Examination of Witnesses (Quesitons 315-319)
MR ALAN
ROBINSON AND
MR DAVID
MANNERING
3 JULY 2006
Q315 Chairman: Gentlemen, welcome to
our evidence session on UK dependence on gas and coal imports.
We are nearing the end of our inquiry. I think this is the last
but one evidence session in our programme. We are very grateful
to you for coming and for your written memoranda. Can I begin,
as I always do, by asking you to introduce yourselves?
Mr Robinson: My name is Alan Robinson.
I am now employed by RWE Trading. I have been in the industry
for 26 years—CEGB, National Power, Innogy, npower, and very
recently I have moved across to the trading floor. I am still
involved, though, in long-term strategic issues but my day job
is involved in actually despatching the power stations and delivering
the fuel to the power stations on a day- to- day basis.
Mr Mannering: My name is David
Mannering. I am Director of Economic Regulation at RWE npower.
My background has been in regulation more or less since privatisation,
starting with National Grid, then National Power, and then I spent
five years with Anglian Water, and now I am back with RWE npower.
Q316 Chairman: Can I begin by asking
you a broad question about your reading of the market. You have
told us that you think the Government's assumptions about growth
in demand for electricity are "unrealistically low".
What do you think the growth in demand is going to be over the
next, say, 20 years?
Mr Robinson: We would start from
the same place as the DTI, and indeed the same place as National
Grid do in their long-term, seven-year statement, which is that
you start with an assumption about GDP growth at 2.5 to 3% a year,
and then you allow for two factors: one is energy efficiency improvement
and one is just a general reduction in the energy intensity of
the economy. Traditionally, those would have knocked 1 to 1.5%
off GDP, and you would have had a growth of 1.5 to 2%. We would
suggest that perhaps going forward with further, more intensive
efforts on energy efficiency, that might be more like 1 or 1 and
a bit. Our view is 1 to 1.2%, that sort of level, per year compounding
into the future. The Government figures I think start with a similar
number, which they call "without special measures",
and then they flatten it to pretty well zero growth with special
measures. We think that those special measures, which generally
are energy efficiency, are probably already in our numbers. We
are very closely aligned with the NGC forecasts, the government
forecasts, which have largely been renewed for carbon allocation
purposes and they are, perhaps understandably, a little on the
optimistic side in terms of energy efficiency. In dealing with
long-term security issues, one does not want to start with an
overly-optimistic assumption about demand management. One has
to build that on top as an additional measure, rather than as
an underlying factor.
Q317 Chairman: There is a phrase
which economists like to use, ceteris paribus (other things
being equal) which applies to my next question. Ceteris paribus,
therefore: what do you think the consequences of that forecast
are for demand dependence on gas and coal-fired generation and
therefore for our dependence particularly on gas imports?
Mr Robinson: We have said in our
evidence that one of the consequences of aiming at a lowish-number
for demand, given that new plants, particularly in the medium-term,
are likely to be gas, does mean you probably understate the amount
of new gas required, and obviously you change the percentage total.
You change the denominator as well in the equation. Our judgment
would mean therefore that we think more gas will be required in
the short term. Our overall view, like that of many other witnesses
you have spoken to, is that diversity is the key issue here, but
inevitably, in the short and medium-term, the only new plant that
is likely to be built is gas. Our view is very much one of quickly
bringing the other options into play. You are still probably talking
six, seven or eight years at the earliest for some of the other
larger options, and perhaps 10 years plus for nuclear. Yes, it
will mean more gas; it will mean a greater dependence on gas,
and therefore inevitably with UK Continental Shelf declining,
a consequent additional dependence on imported gas.
Q318 Chairman: You gave some quite
dramatic figures in your written evidence to us. You said that
this could result in greater than 80% dependence on imported gas
and as much as 75% of electricity generation fuelled by gas by
2025. That means that in less than 20 years' time, 75% of electricity
will be coming largely from imported gas.
Mr Robinson: Yes. That comes back
to your opening piece of Latin, which says very much that we have
assumed in that, quite deliberately, that everything that is built
is CCGT. We do not believe that is going to be the outcome in
the 2025 timeframe, but we feel it is the illative starting point:
if nothing else changes, if we do not sort out some of the issues
on which we can touch on, consenting and enabling of other technologies,
then that is the consequence. I do not believe it is the likely
outcome because I think other measures will be taken, but it just
concentrates the mind on where we would otherwise have to go.
Q319 Chairman: There will be no new
coal-fired generation then alongside that CCGT?
Mr Robinson: Not in that assumption,
but, yes, our assumption would be that indeed there will be some
new coal plant coming into play in eight, nine or 10 years' time.
Yes, in that timeframe there will be coal and therefore gas will
be lower than we said, but we started with that just to give a
base case and say that is the worst; it is not a question of the
lights going out because CCGTs can and will be built. It is a
question of increasing dependence on gas and, given our belief
that diversity is a key part of the answer, that would be an over-dependence
on gas, in our judgment.
Mr Mannering: Since we did the
analysis that underpinned that reply, we have done some updated
analyses. The balance between coal and gas has shifted somewhat
more towards it being more of an even decision between the two
technologies.
Mr Robinson: From an economic
investment perspective, the two look much more similar than perhaps
they did even a couple of years ago.
Chairman: That is very interesting. Let
us look first at your gas situation and then move to coal.
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