Newsletters from No 10: 29 March 2010
Last week's Budget included important measures to promote the development of the UK's low carbon economy. And it has been followed, significantly, by two more major announcements of investment in low carbon manufacturing in the UK.
Offshore wind turbine manufacture
Today Siemens announced its intention to invest over £80m in a new plant to manufacture offshore wind turbines in the UK. It follows the announcement last Thursday by GE of a £100m investment in the UK to build their European manufacturing plant for offshore wind turbines. Siemens expect to create around 700 jobs from production at their new facility, as well as additional jobs in the supply chain. GE, which will also bring its service engineering resources to the UK alongside a range of partners and suppliers of towers, blades and other components, anticipate nearly 2000 jobs in all by 2020.
These announcements bring to four the number of wind turbine manufacturing facilities now planned for the UK to meet offshore demand, with Mitsubishi having declared its plans last month and Clipper last year. Signing an MoU with Siemens at Downing St this morning the Prime Minister pointed to these announcements as clear vindication of the Government's low carbon industrial strategy. The Government has said it is determined to ensure that the economic and 'green jobs' benefits of our low carbon energy policies come to the UK; and this is clear evidence that this is now happening. It follows the announcements of comparable investments in electric vehicle manufacture, nuclear reactor forging and carbon capture and storage technology that I reported last week.
The Siemens and GE announcements specifically relate to the announcement in the Budget that the Government would be allocating £60m for a competition to develop land alongside UK ports for wind turbine manufacturing facilities. The two companies and Mitsubishi are each working with the Government and RDAs to identify potential sites.
The Budget - the Green Investment Bank and other measures
The emergence of the UK as the centre for offshore wind turbine manufacture in Europe represents a substantial vote of confidence in the Government's plans to expand offshore wind generation capacity (to a possible 40GW) by 2020. However, as the analysis of the UK's infrastructure needs published at the Budget shows (see http://tinyurl.com/yj892d7), financing this investment will be a challenge. It is this analysis which lies behind the announcement by the Chancellor that the Government would be establishing a Green Investment Bank. This will be a new finance institution whose purpose will be to invest in low carbon infrastructure, with an initial focus on offshore wind. The Bank's initial capitalisation will be around £2 billion, approximately half of this coming from the public sector, funded through the sale of the Channel Tunnel Rail Link and other public assets, with the remainder from the private sector. The Bank will focus on equity investment, which is where the finance gap for major energy projects primarily lies. It can therefore be expected to leverage in tens of billions in further equity and debt finance.
We have been gratified by the welcome this announcement has received in many quarters. This is a new kind of intervention for Government to make in financing infrastructure. The creation of the Bank marks another very significant step in the Government's strategic approach to building a low carbon economy.
Alongside the Green Investment Bank the Budget also announced the launch of UK Finance for Growth (UKFG), which will be responsible for overseeing and streamlining the UK Government's stock of over £4 billion of finance products for small and medium sized enterprises. UKFG will have a strong focus on low carbon technology and supply chain businesses, working in partnership with DECC and the Regional Development Agencies to coordinate all public equity support for low carbon SMEs, including the £170m of low carbon finance products under the Carbon Trust and the UK Innovation Investment Funds. This is another important development in the expansion of Government support to the low carbon economy.
Other Budget measures included the creation of a forum between the Government and the finance services industry to take forward the 'Pay As You Save' schemes announced in the Household Energy Management Strategy earlier in the month; a commitment to reduce government departments' carbon emissions by at least 30% by 2020; and a halving in company car tax for ultra-low carbon cars. For full Budget details, see http://tinyurl.com/yc4q8tn.
Energy Market Assessment
Last, but absolutely not least, the Government published alongside the Budget the initial report of the joint DECC-Treasury review of the UK energy market (for full details, see http://tinyurl.com/yaprgvp). It concludes that, while the market is generating sufficient investment to ensure security of supply over the next decade, reforms are needed to ensure continued investment in low carbon supply from 2020 onwards. The high capital costs and low operating costs of much of the required forms of electricity generation (notably nuclear and offshore wind) mean that changes will be needed in the way the market remunerates investment and ensures the best deal for the consumer.
The Assessment sets out a series of options for reforming the market. It argues that underpinning the carbon price will not on its own be sufficient to guarantee investment, and the creation of a Single Buyer Agency (one of the options mooted by Ofgem) would not meet the Government's principles of driving cost efficiency (and therefore affordability) while ensuring stability and certainty for investors. However the other reform options available - supporting low carbon generation within the current market framework; regulating to limit high carbon generation; and changing the market structure for low-carbon generation - merit further assessment, possibly in combination. The Government will therefore examine these further over the coming months, alongside a more detailed dialogue with stakeholders, with a view to bringing forward proposals for consultation this autumn. A White Paper setting out conclusions will be published by Spring 2011. This timetable is designed to enable decisions to be taken in time to give clarity to developers seeking to make investment decisions in the period after 2011.
Again, we have been pleased at the response to the report: among a wide range of energy, business, NGO and other stakeholders the dominant view appears to be that the Government has got the analysis of the issues about right, made sensible judgements on the options, and the timetable for making decisions is neither too long nor too short. We will be working hard on the further assessment over the coming months and will seek views widely.
Reactions welcome as always.
With best wishes
Special Adviser to the Prime Minister
10 Downing St
London SW1A 2AA