Examination of Witnesses (Question Numbers
60-65)
DR MICHAEL
POLLITT, PROFESSOR
GORAN STRBAC
AND DR
JIM WATSON
1 APRIL 2009
Q60 Anne Main: Can I take you back
to the consumer paying more, particularly if they use "dirtier"
fuel? Can I ask you to address the problems that many people in
rural communities express about their choice of what fuels they
can use? Also, can you just touch on the billing system? Do you
think the billing system should make clearer as to exactly what
you are paying for; whether it is green initiatives, whether it
is investment or whether it is subsidies, even? I would like to
have your views on this. If you are going to ask people to pay
more I would like to know how you are going to sell it to them
that they are going to pay more.
Dr Watson: I can certainly answer
the second part. The point is there are going to be costs, whatever
way the system goesthere is not a cheap route and an expensive
route to the long-term targets. I definitely think there is a
case for very clear information about what people are paying for.
A lot of industrial consumers have this; so how much of their
bill is the renewables obligation; how much of it is the EU Emissions
Trading Scheme and what are they paying for in terms of the Carbon
Emissions Reduction Target? Companies claim they are making all
these investments in energy efficiency and most people do not
know they are actually forced to by regulation, so it is the consumers
that are paying, not the companies. I think it is very clear that
we must have that information as well as any other further information
about, for example, allowing people to know that they are actually
on a green tariff (if that is what they are on), and clarity around
that. I think that is a pre-requisite for an open debate in society
about the costs and how we meet these targets, yes.
Q61 Anne Main: Rural communities.
Is somebody going to address that?
Dr Pollitt: One would not want
to necessarily differentiate between rural and urban communities,
because, as we know, there are more urban poor than there are
rural poor.
Q62 Anne Main: I was not talking
about poor; I was talking about choice of provider. Also, the
connectivity in going out to rural communities can often be far
greater. If you talk to other providers, such as Calor Gas, they
are very unhappy that they are the product of choice for a rural
community but they are being squeezed out. If you are going to
go down a certain route, how would you justify the consumer in
a rural community, for example, having to pay a lot more if they
have not got any choice?
Dr Pollitt: I want to question
whether they would have to pay a lot more. There is certainly
an issue, which, as you know, Ofgem has been investigating, about
people who are off the gas grid being charged higher prices for
electricity. Ofgem have brought forward some proposals to reduce
the price discrimination against those customers. Of course, in
a low-carbon world people who are in rural communities may actually
have much more opportunity to access cheap, low-carbon energy
than people in urban communities, so they may have options for
own-generation or access to locally produced energy, which if
we move towards this efficient low-carbon world, they would be
able to access much more cheaply than people in cities. So it
may be the case that in the future people who are in rural areas
will be much more advantaged by the system than they are at present.
Chairman: In the last point today we
touch upon some other countries and what we can learn from them,
in terms of Denmark, for example. They are not always strictly
comparable, as we noted.
Q63 Dr Turner: We have already brushed
with this. There are clearly lessons to be learned from other
countries. In particular, I think, it is probably fair to say
that other countries have got further in achieving the social
objectives which we have for our energy networks. So would you
like to comment on what lessons we can particularly learn from
other countries and how we should deploy them in the UK context?
Dr Watson: I think we can learn
lessons. Some of those lessons are about networks and network
investment; for example, in some other countries this issue of
socialisation of costs is just taken as read, and has been for
a long time. They did not, for example, in Germany have the debate
we had a few years ago about new wind farms and whether they would
pay the cost of the line to the network, as well as all the cost
of the network reinforcement. When I talked to German research
colleagues at the time it was happening in the UK they did not
understand what I was talking about, and I had to explain it.
Actually, it was just taken as read that you pay for the line
and the investment and the system takes care of itself. There
are pros and cons to that but, certainly, what that has done is
presented less barriers to progress in terms of renewables deployment.
Of course, there is the age-old discussion between feed-in tariffs
versus the renewables obligation that we have had, and saying
the feed-in tariff is less risky has, again, led to more deployment.
So I guess there has been a tendency towards accepting that once
the social goal is set you do it and you worry less, perhaps,
than you do in the UK policy environment about the costs and about
issues like efficiency. Costs and efficiency are there as important
issues in the mix, but they are lower down the order of priorities.
For Denmark, I think the interesting thing is that they have sort
of gone for deployment of wind, and then dealt with the problems
when they have arisen. When they have reached a point where they
have got a lot of wind and they are really relying on the neighbours
a lot, the company thereEnerginet.dkis actually
investing in a lot of technical solutions to think about how do
we reduce that and manage that? However, they have waited until
the problems have arisen, so, again, it is a rather more pragmatic,
shall we say, approach of getting on with it and solving the problems,
whereas my view on the UK is you anticipate the problems, worry
about them, but actually, in the meantime, what progress are we
making towards the target? So it is the other way round, but other
colleagues may have different views.
Dr Pollitt: I think this is a
strong argument for having much more experimentation and waiting
and seeing, because it is obvious, when we look around the world,
that the UK has much more ambitious targets than almost anyone
else, and there are not really any good precedents. The only precedent
that there is for the sort of decarbonisation that we are aiming
at in global history is the French nuclear power programme, and
that was the only thing that has decarbonised a whole large economy
on the same trajectory that we are trying to achieve over the
same period that we are trying to achieve it. Of course, that
only did the first 20 per cent; it did not take them to an 80
per cent reduction in CO2. We need to recognise that there are
lots of interesting little things going on around the world, but
there is nothing on the scale that we are envisaging. There are
areas which I think are worthy of more study; we do need to look
more carefully at the Scandinavian experience, in particular the
diversity of companies that they have and the success of what
has happened in places like Norway and Sweden in terms of their
electricity markets, relative to ours, where they have followed
a very different model to us but which seems to have been equally
successful. I think we might need to look carefully at the experience
of the United States and some of the demand-side management programmes
that they have in the United States, particularly in places like
California where they have strongly incentivised local utilities,
as we have heard, to demand-side management, albeit, of course,
from a very high demand usage base.
Q64 Sir Robert Smith: When we were
talking about locational pricing transmission, the generators
obviously lobby us hard that those from the North lose out because
they have to pay more, but the regulator comes up with the converse,
and I wonder if you could confirm your understanding. Of course,
the consumer in Scotland should be benefiting under the current
regime.
Professor Strbac: It will not,
because it is excluded, unfortunately. Fundamentally, it will
not.
Q65 Sir Robert Smith: The consumer
does not benefit from the locational
Professor Strbac: How I see the
TAR is all about generation; demand is not discussed. Demand is
not part of the picture at allit has been excluded. It
is a massive missed opportunity.
Chairman: Thank you very much, gentlemen.
That was an excellent discussion, although you seem to have raised
more questions than we thought at the very beginning. It has been
a very, very helpful input to our Committee. Thank you very much.
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