Select Committee on Environmental Audit Minutes of Evidence

Examination of Witnesses (Questions 140 - 159)



  140. A quick question about the UK Emissions Trading Scheme. There seems to be a consensus that electricity generators will need to be included in this. What are your views on this? What impact would it have on your ability to deliver?
  (Dr Count) Again, we come back to the scheme. We would like to see an Emissions Trading Scheme. I think, again, what I would counsel against on emissions trading is second-guessing what each sector can do in carbon reduction. In our view, the right way is to say across industry let's reduce carbon by so many per cent and let the players across the industry find the right price to do that. That will be an efficient mechanism.


  141. Does that mean a carbon tax?
  (Dr Count) I think ultimately it is a cost of carbon. It may look similar but ultimately what we will get is a much more efficient technology solution to that problem. I think it will be a lower-cost solution than a carbon tax but it does impose a cost on reducing carbon. It does not come for free but the incentives are different from a carbon tax because it is the industries competing for the cost of that.

Sue Doughty

  142. Just one final question really about what the Government should be doing to encourage renewables. The head of Ofgem said that NETA does not penalise intermittent generators. He said the problem was not with NETA and that if the Government wanted to encourage renewables it would have to pay for them. Would you share that view?
  (Dr Count) Yes, I think NETA goes to the fundamentals. Fundamentally we know that in any market an unreliable source is less valuable than a reliable source and ultimately reducing carbon comes at a cost so we should be overt in how we structure that.

  Sue Doughty: Thank you. You have been very clear.

Mr Thomas

  143. I wanted to return briefly to the point of technology you were discussing with Miss Doughty and tempt you, if I could, to gaze into your crystal ball. If not wind, what is the most likely technology in renewables to come forward in the next couple of years?
  (Dr Count) If I gaze at my crystal ball all I know is that I will be wrong!

  144. It might be more correct than we can be.
  (Dr Count) I do not think there is one solution and trying to strive for a single solution is the wrong approach. If we look at what we are trying to do in reducing carbon, and I do not rule out carbon reduction in coal fired generation, ultimately I may argue why does that not qualify for threepence a unit? That might stimulate that research. I do not know today whether you can meet that cost of reduction. Clearly gas plays a part in the equation. I think energy efficiency plays a big part in this, much more efficient use of heat and power. Wind power plays a part. My judgment, having started my life with renewables and waves and tides, is that they are more difficult technologies, simply because of the cost of them, and they are further away. I think in our country solar is more difficult but solar will play a part in other countries and, ultimately, dare I say it, the nuclear industry may have a part to play in carbon reduction. That is a political issue. We can maybe say it because we stand outside the industry. I think one has to look at a series of technologies. The other technology that will play a big role is primary fuel cells where you are using hydrogen and oxygen.

Mr Barker

  145. That was not in your submission to the PIU.
  (Dr Count) I think fuel cells are being developed fast in the United States. We did mention distributed generation and that is really where fuel cells come in. Power closer to the consumer is going to mean that you have to generate less energy because you lose less in the transmission system. So we would certainly believe fuel cells play in that equation.

Mr Thomas

  146. That is an interesting response, I think, because we are examining renewables and what you gave there was a very comprehensive response much wider than renewables. There was not a very clear renewable technology that was coming out of that. If I can give an example from my own constituency where one of your wind farms is placed about seven or eight years ago, which is a half megawatt turbine. The latest wind farm coming in is going to be a two megawatt turbine, in other words four times the size in terms of generation. More or less during all the intervening time I and my predecessors have been trying to get a biomass scheme off the ground and have still failed. That reflects really on what you were saying a little earlier. Does it not just underline that unless there is an actual additional government emphasis on renewables that really it is only wind, and offshore wind perhaps in particular, that is going to get a free passage, I suppose, in the next five years of this energy review?
  (Dr Count) I agree with the sentiment. I would not say free passage; somebody has got to pay. It is right for the Government to decide who should pay ultimately and we cannot fudge that and ultimately the consumer or taxpayer pays.

  147. We pay whether it is taxes or increased price for energy.
  (Dr Count) Ultimately one has to judge good value for money but we are then going into saying are government best in choosing the technology winners? Why has biomass not got off the ground? Because the economics do not justify it. There are other technologies that can reduce carbon. If offshore wind power, which has a considerable resource, is a better technology to reduce carbon than biomass, why should the consumer be concerned? If ultimately in the long run we run out of that resource and we believe carbon reduction has a greater value, then other technologies will then flow through.


  148. Coming back to this point about the risk to investment of government changing its policy. How worried are investors that the Government will change the Renewables Obligations system?
  (Dr Count) There is clearly a concern because ultimately there is an order there. There is nothing enshrined in legislation as to the sustainability of that over a 15-year life and with its heavily capital intensive nature, if you are not certain that there is going to be underlying structure there, there is a concern. Where there is a normal market structure you can look at the fundamentals of the market. So, yes, there is a degree of concern.

  149. What can you do about that?
  (Dr Count) I would go back and say primary legislation that gives grandfather rights that secures us with no stranded asset base.

  150. That is something that you would certainly very much like?
  (Dr Count) We would like to see that.

  151. Is it unusual in government legislation to have grandfather rights?
  (Dr Count) Across Europe when I worked with National Power on the international scene, Turkey in particular has grandfathering rights. It is always an issue to deal with stranded assets. When you change a market mechanism then you always have this problem of stranded assets and it is a good mechanism that deals with it. It is not uncommon across European structures.

Joan Walley

  152. Is that not a case of wanting your cake and eating it, essentially wanting to be able to have that certainty about where to invest, but the down-side of that is how do you then keep abreast of the new technology that might be in the interests of environmental sustainability?
  (Dr Count) Two points. First of all, we are quite happy to take the market risk. If the market price goes down because there is over capacity, that is a risk we as investors take. We are prepared to take the technology risk of the technology not working. The other considerable risk is whether the wind blows as often as you anticipate. That is quite a considerable investment risk. If the structure is unaltered then that is a risk we should take. What is the difficulty is a structure that we know can be changed. What is the incentivisation to develop the new technologies? We are always going to be developing technologies that can make a better return against that market structure. There are always competitive advantages if I can bring in a new technology or a supplier can develop and sell a new technology. Let us take wind turbines. Vestas are a huge supplier. If somebody can develop a compatible turbine then they are going to be incentivised to come in and take their market share.

  153. Supposing there was the technology that might make biomass more competitive and easier. Is that not just going to be hard luck as far as the wind turbine manufacturers or suppliers are concerned?
  (Dr Count) That is the market. If you look across market structures, across the globe what has happened over the last decade is that gas turbines have been developed by the suppliers and are now commanding some 60 to 70 per cent of the new power market there. What they have done is displace the old steam technologies. That will always happen in any market but that is market risk; that is not government influenced.


  154. That is something you are saying you really have a tradition of handling. The market technology risk is down to you?
  (Dr Count) Yes.

  155. The political risk you cannot assess because you have no idea what is going to happen. That is down to the Government.
  (Dr Count) That is right.

  156. That is how you would separate them.
  (Dr Count) That is how I would separate them. That is right and proper. Our equity holders should take those market risks. We are best placed to judge those risks.

Joan Walley

  157. But how would you expect Government to fulfil its obligations to more sustainable development if you were wanting it to intervene or to perhaps steer the direction towards different routes?
  (Dr Count) I do not have a problem with the Renewables Certificate. You have done that and that will stimulate the development of the technology. It is for Government to decide the level. All I want is a stable political background to make that investment and it is for Government to decide at what level, what hurdle should they put in there to stimulate the technologies or the objective that they need.

Mr Barker

  158. Do you mean hurdle or incentive?
  (Dr Count) Incentive.

Mrs Clark

  159. I would like to start off with a direct question to Dr Count who has said to us that he has spent most of his working life promoting renewables. Would you not say, Dr Count, that if you have been doing that in this country it must have been a deeply dissatisfying experience because in the Renewables Obligation we have a stunning 10.4 per cent of electricity etc to be sourced from renewables? Even last year Peter Hain, then the Minister of State, said that really we had been the slowcoach, we had started way behind everybody else, and we have been talking about wind and the fact that, as Mrs Doughty mentioned, the RO significantly favours wind. What I would say is, wow! Five per cent target when, as you mention in your PIU submission, Denmark has a 50 per cent target for wind. We have been to Denmark in the last parliamentary session. It is very environmental, very forward-looking and it has a 50 per cent target for wind. Why is that? What have you done about it to try and press Government to do a bit more forward thinking and are we talking about weasel words and a lack of political will?
  (Dr Count) I will briefly answer and then hand you over to Mike who can give good examples of where we have dichotomies, particularly if we focus on the planning issues. Ultimately what have we done? Our role is clearly to protect our shareholders and do what is right for our shareholders within a market framework. If we are given the rules of the game then we have to work within those. I think there are some frustrations. We get frustrated on joined-up government here.

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