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Low Carbon and Environmental Goods and Services Sector Strategy for England’s Northwest Summary 2010
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Overview The low carbon economy is universally regarded as a key component of future social and economic prosperity. The drive towards a low carbon economy to address the global challenges of climate change, diminishing fossil fuels and finite natural resources is generating tremendous business opportunities. Indeed some commentators suggest that the transition to a low carbon economy presents one of the most significant economic opportunities ever known. Government carbon emissions reduction and renewable energy policies, at national and international level, have acted as catalysts for growth for the Low Carbon and Environmental Goods and Services (LCEGS) sector. Increasing regulation and legislation, together with growing consumer demand for low carbon products, is expected to lead to future sector growth, which will far exceed other areas of the economy. However, businesses in the sector face increasing challenges, not least in understanding the new markets of the low carbon economy. With strong national and international competition, quick, decisive action is required to ensure the Northwest is positioned to gain maximum economic benefit and exploit new market opportunities. This strategy was developed by the Northwest Regional Development Agency (NWDA) in partnership with businesses, universities and public sector partners. Its purpose is to provide a framework for the development of the LCEGS sector in the region. The document seeks to identify the most significant opportunities for growth, and to define where and how the Agency and its partners can add real value, by promoting innovation and addressing market failure.
What is the LCEGS Sector? The LCEGS sector includes technologies, goods and services that provide solutions to environmental problems. It covers: traditional environmental sectors such as waste management, recycling and, water and waste water treatment; renewable energy technologies such as wind energy, tidal, solar and hydro power; and emerging low carbon technologies such as electric vehicles, building technologies and carbon capture and storage. This definition of the LCEGS sector also includes elements of the nuclear sector. However, nuclear is not included in this document as there is a separate strategy to cover the nuclear industry in the region.
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Policy Context Europe The low carbon economy is seen regionally, nationally and internationally as a key element of future economic prosperity. The European Commission’s ‘Europe 2020 Strategy’ puts forward three mutually reinforcing priorities: • Smart growth: developing an economy based on knowledge and innovation. • Sustainable growth: promoting a more resource efficient, greener and more competitive economy. • Inclusive growth: fostering a high-employment economy delivering social and territorial cohesion. Since 2000, the European Union’s Climate Change Programme has produced a number of policy initiatives that support the development of a low carbon economy, most notably the EU Emissions Trading Scheme. The Renewable Energy Directive, meanwhile, sets mandatory national targets, requiring countries to produce national renewable energy action plans. The UK is expected to meet 15% of its overall energy needs from renewables by 2020 – its 2008 level was 2.25%.
UK The UK Government aims to ensure that the transition to a low carbon economy is an opportunity to create quality jobs by defining the UK’s strengths and outlining support for growth in low carbon industries. 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.
Region The Regional Economic Strategy for the Northwest identifies ‘energy and environmental technologies’ as a key sector for growth. This strategy sets the vision, aims and objectives for the development of this sector in the region which, in line with UK Government’s definition is now referred to as the Low Carbon and Environmental Goods and Services (LCEGS) sector. The need for a low carbon Northwest is reflected in several key regional strategies and action plans, including: the Northwest Climate Change Action Plan, which aims to reduce carbon dioxide emissions and energy demand and to promote low carbon technologies; the Low Carbon Housing and Fuel Poverty Activity Plan; and the Sustainable Consumption and Production Action Plan, which is concerned with improving resource efficiency in the region and preserving natural resources. In addition, the Northwest Enterprise Strategy recognises the need to support the development of a low carbon economy, and the region’s Internationalisation Strategy includes action to promote the Northwest's expertise in energy and environmental technologies in international markets.
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Overview of the Sector The LCEGS sector in the region is well-established, and has grown consistently over the past five years. There are currently over 5,000 LCEGS businesses in the Northwest, 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 to London and the South East. Between 2006 and 2008 the sector grew by 4.9%, compared to the UK average of 3.6%. The sector is becoming an increasingly significant player on the international stage achieving an increase of 18% in the value of regional exports between 2006/7 and 2007/8, and securing 5.7% of the region’s inward investment in 2008/9, considerably more than the national average of 2.2%.
Regional Strengths The Northwest is well-placed to exploit future growth in the low carbon economy due to its expertise in the renewable energy and low carbon sub-sectors, both in industry and academia; its broad industrial legacy in areas such as nuclear, waste and biomass processing; and its strong natural resources, especially around wind and tidal. The Northwest is home to a number of key low carbon and environmental businesses including United Utilities, ABB, Bendalls Engineering, BGlobal, Ener-g, Vital Energi, Baxi, Knauf Insulation, Peel Energy, Vestas UK Sales HQ, Siemens Transmissions, EA Technology and Electricity Northwest which are supported by well-established professional services with sector expertise. The region also benefits from a large talent pool of high quality graduates and skilled labour, especially in engineering, and its large population provides strong indigenous demand for LCEGS products and services. In addition, significant sector support already exists in the region with an estimated £18 million to be spent between 2009 and 2012 on a range of support programmes.
Sub-sector Priorities The LCEGS sector can be divided into three key segments: traditional environmental goods and services; renewable energy technology; and emerging low carbon technology and services. Over the last 5 years there has been a strong emergence of the renewable and low carbon sub-sectors to rival and eclipse the traditional environmental sector. This growth is predicted to continue and as a result segments within the renewables and low carbon subsectors will be prioritised. Within the three key sub-sectors the Northwest has specific strengths in the following areas:
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Offshore Wind
Tidal
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 of Crown Estates Licencing is home to 7GW of planned wind power investment.
Three of the six potential UK sites for tidal energy are in the Northwest making it a strength of the region. The national Renewable Energy Strategy identifies Morecambe, Solway Firth and the Mersey as locations which may be suitable for renewable tidal energy exploitation.
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 significant market opportunity. The wind industry is wellestablished in Europe and there are a few barriers to entry for UK companies such as competing with an established supply chain. However with support the Northwest supply chain can exploit the huge potential and create jobs and wealth for the region.
Solid State Lighting A recent report by Envirolink Northwest identified a cluster of over 100 lighting businesses in the region, half of which are developing Solid State Lighting (SSL). The market for SSL is global but with increased support businesses in this area could compete on quality and innovation, and continue to develop and grow.
The Northwest has strong regional expertise in key areas of academic research and development of relevance to this sector, specifically: Proudman Oceanographic Laboratory; Lancaster University's Renewable Energy Group; and marine engineering at the University of Manchester.
Smart Grids The region has a strong heritage in the electricity industry and is home to a number of Tier 1 suppliers including Siemens, ABB, EA Technology and the region’s District Network Operators, Electricity Northwest and ScottishPower. In addition, Manchester, Liverpool and Lancaster Universities all have research expertise in smart grids. Manchester University is currently developing the first smart grids course in the UK.
SSL is forecast to grow from 5% of all light installations to 30% by 2018, which presents a significant growth opportunity for Northwest SSL businesses.
The smart grids market is in the early stages of development. However, rapid growth is anticipated in response to OFGEM’s Low Carbon Network Fund which will make £500m available for the development of smart grid technologies over the next 5 years.
Energy Management in the built environment
Biomass
The Northwest has significant academic expertise in this area with Salford University’s Built Environment Research receiving a 6 star rating. A number of the UK’s leading companies such as Ener-g and Vital Energy are also based in the region. This sub-sector has strong policy and regulatory drivers which are encouraging the uptake of new products and services such as Energy Performance Certificates and the Carbon Reduction Commitments. 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 the buildings.
The Northwest has the largest supply of reprocessed wood in the UK and a ready market of industrial process heat users from the Chemicals, Food and Drink, Paper and Board and Textile sectors. Demand for biomass products is expected to be driven further next year with the introduction of the Renewable Heat Incentive. It is estimated that the total number of jobs which will be created in the UK by demand for biomass will be around 1,600.
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Waste and Recycling The Northwest has a large waste and recycling sector, with approximately 1,300 companies but it is not characterised by a large number of technology companies unlike the SSL sub-sector. The waste and recycling sub-sector plays a key role in achieving a zero waste economy. A priority for this strategy is securing inward investment projects in the energy from waste sector which will bring large scale investments into the region generating new opportunities for regional construction companies.
Opportunities Government policies and initiatives at both national and European levels will continue to be key drivers of the low carbon economy, encouraging the development of, and demand for, new technologies. Innovation will be the key to success and ensuring that Northwest businesses have the capability and the support required to innovate will be of paramount importance. To this end, it will be vital that the region develops the required skill sets to meet the future needs of businesses. Northwest businesses will need to ensure that they exploit available funding opportunities through targeted initiatives such as the smart grids Low Carbon Network Fund, Innovation Funding Initiative, Technology Strategy Board and European funds. Global LCEGS markets are predicted to continue to grow strongly, creating new export opportunities for businesses and potential for further foreign direct investment into the region. The Northwest must be proactive and seize these opportunities to ensure the ongoing prosperity of the sector.
Challenges The region does, however, face some challenges which this strategy seeks to address. One of the key issues is the barriers against innovation and the “valley of death� faced by technology companies commercialising new products. The sector in the region is characterised by SMEs, many of which have products based on home grown innovation and design. Targeted support to help SMEs innovate, develop and test low carbon products will help the Northwest become a leader for the development of low carbon and environmental goods and services. There is also work to be done to raise the profile of the sector within and outside of the region to support increased investment into, and exports out of, the region. The value of exports from LCEGS businesses in the Northwest is currently below the national average. New skills will be required to deliver the changes brought about by a low carbon future. One of the key challenges will be to define the future skills needs of businesses in the sector. The next step, which has already started in some areas such as Microgeneration Certification Scheme (MCS) training, is to develop appropriate training and assist the workforce to develop new skills sets. This strategy aims to contribute to the debate and help shape the skills provision in the region by working in partnership with the Sector Skills Councils and the National Academy for Skills. 6
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Strategic Framework This strategy is targeted at private as well as public sector organisations and academic institutions. Its successful implementation will be reliant upon close collaboration between all three sectors.
Our vision: The Vision for the LCEGS sector is:
In 2020 the Low Carbon and Environmental Goods and Services sector will be 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.
Aims 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 • To secure targeted private sector investment in support of regional business growth.
Strategic Priorities 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 growth opportunities and successfully leveraging 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. 6. Skills: Attract high-quality candidates to study in the region and encourage the retention of graduates and skilled labour within the industrial base to develop the available talent pool.
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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 • Barriers/market failures.
Based upon this analysis a framework has been developed that provides a hierarchy of support based upon the relative level of regional priority with Smart Grids, Solid State Lighting and Tidal Energy emerging as the top three priorities for investment by NWDA and partners. (Nuclear is also a priority but is dealt with in a separate action plan, while Low Carbon Vehicles are covered in the recently launched Manufacturing Strategy Action Plan). The framework is summarised as follows:
INVEST: Key strategic priorities in emerging markets where the region has a strong knowledge base and potential unique selling points. Focus for development of regional propositions as markets mature over next 12-24 months.
BUILD: Continue to provide support and specialist interventions for the ongoing development of market segments of regional significance. Ensure success of ongoing initiatives.
SUPPORT: Work with segments as appropriate to optimise growth opportunities. Look to identify and elevate future priorities for investment.
KEY STRATEGIC THEMES: Underpinned by specific objectives; delivered via Action Plan
• Smart Grids • Tidal • Solid State Lighting
• Offshore Wind • Biomass (incl. EfW) • Energy Management in Buildings
Core Portfolio (Including Water/Wastewater; Waste and Recycling; PV; Alternative Fuels; Carbon Capture Storage; etc.)
Strategic Market Innovation Leadership Development Support
The success of the strategy will depend on many factors, including some outside of local 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. Targets have been established for each of the priority sub-sectors highlighted in the framework above, as well as a list of actions for the first three years of the strategy. Key actions are provided in the table on the following pages.
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Investment
Exports
Skills
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Action Plan Strategic theme 1: Strategic Leadership Objective
Action
Provide focus and strong direction for the development of the regional sector, specifically emerging markets.
1.
Lead NWDA
Monitor the performance of the strategy and the evidence base. a) Review progress against the Key Performance Indicators 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.
NWDA
3.
Work with other regional strategies to ensure joined up delivery across the region.
NWDA
Strategic theme 2: Market Development Objective
Action
Lead
Identify and develop early market opportunities and provide supply chain development support to facilitate access to markets.
1.
Work with end users to overcome market barriers to the uptake of new technologies in the Northwest with a focus on the priorities of SSL; Smart Grids; Tidal; Offshore Wind; Energy Management in Buildings and Biomass.
Envirolink Northwest
2.
Support regional initiatives that will create a local market such as Power from the Mersey and the Manchester Low Carbon Economic Area.
NWDA
Strategic theme 3: Innovation Support Objective
Action
Realise stronger communication between industry and the regional research base and improve the rate of technology transfer.
1.
Lead Increase the LCEGS sector’s success rate with Grant for Energy Innovation Centre and Research and Development and Innovation Vouchers. Envirolink NW
2.
Increase the LCEGS sector’s success rate with national and international funding such as Technology Strategy Board and Energy Technologies Institute.
Envirolink Northwest
3.
Support business engagement with the region’s knowledge base to facilitate technology transfer.
The Joule Centre
4.
Raise the levels of innovation in the sector.
Business Link Innovation Advisors
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Action Plan Strategic theme 4: Investment Objective
Action
Lead
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; Energy from Waste and offshore wind.
NWDA and North of England
2.
Coordinate the regional proposition and inward investment enquiry handling through the Sector Investment Group.
NWDA
3.
Increase the investment in the sector and Northwest Equity Fund and other Venture Capital funds.
Envirolink Northwest and the Energy Innovation Centre
Strategic theme 5: International Trade Objective
Action
Provide specific and focused support for the development of export and internationalisation opportunities amongst the more mature segments of the portfolio.
1.
Lead Support the sector with international trade activities to increase the rate of exports for the region.
UKTI and Envirolink Northwest
Strategic theme 6: Skills
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Objective
Action
Lead
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.
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.
NWDA
3.
Develop the region’s HEI skills provision for the sector.
North West Universities Association
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Monitoring and Implementation It is vital that the implementation of the actions outlined in this strategy are monitored and evaluated to ensure that the strategy’s objectives and the sector’s potential are being realised. Key measures to monitor progress include: `
PRIMARY INDICATOR: Total sector GVA
Annual growth rate of the sector relative to the national average
Secondary Indicators:
Numbers of jobs created Increased GVA per employee Numbers of businesses receiving advice
Measuring success
Export levels New business start-ups
Monitoring progress
Increases in average salary levels Investment in research through research councils, Grant for Research and Development and Innovation Vouchers Number of inward investment projects Investment into the sector via NWDA finance products
Implementation Envirolink Northwest, the Energy Innovation Centre, The Joule Centre for Energy Research, North West Universities Association and Business Link Northwest along with sub-regional partners, local authorities and NWDA will play a key role in ensuring the successful implementation of the strategy.
The full version of the Low Carbon and Environmental Goods and Services Sector for England’s Northwest document can be downloaded at www.nwda.co.uk/lcegs
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