Members present:

Mr John Horam, in the Chair
Mr Colin Challen
Sue Doughty
Mr Mark Francois
Mr Jon Owen Jones
Ian Lucas
Mr Malcolm Savidge
Joan Walley
David Wright


Memoranda submitted by the Department of Trade & Industry

Examination of Witnesses

MR BRIAN WILSON, MP, Minister of State for Industry, Energy and the Environment, and MR JOHN DODDRELL, Director of Renewables Policy, Sustainable Energy Policy Unit, Department of Trade & Industry (DTI), examined.



  1. Welcome to our meeting, Minister. Thank you for coming along. You may be interested to know we saw the PIU people this morning, and yesterday we had a very pleasant day in Scotland talking to the Scottish Executive and two Scottish powers so we feel well versed in the subject, and particularly well versed in the Scottish angle, which may also be of interest to you, although of course you have UK-wide responsibilities. Thank you also for your Memorandum. Is there anything you would like to add briefly to that before we begin to ask you questions on the subject?
  2. (Mr Wilson) Thank you very much for your welcome. I would also like to introduce John Doddrell, who is the Head of the Renewables Division in the DTI. If I could just make a few brief points. I think the fundamental one is to emphasise the extent to which the subject matter of this enquiry is absolutely at the centre of : the Renewables Agenda and the whole Energy Review impact of NETA Renewables Obligation, renewables policy as it is evolving, and particularly the importance of joined up thinking within Government in order to get all of that right. I think it is worth saying that, as I am sure you are well aware of, their Renewables Obligation since you began this process is now in place and came into effect on 1st April, and has attracted a great deal of cross party support, both in the Commons and in the Lords. So with the Renewables Obligation in place, we think we now have the main building blocks available to achieve the 10 per cent target. I know that sometimes people say, "Set more ambitious targets", my one view is that you set attainable targets before you set more ambitious attainable targets. I think the 10 per cent is attainable, but it will be a tough target and we now have a 25 year long obligation which again I believe should give investors and industry the assurances that they need to make the commitments that are necessary. We estimate that 10 per cent of electricity from Renewables by 2010 will mean annual savings of around 2.5 million tons of carbon by 2010. When we devised and implemented the Obligation, there were two issues at the front of our minds. First, it was vital that there should be a market led initiative which would stimulate competition and leave the market to decide which forms of renewables and which technologies were going to have primacy in the UK renewables mix. Government is not backing winners, it is allowing the field to run to see which renewables technologies emerge from that field most strongly. Secondly, it was also vital that any support mechanism had to be cost effective in order to maintain the competitiveness of industry and also to keep down the costs for the domestic consumer, but I do not think you can get too much of a disjunction between what it is going to cost the consumer and what the consumer is prepared to accept. You cannot see that in isolation from our other aspirations. Finally, Chairman, I just want to say that Renewables Obligation in my view represents a tremendous opportunity for manufacturing industry in the UK. I do not think it is just an energy issue or an environmental issue, I think it is a tremendous manufacturing issue that we have now put in place, something which is going to create billions of pounds of investment over the next few years, and my very strong commitment is to ensure that as many of these billions as possible are spent within the UK and give a whole new market to some of our industries which have synergies with renewable technologies, and others which can seize the opportunities that they present. I hope as we go along I can maybe say a little more about that. That is all I really want to add to the Memorandum, Chairman. Thank you.

    Chairman: Thank you for saying that, Minister. As I said before the PIU this morning, and in discussing their report over a two hour period there, the first thing we would like to kick off with is to get a clear understanding of the timetabling of your responses to all that and the way the Government is looking at this from the point of view of getting some action on the ground. There has been an awful lot of analysis. We do now need some decisions. I know Mr Challen wants to discuss that.

    Mr Challen

  3. I would like to start by asking about the proposal contained in the PIU Report for the creation of a Sustainable Energy Policy Unit. I note that they say it should be operational by October of this year, but in your Memorandum at question 3, you state, "Because of the need to take account of the PIU Energy Review, the Energy Group has two years to decide and implement any changes in its structure", so it seems to me that there is no great intention to fulfill this particular recommendation?
  4. (Mr Wilson) Maybe if I said, just about that in context, something about the timetable from here on in in response to the PIU Review, and I have been very anxious to stress at every point that the Energy Review is a report to Government rather than of Government. I think that was important not only from a governmental point of view, but also from the Review Team's point of view that they had the liberty to think freely in the knowledge that they were going to be presenting this to Government rather than being asked to draw up an energy policy. So once they have their report, which I think is a very good and thorough piece of work, it will now inform the normal policy making process within Government. The next step on that will be the issuing, very soon I hope, of our consultation document, which will in turn lead before the end of the year to a White Paper. There is a Cabinet Sub-Committee meeting within the next couple of weeks which will trigger the consultation process, and then we will come to a White Paper later in the year.


  5. That is this year?
  6. (Mr Wilson) This year, yes, absolutely. It was originally our ambition to get the White Paper out by the Autumn. I think there has been a little slippage in that, just because of the mechanisms that it has to go through in the consultation process, but certainly the White Paper should be out by the end of this year -

  7. How long will the consultation period be?
  8. (Mr Wilson) The consultation period should be about 3-4 months, until the early Autumn, and then publication of the White Paper. The intention obviously is not to reinvent the wheel and to go over all the ground that has been gone over very thoroughly and very transparently in the run up to the publication of the Review, but to build on the Review, and then to incorporate that into a White Paper. Some of what the White Paper contains will involve legislation, but probably not a great deal of it, and a lot else of what is in the White Paper hopefully will be able to be implemented without legislation, and I would see advances in this sort of area as being a high priority.

    Mr Challen

  9. Would you actually support this cross-cutting Sustainable Energy Policy Unit? Do you think it is a good idea? Will that feature in the process of consultation?
  10. (Mr Wilson) It certainly featured in the consultation, and if you ask my own view, then I think anything that pulls all these strands together is positive, but I do not think it makes sense to have a number of different avenues for various branches of energy policy to go down without some clear coordinating theme to link them.

  11. That certainly seems to be a very strong conclusion of the PIU Report who do say that there should be a single department as a long term aspiration dealing with climate change, energy policy, and even with transport. Would you support that view? Where should this focus actually lie within Government? It seems to be spread all over the place at the present time.
  12. (Mr Wilson) I think that is a legitimate criticism. If you ask if I was offering a personal view in the long term, I make it clear that I am unlikely to be around to be involved in it, but I think there is a strong case for an energy department. I think there probably always was a strong case for an energy department and the reasons for getting rid of an energy department were more political than logical at the time that happened. So whether it is brought together as a department or whether it is brought together within one department, I certainly think there is a very strong case in moving towards as much a synthesis of energy policies and responsibilities as possible.

  13. Which is fair, then, to conclude that we should be looking at that now as a long term aspiration. A single department might be all well and good, but where should this focus be now, because if we said it was to be in the DTI and you have perhaps more economic objectives, if it was in DEFRA, it is more environmental. At the moment, we cannot really see if it is economic or environmental. Who has the upper hand?
  14. (Mr Wilson) I certainly would not like to think of it in terms of upper hands and lower hands. This is something for the consultation and the White Paper, to look at all of this. I think it would be a mistake to treat it in terms of inter-departmental rivalries. I certainly do not see it that way. What I do see in my daily work is that there is no particular rationale to where some of the responsibilities lie and where other responsibilities lie, so it seems to me the common sense position is, as far as possible, to bring it together. It goes beyond DTI and DEFRA. For instance, one of the most striking points that was made to me during the PIU Review was that supposing we did everything that we are committed to and aspire to on the energy front, if we did nothing on the transport front, then we would still be worse off in terms of carbon emissions in 2050 than we are today. So you cannot have an energy policy which is driven by the climate change obligations without taking account of transport as well, therefore, joined up Government goes beyond just two departments.

  15. How will DEFRA be involved in the consultations on the White Paper? Clearly they are going to have to have a big input, I would have thought. (Brian Wilson) DEFRA have a big input. They were represented on the Advisory Group on the Review, and clearly they will be very much involved in the consultation and the assessment of the consultation. For instance, one of the big winners, if you like, of the Review is the need to reduce the use of energy and DEFRA are clearly very much involved in that.
  16. Chairman

  17. You seem to be persuaded that the fundamental prism of the PIU Report, namely that, in its own words, "Existing structure of institutions involved in the UK energy policy making and delivering lax coherence", you are more or less agreeing that, because you are saying that there are problems with the different departments and so forth and you would like to see it brought together in a joined up sort of way, so you are really rather agreeing with the PIU conclusion that there should be some body which brings all this together; am I right?
  18. (Mr Wilson) I do not think anyone who was sitting down to write the division of responsibilities within government today on a clean piece of paper would divide what is energy related responsibilities in the way they currently are. We would have more cohesion to them because unlike the forces which created these divisions in the first place, the driving force today is climate change and the need to -

  19. But if that is so, why do you say in the Memorandum to us that you are going to wait two years until you actually do anything about this?
  20. (Mr Wilson) I do not think we say we are going to wait two years to do anything about it. As I have described, there is a process now of consultation and White Paper which will hopefully allow us to move more quickly on some of these things than others. Certainly at the outer limits there is a very wide window of opportunity, but I am in favour of doing things quickly as long as they are done properly. I think it is very, very important to get this right within the context of our evolving energy policy.

  21. So we can expect this issue to be addressed in the White Paper?
  22. (Mr Wilson) The issue will be addressed in the White Paper, certainly.

  23. Let us come on to renewable energy. Most people seem to be in favour of renewable energy, more renewable energy -
  24. (Mr Wilson) In principle.

  25. Absolutely. Let me ask you as the Minister: what do you see as the main reason for wanting more renewable energy?
  26. (Mr Wilson) Because I think it has a crucial contribution to make to a cleaner energy mix and to meeting our obligations -

  27. So it is about a low carbon economy?
  28. (Mr Wilson) A low carbon economy, yes.

  29. That is the main reason, in your view?
  30. (Mr Wilson) I think that is the driving force, but I think that there are then a great many other reasons why it is a thoroughly good thing.

    Mr Jones

  31. Minister, you spoke optimistically about meeting our 10 per cent target. You have spoken in the past quite frankly, describing the present renewable contribution that Britain makes as a "pitifully low base". The latest figures we have for 2000 are a 2.8 per cent level of contribution to electricity generated in the United Kingdom. Can you tell us what the figure is for 2001?
  32. (Mr Doddrell) It is likely to be slightly higher, excluding hydro. 2001 was a particularly dry year in terms of rainfall, so the existing hydro output as I understand it was slightly lower, but the underlying trend in production of other sources of renewable energy went up a bit, but please bear in mind that the instruments like the Renewables Obligation, the Capital Grants programmes and all the other things that we have been putting in have not yet taken effect in 2001.

  33. We understand that. We are trying to get an idea of the level of challenge. How much of the new production in 2001 was eligible under the Renewables Obligation?
  34. (Mr Wilson) The Renewables Obligation only came in in April 2002. Incidentally, I am told that the figures will be published in the Summer for this year. The answer to your question is that hopefully it will show some increase, but it will not be a large increase, and that again emphasises the scale of the challenge in the remainder of the decade.

  35. We are not rolling yet. Government set the target for 5 per cent of electricity from renewables by 2003. What does 2003 mean? Is it end of 2003 or the start of 2003?
  36. (Mr Wilson) I would say it would probably mean the end of 2003. I would also say that we are not going to meet 5 per cent in 2003, so again it emphasises the scale of the challenge thereafter.

  37. So we are not going to meet that?
  38. (Mr Wilson) No, we are not going to meet 5 per cent.

  39. Thereafter, the next target is 2010, and you have already spoken optimistically about how we will get to there. I do not want to ask whether those targets are realistic because I am sure everyone on the Committee believes they are realistic, but with present policies, they do not appear to be realistic. What would you see as the major obstacles that you need to get rid of to start meeting those early targets?
  40. (Mr Wilson) I think there are two obstacles. One is investment: you need to have investment or the commitment to investment in order to even have the theoretical possibility of getting the generation which will meet the targets. I will name three. The second one is the infrastructure: in other words, you need to have the ability to get the power to where it is needed from the places where it is generated. Again, I am happy to say more about that, but it is quite a major constraint at present. Thirdly, the projects actually have to happen, and maybe the most sobering statistic in all of this is that two thirds of the projects approved under the predecessor of the Renewables Obligation, the Non-Fossil Fuels Obligation, never actually happened, and the reason that happened mainly was because in hundreds of cases they were successfully blocked at a local level. If we continue to see two thirds of projects fail to come to reality, then we are not going to meet targets, it is as simple as that. I just use this as an example: I went to Cornwall a few months ago just after a wind farm had been opened. It was quite difficult to see where it was because part of the problem was that it was half in Cornwall and half in Devon. It was 16 turbines. I was told that this was the biggest wind farm to open in England since 1994. At that rate of progress, if we come back here in ten years' time, I do not think we will be celebrating 10 per cent from renewables. That is the reality, that projects are blocked or delayed in the way that they have been with great regularity until now. It will be extremely difficult to meet these targets, so we have to ask people who are in favour in principle of renewables to start squaring their conscience with their intellects and allow some of them to happen.

    Mr Jones: Thank you, Minister.

    Ian Lucas

  41. Do you think the Government is failing at the present time in getting the message on renewables across in terms of the importance of dealing with these local obstacles to achieve the overarching policy?
  42. (Mr Wilson) Whether it is Government who is failing, the statistic I have just quoted suggests that somebody is failing, and I suppose everything ends up with Government. I think that it is true that there has not been coherent success in persuading people that if they are in favour of renewables in principle, then they also have to occasionally be in favour of them in practice. I do not think that effort has really been made, because until now, they not have come forward in a sufficient way, they have come forward in a spasmodic way, and each one has been seen as an individual project. I think we are really at the start of a process now of confronting society with a more general choice, that either they are going to have a significant contribution from renewables or they are not and if they are going to have that contribution, then they are going to have to show reason in accommodating it.

  43. Is it not Government's responsibility to put that to people?
  44. (Mr Wilson) I think it is Government's responsibility, yes.

  45. And it is right, it is not, because, certainly from my perspective, Government has not been doing that to date?
  46. (Mr Wilson) I think that is right, but I think that is partly due to the fact that there has not been the mass of projects that really you could call this a movement as opposed to a series of individual projects.

    Mr Francois

  47. I would just like to ask quickly about the numbers that we were quoted. We could obviously forecast these things reasonably accurately if we know for a fact that 2.8 per cent of our energy came from renewables in the year 2000. Most of that was hydro and we inherited that . A lot of it goes back almost to the Second World War. Hydro is vulnerable to a dry year, as you were saying yourself. So we had a dry year last year: what actually was the final outturn percentage for 2001?
  48. (Mr Wilson) I do not think we will have that figure until the Summer, but we will certainly get it to you by the Summer.

  49. The suggestion is, from what you were saying about it being a dry year last year, we could actually have gone backwards, could we not?
  50. (Mr Wilson) I do not think it is likely, but I do not think it is inconceivable. Certainly I am not saying there has been some great leap forward in the past couple of years. Hopefully, what I believe now is that building blocks have been put in place which will allow for the great leap forward, subject to the caveats I mentioned.

  51. The great leap forward was a phrase Chairman Mao liked to use a lot. For 2001, either we went backwards or we were much the same or very fractionally ahead, and we have got to get to 10 per cent by 2010. One of the major barriers you face is planning in getting planning consent in order to do this. It was not quite clear from the Memorandum that was submitted to us whether the DTI really had now created, as it were, a one-stop shop for planning consents relating to these matters. Can you actually clarify to the Committee exactly what the position is?
  52. (Mr Wilson) Planning of course is not within the gift of the DTI alone, or indeed primarily with DTI. Obviously we have a strong interest in consultation and planning law, which the DTLR is conducting at the present time. One of the keys to a higher success rate is to inherit the change in planning law or the change which allows for the transportability of projects, in other words, that they are not tied to the one location: if they cannot find approval in one location then they can be moved to another. That was introduced latterly in terms of the NFFO and has also been introduced in Scotland. It is not within our gift, but we have a very strong interest in ensuring that Government policy on planning, while safeguarding peoples' legitimate right to object, is moved in that direction.

  53. The DTI commissioned, I think, regional assessments, and also some work with devolved administration for how much they thought they could accommodate in each of their reasons. Are you now suggesting that that forms a formal basis for trying to achieve these targets, the spreading around the United Kingdom?
  54. (Mr Wilson) I think maybe we are at slightly crossed purposes here. That kind of planning is very much DTI driven, and, as you say, we have now produced regional targets throughout the UK, and these targets were not entered into lightly. There was an extensive consultation with stakeholders, including the Regional Development Agencies, to see what was realistic. These have now been introduced and they are available. Oxera was involved in the preparation of them and everybody has essentially signed up to these targets. I know from going round the country that they are already seen as very valuable tools in setting figures which are attainable and which should be aimed for on a regional basis.

  55. I can see colleagues are itching to get on this, but can I just ask you a bit more first: were these methodologies and assessments carried out consistently, because they have come up with some quite quirky results? For instance, most of the hydro we have at the moment is in Scotland, but according to the results of the assessments, we are going to do better for renewable energy in East Anglia than we are in Scotland. In East Anglia (inaudible) we have barely anything if the largest wind farm in England is 16 turbines spread between Devon and Cornwall. How can you actually say that these assessments have any validity when we are suggesting we are going to have more than Norfolk and Suffolk and the rest of the East Anglian region than we are going to have in the whole of Scotland? The other point is, so far, if you look at the success of planning applications, some 66 per cent or better get through in Scotland to date, whereas in England and Wales, the corresponding figure is about 6 per cent. Again, according to the figures, we are going to do better in East Anglia, but we have a one in ten approval rate in East Anglia compared to Scotland, and Scotland starts off with nearly all the renewables that we have and we have 8 years left.
  56. (Mr Wilson) It is not as quirky as it sounds. That is the first reassurance I will give you.

  57. We are intrigued.
  58. (Mr Wilson) I do not think we are seeing more renewables in East Anglia and Scotland, but I am quite happy to come back to you on that point. I think the factor that maybe you have not taken account of in your scepticism of these figures is offshore wind. For instance, just last week I announced the approval for the first commercial scale offshore wind development at Scroby Sands in East Anglia. That development on its own will account for 1GW of electricity, so we know a small number of large offshore wind projects can actually transform this situation. Before you come back, usually I get in first to pay tribute to the visionaries who put hydro electricity in place. I am delighted to acknowledge that, and I think it is a sobering reminder that the fact we have 2.8 per cent is due to nothing that has been done in this decade or the last decade, or indeed the decade before that that was done by people with a vision of Tom Johnson in the 1940s and then in the 1950s. Sadly, an end was put to it by an unholy conspiracy of landowners and environmentalists, but maybe we can come back to that later as well.

  59. One more question. As I understand it, in Scotland they produce Revised Planning Guidelines and Policy Guidance Notes which actually gave those who wanted to invest in those technologies a much clearer idea of that which was likely to be accepted and that which was not. That is not necessarily exactly the same in England, or, if they are, the Guidelines do not appear to be working as well. You have a ten to one disparity in planning approvals between Scotland and England; how are you going to get around that?
  60. (Mr Wilson) We are revising the Guidance and take very much in line what has happened in Scotland. What has happened until now is that if a project was tied to one site and a campaign was successfully mounted against that site, then the project had nowhere to go. The essential thing is that the project has a life beyond one site. If you do that, then you certainly improve the success rate, although ultimately I do not think you are going to improve it enough unless you also get the change in public attitude.

  61. What is the timing on the revision of the Guidelines?
  62. (Mr Doddrell) I am hoping that they will be revised by the Summer. DTLR are leading on this. We are working closely with them to make sure that they are much more conducive to the development of renewables. I would hope that good progress will have been made by the Summer.

    Mr Savidge

  63. Initially, if I can follow up from Mark Francois's points. Given that despite the story in today's Times, Scotland has been doing rather better with planning than has been occurring in England and Wales. They mentioned a number of things: they mentioned having easier planning guidelines; they mentioned giving technical advice; they mentioned producing public consultations that showed people actually found that wind farms were much more friendly neighbours than they had originally expected, being silent, and actually creating much less visual impact than expected. They talked about various things like that, plus bringing in flexibilities to try to deal with people's objections. I was wondering whether, in consultation with relevant Ministers from other departments, there would be an attempt to try and perhaps learn from the Scottish experience as far as England and Wales is concerned?
  64. (Mr Wilson) Absolutely, heaven forfend. If I was still involved in the West Highland Free Press I would be very grateful for the free publicity from Mr Murdem(?), but I suppose the lesson to learn in the case of that is not to try to build a wind farm beside Sir Jeremy Isaacs's holiday home. Sadly, unemployed citizens in Skye do not have the same access to half a page of the Times to argue their case. I think the main lesson is in terms of planning, and, as I say, the transportability of projects. I do not think the differences are that great otherwise. Obviously there are more locations in Scotland which are less visible and that must be a factor in the relative number of projects, but in the Energy Department as a whole there is very close coordination with the Scottish Executive, and I think that we can learn from one another in that experience. When I was in the Scottish office I used to have responsibility for what was then called the Scottish Renewables Obligation and I think the statistics show that we made a lot of progress just by making it more flexible.

  65. You have already mentioned offshore wind, and obviously it can have the colossal advantage of being less likely to get planning objections. Obviously it has greater costs. I was wondering to what extent you felt that the offshore technologies that have been developed for oil could give us a lead position, perhaps in being able to produce offshore wind energy at greater depths than other countries are experimenting with at present, and whether that could in turn give us something which would not only create a situation where Scotland -- which I think has potentially about 23 per cent of the whole of the European Union's potential for wind resource -- it could give us the potential not only for Scotland to provide energy to the rest of Britain, but for the British technology that could be developed there to be something that could perhaps be exported to other countries?
  66. (Mr Wilson) I think there is tremendous synergy between the oil and gas industry and offshore renewables in general, and certainly there is very exciting work going on just now in the offshore wind. It is not exclusive to Scotland by any means. I visited a very admirable initiative in Blythe in Northumberland a couple of weeks ago and the aspiration there is to make Blythe, with its largely redundant coal harbour -- it has an excellent infrastructure for all sorts of renewable technology developments and it already has offshore wind turbines which are both commercial and also a demonstration in purpose, and that kind of work is going very, very well. There is a big read across between the companies that are involved in the North Sea and companies which are getting involved in the offshore wind. We can do a great deal there, and, as you know, it would pre-empt the question, but we have based renewables UK in Aberdeen specifically in order to take advantage of the synergies between oil and gas and renewables.

  67. How far do you think that the possibility of being able to work in slightly greater depths could mean, that not only on the West Coast of the country, but possibly the North and East, we could also develop wind resources, and to what extent do you think would be opportunities for combining wind farm resources with tidal energy, given that one could use the same infrastructure and one could use the same cable connectors to bring the energy ashore?
  68. (Mr Wilson) Tidal energy has been around like all of these things for a long time, but without enormous progress being made in the commercial application, and it would be rash for me to say that one particular design or one particular technology linked to wind technology is going to be a great contributor. As I said in the outset, Government is not going around saying, "We know the technologies that are going to work". What we have to do is to stimulate as much activity as possible to encourage as much R&D work and innovation as possible and some of these designs and technologies are going to come through. Again, when I was in the North East of England recently, I was talking to a company which is going to put a very interesting tidal device in the water, is going to build it at Gateshead and is going to test it in Shetland during the Summer. There are interesting projects involving tidal power going on, but the precise interrelationship with wave power I will leave to the technologists.

    Mr Jones

  69. Just to take you back to a question Mr Francois asked about the DTI sponsored report on the Regional Contributions to Renewables. That report was very welcome in that there was an obvious need which, for some reason, had not been met for the various parts of the United Kingdom to suggest what they are going to do, and also it is welcome because it obviously gives a degree of ownership to those areas to decide. However, there was an obvious lack of any cohesive agreed standards by which different areas would draw up their reports. Mr Francois referred to East Anglia's ambitions. They were ambitions from the South West to produce a very large amount of their energy from biomass, although the figures that we have seen suggest that biomass is not likely to become terribly economic in the short term. I wondered, perhaps cynically, whether it had something to do with the importance of the farming lobby in the South West, but would you not agree there is a need to have an agreed system which applies to how the various regions work out what they can do? Even more importantly than that, what they contribute must be related to the capacity they have to contribute and to the proximity of demand, exciting though the projects that may be in Scotland, the proximity of demand and the capacity to produce must be key elements?
  70. (Mr Wilson) The capacity to produce is obviously a key element and the proximity of demand is highly relevant. I am anxious not to be led entirely down that route or else you end up saying that you have to produce where the market is and that would be a major inhibitor, not just in Scotland, but in other more peripheral parts of the UK where there is tremendous potential for renewables. I also think that in setting targets and the mix of how these targets are to be maintained is right and proper to take account of local views. As I say, the RDAs were very much involved in drawing up these targets, and if they think that biomass is the horse to bet on in their particular area, and that there is good economic reasons for doing that and good natural resource reasons for doing that, then I am not going to argue with that. Biomass in this country is at a very early stage. I visited successful biomass power plants using materials as diverse as chicken manure and straw and they operate very well, so if the South West can feed the demand and bring benefit to the rural community at the same time, then I think that is a call for the South West to make.

  71. Is the South West going to have any capacity to subsidise their own production then, because if it is uneconomic in comparison to other forms of production, there has to be a subsidy from somewhere?
  72. (Mr Wilson) The subsidy comes through the Renewables Obligation. Anyone who is into generation from renewables knows what they are going to get from the Renewables Obligation and they have 25 years' security to get it, so that is an economic call which they have to make.

    Sue Doughty

  73. We have been hearing quite a lot about barriers to making progress, and it has not really been a very happy story up to now. Lots of aspirations and very little progress at all. In the report, I think some bits -- other bits have been quite controversial, talk about nuclear power -- but the one bit where everybody is agreeing is about energy efficiency and the targets have been welcomed all around. People look forward to meeting those targets, but when we were talking with the PIU this morning, there was clearly some concern about whether we are actually going to meet those targets for energy efficiency; whether we are actually putting things in place. The comment that has generally been made is that progress was not as fast as the Government might have wished and yet this is actually something which is in the Government's hands to deliver on. Domestic energy efficiency, a lot of things they could put in train(?) if they were minded to do to meet those targets, and yet that seems to have got sucked into what - I understand that you want to see the big picture and get the whole of the elements in place, but given the difficulties of getting the renewables so that they really deliver, we seem to be missing a quick win here somewhere along the line.
  74. (Mr Wilson) I am not sure it is a quick win. I believe it is a massive win if we can achieve it. From my perspective, I think one of the great successes so far of the Energy Review was to move energy efficiency so far up the agenda and to give it a real priority as one of the ways that we are going to meet our other obligations in the years and decades ahead. I can assure you that that is being taken extremely seriously and without waiting for White Papers or anything else, there is a lot of work being done on moving that forward. Only last week I had a meeting with the Utilities to encourage what they are doing on energy saving measures and campaigns and strategies. It is a very big plank of Government policy and again it is a cross Government in a sense; it is very much involved with both the DTI and DEFRA.

  75. Yes, it tells you of fuel poverty, but I just have that feeling that we are not even confident about meeting our first 20 per cent target. From what you are saying, you sound rather more confident than I am that that is going to be achieved?
  76. (Mr Wilson) I tend to err on the conservative side in making rash promises and setting rash targets, and, therefore, when I say it, I am saying it with the enthusiasm of someone who believes it can be done, but again, I do not have any doubts that it is going to involve a lot of work and commitment and a far higher profile than it has had in the past. Again, the answer, I would have to say that exhortation has not proved a tremendously effective mechanism, particularly in terms of the domestic consumer, so it has to be made easier for the domestic consumer, it has to be brought before them that by taking some pretty basic steps and spending very little money, we can both get lower electricity bills and also have warmer homes, and I think we have to look at all the kinds of schemes that are going on around the country and find the most effective way of getting this message across, putting the weight of Government behind it. That is exactly what I was talking to the Utilities about last week.

  77. And you think that is going to be achievable there, then?
  78. (Mr Wilson) I think it is achievable, but I think again there is a big hearts and minds campaign to be engaged in. Again, I think in exactly the same way as talking about renewable energy, that the biggest help to that campaign would be if people understood and were enthused by the objectives of it, that it was not just a case of them being told to do something, but actually they believed in what they were doing because they realised the contribution it was making to things which in general and in principle they do subscribe to.

  79. Because so many of these things, for example, biomass ties in with the revival of the rural economy and yet we are waiting there. Some farmers say, "Well, it is a 5 year turnaround if I am growing willow for biomass before I start seeing a penny coming back". They want confidence, and so we have that tie in with agriculture. The tie in here with fuel poverty is very important. Are we actually talking with people like the Ministry of Health and making sure that all those objectives are being met at the same time?
  80. (Mr Wilson) I believe that it is very important to link all of that together, but specifically on energy efficiency, I assure you there is a lot of work going on. There is an Advisory Group now operating and there is a cross Government approach to this. I promise you that you will see a higher profile certainly from my own department being given to this, and I am sure also from DEFRA than has been the case in the past.

    Sue Doughty: Thank you Minister.

    David Wright

  81. You talked already today about the Government not wanting to pick winners in terms of new technologies. Would it not be true to say, however, that really because the way the Renewables Obligation is structured, wind power is going to be the only winner in the long term, and secondly, because of the way you are allocating grants, for example, your grants support and assistance on other technology such as wave power has been much lower than for other technology. Wind power is going to be the only option in the long term, is it not, so why are we not backing that forcefully now? Why are you leaving the options open?
  82. (Mr Wilson) Wind power is ahead of the game just now in uptake, and in people bringing forward schemes, because it probably is the most developed of the renewable technologies, not just nationally but also internationally. It has been around for a long time in this country. As I never tire of pointing out, we had the lead in wind power more than 20 years ago and did very little with it, but there has been a wind industry in this country which has developed slowly during that period. There are companies very active in it, both UK companies which are a market both at home and abroad, so you are not starting from scratch in the same way as we are, effectively, in some of the other technologies. I certainly do not think it means we should neglect other technologies and I do not think that in the longer term it means that wind is necessarily going to be the dominant contributor. Indeed, just to go back to the previous point, wind is not the dominant contributor because hydro electricity is the dominant contributor. One of the first things which I was very happy to do in this job was to bring hydro electricity within the Renewables Obligation and that has already led to our 250m refurbishment of existing hydro electric schemes. I would like to see new hydro electric schemes being developed, so hydro is still going to be bigger than wind for a while to come. My own personal enthusiasm, if you like, is wave power. I think there is tremendous potential in wave power, but again I have had an interest in this long before I was doing this job. I go back to remembering things that -- I seem to have been hearing about Salter's ducks since I was in primary school, but Salter's ducks have still conspicuously failed to produce electricity for the grid. So we have to get beyond the developmental stage and into the implementation stage.

  83. Why are we allocating less capital grant, then, into some of those projects?
  84. (Mr Wilson) At the moment I would say it is because it is demand led, and at the moment we are still stimulating interest in wave power rather than being overwhelmed with applications from wave power.

    (Mr Doddrell) There are not the huge projects on wave power coming forward at the moment for support in the way that there are for offshore wind. We have had 18 offshore wind projects obtaining leases from the Crown Estates and they bid into our Grant Support Scheme for offshore wind and we are hoping to get something like in excess of 1GW from those. Perhaps I could correct the earlier figure I gave for Scroby Sands: it is 70-80MW for that project. The larger figure in excess of 1GW is for the 18 initial first phase offshore wind projects, but they are at a very exciting phase and actually building on the Blythe project that has already been commissioned and going ahead with a lot more large projects. Wave energy is not yet at that stage of development.


  85. That is not true of biomass, is it? You are putting quite a lot of money, relatively speaking, into biomass, and yet for biomass there is not the demand there; there is not a lot of interest; there is not a lot of potential in biomass.
  86. (Mr Wilson) We think there is potential in biomass because again biomass breaks down into a number of subheadings and different technologies to invest in, so we have given a lot of priority to biomass in the Capital Grants Programme. I do not think there is any of these technologies where where people are queueing up with projects and we have underestimated what we need to invest in order to back these projects, but roughly, the programmes which we have are in proportion to where the demand is coming from, and if that changes, then the programmes can be changed. If there is a technology which is clearly emerging to a great potential then we will be right in there and backing it.

    Mr Francois

  87. When the Committee went to Germany to make a comparison we saw that the Germans have invested in wind in a serious manner. They already have a great deal of onshore wind and they are now talking about large scale offshore wind, very large scale wind farms 30km into the Baltic. You have just talked about 18 potential offshore wind farms which would produce at 1GW in the sun, but even if you could get all of those done and even if you could get all the planning consents and get them built within the next 7 years, that is still less than one conventional power station in terms of output, and because you only get about a third of that capacity from wind anyway, because you know the wind is not blowing at full strength all of the time, the point is that wind potentially is a very useful resource and the Germans have really geared up seriously and are really pushing for it. One of the reasons that they have done that is because the German Government has given them a lead. It has picked a winner. It said that the winner overwhelmingly was wind and German industry is now investing as a result. You have not picked a winner. You have kept your options open, and, as a result, industry here is much more hesitant, is it not?
  88. (Mr Wilson) I would not share that analysis. There is obviously some basic factual truth in it that Germany has invested in wind in a very large way and for its own particular reasons. There will be a ceiling on what Germany can do with wind in the same way as Denmark is beginning to find there is a ceiling to what they can do with wind. It is also an extremely expensive way of generating electricity on that scale, and I do believe, as I said in my opening remarks, that you have to take public opinion with you. I think that if we were going at a pace which was going to displace other generation sources and increase the cost of electricity in the way that that kind of programme would suggest, that even if it was technically applicable in the short term, it would have other ramifications as well. I think to have 18 offshore projects waiting to be in the starting grid, to be putting in place a strategy in order to identify the other locations where offshore wind is going to be feasible, that that is a proportionate programme and one which will help us to meet our targets.

  89. A quick factual question: when will the first of those offshore wind farms actually go live and contribute to the grid?
  90. (Mr Wilson) As I said, Scroby Sands as of last week is approved and they are raring to go, and it is as quickly as the technology can be put in place. My guess would be in about 18 months it would be up and running. But can I just say in all of this: if I, knowing where I want to go, this is not where I would have liked to have started from, but the fact is that we are inheriting a very, very low level of activity and we are trying to accelerate that at a pace which is going to achieve --

    Ian Lucas

  91. I was interested that you mentioned manufacturing earlier on as one of the subsidiary elements or reasons why we should be pursuing a Renewables Obligation. We visited a wind farm yesterday in Scotland where the windmills were manufactured in Denmark, and it is clear that we have lost the lead that we had 20 years ago in wind manufacture. Are we not also, by keeping as many options open as we are doing at the present time, missing the possibility of giving a lead to manufacturing industry to try and develop, for example, areas like solar power within this country? It seems at the present time that we are behind the game in wind power and the manufacturing opportunities that exist in countries like Germany where they have huge investment in solar power, which is precipitated by their decision to rule out the nuclear option. Are these being avoided here because long term business is not getting the clear lead from Government?
  92. (Mr Wilson) With respect, business and particularly the manufacturing industry is getting the clear lead from Government and let me -

  93. That is not what they are telling us.
  94. (Mr Wilson) I am happy to develop the discussion, but what we are telling them is that the Renewables Obligation is going to create a multi billion pound market. There are vast opportunities for manufacturing industry, and of course we do not have the same industry as Germany or Denmark has because we have not done that up until now. We lost the lead in wind; we are now running very hard in order to catch up, and, therefore, there is an existing manufacturer of wind towers in Wales, there is one which a Danish manufacturer, investors have been attracted into Macrahanish in Scotland, and therefore we do have an embryonic manufacturing industry. But the absolute certainty of whether it is wind or any other technology is that unless you have a domestic market, then you will not have manufacturing industry to supply it. That is why we start at this very low point, because we have had a very modest domestic industry until the present time. I tell you this, it is worse than that. What I find really pathetic is that while we are now getting into the business of manufacturing the towers for windmills, there is nobody in the UK making turbines. All of these towers that are built, we will have to import the turbines unless, and I have some reason for believing that this will be remedied, unless that is addressed. That is the position that we start from, so nobody is making any pretence about where we start from, and I am not particularly interested in recriminating about past history but you just cannot leap from A to Z in one go, you have to build, and that is exactly what we are doing now.

    Joan Walley

  95. I would like to declare a constituency interest, if I may, and on this point about manufacturing, say how important it is that if the DTI knows of people who wish to invest in this whole renewable energy side of things, that they look to sharing that information so that where there are possibilities like there are at Chatley Whitfield, we could see how we could get manufacturing off the ground. The context in which I raise this is really to say it is all chicken and egg, is it not? One decision relates to the decision that was made previously, which relates to the direction of Government policy, which relates to the framework which the PIU Report has actually set for Government. Looking at the frustrations that there are about how, having started from somewhere you would not wish to be at, how we can now make good what should have happened a long time ago, and all of those things need to be done at all one and the same time. What I really want to get from you is a kind of feel of, if you are going to be given a lead towards perhaps not ending nuclear production in the way that it currently has been, that is going to prevent, if you like, the clear lead to be given to renewables. It is really about how are we going to get people making the contribution that they need to make in whichever sector they are now operating so that it is not just everything being done on a case by case basis, and it is how we can actually have that public debate which is not just about the stakeholders in terms of energy producers or suppliers or industry you are using in terms of energy, in what they manufacture, it is really about how this real public debate can take place with people looking at it from the point of view of the long term. I just wonder how you intend, through the White Paper, to really get that debate up and running so it is not just a few privileged people having that debate or a few people with a vested interest, it is actually about how there is going to become a complete shift of culture about what we are going to do to meet the targets that are set out. How are you planning to make this something which everybody is actually a part of and wants to contribute to so that we can change things together?
  96. (Mr Wilson) Painting a bleak picture of where we start from, I certainly do not want to paint a bleak picture of how things are now developing because it is my daily job and I find it really exciting and encouraging. I find it really exciting to go to Blythe and see what has been done there, a tremendous initiative. I find it exciting to go to a conference in Manchester where there is a North West Renewables Initiative being launched and about 500 people from companies involved in that, looking at how they can get involved in renewables, and particularly in manufacturing. The same story can be repeated in different parts of the country, and although a lot of companies have come late to the opportunities in this, it is now happening and there is a recognition that this is not something at the fringes, this is something very big and something they can be part of. So on that side of things, I think it is going extremely well and at an accelerating rate of awareness. I was at the first Global Wind Power Conference in Paris two or three weeks ago. Britain was extremely well represented by companies, and it was a useful reminder that during the famine years -- there are some very good companies that have developed on the basis mainly of overseas business. We do have an embryonic industry and I think it is about to expand in a very healthy way. I thoroughly agree with what you say about the benefits of that coming to traditional manufacturing areas. Some of these jobs and some of these opportunities are going to go to the peripheral parts of the country where the resources are, but there is absolutely no reason why many of these benefits should not come to traditional manufacturing areas.

  97. Like Stoke-on-Trent?
  98. (Mr Wilson) Like Stoke-on-Trent. I am always happy to oblige entries to the local newspaper. As I said in Blythe, I think there is a lovely symmetry about the idea that Blythe, a place which has given so much to the country's energy needs historically, and is now in a depressed state, that its resurgence should be based on another form of energy. I think that in every traditional energy producing area that is something that is well worth pursuing.

  99. Just in order to be able to make that happen, do you feel that the new Renewable Obligation Certificates are going to be able to work properly to be able to provide the investment that people in areas like Blythe or Stoke-on-Trent might need in order to be able to invest? Do you think that that is sufficiently ready and waiting to be taken up as a proper alternative to what was previously there under the Non-Fossil Fuel Obligation?
  100. (Mr Wilson) The investment is being committed by the energy companies and by other construction companies and so on on a scale that has never happened in the past. I was at an event in Scotland recently where two Scottish Utilities, Scottish Power and Scottish and Southern, between them they have committed 1 billion to renewables. It is a huge scale of investment which is available, and in addition to the Renewables Obligation which obviously underwrites that commitment, we also have a programme of capital grants of about 260 million in order to stimulate developments, particularly in those technologies which are at a relatively early stage of development.

  101. Do you think that there is enough capacity out there to be able to know how to access that money that you have available for the capital grants, or do you think that there is sufficient understanding of the certificates to be able to give the certainty for people to be able to make investment decisions on that?
  102. (Mr Wilson) Yes. Again, I attended a conference in London last week, organised with the Renewable Energy Association when it was this market in rocks and investment and renewables which was being discussed and the audience was of financial institutions.


  103. That is interesting, but nonetheless, what we have heard from banks is that the advantage of the NFFO contracts was that they were long term and you had a clear bankable 15 year contract which a small generator could take to his source of finance. The problem with the ROCs is that you do not have that, the value can change, and this militates against a small generator. Would you agree with that?
  104. (Mr Wilson) I think that the market has changed since NFFO was introduced, and that now we need an approach which is going to stimulate a deployment of projects and the market led approach that I have described.

  105. Why insert this uncertainty?
  106. (Mr Wilson) I do not think it is inserting uncertainty to create a 25 year obligation which means that that premium price of electricity is going to be guaranteed for that 25 year period. I think that is a pretty high level of support.

  107. That is from the Government's point of view. From the point of view of the small generator, the value of his Renewable Obligation Certificates may fluctuate, whereas in the NFFO contract, they did not.
  108. (Mr Wilson) As I said earlier, we think the market has to play a part in this. Every project will be taken on its merits. Of course we think that the price of electricity is going to fluctuate, but the advantage to renewables in each of their forms is going to be sufficient as to give a very strong guarantee of viability to people who invest in it.

  109. But the danger is that bankers will wait to see how this market develops, and you are therefore just at the point when you have a lot of potential purchasers of potential schemes on foot. There will be a hiatus, and people will actually not do what you want them to do, namely, actually make these projects viable and come to the market.
  110. (Mr Wilson) I am aware of the danger. I think we have to watch the workings with any scheme that is put in place. We have to watch how it is actually implemented, but I would again point to the investment decisions which the big companies are making, which very often would be in cooperation with the smaller companies.

  111. On this question also of the banding of the Renewal Obligation, in your Memorandum you say you did consult on that, and the problem at the moment is that if you do not have any sort of banding, then the cheapest provider of renewables always wins. That is wind, and you do not, therefore, get any stimulation of the other types of renewable sources. Why did you not go for banding of the Renewables Obligation?
  112. (Mr Wilson) Could I remind you, simply because it was predated.

    (Mr Doddrell) The aim was to meet these renewables targets in the most cost effective way so we set an overall target as to what it is we want to achieve from renewables and leave it to the market to meet those targets in the best way it can. I do not think that will mean wind in all cases. There are other technologies that can do well under the obligation. There is hydro, land fill gas, some biomass, and other technologies that are developing that have an important role to play, and there is also the complimentary Capital Grants Scheme that I mentioned that will bring forward technologies like biomass to help us to build early demonstration plants of these technologies. From that learning, the costs will fall, and in a few years' time, we can expect to see many projects coming forward under the Renewables Obligation, so that was the thinking.

  113. But the situation we are in, I think, is something the Committee is putting to you constantly, some elements of the renewable energy are quite well advanced by (inaudible) technically, others are not. It may well be the case that the others have the greater potential, but if you always go for the demand driven market solution, the lowest cost price, you will never get, as you were saying, Minister, this visionary approach, the Tom Johnson approach, where, as in Germany, as in France with nuclear energy, as in Denmark, the Government of the day got hold of the thing and produced a solution which benefited future generations. You may just find that once again, Britain lags behind everybody else because we have taken a low level, cheap solution. Do you see the point?
  114. (Mr Wilson) I see the point. I think that it is safeguarded against. You are very willing to take the point on board and to look very closely at how this all begins to operate, and I think that we have safeguarded against that by also having very substantial Capital Grants available to support the developing technologies. If I go back to wave power for a minute, there is now a series of projects being developed which I hope will be in the water pretty soon, and will actually have a commercial application. Each one of them will take the process a little further on and we will be ahead - we are ahead of the game in wave power at this stage. But I have absolutely no doubt that if we need more money to be expended, wave power is beginning to fulfill its potential, and if we want to put more into wave power, then we have to juggle the figures, we have to make sure that there is that support available from larger scale -

  115. There is next to nothing out of Capital Grants going into wave and tidal power at the moment.
  116. (Mr Wilson) But as I say, it is demand driven at the price in time.

  117. It is a chicken and egg argument, is it not?
  118. (Mr Wilson) No.

    David Wright

  119. The existing structure there, Minister, that is the point we are trying to make. That just concentrates the existing structure we have. Unless you open that market up, then you are never going anywhere.
  120. (Mr Wilson) To the best of my knowledge, nobody is waiting with a wave machine or a viable wave power option which is not being supported by the DTI, and you take it -


  121. You do Research and Development to get to that point.
  122. (Mr Wilson) You need the Research and Development, and that is exactly what is going in, therefore, I have personally encouraged Wavegem, who are one of the most successful developers of this technology, to bring forward further proposals and to get them into the water, get the technology advanced, get into manufacturing, because I believe that could be a huge growth area which would attract relatively little public opposition. You need to be pretty enthusiastic to oppose a wave power power machine.

  123. Is there enough going into Research and Development? We have talked about 200 million over three years. It does not sound very much at all to me.
  124. (Mr Wilson) I am sorry, I think it is proportionate to the kind of demands coming forward, and I think it is very widely appreciated by the industry -

    Mr Challen: It will be appreciated, but if you compare it to the cost of decommissioning a nuclear power station or Doom Ray, which is being decommissioned and returned to an environmentally safe condition for billions of pounds over 50 years, that just puts it into context.

    David Wright: The way I put it into context is the kind of demand that is coming forward and whether the money we have in place is sufficient to meet it and to support the kind of initiatives we need to reach the targets we are going to, so it is just that we each choose our own context.

    Joan Walley

  125. Does that mean then that the DTI is taking on board the recommendation that was in the PIU report about taking immediate steps to increase the level of funding for R&D?
  126. (Mr Wilson) We have just added 100 million to the level of funding and the two technologies that were given particular emphasis there were offshore wind and biomass, and also the secondary (inaudible) we would hope to increase these amounts further. But there is a lot of money available to support these technologies. I do want to say something about wave because I really do believe in it. Part of the problem with these things is that people have been doing R&D projects for donkeys years, but they never actually get to the stage of commercial application. It is not an academic exercise we are funding here, it is actually attempting to create an industry and a generator of serious amounts of electricity and the stage we were at was wave power.

    Mr Francois

  127. Honestly, you said you have a particular hunch about wave and tidal, and of that 100 million that has been allocated, only 5 million of that has gone to wave and tidal. If that is your own hunch of where the future really lies, why did you only give it 5 per cent of the budget?
  128. (Mr Wilson) As I say, it is proportionate to the number of companies that are working on developing it, and if anyone comes forward with proposals for plausible proposals for R&D work on wave power, then the door is open.

  129. But again, you are being very passive in all of this, are you not?
  130. (Mr Wilson) No. In the case of wave power, I assure you I am being very active and that is going to have some practical effects in the near future. I will be delighted if the Committee would come and look at the work that results and be enthused as I am by wave power. There is one commercial wave power station in the world operating and that is in Isla. I would like to see these things being produced like sausages because I think there is application for them in hundreds of locations in this country, never mind in the rest of the world, and we have to get it to the stage where we actually have a serious industry. My personal commitment is that we do not lose the lead in wave power in the same way as 20-odd years ago, when we lost the lead in wind power.

  131. So why have you budgeted differently?
  132. (Mr Wilson) I think we have been round that course and the tide is coming in again.

    Chairman: Now we come to the business of Embedded Generation and the interconnectors and so forth and the spending on infrastructure because this is a very important point. I know Malcolm Savidge wants to ask you something.

    Mr Savidge

  133. Can I start the question really by saying, as you know, the report to the Scottish Executive suggested that roughly 75 per cent of all Britain's energy needs might be supplied from renewables from Scotland. I think that illustrates a point. I mean, I recognise there are opportunities for producing renewables far nearer to the areas of greatest demand, but obviously one of the real questions is not going to simply be production; it is going to be distribution. Can you say a little bit about what you think are the prospects for improving the infrastructure as a National Grid?
  134. (Mr Wilson) Can I say, on the point of the Scottish Executive Report, it does identify this huge resource, but I think it would also recognise that if you were going to realise the whole of that resource then the questions of public acceptability that you would run into would be absolutely massive compared to even the ones we are talking about at the present time. That point aside, clearly there is a huge potential with the quality of the wind resource. For instance, the Hebrides is significantly superior, I am told, to what exists on the mainland. That is the reason why companies are looking at carrying out developments there, not because of some attachment to doing it in Lewis or doing it in Skye, it is because of the quality of the resource. Therefore, they recognise as part of that kind of project planning they have to build in appropriate costs of creating the infrastructure that will allow them to get the product to market. What I did initially to try and kick start that process was to commission a Consultant's Report on sub sea cable down the Western Seaboard. That preliminary piece of work was done, they established basic feasibility, and there is now more intensive work going on which is looking not only at the sub sea option but also at strengthening land-based transmission and some hybrid of the two, sub sea and land based. I have asked for that work to be completed by the Autumn. It also fits in very closely with another policy initiative which is evolving which is to create a single British market in electricity rather than two separate markets in England, Wales and Scotland, because the Scottish companies are going to want to get their power out if we are going to face increased competition in their own territory. So the whole thing is moving forward pretty well and I believe we will get a technical solution that is also an economically viable solution when these discussions are completed.

  135. Thank you very much indeed. You refer in your Memorandum to the DTI/Ofgem Distributed Generation Coordinating Group. Has that actually produced any reports yet, or what progress has it made so far?
  136. (Mr Wilson) It is work in progress. It is a recognition of the significance of the issue.

  137. Ofgem are only proposing to allow Embedded Generators to spread the cost of deep connection charges over a number of years. Do you regard that as a satisfactory way of progressing?
  138. (Mr Wilson) There are a lot of issues with Ofgem that we are discussing within the wider framework of Government Policy and Objectives, and a particularly appropriate time to do that is after a year of meters' operations and these are discussions which are now going on.

    Joan Walley

  139. Would you need legislation, do you think, to change the way those arrangements work, and, if so, how quickly could you look at them?
  140. (Mr Wilson) I think anything that cut across the Utilities Act which was legislated for in the very recent past would clearly need legislation in itself.

  141. But clearly, the emphasis or the priority is not on environmental issues in terms of the regulator there?
  142. (Mr Wilson) I hear what you say, and my concern, going right back to the beginning of this discussion, is that there should be consistency in a cross Government and there is no point in paying lip service to certain aspirations if what is happening on the ground is pulling in another direction, and I think these forces at some point have to be reconciled.


  143. The DTI began consulting on Embedded Generation in 1999 and the Embedded Generation Working Group reported in January 2001. Is there anything you can point to which Ofgem has done to reduce the barriers facing Embedded Generators?
  144. (Mr Wilson) Not very much, no.

  145. So that is the problem. That is a barrier to getting smaller producers into the system?
  146. (Mr Wilson) I think there are real problems in getting smaller producers into the system and I think that that is something which we continue to address. As I say, it forms part of wider discussions with Ofgem about the compatibility of the Mandate which they are pursuing and some of our other policies as a perfectly healthy dialogue between an independent regulator who clearly gives a high priority to driving down prices, but I have a wider range of responsibilities and therefore I have to try to reconcile the various objectives.

  147. I do not know whether you were the Minister at the time, but your department did set out the Draft Social and Environmental Guidelines to Ofgem, which was meant to harmonise their approach more closely with Government Policy. The Energy Review says these should be strengthened; do you think they should?
  148. (Mr Wilson) Yes.

  149. And what sort of changes should happen?
  150. (Mr Wilson) It is a very difficult area because independent regulation is virtuous and is, in general, good for the consumer, and we have just reinforced that principle through the Utilities Act and the establishment of Ofgem. Therefore, it is glib to be over critical of Ofgem because they clearly have taken their remit, they have pursued it extremely enthusiastically and they have been very, very effective in terms of the primary obligation to the consumer, which is to drive down the cost of electricity. The stage we are at now is the reconciliation, the review of the workings of NETA and the impact that that is having on other aspects of Government Policy. I would hope that we can make progress on that because at the end of the day I think everybody recognises that there are environmental obligations and social obligations as well as merely economic ones.

    Joan Walley

  151. How much is that something that could be picked up by the Competition Bill that is going through Parliament, with the large implications that that has the regulators there within that and for competition?
  152. (Mr Wilson) I do not think that is the purpose of the Competition Bill and I do not think we are talking about legislation. I think this could be resolved by a sensible review of the application of policy and a sensible balance, both of Government aspirations and indeed obligations, alongside those of Ofgem.

  153. Is there not a further problem, though, in respect of the recommendations of the PIU Report in respect of shadow pricing and a suggestion/recommendation that at some stage there needs to be a full recognition of the wider costs of renewable energy and the way in which then, with that greater transparency, you are probably going to have increased fuel costs. So that then links directly back to the whole debate about fuel poverty and about how Government pays for those social obligations and responsibilities as well. How do you see all that circle being squared?
  154. (Mr Wilson) I hope we are driving forward the Fuel Poverty Agenda but there is a lot of work going into this, both within Government and also in cooperation with the Utilities. I must say, in fairness to the Utilities, there is a lot more imagination being shown towards this problem than ever happened under the old regime. That is something we want to encourage, and rather like fuel efficiency, energy efficiency, we want to look at best practice and then extend it to the rest of the country. I think in fairness to Ofgem, Ofgem would -- I know because I have heard them doing it -- make a very strong case for their own commitment to remedying fuel poverty.


  155. The PIU Review recommended that, "The department should redefine its general energy policy objectives and the new objectives should be the pursuit of secure and competitively priced means of meeting our energy needs, subject to the achievement of an environmentally sustainable energy system." You did not actually answer. We wanted your views on that in the questions we have put, but you did not actually reply to that in the Memorandum which you sent us. Could you reply to it now?
  156. (Mr Wilson) I welcome it.

  157. Are you going to redefine, therefore, the energy objectives of the department?
  158. (Mr Wilson) I am not going to answer that now. Along with colleagues, we will look at forms of words, and I think that the whole thrust of the Energy Review is to raise the primacy of environmental considerations. I think that is something of a landmark for which the Review should be given credit, and certainly I would hope that we would never have an energy policy again which ignored the environmental responsibilities -- the great challenge of the 21st Century of combatting climate change. We cannot go on in that vein, and therefore energy policy and industrial policy should, to a very large extent, be driven by environmental obligations. The great trick to get the balance right is that you achieve the environmental aspirations without doing damage to your economic policies and your competitiveness. I believe that can be done, but it is a matter of getting the balance right.

    Mr Challen

  159. Could I just follow up on NETA, and, in the light of that answer, how we are going to get the balance right for the smaller and renewable suppliers in the new electricity trading arrangements?
  160. (Mr Wilson) That is what I have just been discussing. As I say, NETA has been operating for a year and it results from legislation which Parliament has passed within the past two years. NETA is a young creature. IT is about to be extended: NETA is about to be metamaphosed into BETA, covering the whole of the UK. That in itself will raise a lot of questions about the treatment of the more peripheral areas of the country and some of the questions that flow from that.

  161. Are we going to be stalled for a little while? Is this maybe another year or two years?
  162. In the last year, the first year of its operation, 44 per cent of the small suppliers and renewables have dried up and CHP in particular has suffered very badly. Are we going to be stalled for a year or two whilst we wait for a transitional -

    (Mr Wilson) I signed off a written Parliamentary reply today which gave the figures for the proportion of electricity generated from CHP and renewables during the first two months of NETA as compared to a year previously, and I did not like what I was signing off. We have now had a year of NETA, and let us just have a look at what the comparable figures are for the first year of NETA, but clearly, if they are in any way a reflection of the first two months, then we have a problem. It is a problem which I think should be addressed because I do not think,and I repeat this, I do not think there is any point in stating targets, for instance, from CHP, if what is happening on the ground is pulling in the opposite direction. Again, as I finish -- it is not for me to say I am ending -- but by saying there has to be transparency, there has to be consistency across Government in what we are doing, and if that means pulling together the different strands of policy and policy making, then so be it. That seems to me to be eminently sensible, but I am certainly not interested in saying, "We are aspiring to X on renewables or Y on CHP" if figures that I am then giving in a Parliamentary answer show that exactly the opposite thing is happening in practice.



  163. Does that mean you will put in transitional arrangements by January 2003.
  164. (Mr Wilson) I think we should look at the operation of the first year's working of NETA and make judgments in the light of that, and that process is in hand.

    Mr Wright

  165. Minister, the PIU report basically takes the nuclear football and kicks it long and far into the long grass, does it not? Do you think it should stay there?
  166. (Mr Wilson) I do not share your interpretation. It depends which spin journalist you are reading that pulls it out of the long grass or kicks it into it. No, I do not. The first thing I would say is that I do not think anything we are doing on renewables is in conflict with the retention of our civil nuclear industry. I think that there is room for both renewables and nuclear power in our energy policy. In fact, if we were to look to France, the happy combination, where I think 95 per cent of their electricity comes from either nuclear or hydro electric, and that, of course, is a great virtue of being a very low emission energy mix. The starting point in this country is that about 25 per cent of our electricity comes from nuclear, and nobody has satisfactorily explained to me how we are going to meet our environmental aspirations while at the same time wishing away the contribution from nuclear. Everything we have talked about today points to the difficulties and the challenges of meeting our 10 per cent. If you lost nuclear from that mix, you certainly would not be talking about 10 per cent.

  167. I think the thing that concerns this Committee, and it has been raised a number of times, is the costs of nuclear power and the fact that in terms of assessing it against other energy resources, we need to consider the internalisation of some of the costs that currently sit outside of the assessment on the creation of new nuclear power stations. Can we get a commitment from you today that you will ensure that in the future, those costs will be internalised when we assess nuclear power against other energy provision?
  168. (Mr Wilson) I am obviously not going to pre-empt what the White Paper says, but I think the PIU report is very sensible on this whole area. Of course, the PIU report also says that nuclear should get recognition for the fact that it does not produce emissions.

    Mr Savidge

  169. But you would recognise it produces waste, and we have not resolved the problem of what happens - okay, it produces less waste than now, but barring the possible invention of nuclear fusion at some point in the future, we do not seem to have actually resolved the issues and the cost of the issues of decommissioning of waste. We do not seem to have resolved the problems of possibly the very high costs of security and various waste related to nuclear production.
  170. (Mr Wilson) I think that we have to make progress on the waste issue, but I think progress will be made. I think that again the PIU Report strikes a good balance, that we do not have to go out and build, not that we build them anyway, but there is no need to go out and build nuclear power stations tomorrow. I think it would be very foolish of this country to close down that option. Let us use the next few years to make progress on the various challenges you refer to.


  171. You said that nobody had yet persuaded you that you could wish away nuclear power, but the fact is that the PIU Report says that renewables plus energy efficiency, if properly applied, could make up for nuclear. So you disagree with them on that?
  172. (Mr Wilson) I think in the very long term that is conceivable, but I think it would be very foolish at this stage to make over generous assumptions of what either of these headings are going to contribute.

    Joan Walley

  173. The whole point of the discussion that we have been having, about this being okay to keep options open for ever and a day and not actually take decisions, as long as you keep that option open forever, you are really preventing the direction being given to renewables on the scale and with the pace that is really required to be able to get the investment and to get the chicken before the egg, whichever comes first, if you see what I mean.

(Mr Wilson) I do not believe that the progress of renewables in this country is being inhibited by our continuing reliance on a nuclear industry. That is my honest position. I think that as an example, Germany has been quoted a good deal, and Germany has stated as an aspiration to getting rid of its nuclear industry. Of course it has not yet got rid of its nuclear industry, but let us see how far it goes along the renewables road before it finalises that view. I would also point out, of course, that the Germans are, at the same time, very anxious to maintain enormous subsidies on coal because of the same decision to get rid of the nuclear industry, and I do not think anybody here would regard that as a particularly happy environmental policy.

Chairman: Minister, we have gone for a long time, but we have to close it now. As you say, it is a very central issue, what you are doing, and what we are concerned about, and we will be very interested to see how it progresses over the remainder of this year. Thank you very much indeed.