Government's green energy announcement a 'positive step in right direction'

Billions of pounds of investment creating thousands of new North East jobs is anticipated following last week’s renewables announcements

Sheringham Shoal Offshore Wind Farm
Sheringham Shoal Offshore Wind Farm

Having previously lost hundreds of jobs as a result of Government policies to cut carbon emissions there is growing optimism in Northumberland that 130 jobs will be saved by its latest green energy announcement.

The Government last week gave its blessing for the £100m biomass conversion of the Lynemouth coal-fired power.

Owner RWE npower has described the Government move as ‘a positive step in the right direction’ – although a final decision will not be made until early next year.

Down on Teesside, the Government has also agreed to provide subsidies for a new £600m biomass plant which will provide 275MW of electricity – enough to power 150,000 homes.

London-based MGT Power says it hopes to start work on this development in the autumn, creating 600 construction jobs and 150 new jobs when up and running.

In Yorkshire, Drax power station saw its shares rise by almost 10% when it was given the go-ahead last week to convert its remaining power unit to biomass (wood pellets).

Both the Lynemouth and Drax announcements could be good news for the Port of Tyne which has ambitious plans to develop a new, multi-million pound biomass handling facilities and currently works with both operations.

Earlier this year it unveiled a £180m proposal for a new wood pellet handling development at Tyne Dock, South Shields, which would create 900 construction jobs and a further 300 full-time operational jobs.

These biomass announcements were made by Chief Secretary to the Treasury Danny Alexander as part of the National Infrastructure Plan, which also signalled out seven offshore wind sites as qualifying for Government support.

Among these is the first Round 3 site to make it to the starting line at Hornsea, 100 miles off the East Anglia coast. The Round 3 sites are the ones which will require thousands of turbines and if developed are projected to create 30,000 new UK jobs, including thousands in the North East.

The above were among 16 renewable energy projects signalled out for subsidy support by the Government – amounting to a total investment of £40bn.

The Government has also finalised the subsidy levels - strike prices – that will be paid for the varied forms of renewable energy.

And it hopes this will bring forward a further £60bn of investment in renewable power and heat generation schemes by the end of the decade.

An increase in the offshore wind strike price from £135 per MW/h to £140 per MW/h has seen the chairman of one energy giant declare “it’s game on” for the North Sea.

While the reduction in onshore wind subsidies have been latched on to by many as signalling the demise of the industry many say it will only be the smaller schemes, with a handful of turbines, which will be deterred from coming forward.

The reduction in subsides for solar are also unlikely to deter its rapid growth. Costs in the onshore wind and solar markets are falling rapidly. In fact the Solar Trade Association has said it was prepared to accept a lower strike price than given.

Energy and Climate Change Secretary Edward Davey said: “This package will deliver record levels of investment in green energy by 2020. Our reforms are succeeding in attracting investors from around the world so Britain can replace our ageing power station and keep the lights on.

“Investors are queuing up to express their interest in these contracts. This shows that we are providing the certainty they need, our reforms are working and we are delivering ahead of schedule and to plan.

“With sixteen new major renewable projects progressing in our “go early” stage we are delivering ahead of schedule and are able to begin the move to the world’s first low carbon electricity market faster than expected.”

“The strike prices and contracts give energy generators a sound, sustainable and long-term basis to invest in renewable energy.”

North East reaction

Edward Twiddy, director of the North East Local Enterprise Partnership said: “It’s extremely positive news to hear of the Government’s support for the biomass conversion of Lynemouth power station, which could save over 100 jobs.

“On offshore wind it is clear the Government’s been listening. We remain very positive about the role the North East plays in the growing offshore wind industry in both the manufacture and maintenance of equipment. We are very well positioned to help this sector grow strongly.”

Charles Reynard, corporate partner – clean energy and sustainability team – at Eversheds law firm in Newcastle, said: “This is the missing piece of the jigsaw.

“It’s a good day for the North East and a good day for renewables. After years the waiting is over. The utilities now have the confidence of secure income into the future to allow them to press ahead with their offshore wind plans.

“Offshore wind gives opportunities on the volume side that the other renewable technologies cannot provide, and has been targeted by the utilities to meet their renewable obligation targets.”

Mark Whitehead, partner and head of the energy group at law firm Ward Hadaway, said: It is good to see that offshore wind will be receiving the level of support that the industry requires to kick-start developments in the UK, both in terms of supporting a manufacturing base and supply chain and also in terms of delivering projects to create offshore energy.

“However, this contrasts with the reduction in the level of support given to onshore wind, which has left some commentators wondering whether it has been done more to meet political, rather than economic, considerations.

“It is a fact that the majority of funding for infrastructure projects comes from the private sector, and will continue to do so. Funders will only invest in projects and markets where they are comfortable with the level of regulatory or fiscal risk to their returns.

“In a world where investors operate on a global basis, it is important to ensure we provide the right kind of climate for investors to back projects and developments of strategic importance to the region and the country.”

James Bryce (pictured), head of Newcastle-based Square One Law’s energy team, says: “What the industry requires above all else is certainty to fund large infrastructure projects which will stimulate increased investment.

“Knee jerk policy reactions to the political climate are unhelpful and the policy that is emerging from the recent debate is a move towards supporting offshore wind development, possibly at the expense of onshore developments.

“Combined with the continuing North Sea oil and gas boom, the region is well placed to service what looks likely to be a growing offshore renewable sector and we should be very positive about attracting long-term investment to the region.”

Andrew Davison, partner and head of the energy team at Newcastle law firm Muckle, said: “No project can get off the starting blocks without clarity over the income it is able to slot into its business plan. We now have a much better idea what that is going to be but whether it proves to be sufficient to unlock the long-awaited development of Dogger Bank, with its potential to bring a large number of jobs to the region, remains to be seen.

“It is also excellent to see the Government signalling its support for the conversion of Lynemouth power station, to be fired by biomass instead of coal. Without this, under current rules, the station will have to close after 2015. If the project goes ahead, it will mean jobs are preserved and created to carry out the conversion, handle the biomass and continue to operate the power station.”

Good news for offshore wind

AFTER years of delay the strike price announcements have paved the way for the industry to scale-up.

Despite some mumblings of discontent over the 15-year contract term the general feeling in the industry is that the upwardly revised strike price of 155 per MW/h is enough to see it develop momentum.

Danish firm Dong Energy is one of the biggest windfarm developers in the world. Its UK chairman, Brent Cheshire believes it is now “game on” in the North Sea.

He said: “We welcome the announcements from the Government on the FID-enabling process and the strikes prices. This is a concrete step in the right direction from the Government towards fulfilling the next phase of offshore wind development in the UK. 

“The strong commitment to offshore wind demonstrated by the Government gives us the confidence to move forward with our future pipeline of projects.

“It is game on. There is a real political consensus among all the parties now about these subsidies, and there is no clear reason why someone would not build a manufacturing plant here.”

The UK is currently the world-leader in the offshore wind installation with 3.3MW of capacity. A further 3.8GW is in construction or has planning approval and a further 7.8GW is in the planning stage.

Much of the new development will be in the larger, deep-water Round 3 sites. These will require a total of 5,000 turbines, capable of generating 20GW of power, equivalent to 20% of the nation’s current electricity capacity.

Business Secretary Vince Cable believes UK offshore wind has the potential to create 30,000 jobs and contribute £7bn to the economy by 2020. Here in the North East the two Local Enterprise Partnerships are pushing to attract manufacturers to the region and the skills needed in the offshore wind industry match many of those needed in the offshore oil and gas industry, where the North East has a strong supply chain.

Some say that the offshore wind sector could create up to 10,000 new jobs in the North East region.

Andrew Mill, chief executive of the National Renewable Energy Centre in Blyth, said: “The announcement will act as a catalyst providing much needed confidence in the industry and an attractive market for investment, helping to ensure the UK retains its leading position in offshore wind, as well as helping to build a sustainable and long-term low carbon energy mix.”

Good news for biomass

The introduction of a new tax on carbon emissions was blamed for the loss of 550 jobs at the Lynemouth aluminium smelter in Northumberland last year.

The same fate threatened the adjoining 400MW coal-fired power plant, but utility giant RWE npower stepped in to buy the plant from Rio Tinto Alcan, saving 130 jobs.

The new owner has until the end of next year to undertake a £100m conversion of the plant to biomass (wood) or face closure under European emissions regulations.

Last week it was selected by the Government as one of the projects it favours for a biomass conversion. If it goes ahead Lynemouth will be able to sell the electricity it generates at £100 per MW/h – which is twice the current wholesale price.

An RWE npower statement said: “DECC (Department of Environment and Climate Change) has confirmed that the project to convert Lynemouth Power Station to run on dedicated biomass meets the minimum criteria for an investment contract under the Final Investment Decision (FID) Enabling Scheme, part of the Government’s proposed ‘Contract for Differences’ (CfD) mechanism aimed at supporting major low carbon energy projects.

Bob Huntingdon, managing director, Lynemouth Power Limited, said: “This is a good step forward for Lynemouth Power, but there are a number of steps remaining before we can make a final investment decision. We are aiming to take an investment decision on the station’s conversion to biomass early next year, but today is a positive step in the right direction.”

Welcoming the Government decision to support the Tees Renewable Energy Project (REP), Ben Elsworth, CEO of MGT Power, said: “The qualification process involved DECC carrying out a very rigorous assessment of the project’s deliverability so it’s a big vote of confidence to have passed.

“Tees REP’s qualification for the Final Investment Decision Enabling scheme, coupled with DECC’s announcement on the strike price and the Renewable Heat Incentive tariff means we will shift into a higher gear in moving this project into its final phase of development and financing.

“Of the 16 projects to have qualified for this scheme, the Tees REP is the only one to offer brand new baseload capacity to the UK system at a time when generation margins are getting very tight, so we will play a major part in the country’s energy security going forward.”

Elsworth said it hoped to start work on the project in the autumn and it would create 600 construction jobs and 150 when operating. It will be sited on the south bank of the Tees between Redcar and Middlesbrough

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