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Low Carbon and Environmental Goods and Services Sector Strategy for England’s Northwest Final Report May 2010
Low Carbon and Environmental Goods and Services Sector Strategy Final Report
Table of Contents
EXECUTIVE SUMMARY
1
1. Purpose of the Strategy
6
2. Setting the Scene
7
2.1 Sector Definition
7
2.2 Policy Context
8
2.3 Low Carbon and Environmental Goods and Services in the Northwest
9
2.4 Sector Drivers, Trends and Opportunities
16
3. Identification of Priority Segments for the Northwest
18
3.1 Profiling of Strategy ‘Long List’
18
3.2 Strategic Prioritisation
23
3.3 Regional Sector Challenges and Opportunities
25
3.4 Analysis
26
4. Vision and Action Plan
29
4.1 Vision
29
4.2 Action Plan
30
5. Monitoring and Implementation
38
5.1 Key Performance Indicators
38
5.2 Key Delivery Bodies and Accountabilities
39
Abbreviations
43
Annex 1
Sector Definition
Annex 2
Policy and strategic framework
Annex 3
Regional sub-sector market size
Annex 4
Regional SWOT analysis
Annex 5
Segment analysis
Annex 6
Strategic drivers
Annex 7
Regional initiatives
Annex 8
International outlook
Low Carbon and Environmental Goods and Services Sector Strategy Final Report
EXECUTIVE SUMMARY The ‘low carbon’ economy is universally regarded as a key component of future economic prosperity and continues to be a priority sector for Government. In order to address climate change Government (and the EU) has put in place a number of powerful regulatory and fiscal drivers, all of which will provide a major stimulus to businesses who supply low carbon goods and services. The term ‘low carbon’ has only recently been adopted into common usage. Recent work undertaken by the Department for Business Innovation and Skills (BIS) has identified a whole range of businesses that fall within the definition of ‘Low Carbon and Environmental Goods and Services’ (LCEGS) to describe the technologies, goods and services that provide a range of solutions for environmental problems. This definition includes a number of emerging low carbon activities such as low carbon transport, carbon capture and storage (CCS) and nuclear energy; more established businesses involved with renewable energy; and mature ‘traditional’ environmental goods and services such as waste management and recycling, water treatment and land remediation. Low Carbon and Environmental Goods and Services are estimated to be worth some £106.5 billion to the UK economy; this is a sector with a large economic and employment impact. Future growth is likely to exceed many other areas of the economy and the UK LCEGS sector is forecast to increase in value by up to £45 billion by 20151. Some global markets are also predicted to experience even stronger growth creating major international opportunities for UK companies. In the Northwest there are currently 5,000 LCEGS businesses, employing 87,000 staff with a market value of approximately £10 billion. This represents 10% of the UK sector and places the Northwest as a region second only behind London/South East. Between 2006 and 2008, the sector in the region grew by 4.9% compared to the UK average of 3.6%. There are several supply and demand factors that contribute to this regional strength: •
Strong natural resources especially around wind and tidal;
•
Strong industrial legacy in areas such as nuclear and waste/biomass processing;
•
Large population and skill base;
•
Large industrial manufacturing sector.
However, businesses in the region face many challenges to growth not least to fully understand the new markets presented by the low carbon and environmental economy. Many regions in the UK and the world are competing to exploit these new market opportunities and quick, decisive action is required to ensure Northwest businesses develop a position at the forefront of these markets. This strategy provides a dynamic framework for the support and growth of Northwest businesses within the LCEGS sector. Its objectives are to build on the existing, well established regional capability and resources, and look to exploit growing and emerging market opportunities for future economic growth. This will require strong leadership and the identification of priority areas where public sector intervention can add real value. Innovation has also been identified as a key theme; only innovative companies will thrive in these fast changing highly competitive markets. The strategy and its priorities will be subject to ongoing monitoring and regular review to ensure that it remains relevant and is adapted appropriately as the sector develops and evolves.
1
Low Carbon and Environmental Goods and Services: and industry analysis, Innovas Solutions Ltd, March 2009, Commissioned by BERR
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Low Carbon and Environmental Goods and Services Sector Strategy Final Report
This strategy has a significant role to play in supporting the draft Regional Strategy 2010 as it will support one of the four proposed strands “capitalisation of opportunities associated with the move to a low carbon economy”. It will also support and be supported by other key areas of policy in the region, specifically the Sustainable Consumption and Production Action Plan and the Climate Change Action Plan. The starting point for this strategy is an overarching Vision: In 2020 the Northwest Low Carbon and Environmental Goods and Services sector is the largest, industrial sector in the region and the leading LCEGS sector in the UK. The sector is diverse to support all the requirements of a low carbon economy with segments which are internationally leading, such as nuclear energy and smart grids. There are three main aims that support this Vision: •
To realise a rate of sector growth of above the national average over the next three years by developing the existing portfolio of capabilities and exploiting emerging market opportunities;
•
To raise the level of innovation activity and increase the rate of successful technology transfer from the regional research base; and
•
To secure targeted private sector investment in support of regional business growth.
These aims will be achieved by the implementation of six key strategic objectives: 1. Strategic Leadership: Provide focused and strong direction for the development of the regional sector, specifically emerging markets; 2. Market Development: Identify and develop early market opportunities and provide supply chain development support to facilitate access to markets; 3. Innovation Support: Realise stronger communication between industry and the regional research base and improve the rate of technology transfer and successful enterprise; 4. Investment: Optimise opportunities for inward investment by targeting future growth opportunities and successfully leverage third party finance for regional projects and infrastructure; 5. International Trade: Provide specific and focused support for the development of export and internationalisation opportunities amongst the more mature segments of the portfolio; and 6. Skills: Attract high quality candidates to study in the region and encourage retention of graduates and skilled labour within the industrial base to develop the available talent pool. Given the diversity of the sector, a key challenge has been to develop regional priorities for support based upon a number of key criteria: •
Available natural resources;
•
Industrial capacity;
•
Research capacity;
•
Capability to innovate;
•
Northwest competitive position;
•
Future growth potential; and
•
Barriers/market failures.
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Low Carbon and Environmental Goods and Services Sector Strategy Final Report
Based upon this analysis, a dynamic strategic framework has been developed that provides a hierarchy of support based upon the relative level of regional priority with Smart Grids, Solid State Lighting (SSL) and Tidal Energy emerging as the top three priorities. (Nuclear is also a priority but is dealt with in a separate action plan, while Low Carbon Vehicles are covered in the recently launched Advanced Manufacturing Action Plan). The framework is summarised as follows: Low Carbon and Environmental Goods and Services Sector Strategic Framework 2010 – 2013
The success of the strategy will depend on many factors, including some outside of the region’s control. For this and other reasons the strategy will be subject to continual monitoring and review to allow for the promotion and relegation of priorities as appropriate throughout the life of the strategy.
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Low Carbon and Environmental Goods and Services Sector Strategy Final Report
The high level vision is underpinned by a number of specific outcomes: What Does Success Look Like in 2013? Segment
Realistically Achievable
Aspirational Target
Tidal
Outline consent achieved for one tidal scheme in the region.
Demonstration facility up and running, attracting in device developers to the region.
Smart Grids
National demonstration project secured and operational.
A national centre of excellence secured in the region and a number of demonstration projects up and running.
Solid State Lighting
Public sector procurement programme in place to purchase regional SSL technology.
Regional companies exporting products to national/international markets. Significant inward investment or regional landmark project secured.
Offshore Wind
One of the region’s ports has been allocated as a construction base for the Round 3 site.
Key supply chain manufacturer attracted to the region.
Biomass (incl. EfW)
Region’s wood chip processing capability is at capacity supplying regional biomass needs. Most biomass waste in the region is being utilised as resource.
Significant manufacturer of process technology attracted into the region.
Energy Management in Buildings
Recognition as leading region in the UK for the production and installation of energy management for buildings technologies.
Region recognised as an internationally leading region for the production and installation of energy management for buildings technologies.
Core Portfolio
Export levels for sector increased to the national average. The LCEGS sector has grown at current rate of 1.3% above national average.
The region is leading the UK in export activities. The LCEGS sector has grown at a faster rate of 2.3% above the national average.
This strategy has been developed for the NWDA and its partner organisations. The actions will be delivered by a range of partner organisations working across the region, principally Envirolink Northwest, Business Link Northwest, The Joule Centre for Energy Research and the Energy Innovation Centre.
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Low Carbon and Environmental Goods and Services Sector Strategy Final Report
1
Purpose of the Strategy
This strategy provides a framework for the development of the Low Carbon and Environmental Goods and Services (LCEGS) Sector in the Northwest region. Its overarching aim is to ensure that public sector, specifically the NWDA and partners facilitate the economic growth of the sector, and that interventions are directed towards resolving issues emanating from market failure. The LCEGS sector in the region is well established and has grown consistently over the past five years providing a solid foundation for future economic growth. The purpose of this strategy is to identify where the most significant future opportunities for growth lie, and to define where and how the NWDA and its partners should best deploy its resources to maximise impact. This strategy is focused on where the NWDA and partner organisations’ support should be focused to grow the LCEGS sector in the region. This strategy has a significant role to play in supporting the draft Regional Strategy 2010 as it will support one of the four proposed strands “capitalisation of opportunities associated with the move to a low carbon economy”. It will also support and be supported by other key areas of policy in the region, specifically the Sustainable Consumption and Production Action Plan and the Climate Change Action Plan. This strategy has sought to identify: • Those regional segments of the LCEGS sector that have a credible USP within the context of the UK and international market, and represent a significant growth opportunity; • Opportunities to build on the existing capabilities, assets, support programmes and investments in order to make a meaningful difference to the future performance of the sector and maximise return on investment for the Agency; • Interventions where there are perceived market failures and the NWDA can make a material impact; and • A balanced portfolio of actions that allow for the provision of focused investment on a limited number of priority segments that have potential for future high growth, whilst continuing to deliver appropriate and high quality support services to the core LCEGS sector. The scope of this strategy does not include oil, gas and coal as these are considered to be mature industries with limited potential for the public sector to add value. Nuclear energy and Low Carbon Vehicles are considered within the analysis presented, as they are part of the LCEGS sector but not in the associated Action Plan. Nuclear energy is subject to a separate Action Plan, and Low Carbon Vehicles are included within the Advanced Manufacturing Action Plan.
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Low Carbon and Environmental Goods and Services Sector Strategy Final Report
2
Setting the Scene 2.1
Sector Definition
Formal definition of the sector is difficult, and traditional Standard Industry Codes (SIC) do not adequately capture the breadth and diversity of activities within it. Since 2006, the definition of ‘Environmental Goods and Services’ has been generally adopted, based on a report published by the DTI2.
However, the market place has evolved rapidly since 2006 with an increasing emphasis on new and emerging ‘low carbon technologies’ that do not fit within previous sector definition. Table 1 shows the definition adopted by the UK Government to describe the Low Carbon and Environmental Goods and Services Sector3. A full discussion on the development of the sector definition is included in Annex 1. Table 1 Proposed Segmentation of Low Carbon and Environmental Goods and Services Sector Traditional Environmental Goods and Services
Renewable Energy Technology
Emerging Low Carbon Technology and Services
Air Pollution Environmental Consultancy Environmental Monitoring
Hydro Waves and Tidal
Alternative Vehicle Fuel Alternative Fuel
Biomass
Marine Pollution Control
Wind
Noise and Vibration Control Contaminated Land Waste Management Water and Waste Water Recovery & Recycling
Geothermal
Additional Energy Sources Carbon capture & Storage Carbon Finance
Renewable Consulting Photovoltaic
Energy Management Building Technologies
This definition has been used as the basis for the development of this strategy with some adaptation to reflect the industrial clusters represented in the region. In some instances accurate sizing and definition of supply chains of specific interest to this regional strategy requires some manipulation of the data, for example, the aggregation of data relating to biomass technology and biomass fuel, which currently sits in different parts of the classification. In addition the following emerging market segments have been added to the list: •
Smart Grids;
•
SSL.
Emerging markets, by definition are too new to appear in the definition listed above but are considered important enough to region to be included as part of the strategy.
2 3
UKCEED, Nov 2006 ibid Low Carbon and Environmental Good and Services: an industry analysis, prepared for BERR by Innovas Solutions Ltd, March 2009
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Low Carbon and Environmental Goods and Services Sector Strategy Final Report
2.2 Policy Context Regulation and legislation is a key driver for the sector and more recently the low carbon economy regionally, nationally and internationally is seen as a key element of future economic growth. Annex 2 outlines the policy and strategic frameworks that provide the context within which the LCEGS sector currently operates as of April 2010. The UK Government aims to ensure that the transition to a low carbon economy is a source of quality jobs by defining the UK’s strengths and outlining support for growth in the low carbon industries4. It is recognised that companies commercialising innovative low carbon concepts will be central to the transition to a low carbon economy. It will be innovations that will drive sustainable economic growth and therefore supporting innovative business and overcoming the market failures they face is key to achieving the transition to a low carbon economy. Innovation support can not be provided in isolation, companies also need markets to supply and there are certain instances where it is appropriate for the public sector to support market development. The Northwest Regional Economic Strategy (RES) current vision for the Region’s economy is of one where ‘productivity and enterprise levels are high, in a low carbon economy, driven by innovation, leadership excellence and high skills’5. This LCEGS strategy is based on the same data source as the national work6, regionalised for the Northwest. It aims to outline the Northwest’s LCEGS strengths and suggest the approach the region should take to develop the sector to be able to deliver the RES’s vision. However this strategy will not work in isolation and has links to and impact on other regional strategies and action plans. This strategy is most closely associated to the Climate Change and Sustainable Consumption and Production Actions Plans7 which are mutually reinforcing. The Climate Change Action Plan aims to reduce carbon emissions in the region and will therefore drive local markets for energy efficiency and low carbon technologies. The Sustainable Consumption and Production Action Plan will also create a local market for resource efficient products and those with recycled content. The NWDA has also developed polices on innovation, enterprise, trade and skills in recognition of how important these mechanisms are to development all sectors. These policies are described in Annex 2 and have shaped the development of the actions in this strategy.
4
The Low Carbon Industrial Strategy, BIS, 2009 http://www.nwda.co.uk/PDF/RES06v2.pdf Low Carbon and Environmental Good and Services: an industry analysis, prepared for BERR by Innovas Solutions Ltd, March 2009 7 http://www.climatechangenorthwest.co.uk/ and http://www.nwda.co.uk/pdf/SUSTAINABLE%20CONSUMPTION%20&%20WASTE%20STRATEGY.pdf 5 6
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Low Carbon and Environmental Goods and Services Sector Strategy Final Report
2.3 Low Carbon and Environmental Goods & Services in the Northwest Within the Northwest, the LCEGS Sector is currently worth £10.6bn, consisting of 5,157 companies and employing 86,815 individuals. This represents approximately 10% of the UK totals in terms of market value, company numbers and employment figures. These overall figures place the North West second only to London/South East. Data indicates that the Northwest sector grew in value by 4.9% between 2006/7 and 2008/9, compared to a UK wide figure of 3.6%. Projected future growth rates for the region is not yet available, but given the Northwest’s comparative strength in the higher growth sub sectors, it is reasonable to expect the region to continue to outperform the national growth rate. 2.3.1 Summary of Regional Sector Expertise The major trend experienced over the last five years in the Northwest has been the strong emergence, mirrored globally, of the renewables and low carbon sub sectors to rival and eclipse the traditional environmental sector on every measure, including overall market value, number of employees, number of companies, and projected growth rate. Figure 1 presents the relative current market value8 of the Low Carbon and Environmental Goods and Services segments.
Figure 1 Comparative Value of Northwest Low Carbon and Environmental Goods and Services Segments (£m) 2007/8
The relative contributions of the regional segments to the market values of each of the three key sub sectors are presented in Figures A to C in Annex 3.
8
A full definition of market value is in Annex 3
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Low Carbon and Environmental Goods and Services Sector Strategy Final Report
Overlaying the quantitative data provided by the graphs is a qualitative assessment of the region’s strengths, weaknesses, opportunities and threats, this SWOT analysis is presented in Annex 4 and summarised below. There are several supply and demand factors that contribute to strengths for the Northwest: •
Strong natural resources especially around wind and tidal;
•
Strong industrial legacy in areas such as nuclear and waste/biomass processing;
•
Large population and skill base;
•
Large industrial manufacturing sector.
However the sector lacks a clear proposition in some sub-sectors and the region doesn’t have any flag ship projects for this sector. The sector in the region has relatively low export rates and low exploitation rates of innovation. Opportunities are arising from the growing and emerging markets, particularly in renewable energy and low carbon technologies. The market is driven by policy and regulation which is both an opportunity and a potential threat. The risk of changes to the political support for climate change mitigation and adaptation is relatively low however individually policies are less stable. This sector is currently attracting large investments from Government funding and the private sector which is an opportunity for companies and universities in the region. Other parts of the UK and the world provide competition for the region and all regions in England and the Devolved Administrations regard this sector as a key sector. In addition to the SWOT data gathered for this strategy through a review of publications and consultation with key stakeholders has highlighted a number of sub-sectors as potential priorities. A detailed analysis of these sub-sectors is presented in Annex 5 and is summarised below. • Offshore wind - The UK is the world’s leading offshore wind market and the Northwest provides access to the Irish Sea offshore wind zone which under Rounds 1-3 is home to nearly 6 GW9 of planned wind power investment. The Northwest’s wind supply chain consists of a range of skills and expertise from engineering and offshore companies to consultancy and professional services all of which are gearing up to take advantage of the huge market opportunity. The wind industry is well established in Europe but there are a few barriers to entry for UK companies arising from competing with an established supply chain. With support the Northwest supply chain can take advantage of the market opportunity. The UK market is likely to attract inward investors, particularly to port locations and the Northwest needs to identify the potential opportunities for the region, given the competition from the east coast. • Solid State Lighting (SSL) – A recent report prepared for the Northwest10 has identified a cluster of lighting companies in the region. There are over a 100 lighting companies in the region at the moment with about half developing Solid State Lighting or Light Emitting Diodes (LEDs) which is the basis for SSL. The market for lighting is global but a lack of local demand is currently hampering the development of the lighting companies in the region. It is unlikely that UK manufacturers will be able to compete in high volume manufacture but they can compete on quality and innovation. Without assistance to access local markets and support to develop SSL technologies the lighting industry in the region could be under threat. With support, these technology companies could develop and grow in the region.
9
NWDA: Offshore wind – market and opportunity, BVG, May 2010 Developing the Northwest Solid State Lighting and Photovoltaic Industries, Optimat, February 2009
10
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Low Carbon and Environmental Goods and Services Sector Strategy Final Report
• Smart grids – The smart grids sub-sector is immature but likely to develop very quickly in response to stimulus from OFGEM to demonstrate smart grids. OFGEM’s Low Carbon Network Fund (LCNF) has made £500m available for the development of smart grid technologies over the next 5 years through the extension of the Innovation Funding Incentive (IFI). The region has a historical strength in the electricity industry and a recent mapping study has identified over 200 companies operating through out the value chain. There are Tier 1 suppliers based in the region such as Siemens and the region’s Distribution Network Operators Electricity Northwest and Scottish Power have stated clear intentions to develop smart grids. In addition Manchester, Liverpool and Lancaster Universities all have research expertise in smart grids and Manchester University is developing the first smart grids postgraduate course in the UK. • Energy Management in the built environment – This sub-sector has strong policy and regulatory drivers such as Energy Performance Certificates and the Carbon Reduction Commitments which are encouraging the uptake of new products and services. Regionally Greater Manchester’s Low Carbon Economic Area for the Built Environment is likely to create a significant market for products to improve the energy performance of buildings. Salford University’s built environment research received a 6 star rating and a number of the UK’s leading companies including Ener-g and Vital Energy are based in the region. This sub-sector also includes the relative low-tech appliances such as the installation of insulation. • Waste management and recycling – This sub-sector is also realising the benefits of policy and regulatory pressure through the Landfill tax and recycling targets. The Northwest has a large waste and recycling sector, with about 1300 companies11 but it is not characterised by a large number of technology companies unlike the SSL subsectors. The sector is characterised by waste collection companies, recycling and processing, waste management service, waste treatment including organic waste treatment in particular composting. The regional PFI contracts which are being let at either a County or City Region level are leading to a new wave of investments in the region with contracts currently being let. An Economic Impact Assessment of the Merseyside Waste PFI contract concluded it would create 1,500 jobs during the construction phase and 130 long term jobs during the operation phase with an addition of between £6m and £11m to the region’s GVA.12 The waste and recycling sub-sector is closely associated with facilitating the aims and objectives of the Sustainable Consumption and Production Action Plan but in terms of producing high value, technology jobs is not a priority for this strategy. The notable exception to this is securing EfW inward investments which will bring large scale investments to the region with opportunities for regional construction companies. A recent report13 concludes that the demand for renewables arising from the 2020 renewable energy generation targets represent particular opportunities for the Northwest in the following areas: • Biomass - with regional strength coming from the higher than average number of waste wood processors and its large quantities of waste wood, much of it from Cumbria. The report estimates the total number of jobs within the UK which could be created by biomass demand to be around 1,600. This market will be further driven from 2010 with the introduction of the Renewable Heat Incentive. • Tidal - The Renewable Energy Strategy identifies six UK sites which may be suitable for renewable tidal energy exploitation. Given that three of these (Mersey, Morecambe Bay and Solway Firth) are in the Northwest, this is also seen as a strength area. Once again, however, the 2020 demand for tidal energy is only thought to be likely to create
11 12 13
The Recycling and Waste Sector Study, Enviros, March 2009 Assessing the economic impact of Merseyside Waste PFIs, Deloitte, July 2008 Economic Opportunities for the NW arising from the Renewable Energy Strategy, Quantum, August 2009
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750 jobs, a good proportion of which are likely to be in and around the Severn Estuary project. Accompanying the development of the LCEGS is a change and broadening of the skill sets required by the region’s employees, putting increasing emphasis on the need for mechanical and electrical engineering capabilities. As the physical deployment of renewable technologies will often rely on natural resources not found in urban areas, the relocation of skilled resources may be required. However, it is likely that many of the knowledge based jobs associated with professional services such as design, consulting, finance and legal, will remain in the main urban areas with continued concentration in Manchester, Liverpool and Cheshire. Building on the sector profile presented in Figure 1, Table 2 provides a comparative summary of the relative performance of the top six regional segments on the basis of value, number of jobs and predicted future growth rate. This data indicate a decoupling between some of the largest segments today, and emerging segments predicted to have the highest future growth rates. Wind and geothermal are the only two segments that appear consistently across all three categories. The wind figures are supported by the evidence of the market size however, the geothermal figures are more difficult to interpret. The relative size of the geothermal segment probably doesn’t point to a regional strength but is due to growth in the commodities for geothermal technology such as heat pumps which is closely aligned to the growth in green building technologies. For the purposes of this strategy heating technology and heat pumps are included in the energy management in buildings segment. Table 2 Top ranked segments in the Northwest (2007/8) Value Sub-sector
1 2 3 4 5 6
Alternative fuels* Alternative fuel vehicle Building technologies
£m
No of Jobs Sub-sector
no.
National Growth Rate Sub-sector CAGR (2008-15)
2,506.84
Alternative fuels*
19,331.00
Carbon finance
8.92%
1,427.92
Building technologies
12,453.00
Wind
7.48%
1,378.23
Wind
11,893.00
Photovoltaic
6.62%
9,544.00
Wave and tidal
5.84%
6,702.00
Geothermal
5.49%
5,170.00
Biomass
5.23%
Wind
1,263.93
Recovering and recycling
726.11
Geothermal
684.71
Alternative fuel vehicle Recovering and recycling Water and waste water
* Alternative fuels includes a contribution of £556 m and circa 4,000 jobs from nuclear fuel.
The statistics can provide the strategic overview of the comparative market values but it needs to be considered in conjunction with regional knowledge of the emerging market opportunities some of which have arisen since the data was published and can be summarised as follows:
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Low Carbon and Environmental Goods and Services Sector Strategy Final Report
Table 3 Summary of new and local market opportunities
Sub-sector
Market Opportunity
Market Size
Smart Grids
Initial market opportunity arising from OFGEM Low Carbon Network Fund and other funding opportunities such as the TSB.
£500m Low Carbon Network Fund over 5 years. The roll out of smart meters in the UK, just one part of a smart grid will create a £8bn market opportunity. The Electric Power Research Institute in the US has estimate the global smart grids market to be worth $165bn over the next two decades14
Solid State Lighting
SSL is a distributive technology that will replace current forms over lighting over the next decade. SSL is forecast to grow from 5% of all lighting installations to 30% by 2018.
The UK lighting market is currently estimated to grow to £1.59bn annually by 2012.
Tidal
The Power from the Mersey Tidal project is the first commercially proposed scheme in the UK.
Cost estimates are still being established but a Mersey tidal project could involve the investment of approximately £1bn.
Offshore wind
The third round of UK offshore wind licenses was announced in Dec 2009. The Irish Sea Zone accounts for approximately one quarter of the UK market.
It is estimated approximately £15bn will be invested to develop the Irish Sea Zone with £100bn being invested in the UK offshore wind market as a whole.
Energy Management in Buildings
The GM LCEA will create a concentrated local market across Greater Manchester to retrofit domestic and commercial buildings and it will develop higher environmental standards for new builds.
The GM LCEA ambitions are linked to the amount of funding it attracts but it aims to retrofit insulation in about 75% of GM homes (up to 750,000 homes)15.
14 http://www.smartgridnews.com/artman/publish/Business_Policy_Regulation_News/Sticker-Shock-EPRI-Says-Smart-Grid-Will-Cost-165Billion-Over-20-Years-1882.html 15 Greater Manchester Project Delivery Plan, Pers Comm, May 2010
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Table 3 Continued Summary of new and local market opportunities Sub-sector
Market Opportunity
Market Size
Biomass
The NW has the largest supply of reprocess wood in the country and a ready market of industrial process heat users from the Chemicals, Food and Drink, Paper and Board and Textiles sectors.
There are 600 significant process heat users in the region using 13,000GWh/y. About 100 are likely to represent good value for conversion to biomass using approximately £4,800GW/y the same as the total gas supply for Liverpool.16
Waste and Recycling
Five sub- regional waste contracts
It is estimated £3bn will need to be invested in the NW over the next 10 years.17
2.3.2 Summary of sub-regional sector expertise The total market value of £10.6bn for the Northwest can be split between its respective sub regions as follows: • Manchester – 38.2% • Cheshire – 26.8% • Lancashire – 22.1% • Merseyside – 9.4% • Cumbria – 3.5% These proportions hold true for each of the three key sub sectors (Environmental, Renewable, Emerging Low Carbon) and across the other measures which are used – company numbers and individuals employed. The specific capabilities of the individual sub regions are presented further in Table 4. This distribution is broadly in line with the relative contribution of the sub regions to regional GVA, with the exception that Cheshire appears to perform significantly better in regard to this sector relative to overall GVA18 which may be due to a concentration of LCEGS business and professional services companies in Cheshire.
16 17 18
A survey of industrial process heat users in England’s Northwest, Envirolink Northwest, March 2009 Recycling and Waste Supply Chain Directory, Envirolink Northwest, January 2007 http://www.nwda.co.uk/PDF/RES06v2.pdf
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Low Carbon and Environmental Goods and Services Sector Strategy Final Report
Table 4 Summary of Sub Regional Sector Expertise Sub Region
Key Areas of Activity
Cumbria
• Offshore and submarine engineering capabilities important to offshore wind sector. Key ports of Barrow and Workington. • Playing an active role in the feasibility studies for a number of tidal projects. • Promotion of the use of wood fuels and support of the biomass supply chain. • Deployment of biomass, specifically focusing on community and off grid applications and realising the potential of Anaerobic Digestion. • Cluster of photonics companies developing solid state lighting.
Lancashire
• Promotion of the use of wood fuels and supporting the biomass supply chain. • Advanced engineering expertise of relevance to all sectors. • Cluster of photonics companies developing solid state lighting.
Liverpool City Region
• Strong activity in the development of a tidal scheme on the Mersey and development of demonstration facility. • Significant interest in EfW plants, led by Ineos Chlor and Ener-g; plans for a bio-energy park in Knowsley. • Local cluster of fuel cells/automotive development.
Greater Manchester
• Three of the UK’s major wood reprocessing firms based here with a processing capacity > 1 m tpa. Also large volumes of other waste streams forming the basis of strong biomass and EfW cluster. • Strong demand/supply capabilities in Building Technologies and Low Carbon Economic Area for the Built Environment. • Core of expertise in professional services in support of the LCEGS sector, e.g. legal, consulting and finance.
Cheshire and Warrington
• Significant activity in the development of large-scale EfW plants. • Focal point for the development of electrical engineering capability for grid connection, distribution & transmission. • Daresbury Innovation Centre. • Concentration of business and professional service companies, particularly consultancies.
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2.4 Sector Drivers, Trends and Opportunities The sector drivers, trends and opportunities are set out in Annex 6 which provides an overview of the key drivers, issues and trends currently affecting the Northwest sector, and those that may impact on its future performance and growth. It also outlines the sectors key strengths and opportunities which must be exploited to ensure continued growth and optimisation of economic impact. As outlined above in section 2.2 development and growth of the LCEGS sector is being driven by the increasing political and social imperatives associated with climate change, sustainable development and energy security. These are being reflected at a macro level within the policy frameworks defined in Annex 2, although practical implementation and realisation of the high level objectives relies on a portfolio of drivers impacting the market at a regional and local level. Cascading down from the national policy framework, there are a number of sector specific regulatory and financial mechanisms in place/in development. These are key drivers for stimulating demand for, and supporting deployment of new technologies. Key amongst these is the Renewables Obligation, the Renewables Heat Incentive, Feed-intariffs, the Carbon Reduction Commitment (CRC), and the Building Regulations. Significant regional sector support exists from early stage research through to business growth and internationalisation. It is proposed that approximately ÂŁ18m will be spent between 2009 and 2012 on a portfolio of support programmes. These will be delivered by a network of credible and nationally recognised delivery partners including: Envirolink Northwest, Business Link Northwest, the Joule Centre for Energy Research, the Energy Innovation Centre and the Northern Way. Full details of the programmes are provided in Annex 7.
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Low Carbon and Environmental Goods and Services Sector Strategy Final Report
In summary: • At a regional level, the availability of a strong knowledge base, industrial heritage, natural resources and a significant population provide important attributes to support the on-going development of both supply and demand for low carbon technologies. • Significant market opportunities are being created by national policy initiatives. Where market failures still exist the public sector should play a role in supporting regional business to access the opportunities. • The purpose of this strategy is to facilitate economic growth of the sector and therefore the first aim for the strategy is: AIM: To realise a rate of sector growth above the national average over the next three years by developing the existing portfolio of capabilities and exploiting emerging market opportunities. •
Innovation is vital for the transition to a low carbon economy and to create sustainable economic growth. • The focus of this strategy is to facilitate the economic growth of the sector and therefore it is proposed innovative, high value technology companies and subsectors are prioritised for support. AIM: To raise the level of innovation activity and increase the rate of successful technology transfer from the regional research base. •
Looking forward, the most significant regional growth in the sector is anticipated to come from the Renewable Energy and Low Carbon segments • Regional initiatives such as the Climate Change Action Plan and the Greater Manchester Low Carbon Economic Area will further support the creation of significant local markets. • As well as securing investment to grow indigenous businesses inward investment will also be required. The NWDA’s Internationalisation Strategy sets out the case for internationalisation increasing the economic performance of the sector. Given the importance of investment this leads to the third aim: AIM: To secure targeted sector inward investment in support of regional business growth.
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3 3.1
Identification of Priority Segments for the Northwest Profiling of Strategic ‘Long List’
Analysis and screening of the Northwest Low Carbon and Environmental Goods and Services sector has been undertaken (see figure 2) to develop a ‘long list’ of the potentially most attractive segments for future support and investment. The critical factors that have been considered in this process are whether the segments are: a) Significant regional segment on the basis of current value, number of jobs and projected market growth (see Section 2.3.1). Those selected were consistently ranked within the top performing segments for each metric (See Table 2 and 3 in Section 2.3.1); b) Realistically represent opportunities for the region to build a strong proposition and create value specifically in the fastest growing sub sectors of Renewable Energy and Emerging Low Carbon Technologies; and c) Not captured in a) but which are known to have a credible capability in the region and thought to have significant growth potential in high value niche markets. Nuclear power and low carbon vehicles have previously been selected as priorities for the region and are covered by other Action Plans. Table 5 provides a summary of those segments selected for the long list and the supporting justification. Discussions were held with key stakeholders and sub regional partners to ensure that the selected long list represented a fair reflection of the core capabilities and opportunities from across the region. Further analysis of the ‘long list’ segments was then undertaken to provide: a) A more detailed profile of their current level of maturity; b) The scope of regional representation across the supply and value chains; c) Competitive position within the UK; d) Key barriers to development; e) Growth potential; and f) Relative strengths and weaknesses. These profiles provided insights into the relative attractiveness of the regional propositions and highlighted specific future opportunities for economic development. A key element of this analysis was the identification of those markets where the NWDA could intervene to make a material difference, and where potential exists for the creation of high value, knowledge based jobs. The outputs from this analysis are presented in Annex 5 and summarised in Table 6. Nuclear Power and Low Carbon Vehicles have been included in this analysis for comparative purposes. Table 8 provides a summary of the barrier analysis. The analysis confirms that there are several types of barrier or market failure that are common across a number of segments, specifically market and supply chain development. The relatively less mature segments face more barriers, specifically those related to market intelligence and development, providing greater potential for the public sector to add value.
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Figure 2 Methodology for Prioritisation of LCEGS segments
*Alternative Vehicle Fuel refers to low carbon propulsion systems for vehicles and is dealt with in more detail in the Manufacturing Strategy. Likewise, the Nuclear Sector is subject to its own Action Plan
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Table 5 Selection of Regional Segments for Profiling1 Segment
Scope of Definition
Regional Segment 2007/8 (ÂŁ value)
Growth of UK market 2010/11 (%)
Initial Justification
Wind
Offshore Wind Farm Systems and Large Wind Turbines
1.2 bn2
72
Good regional natural resource; legacy of assets and skills in offshore engineering; national policy drivers; large market opportunity
Tidal
Tidal devices, generators and balance of plant; assessment and measurement; support services (tidal stream and tidal range)
7.2 m3
63
Excellent regional natural resource; strong academic capabilities; presence of keystone industrial player; national policy drivers; large market opportunity
Biomass (incl. EfW)
Biomass equipment supply plus biomass fuel supply; installation, supply & operation of EfW systems & anaerobic digestion; specialist consultants in waste management systems
342m
5
Excellent regional natural resource; good indigenous demand (process heat); large market opportunity;
Energy Management in Buildings
Insulation & heat retention materials; monitoring & control systems, energy management, & consultancy services;
1.1 bn
44
Good combination of local skills across the supply chain; strong regional and national policy drivers; large growth market
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Table 5 continued Selection of Regional Segments for Profiling1
Segment
Scope of Definition
Regional Segment 2007/8 (ÂŁ value)
Growth of UK market 2010/11 (%)
Initial Justification
Smart Grids
Smart metering & grid management; distribution networks; transmission networks; smart appliances.
n/a
n/a
Strong legacy of skills and assets; presence of keystone industrial players; good representation across value chain; currently immature market but potential for explosive growth over the next 10 years driven by Government policy and programmes.
Solid State Lighting (SSL)
Lamps, luminaries, control systems
n/a
505
Northwest sector is significant, and active in UK and international markets; large market opportunity; strong market growth forecast; opportunity for first mover advantage.
1. Unless stated otherwise, data sourced from Innovas, 2009 2. Includes on shore wind as not possible to split the data 3. Includes wave as not possible to split the data 4. Average of Building Technologies plus Energy Management 5. Optimat, 2009 (growth to 2012)
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Table 6 Overview of Segment Profiles19
Key:
19
The Nuclear Sector and low carbon vehicles have been included in Table 6 for comparison purposes only.
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3.2
Strategic Prioritisation
Using the foregoing analyses, the segments were then prioritised on the basis of the methodology indicated in Figure 2, supported by the conclusions from the segment analysis summarised in Table 7. Table 7 Conclusions of Segment Analysis Segment
National Competitive Position
Potential Strategic Rational for Support
Priority Level
Tidal
Strong competition from Severn, NE, YF and Scotland
Excellent regional natural resource; presence of keystone industrial player; strong national policy drivers; opportunity to build on opportunities associated with Power from the Mersey/Solway projects.
Smart Grids
Should be in a reasonably strong position, but lack of data available due to immaturity of the market
Recently recognised as priority area for funding by UK Government > ÂŁ500m in funding to be made available for demonstrations over the next 5 years; significant market opportunity associated with future upgrade of UK transmission system and deployment of smart meters; significant regional research expertise based on legacy of power engineering; handful of key industrial players in the region; presence of EIC as key support mechanism for innovation; potentially large, international market.
Tier1; - strong regional knowledge and natural resource base that should form the basis of strong regional proposition as the market matures. But is in large part dependent on the progress of the Power from the Mersey Project key break point will come in the next 12-24 months, and the region needs to be ready to exploit this. Tier 1; - robust regional knowledge and industrial base that should form the basis of strong regional proposition as the market matures. Need to input into development of ENSG Route Map. Opportunity to exploit Government funding for demonstration projects and become UK sector leader. But regional potential needs to be better understood and articulated.
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Tier 1-3
Low Carbon and Environmental Goods and Services Sector Strategy Final Report
Table 7 Continued Conclusions of Segment Analysis Segment
National Competitive Position
Potential Strategic Rational for Support
Priority Level Tier 1-3
SSL
Reasonable, but strong competition from existing internationals located in other regions, eg Phillips.
Tier1; - although niche area there is a clustering of regional specialist capability and a potentially large prize. Opportunity for the NWDA to make a material difference. Also chance to use this segment as a 'pilot' for the identification of other niche capabilities in the region worthy of specific support in the future.
Offshore Wind
Reasonable, but strong competition from One NE and Scotland
Biomass (incl EfW)
Strong - best wood chip supply chain in UK, and strong brokering of markets with process heat users. Good legacy of waste management/process industry capability in the region. Others potentially stronger in terms of development of processing technology.
High profile (but small) clusters associated with the photonics industry across the region; large international growth market with opportunity for first mover advantage; opportunity to sell into existing, well established market; high fragmentation leads to market failure and opportunity for the NWDA to intervene to make a material difference. Sector of national importance; excellent regional natural resource; legacy of assets and skills in offshore engineering; potentially large international market; a few key industrial players in the region, e.g. ABB and Siemens. Good tie-in with Smart Grids (see below) Strong regional and national drivers; excellent supply of waste and clean feedstock (2m tpa), plus a strong indigenous demand associated with industrial users of process heat; a number of large flagship projects underway/in planning; a number of large waste management companies in the region with a keen interest in EfW; large market demand elsewhere in the UK and opportunity to export know-how and skills.
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Tier 2; no strong regional knowledge base and limited regional USP other than offshore/submarine capabilities. Heavily dependent on the outcome of Round 3 announcements and supply chain requirements of successful developer. East coast a more likely destination for manufacturing. Tier 2 - good market opportunity, but currently heavily focused around the feedstock supply chain. Difficult to see where future high value added jobs will come from. Relatively weak regional knowledge base. Good support already provided via Envirolink via sector Business Plan, and gaining traction. Good contributor to regional climate change objectives and as part of integrated sustainable consumption.
Low Carbon and Environmental Goods and Services Sector Strategy Final Report
Table 7 Continued Conclusions of Segment Analysis Segment
National Competitive Position
Potential Strategic Rational for Support
Priority Level Tier 1-3
Energy Management in Buildings
No single region with a clear advantage - so reasonably level playing field
Good regional drivers and indigenous demand. Although no specific USP, opportunity to gain first mover advantage and develop strong regional capability for export. Also GM LCEA would provide robust platform for developing regional capability and profile.
Core portfolio
Sizable LCEGS sector, second to London and SE, significant investments planned in waste infrastructure. Water industry responsible for majority of sector exports and concentration of UK supply chain built up around United Utilities; small number of technology companies
The core of the sector will form the foundation for the growth of the sector; opportunities to develop business across the region; ongoing and inward investment opportunities; significant potential for international export opportunities in developing BRIC and Eastern European markets.
Tier 2 - although there is good regional potential here it is difficult to see how this can be leveraged for international markets however niche technologies should be exploited. Also segment well supported and gaining steady momentum under national and regional market drivers. Not clear where the NWDA could make a material difference at this stage but the LCEA could create a large local market. Tier 3 – within the sector these segments are the most mature but they still have the potential to grow faster than the average growth rate for businesses in the region; they offer a diversification route for regional businesses; potential route out of recession.
3.3
Regional Sector Challenges and Opportunities
This section outlines the challenges the sector is facing and the opportunities to capitalise. The evidence presented here is followed by this strategy’s strategic objectives and actions which are designed to assist the sector develop the priorities as outline above. The following table summarises the market failures facing the priority subsectors.
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Table 8 Overview of Key Barriers to Development Key Barrier
Offshore Wind
Tidal
Policy Framework
!
Market Intelligence
!
Biomass
Energy Management in Buildings
!
Smart Grids ! !
SSL
! !
Market Development: !
- Educate/Inform - Demonstrate
!
- Early adopter markets
!
Supply Chain Development
!
!
!
! !
!
!
! !
!
!
!
!
!
!
!
!
!
!
Innovation support: !
- Tech transfer - Tech development
!
!
!
Need for Regional Infrastructure
!
!
!
Skills availability
!
!
!
Land/Site availability and Planning
!
!
!
Access to Finance
!
!
Public Perception
!
!
!
! !
3.4 Analysis The analysis presented in Tables 5, 6, 7 and 8 indicate a logical split of the key segments on the basis of their relative maturity and stage of development, and provides the rational for public sector investment, in addition to providing on going support for the core of the sector. The three Tier 1 segments (Smart Grids, Tidal and SSL) represent relatively immature markets which are facing significant barriers to development, but where the region has strong nascent capability. Potential exists for public sector support to make a material difference to secure ‘first mover’ advantage, take a high value position in the supply chain and ultimately gain access to a significant share of future international markets. These
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segments will require long term commitment. There is an element of risk in supporting these emerging markets, but these are potentially outweighed by the upsides in terms of future economic development.
In comparison, the Tier 2 segments (Offshore Wind, Biomass, and Energy Management in Buildings) represent relatively mature markets with a reasonably well established presence in the region that is already experiencing strong competition within the national market place. The region is not well represented in some of the key, higher value elements of the supply chain, and the regional knowledge base is not particularly strong. Significant public support has already been provided, and the potential for additionality is therefore relatively low. However, they remain highly attractive segments in terms of the future economic development in the region. Investment in these segments is relatively low risk, as mature markets exist and the development trajectory is good. Tier 3 represents the core of the LCEGS sector in the region, and provides the fundamental platform for future growth. This includes the relatively mature waste, recycling, water and wastewater treatment industries which although well established, are still developing in response to tightening environmental regulation and legislation and evolving overseas markets. These segments underpin the industry in the region and have contributed to the above average historical growth rates. Also within Tier 3, there are a number of individual technology companies in the region which do not fit into a prioritised segment but are an asset to the region as they possess the potential to be high growth companies or large employers. Investment in the core segments is low risk, however additionality for the region can best be achieved by helping companies develop to ensure they continue to grow and invest in the Northwest.
3.5 Approach to develop the sector The outcome of the analysis indicated a classification of the prioritised segments as follows: Global Markets – where there is a mature and world class proposition and large associated future growth potential, i.e. nuclear (subject to separate Strategy and Action Plan). Tier 1 - Emerging Markets - Those where there is a credible regional proposition based around a strong knowledge/industrial base; an immature market with potentially large future international opportunities and where current market failures represent an opportunity for the Agency to invest in order to make a material impact: • Tidal • Smart Grids • Solid State Lighting • (Low Carbon Vehicles - addressed by the Manufacturing Strategy and Action Plan) Tier 2- Developing Markets - Those where there already exists a developing and well supported segment in the region, but where opportunities for the future development of value added jobs and large international markets are unclear. However, the Agency still has a role to play in continuing to build these markets using existing interventions and developing specific additional projects as appropriate: • Offshore Wind • Biomass • Energy Management in Buildings.
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Tier 3 - Sustainable Growth Markets – The core portfolio where there is a well established base in the region, with solid historical performance but relatively low indigenous growth projections. The NWDA has a key role to support their continued growth. Future opportunities for growth are most likely to come from future emerging markets and international opportunities and exports, for example: • Waste management, recovery and recycling. • Water and wastewater treatment
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4
Vision and Action Plan
4.1 Vision The ten year Vision for the Sector is as follows: Vision: In 2020 the Northwest Low Carbon and Environmental Goods and Services sector is the largest, industrial sector in the region and the leading LCEGS sector in the UK. The sector is diverse to support all the requirements of a low carbon economy with segments which are internationally leading such as nuclear energy and smart grids. This strategy has a three year life span starting in 2010 and contains a specific Action Plan which will be reviewed annually. Whilst it is important that the Agency and its partners focus on long term goals to ensure the realisation of the strategic vision, flexibility is required to respond to short and medium term challenges and opportunities that may present themselves to the sector. Realising this Vision will require activity and resources to be focused on the following three aims: 1. To realise a rate of sector growth of above the national average over the next three years by developing the existing portfolio of capabilities and exploiting emerging market opportunities 2. To raise the level of innovation activity and increase the rate of successful technology transfer from the regional research base 3. To secure targeted private sector investment in support of regional business growth. These aims will be achieved via six strategic objectives: • Strategic Leadership: Provide focused and strong direction for the development of the regional sector, specifically emerging markets • Market Development: Identify and develop early markets opportunities and provide supply chain development support to facilitate access to markets • Innovation Support: Realise stronger communication between industry and the regional research base and improve the rate of technology transfer and successful enterprise • Investment: Optimise opportunities for inward investment by targeting future growth opportunities and successfully leverage third party finance for regional projects and infrastructure • International Trade: Provide specific and focused support for the development of export and internationalisation opportunities amongst the more mature segments of the portfolio • Skills: Attract in high quality candidates to study in the region and encourage retention of graduates and skilled labour within the industrial base to develop the available talent pool. Specific actions have been identified against each of these strategic objectives and will be delivered either for the benefit of the sector as a whole, or for prioritised segments as appropriate within the context of the Strategic Framework presented in Figure 4.
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The strategic framework is designed to be dynamic and to allow for the promotion and relegation of priorities over time, reflecting the changing nature and characteristics of the market. Performance will be regularly monitored relative to the current baseline, with regular review milestones, and the mechanism to allow for the nomination of new, emerging markets and priorities. Figure 4 Low Carbon and Environmental Goods and Services Sector Strategic Framework 2010 – 2013
4. 2 Action Plan The UK market for LCEGS reached £106.5bn in 2007/08 accounting for 3.5% of the global market. Within the UK, this would place the sector between the healthcare and construction sectors in terms of relative market value20. Adopting the same breakdown as applied in Section 3.1, Environmental Goods and Services accounted for 21% (£22.3bn) of this total, with the Renewable Energy sector at 29% (£31.1bn) and the Emerging Low Carbon sector 50% (£53.3bn). These proportions are similar to the global figures, with the newer Renewable Energy and Emerging Low Carbon sectors between them accounting for nearly 80% of the total value. In the UK, there are an estimated 54,835 companies active in the sector, employing 881,000 individuals. Over 90% of these companies are SMEs. As Figure 5 demonstrates, there are 13 segments in the UK which individually are worth more than £1bn per annum. Of these, four segments (Alternative Fuels, Building Technologies, Alternative Vehicle Fuel and Wind) have an individual annual market value of over £10bn.
20 All the figures in this section and the NW and NW sub region sections are taken from Envirolink Northwest - Update of Market Intelligence of the Environmental Technologies and Services Sectors, Innovas in partnerships with KMatrix, May 2009
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Figure 5 Comparative Value of UK Low Carbon and Environmental Goods and Services Segments (£m) 2007/8
The UK LCEGS sector is projected to grow by 4.7% in 2009/10, rising to 6.1% by 2014. Within these headline numbers, Environmental Goods and Services has relatively modest growth projections of around 3%, compared with Renewable Energy between 7% and 8%, the Emerging Low Carbon Sectors at between 5% and 6% for the same years. The sector in the Northwest sits within this national and international context where other regions of the world are also developing the LCEGS sector. To ensure the Northwest has the best chance to develop a world class sector, with sub-sectors that are internationally renown, it has been necessary to identify the sub-sectors where the Northwest has a credible USP that represent significant growth opportunities. To be able to achieve these aims it will be necessary for the NWDA to show strategic leadership. Strategic Objective: Strategic Leadership ACTIONS: 1. Monitor the performance of the strategy and the evidence base. • Review progress against KPIs quarterly • Refresh the Action Plan annually 2. Co-ordination of regional activity for the sector with a focus on the priorities of SSL; Smart Grids; Tidal; Offshore Wind; Energy Management in Buildings; and Biomass including EfW. 3. Work with other regional strategies to ensure joined up delivery across the region.
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4.2.1 Market Development Market Development is a common barrier for a number of the sub-sectors and in reality means assistance with access to markets and procurement. It is recognised that market development goes hand in hand with innovation support because without markets companies can not prosper. With a focus on local markets the actions in this area will focus on the particular sub-sectors facing difficulties gaining access to new markets. Strategic Objective: Market Development ACTIONS: 1. Work with end users to overcome market barriers to the uptake of new technologies in the region with a focus on the priorities of SSL; Smart Grids; Tidal; Offshore Wind; Energy Management in Buildings and Biomass. 2. Support regional initiatives that will create a local market such as Power from the Mersey and the Manchester Low Carbon Economic Area. 4.2.2 Innovation A robust and innovative LCEGS sector will be critical to the Northwest and the UK in realising this plan. It is recognised that innovation is fundamental to success and that levels of innovation in the UK as a whole need to be increased. Innovation in the region is lagging relative to the UK as a whole and the need for increased capacity and capability is being addressed via the development of an innovation policy. The low carbon economy is seen, regionally, nationally and internationally, as a key component of future economic prosperity. National and international policy on climate change and innovation support provides a platform to support the realisation of regional aims and the creation of “green jobs”.
Strategic Objective: Innovation Support ACTIONS: 1. Increase the LCEGS sector’s success rate with GRAND and Innovation Vouchers. 2. Increase the LCEGS sector’s success rate with national and international funding such as Technology Strategy Board and Energy Technologies Institute. 3. Support business engagement with the region’s knowledge base to facilitate technology transfer. 4. Raise the levels of innovation in the sector. 4.2.3 Investment Recent trends suggest that the UK has recently fallen in the rankings for receipt of foreign direct investment within the sector. Over the period of 2003-7 the UK was fourth
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in receipts behind France, Spain and Germany. This is in part a reflection of the large contribution of investments into solar (34% of total investments), where the UK struggles to compete with Southern Europe in terms of natural resource21. Also Countries such as Germany have supported the creation of a market through feed in tariffs and it remains to be seen if the UK feed in tariff will create a large enough market to stimulate a UK manufacturing base. In terms of the UK market for inward investment, the Northwest performs well relative to other regions. In 2008/9 5.7%22 of the inward investment in the region was in the energy and environmental sector, compared to a national average of 2.2% and second only to Wales with 13.3%. Inward investment into the regional sector has been steady and growing, with 49 projects secured over the period of 2004-2009. Whilst 23 of these projects were in nuclear; seven were secured in Recycling and Waste Management, four in Wind, and three in Oil and Gas. Inward investment is anticipated to remain important for the development and growth of the regional sector. It will play three key roles by supporting the development of critical mass for a particular sector, addressing key gaps in regional capability and know how, and providing important investment in new regional infrastructure. An inward investment business plan is developed annually by the NWDA and the actions recommended by this strategy have been informed by the business plan. Strategic Objective: Investment ACTIONS: 1. Target inward investment from the priority sectors: smart grids; EfW and offshore wind. 2. Coordinate the regional proposition and inward investment enquiry handling through the Sector Investment Group. 3. Increase public and private sector investment in to the sector.
4.2.4 International Trade In 2007/08, 8.8% of the total regional market value was derived from exports; an 18% increase on the previous year but lower than the national average. Another key change for the region has been the growth in export opportunities from developing world markets. Many of these countries, including India and China, now have to address the environmental impacts of industrialisation and often lack the necessary domestic skills and technologies. These developments have contributed strongly to the growth in export led sales that Northwest companies have achieved in recent years, especially in the relatively mature traditional Environmental Goods and Services sector where indigenous market growth has been relatively low. However, regional performance in terms of value of exports is still low compared to other parts of the UK. In 2007/08, 8.8%, (£939.96m) of total regional market value came from exports, representing a 20% increase from the 2006/07 figure of £777.8m. Part of this is attributable to a wider sector definition being used than previously, but even with an adjustment of £25m to account for this, there was an 18% increase on the 2006/07 figure. However, this is still low compared to the average UK figure. The top five export 21 22
Oxford Intelligence, Renewable Energies, 2008 Source: UKTI
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locations in 2007/08 in descending order were China, Spain, South Korea, Hong Kong and Malaysia. While Asian markets already contribute more to global demand than any other, their percentage is projected to increase to 2015 and beyond driven by demand from fast developing countries such as India and China. The speed of growth of these countries, and others in Eastern Europe and the former Soviet Union, is such that they are already looking beyond basic service demand, towards investment in cleaner technologies and more complex approaches to environmental management. An analysis of the top 30 countries to whom Northwest companies export show that most are expected to grow their demand for traditional Environmental Goods and Services by an average of 45% over the 10 years to 2014/15. Graphs outlining the size of the international markets are in Annex 8. Some, including Mexico, Taiwan and Saudi Arabia, are expected to register growth in demand exceeding 50%. The notable exception to this pattern is the UK itself, whose growth forecasts are lowest by some margin at 34%.23 Within the Renewable Energy and Emerging Low Carbon sub sectors 10 year growth rates are much higher, exceeding 200% in some cases (Russia and Chile), and in every cases exceeding 100%. Once again the UK’s own growth forecasts are relatively low at 110%, although these figures predate the legally binding UK emissions targets to 2020 and associated Renewable Energy Strategy. It will be important for the overall growth of the sector to ensure the export rate of the sector continues to grow and at least performs in line with national average. This may provide future growth in this sub sector (most likely via international markets), and open up new opportunities for the development of next generation products and services. UK Trade and Investment lead trade promotion activities in the region and provide support and advice to companies on exporting. UKTI works in partnership with Envirolink to target UKTI support for the LCEGS sector. Strategic Objective: International Trade ACTIONS: 1. Support the sector with international trade activities to increase the rate of exports in the region.
4.2.5 Skills The attraction and retention of a highly skilled talent pool is fundamental to the development of the sector and is supported by policy frameworks at both a national and regional level. The transition to a low carbon economy will require a change and broadening of the skills sets required by the region’s employees with an increase emphasis on the need for mechanical and electrical engineering capabilities.
23 Envirolink Northwest - Update of Market Intelligence of the Environmental Technologies and Services Sectors, Innovas in partnerships with KMatrix, May 2009
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Strategic Objective: Skills ACTIONS: 1. Support the Sector Skills Council to develop the evidence base for the skills requirement for the sector. 2. Develop an understanding of the skills requirements to develop the sector. 3. Develop the region’s HEI provision for the sector.
Table 9 presents the Action Plan for the LCEGS Sector for the next three years, together with suggested action leads. This Action Plan will be reviewed and updated on an annual basis.
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Table 9 LCEGS Sector Operational Action Plan Strategic Objective
Action
Lead
Strategic Leadership: Provide focus and strong direction for the developing of the regional sector, specifically emerging market.
1. Monitor the performance of the strategy and the evidence base. a) Review progress against the KPIs quarterly b) Refresh the action plan annually 2. Co-ordination of regional activity for the sector with a focus on the priorities of SSL; Smart Grids; Tidal; Offshore Wind; Energy Management in Buildings and Biomass. 3. Work with other regional strategies to ensure joined up delivery across the region.
Market Development: Identify and develop early markets opportunities and provide supply chain development support to facilitate access to markets.
1. Work with region’s end users to overcome market barriers to the uptake of new technologies in the region with a focus on the priorities of SSL; Smart Grids; Tidal; Offshore Wind; Energy Management in Buildings and Biomass.
Innovation Support: Realise stronger communication between industry and the regional research base and improve the rate of technology transfer.
1. Increase the LCEGS sector’s success rate with GRAND and Innovation Vouchers.
2. Support regional initiatives that will create a local market such as Power from the Mersey and the Manchester Low Carbon Economic Area.
2. Increase the LCEGS sector’s success rate with national and international funding such as Technology Strategy Board and Energy Technologies Institute.
3. Support business engagement with the region’s knowledge base to facilitate technology transfer. 4. Raise the levels of innovation in the sector.
Investment: Optimise opportunities for inward investment by targeting growth opportunities and successfully leveraging third party finance for regional projects and infrastructure.
1. Target inward investors from the priority sectors: smart grids: EfW and offshore wind. 2. Co-ordinate the regional proposition and inward investment enquiry handling through the Sector Investment Group. 3. Increase public and private sector investment into the sector.
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NWDA
NWDA
NWDA
Envirolink Northwest
NWDA Business Link, EIC and Envirolink Northwest Envirolink Northwest, The Joule Centre and EIC The Joule Centre and NWUA Business Link Innovation Advisors NWDA and NOE
NWDA
Envirolink Northwest and the EIC
Low Carbon and Environmental Goods and Services Sector Strategy Final Report
International Trade:
1. Support the sector with international trade activities.
Provide specific and focused support for the development of export and internationalisation opportunities amongst the more mature segments of the portfolio. Skills: Attract in high quality candidates to study in the region and encourage retention of graduates and skill labour within the industrial base to develop the available talent pool.
UKTI and Envirolink Northwest
1. Support the Sector Skills Councils to develop the evidence base for the skills requirements for the sector.
NWDA
2. Develop an understanding of the skills requirements to develop the sector.
NWUA NWDA
3. Develop the region’s HEI skills provision for the sector.
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5
Monitoring and Implementation 5.1
Key Performance Indicators
Performance will be monitored relative to the three main aims of the strategy, as indicated in Table 11, with targets for 2010-2020 defined in Table 12. To help illustrate the KPIs the following table provides examples of what success might look like if this strategy achieves all it sets out to by 2013. This strategy aims to influence and facilitate this process but the public sector is not able to achieve all the targets without working in partnership with the private sector and academia. Table 10 What does success look like in 2013?
What Does Success Look Like in 2013? Segment
Realistically Achievable
Aspirational Target
Tidal
Outline consent achieved for one tidal scheme in the region.
Demonstration facility up and running, attracting in device developers to the region.
Smart Grids
National demonstration project secured and operational.
A national centre of excellence secured in the region and a number of demonstration projects up and running.
Solid State Lighting
Public sector procurement programme in place to purchase regional SSL technology.
Regional companies exporting products to national/international markets. Significant inward investment or regional landmark project secured.
Offshore Wind
One of the region’s ports has been allocated as a construction base for the Round 3 site.
Key supply chain manufacturer attracted to the region.
Biomass (incl. EfW)
Region’s wood chip processing capability at capacity supplying regional biomass needs. Most biomass waste in the region is being utilised as resource.
Significant manufacturer of process technology attracted into the region.
Energy Management in Buildings
Recognition as leading region in the UK for the production and installation of energy management for buildings technologies.
Region recognised as an internationally leading region for the production and installation of energy management for buildings technologies.
Core Portfolio
Export levels for sector increased to the national average. The LCEGS sector has grown at its current rate of 1.3% above the national average.
The region is leading the UK in export activities. The LCEGS sector has grown at a faster rate of 2.3% above the national average.
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5.2
Key delivery bodies and accountabilities
The NWDA has a number of existing projects and delivery bodies as detailed in Annex 7. This strategy has not identified a need for a new delivery body or mechanism, more a focus of existing efforts onto emerging market opportunities. Envirolink Northwest, the Energy Innovation Centre, The Joule Centre for Energy Research, Business Link, along with the NWUA, sub-regional partners and local authorities in the region are essential to the successful delivery of the strategy. The NWDA works in partnership with these organisations and is a signatory to a Memorandum of Understanding between Envirolink Northwest, the Energy Innovation Centre, Business Link and the Joule Centre which ensures closer working ties between the organisations and set outs clear commitments to collaborate on innovation activities. The NWDA and its partners will continue to work together to ensure existing resources are aligned to deliver the actions in this strategy.
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Table 11 Key Performance Indicators Aim / Strategic Objective To realise a rate of growth above the national average over the next 3 years by developing the existing portfolio of capabilities and exploiting emerging markets.
Principle Actors
Measure of Success
Business Link
• Annual growth rate of the sector greater than the national average
Envirolink Northwest UKTI
• Jobs created
Energy Innovation Centre
• Total sector GVA
The Joule Centre for Energy Research
• Increased GVA per employee • Businesses advised • Export levels
To raise the level of innovation activity and increase the rate of successful technology transfer from the regional research base.
The Joule Centre for Energy Research Energy Innovation Centre GRAND Innovation Vouchers N8 Daresbury
• New business start ups • Increase in average salary levels • Amount of money invested in to research: research councils; GRAND; Innovation Vouchers
Lancaster Environment Centre Business Link Envirolink Northwest To secure targeted private investment in support of regional business growth.
Inward Investment Strategy NWDA Business Finance Products
40
• Number of inward investment projects and number of jobs created. • Amount of money invested in the sector: (GBI).
Low Carbon and Environmental Goods and Services Sector Strategy Final Report
Table 12 Key Performance Indicator Targets 2010-2020 Note: The targets set using the Business Link BPI data are interim targets based on emerging data sets. This data is still being refined but as it emerges it is becoming clear we can have more confidence and greater control over the Business Link BPI data than the Innovas data. The draft figures have been presented for the size of the sector are different to the published Innovas data used earlier in the strategy. This data still needs to be refined it will be confirmed by September 2010 and will be used to refresh the strategy in 2011 Aim
KPI
1. Realise a rate of sector growth of above the national average over the next three years by developing the existing portfolio of capabilities and exploiting emerging market opportunities
Baseline
- Annual growth rate (%) relative to sector national average (currently 4.9 % in 2007/8 relative to UK 24 ave. of 3.6 %)
- Size of the sector measured in numbers of businesses location 25 and jobs
- Export levels
24 25 26
4.9% (2007/08)
8829 Business Locations 77,362 Employees 8.8% of regional market 26 value
Target for 2013
Target for 2016
Target for 2020
Source
Achievable: 1.3% above the national average Aspirational: 2.3% above the national average.
Achievable: 1.3% above the national average Aspirational: 2.3% above the national average.
Achievable: 1.3% above the national average Aspirational: 2.3% above the national average.
Innovas / BIS Data.
Achievable: 10,200; 89,560
Achievable: 11,830; 103,670
Achievable: 12,500; 126,000
Aspirational: 10,500; 92,140
Aspirational: 12,520; 109,740
Aspirational: 15,800; 138,500
Achievable: NW export rate is the same as UK average Aspirational: The NW is the UK’s lead export region
Based on annual data prepared by Innovas/ BIS Based on new baseline prepared by Businesslink with an achievable growth rate of 5% and an aspirational growth rate of 6% Based on annual data prepared by Innovas/BIS
41
Achievable: NW export rate is the same as UK average Aspirational: The NW is the UK’s lead export region
Achievable: NW export rate is the same as UK average Aspirational: The NW is the UK’s lead export region
BusinessLink BPI Data
Innovas Data
Low Carbon and Environmental Goods and Services Sector Strategy Final Report
Table 12 Continued Key Performance Indicator Targets 2010-2020 Aim
KPI
2. Raise the rate of innovation activity and increase the rate of successful technology transfer from the regional research base.
- Number of new start ups / survival rates (new VAT 27 registrations)
3. Secure targeted private sector investment in support of regional business growth.
27 28
Baseline
165
Target for 2013
Target for 2016
Target for 2020
Source
170
180
200
BPI Data
(2009/10)
- Amount of money invested into research in the region for both private and public sector.
8% of GBI awards (2008/09)
15% of GBI Grants
20% of GBI Grants
25% of GBI Grants
3% of GRAND awards (2008/09)
8% of GRAND awards
15% of GRAND awards
20% of GRAND awards
- No of inward investment projects/jobs created or safeguarded (overseas 28 and UK)
10 Involved Assists target for 2010
11 Involved Assists per year
12 Involved Assists per year
13 Involved assists
320 jobs created or safeguarded per year (average 2007-09)
330 jobs created or safeguarded (average per year for last 3 years)
340 jobs created or safeguarded (average per year for last 3 years)
350 jobs created or safeguarded (average per year for last 3 years)
Based on Businesslink BPI data As measured by Inward Investment team.
42
NWDA
NWDA
Low Carbon and Environmental Goods and Services Sector Strategy Final Report
Abbreviations BIS BMW BPI BRIC CCAP CCA CCS CHP CPD CRC DECC DTi EGS EfW EIC ENSG ETI ETS EU FDI FE GBI GDP GM GW GRAND GVA HEFCE HEI HLSP IFI LCEA LCEGS LCNF LATs LEDs NOE NW NWDA NWUA OFGEM ONS ORED PFI PV RDA R&D RES SCP AP SFA SIC SMEs SSC
[Department for] Business Innovation and Skills Biodegradable and Municipal Waste Business Performance Indicator Brazil, Russia, India, China Climate Change Action Plan Climate Change Agreement Carbon Capture and Storage Combine Heat and Power Continuing Professional Development Carbon Reduction Commitment Department for Energy and Climate Change Department for Trade and Industry Environmental Goods and Services Energy from Waste Energy Innovation Centre Energy Networks Steering Group Energy Technologies Institute Environmental Technologies and Services European Union Foreign Direct Investment Further Education Grant for Business Investment Gross Domestic Product Greater Manchester Gigawatts Grand for Research and Development Gross Value Added Higher Education Funding Council for England Higher Education Institution Higher Level Skills Pathfinder Innovation Funding Incentive Low Carbon Economic Area Low Carbon Environmental Goods and Services Low Carbon Network Fund Local Authority Trading Scheme Light Emitting Diodes North of England Northwest Northwest Development Agency Northwest Universities Association Office of Gas and Electricity Markets Office for National Statistics Office for Renewable Energy Deployment Private Finance Initiative Photovoltaic Regional Development Agency Research and Development Regional Economic Strategy Sustainable Consumption and Production Action Plan Skills Funding Agency Standard Industrialisation Code Small Medium Sized Enterprises Sector Skills Council 43
Low Carbon and Environmental Goods and Services Sector Strategy Final Report
SSL SWOT tpa TSB UKTI USP VAT VC YF
Solid State Lighting Strengths; Weakness; Opportunities; Threat Tons per annum Technology Strategy Board UK Trade and Investment Unique Selling Point Value Added Tax Venture Capital Yorkshire Forward
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ANNEX 1 Sector Definition The OECD/Eurostat definition of the sector is as follows29: ‘The environmental goods and services industry consists of activities which produce goods and services to measure, prevent, limit, minimise or correct environmental damage to water, air and soil, as well as problems related to waste, noise and eco-systems’ This includes cleaner production technologies, products and services that reduce environmental risk and minimise pollution and resource use. Low carbon technologies are those that specifically produce fewer greenhouse gases than traditional solutions. It includes renewable power generation sources, such as wind power, solar power, geothermal power and nuclear power, sources with lower-level emissions such as natural gas, and also technologies such as carbon capture and storage. It is therefore not limited to zero-emissions technologies, but includes those that significantly reduce carbon emissions relative to traditional fossil fuel based solutions. Formal definition of the sector is difficult, and traditional Standard Industry Codes (SIC) do not adequately capture the breadth and diversity of activities within it. Since 2006, the definition of the ‘Environmental Goods and Services’ has been generally been adopted, based on a report published by the DTI30. However, the market place has evolved rapidly since 2006 with an increasing emphasis on new and emerging ‘low carbon technologies’ that do not fit within previous sector definition. Envirolink Northwest commissioned work in 2007 to map the sector using a new definition to include the new and emerging aspects of the sector. Following the Northwest’s lead the UK Government has published a revised definition31. This is based on a hierarchy of 5 levels of segmentation; with Level 5 representing the full supply chain that is deemed to support Level 1. This methodology was also adopted for a recent report prepared for Envirolink Northwest, forming the basis of a sizing and valuation of the Environmental Technologies and Services or LCEGS sector in the region32. The Level 1 and 2 segmentation is summarized in Table 1.
Table 1 29 30 31 32
Emerging Markets in the Environmental Sector, prepared for the DTI by UKCEED, Nov 2006 UKCEED, Nov 2006 ibid Low Carbon and Environmental Good and Services: an industry analysis, prepared for BERR by Innovas Solutions Ltd, March 2009 Envirolink NW – Update of Market Intelligence for the Environmental Technologies and Services Sectors, Innovas Solutions Ltd, May 2009
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Low Carbon and Environmental Goods and Services Sector Strategy Final Report
Proposed Segmentation of Low Carbon and Environmental Goods and Services Sector Traditional Environmental Goods and Services
Renewable Energy Technology
Emerging Low Carbon Technology and Services
Air Pollution Environmental Consultancy Environmental Monitoring
Hydro Waves and Tidal
Alternative Vehicle Fuel Alternative Fuel
Biomass
Marine Pollution Control
Wind
Noise and Vibration Control Contaminated Land Waste Management Water and Waste Water Recovery & Recycling
Geothermal
Additional Energy Sources Carbon capture & Storage Carbon Finance
Renewable Consulting Photovoltaic
Energy Management Building Technologies
The methodology used to develop this definition has attracted some criticism specifically around the scope of activities included in Level 4 and 5. There have been suggestions that the segmentation is too broad in scope, resulting in an over estimate of the size and value of the sector as a whole as well as individual segments. In the Northwest this issue is being addressed. The NWDA is working in partnership with Business Link and Envirolink Northwest to improve the data for the LCEGS sector in the region. Using the Business Link Business Performance Indicator (BPI) database the scope of the sector in the region is being defined, based on the above definition but refined with Envirolink’s knowledge of the sector in the region, to provide a baseline for the sector in the region. This baseline will be used to monitor the performance of this strategy. However this definition has been adopted as the framework for the development of this regional strategy document, with the following comments, as it is the best available data source at this time an in line with the national definition: • Traditional fossil fuel energy generation technology and services, electricity networks and transmission are not included (with the exception of gas networks); • Nuclear fuel is included within Alternative Fuels, and nuclear decommissioning is included within Waste Management; • The definition of Alternative Fuel Vehicles effectively covers low carbon vehicle propulsion; and • In some instances accurate sizing and definition of supply chains of specific interest to this regional strategy requires some manipulation of the data. For example, the aggregation of data relating to biomass technology and biomass fuel, which currently sits in different parts of the classification. In summary, the data presented within this strategy that is based on these outputs should be considered within the context of the trends and relative comparisons it provides, rather than the absolute values presented.
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ANNEX 2 Policy Context and Strategic Framework
2. Policy Context This section outlines the policy and strategic frameworks that provide the context within which the LCEGS sector currently operates and a key driver for its economic development as of April 2010. Specific regulatory tools and mechanisms are discussed in Section 4.1. 2.1 Ensuring future economic prosperity The low carbon economy is seen, regionally, nationally and internationally, as a key element of future economic prosperity. Implementation of the European Union’s Lisbon Strategy for Growth and Jobs33 included the development of an Environmental Technologies Action Plan34. The Commission’s current consultation on an update of the Lisbon strategy to create an ‘EU 2020’ strategy, whilst acknowledging the need for very focused action at a time of constrained public finances, notes that resource efficiency and increased productivity will be key drivers for recovery. It states: ‘the exit from the [current economic and financial] crisis should be the point of entry into a new sustainable social market economy, a smarter, greener economy, where our prosperity will come from innovation and from using resources better, and where the key input will be knowledge.’ The UK Government has developed a ‘Low Carbon Transition Plan’ to support the development of the green economy in the UK and address how greenhouse gas emissions will be cut by 34% by 202035. This sets the development of a ‘cleaner, greener’ economy at the heart of the government’s economic plans, providing a key driver for the future development of the low carbon economy in the UK with some key goals for 2020: • More than 1.2 million people in green jobs; • 7 million homes will have benefited from whole house makeovers, and more than 1.5 million households will be supported to produce their own clean energy; • Around 40 percent of electricity will be from low-carbon sources, from renewables, nuclear and clean coal; • The UK will be importing half the amount of gas compared to business as usual; and • The average new car will emit 40 percent less carbon. The Government plans to back businesses in a range of markets and sectors, from pharmaceuticals to low carbon and plastic electronics. New Industry, New Jobs36 outlines a programme of 40 initial commitments, including: • Rolling out high speed broadband to give access to virtually all of Britain’s homes and businesses; • Investing and laying the foundations in pre-commercial technologies like wave and tidal energy, and electric vehicles;
33 34 35 36
http://ec.europa.eu/growthandjobs/index_en.htm http://ec.europa.eu/environment/etap/etap/about_en.html http://www.decc.gov.uk/en/content/cms/publications/lc_trans_plan/lc_trans_plan.aspx New Industry, New jobs, April 2009, http://www.berr.gov.uk/files/file51023.pdf
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• Adapting Britain’s energy grid to link homes and businesses to the new forms of power generation; • Continuing to protect and raise investment in science and research in the years ahead; • Spearheading innovation in areas where there are business opportunities for future growth; • Anticipating future growth in the economy in areas like low carbon or bioscience and ensuring British people have the skills to take part; • Intervening, where necessary, to ensure start-ups and young businesses have access to the finance they need to grow; • Helping UK companies, especially small and medium sized businesses to break into new export markets. It will see more support for exporters by enhancing the role of UK Trade and Investment and the Export Credits Guarantee Department. The initiative also aims for “smarter, more joined-up Government” to create a coherent strategy for modern infrastructure and networks in Britain. Building on the framework for supporting business set out in New Industry, New Jobs the Low Carbon Industrial Strategy aims to ensure the transition to a low carbon economy is a source of quality jobs. The Low Carbon Industrial Strategy uses national Innovas data for the Low Carbon and Environmental Goods and Services to define the UK strengths and outline Government policy to support growth in low carbon industries. The Low Carbon Industrial Strategy defines the following areas as UK strengths: Offshore wind power, wave and tidal power, civil nuclear power, carbon capture and storage, ultra-low carbon vehicles, low carbon buildings and construction, low carbon aerospace, chemicals and industrial biotechnology, low carbon electronics and information communications technology, business and financial services and carbon markets.
2.2 In the Northwest The Northwest Regional Economic Strategy’s current vision for the Region’s economy is of one where ‘productivity and enterprise levels are high, in a low carbon economy, driven by innovation, leadership excellence and high skills’37. Action 8 of the RES states that the Agency will seek to: ‘Undertake cluster programmes in priority sectors to develop higher value activity, improve productivity and identify future growth opportunities from converging market/technologies for: biomedical; energy and environmental technologies; advanced engineering and materials: chemicals, aerospace, automotive, advanced flexible materials; food and drink; digital and creative industries; business and professional services.’ This strategy sets the Vision and the aims and objectives for the development of the energy and environmental technologies priority sector with in the region. However this strategy will not work in isolation and has links to and impact on other regional strategies and action plans. 2.2.1 Climate Change and Sustainable Consumption and Production Action Plan This strategy is most closely associated to the Climate Change and Sustainable Consumption and Production Actions Plans38. 37
http://www.nwda.co.uk/PDF/RES06v2.pdf http://www.climatechangenorthwest.co.uk/ and http://www.nwda.co.uk/pdf/SUSTAINABLE%20CONSUMPTION%20&%20WASTE%20STRATEGY.pdf 38
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Low Carbon and Environmental Goods and Services Sector Strategy Final Report
The Climate Change Action Plan’s (CCAP) immediate vision is to reduce carbon dioxide emissions, reduce energy demand and to promote low carbon technologies whilst ensuring that mechanisms are put in place to adapt to future climate change. Similarly the Sustainable Consumption and Production Action Plan (SCP AP) is concerned with improving the resource efficiency of the region and preserving natural resources. To achieve the SCP AP’s aims the region will require a thriving Low Carbon and Environmental Goods and Services sector. In addition, both the action plans will deliver initiatives that will drive and create local markets for the sector. It is therefore essential the delivery of the strategy is linked to the action plans to ensure the LCEGS sector in the region benefits. To ensure the delivery of the Action Plans and the Strategy is cocoordinated they are managed by one team within the NWDA.
2.2.2 Northwest Enterprise Strategy The Northwest Enterprise Strategy39 provides a framework for encouraging enterprise in its broadest sense. This means not merely focusing on encouraging new business startups but on developing an ‘enterprise culture’ in the Northwest to stimulate increased productivity in the region. The strategy also recognises that enterprise activity in the Northwest needs to support the development of a low carbon economy, not only to ensure that European, national and regional carbon and waste reduction targets and objectives are met, but also to ensure that the region is able to take advantage of the opportunities that will arise from this economic shift. This strategy is focused on taking advantages of the opportunities arising and will ensure enterprise is included in the delivery of the action plan. 2.2.3 Internationalisation Strategy for the Northwest The region’s Internationalisation Strategy40 has, as one of its six key areas of action, the development of internationally competitive sectors. Plus one of its main aims is to contribute to policies to tackle climate change by promoting the Northwest's expertise in energy and environmental technologies in a range of international markets. This strategy reflects the aims of the Internationalisation Strategy because attracting inward investment and promoting the sector internationally are two areas of focus to help grow the LCEGS sector in the region. 2.2.4 Northwest Innovation Policy The Northwest Innovation Policy was developed by the Agency and its partners to encourage increased innovation in the region. Improving the overall levels of innovation in the Northwest necessitates reducing barriers to innovation through raising awareness of its wider benefits, increasing access to, and the exploitation of, knowledge, and also increasing motivation and capacity to innovate throughout the region’s businesses. Innovation is also reconginsed as being particularly important to the growth of the LCEGS sector and increasing rates of innovation and technology transfer is one of the three main aims of the strategy. 2.2.5 Northwest Manufacturing Action Plan Many parts of the LCEGS sector have a manufacturing component and therefore the region’s Manufacturing strategy41 has the potential to deliver benefits for LCEGS sector. Manufacturing is a major generator of wealth for the region however, the sector faces significant challenges brought about by factors such as increasing competition, offshoring and rising energy costs, as well as the current economic downturn. The
39 40 41
www.nwda.co.uk/enterprise http://www.nwda.co.uk/PDF/InternationalisationStrategy_fullversion.pdf http://www.nwda.co.uk/publications/business/manufacturing-strategy.aspx
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Manufacturing Strategy presents a strategic framework and identifies key action areas to support the on-going growth of the ‘modern’ manufacturing sector in the Northwest. 2.2.6 Regional Strategy RDA’s have been tasked by Government to produce an integrated a single Regional Strategy which combine the Regional Economic Strategy and the Regional Spatial Strategy. The NWDA is the first region to produce a draft Regional Strategy for consultation and the current draft of ‘RS2010’42 identifies four key strands for future focus, one of which is ‘capitalising on the opportunities of moving to a low carbon economy’. A key element of realising this objective is the provision of support to the LCEGS sector. The final version of the strategy will produced for consultation in the second half of 2010. 2.3 Meeting climate and environmental targets The development of a low carbon economy in the Northwest is consistent with, and supported by, policies that aim to deliver on European, national and regional climate change and environmental goals. Climate Change In 2000, the European Union has an established Climate Change Programme, which has resulted in a number of policy initiatives that support the development of a low carbon economy, most notably the EU Emissions Trading Scheme43. Other key European policies includes the Renewable Energy Directive44, which sets mandatory national targets for the overall share of energy demand that should be met from renewable sources, requiring countries to produce national renewable energy action plans. Under this Directive, the UK is expected to meet 15 per cent of its overall energy demand from renewables by 2020 from its current level of 2.25% (2008). The EU Biomass Action Plan, 2005 aims to increase the use of biomass in the EU member states from 69 million tonnes of oil equivalent (mtoe) in 2003 to 150 mtoe by 2010. It prioritises three areas for deployment: heat production, electricity production and transport. The Action Plan reinforces the need for biomass technology R&D, demonstration and technology transfer through the mechanisms of the EU Framework Programme and Intelligent Energy Europe. The recent strategic energy review at the European level45 resulted in, amongst other things, a proposed infrastructure package. This includes the development of a blueprint for a North Sea offshore grid that will interconnect national electricity grids and allow for the plug-in of planned offshore wind projects. It also considers the issue of ensuring that grid development facilitates the achievement of renewable energy targets. Nationally, the UK Government has signaled its commitment to a low carbon Britain through the Climate Change Act46, which sets a legally binding framework for national carbon emissions reduction and requires emissions to be cut by 80 per cent by 2050. The Biomass Strategy47; Renewable Energy Strategy48 and the developing Heat and Energy Saving Strategy49, together with the previously mentioned Low Carbon Transition Plan, set out the government’s plans for delivering the reductions required over the next decade or so. The Government will need to present a National Action Plan to the European Commission by March 2010 to define how the 2020 target will be met; it is anticipated that wind and biomass will be key technologies for the UK in realising this target. 42 43 44 45 46 47 48 49
http://www.nwregionalstrategy.com/ Directive 2009/29/EC contains the most recent amendments to the scheme. Directive 2009/28/EC, 23rd April 2009 EU energy security and solidarity action plan: second strategic energy review. Memorandum from the European Commission http://www.defra.gov.uk/environment/climate/legislation/index.htm http://www.decc.gov.uk/en/content/cms/what_we_do/uk_supply/energy_mix/renewable/explained/bioenergy/policy_strat/policy_strat.aspx http://www.decc.gov.uk/en/content/cms/what_we_do/uk_supply/energy_mix/renewable/res/res.aspx http://hes.decc.gov.uk/
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Environmental Performance There has been much regulation at both international and national level in recent years requiring the continued improvement of environmental performance. For example, the European Union has developed policy and legislation to improve wastewater treatment50, water management and quality51, air quality52, energy performance in buildings, and noise53. UK National policy also covers the whole range of environmental quality and includes for example national Air Quality Standards, the Water Act 2003 and the Noise Act 1996. This policy framework will support the development of the sector generally in the Northwest. There are a series of EU Directives that aim to reduce waste production and ensure that waste is managed properly54. These include the Landfill Directive, the Packaging and Packaging Waste Directive, the Waste Electrical and Electronic Equipment Directive, and the 2006 Waste Directive that requires the drawing up of waste management plans. The current (6th) EU Environmental Action Programme55 also includes a thematic strategy on waste56 that aims to simplify regulation and encourage waste recycling. The 2007 Waste Strategy for England57 sets out the Government’s vision for sustainable waste management. It covers both waste minimisation and better use of waste that is generated, and includes objectives of: • Securing the investment in infrastructure needed to divert waste from landfill and for the management of hazardous waste; and • Maximising the environmental benefit from that investment, through increased recycling of resources and recovery of energy from residual waste using a mix of technologies. In the Northwest The need for a transition to a low carbon Northwest is reflected in a number of key regional strategies and action plans including the Climate Change Action Plan58, the Sustainable Energy Strategy59, the Low Carbon Housing and Fuel Poverty Activity Plan60, the Sustainable Consumption and Production Action Plan61, and the Regional Spatial Strategy62. The Northwest’s Regional Waste Strategy63 aims to ‘contribute to the sustainable development of the North West by encouraging waste management systems that will reduce waste generation, lessen the environmental impacts of waste production and improve resource efficiency, whilst at the same time stimulating investment and maximising associated economic opportunities’. 2.4 Supporting Innovation Government at all levels recognises the need to improve rates of innovation to compete for the new and growing markets within the low carbon economy.
50
Directive 91/271/EEC concerning urban wastewater treatment Directive 2000/60/EC establishing a framework for Community action in the field of water policy Legislative limits on concentrations of various pollutants, most recently updated and consolidated in Directive 2008/50/EC on ambient air quality and cleaner air for Europe 53 Directive 2002/49/EC relating to the assessment and management of environmental noise 54 See http://ec.europa.eu/environment/etap/etap/about_en.html for more information on these Directives and other waste policy. 55 Decision no. 1600/2002/EC of the European Parliament and of the Council, OJEC L242 10/9/02 56 Communication from the Commission; Taking sustainable use of resources forward: A Thematic Strategy on the Prevention and Recycling of Waste, COM(2005)666 final 57 http://www.defra.gov.uk/environment/waste/strategy/index.htm 58 http://www.climatechangenorthwest.co.uk 59 http://www.climatechangenorthwest.co.uk/assets/_files/documents/jun_07/cli_1181140886_North_West_Sustainable_Energy_.pdf 60 http://www.nwdea.org.uk/ 61 http://www.nwda.co.uk/areas-of-work/sustainable-development/consumption-and-production.aspx 62 http://www.nwrpb.org.uk/whatwedo/issues/environment/?page_id=457 63 http://www.nwrpb.org.uk/?page_id=129 51 52
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The European Union has a range of policies and programmes that aim to support increased innovation across the economy64. Within these, there are a number of programmes specifically targeting sectors included in this strategy. The proposed Strategic Energy Technology plan65 includes a series of relevant initiatives: the European Wind initiative, the European Electricity Grid initiative, the Sustainable Bioenergy Europe initiative, and the Energy Efficient Smart Cities initiative66. Two of the six identified priorities in the lead markets initiative are recycling and renewable energy. One of the three strands of the Commission’s Competitiveness and Innovation Framework Programme is ‘Intelligent Energy Europe’67, which provides financial support to projects throughout the EU that are designed to improve market conditions for energy efficiency and renewable energy. EU support for research is delivered through framework programmes and the current (7th) framework programme defines the objective of supported energy research as aiding ‘the creation and establishment of the technologies necessary to adapt the current energy system into a more sustainable, competitive and secure one.’ Focus areas for financial support include renewables and smart energy networks. In the UK, the government’s aims for increased innovation are expressed in ‘Innovation Nation’68 which recognises innovation as ‘essential to the UK’s future economic prosperity and quality of life’. A number of areas for government action are identified including: the use of public sector procurement and regulation to demand innovation; ensuring the availability of finance, and increasing use of Knowledge Transfer Partnerships. In the Northwest The Northwest Innovation Policy69 highlights the lagging performance of the region relative to innovation in the UK as a whole. It aims not only to support improved performance in innovation across the regional economy but also to develop a better understanding of the process of innovation outside traditional science-based areas of activity. The need for increased capacity and capability to innovate is also recognised in the region’s manufacturing sector strategy70 and improvements along the innovation chain are supported by the Regional Science Strategy71 and Enterprise Strategy72. 2.5 Skills Development ‘Skills for growth’73 is the national skills strategy for England. The strategy recognises the economy-wide benefits of increasing the skills of the workforce and bases national skills policy on twin objectives: wider and more flexible access to skills training; and an increased focus on the skills required for key current and future employment. In addition, a key outcome of the national Renewable Energy Strategy has been the establishment of the Office for Renewable Energy Deployment: ‘The office will develop UK manufacturing, skills and jobs across all deployable renewable electricity and heat technologies. In collaboration with key partners including the Department for Business, Innovation and Skills, Regional Development Agencies, Devolved Administrations and UK Trade and Investment, ORED will build up the capability of the supply chain and proactively support investment in manufacturing’. 64
http://www.consilium.europa.eu/uedocs/cms_Data/docs/pressdata/en/intm/91989.pdf Communication from the Commission: investing in the development of low carbon technologies (SET-Plan), COM(2009)519 final, 7th October 2009 66 http://ec.europa.eu/enterprise/policies/innovation/policy/lead-market-initiative/index_en.htm 67 http://ec.europa.eu/energy/intelligent/index_en.html 68 http://www.dius.gov.uk/reports_and_publications%20HIDDEN/~/media/publications/S/ScienceInnovation_web 69 http://www.nwda.co.uk/pdf/NWReg%20Inn%20Plcy%20-%20Version%202.pdf 70 http://www.nwda.co.uk/pdf/manufacturing_summary_doc3_final.pdf 71 http://www.nwda.co.uk/pdf/science%20strategy%2007.pdf 72 http://www.nwda.co.uk/PDF/NW_EnterpriseStrategy_ExecSummary.pdf 73 http://www.bis.gov.uk/wp-content/uploads/publications/Skills-Strategy-Summary.pdf 65
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In the Northwest In 2010 the Skills Funding Agency (SFA) will take over from the Learning and Skills Council as the body responsible for funding and regulating further education training in the UK. The SFA is the main funder of further education colleges and training providers for business skills and adult learning. On behalf of the SFA the RDAs have been given the lead in developing the regional skills strategy within a framework set by BIS. This is a new role for the RDAs and details are still being finalised however it is possible to say: • The Regional Skills Strategy will cover the full range of skills and will include a priority statement which has already been agreed for the next academic year. • The Regional Strategy will be able to directly influence FE budgets but it is less clear how it will be able to influence Higher Education Funding Council for England (HEFCE) and schools. • STEM skills will feature in the strategy as these have already been recognised by NWDA as a strategic priority for the region. • The mechanism for developing the strategy is still being developed. The evidence base will come from the Sector Skills Councils, groups representing business and other stakeholders and teams across the NWDA. The 25 Sector Skills Councils in the UK are the voice of the employer on skills issues representing around 90% of the UK’s workforce. There are 7 that cover LCEGS industries which are: 1. Energy and Utility Skills - Gas, Power, Waste Management and Water Industries 2. Summit Skills - Building Services Engineering 3. Lantra - Environment and Land-based 4. Semta - Science, Engineering and Manufacturing Technologies 5. Construction Skills 6. Cogent - Chemical and Pharmaceutical, Oil, Gas, Nuclear, Petroleum and Polymers 7. Proskills - materials and production. The large number of SSCs with a footprint in the LCEGS sector can sometimes make it difficult to define the priorities for the sector. An Assessment of the provision of low carbon skills for the NW has recently been undertaken for the CCAP. The report takes a strategic look at the industry and the wide range of skills required across the economy for the transition to the low carbon economy but does not go into enough detail to make any conclusions on the skills required by the LCEGS industry. NWDA is currently developing an action plan to take forward the key recommendations in the report. The development of the SFA and the new function for RDAs to develop a regional strategy for skills gives an opportunity to develop an evidence based approach for skills development for the LCEGS sector. The key principles and issues paper for the developing Regional Strategy 2010 identified the attraction and retention of highly skilled and talented people as a key challenge. NWDA are working with Summit Skills74, Cogent75, and Energy and Utility Skills76 on development of the necessary skills for the LCEGS sector in the Northwest. This 74 75 76
the Sector Skills Council (SSC) for Building Services Engineering the SSC for chemicals, pharmaceuticals, nuclear, oil and gas, petroleum and polymers The SSC for gas, power, waste management and water
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includes work through the Higher Level Skills Partnership to fund new courses that are designed to meet the needs of the region’s employers. The development of five new courses in the LCEGS sector has been funded; postgraduate modules/Continuing Professional Development (CPD) in Safety Case Specialist Topics, CPD in Power System Protection Engineering, a Foundation Degree in Wastes Management, a Certificate of Nuclear Professionalism and CPD in Fuel and Energy Generation from Waste. There are now eight HLSP projects within this sector including CPD in Smart Grids, Construction Solutions for the Low Carbon Economy and Engineering conversion and workforce proficiency for operation management in the energy sector.77
77
http://www.nwua.ac.uk/hlsp/funded_projects_energy_and_environmental_technologies.aspx
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ANNEX 3 Regional Market Sub Sector Breakdown by Value 2007/8
Figure A Relative Value of Environmental Goods and Service Segments in the Northwest (£m) in 2007/08
Figure B Relative Value of Renewable Energy Segments in the Northwest (£m) in 2007/08
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Figure C Relative Value of Emerging Low Carbon Segments in the Northwest (£m) in 2007/08
Definition of Market Value The figures used for Market Value are a calculation of total sales. Sales is the estimate (in £m) of economic output by identified companies in a defined region or country. Sales may be either domestic or international. The estimate of sales is based upon where economic activity takes place i.e. the location of the business rather than the location of the income earner. In the calculation of Sales value the following is considered: • • • • •
Turnover by sub sector within postcode sets Capital asset adjustment by sub sector within postcode sets ONS GDP calculations Supply chain procurement value sub sector by sub sector by postcode sets Sub sector specific sales reporting where available
Further adjustment is made on a sub sector basis for both head office activities and virtual working organisations so that, as far as is practical, sales are reported upon where conducted rather than where it is reported. This methodology is used by Innovas and K Matrix to quantify the value of the sector.
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ANNEX 4 Regional SWOT Analysis An overview of the regional strengths, weaknesses, opportunities and threats for the Low Carbon and Environmental Goods and Services (LCEGS) sector is summarised in Table 5. Discussion of the specific strengths and opportunities associated with key segments is presented in Section 2.3.1. Table 1 Summary SWOT Analysis Strengths • Legacy and culture of positioning as a key UK energy hub with manufacturing capability • Strong infrastructure and transport network focused around LiverpoolManchester corridor but supported by effective regional network • Large population (c.7 m) providing strong indigenous demand for products and services • Large talent pool of high quality graduates and skilled labour (specifically engineering) • Significant resource base for renewable energy generation, e.g. wind, biomass, tidal & waste • Core centers of academic expertise relating specifically to engineering knowledge and skills and the Lancaster University Environment Centre • Presence of keystone industrial players, e.g. Peel Energy, National Grid, Siemens, Pilkington, Baxi and ScottishPower • Good spread of capabilities across a broad range of segments of the LCEGS • Well established professional services with sector expertise • Good quality of life and low cost of living relative to other parts of the UK • Established and credible regional delivery agent in Envirolink Northwest • Effective regional stakeholder groups including Northern Way, and North West Energy Tidal Group.
Weaknesses • Limited flexibility in the public sector to take advantage of emerging market opportunities • Lack of a clear proposition in some key segments on which to develop compelling investment propositions • No high profile, regional ‘flag ship’ project(s) on which to focus promotional activities • Poor external perception/branding of some parts of the region, in particular industrial areas • Limited knowledge-based infrastructure, particularly in rural areas • Out-migration of skilled graduates and workers; retention of post graduates within the region a key challenge. Anecdotal evidence of companies struggling to recruit • Low levels of exports relative to national average • Limited innovation and exploitation of IP. • Lack of indigenous early adopters for new technologies.
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Opportunities • Growing and emerging markets for low carbon technologies supported by national and international policy • The Climate Change Act and its legally binding emissions reduction targets to increase business certainty and confidence and improve prospects for FDI • Significant offshore resources for wind and tidal • Potential to work with other RDAs to leverage complimentary regional assets and skills. • Exploitation of IFI funding and associated sources of finance from the power generation industry for the benefit of regional companies • Growing overseas markets offer opportunity to develop significant export markets, e.g. in traditional EGS segments • Ensure gain share of significant amounts of Government funding likely to be made available to support development of key markets, e.g. recently for Smart Grids.
Threats • Strong competition from other Regions across most parts of the sector, especially the East Coast and Scotland • International competition from other countries seeking inward investment for sector development, e.g. France, Spain and Germany. • Competition for ongoing regional investment from foreign owned companies which decision making often taken outside the region • Sector is still driven by policy and regulation rather than sustainable market pull. There is a risk that a change in National Government could alter the economic landscape. • It may be difficult for the region to catch up with UK averages on skills and innovation when improvements are seen as a national priority.
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ANNEX 5 Segment Analysis Summary
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ANNEX 6 Sector Drivers, Trends and Opportunities
1. Key Regulatory and Financial Market Drivers Across the UK, the market for the uptake and deployment of low carbon and environmental goods and services is being heavily driven by Government intervention and regulation. Key amongst these with relevance to the Northwest are: • Price of fossil fuels and energy security. Ultimately a significant driver for the uptake and deployment of low carbon technology is their (lifetime) cost relative to incumbent solutions, specifically for applications currently using fossil fuels. Recent volatility in the price of oil has begun to alter the commercial landscape in the favour of alternative technologies, and stimulated early market demand in some niche segments, for example off grid heat biomass. Oil prices are anticipated to remain volatile and are unlikely to return to the low of the 1990s. Future trends will heavily influence the economic case for new technologies. • Large scale renewable electricity generation is currently supported by the Renewables Obligation78. This, together with the Renewables Obligation Scotland and the Northern Ireland Renewables Obligation, requires electricity suppliers in the UK to source a proportion of the electricity they supply from renewable sources. In effect, generators can obtain a premium price for renewable electricity. The Renewable Energy Strategy 200979 notes that the impact of the policy so far has been to increase eligible renewable electricity generation in the UK from 1.8 per cent of electricity in 2002 to 5.3 per cent in 2008 and also comments that the UK is now number one in the world for installed offshore wind capacity. The 2009 strategy confirms that the Renewables Obligation will remain the main support scheme for large-scale renewable electricity projects and extends the scheme, for new projects, beyond its current end date of 2027 until 2037. • The Energy Act 200880 introduced support for smaller renewable energy generation through the Renewable Heat Incentive and Feed-in tariffs: - The Renewable Heat Incentive is due to be introduced in April 2011 and will be available to a wide range of technologies and scales. The Government is currently consulting on the details of the scheme but is thought that it will operate in a similar manner to the Renewables Obligation Mechanism. - Feed-in tariffs will offer support to renewable energy installations of up to 5 MW generation capacity per site81. The Government is committed to introducing the tariff from April 2010, and at present is planning to include a fixed payment for each kWh generated, whether used on-site or exported into the local distribution grid, plus a guaranteed minimum additional payment for electricity that is exported to the grid. Technologies covered by the tariff from 2010 are: wind, solar PV, hydro, anaerobic digestion, biomass and biomass combined heat and power (CHP), and nonrenewable micro-CHP. • The UK Government is committed to ensuring that all new buildings are ‘zero carbon’ by the year 2016 (for housing) or 2019 (for non-domestic buildings)82. In practice this means that the Building Regulations83 requirements are tightening in stages up to 78
http://www.ofgem.gov.uk/sustainability/environment/renewablobl/Pages/RenewablObl.aspx http://www.decc.gov.uk/en/content/cms/what_we_do/uk_supply/energy_mix/renewable/res/res.aspx http://www.opsi.gov.uk/acts/acts2008/pdf/ukpga_20080032_en.pdf 81 Installations of up to 50kW will be eligible for the Feed-in tariff only; installations of between 50kW and 5MW will be able to choose between the Feed-in tariff and the Renewables Obligation 82 http://www.communities.gov.uk/archived/publications/planningandbuilding/buildinggreener 83 http://www.planningportal.gov.uk/england/professionals/buildingregs/technicalguidance/bcapproveddocumentslist/ (see Part L, for dwellings and for buildings other than dwellings) 79 80
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these dates: for housing, the requirements for the overall carbon performance of a new build property will tighten by 25 per cent in 2010, by 44 per cent in 2013 and then to zero carbon in 2016. For homes, the changes to the Building Regulations will follow the various levels of the (currently voluntary) Code for Sustainable Homes84. The changes will support greater use of both energy efficiency and renewable energy technologies. • Although Building Regulations apply primarily to new buildings, there are also a number of regulatory drivers for improved carbon performance in existing buildings. The Carbon Reduction Commitment (CRC) is a new cap and trade scheme intended to reduce carbon emissions in sectors of the economy not currently covered by the European Emissions Trading Scheme (EU ETS) or the UK Government’s Climate Change Agreements (CCAs). It will be mandatory and will apply to all organisations outside the EU ETS or CCAs with annual electricity consumption greater than 6,000MWh (for example, supermarket chains, large local authorities and government departments). The introductory phase of the scheme is intended to begin in April 2010. Participants will receive a carbon emissions allowance that they must pay for. At the end of a year, their emissions reduction performance will be recorded and a league table created. All the revenues from the initial sale of allowances will be recycled to participants based on their initial emissions plus or minus a bonus / penalty depending on their position in this league table85. • Smaller energy users are subject to a number of lesser incentives, including the information contained in Energy Performance Certificates86, financial incentives for energy efficiency investments from energy suppliers under the Carbon Emissions Reduction Target87 and the Community Energy Saving Programme88 and, in the case of local public sector bodies, the carbon-related performance indicators within the new performance framework89. • The main regulatory driver for increased action on waste management and recycling remains the landfill tax. The tax aims to reduce waste sent to landfill by making waste minimisation and recycling more attractive financially, and is increased annually. In the 2007 Budget the Chancellor announced that the rate of increase of the tax would be stepped up, with the tax for each tonne of active waste (waste that results in emissions) increasing by £8 each year until at least 201390 and will be £48/t in April 2010. Alongside this, the development of options for recovering energy from waste may be encouraged through the Renewables Obligation, described above. For example, anaerobic digestion is one of the technologies in the most advantageous band within the Obligation, gaining two Renewables Obligation Certificates for every 1MW of electricity generated91. The updated Regional Waste Strategy92 includes specific policies for EfW. • In addition to the landfill tax, the Environment Agency’s Landfill Allowance Trading Scheme (LATS)93 allocates each waste disposal authority in England a number of tradable landfill allowances, allowing it to landfill an amount of biodegradable and municipal waste (BMW) each year. Authorities can trade or save (for future years) unused allowances, or borrow credits against future years’ allowances. In its first year of operation in 2005/06 the total amount of BMW waste was 18.5% less than the credits allocated. As the allocated annual allowances are reduced, however, it is expected that the opportunities for revenue creation (by selling excess credits) and the 84
http://www.communities.gov.uk/planningandbuilding/buildingregulations/legislation/codesustainable/ http://www.carbontrust.co.uk/climatechange/policy/CRC.htm Introduced as part of the implementation of the European Energy Performance of Buildings Directive. 87 http://www.decc.gov.uk/en/content/cms/what_we_do/consumers/saving_energy/cert/cert.aspx 88 http://www.ofgem.gov.uk/Sustainability/Environment/EnergyEff/cesp/Pages/cesp.aspx 89 National Indicator 185 relates to a local authority’s own carbon emissions; National Indicator 186 relates to carbon emissions across the whole local area. 90 http://www.defra.gov.uk/environment/waste/strategy/strategy07/documents/waste07-strategy.pdf 91 http://www.berr.gov.uk/files/file49197.pdf 92 www.4nw.org.uk/updatedrws2010 93 http://www.defra.gov.uk/Environment/waste/localauth/lats/index.htm 85 86
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possibility of fines and extra expense (if more permits are required) will be significant drivers for the continued reduction of BMW waste in the medium term. • The development of a smarter grid is seen as integral to the changes in energy supply and use that will be necessary to the transition to a low carbon economy. In ‘Smarter grids: the opportunity’94 the Government sets out what it sees as the main benefits of such grids, including: a more reliable and cost effective system, greater consumer control over energy use, and the ability to smooth peaks in demand which will result in a more efficient and less polluting system. There are a number of UK smart grid pilots underway and the government has recently launched a £6 million smart grid demonstration fund. • The Innovation Funding Incentive (IFI) was introduced in 2005 as part of the electricity distribution price control programme for 2005-10, managed by Ofgem. It is aimed at reversing the decline in R&D activity undertaken by the District Network Operators and requires them to collaborate with industry and academia in the development of new technologies. Eligible projects are those focused on enhancing the technical development of distribution networks. £12.1 m was invested in 2007/8 and IFI will increase from next year with the addition of the Low Carbon Network Fund95. 2. Other Regional Market Drivers In addition to the political and regulatory landscape, there are a number of specific regional attributes and market drivers that need to be considered within the context of developing the sector strategy. These are considered below. 2.1 Availability of Regional Resources The Northwest has a wealth of existing resources that are fundamental prerequisites for the development of a strong regional low carbon sector, and underpin the potential for future growth. Its heritage in oil & gas, engineering and manufacturing provides a legacy of skills and assets, which together with its natural resources, can be leveraged for the benefit of the low carbon sector. These include: • Knowledge Base – the Northwest has strong regional expertise in key areas of academic and industrial research and development of relevance to this sector. Specifically these include: - Electrical and Power Engineering; e.g. University of Manchester, National Grid High Voltage Research Centre; Lancaster University, Manchester Metropolitan University, Liverpool John Moores University, University of Liverpool; - Marine Engineering – e.g. University of Manchester; University of Liverpool (incl. Maritime Environment and Water Systems Research Group); Lancaster University (Renewable Energy Group); Proudman Oceanographic Laboratory; Centre for Ecology and Hydrology (NERC); - Low Carbon Buildings – e.g. Salford University, Sustainable Consumption Institute at University of Manchester, University of Cumbria, Energus Academy, Concrete and Structural Research at Liverpool University, Construction Knowledge Hub (Salford, Lancaster & Liverpool Universities); - NWUA Academic Network which operates across the whole ETS sector; - Private sector knowledge based clusters, e.g. BAE Submarine Systems. More detailed published sources of capability include: http://www.nwua.ac.uk/docs/pdf/Environmental_Capabilities_in_the_Northwest.pdf, and http://www.nwua.ac.uk/docs/pdf/ETS_2009_Feb20.pdf 94
http://www.decc.gov.uk/en/content/cms/what_we_do/uk_supply/network/smart_grid/smart_grid.aspx
95 http://www.ofgem.gov.uk/Networks/Techn/NetwrkSupp/Innovat/ifi/Pages/ifi.aspx
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• Natural resources – the region has some of the best resources for renewable power in the UK, specifically: - Wind – The UK has 40% of Europe’s wind resource and the Northwest is regarded as one of the most promising regions for offshore wind power. Under Round 3 of the Crown Estates concessions, the Irish Sea Zone has been identified as having the potential to produce up to 5 GW; Shallow sloping shores makes installation and management of farms relatively easy; ports facilities at Barrow, Liverpool, Birkenhead and Workington already geared to serving offshore energy industry. Significant existing installed capacity and associated know-how (652 installed turbines and 2.36 GW); - Tidal - 650 miles of shallow coastline and a variety of tidal estuaries with the potential to generate 50 % of the regions energy needs. Shallow sloping shores makes installation and management of off shore devices relatively easy. Recent work by the Joule Centre has identified possible locations for tidal energy schemes in the river estuaries of the Mersey, Wyre Estuary, Duddon, Morecambe Bay and Solway Firth. These could collectively could provide 5-7 GW of capacity; - Biomass – The region has the largest supply of biomass in the UK, estimated at 2m tones per annum (tpa). This includes waste woodchip but also large volumes of clean wood, industrial, commercial and municipal waste streams (see below). • Size of population - the Northwest has a population of around 7 million, making it the third largest region in the UK outside South East and London. The absolute volume, plus the concentration within the large cities and conurbations of Manchester, Liverpool, and Lancashire presents strong attributes in terms of: - Waste streams – generation of large and consistent flows of municipal and industrial waste streams that require treatment and management, and offer potential for exploitation for power generation and/or heat recovery (energy from waste – EfW). - Availability of workforce – a large proportion of which is skilled in many of the disciplines required to support the development of the sector. This is a consequence of the regions legacy of expertise in the manufacturing and engineering sectors. In addition, average wages are lower than some other regions such as the South East96. - Infrastructure – the Northwest has well developed innovation, communication and transportation assets to support economic development and facilitate cross regional coordination of activities within the sector. - Quality of Life – the Northwest is perceived as an attractive place to live, with 88% of residents claiming to be very or fairly satisfied with the region. There are a number of factors which contribute to this perception including the vibrant city life, (including the strong cultural and sporting scene) and the opportunities for outdoor activities in the Lake District and elsewhere in the region. Large organisations such as the BBC are increasingly choosing to situate themselves in the region.97 2.2 Sub Regional Activity Within the context of the pan regional resources described above, each of the sub regions has specific resources and areas of expertise that are of relevance to this strategy. These have been identified by each Sub Regional Partnership, and have then informed the development of their individual renewable and low carbon strategies. Key areas of expertise are summarized in Table 4.
96 97
Perceptions of England’s North West, 2008-2009 SQW consulting, February 2009 Perceptions of England’s North West, 2008-2009 SQW consulting, February 2009
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2.3 Existing Sector Support There is a significant baseline of support initiatives for the LCEGS sector in the region that provides financial and specialist consultancy support for innovation and enterprise in the Sector. The regional budget for those programmes focused solely on the regional LCEGS sector between 2009 and 2012 is ÂŁ18m. In addition there are a number of regional programmes that are not sector specific. Key initiatives are summarized in Annex 7 but exclude those of specific relevance to nuclear power or low carbon vehicles which are considered elsewhere.
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ANNEX 7 Summary of Existing Regional Support Initiatives
Initiative
Scope
% share taken by LCEG S
Delivery Agent
Cluster Support Programme
Delivery of sector development support to environmental technology companies in the renewable energy, energy efficiency and water sectors. Sector development activities include trade promotion of regional companies to foreign markets, specialist business support, and promotion of the sector.
100%
Envirolink Northwest
Low Carbon Market Development Programme
The LCMDP will help overcome the barriers for the development of renewables such as planning, grid connections and finance and funding, and provide advice and support to businesses and large scale developments in the region. The aim of the project is to increase the market for renewable energy in the region and to help grow the renewable energy companies within the environmental technologies sector.
100%
Envirolink Northwest
Biomass Work Programme
Provides support to energy intensive industries, particularly those that are subject to the EU Emissions Trading Scheme or are in a Climate Change Levy Agreement and are already engaged with the Carbon Trust. Assistance is available for the steps in the pre planning permission stages, the aim being to reduce the risk of preparing biomass proposals. Support covers environmental assessments and modelling, equipment assessments, site surveys, gird connections specifications and assistance with capital grant applications.
100%
Envirolink Northwest
Waste Virtual Centre of Excellence 2
The Waste Project aims to both develop the market for recycled products in the region, through projects such as the Buy-recycled code, and support the development of businesses in the sector. Support is offered to the businesses in the sector to help find end markets, assistance with trade promotion and advice and guidance on innovation and the commercialisation of new technologies.
100%
Envirolink Northwest
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Summary of Existing Regional Support Initiatives (Cont)
Climate Change Challenge Fund
The Challenge Fund was offered through a competition to businesses and the public sector for projects that showcase the use of low carbon or resource efficient technologies. Envirolink Northwest provided advice and guidance to applicants as well as information on other funding sources.
100%
NWDA facilitated by Envirolink Northwest
Northwest Tidal Energy Group
The Northwest Tidal Energy Group is a collection of developers, academics, industry and environmental groups interested in the development of tidal energy in the Northwest. Facilitated and chaired by the NWDA, the overall aim is to position England’s Northwest as a global leader in the exploitation of tidal energy. In order to achieve this the Northwest Tidal Energy Group will: Act as a forum for exchange of best practice and ideas pertaining to the Northwest tidal energy sector; explore the potential for energy extraction, and its likely implications, from the Irish Sea and its surrounding coastline.
100%
Envirolink Northwest
Energy Innovation Centre
The project builds on the reputation and skills of EA Technology (formerly the research laboratories for the Electricity Council) to identify, encourage and develop financially viable innovative technology for the electricity transmission and distribution industry using Innovation Funding Incentive monies from the partner utility companies. The project is delivered by EA Technology on behalf of the NWDA and the partner utility companies.
100%
EA Technology
Joule Centre for Energy Research
The Joule Centre supports low carbon energy research and development projects in the region and promotes the capabilities of the region’s university energy research capabilities. The Joule centre encourages links between universities and industry in the region by funding projects that involve university and industry collaboration.
100%
Manchester University
Innovation Voucher Scheme
Innovation Vouchers are designed to help Northwest businesses owners, entrepreneurs and social enterprises to purchase a knowledge provider's expertise to develop innovation and enhance business. Provides voucher of £3,000 and £7,000 to growing businesses and social enterprises and was set up to encourage and make it easier for more people to engage with the knowledge base; in particular universities and FE colleges.
n/a
NWDA
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Summary of Existing Regional Support Initiatives (Cont)
Grant for Research and Development (GRAND) and Carbon Reduction Demonstratio n Award
The GRAND scheme aims to help entrepreneurs and business owners look at the market for and introduce innovative products and processes including research trials and product testing. Designed specifically to support technically innovative projects that have a solid commercial potential. Grants are only available to small and medium sized businesses (those with less than 250 employees) and turnover of less than !40 million. Grants range from £5,000 to £500,000.
16%
NWDA
Carbon Reduction Demonstratio n Award
An extension of the existing GRAND award to allow SMEs to apply for funding to capital grant support for the demonstration phase of product develop for a low carbon or resource efficient technology.
100%
NWDA
Grant for Business Investment (GBI)
Formerly titled Selective Finance for Investment in England (SFIE), GBI is a form of financial assistance available to businesses located in Assisted Areas in England to support their expansion, modernisation, rationalisation and diversification.
<10%
NWDA
Business Support and Information Service
Business Link is the business support, advice and information service for businesses in the Northwest. It has expert advisors for companies in the energy sector and is targeting companies within the energy sector to ensure they have access to the wide range of business support products on offer in the region.
n/a
Business Link
Northern Wind Innovation Programme
£2.6 m research fund focused on AC/DC electrical conversion, foundation system optimisation; bearing quality improvement; installation technologies.
100%
NaREC and Envirolink Northwest
Carbon Abatement Technology Innovation Fund
The Northern Way has jointly funding a call for collaborative research project in carbon abatement technology with the TSB and DECC.
100%
TSB
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ANNEX 8 International Outlook The global value of the LCGS market reached ÂŁ3,046 billion in 2007/2008, with Asia accounting for 38%, Europe 27% and the Americas 30%. The largest individual markets were the United States (20.6% of the total) and China (13.5%). Other significant markets include Japan and India (each 6.3%), Germany (4.2%), United Kingdom (3.5%) and France (3.0%). As discussed in Section 2.1, this overall market can usefully divided into three sub sectors, traditional Environmental Goods and Services, Renewable Energy and Emerging Low Carbon activities. The relative value of each of these sub sectors globally is shown in Figure 1, with Emerging Low Carbon Technologies the largest with a 47 % contribution. Figure 1 Global market value for Sector, 2007/0898
These three sub sectors can be broken down into a total of 23 segments, with the top 10 accounting for over 90% of the total market value. Figure 2 shows the contribution of each to the overall global total of ÂŁ3,046bn.
98
Innovas, 2009, ibid
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Figure 2 Global market value of largest 10 Low Carbon and Environmental Goods and Services segments99
The top four segments, Alternative Fuel, Alternative Vehicle Fuel and Building Technologies all sit within Emerging Low Carbon, and between them account for nearly 50% of the total market value. Within Renewable Energy, Wind, Geothermal and Photovoltaic are all significant segments. The majority of the traditional Environmental Goods and Services segments are relatively small, reflecting the overall low contribution of the sub sector to total market value; however it is still significant at ÂŁ670bn per year and with a growth rate of 3%.
99 Envirolink Northwest â&#x20AC;&#x201C; Update of Market Intelligence of the Environmental Technologies and Services Sectors, Innovas in partnerships with KMatrix, May 2009 (accompanying spreadsheet document)
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