The future of Britain's electricity networks - Energy and Climate Change Contents


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 goes—there 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 there—Energinet.dk—is 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 all—it 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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