House of COMMONS
MINUTES OF EVIDENCE
ENERGY AND CLIMATE CHANGE COMMITTEE
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Taken before the Energy and Climate Change Committee
Paddy Tipping, in the Chair
Sir Robert Smith
Dr Desmond Turner
Dr Alan Whitehead
Memoranda submitted by DESERTEC
Dr Gerry Wolff, DESERTEC, Mr Derry Newman, Chief Executive, and Mr Jeremy Leggett, Chairman,
Q321 Chairman: Can I welcome David Matthews and Howard Johns from the Solar Trade Association, Gerry Wolff from DESERTEC, and Jeremy Leggett and Derry Newman from UK PV Manufacturing Association. Thanks for coming. You have come at a very topical time with the discussion on green tariffs and the implications for your industry and we will spend quite a lot of time talking about that later on because I know there are strong and different views around this and it would be helpful to tease that out. Perhaps I could start by asking you about the financial stimulus package that the Chancellor produced, the green part of it, and how far it has helped the solar industry.
Mr Leggett: In general, of course, this
is a disappointment to us. Just 0.6 per
cent of the £20 billion goes to green measures, which is a fraction of a
fraction of one per cent of GNP and I guess I will be speaking for quite a lot
of people in the new green industries if I say that this is a disappointment if
you look at what other countries have been doing in terms of their green new
deals. Given the enormity of our
challenges with climate change and energy security and interfacing, we have to
chalk that up as a disappointment. As
you may know, in one of my extra-curricular activities I am part of this green
new deal group of economists and business people who produced a paper in July
2008 under the auspices of the New Economics Foundation ahead of the crisis,
which talked about the need for a green deal and what we could do there and
other disappointments and that contrasts between our use of oil income in this
country and Norway's. I guess everyone
knows the statistics there. On the
principle that it is never too late to start, we were thinking in that group that
there is still scope for some kind of windfall income to be brought to the
stimulus process, the green new deal process, from North Sea income above a
certain oil price, and obviously, if the oil price drops below then that will
bring an outcome of its own. Interfacing
between the green stimulus and the feed-in tariffs brought a wonderful
opportunity to get people going in these fast-growing job-rich industries, of
which PV is just one, our main activity at Solarcentury, and I suppose that
foreshadows the disappointment that we have that the targets have been tuned so
low with the feed-in tariff when we see so many exciting things happening
elsewhere in the world. Here I speak as
someone who sees this two ways. I
personally see it in my day job and working with
Q322 Chairman: So if you were not in the New Economics Foundation, if you were designing a package, what would you put in it from your prescription?
Mr Leggett: The full package for the prospectus?
Q323 Chairman: Yes.
Mr Leggett: We would have to start with energy efficiency. There is so much scope there. I had the privilege of giving a speech at the government's job site to business leaders who were invited to give their perspectives, and, rather than repeat everything I said in that speech, I would be very happy to send a referenced version of the speech to the Committee. To distil the thoughts that I offered there, energy efficiency has vast opportunities and we are not here to talk about that, so let me not go into detail, but a street-by-street, house-by-house programme of energy efficiency would be a great way of starting and that would maximise the bang for the buck that we and others in this industry could all bring from our various technologies and reduce the size of the challenge. These are job-rich industries in energy efficiency and downstream renewables. I think I would rather keep the answer generic if I may.
Q324 Chairman: We will look forward to that. Colin is going to chip in in a minute but just in your own evidence you said that solar is a forgotten technology. Sketch that out a bit for us.
Mr Leggett: It is forgotten in the
Q325 Colin Challen: I just wonder for the record whether you could say what you think the potential for solar PV is in the UK as its contribution to our overall domestic electricity needs.
Mr Leggett: There are two answers. There is the silly answer, which is the full
theoretical potential, and then the practical answer. The silly answer is that if we put solar
photovoltaics of existing efficiency on all surfaces of all buildings, which of
course is a fraction of the land area and not including solar farms in the
scrubland and so forth, we could provide more electricity than the electricity-profligate
nation currently uses, specifically 460 terawatt hours, and the Photovoltaic
Manufacturers Association have done that calculation. It is all referenced in the evidence that you
already have. We are not advocating that
that be done, of course, because our technology is not a magic bullet; there
are no magic bullets. We are merely one
important member of a family that has got a considerable amount of breadth. As for the answer to how much, at minimum our
industry association, the European Photovoltaics Industry Association,
calculates that on current trends we could be contributing six per cent of
electricity in the
Q326 Sir Robert Smith: I wonder if you could expand on that a little because obviously the conventional wisdom is that on a nice sunny day you get lots of effect but at night none. What would be that percentage effect seasonally and weather-dependent?
Mr Leggett: I can speak from personal
experience here. I lived in the
country's first solar roof tile home for more than a year with constant
occupancy all through that year. It was
a two-up, two-down in
Q327 Chairman: Mr Johns, do you want to comment on that?
Mr Johns: About solar thermal?
Q328 Chairman: Yes.
Mr Johns: The effect of the Green
Stimulus package on solar thermal this year is the same; there has not really
been any. We have not seen any impact of
the Green Stimulus package on our industry, and solar thermal also is a much
underestimated technology in the
Q329 Chairman: So what needs to be done? What is your prescription?
Mr Johns: Currently what is being
worked on is the renewable heat incentive.
We could have done with it coming in at the same time as the feed-in
tariff. We understand that there is more
complexity over a heat incentive, and in fact it has never been done across
Europe so it is quite an ambitious project that DECC have undertaken, but we
need that to be suitably generous to really kick-start the industry and also to
encourage diversification in the industry.
Currently, when people think of solar thermal in the UK, they are
probably thinking of two to four square metres of panels on your roof to do 50 to
70 per cent of your domestic hot water needs over the year, whereas in
continental Europe, let us say in Sweden, Denmark, Germany, most houses are
having ten to 20 square metres and it also feeds into space heating, so in
Germany you are getting a 50 per cent solar house already, which is where we
need to be aiming. You are also seeing
things like district heating schemes being run from solar thermal and more cost
effectively than running them from any other source of heating, be it biomass,
gas or ground source. This is the sort
of stuff that most people in the
Mr Matthews: It is not just the incentive. We always talk about a systems approach to growing industry, and it is the classic way you grow an industry. You have financial incentives, you have regulation for the new build home, but you put together a whole training and accreditation package suited to all these different technological areas and you look at the broad picture. We are ready to go as an association. We have got members who are doing solar ventilation that will do 40 per cent of an individual building's space heating load in winter, and we have got members who are doing solar cooling. There is a whole portfolio of measures. It is just working with government and industry and the association to say how we grow it as a complete package.
Chairman: We will come back and pick some of these issues up later on, but let us turn now to sunnier climes, Dr Wolff, and DESERTEC.
Q330 Colin Challen: I am just wondering if, rather than ask you how practical it is, I could ask you about the impracticalities. What technical practical problems are there impeding the progress of DESERTEC? Perhaps there are not any. I wonder if you could briefly tell us about any political difficulties that might prevent DESERTEC from coming to fruition.
Dr Wolff: In terms of the technology,
there is always scope for refining technology but basically the technology is
there, so I do not see any particular obstacles on that front. As far as potential political problems go,
there is a tendency for people to think, "This energy is coming from countries
in North Africa and the
Q331 Colin Challen: This idea does have quite a lot of support and I understand that the German government is fairly supportive of it. Angela Merkel has spoken about it quite enthusiastically. How would you characterise the support from other governments, particularly that of the UK, for DESERTEC?
Dr Wolff: Particularly what, sorry?
Q332 Colin Challen: The support of other governments. Germany is behind it. Is France behind it, Italy, the UK? I know the UK has expressed an interest but we express interest in lots of things and then do not do anything about it.
Dr Wolff: I understand that the lower
House of the Dutch parliament had a vote on this subject and it was decidedly
in favour of the DESERTEC concept.
President Sarkozi of
Q333 Colin Challen: More on a technical level, Hermann Scheer, our colleague in the German Bundestag, has raised concerns. I am not sure about outright opposition but he is concerned about the idea that some of these companies that are necessarily quite large, existing energy providers like E.ON, RWE and so on, will see the creation of a supergrid as an entrenchment of their position in the market and, of course, the supergrid will serve other sources of electricity as well, such as nuclear power. Its reach might be extended considerably using nuclear power, and if these are the same companies that are also expanding nuclear power then does Hermann Scheer have a point that this might squeeze out the widespread introduction of micro-generation, for example?
Dr Wolff: I find that very puzzling, to
be honest. My understanding is that
historically one of the problems in Europe has been so-called vertical
integration of the energy market, so that, just like we used to have in the UK
20 or 30 years ago, if you wanted to buy electricity you only had one choice; it
was local supplier, and then we liberalised the market in the UK so that that
immediately gave consumers a much wider choice of potential suppliers. My understanding is that in a similar way the
European Commission is working to create a similar single market throughout
Q334 Dr Turner: You are quite bullish about the question of security of supply, but it is a fact that the UK would be right at the end of the supply chain. Does this not make it more vulnerable to interruption?
Dr Wolff: No. I know it seems as if the Spanish will take their bit first and then the French and then we will get a little bit at the end.
Q335 Dr Turner: Someone could throw a switch anywhere along the line.
Dr Wolff: Or someone could throw a switch. Let me take that last point first. As regards the possibility of someone cutting off supply suddenly by throwing a switch, I do not think that is realistic because you can design transmission grids rather in the same way that the internet was deliberately designed. The internet was originally a military project and it was designed deliberately so that if part of the internet was knocked out messages could find their way around the blockage, and in a similar way you can design transmission grids so that you would not have a single point where you could knock it out. Potentially, theoretically, you could have some kind of solar cartel; all the solar countries could all gang up together, but personally I think that is highly unlikely. The range of countries that have this resource is very large. It is basically going to be a buyer's market so I do not see that happening. Can I go back to the other point about us being supposedly at the end of a supply chain? One point we have been trying to get across is that transmission grids are a bit like a lake. If you could imagine taking a tanker of water, you tip it into one end of the lake, you go to the other end of the lake and you can take out a tanker of water. It is not the same water that was put in at the first end of the lake but in effect it is as if you have transmitted that water across the lake. Going back to the solar situation, if you start feeding solar power from the desert countries into Europe, and you imagine the grid being a bit like a lake, it is a sort of cascading effect; it is immediate right through the whole region, so that countries like the UK are no more disadvantaged, they are no more at the end of the supply chain than a country like Sweden or any other country further north. If we had the single market, which I understand is due to be completed in 2011, the kind of vision we have is that, if you take a company like Marks and Spencer or Tesco, both of which have indicated they are keen to green their operations, companies like that with the single market could have a contract with, say, Abengoa or any other solar supplier in North Africa or the Middle East and immediately they could be getting their supplies in a sense directly from North Africa. Hopefully, you would go into Marks and Spencer and they would have little signs up saying, "Our stores are powered by desert electricity". That is our vision but it would be rather in the same way that myself as a householder, if I want to buy my power from, say, Scottish Electricity, I can. It is a similar idea.
Q336 Dr Turner: All the elements of technology that are involved in DESERTEC exist but they have never been deployed on this scale before. Are you confident that there will not be any problems arising from the scaling up?
Dr Wolff: I am pretty confident. The reason is that the technology is essentially modular, so that once you have put up one module and seen that it works there is nothing to prevent you from having a thousand of them or a million of them in very much the same way that, once you have demonstrated that a wind turbine works, you can have a dozen or you can have a hundred or a thousand; it really makes no difference. Each module is essentially independent, so it is not like scaling up a wind turbine from, say, two megawatts to six megawatts. That is a major technical challenge. This is different because each module is independent. You can just roll them out in their thousands or their millions.
Q337 Dr Turner: Given your ability to do that, does that imply that the unit capital cost is going to come down with this increased investment volume, so it is going to be more affordable?
Dr Wolff: That is definitely the expectation. The studies by the German Aerospace Centre have factored into their scenarios and their calculations these fairly well-established cost reduction curves and I think you can see why there is likely to be this cost reduction. At the moment I think I am right in saying that the worldwide installed capacity is actually less than a gigawatt and people normally reckon you need to get up to, say, five or ten gigawatts and then as you scale up you get economies of scale and you get refinements in the technology which can bring the cost down. There is one particular aspect which interests me, which is that some companies are deliberately targeting this cost business in two ways. First of all, they are rationalising the designs to make them suitable for mass production in factories, so it is like creating prefabs, and then, once you have got the prefab, again, it is a bit like an IKEA flat-pack. Once you get them out into the field they are designed to be very quick to install with a minimum of skilled labour. As I say, there is at least one company and I think some others not only working on this; they have largely achieved that effect, so I think we are likely to see things like that which will definitely bring down the cost.
Q338 Dr Turner: Have you got any prospect that UK industry and UK jobs will benefit from DESERTEC?
Dr Wolff: Potentially, yes. There is already a number of companies based
Q339 Charles Hendry: I think it is a fascinating concept. I think it is just the sort of big idea which should be being explored. If you do not start the journey the one thing you know for certain is that you are never going to arrive at where you want to get to, so I think it is fascinating work. You talked earlier about the countries which the power would be coming from and whether these were necessarily countries which we would feel absolutely confident about. Does not that at the end of the day come down to the price which they are paid for it? If there is a sense that this is their sunlight which is being pinched by the rich Europeans they are going to be unhappy, but if they get a good return for it they are going to be keen to have a good trading relationship on this, particularly in terms of the benefits it can bring them for desalinated water in property, irrigation and issues like that. How do you plan to compensate the countries which are providing the sunlight?
Dr Wolff: I agree very much with the points you have made. There are great potential benefits for the host countries. Obviously, with any kind of negotiation it will be a matter of negotiation. There is the potential to do it badly or do it well. In terms of what will actually happen in practice, our group are all volunteers, we are not going to be in the business of negotiating these things, but the people that will be negotiating them --- I do not know whether anyone here knows this but there is a new consortium of blue chip companies which is now known as the DII Consortium, which has been set up just at the end of October and includes companies like E.ON, RWE, Siemens, ABV, heavyweight companies like that. They have set up this consortium with the declared intention of rolling out the DESERTEC concept as it was developed by the German Aerospace Centre. They say that they are going to be welcoming many other companies into that consortium. The point is that when it comes down to the nuts and bolts of negotiating with host countries they will be the ones that will do it. From what we understand, they have got long experience of working all around the world and having good relations with host countries, and we have every reason to have confidence that they will negotiate arrangements where everyone will be happy.
Q340 Sir Robert Smith: You talked about the liberalising of the EU market, but it is a long time coming and it maybe reinforces that again, that it still has to come. Just to get the mental picture, quite a lot of the public image of this project is this huge one site somewhere in the desert but, of course, from what you are saying, it could be a whole range of sites dividing the risk amongst several of the countries that have got this.
Dr Wolff: Yes, absolutely. For the purposes of illustrating the
potential we have got this map showing these red squares in the desert to give
you a mental picture of relatively speaking how little desert you need to
produce, say, the amount of electricity that the whole world is using. I think it is obvious but we always emphasise
that you would never do that in practice.
You would spread this as widely as possible and it would be in lots of
different locations. As I have said
before, it is not all about solar power in deserts. It is about integration of a whole range of
renewables right across the whole region of Europe, the Middle East and
Chairman: Let us move on and talk a bit more about solar technologies in particular.
Q341 Dr Whitehead: Which of the various solar technologies that we now know about do you think hold the greatest promise for the future, first in terms of different photovoltaic options that are now emerging in terms of thin film and different forms of silicon generation; and, secondly, in terms of developments in solar thermal, particularly static solar thermal in buildings, for example?
Mr Johns: Can I just make one
point? Currently there is maybe a
gigawatt of mainstream solar panel.
There are 121 gigawatts of PV
across Europe already and there are 145 gigawatts of solar thermal already in
Mr Newman: Specifically regarding the
technology question, PV is a relatively well established semiconductor
technology now. There are systems
working especially in
Mr Johns: In terms of solar thermal, people think of the collector and it is a fairly robust and well developed technology that has been with us, again, for 40 years or longer. There have not been massive advances made in the actual technology itself, the stuff you put on your roof. It is already very efficient. The key advances will be in how we apply it. I will hand over to David.
Mr Matthews: On the collector itself, and
this is where the
Mr Johns: Can I just jump in as
well? I think some of the key advances
are going to be in how we apply it across communities. In
Mr Matthews: And that would spin out. In the longer term we hope to have thermo-chemical storage, so you will actually store the heat from the summer to the winter in a chemical reaction. That is about ten or 15 years away from market but people are working on that.
Q342 Dr Whitehead: Of these technological advances and refinements that we are talking about, what proportion would you say really exist in terms of a serious UK research and development capacity, and what potential would you say there is for the UK to either take or retake the lead in a number of these technologies?
Mr Leggett: Can I lead on that and
emphasise from the last discussion that I would be wary of a sense of either/or
here because you have got a family of technologies that are advancing on a
number of fronts and so great are our problems with climate change and energy
security that we really need as many of these to work as we possibly can. They also work often really well in strategic
harness. For example, if you go to our
installation in Yorkshire on a South Yorkshire Housing Association project in
Rotherham, which is
Q343 Dr Whitehead: I am aware, for example, of the extent to which UK universities are continually in the forefront of solar PV research and I am beginning to develop a feeling of the extent to which these technologies can be firmly implanted within the domestic research and development economy, and to what extent that then may make up for what we know, as it were, is the series of failures of development in previous areas of renewable technology in past years.
Mr Newman: I would comment that it is in
the gift of the tariff to direct that, because markets are very sensitive to
how tariffs are constructed and that is something that we know from evidence
over the past few years in
Mr Matthews: Something which concerns me on that point is that in Europe they form these technology platforms to develop technologies, and ESTIF, the European Solar Thermal Industry Federation, set up one called the ESTTP, the European Solar Thermal Technology Platform, and we get involved casually by people like myself and Howard going along to the meetings and paying for ourselves, but it is very casual. We do not get an active feed-in in the UK to this, and we get several people in the UK who develop their own technologies and come up with very good technologies, but by co-ordinating our R&D activities with something like this technology platform we can see the strategic opportunities and exploit those strategic opportunities, and I would love to get a partnership with government going around these issues and saying, "How do we get involved in the platform?". Then the Commission turned to the ESTP and said, "That is not good enough. You need to have a renewable heat technology platform", so they had to change it, they had to bring biomass on board, heat pumps on board, and now they have got a portfolio of measures, but yet again it is such a casual approach from the UK and we are such a big country in Europe that we should be very actively involved in these platforms.
Mr Johns: For me it is all about the
scale. If you look at the scale in the
industry in the
Q344 Dr Turner: We have already talked about the topic of feed-in tariffs and the fundamental reason for the situation in Germany, as you have just described, has been the German feed-in tariff regime, plus other aspects of their renewable energy legislation. The Germans created a market which created the R&D and created the production. We are now consulting on feed-in tariffs and micro-generation, and, as in the German model, they vary according to the technology. Do you think that the proposals set out in the DECC consultation for different technologies are reasonable? Photovoltaics are 36.5p per kilowatt hour, which is the top whack. Is that going to be enough to energise your industry?
Mr Newman: No, would be the simple
answer to that. If we take it from a
couple of angles quickly, first of all I would say the feed-in tariff has been
proved to be an effective way of launching a market and we very much welcome
the fact that they are being produced here as part of the act, so in nothing I
say now am I trying to say that tariffs are wrong. They are absolutely right;
they have been proved and they are by far the best method of getting micro-generation
into the mix. However, the way the
tariffs have been set up, and 36 is for the domestic retrofit and you are
looking at 26 for the commercial larger scale, if we take a look at those
tariffs, in terms of investment below that which investors are interested in
participating in, the 26p adds one gigabyte or one per cent return on
investment and 36p gives about four per cent return on investment. People are not going to take an extreme
amount of risk in terms of their own money with those levels of return, so
there will be an increase in the market for those tariffs, so that is
good. There will be an uptake in the
Q345 Dr Turner: In that case what level of tariff do you think we need to be effective in this country, what are the cost implications to the consumer of those tariffs, and how long do you think it will be before the ultimate aim of the feed-in tariff, which is to encourage sufficient production so that you get cost reductions and bring costs down, comes into effect?
Mr Newman: In terms of what they should
be, they need to be at a sensible rate of return. We have argued through a coalition of the
Federation of Master Builders, the National Federation of Roofing Contractors
and the Photovoltaic Manufacturers Association that you need to see a realistic
rate of return, so if you add 10p to the tariffs across the board you will get
return rates in the five to seven per cent rate, which are still relatively low
but enough to significantly change the market.
In a sound bite, if you had, say, 25 per cent of the tariff, you would
get double the power, that is roughly the kind of change we need to see, so an
extra 10p across those tariffs will get us twice as much power in the near term
over the four years of the tariff, so that is an important point. The second point on the tariff is that the
annual reduction rate, the derogation rate as proposed is seven per cent. Whilst we understand that that is a control
mechanism, we are recommending that it is used like that in the first few
years, because that says that any industry start-up in the UK has to hire
people and train the workforce, and our workforce in the UK is not ready for
transforming into a green economy. There
was an Institute of Public Policy research document yesterday that came out
very timely on this in terms of what we need to do in terms of the skill mix in
the UK, so if we drop the tariffs next year by seven per cent, invest money in
jobs and training, it would not be at the level that the industry needs to get
the workforce switched across to what needs to happen, so 10p more is the first
part of the answer to your question. The
cost to the consumer was the second part of your question. We feel that with the cost to the consumer of
10p more roundabout by 2013, which is the review point, we are talking about
£2.50 a year on the average domestic electricity bill, so the relative impact
on the individual is pretty low. We do
not see any noise in countries that which have even higher tariffs in terms of
complaints from consumers because they know where the money is going; it is
very transparent, so in terms of impact on the consumer, that is not very
big. Your last point was how long would
it need to be. Fundamentally, it needs
to be there until the technologies are mature such that the energy generated
through solar is at the same cost as energy generated through conventional
means through fossil or otherwise. That
is getting close to the 2015/2020 point where you begin to see the technologies
coming down to cost point where you need less and less support through
tariffs. With the derogation built into
the scheme as proposed, the tariff will be relatively low by then anyway if you
are dropping it by X per cent per year, so the system as designed will get to
the point where it is beginning to be realistic with the tariff that is coming
in. Those are the mechanisms. In summary, the tariff is good. It is the right thing to do. It is not high enough to create a
Mr Leggett: On a slightly wider point on this as well, which is the one about bringing other players to the party, what we would want out of this, obviously, is not just a fast-growing solar photovoltaics downstream industry with tens of thousands of jobs being created, which is what we are talking about, that kind of elevated rate of tariff, albeit still below the tariffs that exist in France and Italy, for example, but also to bring financial institutions to the party so that our disgraced banks have the opportunity to redeem themselves a little bit by innovating around packages that they could offer to the consumer that would actually make such an increase in the tariff and a very small increase in the electricity bill fiscally neutral. What we are talking about is listing packages for energy efficiency so that the consumer can get the short payback rewards for that and reduce energy bills overall while putting energy regeneration into their homes. We have reason to believe, and we cannot elaborate for commercial reasons on this, that the banks, as we are discussing with them at the moment, will not come to the party as the tariff currently stands but they would if it were something like 10p higher.
Q346 Dr Turner: If you got the level of the level of tariff that you want do you think that British industry has got the capacity to respond to that market stimulus or would it run the risk of simply sucking in imports because you could not respond quickly enough?
Mr Leggett: The thing here is that we
would encourage the Committee to think of the PV industry as a highly segmented field. There is the upstream where sand is melted,
the crystalline silicon end, and there is the solar manufacturing. Then there is the downstream, which is the
secondary products that we do with Solarcentury, the roof tiles and slates and
everything else, and all the design around the incorporation of the primary product,
the basic solar thermal collector, into the building product that is
deployed. Here we really can play to
British strengths, British strengths in design, in architecture and all the
rest of it, and the support which we have as manufacturers from roofers and
their response to our training programmes, for example, suggests that yes,
absolutely we could build a dynamic industry very quickly, and this is where it
is particularly job-rich. It is also
job-rich upstream, many of which of course inevitably are going to be in
Q347 Dr Turner: Despite this problem, a feed-in tariff regime means fixed prices and energy prices are notoriously volatile in practice, so do you see a problem with giving fixed feed-in tariffs if the oil price rockets and energy prices rocket with it?
Mr Leggett: Well, it would be great if they could be fixed, but let me make one other point here as well which I do not want to dwell on, but it is so important that I do want to make it briefly, and that is that in the consultation the assumption is through 2020 that the oil price will be $70 a barrel, and I think you are aware that a growing number of people in the industry, in the oil industry as well and around the oil industry, just simply do not believe that this is going to be the case. I refer to the UK Industry Task Force on Energy Security and our report last year and the second report which will be coming out in December, which we will be happy to send to the Committee, where we argue, as a group of companies, including Virgin, Scottish & Southern, Arup's, a range of companies across British industry, including Solarcentury, we think that this industry has got its net asset assessment wrong in the same way that the investment banking industry did, sadly. Obviously, I do not want to go into detail here, but I want to flag that up very quickly. On the massive balance of probabilities, we think that the oil price will be a lot higher, energy prices will be a lot higher, and of course we are not alone in this, you just have to look at what the IEA are saying and Ofgem recently, not about oil, but about electricity prices with some of their scenarios, so that changes the economics really fundamentally.
Q348 Sir Robert Smith: Whilst you mentioned the renewable feed earlier on, I am interested in how you see that working, but also you talked about new technologies and you cited the German scheme and we saw the big district heating scheme in Copenhagen. Do you think though that the feed-in tariffs alone in the UK cultural, individual householder psychology are going to actually deliver in the way that they can do in the way that Germany and Denmark have done?
Mr Johns: Well, for a start, the feed-in tariff is not going to have any effect on the renewable heat incentive which is proposed for a year later, and we have no insight into the tariff levels or the structure at this moment of the thing which will incentivise. What I would say is that I actually run a solar installation company and, from my experience of installing solar in people's homes, they absolutely love this technology because it gives them the power back in some way and it changes their attitude to their home and to the energy that they are using, so people who were once profligate in their energy use do change their habits and do tidy up the energy performance of their home, so I think it will sort of engender behaviour change across the board. I think that, if we can package up societal-based solutions maybe through the use of locally owned energy services and companies, that sort of stuff, then things like solar district heating for a street might become possible. I agree that there are challenges around cultural norms, but there are challenges around cultural norms in the traditional industries, for example.
Q349 Sir Robert Smith: It always depresses me that every warm home, when they are putting in their cavity wall insulation, they chain that wall to make sure the neighbour does not get heat out of the cavity wall insulation, yet, from the installer's point of view, doing the whole street would be much more efficient.
Mr Matthews: Something that concerns me with the whole renewable heat message is that Gerry started with energy efficiency and, as an industry, we totally support that, we want to see energy efficiency put into homes first, but the second measure is that you put solar, hydro or wind into that building, if you can, and that can be solar electricity or solar heat. The third measure is that you then back it up with something else, and that message has not been sent clearly enough into the process. Things like fuel cell micro-CHP can be fantastic technologies, and I do not want to knock them, I really think they could be superb, but you do solar before you do micro-CHP, you do solar before you do heat power and you do solar before you do biomass as well because biomass is a fuel-based technology and there is only so much biomass, so you get as much solar and wind as you can, the pure technologies, and then back them up with something else, and that message has not come across clearly enough and we want to send it out again and again.
Q350 Charles Hendry: Can you tell us anything about the impact of the time it is taking to set the level for the renewable heat incentive? Is there a problem that, because people are saying, "Well, in a year's time I may get a much better reward for this", they are holding back and that is going to have an impact on the industry at the moment, or are they simply going ahead and making investments anyway, even if it may well not be retrospective?
Mr Johns: Well, we know that it is
going to be retrospective, first of all, but probably not many of the general
population do. Secondly, the growth rate
of renewable heat in the
Q351 Charles Hendry: So it will be retrospective to all existing installations?
Mr Johns: No, not all existing. From July 2009 onwards, anything that is installed, either PV or thermal, will be eligible, but all of our potential ambassadors out there, the 100,000 people who have got a solar thermal system and the 5,000 to 10,000 who have a PV system, are not going to be eligible and this, to me, seems like an absolutely suicidal move from Government. These people are the ambassadors, they are the early adopters and they are the ones who are going to sell this to their neighbours and sell it to their street and their community and yet they are being penalised. They are not going to be eligible for these tariffs, either the heat tariff or the feed-in tariff, and that, to me, just seems like absolute suicide, and there are going to be hundreds of letters to MPs as a consequence.
Mr Leggett: We would echo that of course, but I appreciate it would put at least one member of the Committee in a difficult situation.
Q352 Chairman: Why do you think the level set in the consultation on feed-in tariffs is so low and so disappointing? The consultation which has just finished on feed-in tariffs, the levels for the feed-in tariffs are pretty disappointing, to put it mildly. Why has the Department pitched it at those figures?
Mr Leggett: There is a long answer to that and a short answer.
Q353 Chairman: Give us the short one.
Mr Leggett: We would like to see more of our officials go on field trips to the places where these things are happening. If they were to go to Silicon Valley and talk to investors there about why the digital revolution is switching out of the digital revolution into the solar revolution and why they see maybe the solar revolution to other research facilities and to other facs that are being set up in and around Silicon Valley and talk to the investors about why it is that they are backing all this with such alacrity and why they are so sceptical of some of the large conventional options that get so much discussion in this country, I think that is really at the root of the problem, so it is an appreciation. There is an element of 'we would say this, wouldn't we?', but there is also a component of seeing is believing and I think that not enough people in our decision-making community generally have seen enough to be able to believe the way that we believe.
Mr Newman: Plus, the consultation document set the peak of it at two per cent of the energy mix, so it is a self-fulfilling prophecy that, if you want to get the peak, you set a lower target.
Q354 Dr Turner: Your comments about the inadequacy of the proposed feed-in tariff levels would be echoed by other sectors of power generation in terms of the ROC regime. I assume that your industries have made representations to DECC. In fact, the Treasury has a considerable restraining role on the ambitions in this direction, so would it be a good idea for you to make equally strong representations towards the Treasury because, I suspect, they have a very strong undeclared influence in this field as well and, if we could actually get the regimes right for the feed-in tariffs, what contribution, do you think, could your industries make to our renewables targets?
Mr Leggett: My earlier remarks were
really applying to
Q355 Dr Turner: So the potential is limitless if we can get the conditions right?
Mr Leggett: They are not called 'renewable' for nothing.
Colin Challen: I just want to probe a bit
further the government thinking because I imagine that, if there were some
Chairman: I am sure there are.
Q356 Colin Challen: ---- they would say, "Just listen to those dreamers".
Mr Leggett: Enthusiasts, as Malcolm Wicks calls us!
Q357 Colin Challen: They would say that the whole object here is to decarbonise society, to reduce our carbon emissions, and the way to look at that is how much it costs per tonne to achieve that objective. It does not matter where you get your energy from if you are decarbonising, so it could be nuclear or whatever else, it is on a cost:benefit analysis, and they will say, "Well, look at these figures. Photovoltaics is going to get four times as much as biomass, twice as much as hydro per kilowatt hour and substantially more than wind, and then they are asking more, these PV people". They will say that you are trying to be perhaps uncompetitive and squeezing out other people for your own industry's advantage. On a cost:benefit analysis, if you look at these figures, you can say that PV here is actually getting favourable treatment.
Mr Leggett: I think you have to view this in a holistic sense and look at the hundreds of billions that have gone into the fossil fuels and still go into the fossil fuels right across the board and look at what the nuclear industry is really asking for in terms of support and compare what we are saying in the light of that. The feed-in tariff regimes derogate down. They are designed to bring these technologies quickly to grid parity, at which time they will be stand-alone and we will need no further subsidy, no further public support of any kind, and that is a big difference with the nuclear industry of course. As for when that will occur, if members were to phone round the investment banks, all of whom have very expert analysts now working on this industry, and take a poll of when they think grid parity will arrive, of course there will be different opinions and they will vary by market depending on the electricity price, but most of those opinions will be spread through the decade that we are going into, and that is assuming no big disparities at the time we are talking about with the peak oil analysis or of the type that Ofgem is talking about in its worst-case analysis of what will happen to electricity prices. We will be at grid parity soon, we will no longer need any sort of public support, indeed we will be providing magnificent public services with all the fringe benefits that come from renewables generally, a long list which I will not go into, so we feel that our story is really compelling and we are involved in a battle of ideas with traditional energy industries who are increasingly fearing what is coming from renewables. You all know, I am sure, that more renewable electricity capacity came on stream in both Europe and America last year than fossil fuels and nuclear combined, and we worry that some of the players in the traditional energy industry are digging in, fighting hard and increasingly fighting dirty.
Q358 Judy Mallaber: This is a very small point from something that either Howard or David said several sections ago in our questioning, which was that there was not a common platform for developing technology. I am just curious because we had the Energy Technologies Institute come to a previous meeting who were meant to have been set up to try and develop low-carbon technologies and they had one project, which struck my mind because it involved Rolls-Royce also, where they were investing in a tidal project. Have you had any connection with them at all because I am worried as to why they are at a different stage from others because I understand they were meant to be across the board looking at new technologies?
Mr Matthews: It is very limited, our connection with them, which could go, I have to say, either way, but it is limited, our input into that process.
Q359 Judy Mallaber: So there is no platform there for you to go into?
Mr Matthews: Not directly.
Chairman: This has been a useful discussion, but we have run out of time, I am afraid. I know, Dr Wolff, you wanted to make a point, so maybe you could drop us a note about that and in return, I think, Jeremy, you are going to send us some stuff. We will write to you, if we can, just asking you about zero-carbon homes when we have had an opportunity to look at zero-carbon homes and the contribution that solar technologies can make, and there is quite a lively debate to be had within that. Sorry for not being able to do any more, but, when you are sitting on your bike pedalling home and you think, "I should've told them that", do not hesitate to drop us a line and say, "You didn't ask about this", but thank you very much indeed; it was good of you to come.
Memorandum submitted by the Carbon Capture and Storage Association
Witnesses: Dr Jeff Chapman, Chief Executive, Mr Philip Sharman, Director, Technology, External Affairs, Alstom, and Mr Ian Phillips, Director, CO2 Infrastructure, CO2 Deepstore Limited, Carbon Capture and Storage Association; and Professor Jon Gibbins, Imperial College London, gave evidence.
Q360 Chairman: We turn now to carbon capture and storage, different technologies, but similar themes. Can I welcome you all and thank you for coming. The Government is always very keen to tell me and to tell the Committee that we are a world leader in carbon capture and storage. Is that true?
Mr Chapman: Well, I think I ought to lead
off on that, Chairman. We have done very
well so far in developing the necessary regulatory system for carbon capture
and storage. We have also done very well
in terms of inveigling our counterparts in other countries to join in with
us. What we have done less well at is
getting our first projects under way. It
has taken us a very long time and it is getting very frustrating. The first project is not commissioned
yet. Meanwhile, our competitors in other
parts of the world, for example in Canada, took exactly 11 months between
announcing that they would finance three demonstration projects to choosing the
three projects from quite a long list.
Projects are being committed also in the
Q361 Chairman: So what is the problem?
Mr Chapman: I think we have been hidebound by bureaucracy. I think that is what has been holding up the situation in the sense that we have tried to approach this in a very proper manner and a very open manner and that has taken a very long, but it does seem that other countries can get on with it a lot faster than we can. Even, for example, the European Union has actually managed to award six projects in a hell of a lot less time, so I think we have a lot to learn in that respect and we ought to get on with it and take a lead, and it is very important that we do for all the reasons we know of combatting climate change, ocean acidification and winning business for the UK.
Professor Gibbins: I think the underlying problem is the level of ambition that has been there. Until very recently, if you had a look at DECC publications, you would see that how much CCS we will have by 2020 is 300 megawatts. Okay, well, what is the hurry? If that is the level of your ambition, why would you think you have to go fast? We are now talking about four projects of still only 1.2 gigawatts perhaps and, if you contrast that with what the Advisory Committee on Carbon Abatement Technology, DECC's own committee, says, that five gigawatts will be perfectly feasible, from a technical and from a commercial point of view if you take the going rate for low-carbon electricity, and it is what you pay for offshore wind, for example.
Q362 Chairman: We have had this competition and I have never been clear where the finishing line of the competition is or exactly what the rules of the competition are. Jeff, you talked to us earlier on about getting a project committed, but what is the timetable now for starting a project?
Mr Chapman: I am not actually sure when the three projects that are currently shortlisted will be whittled down to two projects, but I think the timetable for that is early into next year, but that triggers the start of field studies on the other two projects and it is not until the field studies are complete that the final project can be selected, so that could be the end of next year, but I am not actually quite sure. The commitment from DECC continues to be that the project will be landed by 2014 which, I assume, means by 2015 really because it includes 2014.
Mr Phillips: If I could comment as I am working on one of those projects, the timetable that Jeff has indicated is accurate, but the 2014 date was set several years ago when the published timetable was hugely faster than the present one, so I think the chances of 2014 happening are pretty close to zero.
Q363 Sir Robert Smith: Let me declare my own interest in the Register of Members' Interests as a shareholder in Shell and of a visit I did to Total's carbon capture and storage demonstration plant in Lacq, paid for by Total, which is, I suppose, a sign of something physically on the ground of pipes, oxygen combustion, the storage and all of that which is physically there, and we are still talking about the competition. Mr Phillips, you are saying that you have got the same timetable and even now I think there is a concern in the industry that the Government might be slipping on even delivering the next stage of that timetable.
Mr Phillips: I would share a comment which was made earlier about taking tentative steps. There is a consultation which closed a couple of weeks back in which the suggestion was of "up to four projects to be supported". When the scale of the problem is so large and the need to act quickly is so considerable, personally I find it very disappointing that there is, what looks to me like, a considerable lack of 'in a hurry-ness'.
Q364 Sir Robert Smith: In the 'in a hurry-ness', as a country we have this major resource of a lot of depleted fields and we have a major high-tech sub-sea engineering industry in the oil and gas industries, so in terms of this ambition and timescale, is there not a worry that DECC is going to miss the boat of the transition to making use of these skills with the existing skills that are available and, if they do not hurry up, we are going to miss the golden opportunity?
Mr Chapman: There is a considerable worry. We are getting now very worried that we are getting behind the rest of the world and we really do need some hardware on the ground to be able to show the rest of the world that we have got it.
Professor Gibbins: The other point is that what we will really miss the boat on is that people will build the next generation of power plants as unabated natural gas instead of coal and CCS, as simple as that.
Mr Phillips: The point about the offshore
environment is valid. Much of the
Mr Sharman: Just in terms of DECC and its
competition, a decision should have been taken on the winning contender of the
three standing ones around about the middle of this year, 2009. Clearly, we are not at that point yet and we
are just about to hone down to two that will be doing these front-end
engineering design studies funded by the Government. The latest word from DECC, and this was
stated at a Westminster Energy Forum meeting a couple of weeks ago, is that
they still believe that a demonstration project will be up by 2015 and
operational and that decisions will be taken fairly soon on which two projects
will go forward to field study and "in the New Year", I think, was what Martin
Deutz said about the decision on the winning project. I think we do need to move quite
quickly. I would not want to see those
deadlines slip beyond those dates, otherwise I think the
Professor Gibbins: Just to add one other thing
in terms of
Q365 Charles Hendry: If it has been narrowed down to two early next year, is there anything which would stop the Government at that point from saying, "We've got two very good projects and we're going to run with both of them", especially if they happen to be very close together and they could share some of the infrastructure?
Professor Gibbins: The Treasury.
Q366 Charles Hendry: They stop most things in life, do they not? Could there be judicial review, if that were done, to say that that was not how the competition was structured, or would there be the scope for taking them forward in that way?
Mr Phillips: I think it depends on how that award is made because the proposal in the invitations which have gone out in this competition offer a significant part of the capital funding to be funded upfront and the balance to be funded per tonne injected, whereas almost all of the other funding, whether it is the proposals in the DECC consultation or the EUAs that are being used, those almost certainly have to be linked to tonnes injected, so it puts a lot more of the risk on to the non-winner and I think that may well cause considerable consternation and may well open a judicial review.
Mr Chapman: I agree. I think it is probably a legal technicality more than anything else, but I would sympathise with the view which says what a shame it would be to spend tens of millions of pounds on a field study and not deliver a project at the end of it.
Q367 Charles Hendry: Perhaps I can ask you about the Office for Carbon Capture and Storage. Is it your sense that it has the same clout as the Office of Nuclear Development and will it be accompanied by a forum for the industry so that they can highlight the obstacles? Will it be structured in the same way of looking at where there are obstacles and highlighting them and what practically needs to be done? Will it have an outside expert, like Dr Tim Stone, advising on how that progress can be pushed forward? Will it have that same influence to try and drive forward change, or is it more the sort of dead hand of Government rather than a supporting Government?
Mr Chapman: Well, I would like to say that I would like to think that it would, but at the moment no proposals have been put forward. Martin Deutz has said to me that he would like to consult with the CCSA when he has got some outline proposals, but he has not actually made that formal approach yet.
Mr Sharman: I think you are probably asking the wrong people at the wrong stage. At the moment, this Office of Carbon Capture and Storage is pretty much a blank sheet of paper, to use DECC's own terminology. They are seeking input and ideas for that and certainly the UK Coal Forum has prepared a paper and submitted it and DECC will be discussing with other groups what they would like to see in that office. My own view is that it should be comparable with the Office of Nuclear Development and the Office for Renewable Energy Deployment and have effectively an external forum working in conjunction with it, just as those two other offices do. In terms of external experts on it, again Martin Deutz has made it quite clear to the UK Coal Forum that DECC would welcome secondments from the industry into that office, and certainly within my own company, Alstom, I have raised this issue to see if we would like to place a secondee into the office. I think that would add a lot of depth to it and technical expertise, it would be a positive move and it would reflect what has happened in those other two offices.
Q368 Charles Hendry: With the OND as well, they have done a roadmap. They said, "We're going back to our work on 2017/18. This is what is happening every single month", and that is singularly lacking, it seems to me, in carbon capture and storage. There is no sense of who needs to do what by when and whose job it is to do something to get it back on track and it is impossible to see if it is on track or not. How important do you think that sort of roadmap is to deliver this?
Mr Sharman: I think roadmaps are
crucial. A number exist at different
levels. Certainly, the IEA has prepared
a roadmap on carbon capture and storage and there is also a roadmap within the
Carbon Sequestration Leadership Forum, and obviously the
Mr Chapman: If you will excuse the hackneyed expression, the long journey starts with the first step, and we have not taken it yet. That is the most important thing in this roadmap.
Professor Gibbins: You also need to know where
you are going. Seriously, we do not have
realistic targets for 2020 and we have even less clarity over 2030. There is still actually uncertainty about the
extent to which, for example, natural gas plants will have to have carbon
capture and storage by 2030 at the same time as we have an acknowledged target
Chairman: Let us move away from policy to talk about technology.
Q369 Dr Turner: The UK competition for post-combustion capture, do you think that was a wise decision?
Mr Chapman: It is never a wise move for
Government to pick technology, and I think that is understood. On the other hand, in the context of more
than one demonstration, then it would be wise to have post-combustion capture
as well as pre-combustion capture.
Obviously, both are going to be important in the
Q370 Dr Turner: I can only assume that we went to post-combustion capture with a line to getting the retrofitting market which does makes it slightly sad, does it not, that we are moving so slowly? At the rate we are going, China will already be fitting its several hundred stations before we have got our first demonstration up.
Mr Chapman: Well, paradoxically, the
first project in
Professor Gibbins: Can I just say though, just to explain the decision, that, when the decision to go for post-combustion capture was made, we were looking at essentially no CCS before 2020 and the Government was expecting to get a number of new, super-critical pulverised coal plants built. There was a fairly rational policy, if you like, of lower emissions for CCS, "We want to get some new coal built, we do want to have a strategy to fit carbon capture and storage to that plant, so logically it would be post-combustion", but times have moved on and we perceive more urgency. At the time that policy came in, we were looking at getting a 60 per cent reduction in emissions by 2050 and now we are looking at 80 per cent, which is half the amount of CO2, so things have not moved with the change in perceptions of the urgency on climate change.
Mr Sharman: I think you are right in your
comments that the export market and the retrofit market were key drivers in the
decision of the Government to focus on post-combustion capture. There is arguably a perception in industry
that post-combustion is more advanced in its state of preparedness and oxyfuel
is slightly behind that, but it is moving quickly. Pre-combustion capture, whilst many of the
components are commercially proven in other situations, some of the costing is
a bit opaque and some of the availability of existing IGCCs around the world is
disappointingly low. I personally
believe that all three routes have got a role and a place and I am glad that in
Q371 Dr Turner: What confidence do we have about the storage capacity of the North Sea? Has it been adequately surveyed, do we really know, and what are the risks?
Mr Phillips: The volumes are, I think, by every measure there and available. Some of the academic work has been perhaps a tad optimistic, but, even at the low end of the estimates, the volumes that could be sequestered are enormous, and there is a spectrum of relatively easy-to-prove gasfields and substantially larger potential storage in aquifers. In particular, the British Geological Survey have reviewed, studied and reported and I think the absolute capacity they are not concerned about. Is it safe? We are putting CO2 typically at a depth of one to two miles below the ground. That is a long way and there is a lot of rock between you and where the CO2 is. We will generally put it somewhere where there is a primary store and particularly, if you take a depleted gas or oilfield, it has already contained the oil fluid for the last 30 million years, so there is a fair bet it will keep doing it in the future, but there are a few leaks as we drill holes through the sea oil at the top, called 'wells', so there are some potential problems, but we know about them and we can engineer our way round them, so I think the probability of the primary store leaking is very, very low, and the Intergovernmental Panel on Climate Change estimate says it is something like a 98 per cent probability of the CO2 staying there indefinitely. What you also do is ensure that you understand the geological column above the primary store, so you would effectively have a series of secondary seals, so I think the chances of the CO2 reaching the surface are so small that I am much more worried about the climate frying than I am about a bit of CO2 leaking back. I think it is feasible that there will be CO2 exiting the primary store and being captured in one of these secondary stores, and the EU CCS Directive recognises that possibility by defining the concept of a 'storage complex', which is the primary store and the places where the CO2 may reasonably end up.
Q372 Dr Turner: There is one slightly counterproductive element in CCS in that a lot of the stored CO2 will be used to enhance oil recovery from depleted fields and then burning that oil is going to release far more CO2 than has been saved by storing it.
Mr Chapman: Actually, if I can pick that one up, whether or not we produce oil by enhanced oil recovery has no effect whatsoever on the amount of oil which is burned in motor vehicles or whatever. That is a market in its own right and will be supplied from wherever it is supplied. Actually, it is arguable to say that, if we produce oil by enhanced oil recovery, this is a relatively low-carbon method of production compared to what would otherwise be produced at the margin which may be from oil sands which does actually generate quite a lot of pollution in its own right, so you could argue that it is safe emissions rather than it produces emissions.
Mr Phillips: I would also make the general
comment that technically CO2 used for enhanced oil recovery does
work, but it is most effective onshore where you have perhaps a well density of
a well every 50 metres. Offshore, where
you have many kilometres between bottoms of wells, the geological uncertainty
makes the production extremely uncertain, and a number of major companies have
studied and cancelled enhanced oil recovery projects offshore, so I honestly
think it is a very small issue in the
Q373 Dr Turner: Finally, E.ON have put on hold their project for Kingsnorth Power Station. Does that tell us anything about the feasibility of CCS?
Professor Gibbins: It tells us something about the feasibility of funding a large project when you do not have clarity on how you will pay for eventual full capture. Just to pick up your point on E.ON, that was a transient issue in the sense that, in the long run, clearly we are not going to be burning the oil that comes out without CCS; we cannot do. Similarly, we are looking at the competition which is essentially a solution to yesterday's problem and it does not address the new problem which is how you get new pulverised coal-fired power plants with full CCS. E.ON, I think quite correctly, are saying that they do not want to proceed until they have an answer to that problem.
Dr Chapman: I would remind you that about six months ago, Paul Golby, the Chief Executive of E.ON, threw down the gauntlet to the Government and said, "You fund it, we'll build it", and he meant, "If you fund the whole power station, we'll build the CCS plant". I guess that, if they had snapped his hand off at the time, that project would be under way now. The fact is that meanwhile of course economic circumstances have changed and the market in electricity has changed somewhat, but, remembering that these companies are in it for the long haul and that Paul Golby is driving a supertanker which does not turn on a sixpence, in a speech last week, he is still saying that he is very much committed to coal and coal in the UK energy mix, and certainly they are maintaining their place in the competition.
Q374 Chairman: You talked specifically about Kingsnorth. What is the present position now?
Dr Chapman: Well, they are still in the competition and the decision to press ahead with the new power station is, as I understand it, on the shelf for now.
Q375 Sir Robert Smith: The irony of it is that the first Chinese scheme is actually going to be pre-combustion.
Dr Chapman: Yes.
Q376 Sir Robert Smith: Yet the UK could have been there on pre-combustion if the Government had not lost its nerve.
Dr Chapman: I have to say, I was drawing
attention to the irony, but, on the other hand, of course there is great
potential for retrofitting
Professor Gibbins: I have been working on the
ENSEC project, on the capture technologies and looking at capture costs, and in
Dr Chapman: There is a thing in
Mr Sharman: To comment again on
Kingsnorth, I do not think we quite closed out on the Kingsnorth discussion,
obviously I do not work for E.ON UK, I work for Alstom which is not involved in
any of the thinking on Kingsnorth, but I did give a talk last week in the
Netherlands on the progress of demonstrators in the UK and I did that with my
APGTF hat on, the Advanced Power Generation Technology Forum hat. E.ON is an active member of that grouping, so
I got quite a lot of information on where that project is. Clearly, the two gigawatt station at
Kingsnorth is due to close anyway by 2015 and E.ON's plan is to build two new
800 megawatt electric units at Kingsnorth.
Now, the decision to delay that, and I think there was quite a lot of
misinterpretation in the press, they are talking that there is no need
necessarily to bring that station online or the new units online until
2016. Clearly, in parallel to that, E.ON
are in the competition and, should their project at Kingsnorth be recognised as
the leading project contender, that may change when things happen at Kingsnorth
and they may bring it forward quicker.
What they are proposing at the moment is a 300/400 megawatt
demonstration of CCS, using MHI's technology from
Q377 Chairman: I do not want to get stuck on Kingsnorth, but to stem the river of Kingsnorth is part of the plan for the Isle of Grain and one of the issues, as already mentioned, is developing the infrastructure that is big enough to take it. Part of the problem about these demonstration projects is that you may be designing too small an infrastructure as part of the project.
Mr Phillips: I think it is worse in that the explicitly stated requirements are not to oversize, so I think it is almost guaranteeing that that will happen and I think there will have to be some sensible knocking of heads together to ensure that that does not happen. The distance from those big emissions in the so-called 'Thames cluster' around the Isle of Grain to the likely storage fields is such that the pipeline will be a very significant part of the overall cost and building something that can take perhaps, in the worst case, just the competition volumes, two million tonnes a year is in the 'drop in the ocean' category, whereas an oversized line could quite comfortably take all of that CO2 in the future.
Dr Chapman: I have to say, I had a
meeting yesterday with Yorkshire Forward and I have one this afternoon with
SEEDA. The regional development
implications of this are absolutely enormous.
The Humberside cluster is probably one of the most significant clusters
of this kind that there would be in the world and Yorkshire Forward are in
close contact with the people in Rotterdam and with the people in Le Havre, and
it may well be that we are storing CO2 in the North Sea using an
import terminal situated perhaps on the Humberside, fetching CO2 from Le Havre. This could be really very important business
for these regional areas and these regional areas are going to benefit
greatly. If the CO2 infrastructure is there, and this is
proven in the
Q378 Chairman: That is the Corus plant at Scunthorpe you are talking about?
Dr Chapman: Yes.
Q379 Colin Challen: I just to want to move things on a little bit because, the more I hear this exchange, the more I become convinced that the CCS industry is pulling a fast one and the Government has stupidly fallen for it. We have seen that, since the privatisation of electricity and the liberalisation of the energy market, R&D in the UK has plummeted to a fraction of what it was. We all know it has happened and we have seen assets sweated for profitability and, perhaps worst of all, we have seen in the first phase of the ETS, the EU's trading scheme, fossil fuel generators receiving billions of pounds in a windfall from the sale of the freely allocated carbon allowances, yet this sob story comes out, "We have to have some money, £200 million or something for a project competition". This industry has had billions of pounds out of the consumers' pockets. It is an industry, the coal industry, which has been around for over a century or more, so why has it not done its own homework, recognised the course of travel in the decarbonising strategy of the Government and of governments around the globe and simply invested itself in CCS? Why is it waiting for handouts?
Professor Gibbins: It is not an investment cost, it is a running cost. You might as well ask, "Why are you not prepared to pay the going rate for low-carbon electricity from CCS when apparently I have seen that you are in support of paying for low-carbon from renewables?"
Q380 Colin Challen: As I say, the industry has been around for decades and decades.
Professor Gibbins: CCS has not been around for that long.
Q381 Colin Challen: CCS has not.
Professor Gibbins: No, exactly.
Q382 Colin Challen: But clean coal technology of one sort or another has been talked about for a long time.
Professor Gibbins: No, but you are just mixing words there. Clean coal is a very broad term. I do not think you can say that clean coal, as it was used ten years ago, meant CCS. CCS is very, very new and it is actually really a lot newer than wind. If you have a look at when people were talking about wind, it first started after the oil crisis, and wind was there for years and years and years as a way of coping with the shortage of fossil fuels. What we are realising now is that we have got a shortage of space in the atmosphere, and CCS is actually much more radical than wind, and for the first time we are preparing to pay money for nothing but an advantage for the climate. You just have to take a pragmatic view and say, "Look, this is what low-carbon energy costs. This is new. Why would I pay a different amount for low-carbon energy from one source than from another?" That is what you have to ask very, very carefully. I take your point that the industry will play games, of course the industry will play games, but we are playing a much bigger game here and you have to think, "If we do not have carbon capture and storage available, where will be going on climate change?" If we have renewables, fine ----
Q383 Colin Challen: I accept that point, but the point I am making is that this blinder, this fast one that the industry is pulling is actually about just getting more money out of the Government when it has made so much money already out of the first phase of the ETS. How much money from that windfall did they use to be put into CCS research and development?
Dr Chapman: Whatever has gone in the past has gone. That is gone money and I cannot relate to that, but, just to extend on what Jon says, I think we have to regard low-carbon electricity as a higher added-value product, low-carbon steel as a higher valued-added product and low-carbon cement the same; they will command a premium just as organic potatoes do. I want to just now move on to the levy that has been proposed by the Government, which is a good idea because we all talk about 'the polluter pays' and the polluter should pay, but the polluter is actually a combination of the consumer and the supplier, so you should pay. Now, you cannot expect power generators just to build out of the goodness of their hearts new decarbonising plant because they have to make a return for their shareholders on their total investment, so yes, it is going to get passed through to the supplier and, even if you apply, as the Government is suggesting, a kind of backstop in the way of an emissions performance standard or something like that, even if you regulate into existence CCS, the cost of it will get passed through to the consumer inevitably because, otherwise, the power generators do not make money and, therefore, we do not get power.
Q384 Colin Challen: The point is that my constituents have already paid a windfall to these companies through the ETS through higher electricity prices and that is a fact. Those constituents will expect some of that money to have been spent on research and development for a low-carbon future.
Dr Chapman: Well, they are still paying a premium through the auctioning of allowances and that money is going into the Treasury. They are still paying a premium now. It is just that it is going into the Treasury now rather than into the companies.
Mr Sharman: If I can just pick up on the
R&D dimension and the investment dimension of your question, Alstom is
investing very heavily in these technologies.
Across the whole company, our R&D investment is of the order of £1/2
billion a year and it is rising year on year and has done, despite the
recession that the world is currently in, so we see the importance of these technologies. Now, your question is targeted at the utility
companies and I cannot speak for their R&D investment, but I do know here
Professor Gibbins: Just as a point also on the use of money, I think it is interesting that carbon capture and storage projects are being talked about as being funded on a 'contract for differences' basis, in other words, looking very, very carefully at the expenditure and having quite a competitive process. It is just interesting. We just heard about the feed-in tariffs which really do not look so carefully at the economics of the individual projects, so I take your point about windfall taxes which go to different people, go to companies or go to the Treasury, but I think actually for future carbon capture and storage projects they will actually be looked at fairly carefully from a financial point of view and I think they will actually represent quite a good deal on that basis. It is just interesting that double standards are applied to carbon capture and storage funding compared with other sources of low-carbon electricity.
Q385 Chairman: Just picking up on one point, I am not sure whether it was Professor Gibbins or Mr Sharman who mentioned that, until fairly recently, there were 12 new coal plants and they seem to have disappeared from the equation at the moment, but, supposing they came forward, should they not all be carbon capture-equipped?
Professor Gibbins: You have got a very interesting question there about whether you would make new coal plants achieve a higher environmental standard than new gas plants, and I think that actually is interesting. There is certainly talk at the moment that you would think that new coal plant should be equipped with CCS at least up to national gas standards, but in terms of actual value for money it would make a lot of sense, if you have got those plants which are already fitted with part-CCS, to go the whole hog and pay the extra money because that has got to be some of the cheapest, low-carbon electricity that you could possibly get. Equally, it does seem very, very difficult to say, "Oh, but you have to do this at your own expense. You have to be cleaner than gas". Why? We have got ourselves in a bit of a bind here basically because the whole process is trying to be done on the cheap.
Chairman: Perhaps we can move on. We have talked a bit about
Q386 Charles Hendry: Picking up what was raised earlier about other countries being able to have access to the sequestration sites, is there going to be a point where we lose the public support for this and where they say, "Hang on, we're going to be Europe's CO2 dustbin and we don't think that's the right way for our resources to be used", or do you think that the benefit which it brings in terms of income to the Crown Estate is going to be used to help develop these projects and invest in the infrastructure? Is it a big enough gain to justify that potential public backlash?
Dr Chapman: I think that there would be a danger if the public had supported an infrastructure to be put in place and it was used without financial gain back to the public. That would be a danger obviously, but I think that we ought to be able to cope with that. I think what we ought to do is to regard our storage space as a resource just as you would regard oil and gas as a resource or minerals as a resource; it is a resource to be able to market to other countries. Last week, we managed to take the first step in being able to transfer CO2 across boundaries because of the agreement that was made at the London Protocol. It has to be ratified yet, but we got on the way to being able to do this legally last week.
Q387 Charles Hendry: But we would not consider taking somebody else's nuclear waste, we would not be keen to have their general waste, and the concept that we accept the world's CO2 and Europe's CO2 seems to me a very contentious area.
Dr Chapman: I am sure it would meet with contention, but, as long as it is not a dangerous waste, why be too concerned about that?
Mr Sharman: Public perception is obviously a key issue with carbon capture and storage. Often, when we list up what the challenges are that we face, we work our way down the costs and efficiency and the energy consumed in regenerating the solvent and all these other issues, the pipeline, the impurities, and finally we get down in the list last to public perception, but actually, amongst all of those other technical issues, public perception is potentially the showstopper for carbon capture and storage and really we ought to put it at the top of our list when we are coming up with the challenges and how we deal with them. In terms of the use of the North Sea as a potential repository for other people's carbon dioxide, again as a business proposition there, a tremendous opportunity for the UK, we are very blessed with a lot of potential resource and, if we can make that work as an economic proposition, then that would be good for the UK and good for the companies that get engaged with that, but clearly we do need to address public perception and we do need to win over hearts and minds. This technology, there have been recent examples, such as in Germany where the project actually failed due to the local population not wishing it to go ahead, but then that was onshore and it was a storage exactly adjacent to housing, so there were issues around that, and again that project is trying to move ahead and win over the local population again so that they can proceed, but it is an issue, public support.
Professor Gibbins: Just as a quick point on
that, I think the public perception and in fact the professional perception
would depend a lot on what we know about the actual storage capacity of the
Dr Chapman: There is a major exercise under way at the moment which is government-financed which is looking at the storage capacity and should report within about a year, and we will probably have the best-known storage capacity in the world at the end of this report.
Q388 Sir Robert Smith: Just on the public perception, I wonder if you would maybe give us a quick idea of what we should do about that because, when we visited the Total scheme, for 30/40 years natural gas, which is full of H2S which is an extremely poisonous vapour, has been travelling through this pipe in one direction and the posters protesting only went up when the CO2 was planned to come the other way, which is a much less dangerous gas.
Professor Gibbins: We have seen the problem where people have tried to push carbon capture and storage projects onshore, and many, many years ago, Brian Morris, who was then leading the activity on CCS at DECC, said, "Look, the first projects in the UK will not be onshore, no way. Don't be silly", and they stuck to that, and I think that is a very valid way to go ahead. Again, once people get some knowledge and see some actual schemes that are working, not in anybody's back yard, then of course they will get some confidence. It is a perfectly logical human reaction to say, "Do you know what you're doing? This is the first one. Do it offshore". The big asset actually, as well as the storage, is that we have got a lot of good power plant sites on the east coast anyway and we would be putting power plants there even if we did not want to store the CO2.
Mr Phillips: There is also the practical thing that the geology offshore is simply more amenable to providing large-volume stores and, if you look onshore, there is simply less physical capacity available.
Q389 Dr Whitehead: I was just observing that most people get into a device which has got a 40-litre tank of highly explosive liquid two feet behind them most mornings! On the question of financing and implementation, we have talked about the funding that is available for demonstration projects, the Europe Commission funding the European Recovery Programme and the Government's funding. All of these of course are for demonstration projects and I think you have reflected on the fact that that funding may or may not be sufficient to develop those demonstration projects in the way that we hope they will, going forward. What about the situation after that when, after those demonstration projects have been put in place, the logic is that, pretty much as you have mentioned, gas power stations and future coal-fired power stations, should they develop, will have to go beyond demonstration projects and be routinely CCS-fitted, yet there is no obvious market mechanism which easily funds those CCS projects thereafter? What sort of mechanism do you see developing under those circumstances and how realistic do you think that is in terms of the additional costs of energy?
Dr Chapman: I think that, as it happens, the Government has come up with a good idea in that they have decided to have a levy, the size of which is adjustable, and the levy will raise money and the money will be returned to projects in a way which is competitive, and Jon referred to this earlier. That is, in a sense, a much better idea than a feed-in tariff which is totally arbitrary or a ROC per project which is again an arbitrary kind of reward. This is a competitive reward and would be able to cope with the transition from the first projects, which are obviously more expensive because they are the first of a kind, through to later projects, which are going to be much more cost-effective, and it also takes into account the difference between the EU LAN's price and the cost that is needed to cover the cost of the project, so it looks like a beautifully, elegant thing, but the devil will be in the detail and we will need to see a lot more detail, but we think that potentially we have actually got something which actually does not exist in Europe and does not exist in the rest of the world because everywhere else in the world people are handing out cash sums. However, I have a warning, and I would like this Committee to know this, which is that the revenue that is raised by this levy will be regarded as income to the State and the dispersal of this money will be regarded as expenditure to the State, so it is adding to the public expenditure, even though it never hits the Treasury's balance sheet, and that is really shooting ourselves in the foot. At a time when the Government is doing its damnedest to demonstrate that it is containing public spending and then somebody is coming along and saying, "We want to add to it by this measure", that is really stupid.
Q390 Dr Whitehead: I take that point in terms of the extent to which that looks like it has avoided public income, but it is treated as not potentially, but what about the question of selling emissions allowances in Phase III of ETS and future emissions trading arrangements? To what extent do you think that sort of mechanism, which does in fact capture some of the wider costs involved, could underpin that future development of CCS generally?
Mr Phillips: If I could make a comment, I think that, in general, industries respond to clarity and, in particular, in the case of the electricity industry where investments in power stations, be they coal, natural gas or nuclear, are very long-term and they are typically with lives in the order of 30 to 40 years. At the moment, the ETS, I would say, has potential, but even Phase III of the ETS is not looking much beyond 2020, so, in the case that you do not know, the tendency of large corporations with large investment decisions is simply to wait and see, so I think that a clarity probably from the EU level about the mechanism, be it a variant of the ETS or whatever, would be extremely helpful, but it needs to look a lot further. At the moment we are in Phase II and we are still actually quite clear what Phase III is going to look like. It will start in less than five years' time and, if you are making an investment decision where the impact is going to only start in five years' time, that lack of clarity is a major drag on investment decisions and it is why there is a lot of desire for such projects to have near-term funding from some other source.
Dr Chapman: I am sure you are aware that
a £300 million allowance has been made available in
Mr Sharman: Within
Chairman: I am afraid that bell is for us and I am sorry as there is still a lot to talk about. There were a number of occasions when people wanted to make points and were not able to, so please write to us about those. Perhaps I could just set you a bit of homework. We talked about the infrastructure and Yorkshire Forward was talked about. Would someone, maybe Jeff, talk to your colleagues and drop us a note, saying who should be responsible for bringing that forward? The National Grid has a role in other fields of energy, so it could do something on that. Also, Mr Sharman, you were just talking about the price of carbon. If there is a floor on the price of carbon, say, at €40 per tonne into the long term, what impact would that have coming forward? With that, can I thank you all very much indeed. It has been a very useful discussion and I am sure we will talk again. Thank you.