Scottish Government

GREEN JOBS STRATEGY REVIEW

Appendix E

Key technology markets overview - renewable energy

Overview

The renewable energy sector covers the supply of technologies and services for the generation, collection or transmission of energy from renewable sources such as biomass, solar, photovoltaic, wind, tidal and geothermal sources. It includes the manufacture of equipment, design, construction, installation, management and operation of RE facilities. Approximately 1,500 jobs were sustained by the industry in Scotland in 2003, 22% of the UK total.

Hydro power currently makes up the bulk of Scotland's current renewable resource, providing 11% of Scotland's electricity.

Future market

The UK market for renewable energy was approximately £290m in 2002, with £80m attributed to Scotland, and forecast to grow at average of 12% per annum to 2010.

In Scotland, strong growth is forecast in wind projects as well as wave and tidal research. As biomass, solar and hydro have struggled due to regulation and lack of support, energy from wind is set to make up the bulk of new renewables capacity until 2010. Scotland is forecast to take a 39% share of the UK onshore wind power market by 2010, with significant growth in offshore wind.

Market drivers

Political

Much of the renewables market development worldwide is reliant on legislation and government subsidies. This is likely to continue until costs fall into line with fossil fuel sources of energy.

Within the UK, the market is driven by the Government's target to increase electricity derived from renewables to 10% by 2010, under the European Union's Renewables Directive.. The Scottish Executive has set a target of 18% of Scotland's electricity supply coming from renewables by 2010 and 40% by 2020. Scottish Renewables is particularly active in promoting the development of the renewable energy sector in Scotland.

There is seen to be good government support at the research and development stage, but no structured programme to take technologies to pre-commercialisation and commercialisation.

There is a shortfall of funding for renewables in the UK as a whole, compared to other European countries, some of which use funding to encourage relocation and inward investment. This, along with a clear, ongoing commitment to renewables development, is crucial to encourage commercial investment.

Economic

The UK's renewable energy sector is small compared to Continental European countries such as Denmark and Germany, where the domestic markets are more advanced. European manufacturers are establishing manufacturing facilities in the UK. Scotland is reliant on large multinational or foreign owned companies to bring expertise and investment in the wind industry.

UK suppliers such as Bronzeoak, Gilbert Gilkes & Gordon, Thermomax and Talbott's are active in the global market, but the number is small compared to the Danish, French and German presence. The DTI's Renewable Energy Gap Analysis (2004) highlights the UK's strengths and weaknesses by sector.

Social

There is very little demand for higher priced 'green' energy. Where consumers shop around for electricity, choice is mostly based on price.

Expertise and skills that have been developed in offshore oil and gas technology (particularly high performance engineering, modular construction and offshore expertise) can be applied to renewable energy.

There is less resistance to the siting of onshore wind farms in Scotland than in most of the UK as there is a lower population density.

Technological

Scotland is leading the world in the development of marine renewables, being led by Scottish companies such as Ocean Power Delivery and Wavegen and by experts at Robert Gordon University and the University of Edinburgh. The European Marine Renewable Test Centre, based off Orkney, will soon test a 750 kW pre-production production prototype from Ocean Power Delivery. According to a DTI report, 'no major technical barriers to the development of wave energy prototypes have been identified'. Wave and tidal technologies need support, however, to move them from pre-commercialisation to market deployment.

Biomass is not well developed at a large scale, leading to uncertainty on future costs and hesitancy to commit on the part of growers and plant developers. Biomass is potentially economic if crop yields can be improved by 30%, but reliable fuel chains need to be established.

Continuing R&D in solar PV is required to make it an economic technology under UK conditions. International collaboration is required so that Scotland does not lose out to countries with established domestic markets for PV, such as Germany and Spain. Robert Gordon University is researching photoelectrodes for solar energy conversion.

International activity

A decade of funding and support has made Denmark a leading country in the field of renewable energy and the world leader in wind energy. It's focus has recently changed from large scale investment to achieving cost effective solutions by using market based instruments to direct more focused funding. To spread the cost of new product development, it is also increasing its use of international partnerships.

Following the pattern set by Denmark in the creation of a domestic market for wind power, other European countries are developing support mechanisms for wave and tidal power. Portugal has allocated 23 eurocents per kWh for the first 20MW of wave power constructed - equivalent to a grant of £6m per year. Ireland is considering a similar scheme. This will both stimulate local manufacturers encourage foreign wave and tidal power companies to relocate.

Opportunities

Wind is forecast to be the major source of new renewable energy across the UK for the next 10 years, offering manufacturing opportunities in Scotland, particularly for components that are difficult to transport.

Scotland has substantial natural wave and tidal resources, along with the European Marine Renewable Energy Test Centre. Given sufficient support, there are significant national and global opportunities for manufacturing and service.

The forecast revival of the global hydro market will offer opportunities for both equipment and service supply.

Development of the UK fuel supply chain for biomass will provide opportunities for the agricultural and forestry industries and could lead to significant long term employment.

The UK is experienced with PV technology and there is potential for a strong and competitive industry, particularly within secondary manufacturing.

Key challenges facing the industry

Competition from countries with greater levels of government support is the major threat. The growing wind market is being served by wind turbine suppliers with overseas manufacturing. European competition in PV manufacture is strong, and will be even stronger if European domestic markets decline and established manufacturers look overseas. Commercial wave technology is being developed more rapidly elsewhere, due to more supportive government policies.

Government funding is complex, with a large number of schemes administered by a range of bodies over the different stages of innovation and technologies. With the present funding structure, it is difficult to moving renewable technologies from the demonstration to the pre-commercial stage and from pre-commercial to supported commercial stage.

Outside of Government, major manufacturers and the UK finance industry are reluctant to become major players in the Scottish renewables market, due to concerns about stability in the energy market and about the long term viability of ROC/ROS (Renewable Obligation Certificate / Scotland) prices. This, coupled with low confidence in biomass project performance, is restricting the development of a fuel supply, particularly energy crops.

There is a lack of local based suppliers for small scale technologies such as small wind, micro hydro, solar heating and biomass.

The grid needs to be upgraded to enable it to cope with intermittent electricity supply from renewable sources.

Scotland capability fit

According to the DTI's gap analysis of 2003, 240 companies were active in Scotland in the production, development and export of existing and emerging renewable energy technologies. These provide 1,540 jobs.

Approximately 150 these companies are involved in wind energy, providing around 1,180 jobs (approx 77% of total renewable energy jobs) - 550 in development, 610 in construction and 20 operational.

According to research conducted by Scottish Enterprise in 2001, of the 116 companies involved in renewable electricity in Scotland at that time, 17 were manufacturers (8 in wind) and 51 were developers.

The Vestas manufacturing wind turbine facility at Campbeltown currently employs 150 people. Component supply is not expected to create much employment, especially in Scotland - a local supply chain will take a long time to be created.

Key technology markets overview - waste management

Overview

The waste management sector covers the supply of products and services for waste collection, treatment, disposal, minimisation and recycling. With 72,000 employees, it is the largest environmental sector in the UK.

Future market

The UK market for waste management was £4.6bn in 2000 and forecast to grow to £9bn in 2010. By 2020, Scotland is forecast to produce 4.6m tonnes of municipal waste, an additional 1.4m tonnes per annum compared to 2002. Scotland's target is to move away from the 91% reliance on landfill in 2002, to 31% landfill, with 69% recycling/composting/conversion to energy in 2020.

Market drivers

Political

Regulations are forcing the rapid development of increasingly sophisticated waste management technologies and services in the UK.

The EU Landfill Directive is driving a reduction in municipal waste going to landfill, primarily by increasing the recovery, recycling and/or composting of waste. The EU Waste Water Treatment Directive is leading to the development of alternative sludge disposal strategies such as use as a fertiliser and incineration. The Aggregates Tax and a significant increase in the Landfill Tax are driving waste minimisation, reuse and recycling.

Additional regulations will drive the development of recycling the recycling industry. These include the EU End-of-Life Vehicles Directive (2007), the Packaging Waste Regulations and the Waste Electrical and Electronic Equipment Directive (2006).

Economic

Legislation is driving substantial growth in the UK market of 7% per annum. There is also considerable growth throughout Europe and in 2nd & 3rd World countries.

Government in the UK plays a relatively small role in waste management compared to most European countries. As a consequence, the market is more competitive and less protected. International companies are competing in and buying into the UK market.

Technological

Integrated forms of waste management, treatment and disposal are growing and becoming more sophisticated.

The UK perceived to be weak compared to European and US competitors in key areas such as recycling and incineration technologies.

International activity

Denmark, as with many environmental technologies, is a world leader in waste management policy development. The Danish government has recently issued the "Waste Strategy 2005-08", which contains over 100 initiatives for waste. The focus of the strategy is to prevent the loss of resources and environmental impacts from waste. It provides a number of new waste indicators to show the loss of resources and the landfill requirements for 22 waste materials. These indicators will help prioritise efforts in the waste area and will indicate the type of waste treatment that leads to the lowest resources loss.

Global players are emerging in the waste management market, many expanding through overseas acquisition. While UK companies are focused on opportunities in the domestic market, foreign competitors are active in developing markets outside of Europe.

Opportunities

Demand is increasing for a very wide range of technologies and services in areas such as recycling and composting technologies/services, materials reprocessing, recycling product design, energy from waste technologies, landfill gas systems, incineration equipment, waste minimisation advice, waste policy studies, waste management vehicles, shredders and compactors.

Waste management is currently one of the least active areas for UK export development. Opportunities do exist, however, in developing countries thanks to the restructuring and privatisation of waste management operations. Landfill expertise and cost-effective waste management equipment will be in particular demand. Consultants already involved in export markets need to strengthen links with the UK waste management industry, alerting it to opportunities.

Key challenges facing the industry

EU Directives and related UK legislation require substantial investment in infrastructure and technology. To meet the targets, Scotland will require £700m ¹³ of capital expenditure for new infrastructure for municipal waste. Planning authorities will need to understand the need for new facilities for waste recovery and treatment.

Markets for recovered materials need to be created and/or expanded, providing business development opportunities and support for recycling initiatives.

The industry needs to look at opportunities outside of the UK, so as not to lose out to large French, German and US companies who are establishing a strong presence in overseas markets. The rising foreign ownership of UK waste management operators may make this difficult.

Supply chain & Scotland capability fit

The industry ranges from small, local SMEs to multinationals. Multinational waste management companies will continue to grow across Europe, including in the UK where companies from EU countries (such as France and Germany which have longer histories of recycling and technology development) are strong. Examples of large, dominant companies include UK Waste, Onyx (French), SITA (French), European Metals Recycling Ltd, RWE (Germany) and Schaffer Bins (Germany).

The smaller waste management technology providers focus on niche markets, such as waste shredders, bins, sorting equipment and vehicles.

Opportunities for diversification from other sectors such as engineering industry, metal fabrication and plastic product manufacture.

Key technology markets overview - clean technologies & processes

Overview

Cleaner Technologies and Processes (CTP) aim to minimise waste at source by adopting integrated pollution control in place of end-of-pipe techniques. The JEMU definition of CTP is as follows:

The supply of equipment and expertise for the cleaner, more resource efficient technologies, processes or products, which for example, decrease material inputs, reduce energy consumption, recover valuable by-products, reduce emissions or minimise waste disposal problems.

CTP encompass a range of disciplines including aspects of product design, materials technology, process engineering and process control.

Future market

As a relatively new environmental technology market, the CTP market is currently small. The global CTP market in 2000 was estimated at $5 billion. North America and Western Europe are the largest regional markets with $1.9 billion and $1.8 billion respectively.

The market is forecast to grow massively through to 2010. The Joint Environmental Markets Units (JEMU) predicts a $26.2 billion global market in 2010, growing at a compounded annual growth rate of 18%.

Although the deployment of CTP in the UK lags behind many other developed countries, there are signs that industry in beginning to switch from end of pipe solutions to integrated pollution control. A government survey of environmental expenditure by UK industry showed an almost doubling of integrated pollution control capital expenditure from 1997 to 1999, accompanied by a fall in end of pipe solutions.

Market Drivers

Political

Strict enforcement of environmental regulations to improve industrial environmental management and pollution prevention measures is the key driver for cleaner technologies and process. The UK market is particularly driven by the:

• IPPC (Integrated Pollution, Prevention & Control) regulations
• Landfill tax
• Climate change levy
• Air quality regulations
• Packaging regulations
• Draft EC ELV (End of Life Vehicle) and WEEE (Waste Electrical & Electronic Equipment) Directives

According to JEMU, future EC and UK policy and regulations are expected to drive the CTP market for manufacturing processes such as electrical goods, batteries, vehicles, packaging, paper and chemicals.

As part of Scotland's National Waste Plan, tools and initiatives are being developed to provide incentives to non-municipal waste producers to minimise wastes by incorporating cleaner process and technologies. The National Waste Plan establishes the direction of the Scottish Executive's policies for sustainable waste management to 2020. These initiatives will make waste producers more aware of the potential economic benefits of waste prevention, minimisation and sustainable waste management.

Economic

In the more mature environmental markets, in regions that have environmental infrastructure securely in place, such as North America, Western Europe and Japan, fiscal and economic incentives are the main drivers for the development of integrated CTP.

The uptake of CTP is fundamentally dependent on their ability to reduce operating costs. Uptake of cleaner technologies will only occur if environmental advantages can be translated into cost savings. The box below provides an example of how cleaner technologies (efficient process control) can provide economic advantages to recipient organisations:

Opportunities

The provision of innovative technologies and services is key to exploiting CTP opportunities. Suggestions to support and facilitate this exploitation include:

• Encouraging foreign direct investment - providing technology, skills and expertise to address weaknesses in domestic supply chain and transferring proprietary knowledge and best practices to strengthen local capacity.
• Emphasising the importance of on-going training - recipients need support in the form of intensive training to ensure the technology is retained and progressed in the longer term and effectively diffused through the recipient's operation.
• Establishing 'users groups' - increasing suppliers and recipient communication to enable benefits to accrue from modifications and improvements

The establishment of a Cleaner Production Centre in Scotland would catalyse and mainstream cleaner technologies and processes. The centre would collect information, such as case studies, and disseminate it to interested parties and, through affiliated organisations, would provide training, applied research, technical assistance, regulatory assistance and possibly financial assistance.

Key challenges facing industry

This is a new industry and the high cost of new technologies is inhibiting take up. There is also a lack of awareness in industry of techniques that have been developed and a lack of education and training on their use.

Supply chain

As an area of substantial future growth, CTP offers significant domestic and overseas opportunities for Scottish companies. Suppliers with particular expertise in areas such as materials, cleaner design, efficient process control and automation are well placed to exploit CTP market opportunities.

Scotland capability fit

Electronics is a major manufacturing industry in Scotland, with particular strength in systems for automotive, telecommunications, medical and defence end user markets. The offshore oil and gas industry in Scotland ensures the presence of major chemical refineries, which in turn promotes industries such as plastic packaging.

CTP clearly provides opportunities for a vast range of suppliers, from environmental consultancy to process automation and management training to product design. Although CTP specialists are likely to develop in the future, current suppliers provide solutions as part of their standard product offering, mostly undertaken by the process control, process engineering and automation specialists. Many of these companies do not see themselves as providing environmental technologies / services even though many have developed CTP expertise.