From 7 May 2024, The North East Evidence Hub is a project of the North East Combined Authority. Find out more at northeast-ca.gov.uk/north-east-lep
Energy Generation
Electricity generation market is fast moving away from conventional energy sources such coal in the wake of increasing call to reduce the carbon foot-print of the industry and emphasis on circular economy.
This is one of the 16 market profiles produced as part of the Economic Market’s foresight study commissioned by the North East LEP. It provides an overview of the future growth prospects for the Energy generation market globally, a summary of the enterprise base serving the market in the North East and relevant regional assets, and an analysis of how the continued convergence of global trends will affect future market development.
These markets were selected as those most likely to present opportunities for future regional growth in the North East LEP. This was done based on a trends analysis conducted by Frost and Sullivan, which identified 37 high impact trends driving continued change and growth in these markets globally. A shortlist of markets from this trends analysis was then cross-referenced against the current North East position by Cambridge Econometrics. This analysis identified the most significant opportunities for the North East LEP.
Each of these profiles also uses findings from the Data City platform to quantify the number of firms serving the Energy generation market in the North East. This platform links companies house data to companies’ websites and uses the website text and machine learning to classify firms into Real Time Industrial Classification Codes, which can allow analysis of markets often too emergent to be precisely measured in SIC codes. The data from this platform has been triangulated against ONS data to consider a variety of perspectives on the market.
More detail about the methodology can be found here for the 16 market profiles.
Established status
in the North East and associated value chain
International scope
in terms of technology development, particularly subsea and R&D facilities
Significant presence
with significantly more firms in the North East in this sector than the national average
Description and global outlook
Renewable electricity generation
With recent advances in the technology, the renewable energy generation market has expanded beyond traditional renewable sources such as hydro-power and wind-mills which used to form the bulk of renewable energy.
Market drivers
The world emits around 50 billion tonnes of greenhouse gases (GHG) each year (measured in carbon dioxide equivalents, CO2eq). According to analysis by McKinsey (2016), the breakdown of global greenhouse gas emissions shows that 73.2% of greenhouse gas emissions are from energy production (where 24.2% of emissions are from energy use in industry, 17.5% from energy use in buildings, and 16.2% from energy use in transport), 18.4% from Agriculture, forestry and land use, 5.2% from industry and 3.2% from waste.
Altogether, roughly 28% of global GHG emissions came from industry in 2014. Half of industry’s CO2 emissions result from the manufacture of the four industrial commodities—ammonia, cement, ethylene, and steel.
The Paris Agreement is an agreement within the United Nations Framework Convention on Climate Change (UNFCCC), on climate change mitigation, adaptation, and finance, signed in 2016.
The Paris Agreement's long-term temperature goal is to keep the rise in global average temperature to well below 2°C (3.6°F) above pre-industrial levels, and to pursue efforts to limit the increase to 1.5°C (2.7°F), recognising that this would substantially reduce the impacts of climate change.
This should be done by reducing emissions as soon as possible and achieving a net-zero emissions in the second half of the 21st century. According to the International Energy Agency in 2015, an estimated $13.5 trillion of public and private investment in the global energy sector alone will be required between 2015 and 2030 if the signatories to the Paris Agreement are to meet their national targets.
The improvement in solar technology has made it more efficient and lowered costs, enabling wide spread adoption. Wind energy, geo-thermal energy and biomass are important areas which are expected to grow owing to the requirements of different geographical locations.
The renewable energy market is expected to be driven by increasing urbanisation, the need for power, and industrialisation across developing countries such as China and India, who are also implementing favourable regulatory frameworks. Green hydrogen is among the emerging sources for renewable energy, with its production and storage technology.
The COVID-19 pandemic caused an initial slowdown in the implementation of several renewable projects globally marking a short-term decline in the market. However, with economic recovery across several economies, the market revived at a faster rate. The key challenges for the renewable energy market are initial cost of investment, high volatility, and location of input resources. There is also the indirect impact on the environment, especially for hydro-power and nuclear energy.
Scale and scope of global market
In 2020, the overall renewable energy market was estimated to be US$ 613 billion, with the expected growth rate of CAGR 9% for the period of 2021-2023.
China and the US were the two largest markets for the electricity generation, with additional capacities installed being 136 MW and 29 MW respectively.
The UK was among the top 5 countries in terms of electricity generation using renewable sources or green sources. The UK’s push towards complete decarbonisation and net-zero goals by 2050 relies significantly on the shift of energy generation markets from fossil fuels to renewable sources. It has plans to cut GHG emission by 68% by 2030.
To achieve this the UK has launched extensive plans to increase the share of offshore wind power and nuclear energy, scaling up flexible electricity markets and technologies, and use of hydrogen as a clean fuel source. Some of the leading global renewable electricity companies are Orsted A/S, Iberdrola SA, Jinko Solar, Siemens Gamesa Renewable Energy, Brookfield Renewable Partners, Tata Power Solar, Suzlon, China Energy Investment, and NextEra.
UK market
The UK has a strong record of clean growth, cutting carbon emissions by 42% between 1990 and 2015, while experiencing a 67% increase in GDP during the same period, in contrast to the overall total G7 emissions reduction of 3% and GDP increase of 61%. This has been achieved through a variety of strategies including improved energy efficiency, increased recycling of waste products and improved automobile engine technology, with the largest contribution in reduction of emissions from the decarbonisation of power. Government analysis shows the UK now has the largest installed offshore wind capacity in the world.
Substantial investments over the last 15 years in energy and low carbon technology research, development and demonstration
Particular strengths in electric vehicles, smart grids, transport, telematics, energy storage, off-shore wind, biofuels, and solar PV
Low carbon economy (LCE) could grow from around 2% of UK Total Output (2015) to up to around 8% by 2030, and around 13% by 2050. This corresponds to a UK LCE market size of between £210 billion and £600 billion in 2030 and between £510 billion and £1,400 billion in 2050. The levels of UK employment associated with the LCE are between 1.0 and 2.2 million in 2030, and between 2.5 and 5.0 million in 2050.
The North has a long-established heritage in the energy sector, including offshore oil and gas, which has led to the energy sector becoming embedded in the fabric of local culture, with a strong legacy of engineering and manufacturing skills, and a concentration of energy research and innovation. Building on this legacy, the North is now playing a world-leading role in emerging energy challenges, with expertise in nuclear energy, large scale renewables, energy storage, transport, and a proven record in the global oil and gas and offshore wind sectors.
The North is acting as the UK centre of excellence for development of hydrogen technology. Through the H21 project Northern Gas Networks, in collaboration with partners, is leading globally significant plans to use hydrogen as a heating fuel, helping decarbonise millions of Northern homes.
Capital flows and FDI
Energy Generation investment remains on an upwards trend across the UK and Europe. Increasing capacity demands and a move towards green power has prompted a surge of finance into new developments and the repowering/upgrade of existing generation assets. This finance is a mix of balance sheet and insitutional capital, but the overall trend for both is upwards.
The role of the public sector in helping to ‘crowd in’ private sector investment is well understood. However, several successful examples of new forms of public/private partnerships are being demonstrated across other UK and European regions (Aberdeen Hydrogen Hub) that could drive innovation in the way the public sector enables capital asset investments. This can, for example, be achieved through capacity building, support for pilot projects and innovative financing instruments, blended finance initiatives and the provision of risk mitigation instruments (e.g., guarantees, currency hedging instruments and liquidity reserve facilities).
The Green Bond market in specific is expected to follow a growing trend upwards over the next decade, where the North East’s vibrant financial sector may be well poised to deveop regional specialisms around the provision of green finance products and services.
From an FDI perspective, the North East has benefited in 2021 from the addition of the 1.4GW, €2 billion North Sea Link interconnector. It estalbished a cornerstone import asset for renewable power, and reinforced the local transmission grid infrastructure around the North East to support the additional capacity. This additional headroom is a major enabler for other power generation developments seeking grid connections – often a timely and complex process that is highly dependent on transmission grid capacity.
North East presence and capabilities
Regional overview
The North East LEP area benefits from proximity to world’s largest offshore wind market, with 32% of global offshore wind capacity currently established, or being constructed off UK shores. Power generating equipment significant export values £1.3 bn out of £11.6 bn.
The UK is a world-leader in wave and tidal energy, implementing the world’s first commercial tidal stream project in Northern Scotland. Wind energy is a mature market, with tidal energy emerging. The UK has 50% of Europe’s tidal stream energy resource – enough to supply 20% of UK electricity demand.
There are 35 firms identified within the offshore renewable supply chain in the North East LEP area – including subsea cabling and installation: Soil Machine Dynamics (SMD), Tekmar; valves: BEL Valves, and power generating equipment: Baker Hughes, Fabricom, and Royal IHC Limited. A variety of local businesses are developing products and services related to energy flexibility and storage, including Equiwatt, Hyperdrive, and Connected Energy.
R&D capability includes:
The Offshore Renewable Energy Catapult and the Emerson Cavitation Tunnel based at the Port of Blyth
The National Centre for Subsea and Offshore Engineering
Pipeline test facilities at Northern Gas Networks test facility, DNV GL, and Smart Grid Laboratory
Hyperbaric testing and research at Tyne Subsea
The National Centre for Energy Systems Integration (CESI) at Newcastle University
Supergen Energy Networks Hub at Newcastle University
Integrated Transport, Electricity and Gas Research Laboratory (InTEGReL) in Gateshead
Durham Energy Institute at Durham University
The Smart Grid Lab at Newcastle Helix.
The North East LEP area has also made advances in district energy plans and schemes, mine energy and geothermal heat, demand-side response schemes (DSR), and other renewables.
The North East LEP area has a strong and diverse university sector, with over 85,000 students studying at four universities: Durham University; Newcastle University; Northumbria University and University of Sunderland. In 2018/19 there were 31,475 enrolments in the four universities in the North East LEP area. The subjects with the highest number of enrolments were: Business and administrative studies; and Subjects allied to medicine; Social studies and Biological sciences. Other subjects that are a particular specialism by one or two of the universities include Engineering and technology (Newcastle).
The North East LEP area has significant capabilities in engineering, marine and subsea technologies making the area a global hub for energy and environmental technologies. Particular areas of expertise include subsea engineering, robotics, planning and development and the design and fabrication of components including pipelines, umbilical’s and wind turbine foundations. The universities of Durham, Newcastle and Northumbria all have globally recognised research assets in this sector as well, for example in the top 20 for research publications for 11 subhects related to offshore energy1 and have supported the development of skills in this area.
There are nine Further Education colleges, providing technical education and further learning opportunities. These colleges are brought together through the North East LEP area College Hub, which has abroad remit to support the implementation and achievement of the Gatsby Good Career Guidance Benchmarks, as well as the brokering of strategic employer partnerships with further education institutions. According to the Local Skills Report from the North East LEP, a recent survey of FE colleges recorded a strength in engineering and manufacturing technology subject areas.
The sectors with the largest number of Apprenticeship achievements correspond to the priority sectors for the North East LEP area namely business, health, engineering and construction.
The University of Newcastle teaching includes degree apprenticeships in power engineering, range of undergrad engineering degrees, masters courses incl. Offshore Engineering and Renewable Energy. The University is a global principal partner with Siemens, and has strong relationships with many firms including Tyne Subsea, BEL Valves, Reece Group and Soil Machine Dynamics (SMD).
Northumbria University is ranked in the top 300 for engineering and technology in the Times Higher Education’s World University subject rankings 2018, Northumbria University offers courses in Electrical Power Engineering (MSc), Renewable and Sustainable Energy Technologies (MSc), and has an expanding degree apprenticeship programme. It has established links with major energy companies in the region, delivering a bespoke master’s course for a global oil economy.
Durham University Energy Institute is one of the key national research centres for renewable energy. There is an emphasis on science and society that provides Durham with a unique socio-technical approach to energy research and teaching. Durham offers a series of related masters courses along with a Centre for Doctoral Training in Energy, offering significant interaction with both local and international companies.
Newcastle College Energy Academy provides a centre of innovation, training and development for the energy sector. The academy delivers qualifications from level two through to degree level in energy technologies, manufacturing and maintenance, as well as apprenticeships.
Gateshead college, Zero Carbon Futures was set up in 2011 as an independent consultancy specialising in low carbon vehicle technologies. The company develops electric vehicle infrastructure, and has managed a range of projects to increase electric vehicle uptake. Its ultimate aim is to research and develop new and emerging technologies, as low carbon vehicles move into the mainstream and become a major part of our transport system.
The North East LEP conducted a skills assessment into the offshore wind sector (2021) and encovered a range of challenges currently facing the sector regarding recruitment including a lack of applicants with the required skills (both technical and generic skills), experience and qualifications. Harder to fill vacanices including phsyical scientiests, electrical enginerers, programmers and software development professionals for example. The research also suggested the environment is very competitive regarding recruitment, both from national and regional employers and particularly in industy-specialist areas of work.
Key sites include:
Leading offshore energy support base in Port of Blyth, along with other UK East Coast centres in Teesside (GE) and Humber (Siemens)
7 EZ sites around North Bank of the Tyne, and Port of Blyth
7km of quay next to deep water
400ha of key riverside development
Northern Powergrid electricity distribution network
Gas infras – Northern Gas Networks
District energy schemes including; the Freeman Hospital, North Tyneside General Hospital, The Royal Victoria Infirmary, Sunderland Royal Hospital, Riverside Dene high-rise Newcastle, The Rise new build housing scheme Newcastle, Newcastle University, the Gateshead Energy Centre. Studies undertaken by the Association of Decentralised Energy (ADE) estimate that the North East is home to around 9% of UK heat networks. However, adjusted for economic activity (heat capacity per £m GVA), the North East is second only to the North West and London.
Across the North East a significant number of new heat network feasibility studies have been undertaken. The results show huge potential for new schemes to be deployed, as well as for extension of existing schemes. This feasibility work has largely been led by local authorities, with many studies capitalising on BEIS funding via the Heat Network Delivery Unit (HNDU). This aggregated pipeline of schemes, across both the North East LEP and Tees Valley Combined Authority areas, comprises 23 potential schemes with a total estimated value of over £280 million. Schemes vary in terms of progress, between pre-feasibility and planned network extensions.
Mine energy and geothermal heat: The North East has a particularly rich geothermal potential, with both deep and shallow resources. This includes radiothermal granites in the North Pennines, and flooded mineshafts in abandoned coalfields particularly in Durham and Northumberland. Mine energy heat schemes have also already been deployed in the North East, with two existing projects; at Lanchester Wines and Dawdon Colliery. Wider geothermal schemes have also been explored to various stages, including the Eastgate Borehole. This research well was the first deep geothermal exploration to be drilled in the UK for over 20 years when it was drilled in 2004.
Large-scale renewables: The North East has a track record of delivering renewable energy capacity, capitalising on available natural resources, supportive planning regimes, and local supply chain capacity and skills. A number of Local Authority areas within the region are in the top 50 for renewable energy, across 406 UK authorities. Most notably, Northumberland generates the most renewable electricity from hydro, and second most from onshore wind, of any English Local Authority area. County Durham is also in the top six English Local Authority areas for onshore wind generation. The North East generates a significantly greater proportion of renewable electricity from onshore wind than the UK average.
Demand-side response (DSR) schemes: incentivise users to change the profile of their consumption, and energy storage technologies which allow surplus energy to be stored and sold when its needed. Organisations in the North East are already exploring these emerging solutions, for example several utility-scale energy storage and demand side response schemes are in place, including: A 25MW lithium-ion battery close to the Cobalt Business Park, North Tyneside, developed by Element Power and since acquired by Enel; A 35MW battery at Port of Tyne, developed by Renewable Energy Systems, and since acquired by Foresight Group; A 3MW battery which is part of the Gateshead Energy Centre, developed by Gateshead Borough Council.
Other renewables: County Durham, Northumberland and Sunderland are all in the top six UK Local Authority areas for solar PV sites. The region also produces a greater proportion of renewable electricity from landfill gas and anaerobic digestion than the UK average, including through advanced anaerobic digestion processes pioneered by Northumbrian Water at its Howden site. Overall Northumberland generates almost 40% the amount of its total electricity use from renewable sources. A number of companies are also exploring and developing specific large-scale low carbon energy innovations in the North East. These include the Catfoss-owned ‘Graphite Resources’ energy from waste facility in Gateshead, which is developing is processes to convert waste into compost like output (CLO), refuse derived fuel (RDF) and solid recovered fuel (SRF).
Analysis of GVA and employment by SIC sectors
The tables below summarise the findings from socio-economic data and economic forecasts, presenting headline findings for both the Electrical Equipment and Electricity & Gas industries. These are the most relevant SIC classification industries for Electricity Generation.
These sectors are both highly productive and employ 3,500 and 8,000 in the North East, respectively. They are small to moderate sized relative to other sectors in the area. Manufacture of Electrical Equipment is a specialism for the North East, with a Location Quotient of 1.4 demonstrating that the industry is 40% more concentrated in the region compared to nationally. Both sectors have declined in jobs over the past 38 years, but continued to increase GVA. Future projections indicate continued job decline in Electrical Equipment, with modest jobs growth in Electricity and Gas.
Electrical equipment manufacturing
Electricity and Gas
The Data City Findings
The Data City provides company data based on an AI-driven taxonomy search of terms and content on company websites. This is then connected to companies house data for each company and allows an aggregate analysis for new industry and market definitions. The data captures the number of business branches in the North East LEP area, which means firms registered outside of the North East LEP but with branches in the area are captured in the data.
The Data City suggests there were 103 active firms in energy generation in the North East LEP area in June 2022 – 4.3% of UK firms.
Location quotients
In terms of enterprise counts, the Data City intelligence suggested that Sunderland is a national centre for energy generation, with 37 enterprises and a location quotient for this market that is the 21st highest in the UK. Northumberland, County Durham and North Tyneside each had a concentration of these firms that was about twice the UK average, with Gateshead also having a higher concentration than nationally.
Out of region locations
The Data City results suggest that the energy generation sector in the North East LEP area has a lot of additional locations in other UK regions and nations. In particular, over a third of North East firms also have a location in Scotland and over a quarter have a location in Yorkshire and Humber. In both cases these proportions are more than twice the proportions of energy generation firms nationally that have locations in these areas.
Sector crossover
One of the innovative features of the Data City methodology is that it allows firms to be classified in multiple sectors. The platform does so through real time industry classifications (RTICs), which are constantly evolving classifications generated by an AI from companies’ websites. Firms can be classified under multiple RTICs at any one time. This means the data can be used to demonstrate interdependencies where sectors overlap.
In terms of the North East LEP area energy generation sector, the only significant overlap was with the Net Zero RTIC, with about 85% of the 103 North East energy generation firms also in this RTIC. This percentage matches the national percentage. No other RTIC includes more than 6 North East energy generation firms, although photonics and food tech have higher percentages than nationally.
Overall, UK energy generation firms operated in 22 additional sectors, of which 8 were operated in by North East energy generation firms.
Subsectors
The Data City methodology also includes individual subsectors within the RTIC taxonomy which allows detailed analysis of the North East LEP’s focus within the energy generation sector. These subsectors show that three quarters of North East energy generation firms include a focus on the renewable energy planning databases RTIC subsector, with just over half having a focus on the renewables RTIC subsector. The former is a slightly higher percentage than nationally, the latter is slightly lower. The North East has higher percentages of energy generation firms focused on wind than nationally, with the same being true for fossil fuels.
Locations maps
Focusing on energy generation firm locations at a more detailed level shows large clusters along the River Wear and the River Tyne, with the largest concentration within the Washington and Sunderland West constituency. There are smaller clusters around Blyth in Northumberland and within the Bishop Auckland and Sedgefield constituencies of County Durham.
Regional prospects
A critical part of this study is to shortlist which emergent markets represent “hot prospects” for the North East economy in the future. Using the findings from the study, and the assessment framework below, Energy Generation is rated as a market with:
Established status in the North East
International scope in terms of technology development, particularly subsea and R&D facilities
Significant presence in the North East, with 4.3% of firms in this market having a North East LEP location (more than the 2% of firms in all markets)
Energy generation, especially the renewables market, is only likely to grow as the UK moves towards Net Zero. This means there are significant opportunities for regional growth in this market in the North East.
Much of this growth is linked to the core markets enabled by Energy generation; Electric vehicles and Energy storge, highlighted in the table below. The North East already has significant capability in the manufacturing of electric batteries suitable for electric vehicles. To cement its position as a leader in Electric vehicles the region needs to consider how best to build a suite of capabilities across Electric vehicles, Energy generation and Energy storage.
The dependences for this market highlight that building this capability will itself be dependent on the development of supporting services. There are a range of digital technologies across Cybersecurity, the Internet of things, and Data analytics which have key applications in the Energy generation market. There are also links between the development of Financial services and Energy generation through green finance, while robotics has an important role in the manufacturing of energy generating appliances. The North East will need a broad base of supporting capabilities to maintain a competitive advantage in the Energy generation, Electric vehicles and Energy storage markets.
