Where’s the progress?

I’m worried. I think there’s something going badly wrong with our energy industry and particularly with the development of renewables.  Let me explain why.

Firstly, I was really quite shocked to read in a blog by Prof Brian Ashcroft of Strathclyde University that he believes that around 70% of all oil and gas industry post-tax profits are remitted abroad. According to Ashcroft this amounts to around £19bn which if correct is an astonishing figure which he says “reflects high degree of foreign ownership”

This is scary.  Such an extraordinary level of reliance on foreign ownership of such an important industry can’t possibly be healthy for our economy and perhaps goes a long way towards explaining why – as I mentioned last month – our R&D expenditure is so pathetically low compared with Norway.

Actually, I would bet that in Norway these figures are reversed.  I wouldn’t be at all surprised if over there less than 30% of post-tax profits are remitted abroad because there are a lot less foreign companies.  Different attitude you see. They think strategically and we don’t.

The danger now though is that history is going to repeat itself with the renewables sector.  Looking back over the year since the last All Energy conference and exhibition I’m finding it very difficult to come up with any examples of a UK or Scottish company introducing something new or entering other parts of the market.   I’m now really concerned we’re not just letting our competitors snap up the best bits of what we have developed but we’re not actually competing in sectors that we should be competing in.  The proof of that pudding is course that so many overseas companies are moving in.  If we were competing properly then they would think twice about setting up here.

But then the “system” the government has set up isn’t aimed at creating a renewables industry but developing mechanisms to achieve the various government policy aims on carbon emission reductions, percentage of electricity from renewable sources and so on and so forth.  

So, we tend to set up companies that meet these policy needs and they do things like consultancy, windfarm development planning and of course carbon trading and offering advice on how to reduce a company’s carbon emissions and energy consumption.  That said, some companies are offering important and valuable services such as surveying and subsea remotely operated vehicle support although no heavy lift vessels or cable laying now.

In terms of timing the introduction of policies also never allows for the development of new technologies.  By this I mean that when we develop new policies we rarely consider the industrial potential.  

A classic example of this is the so called Smart Meter. The government’s plan is that every household and business should have one of these.  That means millions of the things will be bought and installed but as it looks now none of them will be manufactured by a UK company. How stupid is that.

In fact the more I read and hear about the attitude of the Treasury in particular I seriously wonder if they care about renewables at all.  I get the feeling that actually the Treasury is keeping its fat fingers crossed that in its forthcoming report the British Geological Survey team will say that there is so much shale gas available that we can completely forget renewables for the foreseeable future.

Another threat to renewables is coming from nuclear.  If the government ever gets its act together and comes to a deal with a potential reactor builder then the cost may well reduce funding for other technologies.   There’s also little doubt that this government would much prefer to have a plentiful supply of nuclear power than anything else even if it means relying on French or even Chinese semi state owned companies to build and operate them.

At the same time though I’m completely mystified over the refusal of the National Grid to balance out the costs of grid connections rather than price them geographically.   Actually, that’s wrong.  I can understand some mindless civil service type – perhaps an ex investment banker -  coming up with that sort of idiotic proposal but what I don’t understand is why the Government didn’t tell them to drop it.  

All that said I do have some good news. Things are now stirring in at least one part of the renewables sector.  The Scottish Government’s Energy Advisory Board of which I’m honoured to be a member has agreed a proposal I developed to set up a forum on Future Fuels. 

The forum consists of a mix of members from academia, industry and government bodies and its aim is to design a strategy for the development of a Scottish renewables fuel industry. That means determining where the best opportunities lie, looking at whether we have the skills to build such an industry and of course working out which fuels provide the best potential.   The forum is “time limited” which means that once its job is done it will disband.

It’s exciting stuff because it does look as if there is much more knowledge and expertise around this topic than perhaps was originally thought. 

Whilst looking at the better known fuels such as ethanol and bio-diesel the forum is also considering butanol, bio-kerosene, hydrogen, ammonia and others and of course a range of production techniques that given the high level of life sciences expertise in Scotland could include synthetic biology. 

We have a head start given the work being done by Argent on bio-diesel, Celtic Renewables on bio-butanol and Scottish BioEnergy on algae applications. This is a good base on which to build.

So whilst I find it intensely annoying we never seem to have any projects that can match – for example – flying a solar powered aircraft across the USA perhaps we’ll soon be able to demonstrate a range of new fuels transport, energy storage and heating.   Not quite as spectacular perhaps but considerably more important.

  (First published in "Energy" in May 2013)

 

 

EMEC’s Customer Base has little UK content.

EMEC – the European Marine Energy Centre – on Orkney is a facility Scotland should be proud of. In the nearly 10 years since it opened its doors it has achieved a solid reputation and is now involved in a number of overseas collaborative projects.

This is good for Scotland and good for the marine energy sector.

However, EMEC’s success illustrates the extent to which the industry here in the UK is now increasingly dominated by overseas corporate or other investors.

Going through the list of the companies that have used or are using the Orkney centre, it is really quite surprising as to how remarkably small the Scottish and wider UK content actually is.

Looking first at the wave energy companies who have or are currently testing hardware at EMEC, the first and perhaps best known is Aquamarine of Edinburgh.

The largest investor in Aquamarine appears to be ABB Technology Ventures based in Switzerland which gives Aquamarine access – potentially – to ABB’s huge technology knowledge base. That said the company has also received investment from Scottish Enterprise and Scottish Equity Partners.

Pelamis Wave Power, also based in Edinburgh, initially found a lot of its investment from overseas and, given its chair is also managing partner of Emerald Technology Ventures, the Swiss-based venture capitalist, this would suggest that pattern continues.

It’s also interesting to note that the two companies testing Pelamis devices at EMEC are E.ON (German) and Scottish Power Renewables owned by Iberdrola (Spanish).

A third company, VattenfallB (wholly-owned by the Swedish state), is planning to test the latest generation Pelamis Wave Power device in 2014.

The Finnish company Wello Oy is also testing its wave energy system at EMEC. Having worked on a number of wave energy concepts since 1976 the Penguin model was selected in 2008 to be developed further. Wello Oy is entirely Finnish owned.

AW Energy is also a Finnish company. It is developing the Waverider device, which was successfully tested at EMEC in 2005. The firm now has a project underway – albeit slowly – in Portugal. Needless to say, all main investors are Finnish.

Finally though some good news. Seatricity is a small Orkney-based company developing and testing a new wave device at EMEC and it appears that it may well be that it is actually UK owned.

Turning now to tidal energy devices being trialled, one of the most advanced has been built by Andritz Hydro Hammerfest, which was originally a Norwegian-owned company but it is now owned by the Austrian Andritz Hydro GmbH group.

The Atlantic Resources Corporation (ARC) is also testing a tidal turbine at EMEC. ARC has a project office in London but is essentially a company based in Singapore although it now includes among its investors the Norwegian electricity utility company Statkraft.

Third in our list of tidal energy technology companies is the Dutch company Bluewater Energy Services, which is testing a novel floating tidal generator support device.

Kawasaki Heavy Industries is planning to test a 1Mw tidal generator in 2014 and is currently component testing in Holland, performing tank tests of a scale model, stress tests of blades and power train tests, as well as some component testing for its full-scale prototype. Kawasaki is of course a Japanese company,

OpenHydro has been testing devices at EMEC since 2006, has deployed a device in the Bay of Fundy, Nova Scotia, and is currently working on a project in Brittany, France, where it aims to deploy four 16m tidal turbines. OpenHydro was recently acquired by the major French shipbuilder and marine technology company DCNS SA.

Scotrenewables Tidal Power is a Scottish company that has developed a floating tidal technology device. But its main investors are the Swiss ABB group, the Norwegian Fred Olsen group and the French oil and gas major Total.

Tidal Generation is developing and testing a seabed tidal turbine similar in concept to those of Andritz Hydro Hammerfest and ARC. A Bristol-based company, it was bought by the jet engine builder Rolls Royce in 2009 but it was recently bought from them by the French engineering group Alsthom.

The German company Voith Hydro is working with RWE Innogy through the joint venture Voith Hydro Ocean Current Technologies and currently building a 1MW demonstrator of a seabed turbine due to be tested at EMEC starting this year.

Voith Hydro is also the company responsible for the recent close of the Scottish wave energy company Wavegen and “relocating” its intellectual property and assets to Germany.

When I was asked to analyse EMEC’s customer base even I was not prepared for what it would tell me.

I am actually staggered by the appallingly low level of investment in the sector by UK and Scottish companies even when the technology behind the company involved has been developed by Scottish or UK engineers.

Of course, we can praise EMEC itself for having built a very successful business and for having promoted the huge tidal and wave energy resources that Scotland possesses.

The fact that the centre’s success has exposed another major hole in how we do real economic development isn’t the organisation’s fault. But it is something we should be thinking hard about.

Indeed we should be horrified by our record so far. I certainly am.

(First published in "Energy" 20th May 2013)

UK Oil & Gas Industrial Strategy – It’s good to talk.

The Government’s latest attempt at a strategy for oil and gas was published in March but its impact was somewhat diluted by the announcement on the same day of yet another change of Energy Minister. 

The poor bloke that drew that particular short straw for the least stable post in the government is now responsible for implementing the new strategy, such as it is.

Apart from a few changes and some minor additions it’s actually pretty much a repeat of the report published by the Oil and Gas Industry Taskforce back in 1999 although actually the 1999 version was a bit more detailed particularly when it came to things like technology needs.

This new strategy includes all the usual guff about maximising the “economic production of the UK’s offshore oil and gas resources” and all the other motherhood and apple pie phraseology designed to make us think Westminster actually cares about more than how much tax they can squeeze out of the industry to pay for all the other messes they’ve created.  

For example, one of the aims is “to sustain and promote the growth of the UK industry’s supply chain, in both domestic and international markets”. That’s an interesting turn of phrase. It’s the UK industry’s supply chain not the UK supply chain.  So that includes both indigenous and foreign owned companies which is probably recognition of the extent to which the industry is now dominated by overseas companies.   It goes back to the eighties doctrine of the “level playing field” which was really all about getting as much oil and gas out of the ground as fast as possible in order to fill the Treasury’s coffers and not caring who did it.   

As with all good initiatives it’s important to establish new bodies which can provide an opportunity for the great and the good to be seen to be doing stuff. That’s until they get bored or move on or have collected their OBE.  True to form we now have an “Oil and Gas Industry Council” to carry forward all the recommendations arising from the strategy document. Where does that leave PILOT which was created in 1999 to do the same thing?  To wither quietly on the vine I would guess.

OK – I admit I’m being more than just a tad cynical here primarily because I don’t think the 1999 O&G Taskforce led to any great improvements and I certainly don’t think it led to the much vaunted advances in technology that were talked about being desirable then and indeed are still being talked about as desirable now.

Let’s look at one particular and actually very scary statistic. According to the strategy report the overall sector R&D spend in the UK is reported to be 0.3% of sales which is a shameful figure when compared to Norway’s figure of 4%.  So this aspect of the 1999 Taskforce’s master plan failed miserably much as many of us involved expected it to.  

One action arising from the new strategy’s technology plan is the establishment of “a national centre of excellence that will enable industry to better understand complex reservoirs, reduce drilling costs, improve offshore efficiency, enhance production and maintain the integrity of infrastructure.”

The Government has now done that.  It will be established at Newcastle University. Why Newcastle?  I’ve no idea. Anyway it doesn’t really matter as it seems the Government is only coughing up £7m for this “centre of excellence”.  So – it looks like just another example of Westminster “tokenism”. 

The strategy also says “The UK has very strong financial services and oil and gas sectors. The two should be working closely together to create growth.”   This would be novel because for the past 30 years or so the only growth the financial sector has been interested in is their own.  Expecting the financial services sector to invest more in the supply side is very wishful thinking especially now they are under so much pressure to increase their capital reserves.    

So what’s the answer?  Well, there isn’t one.  We can’t force either the operators or the largest contractors/manufacturers to fund or invest in UK R&D if they don’t want to nor can we force investors to cough up more to grow companies through product or service development.

That said the fact is that Norway’s R&D level is much higher because they have a larger number of technology companies and they have a national champion to work with namely, Statoil.

Neatly linking this to the recent demise of Margaret Thatcher we should recall that she privatised the UK’s national champion the “British National Oil Company” which was then renamed Britoil Plc and later sold off to BP allegedly for peanuts.   

It was claimed Thatcher did this to ensure foreign operator investment in the N Sea. It was a lame excuse because investment in exploration and production in the Norwegian sector of the N Sea has been at least on a par or better than investment in the UK sector but investment in the Norwegian supply side has been of an order of magnitude considerably higher.  There can be little doubt that the BNOC decision wasn’t thought through and like a lot of others was purely ideological.

So do I expect this new strategy to achieve real results?  No I don’t and my reason for saying that is that the one thing that would really make a huge difference isn’t even mentioned. No – it’s not set up a new state oil company although that would be a great idea and neither is it to introduce “informal” targets for genuine UK content.  The one thing that would make a genuinely huge difference is to introduce tax offsets on drilling costs as the Norwegians have.  But that’s probably a step too far for a Government that’s essentially bust and needs the oil and gas tax revenue more than it ever has before.

(First published in the Aberdeen Press & Journal's "Energy" supplement in May 2014)