Examination of Witnesses (Questions 300
- 319)
WEDNESDAY 12 MARCH 2008
MR PAUL
WHITTAKER, MR
STEVE SMITH,
MR DAVID
SMITH AND
MR DAVE
ROGERS
Q300 Chairman: Like what?
Mr Steve Smith: At the moment
the rules to get access to the grid are first come first served.
Those people who turned up first get on to the grid. There is
no prioritisation; there is no ability to say to renewables developers
that have planning permission and that could connect to the grid
quickly that we can push them up that queue and get them on sooner.
There is a big reform programme in train at the moment. National
Grid itself is considering further changes to the rules basically
to get all of those wind developers on to the system who at the
moment at the exiting levels of charges are willing to connect
and able to connect as quickly as possible. If we cure that problem,
with an eye to 2020 and the even more challenging target, we might
start having to look at some of the issues you are talking about.
As we sit here now, we have gigawatts of wind developers ready,
willing and able to connect. The focus should be on getting them
on to the system as fast as planning will allow.
Q301 Chairman: I will come back to
Dave Rogers on this issue. Can I add this? The Sustainable Development
Commission has recommended to resolve this problem, particularly
with the small generators, because they are just being squeezed
out, are they not, by companies like yours? You do not want anybody
else on the grid because you want full access to it. Could we
not have a connect and then manage system that does allow these
intermittent suppliers access to the current grid without having
to make the huge investments that are necessary in order to get
into this queue and stay in it?
Mr Rogers: I represent the renewables
part of E.ON. We are faced with the same issues as that other
developer is faced with. Equally, with our customers and the rest
of our assets, we need to understand where the costs are. When
you are planning the system and the investment required for it
you need to be clear on what your long-term costs and long-term
revenues are going to be. To have a system where you have access
or you think you have access and then you do not at some time
in the future creates more uncertainty in terms of how you develop
anything, in my view. I would come back to the point that was
raised earlier about the priorities here. We have plants in Scotland
that have planning consent and are waiting to get on to the system
and they are constrained off because we do not have the infrastructure
there in place to allow them to come on, not the actual connection
but the transmission infrastructure. That is creating a big problem
for us. The second area is clearly planning. We have talked about
the planning issues here. The third area is this issue of the
supply chain. It is supply chain both in terms of people, in terms
of wind turbines themselves, in terms of other forms of renewable
energy sources, and of course when you come to connect the electrical
equipment up, it is the raw materials, the metal and steel, as
well which are in demand all over the world. There are three big
issues that we would see as priorities rather than specifically
worrying too much about the form of connection priority.
Q302 Dr Turner: Do you not think
that our policy in all of these areas might work differently if
the carbon reduction signal was the primary driver of policy and
then you bent everything else to fit?
Mr Steve Smith: The existing ROC
scheme prior to the Government's planned reforms is delivering
massive willingness on the part of renewable developers to invest.
You are right that there is a problem at the moment that the grid
is a blockage to that. Part of that blockage, as people have said,
is planning constraints. As I have said, there is a clear prize
that can be unlocked if we change the way people connect to the
grid, and that could involve prioritising renewables or actually
saying to people, rather than being on a first come first served
basis, those people who want to pay the most can come on first.
The likely outcome of that, given the ROC scheme, would be that
the renewable generators would move to the front of the queue.
There is that clear prize that we and National Grid are trying
to unlock so that we can get all of that renewables on as quickly
as planning will allow. Then I think there are deeper questions
that you are raising about, as you look at the 2020 targets, which
is almost an order of magnitude higher, what set of arrangements
you will need then to connect up that level of renewables.
Q303 Dr Turner: You do agree that
it would look rather different?
Mr Rogers: Yes. One comment about
Germany, and we obviously have plants in Germany, is that if you
look at the load factors on wind plants there, it is much lower
than would ideally be the case in the UK, for example. That is
simply because in a sense the tariffs have been too over-rewarded
and as a consequence plants have been built in the wrong place.
It is not the most efficient way of developing the system if you
start putting in wind plants which really do not attract very
much wind energy in the wrong places.
Q304 Dr Turner: We should get the
higher load factors?
Mr Rogers: We should get the higher
load factors in the UK and particularly offshore, absolutely.
Q305 Dr Iddon: You have referred
several times to this 9.3 GW which is waiting to come on-stream
in Scotland. Are there any estimates about how long it is going
to take to get that 9.3 GW into the grid?
Mr Rogers: I will give an example,
if I may. We have a scheme which had planning consent in 2006.
I think we have a connection date of something like 2013 for that
plant because of the transmission constraints which prevent us
from coming on.
Mr Whittaker: There is a lot of
wind in Scotland that is waiting behind a particular reinforcement
investment that is at public inquiry at the moment. In a sense,
giving firm access to those generation sets requires that capacity
to be in place. In the Transmission Access Review that Ofgem and
BERR are leading, one of the important questions that it is dealing
with is: how can access to existing capacity be shared while there
are capacity constraints in place? In the fullness of time you
would expect renewable generation and existing back-up fossil
plant to work on a counter-correlated basis: if the wind is blowing,
the fossil fuel will be off and vice versa. So we need to find
commercial and regulatory mechanisms that allow new renewable
generators and existing carbon generators to share that capacity
so that we do not over-build. The transmission access review will
be a very important step on that path.
Q306 Dr Iddon: I am looking at this
as a layman, of course, and as a politician representing my constituents.
I would say to you that what you are trying to tell us this morning
suggests a lack of foresight in planning, quite frankly. Why were
not all these difficulties foreseen ten years ago or five years
ago? How have we got into this state where we have capacity queuing
to get on to the National Grid and we cannot get access to the
grid, for all the reasons you have been enumerating?
Mr Steve Smith: That is a reasonable
question. Ofgem tried in 1999 and 2000 to pilot transmission access
reform and pointed to the need to have different arrangements
for access to the system. I can describe what happened as having
a large collective raspberry blown at us by the entire industry
at the time. Under several explicit threats of legal action, we
took the view at the time when the whole industry—customer
groups and everyone—was telling us it was not the time and
this did not need to happen not to progress that. I think there
were discussions at the time. You talk about the 9.3 GW in Scotland.
Clearly at the moment we have more than 9.3 GW of generation capacity
in Scotland through the existing gas, coal and nuclear stations.
Therefore in some sense what we are trying to do as quickly as
possible is change the arrangements so that the renewables can
get on, because clearly, as Paul Whittaker says, if they share
that capacity, there is already enough capacity in Scotland to
accommodate that level of renewables. What you need to do for
that is to unlock the existing rights and say to the existing
gas, coal and other stations up there that these renewables are
going to have to come on and be able to share those rights. Again,
whenever we have proposed changes in that regard, quickly the
lawyers of the existing generators have come to the foreground
and said, "We have rights and you cannot trample over them".
Very quickly, I think the answer is that if there is a will and
if the existing generators are willing to share the existing capacity—if
not and you are talking about infrastructure build so that we
have enough capacity for all of them—then it goes back to
the comments made about how long it can take to build transmissions
lines, which is seven to nine years. We are firmly of the view
that there is a prize here and it can be unlocked quickly. Therefore
if we can get that sharing in place through the mechanisms Paul
was talking about, then we can get these renewables on very quickly.
Q307 Dr Iddon: I will come to transmission
lines in a moment. As I understand it, and you can correct me
if I am wrong, access to the grid is based by date of application.
This leads to the absolute nonsense where we have capacity now
in readiness to access the grid, which is behind projects that
have not even had planning permission yet. As I say, is this not
a nonsense and how on earth should we resolve this nonsense?
Mr Rogers: I would agree with
that point entirely. There are workings groups going on within
the industry aimed at doing exactly that. Clearly, we are very
supportive of that. We have projects that are in those queues
that have consent which are behind others which do not.
Mr Whittaker: It is similar to
the property rights question, is it not? People who operated under
the first come first served basis and got their projects in early
feel they have a property right in a sense in a position in the
queue and they are reluctant to give it up. These things cannot
be done by fiat; it has to be done by negotiation and discussion.
Q308 Dr Iddon: I suggest if the industry
cannot resolve it, should not Government resolve it?
Mr Steve Smith: That is entirely
reasonable. It is clear that the industry is in the last chance
saloon on this one, and the Government has made that clear. The
Transmission Access Reform project makes it absolutely clear that
if industry does not move on this, then the Government will bring
forward primary legislation to solve the problem. I think it is
clear to us, and I hope it is clear to the industry as well, that
as I said they are in the last chance saloon on this. That project
is due to report in May. We will issue a joint conclusions report
with BERR. I think the Minister is absolutely clear that if he
is not convinced the industry is going to get behind this and
deliver the necessary reforms then he will bring forward legislation
to achieve that.
Q309 Dr Iddon: Thank you for being
frank on that. Can I now try to get some idea of the status of
two major planned power lines, the one from Beauly to Denny in
Scotland and the one that will bring excess power generated in
Scotland down to the north of England, the North-South transmission
line. Where are we with these two major projects now, can anybody
tell us?
Mr David Smith: Denny-Beauly is
in public inquiry. I do not have a timeframe for when that is
due to finish its work. It has been in public inquiry for about
two years. I do not have the details for the North-South transmission
line in my head. I will have to write to you with the detail on
that.
Q310 Dr Iddon: Could I confirm that
these are overhead power lines or are they buried?
Mr David Smith: They are overhead
transmission lines.
Q311 Dr Iddon: Are we going to keep
them away from schools and homes for obvious reasons?
Mr David Smith: I cannot tell
you the route, without looking at it in detail.
Mr Whittaker: There are siting
standards that they must conform to.
Q312 Chairman: Are we looking at
the same timescales as for the North Yorkshire ones? I was involved
with those. They took an eternity.
Mr Whittaker: That was a ten year
delay.
Q313 Chairman: In answer to Brian
Iddon's question, is that all we are talking about? Is that what
you are anticipating?
Mr David Smith: Until it comes
out of the public inquiry, I would not be able to give a firm
date.
Mr Whittaker: I do not have any
better information. We must fear that it is that sort of delay
we are talking about.
Q314 Dr Iddon: I have one final question,
probably to Paul Whittaker. It is often said that the National
Grid is very aged now and in parts is in danger of collapse. Are
you renewing it at a sufficient pace to meet all these new obligations
and also to make sure that there is not a danger of collapse of
the grid?
Mr Whittaker: I spoke about the
size of the investment programme in the electricity grid when
I started. Indeed, it was big point of discussions between ourselves
and Ofgem at the last price review whether we had enough money
in the allowances to do the renewal work on top of all the additional
capacity that needs to be provided. We accepted the settlement
we had and we got on with spending it. It is a considerable amount
of money; it is a couple of billion pounds.
Q315 Chairman: It is sufficient?
Mr Whittaker: It is a couple of
billion pounds over five years. It is sufficient to—
Q316 Chairman: Be a bit bold. Come
on. Nobody is listening to this. Just tell us honestly if there
is enough money to conclude—
Mr Whittaker: I am very conscious
that nobody is listening to this. I confirm that we accepted the
price control, so there must be enough money. Yes, there is enough
money to do to the work.
Mr Steve Smith: Just to give you
an idea of orders of magnitude, the allowances for the next five
years are greater than the cumulative investment in the transmission
system over the last 15; it is an order of magnitude in terms
of the scale up and, as Paul said, that is as much about replacing
the exiting network as it is about investing in renewables. The
other point Paul made is very important. The arrangements are
flexible and so the amount of money National Grid gets increases
in direct proportion to the amount of generation connecting. Obviously
we were uncertain about how much of this was actually going to
come forward, so we have not given them a fixed allowance. We
have said that the amount of money you receive goes up as more
and more generation connects to the system. Again, the joint project
we did with BERR and that looked at this and consulted on it concluded
that the funding was not the problem; the money is there indeed.
There are many things that we have signed off to be invested in
where National Grid or the Scottish companies cannot invest yet
because of planning. So they have the money; it is just whether
they have the relevant environmental and planning permission to
make the investment.
Q317 Dr Turner: Steve, some of the
things you have said this morning have illustrated a point that
I have noticed in other areas of Ofgem's responsibilities, which
seems to be basically that Ofgem is only basically about to regulate
by consent of the industry. Do you think the Government should
give you a bigger stick?
Mr Steve Smith: That would be
unfair. What we have is a series of checks and balances. So we
now have a set of arrangements. We have the ability to approve
modifications and changes that are brought forward by the industry
but our decision is capable of challenge, either through the courts
or through the Competition Commission. I do not think we have
to move forward by consensus, but unfortunately when you talk
about the speed and the urgency, in a more litigious world, we
are just slower at getting to those outcomes because if there
are issues of property rights and we are challenged, then we have
to go through that challenge process. To get to the point where
what we want to do is implement it, it just takes longer. The
powers to appeal are something the industry asked for and were
introduced only a couple of years ago through Parliament. It is
really just a question of the checks and balances in the system.
We absolutely can make changes in these areas but probably quite
rightly people can challenge us. The Competition Commission process
is a relatively short process. That is an appeal on the full merits.
That is heard and settled within a 12-week period and so it is
only when people take recourse to the courts and judicial reviews
that it tends to take a year to a year and a half to get a definitive
outcome to one of our rulings.
Q318 Dr Turner: That was just as
an aside. It is rather sad that lawyers are getting involved in
tackling climate change because that is the last thing anybody
needs. I want to ask about is the development of an offshore transmission
system. I seem to remember the proposed West Coast connector of
a few years ago which foundered under its massive cost. David
Smith, you are probably in the best position to tell us whether
there has been any progress on the development of offshore transmission
technology. Has there been a cost breakthrough? You are obviously
aware of the electricity proposal for a sort of super grid—Irish
Sea, through the Channel and into the North Sea—which would
look, on the face of it, colossally expensive and impractical.
Has there been any progress there?
Mr David Smith: there are lots
of things happening. Some of this is still quite new and cutting
edge technology, which accounts for some of the reasons why a
few of the things we are doing can take time. We also have to
realise the interdependency between the grid and the local distribution
systems as well because not all distributed energy is carried
through the grid; some of it is carried through the local distribution
networks around the UK. As I say, there is £50 billion of
investment going in over the next couple of decades in order to
do that. Specifically, on the point of the offshore grid, I know
that this particular piece of work is being led by the Grid itself,
and Paul may have more facts on that. I know there have been meetings
between Ofgem and some BERR people. I think we are at the state
where we recognise that the offshore around the UK is going to
be one of our biggest areas of distributed wind generation. I
cannot specifically tell you exactly where the meeting point is
at the moment.
Mr Whittaker: I would say that
we are about to see a burgeoning in offshore transmission. Ambitious
plans for the development of offshore wind are raised. We have
been appointed as system operator designate following on our onshore
system operator role to manage the operation of those networks.
BERR and Ofgem are leading an effort defining a franchising regime
to allow competitive appointments of offshore transmission operators.
We are going to see a burgeoning of offshore transmission over
the next few years.
Q319 Dr Turner: Is there any hope
that it will be possible in future to use offshore transmission
to circumvent many of the constraints that we have with the onshore
grid?
Mr Whittaker: I am sure innovative
solutions will emerge as we start thinking about what to do offshore,
yes.
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