Examination of Witnesses (Questions 153-159)
MR IAN
MARCHANT AND
MR PAUL
SMITH
1 MARCH 2005
Q153 Chairman: Gentlemen, could I welcome
you to this public evidence session on our inquiry into Meeting
Scotland's Energy Needs. I know you have had a great rush to get
here and we are grateful to you for rushing the way that you have.
For the record, would you like to introduce yourselves?
Mr Marchant: My name is Ian Marchant,
I am Chief Executive of Scottish and Southern Energy, and I am
joined today by Paul Smith, who is Director of Generation Operations
for Scottish and Southern Energy.
Q154 Chairman: Thank you. Before we start
on the detailed questioning is there any statement that you would
like to make?
Mr Marchant: Just two very short
things. Apologies for being late. I can, as it happens, blame
the UK Energy Minister. I was speaking after him at a conference
and he was late. The interesting thing is that the theme of that
conference was Energy in Crisis, the conference sponsored by Amicus[1],
and the very interesting flavour of that conference was that the
debate was a UK-wide focus, and I think it is very opportune that
you are looking at the particular issues facing Scotland because
a lot of the issues are being dealt with purely on a UK-wide basis,
and I think this is a great opportunity and I welcome being able
to help the Committee in their deliberations.
Q155 Mr Sarwar: Paragraph 4 of your submission
paints a very pessimistic picture, and you say that Scotland is
on course towards being an importer of energy in the medium term.
Could you please define "medium term"? Are we talking
about in 10 or 15 years' time or even sooner?
Mr Marchant: My belief is it is
more like a 10-year to 15-year horizon. If I can characterise
the difference between the UK and the Scottish issues? I think
the UK-wide issues are getting quite urgent; I think for Scotland
the issues are more important but slightly less urgent. We do
have time to resolve this issue particularly because the nuclear
stations in Scotland are not expected to close until 2011 at the
earliest, and maybe 2016 with life extension. So the issues are
less pressing, but I think they are very, very important.
Q156 Mr Sarwar: From where do you think
Scotland will have to import its energy? Could it be from elsewhere
in the UK?
Mr Marchant: Yes, as I said in
my introductory remarks, UK policy is driven at the UK level and
the view on security supply will be taken at a UK-wide level.
So, yes, as a region Scotland will be an importer but the UK as
a whole will be more worried, for instance in the electricity,
about its overall reserve margin. At the moment Scotland has a
significantly higher reserve margin than in England and Wales.
I think that that could reverse.
Q157 Mr Sarwar: But do you think in any
future time we will have to import from countries like Norway
or from Russia or the Ukraine?
Mr Marchant: If you are looking
at gas, yes; undoubtedly the UK—and Scotland I do not think
will be any different—will be a net gas importer, and if
it is not this year it will soon become a net gas importer. As
the North Sea gas production starts to decline, which we have
already seen evidence of that, the UK will become a net energy
importer. My comments were more focused, if you like, at electricity.
Q158 Mr Sarwar: When you say about gas
and you say "this year", that means it could be this
year or next year?
Mr Marchant: We probably have
been this winter. We almost certainly are today a net energy importer.
Today, as you know, it has been a cold spell. My day started badly
with snow in Edinburgh, and it has been a cold spell since last
week, and almost certainly the UK has been a net importer of gas
this week. So that trend has been coming for years and it is here
with us today.
Q159 Mr Weir: In your submission you
talk about the transmission charges problem, and you quote a figure
of between £23 million and £26 million more to operate
a gas-fired power station in Aberdeenshire than the Southwest
of England. Can you expand on that and tell us how you come to
these figures?
Mr Marchant: What we have had
until now are three separate transmission charging areas. We have
had England and Wales, which the National Grid have charged, and
we have had the central belt of Scotland, which Scottish Power
have charged and the north of Scotland—they have been run
separately. And you pay different amounts for generation. One
of the consequences—not one of the objectives—of BETTA[2]
is that we will have a national set of transmissions charges.
They are being put in place by the National Grid Company, who
is the system operator and they have a model. I cannot explain
to you how that model works because I think there are only about
eight people in the country who understand how that model works,
but it is very, very extreme locational charging. So as a result
our Peterhead power station will pay £18 a kilowatt for every
kilowatt it has connected. A power station in the central belt
of Scotland will pay around £12 a kilowatt. A power station
in the north of England will pay around £5. A power station
in the Somerset area will receive £5, so you have
a very pronounced tilt. What the numbers in our evidence were
saying was, converting those to pounds million on the bottom line,
if you have two identical power stations with the same efficiency
they will lose the same amount of gas, they will have the same
O&M costs;[3]
the only difference is the transmission bill and in one I am paying
£18 a kilowatt and in the other one receiving £5, and
the difference of that is £23 million. So if you were trying
to decide where to build a new gas fired power station you can
guess it would not be in Scotland because the price of land does
not anywhere near get to £23 million a year. That is why
I have made the statement that given these transmission charges
Scotland is the first place you would shut a power station—all
other things being equal—and Scotland is the last place
you would build a fossil fired generator—again, all other
things being equal. That is the consequence, that is what these
charges are designed to do. They are a very, very extreme economic
signal.
1 Trade Union Back
2
British Electricity Trading and Transmission Arrangements Back
3
Operational and management costs Back
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