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

Examination of Witnesses (Questions 300 - 319)



  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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