Examination of Witnesses (Questions 290
WEDNESDAY 12 MARCH 2008
Q290 Chairman: May I welcome our
second panel to the inquiry this morning: Mr Paul Whittaker, Director
of Regulation, National Grid; Mr Dave Rogers, Director of Climate
and Renewables at E.ON UK; Mr David Smith, Acting Chief Executive
for Energy Networks Association; and Mr Steve Smith, Managing
Director of Networks Ofgem.
Mr Rogers: Can I correct that?
I am the UK Director of E.ON Climate and Renewables rather than
part of the E.ON UK business. There is a subtle difference.
Q291 Dr Turner: In Germany where
the deployment of renewable electricity generation has succeeded
on a much larger scale than here, Germany not only has feed-in
tariffs but it has the other provisions of the German Renewable
Energy Act that guarantees access to the grid for renewable generators
and priority access on top of that for renewable generators. These
provisions are also incorporated in an EU Directive, which the
UK has not yet implemented. How important do you think these provisions
are? How well do you think your companies could respond to them
if they were in place? Should they be in place in the UK?
Mr Whittaker: The changes that
we are seeking to implement in the UK over the next five to ten
years in terms of renewable generation represent a sea change
in terms of generation mix. You have heard this morning about
the potential for micro-generation. On top of that there is the
potential for offshore generation of renewables from wind and
from tidal. The generation pattern in the UK is going to change
over the next 10 to 15 years. What the networks need to make sure
I think is that we can respond to those changes in an effective
way. There are barriers that exist probably in three areas, which
need to be dealt with. There are technical barriers. There are
barriers about making sure that as wind is connected to the system,
we are able to run our networks and continue to meet customer
demand on a second-by-second basis. We need to make sure that
we build the right amount of additional capacity. As you add wind
to the network, it is not clear that you need to add the same
amount of capacity as you might do if it was a fossil generation
plant. There are technical issues to be dealt with around making
sure you connect the right capacity. There are technical issues
to be solved. There are delivery issues to be solved. I think
we are all familiar with the problems involving getting planning
consent, both for site renewables and to build transmission capacity.
We are familiar with the issue that in Scotland there is a lot
of potential renewable generation that is dammed up behind renewable
investment projects in transmission systems that need to be delivered.
There are barriers around delivery. The Government's Planning
Reform Bill is an important part of dealing with those issues.
Then there are issues around the commercial and regulatory framework
under which we operate. At the moment we operate under a commercial
and regulatory framework which asks us to treat all sources of
generation, all customers on our network, on an equivalent basis.
We have a problem in that the rules under which we operate our
network were built up in a fossil generation world. We have to
make sure that those rules are a level playing field set of rules
that treat renewable generation on an equitable basis. As generation
becomes both more remote and localremote offshore and local
within networkswe need to make sure that our existing rules
and regulations do not discriminate against those sources of generation.
There is a step to be taken to make sure that the current terms
of access to our networks are equitable across forms of generation.
Whether we need to take another step to discriminate in favour
of that, getting to your question I suppose pointedly, in a sense
is a choice for society; it is not a choice of the networks themselves.
There is no doubt more that could be done. I think at this stage
establishing a level set of rules which treats generation on a
technology-blind basis would be an important step forward.
Q292 Dr Turner: If we go down the
EU route or the German/EU route, we would discriminate in favour
of renewables, and there is obviously a strong climate change
imperative to that. If we are going to achieve the EU renewables
target that we are signed up to, we probably have little choice
but to exercise priority access. How quickly could you respond
to that and to what extent does your industry and National Grid
in particular suffer from investment constraints that are controlled
Mr Whittaker: We are planning
to spend upwards of £4 billion on electricity transmission
investment over the next five years. We have flexible mechanisms
for accessing additional funds. So if we have more generation
customers who want to attach to our grid, we have the revenue
drivers that allow us to access additional funds to do that. I
do not feel a constraint particularly on adding capacity to meet
generation requirements. I think a lot of the difficulties of
getting the capacity in place are around getting the stuff built
in the first place (that is the planning access) rather than around
Q293 Dr Turner: Hopefully the Planning
Bill will do something to address those constraints. There is
another issue, given that our primary potential sources of renewable
energy are at a vast distance from centres of consumption. There
is a problem with locational transmission charges. Do you feel
that the provisions that we already have in the 2004 Act are sufficient
to address those problems?
Mr Whittaker: At the moment we
have a duty to charge system users on the basis of the use they
make of the network. Remote users of the network, remote generators,
tend to get charged more than people who site generation close
to centres of demand. It seems to me wholly appropriate in a renewable
generation world to continue to offer that signal. We would prefer
to have renewable generation that was close to locations of demand
rather than further from demand.
Q294 Dr Turner: The logic of that
is that you would build your tidal generator or your wind farm
just north of Birmingham where there is no detectable renewable
resource, so that does not make sense, does it?
Mr Whittaker: I think that offering
an incentive to people to site their facilities in a place that
minimises costs for consumers is a sensible signal to send through
our pricing methodology.
Q295 Dr Turner: But you cannot determine
where the renewable resource is. It is where it is, is it not?
What the system does do is to disincentive it. It may be commercially
marginal to develop anyway, and if you then slap heavy transmission
charges on top, it becomes an unviable commercial proposition.
Mr Whittaker: You will still end
up tilting the playing field in favour or against individual sources
of renewable technology. For example, and we have heard a lot
about embedded generation today, embedded generation does not
attract a transmission tariff; that seems appropriate as it is
embedded in the network, although it does take some transmission
services from us. Wind generation located up the east coast as
part of the development of the offshore regime will be closer
to centres of demand than that generation located in Scotland.
Would we prefer developers to see a signal which reflects the
cost to us and, at the end of the day, the cost to consumers of
installing capacity to make those connections available?
Q296 Chairman: Can I bring in members
of the panel? Do you have any comments on this?
Mr David Smith: May I return to
a couple of Dr Turner's points? You are absolutely right that
the Planning Bill is an important part, but there is a range of
other measures that we need to look at. Obviously there is the
Marine Bill when it comes through to us. We need also to look
at the ability to get the necessary materials to us. Copper, as
we know, is becoming more and more expensive, as is aluminium.
The producers of those products are servicing several markets,
particularly China and India, which is expanding rapidly with
one new power station a week. We will have some issues around
getting the materials in and that will affect the timeframe in
order that we can meet the needs. You are absolutely right about
the remote generation and we will need to look at either strengthening
or replacing parts of the network in particular from the north-west
of Scotland. We know that the extension to the Yorkshire line
took seven years and then there was about another seven years
in build. These are big timescales and big projectsa £50
billion or so over the next 10 years, but we are coming to the
end of the life of our networks that were built in the Fifties
and Sixties. There are opportunities and as companies we are all
working to build the technology to move from passive networks
to more active networks to take this generation and to move it
around the system.
Q297 Chairman: I would like the answer
to Dr Turner's first question, other than from Paul Whittaker,
which is really that in Germany there is a preference system within
not only access to the grid but also in terms of purchasing their
electricity from renewables. Do you support that positive discrimination
Mr Steve Smith: I have to be slightly
careful what I say here.
Q298 Chairman: Do not be careful.
Mr Steve Smith: Let me explain
why. It is because the issue is sub judice at the moment.
We have a proposal from the industry on which we will have to
take a decision as to whether we should prioritise renewables
access. We are shortly to publish an impact assessment which will
set out our assessment of that. That assessment basically will
look at what the carbon benefits of doing that would be, how much
renewables you could get and how much faster and weigh that against
some of the risks associated with prioritising renewables over
other low carbon forms of generation. We will need to do that
within our existing statutory system.
Q299 Chairman: When will you publish
Mr Steve Smith: We would expect
to publish that I would have thought within about six weeks, and
then we will have a consultation period with the industry of about
two months after that. Then it will go to our Authority for a
decision. The wind developers have come forward with a proposal
to say that wind should be prioritised and that that is the solution.
All I can say on whether it is a good idea is that there is clearly
a huge prize here. Whether you go as far as prioritising, the
thing that we need to do is just connect this stuff faster. At
the moment we have this huge queue of renewable generation that
cannot get on to the system. What is clear from the work that
we have done with the Government and also with National Grid and
the companies is that there are many things we could do to unlock
that prize and get faster connection.