Examination of Witnesses (Questions 280-293)
MR ALISTAIR
BUCHANAN AND
MR STEVE
SMITH
22 NOVEMBER 2006
Q280 Chairman: Who is paying for
that?
Mr Buchanan: That is paid for
by consumers and it goes into the companies' regulatory asset
base. We therefore have stepped forward and said, "Right,
this is clearly something which needs to be facilitated. Before
you get excited there, this is 250 miles of re-worked pylons,
bigger pylons, and there have been 16,000 complaints. There are
going to be five public inquiries. As I say, it is 250 miles across
the Cairngorms. Twenty-five miles across the North York moors
took 12 years to get approval. Why this is important is both from
a renewable point of view and also from a security of supply point
of view, because you have five gigawatts plus of wind power and
the coldest day last year was 61 gigawatts in the UK, just to
put that in context. So you have got five gigawatts of new power
waiting to come on down that route. So I think there is a lot
of very major issues there about investment and potential stranding
if the public inquiries were to stifle that route and not potentially
get hold of that power. As far as the local generation issue is
concerned, one of the things we came to realise as we wrote our
submission to the Energy Review is that Ofgem, I think, could
provide a significant public service by producing long-term reports,
providing a series of scenarios looking at how networks might
configure, not over a five or a 10 year review, a five year review
typically on our price control reviews, but over a much longer
term review. That is not just to do with local generation, that
is also to do with, for example, nuclear. If nuclear were to be
reconfigured and we had a new breed of nuclear power stations
built, what does that do to the network? Those are questions which
we think we need to have in a report, which will have a series
of scenarios. We will not give an answer as to how the market
should behave, but we will take a series of scenarios so that
we have got that information available. So we will be working
on that.
Q281 James Duddridge: EDF and npower
are advocating the national roll-out of smart metering, and indeed
the Italian Government has said it is going to go for a national
roll-out, but the Government's position, and I believe your position,
is to rely on the competitive market rather than go down the mandatory
route? If you could firstly explain that, but also give us an
update on the smart metering trial.
Mr Buchanan: Yes. If I could start
on this, because Steve is in charge of running the trial, Ofgem's
position was in fact, I think, two-fold. Firstly, in terms of
vision, we did a lot of the empirical work behind the smart metering
debate. In terms of vision, the board of the authority of Ofgem
was very keen to promote smart meters and was very minded towards
what I call the most intelligent meter. If you look at page four
here, you will see that the most intelligent meters come at quite
a price. If you look at the bottom of page four, in a two year
period when we have seen the price of electricity go up, intelligent
smart meters, fully interactive, of course, which is very important
for Microgen because you can sell back into the grid, you can
have an interface with the company. You can also effectively treat
it for intelligence information about when during the day it is
best for you to sell on to the grid or for you to sell yourself.
Personally, I am a great advocate of the most intelligent meter,
but it comes at quite a price, as you will see there. I think
that the board at Ofgem, almost stepping slightly outside its
remit in policy or blue sky terms, was looking at that as a way
ahead. Now, the Government felt that there should be a pilot scheme
put in place for two years, which I will ask Steve to talk about,
just to ensure which route would be the best route to go down,
because the de minimis route is just putting a fascia in
everybody's kitchen. Whether that actually gives you much more
information than you get from opening the cupboard under your
stair or going outside your back door, I am not entirely sure.
In terms of the competitive market, we have gone down the competitive
market route. There are players in the market like Siemens who
are looking at this market. It is slightly on hold at the moment
in terms of development, because we have a major Competition Act
case going on with regard to the metering market, but the view
has been that you do not need to go down a mandated route, a regulatory
re-bundling route (which incidentally Europe is actually going
in the opposite direction at the moment, which is un-bundling),
but that there should be a number of common features. So there
should be some standard features so that a number of developers
know what the standard features are and we are developing that
through workshops and discussions. Steve, do you want to talk
about the pilot?
Mr Smith: Yes. Just one observation
first: the key distinction is to make between domestic customers
and business customers. In the business environment we have had
smart meters in electricity for the majority of customers ever
since the market was opened. For those sorts of smaller, medium
sized companies down to your local newsagent, there are now suppliers,
and I will name one, Bizzenergy, who will do you a supply deal
where part of the deal is you have a smart meter installed so
that you can monitor your consumption. They will help you to look
at things like methods you can use to cut your consumption. In
gas, we are about to see a major roll-out. In gas you can actually
get these gadgets which basically sit on top of the existing meter,
which then can provide you with information to a computer anywhere
you like that will tell you exactly how much gas you are using
and how much you have used. We are about to see a major roll-out
of them where the National Grid will make them available to any
customer and you will be able to sign up to that. So I think the
business market is increasingly served very well and is seeing
real progress there. On domestics and the trial, we have been
out to tender. We have had a very good response to that tender,
not just in terms of the range of companies who have bid but also
the range of technologies, because the key thing in the domestic
market, as Alistair was saying, is that there is no single technology.
There is a spectrum from something which allows you to see on
your tv screen how much you are using to very, very complicated
systems which can actually measure your consumption every five
minutes. It can send that information to your supplier and your
supplier can then vary how much you are paying by the time of
day. We have had responses back that cover a range of technologies
and then a range of packages around them in terms of how the supplier
will then use that information to tell customers and either to
offer more complicated tariffs, to say to people, "If you
use more energy outside of the daytime we will charge you less,"
or to give people more simple information, simply, "This
is how much energy you used last year. These are the things you
can do to use less energy." So I think we are quite encouraged
by that. We hope to appoint a number of these companies within
the next two to three weeks and then the trial will start. So
we will have a range of companies, a range of technologies and
a range of packages for the customer around that technology in
terms of what the supplier is actually going to do for the customer
to make that information useable and then at the end of a two
year period (we will have reports at each stage) we will then
be able to look at that and say what worked and what did not both
in terms of the technology, but also what worked and what did
not for the customer, ie what is the sort of information they
could interact with and respond to and what sort of things they
found useful and helpful.
Q282 James Duddridge: If I want one
of these gizmos for my house, where do I go?
Mr Smith: At the moment you have
two choices, which are that you can actually put one in yourself—and
you have always been able to—or you speak to your supplier
and you say, "I would like a smarter meter," and if
your supplier turns round to you and says, "We can't do that,"
then I am afraid it does go back to the choice point where you
have to go to one of the others and say, "Can you do this?
This is what I would like." One or two of them at the moment
are trialling with a large number of customers these bits of equipment
which, as Alistair said, you can put in your kitchen. It is a
simple screen which is connected to your existing down meter which
will tell you exactly how much you are using, how much it costs,
how much CO2 you are emitting, and some of them are beginning
to build around that in your billing cycle and saying, "Here
are some ideas."
Q283 James Duddridge: It goes back
to the simplicity. If it is £90 for one of these, I would
be prepared to pay £90, and I am sure lots of people would,
but it is just far too confusing and my eyes, to be honest, have
glazed over and I have moved on to other things as a consumer.
Mr Smith: Yes.
Mr Buchanan: Sadly, I think we
have got about three and a half million fuel-poor at the moment
and I do not know if, when they look at that, that is a figure
they feel comfortable with.
Q284 James Duddridge: But in terms
of water metering, there was a reduction on water meters. I know
it is not like for like, but the reduction in energy is about
10%. Now, on the reduction in use for people in fuel poverty,
on an investment of £90 I imagine the pay back period is
quite quick, given 10% of the bill?
Mr Smith: When we did the work
Alistair was pointing to, we did a huge amount of work looking
at international evidence and there was some evidence that actually
for a lot of the benefit you did not necessarily need a new or
a really expensive meter, you just needed to give customers simple
information they could understand and that you got big reactions
just to giving them better information about their usage. So part
of the trial will be, if you like, your test case will be how
much reduction and what sort of consumer response you get from
just doing that.
Q285 Chairman: There are two things
which arise out of what you are saying. There is a need to try
and unify what we are actually after, because you said that one
of these smart meters showed you how much carbon dioxide you were
emitting. A lot of the discussion talks about reducing carbon
emissions and Kyoto is cast in terms of a basket of greenhouse
gases. Do you think there is a need to try and come down to a
common denominator so that when we start looking at all of these
systems if people are saying—and we talked earlier en
passant about personal carbon allowances which the Government
says it is looking at, but we have got to get something so that
people can say, a bit like a diet, "I can take in so many
calories and all these different ingredients are adding up to
my daily intake," because at the moment we have talked about
the amount of energy we are using, carbon dioxide, this and that,
and there is no way of bringing it together. How are we going
to achieve that?
Mr Buchanan: I think one of the
answers might rest within the DTI's White Paper process, because
it is quite clearly looking at billing and it is wanting to look
at how it gets benchmarking information onto the bill, quarterly
by quarterly usage onto the bill, and maybe a carbon footprint
concept finds its way into this debate as well. I think the debate
is very live at the moment.
Q286 Chairman: When you and I met,
I happened to have my energy bill for, I think it was gas, and
I read it out to you because the meter is in units and in trying
to convert the units into some meaningful number you have to be
a mathematical genius to do about three sets of calculations to
work out in, what was it, kilojoules of energy how much you have
actually used, and most people do not work in that kind of thing.
As for information, my electricity and gas bills are bereft of
any kind of trend information, even though I have been with the
supplier for more than a year so he could tell me whether I am
going up or down and how much carbon I have used, but there is
none of that. Are we going to get some proper billing?
Mr Buchanan: It is going to be
interesting to see how ambitious the DTI is, because this is one
of the key strands of the White Paper.
Q287 Chairman: You say the DTI has
got to sort this out. Why do you think it is that these quite
well-off energy suppliers, who are on the one hand advocating
a million and one ways to be more economic and they can sell you
this, that and the other thing, are not in their billing—their
billing is stuck in the Stone Age.
Mr Buchanan: I think many of them
are seeking to improve that. I mentioned earlier that I went down
to spend a day with EDF in Hove and it is great how far they have
got, but they clearly need to go so much further, but they have
effectively interactive on your computer screen where you can
work out what your family is using by the day and compare it with
last year, but then you have got to assume that you have got a
computer screen. These are the kinds of things they have just
got to think through and improve upon. Companies are investing
vast amounts of money on improving their billing systems. I think
Centrica, British Gas, are investing £450 million in trying
to produce a much more modern approach to billing.
Q288 Chairman: I find it staggering
if they are spending £450 million—
Mr Buchanan: Billing is part of
their overall, what is called their Jupiter project.
Q289 Chairman: I would not want us
to be misguided. They are spending £450 million on trying
to—
Mr Buchanan: On the whole of their
back office development.
Q290 Chairman: Of which billing is
a part?
Mr Buchanan: Of which billing
is a part, yes.
Chairman: But bearing in mind this is
not a new subject, I just find it amazing. You are the regulator.
Why can you not, in the nicest sense, go and kick the backsides
of these companies and speed them up? Why are we all waiting for
the DTI to do a bit here and a bit there? We have only got until
2050, according to the Government, to stabilise our emissions
and time is ticking away.
Q291 Mrs Moon: You have said on a
number of occasions, when we have asked where is the money coming
from for this, "Well, it is coming from the consumer."
So the consumer is subsidising all of these energy companies writing
out to us, ringing us up and saying, you know, "Go with us.
Buy this meter. We can do this insulation for this." We are
subsidising planning applications and public inquiries to bring
energy from northern Scotland down to the Midlands. All of that,
as consumers of electricity, we are funding, all of that.
Mr Buchanan: Yes.
Mrs Moon: Okay. If I said to you, I'm
not going to do that any more because, quite honestly, it ain't
making a lot of difference in the quality of life for the majority
of people and in particular not in the quality of life for those
who are in fuel poverty, so let's scrap all this, a little bit
of fiddling here and a little bit of fiddling there, and especially
a mountain of waste paper coming through my front door in my bills
which automatically goes straight into the recycling, what would
you spend the money on that would bring us a straightforward win
in terms of energy consumption and reduction of carbon? What is
the simple one thing? Would it be to give everybody a smart meter?
Q292 Chairman: Are you able to supply
the answer to that?
Mr Buchanan: I would like to supply
you with two answers, if I may, and they are big answers to the
solution. One is, sort out Beauly-Denny. I mentioned this earlier,
the line from Inverness to Perth. You have five gigawatts plus
of economic wind power waiting to come down that wire. If that
gets delayed, a lot of your targets are going to get delayed.
That is a big, major change. The other change is something which
was in the 2004 Energy Act, which is to keep the pressure on the
policy makers to deliver a regime for the offshore wind so that
offshore wind developers can get going with their schemes. We
are going to be three years on from that Act next year and we
will not have a footprint for that regulatory regime. So two large
schemes to make really significant impacts on hitting our carbon
targets, in my view, would be to sort out Beauly-Denny and sort
out offshore.
Mrs Moon: That would be terribly unpopular
in my constituency, where there is an offshore wind farm in abeyance,
and I tell you there are not many people who are not cheering!
Q293 Chairman: Well, there you have
the political conflict between those who want to do their best
to reduce carbon and those who have to deal with the practical
politics of how it is done. Mr Buchanan and Mr Smith, thank you
very much indeed for answering our questions and thank you for
your introductory presentation, it was very stimulating. There
may well be things which you would like to add, in the light of
the line of questioning, and which you want to come back to us
on. We would be genuinely very pleased to receive that and we
thank you again for your written submission and for your opening
remarks, which have been very useful indeed. Thank you.
Mr Buchanan: If I can thank you,
Chairman, and your Members. We have taken away a couple of very
useful pointers for us to work on next year.
Chairman: Good. Thank you very much indeed.
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