Energy agency may be making waves - but it's not generating power

CONSIDER the following conjunction of events. The government has just announced a bill to cut UK emissions by 60 per cent by 2050. Next, the European Union proclaims that Europe will produce 20 per cent of its electricity from renewable sources by 2020. Frankly, I think this is undoable, unless the EU imposes country-by-country targets, but I respect the ambition.

Let me put a little financial flesh on these targets. The International Energy Agency in Paris estimates that financing the turn to clean energy, plus meeting the potential growth in world energy demand, requires 5 trillion to 12 trillion in investment over the next 25 years. By way of perspective, the total investment in the North Sea since 1965 has been about 220 billion, so we are talking about 50 or 60 North Seas in the next couple of decades. Somebody is going to get very rich from supplying this market.

Now, add the third piece of the jigsaw, which concerns Scotland. Several years ago, Scottish Enterprise set up three intermediate technology institutes (ITIs) with a budget of 450 million over a ten-year period. Their remit was to turn blue-sky research into commercial hardware in energy, biotechnology and the electronic media.

This week, comes news that the board of ITI Energy, which is based in Aberdeen, is in revolt against ITI Scotland, the umbrella organisation in Glasgow which doles out the cash, because head office is dragging its feet over plans to invest in the next wave of renewable energy technology - plans that could buy Scotland a big share of the global energy investment market.

Renewable energy sounds like a good idea to the uninitiated, but wind and wave power have a huge technical drawback - intermittency. Because the wind doesn't blow all the time, and wave power varies by tide and by season, these energy sources can't produce a steady stream of electricity. But ITI Energy thinks it has found a solution.

It wants to develop a hybrid power source that would combine wind and wave energy to reduce or eliminate intermittency. Basically, one power source will be working if the other isn't.

ITI Energy has come up with a 15m development project to build an offshore, hybrid wind-wave generator by 2010. Its goal is to deliver offshore power at (or below) 1m per mega-watt of installed cost. This would equate to an electricity cost of 3-4p per kilowatt hour, which is close to conventional power sources.

If this hybrid technology works, ITI Energy speculates that an eventual 15 billion investment in hybrid plant would create five gigawatts of generating capacity - Scotland's current electricity capacity is about 12GW. This would result in thousands of new jobs and add "25bn income to the Scottish economy".

These figures sound optimistic but, on the other hand, they are modest enough in comparison with the investment we have already seen in North Sea oil.

Unfortunately, ITI Energy's parent body has rejected the whole plan - twice, to the consternation of the Aberdeen group. The research and investment schedule of ITI Energy has now been thrown into turmoil. Meanwhile, others are muscling in on hybrid technology, particularly America. ITI Energy staff have been reported as trying to get round ITI Scotland by appealing to the Executive. One is quoted in the Aberdeen energy press as saying: "The staff at ITI Energy has little or no confidence in the ability of the board [of ITI Scotland] ... the problem is that the ITI board has almost no energy experience."

This is not the first time the main ITI board has found itself in trouble. Tony Amor, the first CEO of ITI Energy, quit in October 2005, after only two years in the job, amid rumours he was dissatisfied with funding being squeezed and interference from Scottish Enterprise. Since then, a whole slew of senior ITI managers have left, including the founding chief executive of the ITI group, Roger Dickinson, who resigned "for personal reasons". Mr Dickinson has never been replaced and effective power now lies with the ITI chair, Shonaig Macpherson, who is a patents lawyer.

It is not true to say that the main ITI Scotland board is totally devoid of energy industry experience. It includes George Watkins, who was chairman and managing director of Conoco (UK) for 20 years. But the board is very establishment, contains no young people and is dominated by those from very senior corporate backgrounds. All this combines to make it risk-averse.

I know Ms Macpherson and ITI Scotland would disagree strongly. They will point to the fact that the ITIs have invested more than 100m of public money in 18 projects, and filed some 73 patents.

But ITI Scotland, like many a previous Scottish economic development agency, is fixated with inward investment and spending my money funding foreign companies to set up shop in Scotland. This is how they square being risk-averse at home with making headlines for the politicians. The trouble is that funding other people's R&D very rarely creates sustainable jobs in Scotland.

Besides, the potential scale of the renewable energy market means that penny ante investments spread across dozens of tiny projects will be crowded out by the mega bucks of countries that are prepared to bet the shop. We have already lost ownership of ScottishPower to the Spanish and, as we report today, Scottish & Southern may also be in play. If there were no indigenous Scottish power utilities to fund research, that would only leave ITI to do the job. On current form, I doubt they are up to the mark.

Meanwhile, just to confuse everyone, Gordon Brown and Alistair Darling are creating a UK rival to ITI Energy - the Energy and Environmental Research Institute. The DTI has said it will put up 500m towards its operation over 10 years. OK, Gordon and Alistair: How much of that will you put into ITI Energy's wind-wave hybrid project?