Examination of Witness (Questions 100
WEDNESDAY 21 MARCH 2001
100. Did you learn from that non-survival of
the first winter? Was it a valuable experience?
(Dr Martin) I think there were lessons but, as I say,
I do not think that damns the original Osprey concept. Before
we committed to being involved, in the contribution I have described,
we had done our own technological assessment. We have a strong
renewable engineering capability in the company and we concluded
that that device had great potential, which is why we were supportive
of it. The particular reasons why it failed were more to do with
the particular example rather than the general principle that
lay behind it.
101. What is your investment policy towards
renewables in general and towards wave and tidal energy in particular;
your philosophy, if you want to give us your philosophy, but it
would be rather nice if your philosophy was backed up with Scottish
(Dr Martin) We are very proud of our heritage of being
the lead in renewable generation and would very much like to continue
in that position in the United Kingdom, so I am glad to be here.
The route that we have taken through that hitherto has been to
invest approximately £20 million (of Scottish or English
pound notes) per annum in renewable energy. The purpose of that
investment has been to sustain the hydro facilities which were
built in the fifties and sixties of the last century. Those machines
are now obviously 40 to 50 years old and a power plant typically
has a life of 40 to 50 years. All our hydro is now in that age
range and to keep it going we have found it necessary to invest
£20 million-odd over approximately a 15-year programme, so
we had committed to a £300 million investment programme which
completely dwarfs any other investment in renewables in this country.
102. Is that not largely maintenance of what
(Dr Martin) I would submit that that investment is
necessary to keep what the nation has. The position at the moment,
with the decline in the price of electricity, means that that
investment no longer meets our criteria so we have stopped that
programme completely at the moment. I am studying at the moment
de-commissioning hydro and I would like the Committee to note
103. Because gas generation is cheaper than
hydro with the high maintenance costs you have at the moment?
(Dr Martin) Fundamentally the price of electricity
has come down in this country which makes that investment in keeping
Scottish Hydro going less attractive than other opportunities.
Indeed, it does not meet our investment hurdle rates. Therefore
we have stopped that programme. The solution, to move on along
that particular line, is for the plants in the 10 to 30 megawatt
range to receive some form of support. At the moment they are
not eligible for renewable energy certificates. As such they are
not economic to refurbish. The larger schemes are, and we have
done most of those.
104. Is this high spend on maintenance and refurbishment
of the very important hydro schemes in Scotland a result of neglect
in previous years?
(Dr Martin) I believe not. I believe it is a result
of natural ageing. We have been investing as a private company
since we were privatised in the early nineties and we concluded
that that was a sensible thing to do for the larger of those hydro
machines. To finish your question, you were asking about ongoing
investment. The Board has recently passed an investment in wind,
our first, because we felt that sustaining the hydro was the right
thing to be doing with this £20 million, but we have recently
committed to our first wind power.
105. Given your criteria do you think that wave
and tidal energy sources are viable as potential providers of
(Dr Martin) Yes, I do. The reason why I say that is
that there is considerable energy available if we set aside cost.
Certainly in a science and technology discussion such as this
we perhaps should afford ourselves the luxury of setting aside
cost and set ourselves the criterion of pounds per tonne of carbon
dioxide avoided. I think that should be the success criterion
rather than raw electricity generation price.
106. Having said that, it has still got to fit
into a commercial system somehow. What do you see as the main
obstacles that need to be grappled with before either of these
sources can be viable for commercial exploitation?
(Dr Martin) The primary difficulty is commercial credibility.
In order for these devices to be bankable there has to be the
first move into the demonstration stage. That is the one that
is very expensive to do and very difficult for the companies that
are working on it, largely unfunded by the public sector, at the
107. DTI's published wisdom is that wave energy
is unlikely to be a significant energy source until after 2010
at the very earliest, or 2025 in the case of tidal stream technology.
Do you agree with those assessments?
(Dr Martin) I agree that it is post-2010, so in so
far as meeting the 2010 objective of ten per cent I think that
both of these technologies are likely to be irrelevant. By the
2025 timescale I think they could well be relevant and that depends
upon the effort and funding that is put in.
108. Do you think, given sufficient energy and
investment, that these two technologies could be brought into
use more quickly than the DTI's estimate, which I can understand
they are wavering a bit about anyway now? Could we bring that
(Dr Martin) I believe we could, but not before 2010
to have any commercial or CO2 impact.
109. As a commercial company what would encourage
you to invest more into wave and tide?
(Dr Martin) The straightforward answer is an economic
return on our investment that fits the risk profile. It has to
be said that placing devices, particularly surface devices, in
the Western Approaches is a high hazard exercise, so you are looking
for considerable rates of return, in excess of 15 per cent. I
will just put a marker down because these numbers are often bandied
about in vague terms and I think in excess of 15 per cent is to
put a scale on it, and probably 20 per cent for a technology of
this riskiness. Possibly submerged devices, which are less susceptible
to the changes in energy spectrum, could have a lower risk once
they are developed to the stage that wind devices are, so they
have some catching up to do, but potentially deep water is a more
benign regime than surface.
110. How much of a problem is it for a supply
company like yourselves, given the fluctuating levels of energy
available from these sources? Is that something that you can handle
(Dr Martin) Yes, it is. An attraction of wave powerI
will start thereis that the fundamental driver is wind
on the long fetches of the Atlantic and that is reasonably predictable.
The wave fronts arriving off-shore United Kingdom can be predicted
with some degree of confidence and, worked in conjunction with
a thermal or a nuclear system on shore, it would be possible to
fit in quite considerable volumes of renewables, particularly
when you consider that we are just about to enter the new energy
trading regime where this thermal plant will be flexing on a half-hour
basis. The capability of the on-shore thermal fleet to react can
be fitted in with a view of weather fronts arriving from the south
west, the prevailing wind. Indeed, we do that in the way we operate
our hydro schemes at the moment. We are making very good use of
long range and medium wave weather forecasts and weather radar
and we do exactly that in mixing our hydro and our thermal fleets
to best economic advantage. Taking tidal, it is altogether more
predictable, driven by the moon.
111. That would make it even more attractive,
would it not?
(Dr Martin) Yes.
112. You are still going to be left with some
variations, so would you be interested in investment as a company
in efficient means of energy storage?
(Dr Martin) The short answer is no. We have efficient
means of energy storing. I also operate a pump storage plant because
it has a turn-round efficiency of about 75 per cent. There is
a pump storage plant in England. The fuel cell branded technologies
for energy storage at the moment are extremely expensive, have
low turn-round efficiencies and have considerable self-discharge,
which means that the energy seeps away whilst it is in storage.
Those deficiencies are not present in pump storage and I would
suggest that, certainly for a commercial company like ourselves,
the correct way of handling the variations and uncertainty in
these renewable sources, is by using stored energy as fuel in
responsive gas burning equipment. By far the most economical way
of handling short run variations in a power system is to have
rapid start gas turbines available on the grid, and we also operate
about 400 megawatts of those. This is a very cost effective way
of doing it and we made the decision to invest in those plants
quite willingly. At the moment we have more planned and they are
with the DTI for consent.
113. The principal sources of wave and tidal
energy are some distance from the main demand load centres. What
implications will this have for the grid and do you think they
can be overcome commercially at a viable price?
(Dr Martin) Yes. A lot of the United Kingdom's marine
resource is off the north west coast of Scotland. The grid in
that area is designed purely to service the very sparse population
density and to harvest the hydro which is out there. The hydro
tends to be in that same area because it is on the westward facing
slopes of the mountains, picking up the incoming water from the
114. It sounds romantic and beautiful.
(Dr Martin) It is. It is a great way of making energy.
The grid in layman's terms is full up there. In addition, once
the finer arteries of electricity collection, which are principally
the wooden pole lines, come together to a transmission level,
which is principally pylons in layman's termsthose transmission
wires were built purely to harvest the hydro and are full with
respect to the present rules under which the grid is designated
to operate. I make this point deliberately. We are very supportive
of new renewables where they can be accommodated, but the rules
under which we are required to operateit is not a choiceare
very safe rules, and we have actually proposed a slightly more
relaxed standard of operation for these rural systems and the
main transmission systems to enable access for more energy onto
the system. This is entirely practical and these sorts of standards
are in operation in other countries. We have submitted proposals
for that to Ofgen and the DTI; they are under consideration at
the moment and we are hopeful of a helpful outcome. The contribution
that could make would be of the order of a few hundred megawatts,
but every little helps.
115. Suppose we went further than that and we
really made it big news. Who is going to pay for that?
(Dr Martin) The concern we have, rather than stretching
existing systems which is what I have just been talking about,
when you get to the point where you have to make serious capital
investments (and the first tranche of these capital investments
would probably be of the order of £200 million just to put
a scale on that), is that that cost could well fall on the Scottish
customer, of whom in the north of Scotland there are 600,000,
whereas in the United Kingdom as a whole there are about 22 million
customers and I think we ought to take a UK-wide view here, that
it is a United Kingdom renewable resource, not a Scottish problem.
116. We are devolved now, are we?
(Dr Martin) We are indeed. We would submit therefore
that it is wrong for 600,000 customers to bear that transmission
use of the system charge, which is the technical term for this,
for that extra investment. Therefore we believe that the renewable
energy that is bought should pay its own way in both its capital
expenditure and its investment in the grid, both shallow, which
is the immediate connection, and deep. We believe that the economics
of renewable energy have to be made sufficiently attractive for
it to pay its own way and to pay for its own transmission investment.
117. No question of a partnership between Government
and other groups of companies and so on? You do not see a partnership
developing like the Tube, for example? You are not involved in
those kinds of arguments or thinking?
(Dr Martin) Yes. There are many models that can be
applied to this. Our company has a propensity to invest in the
right things with the right returns. We are in fact the largest
wires operator in the whole of the United Kingdom and, providing
the returns are right, we would be prepared to invest and we also
have the balance sheet capacity to do so.
118. The Government has set targets to produce
electricity, ten per cent from renewable sources by 2010. Do you
consider this to be a realistic aim or sufficiently ambitious?
(Dr Martin) As far as the realistic aim is concerned,
that number derives I think from holding our position in a European
context. If you stand back from it for a moment and think globally,
whether the United Kingdom is 2.6 per cent as now or ten per cent
makes very little difference to the world. The real issues are
in China and India where CO2 growth is considerable. In a sense
the United Kingdom's contribution is irrelevant to the CO2 debate
on a global scale. I believe that the United Kingdom's primary
contribution to the global issue should be its brains, not its
paltry contribution to CO2 saving. That is where I think the research
and development discussion today is important. Rather than the
United Kingdom meeting its ten per cent target by what will frankly
be on-shore wind and refuse burning (if it is allowed), both of
which are developed technologies, or whether the United Kingdom
develops something fresh which can make a contribution in China
and India and actually bring us export potential, I think is the
119. Could you put a figure on the long term,
say, for 2020 and beyond that? What figure would you put on it?
(Dr Martin) My formal answer to that is that almost
the whole number is irrelevant. It is what we do to act on the
places where renewable energy really an make a significant contribution
in the growth. I will come back to your point, but if I can just
illustrate it: the Three Gorges project in China is 18,000 megawatts.
That is about a third of the installed capacity of the United
Kingdom. That is what we should be contributing to, not playing
around with spending taxpayers' money or electricity customers'
money on building devices to hit some arbitrary target in this
country, if we think of CO2 as a global issue.