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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 88-i House of COMMONS MINUTES OF EVIDENCE TAKEN BEFORE ENVIRONMENT, FOOD AND RURAL AFFAIRS COMMITTEE
CLIMATE CHANGE: THE "CITIZEN'S AGENDA"
Wednesday 22 November 2006 MR ALISTAIR BUCHANAN and MR STEVE SMITH MR JON PRICHARD, MR SEAMUS HEFFERNAN, MR LOUIS ARMSTRONG and MR MARK GRIFFITHS Evidence heard in Public Questions 212 - 343
USE OF THE TRANSCRIPT
Oral Evidence Taken before the Environment, Food and Rural Affairs Committee on Wednesday 22 November 2006 Members present Mr Michael Jack, in the Chair Mr David Drew James Duddridge Patrick Hall Lynne Jones David Lepper Mrs Madeleine Moon Sir Peter Soulsby David Taylor ________________ Memorandum submitted by Ofgem
Examination of Witnesses
Witnesses: Mr Alistair Buchanan, Chief Executive, and Mr Steve Smith, Managing Director, Markets, Ofgem, gave evidence. Q212 Chairman: Welcome to this further evidence session on our inquiry Climate change: the "citizen's agenda", and we welcome Alistair Buchanan, the Chief Executive of Ofgem, supported by Steve Smith, Managing Director of Markets, which will make an interesting discussion as to what markets you are the managing director of, but no doubt we will find out. I have outlined, Mr Buchanan, to the Committee that you and I had a very interesting conversation in which you briefed me on some of the work of Ofgem and some very interesting information which you had elicited, particularly about the use of public resources in the context of energy saving programmes, and indeed renewables. I was impressed by what you had to say and invited you to give a short presentation to this Committee by way of introduction to the subject and as a precursor to your evidence. You very kindly sent round - and I think every Member of the Committee has a copy - the presentation you are going to speak to. So could I, in formally welcoming you and thanking you for you written evidence, ask you if you would speak to this additional piece of evidence. Mr Buchanan: Thank you, Chairman. If you could go to page two of the very short presentation I have given you, there are four areas where I think Ofgem can help the debate, and I hope you feel the same after we have left today. The first is in discussing the financial contribution by the citizen and an awareness of the costs involved in the renewable debate by the citizen, as I have put here, the best value per pound invested and spent. The second is on regulatory barriers. That is more naturally home for Ofgem. The third is how Ofgem can help to empower the citizen in their homes; and finally, I think one of the areas which I sense you are very interested in and possibly excited by as well is the role of heat going forward. Let me take the first issue, because in many ways this is the key element of my short presentation. I think there are three key issues which spin out of an analysis of the financial contribution. The first focuses on the Renewable Obligation Certificates (ROCs). As you will see on page three, ROCs as confirmed by the NAO, is the most expensive approach to pounds per tonne of carbon and equally you will see on the second table on page three that the subsidy of £470 million in 2005 will rise to £1.6 billion by 2015. So the Chancellor will be looking at having to find that in 2016. Then I have put the customer impact as a sense test for you at the bottom. Q213 Chairman: Let me be clear - and there may be other colleagues who may want, if we may, to interrupt for clarification - the ROCs as such, is that electricity generator companies' money or public money? Let us just be clear what the terms are here. Mr Buchanan: This is taxpayers' money, subsidy money. Mr Smith: This is customers' bills, basically electricity customers paying this directly, and gas customers. Mr Buchanan: As we will come on to in the next stage. Q214 Chairman: In other words, it is a subvention out of what we all pay for our power, so that if the generator knows that they cannot generate enough renewable electricity to meet the obligation themselves they build into the price which we pay the cost of them buying the ROC? Mr Buchanan: That is absolutely correct. So I think the first issue I wanted to bring to your attention was the scale, and again coming back to this issue of best value. The second issue, which I think is the big strategic core for you in policy, is the potential decision to make between whether you look to put your subsidy all towards the renewable schemes or whether in time some of that subsidy is going to be focused on page four schemes, which are the local generation or distributed generation schemes. The schemes which I have listed in the middle of page four, micro wind, solar, ground source heat, combined heat and power within the home, these are schemes which effectively will need a degree of subsidy through an energy export equivalents in order to make them compete within the marketplace. One of the intriguing issues which I have, looking at what you do, is where you get to the point where you say we can have over £1 billion for the renewable subsidy, and we can also have subsidies to promote the local generation schemes, or whether you are in fact saying there is a defined pot and at some stage we may have to make a choice between the renewable schemes (many of them in the northern part of Scotland, which will come down wires, where you will have transmission losses and FF6 emissions), or whether you will actually play the subsidy towards the local generation. The second financial issue which I was asked to address was the degree potentially of return and profit made by those who are enjoying the ROC. Again, the National Audit Office has been very helpful to us in the report it issued last year, because it said that both onshore wind and landfill will make substantial profits excessively above the hurdle rate; indeed the figures they used were 15 to 26 per cent IRR. So when we look at the degree of earnings power here, the NAO then asked Oxera whether in fact a lower ROC price could give a decent return and Oxera said, "Yes. They shouldn't be using £30 per megawatt hour for the ROC, they should be using 15." This, I think, again might be an issue which comes to the fore as companies start to release the kind of money they are making here. Another important comment from the NAO was that by 2026 (if the scheme is run through to 2026) they believe that a third of the return which the companies are making is effectively super profit from the ROC. Q215 Chairman: Is that because in terms of the types of renewable power source which would have been "subsidised" by virtue of the ROC, by whatever write-down or life they would have had they would have paid for themselves, and so if they last beyond that point where the economics runs out then it is pure profit and they are getting the ROCs on top of it? Because the ROC is a continuing obligation, I presume? Mr Buchanan: There is that, yes, and yes. I think the other thing is to step back a little bit in history and say, when was the ROC put in place? The ROC was put in place when electricity prices had fallen from £30 per megawatt hour to £14 per megawatt hour and in that decline, around 2000 to 2002, of course British Energy got into terrible financial trouble. At around 2002 the Government was seeking to promote renewable energy and it could not do it at £14 per megawatt hour, so effectively it assessed that a £30 ROC plus the £14 you would earn in the market would give you a return. The price of electricity today is £50 per megawatt hour this winter and a ROC is around £40, so effectively your potential wind farm operator is now earning £90 plus, when of course they had originally calculated that the return requirement would be more like £44. So there is an issue there. Q216 Chairman: Is there anything in the legislation to allow variation to take place according to market conditions? Mr Buchanan: What we are waiting for at the moment is that the DTI, as you know, is doing a major overhaul of ROCs and a review of the banding of ROCs, and it could be that within that overhaul and within that review of the banding they will come to some decisions about whether it is right to maintain the same level of ROC for a particular form of renewable. I would just point out that these two schemes have been used in Holland and in Spain and within the last year the Spanish have withdrawn it and the Dutch have changed it. Q217 Chairman: When you use the term "banding", I presume that is the value of the ROC in relation to the type of power generated? Mr Buchanan: That is absolutely right. Q218 Lynne Jones: What about other renewables? You have just mentioned wind, but the other renewables are not yet competitive so - Mr Buchanan: The work that the NAO did was that you would barely make an adequate return on offshore at that level, but of course bear in mind that that level was two to three years ago rather than the current prices which we are seeing. Q219 Lynne Jones: There are other renewables, for example wind and wave and tidal. Mr Buchanan: Indeed, and their economics may well need a higher ROC. Indeed, Scottish Power in the past has said it needs to see £100 per megawatt ROC to make wave at Orkney financially viable. I have got no grounds for questioning that, but you are absolutely right, it is one of the issues. Q220 Chairman: If we look at the column on page three where you have got the projections of millions of tonnes or carbon savings, is there any way of relating those big numbers as bulk figures to the type of carbon savings which could come from the wider adoption of some of the systems which are detailed on page four, because there are subsidy schemes in place now through the DTI, but if I have understood the thrust of what you are saying, there may be other ways of spending ROC-type money, or other uses? Mr Buchanan: It is a very good question, and I will come to it. On the combined heat and power, which I will spend a bit more time on when we talk about heat, the Energy Savings Trust has estimated that if you go down that route and 30 per cent of our power was coming from that source by 2050, which I think is the date they used, then 15 per cent of our carbon would be saved by going down that route alone. So you are absolutely right, there is a play-off between where you spend you money and what the carbon saving is from each route. Q221 Chairman: Has anybody produced anything? Mr Buchanan: It is funny you should say that, because I was thinking about that over the weekend. Somebody needs to. I am not entirely sure whether it is us or not, but we need to have a look at that to see whether that analysis is there. I think it is a very good question. Q222 Chairman: Because obviously from the kinds of things we are looking at about what citizens can do, as I think some of our questioning later will expose, I think I looked at some figures which the Building Research Institute had done showing that, for example, current technology, photovoltaics, on an average house would take 461/2 years to pay back. Okay, subsidy makes that a bit more acceptable, but it is still a very long time. Mr Buchanan: Indeed. It is a very interesting area. It does come back to this concept of the energy export equivalents of a subsidy for local generation. If you look at the CHP fuel cell schemes, I think the encouraging thing there - it is going to be my strap line at the end, but I will use it now - is that they believe you will not need a subsidy by 2015 and that it will be able to compete for itself in the market, whereas, you are right, the Energy Savings Trust for virtually every other scheme I have listed on page four needs some form of protection until 2050. So it does look as if within the race of the different technologies the fuel cell CHP kind of product which British Gas and Seros(?) are developing, or Powergen and the Sterling engine, that looks to be the one which might make it to the market quickest at the moment from the evidence I have seen. Q223 Chairman: Just on a technical point, going back to the ROCs situation, if you were going to have more flexible applications, or different applications of the revenue stream from that, would you require a change in legislation to achieve that? Could one argue that if the bill was drafted correctly, the Climate Change Bill could be a vehicle for achieving that? Mr Smith: I think the answer is yes to both questions. Chairman: Lynne, you had a question about terawatt hours and it might be appropriate to ask abut that. Q224 Lynne Jones: In your evidence about the Energy Efficiency Commitment, you tell us that the target is to save 62 terawatt hours. I just wondered if you could put that in the context of what sort of carbon savings that would mean? I know that it would depend upon how the electricity is generated, but taking an average for a gas generator, what sort of carbon savings are we talking about here in relation to overall carbon emissions? Mr Smith: If you look at Alistair's slide, the Energy Efficiency Commitment there, I think the projection was that you would save about 1.6 million tonnes of carbon through EEC and that is against, I think, UK emissions at the moment of about 160 million tonnes of carbon. Q225 Lynne Jones: So it is one per cent? Mr Smith: Yes, very small. Lynne Jones: So it is a very small target, even though it has been exceeded. Q226 Sir Peter Soulsby: On the general presentation here, one factor you do not draw attention to here is the existence of specific green tariffs and suppliers. I just wonder if you could tell us about what effect they have on the position, particularly obviously the position as seen from the suppliers' point of view? Mr Buchanan: I think, as I spoke with the Chairman last week, this is a very interesting area where some companies have recently got into trouble with the Advertising Standards. As an example, Scottish and Southern has got into trouble, and obviously rightly so. It seems to us that there is a debate in many ways yet to be had here. If I can use the example of biomass, there are some who would argue that a company offering a biomass-based energy was green. There are others who would say, "No, biomass has enabled a coal-fired station to run and therefore we don't think it should be regarded as green power." I just use that as one of the examples. In fact I think we, to a certain extent, at Ofgem have been looking at the industry to try and resolve. Well, some of the industry is now falling foul of that resolution and we are actively thinking about the extent to which we have to regard that as one of our key issues to look at in 2007 under our sustainable development remit. I would welcome your views on it, but it is a very difficult area. Q227 Sir Peter Soulsby: It is not just these latest examples, there has been some concern for quite some time about the differing definitions of green tariffs? Mr Buchanan: Yes, indeed. Q228 Sir Peter Soulsby: I just wondered whether you really do feel it is something which Ofgem needs to take a grip of? Mr Smith: We were asked a few years ago and at the time the Energy Savings Trust actually had a scheme where they accredited people, so we did not feel we needed to move into that space. Then when the Energy Savings Trust withdrew that Friends of the Earth actually would provide a star rating on suppliers - they withdrew that about twelve months ago - as Alistair has said, there has been some work by the industry to try and see if the industry together could come up with basically a star rating system where you would have one to four stars depending on how green you were against audited and clear objectives. So we have just been looking at whether our role in that should be to try and facilitate that happening or, as Alistair said, actually should someone in government, be it us or somebody else, actually step behind that and say, "We will audit some sort of star rating system." At the moment we are still in discussions because I think our preference would have been for the industry to sort it out itself, although, as Alistair said, it does not seem able to agree on a definition of actually what green energy is, so it may need someone to bang some heads together. Mr Buchanan: I am glad you have raised it, because it is something we are looking at as part of our SD work for 2007. Sir Peter Soulsby: I suspect it may be something we may wish to take a view on at some stage. Q229 Lynne Jones: I am sorry, what is your SD? Mr Smith: Sorry, our sustainable development. I am sorry, Chairman, I used SD as I go along. It has become a catchphrase. It is sustainable development. Q230 Mr Drew: Can I raise a point which actually underpins all of this? The Chairman may have told you that we have all undergone a sort of mini energy audit in our homes and I think the one thing I have learned as a result of that is how difficult it is to get information which really gives you measurable yardsticks which, with the best will in the world, the ordinary public can grasp. It may well be they want to know about ROCs. I suspect they do not. What they want to know about is if they were to have, as I have now done in one part of my house, cavity wall insulation, what that is going to cost me, what type of benefit I would get, and then if I go on and get solar heating what that is going to cost me as against PV, as against sticking a wind turbine on the roof if I can get the planning permission to do that, and pay for the planning permission. These sorts of things are absolutely crucial at the moment, and to be fair to the people who came to see me, they were in despair because they felt they did not have the ability to do it, neither were they funded to do it. If they recommended the wrong person to do it, they could be in some difficulties because of what you were just talking about, Mr Smith, the star rating. Does Ofgem see it as their responsibility to get out there and try and do some of this information delivery, or if not who should be doing it, because otherwise I fear there is going to be an awful lot of disillusioned people who just will not know where to go to. Mr Buchanan: We do take every opportunity to talk about how you handle your bad debts, how you handle energy efficiency, how you handle switching. In addition to that, what we have done is we have also carried out what is called mystery shopping. In the last couple of years we have tested how the suppliers themselves have provided information to their customers and in two instances, one with Scottish Power and one with Powergen, we have named and shamed how poorly they have served the customer who is ringing up seeking information. Under the priority group banner within energy efficiency, there are particular services which, from memory, over 300,000 rang up for energy efficiency advice in 2004. That was the NAO's figure. So it is provided. Q231 Mr Drew: Is there any qualitative assessment of who gave them advice, whether they got the right advice and whether they feel satisfied with what has happened as a result of that advice? Mr Buchanan: As I say, since we have done our mystery shopping analysis of the companies, we have not come back and done that. That is not scheduled on our current plans for 2007 and it is something which we keep under watch all the time. Q232 Lynne Jones: You say in your brief that suppliers have the best information about their customers' needs and they expect them to use that knowledge to determine the best ways to meet that. I was quite surprised at that, because what do Ecotricity or British Gas (I have numerous suppliers because of having two homes) know about my needs? They know what I consume but they do not know whether I need to consume that amount or what I could do to reduce my consumption. Mr Buchanan: I think there is a number of aspects to this. The first is, and it is rude of me to ask you but I will use myself as an example. I switched last year as I was getting rather frustrated with the supplier I had. I have to say the supplier I currently have, whom I cannot name because that would cause all kinds of trouble, has gone out of its way to work out how I can best use my consumption patterns, how I can best pay, and I have been very pleased with the experience I have had. This is one of the things which Ofgem is obviously trying to promote, for customers to do this. Q233 Lynne Jones: So how do they do that then? Mr Buchanan: Well, they have rung me up and talked to me, and I am very happy to take the call. I found, particularly when I was going through the switching process, that they were very receptive to trying to work out what it was I wanted from my supplier. Q234 Lynne Jones: Can you just give us a couple of practical things you have done as a result of that? Mr Buchanan: Yes, I can. In terms of paying, I went to direct debit, which I am very happy with. I think that was primarily the main change I wanted to make. The supplier I moved to I am particularly happy with because I know the supplier I moved to is the most competitive and cheapest in the field, which is obviously a huge driver for me. Q235 Lynne Jones: But you are talking about prices, how much you pay, rather than your CO2 reduction? Mr Buchanan: It is maybe not so much CO2 as an issue for the companies, it is more on the social side as well. If you go for a visit - I went round EDF in Hove a few weeks ago - when you are standing behind the people who are operating the customer interface, they have information on the customer which enables them to try and ensure they are getting the right product to the right customer and currently, for example - Q236 Lynne Jones: I am sorry, but you have given me an example of direct debit and other things - Mr Buchanan: Well, I think because I was using myself rather than - Q237 Lynne Jones: In fact, if more people go to direct debit, it means that people on metres are paying more and you are paying less, so that is not a very equitable way of going about things. What I wanted was an example of how your fuel supplier allowed you to reduce your electricity consumption, or your gas consumption, and hence your CO2 emissions. Mr Buchanan: I cannot remember exactly the various issues they raised with me, other than I felt when I was going through that switching process that they were asking me about my consumption and how I used it. I believe, having been around the companies, that the companies are in a position to seek to identify - and this is on the social side - particularly the degree to which a customer who is deemed to be fuel-poor or a vulnerable customer can get various advantages for himself. So different companies are offering different schemes, be it free cavity wall insulation, offering customers to move onto a particular trust scheme if that is what is needed. So there is a range of products which companies are offering. Q238 Mr Drew: But how do I know if I am getting a good deal on that? With the best will in the world, if they are offering me free cavity wall insulation, there has got to be some cost in that, and that is what worries me. Is there a notion that somebody who can give me independent advice will say, "Don't go to them, that's a bad deal. Go to the smaller person who will give you solar heating"? Because it may appear to be small, but I am actually doing a lot more for the environment if I go with them. I will pay more because I want to actually do something. I want to make a gesture. But it is no good if I have made a gesture if it has cost me a lot more money and actually it is of no real benefit whatsoever. Mr Buchanan: To a certain extent I think the media are covering this extremely well now. The media are providing a lot of information as to which companies are offering various solutions, and it starts with your overall product preferences, whether you want fixed or variable, and then it moves into your own personal requirements, in other words if you are in a vulnerable or fuel-poor category what is it that the individual company is potentially offering you? For example, are they charging pre-payment metres at the same level as the credit customer? That is something which, for example, EDF have done. So individual companies have a range of products. Where do you get that information? From the media, from various providers of this information, uSwitch and other organisations like that. Mr Smith: All I would add on the question is that there are suppliers out there, and I am not going to name them, who will provide you not only on request but will actually push to you nice, simple diagrams which say, "Based on your house and your usage, here are some measures you can take. Here is what they will cost you. Here is what it will save." They will quote you what they will charge you to do the work and then, having clearly said what it is - Q239 Chairman: Let me just stop you there. You are in a unique position to have an overview of the industry. You have moved away, as regulators, from the formal control of pricing structures and one of your remits is the promotion of energy efficiency and yet you say, "There is a range of companies out there and I am not prepared to name them." Surely you should be in the business of helping people to make an informed decision about the quality of the information they are giving, going back to Mr Drew's line of questioning, which is how does the consumer know if they are being told the truth? When we did our inquiry into bio-energy, for example, we discovered that in the absence of an accreditation scheme for so-called green fuels ranges of CO2 savings ran from about three per cent to 77 per cent according to the type of fuel and the way it was manufactured. Why do you not give some kind of rating and some kind of indication as to the qualitative analysis which is available to the customer? Mr Buchanan: Let me qualify it. I apologise. The reason I did not want to name them is because if I name one company and say they are particularly good - so to put flesh on the bones of what I said, British Gas, for example (but they are not the only one of the suppliers who are active in this area and I would say do a good job), if you go to their website, their marketing material, when you sign up to them as a supplier they will offer you energy efficiency advice. If you actually looked at the kind of energy efficiency advice they provide, it is simple, it is easy to understand. It is a picture of a house and on that picture of the house it will say, "Here are the different elements. This is what they will cost. This is what we can do and we are encouraged to do under various government schemes." So the reason for not naming them was not an unwillingness, as I said, it is just that I could also name Scottish and Southern, which also -- Mr Smith: I think there are two areas. I think in a way just using the Ofgem brand, which I believe is a good brand, more aggressively in this area, there are just two bits that I would add to that. First of all, we do get involved in things like sponsoring the code of best practice on housing for energy efficiency, where Ofgem is very much party to that. Secondly, there is the consumer body Energy Watch, who clearly we assist as much as we can, and they are the primary interface with consumers and we support them as much as we can. Q240 Chairman: Energy Watch are very much concerned with the price, are they not, and to encourage a competitive marketplace by consumers altering their supplier? Mr Buchanan: Yes. Chairman: To come back to a very important question which Mr Drew raises, how does the citizen make the decision as to what is the optimum route, bearing in mind some consumers cannot afford to do everything? They have to optimise the use of their resources. Going back to British Gas - and I will name names - I sent off for the British Gas energy saving pack and along came the box and it had two energy saving light bulbs and a leaflet. The main thrust of the leaflet, from what I can recall - and I apologise to British Gas if I had got it wrong and they will no doubt write and tell me if I have not got it right - seemed to be more about selling me a new boiler than it was about lots of practical things to do in the house. I do not mind them doing that. Lynne Jones: It is expensive, even with the discount! Chairman: Thank you for that. Sorry about that, British Gas, if you are watching! The interesting question is - and this is a very real one - one of the things in the evidence which we have had clearly talks about the benefits of condensing boilers. Now, it is a major investment decision to buy a new boiler. How does the consumer have the range of options to pay in excess of £2,000, for example, for a new condensing boiler versus a whole range of other options to minimise their carbon footprint? Where do they get the kind of definitive advice to make that kind of quite complex investment decision? Q241 Mrs Moon: Could I just jump in there, Chairman, because one of the things which concerns me as well is that you made a choice to change and no doubt contacted the supplier you used and said, "Right, I want to move." An awful lot of people get contacted through cold calls and there is a major distrust in this country of people making cold calls and trying to allegedly give you advice when often what they are doing is trying to sell. It is a bit like your box with two energy bulbs in, but really they are trying to sell you a new boiler. How do we also get over that need to give people information that they can trust and can also feel is not just from someone coming from the position of you as a captive audience, trying to sell you their product, that what they are doing has some sort of rating of approval which lets them trust that that is the product they want to sign up to? Mr Buchanan: I would like to add my own concern to yours and then I will try and break it down in terms of some answers, because the third issue I was going to mention under financial was the potential for what I almost might call governmental subsidy clashes. One which strikes me is that under EEC, as EEC progresses, one of the ways the companies are seeking to - Q242 Chairman: Eek is a noise that a squeaky door makes! Would you like to spell out what it is for the wider audience? Mr Buchanan: The Energy Efficiency Commitment. Under the Energy Efficiency Commitment companies are effectively being incentivised to get traditional boilers more and more efficient. I find this quite an interesting proposition, that there is a subsidy helping you to make your traditional boiler more and more efficient - that is good stuff - but at the other point we are looking towards CHP fuel cell developments. Therefore, are you actually just creating a bigger gap there? I think there is quite an interesting issue there for me. Equally, just the final point of potential subsidy clashes, under the Lazarowicz Bill Microgen is going to come into the Energy Efficiency Commitment (EEC). Again, I think one of the interesting things here is that potentially you will get Microgen under EEC and then the Microgen consumers can effectively aggregate and get the ROC as well. So you are then going to get two dollops of subsidy within that. So not only potentially is there some confusion to the consumer coming in to find out information, but I am not entirely sure there are not layers of confusion now being added on top of that in terms of what are the messages that we are wanting to send about which boiler you should use, what the subsidy is going to be for different forms of - Q243 Chairman: Who should try and bring clarity? Mr Buchanan: I am hoping that the Government will bring clarity - Q244 Chairman: But which bit of Government? Mr Buchanan: In Defra for the energy efficiency and for the renewable certificates, which is DTI, the policy lies squarely with them. Ofgem is the administrator in terms of products. Q245 Chairman: Is it possible, do you think, within the existing mechanisms of government to get such a clear and coherent series of actions to be coordinated, to remove if you like the muddle which you have just described? Mr Buchanan: I am sure a Committee such as yours will have a very great influence on them trying to work their way through this. Q246 Chairman: But are you as an organisation which, if you like, is on the official side of things, sending out that kind of message to Government about clarity and coordination of policy in this area? Mr Buchanan: Indeed we are. Q247 Chairman: I would like to take you on, because your presentation has stimulated questions on a whole raft of things, but the Energy Efficiency Commitment, in certain cases, has exceeded its targets. Do you think that in order to try and stimulate activity in that area there should be a sort of carbon credit ability to trade gains through the Energy Efficiency Commitment, to perhaps put more money back into it in the future to drive it forward? In terms of the way it is currently configured, the Government is calling the shots about where the emphasis should be. The current focus is on fuel poverty, but some of the evidence you have put forward suggests that it might have the perverse effect of actually making more people more fuel-poor, which seems to be and odd way of going about it, and because of the current emphasis there is also no focus on all the other possible ways in which the Commitment could work to reduce energy consumption in other domestic situations. Has the Government got it right in defining it, and could it be made a bit more sophisticated if it does better than its targets in getting some carbon credits? Mr Buchanan: I will start and then Steve, if he wants to be more radical than me, can follow that through. I think you are asking the fundamental question about the Energy Efficiency Commitment, which is, what is it for? Is it for the fuel-poor, or is it your primary government vehicle on attacking carbon? If you look at the costs, it stands very favourable comparison - Q248 Lynne Jones: It is only one per cent. Mr Buchanan: Indeed, but I think it is quite interesting as to what it is there for. Oxera analysed EEC for the NAO and looked at those who were receiving the EEC and 20 per cent of those people who were receiving it did not need it. They would have done what they were going to do anyway without EEC. So it is a vehicle which is becoming more expensive. You are effectively moving from the last phase of the scheme costing about £480 million. This phase is going to cost about £1200 million. So you have a scheme which is becoming more expensive. It is not entirely clear whether it is driving towards fuel poverty or whether it is driving towards energy efficiency. In f act it is probably doing both at the moment and if you look at it from a cup half full point of view, it probably is doing both, but could it do better if it actually more narrowly focused potentially away from fuel poverty? What we are trying to do, because it is one of the vehicles towards fuel poverty, is to argue with Defra - it has been out position - that they should maintain a large proportion towards 50 per cent of EEC, towards the fuel-poor priority group. Q249 Chairman: Can I just be clear, when you quote £480 million and then £1.2 billion, that is the cost to the energy industry? Mr Smith: It is exactly the same as our scheme, so the supplier has to meet the obligation. The cost in meeting that obligation it will recover through bills. This is why you get the inequality in that they are likely to recover that on a customer basis and so it hits poorer customers harder. So every customer is paying a set amount - Q250 Chairman: It is a form of cross-subsidy from the energy user to pay for the efficiencies of the people who the beneficiaries of EEC? Mr Smith: Absolutely. Q251 Chairman: So from the generators' point of view, it is a zero cost to their operation? Mr Smith: Well, the only slight wrinkle on that is obviously to the extent suppliers compete, if one supplier is able to meet its commitment for slightly less because it does it better than another supplier - Q252 Lynne Jones: It makes a better profit? Mr Smith: Yes. It has the choice then to charge its customers less. So there is some slight dynamic in there. Q253 Chairman: In terms of pain for gain to the energy sector, when I looked up, for example, Shell Oil, I think their earnings were $26.9 billion. I was trying to get some sort of context to the size of the sales of energy in the United Kingdom to the amount of money which was being expended on efficiency. You are not able to help me with those numbers, are you? Mr Smith: I would have to take it away and perhaps - Q254 Chairman: My intuitive feeling is that one is a very big number and relatively speaking one is a very small number. Mr Buchanan: I think the only thing you need to be careful of there is that obviously we have focused exclusively on domestic, so around about a third of electricity and gas consumption. There is an awful lot of money being spent in the industrial and commercial sector without the need for government involvement and subsidy. We could definitely write to you on that, but I think you are right in terms of the sums being spent in domestic versus the total value - Q255 Chairman: I suppose the supplementary question is, should the energy companies be using more of their own money to achieve efficiency, whereas at the moment it is the consumer who is paying the cost of recycling money for these entirely correct and laudable purposes, but it is not really hurting the bottom line of the energy companies. Mr Buchanan: I think perhaps the most blatant aspect of this was the free allocation of allowances, and then not the full ten per cent auctioning of phase two of the EU Trading Certificate Scheme. The recommendation we made within our energy review - and I do not know how well it went down within government circles - was that arguably if the UK wants to create its own carbon trading scheme for concerns about the European scheme's workability, or indeed its longevity after 2012, was to effectively cull money from the generators because they have had free allowances, give that to the Treasury to effectively act as the collateral for the Treasury to be the middleman in a UK trading market. But in addition to that, we also argued that this was a great opportunity to take some of that windfall gain and feed it back into fuel poverty schemes. I have to say that some of the noises I am hearing around government would suggest to me perhaps that they are looking at a form of UK trading scheme as well going forward. I fully appreciate and understand, and you would expect an organisation like Ofgem which has in its statute that we should be seeking to protect, to promote consumers through marketing competition, but we do not want to undermine in any way the European trading scheme. Nevertheless, I think there is a groundswell occurring at the moment that this might be an idea for the White Paper. So to answer your question, we have certainly offered a solution whereby you could take a large chunk of money away from the generators and put it to good both with carbon and with fuel poverty. Q256 Chairman: We are tiptoeing around one of the subjects about the nature of the energy industry - and it refers to a point which I think Mr Drew made earlier and other colleagues mentioned - about who trusts whom, because the argument crystallises out and should we in fact be looking at an industry of energy services providers rather than just simply energy suppliers? Is there any sign that the industry is moving to embrace that concept or not? Mr Smith: I would answer, yes. I think in the early days the energy efficiency focus from the companies was all about customers saving money. I think the carbon and climate change agenda has moved that on. I think to begin with if you were trying to sell energy efficiency it had to be, you know, "Unless we can show customers they're actually going to save money over the course of whatever we do for them, we're going to struggle." I think now there is a clear appetite amongst customers to say, "We're beginning to understand the challenges of carbon and actually we might have to pay more for our energy, and we're more interested in are we cutting carbon." Inevitably there will be a lag between that and the companies actually getting out there and doing things, but I think you certainly do see that change in attitude. Do not forget that with the high prices we have seen over the last couple of years, gas demand last winter was down about eight per cent when you account for temperature differences year on year. So suppliers are having to work out that with the carbon challenge and what that is likely to do with prices, a business model based on just selling more and more energy is not really a sustainable one, even from a narrow business perspective. Q257 Lynne Jones: There seems to be a problem in that the contracts can only be monthly contracts. You have expressed concern about locking consumers into long-term markets. Mr Smith: We did make a change. The industry came to us and said this and we used to have a rule in our regulations called the 28 day rule, which said that customers had to be able to walk away at 28 days' notice, and they said, "We want to sell energy services products, we want to be able to sell people long-term contracts where as well as their energy supply we provide them with a new boiler or insulation so their total energy costs came down." We took all of those restrictions away in response to that. So we are in the game of trying to break those barriers down. Where companies are trying to do innovative things in this area, we are saying, "We are not going to stand in your way and if there are things that we have done because of trying to protect the competitive market, then we'll take them away." Q258 Lynne Jones: So now if people sign up with a contract with British Gas, who have said, "We'll provide you with a new boiler and you'll pay for it on your gas bills," that is now possible? Mr Smith: It is possible because there is not this restriction which says the customer has got to have this right to walk away, but obviously in terms of the trialling of this we had to put some protection in place for exactly the reasons you have alluded to about customer trust and making sure that before anyone enters into that contract, because it could be for a large sum of money, that they have properly been given all of the facts, they have been given a cooling off period and that we do not end up with people who have been mis-sold products like that. But all of that is now in place. Q259 Mrs Moon: Let us say I am a newly retired person, I am going on to a fixed income and I want to look at where I can get the best deal in terms of buying my electricity and I want to know where I can get good, practical advice in cutting my CO2 emissions. Where can I go to to find that information that is totally independent, that is neutral, not trying to sell me anything - because it does not seem like I can come to you - that will give me a league table which says, "These are the people who are doing extremely well on price and these are the people who are doing extremely well in terms of CO2 and, by the way, these are the offers they have got in relation to insulation, energy saving and replacing your boiler," or whatever? Where can I go for that independent analysis of the market so I can decide what is my best option? Mr Buchanan: I think on price you are going to go to the providers of that particular product. Again, I do not want to mention many companies but companies like uSwitch, but you can also go to Energy Watch, but on the advice you are after the Energy Savings Trust has a primary responsibility for domestic consumers. Energy Watch is the interface with consumers. It is not just solely interested with price, it is the all-encompassing issues facing the consumer, and they will become the consumer voice in March 2008. So I would say the Energy Savings Trust and Energy Watch are the two parties I would recommend you to approach. Q260 Mr Drew: Could we move on to carbon trading, which I think is an equally interesting area? Could you just spell out for me what you understand are the differences between carbon trading allowances and the idea of cap and trade? Do they impose on each other, or are these quite different concepts? Mr Smith: I do not think they are. I think cap and trade traditionally has been something which has been imposed upon businesses and businesses which directly emit carbon. I think the ideas about personal carbon allowances is, in addition to doing that to business, actually saying to individuals, "Here are the things you do in driving your car and the way you heat your home which has a carbon footprint and we are going to, in some sense, cap your ability to do that or give you an allowance, and if you use less allow you to sell your surplus to other people, or if you use more you will have to go and buy it." So I do not think they are fundamentally in conflict. They can sit alongside each other and work together, because I think one is predominantly business-focused and one is more focused on the individual than on the citizen. Q261 Mr Drew: So you are clear that cap and trade will in the due course of time apply to individuals as well as businesses? Mr Smith: No, I am not making any statement on whether it will happen, I am saying if that is something which the Government wants to do then I do not think there is any fundamental problem in having the two sitting there together. I think they can be made to dovetail. Q262 Mr Drew: I just want to be absolutely clear. In terms of, therefore, people making changes in their lifestyle, I have a problem with the trade idea because I think that could be terribly complicated, but if people actually were to reduce their carbon footprint that is something that you would think is feasible and is deliverable in the long run, or would this be faddish? Mr Smith: It is not something we have spent a great deal of time and effort thinking about. My concern would be, as with yours, with the practicability, which is that given the number of people who do not even have bank accounts the idea that you could give all individuals a personal carbon allowance and expect them to interact with that, I think it is an awful lot to ask people to do. So I think you would have to think very, very carefully. As I said, if you ask me in theory if you could overcome those problems, could it be made to work sitting alongside what is there already, yes, but I would share some of the practical concerns that I think you are alluding to, particularly on the trading aspect. The idea that you are going to have 25 million households or 65 million individuals in this country actively trading, I think you would have to ask yourself the question why you were doing that and is that really the best way of achieving what you are trying to achieve? Q263 Mr Drew: So to make a difference then, we should be concentrating the effort on suppliers, and should we be concentrating the effort on capping suppliers? In other words, we have got the ROCs on the one hand, which in a sense is trying to divert them away from the traditional forms for creating energy and towards more renewable ways, but the cap would in a sense be a physical cap. It would say, "We're going to ask you not just to divert but also to reduce." Is that something which you again think is feasible? Your paper was a bit unclear whether you thought this was going against human ingenuity and people would not therefore respond? Mr Smith: I think in our energy review response to the Government's energy review it may be a bit clearer. We basically said, I think, that we were optimistic that if you did cap carbon, and cap carbon quite aggressively, and give people a clear, long-term path of where that was going to go, with the ingenuity of the variety of technologies that are out there we said, "Yes, energy efficiency will have a part to play. Yes, development of low carbon or no carbon generation sources will mean that through a combination of those measures you can get to where you need to be. There has been some discussion about capping energy." What we were saying was, "Do not cap energy, focus on what your real objective is, which is carbon. Cap carbon, and do it in a credible way, and then allow suppliers, generators and customers to work out what the different range of solutions, partly energy efficiency, partly regeneration technologies, they want to deploy to do that." Q264 Chairman: Mr Drew touched upon renewables. Do you know what the relationship is between the sales of renewable energy and the amount of renewables available for sale? Mr Smith: In terms of, does all the renewable energy out there actually find its way to market? Is that the question? Q265 Chairman: That is one way of putting it, yes. I am just intrigued to know what the supply and demand balance is, because somebody told me that there was more renewable energy being sold than there was actually being generated. I would just like to know, if somebody signs up for a renewable tariff are they actually getting renewable power? Mr Buchanan: I think this brings us back to our discussion about how we need to look at how renewable or green power is being sold. Mr Smith: There are basically three different types of green offering and there are companies like Good Energy, who basically guarantee you that every electron you buy has been sourced from - and they will define what they mean by a "green generator". There is a second class where they say, "We can't guarantee you that, but we will ring fence a certain proportion of what you pay and we guarantee that will be invested in future green generation." The third sort, which is where the confusion comes in, is where it is green but it is only green because they make a contribution to, say, Greenpeace or Friends of the Earth - Q266 Chairman: So it is an offset? Mr Smith: Exactly, and that is why I think you are probably right that if you added up all of the different products you would get to far more than the total amount of green energy on the system because people are doing these different things and labelling them as green offerings. Q267 Chairman: So it does need to be made clear, or clearer, so that if the public decides, for example, that its personal contribution would be to switch to a renewable tariff it needs to know which of those options it is actually buying into? Mr Smith: Yes. Q268 Mrs Moon: Can I ask you what you are doing to actually make it easier for the green energy suppliers to actually get into supplying, because I was talking to a company yesterday and it was telling me that even to get a feasibility study from the grid about putting the energy it is going to generate into the grid, it is a blank cheque book. You go along and they almost make up the figures as they are going along. There is no fixed tariff as to how much you will earn for the electricity which you sell into the grid, and again you are at the whim of what they decide to pay you for the energy you supply. What are you doing in terms of facilitating the creation of that market so that in fact there is actually a market which is attractive for the green energy producers to move into, so that we can increase the number of green energy suppliers who are out there? Mr Buchanan: I am not surprised you have had that complaint and it has been an Achilles' heel of Ofgem for some time and one which we are addressing currently. It falls under the heading of the supply licence review, but effectively over the twenty years since liberalisation and privatisation 150 pages of rules and regulations have been created, thereby frankly, in my view, stifling potentially new entrants wanting to come into the market. It is just rule-bound now. Steve and his team are working towards a position where we can cut that by around 50 per cent in the middle of next year. As you can imagine, we need to carry with us all the consumer groups, Energy Watch, we need to ensure that vulnerable customers are protected, but I think at the end of this I would really look to hear from suppliers wanting to come into the market a positive view that we have made it much easier. But at the moment I think you have absolutely put your finger on one of the weaknesses that we have had and we are sorting that out. Mr Smith: The only thing I would add is the points you made about access to the grid as well are fair and we have a major project under way at the moment, which is every five years we review the pricing regime and the revenues the grid companies are allowed to earn, and as part of that they will be making changes to the arrangements for new generators, not just green generators but anyone who wants to connect so that you do not have to get the cheque book out and make some enormous contribution before they will even put a spade in the ground, to get a much clearer and more stream-like process. That is all on the positive side. The only difficulty which will remain, which is perennial, is the whole planning issue, which is part of the problem in the delays. They have to get planning permission for the transmission lines. You have to get planning permission, but there will be major changes to actually the commercial terms and the way you get to sign up to the grid, and they should come in from April next year. Q269 David Lepper: I just wanted to come back to the point you were making about different definitions of what "renewable" means in terms of supply and relate that to Madeleine's mythical recently retired consumer who wanted to survey the field. Is that information about individual suppliers readily available to that mythical consumer? Where would he (or she) go to be able to understand what this company means when it is telling him he is buying from it renewable energy? Mr Smith: I think the system at the moment, as Alistair said, is one which is policed by the Advertising Standards Authority, so in essence those companies you go to will, in their marketing material, set out what it is they mean by "green" and what sits behind it. As Alistair said, Scottish and Southern recently was actually found in breach by the ASA for actually over-egging what it was offering and it was told it had to withdraw that marketing material, but at the moment it is predominantly the marketing material of the company which will say, "When we call this 'green energy' this is what we mean," and that will be in their marketing and their contractual information, as I said, overseen by the Advertising Standards Authority. Mr Buchanan: If I could just add, one of the things which really struck me as tremendously useful from our point of view from this session today is that in the different questions you have asked us there has been almost a sense of helplessness for the consumer. At the end of the day you are relying on the ASA, on the EST, on Energy Watch, arguably possibly Ofgem, these faceless organisations, very difficult to get in. Will I get the information? In picking up particularly this green energy which Sir Peter Soulsby started with as an issue, I am going to take that away from this session. This is something we had been thinking about as one of our targets for next year and it is quite clear from the range of questions you have raised that this would be a useful area for us to explore. Chairman: Mr Drew said before he went, "I'm even more confused than I was before!" Q270 Sir Peter Soulsby: Could I say that I am very pleased to hear that because I was going to suggest it was a bit of a cop out to rely on the ASA, but in the light of what has been said I am actually very encouraged by the response we have had there from Ofgem, because it does seem to me there is a desperate need for an accreditation scheme for so-called green tariffs and really only Ofgem is in a position to provide that scheme. Mr Buchanan: Or if we are not, we have to find out who is and we can use our brand and our facilitation process to try and work that through. So it is something we need to look at. I cannot do that now, it would be inappropriate for Ofgem to do that, but it is one of my take-aways from today. Q271 Sir Peter Soulsby: Thank you very much. Chairman, if I could just return to the micro-generation issue, because in their evidence to us the Energy Savings Trust talked about the potential for, I think it was, somewhere in the region of 30 to 40 per cent electricity generation being from micro-generation. It is an enormously exciting prospect, and of course we have now got the Climate Change and Sustainable Energy Act with the obligations under that. In your evidence to us you said that you were, I think I quote you correctly, "working to ensure no undue values to micro-generation." I just wonder whether you would accept that that does not sound as if you are being particularly pro-active? It sounds rather more as if you are hoping that the market will sort things out and that others will take the active initiatives. Mr Buchanan: Just in two areas, quickly, we announced our forward view on Microgen a couple of weeks ago. There are two elements to that. One is to get rid of what I just call plain silly rules, which I where, if you want to put a Microgen unit in your house you have to have to get permission from the local planners. It is just nonsense. The other issue, which is an issue that Ofgem does not take lightly because under a better regulation remit and under a view that light-handed regulation, where possible, is a good thing, we have warned the companies that if they do not sort out selling back we will basically put on the regulatory hobnails and sort it out for them. That is not something which as an organisation we do lightly because it is slightly running against the whole better regulation agenda, but we feel it is important enough for us to signal that. Q272 Sir Peter Soulsby: That is very encouraging. I just wonder when you think you might have progress with that and how you measure your success in smoothing the way for micro-generation? Mr Smith: We said in our press release that suppliers needed to get this sorted. It comes back to your point. What we said is that because there are very few of these things installed, we need very simple products which your average customer can understand which just says, "If you install one of these things we will pay you, five, six, seven, whatever the number is, pence per kilowatt hour, just with simple marketing material, and we have basically given them a year to say that if we do not see those products in the marketplace within that time then - Q273 Chairman: Is there anybody doing that now? Mr Smith: The response was positive. The trade bodies' response from the suppliers was, "Oh, this is all terribly premature." Two of the suppliers, Npower and Scottish and Southern came forward and said, "It's a fair cop. We will put effort and resource into developing these products," because we only need one of them to do it and if one of them do it and it starts to become a success then clearly the others will follow suit. So we are encouraged that two suppliers did step forward to say they will meet the challenge. Sir Peter Soulsby: Chairman, could I just press the issue of timescale? Chairman: Of course, yes. Q274 Sir Peter Soulsby: When might we actually expect to see this becoming a reality? Mr Smith: I would be really disappointed if it got to the end of the year and it had not happened - sorry, one year from when we put the press release out, which was probably about three weeks ago, so October 2007. I would be disappointed if we got to there - Q275 Chairman: Let us be very clear, when we talk about micro-generation, because I want to make certain I really understand what we are talking about, this is a device like a mini gas boiler which does electricity and heating as a combined unit in a house, and does it do 100 per cent of the consumers' electricity or not? Mr Smith: That is the issue, because obviously your use of electricity varies over the day. So at points in time you may be actually producing more than you are consuming and therefore the question is how much will you be paid by your supplier when you are actually exporting. At other times, when you are using a lot, you may still be drawing down and the problem is at the moment there is no simple product out there which says, "This is how much we will pay you when your wind turbine is actually generating and your lights are switched on." Q276 Chairman: If somebody wanted to do down the micro-generation route, what is a ballpark figure for a normal house? How much would it cost to get into being a micro-generator? Mr Buchanan: You have got the list in the middle of page four. Mr Smith: So a wind turbine for your roof currently retails for about £1500, solar power is anywhere from two and a half to £10,000, and then these boilers which actually generate electricity start at about £3,000 compared with a normal condensing boiler, which might be £1,000. Q277 Mrs Moon: Do you know what the difference is between a micro wind scheme which is going to cost me £1,500 and one which is going to cost me £12,000? Mr Smith: It is just the simple size of the thing and how much electricity it will generate. The bigger they are, the more they generate, and obviously that will depend. The £12,000 ones are ones which will be aimed more at commercial buildings where you have got a large building and you have an array of them on your roof. The £1500 one is a single one which you can mount on top of the roof of an average domestic property. Q278 Chairman: Just to sum up, what you are saying is that within the next twelve months the economic offer that is micro-generation should become should become clearer and at this moment in time two companies which you mentioned are working on some kind of "product" to buy back surplus electricity from that generation. I suppose the interesting question is, if you applied energy saving, energy efficiency, plus micro-generation, what impact would that make on the emissions in the United Kingdom of either carbon dioxide or greenhouse gases? Has anybody done that format? Mr Buchanan: The Energy Savings Trust, coming back to your figures, has estimated it will be 15 per cent, if you get that 30 per cent in, and I would just go back to page four, because again they are EST figures. On those schemes which are listed there, except for the fuel cell CHP, you are looking at a form of subsidy right the way through to 2050. That does somewhat bring me back on a circular argument where I started. If you have got lots of pots of subsidy, great, because you can have a subsidy for renewables under ROCs and you can have a subsidy here for these schemes under the energy export equivalents, but it may be that for you in policy there is going to come a point where you have to make a choice. Is it the wind farm and the wave scheme, say, in Scotland, or is it the local generation scheme in somebody's home? It would be great if we have all, but - Q279 Chairman: One of the questions I was going to ask about micro-generation is that the trouble is that this area becomes full of new popularisms and the new popularism is a disaggregated generation; in other words, we do away with the National Grid and it is all done in the backyard, to put it at its crudest, but on the other hand the renewables, particularly if you are dealing with wind and wave, happen to be miles away from where people live. So what are the implications for the National Grid as such of what we are talking about? In other words, if there was a wholesale move to micro-generation and the amount of electricity flowing across the existing grid drops, demand from the major generator drops and we have got an increase to the potential of wind and wave but we need to get it to us, what are the economics of keeping a grid system in operation to delivery the renewables and give us some back-up? Has anybody done any work on that? Mr Buchanan: I think it is a great question, because our bread and butter work is network regulation, which first of all we have addressed up front in so far that, unlike the situation we traditionally had at Ofgem, we have fast-forwarded the allowance of investment for wires, particularly the backbone scheme from Bewley to Denny in Scotland, which is broadly Inverness to Perth and then on to Glasgow. We have fast forwarded £600 million for the development of that. 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 twelve 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 ten 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: Npower and EDF 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 t.v. 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, i.e. 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 impact 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 ten per cent. 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 ten per cent 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 Bewley-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 Bewley-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. Memoranda submitted by Institution of Civil Engineers and Royal Institution of Chartered Surveyors
Examination of Witnesses
Witnesses: Mr Jon Prichard, Director of Engineering, Policy and Innovation, Mr Seamus Heffernan, Senior Policy Executive, Institution of Civil Engineers, Mr Louis Armstrong, Chief Executive, and Mr Mark Griffiths, Chartered Surveyor, Member of the RICS Policy Panel, Royal Institution of Chartered Surveyors, gave evidence. Q294 Chairman: Can I first of all apologise to our next two sets of witnesses, the Institution of Civil Engineers and the Royal Institution of Chartered Surveyors, for the delay in coming on but, as you can see, we were getting carried away with Ofgem with all kinds of interesting things and I am sure we will carried forward by the many interesting contributions you are going to make. Can I formally welcome, on behalf of the Institution of Civil Engineers, Mr Jon Prichard, the Director of Engineering, Policy and Innovation, supported by Seamus Heffernan, the Senior Policy Executive, and from the Royal Institution of Chartered Surveyors Mr Louis Armstrong, Chief Executive, and Mr Mark Griffiths, Chartered Surveyor and a Member of the RICS's Policy Panel. Obviously with two organisations, one of you draws the short straw in answering the first question, but just indicate to me if you want to come in on it, and we will sort of jump about. There are some which may naturally appeal to one and the other, but feel free, both, to comment on that. Perhaps we could start by asking a question about your perception of central government and its role as coordinator of work in the field of energy efficiency and of energy savings. Do you feel that it really is fully engaged and that it really has the will to make the kind of major infrastructural changes which are going to get to grips with the size of the problem we have in reducing our energy emissions? Perhaps that might be a good place to start with the engineers. Mr Prichard: I think as it stands currently, you are seeing a lot of changes in government departments. There has clearly been a lot of research done and a lot of work is being done across different departments. Looking at your question from one particular angle, should there be perhaps one central coordination role in taking that forward, I think that is a distinct possibility. Whether that is a particular department or a subset within the department I think is open to debate, but I think we would welcome there being a central focus which has an overview across all the departments taking that forward. I think in terms of within each individual department we have seen progress in the recent years in the way a lot of the issues are being handled and we are interacting with those departments. Q295 Chairman: Do the surveyors have a view on that? Mr Armstrong: If I may comment, Chairman, yes. RICS's views are - and I think you have touched on this with Ofgem - is this a war on climate change which requires cross-party consensus, a proper climate change czar, the Treasury actually on-side, or can we allow the normal democratic processes of planning inquiries, voluntary activities, a range of encouragement to make the difference? I think the challenge is to set targets, both by city, by region, by parish, by street or by estate even, to have those targets clearly set out, if we are going to meet the 20 per cent reductions over the 1990 levels by 2010 and 60 per cent over 2000 levels by 2050. I think the RICS's view - and I think it is worth saying at this point, if I may, with 125,000 members operating around the world right across the built environment, everything you can think of, 170 specialisms in all - seeing this from both the public and private sector point of view and best practice internationally, there is no doubt in the mind of the RICS that voluntary activities, worthy though they are, and encouragement and existing Government policy, worthy though it is and improving with the Climate Change Bill in the Queen's Speech and with the acceptance of the Stern Report's broad thrust, there is no doubt that we as a country are going to be woefully short and the gap between the current solutions and where we have to get to is not going to be bridged without a lot of political courage, without a much greater reliance upon regulation and naming and shaming on the carrot and stick approach to it being properly done, and without it being spread across not only Defra but also probably five or six other ministries. I think having Alistair Darling as a Minister in the Cabinet is a good start, but he will not have the levers available to him to produce the holistic plans which are going to be required. I think this is an absolutely fundamental issue for cross-party consensus, rather on a war footing, if the Stern Report is going to be genuinely taken seriously in the run-up to the next election. I think this is a critical cross-party issue. Q296 Chairman: This particular inquiry is about the citizen, in other words how can the ordinary individual play a greater part, and in your key recommendations of your evidence you make an interesting point, which says, "The Government should set an example through its own activities," and I presume that by that you are implicitly saying that Government leads by example? Mr Armstrong: Yes. Q297 Chairman: You have touched upon, if you like, the organisational structure within government, arguing that there should be somebody with greater clout to wage the war on this subject, but what else do you think Government should do to create the sort of example base which underpins that line in your evidence? Mr Armstrong: I think there is a range of issues around government buildings, government land, government estate, owned by different departments, the way in which they are already making an effort to be more sustainable, but I think there is a lot more that can be done. It is all the simple things, everything from energy efficient light bulbs to new buildings like the new Home Office, which is a good example, I think, of what should be done, and just trying to make sure that as part of the education programme all employees of government and all those working with government are genuinely committed to doing what they can. It is trying to break this down into individual responsibility as well as local authority responsibility, as well as national government responsibility, we think is going to make as much difference as anything, people accepting ownership of the problem, a degree of personal responsibility. That includes, of course, all government employees, starting from the top, which I think would be a good start. Mark may have some thoughts here. Mr Griffiths: Chairman, you raised earlier on this question of information, and people cannot act without information, at a citizen level and also at business and governmental level. If the billing really is as bad as you say - and I have exactly the same experience as you, that you cannot actually determine from the information coming from the energy companies what your trends are. The trends are incredibly important for knowing whether you are making progress or going backwards. Probably the most certain aspect of the Bill is the amount of the standing order per month. Everything else is extremely difficult to understand. If you take, for example, some of the telecom companies, they will provide you with pie charts, with graphs, et cetera, showing what types of calls you are making and how they have fluctuated over time. These are the sorts of things which are generated from something as basic as an Excel spreadsheet. I was astonished to hear, although of course it was an over-simplification, £450 million to try and get some sensible billing is an extraordinary situation. I think if people got with their bills comparative information about how they are doing in time, how they are comparing with norms in society and how they are comparing with where we need to be in the future, then people can start to make decisions. But without very basic information, you have absolutely no chance. The same would apply to government departments. It would be absolutely no different, you have to have some benchmarking, but whether we are citizens, professionals or businessmen, that information very often just simply is not there. I would imagine that in terms of cost-effectiveness it is much easier to get that sort of information than to invest in smart metering, for example. We have to make the biggest gains as quickly as possible. Where are we going to get the biggest bang for our buck? That is what I think we need as information. Q298 Chairman: Okay. Engineers, what do you have to say about it? Mr Prichard: First of all, clearly there is a lot of new builds going on and despite the fact that the Building Regulations have changed and there have been improvements with the Part L regulations and the like, not all buildings as built end up with the desired performance levels. So actually looking at building performance as a client, Government being 40 per cent of the construction client, we actually need to look at how that building certification happens. That is where there could be a potential leadership role for the Government. In other areas, in terms of the strategy as to how gradually over the last thirty years you have seen a desegregation of central government departments moving out into the regions, one needs to look at whether that has or has not increased the overall travel required as a result in order to facilitate the meetings in the centre, so perhaps greater encouragement for the virtual meetings, using the internet and the like for the conduct of meetings, seminars, and the like, so that we can reduce the overall travel burden. Q299 Chairman: We are talking about equipment which can be made available to the citizen to help in this task. Engineers, does Britain have the ability to be a world leader in the technologies which are involved in energy saving or in making better use of the resources which we have for the development of energy? Mr Prichard: The current philosophy is that we certainly have a knowledge economy which would suggest that traditionally Britain has established itself as an innovator in the market. I think we have got to look at the broader picture and say, "What happens to the exploitation?", because traditionally, as I am sure you are aware, exploitation is tending to happen elsewhere of that technology. So the ideas are happening here, but the exploitation tends to be happening elsewhere. Q300 Chairman: Where do you think we have the technology which is under-utilised? Mr Prichard: I think I would have to come back to you in a written answer because that is not necessarily my expert area or field. Q301 Chairman: Okay. Have you done any work at all in looking at the R&D input into this area, whether it be from government or private sources? Are we spending what we should be spending? Mr Prichard: Our view on R&D is that more could be spent and I think we have stated in the past that if you were to, say, commit one per cent of the overall worth of the sector into R&D then you would look at increasing R&D. We are encouraged by the expenditure on things like the knowledge transfer networks, although they are fairly young and are being established and some of them have yet to prove how effective they can be. So there is encouragement and we note that there has been a gradual move away from the discipline-led research and development, central funding research and development, particularly in construction, and a move toward the thematic research and development. Where that is leading us, certainly within the civil engineering construction area, is that it is possibly leading to a shortfall in what we call the near market-type research, which is the actual research which takes the technology to the deliverable through the government standards. Q302 Chairman: I want to bring you back to your evidence, paragraph 8, and I have to say I found just a hint of tentativeness in what you were saying. There is a sentence which I discovered where you said, "However, the skills-base necessary to maintain and install a high number of small-scale CHP schemes may be lacking." Well, it either is there or it is not there, and that is just an example. I wanted engineers to be a bit more forceful, so let us go to the area where again you are a little bit tentative, paragraph 14, where you say, "Low-carbon options that could be considered for the local level," which sounds as if you were saying, "I'm not prepared to back a winner here, but we are in this business." You say, "Ground heat recovery, solar heating and photovoltaics." Those all exist, but the big barriers, as you heard from our previous evidence session, is the cost of it. I want to hear from the engineers what is going to be done to lower the cost, to make these things more acceptable as investments by the citizen for the purpose of reducing their energy throughput. What can you tell us engineers are going to do to achieve that objective in a relatively short timescale? Mr Prichard: Like any other sector in the UK, the engineers will be market-led, unless there are inducements to drive down the unit cost - and that either comes from market take-up or it comes from a scheme such as the Renewable Obligations Certificate - then you are not going to get market inducement for that to happen. We cannot force the market. Picking up on that point on skills, I think that is a significant issue and when you look at the engineering skills base which is out there, there are undoubtedly current shortages. Q303 Chairman: I hear what you say, but let me go back to your paragraph 14, the mouth-watering little sentence in parenthesis which says, "Any technology options should be considered in terms of their lifetime cost and global carbon emissions." Yes, I do not disagree with that, but what I do not see here is you saying that engineers in the United Kingdom are working on this, this and this, which could have the effect of dramatically changing the affordability of these things. For example, on photovoltaics, we went to Leicester to see the reality and the reality is £9,500 or a 461/2 year pay-back period for the ordinary person to install this equipment on their house. Does engineering have anything to tell us that that bill could come down in a meaningful timescale to encourage the punters to save up and put photovoltaics on their houses? Mr Prichard: There is nothing that I am aware of in the offing at the moment that will say that will come down. As I said earlier, you need to have the market conditions that will drive the price down. You cannot just expect the industry to commit to this at this stage because it has not yet sort of broken into that virtuous circle. Q304 Chairman: This is a bit like the argument on computers or mobile telephones. People started off but the penny always drops with technology that if you start off with selling - my first computer when I arrived in the House of Commons nineteen years ago was £1,800. It had a 20 megabyte hard disk and an eight megahertz processor and that was state of the art IBM PS2. Now, you would be an idiot if you paid that kind of money. You would get that in a games machine, and infinitely more. So what has happened is that people know by example that if you reduce the price of hi-tech it rapidly becomes acceptable technology and lots of people buy it, but I do not see the thing happening in an area which is currently the number one priority for goodness knows what body. Mr Prichard: If you look at being the number one priority, I would question that because if you look at the amount of money which is going into the research budget in universities where you create these spin-off companies that start developing these technologies, then actually because the university budget has been spread so thinly across the board - and ETSRC I think are struggling in this respect - there perhaps is not enough funding going on to generate the innovation that you require. Q305 Chairman: So you are saying that if we are going to make these tools more popular and more affordable, the ICE is saying that there needs to be more basic research done at universities to achieve those technological breakthroughs? Is that right? Mr Prichard: We would encourage a review of how the ETSRC funding is committed. Chairman: A review. All right. Q306 Lynne Jones: Can I ask something on photovoltaics, because the argument has always been that if there is a commercial market - and I note your point about basic research but generally on these technologies there is a technology which exists, just as there was with computers, and it is a question of improving and refining, and largely these are commercial decisions based on demand. I have been reading recently that the demand for polycrystalline silica for use in photovoltaics is actually increasing the price because there is a shortage of this material. I thought, well, silica just comes from sand, so why is there such a shortage of this basic material? Mr Prichard: I am afraid I am not a materials engineer, so I cannot really comment on that. Q307 Lynne Jones: I have heard that there is some new technology being developed? Mr Prichard: I am aware that there is new technology, but I am not in a position to say what is the best - Q308 Lynne Jones: Is there anybody in your Institution who might be able to answer that question? Mr Prichard: I think you are talking about manufacturing and electrical engineering, and we are civil engineering. Therefore, we can find out for you, but I do not have that answer here. Q309 Chairman: You are good at finding out. Mr Griffiths wants to give us an answer. Mr Griffiths: I hesitate to tread on somebody else's territory - Q310 Chairman: Do not hesitate, no, leap in, Mr Griffiths! Mr Griffiths: -- but I do try to read around this subject and you are quite right, there are some interesting developments taking place which may increase the efficiency of solar panels by a factor of five, using nano-technology and film technology. Clearly, if that happened it would have a very significant effect on the way we are able to generate electricity, but I think what the general discussion illustrates is that as far as the commercial sector is concerned it will be driven by the immediate cost of other sources of electricity or energy and broadly speaking fossil fuels are relatively cheap. I think where, as a society, Government can play a role is to say, "Okay, we are not at that point where these things are competitive and therefore we can't expect the private sector necessarily to deliver the goods immediately, but we can actually pump prime the research, in other words to encourage some risk taking which perhaps the private sector would not take," because the private sector tends to be relatively short-term in its outlook, returns to shareholders, and so on. So I think that is where we have to look at getting a move on and I think that is where Government can take a very strong role. Q311 Mrs Moon: I am hearing some very interesting stuff about risk taking and pump priming, but at the same time the previous representation we heard talked about the subsidy which the existing energy companies are getting from their customers to roll out things such as the energy coming down from northern Scotland. If you are new and you want to get into this ballgame, if you are a new technology company, a new green technology company, the sort of company which people are looking for to sign up to to buy their energy from, there seems to be a huge, high level of risk. There does not seem to be an awful lot of subsidy from the consumer to them. So you have got to put the money up front to create the technology, you have to put the money up front to go through the planning system to get all of the different certificates you have to get before you can even put in your planning application, and then you do not know what you are going to get in terms of sale when you sell on your electricity to the grid. What can we do, what are the barriers which need to be removed to facilitate those green energy companies coming into the system and allowing us to get the technology, getting the plants on the ground so that we can actually buy the electricity they are seeking to generate? How are we going to move that along so that we actually get the market operating in a way which is effective for the new technology to operate? I am sorry, there is a lot there. Mr Armstrong: Might I start, Chairman? One point strikes me here, and I think it is a bit of a chicken and egg because it seems to me if the Government says it is genuinely committed to forcing both companies and, if necessary, individuals to meet the climate challenge and deal with the issues of supply and demand of energy as two aspects of meeting that climate challenge, and if you can then get this bandwagon going which makes the companies, the venture capitalists, those investors who are investing in green technologies (some quite big names from Richard Branson to Robert Cambridge), take big slices of their investment money and put it into these technologies, it seems tome that the climate of risk which you rightly articulate will gradually evaporate. It is thirty years since Greenpeace was regarded as the al-Qaeda of eco-terrorism and beyond the pale. Every company worth its salt had anti-Greenpeace units within them, every oil company certainly did. I think now that seems like two hundred years ago. Now we are so different in our mindsets that I think the market forces will need to have it made clear, and Ofgem will clearly play a part here in saying, "This is going to happen. We are going to diversify. There will be incentives, whether they are different sorts of fiscal incentives within the Corporation Tax regime, VAT, whatever it takes." There will be ways, one hopes, where this will progressively, and quickly I hope, come to pass, but I think it is the chicken and the egg. You have to create the impression that this will be mainstream, that we will have cheap photovoltaic cells all over our roofs (except in conservation areas perhaps) within ten years, and that we will be doing things completely differently from what we do now. We will have to do that. Then I think you will find those assessing the risk in their investment in new technology and their willingness to put money up front would have a different sum at the end of their calculations in a year or two's time than they would today. That would be my assessment. Q312 Mrs Moon: When you started your presentation you talked about planning regulations, and one of the big barriers that you have to get over is the planning application and you have to take the risk of developing your new technology, getting your investors to back you, do all the planning applications and getting your certification. What can we do? What do you think are the important things to simplify the planning application process, bearing in mind that if Government actually says, "We are going to take away the power from local people to make their local decisions," there will be uproar. How do we simplify it while at the same time not removing local democracy and local decision-making? Mr Armstrong: I think coming up with a national strategic framework for what is essential for the nation and where individual committees will have perhaps less of a say in the holding up of what is deemed to be strategically necessary is going to be part of the political debate, I expect, after Kate Barker's review and others have reported. I think you could do a number of things at local level to start with. Outside conservation areas you could remove the need to have individual planning permission for things on your roof, the micro-generation points you were talking about earlier with Ofgem. I think there will be a simple chain. It could be done under a general permitted development order. It would not need to be individually applied for. You would have issues with historic buildings in some sensitive conservation areas, but I think they could be dealt with under that legislation quite adequately. I think you could have presumptions in favour of certain things happening and make sure the Secretary of State is involved in supervising the power lines, the visual impact of offshore wind farms in your own constituency. I think you could have various presumptions. So we are having a presumption in favour of this, and the planning policy guidance could be quite clear, and we would need considerable persuasion that the local interests and the individual interests should prevail over this national war on climate change, because you will all be the losers if you are too NIMBY-ish or too selfish. So again it is part of this attitudinal and educational shifting of the mindset of the population. It is easier said than done, but I think we have to try. Mark has some ideas on specific issues. He is an expert on the countryside planning areas as to what might need to be done on power lines or other things. Mr Griffiths: I think the question you have raised raises two contexts. One is the micro side, which relates to individual households. Then there are the major infrastructure schemes, such as offshore wind farms, or onshore, which are really two different kinds of question. I think the latter is going to be much harder to deal with because people support green energy but they do not want to see the wind farms, and so on, and some of them are extremely large. Technically it is less of a problem with offshore. There is less impact on the landscape, but then you have got to cable it a long distance. We heard some interesting figures before about the potential for micro-generation and these types of apparatus are much smaller in scale. We have around the country even one or two industrial estates which have their own wind turbines and actually people have come to quite like them. So I think probably the micro end of things is easier to deal with than the very large infrastructure projects, but offshore wind is clearly a better bet than onshore, where there are some very contentious battles which take place. Q313 David Lepper: Can we just concentrate for a little while on household energy efficiency? I am not sure, Mr Armstrong, I agree with you in leaving conservation areas out of the résumé you were giving us about changes in planning regulations. I represent a constituency which has conservation areas with some of the oldest, least energy efficient houses in them which might well benefit from some of the things we have been talking about. There was mention by Mr Prichard, I think, of a change in the Building Regulations for new homes and I think thermal efficiency, heat loss measurement, was one of the important aspects there. There is a bit of research which I think we were made aware of which showed it is likely that sixteenth century buildings leaked less air than many modern day ones. I am not sure how anyone made the comparison, but there we are. What do you think will be the effect of the revised Building Regulations and the introduction of energy performance certificates in helping to deal with issues of thermal performance in new housing? Will they both have a real impact? Mr Prichard: I think in terms of our initial response to the Building Regulations, we felt they could have been harsher than they were, or more onerous than they were, and I think there was a little bit of disappointment that they missed one or two opportunities. At the end of the day they are an instrument which will start improving the levels of insulation in housing. The concern which we have comes back to the skills agenda in terms of the ability of Building Control to assess the performance of the quality of the construction, because it is all very well building and complying with the regulations, but if the building then subsequently does not meet high performance standards, if you leave cold bridges in the structure then actually you have wasted your time, and at the moment there is perhaps a lack of competence in some areas and a shortage of suitably qualified people within Building Control to sign off to say that this is being done. So that leads us, I think, to that next stage, which is where the energy performance certification comes in, because that is an opportunity to have proper assessment of the performance of the building to see whether or not it is performing as it was designed to. Of course, energy performance certification can also be applied at the point of sale to existing housing stock, so you can start influencing the market. So I think we are genuinely supportive of valid certification. Q314 David Lepper: Is that going to be a slow process in changing things? Mr Prichard: I think it probably is. Q315 David Lepper: It sounds as if you are saying the skills base to ensure it is done properly in the first place may not be there, or there may be a bit of corner cutting, therefore it is when you come to the level of certification that the kind of policing comes into operation and that might put the pressure on the builders, the developers, or whoever, to ensure that they do the job better in the first place. But we are talking years, are we not? Mr Armstrong: I think if you took the view that new housing is 0.2 per cent of the existing housing stock each year, so you are only adding one per cent of the housing stock every five years, it will have an effect, including the new Building Regulations, as the Minister for Housing and Planning has said, and I think the Home Builders Federation has agreed that they will meet the best European standards, or thereabouts, from January of next year. But the real challenge is the 22 million homes we have, and I agree, I think the sixteenth century homes with judicious use of all sorts of straw and various things have proved surprisingly effective in retaining heat. I think the real challenge is how you tackle that. As Jon has said, the energy performance certificates would affect perhaps 1.5 million homes a year, that sort of figure for the sale of homes. It would then be important to encourage everyone to have a performance assessment done, irrespective of whether energy costs rise much greater, so that they could see for themselves quite how inefficient their home was and be advised by the one-stop-shop advisory service you touched on with Ofgem, which I think is essential, the clear guidance which is going to be needed, to say, "Well, you could spend a certain amount and transform your energy performance." We should, I think, also look at council tax rebates. There is nothing like money to change behaviour, and the success of the scheme in Braintree with British Gas and offering up to £100 rebate on council tax should be extended elsewhere. I think it is something which would really capture the imagination of everybody if they could see a direct correlation between their taking energy efficiency in their homes seriously and the amount of council tax they paid, because otherwise the pay-back periods, 10, 14, 15 years, perhaps 20 years for some investments we have touched on, the cost of photovoltaic roofs and how long it takes to get that investment back in energy savings, people will not do it voluntarily and they will not do it quick enough. So it is much too slow on a voluntary basis. It needs some carrots, it needs some incentives, and the best way, we think, is to combine existing grants (which some local authorities still give for insulation) with a widespread use of council tax incentives. It need not be very great, symbolically is as much as anything, I think, with some reduced price technology and some very good special offers and deals to get people interested and think, "Oh, my neighbour's got this and that. What a good idea. It will save me a fortune and why don't I do the same?" It is speeding up the process. Q316 David Taylor: One of the objectives of the RICS is to catalyse the highest standards of education and training for those involved in land, property construction and environmental issues. That is right, is it not? Mr Armstrong: Yes. Q317 David Taylor: You were entirely supportive of the review of Part L which came in in April 2006, the various conclusions which were reached, were you? Mr Armstrong: That is not my special area. We were broadly supportive, but I think, as Jon said, you can always do more with Building Regulations. Our housing stock is some of the worst quality in Europe. Our Building Regulations are still not up to the best European standards, and I agree with Jon, there is a long way still to go, I think. Q318 David Taylor: Where professionally then lies the responsibility for things like healthy buildings and the aesthetics, the look of the finished product? Where does that lie between the two professions which are represented here? Mr Armstrong: I think you would have to start with the Commission for Architecture and the Built Environment to put pressure on all the developers and the architects to have better quality design. On the planning committees of local authorities and the planning officers, the professionals, to raise their game in what they are prepared to accept aesthetically, and I think to accept that the home builders - and I think they would probably now admit this - have got away with some pretty tacky and unappetising designs because of the supply and demand where people are prepared to buy them. I think now they are improving, but the countryside is covered with things I do not personally - Q319 David Taylor: I am sorry, Mr Prichard, do you want to say something? Mr Prichard: In larger structures there is a number of schemes available for assessing the quality and the Construction Industry Council has a sponsored an initiative called Design Quality Indicators and that has been rolled out in the building skills programme and the Department for Education has signed up to that, and in fact it has been so successful in the UK that it has been exported to the United States. There are also building and performance certificate regimes, such as BREAM. So I think there is a number of performance regimes for larger buildings but there has not been one at the bottom end of the scale in domestic housing. Q320 David Taylor: My colleague referred to possible backward steps since the time of the first Queen Elizabeth, five hundred years ago, and I want to put to you that one of the impacts, one of the effects of the now accepted Part L changes has been the death of the British chimney on small to medium size houses, which is not a risible issue. I think in terms of aesthetics, in terms of economics - and I declare an interest here - in the minerals extraction area there is a chimney and builders' material firms in our area have been severely hit by that and they would argue that we are looking at the position where houses and other forms of domestic property will be hermetically sealed living spaces, almost cells, which may well be efficient in an energy consumption sense but are both less attractive as buildings in their own right but, more importantly, are less healthy places in which to live because of inadequate ventilation and things of that kind. Do you accept the point which was put to me very vigorously and which I put to the Minister over the months but despite what I have said the regulations are now in place? Do you accept what I am saying? Mr Armstrong: It would be wrong for me to express a view. I think one could cure the cosmetic one by putting a false chimney on and making it look better aesthetically, if that is what people felt was appropriate. I am not qualified to comment, I am not a chartered surveyor myself, on the quality of air which has to be balanced by, as you say, a hermetically sealed house for energy efficiency purposes. Mr Prichard: There are methods and there is technology you can use through forced air ventilation systems which can, with heat exchangers in place, be energy efficient and provide a flow of air, and I think we do have to move more towards that regime in order to maintain the air flow available. Interestingly, if you install a gas appliance in a domestic property you have to install the air bricks in the room to the outside world in order to allow that free ventilation. So there are some contradictions within the system. Q321 David Taylor: My final additional question is, taking all these things into account, the changes which have been made by the reform of Part L of the Building Regulations, do you feel that was the best method of upgrading thermal performance of the housing stock, or are there things which were options not pursued or which could be pursued now which would give a more effective movement forward on energy conservation? Mr Prichard: If we are only talking about a small percentage of houses, new build -- Q322 David Taylor: I understand that. They are not fitting these things, I understand that. Mr Prichard: -- but Part L is not a retrospective assessment and therefore it does not really have an impact on the vast majority of UK housing. David Taylor: I think it is a bit higher than 0.2 per cent, but nevertheless it is a very low figure. Q323 Sir Peter Soulsby: I think you made reference earlier to building schools for the future and the investment is going into those schools. It has been suggested to me that some big opportunities are being missed as part of that and that in fact energy efficiency is not being given the consideration that it ought to be. Is that something you are aware of, and is that the responsibility of central or local government? Mr Armstrong: I was certainly conscious of that in hospitals. I am not sure about schools. It is part of the PFI process, I suspect it is part of the compromise process which has been gone through with PFI being very often the way in which a lot of the schools and hospitals building programme has been achieved. There are clearly lessons to be learnt. I suspect when the original spec was done the climate change debate was not as vociferous as it is now and that in balancing out different, possibly mutually exclusive, issues and deciding what to build, at what cost, what it would look like, what functions it would fulfil and what its whole lifecycle costs would be over thirty years, my guess would be that the climate change issues now would have a much greater weighting factor in the decision-making process than they had perhaps five years ago when these projects were conceived. But I take the point. I agree, I think there is probably a number of issues there which for costs reasons, or for other practical reasons, because of competing priorities, did not make schools or hospitals as climate change friendly as they ought now to be demonstrated to be. Q324 Lynne Jones: In relation to new build, Mr Armstrong, was I correct in gathering from what you said earlier that from next year all new house building will be at an energy efficiency level which is as high as the best in Europe? Mr Armstrong: My understanding is that the Home Builders' Federation and the Minister, Yvette Cooper, have agreed between themselves that they will all abide by what I think is going to be a voluntary code to start with, which will bring new house building up to I think probably an acceptable European standard which will be very much better than it is now. Whether it actually is the best in Europe, I am not sure, but they have been trying to come up with as ambitious a formula as they could - Q325 Lynne Jones: You mean as they could afford commercially? Mr Armstrong: Well, as perhaps they could get voluntary agreement to. I am not close to the negotiations. Q326 Lynne Jones: It would be interesting to know if you have got any comments on what ought to be done because we do have a very poor history in this country in terms of the quality of the energy efficiency of our stock. I do not know whether the engineers wanted to comment on that? Mr Armstrong: Perhaps we could come back to you with a written view, if that would help, on what we think is the gap between - Q327 Lynne Jones: Because if we were in a war we should be going for the best that we possibly can achieve, not what is an acceptable compromise. Mr Armstrong: Indeed. Q328 Lynne Jones: In relation to existing housing, if I could put up the hypothesis that I think there is a lot of people in existing housing who could afford, without any subsidy, to do the most effective first stages, because putting on a wind generator or even photovoltaics is not the most important thing, but unfortunately it is the sexiest thing at the moment and a lot of people are perhaps spending money on that, whereas they should be spending money on other things, but what is inhibiting that is the hassle factor. We were talking earlier about the complexity of actually knowing what the best thing is to do, but even when you have decided what to do, actually having that new boiler installed and messing up your kitchen. Have you got any ideas of how we should address that, how we can take the hassle out of that so that somebody can say, "Look, I can come and do it for you"? That is what I would like. At the other extreme we have lots of people who, even if they were prepared to put up with the hassle, could not afford it. We have a lot of our social and council housing in very poor condition in relation to energy efficiency. What should the Government be doing about that? Are they doing enough about that, and what about that element of existing housing which will never really be brought up to a reasonable standard, and about new building for poor people? Where is the resource for that going to come from? Mr Griffiths: Firstly, I do not think that it is a case that nothing is being done. My own council in Hampshire actively write to all residents offering significantly subsidised insulation and actually doing loft and wall insulation, as you rightly point out, is far more effective in the first instance in reducing energy consumption than going for micro-generation. Q329 Chairman: Could I just ask in parenthesis, is that out of Hampshire's own budget or is somebody else funding that? Mr Griffiths: When I say "Hampshire" I am specifically talking about the district of Winchester and I do not know the answer to your question, but I will be happy to find out for you. Chairman: Thank you. Q330 Lynne Jones: It will be Warm Front probably. Mr Griffiths: So if one is trying to think strategically, you have to produce a list of targets where you are going to get the most bang for your buck, and you have to start with these very simple measures as opposed to micro-generation, or what have you. You make the point there are plenty of people who actually could afford to do these things, but for one reason or another it is not made easy for them. I actually think Winchester City Council are making it as easy as it possibly could be. They will supply the materials, they will supply the labour, all you have to do is write the cheque. The biggest problem is clearing your loft before you actually get round to doing it. Q331 Lynne Jones: Will they do that for you? Mr Griffiths: They will not, and that is often the practical obstacle. Q332 Chairman: There will be a 300 per cent increase in car boot sales! Mr Griffiths: I think one of the things about climate change is that it starts off on a very grand scale. You have Kyoto, then you have your national energy review, and so on. I would personally like to see a lot more empowerment of local councils, local communities driving their own initiatives, giving them some flexibility to do this, deciding how they will spend the money and as part of that process increasing awareness of how people are wasting their money. We have mentioned this in terms of energy. We have discussed the bills. Another aspect is what that means in CO2 terms. The RICS ran a conference last year where a member from its geomatics division, which is the division which deals with information technology as it relates to geography, did a fascinating presentation where he claimed that the technology was available now relatively simply whereby you could produce infra red technology from the sky of a whole street or a whole district and from that image you could see which buildings were emitting the most heat. Q333 Chairman: You might have done it! Mr Griffiths: So my question is, if we go back to what I regard as a very elementary thing about having decent information with your electricity bill or your gas bill, along with that bill, why do you not only get your pie chart but why do you not also get your satellite image which shows how bad you are in relation to your neighbour? The shaming effect of that alongside the trade information I think would do more for our reduction of energy consumption than any massive energy review right across the country. It is information that people want and they need peer and financial pressure to act. Q334 Lynne Jones: Nobody has mentioned social housing. Mr Prichard: No. First of all, dealing with the people who can afford to make the changes, clearly they are not valuing the resources, whether that is the resource in the water, which clearly has an energy component because all the water people get at home is treated water and therefore it has had very high energy inputs into delivering that water. So there are options which can be done in grey water recycling and the like which perhaps more could be done about. I certainly have seen no domestic literature coming out in that respect and making that happen. People do not value the resource, so the price of the commodity at the price of delivery is too low, then people make the value judgment, "I don't need yet to do this because it is not going to be cost beneficial to my domestic tariff." I think in terms of social housing it is a much more difficult agenda because it can be, as you say, quite an intrusive experience. So if you are imposing it, then you risk being very intrusive, so I think you have got to go through the information exercise, making the information available in a readily understood format such that people can perhaps request that they have their house surveyed. I know Ofgem has encouraged them and British Gas has done trials on making that survey free of charge, but there still is not sufficient take-up from those who are in that social housing. Q335 Lynne Jones: Should not the landlords helped to do more? Mr Armstrong: I think it is an important area. I just think it is just not in the registered social landlords - I am thinking of the big social housing operations and indeed those still left in council ownership - but also it may be down to some tax incentives, which will not be popular with the Treasury, but I cannot see any way in which, if I was a landlord, I could be prevailed upon voluntarily to upgrade on energy efficiency grounds my premises if it was easily lettable as it was. It is just a market force, if no one is going to rent it because it seems cold or badly heated or cost a fortune in the running costs. I think you need to concentrate attempts on incentivising landlords, maybe in the tax payable on their rent, something where you would have to do that. Q336 Lynne Jones: Just very quickly, the Home Energy Certification process. There are now people being trained up to be inspectors. Do you think the level of their qualifications is adequate for them to be able to do this work effectively? Mr Armstrong: This is a difficult issue, which I have been discussing a lot with Yvette Cooper, largely because it would be better to have someone trained to do a home survey evaluation and an energy performance certificate all at the same time, one visit, a separate visit for an EPC. Using a car is not a good idea anyway in symbolic terms. So the answer to your question is, it is not rocket science and should quite easily be able to be done. The real question is, are there enough of them in the right places to do it quickly and efficiently? The answer is that by June 2007 there will not be, but the EU Directive allows us to, I think, by 2009 have this in place. But I think it is potentially an important weapon. As Mark said, if you have got the information readily available and you know how your house stacks up and you know what it was like ten years ago when it was last done, progressively we will get a database which helps to show the progressive trends. Q337 David Lepper: Mr Griffiths talked about the work Winchester Council are doing, and that was interesting. We hear about Woking and about Leicester, and so on. I just wonder whether either of your two organisations has a view about the role of the Local Government Association in promoting this kind of work amongst its members, and whether you have a view about how proactive or not it is, spreading good practice, and so on, or indeed in lobbying on behalf of its members? I think both organisations have talked about the importance of local councils and what they do. Mr Griffiths: Potentially, clearly, it could have a very important role. What it is actually doing at the moment I have no knowledge of at all, but it could be a forum for establishing best practice. Q338 David Lepper: Miraculously from the sky, the Local Government Association's Breathing Communities Campaign Kit, Ideas Into Action, has appeared before me. So they are clearly doing something! But you were not aware of this? Mr Griffiths: I was not aware of this. Chairman: A piece of good news! Q339 David Lepper: I suspect that might say rather more about the Local Government Association than - Mr Prichard: The ICE has an information board and they would be aware, I think, of that information, but as I do not attend that, I am not. Q340 David Lepper: My local college of further education is investing quite a lot and has been enabled by the Government to invest quite a lot in training for the construction trades at the moment. I suspect the same might be happening in other places as well. As civil engineers you, in particular, keep a watch on the kind of work that is going on in training of that kind, I imagine, and are the courses which are available at the moment sufficiently in tune with the need to deal with the kinds of issues we have been discussing in terms of housebuilding, and so on? Mr Prichard: We accredit courses in civil engineering and there are 76 civil engineering departments across universities in the United Kingdom. We had a slightly more stand-offish view in the further education sector because that is not a direct qualification which leads to professional membership, it is a subsidiary, and we have not got the resource to actually do that. We do take a view of it, but we tend to do it through bodies such as the Construction Industry Council and the Construction Industry Training Board, Construction Skills, who do take a close look at that level, but we certainly have a very good view on what is happening at the HE level and there are concerns with the funding of engineering at HE level which I can articulate if you wanted to hear more about it. David Lepper: Okay. Thank you. Q341 Chairman: Could I just bring our inquiry to a close with a little bit of questioning about large public and commercial buildings. That is where the citizens spend a lot of their time, if they are in employment, and the better the performance of that type of structure obviously takes some of the pressure off other sectors of the economy in terms of their contribution, in terms of reducing greenhouse gas emissions. I suppose the iconic building which in the last twelve months has caught the imagination has been the CWS building in Manchester, which has got the largest array of photovoltaic cells on it and it has also got a lot of wind energy. They have taken the very responsible view of saying, "Right, we're going to incorporate that into our new building." But then, on the other hand, you see a great deal of refurbishment work going on on existing sixties' structures and seventies' structures. I am not getting the sense - and maybe I am wrong - that those buildings are being brought up to the highest possible energy efficiency standards either from the point of view of insulation, external cladding materials, these kinds of things, or the installation of the most modern heating systems. One of the things which came out of our Bioenergy Report was the fact that heat accounts for a third of our emissions and the opportunity to use renewable sources of fuel in more modern boilers, or combined heat and power systems offers some potentially very interesting areas for savings. You commented about the lack of inducement, Mr Armstrong, for the social landlord to make changes. Can you give us some commentary about the environment for business and for property companies to become involved in this whole area? Is, for example, Schedule A structured sufficiently well to give the kind of inducement which you said the private landlord might need, and from the engineers, are we seeing building refurbishment being used advantageously to move the whole energy saving agenda forward? Mr Armstrong: I think we are helped by the EU's Energy Performance Directive in commercial buildings, and I think from memory all those extensions over 1,000 square metres have now to be the catalyst for bringing the whole building up to modern standards. So I think your point about whether refurbished older buildings are being brought up to standard is now covered. I think in terms of buildings as a whole, we are working on a number of levels. One is the value of green buildings. Are they intrinsically more valuable to the investor? Will the investor pay more for this? Are they more valuable to the company? The jury is still out as far as the market is concerned, but in theory there should progressively be - and we are working with the International Valuations Standards Committee on just this issue and there is a big meeting in Vancouver next March on this. One issue will be to get the value of buildings to be greater to the investor and appreciated more by users. Second is the evidence from the human resource community that those individuals who occupy green buildings like them, especially the younger generation, and the efficiency and productivity is improved, the retention is improved and there are very good people reasons why the building should be brought up to modern standards. Our facilities management faculty - and a lot of our members do this on a sophisticated basis - is trying to get best practice instilled in them to make sure that they are taking every opportunity for the good of the business as well as the value of the property and its running costs to bring it up to standard. You have seen those pictures, perhaps, in the Evening Standard recently of all those buildings at Canary Wharf with all those lights blazing, and we are trying to get, as the Home Office does, movement sensitive lighting so that lights are all turned off and you do not blame the cleaners for the fact that they are on all night over 40 floors, as was seen in Canary Wharf just last week. So I think the commercial sector, all the big landlords and developers, is taking corporate responsibility very seriously now, not just paying lip service to greening up their accounts, as might have been the case a few years ago. They are genuinely concerned about all the new developments being seen to be new standards. The best companies are equally concerned about occupying buildings like that and individuals are keen to work in them. So I think progressively things are improving. Q342 Chairman: You have put a lot of emphasis on what is good corporate social responsibility. Are there any barriers to progress in this which government should remove? Mr Armstrong: It is difficult off the top of my head to think of ones which government should remove. One old issue is the problem of VAT on refurbished building as opposed to the five per cent rate - Q343 Chairman: Does Schedule A need to be changed in terms of the way equipment in buildings is written down to encourage a more rapid turnover and re-engineering of the energy systems in buildings, for example? Mr Armstrong: That is certainly a possibility. Mr Griffiths: I think there is scope for that. One issue you do need to bear in mind is that within the existing energy infrastructure there is quite a lot of embedded energy and therefore if you replace things willy-nilly you generate a whole load of CO2 in producing the replacement plant. That is quite a careful calculation and you have to think about that in some depth to make sure that actually you are not making losses in one area and substituting for gains in another. Really the point at which to do it is when equipment is obsolete and then to make sure that you have a very good high specification. One of the technologies which was mentioned earlier, which I suspect is under-utilised, is ground source heat technology. One of the interesting things about that technology is that it is almost universally available and whereas in the past the ducting for gathering that heat source was laid horizontally, so you needed somebody with a garden, for example, to deal with it, now they do vertical installations. So even in very dense urban situations you can make use of that technology and I think that is something which perhaps quite often gets overlooked. Mr Prichard: Answering your question on building refurbishment and looking at that area, I think in terms of the leaps and strides which the best are now doing and introducing in terms of their sustainability policies and being impacted on by the fact that clients are beginning to ask more and more for an environmentally friendly treatment of an existing building, I think we are finding there is an increase of performance in this area. Those who are not being led in that way, and there is clearly a spectrum of performance in this area, are being impacted on by things like the escalating Landfill Tax so that they are now, having had the Landfill Tax increases, they are having to consider clever ways of dealing with the waste on site, so recycling the waste on site and incorporating the re-use into the structure. Those performance things are happening. I think overall any building which has had work done on it, as Louis said, will attain the standards because if you maintain the façade, the building behind it does now have to meet with the minimum standard. But the difficulty we have got is that it is a minimum standard and therefore you have to look at how often you start lifting the bar and taking that standard higher. Chairman: Gentlemen, thank you very much indeed for your many and varied, and well-informed, comments. We have learnt a great deal from what you have had to say. Can I also take the opportunity of formally thanking you for your written evidence. I was particularly interested in the little table in the RICS evidence, which I think David Lepper, representing his seat in Brighton, will have taken very careful notice of, of the amount of photovoltaics, the point seven of a nuclear power station, and the other measures of energy supply in the form of windmills which will be required to keep his city alone going in the future! So you have given us an awful lot to think about. If there is anything more you want to send to us, then we will obviously be delighted to hear from you, but thank you very much for giving evidence this afternoon. |