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Mapping of the Energy and Environment Sector in Wales A Final Report Creating a Competitive Edge for People, Places & Organisations Contents Section Subject Page No Executive Summary i 1 Introduction 1 2 Energy & Environment Sector Definition 2 3 Energy & Environment Sector Survey Analysis 6 3.1 Introduction 6 3.2 Headline Survey Analysis 9 3.3 Sub-Sector Analysis 39 3.4 Estimating the Scale of the Sector 68 3.5 Summary SWOT Analysis 73 4 Conclusions and Recommendations 82 Appendices I Energy & Environment Mapping Study Approach I II Energy & Environment Survey Questionnaire III III Energy & Environment Sector Evidence Base XVIII IV Academic Energy & Environment Sector Specialisms XXX V Energy & Environment Sector Business Support XXXVIII 26th June 2014 Simon Hallam Innovas Consulting Ltd R1-2 Verdin Exchange, High Street Winsford Cheshire CW7 2AN Main Office: 01606-551122 Mob: 07411 371810 Website: www.innovas.co.uk E-mail: [email protected] This proposal contains financial and other information which should be regarded as ‘commercial in confidence’ by those to whom it is addressed, and which should not be disclosed to third parties unless agreed with Innovas. Until information to be released has been authorised in writing by us for release, we assert our right under Section 43 of the Freedom of Information Act for the entirety of its proposals to be considered exempt from release. Executive Summary Energy & Environment Sector Scale and Composition Wales is home to a thriving, well balanced and growing energy and environmental sector with a market value (sales turnover) of £4.76 billion employing about 58,000 people in 2,066 companies. A direct comparison with the original study in 2006 shows that the energy and environmental sector has grown in sales turnover from £1.24 billion to £2.36 billion, an increase of 90%, company numbers have increased from 1,320 to 1,819, a 30% increase and employment has increased from 22,160 to 30,100, an increase of 35% from 2006. These are significant increases during a period which has been very challenging economically, and when the overall economy is only just returning to the levels of outputs seen in 2006/07. This indicates that this sector has performed much better than the majority of other sectors in Wales and the rest of the UK. This study expended the sector definition used in the original 2006 study adding 550 companies via the inclusion of more energy sub sectors, for example fossil fuels such as oil, gas and coal, as well as nuclear energy and some more of the emerging technology areas such as low carbon building technologies, carbon capture & storage, alternative fuels and alternative fuel vehicles. The growth rates in the energy related sub sectors in Wales are currently high and are forecast to grow at a rapid rate for the next three years. This has partly been as a result of the incentives for renewable and low carbon energy technologies, including Renewable Obligation Certificates, Feed in Tariffs and Renewable Heat Incentives driving the market forward, and the rising energy prices for fossil fuels which though making alternative sources more cost effective is also providing growth opportunities for standard energy companies as global demand remains high, mainly due to growth in the Far Eastern and Indian sub-continent markets. The longer term visibility for continuing support through new mechanisms such as Contracts for Difference, which will support new nuclear energy power generating capacity as well as renewable and low carbon energy technologies, suggests that forecast high levels of growth in these areas is justified, though nothing can be taken for granted. The new and emerging renewable energy technologies sub sector in particular is a growing strength in Wales with turnover in 2013 at £301 million, up from £75 million in 2006, and containing 226 companies in Wales employing about 3,905 people. This is in comparison to figures of 85 companies employing 1,720 people in the 2006 survey. The more mature environmental good and services sub sectors such as waste management including recovery & recycling, water supply & wastewater treatment and environmental consultancy are still relatively large, with a total turnover of £1.95 billion and 1,499 companies employing approximately 24,500 people. Whilst the rates of growth in these sub sectors has not been quite as fast as the energy related sub sectors, a 70% growth in turnover and 25% rise in company and employment numbers over the past seven years it is still higher than in many sectors of the Welsh economy. There are some areas of real strength in Wales such as water supply and wastewater treatment and environmental monitoring and instrumentation. The study analysis shows that Wales has a well-balanced energy and environmental sector, with none of the major imbalances seen in other areas of the UK, mainly as a result of the mix between urban, rural and coastal environments in Wales. There are no major sub sector gaps, apart from carbon finance which is very London- i centric in any case. The main challenge facing Wales is how to maintain the high levels of growth, and more importantly, how to ensure that growth is above that of the average rates experienced by this sector in the rest of the UK and internationally. It is essential that Wales takes advantage of the growth opportunities, not just in Wales, but also in the rest of the UK and overseas (ie. that firms are able to tap into growing markets elsewhere). Key Points from the Survey Around 57% of the 400 companies surveyed were based in south Wales, 11% in mid Wales and 32% in north Wales. Around 80% of the companies had HQs in Wales, with 50% of the larger companies (turnover above £15 million) having HQs here. The average size of companies has increased in terms of employment (47% have over 10 employees, compared to 37% in 2006) and turnover (10% of firms have turnover greater than £15 million, compared to just 4% in 2006) which indicates a strengthening of the company base in this sector. The largest sub sector in market value terms is the electrical power industry, followed closely by waste management (including recovery & recycling), low carbon building technologies, petroleum industry and renewable energy technologies and landscape industries. Interestingly the highest number of companies is in environmental consultancy, which has a high level of small companies. Unsurprisingly for a sector including new and emerging sub sectors, there has been a high number of new companies entering the market; 60% of businesses were established since 2000. The energy management/efficiency, renewable energy and low carbon building technology sub sectors had the highest percentage of new companies in their overall stock of businesses. There has been an expansion of geographical sales areas, reflected in the increased export sales activity: one- quarter of respondents have more than 25% of their sales in export markets, compared to 14% of firms in 2006. This is to be expected as the overall sector matures and companies increase in size and capability and seek new markets overseas. The mature sub sector of water supply and wastewater treatment has a high level of export sales as well as the petroleum industry. The level of co-operation with academic and research establishments in Wales and the UK has increased with over 100 of the surveyed companies (or 43% of respondents) engaged in these collaborative activities. This compared to 30% of firms in 2006 that were involved in joint work. A key reason for this increase is that Welsh academic and research capabilities appear to be increasingly well aligned with sectoral requirements. Interestingly, the percentage of respondents that operate their own R&D facilities was greater than in 2006, as were the proportions of spend and staff dedicated to R&D This an indication of the growing strength of Welsh companies, the expansion of which has provided them with more resources available to develop R&D links and to invest in their own facilities. Confidence in the future is high, with over 75% of the companies forecasting growth in the next three years. Key growth opportunities identified include government legislation, incentive schemes, increasing energy/resource costs and growth international markets. A greater percentage companies have identified barriers to growth than in 2006, which reflects the different economic conditions that firms have faced since then (and the ongoing challenges that they face in spite of the seemingly improving economic climate). The barriers identified in order of importance were: market conditions (56%); lack of business finance (44%); competition (32%); standards & regulations (31%); and ii recruitment of technical staff (29%). In 2006, just 24% identified market conditions as a barrier to growth. The most important future business support needs are business finance and project funding, whilst demand for networking support, partnerships and skills training are also high. The level of Welsh Government support to the sector through business support programmes, funding and specifying standards for projects and placing low carbon and environmental policies as a key part of its overall economic strategy, is seen as being key by the companies in supporting the development of the sector. Recommendations Praise should be given regarding some of the programmes and initiatives developed and delivered by the Welsh Government, especially the Low Carbon Research Institute & Low Carbon Research Institute Marine, Wales Renewable Energy Producers Business Rate Scheme (WREPS) and Business Wales (Energy & Environment sector support and the Energy and Environment SME Growth Fund). All of these initiatives are seen by the industry as providing good support, which should be continued over a long-term period to build on the current success of them.

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