Examination of Witness (Questions 240-259)
28 JUNE 2004
MR DAVID
GREEN OBE
Q240 Joan Walley: So there is a change
there. Last week we had evidence about the Scottish approach towards
sustainable energy policy and particularly in respect of targets
that were being set for renewables. I just wonder, in terms of
the UK as a whole, what particular challenges you think there
are as far as the devolved administrations are concerned?
Mr Green: The targets which have
been set for Scotland, and to a certain extent for Wales, are
very ambitious. I think, in terms of Scotland, in a sense it goes
to the heart of joined-up government, given we are on the cusp
of market reform in Scotland in the energy market with the roll-out
of NETA into Scotland to form BETTA, and the financing that will
be needed to reinforce the grid network in Scotland to get power
from Scotland down to the south of England. I think the challenge
for delivery in Scotland will be not just the setting of targets
but whether or not the energy market itself is going to be conditioned
in a way which will enable a substantial investment in renewables
to happen, and with it the investment in capacity that will be
needed to get the power flows from Scotland to the rest of the
UK, and particularly to the South East of England where the big
growth in energy demand is. The Chairman of the Business Council,
unfortunately he could not join us this afternoon, is John Roberts,
the Chief Executive of United Utilities, and he will tell you
he thinks it is going to take a long time—and some of you
have constituencies in the North West—to get planning permission
for grid reinforcement through the Lake District, for example.
The implications of more power flows from Scotland to London are
that we see we will need grid reinforcement in the North East
and the North West of the country.
Q241 Chairman: What does "grid reinforcement"
mean actually, physically: pylons?
Mr Green: Not necessarily. It
is not just pylons, it is also the local distribution system,
which is not pylons but telegraph poles with wires on. A lot of
it is configured for power flows from old, traditional, coal-fired
power stations in Yorkshire to go north or to go south. If you
are going to have many more power flows coming from Scotland,
down through Scotland and into England, for example, then the
high level grid capacity by the NGT is not strong enough to take
those power flows south. It has taken 10 years to get fully permitted
and constructed the grid reinforcement in North Yorkshire to bring
the power down from the North East of England. These things can
happen but, as you all will know from your own constituency experience
in a whole range of things, often things do not happen as quickly
as one might imagine just because of the process. Quite a democratic
process has to be gone through for planning approvals, be it for
pylons, which probably most people do not want, be it for road
developments, or anything else. It takes just a lot longer than
people think.
Q242 Joan Walley: I am just going back
to the PIU reports and the criticisms that there were in there
of Government policy in respect of it being incoherent in some
cases. Would you say that the particular planning issue you have
just outlined, insofar as it relates to ODPM, would be relevant
to trying to get a greater cohesive strategy?
Mr Green: It is highly relevant
and one of the points the Business Council has made in its submissions
to ODPM and again emphasised the point of trying to get unity
under a sustainable development banner. One of the points we have
made is that the Government is about to introduce PPS22, which
is the new Planning Guidance for Renewables. To give a sort of
crude interpretation, broadly, they are freeing it up to make
it easier to erect and construct wind turbines and other forms
of renewables in rural areas in particular. The guidelines do
not deal at all with the grid connections which will be needed
to the low voltage grid to get the power from those locations.
Nor do they deal with the high level connections that will be
needed for large offshore wind farms, which in electrical terms
are like having a large power station and would need connection
to the National Grid system, how the lines are going to be treated
in planning terms once the undersea cable gets on land and then
has to get into the main system, and some are in quite remote
locations. The new PPS1, which is the high level, overarching
guidance for the planning regime in the UK, at the moment does
not make any reference at all to PPS22 on Renewables, which in
turn does not make any reference at all to planning issues to
do with grid reinforcement, because traditionally grid matters
are dealt with by the Secretary of State for Trade and Industry,
not by ODPM.
Q243 Mr Savidge: I have heard the concern
expressed about the amount of investment which will be required
to improve the grid in order to transfer more energy from Scotland.
First of all, I had not realised that there was a major visual
impact situation. Basically, to improve the grid, are we talking
about much heavier infrastructure over existing pylons, or are
we talking about having to put in new connections, which therefore
will create problems, possibly through Areas of Outstanding Natural
Beauty, etc?
Mr Green: There is not a kind
of one size fits all, it will depend where they are. Some offshore
wind farms, for example, may well come ashore very close to where
there is a National Grid Transco power line so it is quite easy.
Others may well come ashore where that facility does not exist
and you will need to build the infrastructure potentially in some
coastal areas, through areas which people would regard as having
very high amenity value, quite justifiably. There are technological
developments with overhead power lines which mean you can get
more power physically through existing lines or you can use the
existing routes and get more power through them, so it does not
mean new lines necessarily. Also you have the opportunity, if
customers are prepared to bear the cost, of undergrounding the
line, and quite a lot of the North Yorkshire line has had to be
undergrounded for amenity reasons. Clearly that puts up the cost,
and that goes back to what your colleagues were asking about earlier,
about this balance between the public acceptability of cost and
the delivery of the targets, because you can do it but it will
have a cost implication.
Q244 Mr Savidge: I suppose that leads
me on to another question. If Government really has a commitment
to renewables, does that mean it ought to be prepared perhaps
to consider subsidy for a grid system in order to encourage renewables,
rather than relying simply on market forces?
Mr Green: I am not an expert on
all aspects of the Energy Bill but there is one particular part
of it where, and I am sure Members who are involved in the Bill
will correct me if I am wrong, as I understand it, there has been
a worry, certainly from the former Energy Minister when he was
responsible for it, Brian Wilson, that the roll-out of NETA to
Scotland could have the effect, because of the impact of locational
pricing, of putting up the price for generation in the north of
Scotland. As I understand it, there is an arrangement legislated
for in the Energy Bill, when the Bill is passed, which will place
a cap on what those charges otherwise might be and, in effect,
by doing that, being smeared across the generality of consumers.
In some sense that could be described as a subsidy, but it is
not a subsidy in terms of the Treasury writing out a cheque to
NGT, it is a subsidy in terms of costs being smeared out amongst
the generality of consumers. As I understand it, there is a clause
in the Energy Bill which gives ministers power to introduce that
sort of arrangement.
Q245 Mr Savidge: I am sorry, actually
I was supposed to be asking you questions on departmental structures
and responsibilities, so I will get on to that point now. As far
as those are concerned, do you feel that the present departmental
structures and responsibilities really are well geared to delivering
a sustainable energy policy?
Mr Green: I think the experience
of most members of the Business Council is that it is working
better than it has in the past. There is an awful lot more which
could be done to get much more joined-upness between government
departments. If you get into the chronology of ministerial speeches
to see if the interdepartmental messages are getting communicated
into ministerial speeches or presentations from senior officials,
I think there is some way to go until you get clear messages being
delivered, by whichever minister happens to be on the Today programme
talking about wind farm developments in the Yorkshire Dales, or
whatever. What the Business Council is about and one of the reasons
why the Business Council was formed is, we are not just about
achieving particular technology targets, we are about reducing
the UK's carbon emissions footprint. To achieve that, there is
a range of things you can do. For communities which have got strong
concerns about wind turbines being located near them, it could
be making sure those communities are very progressively insulated,
for example, to make sure they themselves are reducing their environmental
footprint. It could be other things which could be done to make
sure communities are reducing their environmental footprint. It
could be locating or expanding renewables supported by the Renewables
Obligation, so that, for example, you are supporting biomass plants
in rural areas, which would help the rural economy as well. The
message of the Business Council is about trying to get across
to the policy community that it is not all about wind turbines,
it is not all about CHP, it is not all about insulating our homes,
it is how we get a mix of measures to deal with the overriding
sustainable development message of reducing the UK's carbon footprint.
It is frustrating sometimes that, with government departments,
both within the departments and between departments, they still
tend to have what often are referred to as "policy silos".
Q246 Mr Savidge: The DEFRA strategy consultation
did not look really at questions of machinery of government. Do
you think that was a weakness?
Mr Green: Yes, is the short answer,
Chairman, but often it is quite difficult for government departments
to look at their own machinery. As we saw with the creation of
DEFRA, in the hours and days after a general election, when departmental
structures tend to be moved around by the Prime Minister, that
tends to be the time you get institutional change. You tend not
to get institutional change emerging in-between; you do sometimes
but not very often. Of course, with energy policy, there was the
creation of the Sustainable Energy Policy Network, which involves,
as I understand it, about 100 officials across Whitehall in co-ordination
activities, including devolved administrations, central government
departments, etc. That is still early days to know whether or
not we are getting complete joined-upness. I continue to come
across examples which are less joined up than one might hope.
Q247 Mr Savidge: Following on from what
you said there, do you think that DEFRA is really the right place
for sustainable development to be located, or should we be looking
at, for example, moving it to the Cabinet Office to be alongside
other cross-cutting units, or, as I think the PIU energy report
suggested, even moving towards becoming a distinct department?
Mr Green: Sustainable development
is driven by the environment, so in the current departmental structure
there is a lot of sense in having things linked to the environment
department. There is a broader question. Over the years I have
done quite a lot of work with colleagues in Australia, where they
have a broadly similar legal structure to the one we have, and
quite a few states and territories there, and I am thinking specifically
about Victoria, do have a department of sustainability. In fact,
the Deputy Premier of Victoria, who was over here last year, heads
a Department of Sustainability and that brings together energy
policy, environmental policy and, in Victoria, because of the
drought conditions, water resources as well. Because it is headed
by the Deputy Premier, it gives it a real push and he is a very
vigorous minister who gives it a real push as well. I could see
there being a strong case for having some form of department focused
specifically on sustainability which could be quite useful as
a champion in a Whitehall sense. I would have to say, those are
very much my personal views. Apart from arcane anoraks like myself
who like to debate obtuse parts of the constitution, it tends
not to be an area which is widely debated. I think it could only
be healthy if these sorts of things were debated more widely,
because, at the end of the day, they do affect how we all act
in the market.
Q248 Mr Savidge: Are you concerned at
all about the fact that there seems to be a plethora of different
organisations in the energy field, and do you think there would
be any advantage in a degree of restructuring and nationalisation
in trying to focus better on the key priorities within the area
of sustainable development?
Mr Green: My experience, Chairman,
obviously is in the energy field and we do have a large number
of agencies. Particularly three spring to mind immediately: the
Carbon Trust, the Energy Saving Trust and Renewables UK, which
is a brand name for a bit of the DTI. Having been asked by a current
minister, "Why do we have all these bodies?" and I said
"It's not a matter for me, it's a matter for the Government,"
clearly there is a degree of confusion about them all. I have
always liked the model that a number of states have, both in the
US and Australia, where you have one lead agency. I am sorry to
hark back to it, Chairman, but the New South Wales Government
formed the Sustainable Energy Development Authority a number of
years ago. That has been integrated now into a Department of Sustainable
Development, which is part of the Premier's Department in New
South Wales, and in Victoria there is a Sustainable Energy Authority
of Victoria, which brought together a number of different bodies
in one body which reports to the Deputy Premier. There was a realisation
that there was a Solar Energy Council, there was something else
to do with energy advisers and there was something else dealing
with rural matters. They were all brought together in one body.
If you read the original press release which launched the Carbon
Trust, I think it said in that, and I paraphrase, the idea would
be to share a common secretariat with a view to exploring long-term
synergies. I think many of us took that to read that at some stage
there might be a coming together of them. Whether or not that
will happen this side of a general election really I have no idea.
Q249 Mr Savidge: It is certainly interesting
that a government minister should have asked you the question
when one considers that the White Paper itself decided to set
up the Sustainable Energy Policy Network, a ministerial committee
and an advisory committee, instead of just one body.
Mr Green: Often it is easier to
ask one person, yes.
Q250 Mr Challen: A couple of us here
sat on the Energy Bill and so share responsibility for inserting
an amendment which gives the regulator a primary duty to promote
renewable energy. Looking at your memorandum, I was quite encouraged
to see that, broadly, the Business Council seems to support the
idea that OFGEM should have a duty at least to promote sustainable
development. I wonder if you could expand on that commitment,
because I am just wondering if all the companies really share
that consensus, and some of them are mentioned here, they are
quite large companies?
Mr Green: There is a long history
to where we have got to on sustainable development with the Gas
and Electricity Markets Authority, OFGEM, as it is known. It goes
back to when Clare Spottiswoode was there and a great frustration
by the House here about the approach she took to energy efficiency,
and a compromise position which was agreed whereby guidance would
be given to the regulator to reinforce their interpretation of
their duties on environmental and social matters. I think many
of us feel, and it is a view shared by many of the companies when
they are focused on it, that it would be a lot more sensible to
do what has happened in the water industry and have sustainable
development clearly within the terms of reference of OFGEM. Given
that a lot of energy policy is environmentally driven now, and
carbon, that should be reflected in the statutory terms of reference
for the Gas and Electricity Markets Authority. Something which
reinforced that and a sustainable development duty would be very
useful, just as, in the way in which the Government brought it
into the terms of reference for OFWAT, it was brought in under
the Water Act this year that they have sustainable development
in it. What is more interesting I find is, going back to your
colleague's question about government departments, broadly speaking,
when any economic regulator is set up by what broadly you could
call the environment department of Government, characterised by
DEFRA for the moment, they always have sustainable development
written into their terms of reference, not at the outset, it is
brought in afterwards. Whereas, broadly speaking, the economic
regulators which come up the DTI route tend not to, and I think
that says something about the weighting that each department puts
on those matters.
Q251 Mr Challen: You said in your memorandum
that DTI appear to think that the concept is woolly. They already
have a duty on a regulator to pay attention to social and environmental
guidance. You have referred to sustainable development. Some of
us on that committee thought that renewable energy should be the
phrase to go in. How far would you want to push this, in terms
of narrowing down and tightly focusing the duty of the regulator,
because if the Government thinks that environment is sufficient
we might say that sustainable development goes a stage further
and some of us believe we should go further than that and say
renewable energy?
Mr Green: I think there would
be difficulty giving the energy regulator responsibility for promoting
a specific suite of technologies. You could say equally well they
should have an objective to promote CCGTs, or they should have
an objective to promote something else. The area that we were
very keen on focusing on was how you could get sustainable development
built into the terms of reference for OFGEM, and sustainable development
being a key part of government policy in other regulators' duties
already. That will be a key way ahead. I think many of us feel
that putting renewables specifically as a primary duty might be
a step too far, in terms of market segmentation, but having a
broad responsibility in sustainable development would probably
be a good next step.
Q252 Mr Challen: I have read some material
from the Renewable Power Association, where clearly they are fearful
of continual changes to regulators' duties, but also they are
fearful of a lot of other things, changes in the Renewables Obligation,
the renewables review that is going to take place next year. How
should these sorts of duties, accepting the possibility that sustainable
development could become a duty, sit with the other duties on
the regulator? Should it be a primary duty or should it be on
an equal footing with duties to deliver competition and lower
prices, for example?
Mr Green: I hope that sustainable
development would not be just something which has to be taken
into account but that it would be one of OFGEM's primary duties,
so that quite clearly one focus is actually on delivering sustainable
development. It has been argued that if you interpret the Utilities
Act, because the Utilities Act says that OFGEM's duty is to promote
the interests of consumers both today and tomorrow, it is not
actually that phrase but that is the import of it, actually that
captures the meaning of sustainable development, it is looking
after tomorrow's generations. I think a number of us feel that
it would be just a lot clearer in terms of the duties that the
regulator has to accommodate if sustainable development was in
there from the outset. If you look at it through the regulator's
eyes, and I have talked to one or two members of the Authority,
the Board, about what their interpretation was, there is a view
from them that it could be helpful because it would give them
more legal flexibility. If you are a regulator the thing you live
in fear of is legal challenge, because it affects a whole series
of things if you are challenged legally. It could well be that
if you had sustainable development built in it would give them,
in some areas, because there are always grey areas in policy,
greater flexibility to do things which could be helpful. There
has been, more or less, a complete change now in OFGEM's Board
from that which there was a year or so ago, so I hope there might
be slightly less resistance from OFGEM than perhaps there has
been in the past.
Q253 Mr Challen: In recent times, are
there any specific areas where such a duty would have been helpful?
Mr Green: It is raking over the
coals of history and it is looking back to my previous role in
the promotion of CHP. One cannot help but hope that had sustainable
development been in the terms of reference of what was OFFER,
and became OFGEM, then when they formulated the terms of reference
for the New Electricity Trading Arrangements the environment actually
would have been in there as one of the central issues. Having
raised at the first ever meeting the fact that the Government's
environmental targets were not in the terms of reference for the
market reforms, and that having been rather pooh-poohed by senior
officials within the DTI at the time, one cannot help but hope,
if it had been in the statutory terms of reference at that time,
back in 1998, we might be in a different place when it comes to
both the position that CHP finds itself in and the cost of the
Renewables Obligation to consumers. It is often forgotten that
the buy-out price in the Renewables Obligation, which is the bottom
line we all pay on our bills, had to be increased to cope with
the volatility created in the market-place by NETA. Actually,
at the end of the day, there is a cost to all of this.
Q254 Mr Challen: We have heard about
OFWAT and OFGEM. Do you think that a duty to take notice of sustainable
development should be applied more generally to all regulators
and other organisations, as part of this overall package?
Mr Green: It is in the terms of
reference already of the Environment Agency. It is in the terms
of reference of the Strategic Development Authority, and that
dates from when it was part of the Department of Transport and
the Regions, which again was broadly the environment department.
As I recall, it is not in the terms of reference of OFTEL. You
could argue that it should be in the terms of reference of OFTEL,
if you think about the impact telecommunications could have positively
on the environment, in terms of distributive working patterns,
etc. Again, that is not a regulator which has tended to be sponsored
by the environment interest in Government, but one could argue
that if you are serious about sustainable development it should
cover a whole range of quasi-government departments, or non-ministerial
government departments is the correct term.
Q255 Mr Challen: Looking at BETTA and
NETA and all that, we have heard already how you have got concerns
about the locational aspects of the roll-out of NETA to BETTA
in Scotland, and so on. Are there any other concerns which you
have about BETTA?
Mr Green: I would not want to
give you the impression that the Business Council specifically
had concerns about BETTA, because the Bill does appear to cater
for the concerns. I do know that at least one of the Scottish
companies has continuing concerns about BETTA and I do not know
to what extent they have been accommodated by the Bill. Broadly
speaking, most members of the Business Council are very much in
favour of the roll-out of NETA into Scotland because they see
it as a way of creating a UK-wide electricity market. There were
particular concerns about the impact on pricing in the north of
Scotland. As I understand it, the Bill has got a clause in it
designed to accommodate that. If that is the case then the concerns
which have been raised by the renewables community should be catered
for. The impression I get is that there are fewer concerns about
BETTA since that occurred than there were previously, but of course,
as ever, the devil will be in the detail to see precisely, assuming
that the Bill passes, how the clause is then rolled out and interpreted.
Q256 Mr Challen: NETA had quite a significant
impact on CHP, a bad one, as we know?
Mr Green: It certainly did.
Q257 Mr Challen: I am just wondering
whether BETTA is going to be any better—excuse the pun—for
things like microgeneration, because that seems to be really quite
a positive prospect for people to be able to generate electricity
locally, either in individual domestic situations or in a community,
and there is a lot of concern there to develop that way ahead.
I wonder whether you have any views on BETTA's ability to resolve
difficulties over net metering, and things of that sort, which
people have raised?
Mr Green: The impression I have
got of BETTA is that it is at such a high level, in terms of the
connections, the distribution network, that those who work in
it do not get down to the details of whether or not it is going
to affect particular things like net metering, etc. There has
been a completely separate programme of work that the DTI and
OFGEM have done. To a certain extent I have been involved in it
on the steering group for it, the Distributed Generation Working
Group, which has been an attempt to try to look at not only BETTA
and NETA but across the whole regulation of the distribution system
to see whether or not you can introduce things like net metering
and other changes which would make life more acceptable for microgeneration,
be it micro-CHP, solar photovoltaics, household wind, or whatever.
Q258 Mr Challen: Given the Business Council's
membership, and I can spot the list here which mentions some of
the companies, they are all large companies, do they support microgeneration,
do they support measures which perhaps would even diminish their
own market?
Mr Green: One of our members is
PowerGen UK and they are deploying a number of microgeneration
units in the UK through their supply business. The company which
developed the technology is owned by a company called Whispertec.
RWE Npower, through their retail brand, Npower, is actually in
an alliance essentially to promote solar photovoltaics in customers'
buildings. I would not say it was the same for all of them, it
is a competitive market, at the end of the day. Some of the companies
are seeking to get competitive advantage by deploying new technology
in their customers' homes. I could not speak for all of them,
because it is a competitive market, and say they are all suddenly
going to start deploying it. All I can point to is what PowerGen
and Npower are doing, and I know that Scottish and Southern Energy
in the past have looked at distributed technologies because potentially
it has got some quite big benefits for them in the far north of
Scotland.
Q259 Mr Challen: OFGEM is involved very
heavily in the price review which will end next year, I believe.
Are you satisfied that they are taking sufficient account of environmental
objectives?
Mr Green: It is difficult to read
at the moment. I think there was an announcement due either today
or tomorrow, and I have not seen it, which is going to indicate
their initial thinking on the Distribution Price Review. Talking
to colleagues who are quite close to this, there is a worry that
whilst OFGEM have done a lot of work on distributed generation,
and that is at a technical level, it remains to be seen whether
or not that technical discussion which has been going on is rolled
forward into the work which the economic regulation bit of OFGEM
is doing. Just as one seeks joined-up decision-making in government
departments, one hopes that there will be joined-up decision-making
in OFGEM and we will get a beneficial outcome. I do not know at
this stage because I have not seen what the latest announcements
are.
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