House of Commons - Scottish Affairs

Select Committee on Scottish Affairs Written Evidence

APPENDIX 7

Memorandum submitted to the Committee by Energywatch

EXECUTIVE SUMMARY

Projections of Scotland's future energy needs point to an increase in consumption and changing sources of generation. We believe it is unlikely nuclear power stations will be replaced with other nuclear plants. Renewable generation is likely to grow substantially over the next 20 years. We do not believe Scotland will actually experience a shortfall in electricity supplies as a British-wide market is imminent which will be underpinned by a regulatory framework ensuring security of supply. The changing generation mix requires substantial changes to transmission and distribution systems. Where these costs fall could potentially impact on generation development and consumers currently experiencing difficulties paying for their energy because of their personal circumstances or location. The upgrading of existing and development of new interconnectors with other European countries will further reduce the possibility of any shortfall of electricity in Scotland.

When considering future energy needs a range of factors must be considered. Addressing energy demand by energy efficiency, technology innovation and education programmes will facilitate better understanding of energy consumption and assist environmental, social and economic goals. To facilitate the decision making process energywatch recommends that sustainable development principles and the eight consumer rights we assert are employed when considering future generation options. Referring to these principles will ensure that consumers can take confidence that choices made will be in their and future consumers best interests; deliver social progress for all whilst effectively and prudently protecting the environment and maintaining high and stable levels of economic growth. However this assumes an effective market which is transparent and competitive. energywatch is campaigning to improve the effectiveness of the market.

WHO WE ARE

The Utilities Act 2000 placed on energywatch a statutory duty to protect and promote the interests of existing and future gas and electricity consumers in Scotland, England and Wales. We also have a specific duty to "have regard" to the interests of individuals:

— who are disabled or chronically sick;

— of pensionable age;

— with low incomes and on benefits;

— residing in rural areas.

The evidence submitted here will underpin our position in relation to the third strand of this inquiry: "How can the shortfall in energy output be met once nuclear power no longer provides Scotland's energy needs?". The committee may be interested to know that energywatch has also submitted written evidence to the Trade and Industry Select Committee investigating the wholesale gas market. Energywatch believes only an effective, competitive market can deliver benefits for consumers, secure supplies and a sustainable market.

THE CURRENT SITUATION

There is an abundance of information available in the public domain which attempts to project future energy demands, likely generation mix and levels of import/export in Scotland. This all points to a future where electricity consumption steadily increases and a generation mix with renewable generation increasing at a rate close, but slightly below, Scottish Executive aspirations; gas fired plants replacing redundant plants and power from nuclear plants reducing to nil by 2023.

Scotland currently exports about one sixth of electricity generated to England and Northern Ireland[9] and has spare generation capacity of approximately 70%—well above that of England and Wales. However, as with the rest of Britain, nuclear power plants at the end of their operating life and are not being replaced with other nuclear power plants.

The Energy White Paper[10] made it clear that the Government has no plans to propose new nuclear power stations. The paper also states: "Before any decision to proceed with the building of new nuclear power stations, there would be the fullest public consultation and the publication of a White Paper setting out the Government's proposals. In common with all generation options, the initiative for bringing forward proposals to construct new nuclear plant lies with the market and the generating companies."

THE FUTURE?

We believe it is highly unlikely that any new nuclear power plants will be commissioned in time to replace any of the remaining operational Scottish nuclear power plants. We assume this as it is improbable that the market will propose to build such a plant without public subsidy. On top of this the economics are unfavourable when compared to new gas or coal power stations.

We also conclude that large-scale renewable generation will grow at a rate close to that envisaged by the Scottish Executive. [11]This assumption is based on the current and developing regulatory regime, effective operation of the Renewables Obligation (throughout Britain); the will to place Scotland "in the vanguard of a new sustainable energy industry that could bring with it considerable economic benefit"[12] and the fact that Scotland has about one third of Europe's wind power potential. Although planning issues have been recently addressed to make it easier for renewable generation proposal to come to fruition public opinion is not always in favour of construction of sites in their vicinity.

CHALLENGING THE ASSUMPTION OF A SHORTFALL

The market in England and Wales has shown that when generation plant needs replacing it can do so whilst maintaining a healthy capacity margin. This is not a guarantee that the market will always react in this manner but it does call into question the assumption that there will actually be a real shortfall at any given moment in time.

The Electricity Act (1989) obliges the Secretary of State and Ofgem to be responsible for "the need to secure that all reasonable demands for electricity are met".[13] The Act also places duties on the Secretary of State and Ofgem to "secure a diverse and viable long-term energy supply". In order to understand what these needs are the Joint Energy Security of Supply (JESS) [14]working group was established in 2001. This group originally considered only England and Wales, but in the future will consider all of Britain. The twice yearly reports of this group consider security of supply issues over a timescale of at least seven years ahead. The licensed transmission system operators and owners have duties to ensure security of supply too.

Once the British Electricity Trading and Transmission Arrangements (BETTA) are in place Britain will in effect be a single market. In this context any shortfall in generation in Scotland, England or Wales could impact on other areas of Britain.

The interconnector (once BETTA is implemented the interconnector will become part of the British transmission system) between England and Scotland is being reinforced to cope with increased power flows between Scotland and England. [15]The UK transmission system is also linked to the England-France Interconnector—a 2,000MW high voltage direct current link. Current plans for further interconnectors include an interconnector between Britain and the Netherlands[16] (due for completion in 2007) and developing an interconnector between the Britain and Norway. [17]Therefore once completed Scotland will be connected to transmission systems in England, Northern Ireland, France, Holland and Norway resulting in a European wide network, further reducing the likelihood that a shortfall will occur. Gas interconnectors are also being strengthened and constructed to connect Britain to the European gas network, implying that gas fired generation will become increasingly popular.

These projected changes in the generation mix (including embedded generation) will require sweeping changes to the way transmission and distribution networks are designed and maintained. The need to move away from a heavily centralised generation system to a more dispersed system potentially involves significant cost. Differences in transmission charges between Scotland and England and Wales have to be resolved prior to BETTA being implemented. Energywatch has been part of this process to ensure that consumers, particularly those living in rural areas, are not unfairly penalised. The removal of the hydro-benefit for consumers in northern Scotland and its proposed replacement is a good example of how consumers living in remote areas need protection from policies which could result in them paying exorbitant distribution costs for electricity simply because they live far from the source of generation.

MANAGING FUTURE ENERGY NEEDS

Energywatch urges the Committee to consider that the closure of nuclear power plants (and equally the closure of the coal fired stations at Cockenzie and Longannet which have a combined output exceeding the combined output of nuclear power plants in Scotland) need not be met solely by replacing old generation capacity. There is great scope to reduce energy demand by: ensuring the market operates as effectively as possible; improving the energy efficiency of all buildings; educating people about their consumption; improving electrical appliance efficiencies and providing people with information on different generation options. Suppliers are now obliged to provide information, at least once a year, to all consumers detailing the percentage of generation sources making up their electricity consumption. Measures such as these will help engage and educate consumers about their energy consumption.

The Scottish Executive is already ploughing substantial resources (far exceeding spend in England and Wales on a pro-rata basis) into improving heating systems for pensioners and should be applauded for this action. The energy and money saved by these consumers cannot be underplayed. This action helps tackle energy demand and complements the Scottish Executives' stance "to ensure, so far as reasonably practicable, that people are not living in fuel poverty in Scotland by November 2016".[18] Measures to improve Scottish building standards, coupled with initiatives such as the Community Energy Programme, the Energy Efficiency Commitment, the Central Heating Programme, the Warm Deal Programme and Scottish Community and Housing Renewables Initiative, will help deliver better efficiencies in homes, tackle fuel poverty and energy demand. They have also been designed to bring to the market innovative products and services, such as micro-CHP, micro-renewables and energy services packages.

FACTORS TO CONSIDER

Energywatch believes that an effective market could deliver the necessary generation capacity for Scotland. We are not convinced though that the market is currently operating as effectively as it should. We will be campaigning for coordinated GB regulation to cover the offshore and onshore markets; changes to the gas network code to bring increased market transparency for energy suppliers and large consumers; a substantial programme of measures from government and companies to protect low income and other priority consumers; a clearer understanding of why wholesale price spikes have occurred and what market remedies are available.

Poor billing is a market-wide problem that causes not only extreme inconvenience, but, according to energywatch research, [19]puts up to 10% of consumers into debt. We will: campaign for accurate, timely and clear bills; encourage consumers to read their meters and for companies to use those readings to provide accurate bills; establish a recognised standard for energy bills.

Energywatch research has revealed serious impediments to consumers receiving the benefits of effective competition. We will: press for solutions for consumers locked into teleswitching meter suppliers; explore the impact of BETTA as it goes live in 2005; highlight the detriment to consumers of two-tier regional pricing for electricity

Energywatch would like to see all policy development explicitly embrace sustainable development principles and the eight consumer rights we assert. [20]We believe that if these principles are considered during the development of Scottish generation assets then consumers can be confident that the choices made will be in their and future consumers best interest; deliver social progress for all whilst effectively and prudently protecting the environment and maintaining high and stable levels of economic growth.

17 January 2005