Examination of Witnesses (Questions 339-365)|
RHIAN KELLY, AUDREY GALLAGHER AND RICHARD HALL
15 MARCH 2011
Q339 Chair: Good
morning and a warm welcome to the Committee. I am sorry we are
running slightly over time. We are quite tight today. Could I
start off by asking a general question on whether you think affordability
of electricity for consumers has been given enough emphasis in
the EMR consultation process?
I think probably our immediate reaction would be that there was
not the same degree of emphasis on affordability as there was,
for example, on decarbonisation. Clearly, the challenge that we
have at the moment is to try to balance the three objectives coming
out of the EMR, around security of supply, decarbonisation and
affordability. So I would say an immediate reaction to that would
be that more should have been done. We have 5.5 million people
in fuel poverty. It is not as if it is an insignificant issue
Q340 Chair: Obviously
energy efficiency can help people with bills. Do you think the
Green Deal will deliver as much reduction in demand as the Government
The Green Deal is clearly still in its development stage at the
moment, so it would probably be unfair to be overly critical of
it, but I think there are definitely some questions that we think
we need some reassurance on. One of the challenges we have is
how we make this attractive to consumers. So there is an issue
at the moment where consumers are clearly not that bothered with
energy efficiency. There is not massive attraction there. So what
can we do? In the earlier session, we spoke about how we can incentivise
that. Whether it is through regulation, carrot-stick approach,
there are quite a lot of things we have to do on that front.
Q341 Chair: Is price
not a concern for business as well?
Rhian Kelly: Yes,
sure, it is absolutely the case that part of the discussion we
have been having with businesses is around the affordability and
the impact on businesses. I think for some, particularly if you
are competing in the UK market and it is only a small proportion
of your costs, then the direct impact from the EMR package for
competitiveness should be manageable. We are concerned because
there are certain sectors where competitiveness will be a challenge,
particularly if the costs rise to more than their competitors'
Some of the work that the Treasury did indicates
a list of sectors that might be at risk. We think more needs to
be done to look at the impacts in more detail in these sectors.
It is not enough just to say, "Well, they will be able to
manage the costs." The concern we have heard from many businesses
is the fact that they will not be playing on a level playing field
internationally and this is a big concern for them.
Q342 Chair: Is there
a danger that the very high energy users might in fact want to
relocate abroad if they find there is too much disadvantage here?
Rhian Kelly: I
think it is a risk. Some of the indicationswe have evidence
from certain companies, so for example a major chemical site has
said that one of the impacts of the carbon floor price might well
be that its earnings before business interest, taxes, depreciation
and amortisation go up by about 50%, so therefore will be thinking,
where should it make its investments? If it is to make its investments
somewhere else, it could mean the emissions from that site go
up by two times. So, clearly, we need to make sure that we are
able to insulate some of these sectors from the price rises.
Q343 Sir Robert Smith:
I wanted to ask you again on the Green Deal. Do you share maybe
the view of the previous witnesses that, to achieve really serious
reductions in energy usage, especially in the domestic market,
it is more going to be achieved by regulation than by price mechanism?
At the moment, because there are so many questions over the finance
mechanism and whether or not it is going to stack up to an attractive
proposition for consumers, we have to probably do something to
incentivise them. Some of the things that we have discussed are
potentially doing something on council tax rates or even on stamp
duty that incentivise people to take this up.
I think there is a whole other area that we could
probably put some attention on, and that is the private rented
sector where lots of houses on really low energy efficiency ratings
are being rented out. Arguably, with the Green Deal, where there
is no upfront capital cost to the landlord, that could be a mechanism.
Again, in order to do that we might have to think about whether
or not we allow houses below a certain rating to be rented out,
for example. So I think there is definitely a lot that can be
done around incentivising consumers through regulation.
Q344 Sir Robert Smith:
Certainly, my experience of Warm Homes Week for the last 13 years
is that even with free insulation it is quite hard to sell to
some people because of the upheaval or the disruption, or the
lack of understanding of the long-term financial benefits.
I think we spoke before about these reforms and the impact on
consumer bills, how we can engage consumers in that debate, what
is the pace and the scale that they can accept, and what is going
to be the trigger to change behaviour. I think we have to explore
all of those things, but also around much more co-ordination on
why the Government schemes and mechanisms to mitigate increasing
costs. I do agree with you. One of the sayings in the industry
at the moment is, "You can't give it away for free",
so what is the likelihood of somebody taking on quite a significant
financial obligation for a number of years when it is a completely
unproven technology? So that is probably why we have to look at
how we engage consumers, what the communications message is, how
we do that centrally, and how we engage them in areas where there
are potential triggersso whether that is the installation
of smart meters, which has already been mentioned, or around moving
house, getting an extension, fixing the house up. It is about
taking advantage of those. So I think we really do have to have
a think about how we can engage consumers in this debate and get
them involved to see the behaviour change. Quite a lot of that
is predicated on, on people doing something definitely.
Rhian Kelly: If
I could just come in there, because we commissioned some really
interesting work with Ipsos MORI at the back end of last year,
looking at what consumers understand and what information they
have available. Some of the output from that research indicated
that one of the challenges is there are a couple of different
debates going on: there is a debate of policy makers and businesses;
there is the discussion that consumers are having. So we sit and
talk about climate change, environmental impact and consumers
are thinking energy efficiency and cost to run. It is something
about the way in which we package the information, particularly
inside the Green Deal, in order to make sure that we are talking
the right language.
Sir Robert Smith: A money
saving deal maybe.
Rhian Kelly: It
might work better, for example. The conversations we have had
because the Green Deal will not just be for households; potentially
it is also for businesses, particularly SMEs. I very much pick
up the points that Audrey made that there is a real concern that
actually businesses are not just going to do it. They need to
have some incentives in the same way that consumers did. It might
be that there are appropriate points where there is a use for
regulation like, for example, displaying energy certificates might
be very helpful in this, then particularly linking into the trigger
points when property changes hands, for example, or in the case
of consumers if you have a baby where it might change the way
in which you use your homes. So I think picking up those things
inside the way in which the Green Deal is designed will be very
important for making it effective.
Q345 Sir Robert Smith:
Businesses, though, who at least have a finance department looking
at the bottom line, are they more up-to-speed on energy efficiency?
Rhian Kelly: Yes.
Q346 Sir Robert Smith:
Are there also still challenges for certain scales of business
and maybe for certain kinds of properties where the lifecycle
of the property doesn't work for longer-term efficiency.
Rhian Kelly: From
the perspective of our members, yes, all businesses are engaged
in energy efficiency. You have things like climate change agreements;
you have climate change levy; you have the CRC to help that along,
I would suggest, though, that probably for micro-enterprises it
is not the same. We kind of recognise that in lots of ways they
are dissimilar to domestic consumers, in terms of the knowledge
and skills available to them and even the time. From switching
and competition, probably micro-enterprises are switching at a
rate of less than half the domestic consumers because there is
lack of transparency around pricing offers; there are different
contractual arrangements that lock them in. So we do have some
disparity between the small end of the non-domestic market, the
micro-businesses, and some bigger companies that are going to
be resourced to cope with these things. They are going to be much
One particular concern we have around the Green Deal
is that you reference there a potential change to usage. So what
we are seeing at the moment is the fixed deal charge being a fixed
charge on property, regardless of how that is used and, therefore,
what the energy consumption might be. There are potential limitations
if a business changes hands and is used for something differently,
something much more energy intensive or less energy intensive
as the case maybe. There are some limitations. So I think we have
to make sure we get the protections right around the Green Deal.
Q347 Dr Lee: To be
blunt, do you think there is a dangerand excuse the punof
insulating the consumer from the realities of the world that we
On a personal level, I think one of the concerns I have is there
has not really been any meaningful consultation, for want of a
better word, or discussion with consumers about the need to decarbonise
and the costs associated with that. We are looking at real fundamental
changes in the retail energy supply market, going forward, with
the introduction of smart meters, with the Green Deal and all
these other initiatives that we are seeing.
What we are pushing for is a much more central communication
that gets the message out to people, because we need to tell them;
we need to get them on board, because for example the impact assessment,
the benefits case around smart meters, about 40% of that is predicated
on consumer behaviour change, either taking up time-of-use tariffs
or energy efficiency measures. We cannot expect that people are
going to do that without any kind of prompt or without any appropriate
Q348 Dr Lee: Yes
but, forgive me, petrol prices are going up at the pumps at the
moment. You do not have to be brain of Britain to realise it is
best to have an efficient car at the moment that goes 50 miles
to the gallon as opposed to 30. I sometimes think this is over-complicated.
If I am looking at my bills at the end of the year, do I not think,
"Well, how can I save energy because all the costs are going
up?" I am not following the need. In business, if you talk
to a number of businesses, they are getting in consultants now
to say, "Right, where can I save energy?" and they are
taking 20% off their energy costs, thereby increasing their profit.
It is pretty obvious what they are doing, they are trying to maximise
their profits by reducing their energy. Is running a household
not exactly the same? I do not know what more engagement you need
to make with people, other than: do not waste energy.
I think the difficulty we have is that, historically, it has been
so difficult to get people to engage in this. There will be a
whole range of reasons around about that. One is that potentially
people want to spend money on things they can see; things that
will have a benefit to the house. If you ask anybody, they would
take a new fitted kitchen probably before they would take loft
insulation they cannot see. So there are some definite economic
Richard Hall: There
are things around things like, for example, security of tenure
for private rented tenants where essentially the payback time
for making an investment in a property
Q349 Dr Lee: Yes,
but on that specific case, if you as a landlord had a flat with
an energy rating of A and a second flat with an energy rating
of D, I would suggest that the market's approach to that would
be that it would be cheaper to rent one or the other.
One of the things that we have looked at is energy performance
certificates and the visibility of those on either house sales
or new tenancies, and only one in five consumers currently even
sees the energy performance certificate. So the information that
Q350 Dr Lee: You
can lead a horse to water. Ultimately, if you are looking at your
balance sheet as a household, I do not think it is beyond the
wit of a great majority of our population to say, "Right,
I am going to rent that house because it has a better energy performance
certificate." I don't know what more you have to do other
than say, because then you are passing the cost on to the person
who holds the asset; the person who owns the property, so they
could take a long-term view, and the person who is on a short-term
view because they are renting can take their view on the basis
of the energy rating.
Rhian Kelly: Interestingly,
when we did this research with this Ipsos MORI, we asked questions
around that and 70% of people do not consider energy efficiency
when renting or buying a house.
Q351 Dr Lee: That
is their fault then, is it not?
Sir Robert Smith: We suffer
because we have to provide the energy generating capacity.
Dr Lee: Of course, but
if the price goes up because they are wasting itI am just
getting a sense of baby feeding going on. When the reality is
that most people, when they look at the cost of their car or the
cost of their Sky Digital, whatever it is, they make judgments
about what they are prepared to pay and what they are not prepared
to pay, it appears to be suggested that somehow they do not really
understand energy, so therefore we are going to have toI
don't follow, sorry.
I can understand your point, in that what often seems obvious,
consumers do not always act in completely rational ways. I think
we have seen that across a number of markets. We know the situation.
We know that people do not act on the information. It is either
not relevant to them or they don't have access to it, so I think
we need to make sure that there are ways to encourage that.
A lot of the stuff in the EMR, for example, is looking
at how we can incentivise low-carbon generation, but should we
be thinking about more ways in which we can incentivise the demand
side? It might be that providing them with better access to information
or simply spelling it out to them that this is where it is going,
because there is a big debate on at what level bills have to be
before it is going to act as the nudge, if you like, to make people
change their behaviour. So right now we are not seeing it. What
does it have to be? Do we just keep building more and more and
more or do we try and intervene with consumers to get them to
change their behaviour, either through a carrot-or-stick approach
or providing enough information?
I completely understand what you are saying, but
consumers are not acting in that rational way, so we need to try
and help them do that.
Dr Lee: Okay. Thank you.
Q352 Dr Whitehead:
What impact do you think the CMR proposals are going to have on
fuel poverty overall? Some people have suggested that the figure
might rise from the present 4.5 million to about 7 million in
fuel poverty, as a result of these proposals. Is that your view?
Richard Hall: I
do not think we have a view on the final figure that is likely
to be reached, but certainly the modelling appended to the impact
assessment suggests that fuel poverty figures will rise, certainly
from where they currently are. I think all the scenarios modelled
are predicated against the baseline that forecasts that electricity
wholesale costs will approximately double in real terms by 2030.
It seems unrealistic to expect that disposable incomes will increase
by a similar fraction, so one would certainly forecast a deterioration
in fuel poverty.
It is difficult to put any precise figure on that,
though, because there are so many variables within the market
that make coming up with any kind of precise forecasting any distance
out, very difficultat the risk of being very spurious,
to be honest.
Q353 Dr Whitehead:
Do you think the Government programmes that there are at the moment
and proposed programmes to tackle fuel poverty will significantly
mitigate those sorts of impacts? Have you done any modelling or
had any thoughts on the relationship of proposals, such as ECO
and the poverty premium, and so on, and the extent to which they
will make inroads on that, possibly increasing fuel poverty or
will they simply flatten it out?
We have not done any specific modelling. We have done some modelling
on how much it would cost to provide specific levels of energy
efficiency, so bringing some minimum standards into the housing
stock, which is going to help on fuel poverty, some of the costs
of that. The impact of some of these clearly depends on what the
final figure comes out at.
We have some concerns. Hypothecation is not something
that the Treasury is massively interested in, but clearly we do
have concerns about the costs associated with carbon price. Ways
that we think we could mitigate the cost of decarbonisation: one
is we do not have any real co-ordination across Government schemes
at the moment. On things like warm homes discount, whatever the
energy company obligation is going to be for low income consumers,
because obviously Green Deal is not necessarily going to be any
help at all to fuel poverty, some of these things have definite
eligibility criteria for a start. There are big issues on the
amount of money that is wasted in trying to find these customers
and targeting their spend. Given that consumers are funding these
measures, we want as much of the money as possible going to the
people that need it.
Some of the things we are trying to explore at the
moment is whether the data sharing that went on around pensioners
being identified for warm homes discount can be extended to try
and identify the wider, broader group that would be eligible for
warm home discount. Also, on smart meter roll-out, should we have
an assisted package for low income vulnerable households to make
sure they get as much information as possible to help them change
their behaviour and make their homes more energy efficient? Can
we be targeting the super-priority group and the energy company
obligation through better data sharing? We think there needs to
be much more co-ordination across schemes, so that we do not waste
money on the administration and the people that really need it
actually get it.
Ideally, we would be looking at any tax revenues
raised to be used to either underpin the finance on Green Deal
for people that would not necessarily be able to access finance
through the markets. That might be one opportunity. Also looking
at micro-generation and what is actually included in the Green
Deal, what measures are included? There is quite a lot we can
do to better co-ordinate and target existing programmes to make
sure that we get the best from them.
Richard Hall: As
an addition to that, I think also the extent to which we need
to find ways to mitigate costs is dependent on the methodology,
which is approached through EMR. So you have a range of measures
on the table, and certainly some of them would appear to be more
cost-effective than others. So, for example, in a world where
you have FITs with contracts for difference, it is quite questionable
exactly what the amount of the carbon price approach is, but if
you go down the route of increasing carbon prices in the short
term that is likely to create consumer detriment in its own right.
The shallowest of the tax trajectories modelled by the Treasury
suggested receipts of about £200 million to £400 million
per year in direct taxation. So that transposes to about £10
to £20 per household. That is for the lowest tax band. Clearly,
the fact is that the additional tax take will increase any heightening
of the carbon trajectory beyond the lowest we have modelled.
Ultimately, one would expect those additional costs
flowing through to increased wholesale costs to ultimately find
their way through to retail bills. So, essentially, the decisions
you make about the extent to which you want to inflate wholesale
prices will have an impact on the extent to which you need mitigating
measures elsewhere to try to manage affordability.
Q354 Dr Whitehead:
What you appear to be suggesting is some form of hypothecation
and recycling of receipts from, for example, carbon floor prices,
carbon tax, into mitigating the effects of EMR on fuel poverty.
The Government impact assessment did suggest that lowest income
deciles and single pensioners would be hardest hit. Would you
envisage some form of rebate coming to those groups, or do you
think an extension, as you suggested, of energy efficiency measures
that are already under way might undertake that mitigation effectively?
Richard Hall: I
think that is possibly an answer in two parts, if I can take one
part and pass the second over to Audrey. I think I would highlight
that simply our preference would be not to go forward with the
Carbon Price Support mechanism in the first place. Seeking some
kind of hypothecation or means of targeting the tax revenues raised
back to consumers, they must be at least a second-best choice
or a least-worse choice. It would be preferable to avoid putting
yourselves into a situation where you needed to mitigate the effect
of a significant and direct tax hike, but if you were to, that
is perhaps the bit where
Yes, I think we can understand what the potential difficulties
around that might be, in terms of knowing what the levy is going
to be from year to year because of the link to the EU ETS. I think
probably where we are coming from, and loads of people say this,
it is a fairly regressive way to raise tax if it is on low-income,
single pensioners who are probably not in the tax system at the
moment, but they are now having to fund this through bills. So
I suppose there is a question on: how do we collect this through
Quite a lot of the environmental levies at the moment
are on a per household basis, rather than a per unit basis, so
regardless of how low your income is or what energy efficiency
measures you have adopted to try and reduce your running costs,
you are still being hit with this fixed cost. So there is a question
about how we collect some of these, whether it should be on a
per unit rather than a per household basis. I suppose that is
The other thing if we did move to hypothecation,
clearly it could be about mitigation. Now, whether that is through
an extension of warm homes discount, an actual reduction of the
bill, or whether it is the longer-term more sustainable solution,
which is investment in energy efficiency, because, in the future,
it does not appear that we are going to have any taxpayer-funded
energy efficiency programme. So that is certainly one use where
we could put the money.
Q355 Chair: Do you
think that consumers realise how much their bill is going to go
up in the next decade?
I do not think so. To me, there does not appear to have been a
huge amount of engagement on it, and it is not something that
is immediately apparent. It is quite an intangible thing when
you speak about the structure and the operation of the wholesale
energy market. On people's engagement with their supplier, if
you're lucky, there are round about 50% of people that have engaged
in switching supplier, because I think consumers see that as the
main mechanism to save money, that you switch supplier.
We did some research with consumers around some of
the proposals for the Energy Bill about putting additional information
on customer bills, so lowest cost tariffs and comparators against
neighbours. When we did the focus groups for consumers, even the
top income quartile, there was absolutely no concept that the
same energy supplier would charge different prices for their customers.
Nobody realised that they could save money by moving onto a different
tariff or paying in a different way with their existing supplier.
So I would suggest that generally consumers are not tremendously
engaged in energy. Arguably, why would you be? It is an essential-for-life
service. It is just there. It is not something that people give
a tremendous amount of thought to, so I do think we have to think
about how we can engage consumers more on this and educate them
Q356 Chair: Does
the Government have a role, a responsibility, to try and help
So, what we have said is we are going to have a mandated roll-out
of smart meters, which is a Government programme. There will be
in-home displays in meters in the house, which is basically a
Government programme for consumers. Clearly, there are advantages;
that Government has to do that properly. We have another flagship
programme, which is the Green Deal. For that to be a success,
we think there needs to be half-decent communications and a central
co-ordination programme, so there is definitely a role for Government.
How it wishes to discharge that function remains to be seen, but
I do not think that we can just put stuff out there and expect
that, en masse, consumers are going to take it up. There has to
be an engagement strategy and a communication strategy.
I know, for example, on Green Deal, there is quite
a lot of hope being pinned on high street retailers coming in
and really selling this proposition. I suppose at this point in
time we just do not know. So I think we need to do something and
maybe the "wait and see" approach is not going to drive
the behaviour change that we need fairly urgently, as we see quite
quickly increased bills coming down the line.
Richard Hall: I
do not think it is necessarily possible, or practicable, for Government
to force consumers to help themselves, but I think Government
can have a role in helping consumers to help themselves. So, for
example, if you look at issues around tariff complexity, or the
extent to which there are issues constraining consumer's ability
to choose between suppliers to save themselves money, there is
still more that can be done in that area. If you look at the market
structure, we still have very liquid wholesale power markets,
and it may be that by looking at structural remedies there that
allow additional entry into the marketplace you could open up
a process of increased competition in both the upstream and downstream
sectors, which would be something that would be of benefit to
customers and is something where I think Government could play
Q357 Sir Robert Smith:
Could you remind meI'm trying to rememberwhen data
sharing was first mooted as the response to fuel poverty, and
how long it has taken us to come this far?
Probably a couple of Energy Bills ago, I would have thought, with
all these discussions on social tariffs or social price support.
Then I think the vehicle for providing that was in the Pensions
Act. Having learned from that, we hope it could be extended but
also extended out into wider programmes.
Q358 Sir Robert Smith:
Do you think a bit more urgently?
I think we would look for this coming Energy Bill or welfare reform
to try to address that.
Q359 Chair: Looking
at the various EMR packages, are there some that are more threatening
to our competitiveness than others?
Rhian Kelly: I
am going to go through the four bits of it. From a CBI perspective,
we like the low-carbon feed-in tariff proposal and think it will
encourage new investment. We think that it will probably be appropriate
to have different arrangements for different technologies.
On the pillar of the EMR around the emission performance
standard, we do not think there is any need for an emissions performance
On the third bit of the package, the capacity and
demand response, we think more work is required on that to understand
that in more detail.
On the fourth bit, the Treasury consultation or the
Treasury work around the Carbon Price Support, as Government is
going to introduce it, we think there are a number of things that
it needs to do to mitigate business concerns around price impacts.
Q360 Chair: Do any
of these more difficult ones threaten jobs at all?
Rhian Kelly: I
think it depends on what we do to remediate some of the concerns.
One of them from our perspective would be to ensure that if a
carbon floor price mechanism is introduced, it should start at
a low level and build up towards the anticipated EU ETS price
by the end of the decade. We also think there is more work to
be done on climate change agreements, in terms of ensuring that
they protect certain sectors from the cumulative costs of policy.
We think that also there is a role protecting the economics of
CHP and, as under Phase III of the EU ETS, that CHP is exempt
from the carbon price mechanism. Finally, more work is to be done
to look at long-term contracts and how they could play a role
in ensuring we remain competitive.
Q361 Chair: Does
the rather limited capacity of the interconnectors mean that there
is no real risk of capacity being located abroad, as a result
of policies in this country?
Rhian Kelly: It
is something that we have thought about and looked at. I guess
one of the challenges is that we want to have an EU liberalised
market. We want to make sure that whatever we do in the UK, we
have a more liberalised market for the whole of Europe.
Richard Hall: I
think one of the complexities in looking at that kind of issue
is, because essentially you are creating different taxation regimes
at opposite ends of the interconnector, on the margin, it may
mean that it is more attractive to import electricity into the
UK rather than export it, but because essentially the EPS is a
variable tax rate to top up to a trajectory and we do not know
at this stage exactly what that tax top-up will be in any given
year, it is quite hard to forecast what the impact will be on
investment decisions. It does definitely make it more attractive
perhaps to invest in plants slightly outside our borders than
it has been in past.
Sir Robert Smith: Offshore.
Q362 Chair: Professor
Grubb suggested to us that, although there may be lots of companies
that would like to procure green electricity, they do not do so
because under the double accounting rules they cannot claim any
credit for that in their own environmental reporting. Is that
Rhian Kelly: It
is a bit of a tricky issue, to be honest, and we have not previously
supported recognition of renewables of self-generation within
the carbon reduction commitment or carbon reporting because you
get double accounting. You will already have low carbon; you already
have the RO and that is already taking account of it. There is
a risk that, if you then allow it to happen inside the user scheme
CRC carbon reporting, you just get double accounting.
Q363 Chair: It may
be that the demand for green electricity, low-carbon electricity,
is greater from business than the present structure permits to
Rhian Kelly: I
think there are definitely businesses that are keen to explore
this in more detail. Our work inside CBI, with the wider membership,
has always been that. It is the renewable obligation and the upstream
policies that are driving low carbon and energy, not the carbon
reduction commitment necessarily or the carbon reporting and green
Q364 Chair: On another
positive aspect, we understand Sainsbury's is planning to install
dynamic demand management technology into some of its stores.
Are there opportunities for businesses like that to bid into a
capacity mechanism, so they are providing a demand-side response?
Is that something that your members would like to see?
Rhian Kelly: Certainly,
one of the things we have said is there needs to be a bit more
work on the demand response mechanisms. We think that you could
do it by capacity mechanisms, but we think that there ought to
be more work with Government and business to explore all the options.
Capacity mechanisms is one; flexible mechanisms is another; and
there are another couple of ideas around. We ought to be thinking
in more detail about what would be the most appropriate mechanism.
Richard Hall: Yes,
but on that point, the balancing mechanism we have in place does
allow the demand side to bid into the market as well as the generation
side, but in practice that theoretical ability to bid in does
not seem to have manifested itself much in practice. It is still
generally the case that it is large-scale generation resources
that offer the flexibility either to increase production or to
Understanding the reasons for that are problematic,
but a lot of anecdotal feedback from small suppliers suggests
that the difficulties in essentially going through the due diligence
process, or being fully licensed in setting up the trading systems
to integrate with the balancing mechanism, that those costs certainly
run into hundreds of thousands of pounds and may possibly run
into the low millions.
So, if we are to create an environment in which small-scale
demand response can integrate the market, we may need to look
at whether it is possible to adopt a slightly lighter touch regulatory
regime for those kinds of assets or see if there is some way to
facilitate demand aggregation, recognising the fact that individual
premises may not have a product that, in itself, is of interest
for a system operator, but when taken in aggregate they may well
be able to provide quite a valuable service.
Certainly, facilitating a demand-side response should
help to shave peaks on demand, which could help to reduce the
amount of network investment that is required and also defray
investment in generation assets. In an environment where increasingly
almost all forms of generation are subject to some form of public
subsidy, a handout seems extremely desirable.
Q365 Sir Robert Smith:
Looking at the CBI, a lot of the talk is about all the business
opportunities that could come from meeting the new methods of
supply. Do you see, if we go down this road quickly or slowly,
us importing the technology that is going to meet our low-carbon
future or do you see us growing our own supply market?
Rhian Kelly: At
the CBI, we have always tried to talk up the opportunities for
businesses based in the UK over the next 20 years, and think that
it could be a massive opportunity for UK manufacturing if we can
get the package of EMR right. I think getting it right will allow
us to understand better where we can grow UK opportunity and UK
manufacturing and supply chains, but also understand better where
it might be that we need to buy in some of the technology.
The ideal solution would be that the UK is able to
take advantage of existing strengths and build those into the
need to renew our ageing infrastructure in the next 20 years.
Chair: I think we are
running out of time and almost a quorum. Thank you very much for
coming in. We have covered some very useful ground.