Examination of Witnesses (Questions 171
- 179)
WEDNESDAY 12 JANUARY 2005
MS GAYNOR
HARTNELL, MR
PHILLIP COZENS,
MR JOHN
STRAWSON AND
MR MARK
CANDLISH
Q171 Chairman: Our final set of witnesses.
I am sorry we are little behind schedule, but votes have not helped.
May I welcome members of the Renewable Power Association. Gaynor
Hartnell, director of policy; Mr Phillip Cozens from Shanks Waste
Services, major project development manager; Mr Mark Candlish
from the Slough Heat and Power Limited—you must have been
getting quite excited in the last exchanges—and Mr John
Strawson from Renewable Energy Growers Limited. It is quite useful
to have just a word or two to take stock. How are we doing with
renewables? The impression I get is that you are not meeting your
targets in rolling out particularly wind energy as fast as you
would like. Perhaps you could also include in this overview, a
word about the economics. Some people from the more conventional
areas of power generation feel that you are getting favoured nation
treatment by getting rather generous subsidies to get you off
the ground. Have a go at those two propositions by way of starting.
Ms Hartnell: I will kick off with
those ones. As to how we are doing with the Renewables Obligation,
it is a fairly recently introduced policy, it is a market-based
mechanism and is very novel. It was introduced with the objective
of government saying what it wanted in terms of an overall renewable
electricity target and then not wanting to have a role in deciding
what the portfolio of renewable energy sources that made up that
target would be; it wanted to let the market decide. I think early
evidence is showing that the Renewables Obligation is really starting
to work now. We have engaged the interest of the larger energy
companies: those who comment on investment interest say that the
UK is a very attractive market now in Europe. You mentioned that
it was primarily wind energy which was making progress and I would
not disagree with you there. Because it encourages the cheapest
renewables to come forward, we find that at the moment, the ones
that have the resource to increase capacity are onshore wind,
which has a very large resource in this country, landfill gas,
which is limited in the extent of its resource but is very cost
effective and is coming forward, a certain amount of co-firing
and there is a certain amount of hydro, but wind is definitely
coming to the fore and it was government's intention to let the
market decide.
Q172 Chairman: What about the question
of the subsidisation of it?
Ms Hartnell: Was the question
about whether excessive profits were being made, along that line?
Q173 Chairman: No. I think there
are some people who feel, that in terms of the money that is put
in, you are getting a sort of favoured nation treatment. In other
words, renewables certainly could never stand on their own two
feet without having an additional payment made. Certainly the
money that you get per kilowatt hour generated, means that your
generation costs, taking them all into account, would be much
more expensive than the existing "conventional systems".
Ms Hartnell: The way that the
government has introduced its mechanism is that it has said it
is going to allocate a certain amount of money and then that is
independent in a way of how much renewable electricity we get.
The nearer we get to the target, the less money will be going
to renewable generators. It has a kind of in-built mechanism to
speed up development if it is lagging too far behind target. I
would not disagree that there are other areas of sustainable energy
which really should also be rewarded as well and at the moment,
renewable electricity is almost unique in having a policy to deliver.
The White Paper has set out wanting to achieve 60% targets by
2050. Really it should be joined by other mechanisms.
Q174 Chairman: Help me to understand.
In terms of straightforward government money, how much government,
DTI, money, goes into renewables?
Ms Hartnell: I believe it is about
£350 million. The majority of it is energy payers' money,
but that money I referred to is going towards R&D, capital
grants and other investments.
Q175 Chairman: So £350 million.
On an annual basis or declining?
Ms Hartnell: No, that is over
three years. I should not have omitted that!
Q176 Chairman: Over three years.
Right. It would be helpful if you could just provide us, not to
go into detail now, but with a breakdown of the amount of money
that is going in. The reason I ask the question is that some time
ago, if my memory serves me correctly, Sheffield Hallam University
did an analysis to show where, for the expenditure of a pound
of the public's money, you got the best reduction in CO2
and the best reduction seemed to come from loft insulation. Renewables,
particularly in the area I was interested in, biofuels and renewable
miscanthus and timbers, seem to come round down at the bottom
of the scale in terms of the pound to CO2 saving. How
do you see that spectrum operating? Are you good value for money
or not? Mr Strawson is waving his pen. Do you want to come in
on that?
Mr Strawson: I would if I may.
You started touching on biofuels and to that end we as farmers
can start providing and I have been tasked for the last three
years, ever since the demise of the ARBRE power station, with
finding a market for the crops that we as farmers have in the
ground. So I am acutely aware of the economics of how we are,
as a price of fuel, to compete with fossil fuels also. The study
to which you referred from the university may indeed at the moment
be correct, but we have been growing energy crops now for four
years and within that time have managed to halve the cost of production
and therefore we have halved the cost of the fuel to the marketplace
in four years of planting for ARBRE which was just a small power
station. If we could just have the inspiration now and a market
to use up the crops that we planted for the ARBRE, and then develop
more plantings, which Defra are very much behind us on, then the
cost of the fuel, which is already half the cost of oil at $50
a barrel, though it is twice the cost of coal to a power station;
already half the cost of oil you have to remember and that in
the absence of subsidy, so we are getting there.
Chairman: We are going to have a bit
more of a detailed go at your area shortly. I do not want to hog
the questions, so I shall pass to Joan Ruddock.
Q177 Joan Ruddock: We are on a very
interesting point. What has been said initially and what David
Green was alluding to in his evidence earlier was the fact that
the market has been driven to onshore wind as the cheapest option
in terms of development. Is that correct? That means that this
remarkable halving of the cost of the biofuels within four years
is not getting a fair reward for the progress which has been made.
Given that you have a market-driven system, is this going to be
the way that things are going to continue? If not, what is it
that will make things change?
Ms Hartnell: That is indeed the
way that it is working. Now the Renewable Power Association does
not disagree with the basic philosophy there of allowing the cheapest
technologies to come forward, but we do believe very strongly
that there needs to be diversity in the long run; you cannot expect
onshore wind alone to deal with our renewable energy targets.
For that reason we advocate there be a policy which enables those
technologies which are further away from commercialisation a chance
to compete within the Renewables Obligation framework, when their
prices have come down. They need some form of transitional support
to help them become commercial enough to play in that game and
we did send in a proposed mechanism to help do that. The fundamental
thing is that we do not think that the Renewables Obligation should
be tweaked in order to deliver diversity. There should be separate
mechanisms to do that. As we mentioned, the Renewables Obligation
is market-based mechanism and my colleagues can tell you, from
the "coalface" as it were, how important it is that
once the government puts rules in place, it does not interfere
with them, because they make investment decisions on the basis
of those rules. So we agree diversity is important and that is
why we have put forward a mechanism which we believe can deliver
diversity without undermining the fundamental Renewables Obligation
operation.
Q178 Joan Ruddock: We presumably
do not have any details of this and we perhaps ought to know that
so that I do not pursue the question, because we have a problem
with time. I think we do need to know what that mechanism is,
because it is very pertinent. I suspect most of us are going to
conclude that we need diversity and what you are all saying is
that we are not getting diversity, we really have the simple market
mechanisms. Developing wind power is the cheapest. Is that the
same as saying that wind farms are the most economic source of
renewable energy per unit?
Ms Hartnell: I would not say that
wind energy is necessarily the cheapest; it is the one that is
being delivered most rapidly at the moment, it has the resource
to grow. Landfill gas is cheap, energy from waste—
Q179 Joan Ruddock: Sorry, but you
did say that the cheapest technology should come to the fore.
Ms Hartnell: All right, yes. I
did say also that it was onshore wind, landfill gas, some hydro
and some co-firing of biomass which were basically making the
progress under the Renewables Obligation at the moment.
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