Examination of Witnesses (Questions 60-65)
MR PHILIP
SELLWOOD AND
DR NICK
EYRE
25 OCTOBER 2006
Q60 Chairman: Why is it not happening?
Mr Sellwood: Because at the end
of the day the individual suppliers would see that at the moment
they have got a great deal currently: because they are selling
at 10 pence and they are buying at one.
Q61 Chairman: You have just described
the commercial reality. You have not actually answered the question
why or, turn it round the other way, what in policy terms has
to be done to make it happen?
Mr Sellwood: It is exactly as
I have described, and it is one of the recommendations we make
in the Strategy Review we did for DTI, which is that if you want
to seriously reduce the costs of the route to market, there are
two things you need to do, one is to drive up the volume and the
other is actually to guarantee export equivalence.
Q62 Chairman: If it is such a good
deal, and it has worked effectively in Germany, why is not our
DTI doing it? What is your assessment of their inability to transform
a good idea into reality?
Dr Eyre: To be fair to the DTI,
as part of their microgeneration strategy, they did essentially
put electricity suppliers on one year's notice: "Come up
with a scheme which is acceptable or we will to look to change
the regulations so that customers do get at least a fair price,
something approaching the value of electricity for exports."
Q63 Chairman: Do you sense that the
supply side is working to try and find a way round this problem?
Mr Sellwood: I think they are,
for two reasons. Firstly, they are under threat that if they do
not do something voluntarily to suit perhaps their commercial
requirements it will be legislated and it might be a bit more
painful; secondly, to the earlier questions, some of the suppliers,
although obviously it is commercially confidential, we know, are
working around this issue as part of their energy services package.
Clearly, if you are looking to sell a micro CHP boiler at three
thousand pounds, you are not going to sell it under the same sort
of financial and business model that they are currently operating.
So, they are using these sorts of things as a means of creating
a package, and I think there will be, before the year end, one
or two of the suppliers coming forward with proposals, but I think
at the moment the best deal you can get is about three and a half
pence from Powergen.
Q64 Lynne Jones: I find all the Government
schemes very confusing. We have got the Low Carbon Buildings Programme,
the Environmental Transformation Fund (that is on microgeneration)
and then we have got energy efficiency funds. What could be done
to cut through this confusion? I believe somehow the Government
actually wants to confuse us because they can announce all these
initiatives, 10 million a year, and they put extra money for microgeneration
and take it from energy efficiency. How can we cut through all
this so we can see clearly what is going on and whether there
is a consistent plan that prioritises investment where it needs
to be prioritised?
Mr Sellwood: There is no question—and
I will ask Nick to add to this—that there is huge complexity.
I would not, however, think that you could probably have a single
suite of policies that would cover all of the ground, because
the Energy Efficiency Commitment covers different things to that
which the Microgeneration Strategy covers, but, having said that,
there is, in our view, real opportunity to reduce the number of
those initiatives. You refer to the Environmental Transformation
Fund. It has been announced, but actually we do not know what
it is. The reality is that a fund has been announced,we do not
quite know what its output is going to deliver and we do not know
how it is necessarily going to impact on existing policy instruments;
so that is an example of where we could certainly see greater
clarity. That is fair to say, is it not, in terms of the Environmental
Fund?
Dr Eyre: Yes. I think it is probably
helpful to distinguish between policy instruments that support
established technologies and policy instruments for new technologies.
We would see the Energy Efficiency Commitment being the policy
that supports cost-effective energy efficiency in the household
sector. The Renewables Obligation does the same for large-scale
renewables, in theory for all renewables, but has not been very
well designed for the micro-renewables. We think there is a weakness
in policy for supporting micro renewables which we would like
to see addressed by the sorts of means that Philip has been talking
about through changing the tariffs, but there is also a need for
grant support for the new up and coming technologies. I think
we agree with you; there are too many bits and pieces of grant
funds. There is the Low Carbon Buildings Programme One, the Low
Carbon Buildings Programme Two, the separate schemes for biomass.
We are not saying that the same rate of support is needed for
everything, but packaging these together in a more sensible way
would mean that more than three people understood the full policy
architecture.
Q65 David Lepper: You have just mentioned
the Environmental Transformation Fund. It was launched, I think,
earlier this year, but, am I right, it is not going to announce
the full scope of its work until 2008? What do you believe is
the reason for that long gap between fanfare launch, presumably,
and knowing exactly what it is going to be about?
Mr Sellwood: All I can say about
the fund is we understand that its goal is to support investment
in low-carbon technology. We believe that a core part of that
should be around energy efficiency. I can absolutely say to you
with certainty, I have no idea what is in the Government's mind
in terms of postponing its delivery as opposed to its launch to
2008. We are as much in the dark as you are.
Chairman: Gentlemen, thank you very much
indeed. You have set our inquiry off, I think, in a very good
way, you have given us a lot of stimulating things. There may
well be some further questions that we would like to pursue with
you. If, on reflection, there is anything else you would like
to contribute, please do not hesitate to let us know in writing.
Thank you very much for your contribution.
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