisted of the following activities: An overview of global energy markets to identify market trends and opportunities (Report Section 2). This has included a review of energy cluster development programmes in Europe and the USA to identify lessons that could be applied to the North West. An overview of the UK Energy Market covering the Energy White Paper, supply and demand and industry structure (Section 3). An assessment of energy sector programmes in other English regions (e.g. the North East and the East of England) and in the Devolved Administrations has also been undertaken to draw on relevant experience that could be applied in the North West. An assessment of energy supply and demand in the North West to identify the key issues facing the region and to evaluate how the current picture may change over the next 10 years (Section 4). This has included the construction of a spreadsheet model of energy supply and demand that can be used to quantify the impacts of changes in assumptions on aspects such as economic growth, population trends, different supply scenarios and the impacts of energy efficiency measures. An analysis of the complete energy supply chain in the NW, and the stakeholders involved, from fuel production/supply to energy use (Section 5). This draws on the results of previous studies into the oil & gas industry, renewable energy and the nuclear sector. It includes new research into other areas in the supply chain including the transmission and distribution of energy, energy conversion technologies/equipment and energy efficiency products/services. In addition, it covers suppliers and other stakeholders that are involved in the supply chain e.g. consultants, contractors and support organisations. This part of the project included two consultation meetings with stakeholders, part of the way through the project, to review preliminary findings and to identify key issues and barriers to the development of the energy cluster (See Section 5.10 for summary of results). A total of over 150 companies, organisations and individuals were included in the research and consultation part of the project. A review of the energy science and technology base in the North West with a focus on the region’s universities and leading industrial technology centres. The results are summarised in Section 6 and a separate, more detailed report on the universities (produced by UMIST) is available including a database of university expertise. A meeting of interested parties from the universities and industry was also organised during the project to review the results of the UMIST study and to agree the next steps in the development of a more co-ordinated approach to energy R&D in the region (see Section 6.6).

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NORTH WEST ENERGY CLUSTER MAPPING & ACTION PLAN DEVELOPMENT

Analysis of the results of the previous work to draw the key conclusions in terms of cluster size and structure, contribution to the regional economy, barriers to growth and global opportunities (Section 7). The includes a strengths, weaknesses, opportunities and threats (SWOT) analysis and an assessment of cluster growth potential including a “bubble” diagram covering the positions of the key sub-sectors in 2002 and 2012. Recommendations on the formation of the North West Energy Council and on the action plan have been made but these are confidential in the context of this published report. The project was undertaken between September 2002 and June 2003 with the bulk of the research being completed by the end of January 2003. Further work on the report and action plan was undertaken after the publication of the Energy White Paper in February 2003. A number of presentations of the preliminary results of the project have been made including a progress report at the North West Renewables Conference – Offshore in Blackpool on 1 st May 2003.

1.4

Acknowledgements

The project team acknowledges the valuable contributions to this project from the wide range of organisations and companies that have participated and in particular from: •

Platts (for electricity supply data)

United Utilities

The North West Regional Assembly

The North West Universities Association

Renewables North West

Envirolink North West

Government Office for the North West

DTI.

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NORTH WEST ENERGY CLUSTER MAPPING & ACTION PLAN DEVELOPMENT

2.

REVIEW OF GLOBAL ENERGY MARKETS Global energy markets are in a state of rapid change. Increasingly, efforts are being made, at both international and national level to improve energy efficiency and to reduce carbon emissions due to the possible harmful impacts of energy use on the environment. Yet energy use continues to increase and the demands on fossil fuel reserves continue to grow. Against this background there exist significant business opportunities for a variety of UK companies supplying energy technologies, products and services. 2.1.1

Market Drivers & Policy Issues

The major policy issues affecting the future development of global energy markets will focus on: Meeting the growth in global energy demand Meeting emission targets (Kyoto and beyond) Ensuring a secure and diverse energy supply. Set against this, there is a common drive to make energy markets more competitive leading to lower prices and hence a reduced incentive to save energy. Governments are hoping to meet emission targets by reducing energy consumption (through improvements in energy efficiency) and developing renewable energy sources for power generation. Ensuring the security and diversity of energy supplies will mean (a) avoiding dependency on energy imports in general and imported transport fuel in particular and (b) developing new energy sources for power generation. Additional policy issues will cover: The future of nuclear energy including decommissioning of nuclear power stations and safe disposal of nuclear waste Closure of older coal-fired power stations Addressing fuel poverty and sustainability. The key factors driving the global energy market over the next ten years include: Climate Change. Over 170 countries are signatories to the Kyoto Agreement which seeks to reduce the emissions of greenhouse gases. Power generation and transport are the biggest contributors to greenhouse gas emissions and as such are subject to increasing regulation to become more energy efficient and reduce levels of emissions. According to IEA forecasts, global energy-related emissions of CO 2 will grow slightly more quickly than primary energy demand, i.e. by 1.8% per year from 2000 to 2030, to reach 38 billion tonnes in 2030 compared to the current level of 16 billion tonnes. This huge increase puts the UK target of achieving emissions reductions of around 100 million tonnes by 2012 into perspective. The geographical source of new emissions will shift over this period from the industrialised countries to the developing world, with two-thirds of this increase forecast to come from developing countries. Power generation and transport together are expected to account for 75% of all new emissions.

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NORTH WEST ENERGY CLUSTER MAPPING & ACTION PLAN DEVELOPMENT

Increasing Energy Demand. The worldwide growth in energy demand is set to continue with the continued dominance of fossil fuels in global energy use. Demand will rise most quickly in the developing countries but there will also be increased demand in the industrialised countries. Flexible Mechanisms. Economic measures, such as emissions trading and carbon tax, (as opposed to regulatory measures) are often referred to as flexible mechanisms. The term “emissions trading� usually refers to the trading of emissions permits between companies but the term can also apply to trading between countries. The clean development mechanism (CDM) is the Kyoto Protocol's flexible mechanism for cooperation on the reduction of greenhouse gas emission between developed and developing countries. It has the potential to generate substantial financial resources to cover the incremental costs of projects which are designed specifically to reduce greenhouse gases. CDM financing, in the form of co-financing within a larger project, is expected to come exclusively from developed countries. For developing countries, the CDM should bring foreign investment and access to cleaner technology. For industrialised countries, it should provide a cheaper and more flexible way to meet their emission reduction targets. A key player in this area is the Dutch government with its CERUPT programme. UK organisations involved include Rolls Royce and Cochrane Boilers. Market Liberalisation. The worldwide trend towards the liberalisation of energy markets has helped to promote the use of third party generators and independent power producers which creates opportunities for private investment in power generation. This leads to lower energy prices and business opportunities in the design of market mechanisms (see above).Liberalisation of energy markets can also provide a more favourable environment for renewable energy adoption, particularly for those technologies which are commercially mature such as on shore wind and energy-from-waste, as well as promoting the use of embedded power generation. Fuel Security. The events of September 11 th have emphasised the need to secure energy supplies, particularly for the major importing countries of oil and gas in Europe and the United States. Diversity of Supply. The need to ensure a diversity of energy supplies has been highlighted by the black-outs in California and the increasing concentration of oil and gas supply amongst a small number of producing countries. The governments of oil- and gas-importing countries in Western Europe and the United States are driven increasingly to consider renewable energy supplies not only in response to the need to reduce greenhouse gas emissions but also in response to the current heightened political tensions. New Technologies. The benefits of distributed energy generation in grid networks that can be met using either renewable energy systems or mini/micro CHP technologies is now established but it is recognised that there is a need for technical development in areas such as grid connection, power systems engineering, electricity storage and transmission and transport efficiency. Renewable energy sources by their nature are subject to the vagaries of weather conditions (e.g. solar and hydro-power) and are likely to be positioned some distance from energy users (e.g. wind farms and offshore installations harnessing tidal power).

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NORTH WEST ENERGY CLUSTER MAPPING & ACTION PLAN DEVELOPMENT

New Energy Sources. In the longer term, there is concern about the future availability of fossil fuels. Shell is predicting that depleted oil wells will cease to be viable within the next 20 years and that the subsequent switch to cleaner fuels will be led by the oil companies. New sources of energy and advanced technologies will be required to meet future energy demands. Non-conventional sources of oil, such as oil sands and gas-to-liquids, are set to expand as their production costs decline. Fuel cells are also projected to make a modest contribution to global energy supply after 2020, mostly in small decentralised power plants. Fuel cells involving the steam reforming of natural gas are expected to reach commercial viability first. Shell is currently exploring the development of a cleaner transportation fuel i.e. BioFT, a synthetic diesel derived from biomass sources. The company is also researching the use of hydrogen-based fuel cells. Fuel Poverty. The IEA estimates that some 1.6 billion people in the world have no access to electricity and more than 80% of them live in South Asia and subSaharan Africa. At present, four out of five people without electricity live in rural areas but the pattern is set to change because 95% of the increase in world population over the next 30 years will occur in urban areas. Renewable energy has the potential to stimulate economic development and reduce poverty in developing countries. Renewable energy technologies, such as solar, wind and biomass, may be cost effective options for specific off-grid applications, but conventional fuels and established technologies are more likely to be preferred for on-grid capacity expansion. Energy Efficiency. Environmental and energy efficiency issues have become the key drivers for change in the EU energy market, most significantly climate change and “acid rain” emissions. This trend is likely to continue and intensify in the future as demand for energy continues to increase and the environmental effects, such as climate change, continue to grow in importance.

2.2

World Energy Demand

Despite government efforts, mainly in the industrialised countries, energy use continues to grow. At present the growth rates overall appear quite small but increasing populations and economic prosperity in the developing world means demand for energy is set to grow relentlessly in the future. Current Demand World energy consumption of primary energy increased marginally in 2001, by just 0.3%, to reach 9.125 billion tonnes oil equivalent (toe) this was the third year since 1998 that primary energy consumption grew by less than 0.5% year-on-year. The main cause for this weak demand in 2001 was the downturn in the world economy. North America (USA, Canada and Mexico), Japan and the EU together consume around half of the world’s primary energy. Table 1

World Primary Energy Consumption by Region, 2001

Region

Million toe

%

North America Japan European Union (15) Rest of the World

2639.6 514.5 1478.9 4491.8

29 6 16 49

Total

9124.8

100

Source: BP Statistical Review of World Energy 2002

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NORTH WEST ENERGY CLUSTER MAPPING & ACTION PLAN DEVELOPMENT

Primary energy consumption rose in all regions with the exception of North and South America during 2001. The main decrease in demand was experienced in North America where consumption fell by 2.4%. Table 2

World Primary Energy Consumption by Region

2000 Millions toe

2001 Millions toe

Increase (Decrease) %

North America

2703.2

2639.6

-2.4

Latin America

453.2

451.8

-0.3

Europe

1877.8

1894.5

+0.9

Former Soviet Union

938.3

949.4

+1.2

Middle East

390.3

397.2

+1.8

Africa

276.9

280.6

+1.3

Asia Pacific

2455.9

2511.7

+2.3

Total

9095.6

9124.8

+0.3

Region

Source: BP Statistical Review of World Energy 2002

Fossil Fuels World oil consumption fell marginally in 2001. The demand for oil was hit by the terrorist attacks in the United States on September 11 th . Europe and Africa were the only regions where consumption actually rose. Consumption of natural gas rose by 0.3% in 2001 compared to 4.3% in 2000. Gas demand actually fell during the year in North America, down from 683.6 toe in 2000 to 650.4 toe in 2001. World coal consumption increased by 1.7% in 2001, following four years of decline, as a result of the strong demand in China and large increases in some other Asian countries. European coal use resumed its decline, falling 1.2%. US coal consumption fell 1.7%, reversing much of the strong growth seen during 2000. Non-Fossil Fuels Perhaps surprisingly, consumption of nuclear derived energy rose while that from hydroelectric sources declined. There is some uncertainty about the future use of nuclear power. Some governments see the nuclear option as a means of reducing greenhouse gas emissions and of improving security of supply. The use of hydroelectric sources declined in 2001 in the United States and Latin America as a result of low rainfall. These drought conditions may be climate change related. Overall, consumption of nuclear energy in Europe (excluding the former Soviet Union) increased by 2.9% to 225 million toe in 2001. In the EU alone the increase was 3%, rising from 195.7 million toe to 201.6 million toe in 2001 (including Sweden where consumption increased from 13 million toe in 2000 to 16.4 million toe in 2001). Hydroelectric consumption fell in 2001 by 3.6%. Overall, consumption of hydroelectric energy in Europe (excluding the former Soviet Union) was fairly static at just over 142 million toe but in the EU rose from 79.6 million toe to 84.4 million toe in 2001. The main fall in demand was in North America and Latin America, by 14% and 5% respectively. Demand in Brazil alone fell by 11.7% during 2001.

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NORTH WEST ENERGY CLUSTER MAPPING & ACTION PLAN DEVELOPMENT

Table 3

World Primary Energy Consumption by Fuel

2000 Millions toe

2001 Millions toe

Increase (Decrease) %

Oil

3519.0

3510.6

-0.2

Natural gas

2157.5

2164.3

+0.3

Coal

2216.8

2255.1

+1.7

Nuclear

585.0

601.2

+2.8

Hydroelectricity

616.9

594.5

-3.6

Adjustment

+0.4

-0.9

9095.6

9124.8

Fuel

Total

+0.3

Source: BP Statistical Review of World Energy 2002

** Data on increased use of renewables – see below. ** Slight discrepancy between BP and IEA data mostly accounted for by renewables. Future Demand Global primary energy demand is expected to increase by 1.7% per year between 2000 and 2030 rising to about 15.3 billion toe. According to IEA data, world primary energy demand was 10.1 billion toe in 2000 and is expected to reach 14.8 billion toe by 2020. The largest energy demand is expected to occur in the developing and transitional countries as a result of increasing populations and economic growth. However, North America and Europe will remain the largest energy users over the next 15 to 20 years, both in absolute terms and per capita terms. The IEA are anticipating substantial investments in new generating capacity in the coming years. The largest single investor is expected to be China but significant investment is also expected in North America, Western Europe, India, South East Asia and Central and South America. Alongside this investment in new generating plant, there will be a need to invest in associated power system technologies, designed to reduce system losses and improve system reliability and power quality. Table 4

World Primary Energy Consumption by Region

2000 Millions toe

2010 Millions toe

2020 Millions toe

OECD

5320

5518

5880

Latin America

455

856

1095

Eastern Europe/Former CIS

1020

1215

1465

Middle East

380

496

680

Africa

510

645

800

Asia

2290

3509

4700

Adjustment

135

161

180

Region

Total

10110

Source: Enviros based on IEA data

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Fossil fuels will remain the primary sources of energy, accounting for 83.5% by 2020 compared to 80% in 2000. Oil will continue to be the main fuel but gas is expected to show the biggest single increase. Coal, however, will continue to be important because developing counties, like India and China who have large coal reserves, will rely on coal. Hydroelectricity is expected to rise by 50% over the 20 year period and other/renewables to increase by nearly 30%. The other/renewables category includes combustible renewables and waste (biomass, municipal waste and industrial waste) and geothermal, solar, wind, tidal etc. Table 5

World Primary Energy Consumption by Fuel

2000 Millions toe

2010 Millions toe

2020 Millions toe

Oil

3620

4576

5478

Natural gas

2101

2716

3537

Coal

2341

2815

3345

Nuclear

676

694

620

Hydroelectricity

226

285

340

1146

1314

1480

10110

12400

14800

Fuel

Other/renewables Total Source: Enviros based on IEA data

The necessary expansion of production and supply capacity will call for massive investment at every stage of the energy supply chain. Investment of almost $4.2 trillion will be needed for new power generation alone between now and 2030 according to IEA estimates. According to Climate Solutions 1 (based on IEA data) around 2,300 GW of new electrical capacity will be installed worldwide between 2000 and 2020 (equivalent to 1000 power stations of the size of Fiddlers Ferry). The largest single investor will be China. The value of investments made by North America, Western Europe, India, East Asia and Latin America should all be similar. The figure below shows estimated maximum and minimum spend to 2020 by region.

1

Poised for Profit: How Clean Energy Can Power the Next High-Tech Job Surge in the Northwest. www.climatesolutions.org NORTH WEST DEVELOPMENT AGENCY

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Figure 1

Global Electrical Capacity Changes 2000 to 2020

Source: Climate Solutions

2.3

Global Market Opportunities Overview

The world market for energy equipment and related services provides a wide range of business opportunities for manufacturers, project developers and utility companies. Estimates of the likely levels of investment are uncertain, and vary significantly, but are generally believed to be very large. The technologies that are expected to contribute to the opportunities in the energy sector are at widely differing stages of development. Some, such as energy efficiency measures, are well established but not widely disseminated, whilst others, such as micro CHP, are being deployed commercially but are not yet fully competitive in all situations. Many new technologies are at the demonstration stage, and require further support before widespread deployment is possible. Technology development is not the only driver, the need for education and dissemination of best practice is also of key importance, especially in influencing improvements in the transport and domestic sectors. 2.3.1

Electricity Transmission & Distribution

During transmission and distribution of electricity, a certain amount of energy is lost in the process. In industrial countries, power transmission and distribution (T&D) systems generally have losses that are in the range of 5% to 10%. In developing countries, on the other hand, T&D losses commonly exceed 20%. These losses may be associated with a lack of financial resources to expand and maintain the systems, chronically overloaded systems, inadequate billing and collection infrastructure and theft. Loss reductions can be achieved through system rehabilitation projects, use of capacitors and synchronous condensers to correct system power factors, rigorous loss reduction programs, improved billing and collection practices and increased theft monitoring. Reducing T&D losses helps avoid adding new generating capacity and therefore contributes to a reduction in greenhouse gas emissions. Methods for reducing technical T&D losses are straightforward and do not require any advanced technologies. The market for relevant control equipment is driven almost entirely by the utilities' interest in improving their bottom line. Deregulation and privatisation of the power sector play a major role in expanding this market segment. Potential opportunities for T&D improvements exist throughout the developing world, particularly in countries with large power grids. NORTH WEST DEVELOPMENT AGENCY

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2.3.2

Clean Energy Market

The key areas of interest are energy products and services which are associated with greenhouse gas emission reduction. These clean energy products and services include: Advanced power systems that store, transmit and control energy more effectively and efficiently Fuel cells i.e. devices which turn chemical energy directly into electricity and heat (and could change the way everything from cars to homes are powered in the future) Photovoltaics which are sophisticated wafers and films that catch the sun’s energy and convert it to electrical energy Renewable energy technologies including wind installations, small hydro plants, and biomass fuels

turbines,

geothermal

Energy efficiency technologies/services (including energy management systems) that make traditional power sources more effective and efficient. New investment in the clean energy sector is forecast to exceed $3.5 trillion between 2000 and 2020, an average of $180 billion per year. Energy efficiency and energy management systems (EMS) currently account for the bulk of the market with sales of around $70 billion worldwide. By 2020, sales of energy efficiency and EMS are expected to reach $200 billion per year. The market for power systems and clean energy production technologies alone are expected to exceed $500 billion. These figures are based on modelling data from the IEA using fairly conservative assumptions regarding government policies to support the deployment of clean energy technologies. Higher growth rates may occur under more aggressive policies to control greenhouse gas emissions. Figure 2 shows projections for changes in the value of installed clean energy capacity between 2000 and 2020 for the main renewable sources and power systems. The change for energy efficiency is in annual sales value.

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Figure 2

Projected Global Market for Clean Energy Products and Services, 2000 to 2020

Source: Climate Solutions

2.4

Major Global Players

The global energy market is dominated by a small number of large multinational energy companies, many of which have their roots in the oil and gas sector, such as Shell, BP, Exxon etc. Many of these companies are also becoming involved in the clean energy sector. Shell, for example, is focusing considerable R&D effort on fuel cell development in response to predictions that fossil fuel supplies will fall dramatically in the future. BP is a major global player in solar energy. The clean energy sector, however, is served by many specialist companies, particularly in the renewables sector.

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Table 6

Global Players in the Clean Energy Sector

Sub-sector

Global Players

Wind Power

Vestas (Denmark) NEG Micon (Denmark) Enercon (Germany) BONUS Energy (Denmark) Gamesa (Spain) MADE (Spain) Nordex (Denmark)

Geothermal

CalEnergy (US) CalPine (US) Ben Holt Company (US) Mitsubishi (Japan) Geothermal Power (US)

Biomass

Lurgi (Germany) Bioflow (Sweden/US) Noell (Germany) TPS Termiska (Sweden) Carbona (Finland)

Small Hydro Power

ABB Power (Switzerland) American Hydro (US) BHS-Cincinnati Getri (Germany) GEC Alsthom (France) Sulzer (Switzerland) Kvaerner (US) Raytheon Infrastructure Inc. (US)

Solar

Amoco-Enron Solar (US) Applied Power (US) BP Solar (UK) Eurosolare (Italy) Siemens Solar (US) Solec (Japan) Sun Power Electric (US) Xantrex (Canada)

Fuel Cells

Ballard (Canada) Exxon Mobil (US) International Fuel Cells (US) Shell (UK/Holland) Siemens (Germany) Westinghouse (US)

Source: Climate Solutions

Table 6 shows the strength of European companies in the renewable energy sector, particularly wind power and biomass, and of US and Canada in solar power and fuel cell technology. This table highlights the lack of a major UK player operating in any of the above global markets except for BP in solar technology and Shell in fuel cells.

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Cleaner energy technologies include industrial gas turbines which are used in cogeneration/CHP applications. Industrial gas turbines are gas turbines for land and marine applications in the power range below 50 MW. The key European players are members of EuMIGT (Association of European Manufacturers of Industrial Gas Turbines) and include: Alstom Power, Sweden and UK MAN Turbomaschinen AG GHH Borsig, Germany Nuovo Pignone, Italy Rolls-Royce plc, UK Turbomeca Land and Marine Turbines, France Volvo Aero Corporation, Sweden. The major global players in the power systems and energy efficiency technologies sectors tend to be multinational engineering and electronics companies. European and Japanese companies dominate these sectors. Most of the world’s leading producers of electrical T&D equipment are either European (ABB, Alstom, Schneider, Siemens, Pauwel and VA TECH) or Japanese (Mitsubishi, Toshiba and Hitachi). The only exception is General Electric of the United States. FKI is the only significant producer of transformers and switchgear that is UK owned. However, local market conditions and standards vary and so a local presence in each market is usually required. This situation favours small and medium-sized companies particularly the energy efficiency technologies and services sector. Industrial Process Controls. The leading international manufacturers of process controls are Honeywell (a U.S. company which makes one-third of the automatic control systems sold worldwide), ABB (Switzerland), Siemens (Germany), General Electric (United States), Siebe (United States), and Landis & Gyr (Switzerland). Yokogawa (Japan) is also a major player, especially in Asia. Industrial Motors and Variable Speed Drives. There are about 45 major manufacturers of industrial motors worldwide, although U.S. and European manufacturers dominate the market for energy efficient motors. Top motor manufacturers include General Electric (United States), Siemens (Germany), Toshiba (Japan), and Westinghouse (United States). ABB (Switzerland) and Fuji (Japan) are leaders in the production of VSDs Boiler Efficiency. The world's largest boiler manufacturers include ABB Combustion Engineering (Switzerland), Babcock and Wilcox Power Generation Group (United States), Deutsche Babcock (Germany), Foster Wheeler Energy Corporation (United States), Mitsubishi Heavy Industries (Japan), and Mitsui-Babcock Energy (Japan). Lighting. The world's largest lighting manufacturers are Osram GmbH (Germany), GE Lighting (United States), and Philips Lighting (Netherlands). Each company has a global presence with international operations in strategic countries. Building Controls and HVAC. The major manufacturers of building controls and HVAC systems are Carrier (United States), Honeywell (United States), Johnson Controls (USA), Landis & Gyr (Switzerland), McQuay International (United States), Siebe Environmental Controls (United States), and ABB (Switzerland).

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Building Insulation. Building insulation resists the flow of heat which aids in reducing the amount of energy needed to maintain a constant temperature inside a building. The comfort level of a building is also improved with insulation in several ways: reduced drafts, warmer floors, and uniform temperatures. Major suppliers to the global insulation market is include KnaufAlcopor (with a key site in St. Helens that used to be owned by Owens Corning), Saint-Gobain, Rockwool and British Gypsum-Isover. Saffil, based in Widnes, is a specialist supplier of high performance alumina fibres and composites for a range of applications and markets including insulation. In addition, there are also a number of regional and local participants in the insulation industry. New Windows/Double Glazing. Windows can be a major source of heat loss in the winter and heat gain in the summer; therefore, they present significant opportunities to improve the energy efficiency level of a building. Different combinations of frame style, frame material, and glazing can lead to different levels of energy efficiency. The global window market is characterized by multiple manufacturers of a variety of frame types. Aluminium and uPVC window makers presently dominate business in 95 countries around the globe. Household Appliances. There are six firms that account for the majority of the global efficient household appliance market, including Siemens (Germany), Electrolux (Sweden), Whirlpool, General Electric, Maytag, and Raytheon (all U.S. companies). In total, they manufacture about 35 brand name appliances. Although local companies with small distribution and low costs still maintain a significant role in the markets of developing countries, their role may diminish as the multinational companies begin to enter these markets.

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Table 7

Global Players in the Clean Energy & Energy Efficiency Sectors

Subsector

Global Players

Power Systems Technologies

ABB (Switzerland/Sweden) Alstom (France) Messenwander NGK (Japan) Ritz Siemens (Germany) Trench (Canada)

Energy Management Systems

GE/Honeywell (US) Siemens (Germany) Philips (Netherlands)

Industrial Process Controls

General Electric (US) Honeywell (US) ABB (Switzerland) Siemens (Germany) Siebe (US) Landys & Gyr (Switzerland) Philips (Netherlands) Yokohama (Japan)

Industrial Motors and Variable Speed Drives

General Electric (US) Siemens (Germany) Toshiba (Japan) Westinghouse (US) ABB (Switzerland Fuji (Japan) Danfoss (Denmark)

Boilers/Boiler Efficiency

ABB Combustion Engineering (Switzerland) Babcock & Wilcox Power Generation (US) Deutsche Babcock (Germany) Foster Wheeler Energy Corporation (US) Mitsubishi Heavy Industries (Japan) Mitsui-Babcock Energy (Japan).

Lighting

Osram GmbH (Germany) GE Lighting (US) Philips Lighting (Netherlands

Building Controls and HVAC

Carrier (US) Honeywell (US) Johnson Controls (US) Landis & Gyr (Switzerland McQuay International (US) Siebe Environmental Controls (US) ABB (Switzerland).

Building Insulation

KnaufAlcopor (Germeny/US) Saint-Gobain (France) Rockwool (US) British Gypsum-Isover (UK)

Household Appliances

Siemens (Germany) Electrolux (Sweden) Whirlpool (US) General Electric (US) Maytag (US) Raytheon (US)

Source: Climate Change Report, US Department of Commerce

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The importance of European and US companies in the clean energy industry is reflected in future market opportunities.

2.5

Key Markets for UK Suppliers

The DTI/Trade Partners UK in its 2001 Power Export Strategy provides the following assessment of priority markets for UK companies in the energy, power projects and services sector (which includes clean energy products and services) as follows: Top priority market for large scale investment is the US market (requiring reactive support only from Trade Partners UK). Priority targets (for Trade Partners UK activity) are the EU and central Europe (particularly accession states), South East Asia, Japan, Mexico, Brazil and South Africa. Low(er) priority markets include Russia, China, India, Pakistan, the Middle East, and the rest of South America and Africa, Canada and Australia. Potential markets for clean energy products and services will tend to be large where regions have a combination of high transmission or generation constraints and favourable public policies towards clean energy (e.g., carbon and other emission taxes). Opportunities for UK companies exist in Europe (in the domestic/EU market and accession states such as the Czech Republic and Poland). There are also other promising target markets including North America (United States and Mexico), South Asia (China, India) and South America, in particular Brazil.

2.6

Regional Initiatives

A number of regional energy initiatives and cluster development activities have been identified in North America and Europe. The following profiles show the various strategies and organisations adopted in order to highlight factors contributing to the successful establishment and promotion of energy industries, with the emphasis on clean energy, in these regions. 2.6.1

Pacific North West, USA & Canada

The Pacific North West encompasses British Columbia in Canada and Washington State and Oregon in the United States. It is best known for its picturesque coastal mountain environment, affluent and environmentally conscious citizens, worldleading high technology sector, and relatively abundant and cheap supply of hydroelectric energy. Although an important engine in the region’s historical development and an ongoing source of low emission power, the region’s supply of hydroelectricity faces growing constraints due to concerns about social and ecological impacts, particularly impacts on fish and wildlife. Today, the Pacific North West is actively pursuing alternative energy sources, i.e. wind farms, biofuels, small hydro, fuel cells, and solar cells, that many hope will transform the region’s energy landscape, both figuratively and literally. With the days of statecontrolled mega-projects behind them, the challenge is how to leverage the region’s technical and entrepreneurial resources to build a world-class clean energy industry, an industry that promises to provide high quality jobs, stimulate economic growth and diversification and protect the natural environment.

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Regional initiatives have been based on the establishment of Climate Solutions, a not-for-profit organisation which was formed in late 1998 in order to stimulate the supply and demand for clean energy. The organisation was formed through a merger between two NGOs, the Atmosphere Alliance and the Energy Outreach Centre with the aim of making the Pacific North West and British Columbia a world leader in practical and profitable solutions to global warming, to help to transform the global warming debate in the region and to lay the groundwork for a successful, multi-stakeholder climate action agenda. Climate Solutions is generating fresh political momentum for energy and transport solutions that benefit the region’s economy and quality-of-life. In Its first three-and-a-half years, Climate Solutions has emerged as one of the region’s leading sources of ideas and inspiration on ways to act decisively and creatively towards addressing the global warming crisis. It focuses on solutions that deliver multiple benefits, from job creation and economic development to environmental protection and a better, more satisfying quality of life. Climate Solutions works to address the issue of global warming in three ways: by communicating the need for urgent action on global warming by building on political and popular support to affect policy changes by providing people with practical means to make a difference. It provides science-based solution reports that translate the latest findings from scientific experts on climate change impacts into materials easily understood by the general public. Climate Solutions focuses on the economic opportunities that global warming can bring as shown in its recent report Poised for Profit: How Clean Energy can Power the Next High Tech Job Surge in the Northwest. Climate Solutions is engaged in a number of programmes, including: Harvesting Clean Energy for Rural Development which works to build a strong coalition of prominent rural organisations and people from rural communities willing to lobby decision-makers on the importance of clean energy development. Clean Energy is an Economic Opportunity which works with businesses and government to promote solar, wind, fuel cells and other sustainable energy sources as "the next high tech revolution." This industry can contribute to a growing economy and disproves a popular misconception that protecting the environment can only be had at the expense of economic development. Northwest Climate Connections which is a region-wide initiative to demonstrate how protecting the climate helps to build healthier, more prosperous communities. Making the Northwest a leader in climate solutions depends on the strength of working partnerships: with purveyors of transportation solutions, energy solutions, public health solutions, and ecosystem solutions. Smart Moves for Washington Schools which offers environmental education information, activities and resources to teach the next generation about the consequences of transportation choices. Students and their families are engaged in choosing and promoting alternative methods of transport such as cycling and walking.

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Energy Outreach Centre which is a walk-in sustainable energy education centre offering hands-on experience of the latest in technological advancements and offering ideas and solutions to actually improve people’s standard of living while decreasing their impact on the environment . 2.6.2

North East USA

Many of the older fossil-fuelled power stations of the US energy industry are located on the Eastern seaboard of the United States. There are a number of organisations working to develop greater use of alternative energy sources in the generation of electricity in the North East of the USA. The Northeast Sustainable Energy Association (NESEA) covers clean energy programmes and activities in the North East of the USA (from Washington DC to Maine). This is a regional membership organisation aimed at bringing clean energy, green transportation and energy efficient buildings into everyday use. It has also developed the Greenfield Energy Park which is aimed at activities for the general public and schools. NESEA has undergone a series of changes in organisation, focus and regional coverage since its inception. It was formed as the New England Solar Energy Association in 1974 in response to the oil crisis at that time. A group of builders, architects, engineers and home owners banded together to design and build solar buildings which would require little or no oil or fossil fuels. In 1985, the organisation expanded to include other states to become the Northeast Solar Energy Association and by 1989 the name was changed again to the Northeast Sustainable Energy Association as the organisation’s interests grew to encompass other alternative sources of energy. Currently, NESEA’s largest programmes focus on: Buildings via conferences and workshops for professionals, as well as outreach to the general public K-12 Education especially on sustainable transportation and solar energy Transportation most notably the annual American Tour de Sol, the US Electric Car Championship. All the work of the organisation relates either directly or indirectly to the promotion of renewable energy. The NESEA Board includes representatives from the construction industry, the building professions, academic institutions and research centres and power authorities. Various regional sustainable energy associations are also represented. In addition to regional initiatives like NESEA, there are also state initiatives. The New Jersey Clean Energy Programme, for example, provides support for renewable, clean energy generation technologies and systems, including financial incentives, technical support and educational material. Financial incentives are offered to both domestic and commercial applicants in the state of New Jersey to install clean energy generation systems in their homes and businesses in order to help protect the environment and to reduce strain on the existing grid (i.e. electricity transmission and distribution systems). The Programme supports a variety of technologies such as fuel cells, photovoltaics, small scale wind and biomass as well as energy efficiency measures.

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2.6.3

NextEnergy Michigan

In April 2002, the Governor of Michigan announced the establishment of NextEnergy – a comprehensive economic development plan to make Michigan a world leader in the research, development, commercialization and manufacture of alternative energy technologies such as hydrogen fuel cells. These technologies include mobile applications to power cars and trucks, stationary uses for homes and factories and portable needs such as laptop computers and cell phones.. The energy blueprint proposes the creation of a 700-acre, tax-free NextEnergyZone in York Township near Ann Arbor, building the NextEnergy Center there and attracting alternative energy companies from around the world to the zone, making it a cluster of energy innovation. A key driver in this initiative has been to build on Michigan’s position as a world leader in automotive technology and the objective is to ensure that the State remains at the forefront of alternative energy technologies associated with the automotive industry. The main elements of the initiative include: NextEnergy Center – a state-of-the-art facility affiliated with the University of Michigan will serve as a comprehensive clearing-house and information resource on alternative energy technologies, develop college courses, provide technical assistance and fund industry-university collaborative research and commercialization projects. Michigan NextEnergyZone – a 700-acre, state-owned site in York Township near Ann Arbor that will become the locus of the alternative energy cluster of innovation. In addition to being designated a tax-free Renaissance Zone, companies that locate there will receive a tax rebate based on the jobs they create in the zone. National Alternative Energy Program – Designed to complement the work of the NextEnergy Center, the national program could act as a type of Underwriters Laboratory for the development of industry standards, certification systems and to identify research gaps and needs. NextEnergy Tax Incentives – Tax exemptions for companies, or activities within companies, whose primary focus is alternative energy research, development or manufacturing. Spurring NextEnergy Demand -- Steps include an exemption from the sales and use tax of any purchases of stationary and vehicular devices using alternative energy technologies. NextEnergy Leadership Council – The Governor will appoint national experts to this panel to provide critical advice on the implementation of the NextEnergy agenda and on issues ranging from research investment to questions about intellectual property. NextEnergy Demonstration Microgrids – These microgrids powered by fuel cells or other alternative energy technologies would demonstrate that these solutions are viable.

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International NextEnergy Conference – Michigan will host this event where industry and academic leaders can share innovations and work with government officials to develop new energy policy initiatives. 2.6.4

Northern Spain

The Basque Country in Northern Spain is the country’s main industrial centre providing iron and steel, energy (power generation and distribution), chemicals and petrochemicals. Growing sectors include telecommunications, urban and inter-city transport systems, water and waste treatment and civil engineering. The region's heavy industry is supported by a large network of small and medium-sized companies working in the aerospace, telecommunications, energy, environment, electronics, machine tool, automotive, chemical, shipbuilding, paper, rubber and plastic, glass, metal articles, furniture and engineering industries. Created in November 1996, the Energy Cluster Association currently has 50 member companies which together account for 95% of GDP generated by the energy sector in the Basque Country (and 30% of the region's total industrial GDP), employing some 26,000 people and generating sales of €10.5 billion (in 2001). Membership covers international as well as local companies, including Babcock Wilcox (power stations and industrial processing plants) and Alstom Power (cogeneration plants, substations and electrical installations, control and instrumentation). There are also a number of firms involved in the supply of a variety of mechanical and electrical goods (different types of boilers, heat exchangers, electrical motors etc). In addition, there are organisations supplying consultancy, finance and operational services, including the Basque Energy Board (which is backed by the Basque Government). The Energy Cluster is seen as an important player in stimulating structural change in local businesses through the promotion of initiatives on cooperation. Measures revolve around increasing competitiveness by generating more added value, increasing business volume and reducing production costs. Businesses in the Basque power industry are involved in a range of activities and have different strategies so the Energy Cluster seeks market niches which complement the different activities and strategies of firms in the sector and acts as a coordinator for members in meeting their shared objectives. These objectives include achieving greater presence in other geographical markets, setting up business consortia that can then access large-scale business projects with full guarantees, attracting investment projects, technology planning and cooperation in R&D and optimising energy resources in the Basque Country itself. One of the Cluster’s key objectives is helping members to exploit overseas opportunities and therefore it has developed close links with a number of leading multilateral financing bodies such as the World Bank, International Development Bank, Asian Development Bank and European Reconstruction and Development Bank.

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The Basque energy sector has invested €1.88 billion in infrastructure and services since 1996 and a further €2.68 billion in investment is expected by the time the Region’s Energy Plan (Plan 3E-2005) reaches completion in 2005. Several major energy projects are currently under way in the Basque Country: the construction of an integrated gas combined cycle (IGCC) electricity generating plant at the Petronor refinery, the installation of an electricity and regasification plant at the port of Bilbao and a power station in Amorebieta. The first of its kind to be built anywhere in Spain, the IGCC plant will run on liquid and solid waste materials from the refinery's crude distillation process to obtain gas. It will also be fitted with a range of cutting-edge technological equipment to facilitate oil coke recycling. Once mixed with natural gas, the gas produced in the process will be used to power a turbine system to generate electricity. The new generation facilities will also have two further combined cycle plants running on natural gas and fuel oil combustion. With an estimated investment of €1.1 billion made, this is the most important project of its kind in the region. Besides being a good environmental option (using as it does heavy oil which is difficult to dispose of), the plant is seen above all as a profitable project that will enable the Basque Country to raise its electricity selfsufficiency levels. At present, Spain relies heavily on gas supplies from Algeria. The regasification plant planned at the Port of Bilbao has the twofold aim of guaranteeing self-sufficiency and diversifying supply sources. The IGCC power station and the regasification plant at the Port of Bilbao gives the Basque Country a much greater field of play in the drive to equip itself with energy sources that are clean (gas is the major player here), economic (based on the view that energy is cheaper the closer to home it is produced) and competitive (the new technologies are decisive in this respect). Besides these two initiatives, another project currently in the design phase is expected to lead to the transformation of the thermal power station at Santurce into a gas-fired combined cycle facility. Irish concern ESB also plans a new, 800 MW, €390 million power station at a site near Amorebieta, a few kilometres south-east of Bilbao. Altogether these four power initiatives are expected to produce around 2,300 MW a year, which would account for something like 90% of the energy consumed in the Basque Country, thereby guaranteeing the region’s self-sufficiency. Wind power is seen as a major option for the future as it is endlessly renewable and low in environmental impact. The Basque Country's first wind farm in the Elgea mountain chain will provide a good testing-ground for its potential. The wind farm's construction is being promoted by Eólicas de Euskadi which is jointly funded by Iberdrola, the leading private electricity company in Spain, and EVE. Altogether, Plan 3E-2005, which sets out Basque energy policy guidelines, provides for investments of more than 384 million euros over six years in renewable energies. Thanks to a series of energy efficiency and savings campaigns, a 532,000 toe (tons oil equivalent) reduction in consumption is expected, basically in industry, which remains the largest consumer of energy. The Plan also provides for renewable energy's share in final electricity consumption levels in the Basque Country to increase from 2.7% to 12%, 3% of which will be generated by wind energy.

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The history of heavy industry has left the Basque Country with a legacy of environmental problems which the region is seeking to address. In addition to the Energy Cluster Association there is also Aclima, the Environment Cluster Association of the Basque Country, which currently consists of 60 private companies and public bodies. The management of both industrial waste and other forms of waste classified as toxic and dangerous, as well as solid urban waste, embodies the main area of activity representing 40% of the total turnover of the companies that make up Aclima. Water engineering projects (for human consumption and industrial use) are the other major area of activity, contributing another 40%. The rest is distributed among activities relating to air (9%) and noise and measuring and control equipment (1% each).

2.7

Key Issues and Lessons for the North West of England

The review of regional energy initiatives in the USA and Europe has identified a number of key issues and lessons for the development of the energy sector in the North West of England. These are summarised in table 8: Table 8

Key Issues & Lessons for the North West Of England

The need for a clear vision and decisive strategy/plan for the energy sector. Solutionoriented to demonstrate the economic, environmental and quality-of-life benefits (e.g. Pacific North West). Major global market potential in clean energy technologies – helping local firms to address the opportunities (e.g. Pacific North West and Basque Energy Cluster) Financial incentives to stimulate markets for clean energy technologies (e.g. California) but these need to be coupled with education and outreach programmes to create sustainable markets Importance of partnerships involving all the key stakeholders including energy technology/solution providers, energy users, utilities, the science base and the public sector (e.g. NESEA). Raising public awareness of the benefits of adopting sustainable energy solutions (e.g. Energy Outreach Centre in the Pacific North West) Educating the next generation – dual benefits of changing attitudes/actions plus encouraging young people to consider rewarding careers in the energy industries The scope for pan-regional organisations and initiatives to promote clean energy (e.g. NESEA) Importance of building on regional strengths as a basis for the development of the clean energy sector e.g. focus on mobile applications based on the Automotive Industry in Michigan Energy Centres, Zones and Parks to provide physical facilities to encourage investment in new energy technologies (e.g. in USA and Holland) Need to stimulate investment in the regional energy infrastructure – power generation, gas processing and transmission/distribution (e.g. Basque Country) Regional approach to energy self-sufficiency and security and diversity of supply (e.g. Basque Country)

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3.

UK ENERGY MARKET 3.1

Energy White Paper & Consultation Process

In June 2001 the Prime Minister asked the Performance and Innovation Unit (PIU) of the Cabinet Office to undertake a review of the strategic issues surrounding energy policy for Great Britain. The PIU published “The Energy Review” on 14 February 2002. During summer 2002, the DTI undertook an extensive consultation process on energy policy involving members of the general public and strategic stakeholders. A number of events were held including focus groups, workshops and a stand at the Tomorrow’s World Live Roadshow where the public provided their views on energy policy via a questionnaire. The questionnaire was also placed on the Department’s website for six weeks where it was completed by over 2,500 people. These activities were in addition to the formal consultation based around the document ‘Energy Policy – Key issues for consultation for the White Paper”. This consultation was undertaken against the background that: Liberalised and competitive markets will continue to be a cornerstone of future Energy policy. It is vital to maintain security of supply. Greenhouse gas emissions will need to be reduced significantly during the 21st century both globally and in the UK if we are to avoid dangerous climate change and the energy system is crucial to that and to achieving other environmental objectives. Competitiveness and affordability are also key objectives of energy policy. Achieving greenhouse gas emission reductions will need major technological innovation with the potential for the UK to benefit from being ahead of the game in moving clean and low carbon technologies forward and in sharply improving our performance in energy efficiency. Climate change issues and some aspects of security of supply are truly international questions the UK cannot therefore only act through domestic policies but must also address these issues through international policies and agreements particularly through EU market liberalisation and the Kyoto Protocol. The consultation process closed on 13 th September 2002.

3.2

The Energy White Paper

3.2.1

Challenges and Goals

The Energy White Paper, “Our energy future – creating and low carbon economy”, was published in February 2003. It addresses three major challenges: climate change, due mainly to levels of CO 2 in the atmosphere which are now rising faster than ever.

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the decline in the UK’s indigenous energy supplies (oil, gas, nuclear and coal) which raises important concerns about security of supply the need to update much of the UK’s energy infrastructure to accommodate the anticipated changes from large, centralised power stations to renewable energy sources and small scale, decentralised power generators. The White Paper sets out four goals for the UK’s energy policy to address these challenges: to put ourselves on a path to cut the UK’s carbon dioxide emissions – the main contributor to global warming – by some 60% by about 2050, as recommended by the RCEP, with real progress by 2020; to maintain the reliability of energy supplies; to promote competitive markets in the UK and beyond, helping to raise the rate of sustainable economic growth and to improve our productivity to ensure that every home is adequately and affordably heated. The two key means of achieving these policy goals are considered to be: energy efficiency which is likely to be the cheapest and safest way of addressing all four objectives renewable energy which will play an important part in reducing carbon emissions whilst also strengthening energy security and improving industrial competitiveness as cleaner technologies, products and procedures are developed. The Government does not propose to set targets for the share of total energy or electricity supply to be met from different fuels. It prefers to create a market framework, reinforced by long term policy measures, to provide the right incentives to investors, business and consumers to achieve the goals. Specific measures such as the renewables obligation and the Climate Change Levy will continue to be used to reinforce this approach. The White Paper confirms the aim for renewables to supply 10% of UK electricity by 2012 and sets an ambition of doubling the renewables’ share of electricity generation in the following decade (i.e. to 2020). The White Paper stresses that energy efficiency and renewable energy will have to achieve far more in the next 20 years than they have achieved to date if the overall policy goals are to be achieved. It recognises that this is ambitious and achieveable but uncertain. Hence, the policy also addresses the future of existing power generation technologies especially: nuclear power as an important source of carbon-free electricity. The White Paper does not contain any specific proposals for the future of nuclear power but keeps this option open as a means of meeting the UK’s carbon targets. Further consultation and a white paper are promised before any decision is taken on the building of new nuclear power stations coal fired generation with an emphasis on cleaner coal technologies and carbon capture to contribute to the diversity of supply.

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3.2.2

Achievement of Goals

The Government intends to continue to decouple economic growth from energy use and pollution by accelerating the trend since 1970. It expects that UK CO 2 emissions will be some 135 million tonnes of carbon (MtC) in 2020 taking account of existing policies and incentives. The aim is to achieve cuts of 15 to 25 MtC below this level by 2020 with the contribution from the various measures and sectors being as shown in Table 9: Table 9

How cuts of 15-25 MtC could be achieved by 2020

Estimated MtC Reductions Energy efficiency in households

4-6

Energy efficiency in industry commerce and the public sector

4-6

Transport: continuing voluntary agreements on vehicles; use of biofuels for road transport

2-4

Increasing renewables

3-5

EU carbon trading scheme

2-4

This demonstrates the main emphasis on energy efficiency, transport and renewables to achieve the CO 2 cuts. The EU carbon trading scheme is also expected to provide clear incentives for investment in energy efficiency and cleaner technologies. Specific measures further to stimulate energy efficiency and renewables will include: developing the energy efficiency commitment (EEC) which requires electricity and gas suppliers to encourage their domestic customers to invest in energy efficient products and services (e.g. insulation) bringing forward to 2005 the next revision of the building regulations to raise standards for energy efficiency in new buildings and refurbishments pushing for higher European standards in equipment such as fridges and personal computers encouraging improvements in efficiency and lower carbon fuels in transport setting an example throughout the public sector by improving energy efficiency in buildings and procurement. In this context, it should be noted that NHS Trusts are already targeted to reduce their levels of primary energy consumption by 15% by 2010 providing further encouragement for renewable energy and infrastructure investment through increased capital grants and more supportive approaches to planning.

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The White Paper also addressed the other three main policy goals: reliability of supply covering issues such as regulation (through OFGEM), investment in the energy infrastructure, diversity in gas and oil markets, EU/international co-operation and carbon capture and storage. competitive energy markets dealing with the need to maintain competitive energy prices, the opportunities for businesses to gain competitive advantage in moving to a low carbon economy and the need to address skills development and training in the context of an ageing workforce. adequately and affordably heated homes tackling the issue of fuel poverty and energy efficiency in old, poorly insulated, draughty homes. This includes a review of current policies later in 2003 to assess the results and to decide what more needs to be done to achieve the aim of nobody living in fuel poverty by 2016-2018. Innovation is highlighted in the White Paper as playing a key role in underpinning the goals and in delivering a low carbon economy cost-effectively. The strategy includes: support for R&D to encourage the development of new, longer term options such as the hydrogen economy support for emerging technologies (e.g. renewable and energy efficiency) to demonstrate their potential the establishment of a National Energy Research Centre and Network to bring together the wide range of disciplines involved and to provide greater coherence and focus strong backing for the international development of fusion power for electricity generation promoting the development of homes and communities that combine energy efficiency technologies and renewable energy to reduce radically their demand for energy from the grid building capacity in appropriate areas of service, engineering and technology to achieve the goals. The Government recognises that it will need to work with a wide range of stakeholders to deliver the ambitious targets set in the White Paper. This includes, the research community, local authorities, regional agencies and voluntary groups. In particular, the Government: “strongly encourages RDAs to play a key role in the delivery of energy policy objectives at regional level.. We will also support them in helping to develop their understanding of the implications of the White Paper for their region and in identifying specific actions they can take to meet its aims.� The key implications of the White Paper for the North West are discussed in the conclusions (Section 7).

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3.3

Energy Supply & Demand

The UK is currently a net exporter of both oil and natural gas, but is an importer of coal. Looking to the future, it is anticipated that natural gas supplies from the UK Continental Shelf will not keep place with rising demand and the UK will become reliant on imports for between 15 and 40% of its gas supplies over the next ten years. In both the oil and gas industry, major investors are looking overseas for richer returns and it is expected that the UK could be importing some 80% of both its oil and its gas needs by 2020. Coal usage for non-power generation activities continues to decline, however the situation for coal power generation is less certain. In terms of electricity generation the UK has an oversupply of generating capacity and this has lead to a depressed wholesale electricity price. This poor return for generating assets is leading to early closure for older power stations and a lack of investment in new units. However with a high gas price, coal units are becoming increasingly competitive, although this situation will change again in 2006 when flue gas desulphurisation (fgd) for coal generation becomes compulsory. The current lack of investment in generation assets due to the excess supply over demand situation is being balanced by some increase in renewable generation, however, overall it seems likely that normal economic forces will result in a shortage of generation capacity at some point in the 2010s unless some action is taken to encourage investment in new generating capacity. The individual energy sectors are discussed in turn below:

3.4

Industry Structure & Developments

Each of the main segments of the energy supply chain is discussed in the following sections. 3.4.1

Oil and Gas Exploration & Production

According to the recent report by Douglas-Westwood Ltd for ISOCON and the DTI, the UK oil and gas industry was responsible directly or indirectly for around 270,000 jobs in the UK and 13% of the nation’s industrial investment in 2000. However the UKCS is now a mature area with oil production reducing. Gas production is still high but is also expected to progressively decrease with an expectation that the UK will become a net gas importer towards the end of this decade. Many development opportunities remain but on average these are very small fields better suited to small oil and gas companies. As a result the major operators have ‘voted with their dollars’ and are leaving mature provinces such as the UK to invest in new, usually deepwater, areas of the world where major fields are still to be found. The overall situation is that UK capital expenditure is reducing and, although operational expenditure will remain high for many years to come, the overall picture is of a reducing domestic market for UK supply chain companies. An important issue is the extent to which suppliers, especially SMEs, are addressing this change by tackling overseas markets and/or diversifying into other market sectors.

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3.4.2

Refining

There are currently nine major refineries in the UK with a production capacity of 88 million tonnes per annum. 90% of current refinery inputs are North Sea crude. As domestic production of crude reduces, the UK could be importing some 80% of both its oil and its gas needs by 2020. Trends in demand for road transport fuel suggest that this demand may remain stable over the next twenty years given increased fuel efficiency and the lower rates of travel growth implied by Government policy and the maturity of the car market. The transport sector consumed 74% of petroleum products in 2000, whereas the energy industry consumed just 7%. Fuel oil use has declined 30% since 1998 as industrial and home heating demand has dropped in favour of gas with the ongoing development of the gas transmission and distribution system. Petroleum products represented 42% of UK final energy consumption in 2000. The UK’s crude oil refining capacity is approximately 1.77 million barrels per day just slightly more than the country’s consumption. However the UK imports and exports refined products because British refineries produce an excess of some grades and products and insufficient quantities of others for local demand. Additionally demand for gasoline varies seasonally. The largest refinery is ExxonMobil’s (Esso’s) 311,240-bbl/d Fawley refinery in Southampton, one of the largest in Europe, and it is marine tanker accessible. 3.4.3

Gas Processing, Transmission & Supply

UK demand for gas has more than doubled since 1980 and could be increased by a further 30% by 2020 mainly as a result of increased use of gas for power generation. Future supplies of gas for the UK and European market will eventually be sourced from areas other than the North Sea as its production declines. There are twelve onshore gas-producing plants in the UK of which two are sited in the North West region at Barrow. The total processing capacity is 12 bcfd with the Barrow plants having a capacity of 2.35 bcfd – nearly 20% of UK gas processing capacity. The gas processing plant at Point of Ayr on the North Wales coast processes gas from three Liverpool Bay fields – Hamilton, Hamilton North and Lennox for use by Connah’s Quay power station. Transco, now owned by Lattice which also owns the National Grid Company, is the monopoly operator of the UK onshore pipeline systems. The recent IEA review has expressed concern about bottlenecks at the St Fergus gas terminal and further afield in the pipeline network. Despite high gas prices, this has not resulted in Transco increasing its capacity and the IEA believes that the regulatory regime in the UK needs to be adjusted in order to give Transco and potential private investors stronger incentives for new pipeline construction and the removal of bottlenecks. This is important because the operation and construction of offshore infrastructure might otherwise decline. That could dampen the prospects for importing natural gas from Norway. Ultimately that could have a crucial negative impact on the exploitation of the declining North Sea hydrocarbons reserves.

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The UK has eight major gas suppliers, including Centrica, which developed from the trading arm of British Gas. In addition to Centrica which recently bought the Rough storage facility from Dynergy there are independent storage facilities such as the Scottish Power's site at Hatfield Moor. This has 1,260GWh of space and deliverability of 54.7GWh/day. EdfT (bought from Aquila) has a site at Hole House in Cheshire, with 821GWh space and deliverability of 59GWh/day. Scottish Power Plc has applied to build a 1,800 GWh (£70 million) natural gas storage facility at Byley in Cheshire which is subject to a public inquiry. Gas storage in the UK is currently very low. As imports increase this will need to be increased towards around 20% which will create opportunities for those involved in such developments. 3.4.4

Power Generation

The majority of electricity generated in the UK currently (2001 fuel mix) comes from one of three sources, gas (36%), coal (33%) and nuclear power (23%). In the short term it is unlikely that this mix will change, but longer term there are pressing issues. It is expected that 75% of nuclear plants will have closed by 2020 and most of the current coal and gas plants will be approaching retirement age in the 2020s. This, together with the current depressed wholesale price for electricity is leading to the possibility that there could be a shortage of generation capacity in 15-20 years time. Indeed in the shorter term, developments in the electricity market such as the New Electricity Trading Arrangements (NETA), volatility in fossil fuel prices caused by the uncertainty in the Middle East and the notable recent supply problems in California all suggest that there is little room for complacency in assuming that market forces can be relied on to ensure both competition and full supply. It seems likely therefore that a more active policy will be required to ensure full electricity supply in the future. This is one of the issues that will need to be addressed nationally and the White Paper may provide some clarification on future planning in this area. 3.4.5

Renewable Energy

In 2000, renewable energy (excluding large hydro and mixed waste incineration) supplied 1.3% of the UK’s electricity compared with 16.7% in Denmark, 4% in the Netherlands, 3.2% in Germany and 3.4% in Spain. Around 1200MW of renewables capacity has been installed in the UK to-date (excluding large hydro) and, in order to meet the 10% target by 2010, the UK will need to install around 10,000MW over the next 8 years (i.e. a rate of 1250MW per year). It is expected that a target of 20% by 2020 will be announced in the White Paper. A recent report to the DTI and DTLR by OXERA Environmental (February 2002) concludes that the 10% target should be reached if the high estimates in the various regional renewable energy studies are realised but not under the low targets i.e. if key constraints such as those associated with planning are not overcome. Scotland accounts for a significant proportion of the total contribution to the target. The English regions’ targets, when aggregated, fall well short of 10% of their electricity supply.

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The government has put in place a number of measures to stimulate the market for renewable energy including the Renewables Obligation, exemptions from the Climate Change Levy and a £250 million support programme. A strategic framework for a major expansion of offshore wind has been drawn up and a new organisation – Renewables UK – has been created to help the renewables industry to grow and compete internationally. From 2005 onwards, the EU emissions trading scheme will provide a further incentive for renewables. In July 2003, the government announced proposals for a major expansion of renewable energy capacity in the UK through the second round of offshore wind farm licences. The first round of licences, announced in December 2000, resulted in 17 proposals from developers and the potential to generate 1.5GW. The second round is far more ambitious in scale with the potential to generate up to 6 GW by 2010, enough to power 15% of UK households. The North West of England is one of the three strategic sites for development due to its wind profiles and shallow waters. Other strategic sites are the Thames Estuary and the Greater Wash. The North West Cluster Mapping & Action Plan for Renewable Energy (Enviros Consulting on behalf of the NWDA) estimates a global market, in terms of capital investment, for the main renewable energy technologies of £178 billion over the period 2000 to 2010 with around £6 billion of this being in the UK. 3.4.6

Power Transmission & Distribution

The National Grid Company, part of the Lattice Group, owns and operates the high voltage 400 kV and 275 kV electricity transmission system in England and Wales comprising 7,000 kms of high voltage transmission lines and around 300 substations. In England and Wales, the distribution of electricity is the responsibility of the regulated businesses of the regional electricity companies which operate and maintain the assets that carry power from grid supply points to individual customers. This involves a network of overhead lines, underground cables, switchgear and transformers operating at voltages from 132 kV down to 230 volts. In Scotland, the power generation, transmission and distribution system is vertically integrated and controlled by two utilities – Scottish Power and Scottish & Southern Energy. The UK market for electrical transmission and distribution (T&D) equipment was valued at £340 million in 2000. The market for high voltage ((HV) and medium voltage (MV) transformers alone was valued at £129 million including transformer parts at £59 million. The UK market for HV switchgear was valued at £152 million. UK manufacturers’ sales were valued at £365 million, just under £200 million of which were exports. Domestic sales (valued at £167 million) accounted for 46% of the UK market overall. In 2000, installation work probably accounted for a further £100-120 million of sales revenue giving an estimated total turnover of around £475 million. The electrical T&D industry is becoming increasingly concentrated with further acquisitions and market agreements taking place in response to changes in demand. Companies are also choosing to focus their R&D and manufacturing operations on particular market sectors. VA TECH and Schneider established a joint venture company, VA TECH Schneider HV, towards the end of last year. The new company brought together the HV transmission business of both companies and became the third largest supplier of HV transmission equipment in the world.

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Key Players. There are six leading companies active in the UK (and global) industry, only one of which is British. They are: Alstom (French) ABB (Swiss/Swedish) FKI (British) VA TECH (Austrian) Schneider (French) Siemens (German) Lucy Switchgear (Oxford) with a turnover of £30 million plus is the most significant of the smaller UK suppliers. The future demand for electrical T&D equipment is dependent on investment by the electricity industry which in turn is subject to the dictates of Ofgem the industry’s regulatory body. One industry forecast has suggested that capital expenditure in the electricity generating and supply industries will fall over the next five years. According to Market and Business Development, process plant investment is expected to fall from £128 million in 1999 to £100 million in 2004 in the electricity generating industry and from £1.2 billion in 1999 to £1.1 billion in 2004 in the electricity supply industry. These predictions however do not appear to take account of National Grid’s current plans to invest £5 billion over the next ten years which should offer opportunities for UK T&D equipment suppliers. In the longer term, there is also growth potential associated with increased expenditure by the RECs to develop their networks to accommodate the larger numbers of smaller generation sources associated with the expansion of renewable energy and CHP. This will create opportunities for innovative new technologies to manage and control the networks as well as for local electrical installation resources. 3.4.7

Energy Conversion & Efficiency Equipment

Equipment and services related to energy conversion include a range of products covering heating (e.g. boilers), cooling, lighting, motive power and controls. Companies use energy efficiency to differentiate their products and energy management systems to improve the energy efficiency of systems in place. Energy management refers to the supply of energy management and efficiency products and services, e.g. energy audits, building energy management systems and energy efficient products. According to JEMU 2 , the UK market for energy management and marine pollution control products and services was valued at $410 million in 2000. The Joint Environmental Marketing Unit (JEMU) predicts that the market will grow by 5% per annum to reach $667 million by 2010. The market for marine pollution control products is quite small which suggests that the size of the UK market for energy management systems and energy efficient products and services alone currently exceeds $400 million.

2

Global Environmental Markets and the UK Environmental Industry – Opportunities to 2010, JEMU January 2002. NORTH WEST DEVELOPMENT AGENCY

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Most of the main global manufacturers are present in the UK. The key players in each of the main categories of equipment are as follows: Motors and Drives. The leading UK-owned supplier of electric motors and variable speed drives is FKI Industrial Drives. Major European players with operations in the UK include Alstom Power Conversion (France) and Siemens (Germany). The key US suppliers located in the UK market are Honeywell, Siebe and Johnson Controls. There are a number of leading companies based in the North West e.g. Ingersoll-Rand Europe in Wigan, GE Power Controls in Liverpool and Siemens Automation & Drives and Teco-Westinghouse both based in Manchester. Boiler Efficiency. After a period of consolidation there are probably no more than 10 to 15 companies with any significant boiler manufacturing capacity in the UK and probably half of these are in foreign ownership. The estimated combined turnover derived from boiler and boiler plant sales and services of 15 of the leading suppliers to the UK industrial and commercial boiler market (not all manufacturing in the UK) is probably in the region of ÂŁ200 million 3. There are two main types of industrial boiler: the shell or firetube boiler and the watertube boiler. Shell boilers are relatively cheap to manufacture because the main component, the pressure shell, is simple to engineer. As a result these are the choice of a typical industrial boiler installation. Large industrial and power station boilers are of the watertube type. Shell boilers are used where heat only is needed as in space heating and breweries, laundries, food processing and in most general industrial applications. Watertube boilers are used in large industrial complexes with continuous operations where the demands for power and heat are in balance, e.g. in chemical works, oil refineries and the steel industry. Watertube boilers are also used in power generation where high pressure and temperatures are needed. According to industry sources, there are nine companies manufacturing industrial boilers in the UK (none in the North West) and they are: Beel Industrial Boilers (Mechmar, Malaysia) Cochran Boilers (Mechmar, Malaysia) Wellman Robey (UK) Fulton Boiler Works (UK/US) Byworth Boilers (UK) Hartley & Sugden (Interhoval, Switzerland) Hoval (Interhoval, Switzerland) Bradlee Boilers Kayanson Engineers.

3

Competitive Analysis – UK Boiler and Boilerhouse Plant Manufacturing Industry, Enviros for DTI February 2001 NORTH WEST DEVELOPMENT AGENCY

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There are two key suppliers of watertube boilers for the power generation industry i.e. Mitsui Babcock (Japan) and ME Engineering (India). Leading UK suppliers of commercial boilers include Hamworthy Heating, Potterton Commercial (part of the Baxi Group) and Ideal Boilers (owned by Caradon). Baxi Heating based in Preston is a leading manufacturer of domestic central heating boilers, gas fires, stoves and wall heaters. Hepworth Heating supplies domestic gas and solid fuel central heating boilers and fires. Lighting. The key lighting manufacturers are Osram (Germany), GE Lighting (United States), Philips Lighting (Netherlands) and Thorn Lighting (UK). Building Controls. This sector is dominated by the major US and European suppliers including Honeywell Control Systems (US), Johnson Control Systems (US), Siebe Environmental Systems (US) and Siemens Building Controls (Germany). Siemens claims a 100 years’ experience in the field of building automation and control of all kinds of heating, ventilation and air conditioning applications. Other leading companies in the sector are Invensys Building Systems Europe (formerly Satchwell), Danfoss Randall and Trend Building Controls. Invensys Building Systems is the leading UK manufacturer of sensors, valves, actuators, discreet controllers and Building Management Systems. Danfoss Randall manufactures and supplies a wide range of heating controls for the building services sector. Trend Control Systems is the UK's leading supplier of Intelligent Building Controls. There are a number of smaller companies located in the North West including Vickers Electronics Ltd based at Trafford Park. The company designs, manufactures and installs energy management systems for factories, warehouses and retail outlets. Heating Ventilation and Air Conditioning Equipment (HVAC). The HVAC sector includes examples of high efficiency heating such as reversible electric heat pumps, air conditioning, refrigeration and heat pumps. With one or two exceptions the major manufacturers of this equipment are based in Japan (Toshiba, Daikin, Mitsubishi) or North America (Carrier, Trane). There are no major manufacturers of HVAC equipment in the North West. Building Insulation. The two main companies of building insulation are British Gypsum-Isover and Knauf Alcopor which is based in St Helens. Other key players are Celotex, Kingspan Insulation, Rockwool and Vencil Resil.

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Table 10

Key UK Players in the Energy Efficiency Sector

Subsector

Key Players

Motors and Drives

Ingersoll-Rand Europe, Wigan (US) FKI Industrial Drives (UK) Alstom Power Conversion (France) GE Power Controls, Liverpool (US) Siemens Automation & Drives, Manchester (Germany) Teco-Westinghouse, Manchester (US) ABB Automation (Switzerland) Satchwell Control Systems Control Techniques (US) Danfoss (Denmark)

Boiler Efficiency

Baxi, Preston (UK) Beel Industrial Boilers and Cochran Boilers (Malaysia) Caradon Ideal (UK) Hamworthy Heating (UK) Hepworth Heating (UK) Wellman Robey (UK)

Lighting

Thorn Lighting (UK) Osram (Germany) GE Lighting (US) Philips Lighting (Netherlands)

Building Controls and HVAC

Invensys Building Systems Europe (UK) Danfoss Randall (Denmark) Honeywell Control Systems (US) Johnson Control Systems (US) Siebe Environmental Systems (US) Siemens Building Controls (Germany)

Building Insulation

British Gypsum-Isover (UK) Knauf Alcopor (Germany/US) Celotex Kingspan Insulation (UK) Rockwool (US) Vencil Resil

Source: Enviros

3.5

Regional Initiatives & Clusters

A number of regional energy initiatives and cluster development activities in the UK have been identified and assessed to provide examples for comparison with the North West. A summary of the key issues and lessons for the North West is given in the following table.

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Table 11

Key Issues & Lessons for NW England

Importance of getting the key regional energy players involved in any regional initiatives e.g. energy utilities, oil & gas multinationals, suppliers of energy equipment/services, Development Agency, local authorities, chambers of commerce, universities) Strong backing needed from the energy utilities in particular Need to involve national bodies (e.g. DTI, DEFRA, Carbon Trust etc) to maximise support and added value at a regional level Supply chain initiatives to stimulate the development of the energy supplier base (e.g. Energy Industries Supplier Network in Wales and “Energy Guide Wales�) Success of major clean energy and efficiency programmes in some local authorities (e.g. Woking) Focus on key regional strengths to tackle global market opportunities (e.g. oil & gas, power generation in Scotland) Critical to have a favourable political climate to encourage investment in the energy sector Positive planning guidance essential to the development of renewable/clean energy projects Problems of the long term funding of regional bodies aimed at stimulating the energy sector

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4.

NORTH WEST SUPPLY & DEMAND This chapter provides a review of the supply and demand issues facing the North West today and looks at how this picture may change over the next ten years. It also covers transmission issues since these are key to ensuring a healthy supply demand balance for the region. The major characteristics of the current energy supply demand situation of the region are as follows: It is the hub of the UK nuclear industry It has a large manufacturing base It has a large oil and gas field in Morecambe Bay It is self sufficient in gas supplies and oil refineries It is broadly self sufficient in electricity generation It is a “conduit” for electricity and gas supplies from Scotland and North Wales to the south of the country. There are several key players in the energy industry in the region. These include Transco (regional headquarters in Bolton) for gas transportation, United Utilities (headquarters in Warrington) and Scottish Power (offices in Warrington and Chester) for electricity distribution, AEP (Fiddlers Ferry), British Energy (Heysham), Intergen (Rocksavage), BNFL (Sellafield) and Shell (Stanlow and Eastham) for oil refining. In addition to these companies, Centrica and PowerGen based outside of the North West are the key suppliers of energy to the region.

4.1

Top Down Analysis of Energy Supply in the North West

4.1.1

Electricity Generation

In the North West, electricity is generated by 4 large scale power plants, 18 medium sized CHP plants and a number of embedded generation plants (both renewable energy and small scale CHP). The North West comprises 4 major sites supplying around one tenth of the nation’s electricity generation. However the fuel mix is quite different to the national average with only 1 coal station, 2 gas plants and the nuclear complex at Heysham. In addition, within a few miles of the region boundary are two modern combined cycle gas turbine units (ccgts) as noted below:

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Table 12

Large scale electricity generation in the North West

Fuel

Installed 4 Capacity GW

Delivered Units 5 2001 (TWh)

Nuclear

2.4

19.4

Coal

2

7.0

Rocksavage

Gas ccgt

0.75

4.3

Roosecote

Gas ccgt

0.2

1.4

Nuclear

0.2

0.2

5.55

32.3

Site Heysham Fiddlers Ferry

Calder Hall

6

N.W Total Connahs Quay

Gas ccgt

1.4

8.4

Deeside

Gas ccgt

0.5

2.5

7.45

43.2

NW + Local N Wales

None of the existing plants has a life expectancy of less than 10 years. Given the current oversupply of large scale generation in the UK it seems likely that the closure of Calder Hall is the only change to this table over the 2002 to 2012 period and currently there are no proposed plans to build any large scale generation in the North West . This leads to some longer term concern over the security of supply of electricity in the North West. In common with much of the UK, all of the large scale generation plant will be at or near retirement by 2020 and there is a clear need to begin the debate on what is to replace this capacity and whether the North West is an attractive location for this investment. In addition to large scale electricity generation capacity, approximately one tenth of the UK's installed CHP is based in the North West these sites include: Table 13

CHP installed in the North West

Name Fellside

DNC (MW) 168

DNC (MW)

Name Weaver 7

Name

DNC (MW)

36

Greengate

10

18

Ravenhead

10

16

Watson

10

15.5

Cropper

8

Winnington

130

Iggesund Paper Mill

Sappi

71.4

Albright Wilson

Hays

70

Salwick

Capenhurst

64

Kronspan

12

Salt union

49

Cowleyhill

10

Weston Point 8

47

Eli Lilley

10

Total

754.9

In addition to these sites, there are also a number of small scale (less than 10 MW) CHP units in the region. No data is collected on these units but the energy use is captured by the gas used in powering these units.

4 5 6 7 8

DUKES 2002 Date from the AEP plus Platts personal communication Closed in April 2003 Also East Lancs Paper Mill (19.5MW) but currently not operational Weston Point and Weaver are Ineos Chlor NORTH WEST DEVELOPMENT AGENCY

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NORTH WEST ENERGY CLUSTER MAPPING & ACTION PLAN DEVELOPMENT

There is no available source of information on the electricity supplied from these stations. We have therefore assumed an average utilisation of 60% 9 for these CHP units for our model of electricity supply and demand. This gives an inferred supply of electricity of 4 TWh for 2001. Renewable Energy. From follow on work to the Renewable Energy Mapping Study, renewable energy capacity in the North West is currently about 219MW, this figure includes land fill gas generation, energy from waste, onshore wind and hydroelectricity. Table 14

Renewable capacity in the North West

Renewable

Installed Capacity (MW)

Generation (GWh)

Biomass 10

84

662

Wind

58

137

Hydro

2

5

Total

144

804

The above table excludes power stations that have been accredited for ROCs under biomass and co-firing of biomass with fossil fuels i.e. PDM Group in Widnes, Thornton Power Station, Fiddlers Ferry Power Station and Shell Green Generation Plant since the actual generation figures are not known at present. It also excludes energy-from-waste (EfW) plants based on municipal and industrial wastes which have an installed capacity of 75MW 11 and generate 591 GWh per year. To infer generation from installed capacity we have taken load factors from DUKES. For hydro the load factor is 27.4% and for wind the load factor is 30%. No load factor is provided for biomass and energy from waste. We reason that as fuel for these plants is essentially “free” the load factor will be high and we have assumed 90%. Thus the current electricity generation in the North West is as follows: Table 15

Electricity Generation in the North West, 2001

Installed 12 Capacity GW

Delivered Units 13 2001 (TWh)

2.6

19.6

2

7.0

Gas ccgt

0.95

5.7

CHP

0.76

4.0

0.2

1.4

N.W Total

6.51

37.7

“Local” N Wales ccgt

1.9

10.9

NW + Local N Wales

8.41

48.6

Generation Nuclear Coal

Renewables + EfW

9 10 11 12 13

Load factor from Dukes, except Wind Comprises sewage gas and landfill gas All EfW schemes, municipal and industrial (Castle Cement, Solrec, Cleanaway & Bolton Municipal) DUKES 2002 Date from the AEP plus Platts personal communication NORTH WEST DEVELOPMENT AGENCY

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NORTH WEST ENERGY CLUSTER MAPPING & ACTION PLAN DEVELOPMENT

4.1.2

Coal & Oil

The region contains 6 coal field sites along the M62 corridor, none of which are currently operational. English Partnerships is currently investigating potential new uses for these sites and has highlighted renewable energy or energy clustering as possibilities. The region is therefore a net importer of coal and top down data on imports has been estimated from supply figures for Fiddlers Ferry and from extrapolating non power station coal consumption from Dukes. If we assume an overall net efficiency of 30% for Fiddlers Ferry this implies a coal use of 17.8 TWh. Since Fiddlers Ferry power station is not fitted with flue gas desulphurisation (fgd) it needs to source mostly low sulphur coal. This together with economic factors means that Fiddlers Ferry imports “substantial” amounts of coal. For our model we have assumed 60% imports. Non generation coal use has been estimated from Dukes by splitting equally over the regions. This gives an implied non generation coal usage of 8.5 TWh for the region. According to the 1999 BP Energy Review UK, reserves of primary fuels will last, at current levels of depletion, as follows: Oil 5 years, Gas 9 years, Coal 36 years. These figures are based upon proven reserves. However if the current mines are closed as they have been in the North West then access to reserves is effectively lost as it becomes cheaper to consider developing a new mine. The cost of opening new shafts and mines is also high. The development of a new mine, the Witham project, on the Notts/Lincs border is forecast to cost at least £300 million. It is generally felt that new coal developments are unlikely over the next 10 years both regionally and nationally. Of the 12 oil refineries in the UK, two are based in the North West. Both Eastham and Shell are at Ellesmere Port and this means the region is a net importer of crude oil but a net exporter of refinery products. More details on the Shell operations are contained in the section on Supply Chains and Stakeholders.

4.2

Energy Transmission

4.2.1

Electricity transmission

There are two important electricity supply networks to consider in the North West: The High Voltage (400 and 275 kV) electricity grid operated by National Grid Co The low voltage electricity supply system operated by United Utilities and Scottish Power/Manweb In addition there are some private electricity supply networks, notably at Carrington and Fleetwood.

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High Voltage Transmission National Grid Co (NGC) operates the national electricity transmission system and is responsible for ensuring the smooth operation of the system. Where possible, the NGC seeks to ensure transmission options by providing alternate transmission routes in case problems occur. However, in the North of the region, from Heysham all the way up to Harker, the system is reliant on a single high voltage circuit which consists of two 400 kV lines. This system has a capacity to transmit around 6GW. However, since there is relative oversupply in Scotland and undersupply in the South of England, the system is highly utilized and there is only around 1.6 GW of spare capacity. Thus, if generation of renewables grew in Scotland and Cumbria this could cause major problems. To resolve this issue NGC appear to have three major options, all of which would need to be agreed with the regulator: Lay a new line (extremely costly and difficult as it would either run through the National Park or detour around the Cumbrian coastline) Purchase the 132kV supply line around Cumbria from United Utilities and upgrade this to 400kV (requires UU co-operation) Transmit mainly through issues exist in this region.

Yorkshire/Northumberland

(similar

reinforcement

NGC sends price signals to the market in terms of its Network Use of System (UoS) generation and demand charges: Table 16

NGC UoS charges in the North West

Generation Tariff £/kW

Demand Tariff £/kW

N.Cumbria

8.38

5.67

S.Cumbria/N.Lancs

4.34

5.67

S.Lancs/G Mcr

3.78

5.67

Merseyside/Cheshire

3.78

5.44

South Wales

-4.00

13.28

Area

Thus Use of System charges are twice as expensive in the North of the region than in the South. NGC also note that in the North West, the “Mersey ring” (the 275 kV supply around Merseyside) is also an issue. This part of the network is an older circuit and demand is relatively close to the supply limit. Note the contrast with South Wales where generators are actually paid to connect to the grid and the charges for new users are much higher. Low Voltage electricity transmission United Utilities and Scottish Power/Manweb operate the low voltage electricity supply in the region. These “wires” businesses are regulated on their investment via a formula connected to electricity usage. They are not currently incentivised to encourage any one form of generation over another.

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There is a particular issue at present in Cumbria. Calder Hall closed at Easter, but BNFL still hold the right to the 200 MW of generation capacity connection. Since there is little spare capacity in this region this is a major bottleneck to new (renewable) plant. If BNFL choose to retain this generation capacity then new plant will need to fund the installation of a new 132 kV line. Such pricing policy requires review if barriers for entry for renewables are to be overcome. At present this means that even a small new plant could be faced with a connection bill which could be as high as ÂŁ20 million pounds since the applicant would have to fund the whole of the cost of the upgrade. This is proving a major disincentive to renewables growth in the region. This problem is currently being addressed by the utilities involved. 4.2.2

Natural Gas Transmission & Storage

Natural gas enters the British pipeline network through beach terminals. These are facilities located on the coast, which receive gas piped from offshore fields. Beach terminals contain facilities operated by the producers who have extracted the gas offshore and also facilities run by Transco, the company that is in charge of Britain's mainland pipe network. The terminals meter the amount of gas received from producers and monitor its quality. There are seven main terminals in Britain, of which one is in the NW region (Barrow) and contributes 12% of gas supplies. The terminals are: Table 17

UK Natural gas terminals

St Fergus, NE Scotland

38% of gas supplies

Bacton, Norfolk

22% of gas supplies

Teesside, County Durham

12% of gas supplies

Barrow, Cumbria

12% of gas supplies

Theddlethorpe, Linconshire

10% of gas supplies

Easington, Yorkshire

6% of gas supplies

Burton Point, North Wales

less than 1% of supplies

(Transco figures for average daily input in 1999)

Compressors Beach terminals feed gas into the National Transmission System at a pressure of 75 bar. Gas can then travel through the pipelines at speeds of up to 15 miles per hour. However, pressure can fall as the gas moves away from terminals, so there are 24 compressor stations located around the network to boost pressure back to normal operating levels. These are powered by Rolls Royce, Orenda and General Electric gas turbines. There are major compressor station at Carnforth and Warrington. These stations use large quantities of natural gas to power the compression process and this is reflected in our model. The Transco 10 year plan notes that the national transmission system is now becoming close to maximum capacity if faced with a severe winter. It projects that there is now a small possibility of a transmission shortage if a cold spell (a one in 50 winter) were to hit the country. The suggested solution to this problem is to install more storage capacity. The UK has relatively little storage compared to other countries (around 4% of annual demand) and this is likely to need to increase once imports increase. Transco note that a country’s natural gas storage facilities tend to be proportional to imports. NORTH WEST DEVELOPMENT AGENCY

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Storage Gas producers use storage facilities to store the gas they produce in the summer, when demand is lowest, to meet peak demand rates later in the year. This permits them to keep up a constant production rate throughout the year. Use of storage facilities also give shippers a reserve of gas they can call upon at times of high prices in the open market. The main storage facilities in Britain are run by Transco and Centica. The Rough storage facility owned by Centrica can store around 30TWh. This is enough to supply the needs of the market for about 13 days. It has a deliverability rate of 455GWh/day. BG Storage also uses nine man-made salt cavities at Hornsea in East Yorkshire as gas storage facilities. The gas is stored in teardrop-shaped cavities, which can hold around 3.5TWh of supplies. The deliverability rate is 195GWh/day. BG Storage had permission to develop six further salt cavities at Aldbrough, near Hornsea. Transco operates five Liquid Natural Gas storage facilities: Glenmavis in Strathclyde, Partington in Manchester, Dynevor Arms in Mid Glamorgan, Avonmouth in Bristol and Isle of Grain in Kent. These were developed to help the system in the event of any transmission constraints. They contain only 4,062GWh of storage space. This is about 10% of the national total, a small amount compared to the 86% made up by Rough and Hornsea. Transco has around 460 holders, with a total storage capacity of 24-million cubic meters of low pressure gas. However, the company plans to dismantle most of these holders over a ten-year period, and rely on cheaper means of storage. Independent storage facilities include Scottish Power's site at Hatfield Moor. This has 1,260GWh of space and deliverability of 54.7GWh/day. Aquila also has a site at Hole House in Cheshire, with 821GWh space and deliverability of 59GWh/day. Scottish Power Plc has applied to build a 1,800 GWh (ÂŁ70 million) natural gas storage facility at Byley in Cheshire. This planning application has now been passed to the secretary of state for a decision on approval. Transco have provided metered supply data for the North West and thus a strong degree of confidence can be placed in the accuracy of this data. This data shows: Table 18

Natural Gas consumption in the North West

Customer

Meter Points in the N.W

Industrial

Consumption 2001GWh

8,360

22,415

39,052

9,892

Domestic

2,496,631

50584

Total

2,544,043

82,891

Commercial

Thus Transco has a total of 2.5 million customers in the North West consuming around 83,000 GWh. Supplies of UK offshore gas have now peaked and look set to decline slowly. Current estimates are that a third of the UK gas requirement will be imported by 2010. However, Morecambe Bay is the second largest gas field in the UK supplying 12% of the UK’s annual demand. It provides gas to terminals at Barrow and Warrington and is operated by Centrica. The region produced 148 TWh of natural gas in 2001 and is therefore a net exporter of natural gas. Demand figures are detailed below:

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Table 19

Natural gas use in the North West

Natural Gas End Use in the NW

Demand in GWh

End Use Demand 14

86,206

Power Generation

36,200

Losses

11,022

Total

4.3

133,428

Supply from Barrow terminal in GWh

147,700

Energy Demand

To analyse energy demand “bottom up” requires segmentation of uses. For our model, energy demand has been split into four main sectors, Industry, Commerce, Transport & Domestic each of which have their own defining characteristics in the North West. A recent report for Government Office North West (GO-NW), Renewable Energy North West England (January 2001) carried out by ERM and ETSU, provides some energy consumption data for the manufacturing and commercial sectors. These are estimates based on Digest of UK Energy Statistics and ONS data i.e. using UK energy data and national GDP data to calculate energy intensity (energy per £ of GDP) for each sector and then scaling up for the North West. Our experience of conducting major studies into energy use in the North West (especially previous work for the European Commission and NorWeb) indicate that GDP may not be the most appropriate factor for scaling up to estimate energy consumption. For this study we have used Gross Value Added (GVA) for Industry, Employment figures for commercial and population (or number of households) for the domestic sector and transport. This has lead to us estimating higher energy use figures for industry than in the GO-NW study. Industry & Commerce. The North West has the largest manufacturing base of all the UK regions. Chemicals, Paper and Food and Drink are all energy intensive industries which are very well represented in the region. The chemical sector is particularly energy intensive consuming more than half of the total energy used in manufacturing in the North West. Data has been extrapolated for 2001 in the table below. Future growth estimates are made by SIC code. Care must be taken when estimating future growth that we are comparing like for like and that inflation is correctly accounted for. Estimates for growth come from discussions with trade associations, previous Enviros studies and published data sources. Domestic. The North West use of domestic energy has come from two sources. Transco have provided accurate metered data by postcode for gas usage. For electricity use consumption is not available directly and has therefore been estimated from the number of households and then factored by the energy spend of a NW household versus the mean UK household energy spend.

14

Includes non energy use as a feedstock NORTH WEST DEVELOPMENT AGENCY

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Future growth of the domestic sector is predicted to be 0.4% per annum. In addition the trend increase in energy usage of North West households has been 0.4% per annum over the past 10 years. However, the new Energy Efficiency Commitment (EEC - see section 3.4) is targeted to deliver energy savings of 16% (i.e 1.6% p.a over the next 10 years). Table 20

Energy use in the North West 2001

15

Electricity Use (TWh p.a)

Gas Use (TWh p.a)

Total

2.4 1.1 1.6 1.1 0.8 4.2

6.4 1.5 4.9 1.4 1.6 6.5

8.8 2.6 6.5 2.5 2.4 10.7

Industry Sub Total

11.2

22.3

33.5

Public Sector

1.9

3.8

5.7

Private Commerce

7.6

4.0

11.6

0.3

5.5

5.8

Domestic

13.8

50.6

64.4

Rail

0.8

0

0.8

0

33.4

33.4

35.6

119.6

155.2

7.5

11.0

18.5

43.1

130.6

173.7 18

Sector Chemicals Paper Food & Drink Mech Eng Textiles Other

Other

16

Power Generation Total Demand Losses

17

Total required Supply

The region has a need for 43.1 TWh of electricity and 130.6 TWh of natural gas per annum. This includes “double counting” of gas used for electricity generation. `Production (including the North Wales power units & CHP) is 48.9 TWh of electricity and 147.7 TWh of natural gas and thus the North West is currently a net exporter of both gas and electricity.

15 16 17 18

Figures from DUKES and Regional Trends 36 tables 3.20 & 8.11 Includes agriculture, heat generation and “miscellaneous” as defined by DUKES Includes power station energy use, transmission losses and theft. Includes “double counting” of gas used for electricity generation NORTH WEST DEVELOPMENT AGENCY

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NORTH WEST ENERGY CLUSTER MAPPING & ACTION PLAN DEVELOPMENT

Transport The use of energy in the transport sector covers private cars, commercial vehicles, railways and aircraft. Estimates on the region’s energy use are based on apportioned UK energy figures using relevant size indicators such as GDP to calculate the proportion of UK energy attributable to the North West. Electricity demand for railways used in the North West has been calculated using the percentage of miles of electrified track in the region to estimate the proportion of UK electricity used in the North West. Demand for gasoline and Derv by railways and commercial vehicles in the North West has been calculated using GDP. Demand for gasoline and Derv by private cars has been calculated using the average distance travelled in the North West (expressed as average kilometres per person) 19 and then grossed up using average fuel used per passenger kilometre in the UK 20. Projections in energy demand take account of forecast trends for the various size indicators e.g. changes in passenger travel (increase in kilometres per passenger) or freight carried (tonnes per kilometre moved in the case of commercial vehicles). The projections also take account of changes in energy efficiency such as the 10% improvement in fuel efficiency believed to be readily achievable for aircraft 21 and anticipated small changes to the fuel mix in the private car fleet. Current transport demand is estimated to be around 59TWh in the North West and this figure is expected to rise to over 70 TWh by 2012. Private cars currently account for 54% of the sector’s energy use and commercial vehicles for 24%. Railways and aircraft represent 2% and 20% respectively. By 2012, the share for private cars is predicted to fall to 48% and that of commercial vehicles and aircraft to rise to 25% each. The railways’ share is expected to remain the same at 2%. Table 21

NW Energy Demand in Transport Sector

Transport Sector

2001

2002

GWh

%

GWh

%

Private Cars

31,883

54

33,508

48

Commercial vehicles

14,140

24

17,590

25

1,317

2

1,590

2

Aircraft

11,668

20

17,558

25

Total Transport

59,008

100

70,246

100

Railways

In July 2000, the UK government published its 10 year plan for transport 22 which set out its long term strategy for delivering a quicker, safer, more reliable transport system that would have less impact on the infrastructure i.e. the building of new roads and extending the number of lanes on existing motorway bottlenecks such as on the M25 and M6 motorways.

19 20 21 22

Regional Rends 37 Transport Statistics 2002 Aviation and the Global Atmosphere, IPCC Transport 2010: The 10 Year Plan, July 2000, DETR NORTH WEST DEVELOPMENT AGENCY

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NORTH WEST ENERGY CLUSTER MAPPING & ACTION PLAN DEVELOPMENT

The Transport 2010 Ten Year Plan aims to improve the efficiency of freight transport operations. On rail, the Plan aims to secure a significant increase in the volume of freight carried by rail. The Plan also aims to improve rail and road links to ports and to increase the contribution that water-borne freight can make. The NW has an extensive canal network (as a result of its industrial history) much of which has been neglected but which could provide the basis for an alternative to road transport when moving freight. Most freight will, however, continue to travel by road. Investment in measures to reduce congestion and improve the condition of our roads will contribute to the improvement of the efficiency and reliability of road distribution. Through the Road Haulage Forum, the Government is working with industry to promote the uptake of new technologies and the use of best practice. Small and medium-sized haulage companies can take advantage of a 100% first year capital allowance for spending on information and communication technology (ICT) equipment for the next three years. The Government is also investing ÂŁ60 million to help SMEs get on line and to help them get the right IT services. Both these initiatives will help the smaller hauliers to take advantage of the new logistics opportunities that are available to improve efficiency and minimise empty running and fuel use.

Private Cars Measures aimed at reducing the use of private cars involve a mixture of stick and carrot including: Car sharing schemes (by employers) and incentives (through road space and parking allocation for high occupancy vehicles) Promotion of more fuel efficient vehicles Toll charges on roads and other financial penalties Education and campaigns to raise awareness about the need to reduce the length and number of journeys.

4.4

Potential for Energy Efficiency Improvements

In terms of identifying the likely movements in energy efficiency over the next 10 years we identify five distinct groups: Large Industrial and commercial enterprises Small Medium Enterprises Local Authorities/ Government Buildings Domestic Housing Transport Each of these face different drivers and barriers to improved energy efficiency over the next 10 years:

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Large Industrial and commercial enterprises Large UK enterprises have been focusing on energy efficiency for many years. Energy intensive industries such as the Chemicals and Paper manufacturing sectors which are well represented in the North West have already invested much time and effort in reducing energy use. The Chemical Industries Association (CIA) have recorded a 20% decrease in energy use per product output in the last 10 years 23. The Paper Federation note a reduction of 12% over the last 10 years 24 . A similar pattern occurs in all energy intensive industries. These reductions have been achieved through the direct economic incentives of large fuel bills and have been assisted by the Governments Energy Efficiency Best Practice Programme (EEBPP) and a range of private energy consultants who are well represented in the North West. An important characteristic of many of the large energy users is that they are frequently part of larger, multinational companies and compete in international markets. Regional assistance can strengthen the case for a multinational’s UKbased operation versus a European operation and it can swing the balance in inward investment decisions. national policy that has a much greater effect in the minds of the business leaders within the North West. Key Energy Issues for Large Users During discussions with a number of large energy users a range of issues arose. The main concern for all users is the cost of energy. The CCL has increased the cost of energy to all UK industrial users. This has been considered “fair” but most of the users are competing against operations outside the UK, which do not have the same energy tax. Major users all accept the principal of emission reduction and want to make their contribution but they do not want to be disadvantaged in the market places they operate in. The normal means of competing with overseas sites for continued operation is to cut costs elsewhere, often in jobs and revenue expenditure (maintenance). A second energy price concern was over price volatility. Prices in the gas market swing wildly from day to day and from season to season. To the user these price swings are completely without reason. Companies tend to “buy ahead” at least some of their gas supply for up to 12 months in advance. Weather, in particular temperature, has an effect on the consumption rate of gas across the country. However, the industrial gas market is notorious for +/- 5% price swings overnight, governed solely by the temperature during that night. In the view of major energy users the root of both the above price concerns is market structure. The electricity market is seen as more stable than the gas market. There is continued concern that some gas traders are also gas field operators and that this causes a conflict of interest. The volatility makes business planning exceptionally difficult. In order not to be “caught out” by placing forward contracts at what turn out to be unfavourable prices some are now spending considerable management time trading gas on the spot market. This is a management overhead they can ill afford. Some stabilisation of the market would be very welcome.

23 24

See www.cia.org.uk See www.paper.org.uk/htdocs/Fact%20Sheets/energy.htm NORTH WEST DEVELOPMENT AGENCY

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NORTH WEST ENERGY CLUSTER MAPPING & ACTION PLAN DEVELOPMENT

On the topic of market structure one of the larger gas purchasers has found that the deregulated gas market has, if anything, started to work against the interests of the business. Gas contracts of the scale that this user needs to place are not easy to place when the vendor side of the market is so fragmented. No one vendor/trader is willing to accept such a contract without allocating a significant majority of his overall available gas to this one customer. This skews the trader’s portfolio so in reality the user must purchase gas in small tranches, thereby negating the normally accepted “major buyer” advantage that would be expected. Knowledge & Resource Sharing Companies would welcome the concept of operators’ “clubs” for knowledge sharing. Some companies have made great use of the DTI’s overseas trade assistance programmes. The national CHP clubs are used by some companies. However, the North West has a high population of major energy users and may benefit from a knowledge-sharing arrangement. One such arrangement was suggested by a Managing Director in the form of placing one or two of his company’s engineers at another company’s site for a few weeks at a time, to swap operating practices. There is a coordination role to be played in this type of activity as well as confidentiality and non-compete elements. During the course of this project, Sustainability North West has stared to establish the Kyoto Club with funding support from the NWDA. This addresses the need for knowledge and information sharing amongst energy users in the region. Two other “ideas” were proposed by people during the investigations and these are outlined here. It was suggested that the NWDA might be a suitable champion for these projects: 1. The banks of the Mersey estuary are flat, marshy, unpopulated and windy. Could a wind-farm be constructed to take advantage of the constant winds? 2. With the volatility of the gas market could salt caverns be used as private gas storage to allow companies to buy gas in summer, at lower prices, for storage and release in the high price winter months. Long-term Competitiveness Long term competitiveness is clearly a major concern for industry, the community and the region as a whole. The above issues relate to the cost of doing business. Measures by government, whether local or national, should take account of the increasingly short timescales over which companies are taking decisions. It is accepted that, in principle, energy taxes should become more “level” between the UK and European countries when carbon taxes are implemented in other countries. The “first-mover” example-setting move taken by the UK government with CCL and the Emissions Trading Scheme are felt to have disadvantaged businesses competing internationally, either for sales or for capital. There is most definitely a role to be played by government agencies in helping businesses overcome short term problems in areas where there is a clear case to be made for long term continuity of the business. This could particularly be applied to assistance with capital project funding. For example, many major energy plant projects have paybacks of 5+ years. This does not fit with corporations’ current 2 year payback requirements and yet the new plant has significant advantages in terms of emissions, long term cost reduction, security of supply, etc.

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New Economics Looking forward to the next 10 years, the economic incentives to reduce energy consumption will intensify due to the imposition of the Climate Change Levy (CCL). The economics of energy efficiency projects for industrial sites will need to switch to include allowance for the added incentives (and penalties) for changes in fuel use. Companies participating in the CCL can buy and sell CO 2 credits to balance their books if they over or under achieve on their targets. Thus there is an added incentive to achieve CO 2 reductions as these can be sold. These credits currently trading at around £5 per tonne but has been as high as £50 per tonne. (A tonne of CO 2 is equivalent to around 2.2 MWh of electricity, which costs around £100, thus if credits are trading at £10 per tonne this can make a 10% difference to cost benefit calculations. The central assumption in our model is that companies will achieve their CCL targets through a mixture of trading and efficiency improvements. To achieve this there may need to be some efforts made to educate industry to the new economic opportunities presented by carbon trading. Targets are set for industries to run from a set year to 2010 and from these targets a net energy efficiency improvement can be inferred as noted below 25: Table 22

Potential Energy Efficiency Improvement by Industrial Sector

Energy Intensity Reduction %

Time period (years)

Energy Intensity reduction p.a

Agriculture

7.1

11

0.65

Chemicals

18.3

12

1.5

Food and Drink

8.1

11

0.7

Non Ferrous Metals

14.7

12

1.2

Paper

24

13

1.85

Steel

11.5

13

0.9

Textiles

9

10

0.9

Vehicles

10

10

1.0

Industry

The above energy efficiency improvements are taken from the negotiated agreements for the Climate Change Levy. For some sectors however there are no CCL targets and for some sectors energy costs are still relatively low (e.g. pharmaceuticals) and hence energy efficiency is seen as less of an issue. Potential energy savings here are not incentivised and thus may be less likely to be realised. Small Medium Enterprises According to the latest ONS statistics, SME’s account for more than half of the total UK economy by turnover and account for 36% of turnover in the industrial sector. SMEs are clearly very important in terms of energy use and energy efficiency. This is an important market but diverse and difficult to address. At present there appear to be four important players in the North West region for disseminating advice and expertise to this sector: SME EEACs 25

See www.defra.gov.uk/environment/ccl/pdf/etsu-analysis.pdf NORTH WEST DEVELOPMENT AGENCY

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Enworks Small Business Service (SBS) and Business Links Regional “cluster” groups. SME EEACs The Small and Medium Enterprise Energy Efficiency Advice Centre network (SME EEACs) is a recent programme funded jointly by the Carbon Trust and the EST. The programme provides: A central national telephone Helpline offering a fast and accurate response to enquiries from all SMEs and other service providers; An interactive website with a section specifically for SMEs; Subject specific and sector specific publications; Centrally co-ordinated marketing and promotion; Provision of specialist technical support; Local delivery via the SME EEACs operating in tandem with other local delivery mechanisms; and An interest free loan scheme for approved energy efficiency projects. Queries from SMEs with an energy bill of less than £50,000 are passed through to the local SME EEAC by the national helpline service if a site survey is required. In total there are 12 SME EEACs across England aimed at providing energy efficiency advice to SME’s. The SME EEAC for the North West is the Merseyside EEAC. Each SME EEAC is tasked with the following activities: Identifying suitable SMEs to target; Local marketing activity; Awareness raising and participation in workshops and seminars, etc; Free site audits of businesses leading to a written advice report which is sent to SMEs; and Limited follow up support and assistance with the implementation of energy efficiency measures. In addition to providing advice directly to the SME, SME EEACs will work in partnership with those organisations already providing appropriate services to ensure limited overlap of service provision and to maximise the opportunities for SMEs to benefit through contact with the SME EEACs. Coordination activities include: Establishment and maintenance of effective referral networks between SME EEACS and existing SME service providers;

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Co-ordinating information on grants available at a local level and providing this information to the Helpline service; and Identifying how other services are funded and the time scale for such funding with a view to identifying opportunities for joint funding bids between the SME EEAC and other service providers. To the end of October 2002 the SME EEACs have received more than 157 referrals from the national helpline and conducted around 80 site surveys. Enworks Enworks is an environmental business support programme aimed at improving the environmental (and economic) performance of SME’s in the North West. It is supported by the NWDA and United Utilities and one of its target areas is improving energy efficiency. From their constitution, Enworks strategic outputs for energy are as follows: 16(i) – Energy resource use measured for SME sector & compliant towards best practice 16(ii) – 8% electricity from renewable sources 17(i) – Gross reduction in emissions measured for SME sector & compliance towards best practice 17(ii) – 15% reduction in CO 2 production 19(iv) – 1500 waste initiatives (energy efficiency would be included along with solid waste initiatives). The programme has been operating for about a year and nearly 1,000 SMEs are involved through their Business Environment Associations and Green Business Parks. As yet there has been no measurement of energy savings achieved and this should be addressed. Small Business Service/Business Links The SBS in the North West, operated through Business Links, Chamber Business Enterprise and others, provides a comprehensive network of support for SMEs throughout the region. There is limited current emphasis by the network on energy since most business advisors have a very little understanding of the issues and support available e.g. from the Carbon Trust, EST or Action Energy. However, the planned appointments of a specialist regional business advisor for energy and a Carbon Trust Manager will help to place a greater emphasis on specialist advice and support for SMEs in this field. There are opportunities, in this context, for the specialists to provide training and information to the general business advisors and other sector specialists. Regional Cluster Groups Sector related business support in the region is provided through a number of regional cluster groups that are being funded through the NWDA. These cover priority sectors for development such as chemicals, food, aerospace, ICT and environmental technologies. The environmental technologies cluster organization, Envirolink North West, has a significant number of energy related companies as members and has a Renewable Energy Business Development Manager, working through Renewables North West, to develop the supplier side of the RE industry in the region. The new Carbon Trust Manager is also based at Envirolink NW.

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This structure provides a conduit for information and initiatives on energy issues in the priority clusters to be developed particularly in view of the fact that many of the companies in the cluster groups are SMEs. Some joint activities between Envirolink NW and the chemicals and food cluster groups have already taken place and these have addressed energy issues amongst other topics. Both Envirolink and Renewables North West are relatively new organizations but have made promising starts towards meeting their objectives which are set down in their Service Level Agreements with the NWDA. There is scope for wider dissemination of their activities through the production of annual reports detailing their objectives and progress towards meeting these during the year. Local Authorities / Government Buildings The Local Authorities in the region operate to individual strategies with varying degrees of emphasis placed on energy efficiency. To illustrate this point a few examples are considered: Oldham Metropolitan Borough Council. Oldham have followed a strategy to improve energy efficiency and reduce fuel poverty for about 10 years. This work has been driven by local Agenda 21 from the environmental standpoint and HECA from the energy side. They have both an Energy Manager and an Environmental Manager. They monitor energy usage in council buildings closely and participate with other local authorities and housing associations in a group whose aim is to purchase energy at the lowest possible cost. They have also attempted to become an ethical supplier of energy, in order to support their attack on the fuel poverty issue. Projects that they have undertaken over the last few years include the conversion to gas of their coal-fired community heating scheme at St. Mary's and the development of a CHP project which has now been accepted by the council and is ready for implementation probably with Dalkia. The intention is that the existing scheme would be extended to take in council offices and later a school and possibly a hospital in the area local to the city centre. They are currently working with Renewables North-West (RNW) to assess the potential for renewable energy sources in the Oldham area, most of which lies in wind power and biomass. They are conscious of the frequent planning objections to renewable energy schemes and see this as a significant barrier to implementation. To help overcome this barrier, Oldham MBC has been working with RNW on awareness raising and training for local councillors. This has been well received and there are plans to extend this approach to other local authorities in the NW. Oldham MBC have also bid for and received funding from the EC to develop a planning permissions process together with French and Spanish partners under the ALTENER programme. This project will be used to develop a web-based tool which could be useful to other local authorities in the NW and elsewhere in the UK. The tool will ensure that local authorities have a full understanding of the perceived barriers to renewable energy projects and will indicate paths that can be taken to avoid these barriers. Over the last two years an energy strategy has been developed, again with EC funding and part of this strategy has been the establishment of an Energy Efficiency Advice Centre in Oldham in conjunction with Rochdale and Bolton. They have recently put in a bid to the EST for support in the development of small-scale community heating CHP systems and are currently awaiting a response to that request. Micro CHP is also very interesting to them but they have no funding available for the trial they would like to conduct. NORTH WEST DEVELOPMENT AGENCY

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In general terms the key issues they face are funding of projects in the CHP and renewables fields. As indicated above it is likely that they will seek third party financing for the St. Mary's CHP scheme, but as yet there has been no detailed project development on the renewables front. Local objections are well understood to be a likely barrier to the renewables schemes if and when they are put forward for planning and they are already in consultation with appropriate stakeholders. Funding for community CHP, micro-CHP and renewables would be of particular interest. Cheshire County Council. Cheshire have recently published their draft “Environmental Strategy And Action Plan” for consultation, updating the previous strategy released in 1997.In this strategy, energy is identified as one of seven focus issues. It is notable that little emphasis within this plan is placed on energy issues. However, the Cheshire Renewable Energy Initiative (CREI) has been created to help promote and co-ordinate renewables activity in the county. It is noted that biofuels may offer the greatest potential for renewables in Cheshire, although experience elsewhere suggests possible commercial viability problems relating to fuel supply. It is also noted that the District Council Home Energy Conservation Act and increasing minimum energy efficiency standards in the building regulations have helped to improve energy efficiency of the countys building stock though it is felt there are still further opportunities for improvement in this area. It is beyond the scope of this study to look at activities in all the LA’s in the region, however it is worth noting that a range of initiatives exist to stimulate energy efficiency in the public sector. The EST promotes a series of programmes which encourage energy efficiency. These include: Community energy – A £50m programme of grants to encourage CHP/District heating uptake in public buildings. 8 projects have been funded but none are in the North West Innovation Programme - provides support for Local Authorities and their project partners to promote and implement innovative approaches to reducing carbon emissions. 10 projects have been funded but none are in the North West 26 Local Authority Support Programme - assists local authorities to deliver their HECA and other energy responsibilities. In the North West, Merseyside and Cheshire EEACs provide this support to their local LA’s. As can be seen from the relatively poor uptake of these schemes, there is a need for the North West to take a more active approach to gaining financial support for energy efficiency activities. Domestic Housing In many respects the domestic housing sector has the longest and most successful track record in terms of co-ordinated attempts to improve energy efficiency. The Energy Efficiency Standards of Performance (EESOP) schemes have been operating since 1994 and the EST Energy Efficiency Advice Centre network (EEAC) has been operating since 1993. Both these schemes have achieved real measurable improvements in energy efficiency performance in the domestic sector:

26

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EESOP (now operating as EEC – “Energy Efficiency Commitment”) is an obligation placed on suppliers of electricity and gas, requiring them to encourage and assist consumers to make energy savings. The requirement is to achieve a specified level of energy saving measured in TWh. Energy saved is calculated by applying a “lifetime” and an annual saving to each energy saving measure funded. Popular measures include loft insulation, compact fluorescent light bulbs and cavity wall insulation. CHP can be regarded as a form of energy efficiency. 27 EEC anticipates funding the following measures across the UK between 2002 and 2005 which all require qualified installers 28: Table 23

Energy Efficiency measures in EEC

“Business As Usual”, thousands

Additional due to EEC, thousands

Cavity wall insulation

240

610

Loft insulation – professional installer

120

110

80

380

620

580

Measure

Condensing boilers Tank insulation (new and top up)

As can be seen from this list, this is a large requirement for additional employment and may present an opportunity for job creation in the region. In total EEC is expected to save 62 TWh in the domestic sector over the next three years. That is to say, around 50% more than the total domestic electricity use of the NW region. Energy suppliers regard these targets as stretching and some believe they will struggle to achieve such high levels of savings. There is no regional bias to where the funding is spent and therefore the North West could benefit by becoming an “easy” region for energy suppliers to achieve savings by identifying suitable consumer groups and promoting specific energy saving measures including microchp. In addition to EEC, the other main driver for domestic energy savings is the EEAC network. EEACs are funded by the EST to provide free impartial and locally relevant energy efficiency advice and expertise. Out of 52 EEACs nationally there are 6 in the North West. Table 24

Operators of EEACs in the North West

Area

27 28

Operator

Cheshire

Energy Partnerships plus

Merseyside

Energy Partnerships plus

Manchester South

Manchester City Council

Manchester North

Anchor Stay Put

Lancashire

Vacant – out to tender in OJEC

Carlisle & County

Carlisle City Council

Utilities act 2000 section 70 and 99 DETR consultation documents Nov 2001 NORTH WEST DEVELOPMENT AGENCY

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In 2001, advice packs were sent to more than 370,000 customers by EEACs nationally. In the North West around 50,000 customers received packs although this hides a mixed performance locally. According to the latest market research by the EST, the EEAC network produced an annual electricity saving of 474GWh 29 in 2001. As can be seen above, the Lancashire EEAC is currently unallocated and this represents a significant gap in energy efficiency savings for the region. Domestic CHP (dchp) provides another option for achieving major energy savings in the domestic sector. The market appears poised for take off with several major players keen to pilot large trials within the next two years. In this nascent technology the North West is well placed to prosper as discussed in the following section. Transport Many initiatives for energy efficiency improvements in the transport sector require action by central rather than local government. There is still potential for travelrelated energy efficiency improvements to be made by large industrial and commercial enterprises and local authorities. Examples of initiatives which could be further exploited include: Travel Plans. The Government is encouraging the voluntary take up of travel plans in England by businesses, schools, hospitals, local authorities and other major employers since a large number of people making small changes in their workrelated travel habits will make a substantial difference to traffic congestion. A travel plan is typically a package of practical measures, tailored to the circumstances of individual sites, to reduce the number of people using cars to travel to work or to travel on business. One example in the North West region is that of British Nuclear Fuels which has provided a dedicated bus service for employees at its Springfields site near Preston. This scheme has helped the need for car parking spaces and has reduced traffic congestion around the site. Public transport operators are being encouraged to play a key role in travel plans, for example through the introduction of better services, discounted multi-journey travel tickets or personal timetables and by working with travel plan organisers 30. Tax Changes. The 1999 Finance Act included a package of measures to encourage green commuting and to cut red tape for business, including removing the employee benefit tax charge on works buses, bus subsidies, bicycles and bicycle parking; introducing capital allowances and a tax-free cycling allowance for employees using their own bicycles on business travel; and allowing employers to pay tax-free for alternative transport when car sharing arrangements temporarily break down. Local authorities and other transport organisations in the region have combined their efforts in putting together integrated transport strategies and local transport plans. The main objective has been to increase the number of journeys made by public transport, by cycling and on foot and to reduce the proportion made by private car. Specific actions which have focused on this objective include: Extending the area served by light rail links such as Metrolink Developing car free residential areas and traffic management initiatives Building and maintaining more cycle routes. 29 30

A little under 1% of total NW energy use Travel Plans: New Opportunities for Public Transport Operators, General Information Report 73 Energy efficiency Best Practice Programme NORTH WEST DEVELOPMENT AGENCY

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These and other possible initiatives, such as e-commerce and tele-working, could be encouraged and offer further scope for potential for travel-related energy efficiency improvements. Specific features of the NW transport sector are the importance of the aviation sector, with two important regional airports and an aircraft manufacturing centre, and the extensive canal network which could offer substantial opportunities carrying freight. The transport sector is the third largest source of greenhouse gas emissions in the UK and also the fastest growing source. It is therefore crucially important to tackle energy demand in this sector. The issue, however, is international in nature and regional decision-making will be restricted to providing the necessary transport infrastructure, information and incentives for individuals and businesses to make informed choices in reducing energy use in the transport sector. The use of energy in transport is largely dependent on oil and is expected to remain so for the next 20 years. Future developments, however, will probably focus on alternative fuels, such as biofuels and hydrogen-based fuel cells. Alternative Vehicles The main alternatives to the internal combustion engine in passenger cars are electric, hybrid and LPG powered vehicles. Battery electric vehicles (BEVs) have been available for many decades. They also offer a number of distinct benefits. First amongst these is that they have zero emissions at the point of use and they are also very quiet. These factors make them attractive for specialist uses in builtup areas, most notably in the past as milk floats, but also for some other types of small municipal vehicles and occasionally buses. Peugeot and Citroen also have BEV versions of standard small car models, which a number of UK local authorities are using with some success for tasks involving low daily mileage. Hybrid vehicles have the potential to deliver some of the benefits of both battery electric and ICE technology while mitigating some of the more serious limitations of both. Although they include important technical developments, hybrids may also be viewed as a specific and advanced phase of the ever-increasing efficiency and improved emissions performance of the conventional engine. Extensive LPG fleets are in operation in several countries (in the EU most notably Italy and the Netherlands). These fleets were built up over a period of years and have now been in place for some time. It is also worth noting that this was done not only for environmental reasons, but also for purposes of fuel security. Since LPG is one of the less well utilised parts of the average oil barrel, its use as an automotive fuel has attractions from the economic interests of the oil companies and of the efficient utilisation of crude oil. On the other hand, the relatively small share of the LPG components in the oil barrel limits the possible penetration of LPG to only around 5 per cent relative to the petrol and diesel-powered share of the vehicle fleet, or possibly less if much of it is used for other purposes. The UK LPG fleet reached 39,000 vehicles by the end of 2000, of which one in three had received financial incentives from the Government’s Powershift programme. This ratio suggests that, with current reduced levels of fuel duty, the market is now well on the way to being self-supporting, with or without additional vehicle subsidies. A rapid increase in numbers is now expected, possibly to 250,000 by the end of 2004, or about 1 per cent of the light vehicle fleet.

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In aviation, no substantial change in engine technology (away from gas turbine engines) can be anticipated in even the medium term. Similarly, no alternative fuel presents even medium term options of a substitute for kerosene, in terms of performance, energy density or cost. Hydrogen may offer possibilities in the very long term, but the technical barriers to be overcome are enormous. In particular, the much lower energy density of stored hydrogen would require very substantial changes to aircraft design to accommodate the volume of fuel needed. A further problem is that a switch to hydrogen would eliminate CO2 emissions, but increase water vapour emissions, and the latter may well emerge as the bigger problem of the two at high altitudes.

4.5

Supply Demand Scenarios

4.5.1

Energy Supply & Demand Model

To enable us to look at aspects of energy supply and demand in the region under a range of possible future conditions a spread sheet model has been developed. The supply picture detailed above has been transferred to this spreadsheet, and a detailed demand profile for the region has been developed. The demand profile includes fuel used in transport. This model provides detailed information on the current supply of all fuels (electricity, gas, coal and oil) into the region in 2001 and also provides a detailed breakdown by sector of where the demand for this energy currently exists. From this picture of the energy supply and demand balance for the North West in 2001 a series of scenarios are developed for how this balance may change in the next 10 years. These scenarios are described in detail below. In our “central case� the supply picture for 2012 is not very different from the current situation. In terms of generating plant only Calder Hall has closed, Morecambe bay continues to deliver a small surplus of gas to the region and both oil refineries are still in operation. Fiddlers Ferry continues to import coal. No new fossil-fuel power stations are planned, however generation from renewables, CHP and from waste incineration is expected to increase. Demand however is much more difficult to model accurately and thus we consider the demand scenarios first. 4.5.2

Demand Modelling

Demand is more fluid than generation capacity and changes more quickly. We have projected the current demand profile forwards to 2012 using three sets of factors: 1. Rates of change of sectoral size. Clearly, as the size of a sector changes the energy demand associated with it changes proportionately. For most industry sectors, we have used value-added as a measure of output. It should be recognized that changes in output may mask changes in the make up of the sector. 2. Rates of change of energy intensity. The rate at which energy consumption per unit of output changes can be combined with the rate at which the sector grows or shrinks to generate a rate of change for overall energy consumption. Ideally, the rates of change of energy intensity used for forward projection would allow both for energy efficiency changes and for changes within sectors that lead to lower or higher energy needs per unit of measured output (for example, a shift from bulk chemicals to higher-value speciality chemicals which require less energy per unit produced).

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3. Changes in the fuel mix used in different sectors. The DTI’s Energy Paper 68 provides some projections of ways in which different sectors adjust their relative usage of different fuels in response to changes in the prices of those fuels. This pattern of relative energy use is quite insensitive to fuel price changes as can be seen from Table 26 below. Models of the UK economy also suggest future output levels to be relatively insensitive to energy prices (see Table 27): recent experience in the real economy suggest other factors such as the state of the global economy, have stronger influences on growth in the UK economy as a whole. Table 25

Fuel Price Influence on End User Fuel Preference, 2010

Fuel 32

31

Percentage of demand per fuel Electricity

Gas

Oil

Solid Fuel

L

H

L

H

L

H

L

H

Domestic

24

24

68

67

7

8

1

1

Industry 33

25

26

41

42

16

15

16

15

Services

40

39

50

52

9

8

1

1

Price Model Sector

Source: Energy Paper 68 (2000) DTI. Table 26

Projected Variation in Output with Energy Price

1995=100 Sector

Central Low

Central High

Services

153.0

153.0

Iron and Steel

105.3

101.7

Non-Ferrous Metals

119.2

117.4

Engineering with Vehicles

151.6

147.9

Mineral Products

115.0

113.9

Chemicals

129.5

125.7

Food, Drink and Tobacco

118.7

121.7

81.9

81.1

Paper and Packaging

138.3

137.3

Construction & Other Industries

129.2

129.8

Textiles, Leather and Clothing

Source: Energy Paper 68 (2000) DTI.

31 32 33

These figures are calculated on the “central” assumption used in EP68 for growth in UK GDP: 2.5%p.a. to 2005, dropping to 2.25% p.a. thereafter Low price model base prices: crude oil $10/bbl; coal $26.5/tonne; gas 11p/therm . High-price model: crude oil $20/bbl; coal $42.4/tonne: gas 23.4p/therm. For more details, refer to source Missing 2% is direct use of renewables NORTH WEST DEVELOPMENT AGENCY

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4.5.3

Energy Demand Scenarios

In view of the inherent dangers of forecasting, it is common practice to use “scenarios”. We have described four future demand scenarios to explore issues of concern to the future energy system using the NW energy spreadsheet. These are “Base Case”; “High Consumption”, “Low Consumption” and “Decoupled”. Base Case: This is our central estimate for the future. This projects demand forward on the basis of trends in energy intensity and sectoral growth from the past ten years: fuel prices are assumed to remain at a similar level to the past 10 years. High Consumption: In this scenario, each sector grows at the upper end of industry estimates and energy efficiency improvements are made at the most pessimistic rates. Low Consumption: In this scenario, each sector grows at the lower end of industry estimates and energy efficiency improvements are made at the most optimistic rates. Decoupled: In this scenario, the energy use of each sector is “decoupled” from growth. Each sector grows at the upper end of industry estimates but energy efficiency improvements are also made at the most optimistic rates. These four scenarios give the following picture for demand in 2012 by sector: Figure 3

North West Energy Demand by Sector 2001

NW Energy Demand by Sector

2012 Base Case 2012 High Consumption 2012 Low Consumption 2012 Decoupled

80000

70000

60000

50000

GWh 40000

30000

20000

10000

0 Domestic

Industry

Services Sector

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In the base case demand grows by 3.7% from 291 TWh to 302 TWh and in the high consumption scenario demand grows by 6.2% from 291 TWh to 309 TWh per annum. However, in the low consumption scenario demand reduces by 13.4% from 291 TWh to 252 TWh and in the “decoupled� scenario demand reduces by 5.1% from 291 TWh to 276 TWh per annum. Thus, whilst the trend is likely to be a modest increase in energy use over the next 10 years, recession and or increased emphasis in energy efficiency could result in a net decrease in energy use in the region. The model also projects the likely fuel split in 2012. Figure 4

North West Energy demand by fuel in 2012 2001

NW Energy Demand by Fuel

2012 Base Case 100000 2012 High Consumption

90000

2012 Low Consumption

80000

2012 Decoupled 70000 60000 GWh

50000 40000 30000 20000 10000 0 Electricity

Gas

Fuel Oil

Solid Fuel

Others

Gasoline

Derv

Jet kerosene

Sector

It is interesting to note that electricity consumption increases in all the scenarios except the low consumption scenario. Total demand (before losses) is projected to rise from 35.6 TWh to between 36.2 and 42.5 TWh. In the next section we examine where this increased demand is likely to come from. 4.5.4

Electricity Generation in 2012

We noted above that the electricity generation capacity in 2012 is not likely to be very different from the current situation. Of the large scale generation plant operating in 2001, only Calder Hall has closed. The prospects for new fossil-fuel power stations will be determined by trends in electricity prices and capacity issues. However generation from renewables, CHP and energy-from-waste are expected to increase.

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Renewables Generation An assessment of the potential for the installation of renewable electricity generation in the North-West was made in the “Power to Prosperity” report which was published by Sustainability North West in 2000. Updated forecasts, taking account of the new offshore wind potential, were made in the Renewable Energy Mapping Study carried out by Enviros Consulting in 2001/02. Renewables North West has recently updated the projections to 2010 for both offshore and onshore wind and for the other renewable energy sources. These are shown in the following table. Table 27

Existing and potential renewable capacity in the North West

Existing capacity (MW)

Potential for New capacity by 2010 (MW)

Total capacity by 2010 (MW)

2010 Generation (TWh)

Off shore wind

0

400

400

1.05

Onshore wind

58

300

358

0.94

Biomass 34

84

120

204

1.63

Small-scale hydro

1.6

4

5.6

0.01

Photovoltaics (PV)

0

12.5

12.5

0.02

143.6

836.5

980.1

3.65

Renewable Technology

TOTAL Source: Renewables North West

It should be noted that the above table does not include Energy from Waste plants 35 which are projected to add a further 163MW by 2010 to the current capacity of 75.5MW. The resulting capacity of 238MW would generate around 1.88TWh bringing the total from Table 27 to 5.5 TWh in 2010. This equates to over 10% of the projected energy demand in the NW in that year. CHP The Government has a stated UK target to achieve 10 GW of electrical generation capacity from CHP by 2010. At present the UK has around 5 GW installed electrical capacity. Thus if CHP in the North West grows at the target rate we should see a doubling of capacity in the North West to around 1.5 GW by 2010. This forms the central case in our projected model. It should be noted that the current economic climate with relatively high gas prices and low electricity prices is unfavourable to CHP development. In our model we have assumed that action will be taken to address this issue. The Energy White Paper confirms the 2010 target and states that the Government will introduce further measures to help to address the current market difficulties. This includes working with OFGEM to ensure that NETA does not discriminate against smaller generators, setting targets for Government Departments to use CHP generated electricity and considering the expansion of the energy efficiency commitment to stimulate CHP. The Government will also support field trials to evaluate the benefits of micro-CHP.

34 35

Includes landfill and sewage gas. Includes biogas from anaerobic digestion and combustion of industrial or MSW. In its Waste Management Technical Report (July 2001), the North West Regional Technical Advisory Body notes that “The introduction of EfW in support of recycling will be required to guarantee that the national strategy targets are met.” The report goes on to suggest that around 2 to 2.5 Million tonnes of waste will be burnt for energy by 2010. This equates to annual electricity generation in the range 900-1100 GWh. NORTH WEST DEVELOPMENT AGENCY

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Generation Mix 2012 Our central estimate for total demand in 2012 is 50.2 TWh (41.4 TWh plus losses). To estimate how this may be generated we have assumed that the conventional stations continue to operate at current levels, renewables operates as above and chp doubles in line with the Governments CHP targets for 2010. This projects that electricity will be generated in the following split: Figure 5

Predicted Electricity Generation mix in the North West 2012

Renew ables 5.5 12.1%

Nuclear 19.4 42.6%

CHP 7.9 17.4%

Gas 5.7 12.5%

Coal 7.0 15.4%

Total Generation = 45.5 TWh

In the base case and high consumption scenarios the North West (excluding Connahs Quay and Deeside Power stations) continues to be a net importer of electricity in 2012. Under the low carbon and de-coupled scenarios, it becomes a net exporter. This situation however does not account for any major changes in fuel pricing. The major sensitivities which exist here include: A possible future carbon tax on coal generation All coal plant must be fitted with fgd post 2005 (either adds cost or reduces availability of competitive plant) Closure timetable e.g. Heysham 1)

for

the

Nuclear

plants

(Magnox

and

some

AGR,

Impact of Pricing on Electricity Generation While the actual plant that will be available for electricity generation in 2012 is reasonably predictable, the way it will be used is less so. Modelling carried out for the DTI shows how different fuel price scenarios are expected to influence the way generating capacity is used (see chart below). At higher prices for all fuels, the tendency is for coal generation to be brought on line at the expense of gas – as has occurred in the last year.

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Figure 6

DTI Electricity generation mix predictions

UK Power Station Output in 2010, TWh. Projections for Central-Low and CentralHigh GDP-Fuel price scenarios (see Notes 1 & 2 below for details of this). Source Energy Paper 68 (2000) DTI. As the North West has a major coal fired power station currently operating at a low utilisation factor, this suggests more coal generation from this station may be likely over the next 10 years. It is worth noting that the current oil price is somewhat higher than in the “high” price model used in Energy Paper 68 (see note 1 below) with crude oil at $25-$26 per bbl, while gas prices have been close to this level at around 20p per therm for much of 2002. Market analysis referred to in DTI’s recent consultation on the gas market anticipates this gas price level persisting at least until 2005 (Chart below). The future price of oil is currently very hard to predict given political uncertainties in the Middle East. In the North West, the affect of a long term trend to higher gas prices, could be expected to have the following impacts; A reduction in ccgt electricity generation for “merchant” electricity generated from spot purchase natural gas 36 A corresponding increase in generation from Fiddlers Ferry A reduction in CHP usage and very little new build gas fired chp.

36

Some of the ccgt electricity generation (eg the Intergen) site is sold on long term fixed contracts “hedged” through long term gas contracts and thus the “real” price of natural gas is largely irrelevant. NORTH WEST DEVELOPMENT AGENCY

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Figure 7

Predicted future gas prices

Source: Heren International Spot Gas Monitor quoted in “DTI response to consultation on Gas Issues� (URN 02/1306)

4.5.5

Natural Gas

The latest Transco 10 year statement shows supply from Morecambe bay falling steadily over the study period and by 2012 the supply could be as low as a third of the present day total. This would change the region to becoming a net importer of natural gas. However, these figures do not include the new fields being developed off the North West coastline (see section 5.2.1). If the North West does become a net importer of natural gas then this would strengthen the case for providing increased natural gas storage facilities within the region. As has been seen at Byley there would be planning implications to the siting of such facilities and there is therefore a need to involve Transco in early dialogue to ensure these issues can be given due consideration. 4.5.6

Greenhouse Gas Emissions

From the modeling work performed above it is possible to make some approximations as to the historical current and future greenhouse gas emissions of the region. The UK is committed to reducing its greenhouse gas emissions by 12.5% under the Kyoto protocol as compared to emissions in 1990. In addition, the UK Government has also committed to reduce CO 2 emissions by 20% from this 1990 baseline. It is thus interesting to compare current and predicted emissions with those seen in 1990. A study by March Consulting Group for Norweb (the Regional Electricity Company covering a substantial part of the NW) in 1993 estimated the following energy and fuel use (in TWh) by the industrial, commercial transport and domestic sectors in 1990:

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Table 28

Energy use (TWh) in the North West in 1990

Sector

Industrial

Commercial

Domestic

Transport

Total

Gas

25.0

10.7

28.3

0

64.0

Electricity

15.4

8.2

7.2

0.4

31.2

Solid Fuel

9.8

0.8

3.2

0

13.8

12.9

7.8

1.2

42.6

64.5

39.9

43.0

173.5

Oil Total (1990)

63.1

37

27.5

38

Thus energy consumption has risen by 8.5% between 1990 and 2001 and is predicted to rise a further 8.5% from 1990 levels by 2012. It should be noted that all these figures are estimates and further work is warranted in this area. In particular, the data for energy use in the commercial sector may be misleading and it may be that sectors which fell in the commercial bracket in 1990 are in the industrial and domestic sectors in the current study. The fuel switching observed from primary fuels to electricity plus the reduction in carbon intensity of electricity generation means that the CO 2 emissions will vary in a different way to energy use: Table 29

Energy use (TWh) and CO 2 emissions (Mtonnes) in the North West

1990

2001

2012

39

Fuel

64.0

86.2

90.3

Electricity

31.2

35.6

41.4

Solid Fuel

13.8

5.2

3.4

Oil

64.5

62.5

68.3

173.5

189.5

203.4

44.4

46.8

Gas

Total (1990) CO 2 MTonnes

50.2

40

Based on the fuel mix for the region, a preliminary examination suggests that the region will reduce emissions by 7% from 1990 baseline emissions of CO 2 by 2012. This does not meet the 12.5% target which forms the basis for the UK target under the Kyoto protocol and is far short of the tougher 20% reduction target set by the current Government. More worryingly, the trend from 2001 is upwards. It should be noted that these are rough estimates only and this is not intended to represent a greenhouse gas inventory for the North West. Specifically, industrial process emissions, fluorinated gas emissions and methane emissions are not included. UMIST is due to publish a full North West of England emissions study in 2004.

4.6

Key Issues

The key issues arising from our study of the North West Energy supply and demand situation over the next ten years are as follows:

37 38 39 40

Includes heat generation and “misc� from our model Includes agriculture from our model. Excludes gas used for power generation Electricity fuel mix assumes 70% coal and 30% nuclear in NW in 1990, average fuel mix as in model for 2001 and 2012 NORTH WEST DEVELOPMENT AGENCY

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Generation Calder Hall has recently closed, but otherwise it is unlikely that there will be major changes in large scale power generation. Renewables will grow significantly but growth may be limited by transmission constraints especially in Cumbria and planning difficulties. These problems will need to be addressed urgently if the region is to meet the 10% target by 2010. CHP will need some change in economic drivers before growth can be guaranteed. The region is unlikely to suffer undersupply problems in the next 10 years. There will need to be some major decisions made on planning to replace the large scale generation capacity which is due for retirement beyond 2012, although in the current free market NWDA must play a facilitative role and help develop the debate and make market conditions attractive. Energy Supply Morecambe Bay will decrease in capacity and it is not clear to what extent new fields off the North West coast will compensate for this reduction. The region is currently an exporter of natural gas but this may shift to imports in the next 10 years. This situation and the potential need for natural gas storage facilities needs to be monitored. The gap left by retirement of nuclear generation capacity and other conventional plant will need to be addressed. Early retirement of the coal or nuclear plant in the region could leave a large generation deficit. Transmission & Distribution The shortage of high voltage (400kV) electrical transmission capacity from Scotland to Heysham is a major national barrier to renewables development and needs to be addressed The shortage of 132kV electrical transmission capacity in Cumbria is a major local barrier to renewables development and some innovative thinking may be required by the region Plans are in place to increase natural gas storage capacity to help alleviate projected future supply shortfalls. This is an opportunity for the region to benefit from investment but planning issues will need to be considered. End Use In the central scenario energy use increases to 2012 However, recession or investment in energy efficiency could reverse this trend and see a decrease in energy use. The higher than average occurrence of fuel poverty in the region will limit gains to be made in energy efficiency in the domestic sector

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Increased expenditure on home energy efficiency may represent an employment opportunity for the region Domestic CHP could represent a major opportunity for employment and home energy efficiency More effort should be made to co-ordinate with EST and CT activities specifically with respect to Local Authority initiatives Effort should be made to co-ordinate the activities of groups offering energy efficiency advice to the SME sector and mechanisms for monitoring impact of these organizations should be put in place Environment Overall it appears likely that the NW will not reduce CO 2 emissions by the 12.5% Kyoto target unless further action is taken, particularly on energy use in the domestic and transport sectors The region has a good chance of meeting its 10% renewable generation target by 2010.

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5.

STAKEHOLDER & SUPPLY CHAIN ANALYSIS This Section describes the supply chain for energy products and services. Appendix 5 gives a detailed analysis of the science and technology base focussed on energy research in the North West.

5.1

Energy Industries Structure & Overview

A summary of the structure of the energy industries in the North West is given in Figure 8. Figure 8

Figure Energy Industries Schematic Suppliers

Renewable Renewable Resources Resources

Power PowerGeneration Generation Power Power Transmission, Transmission, Distribution Distribution&& Storage Storage

••Renewable Renewable Nuclear NuclearFuel Fuel

••Nuclear Nuclear ••Coal Coal

Coal Coal

Electrical Electrical Conversion Conversion Equipment Equipment

Renewable Renewable Resources Resources

••Oil Oil

Energy EnergyEfficiency Efficiency Products Products/ /Services Services

Energy Energy Consumption Consumption

••Gas Gas(CCGT) (CCGT)

••Industrial Industrial CHP CHP

••Commercial Commercial ••Public PublicAdmin Admin

Oil Oil&&Gas Gas Exploration Exploration&& Production Production

Gas GasTransmission, Transmission, Distribution Distribution&& Storage Storage

Transport Transport Fuels Fuels Distribution Distribution

Refining Refining

Gas Gas Conversion Conversion Equipment Equipment

••Domestic Domestic ••Transport Transport

Transport Transport Equipment Equipment

Infrastructure & Support Services

The above diagram represents the main elements in the energy supply chain covering the physical movement of the various forms of energy from fuel supply to energy consumption and efficiency products and services. In addition, there are a wide range of suppliers of products and services to the energy industries at the different stages in the supply chain including the energy suppliers who are not involved in physical supply. Our analysis of the energy industries is based on the following main sub-sectors of the supply chain: Oil & Gas industry covering exploration, production and refining/processing Nuclear Industry covering nuclear fuel production, power generation, reprocessing and waste management Conventional power generation, including large-scale CHP, based on the fossil fuels i.e. coal, gas and oil

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Renewable energy industry covering technologies such as wind, hydro, energyfrom-waste (EfW), biomass and solar/PV Transmission, distribution and storage of energy covering electricity, gas and transport fuels Energy conversion equipment based on electricity, gas and transport fuels Energy efficiency products and services including consultants, contract energy management firms, suppliers of insulation materials and energy management and metering products/services Energy consumers in the industrial, commercial, public administration, transport and domestic sectors. These sub-sectors are served by a wide range of suppliers of products and services including: Architects and consulting engineers Contractors R&D Organisations (see section 6 for details) Engineering equipment manufacturers and sub-contractors Business support organisations. Overall, we estimate that the energy industries in the North West, as described above, currently employ about 53,000 in around 600 firms. The breakdown by main sub-sector is shown in Figure 9. Figure 9

NW Energy Sector Breakdown by Employment

9%

4%

Nuclear

35% 19%

Oil & Gas Power General Energy T&D Energy Equipment Contractors

14%

Consultants

17%

2%

Total Number of Employees = ~53,000

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A breakdown of the main energy sectors by sales turnover is given in Figure 10. Figure 10

NW Energy Sector Breakdown by Sales Turnover

5%

4% 30%

18%

Nuclear Oil & Gas Power General Energy T&D Energy Equipment Contractors

13%

Consultants

22%

8%

Total Annual Sales = £5.3 billion

The breakdown by sales gives a similar pattern to that for employment with power generation being a higher proportion due to the relatively high sales per employee compared with the other sectors. A more detailed breakdown of the energy equipment sector is given in Table 30 below: Table 30

Energy Equipment Breakdown

Sub-Sector

No of Significant Firms

No of Employees

Annual Sales (£)

Gas Heating/Combustion

15

2,500

175

Gas Engines/EfW

15

1,500

220

Cooling

20

1,000

100

Electrical Appliances

5

2,000

200

Motors/drives

10

250

25

Insulation

15

1,500

150

Meters/controls

20

1,000

90

Others

10

500

50

Total

110

10,250

1,010

This shows that the main sub-sectors are gas equipment, appliances/accessories, gas engines/EfW and insulation products. The following sections provide profiles of the various sub-sectors.

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5.2

Oil & Gas Industry

The information in this section is based mainly on the recent report by DouglasWestwood for the DTI and ISOCON (Powering the Future: North West Capabilities in the Energy Sector. October 2002). 5.2.1

Upstream Oil & Gas

So far 18 fields have been discovered offshore of North West England and 8 are currently onstream. The first, Morecambe South, still by far the largest with a peak gas production estimated at 900 GWh per day, was brought onstream in 1985 and is operated by British Gas, Hydrocarbon Resources Limited, a wholly owned subsidiary of Centrica plc. There are currently 15 platforms operational offshore in the region and 4 more in prospect. They are mainly gas producing and in an average water depth of 23 metres. There are 510 km of offshore pipelines currently operational with a further 182 km in prospect. There are 6 operational sub sea wells, one under development and one ‘possible’. A further 8 may come into being as alternatives to other development options. The Liverpool Bay Development consists of four fields – Douglas, Lennox, Hamilton and Hamilton North and is operated by BHP Billiton. Oil and gas from all four fields are received at the Douglas platform. The oil produced from the Lennox and Douglas fields is processed and blended and sent through a 20km pipeline to an offshore storage installation before being loaded into tankers for export. Gas extracted from Hamilton, Hamilton North and Lennox is part-processed on the Douglas platform before it travels via a 34 km pipeline to BHP’s gas terminal at Point of Ayr on the North Wales coast. The gas is used at the Connah’s Quay Power Station located on the Welsh side of the Dee estuary and operated by Powergen. The total recoverable reserves in Liverpool Bay are currently estimated to be in excess of 150 million barrels of oil and 1.2 tcf of gas. With peak oil production expected to average some 70,000 barrels per day and a peak gas capacity of 300 million cfd (compared with the peak gas production of nearly 900 million cfd for Morecambe South) , the life of this field is projected to be at least 20 years. Two fields, which are currently under development, are the Bains Field (due onstream 2002 – Hydrocarbon Resources) and the Calder Field which is part of the Rivers development (due onstream 2004 – Burlington Resources). Five fields are expected to be onstream between 2005 and 2009. The situation regarding Calder’s Morecambe Bay prospect is uncertain as the license has been surrendered. (Two further discoveries are thought to be too small to be developed). The 1,800 tonne Calder platform, part of the Irish Sea Rivers project, is presently under construction and due to be installed in late 2002. Work is by a joint venture involving Allseas UK and Genesis Oil & Gas Consultants Ltd for Burlington Resources. The latest Transco 10 year statement shows the Barrow terminal supplying steadily less gas (124 TWh in 2001 falling to 45 TWh by 2011). However, this does not include new reserves. The Transco statement notes that proven reserves have actually increased over the last two years and whilst this is unlikely to continue for much longer, it seems likely that actual delivery of gas at Barrow will be somewhat higher than the figure quoted above. Reliance on imports in 2011 thus varies from between 15% to 45% of total supplies by 2011. NORTH WEST DEVELOPMENT AGENCY

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To cope with the shifting supply of natural gas Transco has developed two scenarios for the future, a “Northern supply scenario” where most of the gas requirements are fulfilled by existing and new North sea gas fields and are thus landed at St Fergus and a “Southern supply scenario” where most of the gas requirements are fulfilled by imports and are thus landed at Bacton, see Figure 11 below: Figure 11

Thus, whether gas is landed at Bacton or St Fergus there is likely to be little expenditure on transmission infrastructure in the North West. However, being central between the two points could make the North West a good location for increased storage facilities which would then be useful for both the Northern and the Southern scenarios.

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5.2.2

Downstream Oil & Gas

Refining In the North West region, there is one major oil refinery at Stanlow which is operated by Shell UK Oil Products. The site processes 11 million tonnes of crude oil per year and produces a sixth of the UK’s transport fuel needs. It employs around 850 staff, of which around two-thirds are involved on the refinery and the balance in the production of petrochemicals. Stanlow produces 4,000 million litres of petrol and 2,000 million litres of kerosene per year. It is the only site in the UK that makes Optimax petrol. Recent investments have included new facilities to improve low sulphur fuel production. Shell also operates the smaller bitumen refinery at Eastham. All of the refinery’s crude oil arrives by tanker at Tranmere Oil Terminal, which is situated on the south bank of the River Mersey. The tankers moor at two jetties where they discharge crude oil at up to 10,000 tonnes per hour. The crude oil is pumped from Tranmere through a pipeline to storage tanks at Stanlow 15 miles away. Gas oil and other products travel to and from the terminal by separate pipeline. Energy from Stanlow’s Catalytic Cracker is harnessed by a power recovery train, the largest in Western Europe, capable of generating 21MW of electricity. This is fed back to help power the refinery and along with 8 Turbo Alternators at the Boiler House enables the refinery to export electricity to the National Grid. The total potential energy generation from within the refinery is about 80MW compared with a demand of 60 to 65MW. The Stanlow site employs around 800 contractors (on an annualised basis to take into account the peak loads during plant shutdowns) on design, engineering and maintenance work. Total annual procurement for goods and services by the Stanlow refinery is £50 to £70 million of which 95% is sourced in the UK and 60% in the North West. Major components supplied are valves, pipes, pumps and motors. Services purchased include scaffolding, insulation and painting. Shell has global agreements with a number of companies including Transmark Heaton for valves and HPF for pipework. HPF has a local depot. Initiatives to make the supply chain more efficient include: Development of e-procurement – E-transactions – buying and paying via internet. Online bidding – internet auctions for buying equipment; not popular with suppliers and the scope of any project must be accurately known. Six auctions have been carried out to date. Agreements with trading houses/distributors. Work on procurement processes to make them more efficient. pay is one such scheme.

Requisition to

Stanlow places a strong emphasis on minimising the impacts of its operations on the environment through a programme of continuous improvement and achievement of the ISO 14001 standard. The site supports many local conversation schemes and is actively involved in the Mersey Basin Campaign and the Mersey Banks Industrial Symbiosis Project. NORTH WEST DEVELOPMENT AGENCY

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Fuel Storage and Distribution Distribution of products from Stanlow is mainly by road (50%) and pipeline (40%) with less than 10% leaving via the Manchester Ship Canal. There is a pipeline carrying aviation fuels from Stanlow to Manchester Airport. Road deliveries are made from Stanlow’s distribution terminal, the largest of its type in Europe, to the whole of the North West and further afield. This involves over 500 vehicle movements and a volume of around 20 million litres per day. Products leaving by ship are loaded through one of the berths on the Ship Canal before heading to the Irish Sea via the Mersey. Another major fuel distribution terminal, The Manchester Fuels Terminal, at Trafford Park is jointly operated by Esso, Elf and Texaco. 5.2.3

Sector Size & Key Issues

The Douglas-Westwood Report covers the upstream and downstream oil & gas industries and also the power generation and renewable energy sectors in the region. It estimates that there are probably around 600 energy industry suppliers in the NW. However, these are mainly associated with general engineering/manufacturing and hence many of these have customers in the nonenergy sectors. The report does not provide any figures for employment in energyrelated activities but does estimate that the value of energy sector products and services provided by the companies responding to the survey amounted to over £2 billion. This include sales to the power generation and renewable energy sectors as well as oil & gas. (We estimate that oil & gas accounts for around two-thirds of the total giving a turnover of about £1.3 billion. Only 7% of this turnover is attributable to customers in the region with 59% going to the rest of the UK and 34% overseas. There should be scope for an increase in local procurement by some of the larger operators such as Shell and HRL but in the longer term, much of the growth potential for suppliers to the oil & gas sector will come from overseas. A total of 92 companies responded to the survey questionnaire, mainly suppliers of products and services to the oil & gas operating companies with over 50% being in manufacturing/engineering. Key issues relating to the future development of the sector in the NW were identified as follows: Encouraging growth by helping suppliers to access market opportunities in the region, nationally and internationally. Since the main growth markets in the longer term will be overseas, there is a particular need to help SMEs in the sector to exploit export markets. Building and maintaining customer relationships particularly with the trend towards global sourcing and rationalisation of supply chains. This creates a specific challenge for SMEs and an increasing need for them to register with the major pre-qualification systems such as FPAL and Achilles. Access to quality information about local, national and international market and project opportunities. Again the SMEs face a particular problem in this context due to lack of resources and time to devote to market research and intelligence. Encouragement of E-business which is becoming increasingly important in view of the trend towards E-procurement by the multinational operators

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Addressing skills shortages and training/education due to the ageing workforce and the problems of attracting younger people into the sector (a common problem throughout all the energy sectors). An important issue is the potential for oil & gas suppliers to benefit from growth in the market for renewable and other clean energy technologies. In the short term, offshore wind projects off the NW coast and elsewhere in the Irish Sea provide a significant local market opportunity for suppliers. In this context, a number of supply chain activities have already taken place and are being planned by organisations such as Renewables North West and Envirolink North West in collaboration with Renewables UK. In the longer term, there should be potential in other technology areas such as wave and tidal power.

5.3

Nuclear Industry

The information in this section is based on the Science Strategy Report for the Nuclear Energy Cluster in the North West 2 together with inputs from BNFL, British Energy and others involved in the supply chain. 5.3.1

Industry Overview

The North West Region has a long and distinguished history in nuclear energy from the time that Rutherford split the atom at Manchester University at the beginning of the 20 th Century through the operation of the world’s first commercial nuclear reactor at Calder Hall in Cumbria in the 1950’s to the current day hub of a global nuclear services businesses. The UK nuclear industry employs around 30,000 people directly and a further 30,000 people indirectly (source British Nuclear Industry Forum). It contributes approximately £3.3 billion to the GDP of the UK and exports over £650 million in goods and services each year. Roughly 50% of UK employees in the industry are based in the North West with major employers including BNFL, British Energy and Urenco Limited. The major operational nuclear sites in the North West are based at: Sellafield in Cumbria, (operated by BNFL, covering spent fuel management and recycling, waste management and decommissioning). Calder Hall in Cumbria (three Magnox reactors operated by BNFL) Springfields in Lancashire (operated manufacture of nuclear fuels).

by

BNFL

Westinghouse,

covering

Capenhurst in Cheshire (operated by Urenco, a Dutch, German, UK consortium covering uranium enrichment). Heysham in Lancashire (four AGR nuclear reactors operated by British Energy). Windscale in Cumbria (managed by UKAEA, covering waste management and decommissioning, environmental restoration of the site). Barrow in Cumbria (marine terminal for transport of nuclear materials to and from Europe/Japan used by Pacific Nuclear Transport Limited, a subsidiary of BNFL).

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In addition to these operational sites, BNFL has its global headquarters based at Risley near Warrington and the Nuclear Safety Directorate and Environment Agency that together regulate the industry in the UK are based at Bootle near Liverpool and Penrith in Cumbria respectively. To support these organisations there is also an extensive industry supply chain network in the North West covering areas such as engineering, plant and equipment design and installation, civil engineering, decommissioning, safety and hazard assessment and technical consultancy services. Supply chain companies include both SME’s with specific nuclear related expertise as well as larger UK based and global companies for whom nuclear is a small part of their overall business. Examples of companies that form this supply chain include: NNC Limited, with over 1,000 employees mainly based in the NW, undertakes a wide range of engineering and technical work for BNFL and British Energy. It also has a R&D centre in the region and has recently opened new offices at Birchwood. NNC also provides engineering and technical services to a range of other sectors including conventional power generation, process industries and the environmental sector. Employment has grown rapidly over the past few years (figures to be confirmed). RWE NUKEM Ltd, SERCO Assurance, Amec Group Ltd and Amey VECTRA Ltd (all have bases in the Warrington area). Corus Process Engineering (based at Workington in Cumbria) INBIS Ltd (based at Bamber Bridge near Preston) NIS Group (based at Chorley in Lancashire) Sembcorp Simon Carves Ltd (based at Cheadle near Manchester) Westlakes Research Ltd (based at Whitehaven in Cumbria) CCLRC Daresbury Laboratory (based near Runcorn in Cheshire). These days the industry has a global outlook. For example BNFL is now present in sixteen countries around the world and has acquired additional nuclear fuel manufacturing and reactor design/services capabilities through its acquisition of Westinghouse (USA) and ABB/CE (USA/Sweden). It is also working with Eskom and others in South Africa on the development of Pebble Bed Modular Reactor technology. British Energy has established overseas partnerships creating Amergen (USA) and Bruce Power (Canada) but, with the current problems being faced by the company, these are now up for sale. Urenco was created as a partnership of German, Dutch and UK enrichment providers and is currently investigating the construction of a new production facility in the USA with industry partners in that country. The nuclear industry also has strong links with the HEIs and significant resources devoted to R&D especially within BNFL and related companies such as Westlakes Research Ltd. It is also notable that other sectors (e.g. defence, medical, pharmaceutical, environmental) have close ties with the nuclear sector. These groups are also well represented in the North West and adjacent regions including nuclear submarines (BAE Systems in Barrow) and nuclear medicine (Christie Hospital NHS Trust in Manchester).

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5.3.2

Future of the Nuclear Industry in the Region

The nuclear sector in the NW will continue to be very important in terms of economic, social and environmental impacts. The Government’s White Paper on “Managing the Nuclear Legacy” identifies a total of £48 billion of civil nuclear liabilities with nearly 65% of them being located at Sellafield. The outline decommissioning programme shows a spend of £12.5 billion between now and 2010, a further £7 billion to 2020 and £2 to 3 billion per decade until 2130. The Government has announced plans to establish the Nuclear Decommissioning Agency (NDA) to develop and implement a strategy for discharging the nuclear legacy with responsibility for all public civil nuclear liabilities. The Government’s preferred location for the Head Office of the NDA is West Cumbria. It will have a presence at all the major civil nuclear sites and will employ a staff of about 200 people. This has important implications for the nuclear industry in the NW and the NWDA has made a full response to the Nuclear Legacy White Paper which welcomes the proposals, identifies a number of key issues and makes a series of recommendations. This includes highlighting the socio-economic impacts of the nuclear industry in the region and especially in West Cumbria. This addresses five scenarios for future operations at Sellafield up to 2025 from “stop operations now and prepare for closure”, through BNFL’s current business plan, to a “Blue Sky” approach including additional operations on site. All five scenarios show considerable reductions in head count at Sellafield from the current 11,500 to between 2,500 and 5,000 jobs by 2025 i.e. between 6,500 and 9,000 jobs lost. There will also be an impact on indirect employment in the area with 2,500 local jobs being dependant on the Sellafield site. Recommendations by stakeholders, include:

the

NWDA,

following

consultation

with

all

the

key

Developing a partnership to implement a series of regeneration projects for West Cumbria and a reclassification of the affected district wards in terms of their EU Structural Funds status. Basing the NDA’s Head Office in the NW in recognition of the fact that most of the UK’s civil nuclear legacy is located in the region. This has now been confirmed as stated earlier. Implementing policies and procedures for the contractualisation of the supply chain between the NDA, its Site Licencees and the sub-contractors. Developing an R&D programme into nuclear decommissioning and clean-up by building on the industry’s existing relationships with HEIs in the region and setting-up a Further Education Institution in West Cumbria. Securing the recruitment of sufficient graduates to underpin the decommissioning and clean-up programme and establishing a Nuclear Skills Centre of Excellence. Based on the current situation, there will also be significant job losses at all the other nuclear sites in the region as the industry contracts.

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The problems being faced by British Energy in the wholesale electricity market have also raised concerns about the future of the nuclear reactors at Heysham which contributed 60% of the power generated in the region in 2001 (see table 13, section 3.1.1). The two stations employ around 1,000 staff and have a significant spend on both local and other UK suppliers. In view of the strategic importance of the nuclear power sector to the UK’s electricity generation capacity, the contribution to the low carbon economy and the government’s decision to support British Energy, the short term future for the company appears to be secure. The nuclear industry argues that there should be new investment in capacity to replace the ageing nuclear reactors in the UK. These arguments are based on the contribution that nuclear power can continue to make to security of supply and reduced CO 2 emissions. In addition, it is claimed that the new generation of reactors offer substantial improvements over previous designs in terms of safety, reliability, costs and construction lead times. However, the timescales for the planning and approval of nuclear power stations are long (at least 10 years), hence it will be important for a decision to be made in the near future if the existing capacity is be replaced without a hiatus. A significant delay would lead to problems in maintaining R&D into nuclear fission and in sustaining the nuclear skills base. There are also prospects for new nuclear power stations around the world (e.g. in China, Japan and Finland) which could provide opportunities for the industry in the North West. In the longer term, nuclear fusion represents great potential for clean energy production and there is a continuing programme of R&D in this field in the UK as part of an international initiative. The Energy White Paper recognises that nuclear power is an important source of carbon-free electricity but states that “its current economics makes it an unattractive option for new, carbon-free generating capacity and there are also important issues of nuclear waste to be resolved”. However, the White Paper does not rule out the possibility that at some point in the future new nuclear build might be necessary if we are to meet our carbon targets.

5.4

Fossil Fuelled Power Generation

Details of the region’s fossil-fuelled power stations and large-scale CHP plants are given in section 4.1.1. We estimate that total employment in this sector is around 500. Fiddlers Ferry is the most significant in terms of economic impact in the North West with around 200 full time staff and about the same number of subcontractors employed. Purchasing is almost all local with a spend of £10 to 15 million per annum going into the local economy. In addition, the station also markets its pulverised fuel ash (pfa) to local manufacturers (e.g. Plasmore in Widnes) and has a development project looking at the use of pfa as a concrete substitute. The power station has approval under the renewables obligation until 2006 to co-fire waste olive oil residues imported from Italy. The CCGT and CHP plants in the region are relatively small in terms of employment and impact on the regional economy.

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5.5

Renewable Energy

5.5.1

North West Renewable Energy Cluster

The NW Cluster Mapping and Action Plan Report has identified over 100 NW based companies and related organisations which are currently involved in the RE market. These companies employ around 1000 staff in total of which about half are based within the NW region. The combined annual turnover of these companies is around ÂŁ70 million of which less than 10% is in the NW and over 70% in the rest of the UK. Figure 12

RE Companies in the NW by Primary Sector

14%

7%

Biofuels/biomass Energy-from-waste 8% 26%

Energy efficiency Other renewables Wind

11%

Cross-sectoral consultants 5% 23%

6%

R&D Other organisations

The breakdown in Figure 12 shows that the North West has a significant number of companies in wind power and energy-from-waste including landfill gas. There are relatively few companies currently involved in biomass and the other RE sectors such as solar/PV, hydro, wave and tidal power. The NW has a significant capability in consulting, project developing, contracting and operating RE plants and has a strong science and technology base in both the Universities and the private sector. Power systems and electrical engineering associated with embedded generation are key strengths. There are relatively few existing manufacturers of RE equipment or components in the region and these are mainly in the energy-from-waste and landfill gas sectors. There are no local manufacturers of wind turbines but there are a range of companies providing specialist services to this sector and a significant manufacturing resource within the North West to support the future development of wind and biomass projects. The main geographical concentrations of the RE companies are in Greater Manchester, Merseyside and Central Lancashire with smaller but significant groups in North Lancashire and on the Furness Peninsula. However, much of the new capacity to be installed up to 2010 will be in the Northern part of the region and hence the clusters in Cumbria and North/Central Lancashire are likely to expand at a greater rate than those in the South.

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5.5.2

Cluster Growth Potential

The estimates of the market growth potential for North West RE suppliers are shown in the following table: Table 31

Cluster Growth Potential

Capital Values 2000 to 2010 (£ M) Market Area

Total

Available to NW suppliers

Estimated share for NW suppliers

830

580

290

5820

1980

400

OVERSEAS

171,100

14,240

220

TOTAL

177,750

16,800

910

N WEST UK

Note: Source: Renewable Energy Mapping Study: Enviros Consulting, 2001/02. Excludes operating revenues and income to fuel suppliers for energy crops

This demonstrates the additional business that could be achieved based on the “middle” case projections in the Report. There is a global market of over £16 billion available to NW suppliers during the decade out of a total market of £177 billion. The market share that could be achieved by NW suppliers will depend on a wide range of factors and we have estimated a target of around £900 million of which over 30% would be in the NW, 45% in the rest of the UK and the balance overseas. The majority of this additional revenue would be achieved in the period 2003 to 2010, indicating an annual average of about £110 million. The NW suppliers stand to gain a significant share of the available NW market based on the local consulting, engineering, contracting and installation resources in the region. A number of local sourcing initiatives are being implemented by Renewables North West in collaboration with regional partners. This includes working with developers and the multinational suppliers to influence their purchasing policies to include a more significant local element. However, the available market in the wind sector is currently restricted by the lack of a local turbine manufacturer. There is scope to rectify this by attracting a major European manufacturer to establish an operation in the NW to supply the local market and neighbouring regions of England and Wales as well as the Irish Sea. This is currently being followed-up by Renewables North West as part of their inward investment activities in conjunction with the NWDA.. Table 31 also shows the potential for NW suppliers elsewhere in the UK and overseas. Existing suppliers are already active throughout the UK but exports are currently modest (below 20% of sales). Greater penetration of international markets in the short term will be limited to those areas in which the NW has a strong existing competitive advantage e.g. in landfill gas and power systems engineering. In the medium term, however, there is potential to exploit overseas markets for those technologies and services that have been developed for the local market e.g. in the offshore wind and biomass sectors. Beyond 2010, the emerging technologies that are being developed in the NW should begin to make significant contributions to cluster growth both in the UK and overseas. This will require successful transfer of the technologies to local companies and maintenance of the knowledge base and intellectual property within the region.

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5.5.3

Current Activities & Opportunities

A strategy and action plan for the renewable energy sector has been produced by Renewables North West which has been established to develop the sector in the region by stimulating both the demand and supply sides of the market. The organisation has strong support from the NWDA and United Utilities. It is leading a number of initiatives to promote renewable energy projects and to encourage inward investment in the region particularly in the offshore and onshore wind sectors, biomass and solar/PV. In terms of supplier development, it is working closely with Envirolink North West which represents the environmental/energy technology and service companies in the region. There are a wide range of specific opportunities to develop the renewable energy sector in the NW including: The major potential for wind farms off the NW coast and elsewhere in the Irish Sea Scope to build onshore wind farms at new strategic locations in the region and to upgrade the capacities of some of the existing wind turbines. There is also potential for small wind turbines in both rural and urban locations Potential for both large scale (20MW+) and small biomass plants (e.g. for community heating) and for the development of biofuels Considerable interest in solar/PV installations including some major projects associated with very large buildings (e.g. the CIS Tower) Some opportunities for small scale hydro projects e.g. on the canal system in the region and linked to historical water wheel sites Longer term potential for wave and tidal power projects based on expertise in industry and the science base in the region. This includes some preliminary interest in tidal barrages associated with major infrastructure initiatives. Renewables North West is also working with the NWRA and local authorities in the region to develop renewable energy strategies and plans and to address problems associated with the planning process. The action plan for renewable energy includes the development of links with the universities and other R&D organisations in the NW to transfer knowledge and technology to local companies and to stimulate new start-ups. There is great potential to access the wide range of funding for energy R&D and demonstration in this field. This is discussed in more detail in the report on the Energy Science & Technology base in the region.

5.6

Transmission & Distribution of Energy

5.6.1

Power Transmission & Distribution

The companies responsible for the operation and maintenance of the power transmission and distribution system in the North West are: the National Grid Company (NGC), United Utilities and Scottish Power/Manweb. We estimate that these firms employ around 2200 in the region on these activities.

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Annual investment is running at around £250 million with around 45% of this attributable to United Utilities and the balance mainly incurred by NGC and Scottish Power/Manweb. The spend by NGC is centrally controlled and is unlikely to involve any significant purchases in the NW since there are no major suppliers of high voltage equipment in the region. The UU and Scottish Power expenditure is likely to include a more significant local content due to the number of local suppliers of distribution switchgear, cabling and related products/services (e.g. for installation). There are a significant number of suppliers of power distribution equipment, based in the region, most of which are part of multinational groups including: •

ABB Power T&D Ltd – Distribution Switchgear (Ellesmere Port) Alstom T&D Distribution Switchgear (Manchester) Dorman Smith Switchgear (Preston) FKI Switchgear – Whipp & Bourne (Rochdale) Siemens Power Transmission (Manchester) P&B Engineering (Manchester).

There are also a number of manufacturers of electrical cables and fittings in the NW including Palco (previously BICC), Hawke Cable Glands, North West Cables and Permanoid. In the field of advanced power systems, there is a strong capability in the HEI base in the region (see section 7). A UMIST spin-off company, IPSA Power Engineering, was formed in 1998 to enable the Interactive Power System Analysis (IPSA) software to reach a broader marketplace. Close links are maintained with the Electrical Energy and Power System (EEPS) group at UMIST. The software is suitable for analysing distribution networks with embedded generation, wind farms or CHP plant through to complete power stations (steam, hydro, gas turbine and CHP) with the power generated being transmitted to an external grid system and/or supplied locally in a captive distribution system. IPSA runs a continuous programme of research and development and provides support to its international user base. There is potential for R&D and demonstration projects in the field of advanced power systems to address the problems and costs associated with embedded generation particularly in view of the strengths of the local industry and the science base in this area. In addition, there is an increasing amount of funding from the UK (e.g. DTI and Carbon Trust) and the EU (e.g. Framework 6) for such projects. This is discussed in more detail in the report on the Energy Science &Technology base. We estimate that these suppliers employ around 4,000 in the region. This excludes those involved in the provision of consulting and contracting services which are covered in section 5.9. Key issues facing this sector include: Funding the investment needed in the network infrastructure as discussed in section 4.2 The cyclical nature of demand for equipment, especially at the higher voltage end of the market

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Competition from overseas, especially from the developing countries A trend for the larger customers to use E-procurement which places a greater emphasis on price competition and could create problems for SMEs Shortages of electrical engineers The potential in local and global markets associated with a growth in embedded generation. This will create an increasing need for network design and management systems and new technologies to reduce the costs and/or improve system reliability. 5.6.2

Gas Transmission & Distribution

Transco is responsible for the gas transmission and distribution network in the NW. The company employs about 1500 in the region. Investment in the maintenance and development of the network in the region is estimated to be around £ 20 to 30 million per annum. This compares with a national investment of around £900 million over the period 2002-2007 i.e. about £180 million per annum.. Significant approved projects over the next 2 to 3 years in the NW include: Longtown (near Gretna) to Lupton (near Kirkby Lonsdale) pipeline uprating (£6m cost) Samlesbury to Helmshore reinforcement (£19m cost). {Around Blackburn} There are a number of local suppliers of products and services associated with this sector including: Delta Fluid Products (Sperryn), St Helens – a leading manufacturer of gas flow controls and associated brass fittings. Products include regulators, valves, meter fittings, kits and accessories for the industrial, commercial and domestic sectors. Syddal Engineering, Manchester – a specialist manufacturer of products for pipeline leakage control including pipe repair clamps, pipe connections, couplings and flanges. Asco Joumatic, Skelmersdale (part of the Emerson Group Inc) – a leader in solenoid valve technology with a product range including gas check, shut-off and pressure reducing valves. Hattersley Newman Hender, Ormskirk – valves and flanges for the process industries including oil & gas Dresser, Skelmersdale (service and spares operation) – valves, regulators, meters and piping accessories for gas transmission. There are a number of suppliers to the oil & gas industry that also supply products to the gas transmission and distribution sector including, for example, Tyco Safety Systems at Worsley which is part of the Tyco Group based in the USA. This company employs around 800 people in the NW and manufactures a wide range of valves and associated controls. It should be noted that most of the major suppliers in this field are subsidiaries of multinationals with their HQs and R&D centres outside the region.

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This sector is also served by a variety of significant companies that are involved in contracting and installation of gas pipelines and related plant and equipment. These are identified in section 5.9.2 since many of them operate across a range of utilities. Likewise there are some specialist suppliers of gas meters and controls that are identified in section 5.8.2. In terms of future potential, gas storage has been identified as a growth area for the NW (see section 4.2.2) and this should provide opportunities for suppliers of pipelines, valves, fittings and metering and related services. Although the NW investment in this sector is small in comparison with the power transmission and distribution sector, there are some good opportunities for suppliers within the region and elsewhere in the UK and overseas. In particular there is scope to tap into the Transco procurement process and to benefit from any of the gas storage projects that are approved. There are close links with the oil & gas industry in this context and the trends noted in section 5.2.2 relating to eprocurement and on-line auctions are similar.

5.7

Energy Conversion

5.7.1

Gas Equipment

There are a number of significant manufacturers of gas equipment, mainly for heating, in the region including: Baxi Group – one of the leading European suppliers of domestic and commercial heating products with its HQ and Technology Centre in the NW and major facilities in Preston and Padiham Gledhill Water Storage Ltd – involved in the design and manufacture of central heating and hot water appliances with its main operations and R&D centre in Blackpool Robinson Willey – a leading manufacturer of gas fires based on Merseyside Dunphy Combustion – a specialist in combustion technology and low emission burners with its base and R&D centre in Rochdale. Cooperheat (UK) Ltd – a supplier of industrial ovens and furnaces. In terms of cluster development, it is significant that all of these firms have their HQs and R&D centres in the NW. This provides a stronger base compared with those sectors where the control is mainly outside the region (e.g. as for many of the manufacturers in the power and gas T&D sectors). However, it should be stressed that these firms operate in international markets and are subject to strong pressures to remain competitive irrespective of their locations. We estimate that this sector employs around 2,000 in the NW. Capital investment is in excess of £7 million per annum and local supply chain purchases are around £12 million a year. Key problems facing this sector, especially in relation to the domestic market, include: Lack of availability of skilled personnel such as fitters, electricians and calibration engineers NORTH WEST DEVELOPMENT AGENCY

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Insufficient qualified and reputable installers to meet the level of demand for new boiler installations Increasing competition from lower cost manufacturing countries and the growing trend to move facilities to countries in Central/Eastern Europe and the Far East. However, there are a number of important market drivers and opportunities facing the sector including: Environmental pressures to reduce CO 2 and NO x emissions Impact of higher insulation standards on energy use in the home Growth in the market for integrated heating systems Accessing grant support for the installation of energy efficient equipment and systems (e.g. via Energy Savings Trust) Growing pace of technology change that will impact on the market i.e. microCHP, integration of renewable energy especially PV and the longer term potential for fuel cells. 5.7.2

Gas Engines / CHP

There is considerable expertise in the field of gas engines and CHP in the region in companies such as: EnerG/Natural Power based in Manchester, specialising in landfill gas systems and small scale CHP Thomas Graveson (Heysham) and CLP Envirogas (Bolton) which also specialise in landfill gas energy systems MAN B&W Diesel, Stockport and Newton-le-Willows involved in the design, supply and commissioning of gas and diesel engines that are used in power generation including landfill gas Biomass Engineering, Newton-le-Willows, who are turnkey suppliers of biomass CHP systems based on down-draught gasification Bio-engines (Ormrod Diesel), Skelmersdale specialising in the design and remanufacture of diesel engines to run on biofuels United Utilities who operate a number of sewage gas CHP systems in the region with a total capacity of around 15 MW. The plant for these was supplied by Combined Power Systems in Manchester which is now part of the EnerG Group Clarke Energy, Liverpool, with expertise in bio-gas production and community heating schemes K&N Filters, Warrington, specialising in filters for gas engines Baxi Group through their subsidiary in Germany, which has developed a range of CHP products for the commercial and large-scale domestic markets, and their interests in micro CHP

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EA Technology, Energetix and Manchester University, all working on micro CHP for the domestic market (e.g. based on Stirling engine technology). There is also expertise in the region in the field of anaerobic digestion of waste to produce gas for power generation. This includes the AMEC/Liverpool University R&D facility on the Wirral (see section 6.4) and a variety of developments aimed at producing energy from waste (e.g. within the food and agricultural industries) as well as a number of other useful by-products such as compost and CO 2 for horticultural applications. We estimate that this sector employs at least 1500 people and has an annual turnover in excess of £100 million. This sector is a key strength in the NW with a range of significant local firms with their HQs and R&D operations in the region. There is significant potential for growth in the fields of energy from biomass, landfill gas (mainly overseas in the longer term) and energy-from-waste. 5.7.3

Electrical Equipment

This sector covers a diverse range of products with the main areas being: Refrigeration, Air-conditioning and Ventilation Plant/Components None of the major international manufacturers of plant or equipment have manufacturing/assembly operations in the NW with the exception of Carrier Transcold, based in Warrington, which specialises in transport refrigeration systems. All the large, national wholesalers and distributors of refrigeration products and consumables (e.g. Dean & Wood, HRP, NRS, Star Refrigeration) have depots in the region but their HQ’s are outside the NW. There are a number of small-to-medium sized, specialist companies based in the region including: Carlisle Refrigeration – specialising in sales and service of refrigeration and airconditioning equipment Clark Door, based in Carlisle – manufacturing high-speed-closing cold store doors Coggins Welch, Preston – a national distributor of refrigeration and airconditioning systems Gilberts (Blackpool) Ltd – design and manufacture of air distribution grilles, diffusers, louvres and dampers Bailey & Townley, Manchester – manufacture of custom-built refrigerated food display counters and cold rooms Andrew Sykes Hire, Preston – dealing in the hire and sale of ventilation and airconditioning equipment (also heating and pumping)

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Electrical Heating Equipment This sector consists of a limited number of suppliers of specialist products such as: IMI Scott, Wythenshawe – manufacturing resistance wire and flexible heating cables Resistance Technology, Salford – manufacture of industrial electrical heating tapes, cables and fibreglass heating blankets. A considerable amount of R&D into electrical heating technologies such as ohmic heating, induction heating and radio-frequency drying has been carried out in the past by EA Technology at Capenhurst. The technologies involved are now being further developed by C-Tech Innovation, a spin-out from EA Technology (see section 7 for more details). Electric Motors and Drives There are no major international manufacturers of electric motors in the region but there are some significant companies in this field including: P&B Engineering, Manchester – manufacture of relays for the protection of electric motors, generators and transformers Renold Gears, Manchester and Milnrow – design and manufacture of gearboxes and geared motors TECO-Westinghouse, Manchester (a subsidiary of the TECO-Westinghouse Motor Company based in Texas) – supplier of motors and generators ranging in size from ¼ HP to 30,000 HP and motor controls and accessories. Electrical Appliances and Accessories Major manufacturers of electrical appliances and accessories that are based in the region include: MEM and Wylex both of which are involved in the design and manufacture of consumer units and plugs/sockets Stoves Group, based on Merseyside – a leading manufacturer of electrical, domestic appliances including cookers Pifco (Salton Inc), Manchester, suppliers a wide range of small electrical appliances Volex, Leigh, manufacture of electronic cable assemblies and electrical power cords.

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5.8

Energy Efficiency Products & Services

5.8.1

Insulation Products & Services

This is an important sector in the NW with three major, international players having substantial operations in the region: Knauf Alcopor in St Helens manufacturing mineral wool products for building insulation Kay-Metzeler, with manufacturing sites in manufacturing polyurethane insulation materials

Bollington

and

Middleton,

Pilkingtons in St Helens manufacturing insulating (K) glass for buildings. There are a number of smaller, specialist companies such as Hemsec Manufacturing, Tarec Insulation, Armstrong Insulation Products and Lancaster Architectural Products. In addition, there are a large number of insulation distributors and installers in the region, most of which are very small firms. There is concern in some parts of the region about the lack of local resources to achieve levels of home insulation work (e.g. in Cumbria where installers are travelling from Glasgow to do the work). This problem will be exacerbated if the higher targets, discussed in section 4.4, are to be achieved. With a growing emphasis on energy efficiency, especially in domestic, commercial and public sector buildings, there is considerable potential for growth in this sector. The presence of a number of significant local manufacturers and related suppliers makes this a priority area for focus in the Energy Strategy and Plan. There are also some important issues to address from a regional viewpoint e.g. in terms of the lack of installation skills and resources. 5.8.2

Energy Management, Metering & Controls

This sector covers a range of technologies and equipment for the measurement, management and control of energy in the various sectors of the market. The main groups are: Building energy management systems and associated controls (e.g. for lighting, heating, ventilation, refrigeration and air-conditioning). The major international players such as Danfoss, Trend and Honeywell are all based outside the region. However, there are a number of smaller, specialist suppliers in the region including Ex-Or Ltd., Nobbs & Jones, Morgan-Hope, Assistlink, JBC Control Systems, Guardian Controls and Vickers Electronics. Manufacturers of energy metering products such as Actaris Metering Systems (gas meters) and Synergy (electrical metering)

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Suppliers of products and systems for process monitoring and control including subsidiaries of large international firms such as Endress & Hauser, Emerson Process Management and Pepperl & Fuchs. The products supplied by these companies are designed for monitoring and control of parameters other than energy but they also deliver energy efficiency benefits through process efficiency improvements. Energy management software companies such as Enviros Software Solutions and DHP. Although there are no major international players in the mainstream energy management systems and metering markets with bases in the NW, there are a number of niche suppliers of specialist instruments and software. This sector is set to grow over the next few years due to the need to monitor and control energy usage more accurately which is being driven by the Climate Change Levy, mechanisms such as emissions trading and the tend towards environmental reporting. This should create a demand for more sophisticated metering and for systems that integrate energy use into the overall management systems of companies. Key difficulties facing the SMEs in this sector are: Low energy prices hence a lack of interest by users to invest in energy monitoring and savings equipment and services. Existing incentives to stimulate energy efficiency are not strong enough except for the large energy users. Payback periods are too long (i.e. more than 18 months) for many firms to justify the investment Poor awareness and understanding in the market of the various incentives and mechanisms to stimulate energy efficiency e.g. enhanced capital allowances (ECAs), emissions trading etc ECAs are not allowed on some energy management systems e.g. because they are software programmable A lack of resources to devote to marketing and selling Problems with recruiting qualified and experienced staff e.g. electrical and electronics engineers, specialist in HVAC control systems The continued strength of the ÂŁ for those involved in export markets. 5.8.3

Energy Consultants & Contract Energy Management Firms

The North West has a strong capability in this field with: Some of the UK’s leading energy consultants such as EA Technology, Enviros (Climate Change Division), Linnhoff March, McKinnon & Clark, NIFES and Inenco as well as a number of smaller firms in this field Energy services and contract energy management firms including Dalkia and United Utilities Energy Services

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This sector is expected to grow rapidly in the UK over the next few years due to the introduction of the Climate Change Levy (CCL) and emissions trading and the Government’s push on energy efficiency. Both the Carbon Trust and the Energy Savings Trust have major programmes aimed at stimulating a low carbon economy and they are placing an increasing emphasis on regional and local delivery mechanisms. As discussed in section 4.4, there is scope to deliver energy efficiency improvements to SMEs through a number of initiatives and organisations in NW. The Carbon Trust’s support includes free initial energy audits for SMEs followed by 50% funding for more detailed investigations. This should help to stimulate the market for local energy consultants. The Carbon Trust’s approach to larger firms is more tailored to individual needs through longer term partnerships. As discussed in section 4.4, the larger, energy intensive companies have been focussing on energy efficiency for many years. The main emphasis for improvements in the future may switch to carbon management through their supply chains and linkages with other local firms (e.g. through initiatives such as the Mersey Banks Industrial Symbiosis Project). This will create opportunities for energy consultants to provide expertise and specialist support. In the domestic sector, there will be potential for consultants to work with local authorities and housing associations to develop programmes aimed at public sector housing. There is also scope to develop initiatives aimed at private sector housing e.g. based on home energy rating schemes and working through employers as in a successful scheme operated in Canada. One of the main constraints to the expansion of the consultancy sector will be the availability of personnel with the appropriate skills and specialist experience in fields of energy auditing, detailed appraisals and implementation. This is due to a long period of relatively static demand for staff and a lack of specialist degree and training courses. United Utilities Energy Services is currently building-up its activities in the North West based on its experience in Wales and is keen to stimulate investment in energy efficiency across all sectors of the economy through a partnership and shared savings approach. This includes the potential in the NW for a programme for SMEs modelled on a successful project in Wales which was part funded under Objective 2. This delivered energy efficiency savings in areas such as lighting, heating, refrigeration and compressed air and involved the development of a supplier network to provide the specialist equipment and expertise.

5.9

Consultants & Contractors

5.9.1

Consulting Engineers & Consultants

There is a wide range of consultants with expertise in the energy industries in the NW. In addition to those discussed in the previous section, this includes: Consulting engineers and architects with specialist capabilities in the energy industries such as Atkins, Allott & Lomax, Arup, Babtie Group, FaberMaunsell, Fichtner, PB Power and Power Technologies Environmental consultants with a broad range of capabilities including energy sector experience e.g. Cassella, ERM and Entec

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Specialists in the renewable energy sector e.g. Sustainable Energy Concept + other examples for the RE Report. 5.9.2

Contractors & Installers

This sector also contains a diverse range of companies with operations in the region including: Process engineering contractors working in the oil & gas, refining and power generation sectors including nuclear. The NW has a strong capability in this field with a number of major players based in the region e.g. AMEC, Costain Oil & Gas, Sembcorp Simon Carves and Washington E&C M&E contractors including Crown House and Lorne Stewart Civil engineering firms involved in infrastructure and utility services e.g. Alfred McAlpine Utility Services and John Kennedy Specialist electrical installation contractors such as Agrilek, Boulting Group and Manweb Contracting Specialist heating engineers including British Gas Home Services. A key issue facing this sector is that of skills shortages particularly with respect to the: Ageing workforce and the problems of encouraging young people into the industry Shortages in specific areas including heating engineers, electrical engineers, process engineers, estimators, planners and project managers Extent to which the multinationals such as Shell and BP have cut back on their in-house training programmes Lack of training courses that provide practical experience for young people Wide range of agencies involved in skills training and the lack of a coherent approach to the problem. In the process engineering sector, the NWDA is addressing this issue, in conjunction with the DTI and OGID, and has reviewed the problems with representatives of the contractors and their customers. A skills analysis is underway.

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5.10

Feedback from Consultation Events

.Feedback from the consultation workshops, held in October 2002, reinforces the key issues, barriers to growth and priorities for action that have emerged from the discussions with individual companies and organisations. The comments from the discussion groups and details on the participants are provided in Appendix 4. In summary, the main points raised were as follows: Priorities for Action (Key issues of concern): Overall, there is a call for a clear vision to cover the whole energy situation in the region. This should address the overall objective of achieving a secure, reliable, competitive and sustainable energy system for the NW. This should be linked to ambitious targets to reduce greenhouse gas emissions through investing in low/zero carbon technologies and initiatives. Specific issues raised included: Need for investment in the energy transmission and distribution network Address the problems associated with energy storage e.g. related to renewable energy and gas Grid connection charges specially for smaller generators Raising public awareness of energy and the key issues facing the region Greater incentives for and more promotion of energy efficiency Need for a clear decision from Government on the future of the nuclear industry Promotion of NW energy technologies nationally and globally Encourage inward investment in areas where the NW is weak Tackling the funding gap e.g. for demonstration projects Improve access to finance and funding for energy projects in general Improve links with and co-ordination of support from the HEIs in the region Address the problems with getting energy-from-waste projects implemented Climate Change Levy needs modification e.g. rebate schemes for all businesses Stimulate partnerships between the public and private sectors to deliver energy projects. It was also suggested that the priorities for action should be linked to those sectors/technologies in which the NW holds a strong position at present or has the potential to develop a strong position in the future. There is a danger that many of the regions in the UK will select the same areas for focus (e.g. in renewable energy) and only a few will succeed on a global scale. The selection of target sectors for focus is addressed in more detail in the Analysis and Conclusions section.

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Barriers to Implementation The barriers, to a large extent, are a mirror image of the priorities for action with the main issues being: Planning constraints for many types of energy project Skills shortages (technical, scientific, installers and commercial) Costs of grid connections for embedded generation Network constraints e.g. in Cumbria NETA mitigates against CHP and renewable energy Fragmentation of the industries – no coherent voice Low energy prices hence lack of incentive to invest (but good for industry) Lack of awareness of the various funding sources for energy projects Poor public attitudes towards energy hence lack of political will Industry Structure & Representation There is general agreement that the energy sector in the NW is highly fragmented and that there is a need for more effective co-ordination but with an emphasis on delivery and action rather than just a “talking shop”. In particular there is a need for a “keeper of the vision” who will tie things together and drive the action plan. There is also agreement that there is no need for a new organisation to be established since there are already a number of bodies involved in the energy industries. However, there is support for a forum of the interested parties coordinated by an independent agency (most suggested the NWDA). It was also suggested that there should be a strong private “champion” or “champions” actively supporting the initiatives. Key issues in this context are: The initiative should address all aspects of energy in the region including supply, demand, efficiency and fuel poverty The potential for the forum to help to find ways to overcome the short-term nature of the energy sector i.e. based on low prices and short-term contracts There are concerns about the long term funding of the “forum” There is a need for some “high profile” projects to get things moving e.g. major RE scheme, Energy Park, domestic CHP demonstration, public sector drive. All the issues raised during the consultation events have been reinforced by feedback from the face-to-face interviews and the responses to the questionnaires. More details on the establishment of the Forum Analysis/Conclusions and Recommendations sections.

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5.11

Energy Industry Representation & Current Initiatives

The energy industries in the NW are currently represented by a wide range of regional and national organisations including: National Bodies covering the many industry and trade associations that are involved in the energy sector, for example: Energy Industries Council (mainly Oil & Gas industry) Environmental Industries Commission (environmental and energy technologies) Energy Systems Trade Association (energy efficiency products and services) Federation of Environmental Trade Associations (mainly HEVAC) Combined Heat and Power Association Society of British Gas Industries British Electrical Appliance Manufacturers Association (BEAMA) GAMBICA (Process Monitoring and Control) Independent Power Producers Association British Chemical Engineering Contractors Association A number of associations representing the renewable energy industries In addition, there are various professional institutes representing individuals including the Institute of Energy, Institute of Petroleum, the Institution of Electrical Engineers and the Institution of Mechanical Engineers.. Regional Bodies & Initiatives including: Renewables North West (stimulating projects, inward investment and supply chains) Envirolink North West (linked to RNW and the regional Carbon Trust Manager Sustainability North West (NW Climate Change Group and the Kyoto Club) NWRA and its Sustainable Energy Group (policy and planning issues) Small Business Service – appointment of two Regional Business Advisors specialising in the energy cluster working through the Business Links North West Science Council (Science Strategy for the region including nuclear and other low carbon developments)

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Enworks which involves Groundwork and the regional environmental business network (delivering environmental improvements to SMEs including energy efficiency) A range of sub-regional initiatives e.g. in East Lancashire (CERTT) and Cumbria. This demonstrates the fragmentation of industry representation and the extent to which there are already existing bodies working on behalf of some of the sectors of the industry at either national or regional levels or both. It should be stressed, however, that the main focus on the regional support to date has been in the renewable energy and environmental technology sectors. This reinforces the comments from the consultation exercise that there is no need for any new body to represent the energy sector in the region. However, some co-ordination will be necessary to develop a common strategy and action plan to address many of the key issues raised during this study.

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6.

REVIEW OF THE ENERGY SCIENCE AND TECHNOLOGY BASE IN THE NORTH WEST 6.1

Background

A review of energy R&D in the Higher Educational Institutions (HEIs) in the North West has been undertaken by UMIST. The results of this are contained in a separate report that has been prepared by UMIST and this section summarises these results. This review builds on an earlier study, for the NWDA, of renewable energy by including non-renewable energy R&D in the areas of energy generation, conversion, storage, efficiency, environmental and socio-economic impacts. The information on renewable energy R&D has also been updated. A table summarising the specific R&D resources and capabilities in the various HEIs is given in the Appendix. The following sections summarise the strengths, weaknesses, opportunities and threats (SWOT) covering energy R&D in the HEIs. A classification of priority R&D clusters is then identified, followed by commentary on progress with the co-ordination and focus of energy R&D in the region.

6.2

SWOT Analysis

Strengths There are several distinct research clusters which are already well developed and leading-edge and strong nationally and internationally (see 6.3) There are several emergent research clusters which have the potential to become strong nationally and internationally (see 6.3) A wide range of energy R&D areas are covered by the region’s universities, from engineering and technology development and testing, to environmental and socio-economic impacts and analyses.

Weaknesses There is a rather high degree of fragmentation of energy R&D in the region, especially in the areas of built environment and energy efficiency (partly a function of the subject area) Achieving and maintaining the critical mass necessary for sustaining an active research group is made more difficult by this fragmentation There is not very much transport-related energy R&D given the sector’s importance in the regional economy and as a consumer of energy Biomass, energy from waste, hydrogen and other novel fuels are not well developed research clusters in the region, although there are some individually strong researchers in these areas. Energy economics is a weakness in the region’s social sciences and energy policy studies are spread rather thinly across the universities

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Opportunities Government plans to establish a National Energy Research Centre and Network and spend £28 million on energy research over the next 3 years The marine technology field has high potential for technological development and innovation and existing expertise provides a solid foundation for future growth Energy economics and policy are likely to remain important areas of research for government and businesses in the UK and beyond The North West is well placed to conduct integrated research on the engineering and technical aspects of energy with the economic, sociological and policy dimensions Biomass, hydrogen, energy from waste, sustainable energy for transportation, fuel cells and energy storage are all likely to become more important areas of energy R&D and are all potential growth areas for the North West R&D effort Combining research on new forms of generation with energy efficiency research holds out much future promise since energy reduction can make renewables become cost-effective Where synergies exist between the R&D base of the HEIs and in the commercial energy sector of the North West, significant opportunities exist for fast-track cluster development Significant new funding is being made available in the area of energy by the EPSRC and Carbon Trust in a new national announced in November 2002 (£14 million over four years). This specifically at the development and commercialisation of technologies

low-carbon programme is targeted low-carbon

Universities in the region should recognise that more resources are now being (and will continue to be) made available for energy R&D than at any time in the past several decades Potential to enhance critical mass through more joint initiatives and partnerships (e.g. through collective bids for major funding programmes).

Threats The region’s energy R&D capacity has to be evaluated comparatively with that of other regions and nations in the UK, and more widely. Such an exercise is important in establishing and supporting unique competencies and potential in the North West. For example, marine technology is well established and expanding rapidly in Scotland and the North East, whilst biomass and hydrogen are well representing in the West Midlands, and Greater London has expertise in fuel cells, hydrogen, wind and transport research With the increasing pressures upon the university sector, e.g. as a result of a decline in science and engineering student numbers, there is some concern that existing energy R&D activities and staff might not be replaced, at least to the same level as they are currently

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Related to this, is concern over whether there are sufficient skills in the energy R&D base to sustain rapid growth, or indeed to supply industry with suitably qualified personnel in the future. This is a UK wide problem. Hence, the value of existing skills and resources in the HEIs needs to be evaluated carefully by senior university management.

6.3

Existing and Future Potential Clusters

The R&D strengths in the North West are classified into three categories. Firstly, those areas where there is already a strong cluster which is leading-edge in the UK and internationally. Many of these activities could still be expanded, however. Secondly, those areas where significant potential exists for a research cluster to become a leading edge activity are identified. Thirdly, those areas where there has been little activity to date but which could, with suitable encouragement, become important players are listed. Existing Leading Edge R&D Power systems, embedded generation and distribution (UMIST) Wave technology (Lancaster) Nuclear energy engineering and its impacts (Manchester and Westlakes) PV cells (Manchester) Micro-CHP (Manchester) The built-environment (Salford, Liverpool John Moores and Manchester/UMIST) Intelligent monitoring and sensors (Liverpool, Salford) Catalysts and fuel cells (Liverpool. Salford) Energy efficiency of large industrial processes and refineries (UMIST) Potential Leading-Edge Energy R&D Clusters in the North West Socio-economic analyses, impacts and assessment (Lancaster, Manchester, MMU, Salford, UMIST)

and

energy

policy

Energy from waste, anaerobic digestion (Liverpool. UMIST) Monitoring of energy and waste systems e.g. anaerobic digestion (Liverpool) Energy storage (Salford, UMIST) Aviation and sustainable energy (MMU and others) Hydro-power technology (Lancaster) Environmental impacts of energy systems (Lancaster and others)

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Areas which could be Targeted for Development in the Future Biomass energy Power generation and technologies for carbon capture and storage Transportation, including new fuels, policy & economics and LCA It should be noted that this is a preliminary assessment and in no sense makes any judgement on any research individual or team. It is very difficult to assess where individual research groups rank relative to other research groups in the UK. The RAE assessments of 2001 are not sufficiently differentiated to allow such an assessment.

6.4

Industrial R&D

It is also important to stress that these is considerable expertise in energy R&D in industry in the North West which has been covered to some extent in Section 4. Specific industrial technologies centres and areas of expertise include: BNFL covering nuclear power, waste management and decommissioning as well as involvement in other low carbon technologies e.g. hydrogen production Pilkington Technology Centre covering R&D into coated glass for insulation and PV cells as well as work on the energy efficiency of the glass making process Baxi Technologies specialising in high efficiency heating for domestic and commercial applications including recent R&D into small scale and micro CHP EA Technology covering a wide range of energy technologies including power systems, energy efficiency, micro CHP and electric vehicle AMEC’s R&D facility on the Wirral working in the area of digestion of organic waste materials and the production of methane for power generation. This facility has links with Liverpool University’s Centre for Intelligence Monitoring Systems (CIMS) on the remote monitoring of the process Shell Global Solutions covering R&D and testing for alternative fuels for transport Dunphy Combustion specialising in R&D into high efficiency combustion processes, low NO x burners and energy-from-waste.

6.5

National Energy R&D

Energy R&D in the UK has recently been reviewed by the Chief Scientific Adviser as part of the overall PIU’s Energy Policy Review and as a precursor to the Government’s White Paper on Energy Policy which was published early in 2003. A number of recommendations were made by the Chief Scientific Adviser ‘s Energy Research Review Group including: Placing sufficient focus on basic research

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Increased spending on energy research to bring the UK more in line with its competitors in Europe Key areas for research to cover: CO 2 sequestration, energy efficiency, hydrogen production/storage, nuclear power (nuclear waste and nuclear fusion), solar PV and wave and tidal power. Increased support for important cross-cutting energy efficiency technologies such as innovative software and hardware, sensors and controls and for research into energy strategies and systems analysis A suitable body to be entrusted with the mission of collecting and co-ordinating information to help policy makers and research planners to avoid duplicating funding or neglecting key areas due to lack of information The establishment of a dedicated National Energy Research Centre as a hub to a wider network encompassing new and existing centres of excellence. In the current Science Budget for 2003 to 2006, total funding for The Sustainable Energy Economy research programme has been set at £28 million over the three year period. This has been allocated to EPSRC, NERC and ESRC and includes support for the new Energy Research Centre and Network. Funding for more applied R&D and demonstration in the UK is also being enhanced over the next few years through, for example: The DTI’s New and Renewable Energy R&D Programme which has a budget of £55.5 million over three years Allocation of some of the £100 million fund for support for renewable energy including £5 million for demonstration of wave and tidal technologies and £18 million for the development and demonstration of advanced energy crops A budget of £21.7 million over three years for cleaner coal R&D The Carbon Trust’s Low Carbon Innovation Programme with a budget of around £25 million over three years.

6.6

Further Developments

Following the UMIST review, it was decided to hold a meeting of interested parties to discuss how to achieve a more co-ordinated approach to energy R&D in the region. This was held on 3 rd December 2002 and was attended by around 30 delegates from the region’s universities together with representatives from industry (BNFL, Westlakes Research Institute), the North West Universities Association (NWUA) and the NWDA. The meeting addressed a number of issues relating to barriers to the development of energy R&D, co-ordination and priorities for action. There was strong support for a concerted approach to the development of a vision and strategy for energy R&D and for greater co-ordination and co-operation between the various departments working in this field. It was recognised that the North West needed to develop a coordinated response to the plans by the Government to establish a national energy research centre (UKERC) and network. There is also a need to maximise the region’s involvement in both national and EU funding programmes for energy R&D.

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Further meetings took place early in 2003 and these have culminated in the establishment of the Joule Centre, a partnership between the North West Universities and industry formed to increase the region’s research capacity in new sustainable energy technologies, the supporting science, energy efficiency and energy systems. Plans are currently being drawn-up for the management and operation of the Joule Centre and a submission to the NWDA for financial support is being made. The NWDA have agreed in principle that it will provide funding for the establishment of a new Chair in Energy Assessment and Modelling and for coordination, networking, technology transfer and the development of links with industry. The Joule Centre has submitted an Expression of Interest for the UKERC in conjunction with partners in the North East (NaREC) and South (Rutherford Appleton Laboratory) with support from the Policy Studies Institute and Sussex University (SPRU). This consortium has recently been selected to submit a full proposal for the UKERC in competition with consortia led by Oxford University and Imperial College, London. The Energy White Paper states that the government is looking into the creation of a “centre of excellence” in distributed generation which will bring together universities that have power systems expertise to enhance UK R&D capability. This area is a specific strength in the NW through the Manchester Centre of Electrical Energy at UMIST which is in discussion with the government about its involvement in this initiative.

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7.

ANALYSIS & CONCLUSIONS 7.1

Cluster Scope, Definition & Analysis

According to Michael Porter: “Clusters are geographical concentrations of interconnected companies, specialised suppliers, service providers, firms in related industries, and associated institutions, in particular, that compete but also cooperate”. The key features of a cluster are that: It is related to a group of firms linked to a common market (or technology) that are interconnected e.g. through supply chains, the labour market, government policy and regulation It includes the traditional supply chain as well as associated specialist institutions and firms (e.g. covering R&D, education and finance) It is concentrated in a locality (e.g. local area, region or country) and it is through this concentration that the interchange of ideas and innovation can take place. The report analysis shows that the various energy sectors in the NW do exhibit many of these cluster characteristics in that: The sectors are interconnected both physically though the movement of energy down the supply chain and due to the common drivers and policy issues associated with global, UK and local energy markets Energy in the NW includes all of the elements of the traditional supply chain together with specialist support institutions and firms such as the universities, private sector R&D establishments, specialist consultants and support agencies The sectors are spread throughout the region with some local concentrations along the M62 corridor, central Lancashire and Cumbria. There is good evidence from this study to show that those in the different energy sectors do share common interests/issues and are keen to interchange ideas and innovation e.g. from the consultation events and the questionnaire results. We therefore propose to define the Energy Cluster in the NW as: “A grouping of firms, and their supply chains, that are related in terms of their involvement in fuel supply and the production, distribution, supply and usage of energy. They have common aims of achieving a secure, reliable, competitive and sustainable energy system for the region and addressing UK and global markets for energy products and services.” An important issue in relation to cluster development is concerned with the identification of areas of competitive advantage that can form the basis of future growth. These can be related to existing sector strengths i.e. where there are already a number of world class companies/institutions that are firmly based in the region with local HQs and/or major R&D centres. Alternatively, the competitive advantage could be linked to the potential to be world class e.g. through innovation and by building on some existing regional strengths such as large local market potential.

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We have analysed the energy cluster to identify key areas of competitive advantage by using the “bubble diagram” approach. This is shown in the following diagram Figure 13. Figure 13

Energy Cluster Analysis by Sub-sector (2002 Position)

5 Energy Efficiency

Renewable Energy

4.5 4

Power T&D

Sector Attractiveness

Gas Equipment

Nuclear Oil & Gas

3.5 Gas T&D

Renewable Energy

EfW

3

Conventional Power Generation Power T&D

2.5

Gas T&D Elec Equipment

2

Nuclear

Gas Equipment

Oil & Gas

1.5

EfW (Energy-from-Waste) Elec Equipment

Conventional Power Generation

Energy Efficiency

1 0.5 0 0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

5.5

6

North West Position

The sectors in the upper right part of the diagram represent those with the greatest potential for development due to their high ratings on both the sector attractiveness and NW position dimension. These are identified as follows: (Note that the size of the “Bubble” reflects the current size of the sector in terms of employment) Energy efficiency products and services Renewable energy Energy-from-waste (EfW) Power transmission & distribution Gas equipment. Both the nuclear and oil & gas sectors are also important due to their impacts on the regional economy: Nuclear energy (mainly fuel production and waste processing) is by far the largest sector and has the strongest NW position but rates below the above group on sector attractiveness due to lower scores on image, regeneration and intervention. Nevertheless, the scale and impact of the sector on the NW economy means that it should form an important of the region’s energy strategy and plan.

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Oil & gas is also an important sector in terms of size/employment but it is rated lower on both dimensions due to the NW position compared with other UK regions (e.g. Scotland and Eastern Region) and limitations on the sector growth potential due to the maturity of the UK market. However, there is still potential for growth in some of the sub-sectors where there are regional strengths (e.g. sub-sea engineering and contracting services) and in global markets. There is also potential for suppliers to the oil& gas industry to diversify into higher growth markets e.g. offshore wind. The remaining sectors (Electrical equipment, Gas T&D and Conventional power generation are all rated lower on the NW Position and average or low on sector attractiveness. They are also relatively small in terms of their current size. Contribution to the Regional Economy The energy “cluster” contributes around 53,000 jobs and over £5 billion in output to the regional economy. This can be compared with approximately 300,000 employees in the 14 growth sectors identified in the NW Regional Strategy and a regional GDP of about £68 billion. The scale of this cluster can also be compared with other regional clusters such as chemicals (45,000 employees) and aerospace (48,000 employees). Annual investment by the cluster is estimated to be over £1 billion and it is responsible for significant supply chain purchases in the region valued at around £650 million per annum. Major areas of expenditure are in process plant and equipment, engineering/fabrication, contracting and installation services. These are all areas of strength within the North West. The cluster is responsible for around £1.2 billion per annum in exports – about 12% of the £10.7 billion exports of manufactured goods for the region as a whole. Around 50% of this total is attributable to the nuclear sector. Key highlights within the Energy cluster include: A world leading nuclear energy sector with 18,000 employees and an annual turnover of around £1.6 billion per annum A major oil refinery which processes 11 million tonnes of crude oil per year and produces one sixth of the UK’s transport fuel needs The potential to exploit the large-scale renewable energy resources of the region especially in offshore/onshore wind and biomass and to develop the associated supply chain opportunities A strong power distribution sector covering operations, equipment, contracting and R&D in advanced power systems engineering A number of leading players in the field of gas combustion and heating systems with their HQs and R&D centres in the region. This includes a group of companies involved in developments associated with domestic CHP A strong capability in the field of energy-from-waste particularly in landfill gas, sewage gas and other biogas systems Leading expertise and resources in the field of energy efficiency including high efficiency gas technologies, insulation, controls/software, consultants and energy services companies. NORTH WEST DEVELOPMENT AGENCY

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There is a strong Science & Technology resource based in the NW with leading centres of excellence in the universities as well as the private sector. This includes the resources of around 70 departments across the 8 universities in the region, a number of which have 5*A and 5 A ratings. More details on the strengths and weaknesses of both the Energy industries and the S&T base are contained in section 7.6

7.2

Common Barriers & Issues

This study has identified a range of key barriers to the future development of the energy cluster in the North West that are common across a number of the different sectors. Sector specific issues are identified in section 5. These are covered under the following headings: Cluster structure and communications Fragmentation of the energy industries and R&D base in the region The lack of a clear vision and coherent “voice” for the cluster A range of specific gaps in the supply chain infrastructures and a lack of major international players in a number of sectors e.g. wind turbines, power generation and transmission, electrical equipment Limited knowledge and use of the local supplier base by the larger firms that pursue global purchasing policies Lack of strong links with the S&T base in the region apart from a few exceptions Lack of cost-effective energy storage technologies e.g. for renewables and gas. Infrastructure and planning Planning constraints for many types of energy projects but particularly renewable energy (especially wind and biomass), energy-from-waste and gas storage projects Power system constraints associated with network reinforcement (e.g. in Cumbria) and the costs of grid connection for embedded generation Skills, training and education Limited marketing resources and skills in SMEs especially to tackle global markets An ageing workforce and skills shortages, coupled with the problems of attracting young talent into the various sectors Poor public attitudes towards energy and a lack of political “will” to champion the development of the cluster

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Finance and funding Poor awareness/knowledge of and access to the various funding sources for energy projects, which is perhaps not surprising considering the range and complexity of local, UK and European schemes A funding “gap� for the demonstration and market launch of new energy technologies (being addressed at EU and national levels, to some extent, in renewable energy and other low carbon energy technologies). There are also a variety of common issues relating to EU/national policy and/or global markets including low electricity prices, high/fluctuating gas prices, NETA and the scope of the Climate Change Levy Rebate Scheme.

7.3

Energy White Paper Implications

The White Paper raises a number of important issues for the North West, particularly in view of the cluster composition discussed earlier in this section. These areas follows: the policy goal of moving towards a 60% reduction in CO 2 emissions by 2050 and the associated emphasis on renewable energy and energy efficiency plays to a number of regional strengths (ref: Sections 6.1 and 6.5). The challenge here will be to demonstrate that the NW can make real progress in achieving CO 2 reductions by creating the conditions to stimulate renewable energy and energy efficiency investments and by building up a strong supplier base to reap the economic benefits the future of the nuclear industry which is by far the largest of energy subsections in the North West. There is to be further consultation and a white paper before any decision on new nuclear power stations is made. However, the nuclear option is kept open as an important means of reducing CO 2 emissions in the event that the twin-track approach of renewables and energy efficiency fails to deliver results the need to develop the existing transmission and distribution networks to exploit both large-scale renewables resources (e.g. offshore wind), smaller distributed generators and micro-generation plays to a key regional strength in power distribution and power systems engineering. This includes the creation of a centre of excellence in distributed generation which will bring together universities that have power systems expertise, with UMIST being one of the leading international centres in this field the White Paper envisages a continuing contribution from coal fired generation plant in the energy supply mix with CO 2 capture and storage being considered as a means of reducing the emissions along with cleaner coal technology. The North West does not have a strong position in coal technology but does have a large coal fired plant at Fiddlers Ferry. There is also work being undertaken in the university sector in the region (at UMIST) on carbon capture and storage there are a number of measures to stimulate the maker for renewable energy including increased capital grants, demonstration programmes, revision of planning guidance and support for demonstration of new control, storage and metering technologies. The North West is well positioned to realise the regional potential of such measures through Renewables North West and the HEIs

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the White Paper places considerable emphasis on achieving carbon reductions through energy efficiency in the domestic sector. The North West is well placed to develop this part of the agenda due to the large population concentration in the region and the significant investment in new and refurbished public sector housing. The region also has the supplier base in energy efficiency products and services (including domestic CHP) to realise the economic benefits of the investment required. A similar argument applies to the potential for energy efficiency in the public sector and industry a range of key future low carbon technologies have been identified for focus including offshore renewables, biomass and waste, PV, fuel cells and hydrogen. There will be increased funding for R&D in such areas and the establishment of a National Energy Research Centre. The analysis of the region’s science and technology strengths shows that the North West is well placed in many of these areas and the establishment of the Joule Centre will help to ensure that region benefits from the available support. the need to address skills development, training and an ageing workforce in the energy industries is recognised. This applies also to other industries and the Government is investing an extra £100 million per year by 2005/06 through OST to improve the development of the UK’s science and technology skills base. There is also a proposal to create an Energy Utility Sector Skills Council to develop new ways to enhance the skills and training of employees in the energy efficiency industries. The NWDA has already recognised this as an important area for action for most of the region’s clusters and has set-up the Joint Pilot Project with the Small Business Service and the Learning and Skills Councils to address the problem. It has also recently announced a £1.5 million initiative to encourage young people into careers in electrical engineering in conjunction with United Utilities and Scottish Power. The White Paper also stresses the importance of working closely with the RDA’s, local authorities and other regional stakeholders to achieve its goals. This project to develop a regional Energy Strategy and Action Plan demonstrates the importance placed by the NWDA on the energy cluster. The North West Regional Assembly is in the process of developing a sustainable energy policy for the region which will address the key planning issues and the involvement of the local authorities. Hence, the region is well positioned to respond to the Government’s White Paper and to work with other stakeholders to develop and implement regional programmes to deliver economic, environmental and security of supply benefits.

7.4

Global Market Opportunities

The global and UK market reviews have identified a wide range of opportunities in the global market with the greatest potential being in those markets that are based on existing and/or future NW strengths: Nuclear power generation (based on new reactor designs) Nuclear decommissioning, waste processing and disposal Power systems engineering associated with embedded generation Renewable energy especially offshore wind establishment of a strong track record in the NW)

and

biomass

(given

Energy-from-waste particularly landfill gas systems and bio-gas production

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Energy efficiency products and services, particularly dCHP, high efficiency gas equipment, building insulation, controls/software and consultancy Global oil & gas sector in areas such as sub-sea engineering, gas processing and contracting services The global market for energy products and services is forecast to grow substantially over the next 10 to 15 years due to the increasing demand for energy particularly in developing countries and the drive towards cleaner energy systems. Some indications of the potential are given by the following estimates: World wind energy markets have the potential to grow to $630 billion per annum by 2020 (EWEA and Greenpeace) from a current level of around $4.7 billion (American Wind Energy Association 2001) The global market for PV was worth about £1 billion in 1999 (UK PV Association) and is growing rapidly, estimated to reach £8 billion by 2010 (European Commission) The global market for energy efficiency and energy management systems had sales of about $70 billion per annum in 2000 and is forecast to grow to $200 billion per annum by 2020 (Climate Solutions Report) The value of the micro-CHP market in Europe is forecast to grow to £3.7 billion by 2010 from a current very low base (Energy Savings Trust).

7.5

Lessons from Other Regions & Countries

7.5.1

Other Countries

The key common issues and lessons are: The need for a clear vision and decisive strategy/plan for the energy sector. Solution- oriented to demonstrate the economic, environmental and quality-oflife benefits (e.g. Pacific North West). Major global market potential in clean energy technologies – helping local firms to address the opportunities (e.g. Pacific North West and Basque Energy Cluster) Financial incentives to stimulate markets for clean energy technologies (e.g. California) but these need to be coupled with education and outreach programmes to create sustainable markets Importance of partnerships involving all the key stakeholders including energy technology/solution providers, energy users, utilities, the science base and the public sector (e.g. NESEA). Raising public awareness of the benefits of adopting sustainable energy solutions (e.g. Energy Outreach Centre in the Pacific North West) Educating the next generation – dual benefits of changing attitudes/actions plus encouraging young people to consider rewarding careers in the energy industries

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The scope for pan-regional organisations and initiatives to promote clean energy (e.g. NESEA) Importance of building on regional strengths as a basis for the development of the clean energy sector e.g. focus on mobile applications based on the Automotive Industry in Michigan Energy Centres, Zones and Parks to provide physical facilities to encourage investment in new energy technologies (e.g. in USA and Holland) Need to stimulate investment in the regional energy infrastructure – power generation, gas processing and transmission/distribution (e.g. Basque Country) Regional approach to energy self-sufficiency and security and diversity of supply (e.g. Basque Country) 7.5.2

Other UK Regions

The key issues and lessons administrations are as follows:

from

other

UK

regions

and

the

devolved

Problems of the long term funding of regional bodies aimed at stimulating the energy sector (e.g. TNEI) Importance of getting the key regional energy players involved in any regional initiatives e.g. energy utilities, oil & gas multinationals, suppliers of energy equipment/services, Development Agency, local authorities, chambers of commerce, universities) Strong backing needed from the energy utilities in particular Need to involve national bodies (e.g. DTI, DEFRA, Carbon Trust etc) to maximise support and added value at a regional level Supply chain initiatives to stimulate the development of the energy supplier base (e.g. Energy Industries Supplier Network in Wales and “Energy Guide Wales”) Success of major clean energy and efficiency programmes in some local authorities (e.g. Woking) Focus on key regional strengths to tackle global market opportunities (e.g. oil & gas, power generation in Scotland) Critical to have a favourable political climate to encourage investment in the energy sector Positive planning guidance essential to the development of renewable/clean energy projects

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7.6

SWOT Analysis

7.6.1

Strengths and Weaknesses

A summary of the strengths and weaknesses of the energy cluster in the North West is shown in the following table covering both the industry and science and technology reviews.

STRENGTHS

WEAKNESSES

World leading nuclear sector Gas supply and processing and potential for storage Oil refining and transport fuels Large-scale renewable energy sources Power distribution Gas conversion technologies (including dCHP) Energy-from-waste (LFG and biogas) Energy efficiency technologies and services Offshore/marine technologies Wide range of strategic/brownfield sites for development Large process industry base and supply chain in the region Science and technology strengths in: Power systems engineering Offshore renewables (wave/tidal) Hydrogen and fuel cells Built environment Nuclear energy Micro generation (PV, dCHP)

Cluster fragmentation and lack of a coherent vision Energy suppliers and consolidators (ownership outside region) Manufacturers of renewable energy technologies Power infrastructure network especially in Cumbria Skills shortages e.g. enquiries and technicians Transport technologies and equipment Fragmentation of energy R&D Energy economics and modelling Clean coal technologies Electrical conversion technologies and metering Lack of strong public sector champions (some exceptions)

The industry strengths reflect the analysis carried out in Section 6.1 which, when combined with the S&T strengths, confirm the key areas on which to focus for the future development of the cluster (as reflected in the opportunities): power distribution and power systems engineering offshore renewable energy (wind/wave/tidal) nuclear power gas conversion technologies energy efficiency in industry and the built environment energy-from-waste micro generation (dCHP and PV)

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The cluster’s weaknesses are primarily concerned with fragmentation, both of the industry and S&T base, and the lack of a coherent vision and strategy. There are a number of important supply chain gaps and sub-sector weaknesses as well as constraints in the power infrastructure network particularly in the north of the region. Companies throughout the energy cluster are reporting skills shortages. These cover both engineers and technicians as well as personnel with good business and communications skills. In the public sector, there are few strong “champions” for sustainable energy initiatives although this is now being addressed through the Regional Assembly and some of the local authorities (e.g. Oldham). 7.6.2

Opportunities and Threats

A summary of opportunities and threats facing the energy cluster in the North West is shown in the following table: OPPORTUNITIES

THREATS

Development of an overall energy strategy for the region

Continued uncertainty in the nuclear sector

Growth sub-sectors (see Section 6.1, Figure 14)

Ageing power generation plant

Setting ambitions and achievable targets for carbon reductions

♦ ♦ ♦

Development of the supplier base in target sub-sectors

Strong competition from other regions

Stimulation of regional projects in target sub-sectors

♦ ♦ ♦

Flagship projects to demonstrate North West strengths

♦ ♦

Co-ordination of energy R&D

Future requirements for FGD and coal plant

♦ ♦

Lack of capacity for energy R&D

♦ ♦

UK and EU funding for energy R&D

Impact of low carbon policy initiatives on energy costs

♦ ♦

Global market potential

National Energy R&D Centre and Network Diversification opportunities for suppliers

Growing dependence on imported gas Planning constraints (e.g. for renewables) Low public awareness/interest in energy Growing energy consumption and CO 2 emissions

Lack of regional/local funding for energy efficiency

Transition from energy supply to energy services

The region faces a number of longer term threats concerned with energy supply which are connected with the ageing fossil fuel and nuclear power plants. The gap left by the retirement of these plants, probably in the 2012 to 2020 period, needs to be addressed relatively soon particularly in view of the long timescales required for the planning and construction of such plants. The White Paper leaves the nuclear option open but continued uncertainty about the future of nuclear power in the UK is of particular concern to the North West due to the importance of this sector to the regional economy. The future requirement for flue gas desulphurisation on coal plant may also add a significant cost burden to Fiddlers Ferry. The region also faces a growing dependence on imported gas which raises important issues over security of supply and the need to plan for significant increases in gas storage capacity.

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Energy consumption will continue to rise over the next 10 years and this will lead to an increase in the region’s CO 2 emissions unless there is a significant increase in the supply of renewable energy and energy efficiency. One of the main problems in the context of efficiency is the fact that there is general apathy towards energy use particularly amongst the public and business users for whom the energy bill is a very small proportion of total costs. The potential to expand renewable energy supply continues to be held back by planning constrains as well as the costs associated with connections to the grid. There are a wide range of opportunities facing the North West energy cluster based on the regional strengths and the key policy drivers which are emphasised in the White Paper i.e. associated with a major push on renewables and energy efficiency. The North West has the potential to grasp these opportunities by developing an overall energy strategy and by setting ambitions but achievable targets to stimulate the market and hence regional projects in the growth subsectors. The development of the supplier base in these sub-sectors will achieve significant economic growth and will provide a platform for tackling the global market opportunities. There will also be scope for suppliers to the more traditional sub-sectors (e.g. oil and gas, nuclear) to diversify into the newer, growth markets for sustainable energy technologies. On the R&D front, there are major opportunities concerned with the increases in R&D funding for low carbon technologies and the plans to establish the UK Energy Research Centre and Network.

7.7

Cluster Growth Potential

We have estimated potential changes in the sizes of the various sectors of the Energy Cluster over the next 10 years. The results of this for the employment figures are shown in the following table. Sector

Employees (2002)

Employees (2012)

18000

11000

Oil & gas

9000

9000

Westwood report

Power T&D

5000

7500

Supplier interviews

Energy Efficiency

3500

5000

Supplier interviews

Electrical Equipment

3000

2700

Supplier interviews

Gas Equipment

2700

3800

Supplier interviews

Gas T&D

2500

2500

Supplier interviews

Energy-from-waste

1500

2000

RE Mapping study

Renewables

1000

3000

RE Mapping study

300

300

46500

46800

Nuclear

Conventional PG Total

Basis for Projections BNFL and ERM study

Energy model

Note: The above figures exclude consultants, contractors and general suppliers that are operating across a wide range of energy and other industry sectors. Overall, total employment is not expected to change significantly over the period due to the job losses within the nuclear sector being balanced by gains in growth areas such as renewable energy, energy efficiency and gas equipment.

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The Energy Cluster Analysis diagram (Figure 14) has been recalculated to take account of the changes in the NW position of the sectors as shown in Figure 14. Figure 14

Position in 2012

5

Energy Efficiency

4.5

Renewable Energy

4

Sector Attractiveness

Gas T&D

3

Nuclear Oil & Gas

Power T&D

Gas Equipment

3.5

EfW

Renewable Energy Conventional Power Generation

Nuclear

2.5

Power T&D Gas T&D

Elec Equip

Gas Equipment

2

EfW (Energy-from-Waste)

Oil & Gas

1.5

Elec Equipment Energy Efficiency

GPG

1 0.5 0 0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

5.5

6

North West Position

We have analysed the key sectors that have emerged from the cluster analysis in section 6, to identify the priorities based on the three main aspects of the vision described above, and the key issues in the Energy White Paper. The results in terms of the priority sectors and sub-sector are shown in the following table.

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Priority Sector

Sub-sector focus

Key UK Market Drivers

Energy efficiency

Energy efficient gas equipment Insulation products/services Controls/software Energy services Consultancy

Kyoto targets White Paper goals Climate Change Levy Grants Energy Efficiency Commitment (EEC)

Renewable energy

Offshore and onshore wind Biomass PV installations

Kyoto targets White Paper goals Renewables Obligation Grants

Power transmission & distribution

Distribution systems Advanced power systems engineering

White Paper OFGEM initiative Growth in renewable energy Technology developments

CHP

Domestic and small scale CHP

White Paper Govt targets Gas and electricity prices

Nuclear

Decommissioning Waste management and disposal New generation nuclear power

Kyoto targets Supply diversityLegacy issues

Energy-from-waste

Landfill and sewage gas systems Gasification and pyrolysis Digestion/bio-gas production

Landfill Directive Energy recovery targets

Oil & gas

Global market opportunities for NW suppliers

Maturity of UKCS Investment in developing countries

Gas transmission & distribution

Gas storage

Diminishing UKCS supplies

Fossil fuelled power generation

Replacement of capacity in the longer term CO 2 capture

Pressure for cleaner fossil fuel technologies

Research & Development

Power systems Wave/tidal power Micro generation Energy efficiency Built environment Fuel cells and hydrogen Assessment and modelling

Increased funding for energy R&D

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Plans for National Energy Research Centre and Network (UKERC)


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7.8

Scope for Intervention in the NW

Experience from other countries and regions on cluster development is not clear cut in terms of what is most and least successful in terms of intervention to stimulate cluster growth. In general there is plenty of information of the types of intervention but little in terms of practical results. However, there are a number of common themes in the area of best practice, particularly in those countries/regions that have been involved in cluster and sector development for many years. The types of interventions that appear to be most appropriate on a regional/local scale are as follows: Bringing together the key private and public sector players in the region/area to agree on a common vision and on priorities for action. There is evidence to suggest that the more successful initiatives are those that are led by private sector firms or with well known private sector “champions” Encouraging networks to stimulate the interconnections and sharing of ideas, innovation and resources that are critical to cluster development. Strengthening links with the knowledge base in the region including HEIs, FECs, professional bodies and private sector R&D establishments Developing joint marketing activities for example, covering supply chain initiatives, programmes to assist SMEs in international markets and attracting inward investors Skills Development including the development of special training and education courses and facilities to fill identified gaps (e.g. as in Scotland with insulation installers). This includes forging closer links with the HEIs and FECs e.g through student and graduate placements and programmes such as TCS Developing a physical or virtual focus and/or facilities. This could include the development of “theme” sites with the appropriate infrastructures e.g. the energy park/centre approach, specialist R&D and/or testing facilities or incubator space for new start-ups with related business support activities. Addressing other barriers that are related to regional/local government policies and programmes. These are identified in section 6.2 e.g. related to planning, public attitudes, local politics. Monitoring and Reporting of KPIs. Full scrutiny of progress against targets will help to maintain progress and flag up new issues. It will also help in building public awareness and where appropriate, lobbying of national and European Government. Creating a Focus for SME’s. Providing guidance to SME’s on energy issues and opportunities. This is being addressed by the appointment of a regional business adviser specialising in the energy industry.

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7.9

Cluster Vision and Representation

There is broad agreement, from those consulted during this study, that the energy cluster in the NW is highly fragmented and that there is a need for more effective co-ordination to tackle the areas of common interest and barriers to development. There is a call for a clear vision to achieve the overall objective of a secure, reliable, competitive and sustainable energy system for the region. It is suggested that this should be linked to ambitious targets to reduce greenhouse gas emissions through investing in low/zero carbon technologies and initiatives. The energy model shows that if nothing is done then the region will be emitting significantly higher levels of CO 2 by 2012 than today. This situation will get much worse by 2020 as the region’s nuclear power stations are closed. It is also argued that by failing to tackle the problem at regional level, the NW will be missing out on a major global market opportunity in the field of clean energy technologies and services. There is also general agreement that there is no need for a new organisation to be set-up since there are already a number of bodies involved in the energy cluster in the NW in addition to those operating on a national level. However, there is support for a “forum of interested parties” co-ordinated by an independent agency (e.g. NWDA) with strong links to both the private and public sectors. It is suggested that there should be strong private sector involvement through sector “champions”. In developing the concept of the Forum (or Council), a number of other important issues have emerged from the study: The need for a clear mission statement, objectives/targets and a business plan supported by the key players The initiative should focus on those sub-sectors in which the region can build on its distinctive advantages and achieve differentiation from other UK regions. These areas are identified in section 7.7. It should also help to find ways to overcome the current “short-termism” in the energy market that is inhibiting investment (e.g. associated with the current low prices and short-term contracts) There is a need for some “high profile” projects to get things moving e.g. major renewable energy project, Joule Centre, Sustainable Energy Park, dCHP demonstration and a major public sector initiative. The delivery of the action plan should be achieved where possible through existing regional bodies to avoid duplication of effort. However, there is a need to consider how best to consolidate resources to reduce fragmentation in the support infrastructure. It will also be important to address the long term financing of the initiative to avoid the problem of a hiatus after the initial funding tranche. Our recommendations include suggestions for the mission, objectives, targets, structure, membership and funding of the Forum/Council once the broad principles have been agreed. We have also made recommendations on the action plan and the various stakeholders to be involved in each area of the plan. Enviros Consulting Ltd UMIST July 2003 NORTH WEST DEVELOPMENT AGENCY

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GLOSSARY OF TERMS

Bbl/d

Billion barrels per day (oil)

Bcfd

Billion cubic feet per day (gas)

BEV

Battery Electric Vehicle

BNFL

British Nuclear Fuels Ltd

CCGT

Combined Cycle Gas Turbine

CCL

Climate Change Levy

CDM

Clean Development Mechanism

Cfd

Cubic feet per day

CHP

Combined Heat and Power

CIA

Chemical Industries Association

CREI

Cheshire Renewable Energy Initiative

dCHP

Domestic Combined Heat and Power

DTI

Department of Trade and Industry

DTLR

Department of Transport Land and the Regions

DUKES

Digest of UK Energy Statistics

ECA

Enhanced Capital Allowances

EEAC

Energy Efficiency Advice Centre

EEBPP

Energy Efficiency Best Practice Programme

EEC

Energy Efficiency Commitment

EEEGR

The East of England Energy Group

EEPS

Electrical Energy and Power System

EESOP

Energy Efficiency Standards of Performance

EfW

Energy from Waste

EISnet

Energy Industries Supplier Network

EMS

Energy Management System

EST

Energy Saving Trust

ETS

Emissions Trading Scheme

Eu MIGT

Association of European Manufacturers of Industrial Gas Turbines

FGD

Flue Gas Desulphurisation

FPAL

First Point Assessment Ltd

GDP

Gross Domestic Product

GEF

Global Environment Facility

GW

Gigawatt

Gwh

Gigawatt hours

Gwh/day

Gigawatt hours per day

HECA

Home Energy Conservation Act

HEI

Higher Education Institution

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HP

Horse Power

HV

High Voltage

HVAC

Heating, Ventilation and Air Conditioning

ICE

Internal Combustion Engine

ICT

Information and Communication Technology

IEA

International Energy Agency

IGCC

Integrated Gas Combined Cycle

IPA

Industrial and Power Association

JEMU

Joint Environmental Markets Unit

KV

Kilovolt

LFG

Landfill Gas

LMA

Liabilities Management Authority

LPG

Liquefied Petroleum Gas

LSC

Learning & Skills Council

MBC

Metropolitan Borough Council

MtC

Million Tonnes of Carbon

MV

Medium Voltage

MW

Megawatt

NDA

Nuclear Decommissioning Agency

NESEA

North East Sustainable Energy Association

NETA

New Electricity Trading Arrangements

NGC

National Grid Company

NGO

Non Government Organisation

NWDA

North West Development Agency

NWRA

North West Regional Assembly

OGDI

Oil and Gas Development Industry

ONS

Office of National Statistics

OST

Office of Science and Technology

PFA

Pulverised Fuel Ash

PIU

Performance and Innovation Unit

PV

Photovoltaic

RCEP

Royal Commission on Environmental Pollution

RDA

Regional Development Agency

RE

Renewable Energy

REC

Regional Electricity Company

REF

Regional Energy Forum

RNW

Renewables North West

ROS

Renewables Obligation Scotland

S&T

Science and Technology

SBS

Small Business Service

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SLA’s

Service Level Agreements

SME

Small and Medium-Sized Enterprise

T&D

Transmission and Distribution

Tcf

Trillion cubic feet

TNEI

The Northern Energy Initiative

Toe

Tonnes of Oil Equivalent

TWh

Terawatt hours

UKCS

United Kingdom Continental Shelf

UKERC

UK Energy Research Centre

UNFCCC

United Nations Framework for Climate Change Conventions

uPVC

Unplasticsed Polyvinylchloride

WDA

Welsh Development Agency

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http://www.nwda.co.uk/pdf/FinalReport