Examination of Witnesses (Question Numbers
400-419)
LORD HUNT
OF KINGS
HEATH, MS
LORRAINE HAMID
AND MR
JOHN OVERTON
17 JUNE 2009
Q400 Mr Weir: You have already mentioned
the very challenging targets for renewables, and the fact is that
many renewable generators are in areas that are further from centres
of population; so it is likely to become an increasing problem,
both in strengthening the grid and in the course of bringing the
electricity to market. Do you think that in the particular instance
of renewable generators and the targets we are working to, that
locational charging needs to be looked at again?
Lord Hunt of Kings Heath: I would
like to see some evidence that suggests this is an inhibitor to
the development of renewables. If anything we are saying that
a lot of renewable companies want access to the grid and they
cannot get it; so that does not suggest to me that transmission
charges themselves are the issues. Although you were talking about
offshore renewables from a long distance from centres of population,
you have to remember that there are other renewables. We are talking,
I hope, about a big expansion of onshore renewables, often where
they will be much closer to populations. If you got rid of the
way in which the transmission charges work at the moment, you
would reduce those costs; but there would be an increase in transmission
costs for those closer to centres of population. I do not think
this is easy, but the key question for me is: where is the evidence
that the current charge regime has a negative impact on the development
of renewables? My colleague might want to talk about the philosophy
behind that.
Ms Hamid: As you have already
said, Minister, we need to have a system that is cost-reflective
in principle so that we can ensure that consumers are not paying
more than they need to get these network assets in the ground;
but also that we make sure, as the Minister has already said,
that these do not prove to be an inhibitor to investment. Somebody
has to pay somewhere in the system. If we do not have a signal
that helps people think in some respects about how and where they
will locate their plant, then there is a risk obviously that we
get too much investment in areas across the system that are too
far from demand. We have to remember also that these charges apply
to all generation, not just renewables. We do not want gas stations
being put in the north of Scotland, for example, when they could
be much closer to the south. It is slightly different with renewables;
there is a geographic element as to where you can procure renewable
resources. The issue then is whether there is a problem in terms
of the level of that charging, in terms of the incentive to invest.
At the moment we have not see that evidence. Equally, if there
was a massive barrier through those charges, we have the ROC,
the renewables obligation, which is a subsidy that tries to reflect
the additional cost that renewables face in order to bring them
forward. The renewable obligation banding and the way that that
is set should reflect those costs more broadly. As the Minster
said, the issue is whether we feel that there is evidence at the
moment to suggest that that should be changed. Again, at the moment
we do not see that.
Q401 Sir Robert Smith: Has the Department
done any calculations of how much the consumer has benefited from
locational charging?
Ms Hamid: We do not have a figure
to hand, but I am sure we could get you some.
Q402 Sir Robert Smith: It would be
interesting. You are saying it is for the benefit of the consumer,
obviously, but it has been a small part of the Bill.
Ms Hamid: The locational element
of transmission charges is around 15 per cent. Transmission, as
a percentage of overall consumer costs, is between 3-4 per cent;
so we are talking about quite a small element of a much larger
cost to the consumer of the various elements of the energy system.
In terms of the detail of whether compared to another scenario
where we can show the benefit to consumers, I do not have those
figures to hand, but we can certainly look into that.
Q403 Chairman: Lorraine, I am very
impressed with your mental arithmetic there, but perhaps you would
let us have a written note when you have had a chance to think
about it!
Ms Hamid: Yes.
Q404 John Robertson: Can I go back
to the evidence you say you have not had? Minister, what is the
likelihood of somebody giving you evidence if they are receiving
a great deal of subsidy from the Government and in effect being
helped to produce new elements of energy? They are unlikely, are
they not, to complain about the connection charge?
Lord Hunt of Kings Heath: My experience
of meeting these companies, whom I admire and am delighted that
they are in business, is that they are not backward in coming
forward with complaints about lack of support and the problems
them face. Because of my energy and innovation hat, I have met
with a lot of these companies and as I was saying earlier, there
are three issues they consistently raise. One is the issue of
finance at a time of the credit crunch. There is no doubt about
it that the renewables sector is having issues about raising funding.
The second is planning problems, which they consistently complain
about. The third one, which in many ways is the issue we have
discussed, but which they raise more often than anything else,
is the problem of grid access. They have not raised the transmission
charges with me. They are not reluctant to complain and talk about
their problems. If we see some hard evidence, then of course we
would ensure that that was considered by Ofgem, but at the moment
there is nothing I have got to suggest people have identified
it as a particular problem.
Chairman: You have just mentioned planning
problems, and we are reminded that the Planning Bill is going
through the Lords—a Herculean task! Let us focus on that
for a moment.
Q405 John Robertson: Minister, we
are about to put in place, under the 2008 Act, an Infrastructure
Planning Commission. They are going to use as part of their deliberations,
as it were, the National Policy Statements, of which six are applicable
to energy. Can you tell me when they will be ready, and when we
are likely to get a look at them?
Lord Hunt of Kings Heath: We are
hoping to have most of them, as drafts, out in the autumn. The
intention is that subject to consultation and of course the parliamentary
process that you have to go through, they can then be fully up
and running in 2010. Clearly, these are vitally important in terms
of getting a much more cohesive and planning system, and dealing
with some of the terrible delays that people have found in the
past, whilst ensuring that the considerations of the public are
fully taken into account. That is the timetable we are working
on. We are working very hard at the moment in the Department and
across Government in putting the drafts together.
Q406 John Robertson: What about the
one on nuclear? That was always the one that was holding everything
up.
Lord Hunt of Kings Heath: I cannot
give you a definite date, but we are hoping to make very good
progress on that. I take the implication of what you are saying,
that we cannot mess around on this. Equally, we have to make sure
they are right; but we have this draft processes and we are getting
on with it.
Q407 John Robertson: We keep getting
this promise of autumn, but when I asked the Secretary of State
this very question, "what is autumn?" we managed to
get to December!
Lord Hunt of Kings Heath: I do
understand this problem of definition of dates. I would be very
disappointed if December turned out to be DECC's autumn. I cannot
give you an absolute commitment. I will endeavour, if you let
me take this back, to write you as positive a letter as I can
about it. Believe you me, it is not in our interests to dilly-dally
on producing these NPSs; we want to get on with it.
Q408 John Robertson: In the planning
set-up we have had, particularly in England and Wales, there has
been a hold-up in getting decisions. How do you expect the new
infrastructure to work, and how much of an advancement will we
get in the decisions?
Lord Hunt of Kings Heath: The
complaints I have had is that it can sometimes take years.
Q409 Chairman: Ten years!
Lord Hunt of Kings Heath: Yes.
Not only is that incredibly frustrating for people making applications,
but in terms of making investment decisions it is very, very difficult.
I am not arguing against due process; and whatever system we have,
it is important that objectors are heard. The importance of what
we are doing is that we are acknowledging there are these hugely
important nationally significant infrastructure schemes that should
fall to be dealt with in a strategic way; that the development
of National Policy Statements allows Government to set the strategic
framework in which decisions are made. I believe that it can allow
for a transparent open system to be followed by the IPC, but the
public can also have confidence in the independence of the IPC
in making decisions. I think that this is a very sensible way
forward, which I hope will give a lot more confidence to everybody
that we have an effective planning system. Companies and investors
will get the benefit, I believe, of much quicker decisions. You
will know that we are giving an indication that the process should
take about a year, and that ought to give great comfort to everybody.
It does not mean to say that there will not be difficult decisions,
and none of us should run away from the fact that when you are
seeking planning consent for major infrastructure projects, there
will be issues from local people; but at least we have a much
more rational approach to it.
Q410 John Robertson: You are going
to have to deal with two different planning bills, one north of
the border and one south. We have seen with the Beauly-Denny Line,
which started in 2001 at conception, that we are now talking about
2012, and some people say even later, when it will be completed.
That is eleven years at least from start to finish. The Scottish
Parliament has a different planning bill; have you looked at what
they are suggesting, and are you talking to the Scottish Executive
on the good bits you want to try and copy?
Lord Hunt of Kings Heath: Yes,
we are. I have recently completed the Marine Bill in the House
of Lords, and of course a lot of our debate was about how the
different countries of the UK work together in the marine environment.
That brought a lot of the issues to the fore, how in the devolution
settlement nonetheless you ensure a cohesive approach to some
of these major issues. It is as applicable to the planning legislation
as it is to marine legislation. My officials are in close contact
with officials in Scotland. There is a very good working relationship.
We think that in the planning bill in Scotland there are lots
of issues that are consistent with the approach taken in Westminster.
I was particularly pleased to see the announcement made that in
Scotland a nine-month time limit would be applied to Scottish
planning decisions, for example on large-scale renewables infrastructure,
which is very encouraging. The Planning Act follows the devolution
settlement, so we have to make sure that we work well together
across border to make sure that it is as consistent as possible.
So far, the signals are positive on that.
Chairman: We talked earlier on about
offshore and issues of connection.
Q411 Charles Hendry: Minister, clearly
offshore wind is going to be integral to the government's renewables
strategy. It is facing significant difficulties in terms of getting
the funding, in terms of the availability of the ships, the cranes,
and the skilled labour. I want to talk about the role for Government
in trying to make it to facilitate the investment that is necessary.
We have had some very eminent academics who have told us that
they think the best system would be point-to-point connections
between the offshore facilities and the grid. We have had business,
including the National Grid, come to us and say that that is wrong;
that there should be high voltage offshore DC cables, and that
Government probably needs to take the lead in getting those in
place. Which side of that debate do you come down on?
Lord Hunt of Kings Heath: I am
not trying to dodge it, but we think that although clearly in
the work we are doing in relation to the offshore licensing regime
we have shown some support for the point-to-point connections,
clearly in the end this ought to be a commercial decision. The
reason that we have shown some favourable steer towards point-to-point
connection is because we think it is more cost-effective, and
we also think that Ofgem is very shortly to kick off the new licensing
regime for offshore, inviting tenders, and we think that the approach
we are taking, which is to encourage innovation and competition
but retaining the integrity of the National Grid, is probably
the right approach. I am not at all convinced of the need for
Government financial intervention in relation to the offshore
access. I do think that it is a matter for commercial operators
in the end.
Q412 Charles Hendry: When they gave
us evidence, the National Grid said about the point-to-point approach
that this could lead to sub-optimal network design, higher costs
to consumers, and delays to connection of offshore generation.
Do you believe that they are wrong in that assessment?
Lord Hunt of Kings Heath: Yes,
I do believe that they wrong. I believe that the arguments for
point-to-point in terms of cost-effectiveness are strong; and
also it could be that National Grid were not entirely happy with
our decision to have a competitive approach. Frankly, I think
it is a very good thing to have a competitive approach; but of
course National Grid retains its role in ensuring the integrity
and the connections of the whole system, so I think it is a good
outcome. I am confident in the decision.
Ms Hamid: National Grid has two
roles: its role in terms of the integrity of the grid is as the
GB system operator. That licence condition says that they need
to operate and maintain and develop an efficient and coordinated
network. We are extending their role offshore, so as the GBSO
it will be their job to ensure that the coordination of those
point-to-point connections by whoever it is who is building them
is efficient and coordinated in exactly the same way as they currently
do with Scottish transmission operators when they are looking
at the connections onshore. We do not see that there is a big
difference in terms of what we are proposing in terms of who is
responsible for coordination and ensuring that there is efficiency
in this. We believe that this position will be made much clearer
when we publish the offshore transmission regulatory statement
next week, with some statements from National Grid as well as
the Crown Estate, and we need to see them just to clarify who
has got to do what, and what their roles are. As the Minister
said, the key thrust behind the system is to ensure that we can
bring in an element of competition to get new companies involved
in building what is a substantial amount of infrastructure, £15
billion of network offshore between now and 2020. It is not clear
to us why we should restrict the number of companies that are
able to get involved in that investment.
Chairman: We talked about embedded generation
earlier on, and you were particularly fulsome about feed-in tariffs.
Another member of the Committee who has been very keen on feed-in
tariffs is Alan Whitehead.
Q413 Dr Whitehead: The present position
with distributive generators—and obviously this may change
as distributive generation increases—is that at the moment
they are pretty much all embedded in the distribution network,
and avoid wider transmission charges thereby. Ofgem is proposing
that those embedded generators start to move to a gross charging
system, and thereby incur wider transmission charges. Are you
with Ofgem on this, or do you think that the benefits of embedded
generation and the fact that they do not, by and large, spill
in to the transmission system should excuse embedded generation
from such charges in the future?
Ms Hamid: The issue here is that
charging issues, as we were discussing earlier, in terms of transmission,
need to be proportionate, and there has to be the right mix of
incentives across the system. In a system where we are expecting
to have more distributive generation across the piece and in the
coming decades much more intensive use of that generation flow
in two ways, and there may be arguments for therefore looking
at whether or not embedded generators, which after all we would
also expect to be quite substantial in terms of their size—our
feed-in tariffs will take up to 5 megawatt units for example—so
clearly we are looking to bring forward a lot more of these distributive
generators. They will be required to take power in two directions,
sending it up on to the transmission system—and there may
be arguments for looking at this again. However, we do not think
there is evidence at the moment that that should be the case.
We are leaving the detail of this issue at the moment to National
Grid and Ofgem. Having said that, we are looking this year to
work with ENSG on the smart grid and what that may mean. Through
looking at some of those issues, it will be clearer across the
piece what sort of regulatory charging and technology policy issues
we will need to look at in order to deliver the kind of smart
grid that large amounts of distributive generation will be a large
component of in the future. At that point, once we have better
clarity about what we are envisaging and what the barriers and
some of the costs and benefits may be, then the charging issues
should be considered as part of that.
Q414 Dr Whitehead: Forgive me—you
said you think there is no evidence of spill-over to the transmission
system at the moment; but you then said that you would therefore
leave it to Ofgem and National Grid. If you left it to Ofgem and
National Grid, presumably gross charging would come into play.
Ms Hamid: There is not evidence
that we have seen that the way the charging works at the moment
is a barrier to that spill-over. When I said that there would
be more spill-over going forward, that is because we would expect
to have much more distributive generation on the system. Therefore,
on a network with a lot more DG capacity, there may be a case
for looking at whether the charging principles as they stand at
the moment are right. As I said, we need to look at that in the
broader context of where we want to be going with distributive
generation, with the DNOs, with the regulatory framework, with
our technology policy, so in the broader mix. At that point we
can then examine whether or not charging issues are fit for purpose,
and at the moment we are not getting involved in that.
Lord Hunt of Kings Heath: Clearly,
we will look to see more distributive generation in the future,
and whatever charging system comes out in the end we would clearly
not want to disincentivise that development, which is hugely encouraging,
and why the decision on FITs last autumn was the right one, and
one that I was delighted we were able to make.
Q415 Dr Whitehead: If indeed we do
have a lot more distributive generation then the distribution
system itself, which tends shall we say to point one way at the
moment, may well then come under review, not only in terms of
the question of charging but in terms of whether the system needs
to be strengthened. I imagine that consideration will then be
given to the combination of what measures need to be undertaken
to strengthen the distribution system and how those are set against
the undoubted benefits of having a much greater level of distributed
generation within the system. Do you envisage making progress
towards a more permanent system of distributed charging and to
what extent might that incorporate what needs to be done as far
as the distribution system itself is concerned?
Ms Hamid: As I mentioned, we will
be doing some more work on what we are calling our vision for
the smart grid this year, and a core element of that is obviously
to look at how we will manage the increase in distributed generation
that we expect, what that means in terms of what the distributive
generation network operators currently are able do to and what
the existing assets are able to do, so what capability is there
already on the network to use power to flow two ways. As you said,
at the moment it tends to be a passive network but with much more
distributed generation and increasing use of electric vehicles,
much more intermittency on the system, the use of demand side
responses, smart meters, all of these suggest much more volatility
all the way down into the distribution networks, which would pose
significant and new challenges to those distribution network operators.
As part of our work on looking at what might the smart grid mean
and what we need to do to gain the benefits of smart grid capability
in the UK, we would clearly need to look at the regulatory framework
and other issues that may be a barrier against it.
Lord Hunt of Kings Heath: I do
think this is a challenge that we should welcome because clearly
it could be very beneficial. You have the distribution price control
review at the moment that Ofgem are undertaking. You also have
their work on RPI-X@20, which also will allow Ofgem to look at
distributive generation issues as well. Alongside our work on
smart grids I think that we can ensure that we have got the mechanism
to look at these issues and make sure we come up with something
that meets the requirement.
Chairman: Let us move on and talk about
innovation and the smart grid. Charles?
Q416 Charles Hendry: Particularly
looking at smart meters in relation to that as well, I think everybody
was very pleased when you accepted in the House of Lords that
the MGF should be changed and that smart meters should be part
of that with an intended target for 2020. Is there more that could
be done to roll this out faster? Everybody we talk to—the
industry, consumer groups, environmental groups—are all
saying 2020 remains pretty unambitious and that more should be
done to get it in place by 2016/17. What more could be done to
make that happen?
Lord Hunt of Kings Heath: It was
a great joy to be able to introduce the changes in the Lords on
this and they were widely welcomed. I think all of us can see
the benefit of smart meters, not just in terms of being a foundation
to a smart grid but just enabling customers to make more effective
use of the information that they can have and hopefully benefit
from the ability to have much more control over their own energy
use and requirements. I think that Ministers too would like to
have an ambitious timetable but we have to recognise that this
is a formidable challenge to replace all current meters by 2020.
The decision was made last autumn. We are doing a lot of work
on it at the moment and of course we will come forward with detailed
proposals in due course. Can I say that I do understand the enthusiasm
that there is for a speed up but, equally, at this stage I am
not really in a position to say any more than that. We are of
course consulting on the delivery model which in itself is a highly
interesting point. Do we think that smart meters have a lot to
offer? Yes. Are we keen to get on with it? Yes. But we do think
it is formidable and that is why when we made the decision to
go for smart meters we were very clear to say that we thought
it had to be done over a ten-year period.
Q417 Charles Hendry: Can I ask you
as well in relation to smart meters and smart grids how you win
the PR battle? The Daily Mail had a headline a while ago
saying now the Government wants to put a spy in your fridge, so
there is a degree of suspicion which may be there whereas for
many people we think there are going to be incredible benefits
in terms of enabling them to choose a lower or more favourable
tariff by using off-peak power and the smart grid will have incredible
benefits in terms of managing demand. Does the Government have
a vision for that and how you are going to win people over?
Lord Hunt of Kings Heath: We are
very much working on it. I agree with you, one of the joys of
my new role is that I am no longer `Minister for Light Bulbs'
and therefore no longer have to respond to the Daily Mail's
issues around that. It is interesting to comment that in the previous
few months before they had their campaign that they were offering
advice to householders on how to save money and suggested they
buy energy-saving bulbs, but I say that in passing. I think that
we have got to get the communication right and of course a lot
of the argument about the delivery model is ensuring that we have
a very robust communication system. Of course it is two-way because
clearly whilst there is a lot of information that will become
available to us as consumers, equally information that goes to
the companies and the grid allows us to operate a much more efficient
and effective energy system and we do have to put that across.
However, already there is information that you can have which
shows your electricity consumption in real time and I have known
people who use that who find it immensely helpful. It has led
to people changing some of their habits. I think that the advantage
of smart meters is people will readily see that it really puts
them in control. I think the Committee will be aware that the
work that has been done in terms of switching shows, if I remember
rightly, 40 per cent of customers who switch either got no benefit
or actually ended up paying more. Clearly we have real problems
in terms of the public's understanding and the accessibility of
information. Here with smart meters is a fantastic opportunity
to give individual members of the public much more control and
that is the way we have to sell it. I think also the more people
understand—and I believe we are reaching the tipping point
in relation to people's understanding about climate change and
why we have to move to a low-carbon economy and why we need to
do everything we can in relation to energy efficiency—then
people will increasingly see this as a tool which is valuable
in their own homes.
Q418 Chairman: Alongside rolling
out smart meters there is a desire to roll out energy efficiency
measures. Could the two programmes be brought together?
Lord Hunt of Kings Heath: I certainly
think that we need to do everything we can to encourage energy
efficiency and there is absolutely no reason why in terms of the
kind of information that will have to be given to individual householders
that we can use that as a way of reinforcing the need for energy
efficiency. You will be aware, Mr Tipping, that my Department
is doing a lot of work at the moment. There are two things, first
of all it is encouraging people to look at the way they use energy
and just in our individual decisions to be much more efficient.
Equally there are issues about how do we make homes and how do
we insulate them. Those are very hard issues and once the low-hanging
fruit has been plucked—and we are getting to that—how
do we deal with homes where it is not so easy. Those are big issues
which my Department is dealing with at the moment. I think the
whole thing goes together.
Q419 Judy Mallaber: Overall why do
the network companies have such a poor record on investment in
research and innovation?
Lord Hunt of Kings Heath: I do
not know if you have got the figures. The figure I have got is
something like for the last year 2007-08 the National Grid invested
£3 million and the distribution companies invested about
£12.1 million. It does not seem very high. I think the kindest
interpretation is that it reflected a rather static situation.
Now we are moving into a very much more critical and exciting
period in terms of both the grid itself and the distribution companies,
and clearly I would want to encourage more investment. My understanding
at the moment is that as far as the distribution companies are
concerned that Ofgem will allow them to invest £100 million.
They are not doing that; they are investing about £12 million.
I also understand that Ofgem consider they could increase that
limit to £500 million. I have to say that we would very much
encourage that, but looking to the future, looking to the discussion
we have just had about distributive generation, looking at the
implication of smart meters and smart grid, this is the time when
we need innovation. We will do everything we can. We will encourage
Ofgem, too, to make it as easy as possible for companies who wish
to invest.
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