Energy Bill

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Q 45Steve Webb: I imagine that you would all like to come in on this point but we probably will not get very far if you do. However, I would like to follow that up. Clearly we want people to shop around but the evidence is that low-income households, unemployed families and lone parents are the least likely to shop around, so if we want to protect them, I do not think that we can rely sufficiently just on them shopping around. Given that there is considerable variation among the companies represented here in the proportion of turnover you spend on subsidising social tariffs, are customers not vulnerable? If they are with the worst of you—the company with the least good social tariff that spends the least on such subsidies—and they do not shop around because it is complicated and difficult, are they not at your mercy and would it not be better to legislate minimum standards, which need not be over-prescriptive? Would that not be the best way to protect the customers? Perhaps someone who has not responded yet could reply.
Guy Johnson: We have a number of programmes that are not specific to our customers. We operate, for example, a health-through-warmth programme that is by no means tenure specific; it is open to all customers, not just the company’s customers. I would add to Sara’s point in that much of that work is not about direct giving necessarily—although there is an element of direct giving, particularly in dealing with debt or debt forgiveness, which is a direct cost. But the other element is working with primary care trusts and local authorities and establishing a process of communication. What we have delivered through that is something of the order of £30 million of benefits, through establishing communication—whether direct line communication or communication in home. That is an important part of the programme that we have for vulnerable customers and is perhaps, as Sara says, something that one would lose if it became a central social tariff.
Denis Linford: What we do is, of course, voluntary and competitive, so it is actually part of our competitive activity to do a range of things—and not just social tariffs—to meet the needs of vulnerable customers.
Q 46Mr. Binley: Can I move on to the question of clean coal carbon storage and the possible relationship between that and extending our North sea energy resources? I know that two of the companies you represent were excluded from the competition and were very disappointed. But I understand that you are still going ahead with working on the technology and producing a plant that could help us in the ways I described. Can you say something about that please?
Barry Neville: Yes, I will happily come in on that one. We are looking at an 800 MW plant in Teesside, in the north east, which would be pre-combustion. We were disappointed with the Government’s decision on competition, and we believe they have taken the decision too early to go for pre or post-combustion. More to the point, if we are going to meet these very stringent carbon targets, we need to look at all the options—pre and post. However, I have to say that, at the moment, the economics of it, without any assistance, do not look very good. We therefore need to look at some other measures, even if they are outside the competition that the Treasury has established.
It all comes down to money and support, and I would say that every new technology had support— be it nuclear, offshore oil or gas in its early days, or even onshore or offshore wind, and CCS is not seen as anything different. What we would suggest are ways around that, such as first-of-kind support, capital grants or even—if you look at post-2012 when there will be more revenue from auctioned allowances from emissions trading—recycling the money from a green tax back into developing green technology. So I think there are ways around the problem, and we are trying to remain optimistic about the plant. However, as for going forward as things stand, the economics do not really add up.
Dr. MacLean: We were in a similar position, and probably more advanced than most in the scheme at Peterhead that we were working on with BP. We were particularly disappointed at the time that it took to get to the decision point because an awful lot of time and effort went into getting to that position. Then we thought the restrictive decision that was made to cut out pre-combustion approaches was unnecessarily limiting. We hope that there will still be scope for further projects. We feel that if we are putting in an infrastructure to deal with the carbon dioxide from post-combustion plant, we should look at whether there is an opportunity to do some pre-combustion work to benefit from the investment that will have already been made in equipment and storage facilities for the carbon dioxide. We encourage the Government to consider further support mechanisms for additional carbon capture and storage work.
Sara Vaughan: Can I speak not for post-combustion, but for one of the companies that intends to put a power station into the competition for post-combustion? Our view is that post-combustion was the rational choice for the Government to make, in light of, for example, the situation in China where so many coal plants are being built. We also believe that pre-combustion has a role to play and should be available to the market, and that may turn out one day to be the preferred economic option. For that reason, although we are supporting post-combustion in the UK through the competition, we are actually supporting a pre-combustion plant in the US with a FutureGen project. We think that there is room in the market for both.
Guy Johnson: As someone who has benefited from the ambit of the competition, my concern is that the competition—for which we are trying to pre-qualify—should not be the be-all and end-all. We hope and expect that the Government will continue to review this situation, because there may well be a need, notwithstanding the competition, for even post-combustion to be looked at in terms of what could be done to incentivise the research aspect. I am talking only about the research aspect here, and not things beyond that stage.
Q 47Mr. Binley: Does that mean, in terms of my previous question, that you would want to see that issue opened up in the Bill at this stage? Do you think it important to do so given our energy needs?
Denis Linford: Our view is that it is fine to go ahead with the competition for this particular method, but the other methods should also be supported, as Sara said, in due course.
Q 48Paddy Tipping: Can I ask Sara Vaughan, particularly, about the position at Kingsnorth, about which there was some press comment last week when I found myself defending you. What is the position on CCS at Kingsnorth?
Sara Vaughan: Thank you, first of all, for your defence. The position on CCS is that Kingsnorth was always intended to be built to be carbon capture ready. There has absolutely never been any doubt about that. In respect of the competition specifically, we would be looking to enter a unit at Kingsnorth into the competition.
Q 49Paddy Tipping: Following Brian Binley’s point, what will ultimately drive carbon capture and storage and all the new technologies is a high and stable price for carbon. In the nuclear White Paper, there is a curious phrase that says we would prefer a European scheme through the ETS. The White Paper did, however, speculate that, in the short term, there might be a national scheme. What are your views on that? I know that EDF is very active on this, Mr. Linford, because if you want to bring new nuclear on line by 2019, you have to make some investment decisions fairly quickly.
Denis Linford: The carbon price is set in the market created by the ETS scheme, so there is a market. We have always believed that to create a long-term carbon price, you need to strengthen the EU ETS, and make it into a longer-term, more predictable scheme. The EC has recently published a review of how the ETS will be strengthened post-2012, and that is clearly a good start in strengthening the carbon market in the long term. We are at the stage, I suppose, of considering to what extent that strengthening will provide the strong carbon price signal that we need when it comes to making an investment decision. We are in the analytical stage of seeing how that will work.
Q 50Paddy Tipping: I suppose I am asking you whether 2012 is too late for you to make the investment decision.
Denis Linford: I hope that we will see well before then the extent to which this review will strengthen the carbon market and create a long-term carbon price. As I think you have said, the Government have reserved the right to introduce a UK option to strengthen the effect of the EU ETS on the UK.
Q 51Paddy Tipping: Can I switch to the point that Steve Webb was pursuing on the social tariffs? Unfortunately, Mr. Neville, we did not get a chance to hear Centrica’s view, but I think that I am right in saying that you probably do more in terms of social tariffs than any other company. That puts you at a competitive disadvantage, does it not?
Barry Neville: You are right. Our social tariff has been extended to up to 750,000 customers. That is above and beyond the £10 million energy trust that we have already established and we have put £10 million more into that. We have done that on the back of three winter rebates that we gave to vulnerable customers. We believe in a social tariff, but there is a question about how we get there.
We are in favour of the market delivering a social tariff. There are two parts to this issue and it is a complex one that is not about just the price that vulnerable customers pay for their fuel. It is also about how efficient their homes are and whether all that is being heated is the air above their roofs and about the pounds that such customers have in their pockets. For example, as suppliers, we will be spending £2.5 billion over three years on the energy efficiency commitment that is now going into the next phase, called CERT.
We have the problem that we are trying to focus our spending on priority groups, but we are not sure exactly who they are. We have made a big ask of the Department for Work and Pensions in saying that, one way or another, we and our customers would benefit from sharing information. It could be that we give the Department the information and it tells us which of the customers are vulnerable or it could be the other way round. However, one way or another we need to bottom this out because there is a real gap.
There is also the issue of unclaimed benefits. Work that we have been doing with Help the Aged and the London School of Economics suggests that there is £50,000 in unclaimed benefits over the lifetime of a pensioner. These are really big numbers that we need to work on with Government. It is a bit of a clichÃ(c), but we need joined-up government. We have a social tariff, but it is right and proper that politicians, regulators and everyone else put pressure on all suppliers in this respect.
Rupert Steele: Just to add something from the point of view of Scottish Power, we have quite recently launched a social tariff, but we do not see that as the only part of our activity in this area. For example, we have set our pre-payment standard prices below our standard prices for regular payments. We have also done a lot of work through our trust-on-benefit entitlement. We have found that for every pound that our trust spends on benefit entitlement checks, we recover £20 of unclaimed benefits that people should have been receiving. There is a total of about £9 billion per annum of unclaimed benefits. Making a dent in that would make a huge difference to the amount of fuel poverty. We are pursuing that initiative, and there is a lot that we are doing in competition with each other to show that we are the best in this area.
Q 52Charles Hendry: Can I go back to the issue of carbon capture and storage, particularly in relation to coal? I will then move on to discuss nuclear energy. The Greenpeace submission to us said, “New coal plants should only be approved when they are fitted with carbon capture and storage technology that is demonstrated to work.” There is a world of difference between being carbon capture-ready and having technology that is proven to work.
It is my understanding that E.ON is looking to have Kingsnorth up and running by 2012. A requirement for such a technique would presumably knock that back until 2017 or perhaps beyond that. Given the energy gap that is opening up and the fact that most of our coal-fired power stations are coming out of commission, what would be the impact on our ability to fill the energy gap if we were to require new coal-fired power stations to have proven CCS technology, rather than to be CCS-ready?
Sara Vaughan: That is a hugely important question. The way that E.ON looks at it, there is an energy gap opening up. We have all seen figures that are being bandied about about a third of the plants being off the system by 2020. Nuclear energy will not be able to fill the gap within that immediate time scale.
We have the challenge of 15 per cent. of our energy coming from renewables, and our belief is that that 15 per cent. of energy translates into 45 per cent. of electricity. If we are looking at offshore and onshore wind farms, that sort of electricity will be intermittent, because the wind will not blow all the time. You therefore have to have some sort of back-up—some sort of stand-by, peak electricity—to fill the gap. Our belief is that that should not just be gas; we should not put ourselves in a position where we are wholly reliant on gas to fill the gap.
We are therefore also looking at coal, renewables and wind—we are looking at the whole picture. In terms of our coal, we are looking at replacing about 3 GW of what one might call the less efficient coal plant with Kingsnorth—1,600 MW of supercritical coal, which means that it is cleaner, more efficient coal. At such time as we are able to fit CCS to it, we will do so. That is a very long answer, and I could probably more easily have said, “Yes, I think there would be a problem if we were not able to use coal.”
Q 53Charles Hendry: Thank you. Let us move to the nuclear side of things and the other aspect of the energy gap. The Secretary of State has said that he hopes that the first nuclear power plant of a new-build programme could be up and running by 2018. Do those of you in the room—most of the companies that might be interested in building such plants are represented here—think that that is reasonable? What must be done for that to be achieved? What clarity do you need on the price of carbon and on the nuclear waste disposal regime? What further resources does the NII need to be able to approve the different types of reactor that are being submitted? Do you think that the 2018 target is achievable?
Denis Linford: We think it is achievable; indeed, we believe we can, as a potential investor, commission a new station by the end of 2017. There are lots of things to be done, of course, including design assessment, which depends to some extent on the NII having sufficient resources, but we believe that steps are being made in the direction of ensuring that it does. There are a number of other things, such as reforming the planning regime so that there is a national policy statement that is taken into account by the infrastructure planning commission. There are a number of steps like that, and the carbon price is just one element of what we will take into account when we assess the business case for making the investment. However, there is time to do all those things and to construct a new nuclear power station by 2017.
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