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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC388-vi House of COMMONS MINUTES OF EVIDENCE TAKEN BEFORE ENERGY AND climate change COMMITTEE
The future OF
LORD
HUNT OF KINGS HEATH, MR JOHN OVERTON AND MS Evidence heard in Public Questions 379 - 435
USE OF THE TRANSCRIPT
Oral Evidence Taken before the Energy and Climate Change Committee on Members present Paddy Tipping, in the Chair Mr David Anderson Colin Challen Charles Hendry Judy Mallaber John Robertson Sir Robert Smith Mr Mike Weir Dr Alan Whitehead ________________ Memorandum submitted by Department of Energy and Climate Change Examination of Witnesses Witnesses: Lord Hunt of Kings Heath, a Member of the House of Lords, Minister of State, Mr John Overton, Deputy Director, Renewables Deployment Team, and Ms Lorraine Hamid, Head of Future Electricity Networks Team, Department of Energy and Climate Change, gave evidence. Q379 Chairman: Welcome to the Committee. As you know, we are a new Select Committee following a new department. We saw your colleague Mike O'Brien some time ago. We have seen the Secretary of State but since then there have been changes and changes in a row. Can you spell out what the ministerial responsibilities are of the ministerial team that you have agreed? Lord Hunt of Kings Heath: Thank you very much. You are a new Select Committee, but I am even newer in my role. I do not think that the announcement has been made yet about ministerial responsibilities, but essentially it would be fair to say that I have taken over much of Mike O'Brien's role, as Energy Minister. Q380 Chairman: But there is a lot of interest in energy issues and climate change issues. The sooner the world out there knows who is doing what would be helpful! Lord Hunt of Kings
Heath: I very much accept that, and I will
certainly make sure the Committee knows as soon as it has been completely
resolved. I was a minister in DECC from
the start, though sharing responsibility with Defra, and previously had
responsibility for energy innovation.
Part of my role in the Lords was to take through the final stages of the
Planning Act, the Energy Act and the Climate Change Act. It is a very exciting place to be. DECC has a critical role to play in terms of
energy and energy security but also climate change and the negotiations going
up to Q381 Chairman: Could I just say, in a gentle kind of way, there have been a lot of changes in the Minister for Energy, and I do not think it is good for the Government or its reputation, and I do not think it is good for the industry; so we hope you will stay with us for some time. Lord Hunt of Kings Heath: That, too, is my hope. I am aware of the concern about frequent changes in Energy Ministers. I, too, in the nine years I have been in Government, have changed portfolios quite a few times. I recognise that for the sectors you are in that they wish for continuity; on the other hand, I hope that I can bring other experience that I have gained in other areas. The key issue is perhaps not so much the ministers, but whether we have the right policies and the right framework, and can we give stability and certainty to the energy sector! Certainly that is my aim. Q382 Chairman: Let us get on with the business now. We are going to move to a low-carbon economy, which means big changes in the transmission system. You and your colleagues will have followed the evidence we have received. Part of the issue is that people in the sector say you lack vision about this. Clearly, you will not agree with that, but will you comment on that? Lord Hunt of Kings
Heath: I think that is a little unfair. If you think about the activities that have
taken place over the last year or so, there has been a tremendous amount of
work, not just in terms of the electricity network, but if one starts generally
with energy policy, we, I believe, have made some very critical decisions
around renewables targets on which we shall publish further information very
shortly - but also the decisions in relation to nuclear and carbon capture and
storage in relation to coal. These are
very big decisions. Clearly, access, and
issues around the integrity of the electricity grid are as important. I do think that the work that was done last
year on the transmission access review, the work that has been done within the
ENSG, the desire that we have clearly expressed to make sure that we use the
grid more effectively; and the issue to do with media access to the grid - and,
as you know, very shortly Ofgem will be taking us to the next stage in relation
to offshore licensing and in addition, we have the Ofgem review of Q383 Chairman: There are a number of suggested scenarios and models for the grid in the future, and nobody seems to know what it will look like. We are in the age of more intervention from Government these days: should we not be saying more clearly what the Department thinks the grid might look like? Lord Hunt of Kings Heath: As you know, the approach that has been taken over a number of years in relation to regulation of the grid et cetera is very much one in which Government sets the legislative and regulatory framework but does not micro-manage or, if you like, central‑plan what the outcome will be. Clearly, we are in a new situation in terms of where we are going; the decisions that have been made in relation to the energy mix that we need in the future; decisions about smart meters and smart grids; issues around distributive generation; and the renewable target: all of these lend support to there needing to be work on scenarios and enabling people to plan and invest in the future. That is very much what Government is concerned with: providing a vision; making sure that the system helps us deliver energy security, a diverse energy mix, ensuring that we move to a low-carbon economy. We are working on scenarios. We will have the summer strategy that will help clarify some of those matters. Equally, I do not think it is for Government to dictate exactly what the mix should be, or where it should be provided. We also have to gain the benefits of a competitive market in which the private sector will invest huge sums of money over the next few years. We have to get the balance right and we have to ensure that regulation is fit for purpose. Whilst I fully accept that we have a role in providing greater understanding and certainty in terms of scenarios, going beyond 2020 to 2030 and even to 2050, we have to be very careful about too much of a micro management interventionist approach. We have to get the balance right. Q384 Chairman: I am sure we have got to get the balance right, but I was struck by the comments of Paul Golby, the Chief Executive of E.ON, who is a very respected player in the field. He was saying that the market by itself cannot operate and that there needs to be a firmer framework and guidelines for Government. I just wonder whether we have got the balance right. Lord Hunt of Kings Heath: I do not disagree. If it is being said that you could you rely on the market of itself to deliver the kind of network that is required over the next ten, twenty or thirty years; clearly, of its own it will not. Government, in one way or another, working with regulators, has to make sure that the incentives and the rules are there to ensure that the grid is going to be fit for purpose. The fact that we had the transmission access review is in itself an indicator of Government encouraging those kinds of analysis and interventions, and we will continue to do that. On the other hand, I do not think we would wish to move to a situation where we become very micro-management in terms of intervention, because then the companies, which in fairness are going to have to invest a huge amount of money, will say, "We are very uncertain about the long-term future and need stability". It is critical to get the balance right. Where we do need to intervene, of course we will, but I believe that ultimately our goal is to set the right vision and make sure that that delivers our energy policy, and ensure that the right financial incentives are in place and that the regulators are up to speed. That, really, is our role. Q385 Chairman: Part of the vision is to have new nuclear up and running by 2017. Part of the vision is to have local distribution around renewables. Those two things do not sit easy when you bring forward a new transmission system. Lord Hunt of Kings Heath: It shows the challenge we face in relation to the transmission system. As you know, the renewables target is a very challenging one. At the moment renewables are responsible for about 1.8 per cent of our energy requirements, and we have got to get up to 15 per cent by 2020. The Committee, I am sure, will be aware of some of the problems of access to the grid by renewables, which is why we have had the interim connector management approach being brought in. Equally, in terms of new nuclear, we are hoping for the first station to be up and running by 2018, and that will also provide demands of the grid that need to be met. In terms of distributive generation, the introduction of feed-in tariffs, which I am very excited about, will produce new demands there; so clearly we need a lot of work to be done in the next few years. I think the work of the ENSG has already indicated that an enormous amount of work needs to be done, and it has made an estimate of the costs. It is now for us to ensure that the players in the system take the necessary action. Ofgem will be coming forward with proposals in terms of the financial incentives that will be required to make sure that the network is fit for purpose. On distributive generation, there were studies done about three years ago, which suggested that the network can cope with little cost, up to 3.5 gigawatts, but one would like to think that the introduction of feed-in tariffs will create much greater capacity through the distributive network; and clearly we need to make sure we can cope with that. Q386 Chairman: One more question from me, and we will move on. You mentioned the summer strategy. One of my colleagues was kidding me earlier
on that summer comes later in Lord Hunt of Kings
Heath: I always thought Q387 Chairman: Before the recess? Lord Hunt of Kings Heath: That is my hope. Q388 Mr Weir: You have mentioned several times the transmission access review. There has been a long-standing problem with queues waiting to get on to the grid; but it is clear from our evidence that there is a tension between Ofgem and the industry about certain aspects of this. Are you happy with the industry's response in developing enduring transmission access regimes? Lord Hunt of Kings Heath: I would like to bring Lorraine Hamid in on this, who heads up the forward-looking work on the electricity network. If I could just say by way of introduction, the companies have done a lot of work and you will know that this is being considered now alongside what has been described as "the fourth way". We want to see the outcome of that work. There seem to be two options on the table: one is what is called enduring connector management, and the other is reverting to a wholesale auction of the existing and future grid. Clearly, the latter proposal looks very complex - but of course they are dealing with a very complex issue. I am satisfied that the companies have been working very hard. Our concern, of course, is that these discussions have been going on for quite some time and we need to see progress. One of my roles in the next few weeks is to make sure that people really are working hard to come to a solution. Ideally you want a solution that is owned both by the companies and Ofgem, but if that does not occur, then we will have to consider whether we need to take further action ourselves; and I hope that might be an encouragement to the parties to sort this out. Ms Hamid: I think you have covered most of it there, but where we, as Government, needs to come from is that these are issues that have been discussed for quite a long period of time. We have a connection queue building up. Clearly, our interests are to get a resolution sooner rather than later, because we obviously need to hit our renewables targets by 2020 and this grid access bill is a critical issue for new investors. We will be taking the advice that Ofgem will give us by the end of this month on where they think the process has got to. We are obviously in close contact with all the industry parties on this throughout the process and we will be taking our views on what should happen next in the light of that evidence. Q389 Mr Weir: Does that mean that if there is not agreement in the next couple of months, then the Minister will use his powers to intervene and impose an agreement on the parties? Lord Hunt of Kings Heath: Clearly, it would be much better if a satisfactory outcome were reached; but in the end we do have powers of intervention, and I would argue that that is an indication in terms of the original question that Mr Tipping asked me, about strategic leadership and vision. We do have the ability to do that, and in the end, if there is no satisfactory conclusion, we will have to intervene. It is not ideal. At this stage I would want to encourage the parties concerned to come to a resolution. I do want to assure you that I am by no means complacent. In my previous role in terms of energy innovation, I was in contact with a lot of the companies concerned with renewable energy. In every meeting I had with the companies, I think, one of the issues they raised with me was access to the grid. Given the challenge for all renewable companies in making accessible what they have to do, this is vitally important, and I understand very much the need for this to be gripped as soon as possible. Q390 Mr Weir: Can we take it from that, that there will be a decision one way or the other in the very near future? Lord Hunt of Kings Heath: You are pressing me a little harder than I want to go, because I do not want then to be asked to define what you mean by "in the very near future". I have identified that as an issue that needs to be sorted out as quickly as possible. I think people have been discussing this for a year and I think the time has come for a resolution. Q391 Sir Robert Smith: Is one of the problems the history of the regulatory regime whereby Ofgem cannot propose changes but has to wait for the industry to come forward with changes? Do you think that is something that could be changed? Lord Hunt of Kings Heath: I would like to come back to that when we see the outcome of the current discussions. Clearly, if government has to intervene, that would suggest to me that the Government's arrangements themselves might not be up to scratch. However, I do have to say that my general experience in other sectors is that if people want to make it work, they do make it work, whatever the Government's arrangements. Q392 Sir Robert Smith: What is the history behind having the rules set the way they are? Lord Hunt of Kings Heath: Since I have only been here seven days, I had better ask my colleague on that. Ms Hamid: The background to this is that it is industry that owns and runs the codes, so these are Government arrangements with respect to those codes. For regulatory certainty and stability this was all set up in such a way that basically it should be for industry at the edges to be sorting out those proposals and putting them in to Ofgem rather than the regulator imposing solutions on them from their field. As the Minister said, perhaps in this particular case that has not been the most ideal way of looking at what are some quite complex models. However, if two parties are willing to try and come up with something that can work, obviously the Government is flexible enough for proposals to be brought forward, which Ofgem might be able to accept. The broad principle is that this is a system that allows the stability for industry to know where the goalposts are, for them to be working within that. Allowing Ofgem more power obviously changes that balance and creates more uncertainty, which may be the way forward; but we look forward to seeing Ofgem's proposals in respect of this in a few weeks' time. We are expecting them to put to us a paper about what the Government's proposals might otherwise look like, and we will obviously consider those. Q393 Sir Robert Smith: For industry to make the current system would given them the probably best outcome, if they could show they could work under the current regime. Ms Hamid: As the Minister indicated earlier, these are very detailed technical issues, and looking from the outside it is not an area where Government wants to be involving itself on a regular basis, neither should the regulator have to be intervening on a regular basis on these matters. The idea would be that there is a system that is flexible enough for the broad policy objective to be met and followed, but that industry are able to proceed and take those things forward in a simple, stable way. Lord Hunt of Kings Heath: It is clearly not ideal for Government to have to come in with its own detailed proposals, which is why it is much more preferable for this to be resolved by the industry and Ofgem. Perhaps, given the signals that Government is prepared to intervene, it may well encourage them, I hope, to try and resolve this. Q394 Mr Anderson: For ten years Ofgem has been trying to get this to happen and the industry has basically said at first it was not even a problem; it did not accept there was a problem. What will happen if the Government has to intervene and the industry does not agree with the way ahead? Lord Hunt of Kings Heath: Of course, we have taken powers to intervene under the Energy Act. I do not think that our powers to intervene are in doubt. Q395 Mr Anderson: No, but what happens after that, I am asking you, if they say, "We do not agree with the process you are putting in place"? Lord Hunt of Kings Heath: In the end of course, Government will have to do what it has to do. Clearly, we are always subject to JR, and no doubt we would have to take our chances on that. Coming back to your original point, you will know that there is a huge queue at the moment. I think over 60 gigawatts are in the queue, and some dates have been given as late as 2023. Given the imperative is to make sure that we have a grid that is fit for purpose that is unacceptable. Clearly, we have to ensure that we have a much better process. The interim connector management is at least allowing for some very early, quick connections; so hopefully we are dealing with some of the immediate problems. Q396 Colin Challen: I wonder whether you are painting too black-and-white a picture of what the Government ought to be doing. You talk about not dictating and not micro-managing, but the challenge you face is that about 35 per cent of our electricity should be renewable if we are to meet our 2020 targets. That is in ten years, and we are still talking about writing scenarios and so on: would it not be good if the Government showed it was going to intervene a bit more? I wonder whether these scenarios show different levels of Government intervention, and what the pros and cons of those different levels of intervention would be. Lord Hunt of Kings Heath: I would rather not anticipate the work we are doing in relation to both the renewable energy strategy but also the summer strategy. The scenarios are looking at energy requirement and a possible mix. I think you are right to pose the question. Am I painting too black a picture in the sense that it is either being laid as completely hands-off or hugely interventionist. I hope I was not doing that, and if I have suggested it, let me correct that. I do think that Government has to intervene and make sure that the grid is fit for purpose. If you have a real problem of queuing in a way that is unacceptable, then we have to ensure that changes are made. Our preference, for the reasons we have already intimated, is for industry and Ofgem to come to a satisfactory resolution. As long as we are prepared to intervene, as I have said we would, I think that is the right signal. We would want to ensure as far as possible that people could sign up to it without reaching the situation that Mr Anderson has suggested, in terms of the companies having outright opposition, and we would want to consult extensively. I think that Government intervention can be relatively benign, given that parties are prepared to play ball; but, if not, in the end we will have to. Q397 Mr Anderson: They have not so far, have they? The fact that for ten years it is not an issue, and now all of a sudden it quite clearly is an issue, does not give you much confidence! It does not give me much confidence. Lord Hunt of Kings Heath: I would want to give you the confidence that I am determined that we will sort this out. We have to sort it out. As Mr Challen has said, moving from the amount of renewable energy we have now to the amount required in 2020 is a huge challenge. It is not only the grid, but there are many other issues that we have to face up to. Q398 Colin Challen: I am just wondering if we are really going to courageously tackle what I think is an institutional bias in the industry, which is about reinforcing what we have got rather than going out into the great blue yonder of renewables. That is where I think the Government needs to intervene. That is what I want to hear; how we are going to correct the imbalance in the industry, which obviously will go with what it is familiar with. If one looks at the comments of Vincent de Rivas, the Chief Executive of EDF, that bias is expressed at the top level in the board rooms. Lord Hunt of Kings Heath: There are two points. Clearly, the grid does need reinforcement; but to meet the challenge of renewables we have to see considerable extension. The Government knows that. We will require the system to ensure that the necessary investment takes place. That is why we have started with the transmission access review and that is why we co-chaired the ENSG group, and why we are looking very closely at the work by Ofgem in terms of the financial incentives that are required to get the extension to the grid. I am in no doubt about my responsibility to ensure that the grid meets the requirements. Of course, we may need to bang heads together and intervene as we have just discussed. I will not have hesitation in doing so. Equally, part of our role is to publish a vision and convince people we are serious about our renewables target, which we are. I am confident that we can then ensure that we have the right grid. Perhaps I can bring in my colleague to explain more about the detail work that has been undertaken on that. Ms Hamid: Thank you, Minister. It is important to state that we have already taken a step forward in terms of the way we intervene on the grid; so notwithstanding the outstanding question about whether or not we will get involved in dictating codes and licences, as a result of our renewable energy target we facilitated the ENSG work precisely because we could see that in order to get to the network that we need to deliver 2020 targets we needed to get people round the table and needed there to be a long-term strategic view in terms of how we will anticipate the investments we need, get the regulator to understand that that means they would need to take a decision within their current price control to allow for more spending by the transmission operators and to deliver what we need on time and for us also - and this was not something that happened before - to get all the companies into the room and set out a consensus view about what has to happen. As has been previously said, these issues that have been talked about in broad terms for a number of years but without any clear end goal in sight. With the introduction of our input to the renewable energy target for 2020 there is obviously momentum and a clear goal, and we can now bring people around that goal, to say, "This is what we need to achieve and this is what needs doing, what has to happen on planning and financial incentives." As the Minister has described, we have been talking to Ofgem to make that happen. We are quite clear about the facilitative role, emphasising the overall direction of travel and the timings involved - because one of the lessons of history on this is that things take a long time for decisions and changes to be made within the grid, in governance structures. We have got targets that are time-limited and clear, very stretching targets that need to be met, and so the Government has got people to start working on those. I think we have made good progress this year, and a lot of participants in that process, particularly ENSG, have been very clear that that is now a way of working that we will want to take forward and continue. We are committed to working through that group and others to make sure that we continue to tackle these issues. I am sure we will come on to this later on, but we have also started to talk to ENSG about the smart grid future as well; so we are not just talking about new investments but how you use those networks. These are all issues, using that model, of Government saying, "this is what has got to happen; this is what the challenge is", bringing people to the table and getting them to focus on a broad consensus view about what that means for them in the way forward, and I think we will continue to use that in the coming years. Chairman: We will come on and talk about smart networks in a while, but we will talk about charging now. Q399 Mr Weir: One of the old chestnuts is the transmission charging regime. What do you think of extension network charges for generators being determined by location? Lord Hunt of Kings Heath: I realise that there is considerable debate about what seems to be called the transmission signal. Clearly, the basic principle is that cost should reflect charges, to encourage the efficient use of electricity. Clearly, the more use that is made of the network, the more the transmission charge should be. I will bring my colleague in on the theology of this. I know this has been raised particularly in relation to renewables and the distance that has to be travelled. The key for me is: does the transmission charge inhibit the development of power generation from remote areas? That is not my experience so far. I am not sure that any convincing evidence has been brought forward. I have met a number of companies in the past few months, particularly in the renewables sector, and they raise three things. One is access to finance, which clearly is very difficult at the moment. The second is access to the grid, which we have already discussed, and which they have always seen to be a major problem. The third is planning issues. I cannot say that transmission charges have been raised with me as an issue. Q400 Mr Weir: You have already mentioned the very challenging targets for renewables, and the fact is that many renewable generators are in areas that are further from centres of population; so it is likely to become an increasing problem, both in strengthening the grid and in the course of bringing the electricity to market. Do you think that in the particular instance of renewable generators and the targets we are working to, that locational charging needs to be looked at again? Lord Hunt of Kings Heath: I would like to see some evidence that suggests this is an inhibitor to the development of renewables. If anything we are saying that a lot of renewable companies want access to the grid and they cannot get it; so that does not suggest to me that transmission charges themselves are the issues. Although you were talking about offshore renewables from a long distance from centres of population, you have to remember that there are other renewables. We are talking, I hope, about a big expansion of onshore renewables, often where they will be much closer to populations. If you got rid of the way in which the transmission charges work at the moment, you would reduce those costs; but there would be an increase in transmission costs for those closer to centres of population. I do not think this is easy, but the key question for me is: where is the evidence that the current charge regime has a negative impact on the development of renewables? My colleague might want to talk about the philosophy behind that. Ms Hamid: As you have already said, Minister, we need to have a system that
is cost-reflective in principle so that we can ensure that consumers are not
paying more than they need to get these network assets in the ground; but also
that we make sure, as the Minister has already said, that these do not prove to
be an inhibitor to investment. Somebody
has to pay somewhere in the system. If
we do not have a signal that helps people think in some respects about how and
where they will locate their plant, then there is a risk obviously that we get
too much investment in areas across the system that are too far from
demand. We have to remember also that
these charges apply to all generation, not just renewables. We do not want gas stations being put in the
north of Q401 Sir Robert Smith: Has the Department done any calculations of how much the consumer has benefited from locational charging? Ms Hamid: We do not have a figure to hand, but I am sure we could get you some. Q402 Sir Robert Smith: It would be interesting. You are saying it is for the benefit of the consumer, obviously, but it has been a small part of the Bill. Ms Hamid: The locational element of transmission charges is around 15 per cent. Transmission, as a percentage of overall consumer costs, is between 3-4 per cent; so we are talking about quite a small element of a much larger cost to the consumer of the various elements of the energy system. In terms of the detail of whether compared to another scenario where we can show the benefit to consumers, I do not have those figures to hand, but we can certainly look into that. Q403 Chairman: Ms Hamid: Yes. Q404 John Robertson: Can I go back to the evidence you say you have not had? Minister, what is the likelihood of somebody giving you evidence if they are receiving a great deal of subsidy from the Government and in effect being helped to produce new elements of energy? They are unlikely, are they not, to complain about the connection charge? Lord Hunt of Kings Heath: My experience of meeting these companies, whom I admire and am delighted that they are in business, is that they are not backward in coming forward with complaints about lack of support and the problems them face. Because of my energy and innovation hat, I have met with a lot of these companies and as I was saying earlier, there are three issues they consistently raise. One is the issue of finance at a time of the credit crunch. There is no doubt about it that the renewables sector is having issues about raising funding. The second is planning problems, which they consistently complain about. The third one, which in many ways is the issue we have discussed, but which they raise more often than anything else, is the problem of grid access. They have not raised the transmission charges with me. They are not reluctant to complain and talk about their problems. If we see some hard evidence, then of course we would ensure that that was considered by Ofgem, but at the moment there is nothing I have got to suggest people have identified it as a particular problem. Chairman: You have just mentioned planning problems, and we are reminded that the Planning Bill is going through the Lords - a Herculean task! Let us focus on that for a moment. Q405 John Robertson: Minister, we are about to put in place, under the 2008 Act, an infrastructure planning commission. They are going to use as part of their deliberations, as it were, the national policy statements, of which six are applicable to energy. Can you tell me when they will be ready, and when we are likely to get a look at them? Lord Hunt of Kings Heath: We are hoping to have most of them, as drafts, out in the autumn. The intention is that subject to consultation and of course the parliamentary process that you have to go through, they can then be fully up and running in 2010. Clearly, these are vitally important in terms of getting a much more cohesive and planning system, and dealing with some of the terrible delays that people have found in the past, whilst ensuring that the considerations of the public are fully taken into account. That is the timetable we are working on. We are working very hard at the moment in the Department and across Government in putting the drafts together. Q406 John Robertson: What about the one on nuclear? That was always the one that was holding everything up. Lord Hunt of Kings Heath: I cannot give you a definite date, but we are hoping to make very good progress on that. I take the implication of what you are saying, that we cannot mess around on this. Equally, we have to make sure they are right; but we have this draft processes and we are getting on with it. Q407 John Robertson: We keep getting this promise of autumn, but when I asked the Secretary of State this very question, "what is autumn?" we managed to get to December! Lord Hunt of Kings Heath: I do understand this problem of definition of dates. I would be very disappointed if December turned out to be DECC's autumn. I cannot give you an absolute commitment. I will endeavour, if you let me take this back, to write you as positive a letter as I can about it. Believe you me, it is not in our interests to dilly-dally on producing these NPSs; we want to get on with it. Q408 John
Robertson: In the planning set-up we have
had, particularly in Lord Hunt of Kings Heath: The complaints I have had is that it can sometimes take years. Q409 Chairman: Ten years! Lord Hunt of Kings Heath: Yes. Not only is that incredibly frustrating for people making applications, but in terms of making investment decisions it is very, very difficult. I am not arguing against due process; and whatever system we have, it is important that objectors are heard. The importance of what we are doing is that we are acknowledging there are these hugely important nationally significant infrastructure schemes that should fall to be dealt with in a strategic way; that the development of national policy statements allows Government to set the strategic framework in which decisions are made. I believe that it can allow for a transparent open system to be followed by the IPC, but the public can also have confidence in the independence of the IPC in making decisions. I think that this is a very sensible way forward, which I hope will give a lot more confidence to everybody that we have an effective planning system. Companies and investors will get the benefit, I believe, of much quicker decisions. You will know that we are giving an indication that the process should take about a year, and that ought to give great comfort to everybody. It does not mean to say that there will not be difficult decisions, and none of us should run away from the fact that when you are seeking planning consent for major infrastructure projects, there will be issues from local people; but at least we have a much more rational approach to it. Q410 John Robertson: You are going to have to deal with two different planning bills, one north of the border and one south. We have seen with the Beauly-Denny Line, which started in 2001 at conception, that we are now talking about 2012, and some people say even later, when it will be completed. That is eleven years at least from start to finish. The Scottish Parliament has a different planning bill; have you looked at what they are suggesting, and are you talking to the Scottish Executive on the good bits you want to try and copy? Lord Hunt of Kings
Heath: Yes, we are. I have recently completed the Marine Bill in
the House of Lords, and of course a lot of our debate was about how the
different countries of the Chairman: We talked earlier on about offshore and issues of connection. Q411 Charles Hendry: Minister, clearly offshore wind is going to be integral to the government's renewables strategy. It is facing significant difficulties in terms of getting the funding, in terms of the availability of the ships, the cranes, and the skilled labour. I want to talk about the role for Government in trying to make it to facilitate the investment that is necessary. We have had some very eminent academics who have told us that they think the best system would be point-to-point connections between the offshore facilities and the grid. We have had business, including the National Grid, come to us and say that that is wrong; that there should be high voltage offshore DC cables, and that Government probably needs to take the lead in getting those in place. Which side of that debate do you come down on? Lord Hunt of Kings Heath: I am not trying to dodge it, but we think that although clearly in the work we are doing in relation to the offshore licensing regime we have shown some support for the point-to-point connections, clearly in the end this ought to be a commercial decision. The reason that we have shown some favourable steer towards point-to-point connection is because we think it is more cost-effective, and we also think that Ofgem is very shortly to kick off the new licensing regime for offshore, inviting tenders, and we think that the approach we are taking, which is to encourage innovation and competition but retaining the integrity of the National Grid, is probably the right approach. I am not at all convinced of the need for Government financial intervention in relation to the offshore access. I do think that it is a matter for commercial operators in the end. Q412 Charles Hendry: When they gave us evidence, the National Grid said about the point-to-point approach that this could lead to sub-optimal network design, higher costs to consumers, and delays to connection of offshore generation. Do you believe that they are wrong in that assessment? Lord Hunt of Kings Heath: Yes, I do believe that they wrong. I believe that the arguments for point-to-point in terms of cost-effectiveness are strong; and also it could be that National Grid were not entirely happy with our decision to have a competitive approach. Frankly, I think it is a very good thing to have a competitive approach; but of course National Grid retains its role in ensuring the integrity and the connections of the whole system, so I think it is a good outcome. I am confident in the decision. Ms Hamid: Chairman: We talked about embedded generation earlier on, and you were particularly fulsome about feed-in tariffs. Another member of the Committee who has been very keen on feed-in tariffs is Alan Whitehead. Q413 Dr Whitehead: The present position with distributive generators - and obviously this may change as distributive generation increases - is that at the moment they are pretty much all embedded in the distribution network, and avoid wider transmission charges thereby. Ofgem is proposing that those embedded generators start to move to a gross charging system, and thereby incur wider transmission charges. Are you with Ofgem on this, or do you think that the benefits of embedded generation and the fact that they do not, by and large, spill in to the transmission system should excuse embedded generation from such charges in the future? Ms Hamid: The issue here is that charging issues, as we were discussing earlier, in terms of transmission, need to be proportionate, and there has to be the right mix of incentives across the system. In a system where we are expecting to have more distributive generation across the piece and in the coming decades much more intensive use of that generation flow in two ways, and there may be arguments for therefore looking at whether or not embedded generators, which after all we would also expect to be quite substantial in terms of their size - our feed-in tariffs will take up to 5 megawatt units for example - so clearly we are looking to bring forward a lot more of these distributive generators. They will be required to take power in two directions, sending it up on to the transmission system - and there may be arguments for looking at this again. However, we do not think there is evidence at the moment that that should be the case. We are leaving the detail of this issue at the moment to National Grid and Ofgem. Having said that, we are looking this year to work with ENSG on the smart grid and what that may mean. Through looking at some of those issues, it will be clearer across the piece what sort of regulatory charging and technology policy issues we will need to look at in order to deliver the kind of smart grid that large amounts of distributive generation will be a large component of in the future. At that point, once we have better clarity about what we are envisaging and what the barriers and some of the costs and benefits may be, then the charging issues should be considered as part of that. Q414 Dr Whitehead: Forgive me - you said you think there is no evidence of spill-over to the transmission system at the moment; but you then said that you would therefore leave it to Ofgem and National Grid. If you left it to Ofgem and National Grid, presumably gross charging would come into play. Ms Hamid: There is not evidence that we have seen that the way the charging works at the moment is a barrier to that spill-over. When I said that there would be more spill-over going forward, that is because we would expect to have much more distributive generation on the system. Therefore, on a network with a lot more DG capacity, there may be a case for looking at whether the charging principles as they stand at the moment are right. As I said, we need to look at that in the broader context of where we want to be going with distributive generation, with the DNOs, with the regulatory framework, with our technology policy, so in the broader mix. At that point we can then examine whether or not charging issues are fit for purpose, and at the moment we are not getting involved in that. Lord Hunt of Kings Heath: Clearly, we will look to see more distributive generation in the future, and whatever charging system comes out in the end we would clearly not want to disincentivise that development, which is hugely encouraging, and why the decision on FITs last autumn was the right one, and one that I was delighted we were able to make. Q415 Dr Whitehead: If indeed we do have a lot more distributive generation then the distribution system itself, which tends shall we say to point one way at the moment, may well then come under review, not only in terms of the question of charging but in terms of whether the system needs to be strengthened. I imagine that consideration will then be given to the combination of what measures need to be undertaken to strengthen the distribution system and how those are set against the undoubted benefits of having a much greater level of distributed generation within the system. Do you envisage making progress towards a more permanent system of distributed charging and to what extent might that incorporate what needs to be done as far as the distribution system itself is concerned? Ms Hamid: As I
mentioned, we will be doing some more work on what we are calling our vision
for the smart grid this year, and a core element of that is obviously to look
at how we will manage the increase in distributed generation that we expect,
what that means in terms of what the distributive generation network operators
currently are able do to and what the existing assets are able to do, so what capability
is there already on the network to use power to flow two ways. As you said, at the moment it tends to be a
passive network but with much more distributed generation and increasing use of
electric vehicles, much more intermittency on the system, the use of demand
side responses, smart meters, all of these suggest much more volatility all the
way down into the distribution networks, which would pose significant and new
challenges to those distribution network operators. As part of our work on looking at what might
the smart grid mean and what we need to do to gain the benefits of smart grid
capability in the Lord Hunt of Kings Heath: I do think this is a challenge that we should welcome because clearly it could be very beneficial. You have the distribution price control review at the moment that Ofgem are undertaking. You also have their work on RPI-X@20, which also will allow Ofgem to look at distributive generation issues as well. Alongside our work on smart grids I think that we can ensure that we have got the mechanism to look at these issues and make sure we come up with something that meets the requirement. Chairman: Let us move on and talk about innovation and the smart grid. Charles? Q416 Charles Hendry: Particularly looking at smart meters in relation to that as well, I think everybody was very pleased when you accepted in the House of Lords that the MGF should be changed and that smart meters should be part of that with an intended target for 2020. Is there more that could be done to roll this out faster? Everybody we talk to - the industry, consumer groups, environmental groups - are all saying 2020 remains pretty unambitious and that more should be done to get it in place by 2016/17. What more could be done to make that happen? Lord Hunt of Kings Heath: It was a great joy to be able to introduce the changes in the Lords on this and they were widely welcomed. I think all of us can see the benefit of smart meters, not just in terms of being a foundation to a smart grid but just enabling customers to make more effective use of the information that they can have and hopefully benefit from the ability to have much more control over their own energy use and requirements. I think that Ministers too would like to have an ambitious timetable but we have to recognise that this is a formidable challenge to replace all current meters by 2020. The decision was made last autumn. We are doing a lot of work on it at the moment and of course we will come forward with detailed proposals in due course. Can I say that I do understand the enthusiasm that there is for a speed up but, equally, at this stage I am not really in a position to say any more than that. We are of course consulting on the delivery model which in itself is a highly interesting point. Do we think that smart meters have a lot to offer? Yes. Are we keen to get on with it? Yes. But we do think it is formidable and that is why when we made the decision to go for smart meters we were very clear to say that we thought it had to be done over a ten-year period. Q417 Charles Hendry: Can I ask you as well in relation to smart meters and smart grids how you win the PR battle? The Daily Mail had a headline a while ago saying now the Government wants to put a spy in your fridge, so there is a degree of suspicion which may be there whereas for many people we think there are going to be incredible benefits in terms of enabling them to choose a lower or more favourable tariff by using off-peak power and the smart grid will have incredible benefits in terms of managing demand. Does the Government have a vision for that and how you are going to win people over? Lord Hunt of Kings Heath: We are very much working on it. I agree with you, one of the joys of my new role is that I am no longer 'Minister for Light Bulbs' and therefore no longer have to respond to the Daily Mail's issues around that. It is interesting to comment that in the previous few months before they had their campaign that they were offering advice to householders on how to save money and suggested they buy energy-saving bulbs, but I say that in passing. I think that we have got to get the communication right and of course a lot of the argument about the delivery model is ensuring that we have a very robust communication system. Of course it is two-way because clearly whilst there is a lot of information that will become available to us as consumers, equally information that goes to the companies and the grid allows us to operate a much more efficient and effective energy system and we do have to put that across. However, already there is information that you can have which shows your electricity consumption in real time and I have known people who use that who find it immensely helpful. It has led to people changing some of their habits. I think that the advantage of smart meters is people will readily see that it really puts them in control. I think the Committee will be aware that the work that has been done in terms of switching shows, if I remember rightly, 40 per cent of customers who switch either got no benefit or actually ended up paying more. Clearly we have real problems in terms of the public's understanding and the accessibility of information. Here with smart meters is a fantastic opportunity to give individual members of the public much more control and that is the way we have to sell it. I think also the more people understand - and I believe we are reaching the tipping point in relation to people's understanding about climate change and why we have to move to a low-carbon economy and why we need to do everything we can in relation to energy efficiency - then people will increasingly see this as a tool which is valuable in their own homes. Q418 Chairman: Alongside rolling out smart meters there is a desire to roll out energy efficiency measures. Could the two programmes be brought together? Lord Hunt of Kings Heath: I certainly think that we need to do everything we can to encourage energy efficiency and there is absolutely no reason why in terms of the kind of information that will have to be given to individual householders that we can use that as a way of reinforcing the need for energy efficiency. You will be aware, Mr Tipping, that my Department is doing a lot of work at the moment. There are two things, first of all it is encouraging people to look at the way they use energy and just in our individual decisions to be much more efficient. Equally there are issues about how do we make homes and how do we insulate them. Those are very hard issues and once the low-hanging fruit has been plucked - and we are getting to that - how do we deal with homes where it is not so easy. Those are big issues which my Department is dealing with at the moment. I think the whole thing goes together. Q419 Judy Mallaber: Overall why do the network companies have such a poor record on investment in research and innovation? Lord Hunt of Kings Heath: I do not know if you have got the figures. The figure I have got is something like for the last year 2007-08 the National Grid invested 3 million and the distributive companies invested about 12.1 million. It does not seem very high. I think the kindest interpretation is that it reflected a rather static situation. Now we are moving into a very much more critical and exciting period in terms of both the grid itself and the distribution companies, and clearly I would want to encourage more investment. My understanding at the moment is that as far as the distributive companies are concerned that Ofgem will allow them to invest £100 million. They are not doing that; they are investing about 12 million. I also understand that Ofgem consider they could increase that limit to 500 million. I have to say that we would very much encourage that, but looking to the future, looking to the discussion we have just had about distributive generation, looking at the implication of smart meters and smart grid, this is the time when we need innovation. We will do everything we can. We will encourage Ofgem, too, to make it as easy as possible for companies who wish to invest. Q420 Judy Mallaber: Do you have any mechanisms other than trying to persuade them? Secondly, should not the Government itself be investing much greater sums in smart grid technologies? Lord Hunt of Kings Heath: I am not sure that it is for government to do that. I do not see why industry as a whole should not be investing. After all, this is going to give them huge opportunities in the future. Clearly we need to look at incentives and my understanding is that Ofgem in the RPI-X@20, if I can call it that, that is one of the issues that they are looking at alongside how to encourage major investment in the grid. Government as a whole is setting the conditions. The development of DG, smart meters, smart grid, these are huge challenges and there is a huge amount of investment that will be required. We want a competitive industry in which those who innovate do best out of it. That is what our role should be. Q421 Judy Mallaber: So there is no role for government in trying to complement what the companies are doing and what action are you actually going to take when you meet the companies to tell them to get on with it? Lord Hunt of Kings Heath: I am quite happy to tell them to get on with it and to encourage them down the innovation route. I still believe that our main role is to set the right policy, to get the consultations going, for people to understand how we are going to introduce smart meters, how we are going to develop the smart grid, to ensure that Ofgem in their @20 review get the financial incentives right. I believe that is the best approach. Q422 Sir Robert Smith: We had evidence on network ownership and the structure and history has given us three different owners of the transmission network. Does the Government have any plans to look at unbundling? Lord Hunt of Kings Heath: There are two
issues there, are there not? One is the
question of unbundling in relation perhaps to the European Directive. The other is the arrangement we have
now. I am not aware of there being
substantive evidence which suggests that the current arrangement for the grid
does not work. As you know, the National
Grid has an overarching responsibility for ensuring the integrity of the whole
grid. I think it could be argued there
is some advantage in having more than one company involved. I see no reason why that should be
changed. On the issue of unbundling,
which affects the two Scottish companies in relation to the European Directive,
my understanding is that we have a derogation that if they can show that their
arrangements are better than the options that are in the Directive then they
can argue their case with Q423 Sir Robert Smith: Do you think in the long run the distribution networks and transmission networks will merge? Will there be such an obvious boundary between transmission and distribution? Lord Hunt of Kings Heath: Perhaps I could ask my colleague to comment on that. Ms Hamid: This comes back to what we were talking about earlier about this smart grid. First of all, once we are a little bit clearer about what it actually needs to do, the question then is whether the regulatory framework, which does split the responsibilities between the transmission companies and the distribution companies, is fit for purpose. Clearly it is an open question whether that type of arrangement in terms of that sort of split and/or the way the incentives are put together in terms of what the National Grid has to do and consider and what the distribution networks have to do and consider would probably need some review, but I think that is all that needs to be done in respect of some better clarity on what we think we need to do to get the smart grid capability that helps deliver our energy security and climate change goals. Lord Hunt of Kings Heath: I think there is a balance to be drawn. We have shown with the offshore licensing regime that we are prepared to be innovative and to bring in new arrangements. It will be interesting to see how that works through and having learned lessons from that whether we should look at that in the context of other parts of the grid. At the same time we need stability too because companies need a degree of certainty in terms of the big investment decisions that need to be taken. I think it is important that we try and give as much certainty as possible but that we do retain flexibility so that if we have to change the arrangements around the whole regulatory system and the way companies operate then we have to be prepared to do so. We have to have a certain degree of caution about not causing uncertainty and then stopping the right investment decisions being made. Chairman: We just talked about the European aspect of this and interconnectivity and the notion of a supergrid which has been talked about quite a lot. Colin? Q424 Colin Challen: There is quite a lot happening on this front. I think the European Commission is taking a very serious interest. We saw this week an announcement by several very large German companies to form a consortium and there is a great deal of talk on President Sarkozy's initiative on the Mediterranean Union. How involved are we in this proposal? Lord Hunt of Kings Heath: We are very
interested and we will obviously want to get involved. If I could start with the Q425 Colin Challen: Cost-effective as compared to what? In climate change terms it is sometimes difficult to price things probably, the carbon price and so on, so do you have any comparators in mind? What might offer better cost-effectiveness? Lord Hunt of Kings Heath: What are the
choices for the Q426 Colin Challen: It looks like, whatever happens, we will have more interconnectivity with the European markets? Lord Hunt of Kings Heath: Yes. Q427 Colin Challen: Can that happen if they do not liberalise a great deal more? What are the problems that would be associated with greater interconnectivity and the impact as to what extent markets are liberalised? Lord Hunt of Kings Heath: We obviously supported the third package because we believe that
European policy needs to liberalise. It
is one way that we will get over some of the problems that Q428 Colin Challen: If it was found that the proposal for a supergrid was cost-effective
and there were no technical problem, do you think that nevertheless there would
be insurmountable political problems?
People talk about connecting up with solar from Lord Hunt of Kings Heath: I think it is
a very good question. Clearly I have
seen the reports about the potential of solar coming from Sub-Saharan
Africa. As we know, cross-country
pipelines in countries where political stability is not always there does
present a risk but nonetheless I do not think we should allow that to
completely rule out consideration of a supergrid, and we are not doing
that. I think it is too early for us as
the Q429 Dr Whitehead: Could I return to the question of cost-effectiveness particularly in
the Ms Hamid: Just to
develop on what the Minister said, we are in active discussions with Member
States who for example are interested in looking at interconnections for
offshore wind generation plant over trans-boundary water, so we are speaking to
the Dutch for example about a particular project. We are not standing back and just waiting for
somebody to produce a report at some point in the future. We are discussing specific projects with
countries who have got an interest in developing the network to procure that
generation, thinking about what the regulatory/technical issues are around
that. However, at the same time, in
terms of a broader strategic view about whether we as the UK want to invest a
lot of money (because the private sector will build it but it will be charged
back to consumers at the end of the day) what we need to do more work on is how
the cost of, say, procuring more renewable energy through the North Sea
Supergrid compares to other ways of managing our security of supply, for
example, developing more storage facilities and capability or investing in more
sophisticated energy efficiency measures.
The cost/benefit analysis of that needs to be done in a broader sense. Notwithstanding that, we are still working on
specific projects. As the Minister said,
we are a member of the working group on the Lord Hunt of Kings Heath: The term supergrid is very alluring obviously, but I think we just need to have our eyes open as to what we are getting into and what the potential might be. Chairman: Finally I would like to turn to the workforce. To make all this happen you have got to have a skilled workforce. Judy? Q430 Judy Mallaber: The DECC memorandum to the Committee referred to the problem of the skills gap in the network sector and specifically also to the ageing of the workforce. Do you think current action by the industry and Ofgem is sufficient to address this? Lord Hunt of Kings Heath: I think you are right to raise this because I think the work has shown that we have got a retirement peak coming up to 2023 and clearly we need to bear that in mind. My understanding is that it is estimated that 4,500 new recruits need to be trained and another 4,500 members of staff need to have their skills raised. It is important that we do so. The Sector Skills Council is very much engaged on this task and I understand the companies too are looking at introducing bursary schemes themselves and of course the apprenticeship schemes too can play a part. My understanding is that the industry is aware of the issue. They understand it and they know they have got to deal with it. The Sector Skills people also are very actively involved and at this stage I am confident that they are gripping the issue. I think there is a more general issue here because you could have asked me the same question about other parts of the energy sector. I was in Aberdeen yesterday in terms of North Sea oil and gas and, interestingly enough, four years ago when I went as Health and Safety Minister they were very concerned about the ageing workforce, but I was getting a much more optimistic picture about people prepared to come into the industry. Then you think about nuclear and then you think about coal and CCS. It is a fantastic sector. Over the next ten years with this huge expansion for young people and people with skills that can be translated into this sector, the opportunities are huge. We in government have a role to make sure that the Sector Skills Councils and the industries themselves are doing what they need to do. The industry itself needs to start promoting itself more. The whole of the energy sector needs to get across much more, particularly to young people, that there are these huge opportunities. Also the challenge of course for government is in schools too and the work of DCFS on their programme to encourage young people to continue with their maths, science and engineering. It is absolutely critical for our country's future that we do this. Can I say obviously these are very early days for me but it is a matter on which I feel very passionately. I will be very concerned to ensure that we are going to make sure that we have enough people with the right skills. I also want to ensure that that applies to the supply chain as much as it does to the network companies. Q431 Judy Mallaber: Can we take it from that that you are going to be in early discussions with the DCSF and the Department for Business, Information and Skills, particularly about attracting young people not just into science and technology but also specifically into the power industry. Would that be a role for you as Minister? Lord Hunt of Kings Heath: I very much
see that as one of my roles. We need the
industry to do a lot themselves. I think
they need to be up there and much more proactive. They have got a great offer for young
people. Interestingly enough, we might
have wondered whether a young person should go into Q432 Sir Robert Smith: Can I thank you for your early visit to Lord Hunt of Kings Heath: And thank you for your welcome to my appointment. Q433 Judy Mallaber: Now we have got that out of the way, has the Department actually identified any specific strategic areas where we need investment in skills? Is there any way where that can be channelled other than us just having a grand statement that this is what we want? We have high unemployment at the moment, we have more people out of work, we want retraining, and we want opportunities for people to come in. Is there a way of channelling specifically into those areas where the skills investment is really needed? Lord Hunt of Kings Heath: Perhaps I could bring in my colleague. I think it is a very good question because clearly this is the time to be very proactive in ensuring that people who are employed now or facing issues know that here is a new sector emerging and clearly it does call for a certain amount of leadership. Ms Hamid: I think in terms of what are the strategic areas, as the Minister said, this is an issue that faces the whole of the power sector, but the key issues are, as we submitted earlier, we need to ensure that there is an attractive recruitment offer and that there are first of all enough people studying physics, chemistry and electrical engineering at university so that we have got a pool of graduates from which to recruit to get into networks. A lot of the maintenance work and jobs in the network sector are highly skilled so there is clearly a need for a lot more of a focus on training these people up and keeping them within the sector. As you have mentioned, there is obviously an opportunity at the moment given the downturn to try and bring in people who have got transferable skills of which there are many that could be applied in this industry. The recruitment side of the issue is something that the Minister said is really for the companies to be thinking about, but we in government through our education policies, through the work that we do with DCFS and, arguably now with DWP, on looking at where our new job opportunities are going to be is something that we can be focusing on. Lord Hunt of Kings Heath: I wonder if it would be helpful if I wrote to you with some more details about our work across government on this. Q434 Judy Mallaber: Just by way of example,
post 9/11 Rolls-Royce, a major large company for me, obviously had cutbacks in
the workforce and our Aberdeen MPs were suggesting that their skills would be
transferable into the oil industry, but it was not clear that there were
obvious mechanisms, so it would be helpful if you can give me any indication of
how that might develop in the future where we have that sort of situation. Just one final thing, what is the role of the
Ms Hamid: It is an
employer-led organisation so they are there to get consensus for an
industry-wide programme that deals with these issues that we have been talking
about so, they work on developing training programmes which are shared between
the companies, identifying the skills and the training that needs to be done,
both within companies as well as on the recruitment of people into the
sector. They will be launching this
October and at the moment the plan is for them to build on the existing
training centres and facilities that are already available in the various
companies in the sector and to give it a more co-ordinated focus, so building
on the facilities that are there, getting a clear focus. They have targets for example for how many
people they need to recruit and upskill within the next ten years. I think that the key issue is this is
actually business critical for the industry.
If they are not successful in getting the people they need and the
skills they need there are real questions about whether they can survive. I think we can see that they are working at
establishing a Lord Hunt of Kings Heath: Plus we have got to recognise that we have got some highly skilled people in the energy industry. I think it is noticeable how exportable those people are and I think we need to really build on that. Q435 Chairman: It was very remiss of me at the beginning of the meeting not to
welcome John Overton and Lorraine Hamid to the meeting but thank you both for
coming and supporting us all. I feel
that it has been a very useful session.
I am sorry we have dropped on you in the first week into a changed role. You have promised us one or two bits of
paper, in particular national policy statements and an early indication on the
timetable on that would help our work as well if you are able to help us. Can I thank you very much for coming and
thank Lord Hunt of Kings Heath: Thank you very much indeed. |