Examination of Witnesses (Questions 686-699)|
TUESDAY 4 DECEMBER 2001
686. Good afternoon, Mr Holliday. Perhaps you
could introduce your colleagues and we will get on with things.
(Mr Holliday) I am Steve Holliday. I am National Grid's
Group Director for Europe, which includes being Chief Executive
of our business here in the UK. On my right is Jeff Scott, who
is the Director in the UK responsible for System Operation and
Trading, responsible for maintaining the voltage and security
of supply in the UK minute by minute. On my left is Charles Davies,
who is our Commercial Director in the UK. His prime responsibility
is ensuring our capital investment programme in the network and
that we continue to invest at a level appropriate for a regulated
business, actually providing the service we do in the UK, which
is the transfer of bulk power from generators to distributors
and suppliers in England and Wales.
687. We have been getting quite a lot of evidence
in the last few weeks and hours about the desirability of embedded
generation, turning the system on its head from the gigantism
I would have identified with the old CEGB regime under which to
all intents and purposes we are still living. You have poo-poohed
that. You say it is rather inconvenient. It kind of questions
the flexibility of the existing system if we are not going to
be able to accommodate embedded generation or forms of renewables
and things like that. Would you like to comment on that?
(Mr Holliday) Embedded generation, renewables, what
have you, for us is not a stark either/or debate. There is a role
in life for both. It is worth going back and reminding you just
what the transmission system does. Firstly, it transfers bulk
power between England and Wales in the most efficient manner we
can. That is assisted a great deal by having a diversity of generation
capability. The second thing is about maintaining the quality
and security of the system. That becomes a more complex issue
the more intermittent the generation sources are. We have flagged
continuously our ability to handle intermittent generators but
recognise as well that the higher the percentage of generation
which comes from intermittent sources, potentially the higher
the cost of accommodating that. There is an extreme case as well
in terms of embedded generation. The National Grid was set up
originally to ensure that there was security of supply across
England and Wales. The more you move towards generation being
purely local, one of the penalties you have to pay is the fact
that you lose that security of supply. We are in the fortunate
position as we sit here today that we have an infrastructure in
place which is able to provide people across England and Wales
with a great array of generation from diverse sources and therefore
a huge amount of security of supply.
688. On the issue of difficulties with planning
consent, you say in paragraph 12 that often presents difficulties
for builders of new overhead lines and new power stations. You
also suggest that consideration should be given as to how to conduct
the process such that it does not needlessly restrict the rate
of development of new power generation. How could the process
be accelerated? Do you feel it is something which is out of your
hands because the Government have to act, or is there any pressure
you can put on the Government to change the way planning consents
(Mr Holliday) It is worth saying that transmission
lines are not only essential but they are big and they are huge
infrastructure projects. We try to avoid building any new ones
at all costs. That is the option of least attractiveness, as you
can imagine, for all sorts of reasons. It only gets to the situation
where the only way we can continue to provide what we do provide
is by building a new line that we get into that situation. Fortunately
in the last ten years that has been a fairly rare occurrence.
Where we must build, the process which exists today, the balance
between protecting individuals and communities and ensuring that
as a project developer we have some degree of certainty and control
on when things will take place, is not quite right. The procedures
are cumbersome, they are lengthy, to a developer like ourselves
they present a huge amount of uncertainty. The timescale from
the beginning and then understanding when you might actually start
construction is a very large "if". I understand that
there are some discussions in government at the moment about a
potential two-stage process: a government process and then a local
process. If that were something which could increase the efficiency
of the process then it is something we should be hugely supportive
689. Do small generators have problems as well,
not just yourselves, in getting planning permission? It is something
the whole industry would like to see resolved.
(Mr Holliday) Absolutely.
690. Part of the difficulty is that they are
a bit of a monstrosity and an eyesore. When local authorities
do get them before them, there is quite an outrage from people
who live nearby or live in the vicinity. Obviously people have
health cares, for whatever reason they do have real problems which
have to be addressed. I think you would agree that we do have
to listen to the rights of constituents as well.
(Mr Holliday) I hope you did not interpret my comments
as meaning we should not listen to them. It was just about the
691. I was just worried you were short-circuiting
it so they did not have the right to object.
(Mr Holliday) No, I was not saying that.
692. May I move you on to security in fuel diversity?
You point out that you have been a major player and facilitator
in gas fired plant in England and Wales. I just wonder what in
your view is the most attractive mix of primary energy for the
(Mr Holliday) That is a long topic. May I make a couple
of opening remarks and then Charles can come in afterwards. In
the main National Grid does not have a vote on diversity of fuel
mix. Generation is constructed because of forces in the market
and gets constructed. We sit in a situation today though where
we do have a great deal of diversity. That is a very fortunate
position to find ourselves in. In fact if you started with a blank
piece of paper today and designed a system, it is not clear to
us that you would end up with a mix of fuel sources and generation
types any better than we find ourselves with today in the UK.
As long as the fuel is available to generatorsand that
was one of the issues underlying many of your questions to Latticeand
there is a good mix of flexibility in the system, then that is
fine. We can do our job in terms of the transmission of power
and balance the system.
(Mr Davies) The issue of how the market may develop
over the next five or six years is obviously one of considerable
uncertainty as to whether there will be more gas developments
or whether things will remain relatively stable with a pretty
diverse situation as we have at the moment. The only other thing
I would add is that clearly the push for renewables is a step
in maintaining diversity by bringing in another fuel source.
693. Do you believe that your input in this
process should be as you state in your submission, "responsive
and flexible" rather than proactive?
(Mr Davies) Absolutely.
694. Do you have any concerns? You quite rightly
put across diversity and how important it is and renewables coming
into the market, but are you worried about the possible decline
of nuclear and whether there should be another generation?
(Mr Davies) The decline of nuclear will reduce diversity
other things being equal. There is still a considerable amount
of life left in nuclear stations as they are and the potential
for other energy sources, renewables, coming back in to maintain
diversity is quite a strong one. The wider issue of continued
support for nuclear goes beyond our remit of being responsive
in this area rather than being proactive. There are no particular
features of any particular form of generation which make them
less or more attractive to us.
695. You say it is not going to run down quite
so quickly. However, may I put it to you that between now and
the end of the next 15 years you will have 12.5 per cent reduction
in generating power if the reduction of nuclear goes ahead. The
obvious quick fix would be to rely more on gas ending the diversity
or reducing the diversity we have. That is what I wonder.
(Mr Davies) Yes.
(Mr Holliday) That is right, but we still end up with
a situation where we still have quite an amount of diversity:
oil, coal, gas and renewables. We are still not reliant on any
one type of fuel source. If you are asking whether we can continue
to do the role we do in England and Wales and balance the system
and transfer energy without it, then the answer is yes.
696. So the lights will not go out, we will
not have the California problem in the UK?
(Mr Davies) As long as there is sufficient generation
capacity in the UK, then no.
(Mr Scott) If you look at history, looking forward
15 or 20 years is always difficult. In the late 1980s who would
have forecast that in the late 1990s you would have 25 to 30 per
cent of generation from gas. At that stage we had a very large
predominance of generation from coal. Looking forward, we are
starting from a base which is an excellent fuel mix and we do
have time to develop renewables, which is a key Government objective
and we do have time to look at the evolution of the fuel mix and
to take each stage in that technological development as it comes.
697. Let us say that one of the features of
the change, the removal of 12.5 per cent, is not replaced, that
would mean you are going to have a lot of wires which are going
nowhere, unless you have plans for other forms of generation.
(Mr Holliday) That is a very different question from
the question about removing the diversity and the mix. Removing
12.5 GW from the market is a very different question.
698. That is why I am asking that. It is coming
at the same issue from a different angle. In that area you might
well have a vested interest, that the kind of position you are
adopting at the present moment I can well understand, but if you
are going to have all these wires hanging around doing nothing
and you have the prospect of having to invest in alternative wires
to link up with power stations as yet barely a flicker in the
eye of a designer let alone an engineer, do you not get sucked
into the decision-making process? The Olympian position you are
adopting at the moment may be not quite so high when you are down
in the grubby business.
(Mr Holliday) No, not at all. That is a very different
issue. The balance of generation versus demand is something we
take an incredibly active interest in; that is proactive as opposed
to the diversity of generators. We have an obligation every year
to provide a Seven-Year Statement which obviously looks seven
years ahead. Charles is responsible for that so can fill in some
of the detail. It looks ahead at what we are foreseeing electricity
demand in the UK to be, what generation capacity is planned, has
a consent already been agreed and is it going to be constructed,
is it a glint in some developer's eye, and pulls all this together
and reviews what the plant margin is going forward. That is something
which is then reviewed in detail with Ofgem. Part of that identifies
very much whether the wires are redundant in certain parts or
not, whether the generators which are planned are in areas where
we do not have good connections at the moment and goes into planning
our capital expenditure through that period as well for new tie-ins
and investment in the infrastructure.
(Mr Davies) The concept of losing 12.5GW plant without
it being replaced would have a significant impact on security.
What we were talking about earlier was diversity of fuel supplies.
The potential for that 12.5GW to be replaced over the period we
were talking about, which was up to 2015, has to be put in the
perspective of the 22,000MW of generating plant which has been
built and commissioned over the last ten years. So 12.5GW over
15 years is not a challenge we have not faced up to. The issue
which arises is what sources will fuel that, and, clearly, the
favourite for fossil fired generation is gas as it stands at the
present time and the follow-up on that is renewables.
699. It is the case that over the period you
said this dramatic increase in gas took place, such was the desire
of gas suppliers to sell their fuel that they were almost giving
it away to the power stations at one stage. Obviously that affected
everybody's perception of costs. We might not be living in as
hospitable a climate for alternative fuels as we were in the preceding
(Mr Davies) Quite clearly a situation where there
is plant closure will give rise to incentives to build new plant.
The issue which you are talking about as to whether gas prices
will then be substantially higher in the period 2010-15, and sufficiently
high to make other forms of generation economic, and potentially
nuclear in that sense and indeed renewables or even coal-fired
plant, is one which is some distance away from us. I am sure the
structure of the market is there to provide incentives in order
for plant to get constructed to meet that sort of shortage you