Pressure has grown to devel- op renewable energy sources as a replacement for fossil fuels, which are blamed for air pollution and global warming.
By 1998, this trend had effectively split the petroleum industry into two camps. One camp believed there was not sufficient proof of a link between the burning of fossil fuels and suspected global warming to justify massive changes in the energy sector.
The other camp believed that precautionary action-acting as though a link between burning of fossil fuels and global warming had been proved-was a way of limiting potential environmental damage.
The U.S. petroleum industry belonged to the no-proof camp. It lobbied against tighter environmental legislation in the name of global warming prevention.
The precautionary principle camp was almost entirely European. In Europe environmental groups were more active and more influential than in the U.S., as recent protests over Brent Spar and human rights issues proved.
Yet European companies were pursuing "greener" energy technologies not, they claimed, because of opposition from campaign groups but because they thought they could make money from renewable energy.
Government targets
The United Nations` Kyoto treaty on climate change, agreed in December 1997, called for developed nations to reduce greenhouse gas emissions by an average 5.2% from 1990 levels by 2012.
For a number of reasons, governments and the energy industry in Europe responded more favorably to the Kyoto treaty than did their U.S. counterparts, spawning new renewable energy targets.
In response to Kyoto the European Union (EU) proposed to double from 6% to 12% the share of energy supply obtained from renewables in Europe by 2010.
As is typical within the Brussels-based European political system, though, the agreement became blurred as countries with little fossil fuels production sought tougher targets and countries with large fossil fuel industries campaigned for less onerous changes.
Typifying the European debate was a public argument over a "leaked" EU document. The environmental campaign group Greenpeace took on the U.K. government, which at that point was taking its turn for the 6-month presidency of the EU.
Greenpeace claimed the document revealed that Energy Minister John Battle was "secretly opposing a European plan to double from 6% to 12% the amount of energy to be obtained from renewables in Europe by 2010."
Greenpeace claimed that, despite having one of the best renewable resources in Europe, the U.K. was at the bottom of the renewable energy league: "Less than 1% of U.K. energy is generated by renewables."
The U.K. Department of Trade & Industry (DTI) denied the charges, stating: "Renewable energy is the energy of the future. We must campaign for it, get together and cooperate whenever we can to ensure that it has a future."
A DTI official said Greenpeace misunderstood details of the renewables argument. DTI`s target was that by 2010, 10% of all electricity generated in the U.K. would come from renewable sources.
EU`s target, said the official, was for 12% of all energy used to come from renewable sources by 2010. The EU target included energy used in transport, making U.K.`s a more ambitious renewables program.
At the time Britain had approved 533 projects under its Non-Fossil Fuel Obligation (NFFO) order scheme, under which U.K. electricity companies were required to take a certain amount of power from nonconventional plants, with combined capacity of 2,094 megawatts (MW).
Meanwhile, British Wind Energy Association (BWEA), London, said that by 2025 wind power alone could provide 10% of U.K. electricity.
BWEA Chief Executive Nick Goodall said it made sense for the government to pursue a secure and diverse energy supply: "There can`t be many people, with the exception of several large corporations which are in denial, who don`t see great change in the energy mix ahead.
"But there has been lots of digging in of feet and talk of ring-fencing-so much for coal, so much for oil, and so on. Growth doesn`t have to be in core business-it can come through diversification."
In September 1998 Battle launched a consultation document on how to incorporate offshore wind farms into the NFFO program: "Achieving 10% of our electricity supplies from renewable resources by 2010 will require a further sizable contribution from the U.K.`s huge offshore wind resource, at least as much again as has been contracted under NFFO to date.
"My confidence in the further successful expansion of onshore wind has been boosted by the degree of interest shown in the latest round of the NFFO. The demand to develop onshore wind farms is clearly enormous, with 117 bids received."
Shell`s scenarios
Against this background European petroleum companies made moves into renewables, the biggest by Royal Dutch/Shell in late 1997.
The Anglo-Dutch giant announced the formation of a fifth core business unit-Shell International Renewables (SIR)-which would be backed by an investment of more than $500 million over 5 years.
SIR`s investment was to be split roughly 50:50 between solar power projects and biomass power generation schemes based on burning of wood grown in plantations owned by the company.
Jeroen van der Veer, group managing director, said the company decided to set up SIR because renewables are the energy solution for the future.
"One scenario," said van der Veer, "predicts that we will be using 50% renewables by 2050, if there continues to be a 2%/year growth in energy demand.
"Renewables will be a very major business 50 years from now, and Shell aims to be a major player. We are confident a large market for renewables will come, so we had to decide on a step change in investment."
Shell`s renewables strategy was based on two scenarios developed internally: the dematerialization scenario, in which energy demand growth was expected to be 1.2%/year; and the sustained growth scenario, in which energy demand grew at 2%/year and a renewable energy sector flourished.
The two scenarios were effectively low and high energy demand outlooks based on anticipated societal changes, and both envisage an energy industry in which renewables contributed a significant amount of primary energy, although fossil fuels were still major sources.
Jim Dawson, president of SIR, said the aim was to secure a 10% share by 2005 of the rapidly expanding global solar power market, which SIR estimated to be worth $1 billion/year in 1998 and predicted would be worth $6 billion/year by 2010.
SIR planned to quadruple manufacturing capacity at its Netherlands photovoltaic cell plant by 2000 so it would be able to make each year enough solar panels to generate 20 MW of electric power.
Meanwhile, Shell harvested 1.2 million cu m/year of timber from a number of forestry projects across the southern hemisphere. The company had developed a method of growing eucalyptus trees at a rate of 5-6 m/year.
SIR saw wood-burning power schemes as a viable way to bring electricity to rural districts in undeveloped countries. It aimed to have a total of 250 MW of installed biomass generating capacity by 2005, including many small-scale projects.
Emissions split
Demonstrating its belief in a green energy future, Shell pulled out of the Global Climate Coalition (GCC) in April 1998, citing irreconcilable differences with other members over emission reduction targets.
GCC comprised companies from a wide range of U.S. industries which emit greenhouse gases, in particular carbon dioxide. Shell was a member of GCC through its U.S. operating unit, Shell Oil Co.
Shell`s European headquarters, through which the company`s global operations except for the U.S. are controlled, had restructured the company as an environmentally driven operation.
A dichotomy between Royal Dutch/Shell and Shell Oil became apparent after the climate change conference in Kyoto. Shell as a company backed the emissions reductions targets, yet Shell Oil remained a member of GCC, which rejected the agreement.
Mark Moody-Stuart, chairman of Shell Transport & Trading, revealed in April 1998 that the company had spoken to other GCC members about emissions targets before the Kyoto conference.
"Since Kyoto," said Moody-Stuart, "divisions within GCC have become marked. After the conference Shell wrote to the GCC saying that while GCC was opposed to the Kyoto targets, that was not Shell`s position.
"We told GCC there was a fundamental difference of opinion, and that it had become so extreme that Shell would have to terminate its membership. We concluded that our differences with GCC are irreconcilable.
"We reached a high noon with GCC, and our subscription will not be renewed. We are convinced that the oil industry must be part of the solution to emissions, not part of the problem."
Moody-Stuart said that Shell talked to Exxon Corp., a leading member of GCC and nonoperating partner with Shell in many joint ventures worldwide, and did not think withdrawal would affect their relationship.
BP position
In April 1998 British Petroleum Co. plc set out tougher business principles in response to growing public concern over environmental and social performances of major companies.
The moves followed Royal Dutch/Shell`s revision of its business principles following protests over Brent Spar and allegations over its relationship with the brutal Nigerian government.
John Browne, BP group chief executive, told the company`s annual gathering of shareholders how policy statements covering health and safety, environment, financial control, ethics, and human rights were brought together in a single publication.
"We are developing a management process to provide an assurance to the board that our principles are being upheld," said Browne. "Responsibility only begins with the assurance that your own operations and activities are being run in an acceptable way.
"Companies have wider responsibilities as well. We need to be involved in the public policy debate on the issues where what we do can affect the world around us, and conversely where policy decisions by governments or international agencies can have an impact on our operations.
"Behaving ethically and with concern for people and the environment isn`t something new for us. I hope, and I believe, that those things are part of the basic values of the company-and for most other companies.
"But the level of concern and the scrutiny which is developing means that we have to be more systematic in handling these issues than we have been. We have to be very clear what our standards are, and we have to have a process in place to ensure those standards are being met-consistently and universally."
In 1997 BP`s solar business recorded a turnover of $80 million, a 33% increase on 1996. In May 1998 the company announced an aim to build annual turnover to $1 billion by 2007.
BP had invested $160 million in its solar business in 1998, including acquisitions, and had solar cell manufacturing and solar cell assembly plants in six countries.
The company claimed it accounts for one fifth of the global market and had annual capacity to make enough panels to generate 11.5 MW of electric power.
BP Solar was based on licensing and development of technology originated outside the company. This strategy aimed at making crystalline silicon cells-the basic units of solar panels-cheaply.
Among other petroleum companies only Amoco Corp. had a significant interest in solar power. The planned merger of BP and Amoco, announced in August 1998 and expected to be completed by year-end, was expected to lead to consolidation in their joint solar business.
Wind prospects
While solar power had slowly been gathering pace, wind power had long been thought by the petroleum industry to hold little commercial potential, but this view had begun to change.
Again, Europe was the main arena for the debate, and Britain had made the most obvious efforts to encourage development of wind technology as a commercial prospect.
BWEA reckoned that wind generators could supply 24.2 million MW-hr/year in 2010, equivalent to 6% of forecast U.K. electricity demand. This was envisaged to be split 60/40 between offshore and onshore wind farms.
Goodall claimed that Britain`s electricity transmission grid could cope with 20% "nonfirm" availability of generating capacity, for which wind power would be suitable.
"U.K. is the windiest country in Europe," said Goodall. "It is rare for existing wind turbines here to be totally becalmed. Also, it tends to be windier in seasons when demand is higher."
Goodall said that while 20% of total U.K. power generated was the most ambitious target for wind energy, the wind sector could realistically look to provide 10-15% of electric power requirements.
Wind turbines had almost entirely been built onshore, said Goodall. The U.K., however, planned to develop offshore wind projects, with opportunities for market entrants with skills in the offshore petroleum industry.
Denmark had built two inshore wind farms by 1998, said Goodall: "These are only `wet foot` turbines compared with what companies are planning to build offshore U.K."
In January 1998 the European Commission granted 134 energy projects funding amounting to 140 million ecus ($130 million), with the intention of developing sustainable energy and protecting the environment.
Among these were a number of wind energy projects, notably a commercial scale offshore wind farm in East Anglia, U.K. This was expected to provide cheaper power per unit than offshore wind schemes under way or built in Europe.
Offshore wind power
To meet BWEA`s target of providing 6% of electricity by 2010, Goodall said Britain`s wind generators would need to have developed and installed a number of offshore wind schemes.
"To make offshore wind happen," said Goodall, "BWEA is setting up meetings between the wind industry and other sectors. Nobody knows yet how offshore wind will be achieved-whether on platforms, barges, or otherwise."
At the time the U.K. had 719 wind turbines in 40 wind farms plus two single turbine installations. These had combined capacity to generate 308 MW of electric power.
BWEA anticipated that by 2010 the U.K. would have 3,700 MW of onshore wind capacity, from about 3,300 turbines, plus 5,000 MW of capacity from offshore wind projects.
"If government is going to achieve its 10% renewables target by 2010," said Goodall, "we could be looking at adding a total of 6,500 new turbines in onshore and offshore projects over the next 12 years."
Goodall said that as realization of the potential to make money out of wind power grew, BWEA was beginning to receive inquiries from companies not previously interested in wind power
In 1998 the association added its first petroleum company to its membership: Shell was "seeing what opportunities are available" following the company`s move into renewables.
BWEA said wind turbines mounted on offshore platforms could contribute more than half of anticipated U.K. wind power. Goodall expected about 12 groups of companies to submit proposals for offshore wind schemes.
"I`d be very surprised," said Goodall, "if some of the more business-savvy oil industry companies were not showing interest in this sector. Lots of this technology is transferable from oil and gas."
After Shell joined BWEA, said Goodall, London-based offshore engineering contractors AMEC plc and Kvaerner Oil & Gas Ltd. followed: "The value of Shell joining BWEA is impossible to quantify. Other companies say `if they`re in it, it must be worthwhile.`"
BWEA estimated the worldwide wind energy market at $18 billion/year, with great opportunity for expansion given that worldwide electricity demand could quadruple over 50 years.
"U.K.`s first wind farm was opened in 1991," said Goodall. "Wind technology has developed fast since then. From the first 4 kilowatt (KW) capacity turbines we now have 1.6 MW capacity units, and one manufacturer claims a 5 MW machine will be available by the end of the century.
"Renewables are the key emerging energy right now. No company with an eye to the future can afford to view renewables as a marginal energy source."
In June 1998 Greenpeace broke the news that a U.K. wind farm operator had begun work on the country`s first offshore wind power scheme.
Border Wind Ltd., Hexham, U.K., planned to install two 750 KW wind turbines on separate foundations, in 5-10 m of water 1 km off the coast north of Newcastle-upon-Tyne.
The new offshore wind farm was to deliver electric power to a small substation onshore for delivery to the national grid. Border Wind already operated a 2.7 MW, nine-turbine wind farm installed on a pier extending into Blyth Harbour.
In May 1998 Shell U.K. Exploration & Production began a 2-year study of wind power technology and said it had identified a potential wind farm site alongside one of its existing onshore plants.
Shell U.K. Managing Director Chris Fay said: "Offshore wind power is another idea we`re pursuing. These ideas have to be economic, but we hope that within the next 24 months Shell U.K. will be investing in viable renewable projects."
Wave power
In August 1998 British-Borneo Petroleum Syndicate plc, London, took a 19.73% interest in a company pioneering development of wave power technology.
British-Borneo and investment group 3i plc, London, and private investors took equity in Applied Research & Technology Ltd., Inverness, though a combined investment of £3 million ($5 million).
ART had developed three different wave power units, of which two incorporate Wells turbines to generate electric power from air displaced by an oscillating water column.
The turbine was developed by Alan Wells, a former university professor who became a director of ART. The three wave generators were ART proprietary concepts.
ART`s Ocean Swell Powered Renewable Energy (Osprey) concept took shape as an inshore wave power generator, which was installed in 1995 just off the Scottish coast but was lost after storm damage.
Jim Lee-Young, U.K. continental shelf commercial manager at British-Borneo, said: "Now ART has refined the Osprey design. It is ready to go and is potentially of use in breakwaters and harbor schemes."
A second ART concept, designated Limpet, was being designed for the Scottish island of Islay, where it was to be built into seashore cliffs. It was to have capacity to generate 500 KW of electric power.
A 75 KW Limpet experimental unit was in successful operation at the site for 10 years but was to be decommissioned when the full-scale unit was brought into operation during 1999.
The Limpet was to supply electricity to the Scottish grid. ART applied for connection under the Scottish Renewables Order scheme.
But the most attractive of ART`s concepts to British-Borneo was an offshore wave power unit called Powerbuoy, which was at the tank trials stage in late 1998, being refined for development.
The Powerbuoy was a floating offshore wave power structure, for which several concepts were being evaluated but which could not be revealed in detail until patents were secured.
Lee-Young said the minimum depth required for deployment of the Powerbuoy was 150 ft. There is theoretically no maximum: "If we can install tension leg platforms in thousands of feet of water, there`s no reason we can`t do the same with the Powerbuoy."
Lee-Young reckoned the Powerbuoy could generate several megawatts of power, depending on location. One potential use of the Powerbuoy was to provide power to small oil and gas installations, where conventional gas or diesel generation would be prohibitively expensive.
Also there was the potential to install Powerbuoy units above subsea satellite installations, enabling step-out distances to mother platforms to be independent of power transmission limitations.
British-Borneo saw the Powerbuoy concept as offering potential commercial benefits in marginal field developments. The company was working on Powerbuoy as part of a "tool kit" for marginal oil and gas developments.
Power generation was not seen as a core business for British-Borneo in the short term. ART was marketing all three wave power concepts independently for renewable electricity generation.
Viability
Commercial viability was the big barrier facing renewable power schemes in 1998, but a group of U.K. projects showed customers are prepared to pay a premium for "green" electric power.
In July 1998 a group of 40 renewable power generators in the U.K. secured commercial supply contracts in the open market for when their government aid ran out.
Contracts under the first and second NFFO rounds were due to expire on Dec. 31, 1998, requiring these renewable power scheme operators to market their output in competition with conventional generators-or go bust.
The 40 renewable power projects, with combined capacity to deliver 120 MW of electric power, secured supply contracts beginning Jan. 1, 1999, with seven different regional electric utilities.
This amounted to about one fifth of power currently generated or under development in the NFFO program. NFFO-funded projects had combined generating capacity of 326 MW at the time.
Because they were small companies lacking marketing clout, 116 renewable generating schemes banded together in 1997 to form the Renewable Generators Consortium Ltd. (RGC), London.
RGC Director Andrew McDonald said the group was able to offer large amounts of renewable electric power to sellers and was also able to secure a "green" premium price for their output.
"The electricity suppliers were interested," said McDonald, "because they would be able to differentiate their supplies from other suppliers (after the U.K. electricity supply market was liberalized in September 1998).
"Some suppliers also wanted renewable power so they could meet their own corporate environmental targets, while others wanted to buy renewable power so they could trade it."
McDonald said the premium on the renewables contracts was commercially sensitive and so could not be revealed. Renewable generators which had not fixed commercial contracts from the year-end were still negotiating deals.
Some suppliers announced they would offer renewable power at a premium price, and this price was expected to reflect the price agreed in the RGC-suppliers deal.
While the premium was not revealed, market analysts previously forecast that suppliers would offer a guaranteed percentage of "green" power in a customer`s supply for an extra 10%.
NFFO power projects included hydroelectric, landfill gas, wind power, waste incineration, tire incineration, and chicken manure incineration schemes. The U.K. government expressed hopes to encourage other technologies with further NFFO rounds.
U.K. Energy Minister John Battle said the new contracts showed that renewable energy had come in from the margins of the energy industry and into the mainstream.
Battle added that the future NFFO programs would consider all available renewable power options, including offshore wind and wave power projects and biomass schemes.
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TunØ Knob was the second offshore wind to be built in Denmark and in 1998 was the largest in the world. Commissioned in October 1995, the farm had ten 500 KW wind turbines, manufactured by Vestas Wind Systems AS, Copenhagen. The U.K. wind power firm Border Wind was building a similar installation north of Newcastle-upon-Tyne. Photos courtesy of Vestas Wind Systems.
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BP installed solar panels at a number of its gasoline stations across Europe. The panels were fitted to the stations` canopies, car washes, and price display pillars, enabling each site to generate energy equivalent to the average electric power consumption of three households. Photo courtesy of BP.
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A worker sets Melia azedarach cuttings at Shell`s Forestal Yguazu plantation in Paraguay. Shell planned to offer a combination of solar power and wood-burning power plants to rural communities in the undeveloped world as a commercial alternative to state-funded electrification schemes. Shell was investing $500 million in its new Shell International Renewables business in the expectation that both solar and wood-fueled biomass projects would soon be made profitable. Photo courtesy of Shell International Renewables.
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At Carland Cross wind farm, Cornwall, U.K., 15 wind turbines provided a total of up to 6 MW of electric power to local utility Southwest Electricity Board. Renewable Energy Systems Ltd. was operator of the farm, which was started up in August 1992. Photo courtesy of British Wind Energy Association.
