Energy Bill

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Q 66Anne Main: Several of you have touched on what I would call the nuts and bolts of this, and that is the planning system. I was interested to hear that you felt you could have a new nuclear power station facility up and running by 2017. There is a crossover with the Department for Communities and Local Government. A Bill dealing with strategic infrastructure is currently being considered. How confident are you that there will be engagement, so that if the Energy Bill is to move forward in whatever form it is refined in Committee, planning will not end up scuppering what is supposed to happen? Recently, there have been criticisms in reports that the DCLG does not communicate its vision outside. You may have the aim of having a power station by 2017, but planning permissions may not be forthcoming. Are you confident that there is enough strength in the Bill to deliver what you think will be needed for our future energy, dovetailing with planning?
Denis Linford: The Planning Bill going through the Commons will create the infrastructure planning commission and national policy statements. As I understand it, there will be a national policy statement for nuclear, based on the White Paper and the strategic siting assessment that will be carried out over the next couple of years. With that, and with the need to consult people affected by our projects, we think that process can work and that we can get consent in time.
Q 67Anne Main: What about wind, and other renewable developments, which are in some areas equally contentious?
Rupert Steele: If enacted, the Planning Bill will undoubtedly be extremely helpful in enabling the industry to make the kinds of investment in a variety of different technologies that are going to be necessary to meet the supply gap, get the grid developments made that are necessary for renewables to continue to grow, and, if appropriate, invest in nuclear. So it is a hugely important Bill and I am confident that the people in the Government machine who co-ordinate these things are aware of the important link between that Bill and this one.
Guy Johnson: The difficulty that we are all struggling with at the moment is the current system. I talked about the Gwynt Y Mor example, where we put in a section 36 in December 2005, and you can see the frustration at the moment. I absolutely agree that the Planning Bill will considerably improve the current arrangements.
Dr. MacLean: Could I just raise one other issue? Energy policy remains a UK reserved matter; planning is devolved. We are now seeing energy legislation or energy policy moving into planning legislation in the form of the national policy statements, and they will not have the same primacy in the planning system in the devolved Administrations. This is a particular issue for renewables, where so much of the resource is in Scotland, and so much of the delivery is expected to come from Scotland. It is essential to find appropriate ways of ensuring not only that there is joined-up thinking between the Energy Bill and the Planning Bill, but also that there are appropriate solutions to join up the approaches in the devolved Administrations so that we do not find that energy policy is being set by planning policy, which is one of the dangers we have at the moment.
Q 68Mr. Swire: I think you are a little bit optimistic to think that the Energy Bill is going to solve all the problems of local planning, particularly with the commissioning of new power stations and so forth. I should think there will be tremendously contentious decisions that will drag on for a long time.
Regarding the point made on offshore wind farms, have you altered your thinking or been in discussions with the Ministry of Defence, following the reports about the interference that offshore wind farms could cause to radar and air defence?
Rupert Steele: We have not. I have to say that I agreed with the editorial in The Times, which said that this was an issue that needed to be sorted out—
Mr. Swire: Yes.
Rupert Steele: We need the MOD and the relevant technical experts to deal with it.
Q 69Mr. Swire: Does this come as news to the industry?
Rupert Steele: We have focused on and are developing mainly onshore, where the problems are better understood.
Sara Vaughan: It is not big news. We have had an issue on one of our planned developments at Humber, and we are exploring that issue further.
Q 70Steve Webb: I am going to dot about on subjects a bit. In the Bill, the nuclear operators have to meet their share of clean-up costs, and we do not know what they will be, so there is a provision for a margin of uncertainty—an element of risk just to make sure. Clearly, the Government could make sure by making that margin huge, but that would be unattractive to you as investors. On the other hand, they could make it very, very small and you would want to invest, but the taxpayer would run a risk. Do you have a view as to the optimal size of the scale of the margin of risk that the Government should allow, that would encourage you to invest but would not leave the taxpayer unnecessarily vulnerable?
Denis Linford: I think it is too early to say. There is clearly going to be detailed guidance issued and consulted on shortly, so we will see more detail of this over the next few months. No doubt we will be discussing with the Government what those cost estimates are and what margin for uncertainty there should be. It is a bit too soon to say what the right outcome should be, but clearly, from our point of view, it would be helpful to have a fixed price with that margin to protect the taxpayer.
Q 71Steve Webb: But if they over-egg that margin, might you walk away?
Denis Linford: The long-term liabilities are not a very big element of the total cost, so one should not over-emphasise the importance of those costs in the investment decision. We think that only about 5 per cent. of the total cost of a nuclear station over its whole life is accounted for by those long-term liabilities. However, we clearly need to get this right in consultation with the Government.
Rupert Steele: Obviously, I do not think that it is the Government’s intention to set the margin at a level where it becomes a money-spinner. It needs to be set at a prudent level that gives the taxpayer a good degree of protection. Clearly, at some point if it is inflated just for the fun of it that would start to affect investment decisions and we think that that would be wrong.
The other point that I would make, of course, is that the new arisings of waste from a new nuclear programme would be much easier to handle than the legacy, because we are all very, very focused now on nuclear waste issues in a way that the people who initially built Sellafield in the late 1940s perhaps did not have at the top of their minds, for reasons that we all know. I think that one just needs a little perspective on this issue.
Q 72Steve Webb: The Bill has some provisions about metering, but relatively minor ones. Obviously, we have had some discussion about smart metering and the roll-out of it. My worry about some of the models on rolling out smart metering is that five or six of you all turn up with your own individual vans to your own individual customers installing your own individual smart meters in the same road. Is there a way of avoiding that happening while still getting a rapid roll-out?
Barry Neville: Absolutely there is. There have been a number of models developed to try to get around that problem. What you do not want is British Gas turning up and doing Nos. 2, 4 and 7, and doing gas in one, electricity in the other and dual fuel in the next one. The desired outcome is really one company going in through that road and fitting one meter that is able to speak to a meter in the north or the south or the east or the west. I think that that is the position that the industry is trying to get to, so that you can get the cost efficiencies of that type of roll-out.
I think that you would also get further benefits, even in terms of public education, because if you get the opportunity to go down, street by street by street, there are other things that you can do when you are in the home: energy efficiency advice, benefits and health checks. This is a real opportunity that I think that the Government should take. I think that the Government are well aware of the situation, but I think that we are looking for something further in this Bill, such as the mandation of metering that will give it the kick-start that we need.
Dr. MacLean: It is important to recognise what needs to be rolled out, and the difficult part is the basic infrastructure around the telecommunications to make the two-way link and some sort of base unit into which various other things can be plugged. You can have plenty of competition around what you plug into, but you have to get that base unit in there. We believe that, at the moment, a real opportunity has been missed to take the enabling powers in the Bill that would allow a mandated roll-out. If we had that there, we could then work in parallel on the options for how best to do that roll-out, but for a lot of it there are not a lot of options; we just need to get on with it and put that basic infrastructure in place. We need to get moving with that roll-out. We would like to see that in the Bill.
Sara Vaughan: Just to reinforce that point, part of the reason for that is that we think that trying to do it under the European Communities Act 1972 will not work because its powers are not wide enough, because the provisions of the energy services directive, which would enable it, do not completely cover the point.
Q 73Dr. Ladyman: At the end of the day, you may acknowledge Government targets but I guess that you will do what the law requires you to do or what the market drives you to do. Given what you know about the market, do you perceive that we have the legislative framework in place with this Bill for you to hit the Government’s target on renewables? I am not talking about the Commission target because Dr. MacLean has already said that he does not believe that we can hit it. However, is the Bill sufficient to ensure that we hit the existing Government targets?
Rupert Steele: The Bill probably contains the right provision, give or take some minor points of detail. However, there are some things that could prevent delivery. The most important of those are grid connection and planning. The banded renewables obligation provides a framework that can support the roll-out of renewables financially. It will have to be extended in time and level to get beyond the 15 per cent. or so that we might reach by 2015 because there will be insufficient years left to fund the lifetime of projects. However, the key constraints are getting these renewables connected and getting planning permission to install them. The delivery of renewables is fundamentally dependent on addressing those two issues.
Guy Johnson: My answer to the question is yes, subject to the detailed point that I raised in relation to the transitional provisions for existing renewables plants and those in the course of construction. The issue for us relates to planning.
Dr. MacLean: I would probably also say yes, the Bill can help to hit that target in conjunction with the Planning Bill and in conjunction with something similar being done in Scotland. There is the proviso that we believe that the transmission arrangements are inappropriate, particularly to do with access and the codes structure for dealing with that. The initial work that is being done between the Department for Business, Enterprise and Regulatory Reform and Ofgem is already beginning to recognise that there may need to be legislative changes to ensure access. Again, on the basis of the European Commission statement on priority access for renewables, we must ensure that those that have got planning permission can connect to the system and that others are encouraged to do so.
Q 74Dr. Ladyman: I am generalising, but given those caveats, you have basically said that the Government have hit the right mark with the Bill in terms of renewables. Changing the question slightly, in terms of the Government’s desire to cut carbon, will the market and this legislation allow us to hit the carbon target?
Dr. MacLean: Not yet. It is not enough yet.
Q 75Dr. Ladyman: If in the Climate Change Bill there is a 60 per cent. carbon target—or possibly an 80 per cent. target, if those people who are pressing for it get their way—is there any way that that could be delivered without a significant nuclear component? If that is the case, do the legislation and the market point us in the direction of delivering that target?
Dr. MacLean: The big thing in the carbon reduction equation is to recognise that we must take two parallel approaches. The first is to manage and reduce our consumption and the second is to decarbonise the residual supply of that demand. There is usually far more focus on the latter than on the former approach of getting the demand side to be better managed. That happens across the whole package.
We are talking about an energy Bill, but we have talked almost exclusively about electricity. Heat is another important aspect in reducing carbon and in hitting the renewables targets. We feel that the Bill could have done more to introduce incentives for renewable heat. At the moment, there is a perverse incentive to develop solutions for electricity rather than for heat. Quite often, it would be better to channel that investment into a heat solution rather than an electricity one. We need to get to grips with the demand side. We need to make sure that we are looking at energy across all its facets. In that respect, there are gaps in the Bill that will need to be filled at some time in the near future.
Denis Linford: Specifically on nuclear, we do not believe that the targets can be achieved without nuclear, so we believe that nuclear should remain part of the mix along with renewables and, hopefully, carbon capture and storage in due course.
Sara Vaughan: I would agree with that.
Q 76Dr. Ladyman: Just to come back to what Dr. MacLean said about constraining demand, I suspect that some of our witnesses later today or in the next session will tell us that if we had loads more energy efficiency, we would not need nuclear. My quick mental calculation—if this is wrong, forgive me—is that if the economy grows by 2 per cent. a year between now and 2050, the economy in 2050 will be about two and a third times the size that it is today, so even if we put in place energy efficiency on a scale that could constrain that, it is likely we would still need as much energy in 2050 as we are producing today, perhaps even more.
Sara Vaughan: There are also some solutions that may involve the need for more electricity. For example, if you are looking at something like zero-carbon homes, you cannot capture the carbon that is emitted from a gas boiler, so you have to be looking potentially at some sort of electrical heating, but doing that from what is a zero-carbon source. If we are looking at the transport sector and perhaps at transport that is fuelled by hydrogen, again that would entail a large electricity demand in order to do the conversion. Energy efficiency, as Keith said, is part of the mix, but no, it is absolutely not enough on its own.
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