Events have a tendency to disrupt even the strongest of plans. Unfortunately the UK has a dismal record in executing its plans. Despite being blessed with one of the best wind resources in the world Britain notoriously threw away its early lead in the large wind turbine industry. In the early 1980s it was one of the leading players but at the critical moment of transitioning from technology development to large scale manufacturing and project development the government withdrew support, the City did not fill the gap, and the Danes and Germans famously cleaned up.
We were told that lessons have been learnt, and that this time would be different for the UK’s fledgling marine renewables industry. Yet in the last few months Siemens has increased its stake in Marine Current Turbines to 45% and Pelamis has been put up for sale because it needs a mere £10m for the next phase of its development of the articulated sea snake technology. In contrast on the other side of the world Carnegie raised A$6m on the Australian stock exchange for its CETO wave buoy. There is a rather pointed contrast in the ability of Carnegie to raise capital on the Australian stock markets with the willingness of the City to do the same.
In the large scale offshore wind market the overwhelming ownership of the projects is not British. Despite recent moves to bring turbine assembly to the UK the manufacturers themselves are not British, and the assembly plants themselves seem destined to be mere screwdriver plants assembling components which are largely designed and sourced overseas. The evidence to date is that 80-90% of the supply chain value is being won by non-UK companies. This should not be a surprise as supply chains are clusters of evolving ecosystems that are enabled by proximity, ownership, and mutual interests. Despite the oft-touted value of Aberdeen as an offshore oil & gas centre the brutal reality is that it is not proximate to very much, largely owned by transitory non-UK companies, and because of its cripplingly high cost structures understandably not terribly interested in low margin renewables.
The UK’s oil & gas industry combined with post-peak reservoirs littering the North Sea basin could have made it the world leader in carbon capture and storage (CCS). Yet despite the obvious opportunities not a single CCS scheme has been announced and successive governments have not missed an opportunity to miss an opportunity in progressively rolling out the vital pipeline networks connecting the carbon emitters with the key reservoirs. The North Sea is well off plateau, as a result the UK is now a net importer of oil & gas with a rapidly worsening balance of trade, and the reservoir abandonment plans are now so far advanced that it seems unlikely that CCS in the UK will ever reach sufficient scale as to be cost effective because the necessary infrastructure & skills are being lost faster than they will be needed.
In nuclear the UK government managed to exquisitely time the sale of the UK’s nuclear manufacturing knowledge to the Japanese and USA at the bottom of the valuation cycle, and now the other repository of the UK’s operating expertise is rapidly going sub-critical as the nuclear-powered submarine fleet is shrinking below the point of sustainability.
Similarly the manufacturing capabilities for the massive grid renewal programme that the UK requires have largely been shut down over the last forty years. The UK has only one significant manufacturer of hydro turbines, and recently the UK’s largest manufacturer of small wind turbines went spectacularly bust when it was unable to raise capital quickly to overcome a product defect.
Events in Fukushima have coincided with the turmoil in the financial markets to force the largely foreign-owned utilities to prioritise investments in their domestic markets over the UK. As a result there is something of a dilemma for a UK government desperate to attract energy sector investment, yet under domestic political pressure to reduce the subsidies that might entice it.
A European super grid will be able to shunt UK power to continental Europe, and it is noticeable that many of the Eurocentric utilities have prioritised projects that can realistically be exported via a supergrid hub in the central North Sea, thus serving both their short and long term markets – there is a substantial risk that the UK will subsidise offshore wind farms that ultimately export power to the continent.
This is not a pretty picture. In all these industries the technical innovators and business entrepreneurs were (or still are) present. So the real lesson to be learnt from this is that all the necessary conditions must be in place before any large scale manufacturing industry can be rebuilt in the UK and long term value created and harvested, and that crucially in the absence of finance the UK’s entrepreneurs will have to sell out prematurely to foreign industry.
Concerted policy action is needed to improve on many fronts, and it will take decades to reverse half a century of industrial decline. Academia in the UK needs to start working to support existing industry rather than parasiting off them, or worse still in competition with them. As a minimum the education system needs to produce adequate employees rather than the distinctly uncompetitive product on offer. The civil service is proud to be technically illiterate whereas it would be nice to see competent practicing professional engineers in senior government advisory positions. The new breed of professional politicians needs to start understanding that value has to be earned by economies before it can be re-allocated, and that long-term competitive advantage comes from making stuff that is better than the rest of the world.
And the City? The City must remember that it has a role to play in accepting risk and allocating capital into UK industry. At best it is going to be a difficult few decades even if good decisions are taken and stuck to, but the alternatives would be far worse.
Written by the MD of an established turbine manufacturer