 House of Commons |
Session 2007 - 08 Publications on the internet General Committee Debates Energy Bill |
Energy Bill |
The Committee consisted of the following Members:Chris Shaw, Committee
Clerk
† attended the
Committee
WitnessesGaynor
Hartnell, Deputy Director, Renewable Energy
Association
Maria McCaffery, Chief
Executive Officer, British Wind Energy
Association
Dr. Gordon Edge, Director
of Economics and Markets, British Wind Energy
Association
Andrew Lee, Chief
Executive, Sustainable Development
Commission
Sarah Samuel, Team Leader,
Energy Team, Sustainable Development
Commission
Dr. Jeff Chapman, Chief
Executive, Carbon Capture and Storage
Association
Chris Mansfield, Chairman
of the Policy and Regulatory Committee, Carbon Capture and Storage
Association
Mike Tholen, Director of
Economics, Oil & Gas UK
Paul
Dymond, Director of Operations, Oil & Gas
UK
Roddy Monroe, Regulation Manager,
Centrica Storage, and Chair, Gas Storage Operators
Group
Sonia Youd, Commercial Director,
Centrica Storage, Gas Storage Operators
Group
Malcolm Wicks MP, Minister for
Energy
Dr. Daron Walker, Project
Director, Energy Bill Team, Department for Business, Enterprise and
Regulatory Reform
Dr. Mark
Higson, Director, Nuclear Consultations and Liabilities Unit,
Department for Business, Enterprise and Regulatory
Reform
Michael Duggan, Deputy Director,
Renewables Obligation Team, Department for Business, Enterprise
and Regulatory Reform
Public Bill CommitteeTuesday 19 February 2008(Morning)[Mr. David Amess in the Chair]Energy BillFurther written evidence reported to the HouseEN 07 Carbon Capture
and Storage Association
EN 08
Mayor of London
EN 09
CBI
EN 10 Tom
Burke
EN 11 Oil and Gas
UK
EN 12 British Wind Energy
Association
EN 13 Renewable
Energy
Association
10.30
am
The
Committee deliberated in
private.
On
resuming—
10.40
am
The
Chairman: Welcome to our witnesses. I do not know whether you have
attended a witness session before, but you will certainly not need that
scarf on, Mr. Lee. We are going to take evidence so would
you please introduce
yourselves?
Sarah
Samuel:
My name is Sarah Samuel and lead the climate
change and energy team at the Sustainable Development
Commission.
Andrew
Lee:
I am Andrew Lee, director of the Sustainable
Development
Commission.
Dr.
Gordon Edge:
My name is Dr. Gordon Edge, director of
economics and markets at the British Wind Energy
Association.
Maria
McCaffery:
I am Maria McCaffery, chief executive of
the British Wind Energy
Association.
Gaynor
Hartnell:
I am Gaynor Hartnell from the Renewable
Energy Association, where I am deputy
director.
The
Chairman:
Thank you. We have five witnesses in only 40
minutes, so I ask colleagues on the Committee to bear that in mind. If
someone asks one question and we get five replies, we will not make
much progress. Perhaps our Minister would like to
speak.
The
Minister for Energy (Malcolm Wicks):
I will not, on this
occasion, if you will forgive me, Mr.
Amess.
Q
173173
Charles
Hendry (Wealden) (Con): May I begin by asking all our
witnesses their views on the appropriate remit for Ofgem and whether
they believe its remit and its primary duties should be changed to
include a specific duty to reduce carbon emissions? I know the
Sustainable Development Commission has brought forward a range of
proposals on that, but do you believe it should have equal primary
duties, or should one be secondary to
another?
Andrew
Lee:
Perhaps I could respond to
that. In the Sustainable Development Commission, we think a big missed
opportunity in this Energy Bill is the opportunity to change the
framework within which Ofgem operates, and we think that has to start
from the issue of the primary duty. At the moment, sustainability, or
the climate change imperative, is a sub-duty of a sub-duty in the way
Ofgem works. We would like to see a change in the primary duty as we
think that is the keystone on which a changed approach from Ofgem could
be built in the
future.
We
have put forward two options in our report and the first is to put the
current consumer interest and the greenhouse gas duty one above the
other. The other option, which in some ways is the more pure
sustainability option is to say that these should be joint objectives
and that the regulator should be required to deliver a regulated energy
market in the interest of consumers while simultaneously reducing
greenhouse gas emissions from the network. Out of that flows a series
of other things, including what is a key issue for us—creating a
regulated heat market. We think there is a huge missed opportunity that
Ofgem can and should deliver.
Related to that is the issue of
Ofgem in relation to the price of energy, smart metering and trying to
create an environment in which consumers are well informed about their
energy use and are able to make informed choices and in which
low-income consumers do not pay through the nose for energy because of
the tariff
structure.
Dr.
Gordon Edge:
Certainly what needs
to change at Ofgem is an attitude and a culture that seems to think
that it is doing very well when, in fact, it is being quite
obstructive. By its own lights, it thinks it is doing well. We also
need to recognise that it is not just Ofgem, but the whole governance
structure of the energy sector, and particularly the networks and the
number of code panels, that need to change. We see changing
Ofgem’s remit as a last resort. That would be quite disruptive
of the whole system while Ofgem digests a new primary duty, but we are
not counting that out. Unless there are other options, such as changing
the guidance given to Ofgem—if that is really strengthened and
if that does deliver what we want in a short time frame,
fantastic—but maybe, as a last resort, a change in the primary
remit may be helpful. We are working with others on an amendment, which
we may introduce in the House of Lords or later, that brings forward
all four of the Government’s pillars of energy policy, as to
what should be the drivers of Ofgem. That is merely one option and
there are many.
Gaynor
Hartnell:
The Renewable Energy Association’s
position is more in line with that of the Sustainable Development
Commission. Although we agree that we all have the same end objectives,
we share the view that, without the primary duty being changed, there
is very little chance of the scale of change and the speed with which
we need to change actually happening in practice. Ofgem is clearly an
extremely effective and strong regulator, and it is doing a very good
job in regard to its current duties. However, it is no longer really
aligned to Government
policy, and we would therefore like to see the Energy Bill grasp the
nettle and deal with that, because we really need to pull out all the
stops, given the scale of the task required to get 15 per cent. of our
energy from renewables by 2020.
Q
174
Steve
Webb (Northavon) (LD): Could one person from each
organisation give us their view of the potential of renewables’
contribution to the energy mix, both in the short term and in the long
term? I am interested in your views on the upper band and on the short
term prospects, as it were, with a fair wind, if you will pardon the
expression. In particular, does the banding of the renewables
obligation help or hinder the potential contribution of
renewables?
Gaynor
Hartnell:
In the Renewable Energy Association, we
believe that a 20 per cent renewable energy contribution is possible by
2020, and we have a paper that shows how that could even be slightly
exceeded. At the moment, we have a renewable electricity obligation and
we are shortly going to have a transport fuel obligation, but we need
to have action across the whole breadth of not just the industry, but
other parts of the economy as well. We really need more involvement
with house building, with industry, and commercial applications. As far
as the renewables obligation is concerned we feel it is extremely
effective at the job it is designed to do, which is large-scale
renewable power projects.
When it comes
to on-site generation, these are entities whose core line of business
is not developing power stations. It is incredibly complex, and the
arrangements are not suitable to engage the kind of commercial entities
that may want to generate some power for their own needs, but do not
want to tackle all that complexity. So we believe it would be more
appropriate to have something like a basic tariff
structure—people are more familiar with the term feed-in
tariffs—for smaller-scale generation, and I do not just mean
microgeneration or under 50 KW, but you would need to have a boundary
somewhere. That would be more appropriate to reach out to a wide range
of sites that may be available: sites like sewage treatment works,
waste management facilities, or next to warehouses, hospitals or
industrial estates. These are not your typical renewable power station
hilltop sites, but there are a vast number of them and they may well
have advantages when it comes to planning. So the renewables obligation
has to remain in place to give security to the industry. It would be
extremely damaging if it were changed, but we believe that a feed-in
tariff mechanism can coexist with a renewables obligation and widen the
applicability. We also need an effective measure for renewable heat,
and a tariff-based mechanism—clear straightforward and
simple—is much more likely to succeed in following the renewable
obligation tradable certificate kind of route.
Maria
McCaffery:
The BWEA represents the
wind, wave and tidal industry in the UK, but is exclusively concerned
with electrical power generation. So I cannot speak for heat and
transport fuels, where we work closely with the REA. At present, 4.5
per cent. of all
our electricity comes from renewable sources. Of that, a third is
wind—and that is predominantly onshore wind—and the
balance of 3 per cent. comes mainly from hydropower, with a little from
biomass. At present we have another 7,500 MW, which is equivalent to
about 5.5 per cent. of electricity, stuck in the planning system for
onshore wind alone. If two thirds of that could be consented to in the
short term, we would comfortably achieve the 2010 target of 10 per
cent. of electricity from totally renewable sources.
As far as the greater
proportion is concerned, I am trying to concentrate on the time scales
that you outlined. The greatest contribution is going to come from
offshore wind and we will see exponential growth from around 2012 to
2020, with the bulk of it coming post-2015 as more
manufacturers—we are confidently expecting more—come into
the turbine-supply
market.
Sarah
Samuel:
Just to add to that, we recently did a big
report on tidal power and we estimated that there is the potential for
5 per cent. of UK electricity to come from each of tidal-range and
tidal-stream sources, so that is up to 10 per cent. of electricity in
the longer
term.
We
are supportive of the banding of the renewables obligation; we think
that that will help to develop technologies that are slightly further
away from market at the moment, but we recognise that there are
difficulties with the RO for very small generators and microgenerators
and that an alternative support mechanism might be appropriate for
those. Equally there is a package of measures around renewables that
needs to be tackled, regarding barriers to smaller generators, network
charging arrangements, access to the transmission network, and charging
of generators connected to the distribution network. That is something
that we feel that Ofgem and the Government need to act on
together.
Q
175
Mr.
Hugo Swire (East Devon) (Con): To follow that theme, do
any of the witnesses feel that the increased banding will encourage the
necessary levels of extra investment for marine energy to prosper? If
they believe that, do they believe that investors will follow, when
there is the safer bet of offshore wind available, with almost as many
renewables obligation certificates available? Do they feel that if
there were higher ROCs banding, and if they were given to emerging
technologies, that that would harm offshore investment, taking into
account the changes to the planning laws being
considered?
Andrew
Lee:
Can I comment perhaps on the
issue of tidal energy, which we have obviously featured heavily in the
Sustainable Development Commission’s work recently? I think that
our assessment of the potential for tidal stream
technology—marine-current turbines and so on—is that
although a banded RO is to be welcomed, it is not the measure that will
be the key issue in the short term because those technologies are still
at a very early stage. One of the technologies, a single turbine, is
being tested in Strangford lough right now and the issue is about
maintaining the level of investment and innovation funding and things
such as the European Marine Energy Centre in Orkney, where you can
actually plug in these technologies and test them. It is about that
sort of commitment to innovation in technology because we have not yet
got to the stage, as we did with wind, where we know which kind of
technical solutions will deliver
in the long term. The RO is perhaps for those technologies nearer to
market. We also need the framework for innovation and
investment.
The
feedback that we got from the tidal industry players and some of the
academics was that actually they were not that dissatisfied with the
current regime; it was more about staying the course, and having very
clear signals from the UK Government, and particularly the Government
in Scotland in this case as well, that tidal technology is going to be
an important part of the UK economy and innovation in the future.
Therefore there is a lot to play
for.
Q
176
Martin
Horwood (Cheltenham) (LD): I just have a quick question
for Ms McCaffery. You said that 5.5 per cent. of UK
electricity-generating capacity on onshore wind was
“stuck” in planning. By “stuck” did you
mean literally stuck as in the process has ground to a halt or do you
just mean “in
process”?
Maria
McCaffery:
I meant “in process”, but
many of those applications have been there for more than 24
months and some for more than four years. That is what I mean by
“stuck”.
Maria
McCaffery:
Yes, it
is—[Interruption.]
The
Chairman:
Order. I think the noise we are hearing is
caused by a mobile phone. It seems to have stopped. Please
continue.
Maria
McCaffery:
I am sorry. That has distracted me. What
was the
question?
Martin
Horwood:
I was asking what proportion of applications had
ground to a halt, and whether the ones that had been going for a number
of years were still in
process.
Maria
McCaffery:
If I may put it in context, local planning
authorities are mandated to make determinations on 80 per cent. of
applications within 16 weeks. After that, there are no targets. About
70 per cent. of all the planning applications put before local planning
authorities are determined within 13 weeks. Of those, 5 per cent. are
wind energy applications. There are clearly difficulties with the
determination of wind energy applications, which planning authorities
blame on poor resources, inappropriate qualifications and so forth.
Whatever the reason, when I say “stuck”, I mean stuck.
The majority of those applications have been there for much, much
longer than the statutory determination
period.
Gaynor
Hartnell:
I was hoping to add to the question on
green renewable technologies. I said that the renewables obligation is
not a very suitable mechanism for smaller-scale generation. Similarly,
it is not ideally suited for emerging technologies where one is
expecting the price to go down fairly rapidly, because it builds in
quite a lot of inertia. A feed-in tariff is more effective for that
kind of technology as well. Our wave and tidal device developers look
with envy at countries such as Portugal and Ireland, which have feed-in
tariffs for
marine renewables, and expect to do business in those countries where
that policy makes the climate much more conducive to their
business.
The
Chairman:
Before I turn to colleagues on my right, I call
Mr. Hugo Swire who wanted to ask a
question.
Q
178
Mr.
Swire:
I just wanted to ask whether any other witness
would like to respond to my previous
question.
Dr.
Gordon Edge:
I would certainly back
everything that Andrew said in terms of the UK’s strong
technological lead and intellectual infrastructure, the resource and
research base we have for the marine technologies. The Government have
recognised that even the two ROCs that the banding will give to wave
and tidal are not enough for where those technologies are at the
moment. Our concern is to do with the marine renewables deployment
fund, which is struggling to get successful applicants because of entry
criteria and so forth. We would like to see that process becoming
easier, and see that something comes after it. The fund will support
only four different technologies, once only. There is nothing beyond
that. There is a gap between the MRDF and what will work under two
ROCs. We would very much like to see the Government put something in
place to ensure a strong development path.
Your other
question was, “Is that going to interfere with offshore wind,
and the one and a half ROCs?” Not a problem. The two ROCs given
to wave and tidal will be a small proportion of the RO. When we asked
our offshore developer members, they were very pleased with one and a
half ROCs; it was competitive with other countries and their feed-in
tariffs and other support mechanisms for offshore wind; and it
reinforced the UK’s position as the premier offshore wind
development country in the world. We have the largest market, and we
will have half the world’s offshore wind capacity, going
forward.
Maria
McCaffery:
May I supplement that
very briefly? When it was announced last May that there was an
intention to increase the ROC multiple for offshore wind to 1.5 per
cent., the UK rocketed back up into second place in the world league
table for investment. The global investor community turned its sights
back to the UK and saw a tremendous opportunity. That is what our
offshore developers are responding to, and that is what we must ensure
we
maintain.
Q
179
Paddy
Tipping (Sherwood) (Lab): It is sometimes argued that
social tariffs and renewable obligations are an either/or choice. I was
interested in Gaynor Hartnell’s point that you can do both. One
criticism is that the Bill does very little to encourage
microgeneration. Is the argument that feed-in tariffs are a way of
increasing microgeneration?
Gaynor
Hartnell:
Can I reinforce the point that I made
earlier? It is not just in microgeneration that we see a role for
feed-in tariffs; we see a role for commercial entities whose main line
of business is not power station development because it is too complex
for them. Really, that is important. A wind turbine of less than 50 KW
is not inherently better than a larger-sized one next to a commercial
development.
That is one of the problems that we have with the renewables obligation;
there have been attempts to make it more effective for microgeneration
and none of them will really do the job. Some 70 per cent. of
Ofgem’s time administrating the obligation is spent dealing with
less than 1 per cent. of the renewable generation in the country. It is
all spent on small applications, which is not very useful for them or
the wider industry. I stress again that it may be up to 1 or 2
MW that we see there being a role for a feed-in or a production tariff
kind of mechanism.
Andrew
Lee:
May I pick up specifically on
the link between social objectives and climate change? It is an issue
that we were animated about in the Ofgem report. Our assessment is that
there is a market failure at the moment on two fronts. First, consumers
are not well-informed about the consequences of their energy use; in
fact, they cannot even get the information. Secondly, the market is not
serving low-income consumers well. In other words, the poorest people
are often paying the highest tariffs—unacceptably
high—and that difference has got greater over time: from
£17 difference in an average bill up to £120 over the
past few years. The gap is getting worse. Those things need to be
addressed because, to get where the UK needs to be, we need consumers
to be able to take control of and to be empowered to use their energy
more effectively. We also need to be driving social policy in a way
that disconnects people from fossil fuel dependency in the first place,
through the energy efficiency measures and rest.
I have two very specific
recommendations: one is about smart metering—again, we think
that this is a missed opportunity in the Energy Bill. I know that there
is a complex and arcane debate going on, which I do not fully
understand but others here do, about smart metering, real-time displays
and different types of metering options. However, the point is about
the outcome you want. The outcome has to be that consumers are able to
make informed choices about their energy use based on accurate
information at the same time as energy companies are able to get more
information about how they are supplying their customers. Each proposal
should be tested against that. That may be a combination of metering
solutions and, of course, smart billing as well; it is the whole
package that fits together. The second thing is to tackle these
perverse social tariffs. It is unacceptable that some of the poorest
people in society are paying the most per unit of energy. That market
failure has to be addressed.
Q
180
Albert
Owen (Ynys Môn) (Lab): May I go back to Miss
Samuel’s and Mr. Lee’s answer on tidal energy?
I am not clear whether 10 per cent. is just an aspiration or whether
you think that the technology can achieve that? Was Mr. Lee
saying that it could happen now but that the technology was not
available or was Miss Samuel saying that there were barriers that we
should be looking at in the Bill? I am not sure whether the technology
is advanced enough. There is only one prototype, although there
is planning permission in my area. What is the major barrier? Is it the
technology or is it the regulation and things that the Bill could
assist
with?
Andrew
Lee:
The 10 per cent. figure comes
from two parts: one is tidal range technologies—barrages and
tidal lagoons—where the technologies are proven, but
there are obviously huge issues about cost and environmental impact. We
have said a lot about the Severn barrage in that respect. The 5 per
cent. figure from tidal ranges really comes down to whether we going to
do the Severn barrage and under what conditions, because it is 90 per
cent. of the UK tidal range resource. Tidal stream technology is a
different issue, because it will be a distributed technology, and
various designs are coming forward and being tested at the
moment.
Andrew
Lee:
Sorry, working models
elsewhere?
Andrew
Lee:
I think that we are leaders, pretty much, in
this
technology.
Sarah
Samuel:
The UK is leading in tidal stream technology.
We have one of the highest numbers of the most advanced tidal stream
developments anywhere in the
world.
Andrew
Lee:
So it is the winnowing out of the technologies
that will really deliver in the long term, and it is having a regime
that allows the connection of distributed arrays of tidal stream
devices around the UK coastline in the future. If anything, we think
that the estimates are an underestimate. If you look at the scale of
the resource, the amount of tidal stream that we have is huge. Of
course, some of it is so powerful that it is difficult to get the
technology right—looking at the Pentland firth, for
example.
Q
182
Albert
Owen:
One final point on the
connections: are you not competing with offshore wind? Are tidal and
wind competing against each
other?
Dr.
Gordon Edge:
At the moment, no, because they are so
much smaller than the offshore wind
developments.
I
just wanted to back up something there: technology is the key issue at
the moment, but we need to be very careful that we do not overload this
technology with burdensome environmental and other regulations,
surveying and so forth. It is at a very early stage and if we take an
over-precautionary approach and have so much monitoring and surveying
that it cannot be made to work, because it is just too burdensome, then
that is a real problem. That is a danger that we have to be looking out
for.
Q
183
John
Robertson (Glasgow, North-West) (Lab): Could we clear up
some questions about funding? One of the complaints with renewables is
that we have always put money into wind and that we have forgotten
about the other kinds of renewables that we can have. I noticed that
you said that you agree and get on well with each other, but are you
not competing for the same money and for the same resources that you
are trying to create? If not, could you tell me how you get your
funding money? How much comes from Government and how much from
business?
Dr.
Gordon Edge:
The renewables
obligation has been, heretofore, a technology-neutral mechanism. In
fact, the big winner out of it has been landfill gas. Of the renewables
obligation, only about a quarter goes to onshore wind, a third to
landfill gas and another 10 to
25 per cent. to biomass co-firing. So there has actually been a range of
technologies supported under the renewables obligation, as it now is.
When we go into banding, that will spread further, because there are
technologies that cost more; the one and a half ROCs for offshore wind
and the two ROCs for wave and tidal recognise
that.
As
for the other question on where the money comes from, all the money for
on and offshore wind—apart from some capital grants for the
round one projects for offshore wind—is entirely private sector
investment. The revenue comes from the renewables obligation, but there
is no direct Government money involved in there at
all.
Dr.
Gordon Edge:
It is all mandated under the renewables
obligation, which is an imposition on suppliers to supply that. In
terms of how much income, a ROC might get in the region of double the
amount compared to what you would get for just the power
output—for one ROC per
megawatt-hour.
Gaynor
Hartnell:
I just want to clarify something that
Gordon said on the subject of landfill gas. Most of the landfill gas
has been contracted under the previous policy—under the
non-fossil fuel obligation—but it is true that it generates
about a quarter to a third of the renewable electricity at the
moment.
Another
point about where the investment has gone is that, so far, it has gone
mainly into wind and some co-firing. One of the reasons for the
Government wishing to change the obligation has been to bring about
more diverse progress among different technologies. One of the things
that we would like to see is a more pragmatic approach towards the
calculation of the biomass content of fuels. That does not have to be
done for wind, but it is necessary for the thermal technologies. Those
kinds of measuring and administrative procedures are very onerous, to
the extent that, sometimes, a biomass power station really could not be
built or funded because of difficulties with determining the biomass
content and proving that it is biomass and not contaminated to any
degree. It would help if we had a much more pragmatic approach towards
that.
Q
185
John
Robertson:
Do you think that Ofgem should get involved in
this kind of discussion and have an
influence?
Gaynor
Hartnell:
Actually, Ofgem has been fairly helpful
with this. It has produced quite detailed guidelines, but it is working
within the bounds of what the legislation says, so that needs to be
addressed first. It can only do so much to
assist.
John
Robertson:
You are the first person we have had here who
has said something nice about Ofgem—other than
Ofgem.
Q
186
Dr.
Nick Palmer (Broxtowe) (Lab): The British Wind Energy
Association has briefed MPs about its concerns about the RAF’s
objections to a number of offshore wind farms on the basis, as I
understand it, that it feels that any impact, even if small, on radar
is to be objected to. What proportion of the contribution of offshore
wind farms that you were describing earlier would be affected by that
type of objection—all of them or a small proportion?
Maria
McCaffery:
It is quite a big proportion. I would not
like to offer an accurate figure as a percentage of the total that we
expect, but we feel it is more than it ought to
be.
Could I pick up on one
important point about our difficulty with the Ministry of Defence? It
is not so much the basis of the objection; it is the point in the
planning process at which that objection is raised. The MOD is
naturally a statutory consultee, and in too many applications over the
past year, it has indicated at the very early stages that there are no
difficulties. So the application process has progressed; very
significant costs have been incurred; and hopes have been increased. It
has got closer and closer, with a high expectation of a decision in
favour, only for the MOD to raise an eleventh-hour objection that kills
all the momentum in the application and has incurred considerable
costs. This is a primary concern and an issue that we are working to
address with the MOD and with DBERR. That is an immediate
issue.
A broader and
more general issue is the need, we believe, to revisit and question the
fundamental assessment of risk. Germany, Denmark and Spain all have
three to four times the number of operating turbines and do not seem to
perceive the same degree of risk that our defence estates are viewing.
We want to challenge that.
Dr. Gordon
Edge:
Perhaps I
could—
The
Chairman:
I am going to intervene. I allowed the question,
but it is very wide of the scope of the Bill; it is more a matter for a
planning
Bill.
Q
187
Martin
Horwood:
Energy from waste comes into the renewables
obligation under the proposed bandings as part of the reference band.
Can you tell me whether there are sufficient safeguards, under the
current or proposed regime, on other environmental impacts, such as
toxic waste, relating to energy from waste, and whether there is enough
differentiation between types of incineration or energy from waste
power
generation?
Gaynor
Hartnell:
I think that I am
probably best qualified to answer that. There are many safeguards for
energy from waste plants. The waste incineration directive has more
rigorous emissions limits than a coal-fired power station would have to
comply with. There is extensive material from the Department for
Environment, Food and Rural Affairs on the health impacts of energy
from waste that provides a reassuring backdrop to the roll-out of
energy from waste, which we will need if we are going to meet our
landfill diversion targets.
On the
question of how the renewables obligation deals with energy from waste,
it is one of the most complex areas in the whole of the renewables
obligation. Since the renewables obligation started in 2002, energy
from waste plants that use gasification or pyrolysis technology were
eligible to earn ROCs. Not one ROC has yet been earned by such a plant.
That has been held back by what I was talking about earlier—the
difficulties with the measuring requirements and the need for accuracy
beyond all hope of meeting it. We need to have changes on
that.
All in all, I
think that the renewables obligation would probably be a better piece
of policy if it were less prescriptive about which technologies would
earn
which level of ROCs, when it comes to energy from waste. I would need
quite a lot of time to explain the
intricacies.
Gaynor
Hartnell:
No, since the very beginning—since
2002, before banding came along—you can have differentiation
between the technologies without a banded obligation and this has been
inherent since the beginning. In terms of what qualifies and what does
not qualify and what proportion of ROCs it would earn and what it would
not, it has been complicated and it does not threaten to become any
easier with some of the proposals that are on the table. In particular,
if anybody does have knowledge of this, making the RO neutral to waste
is a good idea. Making the RO neutral to just solid recovered fuels,
which is a kind of waste, on its own, is not a good idea. It increases
the complexity and does not really deliver any policy objectives very
effectively.
Andrew
Lee:
The only specific advice provided to the
Government on this is, in fact, in Scotland, and I would only say that,
even with the best managed waste hierarchy, there will be a component
of energy from waste in the system and we think that that is acceptable
under certain conditions. I cannot really go into the detail of what
you have said. But I go back to the heat point as well when we are
talking about waste, which is a huge wasted opportunity currently in
another
area.
Q
190
Mr.
Jamie Reed (Copeland) (Lab): One brief question, aimed at
Andrew Lee and Sarah Samuel principally: feed-in tariffs are something
I am frankly excited about and encouraged by, but I do have real
concerns about them, particularly with regards to fuel poverty. Do you
have any fears that feed-in tariffs are something that only the middle
classes could really benefit
from?
Sarah
Samuel:
The principles of
sustainable development mean that you need to move on all these things
at the same time. You need to have a just society and to live within
environmental limits at the same time, so we need to find solutions
that will work and move all those things forward together.
In our view, on the fuel
poverty agenda, it is really important to improve energy efficiency
measures, so that people and households are more resilient to any
increases in their energy bills, because they are using much less
energy, so any increase in prices will have a much lower impact on
them.
At the moment,
there does seem to be a view that recent energy price rises have been
contributed to by environmental costs. We are doing a piece of analysis
at the moment—it is still a work in progress—but the
evidence that we have suggests that that is not really the case. About
8 per cent. of a typical electricity bill is related to environmental
costs, so it is hard to believe
that that actually constitutes the recent 15 per cent. increase in
energy bills that have been around. Our view is that energy bills will
rise and we will have to increase costs to implement more renewable
energy and to live within our environmental limits, but there are ways
of tackling fuel poverty alongside
that.
The
Chairman:
I have to interrupt you there. Finally, Dr Alan
Whitehead just has a couple of
minutes.
Q
191
Dr.
Alan Whitehead (Southampton, Test) (Lab): I have a
particular question for Gordon, Maria and Gaynor about grid
connections, offshore and the issues that are tackled in clause 40 of
the Bill. Do you think that the mechanisms proposed to come into place
under clause 40 will provide the sort of grid infrastructure that one
might expect will be necessary, bearing in mind the very substantial
offshore and, indeed, tidal increase
anticipated?
Dr.
Gordon Edge:
We have been consulted
very heavily on the arrangements that are in the Bill, and we would
like to get on with it at the moment. Certainly, when it comes to the
current projects that are out there, offshore wind projects are one
type of project, line to shore, that works very well. We would like to
come back to it in two or three years and have a look to see whether it
is working well and, if all the measures are appropriate, to do things
such as the large interconnection that we expect will need to be
done—the large strategic connections that will be required for
the round 3 larger projects. We want to come back and have another look
at it. We think that it is entirely possible that we can tweak it a bit
to make sure that it is working well. We also want to have a bit of
experience. We need to find out what the projects will be. We need to
find out what the plans are across Europe, in the European action plan
on offshore wind that the Commission will bring forward and the plans
for the grid quarter that Georg Adamowitsch will bring forward.
That will all become clear in the next two to three years. If we can
revisit it then, at least in a minor way, to ensure it is fit for
purpose, we will be very
happy.
The
Chairman:
I would like to thank the witnesses very much
indeed for the evidence that they have given. Would they now swap
places with our second set of witnesses?
Good morning. Could you please
introduce
yourselves?
Roddy
Monroe:
I am Roddy Monroe. I work for Centrica
Storage as the regulation manager. I also chair the Gas Storage
Operators
Group.
Sonia
Youd:
I am Sonia Youd, and I am the commercial
director of Centrica
Storage.
Paul
Dymond:
I am Paul Dymond. I am operations director
for Oil & Gas
UK.
Mike
Tholen:
I am Mike Tholen, Economics and Commercial
Director for Oil & Gas UK, the trade
association.
Dr.
Jeff Chapman:
I am Jeff Chapman, chief executive of
the Carbon Capture and Storage Association.
Chris
Mansfield:
My name is Chris Mansfield. I am a UK
regulatory affairs adviser for Shell’s European exploration and
production business, but I am here today in my capacity as chair of the
CCSA’s regulatory working
group.
The
Chairman:
Perhaps I should say to everyone that this is a
short session, and we do not want to have six answers to one question.
I obviously want to call everyone. I see you indicating you want to be
called, but it is a short session. The Minister wishes to kick
off.
Q
192
Malcolm
Wicks:
Can I ask a question about carbon capture and
storage, which is exciting a great deal of interest? Perhaps this is a
question for Jeff Chapman, but Chris Mansfield may want to come in.
First, can you, albeit very briefly, give us a quick expert overview of
where you think this technology now is, worldwide? At what stage is it?
Secondly, within that, where do you think that the UK is, compared with
other nations, in terms of this new and exciting
development?
Dr.
Jeff Chapman:
In a worldwide context, there are a
number of main players in the carbon capture and storage area. They are
Europe, north America, including both the USA and Canada, and
Australia. Then there are the major opportunities that will come from
the developing world, particularly China and India. I will take those
in turn.
Europe, of
course, has proposals for up to 12 demonstration projects to be
implemented by 2015, and the UK should play its part in that
process.
In the USA,
there is an awful lot of activity in the area of carbon capture and
storage. Recent headlines about the American Government’s
withdrawal of support for FutureGen is not a true indication of what is
going on there. There is tremendous support for carbon capture and
storage, and it will happen. It will be the USA’s engineered
solution to climate
change.
In Canada,
even very recently, the aim has been announced to have a large number
of CCS plants delivering by 2015. The Canadians have particular
problems there, having got themselves into a position of being about
270 million tonnes a year over their Kyoto target, mainly because of
the production of oil from tar sands in Alberta.
In Australia, a number of
projects are under development, and the Government there has taken a
strong lead—as has the UK Government—in the development
of regulation.
China
is very well aware of the problem that it faces, and it is by no means
ignoring it. There are some very serious companies that recognise
exactly where they need to stand in the future in the development of
CCS.
India is a bit
further behind; but just as an example, our latest recruit into the
Carbon Capture and Storage Association was Reliance Industries of
India. It knows what is going to happen in the future.
In the notes for this meeting,
you referred to the Stern report’s view that 28 per cent. of the
2050 target could be delivered by CCS. That is the most enormous market
in the future. It is likely to be the biggest single market opportunity
that the energy industry has ever faced. Where is the UK placed? As a
result of the work
that has gone into the Energy Bill, the UK is extremely well placed in
terms of policy. If we look at where the UK has established itself
because of a policy lead on emissions trading, we can do the same with
CCS. The Government have been congratulated for getting the policy in
place for the regulation of CCS ahead of most other countries. What we
need now is the financial incentive to get on and do it, because there
is a huge amount of enthusiasm in business to get on and install CCS
projects, especially in the
UK.
The
Chairman:
I know that you all want to say something, but
if I allow that, we will never get through the
session.
Q
193
Charles
Hendry:
May I follow that with three specific questions on
carbon capture and storage? First, when is the earliest time that CCS
could be up and running commercially in the UK? Secondly, do you think
the opportunities here are equally great for pre-combustion and
post-combustion? Thirdly, what do you estimate to be the necessary cost
of carbon in euros per tonne, in order for CCS to be economically
viable in this country?
Dr. Jeff
Chapman:
There are four pre-combustion capture
projects under development in the UK. I have to say that they are on a
go-slow now, because of the decision to support post-combustion
capture. All of those four projects are being confidently developed by
very serious organisations that understand the technology. They claim
that they could be in operation sometime in the period of 2011 to 2013.
So we do have projects that are ready to go, and certainly in a time
scale quicker than the Government-supported demonstration plant, which
is talking of 2015.
In
regard to post-combustion versus pre-combustion, pre-combustion is a
technology that is going to be extremely important in the future for
two reasons. First, because of carbon capture and storage, it is a very
good way of generating power. Secondly, this is the start of the
hydrogen economy. If anyone says hydrogen is going to be produced in
large quantities from renewable energy or nuclear power, that is very
unlikely. This will be the most efficient way to make hydrogen in the
future, and with carbon capture and storage, there will be clean energy
using hydrogen as a vector. That is very important for pre-combustion
technology; it is a very important place, and we in the UK need to be
there.
I am not
denying that we also need to demonstrate post-combustion capture,
particularly as a political gesture, to show China and India that we
mean business. What does it take in terms of money? A lot of figures
have been bandied about, and I really cannot give you a figure. The
lowest-hanging fruit of carbon capture and storage is storing the
CO2 that is associated with natural gas. Examples of that
are the Sleipner project in the North sea and the In Salah project in
Algeria. In each of those projects, the cost is less than $10 per tonne
of CO2 put away, because it is already separated. In terms
of power projects for the UK, we are probably talking within the range
of €50 to €100. Until it gets off the drawing board and
we lay down some plans, we will not have price discovery. The good
thing about the competition is that there will be some element of price
discovery. We need more of that to go on in the UK, in Europe and
elsewhere.
Q
194
Steve
Webb:
Just to press you further on what
you have just said, which was very helpful, my perception is that the
competition that the Government have established has picked a
technology and you are saying that the other technology is very
important, could lead to a hydrogen economy and has been put on go-slow
because of the Government favouring one over the other. Is it your view
that, for example, there should be another competition for
pre-combustion technology? Are you worried that the time scale for the
competition that we have got is unnecessarily slow and that we need to
get on with these things
faster?
Dr.
Jeff Chapman:
Yes, I am saying that. I am saying that
the time scale for this competition is not in proportion to the
requirement to re-plant the electricity industry in the UK. We will
inevitably have more and more coal-fired power plants coming forward
and they need to be equipped with carbon capture and storage very
quickly; otherwise UK emissions are going to increase. We will have to
build coal-fired plants; otherwise the UK and all the suppliers of
electricity will become over-dependent on supplies of gas. That is not
good for the country or for the electricity
generators.
Chris
Mansfield:
There is a tremendous
window of opportunity in the years ahead. Estimates suggest that
because of the impact of the large combustion plants directive and
because of the retirement of ageing plant, the UK will require
something in the order of 20 GW of new power generation before 2020. I
put to you that that probably represents a once-in-a-lifetime
opportunity to ensure that these new plants are fitted with carbon
capture and storage technology. That is a very important dimension.
That timing seems to coincide to some degree with the depletion of
existing oil and gas fields and the availability of capacity in some of
that infrastructure, so a tremendous potential for reuse is opening up
and that window of opportunity may not be available to us if we do not
seize it
now.
Q
195
Mr.
Reed:
I do not think there is any doubt that every Member
of this Committee and of the House wants to see us succeed and succeed
quickly in carbon capture and storage; it really is that imperative. I
have three quick questions. How is CO2 actually stored? Over what time
frame is it envisaged that it will be stored? What will CCS do to the
generating cost of oil and gas
electricity?
Chris
Mansfield:
Storage in offshore or
indeed onshore depleted oil and gas fields, and deep saline
formations—otherwise known as aquifers—are the two
principal means of storing CO2. The Department for Business,
Enterprise and Regulatory Reform, in conjunction with the Ministry of
Petroleum and Energy in Norway, undertook an infrastructure study
earlier this year which is publicly available on the
Department’s website. It looked at the storage potential in both
the UK and Norwegian sectors of the North sea. If I recall correctly,
it indicated that the UK has storage capacity of the order of 24
gigatonnes; about 14.5 gigatonnes would be in aquifers and the
remainder in depleted oil and gas fields. To set that in context, if
you say that a very large 1 GW power station will emit of the order of
6 million tonnes a year, you can see that the storage potential the UK
has puts us in a very strong position for many
years.
Dr. Jeff
Chapman:
What impact will it have on the cost of
electricity? In the short term, the kind of figures I have just
mentioned are not uncompetitive in relation to the cost of other near
zero emission power-generation technologies, such as renewables. CCS is
very competitive in that context, and ought to become more so as
designs are proven and the price falls. In the long term, we all
believe that the EU emissions trading scheme will be the mechanism that
induces people to invest in carbon capture and storage and to that
extent the technology will not have any effect on the price of power
because the power generators would have to buy their allowances in the
market regardless of CCS or other
technology.
What I
will say is that we have the most enormous opportunity, when the
Government are going to receive windfalls of very many billions of
euros from auctioning EU ETS allowances, to return that money for
investment in clean technology in the power industry. Clause 10 of the
EU ETS directive suggests that at least 20 per cent. of these revenues
should be recycled for various purposes, including CCS. That is good,
but what I am saying is, “Government, don’t say that you
don’t have the money to support CCS because you certainly
do”.
Q
196
Mr.
Reed:
The point I was making was: which companies are
going to look after the deposited CO2 in these aquifers, for
how long and how much is it going to
cost?
Chris
Mansfield:
In principle, if you look at the
provisions in the Bill and the proposals put forward by the European
Commission in a draft CCS directive in January, the intent, which is
very much supported by industry, is that that is a liability that
should be taken on—at an appropriate point in time—by the
state. I do not think that any viable business can expect to take on
that level of liability in perpetuity. I think that society rightly
expects that that is a liability that the state must look after.
Businesses do not last for ever. I am pleased to say that nation states
do seem to last a little
longer.
Q
197
Anne
Main (St. Albans) (Con): I want to go back to a comment
which I think I heard Dr. Chapman make. I think he said that if we did
not go down the cleaner technology and hydrogen economy route, we would
be building more coal-fired power
stations.
Dr.
Jeff Chapman:
Yes I
did.
Anne
Main:
Do you feel then that a push to perhaps having more
coal-fired power stations as part of the mix would divert some
investment in
CCS?
Dr.
Jeff Chapman:
No, because all the
conventional power stations that are being proposed—six are
being proposed at the moment, totalling 9,100 MW, and more are probably
on the drawing board in power generators’ offices— need
to be built to replace plants that are coming offline because of the
large combustion plant directive. These are portfolio generators and
they need to maintain their portfolio; they need to keep a balance of
fuels in their mix. So, they are proposing that these plants be built
anyway. Of course, the first one has already applied for planning
permission—the E.ON project at Kingsnorth—and there will
be more to come.
Q
198
Anne
Main:
So, it is not a diversion. Similarly, do you not
feel that going to post-combustion is a diversion
either?
Dr.
Jeff Chapman:
It is not a diversion. We have to
consider how quickly we are going to make sure that these plants are
incentivised to put in place carbon capture and
storage.
Q
199
Paddy
Tipping:
We have heard a lot about carbon capture and
storage from the Carbon Capture and Storage Association. Would
colleagues from the oil and gas sector talk to us about the timetables
involved, because there are enormous opportunities for you as well, but
significant difficulties too? Give us a snapshot of how you see
it.
Mike
Tholen:
I think that we reflect on
two points. First, as the gentleman on my left mentioned, there is a
timetable for many fields decommissioning. Many fields are now of
mature years and, unless we see new production come through them, they
will be decommissioned. There are still billions of pounds of assets in
the North sea. Many could be used for carbon storage, in part, but will
be taken away unless that new technology is sitting on the doorsteps
when we are ready for that to happen. So, time scales are crucially
important.
Mike
Tholen:
The best example that I can think of straight
away is the Brent field. It is not one currently targeted for carbon
storage, but was due to have been closed down and taken away perhaps
even 10 years ago. It still has a productive life, but I know that the
company concerned is beginning to think about decommissioning and the
field could well be gone in the next 10 years. So, what we are looking
at is that, unless we see the new facilities coming within the next
five years, the decommissioning train will then be moving too fast to
stop.
We are in good
conversations with both the Treasury and DBERR on how to treat the
fiscal aspects of decommissioning; we are also thinking a little about
the planning—there have been changes to the tax rules recently.
So, the Government are interactive with the industry, which is very
important.
The other
aspect of carbon storage and, for that matter, gas storage is that we
try to do things in the right order. For many cases, it is actually
good that if we see an oil and gas opportunity, we do that first,
because it both liberates a huge value for the nation but also, on top
of that, discovers things that will make future carbon storage easier
to understand and do, as we see how reservoirs behave. Our plea would
be to do things in the right order, to look at the time scales and to
make sure that we are effective because of
it.
The
Chairman:
Would any of our other witnesses, who have not
spoken, like to comment? No, so I call Dr. Alan
Whitehead.
Q
201
Dr.
Whitehead:
Witnesses from both the
Carbon Capture and Storage Association and the oil and gas industry
have mentioned the importance of meshing in carbon capture and storage
to the continued supply of gas and oil—particularly gas for
power stations—and
we have mentioned coal for power stations. Do you see any compatible or
additional role for heat capture in power supply? What time scales
would you put on those processes? For example, do you see that the
current applications for new coal and gas power stations might
reasonably—in terms of their CO2 content—have
a heat capture obligation placed on them in advance of any requirement
to develop carbon capture and storage, so that we can have a seamless
low-carbon future for both sources of
energy?
Dr.
Jeff Chapman:
It is difficult to see how heat capture
could be mandated in some way—I think that is what you are
suggesting. I am not sure that I can speak to that. What I would say is
that a number of the new projects coming forward could look at heat
capture. I will quote to you one of the proposed projects in
particular—ConocoPhillips at Immingham. ConocoPhillips has
proposed to build a bank of gasifiers to supply a combined heat and
power plant, which will be the biggest combined heat and power plant in
Europe, a superb, showcase plant of 1,200 MW. The idea is to make
hydrogen out of coal imported into Immingham, and to supply hydrogen as
a feedstock to the oil refinery. In one fell swoop, that project could
decarbonise a quarter of the oil refining industry—that is,
heat, power and hydrogen.
Q
202
Dr.
Whitehead:
I wonder whether I could press our witnesses
from Oil & Gas UK on the inevitability of problems arising from the
very high carbon content of continuing to supply gas to the UK energy
production market. Bearing in mind what we have heard about time scales
for carbon capture and storage, do you consider any moves from the gas
supply industry to register concern about or action on the fact that,
in addition to carbon being captured, the heat that is
produced—usually wastefully as a result of gas being used in
power station supply—might be regarded as part of the process in
future, particularly in terms of what we have heard about the
development of combined heat and power plants, for
example?
Mike
Tholen:
There are two drivers. First of all, the
drive to produce gas or maximise gas recovery from the nation’s
offshore resource is important, because that has been a major driver to
reduce our carbon footprint as a nation. Particularly in the 1990s,
that really changed the carbon emissions of the UK. I know we are
working closely with DBERR and with industry to find ways to deliver
the west of Shetland’s gas, and there are also some major issues
still to be resolved in terms of making sure there is capacity in the
national grid infrastructure to bring that ashore. There are therefore
some big hurdles to leap over, commercially and physically, to make
sure that it can be brought ashore. Physically bringing the gas ashore,
maximising recovery, is a good first
step.
Secondly, many
of the facilities that are there for the processing of gas into usable
fuel are unlikely to be changed because of any new emerging
technologies, because they are there because of what we have got at the
moment. We have to let the market help deliver the best solutions it
can, such as those that Dr. Chapman mentioned from ConocoPhillips, as
bright new ideas to really move the agenda on. We try to maximise as
best we can from where we are now, and we try to open the best door to
the future with new
fuels.
Q
203
John
Robertson:
I wonder whether I could get some information
about abandoned wells. In clause 70 of the Bill, the Secretary of State
demands information from the people who do the drilling. Do you see any
problems with this clause, in terms of the Secretary of State receiving
the information or the person who would be held accountable for not
supplying the
information?
Paul
Dymond:
No, the production of information on wells is
usually fairly straightforward, and I do not see any implications at
all of what is being asked for
here.
Paul
Dymond:
I have no
idea.
Q
205
John
Robertson:
It is one for the Minister, then. Do you think
the Bill provides sufficient powers to enable the Secretary of State to
ensure that licence holders fulfil their duties under the
licences?
Paul
Dymond:
There are a number of parts
in the Bill asking to tighten up certain pieces. Licensing has been
going on since 1964, and there are hundreds of licences. Within each
licence, there are tens of part-licences, so the licensing process
today is exceedingly complex. Whenever assets or parts of licences get
traded, an enormous amount of legal work needs to be done to track
where everything is going and the obligations and benefits that result
from those licence transfers. Tracking that is quite a difficult
process, and companies have trust deeds between one another to make
sure that they get the benefits and not the disadvantages of other
parties working on other bits of the licence. So some of the pieces
that have been asked for in the Bill are to help the Government keep
track and to ensure that companies properly carry out their obligations
to keep them informed of changes as part of the consent process. I
think that is fair.
Q
206
John
Robertson:
So do you think that is increasing the burden
and making it more complicated, or is it less
complicated?
Paul
Dymond:
Because the process has been going on for so
long, companies have commercial and legal mechanisms to cover this for
themselves. What is really important is that some of the new powers
that the Secretary of State will have as a result of the Energy Bill do
not work against, but with those mechanisms that are
there.
Q
207
Dr.
Brian Iddon (Bolton, South-East) (Lab): I have a couple of
questions. One is about enhanced oil recovery, coupled with
gas—for example, carbon dioxide storage. How intimately are
these connected? Does the enhanced oil recovery help significantly to
keep the cost of CCS down?
Mike
Tholen:
Conversations some years ago always linked
EOR—enhanced oil recovery—with CCS. What we have
increasingly seen for a lot of the North Sea, is that we have used
other tertiary forms of oil recovery already, be it gas injection or
water injection, so that not just the first but the second flush of
youth in terms of oil and gas recovery has already happened on these
reservoirs. So typically, CCS is unlikely to form a great alliance with
enhanced oil recovery.
There are one
or two newer fuels that may be different candidates. I know that a
whole range of companies are looking at means to see if that can work.
But mostly the economics are not such that you can afford to bring the
gas all the way from the power station to the offshore field, though
the economics might change if the carbon happened to be passing their
door. So if we see the CCS industry emerge, we may see EOR emerge in a
way that the hurdle is not currently there to
deliver.
Q
208
Dr.
Iddon:
My second question concerns liquid natural gas
brought in by shipping, compared with gas brought in by pipeline. Could
the gas people tell us something about the competitive economics of
that, and the advantages or disadvantages of each of those methods of
importing gas?
Mike
Tholen:
Gosh—there are some good examples in
the current market. Over the last years, we have seen all three forms
of supply available to the UK market and, in many cases, pipeline gas
has started to displace even the UK’s own production because the
cost of production of very major fields in the Norwegian sector or even
Russian gas are actually displacing the more expensive gas in the
UK’s own resources. LNG is in the middle or higher price range
of that, and with the very competitive market we have in the UK, we
will see that continuing, where those are going to fight against each
other— LNG and pipeline gas—and start, in some cases, to
displace the UK’s own production.
Mike
Tholen:
It depends where the price band starts to be.
If the price evolves in the future so we see a more expensive market
rather than a cheaper one, we have access to a global LNG resource. Or
if we see the market relatively low in prices, there may be other parts
of the globe that may be more attracted to LNG. It brings a security of
supply and an additional dimension of supply, which must be good for
both the market and the
consumer.
Sonia
Youd:
Some people see
LNG in terms of having diversity of sources, so you would have many
sources available and you can then create a better security of supply
base. One of the other things about the LNG market is that you are
seeing some LNG cargos now being diverted because they are moving
towards the Asian markets and we will see them moving toward the north
American markets. So all these different sources are competing,
depending on what the market is doing in various parts of the world,
and increasingly in Europe as well.
Q
210
Charles
Hendry:
Can I ask a question
specifically about gas storage? My understanding is that we typically
have about 12 winter days’ supply of gas stored, compared to
other European countries where they would have 60 to 80 days’
storage. Do you believe that a target should be set for how much gas
storage we have in this country, taking account of the fact that we
also have LNG facilities and the pipeline infrastructure? Do you
believe that the Bill would be an appropriate vehicle for bringing
forward such a
target?
Sonia
Youd:
Basically, the amount of gas storage that we
have now is part of our historical supply mix because, historically, we
were always reliant on some of
the shaping that we had from the indigenous gas in the UK. Now that is
declining, and with that decline has come a tighter position in terms
of summer-winter cover—that is being able to shape gas so that
you can turn it down in the summer and turn it up in the
winter.
Regarding a
target, I think that it is very difficult to fix on a particular number
that will give you the right amount of storage in comparison to our
European counterparts, mainly because, as an island, we have quite
diverse sources of gas supply; we still have a fair bit of indigenous
gas shaping going on. One of the things about the Bill is that it
provides us with a good platform for moving forward towards starting to
bring offshore storage into that mix. Those projects are becoming
economical and this gives us a good base from which to go forward and
develop
them.
Roddy
Monroe:
As the Gas Storage Operators Group, we
discussed the issue of targets and I think that the one thing we agreed
on was that if you set a target, you will get it wrong. It is very
difficult to define accurately what the target should be because of the
unique mix of supply that we have in the United Kingdom. We think that
allowing the market to determine the mixes and levels of different
types of storage is probably the best way forward on
that.
Dr.
Jeff Chapman:
I want to ensure that we cover a
certain point today in relation to carbon capture and storage and that
is to do with regulation: who regulates carbon capture and storage? The
Energy Bill makes proposals but it leaves some scope for things to go
wrong. It is no coincidence that we are sitting here with colleagues
from the oil and gas business. There is a department in DBERR that has
all the expertise in regulating oil and gas and we in the industry
would like to deal with one organisation; we would not like to see that
expertise duplicated
elsewhere.
There is
also an issue when it comes to the devolved Administrations. I know
that the Committee has no jurisdiction in the context of devolved
Administrations but we urge that there be uniformity across the piece
in terms of regulation for the sake of cost to the industry as well as
cost to the
taxpayer.
Chris
Mansfield:
I have an additional point. We made clear
in our written submission—if you saw that—that there are
proposals in the Energy Bill that there should be a dual lease and
permit system, with the former issued by the Crown Estate and the
latter by an as yet unidentified regulatory authority. That is the
point that Dr. Chapman made. We are somewhat nervous, as you might
expect, at the prospect of a commercial lease payable to the Crown
Estate. Those of you close to carbon capture and storage projects will
understand the challenging economics of those projects, so the prospect
we face of having to pay a commercial lease leaves us somewhat nervous.
So too does the prospect that some form of regulatory
oversight—for want of a better expression—will be split
between two separate organisations. The risk of miscommunication both
within government and those organisations and with the industry also
lends itself to the argument that we would prefer to see all of that in
one single organisation. For the reasons that Dr. Chapman outlined, we
would prefer that regulatory responsibility to rest with
DBERR.
The
Chairman:
I would like to thank our witnesses for their
attendance this morning and for the evidence they have given. Would you
now please swap places with our final set of
witnesses?
I welcome
witnesses to our final session. Kindly introduce yourselves to the
Committee.
Michael
Duggan:
My name is Michael Duggan. I lead the
renewables obligation team within the Department for Business,
Enterprise and Regulatory
Reform.
Dr.
Mark Higson:
My name is Mark Higson. I am the head of
the nuclear unit in the
Department.
Malcolm
Wicks:
I am Malcolm Wicks, a member of this Committee
but also the Minister for
Energy.
Dr.
Daron Walker:
I am Daron Walker, director of the
Energy Bill
team.
Q
211
Charles
Hendry:
Can I direct this question to the Minister? In his
evidence, Andrew Lee, director of the Sustainable Development
Commission, said he thought that the Bill was a missed opportunity
because it left out changing the agreement of Ofgem, because it did
nothing about regulation of heat and because it did nothing about smart
metering or about fuel poverty. Would the Minister tell us why those
elements have been left out of the Bill and whether he is prepared at
this stage to reconsider
them?
Malcolm
Wicks:
The key thing is that this Energy Bill is a
very important measure. It looks at a number of important aspects,
including creating a fit-for-purpose licensing regime to allow the
private sector to bring forward offshore gas storage. It also brings
forward a regulatory framework for carbon capture and storage, which
the Committee has heard a great deal about. It is reforming the
renewables obligation and one or two other measures.
I do not want the Committee to
think that this is the sum total of the Government’s energy
strategy. I can understand people saying, “We think this is
important. Why is it not in the Bill?” But we are putting in the
Bill things where we need fresh legislation. You mention a range of
matters but they are not ones where we currently feel new legislation
is required, although we are keeping one or two of them under active
review. Does the hon. Gentleman wish to press me on a particular
aspect?
Q
212
Charles
Hendry:
The Minister will have heard, both on Second
Reading and also in Committee, that issues such as smart metering have
a considerable amount of support on both sides. From what we understood
of the evidence of Alistair Buchanan of Ofgem, is that an issue on
which we might get a statement from the Minister? Can we expect
something on smart metering in particular in time for the rest of the
Bill’s Committee
stage?
Malcolm
Wicks:
Yes. The Government are very committed to
smart meters. It is a popular policy in the House as a whole. We are
mindful that this could be an extremely expensive project. We will be
reporting next month on the outcome of our review.
One
important, rather obvious aspect, Mr. Hendry, is whether we
need legislation. There is an argument that already under a current
European directive, legislation
may not be required. Much depends on the precise nature of our policy,
how we roll out smart meters and so on. Once we have completed our
review, we will be able to judge that. If we need legislative cover, we
will come forward with our own
proposal.
Q
213
Dr.
Whitehead:
The provisions for the
rebanding of ROCs, as far as I understand the legislation, will be
based jointly on material in the Bill and subsequent secondary
legislation to secure the content of the banding. Do you think that, in
itself, is sufficient to deal with all the various aspects of renewable
energy at various stages of development, particularly microgeneration,
that will come forward? Are there other measures to think about,
particularly concerning microgeneration, which could complement reform
of the renewables obligation to ensure that microgeneration is brought
forward?
Malcolm
Wicks:
We believe that our renewables obligation and
the reforms that we are making to it in the Bill are the best means of
bringing forward mainstream renewable projects. It is important for
confidence, including investor confidence, that we do not change horses
halfway through. I am confident about the reforms that we are making.
On the question of microgeneration, I am pleased that the Government
have in place a microgeneration strategy, I am pleased that there are
proposals to reform aspects of planning to make it easier for
householders to install their own microgeneration and I am pleased that
the reform of the renewables obligation gives added incentives to
microgeneration through ROCs. I could say more about the low-carbon
buildings programme and so on.
Having
said all that, is it enough? I am not confident that it is enough. The
Committee may know that we are now proposing a new renewable energy
strategy following our support for the European Union’s 2020
proposal— 20 per cent. of all energy in the Union should
come from renewables by 2020. The Commission has suggested that it may
be 15 per cent. in Britain and we are discussing that with the
Commission, but it is going to be a very high figure. We are developing
that new strategy within the Department and will be consulting on that
in the early summer. As an aspect of that, we will be looking afresh at
microgeneration and we are open to considering any proposals to boost
microgeneration, including a feed-in tariff arrangement. I want to look
at all the options, but I want make it clear that that fresh look at
microgeneration is not at all about challenging the mainstream
renewables obligation, which we think is fit for
purpose.
Q
214
Dr.
Iddon:
Minister, I am particularly
concerned about the competition between pre and post-carbon capture and
CCS technology. As a chemist, I am particularly concerned to get
maximum output of chemicals from burning fossil fuels and, therefore, I
support pre-carbon rather than post-carbon capture. I am dismayed that
the competition has not been a parallel one and, as we have heard from
previous witnesses this morning, we may lose the impetus with
pre-carbon capture. Why have we not had a parallel competition between
pre and post-carbon capture?
Malcolm
Wicks:
We have just had a good witness session on
CCS. It is in interesting area. I confess that when I was Pensions
Minister, I had never heard of
carbon capture and storage. With the exception of one or two people in
the Committee, that may be the case for other Members. Now of course
everyone is saying why are we being so slow, why only one project, why
not two—any other bidders?—or three or four, and why are
we doing so badly. The reality is that we are doing very well. We are,
with Norway, the leading nation in Europe on this. It is probably only
Norway and the United States that will get a full-scale demonstration
project up and running at more or less the same time as us—we
hope by 2014. It is good that the Government are backing a
demonstration project.
To answer your question: we
felt it right, at that stage, to make a judgment between pre-combustion
and post-combustion. I know that there are important voices on both
sides of the argument and I respect those voices, but what swayed
Ministers at the end of the day was the clear advice that
post-combustion technology was most appropriate, if we were going to
make an impact on China and its huge growth in emissions, given its
development of coal power stations. I do not know but if we were just
looking at the United Kingdom from a purely UK commercial point of view
in terms of new technologies, we might have been advised the other way.
But frankly, unless we enable the Chinese—and other nations such
as India—to control their emissions, then all is lost. All is
lost, and what we do will make very little difference. That was the
advice we received and that was the advice that we accepted. Now, I
would also like to see the developments in Europe and elsewhere
obviously of pre-combustion
technologies.
Q
215
Steve
Webb:
The energy mix is, I am sure, something you think
about a lot, and you must have done some scenario planning of different
energy mixes in the medium term. Given that the Secretary of State,
when he made his statement about new nuclear, more or less explicitly
said that he was not mandating new nuclear—he was just trying to
remove hurdles—it is presumably not inevitable that new nuclear
will come on stream. The Government want it to, I believe, and want to
clear the way for it to happen, but could you or your officials tell us
about the scenario planning you have done—if, for example, the
private sector were to decide that new nuclear were not viable or not
attractive? What other strategies have you looked at for meeting our
energy
needs?
Malcolm
Wicks:
Let me deal with
that—although, Mr. Amess, I am anxious at some stage
that my experts can join in, because the Committee is going to hear
quite enough from me in the weeks to come, and it would be good to hear
the experts speak, but I think this is one for me. As you know, we
initially undertook an energy review where ministers—both the
then Secretary of State, Alan Johnson, and myself—started off in
a position we described as nuclear neutral. We were then
persuaded—that is another question—that nuclear should be
part of a future energy mix. But, as we were preparing our work on
this, and as the public consultation—which is a very good and
full consultation—proceeded, we looked at the answer to that
question: what would be the alternative?
The
alternative would consist of a range of measures; I cannot outline them
all, but I think they might be in the nuclear consultation. I think we
published those in
the nuclear consultation, so they can be seen there, but clearly it
would mean an enhanced role for renewables. Although, of course, with
the challenge from Europe of maybe 15 per cent. of all of our energy
from renewables anyway, we are going to see a hugely enhanced role for
renewables, but presumably that would have to be taken even further. It
would put yet more emphasis—although there is a huge amount of
emphasis in government anyway—on energy
efficiency.
I do not think we could have
done more in the time scale about carbon capture and storage, but that
would clearly be part of the picture. I think for me the worry,
however, would be that in any alternative scenario, up to 2030 or 2040,
you still may have had an over-reliance on fossil fuels, and it would
have been more difficult—in my judgement—for us to have
met our demanded targets on CO2 reductions. That is one of
the reasons. The other reason I think was around national security; why
we felt that civil nuclear should be part of the mix in the
future.
Q
216
Anne
Main:
I have three brief questions. First, given the
evidence we have heard this morning on carbon capture and storage
particularly from Dr. Chapman, do you feel that there is perhaps a
missed opportunity in the Bill? Given that the retrofitting of carbon
capture and storage facilities is extremely expensive, perhaps there
has been a missed opportunity regarding the meshing-together of
technologies that he seemed to suggest would be worth
while?
Secondly, I
note you said in response to my colleague that not including smart
metering and fuel poverty in this Bill was not necessarily missing an
opportunity, but that it was just not necessary to do it in the
legislation. Yet we have heard that the various fuel companies
themselves are not being very proactive in operating social tariffs and
ending fuel poverty. Perhaps you would like to reconsider, given the
prominence in the White Paper that was given to fuel poverty and that
its absence from this Bill sends a message to many people who are in
fuel poverty that the Government are not taking it seriously enough,
because they are not dealing with it through legislation.
With regard to the
smart meters that you said you were committed to, are we talking truly
smart meters, not the electricity display devices that were
referred to in the Communities and Local Government Committee
when we had a submission from DBERR? Which smart meters are we talking
about, given that there is such a wide
range?
Malcolm
Wicks:
Let me try those out in reverse order. We are
obviously talking about the smartest meters of all, but seriously we
are committed to the roll-out of smart meters, not the other display
devices that you mention. In encouraging householders to be energy
efficient tomorrow and the day after, the other display units may have
a role to play, but in terms of a major investment in the
infrastructure in our own dwellings, it has to be smart meters. The
Government will say more about that next month—in
March.
On fuel
poverty, I do not think that my constituents would be dismayed that it
is not in legislation. Many of them do not read Bills in as much detail
as the hon. Lady. The serious issue is how, with rising global energy
prices and steep increases in electricity and gas prices in our own
country, we tackle that problem. I do not think that the Chairman would
allow me to present
my verbal dissertation on that, but it might be possible during the
Committee stage. Within a range of measures, including energy
efficiency programmes, and pension and other social security projects,
there is a role for the social tariff. In other words, the companies
must demonstrate corporate social responsibility as they put up their
prices.
I
am pleased that we have seen an increase in social tariffs from all the
energy companies, and that the amount of money now going on social
tariffs has increased. I recently met the chief executive officers of
all six major supply companies and urged them to do more, not least
about prepayment meters. The situation is that despite years of
progress in reducing fuel poverty through energy efficiency, social
security measures and so on, we are now seeing it move in the wrong
direction because of prices. It is a challenge for all of us to develop
the strategies to tackle
that.
On retrofitting
and back to CCS, we will consult soon on whether the new fossil fuel
power stations being built should have, as part of their design and
structure, the capacity to install CCS. I rather feel that they should,
but we want to consult on that so that we better understand the issue,
the problem and the cost.
Q
217
John
Robertson:
Minister, this question is probably for your
experts. I asked the oil and gas people about clause 70 on the
decommissioning of wells and what the purpose was, but they did not
know, so perhaps one of your experts could tell
us.
Malcolm
Wicks:
Daron Walker will answer that. Thanks for the
notice of the
question.
Dr.
Daron Walker:
This is about giving
the Secretary of State powers to request information about the
financial capability of players in UK CCS. Effectively, we are seeing a
switch from large-scale players to an increasing number of smaller
players entering the market. With that comes benefits, but also
additional risks because their financial capability may not be as
strong as some of the big global players. The power allows the
Secretary of State to acquire information about their financial
capability, and their ability to plug and abandon a well properly to
protect the environment at the appropriate time. If the Secretary of
State has concerns, he can request companies to take action, including
putting up appropriate financial security to ensure that when the times
comes, the environment can be properly
protected.
Q
218
John
Robertson:
I am concerned about the phrase
“when the time comes”, because if someone is allowed to
invest in sinking a well or whatever, and they do not have financial
backing, how far down the line do you check? Do not you check at the
beginning rather than at the
end?
Dr.
Daron Walker:
Some of the projects
obviously have very long time scales. I am talking about a well that
has already been drilled, is in place, and has been suspended.
Normally, you would ensure that, at the end of a well’s life, it
would be properly decommissioned, and that funding would be available.
If a well were to be suspended for an extended period, you might start
to have concerns; you might be concerned that they are not going to
“unsuspend” it and continue to produce oil and gas. At
that point, you would say, “If you really want to keep this
suspended and leave open the opportunity, we want some financial
assurance for the taxpayer.”
Q
219
John
Robertson:
Minister, we all know there is going to be an
energy gap around 2015, when we will be waiting for new power stations
to come on line, and for renewables to give us a return. How do you
propose filling that
gap?
Malcolm
Wicks:
I think it will not be
filled by new nuclear. That would be in 2018 optimistically, but more
likely in 2020. I think therefore—although this would be an
answer to almost any question—we have to put a great deal of
emphasis on energy efficiency. The starting point for any energy
strategy now is using less of it. We have to put an emphasis on energy
efficiency in factories, offices, homes, motor cars, and so on.
Renewables will become more important, but we will still be heavily
reliant on fossil fuels. At the moment, although we hear a great deal
about the decline of the United Kingdom continental shelf, the North
sea still supplies some two thirds of our total energy requirement. I
think that is the proportion. Fossil fuels will remain very important
in the future, which is why we are so keen on clean coal technologies
and the carbon capture and storage we have been discussing. It is
through a range of such measures that we will ensure that there is not
an energy
gap.
Q
220
John
Robertson:
Could that mean, then, that CO2
emissions at that time would not go down, and the level would
remain as it is at that point and that we may be in danger of not
hitting our targets for
2020?
Malcolm
Wicks:
We have to hit those
targets, and indeed the Government are so committed to that that we are
putting them in statute with the Climate Change Bill. We are setting up
another Committee, a commission, to make sure that we have proper
five-yearly targets, and that we are on course. That is a revolutionary
development in this country, and it requires a range of Government
Departments, including the Department for Transport, the Department for
Communities and Local Government, to play their part. I would just say
that we are up for this. We have got to do it.
I used the word
“revolutionary”, and as a Fabian socialist I had better
be careful. However, if you take an area like housing—which is
not in the Bill—the Government’s commitment that from
2016 we will build only zero-carbon housing shows the requirements that
are needed, but also shows the determination of Government to meet the
targets.
Q
221
Paddy
Tipping:
I would like to return to the discussion you were
having with Steve Webb about nuclear. The Government have made it very
clear that the funding for new nuclear will come from the private
sector. The private sector will have to invest big time to achieve
this, and will need some confidence about financial return. The key to
that is the pricing of carbon, and a carbon market. The carbon market
is still in its infancy. What work have you done to assure potential
investors that, when the day comes, the EU emissions trading scheme
really is going to have a high and sustainable price of carbon
sufficient to bring new investment? Secondly, what about that curious
phrase in the nuclear White Paper, which seems to suggest that if there
is not an EU scheme, there could be some possible underwriting here in
the
UK?
Malcolm
Wicks:
Can I ask Mark Higson, who is the head of our
nuclear consultation liabilities unit, to tackle that question? If
there are things I can add usefully, I will.
Dr.
Mark Higson:
The key thing is to make a success of
the EU arrangements, and that is what we are doing. The phrase in the
consultation document and the White Paper is that if our efforts to
have a reliable carbon price do not bear fruit, we may need to consider
doing things unilaterally in the UK. That is a signal to potential
nuclear operators that it is well worth their while investing
relatively small sums of money at this stage to take forward generic
design assessment and that when they make major investments in due
course, we expect that they will have sufficient confidence that they
can rely on the EU arrangements, without the need for anything
unilateral in the
UK.
Dr.
Mark Higson:
I think the important date is when a
major investment is made in pouring concrete. At that stage, companies
will have to commit themselves to many hundreds of millions of pounds
on our timetable—and it is an illustrative timetable; it may be
sooner, it may be later—but if we have a nuclear power station
up and running in 2018, probably the concrete will be poured five years
previous to that in
2013.
Q
223
Paddy
Tipping:
If there was a specific UK scheme, how would you
tackle the charge that this was a subsidy, an underwriting, by another
name?
Dr.
Mark Higson:
I do not think we are expecting to put
in place something unilaterally in the
UK.
Dr.
Mark Higson:
No, I do not think it is meaningless. It
is a statement that if, contrary to our expectation and belief, we do
not have something that works across Europe, we may need to contemplate
doing something unilaterally in the UK. Precisely what that would be
would depend on the circumstances at the time. We are confident that
the EU arrangements will indeed bear
fruit.
Malcolm
Wicks:
May I just add that my colleague is right that
our endeavour has to be to make the emissions trading scheme work and
although I am not going to cite a price, the price, as it were, rises?
That is the important thing. If that fails, we will look at a
unilateral declaration of some kind, but we are not anticipating that.
There is a lot of determination in Europe to make ETS work, and that is
not about a subsidy for nuclear; it is about supporting low-carbon or
zero-carbon technologies. It is incidentally very important for carbon
capture and storage; it is also good news for
renewables.
Q
225
Mr.
Swire:
This is for the Minister and the
civil servants. In your long list, Minister, of how we would bridge the
gap that Mr Tipping referred to earlier, one thing you left out was
non-energy crops. I wonder whether you or your Department could
enlighten us as to your thinking behind the assertion that the
imposition of ROCs for non-energy crops will result in less biomass
being burnt and therefore more CO2 being released into the
atmosphere. Would you look at the inclusion of these caps in the Bill
and if you are not prepared to remove these caps, will you make it
clear later, ahead of the drafting of the renewables obligation order,
that you will not pursue such a cap?
Malcolm
Wicks:
May I ask Michael Duggan to start on
this?
Michael
Duggan:
I think you are referring to the cap on the
use of non-energy crop biomass in co-firing in coal-fired power
stations. We have consulted on this and it comes down to the use of the
renewables obligation as a mechanism to inspire confidence in a range
of technologies—wind farms, as we heard earlier from the British
Wind Energy Association and the Renewable Energy Association—and
a range of technologies that the REA supports. Co-firing, while it has
a valuable place in reducing the carbon intensity of coal-fired power
stations, also has a rather volatile place in that market because the
capital investment required is fairly marginal and the industry can
co-fire whenever it finds a biomass fuel that is cheap enough. We are
reducing the level of support we are giving to non-energy crop biomass
because, to date, it has been rather over-supported in the renewables
obligation. The cap has been in place and is in place at the moment to
protect investors in other technologies and we think that, on the
balance of the consultation responses we had, that was an appropriate
thing to
retain.
Q
226
Mr.
Swire:
May I ask what conversations your Department has
had with DEFRA, who have in the past encouraged farmers to grow fuel
suitable for
co-firing?
Michael
Duggan:
We consult DEFRA frequently. The crops
suitable for co-firing are the energy crop fuels that do not lie within
the cap. Therefore, there is no constraint on them at all. In fact, we
generally provide or propose to provide additional support for both
co-firing and dedicated plant to encourage their
development.
Malcolm
Wicks:
Can I add that I am very keen that we develop
a better interface—if I can put it that way—around the
issues of energy and climate change, and of the agricultural community
and the farming community? Yesterday I had the opportunity to address
the National Farmers Union. Whether I was the first Energy Minister to
do that, I do not know—it may be that I was, but I think that
that shows the importance of that agenda now. As farming changes in all
sorts of ways in the 21st century, I think that energy crops and
aerobic digestion—as featured in “The Archers” at
the moment, apparently—and all these things are going to become
more and more important: renewable energy technologies, distributed
energy and combined heat and power. I said to the NFU that I wanted to
have regular meetings with it to discuss this relatively new agenda,
which is
important.
Q
227
Mr.
Swire:
I totally agree, but that is slightly at odds with
what your civil servant just said, which is that he has not talked to
DEFRA officials about the implications of such a cap, given the fact
that the farmers have been encouraged by DEFRA over the past few years
to grow energy
crops.
Michael
Duggan:
I am sorry if I was a bit unclear earlier.
Indeed, I talk to DEFRA officials quite often. Certainly the whole
treatment of biomass, including co-firing, is the subject of those
discussions.
Malcolm
Wicks:
And I regularly meet my opposite number in
DEFRA.
Q
228
Martin
Horwood:
My questions are to Dr. Walker and Dr. Higson. A
quick one to Dr. Walker: if the Minister was so minded, on reflection,
to think that the Government had made a bit of an error on carbon
capture and storage competition, is there nothing in the Bill that
would prevent that being rethought and
reorganised?
My
question to Dr. Higson is on funded decommissioning programmes. A
number of questions to witnesses threw up possible doubt over some of
the liabilities, which followed on from what Mr. Tipping was
saying. There has been the cost of very long- term
storage—and Dr. Roxburgh from the Nuclear Decommissioning
Authority said that you will have to ask the Government about
that—and the cost of the decommissioning authorities and the
nuclear installations inspectorate. Are they are going to be recovered
from the funded decommissioning programmes? Then there is the issue
highlighted in your own impact assessment: if the companies concerned
go into liquidation or are restructured, will the funds cease to be
available for these funded programmes? Are these liabilities still
there for the public
purse?
Dr.
Daron Walker:
Can I take mine first, because I think
that the answer will be quite short? There is nothing in the Bill that
stops that happening. The Bill is basically about creating a regulatory
framework for carbon storage under the seabed offshore, so it makes no
judgments about technology at all. It is
technology-neutral.
Dr.
Mark Higson:
On the point about
funds available, there are a number of protections in the Bill,
particularly if the operator goes insolvent. There are then
arrangements to ensure that the fund itself is protected. We agree that
costs are long term and therefore necessarily subject to uncertainty,
so what we are doing is setting up a framework that properly addresses
that, with a number of protections. For example, we must have an
approved decommissioning programme. The money must be progressively set
aside and the funds have to build in a degree of contingency and need
to be managed by fit and proper people. There also needs to be regular
review of the funds—there is provision for that in the Bill
through regular monitoring and quinquennial reviews—and there
must be requirements for providing information where required. We
expect the fund to be built up and completed before the end of the
lifetime of the nuclear station. The investment strategy also needs to
be on a basis of not taking risks towards the end of its lifetime; it
is an offence not to comply with the programme; and, if the funds are
insufficient, the operator must make up the costs. So, overall, we are
setting up a framework that should have substantial
protection.
Q
229
Martin
Horwood:
Well, substantial, but not
total protection. If operators are, as you say, dependent on cash flow
to build up a contingency fund, a company could go into liquidation or
be restructured to the point where funds were not available before a
fund was established to protect it against such long-term
liabilities.
Dr. Mark
Higson:
No, because if the nuclear reactor does not
operate when you load it with fuel on day one, for example, it still
has the costs of decommissioning. We would expect a prudent, funded
decommissioning programme to make provision for that, such that there
were sufficient funds in those
circumstances.
Q
230
Martin
Horwood:
So the fund has to be established, with all the
long-term costs built in, before the first day of operation of the
nuclear power station?
Dr.
Mark Higson:
It has to make appropriate provision for
decommissioning, and that may be in the form of bonds or insurance, but
it has to be done on day one. The cost of managing the waste fuel
builds up progressively, so that is something where it is reasonable
for the fund to build up as it goes.
Q
231
Martin
Horwood:
Will the cost of the
inspectorates and the Nuclear Decommissioning Authority be recovered
through the funded
programmes?
Dr.
Mark Higson:
I am afraid that I am not sure about
that. The costs for generic science investment at the moment certainly
are charged to nuclear operators. I am afraid that I do not know the
detail, but I would not have thought that it was material to the
overall cost of decommissioning.
Q
232
Martin
Horwood:
And the cost of the very long-term storage, which
Dr. Roxburgh asked us to ask you about? In other words, what would
happen thousands of years into the future if these sites were not
completely—
Malcolm
Wicks:
Who asked you? I did not catch the
name.
Dr. Mark
Higson:
There are two points there. One is that there
is to be intermediate storage of waste. Ultimately, however, the
long-term disposal policy is that waste should be in a geological
repository. That will need to be of a standard that is capable of
storing that waste permanently.
Dr. Mark
Higson:
Ultimately, when it is capped, yes.
Dr. Mark
Higson:
There is obviously an issue about the point
at which it should be sealed, and that is something that CoRWM
particularly looks at. The Government do not need to take a decision on
that at the moment. There will be a potentially quite long period in
which materials are put into the geological repository, and the
decision will be open at that stage as to whether it should be
retrieved. Eventually, however, there needs to be a
decision.
Q
235
Martin
Horwood:
So you have not actually taken the decision on
whether the site should be accessible and, therefore, whether there
would be long-term costs in terms of security and management?
Dr.
Mark Higson:
It will be accessible for a long period
while the waste is being implaced. A decision needs to be taken in good
time about when it should be capped.
Malcolm
Wicks:
Subject to correction by Dr.
Higson, I think one imagines that the eventual capping would probably
be some time during the next century, so we have a little time to work
this
through.
Q
236
Mr.
Reed:
I shall spare you, Minister, and colleagues from any
personal nuclear discourse, which I shall save for the Committee stage
proper, when Mr. Horwood and I will go at it properly, I am
sure. However, I think that the Bill is genuinely radical, and many
people, me included, come into politics to push this kind of Bill
through the House. It is exciting; it looks to the long term; and it
looks after future generations in a truly comprehensive way, but it
cannot do that unless it brings into question any doubt about whether
we can do what we say we want to do through the Bill.
My concerns are about CCS. It
appears that we want renewables to work, and we are committed to that.
Yes, we want nuclear to work, and we are committed to that. Yes, we all
want CCS to work, and we are committed to that. However, if CCS does
not work, I do not see how we can secure our twin aims of reducing our
CO2 emissions and establishing security of supply in the way
that we want. To what degree are we betting the house on CCS
working?
Malcolm
Wicks:
I do not think that we are
betting the whole house. Earlier, someone gave a figure of about 25 per
cent. for the CO2 reductions that we need to make. It could
come from CCS, although there will no doubt be different views on that.
I think that CCS is crucial. When I came into the Department two and a
half years ago, my very wise officials said, “Minister,
you’ll hear about all sorts of technologies. Don’t get
overexcited about any of them. It’s your job to put in place the
framework.” For the range of important and weird and wonderful
renewable technologies, that is quite good advice; but for CCS, I see
no alternative at the moment—perhaps one day the scientific
community will develop an alternative of safely eradicating and
disposing of CO2. But at the moment, CCS is the only show in
town.
I mention China
again, because there is no point in looking at this from just a UK
point of view. Unless we develop this technology as rapidly as we
can—that does not mean that we are going to be there next
year—I think that we are in deep trouble as a planet, I really
do. I think that this is very important. You can argue about this, but
at the end of the day, it is partly about resources. I am proud of the
fact that the UK is actually ahead of the game
internationally—along with only a few others at the moment. I
wish there were more rivals developing demonstration projects. There is
the US; there is Norway and other countries have an interest, but the
UK should commercially become a centre of excellence.
As my
colleague said, all the Bill does is set up a regulatory framework, so
that we can get storage, transportation and all these things right. We
as a Government—and taxpayers—are backing a demonstration
project, but there is nothing to stop other projects developing in the
future. We heard from the association about different companies with
different interests in CCS. I think that my challenge to some of the
big companies—quite well-off companies internationally,
operating in Britain—is “Why don’t you come
forward with your own demonstration project? As part of your
environmental and corporate social responsibility, don’t just
talk the talk and place the nice adverts about how you are turning
green, but actually yourselves fund a CCS project.” I do not
believe that it is so extraordinary
to think that they should do that. They know climate change is a big
challenge to industry, in terms of fossil fuels.
We, the
Government, are showing a lead. The taxpayer is showing a lead. Our
constituents are funding a project. Is it so outrageous to think that
one or two big companies in Britain and Europe might themselves develop
projects? That would involve a lot of gains for them, both commercially
and technologically and in terms of public confidence. It should not
always be a question of us saying: “Why isn’t the
taxpayer doing more?”
Q
237
Albert
Owen:
Just on the nuclear issue, I think
that Mr. Higson has dealt with the waste aspect, although I
feel that many members of the Committee will not be satisfied with
that, and will take the opportunity later on in Committee to discuss it
further. I understand why there was a delay, because of the court case,
with regard to the announcements on new build, but why could we not
have a neat package, saying yes for new build to go ahead? The
strategic site assessment is complete and the waste issue has been
dealt with, so that many of those people who are feeling uncomfortable
with the latter two could understand the way forward and the
Government’s thinking.
Dr. Mark
Higson:
I think that it is entirely reasonable for
the Government to take a view first on the principle. That was the
issue of the consultation. When the decision on principle was taken, we
then set out a programme about how that decision can be implemented in
practice. The number of steps will take time to do properly. One of
them that you did not mention was generic design assessment, which is
on the critical path. That is in hand: it will take about three or
three and a half years. Strategic siting assessment needs to be fitted
within the overall timetable. That will take time, and we will be
consulting further on that, including, in due course, on the siting
criteria. All those things take time to develop properly and to engage
properly in public
consultation.
Dr.
Mark Higson:
Generic design assessment, which is on
the critical path, has been going ahead on a contingency basis. If the
Government had decided that nuclear did not have a role to play, the
work that had been done on generic design assessment during the
consultation period would obviously have been wasted. So it was done on
a contingency
basis.
Q
239
Albert
Owen:
And is the industry, in your opinion, confident that
it is getting the information that it needs if it wants to
invest?
Dr.
Mark Higson:
I believe so. There is a lot of
interest. We are talking now obviously to many of the companies
involved. There is a very high degree of interest in wishing to push
forward this agenda.
Q
240
Steve
Webb:
Just on this CCS competition
issue, I am not aware—I apologise for my ignorance on
this—how much the Government are putting into the demonstration
project. What is the taxpayer’s commitment, if any? Linked to
that, I have a general concern about inactivity. The Minister sits
there and implores companies
to come on board. Although we are not betting the whole house, whether
we can make carbon capture and storage work is fundamental to the
planet’s future. He just hopes that companies will do it out of
good will and in the name of corporate social responsibility. Is there
not a disconnect between the scale, magnitude and seriousness of the
problem and the Minister saying to energy companies, “Be good
chaps and give us a few more million in social tariffs.”? Is
more direct Government intervention not
needed?
Malcolm
Wicks:
Yes, Mr.
Webb.
Malcolm
Wicks:
Or Professor Webb. Please
listen. That is why we are doing a demonstration project. It is a
ridiculous caricature to say that I sit here asking companies to do
more. I do not think that it is unreasonable, following the history of
the “polluter pays” principle, to say to companies that
they should come up to the starting blocks and do projects themselves.
You missed the point, Steve—not deliberately, I am
sure—that we, by which I mean the taxpayer, are funding a
demonstration
project.
Malcolm
Wicks:
I am not going to tell you how much, and I
shall tell you
why.
Malcolm
Wicks:
We have now got a commercial competition. We
are inviting different companies, singularly or together, to come
forward with proposals. We feel that it would be foolish to tell them
what to put on the
invoice.
Q
243
Steve
Webb:
What scale? I have no idea of the scale. Are we
talking about £1 million, £10 million or £100
million—how many
noughts?
Malcolm
Wicks:
We are talking about substantial amounts of
money—tens and tens of millions of pounds. I might be able to
let the Committee know in confidence, but I would have to take advice
on that. However, I do not want to be telling these guys what they
should be asking for. That would not be right. However, I think that
you are being unfair if you are saying that we are just asking others
to do it. We are taking a lead. We live in a cynical nation,
Mr. Amess, I am afraid to say, with the exception of
yourself. As soon as we say that we are doing something, there is a
bidding war—“Why aren’t we doing twice or three
times as much?” This is taxpayers’ money.
We are one of the very few
countries in the word backing a demonstration project and will be among
one of the first two or three nations to have a CCS project up and
running. It has not been done anywhere yet. Do not forget that, Steve.
No one has done the whole chemistry set of a power station fitted from
the start with CCS technology and then transported and stored the
carbon, in Britain’s case, almost certainly under the North sea.
No one has done that, and it is good that Britain is doing it first.
However, if you admonish me for saying, “Wouldn’t it be a
nice idea if some of the companies making money out of fossil fuels
also demonstrated that technology,” I shall not apologise. I
think that the private sector has an obligation, as well as the
state.
Q
244
Steve
Webb:
At the other end of the scale, you very profoundly
and rightly, in my view, said that any sensible approach to energy has
to start with energy efficiency. Here we have a complete energy Bill
that seems to have nothing to say on that subject. Are you saying that
no more legislative action is needed to drive forward energy
efficiency?
Malcolm
Wicks:
No, not at this stage. I do
not want to play the departmental game, but energy efficiency is a
DEFRA lead, although we work very closely with it. We have introduced a
range of policies and energy efficiency measures, such as the former
energy efficiency commitment, about to become CERT—the carbon
emissions reduction target—the Warm Front scheme for poorer
people and our longer-term policy of incentivising supply companies to
persuade householders to use less of the stuff—less gas and
electricity. That is becoming of energy service companies. I shall not
legislate for the sake of it. We will legislate only where we think
that such things are necessary. We do not think that such new measures
are needed in this
Bill.
Q
245
Charles
Hendry:
Can I pursue that point further, Minister? Some 40
per cent. of our housing stock in this country is properly insulated.
We have not made much progress in that area. Earlier on, the Minister
spoke about new build and the Government’s zero-carbon programme
in 2016. However, new build represents 1 per cent. of the housing stock
every year. If we are really going to make progress on energy
efficiency, we must do much more about the existing housing stock. Is
he really saying to us that nothing more is needed to drive that
programme
forward?
Malcolm
Wicks:
At this stage—things might change in
the future—I am saying that I have not seen the case that new
legislation is needed in the Bill. We have a raft of ideas and measures
that are developing. I think that Mr. Hendry is right to say
that we need to do far more. We are in a better position than we were,
say, 10 years ago. In recent years, as a result of the energy
efficiency commitment—the Warm Front scheme and so
on—some 2 million households have benefited from new energy
systems, loft insulation and draft-proofing. That is very substantial.
But the point that I made earlier is about how we transform the supply
companies that have a vested interested in persuading us to use more
electricity and more gas. It is about how we persuade them to become
part of the solution in terms of reducing CO2—I think
that they are up for it, by the way. They are incentivised financially
to do that. We are now involved in that major development with the
companies. Smart meters are another aspect of
it.
Q
246
Charles
Hendry:
But in other parts of the world—notably the
United States—supply companies are required by law to work with
their customers to reduce energy demand. If they reduce demand, they
share the dividend, so the customer gets lower bills and some of the
saving goes back to the companies. Does the Minister believe that there
is some merit in looking at a legislative approach to require the
supply companies to do more than they are currently
doing?
Malcolm
Wicks:
I agree very much, but we
must be careful. At the moment, the supply company supplies gas or
electricity; it sends round a meter man—often very early in the
morning at a weekend in my experience—and it sends a bill, which
we pay. That is more or less the
end of the relationship. How do we move from there to a situation where
the company will come at our invitation, look at our house and talk
about thermal efficiency, renewable technologies, the importance of
smart meters and all those things? That is where we are going to move
to, and we are on that journey. I have not been advised that that
requires legislation. We are certainly not there yet in terms of
suggesting that there is a need for that in the
Bill.
Q
247
Paddy
Tipping:
You talk about the
responsibilities of energy companies. Of course, a high and sustainable
price of carbon would force CCS development.
Let me turn to the social
responsibilities of energy companies. Some of them do pretty
well—EDF, E.ON—but others such as npower and Scottish and
Southern Energy, although they have low prices, do not do very much on
social tariffs. On Second Reading, the Secretary of State made it clear
that he was still open-minded about whether social tariffs should be
made mandatory. Is that the still the position? Are you saying to the
companies that you meet regularly, “Look, unless you perform and
do more, we could introduce
legislation.”?
Malcolm
Wicks:
Yes, that is what we are saying, but we do not
foresee it in the Bill. It is interesting to be the non-interventionist
here today. Much of my career has been spent arguing for intervention
in a range of social areas.
Malcolm
Wicks:
Indeed—but gradually, as you will
recall.
We
are not convinced that we need legislation at this stage. We would far
rather talk with the companies, as we have done. I have met the CEOs
individually over the past six to nine months. Only a week or two ago,
I asked all the CEOs to come to see me and said, “Look, we have
a problem now.” We have got a problem with rising energy bills,
and it is one we take very seriously. We have made some steps forward,
as I said earlier. The companies are now spending more money on social
tariffs than ever before. They are making advances. I have said to them
that we have to do more. In particular, it is up to the companies, not
the Government, to look at the problem of prepayment meters, because it
cannot be right that some of the poorest and most vulnerable people are
paying far more per unit of electricity and gas than most of us in the
Committee. That is an aspect of how the poor pay more, which is quite a
familiar theme in terms of social injustice. Two companies have now
moved in a reasonable direction on this, and I would like the others to
understand parliamentary concern about it.
I think that there is a danger
if we did mandate social tariffs. What would we say? Should we tell
companies to spend a certain percentage or to help this group or that
group? All that might happen is that they would do the minimum and no
more and think that they have discharged their responsibilities. It may
be that, by having a non-mandatory approach, we are encouraging more
innovation.
Secretary of
State John Hutton and I are looking at this very carefully. If we felt
that there was a case for legislation, we would legislate. I hope that
the companies
are listening to that strong message—a message reiterated to me
every day by Members on both sides of the
House.
Q
248
Dr.
Whitehead:
We have heard a great deal about the idea that
perhaps new gas or coal-fired power stations would be required to be
CCS-ready if permission is given for them to proceed, presumably on the
basis that if one simply contemplated a whole new generation of gas and
coal-fired power stations coming on line without any mitigation
whatsoever, we would simply miss our CO2 targets by a mile.
You have recently given permission for two power stations to go ahead
provided that they are CHP-ready. As we discussed in relation to carbon
capture and storage, are there any other measures that you think should
be undertaken to make the idea that power stations might be CHP-ready a
reality?
Malcolm
Wicks:
I am very interested in the CHP issue and very
sensitive to the fact that our policies have perhaps lacked a heat
dimension. I think that that is a reasonable charge, and I put my hands
up to it. The new Office of Climate Change—a cross-departmental
agency—has recently produced a report on this, and we want to
move forward on heat in general.
I have been to Copenhagen.
Greenpeace invited me to see the big CHP plant that powers a huge
proportion of the homes and offices of Copenhagen. I accepted that
invitation from Greenpeace, as long as they promised to bring me
back—it was not clear, but they did. I was very impressed by the
plant, and I have asked companies here why is it that, when we build
new power stations, we are not using the heat, even from a commercial
point of view. There are a number of technical and logistical answers
to that question, but I think we have to take combined heat and power
far more seriously, and I am very interested in how we will do
that.
In terms of Dr.
Whitehead’s train of thought on this, I always think that it is
helpful to think where we might be in the future. I am not putting down
a policy prescription, because I cannot do that for the whole European
Union. However, my guess is that, at some stage, we will simply not
allow companies in Europe to build fossil fuel power stations unless
CCS is an integral part of that. I am not so certain about whether
there will be something similar on CHP. If that is the direction of
travel, I think that it really makes sense for Governments and
companies to think through the implications of that for their own
resources and
activities.
The
Chairman:
Can I ask our two colleagues who still want to
ask questions to put them one after the other, and then perhaps the
Minister can quickly reply?
Q
249
Dr.
Iddon:
My question is about the national grid. Clause 40
is about granting licences to develop offshore electricity
transmission; but with different and changing pressures, with
installations closing and new installations opening, is the national
grid fit for purpose at the moment? If not, what must be
done?
Malcolm
Wicks:
Can I ask Dr. Walker to tackle that
one?
Dr.
Daron Walker:
Clause 40 is actually
all about offshore transmission. Shall I talk a little bit about that
in terms of the regime we are setting up? In recognition of the fact
that we are looking to expand offshore renewables massively, we have
committed to £2.4 billion of investment, in effect, to offshore
transmission, by looking to have 8 GWe of offshore wind in place in the
next few years. The clause is part of a broader set of powers that were
taken under the Energy Act 2004, to allow us to introduce competition
in the process of building transmission assets out to these new
developments. The powers in clause 40 will help to facilitate that
process. By introducing competition, we expect and hope to make the
transmission asset build cost much less for the consumer. We estimate
that there will be between £230 million and £400 million
in savings by the nature of the process that we are putting in place
for that.
On the
broader question of whether the national grid is fit for purpose,
clearly there are issues being pursued in the context of the
BETTA—the British electricity trading and transmission
arrangements—queue in Scotland, for example, for connecting
renewables, and we are working closely with Ofgem, the companies, the
developers and the national grid. There are things that could be going
better, but if you are asking me whether they are fit for purpose, of
course I would always say that they are fit for purpose, but there are
things that we need to improve, and we are continuing to work to ensure
that those improvements are
made.
Malcolm
Wicks:
Just to be helpful to the Committee, when I
was being cross-examined by Steve Webb about the cost of CCS, I was
mindful of things that I should not say. I am now advised that, if I
told the Committee that we are talking in terms of hundreds of millions
of pounds for CCS storage, that would provide a reasonable guess about
the costs that we have in
mind.
Further
consideration adjourned—[Alison
Seabeck.]
Adjourned
accordingly at
one minute past
One o’clock till
Thursday 21 February at Nine
o’clock.
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