House of COMMONS
MINUTES OF EVIDENCE
INNOVATION, UNIVERSITIES, SCIENCE AND SKILLS COMMITTEE
Wednesday 12 March 2008
PROFESSOR GORDON MacKERRON, MR DAVID SOWDEN, MR BRIAN SAMUEL and MR ALLAN JONES MBE
USE OF THE TRANSCRIPT
Taken before the Innovation, Universities, Science and Skills Committee
on Wednesday 12 March 2008
Mr Phil Willis, in the Chair
Dr Roberta Blackman-Woods
Mr Tim Boswell
Mr Ian Cawsey
Dr Ian Gibson
Dr Evan Harris
Dr Brian Iddon
Dr Desmond Turner
Examination of Witnesses
Witnesses: Professor Gordon MacKerron, Economic and Social Research Council, Mr David Sowden, Chief Executive, Micropower Council, Mr Brian Samuel, Energy Saving Trust, and Mr Allan Jones MBE, Chief Executive Officer, London Climate Change Agency, gave evidence.
Q250 Chairman: May I welcome our first panel of witnesses this morning to the renewable electricity-generation technologies inquiry: Mr David Sowden of the Micropower Council; Mr Allan Jones of the London Climate Change Agency; Professor Gordon MacKerron of the University of Sussex on behalf of ESRC; and Mr Brian Samuel of the Energy Saving Trust. Currently, microgeneration for heat and electricity accounts for less than ten per cent of the UK's supply. Is it likely to increase significantly in the next five to ten years?
Mr Sowden: First of all, thank you for inviting us to give evidence. The answer to your question is it is almost entirely dependent on the policy framework. There are significant regulatory barriers still remaining to the uptake of microgeneration both in the electricity and the heat sectors and those fuse together obviously in the CHP sector. In particular, tackling existing housing is a notable challenge. We have government policies, which as an industry we very much welcome, to move to zero carbon homes for new build from 2016 onwards, but we do feel there is a significant policy deficit in the existing built residential sector. The extent to which Government is prepared to introduce further policy making to boost the microgeneration industry will have a very significant bearing on whether or not we see a substantial increase from today's numbers.
Q251 Chairman: The DTI produced a report which was looking at microgeneration and concluded that by 2050 some 30-40 per cent of the UK's electricity supplies could be produced in that way. Do you think that is a realistic target and, if not, what do we need to do to get to that target?
Mr Jones: I think that is a potentially realistic target, particularly if policies that have been implemented in London are replicated elsewhere in the UK. As I am sure members are aware, we have particular policies in London that do not relate to elsewhere in the UK. That is driving the CHP market, it is driving the renewable energy market and it is beginning to drive the microgeneration market. It is quite right to say that existing owner-occupier is the most difficult area to treat from larger decentralised energy systems and so, providing the regulatory barriers are removed, we are certainly in a position where ESCOs (and I am also a Director of the London ESCO) would be interested in providing such technologies on long-term contracts. The regulatory system at the moment is really geared around centralised energy and not geared around decentralised energy or microgeneration, and the potential is huge. There are over 20-odd million homes in the UK. Most of the owner-occupier market is going to need to replace their boilers over the coming years. Therefore, the prospect of domestic CHP, the increasing scale of microrenewables and the potential is quite significant. I know ministers have said about the eight core cities and other RDAs. I think there is a mechanism for Government to use to replicate what has been done in London in other parts of the UK.
Q252 Chairman: Given that, do you feel that the 30-40 per cent target by 2050 is achievable?
Mr Jones: Providing the regulatory barriers are removed.
Q253 Chairman: Professor MacKerron, do you agree with that?
Professor MacKerron: It is certainly possible in such a long timescale. There are a number of things that could be done at a national as well as at a local level. The report that we did at Sussex, published about 18 months ago, on microgeneration made two main points about national level changes. One was a change in the fiscal system to allow capital allowances for householders; in other words, for investment on the demand side to be treated equivalently to investment on the supply-side and that would be a major improvement to the economics. Other people here are more qualified to talk about this than me, but there is the issue of whether or not householders with excess electricity can sell their power back into the system at a fair rate. That in itself depends upon better metering technology, which is currently under trial. If those sorts of measures and the things that Allan has just mentioned were put in place then it is certainly feasible, but far from certain, that one could reach such a level.
Q254 Chairman: The Renewable Energy Association told us that the Government's promotion of microgeneration technologies to date has been largely "unhelpful". Do you think that is a fair assessment?
Mr Samuel: It is an interesting opinion. Historically it is clear that microgeneration has lacked the investment that other technologies have actually received, so in that respect there has not been sufficient support. There are a number of barriers that need to be tackled. There is the upfront cost barrier that still needs further work on. You need to look at the regulatory issues around planning which are currently being progressed. We are optimistic about a positive announcement soon. There is also a lack of long-term incentives for heat in particular. I know this focus is on electricity, but heat is crucial for microgeneration technologies. There is a lack of investment in the supply chain, training installers and providing that long-term framework required for people to invest in new technologies. It is also about raising awareness and providing information to consumers and making sure that consumers understand the full benefits. The Government has not been supportive in the past of microgeneration. However, there are opportunities to be taken now that can move the microgeneration agenda forward so that we can realise the targets that are potentially achievable.
Q255 Dr Gibson: There is an opportunity coming up in 2012 that you will know about, Allan. What are you going to do with the Olympics in terms of microgeneration?
Mr Jones: The Olympics is not really a microgeneration project as such.
Q256 Dr Gibson: Why not?
Mr Jones: It depends what you regard as microgeneration. I am using the technical definition here. You are talking about a system that will have probably 50 or 60 megawatts of a trigeneration system, which is currently being procured by ODA, overlaid with at least 20 per cent renewables, much of which will be large scale, but there will also be photovoltaics. Yes, individually those technologies are micro but collectively they will be streamed together, so they will be in quite big systems.
Q257 Dr Gibson: How do you make the decision about which source you use?
Mr Jones: In London we have the London Plan. So whether the ODA wanted to do it or not, they were caught by the London Plan. They will have had to have put in decentralised energy. They will have had to have put in at least 20 per cent renewables. We are seeing other major developments that are also going down that route. Just looking at CHP, for example, with the current batch of large developments there is well over 100 megawatts.
Q258 Dr Gibson: So if we were going to boast to the world that the Olympics are going to be the best, what is the best that you are going to provide?
Mr Jones: I think there might be projects that might happen before the Olympics that will be better than the Olympics in terms of renewable energies.
Q259 Dr Gibson: Such as?
Mr Jones: Some of the projects that are currently happening at the moment in Elephant and Castle, King's Cross, the Greenwich Peninsula. The Greenwich Peninsula is interesting. It is just across the river from the Lower Lea Valley ---
Q260 Dr Gibson: How about the House of Commons, for example? How would you sort this place out?
Mr Jones: You have got a big CHP system here running the House of Commons and a number of government buildings which are perhaps been underutilised.
Mr Sowden: I would just like to go back to the question that Brian Samuel answered about the helpfulness or otherwise of government policy so far.
Q261 Chairman: This is in promoting the technologies?
Mr Sowden: Yes. It is important to acknowledge that the Government has done a number of things which have been helpful. That is not to say that it is enough or that we should not go much, much further. The Government published a microgeneration strategy two years ago which we supported strongly at the time. It contained a number of measures to reduce or remove regulatory barriers and better access to existing financial incentives. The planning issue has been referred to. We are expecting an announcement to Parliament very soon on that. That is a major step forward. It is a big barrier for the industry at the moment. In terms of aspects of current policy that have not worked particularly well, the Low Carbon Buildings Programme and particularly the Householder Grant Scheme has been plagued with implementation difficulties. In particular, the decision to introduce monthly capping about a year ago caused a lot of stop/start in the industry. We feel the answer to that is that we should be looking towards much longer-term, sustainable, market-based financial incentives than looking at a grant scheme because with a grant scheme by definition you are hamstrung by the Treasury every three years and it introduces a great deal of uncertainty. It is not particularly helpful as the industry starts to scale up in the early stages of mass-market commercialisation. It is a blunt instrument. It is very good in the much earlier stages of market development but not suitable for mass-market deployment, which is what the Government was trying to use it for. There are areas of policy which have been unhelpful, but let us not lose sight of the fact that some aspects of policy have been helpful. The evidence for that is if you look at the companies that are now getting involved in this sector and investing in it, five out of the six major energy suppliers, all with a significant microgeneration deployment capability set up, with all of the big European heating appliance manufacturers investing heavily in fuel cells, solar thermal, micro-CHP and other technologies as well. Industry and investors have responded to the signal. The industry is gearing itself up. We just need policy to take us to the next stage.
Q262 Chairman: The Low Carbon Buildings Programme is one of the main planks of the Government's approach to a low carbon policy. Do you share the view that the current incentives are wrongly placed and we should just leave it to the market?
Mr Samuel: As BERR's managing agent for the Low Carbon Buildings Programme, our view is that grants are helpful initially but certainly they are not sustainable in the long term and you do need to move away to a more longer-term rewards system, for example, feed-in tariffs. Feed-in tariffs do not address heat so you still need something for heat as well. I think the grants initially were perhaps too generous and then there was perhaps too much of a tightening of the grants such that they were reduced by too great a degree. So somewhere in between there probably was a better balance. We would prefer a longer-term support mechanism that is more market based but provides the right incentives and long-term rewards from microgeneration.
Q263 Chairman: Gordon, do you share that view?
Professor MacKerron: I do personally. I think one should make the general comment that as an instrument grants are blunt because they tend not to be performance related, you get an upfront subsidy, as well as the fact that it does not involve the Treasury to the same extent. The advantage of having a market-based system is it rewards the performance of the device, not just the fact that it has been installed in the first place. For major support programmes something that is market based works much better than grant programmes. I agree that in the initial stages kick-starting things by grants can be a very useful way forward.
Mr Jones: I disagree with the comments that have been made. Grants have an important role. I certainly think that the original PV grant, for example, did stimulate an industry that was not there. The industry comes to depend on that grant programme and so when you make changes to that you cause severe problems with that industry and they either go abroad or they go into liquidation. If you were to do this logically, you would start out with a grant programme that was appropriate to stimulate that particular technology whilst you were phasing in much longer sustainable support programmes like feed-in tariffs so that you gradually move from one to the other.
Q264 Chairman: At the moment you do not feel that that is happening?
Mr Jones: I do not feel that the current programme is as good as the previous programmes.
Q265 Dr Iddon: On the Energy Bill Standing Committee yesterday we had a wide-ranging debate on smart meters. Is metering a problem with feed-in tariffs at the moment? What is your advice to Government about meters?
Mr Jones: You can get a meter for a domestic household that can measure both import and export electricity but it is designed for the commercial sector, for big office buildings, so the cost of that meter is out of all proportion to the amount of electricity that you are dealing with. Smart metering and the ability to measure electricity, without having to measure megawatts and all the rest of it, just a simple flow of electricity, input/output of kilowatt-hours is what is needed.
Q266 Dr Iddon: So your advice to Government would be to get on with it for the smart meters?
Mr Jones: Just get on with it, yes.
Q267 Dr Turner: David, perhaps you could start by telling us your view on how effective or ineffective the ROC system is in incentivising microgeneration?
Mr Sowden: I would like to extend the scope of that question to feed-in tariffs as well because I think there are related issues that apply to both. It is important to differentiate the level of subsidy that is provided from the deployment mechanism for that subsidy. Feed-in tariffs are much hailed as a success story in Germany. That is partly because the feed-in tariff mechanism gives the customer a long-term guarantee of the price that is paid, but a very important factor is that there is a significantly greater level of subsidy applied through that mechanism than is currently applied through the Renewables Obligation for the two technologies which are relevant here, which is PV and wind. On the Renewables Obligation itself, the process through which a customer needs to go in order to register as eligible for ROCs and subsequently to claim them is quite a torturous process. There have been some changes made through the Climate Change and Sustainable Energy Act 2006 which are a step in the right direction, but it is still the case that claiming ROCs is dependent on the customer reading the meter within an 11-day window in the middle of the school Easter holidays. The inability to do that or the forgetfulness of the customer to do that means that they lose a benefit that might be worth £50 or £100 per year. The consequence of that is that the energy supplier needs to put a system in place that reminds the customer to read the meter. As soon as energy suppliers have to start sending out reminders transaction costs start to pile up and very quickly you erode almost all of the benefit that that policy mechanism can deliver. In their current form ROCs do not work for microgeneration customers. If you talk to our energy supply members they will tell you that whilst they do reward customers to a greater or lesser extent for both exported power and for ROCs, they are losing money in doing so. They are doing it to be seen to be doing it. It is not sustainable and they cannot sustain it once we get into a genuine mass-market situation.
Mr Samuel: The Renewables Obligation was designed for larger installations. Microgeneration is at the small end. It will only happen if the consumer accepts it. It needs to be made easier and simpler and cheaper for the consumer to install microgeneration. The Renewables Obligation and the framework to get ROCs make it harder and more difficult for consumers to do what is necessary. Therefore, it is not consumer-friendly and something else is required.
Q268 Dr Turner: I am not remotely surprised by your answers. Let us explore feed-in tariffs in a little more detail because, as you have pointed out, Brian, we also need a method of incentivising heat as well as electrical generation. We need to differentiate perhaps between generating electricity that is consumed within the premises and electricity which is being exported to the grid from the premises. Do both qualify for ROCs or electricity being exported? These things need to be taken into account. That needs to be incorporated in the smart metering system. Could I have your views on how you would structure a feed-in tariff mechanism for microgeneration taking into account micro-CHP? Do you think we have adequate technology available off-the-shelf in order to deploy this on a large scale?
Mr Sowden: On metering, you need to solve the data capture problem that I described earlier whether you are in a feed-in tariff world or you are in a Renewables Obligation world. That is the main challenge. That is where particularly the ability to read meters remotely can help. There are various complicated technical issues around differentiating the amount of gross generation from the level of exported generation, the difference being the demand that the consumer takes simultaneously. Certainly the feed-in tariff arrangements in Germany and in France reward the gross generation. Technically they reward the export, but customers get round that by connecting to the network on the distribution networks side. So effectively they sell it all and then buy it back from the grid at the retail price. They would not do that if the tariffs were not as generous as they are. You have to solve that set of problems whichever world you are in. Where feed-in tariffs are different to the Renewables Obligation is that if you are going to introduce a feed-in tariff you have to have an equitable cost recovery mechanism for whoever is applying that subsidy. In Germany there is quite a complex reconciliation process to ensure that the subsidy is effectively socialised through the generality of network users. We have a different type of arrangement here in the UK because we have unbundled networks from retail supply and there are various options open to you for recovery through transmission and distribution charges, ie some sort of reconciliation process between the major energy suppliers. Even the Conservative policy which they have put forward proposes that that system be funded exclusively by the Treasury where you do not introduce those sorts of complexities. A move to a feed-in tariff would require primary legislation and would require those cost recovery issues to be dealt with adequately. The Renewables Obligation on the other hand already has an inherent cost recovery mechanism built in.
Mr Jones: This is not technically difficult. I did this in Woking. I had 80 decentralised energy sites there. I used a building energy management system in conjunction with the metering to measure the different half-hours of electricity and group them together. Electricity, although not a feed-in tariff, uses the same mechanism. It cross-traded between these 80 different sites, some of them quite small, with only four dwellings in some circumstances. It shows that it can be done. If you talk to meter manufacturers, these meters are not that expensive to make as long as they make them on a large scale. They will say to you, "We'll provide these meters if there is a demand for it". Clearly if you have a feed-in tariff that creates a demand. If everyone that puts in a microgeneration system automatically gets their metering sorted out at the same time you could at least start that market going.
Q269 Chairman: I spoke to a company in my own constituency that is importing smart metering from China using radio frequency which is able to do both gas and electricity with absolute ease and give you a real-time reading if you want. The big problem is that the large suppliers do not want to co-operate because that interferes with the monopolising of their customer base. Is that a real problem?
Mr Jones: I think it probably is. It may be more so with some suppliers than others. Parliament really should address vested interest, particularly when it relates to such an important issue as climate change and renewable energy. We have obviously been seeing that for some years, but if you are now convinced that that is what is going on then really Parliament should do something about it.
Q270 Dr Turner: Could you elaborate further on how you would incorporate renewable heat into the system?
Mr Jones: Setting aside combined heat and power from natural gas ---
Q271 Dr Turner: Including CHP.
Mr Jones: All of these heat systems rely on a fuel input, be they woodchips or we could be talking biogases, syngases and so on in the future. The treatment of that fuel to supply that renewable heat brings forward a new form of energy that perhaps Parliament has not had to consider before and it tends to get fixed with gas and electricity. You could put mechanisms in place for the fuel going into those systems. There are some technologies that might fall outside of that like ground source heat pumps, for example. You can put support mechanisms in place, not obviously a feed-in tariff as such, but mechanisms that support the fuel providing those systems.
Mr Samuel: One of those mechanisms would be a reward based upon the deemed heat output of any installation averaged over each technology. There are methods of doing it. It is more difficult and you would not necessarily want to meter it accurately because of the expense of heat meters. However, if you have smart metering, who is to know what will happen in the future with technology so that you can bring down those costs and make it viable? The key point is that heat is more important for microgeneration in buildings than electricity because electricity is a discretionary technology and you need to address the heat first because that is where the main carbon emissions occur in the home.
Mr Sowden: There is an existing mechanism which supports heat technologies that comes into force at the beginning of April called CERT and it is the development of the energy efficiency commitment. It is certainly the case that two technologies in particular under what the Government is introducing in CERT actually fair better under CERT than they do under the Low Carbon Buildings Programme, those two technologies being ground source heat pumps and biomass boilers. What CERT does is it takes an average estimate of the lifetime carbon free contribution of energy from those systems and it effectively capitalises it, it brings it all into an upfront benefit. Where you have systems where it simply is not economic to put metering systems in place and I would certainly suggest that is the case at the individual household level for heat --- If it is not economic to meter solar thermal or ground source heat pumps or air source heat pumps or those sorts of outputs, then having some inherent capitalisation of that benefit is a very interesting policy to look at. Unfortunately, in the CERT proposals the Government did not go as far as we would have liked with technologies like solar thermal, which actually has seen a drop in funding compared to the Low Carbon Buildings Programme. It certainly is a mechanism that we strongly support in the way the Government has deployed it in some technologies.
Q272 Dr Turner: The Government has already hinted that it will introduce a feed-in tariff mechanism for microgeneration, although it could in fact be incorporated in the current Energy Bill and there will be an argument about that. As soon as the legislative framework is put in place, how quickly do you think that industry could deploy?
Mr Sowden: I think industry will certainly respond to whatever policy mechanisms are introduced. The art is to craft those in a way that is designed to bring forward investment and investment will flow when there is a clear picture of where the Government wants to go with microgeneration. One aspect of microgeneration policy where we feel it is a "poor cousin" to other areas is sustainable energy in that it lacks any form of Government target whereas all the other sectors do. We know where the Government wants to go on renewables in general, on CHP, on energy efficiency and on fuel poverty, they have either got policy targets or even statutory targets in some instances, but we do not have that for microgeneration and that makes it a very difficult ask to investors who are looking at all these other options as well.
Q273 Mr Boswell: I would like to turn to the micro-CHP demonstration programme which the Carbon Trust is funding. This is about the effectiveness of the technology and assessing that and it identified some R&D needs which arose from it. I wonder if our experts could tell us whether they understand that similar programmes will be undertaken in different technologies around microgeneration in the future or is this a one-off?
Mr Samuel: I think you have identified a real gap in the development of microgeneration technologies. We are pleased that the Carbon Trust is undertaking the micro-CHP trials, but that is just one technology. What we have found is that there is a lack of evidence about how microgeneration technologies actually perform in the marketplace. Also, you need to provide consumers who invest in technologies with sufficient confidence that those technologies will perform. The Energy Saving Trust has undertaken some microgeneration wind trials and we are also about to start some heat pump trials as well. However, they are not funded by manufacturers or by support mechanisms through the Government but by the energy retailers and by retailers themselves. So they can try and provide the market confidence in new products to consumers. We feel that there should be further funding in the demonstration of technologies. One of the reasons why that has not happened is because the Carbon Trust has a focus on research and development as opposed to the demonstration of commercial technologies. Perhaps under the Environmental Transformation Fund there will be opportunities in the future to trial these technologies and to help understand how consumers can best relate to them.
Q274 Mr Boswell: Let us go on then to the BRET evidence we have received and we are talking primarily about micro-wind here. BRET identified a need for individuals planning to install micro-wind to give greater consideration to local environmental emissions. Has it been oversold? If you are in the wrong place will you make any money out of it or will you ever get the costs back? I suppose there is an environmental implication which is whether the site is appropriate and that may be both an economic and visual impact. Is there any possibility of softening the visual impact rather in the way that satellite dishes have come down in size?
Mr Jones: I think those are interesting points you raise there. These are new technologies. One could say that they started too soon. They did not have the rigorous annual in situ programmes. There were a lot of wind tests carried out primarily up in Scotland, maybe on a Scottish moor somewhere that did not quite replicate in an urban area. I do not know if you have had evidence from B&Q at all, but you should talk to them about the Windsave wind turbine and the iterations they had to go through from the first one to their current one. We have had something similar with the Swift turbine as well. Both of them had their software reconfigured. What was happening is because they were trialed in a Scottish environment they were switching off too soon. We had that situation on our own building where the turbines were going round but disconnected from the generator. It was not that there was not enough wind, there was plenty of wind, it was the software design.
Q275 Mr Boswell: You mean because there was a potential risk to the equipment?
Mr Jones: No. It was simply programmed wrong. It was running off its prototyped first programme if you like.
Q276 Dr Gibson: It was sabotaged by the English!
Mr Jones: I think what that says is that you need to go through several iterations to refine the product. If you talked to B&Q now they would probably tell you that between a third and a half of domestic applicants, if you look at the wind map, think it has the potential. They send a surveyor onsite, but there are other factors like big trees nearby and so on that prevent the generation. This can be done, but I do not think it is a product you can just buy off-the-shelf and screw on your chimneybreast.
Professor MacKerron: I think it is fair to say from the work that we carried out at Sussex, while one cannot generalise too acutely, there are many serious problems about a lot of urban locations for micro-wind. Clearly most people live in urban areas. One should not get the idea that all these microgeneration technologies are likely to be equally successful, which is not to say that we should not do more work on it, but perhaps for urban locations it probably is not inherently a technology that has as much legs in the long term as some of the others that we have been discussing and it is important to be realistic about that and not expect too much from one particular microgeneration technology across the whole urban landscape.
Mr Samuel: You need to understand how the technologies perform where they are going to be installed. Coming back to Dr Gibson's earlier remark about community microgeneration, there is a lack of understanding about whether microgeneration within the home or microgeneration within the wider community is the better option and how different types of microgeneration work together, for example, ground source heat pumps providing heat in combination with passive solar for larger scale installations and also how heat technologies work with electricity technologies. There is further work needed about choosing the best solutions for the individual circumstances and they will inevitably be different.
Q277 Chairman: That will not be a market-led solution, will it, because each of the companies has a vested interest in selling their product just as B&Q had when selling their own turbine? Who should be driving that?
Mr Samuel: That is why you need to have the advice and information readily available, so people can take the most appropriate decision for their circumstances.
Mr Sowden: I would like to make three very brief points. The proposals that communities and local government have come out with on permitted development, where we are expecting to see a Statutory Instrument laid down shortly, exclude conservation areas, they exclude listed buildings and Areas of Outstanding Natural Beauty. They have looked at that and of course the technology will advance the more sales pick up. Picking up the performance point, the Government together with the industry has been working on a comprehensive microgeneration certification scheme for over a year. It is not quite in the shape that it should be just yet, but we are confident that it will get there. We think that will underpin many of these concerns because companies and their products will produce what are called certified outputs which are subject to checking and audit and we believe that will introduce a significant boost to the comparability of one technology to another and therefore to consumer confidence.
Q278 Mr Boswell: I think the message I am getting here is that more research is required in the deployment of these systems. There is an open question and I am not sure we can close it this morning about the stratification of vehicles, whether it is an individual on-house generator, whether it is a district, whether it involves CHP and is a collective effort or a combination of all those. Would it be fair to summarise by saying it is quite a complex picture which will require some planning or some advisory input at a level wider than the individual house?
Mr Sowden: I think that is a correct analysis, but I would also say that the new build sector is fundamentally different to the existing residential sector because retrofit technologies need to be very, very easy for customers to do and politically they can be much more challenging. With new build you can introduce regulatory requirements far more easily because you have the construction industry between the customer and the Government than you can in existing residential areas where it generally is the owner-occupier who is the decision maker and the person taking the technology.
Q279 Mr Boswell: And that would involve the planning consent process as well.
Mr Sowden: Yes, which we are hoping will get sorted out very soon.
Q280 Mr Cawsey: Allan, could you tell us something about the role of microgeneration in the London Plan, this idea that you are going to move to a decentralised system of more than 50 per cent by 2050?
Mr Jones: The target for decentralised energy is 25 per cent by 2025 and 53 per cent by 2050. About 17 per cent of that is microgeneration. We have similar proportions for renewables, waste to energy and CHP. We see all of those technologies working with each other trying to get the regulatory system to recognise the laws of physics and how that trades locally across that. There is an important example that could be set for other cities and for other regions as to how you can drive forward what is quite an aggressive target. The 60 per cent reduction in CO2 emissions by 2025 is 25 years currently ahead of the Government's aspirational target and that is simply because we looked at the 450 parts per million and worked back what we needed to be doing now to get there. You come up with some rather different figures. 75 per cent of London's CO2 emissions come from centralised energy, both gas and electricity. You do not normally see that figure, it is normally smeared across end use, but that indicates quite strongly that we need to do much better than we are currently doing on decentralised energy technologies.
Q281 Dr Blackman-Woods: Can you tell us what the role of social science research is in renewable energy development or deployment, and can you point to any recent achievements?
Professor MacKerron: Thank you for the question. It is fair to say that the Economic and Social Research Council as well as the UK Energy Research Centre have been very active in promoting social science research on renewable energy. If you take a period over the last few years, probably the largest single contribution - and it has come from many different institutions - has been research on the effectiveness of the renewables obligation and the ROC system that Des Turner referred to earlier, and quite detailed work on the possible alternatives, about which you have already heard today and no doubt on other occasions, including the feed-in tariff and work that has been done in places like Cambridge, Warwick, Sussex where I come from, Surrey and Imperial College. They have all been very influential in that area. A second area which I think has been active and has made some impact on policy has been the micro-generation issue in general. I should just add the qualification to that that micro-generation of course, although mostly about renewables, is also about efficient use of fossil fuels too and that while your inquiry is particularly concerned with generation, we have inevitably been looking at the heat side of things as well. I think it is fair to say the social science community has been alerting the policy system to the fact that there has been major neglect of the heat market and the importance of heat to climate change targets. I think that is another contribution that the social science community has been making in recent times. There are a number of other specific areas that I will not go into. Perhaps I could make one generic point and that is that the way in which the social science research community is aiming to have an impact is not just in the form of individual research projects; it is in the form of being engaged in a number of different ways. One of my colleagues is a specialist adviser to another of the committees of this House. We have a social scientist, you may observe, sitting behind you and no doubt advising you at present. Tim Jackson at Surrey is a member of the Sustainable Development Commission and he has been very influential in persuading them to work very effectively on issues like tidal power. I think one of the ways that the social science community is responding is by an engagement with many of the important institutions that themselves have some leverage, both in research and policy, as well as the traditional activity of conducting research projects in which I think we have also been fairly active.
Q282 Dr Blackman-Woods: Are there specific challenges for social science research in this sector?
Professor MacKerron: One of the challenges is, and I think Brian has alluded to it, is that where it bites there is a need for a great deal more basic demonstration at a technical level. Much of the work that social scientists can do and will be able to do does depend upon having prior work done in the demonstration field. In the field of micro-wind that we discussed earlier on, we have a bit of scepticism at the moment but we know that better demonstration might allow us to be more positive. I think that is the challenge, to try to persuade the policy system that the so-called valley of death, the gap between the initial demonstration and the commercial application, is one of those things that Government might give greater attention to. As you have already heard, the Environmental Transformation Fund but also the Energy Technologies Institute are both encouraging developments because they are designed to help fill that gap and provide the material that the social scientists can then work on more effectively.
Q283 Dr Blackman-Woods: Is it your experience that it is common practice for social science researchers when they are looking at the renewable sector to come up with policy solutions to the problems that they find or not?
Professor MacKerron: I would put it the other way round. I have found very few instances where that has not been true; in other words, virtually all the social science research that is devoted to renewables starts from a policy question and uses the various tools of social science. Much of it has been economics but increasingly it is sociology and social psychology as well, looking at consumer behaviour, which is a very big growth area right now. I would say the vast bulk of the social science work is devoted to real and practical policy questions and is designed to have impact either in the short term or more commonly to influence the climate of opinion.
Q284 Dr Blackman-Woods: My question was actually about policy solutions, not whether they come up with policy questions, which I would expect them to do of course. Are they coming up with policy solutions?
Professor MacKerron: The answer is: yes, on the whole. One feels slight diffidence about allowing experts to be too much in control of policy. One can make a contribution; there are others, such as yourselves, who have contributions to make as well. Yes, if I was not clear, I am sure it is the case that all that research is designed to think about practical policy solutions as well as simply to raise the questions.
Q285 Dr Blackman-Woods: Can you tell the Committee briefly about the work being carried out at SPRU and the role of renewable energy in electricity supply?
Professor MacKerron: I can briefly. I think probably the largest single contribution, which is now, as I said before, 18 months since publication but nevertheless among the most influential is a large, multidisciplinary project on micro-generation, which involved the collaboration of both engineers and social scientists. The engineers are from Southampton and Imperial College and the social scientists from SPRU. I think that was very valuable because it did manage to conduct some important small-scale engineering trials and then build some economic and political analysis on the back of that. Just to give you an example of, as it were, policy solutions, we came to some fairly strong conclusions on the subject of the need to treat smart metering not as a matter of individual consumer choice, but as a matter of infrastructure development that should be treated at a national and policy level generically and not, as I think the regulator Ofgem would wish, as a matter of individual consumer choice. We pointed to examples elsewhere - Italy and Sweden - where such a broad policy approach has been made. We also did some quite practical work on the question of capital allowances and enhanced capital allowances, trying to even out the tax treatment of what effectively is similar kinds of investment that might happen to be done by householders to the kinds of investment that may be done actually in the same technologies but by energy supply companies whose tax treatment is much more generous and much more liable to lead to early deployment.
Q286 Dr Blackman-Woods: So you already have key recommendations emerging?
Professor MacKerron: And those have been referenced often enough in parliamentary debates and in government publications. That is an example of a fairly large and important multi-disciplinary study. There are other examples but I have a suspicion that in the interests of time I should leave those out for now.
Q287 Dr Blackman-Woods: I turn to David Sowden briefly?
Mr Sowden: In the interests of time, I have a pointer for the Committee on a piece of research that was done by the Sustainable Consumption Round Table two years ago, which is relevant to your question, but I will write to the Committee with the details.
Q288 Mr Cawsey: I want to get one point in on the public sector and how it can make a contribution, an example being the schools estates and the school estates contribute 15 per cent of carbon emissions from the public sector and yet if you look at building regulations, it will just say 'all new school buildings over 1000 m2 should consider the use of micro-generation', which does not sound very tough. Some local policies might say that there has to be a target of, say, about 10 per cent. Should that be a national requirement and is 10 per cent too low? Should it be more ambitious? What should be being done to make sure the public sector plays a big role in micro-generation?
Mr Jones: You have raised quite an interesting question there because in London we regard the building regulations as the base case for business as usual. The London Plan actually demands far more than building regulations does. You may be aware that the new London Plan that was recently published has increased the renewables target from 10 per cent to 20 per cent. It has also fundamentally changed the way that you calculate that. The previous London Plan was an energy-led target; the new London Plan is a carbon-led target. It no longer talks about 10 per cent renewable energy generated on site. It talks about displacing 20 per cent CO2 emissions from renewable energy. That encourages and stimulates other technologies like decentralised energy, further energy efficiency improvements, because it is more economic for the developer to reduce its carbon footprint to as low as possible before it then applies perhaps more expensive micro-generation renewable technologies.
Mr Sowden: I would endorse that with the revision to the Climate Change Planning Policy Statement, shortly we hope to be underwritten by Michael Fallon's Private Member's Bill that has already been through committee and which opens up the Merton Rule type polices, as we call them, to both renewables, which they were before, and importantly low carbon technologies. It allows local authorities to specify those policies in local plans that give developers the appropriate balance between renewables on the one hand and CHP and energy efficiency on the other. We welcome that move.
Q289 Mr Cawsey: I do not want to put words into your mouths, but the Government has a very ambitions Building Schools for the Future programme to replace and refurbish every secondary school in England. Surely it would be sensible to say that this has to be part of that, since they are doing the work anyway?
Mr Samuel: We need to be more ambitious.
Mr Sowden: Certainly that is something that the Energy Minister, Malcolm Wicks, in his previous stint as Energy Minister was very keen to see during several announcements.
Chairman: We shall ask him
when we see him. Thank you very much
indeed. I am very sorry that this has
been a very quick canter through the subject.
I do appreciate your patience with us. Thank you all very much.
Examination of Witnesses
Witnesses: Mr Paul Whittaker, UK Director of Regulation, National Grid; Mr Steve Smith, Managing Director of Networks, Ofgem; Mr David Smith, Acting Chief Executive, Energy Networks Association; and Mr Dave Rogers, Director of Climate and Renewables, E.ON UK, gave evidence.
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.
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.
Q320 Dr Turner: Can you give any timescale on this?
Mr Steve Smith: I think it is an excellent question. As Paul was saying, some of the commercial responses from wind farm developers, particularly looking at, say, the Scottish Islands or the north of Scotland, is looking at exactly that. If it is going to take us nine years to get the transmission lines built onshore, then can we move offshore and come in and connect at other points on the system? It is certainly something on our radar screen. The mechanism that we have been developing with BERR to create licences for offshore transmission was borne in an era when we were thinking about offshore wind farms and connections there. Obviously we need to make sure that if people want to do that because it may be eminently sensible and even if it is a bit more expensive, if it gets you there six or seven years earlier, then there may be good reason for that. We will need to make sure that the regulatory arrangements allow for people to think about doing that. It is an issue we face in the gas system where people have done exactly that; they have looked at the cost of building gas pipelines from Scotland down to the south onshore and then said, as the Norwegians did recently: no, thanks very much, we will bring our pipe in closer to where it is actually used. We will definitely do what we can to make sure that if people want to do that, they can within the existing arrangements.
Q321 Dr Turner: Do you feel that there is a prospect of an offshore grid network, which is more flexible than the landward can possibly be?
Mr Steve Smith: I think if you work back from the 2020 targets what that would mean potentially in terms of the levels of renewable generation, then you start to think that there may well be an offshore network because to deliver 40 per cent of our energy from renewables, there just probably are not enough sites onshore and a lot of it is going to have to be offshore. I think BERR are doing a big project at the moment to look at the scenarios and what 2020 and delivering that might mean. I would not be at all surprised if the outcome of that is a lot of offshore renewables and something that looks more like an offshore grid than a few single pieces of wire connecting in from large offshore wind farms.
Q322 Dr Turner: So the electricity proposal is not too far fetched?
Mr Steve Smith: I think there is a lot more work to be done. With the 2020 targets, I think it is probably less far fetched than perhaps it appeared at the time it was first mooted.
Mr Rogers: To add a point to that, I would agree with what Steve said there. I think it is an aspiration, something that needs to happen, but I really caution against the issues with offshore. They are very, very difficult. If you have a cable fault offshore, as we have on one or two of our wind farms at the moment, you have major problems to be resolved. If you have a grid system like that, then security of supply becomes a very much more pertinent issue than it does onshore.
Chairman: Could I ask both Steve and Paul: when in fact you were bringing in North Sea gas and we were distributing it all around the United Kingdom, why did we not just simply put a power trench in at the same time so that we would have a completely new grid everywhere? That is exactly what I did in Harrogate when we the cable operators were coming in; we put a cable in for CCTV across the whole town at the same time. Did nobody ever think of that?
Dr Turner: It is the physics of high voltage transmission.
Chairman: We cannot put them next to each other?
Dr Turner: No, it is the reason why we have very high voltage overhead grid lines; it is basic physics.
Q323 Chairman: Is that the answer, Paul, so it is basic physics?
Mr Whittaker: I will defer to the expert on that.
Q324 Dr Turner: I am not the expert.
Mr Whittaker: Neither Steve nor I were around at the time. Perhaps that will absolve us from answering that question.
Chairman: You should be a politician, Paul.
Q325 Mr Cawsey: In my constituency, we have just gone through a very long and tortuous process to get two large wind farms finally approved by the Minister a couple of weeks ago, and so I have met people with all sorts of views on renewable energy, both positive and negative. Over and over again, I come to the point about it is only when the wind blows and so you get intermittent supply. It strikes me that whilst renewable energy is such a small overall percentage of the supply, that is not a huge great problem, but it is what happens next that matters. We have just been speaking about the 2020 targets and perhaps 30 to 40 per cent of electrical supply might come from renewable energies. Is that going to cause a transmission and a grid network problems when it is at that level? I will ask a second question attached to it. Is there a threshold, which if you went over it, you would start to have concerns that there is too much renewable and therefore surety of supply is at risk?
Mr David Smith: The premise of security of supply is having a balance; it is not putting all your eggs into one basket. I was at an event last night when the Energy Minister was speaking on this very subject. He was saying that maybe there is nuclear, there is certainly some gas in there, and we are looking again at carbon and clean coal as well as renewables. I think a sensible approach is to say that you cannot just have one, that there is intermittency, you are absolutely right, and you have to make sure. The Grid has the difficult job at times of making sure the system is well balanced and from their perspective I guess, without putting words into their mouth, they need to make sure that the generation is balanced to meet their needs.
Mr Whittaker: I would agree that large-scale renewable on the network is likely to mean that the way that we control it is different from the way that we have in the past. We are in a number of joint research projects with our European transmission colleagues, other transmission companies, trying to understand what the impacts of coping with that is. We are confident that those challenges can be met. We have seen them met in other European countries. We think we can learn from their good practices and potentially some mistakes that they have made along the way. We recognise it as an issue and we are working hard to make sure that we have the control systems and the information in place to cope with it as it arises. The intermittency question is quite an interesting one. Although on a day-to-day timescale wind is not particularly predictable, from hour to hour you get quite good predictability by looking out of the window and seeing whether the flags are flying. The characteristics are different. Intermittency is a feature of wind, but there are mitigating factors as well to take into account.
Mr Rogers: On the general diversity question here, it is not only wind; biomass can run 24/7; photovoltaics obviously will produce power when the sun is shining. Even with wind, if it is across different parts of the country, there is a degree of diversity from that. It is not all bad news with renewables.
Q326 Mr Cawsey: David, from your answer, you have implied that basically there is a threshold and so you have got to have a mix.
Mr David Smith: No, I was suggesting that there still needs to be a mix however and wherever you are. There is an energy mix and that energy mix needs to be there. I do not know what the threshold would be.
Q327 Mr Cawsey: There is no percentage for someone to say there is a problem?
Mr Steve Smith: You do need to recognise that it will probably require profound changes elsewhere. If you take the 40 per cent to meet the 2020 target, for example, that would mean at the various points of the year, and so, say, in the summer at night if a significant proportion of that wind was generating, they would be generating more than there is demand for on the system. It does begin to point you towards looking at measures downstream. It probably means for customers much more variable electricity charges depending on when the wind is blowing and encouraging customers to do things they do not do at the moment through smart metering and those sorts of things; for example, encouraging them to shift their demand into other periods of time. I think anything is feasible and do-able and there is not a percentage, but the consequence is that the more winds you have become more profound in terms of the way we use electricity, both probably as domestic users but also as industrial users as well.
Q328 Mr Cawsey: It is not always the same in different parts of the country anyway. The combined power plant in German network is 36 renewable installations to give a steady power supply. Is that an approach we might adopt in the UK?
Mr Whittaker: I am nervous about predicting what this mix is going to look like in 15 years' time. Steve talked about the potential for active decisions by consumers around managing demand. There are other examples around the world of consumers putting a black box in their homes and giving access to their appliances directly and passively, requiring no effort on their part. There is a range of technologies, some of which we have not thought of yet, which are going to be deployed to manage this situation. Inevitably, given the uncertainties associated with a large wind generation fleet, you are going to have to have back-up which might be provided by efficient carbon plant, might be provided by energy storage, other means. When we get there, we will have solved the problem and we will have deployed the technologies that are appropriate at the time. I am reluctant to predict specifically which technologies we will deploy. The answer is that it will be a mixture of them.
Q329 Mr Cawsey: Earlier today, you have all told us a bit about the challenges with the Grid management for the large-scale wind farms. You spoke about Scotland and all the rest. Are there similar challenges or different challenges for micro-generation?
Mr David Smith: There are challenges because obviously if you are generating your own electricity, then there is the possibility if you over-generate to sell that back into the networks, in effect. Moving to active networks has challenges for us because at the moment it is a very passive network that we are operating. The generators pass it through the system and putting it back into the system has its own challenges, but we are actively working to look at meeting those and working through technical solutions.
Q330 Dr Blackman-Woods: Can you briefly outline how intelligent grid management technologies function?
Mr Whittaker: The idea of an intelligent grid perhaps goes back to the point I made just now that the grid can actively manage both the supply and the demand side and can balance using a wider range of tools than the tools that we currently have. At the moment, it tends to be turning up or down fossil fuel plant to balance supply and demand instantaneously. In the future, we might have a wider range of tools, perhaps involving large consumers' plant and interrupting that on a periodic basis. If you have access to people's individual fridge freezers, perhaps turning those off a few seconds, but if you have access to 100,000 of them, that has the same effect as turning on or turning up a coal plant for balancing purposes. What we are talking about is deploying a wider range of control tools to enable us to deal with the kinds of problems presented by moving toward a more renewable generating base. That is obviously not an area on which I am an expert.
Q331 Dr Blackman-Woods: EDF are saying that there is not enough market "pull" to support the adoption of these technologies. Do you agree with that?
Mr Whittaker: I think that is something that will evolve over time. We operate in America as well. We are familiar with experiments that are being done within distribution networks across the States to look at ways that you can passively involve consumers in managing supply and demand. It is too early to draw a line under that technology. I am sure that that sort of technology will play a more active role (no pun intended) in the future.
Q332 Dr Blackman-Woods: Would your assessment be that the UK is leading in technological developments in this area?
Mr Whittaker: That would probably be too bold a claim but I am not really close enough to it to judge.
Q333 Dr Blackman-Woods: What about whether the research base is adequately supported? Do you have a view on that?
Mr Whittaker: We are certainly active in research in some of those areas and looking at how that technology can be deployed, but it is on a relatively small scale. It will be technology we are involved in deploying but it seems to us at a reasonably early stage. We are involved in a few projects looking at what can be done.
Q334 Dr Blackman-Woods: Why is it too small a scale? Does it need further investment?
Mr Whittaker: No, I think its time will come. In the early days of developments of a technology the sums involved tend to be small as well.
Mr David Smith: If you look at something like the Woking Borough Council's piece of work on energy initiatives, what you are seeing is small scale that will look at the technology, how it is done, and then replicate it out on a big scale. I do not think you can simply impose a big scale because that would be too difficult, but there are small-scale projects around the UK.
Mr Steve Smith: We mentioned in our written submission that we introduced explicit funding at the last distribution price control reviews in innovation and funding incentives and also something called the registered power zones. That was recognising at that moment customer pull for this is embryonic to give companies a positive incentive to say that if they want to take part of their grid and experiment with some of these technologies, then there is funding to do so. We have now rolled that out to cover the electricity transmission systems and the gas distribution systems. I think a big feature of the distribution price control we are about to embark on will be exactly that: what is the appropriate level of funding at this stage of development to encourage the companies to experiment with some of these technologies.
Q335 Dr Turner: To Paul, you may disagree but I think it is probably fair to say that since the demise of the old Stalinist CEGB, which invested quite heavily in R&D and sadly most of it in nuclear, there has been very little R&D in transmission technologies, energy storage technologies or grid management technologies. How much of the National Grid's turnover for instance at the present goes into R&D? What is the percentage?
Mr Whittaker: The IFI incentive that Ofgem referred to ---
Q336 Dr Turner: What is the actual percentage?
Mr Whittaker: It is 0.5 per cent of turnover. For the electricity transmission grid that amounts to something like £5 million a year; for the gas transmission grid it is about the same. We are talking about slightly above £10 million a year in aggregate, which we are deploying on research into technology which will address exactly those issues. I would agree with Steve's comments and with your comment that that research did not carry on following the demise of the Stalinist CEGB, as you described it. There has definitely been an upturn in research as a result of the incentive. On top of that, we are able to deploy funds that we can access from other sources as well. We are involved in a couple of joint projects funded by the European Commission; there is work funded by BERR on designs for future transmission technologies. There has been a pick-up in the research area over the last two or three years. On top of that of course we encourage equipment manufacturers to engage in research in areas where we think they should be deploying technology.
Q337 Dr Turner: Do you plan to step up your R&D efforts because half a per cent of turnover is pretty low, even by British standards, for UK manufacturing or engineering businesses? There is now a very strong imperative in that we have to completely transform our electrical generation. There is a strong imperative for the outcomes of such R&D. Do you plan to expand?
Mr Whittaker: I was going to say that we will be deploying those funds fully and accessing other funds that we can to meet the future challenges of the transmission networks that we operate. If we do not think that that is enough to meet those challenges, then we will have to look to spend more, yes.
Q338 Dr Iddon: I used to work in a university where they had an electrical engineering department that trained people for high voltage work; that has all gone. There was a suggestion earlier that one of the problems of connecting people to the grid was a shortage of people. Somebody mentioned that. I am not sure who it was. My question is: is there a dire shortage of skills in your industry?
Mr Rogers: Yes, absolutely, in all areas, and engineering and high voltage work in particular, and I guess general offshore deployment is a general area where we are lacking in skills.
Q339 Dr Iddon: Is anybody doing anything about that?
Mr Rogers: E.ON is certainly taking various initiatives with others to stimulate through universities, schools and so on but it is a long-term process.
Q340 Chairman: Would you all share that?
Mr David Smith: Yes, we would and we have all as an industry invested heavily in something called the Power Academy where as an industry we are trying to take the initiative and working with the Sector Skills Council.
Q341 Chairman: I just want a simple yes or no from each of you. I know that is not always possible. We have said that we lack the skills, that the investment at 0.5 per cent from National Grid seems to be incredibly low considering the problem of what we are facing. Nine years ago Ofgem flagged up these problems and nobody listened and took 15 years to build a new grid capacity just simply in North Yorkshire. Are you confident that by 2020, given the current direction of travel, the grid will be sufficiently developed to provide 40 per cent of our electricity through renewables? Yes, or no, Steve?
Mr Steve Smith: I would say yes, because that is our job and the collective job of all these people round this table to deliver that. I think all of your criticisms are valid but that is what we will be judged on, whether we deliver that.
Q342 Chairman: You are confident you can do it. David?
Mr David Smith: Yes.
Mr Rogers: I believe it will be extremely tough, as a developer trying to bring new developments on to the system.
Mr Whittaker: I believe it is going to be tough but, yes, I think we can do it.
Chairman: On that reasonably positive note, we bring this session to an end. I thank you all very much indeed for your attendance this morning.