Examination of Witnesses (Questions 360
- 377)
TUESDAY 1 JULY 2008
Ms Vivienne Cox and Mr James Smith
Q360 Chairman:
We are due to stop at about 4.15 to 4.20 with you but we do not
have written evidence from you and I think you are very, very
key players on the scene and I am sure the Committee would want
to go on a bit beyond 4.20 if that is possible. Just following
up the point Lord Lawson made, a number of our witnesses and also
quite a lot of our written evidence has suggested that the 2020
15 per cent target is, and the phrases vary from "extremely
challenging" to "unrealistic". What is your view
on that because they have also stressed that this will have a
substantial cost to the consumer? Is there any particular reason,
apart from the EU fixing that figure, why we should have 2020
and would it ease the cost if we relaxed it?
Ms Cox: I think the number you choose
is a political choice because you can choose a different number
and it has a different cost associated with it. I would say that
there is merit in having longer term targets in order to make
sure that the technologies that are successful are the right long-term
technologies. If I have a concern about the numbers it is the
time period is short and there is therefore a risk that the investment
would be skewed to those technologies which work today as opposed
to those technologies which might be right for the longer term.
Mr Smith: I think I would probably echo
that. You may have seen the consultation on the Renewable Energy
Strategy that BERR produced last week, all 282 pages of it, and
in there it does talk about 45 new gigawatts of power by 2020,
30 of which would be renewable offshore and 15 of which would
be conventional and very considerable increases in renewable heat
and also for transport. That does seem quite a lot to achieve
in a relatively short period of time. I think it is wise to consult
on it.
Q361 Chairman:
If I could turn to the next set of questions. How does the UK
compare to other countries in which you operate in terms of the
policy environment for renewable energy? If you had additional
capital to invest in renewable energy which countries would you
look at first?
Ms Cox: The only renewable investment
we are making in the UK is in biofuels where we are investing
$400 million in a biofuels plant at Hull that we are investing
in with British Sugar in a deal with DuPont. We have chosen to
invest in wind in the US for the reasons that I talked about earlier.
It is about scale as much as anything else. It is about what can
we as BP do with relative advantage, and we believe that is with
large-scale projects/wind projects onshore in the US. The UK market
should not be the right market, in my opinion, for solar. There
are other parts of the world where solar technology is better
applied and our solar business is concentrated in Spain, Germany
and California where I think if you took the issue of comparative
advantage you would say that they are markets that are more suited
to solar technology and I think this issue of comparative advantage
is an important one. Looking forward the pattern of our investment
may well shift if there is an offshore wind industry in the UK
because we do believe that that is somewhere again with comparative
advantage where we have opportunities to play but at this point
we are not choosing to put our renewables investments into the
UK for different reasons in different technologies.
Mr Smith: A couple of things come to
mind. You asked about renewables, and if you will indulge me I
will mention carbon capture and storage again as being very important
for the UK as well, in my opinion, and therefore the carbon capture
and storage competition could be extended to things like pre-combustion
technologies as well as post-combustion. The other comment I would
have is on the Renewables Transport Fuel Obligation where I think
the Government knows that what they have done is a start, it is
a volumetric obligation without necessarily looking at the sustainability
criteria. A transition—which I think is recognised—towards
an obligation that relates to carbon content and requires sustainability
criteria would be the right direction to move in.
Q362 Lord Lamont of Lerwick:
Any there any renewable projects in either of your two companies
which would be viable in the sense of not requiring an economic
subsidy?
Ms Cox: We are seeing solar projects
which are competitive with the Grid in some markets. If you take
California where they have a very high power price and where they
differentiate in terms of time of day, solar energy is competitive
with peak power pricing. In Japan it is competitive with peak
power pricing. So in certain markets we are seeing solar projects
competing. I would say that with a $50 a tonne carbon price then
onshore wind projects are also competitive in some markets.
Mr Smith: Onshore wind, with the increasing
cost of fossil fuels and the cost of carbon, is becoming competitive.
Also on solar, we are involved in thin-film solar and we are involved
in a pilot plant in Germany. Thin-film solar has certain potential
advantages. It is not at market yet but it is an example of something
that if it works, and it is still an "if", could be
competitive without subsidy of course.
Q363 Lord Lamont of Lerwick:
Could I just come back to Ms Cox and a question I put to you earlier.
At the very beginning I referred to your 40 years/40 years on
oil supply predictions and you said were you absolutely confident
that something fundamental had not changed in the world recently,
and I have not read the actual document but I have obviously read
in the press about BP's analysis of world oil supply and world
oil demand. You are very firmly of this view and the fact that
we have had this rather extraordinary increase in the price of
oil in a very short period, with an extraordinary percentage increase,
has not caused you to question whether any of those fundamentals
in your analysis might have been wrong and whether the situation
might be more serious in a way than people had thought?
Ms Cox: As you are aware, we do the statistical
review of world energy on an annual basis. Every year we look
at the whole macro and micro set of trends and certainly our analysis
which we have recently published says that in spite of the increase
in oil and the impact that is having on demand in some countries,
the increase in demand in the non-OECD countries will continue
and that the overall supply/demand balances remain within the
boundaries of what we would reasonably expect. Clearly there are
adjustments happening and they are happening in different ways
in different countries but there is no fundamental reassessment
of supply and demand.
Q364 Lord Lamont of Lerwick:
If these prices levels were sustained a lot of the investment
economics would change, would they not?
Ms Cox: They would but the other factor
of course that you have got is the phenomenal increase in demand
in the non-OECD countries.
Q365 Lord Lamont of Lerwick:
That has always been there.
Ms Cox: It is at a much higher rate over
the last five years than we have seen historically.
Q366 Baroness Hamwee:
Just going back to economic viability, I suppose thinking about
it this must be the case but it seemed to me that what you were
saying was that certain projects and certain forms of renewable
are viable in certain places because of the choices which have
been made in those places about pricing. I suppose it is bound
to be circular.
Ms Cox: I think the fact that these technologies
are becoming increasingly competitive is driven by a number of
things. First of all, there is an experience curve. You can see
it very clearly with solar PV or with wind that over the period
of time that these industries have been in existence, the cost
per unit of power produced has come down and that of course is
helping. It is also true that there are certain markets which
are naturally advantaged either because of the quality of the
wind resource, because of the quality of the sun, and clearly
they are naturally advantaged for certain technologies. On the
other side, it is also true that the cost of the fossil fuel based
power is increasing and that is meaning that the point is rapidly
narrowing for grid parity.
Q367 Baroness Hamwee:
In your example of California you mentioned the pricing structure
there and different prices for use at different times of day—sorry,
I am rather thinking aloud—and there is clearly a circularity
in that. Sorry, what I am supposed to be asking you is about the
roles for your respective companies in supplying renewable energy
for heating and which forms of renewable energy you think are
likely to be most effective in this?
Mr Smith: I am afraid I do not have anything
to say in answer to that question. It is not a business in which
we are involved. Heat is referenced in the BERR Strategy Report
and consultation that it is a very substantial user of energy
and there are a number of technologies such as heat pumps and
burning biomass and also solar thermal which can contribute towards
it but it is not a business in which we are engaged.
Q368 Baroness Hamwee:
Have you taken a positive decision not to be engaged?
Mr Smith: I would say yes.
Q369 Baroness Hamwee:
Because?
Mr Smith: I suppose because we have got
a lot on our plate and at some point you might look at something
and say that is quite interesting and you might say you have some
capability but you decide not to do it because you are already
investing £26 billion and you have a number of pieces of
renewable energy to work on already.
Ms Cox: We are in exactly the same position.
It is not an area we are involved in and for us again it is an
issue of focus. You focus on those areas where you think your
skills are going to give you the greatest advantage and it is
not clear for us that going into many, many homes is something
that we have much advantage in.
Q370 Lord Moonie:
When you are talking about solar power, I take it that you are
talking about photovoltaics?
Mr Smith: In that case what I meant was
solar thermal. You run photovoltaics through a solar panel.
Q371 Lord Moonie:
In the latter yes, but in the general comments on California I
presume that is generated electricity?
Ms Cox: Yes.
Q372 Lord Moonie:
I assumed it was but I thought I had better ask.
Mr Smith: You mentioned concentrated
solar power earlier and I think ultimately that may be an interesting
technology as well.
Q373 Lord Moonie:
Arrays, mirrors and things?
Mr Smith: That is what we meant.
Q374 Lord Moonie:
How important are biofuels for your company? Are you investing
in the development of second-generation biofuels? When would you
expect them to become commercially available? How much would they
reduce carbon emissions compared to first-generation biofuels
and conventional oil and gas?
Mr Smith: It is interesting because Vivienne
gave the last answer and I could have said the same thing so it
will be interesting to see if you would have said the same thing
as I do. If you are involved in supplying liquid transport fuels
then there is not really a strategic choice to be made; you are
going to be involved in biofuels, and we are involved substantially
in biofuels already in the US and Germany and Brazil in particular,
but recognising that those are early generation biofuels and we
need better technology for the future to lower the cost and also
to avoid contention with food. We have been involved in what we
are beginning to call later-generation biofuels rather than second-generation
biofuels because not all first-generation biofuels are the same
either. There are some that are much better than others. We are
in a joint venture with a company in Ottawa that makes bioethanol
from corn stocks, so you use a special enzyme to be able to break
down the long sugars in corn stalks so you are not then competing
with food. You asked a question about technologies and we have
a joint venture in Germany. It is interesting there because they
have a piece of technology to gasify wood chips and we have a
technology to take the gas and turn it into a very clean diesel.
We have been practising that technology in Malaysia for many years
and we are building a large plant in Kuttawa at the moment, so
it is a fossil fuel-type technology and you can do it to gas from
fossil foils or you can do it to gas from coal or you can do it
to gas from biosources, so wood chips to a very clean diesel or
wood chips to jet fuel as well. We are involved in a project in
Hawaii on marine algae which looks quite interesting. The potential
productivity of marine algae per hectare could be significantly
larger than from other biosources. There are quite a few challenges
to making it work. We are also involved in a number of other scientific
joint ventures where we are trying to use catalysts not to make
bioethanol but to make petrol because petrol is a better thing
than ethanol to burn in your car because the energy density is
better. We are also working with a life science company to try
to make the enzymes more productive. There is a range. We are
looking, too, at plant science so for example perennial crops
so you do not have to till the soil, there would be less demand
on fertilisers, and from things like miscanthus and poplar you
can crop those annually and that can become the biomass source
for technologies of that kind. You said how long does it take.
The unit price is high but these are early days. We hope to build
a world-scale plant in Canada relatively soon; the German one
is a bit further behind. I think it would take five or so years
to begin to prove the technology and another five years before
you could think of large-scale commercial deployment.
Q375 Lord Moonie:
Are you doing any work on fuel cells?
Mr Smith: The simple answer is no, for
much the same reason as we are not doing work on heat pumps, because
you end up having to make millions of those things in mass manufacture
and that is not what we do. Other people can do that better than
us. We have been involved in catalytic work in re-forming as a
precursor to fuel cells because we have some capability.
Ms Cox: Our involvement in biofuels is
very similar, although I think Shell have a broader range of activities
that they are involved in. We are involved in Brazilian sugar
cane. We see that as being something which will in an economic
and in a greenhouse gas sense be part of the transport fuel pool
on an on-going basis. People call it first generation but we see
it as being a very good first generation biofuel that should survive.
We are involved in this project in Hull so our next generation
molecule is actually a butanol molecule and we are looking to
develop that molecule in a demonstration plant and then to take
the large-scale plant and move the butanol across to that plant.
We are also looking at the algae technologies. They look interesting
but are some way off. In biofuels in terms of R&D there are
many more R&D options to generate new molecules or to grow
different crops to process them in different ways to produce different
molecules. There are more solutions potentially available in biofuels
than in some of the other technologies.
Q376 Chairman:
I think those are very interesting answers because you will be
well aware that currently in the food and agriculture debate there
is a great deal of concern about the impact in Brazil and Latin
America generally and the United States because of the sugar cane
take-up and the corn and maize take-up. Your answer seemed to
indicate that you are aware of that issue and you are looking
to biofuels from other sources and that is where you would expect
them most in the years ahead?
Mr Smith: We did not answer your question
about the carbon effectiveness. Some of the biofuels that you
are talking about have very minimal even energy benefits far less
carbon benefits, whereas the later generation technologies that
Vivienne and I have been talking about can give you up to perhaps
90 per cent or more carbon benefit and you do not have the contention
with food. You do have to be very concerned about land use. There
are still issues about maintenance of biodiversity, maintenance
of the habitat, and all of that still needs to be carefully dealt
with. We have set out a series of sustainability standards in
something called the Roundtable on Sustainable Biofuels and the
Roundtable on Sustainable Palm Oil and we are taking those standards
and putting them into the contracts with our biofuel suppliers
and requiring that they sign up. For those who will not sign there
is a detailed conversation; for those who sign too readily there
is also a detailed conversation because we want to make sure they
take them very seriously and that we can trace back through their
supply chain to ensure that there is proper sustainability.
Q377 Lord Lawson of Blaby:
Just on that last point very briefly, you are quite right to point
the finger at the important issue of land use because land use
is not simply a question of biodiversity and all that, it is the
fact that if land is used for fuel the land is not used for food?
Mr Smith: Yes, you are right, and although
there are about 100 million hectares of arable land in Europe,
there is other land that is not useful for arable crops where
you can plant these perennials so if you are using perennials
to create energy crops you are not necessarily in contention with
food, but you do need to be very careful about that, I agree.
Chairman: We have kept you longer than
we expected and I think that is a reflection of the interest that
the Committee has had in your answers. We are extremely grateful
to you for coming and we will certainly reflect very much on the
responses that you have made. Thank you very much indeed.
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