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? Guy
Johnson: From our perspective, we think the terms of
the competition are appropriate. Fundamentally, the Government need to
say what they are buying in a procurement; otherwise it will be a very
muddled process that, logistically, will not work. We think the
Government made the right choice at this time for this competition,
because of the retrofit opportunities in the UK and
the opportunities in China. It is no surprise, given what I have just
said, that we are entering the competition. I do think, however, that
there is an unbridged gap between the competition and the day when
there will be a sufficiently robust carbon market to keep carbon
capture and storage going, as it were, of its own volition. Whether the
Bill is the right place to put that bridge in place, or whether it
should be done subsequently, is an interesting question, but it
certainly needs to be
done. 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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