Select Committee on Environmental Audit Minutes of Evidence

Examination of Witnesses (Questions 80-100)



Sue Doughty

  80. You were here when we had a lot of discussion about trading arrangements and NETA. You have been talking in your note about exempting wind power or renewables from exposure to the balancing market for a limited period of time. We would be interested to hear why you think that should happen. You said a limited period of time; is it realistic to think that time would be finite?
  (Mr Goodall) The proposal for a limited period of time may alternatively be a threshold. It is rather like this ten per cent by 2010 question. There is a risk now of throwing the baby out with the bath water in that on the one hand we have a policy to introduce renewables and if we have a balancing market there is a price penalty. It is a disincentive, particularly for very small participants, to enter and grow that market. It may be, as we get to a certain threshold of volume or we could equate that to a period of time, we will be able to live with the pain of NETA as it is presently configured in a way that right now is such a disincentive as to disallow for things like aggregation, consolidation or other aspects that are being suggested.
  (Mr Still) When NETA came in last March, wind was less than half of one per cent of the United Kingdom's electricity. Perhaps it did not get the full attention in the NETA reorganisation as it should have done, especially as we are looking forward now to 2010 where it could be five per cent or more. The effects of NETA have been harsh on wind because of its unpredictability. Pre-NETA, projects were getting 30 pounds per megawatt hour. Now, conventional projects are getting in the range of 16 to 18 pounds per megawatt hour. Some wind projects are getting in the region of 8 to 12 pounds per megawatt hour because of the unpredictability, because the system—and that includes consolidation which does not work at this moment in time—has not worked.

  81. From what you are saying, I would have thought it would be true for something like solar energy as well where you have an element of unpredictability. It sounds a little short-sighted for NETA to say that here we have a developing technology which is all set to run, apart from its availability, and yet the calculations are taking a much more cautious view of the opportunity that there is here.
  (Mr Still) I think you are right. I have been chairing the Unpredictable Renewables Sub-Group of the Consolidation Working Group and what we have been trying to argue is what you see in the memorandum. However, in the translation from our report to maybe what comes out tomorrow you may not see such an emphasis placed on our views when it has been edited within the system.

  82. Will you similarly be continuing to make representations?
  (Mr Goodall) Yes. It fairly dominates our lives at the moment. NETA appears to have been designed for 1990 whereas policy for energy appears to be looking to 2010. There is some light at the end of this tunnel in that we appear to have the ear of many people. My concern is that we will get lost in the debate, that it will continue for a long time and be quietly forgotten. We are demonstrating quite effectively now that there is definitely an effective NETA which adds a cost to renewables, particularly wind, which is an artificial, additional cost. What we are seeking to do is to ensure that, notwithstanding the general operation of NETA, which is widely considered to be a good thing; it has helped drive down prices and so forth, clearly can be shown to be a disincentive for very small entrants. That is particularly difficult to reconcile with the government's ambitions for so-called small scale community schemes and for the mythical hill farmer looking to diversify because it is adding additional cost into a very complex process already.

  83. That is a very strong point and very worrying in terms of where the business is going in terms of opportunities and encouragement.
  (Mr Still) We are happy to pay the real cost of putting wind on to the system. In Denmark, that is in the region of about £1 per megawatt hour. In the United Kingdom since NETA came into operation, that has been up to a factor of ten. We are looking for cost reflexivity and fairness and we are not getting that from the system at the moment.

  84. You mentioned about consolidation of outputs into a single trading unit. Do you think this could happen? Do you think there is a role for a government agency possibly, such as the Non-Fossil Fuel Purchasing Agency, to help consolidate NETA trading?
  (Mr Still) We could be exempt and supply direct to the National Grid, for example, which would give us a similar result to a single cash up price.
  (Mr Goodall) I see no evidence of consolidation working yet.
  (Mr Still) We would echo that a consolidator coming into the market has to make a profit as well and we have to see that passed on to the generator, not just taken out by another middle company.

  85. It always seems surprising how many people own any piece of the action before it turns up down the wires in the house. With renewable generators, what is the real world in terms of this? Do people tend to contract with their local electricity supplier? Do they shop around for people to contract with?
  (Mr Still) We shop around.
  (Mr Goodall) That is another issue, particularly for smaller parties and their ability to do that. The deal they can run, particularly if we are looking at output trading under the obligation, the value of the rock, the green value, how much they retain themselves and how much they sacrifice to the contract is perhaps an issue as well that is worth considering. That is the cut and thrust of the market in which we are now finding ourselves.

  86. Moving on to the number of players, you are increasing the number of people all the time. In the note you have provided, you mention farmers today and industrial companies. Are the industrial companies looking to provide sufficient for their own purposes or are they looking at the sites they have as a means of producing energy which they can sell?
  (Mr Still) It can be both. Probably under the trading conditions at the moment if they can generate on their own site it may be beneficial for them to export and take advantage of the renewable obligation certificates when they come into force. That will just be a straight, commercial trade.
  (Mr Goodall) Indirectly, you raise an interesting point in that if you were to look at our telephone logs of calls we get there is a great deal of interest from people interested in what they can do themselves rather than who they physically buy their electricity from. An awful lot of people seem to want to put a wind turbine on their house, in their garden or whatever. It is interesting—and it relates to comments made by colleagues from CHPA about micro-CHP and the nature of the changing grid—to anticipate the interest and the appetite for much smaller systems as well as the large supply we are coming to rely on as well. It is beginning to be looked at but it is a long term issue that we ought to come back to. That is a future revision and anticipation of whatever follows NETA, perhaps ten years from now, which may seem like a long way away, but it is racing up quite quickly, as to how we further strengthen the opportunities for introducing more and more smaller scale renewables in CHP for the system, which is universally supported, as well as the larger projects we are seeing introduced now.

  87. The complexity of trading must be a bit of a disincentive at a time when we are trying to grow the market. If I were thinking about having some sort of renewable energy on my house, I would think: "Do I really want to get involved in this, given the complexity of the problem?" or if I had a small business or a warehouse.
  (Mr Still) I think you are right. In the middle of the night, it may be best for you to get up and turn the wind turbine off because some of our projects are paying to put electricity onto the grid in the middle of the night because that is the way the system has been designed. That seems crazy.

  88. We have a lot of different players here. Is there anything that will make all these smaller players start consolidating and the big boys start buying in? Some of the petroleum companies are now concentrating very hard on renewables. Do you see any way forward on the trading by having large organisations?
  (Mr Goodall) Do you mean, at the risk of being ultra-controversial to my members, the larger companies can look after themselves? Whether one can find smaller companies and those that do not even exist yet finding a way of acting collectively is a fraught situation to imagine and will unavoidably have a cost added to it that may mean it is just not workable.
  (Mr Still) Larger companies could come in and facilitate the smaller companies but it will take some money before it gets onto the market where the electricity is sold. It is a bit like a consolidation market.

  89. I am not seeing a lot of light at the end of the tunnel. We have this massively complicated trading arrangement, lots of small players, NETA not particularly helping the situation, no opportunity that we can easily see to consolidate into the larger organisations. What we really want is the renewables industry encouraged and a fair wind, if I might use the phrase.
  (Mr Still) Yes. We see the renewable obligation coming in, certificate trading assisting the wind farms in their generation and that will happen. It has been delayed. We hope it is in operation by 1 April of this year. It should have come in at the same time as NETA came in last year so we have been for a year without any form of certificate trading. We hope that will make it work but we do not just want to be penalised by the effects of the system, like NETA, at the same time. We want to have a fair and level playing field and see fair cost reflexivity.

Mr Gerrard

  90. You heard the comments from CHPA that they would like to see small producers outside NETA. Is that a view you share as being the way forward?
  (Mr Goodall) I would say just exempt wind or probably renewables at large just to a certain point, to allow it to get going, to get to a critical mass, to make it competitive with the self-styled, larger generating entities that exist. I have yet to find an adequate understanding as to why that could not be done. There is nothing wrong with saying, "Oops, we got it wrong." Failing that, maybe a single cash up price might be a solution that would enable any participant to not suffer. There may be any number of other tweaks that can be made to adjust and reduce the unnecessary burden of additional cost on renewables which are incorrectly perceived as much more expensive than conventional generation anyway. It is a bit difficult to live with the fact that we are having to pay for the privilege of trading. Ultimately, we would like the recognition that it was wrong on that occasion. The instruments to adjust and compensate are imperfect and simply lifting it out of the system may be the best solution of all.

  91. You talk about the cost of putting wind onto the system. I assume you were talking about the day-to-day costs of production and getting into the network. There are also, I believe, concerns about the cost of connection to the network. Could you elaborate on that?
  (Mr Still) Generation conventionally is at the extremes. It is in the old coal fields of England; it is in the extremities where they have nuclear power stations. Where the wind is we may not have a strong grid connection. There may not be wires of the size to take significant amounts of new generation to the system. There are barriers releasing energy from Scotland through the interconnectors, so there needs to be a plan which says, "This is where we want to have the wind or renewable technology. This is how we are going to get it to market." That may come to the forefront when we talk about a major deployment of offshore wind. We may find one area say, for example, off East Anglia which is the best place in the world for wind, for whatever reason, but it has a very weak grid infrastructure so somehow we have to promote the establishment of a strong grid which will take the wind from an area where we as a country designate it as the best place to put offshore wind.

  92. Who pays for connection at the moment?
  (Mr Still) At the moment, we pay.

  93. Who would you like to see pay?
  (Mr Still) We are happy to pay our fair share but quite often we see grid reinforcement and deep reinforcement—I have seen it in Scotland—trying to be placed on a new generator coming onto the system rather than the backbone of the grid which is there and which is the country's asset. It should be reasonable and it should be as fair a playing field when we put something on the grid as any other form of generation.
  (Mr Goodall) We are openly begging the question what is the role of government in participating in this. I am not saying we necessarily know the answer. I am certainly not asking for a handout. Because the grid is in a process of change anyway, it gets replaced. It gets rerouted and new bits get put in. There is a need to think strategically in anticipating what will happen and there are quite properly questions to be asked: are we comfortable with making this entirely a private activity? What kind of concerns can we have about how companies will behave in these markets? What is the role of government and, for that matter, the regions in this? With respect, I throw it back to the Committee and others to say let us get the debate open and quite frank.

  94. Where in government should it be?
  (Mr Goodall) Everywhere, I think.

  95. What about the present splits between DTI and DEFRA? How do you think that is operating? How can you get it more joined up?
  (Mr Goodall) I do not know whether a split can operate, with respect. There are times when we wonder whether there is truly the joined up thinking that we see described. For example, to introduce a controversial case, offshore wind and the MoD. Here we have a very clear direction that offshore wind is considered to be a good thing and there is considerable commercial interest in it and we have one arm of the government, the MoD, who have their concerns and issues. Bringing the two together to a happy conclusion is something that we are looking forward to but we do not quite see how that is going to happen. It is a notoriously difficult process to introduce oneself into.


  96. What is the problem with the MoD?
  (Mr Goodall) The MoD have two major concerns about wind farms, both on and offshore. One is related to low flying, tactical flying areas and the other is radar. They are legitimate concerns.

  97. They are resolvable?
  (Mr Goodall) I am convinced that the technical issues are resolvable. By way of example, perhaps I can point out that there are 23,000 megawatts of wind stored around the world. Most of our NATO cousins have wind turbines. There are wind turbines on airfields in Germany so there are solutions to radar issues. It is just a matter of agreeing what the standards are and adjusting and taking the appropriate steps. More complex issues are related to low flying and tactical flying which are to some extent an element of judgment and choice, which we will be returning to in due course as we roll out the anticipated evolution of further offshore wind which will bring some of these very much to the fore.

Mrs Clark

  98. As an East Anglian MP in Peterborough and having looked at this excellent document and seen that you only have a four per cent target for the east of England, I do very much hope that you will contact me and talk to me. I would like to do all I can to help.
  (Mr Goodall) Thank you. It is not our target. What we have done there is indicated how an equitable share of the DTI's indicated target might be. That is simply how it would divvy up on an equitable basis and that is only onshore wind as well.

  99. It is very low however when we consider we have 39 per cent in Scotland.
  (Mr Goodall) If I may give you another example, it was not that long ago that the received wisdom from ETSU was that it was not possible to have wind in East Anglia at all, which came as terrible news to the people who operated wind turbines there.

Mr Best

  100. I am interested in some of the observations that have been made about the possible financial responsibilities for investment in the development of the necessary grid links. You would not want, as I understood what you were saying, to be burdened with that cost. You feel it is rather unfair. Let us imagine it is in Scotland and you have a wind farm there and whatever you are able to produce for the grid. The linkages with the grid and the grid itself you would think would be matters for someone else?
  (Mr Goodall) Let us imagine there is a very large potential somewhere. A developer will routinely expect to pay the connection costs to the backbone. If there is an enormous distance between that project and the backbone, that will be a significant, additional cost. If those costs are rolled into the project cost, as one would routinely expect, it may make that project unaffordable under the obligation itself. If I can use an analogy which I have been toying with, it is a bit like the encouragement of the building of a new housing estate away from an existing settlement. Of course, the developer of that estate will put in the plumbing and make the connections to communal drains. Then they will find that they are several miles away from the existing, big drains. If that development has been encouraged by that local authority as the great place to put it, or even by a higher authority, does the burden still fall on that property developer to make that large connection because they have been directed to or is there a role for other entities to participate in that because it has been directed to be built there. It is not necessarily the easiest or the cheapest but it has been chosen as the best by all parties concerned. I beg the question; I do not necessarily have the answer. That is properly a matter for public debate.
  (Mr Still) It may be that to add a 50 megawatt project in one area would need a large grid reinforcement because of the structure. You could possibly add 1,000 megawatts in that area with only a marginal increase in that first increase in infrastructure because you have to put in a long transmission line. That is what we have to look at. It is somebody out there investing first and then charging those projects which come on the fair price for using it. There may need to be a National Grid or a similar organisation which invests in infrastructure and gets its return, as it does at the moment, further down the line.

  Mr Best: Rather like Railtrack.

  Chairman: We ought to end the session on that note. It has been a very interesting session on a fascinating topic. Thank you both very much indeed.

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