Examination of Witnesses (Questions 80-99)
MR MAF
SMITH, MR
NIALL CRABB,
MR JIMMY
FERGUSON AND
MR ALAN
MORTIMER
1 FEBRUARY 2005
Q80 Mr Weir: My understanding is that
the problem with transmission charges is that, as far as renewables
are concerned, the pay-back time for a renewable development would
be much longer than the time that is allowed on the sunset clause
under the Energy Act. Could you also remind us how many conventional
stations there are in the north of Scotland and what effect these
transmission charges might have on these?
Mr Mortimer: These charges do
apply uniformly to all forms of generation. It is a particular
concern of ours that they will affect all generation across the
whole of Scotland and they will impact all of our business. We
do feel that they are disproportionate and we have made representations
to Ofgem on that account. To date, it does not appear that that
has been heard. We also believe that they are particularly disproportionate
to renewables because most renewables are in the remoter areas
where these charges are highest, and that is contrary to the requirements
of the European Renewables Directive. Again, we have made that
point, but we do not know yet whether that has been listened to
and heeded by Ofgem. If it has not, then really the only route
left is the clause which you referred to in the Energy Act and
the potential discount for remote area generators.
Q81 Mr Weir: You would agree that whilst
making renewables more expensive, it would also make conventional
generation in the north of Scotland more expensive?
Mr Mortimer: Yes.
Q82 Mr Sawar: Nuclear power stations
are currently being decommissioned throughout the world. Do you
believe that a combination of renewables and fossil fuel (conventional)
will ever be able to replace nuclear energy?
Mr Ferguson: The decision on whether
the country moves into renewable energy does not depend on whether
the nuclear industry is established, but it is quite clear that,
irrespective of what shape the renewables move into, we are going
to need some other form of power to supplement the renewable energy
industry. I think in Maf Smith's paper he talks about possibly
up to 60% of Scotland's power under the current commitments will
have to come from conventional methods. Conventional methods could
be hydrocarbon based or nuclear based. There is a clear need to
fill up that gap.
Q83 Mr Sawar: You have talked about targets
and you said that 30% of our electricity will come from renewable
sources. Do you think these targets are achievable?
Mr Ferguson: I think for Scotland
those targets are quite achievable. There is still a bit of discussion
to be held on the mix of renewables to satisfy that, but 40% from
Scotland is a very achievable target.
Q84 Mr Sawar: What is the timetable?
Mr Ferguson: It is 40% by 2020
and that is achievable.
Q85 Mr Lyons: You concede in the paper
that there will be a mix and you confirmed that 60:40 looks to
be what you are heading towards. What would be the ideal mix if
you were looking for that?
Mr Ferguson: Because of the resource
available to Scotland in wind and wave and biomass, it is possible
that Scotland would exceed its energy needs capability by several
hundred per cent. It just depends on how you want to use and move
that power. The 40% in gigawatt terms is not that difficult a
target to achieve over a period of time, and time is very necessary
to achieve those targets, but there is a potential for Scotland
to be a gross exporter of power and to create a new economy producing
power and sending it elsewhere.
Q86 Mr Lyons: Do you think that is realistic
for us?
Mr Ferguson: I think it is very
realistic, personally. I think Maf Smith in his introduction mentioned
the hydrogen economy, which is a little bit down the road yet
but it is something that we should be very carefully looking at
from a Scottish perspective to see what or how we integrate that
and grasp the opportunities there for the future of the economy.
Q87 Mr Weir: In your paper you give a
breakdown of how you see this 40% being made up: one-quarter for
hydro; half for wind; and a quarter for emerging technologies.
I have two points. How far advanced are these emerging technologies
and how realistic are they to produce large scale electricity?
As regard hydro, what new schemes are proposed for hydro and are
they having the same difficulties as wind power, for example?
Mr Smith: Perhaps I could take
the general breakdown and then I will pass to Jimmy Ferguson to
talk about the marine technologies.
The Committee suspended from 3.08 pm to
3.22 pm for a division in the House
The question you were asking was about the relative
role of each of the technologies and what supports some might
need to get them there. In terms of where we are now, for example
hydro is the dominant technology within Scotland at the moment
in meeting renewable sources. It has been there a long time. We
are expecting a small number of new schemes to be proposed; for
example, Southern Energy has proposed the Glendoe scheme in the
Highlands. But much of the hydro we would expect to be small-scale
hydro, a lot of river types, rather than the larger down schemes.
In terms of its contribution to the targets and to large-scale
energy generation, it would be relatively small. Wind is a proven
technology and Scotland has a very substantial resource. Scotland
has 25% of Europe's wind resource. Therefore, it is a very cost-effective
form of renewables and there are good sites there. We would expect
that wind could meet up to half of that, which equates to 20%
of Scotland's electricity. The challenge is how you move beyond
that to include the emerging technologies, which are wave, tidal
and biomass, which have a lot of potential but are still some
way from market and so they need some support. Perhaps my colleagues
could describe what support they would need.
Mr Ferguson: I will talk about
the marine energy technologies. It is possible for the marine
energy technologies to deliver a contribution towards the support
of emerging technologies. I would say that is probably about 10%
maximum from marine energy in the timescale given. However, to
achieve that we had an announcement yesterday of £42 million
in support to the marine energy industry, which is very welcome.
That broadly reflects what industry has told the Government it
needs. However, there is still a further gap for small companies
like Wavegen, and I presume I am speaking on behalf of others
like OPD and WAS as well, where it is going to be quite difficult
to find the additional money, private equity, to help the technologies
get to the next stage of evolution. It is achievable but additional
support is needed to help the smaller companies in taking their
technologies to that next stage of development. It would probably
take up to 10 years for all the companies to get to the stage
where they have enough critical mass to go their own way and act
and behave as stand-alone businesses.
Q88 Mr Weir: You are talking about ten
years to get to that stage. What sort of timescale are we talking
about before they have a significant impact on the amount of electricity
that is being generated from these schemes and feeding into the
grid?
Mr Ferguson: This is my personal
opinion. I would define significant impact as where a technology
can deliver on a commercial basis about 100 megawatts of power.
I speak on behalf of Wavegen: with the right support, we could
probably deliver that in about eight years' time. That would take
us through a couple of stages of evolution coming up to one megawatt,
five megawatt, 10 megawatt, 50 megawatt and then 100 megawatt.
That would be the critical amount when I would say this technology
can deliver and do so commercially.
Q89 Mr Lyons: Mr Ferguson, has the technology
been used elsewhere in other countries so that we could look at
the evidence and use that rather than start from scratch to develop
this here?
Mr Ferguson: Our technology is
unique in the world. Let me rephrase that. There have been a few
other attempts at commercialising our technology—Japan,
India, China and Norway—but they failed on deployment. We
have records to show that the basic principle that we use was
available 100 years ago. The difficulty was in taking it and putting
it together as an integrated package, as we say "from wave
to wire" and then delivering that commercially. We know the
technology works; we have been operating and producing power into
the grid now for over four years at (Isla). What we have to do
now is reduce the cost of that power and deliver it on a scale.
Q90 Mr Hamilton: Could I ask ScottishPower:
what percentage of energy does your company currently produce
from renewable sources?
Mr Mortimer: I would have to check
exactly what that is. At the moment, we have just over 100 megawatts
of hydropower and 150 megawatts of wind power. I would have to
check the percentages.
Q91 Mr Hamilton: Unlike John Robertson's
view, my view is that a subsidy means it comes from the public
purse. You can dress it up in any way you want but the public
ends up paying something. Would ScottishPower have entered into
the wind farms and the wind development if that public money had
not been available for you to access? You have implied you are
a commercial company, an international company. Would you have
gone down that road if money had not been made available to you?
Mr Mortimer: Without the Renewables
Obligation and its predecessor, which was the Scottish Renewables
Obligation in Scotland, no, we would not.
Q92 Mr Hamilton: Scottish Coal, do you
receive any public subsidies?
Mr Crabb: Not at the moment.
Q93 John Robertson: Mr Smith, you gave
a figure of 3p per kilowatt. Was that for all renewable power
or was that just for wind power?
Mr Smith: That figure is for all
renewables. The Renewables Obligation is technology blind.
Q94 John Robertson: I find this quite
hard to believe because the Royal Academy of Engineering made
a report on energy and how much it was costing. Their figures
were 2.2p for coal; 2.3p for nuclear; 6.3p for wave; and 6.7p
for wind. That is more than double what you are telling me. I
asked you earlier, and I want you to answer this question again:
are you receiving a subsidy and, if not, why the discrepancy in
the figures?
Mr Smith: Firstly, if you look
at what the report of the Royal Academy of Engineering was trying
to do, the objective of the report was to look at a bounded community
and try to work out how to provide new generation for that community.
The costs that that report comes up with do not relate to the
costs we would expect to see across GB or within the GB market.
That is not what they analysed.
Q95 John Robertson: Let us talk English
here so we can understand what you are saying. Are you telling
me that these figures are wrong and that the Royal Academy for
Engineering did not give us the truth?
Mr Smith: They took a range of
figures. They did not take those figures and try to work out what
the costs of the different technologies would be to work in the
British market. They compiled figures for a range of different
sectors, and that is where you get discrepancies within that from
other reports. If you want direct figures in terms of what the
cost of operation of those technologies is, the Renewables Obligation
I have outlined has a value set on the penalty payment of 3p.
Q96 John Robertson: You told us that
previously. Are the figures of 6.7p for wind and 6.3p for wave
wrong? The figures they used must have come from people like yourself.
Mr Smith: My view, from the figures
I have seen in reports, is that the cost of wind is beneath that.
The cost of wind is less than that.
Q97 John Robertson: You are at less than
half of that. You said 3p and so we are roughly 3.3p or 3.7p out.
Mr Smith: That is the cost of
the Renewables Obligation which you receive in addition to the
cost of the sale of the electricity.
Q98 John Robertson: You have to remember,
Mr Smith, that we are here looking at this as the British Parliament
and how much it is going to cost the people of this country. We
have been told that coal is 2.2p per kilowatt and nuclear power
is 2.3p. While a lot of us want to become involved in renewables
and make sure that we have alternative methods of getting power,
we need to know exactly what the cost is and whether the figure
of 6.7p is right or wrong. If you are telling me the figure is
3p, then I would say 3p was quite good. You also told me you do
not receive any subsidies, and I thought that was great because
you said that all the costs were going towards outside industry
that was going to pay the bill, and they were even going to have
penalties against them if they did not reach the figures. If that
is correct, then I am all for that. If I am now paying over 100%
more than that, then I want to know why that is and I want to
know why the figures would be doctored as such to make it look
as if it was a lot less than it was.
Mr Ferguson: There are many questions
within your question. Let me try and explain this. I am speaking
with knowledge from my former existence as a project director
on an offshore wind farm off Great Yarmouth. I am not familiar
with the report you are talking about but the figures sound to
be round about correct. The cost of producing power from the various
technologies is of the order of magnitude the figures you were
quoting, the figure Maf Smith gave earlier that all renewable
industries receive. I explain this to my children by the term
"golf handicap". The golf handicap they get at the moment—and
I think you referred to it as a subsidy—is a form of subsidy
but it does not come from Government but from industry though
this obligation. At the moment, that subsidy for renewable energy
is 3p. The figure of 6.7 or 5 point whatever it was is reduced
by 3p to give wind energy and wave energy an equal chance of standing,
so that when developers like ScottishPower come along, they can
look at wind and conventional power on a level playing field.
The idea is that the 3p brings the figure down so that it goes
head-to-head with other forms of generation.
Q99 John Robertson: You have explained
that very well, Mr Ferguson. How long will that money be available
to the industry?
Mr Ferguson: Let me add one more
fact. The cost of producing power from wind varies by as much
as 5p to 8p depending whether it is onshore, offshore, the distance
to the grid and the environment in which you are building. By
going offshore of course you have the risks associated with the
marine environment, vessel costs, et cetera. The cost of
taking wind energy offshore is significantly more than it is onshore.
The figure you have there sounds very much like an average that
has been put together. How long will the subsidy go on? I will
ask for some help from Maf Smith in a second. The announcement
yesterday on the draft the Government has put forward is for £42
million. They say they are going to put in enhanced support for
a period of five years, I think it is, for marine energy. That
is for a very fixed period of time and it is capped off at certain
limits.
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