Examination of Witness (Questions 180-199)
INSTITUTION OF
ENGINEERING AND
TECHNOLOGY
23 OCTOBER 2006
Q180 Chairman: What do you mean by
the long term?
Prof Loughhead: The long term
for me in this instance is something that stretches between 25
and 50 years.
Q181 Chairman: To an extent we are
reinventing the wheel a bit here, are we not? There were quite
a lot of microgeneration facilities around the UK before the centralised
grid system was developed.
Prof Loughhead: Yes. They were
all microgeneration systems. The reason that the grid was originally
developed was that it was a lot more efficient and reliable than
a multiplicity of small systems. In saying that I am not implying
that modern systems would have that same reliability issue but
at the time when the decision was made that was the right answer.
Q182 Mark Hunter: I would like to
talk to you about reducing costs specifically. Your submission
quotes some very high payback periods. My note reminds me for
photovoltaics it is 120 years, for small wind turbines it is 29
years and for solar thermal hot water systems it is 80 years.
You agree that these would have to fall by an order of magnitude,
if microgeneration were to enter the mass market. What estimates
do you have of the likely reduction in costs over time? Do you
think the industry is perhaps being slightly too optimistic in
its predictions of costs?
Prof Loughhead: The figures that
we gave were extracted from the DTI's consultation document. The
calculation of payback times like this is notoriously unpredictable.
In my industrial career, the standard answer from an accountant
when asked how much it would cost was, "How much do you want
it to cost?". There are so many assumptions buried into these
payback periods that just to take a simple headline figure is
not very good. What we said in that submission was that these
figures were likely to be challenged, but that we felt they were
of the correct order of magnitude. What that means is to a factor
of 10 they were probably there or thereabouts, but I would happily
give you a sum for solar PV and I could prove that it was 120
years or that it was, say, 20 years without doing much more than
choosing amongst the assumptions that I can validly make.
Q183 Mark Hunter: The 120 would be
the outer reach?
Prof Loughhead: The 120 year figure—there
is a serious point within this—almost certainly takes into
account the fact that the current life of some of these solar
panels is considerably less than 120 years. Effectively what is
going in there is the fact that there will be benefits from having
such a system that will require more than one generation of systems
to realise. There are many complicated figures. To come to your
other point which is how will it come down, if you look at all
these technologies they are all, in engineering terms, very mature
technologies. The only exception is solar photovoltaic where there
are still people who believe that they can make substantial reductions
in costs of equipment. Those reductions might be in how well you
manufacture it or they could be improvements in how efficiently
it collects the energy from the sunlight. Current systems can
only capture about 15% of the energy. If you could increase that,
that might be quite good. Because it is a comparatively mature
technology, many of those benefits will come about through improvements
in the detailed engineering design or in progressive manufacturing
process, either through economies of scale or learning curve type
factors. From an engineering viewpoint, you would expect to be
seeing reductions which would be somewhere between 25 and 50%
on a timescale of something between certainly not less than five
years and probably not more than 20 years. That will depend largely
on what is the volume of equipment that is manufactured, because
that very much drives the learning curve and the investment profiles.
Q184 Mark Hunter: Is it not the case
that other factors also influence consumers' decisions when it
comes to installation of microgeneration, perhaps such as the
effect it will have on their house price? What about the other
factors that are at play here?
Prof Loughhead: I do not think
I can claim any professional view on that because it is difficult
to say but I can give you an example from my previous career.
When dealing with consumer products, it is very difficult to know
why people are going to buy them. The example that I would cite
is some 20 or maybe even 25 years ago. I was then running a project
to develop a central heating boiler for houses. This central heating
boiler worked on the principle of storing heat in a great big
pile of bricks, using off-peak electricity overnight. It then
operated as a standard wet central heating system, just like a
gas boiler so that you could switch it on and off. The idea was
it was a storage system but you could use it like a standard one.
We spent a considerable amount of money and effort designing this
so that the payback costs made it cheaper than the oil boiler
that it was going to replace. We then put it on the market. Remarkably,
it worked.
Q185 Mark Hunter: You sound surprised.
Prof Loughhead: I am an engineer.
When we went back after two years and asked people how the costs
were working out, none of them could tell us. All they said was,
"It does not seem any more expensive." We said, "Why
did you buy it then?" There were two primary reasons: because
it was electrically powered and they did not have to remember
to get the oil tank refilled. That was convenience. Secondly,
oil boilers were very noisy and a number of people bought it simply
because it was quieter. When looking at new technologies like
this, the moral of that tale is that the reason consumers take
things is to do with the benefits that are perceived by the consumer.
To try and decide what that is, when you are following a classic,
industrial, economic return model on an engineering basis, often
leads you into the wrong assumptions. I do not know the answer
to your question. I suspect you will find every reason under the
sun amongst the people in the country overall.
Q186 Mark Hunter: I am sure someone
somewhere has lots of marketing people working on that.
Prof Loughhead: They will probably
get it wrong as well. I remind you of the Ford Edsel.
Q187 Chairman: Are these known unknowns
or unknown unknowns?
Prof Loughhead: These come into
both categories, I think.
Q188 Mr Bone: I want to talk to you
about connecting to the grid because I got the feeling that the
National Grid was all right for generation purposes and we did
not have to worry about that for the next 25 years or so. In your
submission you said, "Contrary to claims, the need is to
enhance the capability of existing networks, rather than to substitute
them with an entirely different system." Is that technically
correct?
Prof Loughhead: We believe it
is technically correct. That is why we said it. We probably need
to contradict something that you imply. As far as I am aware,
the issue of microgeneration does not impact whatsoever on the
National Grid's operation, which is to operate the transmission
systems of the UK. All of these microgeneration systems are connected
to the distribution systems which are the intermediate and low
voltage networks operated by the distribution network operators,
not by the National Grid. Consequently, the national transmission
grid would not be affected by microgeneration systems in terms
of direct connection. The only way it would be affected would
be if there was such a large number of microgeneration systems
installed in some distribution network area that that area became
a net exporter to the grid.
Q189 Mr Bone: That was the Greenpeace
scenario and that was what I thought the National Grid was pooh-poohing.
Prof Loughhead: If that is the
scenario, it is very difficult to envisage the penetration of
microgeneration getting to a point where a region would be a net
exporter of power. I have not even done the sums, it is so far
in the future. It is unlikely.
Q190 Mr Bone: You are agreeing?
Prof Loughhead: I would agree
it is not going to have any impact on the transmission system
in the foreseeable future.
Q191 Mr Bone: The centralised grid
network is not a constraint on microgeneration in any way whatsoever?
Prof Loughhead: From where we
are at present, I do not see the transmission system having any
impact on the evolution of microgeneration.
Q192 Mr Bone: Do you think the technology
is sufficiently advanced for us to have the kind of intelligent
network management that greater deployment of microgeneration
could entail?
Prof Loughhead: I can answer that
in a much more concise fashion. We already have the technologies
available that will enable us to intelligently manage distribution
systems so as to enable any level of penetration of microgeneration.
The issue when you are talking at that level is the issue of assuring
stability of the system under a whole range of different conditions
and operations. That has already been demonstrated on a small
scale. The technologies involved are simply technologies of sensing
and software control. Those technologies can be successfully deployed.
There is however an industrial development phase while you establish
what the appropriate standardised methods of doing that are in
such a way that you can easily apply those to many different systems.
There will probably also be a phase of developing simply the boxes
and equipment. Technologically, I think you will find most engineers
working in electrical distribution and intelligent grid systems
will say that there are some details we need to agree with customers
but they are not really a technical barrier.
Q193 Mr Bone: If there was a particular
town or area which had a lot of microgeneration, your concern
would be about the management of it if it did not produce what
it was expected to and energy had to flow in from the grid, rather
than the other way round.
Prof Loughhead: I would not be
worried about energy flowing in from the grid. I would be worried
about energy flowing out from the region. The big issue with this
kind of thing is that the system as currently designed assumes
that the distribution system has energy poured in at the top from
the transmission grid and it simply flows through an ever-branching
system until it gets to the final end-user. One of the consequences
of that unified flow is that the design of the system, the control
voltage, the protection of the system and the safe operation of
the system are considerably simplified compared with a system
where power can flow in any direction and where the intermittency
of generation requires that you need much more sophisticated means
of controlling the voltage. The big issue with all that is, if
you start to get localised areas where people can generate, you
need to ensure that you can cope with those situations, given
that you are starting with a network that has built into it the
assumption that all the power is going one way. There is another
point about this that is an obvious one but I should raise it.
One of the big dangers is that when you are maintaining these
networks at the moment, crudely, if you pull the fuse at the feeder
substation, the network is dead and you can send people to work
on it. One of the big issues is, if you have lots of generators
scattered around over which you have no control and you pull the
fuse on the feeder, you have no guarantee that you are not sending
your workmen into a situation where they could be touching live
equipment. That is one of the issues when we talk about protection
and safety.
Q194 Mr Wright: In terms of household
energy exports, what do you think the barriers are being faced
by householders who wish to export their energy?
Prof Loughhead: I am not totally
up to date on exactly what the current regulations are but I suspect
the main barrier is that their electricity company does not want
to allow them to do it, essentially either for the reasons we
have just touched upon or because the value of what they export
and the means of monitoring, metering and billing, the settlement
process, have not really been settled. Effectively, if you are
a distribution company, at the moment you are buying electricity
from the transmission grid at the price of 4p a unit, or whatever
the price is, and you are then selling it to the customer for
8p a unit. If you are going to take power back in, it is not unreasonable
that you might only want to pay the wholesale price for that power
rather than paying the wholesale price plus your own profit margin.
There are barriers because of complications of that nature and
there are many people better qualified than I to talk about those
processes. Largely, the use of microgeneration at the domestic
level has been restricted to people who can generate electricity
locally that falls within their own consumption. All they are
effectively doing is reducing the amount that they wish to take
over the wire from the supplier.
Q195 Mr Wright: You touched on the
question of the price of selling back into the grid itself. Do
you think that, if you export the excess energy that you have,
you should be paid a minimum price or do you think you should
be paid the market price?
Prof Loughhead: I do not feel
that I can give you anything other than a personal opinion on
that point. It is an important point. I would suggest that it
comes down to the issue of, if one wishes to encourage people
to generate locally, you need a scheme that will encourage them
to do that. As to exactly what that is, it could be anything.
There is another issue in that your question assumes that the
device is owned by the householder. It is quite possible that
the device might be owned by the network operator, in which case
many of those trading issues would be minimised because they would
simply be transferring money between their own pockets.
Q196 Mr Wright: Can you see that
happening, that they provide you with that type of equipment?
Prof Loughhead: I do not see what
barrier there is to it happening. It is unlikely at the moment
that they would do that because at the moment microgeneration
is more expensive than the centralised generation model. There
are benefits in line with governments' policy to try to reduce
carbon emissions and similar things, but in terms of cost there
is not the immediate economic incentive.
Q197 Chairman: The obligation that
the Government is talking about putting on energy companies to
reduce carbon emissions could incentivise those supply companies
to supply equipment in a domestic environment.
Prof Loughhead: It may well do.
It may be that, if those incentives are so designed, they could
encourage local moves such as that. The parallel is that in the
United States there is an obligation on energy suppliers to bring
about energy efficiency amongst their consumers which led them
to go around replacing light bulbs with compact fluorescents and
things of that kind. We have seen a very similar move here. The
advantage of that is that it overcomes some of the problems that
the earlier evidence touched upon, about the safe installation
of equipment. If you have a competent organisation handling it
all in an area, that might become an easier issue.
Q198 Mr Wright: Is the installation
of smart metering an absolute prerequisite for households wishing
to export energy?
Prof Loughhead: No. It is not
an absolute prerequisite at all. However, it would give a much
more sophisticated level of information and therefore it might
enable a solution to be found earlier to this trading problem.
At the moment if you have a meter you can only drop it backwards
so all you can record is net consumption from the grid.
Q199 Mr Wright: Do you think the
government has a role to play in trying to encourage greater use
of smart metering?
Prof Loughhead: I believe that
under the present system there is no immediate incentive for any
energy supplier to install a smart meter. The system as it stands
meets all of their needs and therefore there needs to be some
external stimulus if it is going to happen.
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