CORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 388-iii
House of COMMONS
MINUTES OF EVIDENCE
TAKEN BEFORE
ENERGY AND CLIMATE CHANGE COMMITTEE
THE FUTURE OF BRITAIN'S ELECTRICITY NETWORKS
Wednesday
29 April 2009
MR GORDON EDGE, MR TIM RUSSELL and MR JASON ORMISTON
Evidence heard in Public Questions 144 - 224
USE OF THE TRANSCRIPT
1. This is a corrected transcript of
evidence taken in public and reported to the House. The transcript has been placed on the
internet on the authority of the Committee, and copies have been made available
by the Vote Office for the use of Members and others.
2. The
transcript is an approved formal record of these proceedings. It will be
printed in due course.
Oral Evidence
Taken before the Energy and Climate Change
Committee
on Wednesday 29 April 2009
Members present
Mr Elliot Morley, in the Chair
Mr David Anderson
Charles Hendry
Anne Main
Judy Mallaber
Sir Robert Smith
Paddy Tipping
Dr Desmond Turner
Mr Mike Weir
Dr Alan Whitehead
________________
Examination of Witnesses
Witnesses:
Mr Gordon Edge, Director of
Economics and Markets, British Wind Energy Association, Mr Tim Russell, Russell Power Ltd, Renewable Energy Association,
and Mr Jason Ormiston, Chief
Executive, Scottish Renewables, gave evidence.
Q144 Chairman:
Good
morning and welcome to the Energy and Climate Change Select Committee. We very much appreciate you coming today to
talk about Britain's
electricity networks and we are very interested to hear your views from the
renewables side, which, of course, is going to be a very important part of
networks in the future. I wonder, for
the record, if you would just like to introduce yourselves and say which organisation
you are from?
Mr Ormiston: My name is Jason
Ormiston. I am the Chief Executive of
Scottish Renewables, which is also known as Scottish Renewables Forum, or
SRF. We will hear those being
interchanged within the next few months, I think.
Mr Edge: My name is Gordon Edge. I am Director of Economics and Markets at
BWEA, also known as British Wind Energy Association.
Mr Russell: I am Tim Russell and I am
here today representing the Renewable Energy Association. I advise them on network matters.
Q145 Chairman: Thank you very much.
I will start off. There is a huge
interest, discussion and hopefully investment in networks going on at the
present time. There are a lot of
strategy groups. The Electricity
Networks Strategy Group, for example, stated that reinforcements to the
transmission system can be delivered in time to meet the 2020 renewables
target. That is an ambitious
target. There is an awful lot of
investment in the pipeline, which is not yet built and connected. Do you think that the investment programme so
far and the regulatory framework are suitable in terms of giving that delivery
within that kind of timescale to renewables?
Mr Ormiston: It is probably the major
question about whether or not we will deliver for 2020. You use the word "can", which is crucial, of
course. We can deliver that investment
by 2020. I think the regulatory
infrastructure is being developed to be able to deliver that. The ENSG's transmission study was very useful
and is the kind of visionary document that we require to deliver the 2020
target. I think it needs to be regularly
reviewed, however, because the demand to connect, the amount of capacity that
will likely want to connect by 2020 may be greater than that identified in the
current ENSG report. Those are the
longer term drivers which I think are useful.
Shorter and medium term, the regulatory background has to be fit for
purpose. Our experience to date over the
last ten years trying to deliver our 2010 target has not been good.
Q146 Chairman: Could you give us an example of why it has not been
good?
Mr Ormiston: A very good example is in Scotland,
where we have a significant amount of renewables capacity that wants to connect
to the transmission network and the distribution networks but that network is
not there. It is a planning issue. In other words, you would not necessarily
blame those who wish to invest in the transmission network or, indeed, the
regulator for that, but it is arguable that the planning for that investment
was not pressing enough long enough ago, and so we are left in a situation with
something like nine gigawatts of potential renewables capacity waiting for a
connection beyond 2012, beyond even 2018, which is a major problem if you want
to meet your 2020 targets. This is now
being addressed in the Transmission Access Review, but it remains to be seen
whether the Transmission Access Review will deliver the goods or the regulatory
infrastructure required. We are going to
have a discussion hopefully later about "connect and manage", and we are
supporters of that approach, but there is an awful lot to play for in the
debates around the Transmission Access Review and the various CUSC amendments
and other initiatives and modifications that have been brought forward through
that.
Q147 Chairman: You said the regulatory framework was developing. Does that suggest it is not there yet?
Mr Ormiston: No, it is not there
yet. The Transmission Access Review has
to play out, and there are also an awful lot of modifications and proposals for
reform outwith the Transmission Access Review. You take a view whether that is
useful or not, but, nevertheless, that continuing debate dominates much of the
discussion within the industry about what is probably the principal issue for
the renewable electricity sector in the UK.
Mr Russell: I think it is quite
important very early on that everybody acknowledges the elephant in the room,
and the big risk with all of this is that currently the planning system does
not adapt to be able to give more timely decisions, whichever way they go, and
everything else that you may or may not wish to ask us about this morning all
really arises because of the inordinate length of time it often takes to get
planning for networks but also, of course, generation projects of all types.
Q148 Chairman: Can I perhaps pick this up, Mr
Russell. Some of the timescales are
really quite remarkable, shall we say.
Indeed, if we have got time, you may want to address some of these
issues of planning. Do you want to say
something, Mr Edge?
Mr Edge: Yes, please. I think we need to acknowledge that there has
been some considerable progress here.
The ENSG process and report are actually quite significant advances in
taking us on the way. Our view is that there
is a current delivery gap between this visionary plan, which is really good, it
is excellent and it is on the table and we are really pleased that Ofgem is
bringing forward new initiatives for investment ahead of user commitment -
again, that is a major advance - but there just does not seem to be someone
with whom the buck stops and who is the back-stop, who makes sure that all the
different things that need to happen happen in the right time, in the right
place, and that leadership element is what we think is missing.
Q149 Chairman: Who do you think should give that leadership?
Mr Edge: We cannot see anyone else
but government being the one that holds the ring here.
Q150 Chairman: Not the regulator?
Mr Edge: Government is the one that
is setting the targets; I think it has to be the one that actually actively
propels us forward.
Q151 Chairman: So it is the Government, basically?
Mr Edge: Basically, yes.
Q152 Sir Robert Smith: You touched on investment ahead of need. How much difference will it make if you go
down that route?
Mr Edge: I think it will make quite a
significant difference if the incentives are right. There are many slips between cup and lip in
terms of putting that system in place.
What I have a problem with is, incentives are all very well, but people
do not have to take the incentive, there is no compulsion for them to actually
take it up. It is an enticement, but it
does not necessarily ensure that it happens.
Q153 Sir Robert Smith: So you may be being a bit more fundamental and so
using the market.
Mr Edge: I think the market is good,
but there needs to be a back-stop to make sure that, if it is not coming
forward, buttons can be pushed to make sure things do happen, and there needs
to be that back-stop power because we do not have much time.
Q154 Sir Robert Smith: How do you respond to the concern that, if you do it
ahead of need, you could end up with investment in all sorts of a nice shiny
bits of network that are not actually going to be needed but make money for the
network provider?
Mr Ormiston: I think that is a bit of a
red herring, to be honest. I think
we already have a situation where there are parts of the networks that are
under utilised, and that is managed perfectly well and acceptably by Ofgem,
National Grid and other organisations.
Are there likely to be bits of the network in the future that are likely
to be under utilised as such? I think
the answer to that is probably, yes, but that may have happened in any
case. I think the key is in planning and
things like the ENSG report and our understanding of where development is
likely to take place, not just the renewables but in other generation as well,
and what type of response is required in terms of delivering the networks. If we are clever about it and we are sensible
about it, we will get that right. You
will find that where there is spare capacity, there is an encouragement to
develop projects in any case, and that can be an incentive as well.
Mr Edge: I think the only risk is
that it may be under utilised for a bit longer than we thought it might
be. The other side of this is that we do
not build the capacity; we do not get anywhere near our targets.
Mr Russell: Can I just correct an unfortunate
use of words. Nobody actually in this
context, when they say "investing ahead of need", means that. The investment is needed now, but if it is
genuinely not needed, it should not be done.
What people actually mean by "investment ahead of need" is investment
ahead of individual generation projects being able to give specific and
substantial financial commitment. So we
are not investing ahead of need; nobody is talking about that. What is actually meant is investing ahead of
specific financial commitment. Now, with
a large number of (for the transmission system) often not very large projects,
you know there are, for example, going to be several gigawatts of new
generation in Scotland, as an example.
You do not, however, know which of the many individual projects are
going to be successful. Therefore, those
individual projects cannot themselves incur liabilities of many millions of
pounds to give financial security to the investment, which is why this sort of
requiring specific projects to give financial commitment does not work any
more, but there is a high degree of certainty that the reinforcements are
needed, which is why the investment is needed now. The other thing that is very important to say
in this context is that most transmission, the expensive part of building it,
when you actually order the kit and buy the wires and string them up on
overhead lines or bury them in the ground, the timescales for that are not
dissimilar to the timescales for constructing most types of power
stations. The one exception would be
nuclear, I guess, but we are talking two to three years. What has got to be done ahead of that is
doing the preliminary engineering work and starting the planning process and
getting planning consent. That
expenditure is not hundreds of millions or billions of pounds. The really expensive stuff really only starts
at the same time as the power stations that precipitate it are being
built. So there is no expenditure ahead
of need. What people are talking about
is expenditure ahead of individual plants being able to put their hands in
their pocket.
Q155 Charles Hendry: Can I broaden it slightly to financing support. We have seen companies like Shell pulling out
of the London Array; we have seen Centrica putting some of their offshore
schemes on hold. The issue has been
raised that the ROCs were not generous enough, and the Chancellor changed that
support system in the Budget last week.
This goes really beyond the investigation we have got in front of us,
but as we have you here it would be very helpful to know whether you feel that
they have now gone far enough to encourage those offshore projects to come back
into the system?
Mr Edge: I believe so. We have been very pleased with the
announcements in the Budget. We think
that should be sufficient to keep the projects that are currently in the market
going and, indeed, to make orders as they should. So in that sense we think it is probably about
right.
Mr Ormiston: Now that we have accepted
the principle of differentiated support for different renewable technologies,
known as banding, you have to do an objective test of the cost of developing
different technologies and respond accordingly.
Clearly, developing offshore wind is perhaps a bit more expensive than
we anticipated a while ago and the response by the Chancellor last week was
helpful.
Q156 Chairman: I wonder if we could just turn to the issue of
accessing the transmission network. The
traditional pattern has been to invest in "connect", and there has been a
proposal that we should move towards "connect and manage". Des, do you want to start off with this?
Q157 Dr Turner: Yes, I will be slightly more keen and start at the
tail of last year's questions.
Everything that is being planned with grid restructuring at the moment
and with reinforcement relates to the needs which are already identified -
the queue of onshore wind, et cetera, and several gigawatts - and does not
seem me to relate to what could be facing us in, say, five years' time, when
the picture could look very different, when we start to see gigawatt scale
exploitation of marine resources which will not necessarily even match the grid
distribution that is already envisaged.
Do you think that our grid vision for the future is going to be adequate
to take maximum account of our renewable resources?
Mr Edge: I think the issue there is
more of a 2030 issue than a 2020 one.
We, obviously, champion the wave and tidal industries, alongside wind,
but we do not see it producing much more than the gigawatt scale in the 2020
timescale. You need to be planning into
the 2030 level, and that is why we are very keen that there be a vision for
beyond 2020 out to 2030, because, particularly with the grid, you talk about
long lifetime assets: you need to be planning long lifetime visions. So we need government to be bringing forward
its view for the post 2020 era, but what I would also say is that those wave
and tidal marine resources are very complementary to wind in a lot of
ways. You maximise the use of the
network through having that diversity of resources. Indeed, tomorrow we will be publishing a
report on precisely this issue, the way that the complementarity of wind and
marine resources can actually benefit the system overall, which we are very
happy to share with the committee.
Q158 Dr Turner: I would be grateful for a copy of that,
certainly. Coming back to the short-term,
do you feel that the short-term measures arising from the Transmission Access
Review are going to have a significant impact on the current queue of renewable
generators waiting to connect?
Mr Ormiston: You use the word "significant". In Scotland there are nine gigawatts
of projects that have a contract to connect on a firm basis, and they stretch
from tomorrow right through to beyond 2018.
Some of those projects have consent; they have a connection offer going
beyond 2014. In response to the
Transmission Access Review and the desire for interim "connect and manage",
National Grid was asked to actively pursue advancement of projects that can
advance, that can connect through the queue more quickly, and in doing that
have identified projects that are consented or are close to a decision and they
have identified 450 megawatts in the north of Scotland to advance to the
queue. I think that is very helpful, and
I think they should be congratulated on that effort. They have now identified a further 450
megawatts. That perhaps will make it a
little bit longer, but they think they can also advance those through the queue
in Scotland
as well, and, again, I think they should be given credit for that. If you consider a 50 per cent attrition rate
in planning for that nine gigawatts that has not had a consent yet, you are
looking at four and a half gigawatts. So
900 of that - you are talking about a fifth - has been advanced
through the queue, and I think that is very helpful. I would not know whether to call that
significant or not, but it is certainly a very helpful amount and will have a
big impact actually on meeting renewables targets. What was disappointing from my perspective
was recent debate around the cost of advancing that capacity through the queue
and Ofgem's apparent u-turn on its commitment to put short-term measures through
the Transmission Access Review and calling into question the efficacy of moving
that 450 megawatts that have been identified by National Grid through the queue
more quickly. It actually caused a huge
amount of consternation in Scotland,
because we thought Ofgem was at least behind the Transmission Access Review,
but it appeared to step back a bit and have second thoughts. Fortunately, they realised they could not
actually continue with that position and have supported the advancement of the
450 megawatts, and more megawatts, in Scotland. Just to sum that up, I think everyone now is
back on course. I think that queue
advancement work by the National Grid is to be applauded.
Mr Russell: I think the technical
position is we are waiting for Ofgem's final decision in terms of its policy on
derogations that will facilitate the interim "connect and manage" that I think
they have promised by the end of April, which is tomorrow. So as long as it goes ahead, yes, it should
make a difference in the short term.
Mr Edge: There is a general issue
with Ofgem's attitude to the constraint costs that arise from "connect and
manage", which obviously all three of us here very strongly support. Their view is it is all very well, but look
at the bill. There was a CUSC amendment
to Cap 48 that some of our members brought forward, and we commissioned some
analysis of the impact assessment that Ofgem did around that. Ofgem was assessing a net cost of £917
million for this proposal, and our analysis said 23. So Ofgem takes a very high view of what those
constraint costs are going to be, which we do not think is actually the
reality.
Q159 Chairman: Why do you not think that?
Mr Edge: They take a very pessimistic
view of how much constraint will be needed and how much needs to be paid. We can provide you with that analysis to show
you what it was. It was a rather strange
attitude to the cost of the Renewables Obligation.
Mr Ormiston: Ofgem had some previous
history as well on this 450 megawatts.
Initially they were responding to a concern that advancing 450 megawatts
would cost £100 million extra in constraints.
Subsequent research and a reappraisal of the situation brought that down
to 40 million, which is a much more acceptable position.
Q160 Chairman: There is a difference of opinion with these figures.
Mr Ormiston: Everyone now agrees that 40
million is the figure that it may cost, and that is only if everything connects
at the same time. These projects, 450
megawatts, will connect over the next three years, so it will be up to
40 million, and this is pending reinforcements of what is known as the
Cheviot Boundary, the wires between Scotland
and England. Once those reinforcements are finished, that
constraint goes away. It is only a
temporary measure and it should be an incentive for investment in transmission
capacity, and that should be the principle behind a lot of this.
Q161 Dr Turner: Your organisations are very keen on "connect and
manage". Can you tell us more about
it? Can you tell us about the benefits of
that approach and any risks?
Mr Russell: Basically "connect and
manage", as opposed to what we have at the moment, which is known as "invest
and connect", comes in a lot of different flavours, but the basis of it is that
anybody who is prepared to commit to paying transmission charges, and where the
local connection to connect them to the network can be built, is allowed
transmission access and access to the market after a maximum of a fixed period
which relates to the proposals. That is
currently four years. So it gets access
irrespective of whether any wider transmission works that the transmission
owners want to build have been completed or not. The advantage of it is that it allows
renewables and, indeed, if it is applied, all other generation to be able to
get access to the market in the timescale that is reasonably compatible with
its own build timescale, which was one of the principal objectives of the
outcome of the Transmission Access Review report by government and Ofgem. It does not require you to do anything about
the rights of existing generation: they retain those rights. It is up to the energy market whether and
when they retire that generation. The
only possible down side to it (and we have got to be completely honest about
this) is that if there is continued failure to get the planning system to work
sufficiently promptly so that what is needed does not take of the order of a
decade but the planning can be done in a couple of years and another two or
three years build, then there could be some generation that is on the system
without what would be considered the right amount of transmission
infrastructure to give it access, and that will result in some cost. How much that cost could be (and it should
not be anything if planning is sorted out) people can predict and speculate on,
and we have heard it is a wide thing.
There is an issue, of course, as to who pays that cost. All I would say is that there is a whole range
of options, some of which are on the table.
At one end (and this is, I guess, probably the first choice of the three
people on the panel), you can say it is spread throughout all generators and
demand-side users of the transmission system; so it is spread out, as are, of
course, the costs of the constraints that exist at the moment. At the other extreme, there is a proposal on
the table that says that that cost is borne entirely by the new generators, who
are allowed to connect to the system ahead of some of the infrastructure that
is considered necessary being built. So
it will be those projects themselves that would pay that cost, and that is an
option that is on the table at the other extreme. There is certainly a middle way, where you
could envisage that if constraint costs do go up because of new generation
ahead of the infrastructure in a particular area, then that could be spread
amongst, for example, all generation in that area; that is a locational BSUoS
charge. I am not suggesting which I
would prefer, although I guess our first choice, contradicting myself in one
sentence, is probably the first option.
That is a debate, as to how the cost, if any, is met and who pays for it,
that can be had in the future, but that is the only down side that I can see of
"connect and manage", for today's projects to come forward when they are ready
to come forward and does not threaten access rights of plant that is already
there.
Chairman: Can we have a look now at the
issues of charging. Mike.
Q162 Mr Weir: Obviously this has been a matter of some contention
over a number of years, particularly the locational charging regime from
Ofgem. In his evidence to us, Professor
Strbac stated that only a small proportion of network charges for generators
actually relate to location. Do you
agree with that statement?
Mr Russell: I think we have got to be
very careful how it is put. What is true
is that only around 15 per cent of the revenue raised by the transmission
companies arises from the locational element.
That is not the same as only a small proportion of the charges are locational. What actually happens is that generators,
broadly in the south of England
where the transmission companies are trying to encourage generators, face a
negative charge, i.e. they are paid money by the transmission companies. Generators further north pass through a
neutral point and are then charged an increasing amount of moneys. So there is a substantial difference in the
charge for connecting generators in Cornwall and
in the north of Scotland,
but because the generators in Cornwall
are actually paid money, the net result of that is, as I am sure Goran meant,
only about 15 per cent of the total revenue is raised from the locational
element.
Q163 Mr Weir: Does that locational charge impact adversely on
renewables, given that many of the areas where renewables are situated are far
from centres of population? I notice
that Scottish Renewables Forum, for example, have joined the Scottish
Government and Scottish Power in pressing for a more postal system of charging,
as, I think, exists in Germany. How would
that affect renewables?
Mr Ormiston: The impact of transmission
charges on generators in the north of Scotland and the islands is
significant. If you are a smaller
generator, a distributor/generator in the north of Scotland requiring access to both distribution
and transmission networks, you pay the full charge on both, and that can amount
to something like 25 per cent of your expected turnover in a year. Not only are you faced with a high charge,
you are faced with a charge that is volatile, that swings quite wildly from
year to year and is unpredictable as well.
So it is very difficult to plan your investment going forward. If you are looking for a hand with the two
new ones, the transmission charge is an attempt at encouraging investment where
it is closer to demand. That principle
in itself is fine a world where you can actually make a choice, but if you are
a community or a land owner and you want to build a wind farm on your site, you
do not have that choice, you have to locate your project where you are. Similarly, the renewables potential in the UK, certainly onshore, tends to be in the north
of Britain. It is stronger the further north that you
go. Again, you do not have much of an
opportunity to respond to that locational signal. What National Grid and Ofgem have failed to
do is to respond to the three problems: high charges, unpredictability and
volatility, and whilst the debate tends to focus on the charge and whether or
not it is discouraging projects from coming forward, the other two issues are
almost ignored in the debate, which is very unfortunate. I think also a point worthwhile bringing into
this perspective, the European point of view and the European Directive, which
says that you shall not discriminate against renewables generators in what are
known as peripheral or low-density areas, and what we have is a transmission
charge that does not recognise that issue.
I think there is a European argument to be made and one that could go
potentially into a legal situation. We
have demonstrably now cases where projects have not gone ahead because of high
transmission costs. In Orkney the
Fairwind Project, over 100 megawatt scale, I think, probably, to be kind to
them, has mothballed their project because of high transmission charges and
because the Secretary of State has decided or, rather, is minded not to use his
powers to cap the transmission charges in the north of Scotland and in the
islands. In having those powers, there
was recognition that there was a threshold and if you cross that threshold you
will dissuade investment in renewables, and in the islands it was recognised a
few years ago that transmission charges were likely to cross that threshold
and, therefore, be in contravention of things like the European Directive on Renewables
and Transmission Charges, and we believe that in the north of Scotland, where
the charge is also very high, there is an impact on investment decisions. Of course, investment decisions are very
complex: how windy is a site, how complicated it is environmentally, how can
you get access to the grid and how big is the charge? So often, in the round, you will find that an
investment decision means that it is still in a positive and you can move
ahead. That does not mean that because
you are lucky enough to be in a windy site you should necessarily be punished
for your location, and that is the way that generators in the north of Scotland
feel. They feel that it is a punitive
and discriminatory charge that needs to be tackled and that has not been tacked
properly. Hence our partnership with
Scottish Power, SSE and the Scottish Government to bring forward the
alternative charging model to open up this debate and try and get it on the
table. We recognise that the losers are
going to be in the south, those who benefit from the subsidies in the
transmission charge, but they tend to be also conventional generators. What you are actually doing is you are taking
investment away, or, rather, the revenue that is earned through the Renewables
Obligation in the north of Scotland, and transferring it to conventional
generators in the south of the UK, and that is an imbalance that needs to be
addressed as well and I think it is one that should be addressed through
Europe.
Q164 Mr Weir: But given that both the UK
and Scotland
are very ambitious targets for generating electricity from renewables, in the
current charging arrangement are these targets taken into account in any way as
far as you can see? It would seem from
what you are saying that they discriminate against renewables in many areas of
the UK?
Mr Ormiston: I do not think they
discriminate against renewables necessarily, but they discriminate against
areas that are further from the centre of all things, which tends to be Birmingham or the West Midlands.
Q165 Mr Weir: But at the same time renewables---
Mr Ormiston: That happens to be
renewables, but also, if you speak to Scottish Power and SSC, they will say
that actually their investment case for conventional generation in Scotland
is also hit through high transmission charges.
They have to make cases, for example, for new gas turbines perhaps in
Peterhead, whereas you might find that they would more likely locate their
station in the south of Britain
than they would in the north of Britain
because of the high transmission charges.
That is a problem for not just the local economy but actually in terms
of balancing demand and supply in Scotland alone. So there is a conventional renewables case to
be made through this.
Mr Edge: From BWEA's point of view,
we do not think that cost reflectivity and the locational aspects of charging
are bad principles. What we do not think
is right is that 100 per cent of the cost is reflected onto projects. Certainly it is the case that renewables, and
wind in particular, are going to be the first technologies which pay for the
extension of the grid to them in the UK.
Previously, up to the point of privatisation, those costs were spread
amongst all users. We are the first
technologies coming along to really change the structure of the network, and we
do not think it is hugely fair that we should be therefore expected, for the
first time, to be the ones who pay for that entire grid, which is currently
where we are at. We think the principles
are right but how they are applied may not be correct. It is also fair to say that the grid codes,
particularly the security and quality of supply standards, impose certain
costs. They assume that generators are
base-load thermal generators using those wires to the maximum extent. When you are variable in using the wires to
the maximum extent, you impose a lower cost on the system but you are charged
as if you were using it in a certain way.
So we think that needs to be reflected through the SQSS Review and that
may, indeed, feed down to lower charges for any more generators that are on the
periphery.
Mr Ormiston: Can I say that Steve Smith,
Director of Networks at Ofgem, in giving evidence to the Scottish Parliament in
a similar inquiry to this one, has said that the Scottish generators were
paying 40 per cent of the total UK
transmission charge but only represented 12 per cent of generation. That suggests to me that we are over paying
and it needs to be addressed.
Q166 Dr Whitehead: To put what can be seen as a sort of initial
uninformed commonsense view, you might say, it could be said that renewable
generators on the one hand are saying they should not pay transmissions charges
because they are developing capacity in what you might describe as rather far-flung
locations, and yet, on the other hand, as far as the distribution end is
concerned, are saying we ought to recoup the savings from actually a very short
transmission distance using different elements of the grid and, therefore, gain
as far as local generation is concerned.
One might say that it appears that renewables want to have it all
ways. How would you react to that?
Mr Russell: Can I come back on that, but
I will also go back to the first question.
The Renewable Energy Association supports cost reflective charging for
transmission. Whether cost reflective
charging is discriminatory we will leave to lawyers to pontificate about, but
if it costs more to connect and transmit power from generators in some areas
than other areas, we think the generators who are further from the demand
should pay more. There are some very
good reasons about delivering the amount of renewable energy that this country
wants and needs and is committed to at minimum overall cost, why it is
important to have cost reflective transmission charging, that I can illustrate,
if you want, in a minute very quickly and simply, but as to whether cost
reflective charging stops some projects getting ahead in areas like Scotland,
which is an extremely important resource for renewable energy in the United
Kingdom, it is not, however, the only show in town. The answer is the majority of projects are
either going to go ahead or will fail economic criteria to progress
irrespective of what the transmission charges are. It is the projects at the margin, and the
margin may be only a few per cent or it may be 30 per cent of all projects
whether they go ahead or not, that will be affected by what the transmission
charges are. So, absolutely right, yes,
there will be some projects a long way from demand that, if transmission
charges are cost reflective, will not go ahead that would go ahead if they were
uniform. Equally and as importantly,
there will be some, as indeed applies to any form of generation but renewable
projects at the moment, who are near to demand that will not go ahead unless
the transmission and, indeed, distribution charges are cost reflective. So in order to get the overall best balance
of where all the generation decides to locate, and in particular for this session
the renewable generation cost reflective transmission charges are important, to
sum it up, I think there are only three possible worlds for how you decide
where power stations, renewable or any other, locate. Either you have central planning, as we had
prior to 1990, and it is one body who is responsible for the wires and also
decides where to locate power stations, or you have cost reflective
transmission charges that generation project developers can take into account
as one of the many costings as to where they develop projects, or you have
chaos and waste money.
Mr Ormiston: No, you do not. There is a fourth, which is generation equals
zero, which is a model that is applied in many zones in Europe.
Mr Russell: Generation is zero, which is
what happens currently in Germany - I have connected some plant in Germany - is,
of course, the uniform thing and that will lead overall to some projects going
ahead when they should not and some not going ahead when they should and more
transmission being demanded than would be the optimum and, therefore, a higher
cost than you would otherwise have.
Q167 Chairman:
There
is the issue, of course, of their consumers.
Mr Russell: Yes.
Q168 Sir Robert Smith: If you have a postage stamp approach instead of a cost
reflective, what is the cost to the consumer?
Mr Edge: The cost to the consumer
would be neutral.
Q169 Sir Robert Smith: Why would it be neutral?
Mr Edge: Because National Grid
recovers the cost of running the networks in whichever model they have
applied. In this model, you just spread
the cost of the generation side equally across---
Q170 Sir Robert Smith: What if everyone then located at the periphery?
Mr Edge: Do not forget, I did not say
that we were necessarily against the principle of a proportional cost for
location, and you can apply that. It may
have an impact in terms of transmission losses because you are further away
from demand, and we have no problem with the principle of charging for
transmission losses. There is actually
another transmission charging methodology around losses which is discrete to NUoS,
which is applied at the moment, and they are seeking change over that as well.
Chairman: That is very
interesting. I think we will have to
look very carefully at the points that you have made on this, because they are
quite crucial. Unfortunately, we have a
second session, so we have to move on. I
know that we want to have a look at the issue of connecting offshore wind,
which is A very topical issue. David, I
think you wanted to start off on this.
Q171 Mr Anderson: I will start off on a negative. I am not actually very positive, particularly
about offshore wind and how you are going to start building in the north-east,
but I want to ask some practical things about when they are in place how they
will be run, particularly in relation to security of supply. How much work is being done about
maintaining, repairing and replacing equipment in what is one of the most
hostile environments in the world, the North Sea?
Mr Edge: Clearly operating offshore
wind farms is a new and challenging area.
I think the real challenge is to develop turbines that do not go wrong
in the first place.
Q172 Mr Anderson: That will never happen.
Mr Edge: You can design a lot of
reliability into it, particularly if you take a very different approach to that
for onshore turbines. Essentially, each
onshore wind turbine is a mini power station. It has got all the things in one place and
then you just module them up into wind farms.
You can centralise a lot the electronics and some of the supporting
stuff into stuff that you can do onshore, and therefore you are generating
dirty power in a big offshore wind power station, taking it ashore and cleaning
it up and putting it onto the network.
So there are different concepts that you can apply which will make it a
lot simpler, make the things that are actually out at sea a lot simpler and
more robust. That is a process that we
are only embarking on: because actually what people have done is take those
onshore turbines because they work and take them offshore. It is clearly the case that, unlike onshore,
where you can just drive up to the bottom of the tower with a white van and get
out and fix it, you have to go out on a boat or a helicopter and fix
stuff. There is quite a way to go, but
given that we operate oil and gas platforms at high reliability, in fact in
some places they are completely inaccessible, we have incredibly reliable
machinery down at the bottom of the sea, which you simply forget. I fail to see why we cannot apply that kind
of innovation. The trick is to do it in
a cost-effective way, with large numbers of turbines, but I have got a belief
in UK
engineering capability. We have shown it
in the offshore oil and gas field; we can show it in the offshore wind field.
Q173 Mr Anderson: I am glad you feel like that. I used to work in the energy supply industry
as a mechanic. Things do go wrong. The fact that you say that they will not go
wrong is just not true.
Mr Edge: I am saying you can minimise
it. Certainly we are also working on
ways to improve on it - it is already quite safe, but improve further the
safety of the transfer from turbines - so that when you do have to go, it is
really safe.
Q174 Mr Anderson: Another issue which has been raised is about the
impact on bird life. The RSPB have asked
us, in discussions we have had up in Aberdeen,
about surveys on the impact of the oil industry on bird life. Have you as an industry looked at the impact,
not just in terms of bird kill but also on habitats and feeding grounds?
Mr Edge: There is a huge amount of
work going on on this one. I think it is
fair to say that my members in the offshore wind sector have spent more money
on researching the offshore environment than any other sector in the history of
the UK. We have been forced to do that amount of
environmental impact work and, in addition, the Government has been doing a lot
of survey and research work. The Crown
Estate is taking money from the auction fees that are put down for around one
or two projects to set up this fund called COWRIE (Collaborative Offshore Wind
Research into the Environment), and that has put several million pounds into
these studies. So I think it is fair to
say that we have been looking at this very, very closely and to a huge extent
offshore wind in the marine environment is massively benign, it has a very,
very low impact, and in some cases you can argue with the artificial reefer bed
we put something there and, bang, there are barnacles, or whatever, and it
becomes a fish sanctuary: you are actually helping to promote biodiversity.
Q175 Mr Anderson: Lastly, the impact on military radar. We understand that will not happen offshore.
Mr Edge: No. There is definitely an issue, particularly in
the southern Wash,
with the air defence radar trimming in Staxton Wold. We have been working very closely with all
parties and the wind industry on site - the Department for Transport, the
Ministry of Defence - and we signed this Memorandum of Understanding bringing
forward the technical solutions, of which there are a number. There are patches to the radar software,
potentially, somewhere down the line. QinetiQ
are trying to develop a stealth blade so it does not show up on radar
screens. There are technical solutions
being done. We believe that the
Government needs to put more effort into this.
Our members have brought forward three million pounds of funds to do
this work.
Q176 Mr Anderson: You mean more money or more effort?
Mr Edge: I do mean more money.
Q177 Chairman: It is the R&D as well.
Mr Edge: This is all R&D.
Chairman: I can certainly confirm there
is work on a stealth blade going on because I have seen some of the work in my
own area.
Q178 Charles Hendry: Can I look at some of the supply chain issues as well? We have had some interesting evidence given
to us about the benefits of a point-to-point connection for offshore facilities
or for having large DC cables which would connect quite a number of them
together. I think it is broadly agreed
that we might use seven and a half thousand kilometres of cabling, and the
global capacity is about 700 to 1,000 kilometres a year. That means the UK alone would use most of the
global output, as currently available, if it was trying to meet its 2020
offshore target. What is the solution to
that? The companies appear to be
reluctant to invest in new plant if that plant is only going to be operational
until 2020 and then the development is not going to have a clear future beyond
that. At the moment there is not a
programme in place for the further development of offshore wind beyond that.
Mr Edge: This is why my point earlier
about a vision to 2030 is really important.
You had a Round 1, plus Round 2, plus Round 3, plus the Scottish
territorial waters project. That is nearly
40 gigawatts of offshore wind projects that will be in process in the UK. There is lots of work going on in Europe as well.
There is a clear threat and opportunity for the cable supply chain
situation. The threat obviously is, if
we do not get the signals right, the cable will not be there and you cannot do
it. The opportunity is, if we do get the
signals right, those factories come here, and we are not just supplying 7,500
kilometres of cable for the UK but the similar amount they want in Germany, and
it becomes an export opportunity. Our
view is that the licensing regime for offshore could be evolved to give those
kind of signals. As it stands it is very
piecemeal, but if in the future, for the Round 3 zones off-shore, transmission
is appointed for each zone very early, they can work with the likes of APB and
Areva, who supply the cables, to build up a solid view of the demand and,
therefore, the factories can be built to meet it.
Q179 Charles Hendry: Would there be a case for saying that the 2020 targets
should be allowed to slip back a bit in order for that demand to be managed in
a more constructive way when one looks as well at what is going to happen in
other countries? Ireland are looking to develop
their off-shore, and a whole range of other countries, which will be putting
pressure on that global supply chain.
Mr Edge: You set a reasonable 2020
target and you set an objective further out as well.
Mr Russell: I think the important thing
to bear in mind is that 2020 is most definitely not the end point; it is purely
a way mark. Yes, a way mark with legally
binding commitments that the Government has entered into, but it is purely a
way point on the way to complete decarbonisation of electricity production by
2050, or a bit later. So it is not that
at 2020 that is it, by any means.
Q180 Chairman: You are also saying that you felt that the framework
was not yet developed to encourage renewables.
Does that apply to off-shore wind as well?
Mr Edge: We are looking forward to
when the regime that is in its last throes of consultation will come into
force. We have come through a long
process down here. Perhaps it may be
fair to say that if we had known back then what we know now, we might have
asked for something a bit different, but we are where we are and we want it to
be in place because it needs to be what we want to see, and certainly it is the
case around one or two projects that really all we need is a radial connection
to shore; that is fine; it works. Our
issue is that going for the strategic approach you will need for the larger
Round 3 projects and, indeed, going out in terms of interconnecting with the
rest of Europe, which again I think is another supply chain issue, is going to
require even more cable. We do not think
that the Government is actively engaging on the super grid issue as much as it
could. It is taking very much a back
seat. It is, "Oh, this is a European
project." The North
Sea grid is one of three strategic electricity interconnection
projects, but the Government seems to be taking the view that it is happening
out there; it is a European project; we do not really have to get
involved. No, we need the UK Government
to be actively engaging on the regulatory and technical issues so that we can
roll it out as swiftly as we can, because it is going to be of major benefit.
Mr Ormiston: I think National Grid,
Ofgem, most of the people in the industry and, I suspect, most politicians have
really been caught out by the pace of demand, offshore and onshore, for
renewables. When I came back from one of
the European summits saying we have signed up to 15 per cent renewable energy
by 2020, it took a few people by surprise that they would commit to that
target. In other words, that commitment
is really worthwhile. What it means though
is that you have 35, 40 per cent renewable electricity by 2020, which is an
enormous amount of capacity to get built.
ENSG tried to respond to that with its Transmission Report and now, with
the interest in offshore wind, wave and tidal in Scottish waters, we find the
ENSG report perhaps needs a review to look at the potential of the offshore
renewables. We just need to keep
pace. I do not think we are keeping pace
in our forward thinking, what needs to be in place to deliver that potential,
but you cannot lose sight of that 2020 target.
That 40 per cent carbon commitment that Alistair Darling made last week
is really important and he cannot let it slip.
Chairman: Yes, it certainly is. Can I apologise, we are trying to keep to
time, but as part of that commitment to renewables and reducing carbon there
has to be a range of different technologies and different transmission. That brings to us distributed generation,
which, of course, is still quite small but it is developing. Paddy wants to come in on this.
Q181 Paddy Tipping: Yes, but there are benefits from being embedded into
the system. The National Grid are going
to change the rules, are they not? What
are your views on this?
Mr Russell: There certainly is a worry
that they are going to change the rules.
There are a number of different things that there is concern about. The chief one is that at the moment, for the
majority of generation that is connected to a distribution network, the output
of which is absorbed by demand within that distribution network and, therefore,
does not flow broadly on to the transmission network, you can effectively net-off
the two charges as far as transmission charging exists. So there is a benefit by netting-off
generation and demand locally, which, of course, affects the physical reality
of the power not flowing onto the transmission system, and that is what is
known broadly as embedded benefit. There
have been noises in Ofgem that they do not think this is justified and they
wish to charge generation connected to a distribution network for using the
transmission network as if all the power was going onto it and, exactly the
same, the demand that that is meeting would also be charged on a gross
basis. There was an industry working
group that met I think two and a half years ago now and, with the exception of
one network company, the industry's view was absolutely unanimous that net
charging is what is cost reflective, reflects the physical reality and should
continue. Ofgem agreed with the single
company in the industry---
Q182 Paddy Tipping: You had better tell us which company this is.
Mr Russell: It is NGC. ---and says that that they do not think under
the current arrangements where if power nets itself off on a distribution
system they should pay charges as if it was flowing onto and then off the
transmission mission, which of course it is not, and they have written a letter
saying that NGC does have to sort this out and come up with enduring
arrangements. Indeed, they are placing
an obligation on NGC to bring forward proposals to do this and have them
implemented not later than April 2011.
So it is, unfortunately, a real threat that generators connecting to a
distribution system are worried about.
It is non cost reflective and, if you followed it through logically, you
would actually have the nonsense of charging every single generator in France, Germany,
right over to Bulgaria and
every single bit of demand for using the GB transmission system rather than
just charging the net flow that comes over the interconnector between France and England.
Q183 Paddy Tipping: We are going to move to a situation where there are
going to be more and more local networks.
That is inevitable. What is the
ideal charging system?
Mr Russell: The ideal charging system is
very simple. Firstly, quite a different
issue, obviously there is generation connected to distribution systems, and
that should pay appropriately for using the distribution systems, which may in
some cases be negative charges if they are deferring the need to invest more in
distribution systems; if they are far from demand they may be positive
charges. As regards the transmission
system, it is very simple: one should pay (and who one is I will come on to it
in minute) for the net injection from the distribution system to the
transmission system or the net off-take from the transmission system to the
distribution system; so that it is the net flow that physically passes onto or
off the transmission system that causes costs on the transmission system and
for which charges should be payable.
Q184 Paddy
Tipping: Mr Ormiston, you reminded us earlier on that
in Scotland
some people are paying both system costs.
Mr Ormiston: Correct.
Q185 Paddy
Tipping: That cannot be right, can it?
Mr Ormiston: It is right. There are generators who theoretically, the
National Grid believe will spill their electricity or put their electricity on
to the transmission network and therefore have to pay what is known as the
gross-net charging model, so they are paying both transmission and distribution
charges. Often they also have to be grid
code compliant as well and for this theoretical risk of their using the
transmission they have to put in significant bits of machinery and plant to be
able to grid code compliant. This tussle
between National Grid and the distribution network operators is being played
out in different ways. Charging models
is one, DPCR-5 - the Distribution Price Control Review 5 - is another; and also
CAP167, which is all about if there is a theoretical risk of you using the
transmission network you have to get what is known as a statement of works from
National Grid. Effectively that is a
date by which you can connect your small generating station to the distribution
network because you might have a knock-on effect on transmission investment
further down the line. What that means
is theoretically a one kilowatt PV panel on a roof may be deemed to have an
impact on the transmission network and therefore in Scotland, in some cases, is
not allowed to actually connect to the network until 2018. That is the kind of illogical conclusion of
the CAP167 debate and one that is current.
Because we have these code numbers it sounds a bit "anoraky" but it is
an interesting subject where community projects, small scale renewables, micro
generation and distributed generation can be prevented from connecting because
of this theoretical risk and this tussle, I think, between distribution network
operators and transmission companies.
Q186 Dr
Whitehead: Is there not an issue though as far as
distributed generation is concerned of volatility? I have an image of the main transmission
network, as it were, as a long distance railway with trains timetabled and
going on in an orderly fashion and then the distributed system as a branch line
and the claim is, apparently, that for the future any train that turns up goes
around the branch line system. Is that
not a problem as far as the future integrity and viability of a distributed
system is concerned because if we are serious about the extent to which
distributed generation will move forward over the next ten, 15 years we simply
cannot tell who is going to connect up, where, when and under what
circumstances.
Mr Edge: I think this is a wider issue
around the management of the distribution networks generally. Distribution is generally the poor relation
of the network and grid area and does not receive the attention that it
increasingly will need to, given that we will have a feed-in tariff, there will
be more micro generation and small generation; we are going to have
increasingly demand side participation and this all at the distribution level
and this is where this buzz phrase, "smart grids", which I believe a lot of
people use and not many understand, actually applies in most cases. And it really is not getting the attention it
deserves, particularly, for instance, in the current Distribution Price Control
Review, which is for the period 2010 to 2015, which is when we will need a lot
of investment to manage exactly these issues and it is not part of the
debate. It is being addressed to a certain
extent under Ofgem's RPI-X @ 20 Review but they have explicitly stated that it
will not apply to this DPCR. So I think
there is an enormous gap; we are going to get through to 2015 and realise that
we should have done this about five years previously and we are way behind the
curve. So I think there are lots of
issues in general around here which need to be forced up the agenda.
Mr Ormiston: And in terms of having a long
term vision for networks for GB and indeed Europe, how is electricity going to
be used, what services are you going to provide by 2050, it is not just going
to be powering our lights and our gadgets, it is going to be for transport and
it is also going to be for heat and in those circumstances you need a pretty
robust distribution network. Moving
forward - and I think this may be at the heart of the question - are we
emphasising so much on transmission investment and transmission that we lose
sight of the small scale and distributed networks? If we do that we have made a massive mistake
because we will need to have a robust distribution and transmission network
with which to move around our power.
Transmission networks almost give you a certain amount of guarantee of
security and reliability because you can move that electricity long distances
in distribution networks, i.e. people to use electricity, in the many forms
that we are using it by 2050. So big
investment and innovation in these smarter grids, these intelligent systems and
allowing a lot more distributed generation to actually get on the system will
require this investment in distribution.
Q187 Dr
Whitehead: That being the case, particularly as Gordon
has mentioned, the issue of smart grids coming into play, particularly in the
distributed end, who pays?
Mr Edge: For investment in smart
distribution?
Q188 Dr
Whitehead: Indeed; it may strengthen the distribution
system or smartening it and getting it more reliable as far as potential
volatility is concerned.
Mr Edge: But then you are also getting
the benefits of perhaps lower investment in wires per se if you are able to manage the flows and the demands, so that
you do not need to pay more for the wires; you invest some in the smartness and
that gives you the opportunity to invest less in the dumbness of just the
wires. This is a point perhaps I should
have made slightly earlier when I was talking, that it may be that you need a
distribution system operator to do all the management and the investment around
this, but I do not see why it should not just be recovered through the
distribution network user system charges.
I do not see why it should make a huge difference, and the percentage of
the customers' bills which is applied from the distribution network is very
small.
Mr Russell: Ultimately, to answer the
question in a straightforward manner, the customer always pays. The point is, by having smart networks they
are paying less than they would be if you did not have smart networks.
Q189 Chairman:
That
is what we hope to see.
Mr Russell: That is the idea. If they are not then you should not be doing
smart networks. You are not doing them
just to keep engineers amused; they are being done because ultimately they will
be able to do what engineers do or should do well, which is to do for ten pence
what any idiot can do for a pound and deliver the same level service in a smarter,
more intelligent way. On something you
said earlier - your train analogy - I assume you were talking not about hour by
hour management of the system but longer term management and generators that
build and connect to distribution networks in an uncontrolled fashion. Nobody is suggesting that the interface
between distribution networks and the transmission networks must not continue
to be very carefully managed by the respective network operators; they do this
at the moment. In general the majority of
cases flows from transmission to distribution and connecting some new generation
at the distribution level, all that means is that those flows are less and may
indeed reverse. That is no different
from demand reducing and there is and continues to need to be liaison very
regularly between distribution network operators and transmission system
operators to manage the interface and the connections between the systems.
Chairman: These are very important
areas and I wish we had a little bit more time to go through them, but
unfortunately our time is constrained, as you appreciate. But there is an awful lot of food for thought
here, on which we would like to reflect.
Just to bring this session to a conclusion, we did mention the problem
of planning, which you flagged up and Anne Main wants to come in on this.
Q190 Anne
Main: I can almost need a one word answer on
this. Do you believe that the changes
that were brought about in the 2008 Planning Act will actually speed up the
process for new electricity network infrastructure and do you think that any
improvements in the planning in Scotland
will deliver similar or greater benefits?
Mr Edge: It should, in England and Wales.
Q191 Anne
Main: So England
and Wales
it should. Scotland?
Mr Ormiston: In Scotland the second National
Planning Framework and the Planning Act 2006 ought to speed the process up but
we would need to get it down for ---
Q192 Anne
Main: Shoulds and oughts are not exactly ---
Mr Ormiston: It remains to be seen. We have an 11-year process of Beauly-Denny at
the moment and we need to get that down.
I imagine it would come down but would it come down to the point where
it is acceptable? That remains to be
seen.
Mr Edge: The issues around things
liker resourcing of the Infrastructure Planning Commission is that they are
actually going to have to do an awful lot of different things and they need to
have enough resources.
Q193 Anne
Main: You have concerns about the resourcing?
Mr Edge: Yes.
Mr Russell: Can I say a different
word? Not surely or will but hope. We hope it will. There is one concern and this is not to do
with wires, it is to do with generation projects and that is in England and Wales - it will not directly affect
generation of less than 50 megawatts and that is a major area of concern to us.
Q194 Chairman:
It is
exempt.
Mr Russell: That it does not affect the
local authority process.
Q195 Anne
Main: Is that a failing?
Mr Russell: We would like to see that
made as certain in terms of timescale and not going over the same arguments,
national ones, again and again for projects of that size, as we hope the new
legislation in England and Wales
will lead to for larger projects.
Chairman: Thank you very much,
gentlemen. I have to draw this to a
conclusion there but thank you very much for the detailed way you have answered
the questions; it has been very helpful to the Committee.
Examination of Witnesses
Witnesses:
Mr David Porter, Chief
Executive, Ms Barbara Vest, Head of
Electricity Trading and Mr Alastair
Tolley, Head of Renewable Energy, gave evidence.
Q196 Chairman:
Good
morning, ladies and gentlemen; welcome to the Select Committee. As with our previous witnesses, for the
record would you care to give your name and organisation? Mr Tolley, if you would like to start?
Mr Tolley: I am Alastair Tolley; I am
the Head of Renewable Energy at the Association of Electricity Producers.
Mr Porter: David Porter, Chief
Executive, Association of Electricity Producers.
Ms Vest: Barbara Vest, Head of
Electricity Trading, Association of Electricity Producers.
Q197 Chairman:
Thank
you and welcome. Can we start off with
accessing the transmission network, which of course is very topical at the
moment? We have the current Transmission
Access Review, which has made a number of short term recommendations,
particularly in trying to address the queue of capacity, which we know is in
the system. Do you think those short
term recommendations are going to have an impact?
Mr Porter: I think our views are not too
far apart, Mr Chairman, from those that you heard earlier. We are reasonably comfortable with some of
the short term measures because it makes sense to make the best possible use of
the existing capacity. We do have a huge
level of new production being proposed but of course you simply cannot get away
from the conclusion that these short term measures are sticking plasters; they
have attached to them sometimes some risk of unintended consequences and of
course the answer is to get much more network built.
Q198 Chairman:
Are
we seeing some unintended consequences in the short term measures?
Mr Porter: There are risks with some and
those risks were referred to earlier - the constraint costs, for example - and
I know that the regulator is already quite concerned about the increase in
constraint costs that we have seen in the last couple of years and we are under
a bit of pressure from that now. So we
cannot ignore these things; we have to take a very careful look at them because
these costs end up to some extent or other on the customers' bills.
Q199 Chairman:
So
disagreement on those constraint costs in terms of the calculations, is that
view as well?
Mr Porter: I am not sure how deeply we
have got into the differences between the two extremes that were put forward,
but I will ask Barbara whether we can comment on that.
Ms Vest: I would just reiterate what
was said earlier, the fact that there are a wide range of views on how much
those constraints are actually going to cost and we have seen recently some
urgent proposals being brought forward by Grid in response to concerns raised
by Ofgem. Unfortunately the industry
really did not get the opportunity to have proper dialogue and input into those
proposals because they were raised in extremely short timescales under an
urgent banner, and it meant that we really did not fully understand the full
intention of those proposals. In fact I
am a member of the Connection and User System Panel who had to sign off the
urgency for those proposals and, to be quite honest, at our subsequent meeting
following that, when we had seen the legal drafting for what the full proposal
was, many of us said that we would not have signed off on urgency and we would
have preferred to have the industry understand more about the full extent and
range of what had been proposed.
Mr Porter: As a result of things like
this, Mr Chairman, we get accused at times by the regulator's office of being
obstructive in terms of improving the prospects for new networks and improving
the arrangements for access and we have objected very strongly to that sort of
thing. We have had people sitting for
months on end very thoroughly and properly engaged in the issues that Ofgem
have brought forward, and at times it seems like they are trying to find a
scapegoat for a problem which, as you all know, from what you have heard already,
is actually quite difficult. We are
moving from a situation where we are today where by 2020 we are meant to have
something like 50 per cent more generation connected to our electricity system. This includes offshore wind and it includes
the generation to replace retiring plant and also the generation that we will
have to have to provide back-up. This is
a massive change and it is something which some people - not many in the
industry, I ought to say - think can be done as if by magic and it simply
cannot. I hope that in the course of
this discussion we will bring out some of the difficulties but in a way which
reveals that we want to see them solved.
After all, we represent a very wide range of companies, including not
only the conventional generators but a great many others as well - some in
renewable energy that have been members of our Association since we were formed
at the end of the 1980s. I ought to
point out as well that those which are involved in conventional generation are
also the companies that are going to put a very large part of the money into
the investment to bring forward new renewables.
So we want to see things happen but we are much less likely than some to
pretend that it can be done simply.
Ms Vest: Can I add something about the
Transmission Access Review and modifications that were raised in reference to
the short term proposals? We had six
proposals raised in April 2008 and as someone who has had the joy of attending
many of the 70 plus industry meetings, held in London and the beautiful place
of Warwick, I can tell you that we have really, really tried hard to make the
proposals work. Unfortunately, what were
initially raised were proposals based on a zonal approach and it became very
apparent early on that was just was not possible; we could not make it
work. Therefore, we have developed a
range of alternative proposals. The
short term proposals include the system operator releasing additional capacity
as and when they can see that it is available and could be used. There are proposals even now for generators
to share access, so if you have someone who runs a hydro plant and they are not
going to run at times when a neighbour who is a wind producer could use the
network then they will come to some commercial agreement and share that
access. Then we got on to the proposals
for Connect and Manage. It is absolutely
great that Ofgem have now changed their view and allowed the derogations to go ahead
that will bring on an additional 450 megawatts of generation. This is a very positive and timely move. We have really seen a lot of progress on the
short term arrangements. However, part
of that suite also had within it a couple of proposals that looked at longer
term arrangements and, honestly, they were just so problematic to deal
with. As I say, this zonal approach for
something, for example like auctions, National Grid, their staff behind the
scenes have put in an awful lot of additional work to try and move that on, in
addition to what we did in the working groups.
But basically what we ended up with was an Excel spreadsheet that was
meant to model what was going to happen, and it is frankly not enough for an
arrangement that is fundamentally going to change the approach of a generator's
access in the future. So from my point
of view - and I am not saying anything untoward here - honestly I would just
concentrate on these short term arrangements, make them work, continue with the
move by Ofgem to a different regulatory approach to enable Grid to get on with
this investment, to enable the generators to deliver and keep the lights on;
and let us deal with the long term stuff much later when we have the time to
catch our breath and see if the arrangements are appropriate long term. We need to move now.
Q200 Dr
Whitehead: You could say that the two are indissolubly
connected in as much as if you are going down a Connect and Manage route then
there are consequences in terms of finite access rights; there are consequences
if you do go down the finite access route of then logically having to have some
sort of system, as it were, of redistributing the access rights in the long
term, and the auction process therefore may appear to follow. But you have strongly resisted both and I
believe that you are even in the process of taking legal advice about, for
example, the taking away of access rights if there is to be a finite access
regime. Do you think that those are
contributions to the long term position or a defence of the short term
position?
Mr Porter: They are both, in fact, but they
are first a defence of the companies' existing position. They do not have any commercial option
really, other than to say, "I am sorry, but we were vested with these rights;
we have made all our business plans on the basis of these rights and it is not
something that you can take away from us lightly. So all the companies concerned will have been
consulting their own lawyers about that.
I ought to say that in the discussions about this with the regulator I
do not think that we have ever heard anybody make the case that there is the
right to take them away. So I am afraid
that there is a battle to be fought.
Q201 Chairman:
Could
I just say very briefly that I would like to welcome visitors from the Youth
Parliament who are visiting Parliament today for an engagement, accompanied by
the MP for Brigg and Goole. I would like
to say how welcome you are; I hope you have a very good day and welcome to the
Select Committee on Energy and Climate Change.
Ms Vest: Can I just say on whether
rights can actually be taken away or not, right at the very beginning of this
transmission access work, the very first working groups, we asked Ofgem to show
us where within the code agreements it actually stated that rights could be
taken away, because if we know exactly what we are dealing with at the start of
the process then that is great. So way
back in April 2008 they were asked that and they point-blank refused and said,
"This is a totally legal situation now; we cannot discuss or will not discuss
it," and they were most unhelpful with that.
But for Connect and Manage and the short term arrangements that are
actually looking as though they will help to bring on additional megawatts you
do not need the finite rights issue; we can handle it, we can get them on.
Q202 Dr
Whitehead: I understand that in the short term but if you
go down a Connect and Manage route in the long term, which you have given an
example of, Ms Vest, of how access might be shared depending on the nature of a
particular form of transmission, does not the Connect and Manage regime
inevitably mean that there will have to be changes to access rights and that if
they are not to be finite that the entire long term future therefore of the
sort of Connect and Manage arrangements that you have suggested relies on the
voluntary goodwill of people to actually do it, as opposed to any sort of
better planning of how the system might work.
Therefore, is there not a problem arising between the idea that perhaps
the Grid cannot take away rights - and indeed there is nothing in the
documentation, as it were, that says that they can - and on the other hand the
ambition of a Connect and Manage system, which seems to point in a different
direction?
Ms Vest: I do not know what we are
getting hung up on here because, honestly, the Connect and Manage process that
we are going through and the short term arrangement for giving up access and
sharing it, we are saying that the generators through this Transmission Access
Review are better understanding the problems. For example, the initial
proposals that were raised, the problem then was about the socialisation of
costs, and we have come up with a range of options now because we have better
understood the issue. In addition, there
was a problem or a misunderstanding between the notice we needed to give Grid
about when plant would be closing. It
was very unfortunate that the one proposal that looked at finite rights also
included in it this termination arrangement as well. If the two modifications had been separated
we could make progress on that and the working groups have come up with some
solutions that have actually been with Ofgem now since 8 January, waiting to
see what the next steps are. It is quite
rich that they are saying that the industry is holding up this process when we are
sitting here wondering where is the regulatory impact assessment; are we
actually going to get a reasonable amount of time to respond to that, which
should be 12 weeks? We are hearing from
Ofgem that whilst they are using this time that is eating into our consultation
time we might only end up with four to six weeks' consultation on something
that is as big and as important as this.
And on something that, quite honestly, because there were so many
meetings ---
Q203 Chairman:
What
do you think would be a better consultation period then, or a better system?
Ms Vest: They should follow the Better
Regulation requirements and give us the full time. The problem is not for the members who were
involved in the process - we understand what it is all about - but this is for
impacts that are far wider than those people who were lucky enough to have
employers that enabled them to engage properly in the process. There are an awful lot of other smaller
generators, smaller businesses that it is only now they will be able to
understand the full impact.
Chairman: Can we turn to the issue of
charging for the use of transmission networks, which is a very hot topic, of
course, with all concerned.
Q204 Mr
Weir: We had a discussion about locational charges
with the last set of witnesses. Clearly
you represent both renewable and traditional - if you want to put it that way -
generators throughout the UK. Do you agree to the extent to which location
is currently priced into transmission network and balancing services charges,
and how do you feel about the proposal for a more flat rate of postal system?
Mr Porter: There are a great many things
that a trade association like ours with a very broad membership can agree on
quite easily, but if you want to find something that gives us a headache it is
geographical things. You heard a few
minutes ago that the Scots have one very clear view of this and I can tell you
that people in the south of England have a very different view of it and I have
been personally involved in trying to broker a deal in the past that failed
dismally because it just did not recognise the business impact of these
changes. Broadly, the Association is in
favour of cost reflectiveness; it runs through most of our policy. But we are grown up enough to recognise that
we have a huge problem here where companies can be hugely disadvantaged by
change.
Q205 Mr
Weir: What about the balancing services' use of
system costs? Scottish Power and
Scottish and Southern, for example, have raised concerns about the new
proposals from National Grid at the behest, it appears, of Ofgem, which they
say will impact upon investment and plant in Scotland. Do you have a view on that? Is it something that affects southern
generators as well?
Ms Vest: This was something I referred
to earlier. Ofgem raised at very short
notice this issue about constraint costs.
We have heard earlier - and we support the view - that there is a vast
array of views on what that actual figure is.
We have concerns as an association that something as fundamental a
change as that could be brought forward, first of all without being honest
about the full impacts of it. And just
to give you a flavour of what it means, there is currently a derogated boundary
- it is the Cheviot Line. It has always
been there; we knew there was a problem with this NETA; we have had BETTA come
along and we needed that line to be reinforced.
There are certain flows across that line and unfortunately at times
energy has to be constrained, so we are seeing this rise in costs, which have
been forecast - maybe not to the level that we have seen but lots of things
change over lots of years and so we are where we are. But this proposal under an urgent banner will
mean that special kit has to be installed at certain plants that are subject to
this derogation and have signed what is called an inter-trip agreement, and it
is a new form of an inter-trip which will reduce their output under certain
conditions. The industry was not really
involved in discussions about what compensation there would be and you have
someone who might have a coal plant and who might be tripped off who can return
to production and get their product to the market at relatively short periods;
but then you might have a nuclear generator that is affected in the same way and
they have to stay off for five days because the Health and Safety rules state
that, and yet they are subject to the same amount of compensation. So there is a lot of worry there about
something that has been brought in around a subject and values that are not
fully investigated or understood. We do
not know what the future behaviour is and what those levels will stay at and we
are also concerned about maybe there were other options that could have been
looked at if we had had an appropriate length of time to do so.
Q206 Mr
Weir: So it is a rushed thing that is ill thought
out is basically what you are saying about it.
To what extent do renewables receive priority access to the electricity
networks at present, and is this not necessary given the government's ambitious
targets for renewable energy?
Mr Tolley: At present they do not, is
the short answer. The new Renewables
Directive I think requires either priority or guaranteed access to the network,
and that is for things that are already connected; so it is not the connection
itself, it is the actual access once you are connected. It is up to the government to determine what
guaranteed access would mean in that context and whether we comply. My view is that we probably do at the moment
because once you are on the network you have access to the network unless you
are constrained for security reasons or for reliability reasons.
Q207 Mr
Weir: Given the now very ambitious targets for
electricity from renewables, does that mean that renewables will have to be
given that priority to enable us to meet these targets, and what is the effect
going to be on other generators; or is there going to be an effect on other
generators?
Mr Porter: I think you are alluding to
another big question about what is going to happen to pricing and price
volatility and so on when we have a large amount of variable renewable energy
production on the network. These are
very big questions. We are a bit fearful
of the present trading arrangements being able to cope with this. It even leads us to questions about the
incentives, the signals that are given for people to build new plant, to back
up variable renewable energy; and we do not have all the answers to this
yet. There are some quite big issues lurking
there. It is possible to envisage prices
dropping to very low levels at times, as we have seen in parts of Europe - Denmark
I think is an example. We have some very
big questions to address there.
Q208 Mr
Weir: To put you on the spot then, what incentives
do you think are necessary to deal with the intermittency problem?
Mr Porter: I have talked at a very
senior level to people in the major companies about this, and I have to say -
and they can be forgiven for this - not everyone is of one accord on how you
deal with this. They are, however, of
one accord that we have a problem and one Chief Executive said to me, "I simply
cannot sign off the building of a brand new power station to come into use
occasionally to deal with variable supply of energy from renewables." One possible route out of that is that we
have some kind of new incentive mechanism to get people to do that but all
these things in the end have an impact on the customer's bill and we are faced
all the time with the strong desire to see change in the composition of the
energy mix. It is being driven more
politically than it is being driven by the companies - they want to do what it
is necessary to do, but I think if it were not for the level of the Renewables
Directive that we have signed on to they would be choosing commercially a mix
which is rather different from what it looks like we have to have. At the same time we have pressures on the
industry to make sure that customers' bills do not rise unduly. We are talking here, in effect, about how
much insurance we buy. The back-up plant
is cover and it looks as though we are going to get into very high levels of
insurance. As somebody who believes that
the first priority of energy policy is to keep the lights on I am not out of
sympathy with that, but we all have to recognise that the political drivers to
bring forward new types of generation do have a cost attached to them.
Q209 Sir
Robert Smith: Earlier on you mentioned this inter-trip; is
that controlled by the grid operator and the power plant has virtually no say?
Ms Vest: It is controlled by grid,
yes, and grid controls the piece of kit that they install at the generating
site.
Q210 Sir
Robert Smith: Suddenly you find you lose access and you have
to switch everything off.
Ms Vest: It goes.
Chairman: Can we move on to the issue
of connecting to offshore wind, which, as we know, there is an awful lot of
capacity in the system and there are concerns about delays and also the
regulatory regime for that.
Q211 Paddy
Tipping: Can you give us a view on whether the approach
is right that DECC and Ofgem take?
Mr Porter: On the DECC and Ofgem
approach to offshore wind? I think to
start with we do not have a problem with the idea of National Grid extending
its role offshore; that is the starting point.
Neither do we have a problem with a competitive regime.
Q212 Paddy
Tipping: Do you think that there are enough people
around who are going to tender for this offshore process?
Mr Tolley: We do not know for certain,
do we, but it is not a foregone conclusion that the existing onshore companies
will be the only people who win out in these competitions because offshore
transmission is slightly different and there could well be new entrants from
other countries and other companies getting involved. For the round one and two offshore wind
projects we are quite confident that the competitive arrangements, OFTOs, will
deliver benefits in terms of lower costs, more innovation, getting more
companies in to finance these networks.
I think the question really arises in terms of round three when you have
much more offshore wind being built, whether you get that strategic approach,
coordinated approach to designing an offshore network that you may need.
Q213 Paddy
Tipping: The Sea is a bit of an unknown frontier. There is going to be some big engineering
work here. Do we really understand the
marine environment enough to make this happen?
Mr Porter: We have to rely on the
business judgment of our member companies that want to do this. We heard earlier from I think it was Gordon
Edge of the British Wind Energy Association that a lot of the issues are
similar to issues that were addressed by the offshore oil industry, so we ought
to have a certain amount of confidence.
But there is a lot of work going on in the industry now to get the
assurance that some of these things can be delivered. Technical work - there is work going on on
metering currently.
Ms Vest: I think as well that our
members think that if it is a competitive tender and, say, somebody else were
to win that, they could bring in innovative new ways of dealing with things
which we can learn from and then look across to National Grid and the Scottish
transmission operators and say to them, "Why are you not delivering something
similar? Where is the innovation here?" So we can see benefits from this.
Q214 Sir
Robert Smith: There is one warning from offshore, of course,
that the history of the offshore was that each different operator had their own
infrastructure and now new entrants are finding it difficult sometimes to
access. So presumably any regime has to
be careful that it does not embed rigidities that do not allow future
development.
Ms Vest: Yes. I think they understand that as well.
Chairman: Could we turn to an issue
potentially for the future, the issue of interconnection with other countries
and the supergrid. Interconnections with
France, for example, have
been around for a very long time; but there are a number of proposals, I
understand, for connecting to Ireland,
connecting to Holland,
and then there are the European proposals for a European supergrid, which is a
very interesting proposal.
Q215 Judy
Mallaber: Briefly, what are the benefits, do you think,
and what are the risks of greater interconnection with other countries?
Mr Porter: Having plenty of connection
goes with having a good, well working market and that should help to deliver
greater security of supply; it ought, as well, to make the best possible use of
our resources by drawing on power where it was sometimes surplus and getting
power from where it is most economically available. So we feel very comfortable with the idea of
much more interconnection.
Ms Vest: I just remember in the not
too distant past we had problems - if we face a severe winter it is quite
likely that they are facing one in Europe too,
and it could be even worse in fact. We
did have a situation where we expected energy to come here but every country
has their own rules and requirements about looking after their own country
first, so we need to be very careful that we are not reliant on imports too
much and we need to make proper provision here for that extreme winter. It might even be an extreme summer - who
knows, the way things are going? But we
cannot just say, "We are getting lots of wires so the energy will come here."
Mr Porter: There is another implication,
of course, that the more that you have of this and the more that the European
market becomes integrated - and we supported that - you are going to need a
different type of regulation, and this was actually alluded to by the Chairman
of Ofgem yesterday at a meeting at which your Chairman and I were present.
Q216 Chairman:
He
was indeed.
Mr Porter: This is also going to present
us with some challenges because regulation viewed from a European perspective
may not always fit comfortably with regulation to which we have become
accustomed in the UK
over the last 20 years. Broadly speaking
we do it quite well here. It has its
flaws but it has worked and I suppose it is fair to say that we would have a
watchful eye on what came out at a European level to make sure that it was not
going to have any serious downsides for us locally.
Q217 Judy
Mallaber: So with a lack of market liberalisation in Europe, do you think that that does create risks and
problems for our market?
Mr Porter: It does. We are hoping that the third package will
lead to a greater freeing up because that is something that, as an Association,
we support very strongly and always have.
We now have within our membership a number of companies which are not
British owned but they are in effect European companies and they also feel that
very strongly.
Q218 Judy
Mallaber: The Chairman referred to the supergrid. What do you think is the potential?
Mr Porter: This has attracted a lot of
interest and I think a great deal more work is needed on this before we can be
very confident about any net benefits. I
suppose that in principle what I was saying just now applies to this supergrid
as well, that you are back to how you run it, how you coordinate it, how you
regulate it. Apologies to our own
regulators who think that you can deal with these kinds of things almost
overnight - these things do take time and they take even more time when you
have lots of different countries' interests to consider.
Q219 Judy
Mallaber: Can you identify which of the main regulatory
considerations need to be covered? It is
obviously a very complex area.
Mr Porter: There are things like how
much it costs to move electricity across borders and if you move across more
than one border are you into an issue of paying two charges, that kind of
thing. These are challenging issues that
take a lot of working out and I am still sore from being told by our regulator
as recently as yesterday that we need to wake up and smell the coffee. We know about the coffee.
Chairman: That is indeed what he said,
yes.
Q220 Judy
Mallaber: Where do you start in sorting out that
regulation because it strikes me as being incredibly complex?
Mr Porter: It is going on now and to his
credit the Chairman of Ofgem, Lord Mogg, has actually been one of the prime
movers and has chaired the working group to get these things going. He pointed out at an Ofgem event yesterday
how difficult it actually is; it is cultural and it is also economic - people
are very, very careful not to lose out on anything they have today. So these things take time.
Q221 Sir
Robert Smith: In terms of the security of the network, do
you think that as it does become more integrated - and you mentioned the past
problems you had with the gas integration - given the role that gas plays so
much in electricity as well as power, does there need to be more modelling to
see how the two different grids, the gas grid and the electricity grid interact
with each other in terms of security?
Mr Porter: I think that is probably true
but a little more liberalisation on the gas side would be very helpful to the
electricity side. But there are also
physical questions as well in that the pipes for gas tend, if my memory serves
me correctly, to run roughly east-west and there is not much that crosses them
north-south as far as I know. There may
be arguments for much more building of networks for gas.
Ms Vest: The Energy Network steering
group report that people have referred to, I do not think there has been a
similar study done for gas. I stand to
be corrected if that is right. Something
like that exercise would be good and something that was in the public domain
and under constant review as well and we can then compare the two more easily
if we have the information to hand.
Chairman: Can we now look at the issue
of distributed generation, which is a growing area and also featured in the
discussion yesterday with Ofgem and we would like to explore your views on
that.
Q222 Dr
Whitehead: The claim of the renewable energy trade
associations is, of course, as far as the distributed network is concerned, the
vast majority of future renewables - and indeed present renewables - would be
firmly embedded in the distribution network system and therefore do not wash
over into the transmission system and therefore should have what I think are
the widely embedded benefits. But you do
not agree with that, though, do you?
Mr Porter: We do. We are probably quite well in sympathy with I
think what Mr Russell said on behalf of the Renewable Energy Association
earlier. In fact I ought to say that we
drew attention to the likely growth of electricity production connected to
local networks as long ago as July 1998 and published a report on it trying to
highlight some of the issues that were going to arise. We sent this to the regulator and to I think
it was then the DTI, and it actually took years to get them interested in the
issue. We were pleased eventually when
some of these things got picked up by industry committees, but we are aware of
those issues and we have a history of being involved with small-scale
generation - it is in fact where we started as an association, and our sympathy
there is for the net approach that was discussed by Mr Russell earlier.
Q223 Dr
Whitehead: So your view of the National Grid proposing to
move to gross charging as far as embedded generators are concerned is that this
would be a wrong move?
Mr Porter: This is not something new, by
the way. I remember having discussions
years ago - and they have gone on at various intervals - with National Grid. They have a problem, which I understand. Tiny amounts of local generation do not count
for them; it barely shows on the radar and it does not give them
difficulties. They can now see that we
will have much larger amounts and they can see risks arising for them where
generation would perhaps spill over. If
it was maybe clustered in fairly large amounts close to their system this
concerns them. It is a risk that they
face but they cannot under the present rules fully control. So I see the tension there but I do not think
we are yet at the point where National Grid needs to control the output of a
photovoltaic array, but it is something that we need to sit down with them
seriously to discuss as the growth of production on the distribution system
develops.
Dr Whitehead: Could I take you a little
further on that point in as much as you are obviously absolutely right, I
happen to be a miniature power station in my own right.
Chairman: Not personally!
Q224 Dr
Whitehead: My roof, sorry! It is, as you say, an extremely miniature version. However, in the city I represent we will
probably be bringing forward large-scale CHP around the city, for example,
which will put substantial electricity into the distributed grid. Do you see - and you have expressed some
sympathy for the concerns that have been expressed - a short, medium term
imperative for strengthening of the distribution system, or do you see that
there are methods by which what some people might say is the potential chaos of
large numbers of distributed energy producers coming into the grid. Do you see other methods by which that might
be regulated and planned so that actually it works well for the future?
Mr Porter: It looks to us like the issue
of strengthening distribution systems.
It is in a smaller way much the same issue as having to strengthen the
transmission system, and with regard to the transmission system I think we are
fairly comfortable with the idea that the National Grid should be encouraged to
go ahead and build ahead of the time when new plant actually requires to be
given access and I think much the same thing would apply at the distribution
level. If there were risks there, yes,
we can recognise those risks and we ought to be able to work out a way of
sharing them.
Ms Vest: The grid codes that look after
how we behave within the transmission network, there is a distribution code
governing how the distribution network
is run and it is all about communication, is it not, making sure that those who
look after both networks actually understand what each other are doing. But there are quite clear and distinct roles
within those codes for the distribution companies and grid and as long as we
can encourage communication and understand the impacts, etcetera, then we should
be able to rub along well together. This embedded generation should be used
within the distribution area and provided security of supply within there as
well.
Mr Porter: I think that there are one or
two technical issues which I cannot go into too deeply, but last year when we
had quite a major power cut on 27 May the investigation into how all that
happened - it was largely to do with two major power stations tripping off
within a minute or so of each other - revealed that there was an issue that was
to do with distributed generation. There
was some wind power which might have been expected to run which got tripped off
because of the change in the frequency.
Ms Vest: The investigation is still
ongoing into that. The Grid Code Review
Panel has been asked to establish a group to look at what happened via the -
E3C committee?
Mr Porter: The Energy Emergency
Executive Committee.
Ms Vest: So that is ongoing and we are
currently doing a lot of investigation with the different people in the
industry to see if they noticed anything strange on that day, and we are asking
them to provide us with evidence of adverse operation, or something that looked
a bit strange.
Mr Porter: We are not saying that these
things cannot be done; we are saying that you need to be aware of some of the
technical issues and we have to find answers to them. Everything in this industry is connected to
everything else.
Chairman: Literally as well as
metaphorically! That brings us to the
end of our session. Thank you very much
for your responses which have been very helpful to us. You have certainly covered a whole range of
issues to which we need to give some very careful thought. Thank you very much indeed.
| 