Electricity Market Reform - Energy and Climate Change Contents

Examination of Witnesses (Questions 339-365)


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?

Audrey Gallagher: 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 for consumers.

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 expects?

Audrey Gallagher: 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' internationally.

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 indications—we 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?

Audrey Gallagher: 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.

Audrey Gallagher: 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 triggers—so 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, yes.

Audrey Gallagher: 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 more engaged.

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 danger—and excuse the pun—of insulating the consumer from the realities of the world that we inhabit?

Audrey Gallagher: 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 engagement.

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.

Audrey Gallagher: 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 behaviours.

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.

Audrey Gallagher: 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 is available—

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 it—I 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 to—I don't follow, sorry.

Audrey Gallagher: 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 difficult—at 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?

Audrey Gallagher: 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—

Audrey Gallagher: 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 bills?

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 one.

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?

Audrey Gallagher: 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 more.

Q356   Chair: Does the Government have a role, a responsibility, to try and help this process?

Audrey Gallagher: 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 a role.

Q357   Sir Robert Smith: Could you remind me—I'm trying to remember—when data sharing was first mooted as the response to fuel poverty, and how long it has taken us to come this far?

Audrey Gallagher: 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?

Audrey Gallagher: 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 standard.

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 a problem?

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 be exposed.

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 tariffs.

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 decrease production.

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.

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