Select Committee on Innovation, Universities, Science and Skills Minutes of Evidence

Examination of Witnesses (Questions 290 - 299)



  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 local—remote offshore and local within networks—we 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 by Ofgem?

  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 monetary constraints.

  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 projects—a £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 or not?

  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 that?

  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.

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