Examination of Witnesses (Questions 480
- 499)
TUESDAY 15 JULY 2008
Malcolm Wicks, Mr Simon Virley and Ms Tera Allas
Q480 Lord Kingsdown:
Just a short question. I thought you said, Minister, that it would
be 2020 before any new nuclear plants were in operation. If that
is right, does it really take 12 years to get a new nuclear plant
going?
Malcolm Wicks: Probably, yes. The most
optimistic scenario I have seen is that there possibly could be
one up and running by 2017 and then some others talk about 2018.
I guess I am just being a little bit more cautious when I said
2020. We are now going through, really, quite a complicated process;
the Energy Bill is still going through Parliament and the Planning
Bill is still going through Parliament (with some controversy,
I understand) and that is part of the structuring that we need
to develop. There will be environmental assessments to look at
appropriate sites for new nuclear, and there will be a National
Policy Statement, should the Planning Bill achieve Royal Assent—so
there is a quite a process here. Meanwhile, we are being very
active; we have asked the appropriate agencies, the nuclear inspectors,
the Health and Safety Executive and other bodies to do what we
call a generic design assessment to look at a short-list now,
I think, of three technologies—three possible nuclear reactors—which
are being developed in different parts of the world to see whether
they are fit for purpose in terms of UK requirements. So a great
deal of work is going on, but that will take some years and then
perhaps it takes four years to build a nuclear reactor, which
is why I am being cautious (but I do not think too cautious) in
suggesting that the first one will not be up and running until
well by the end of the next decade.
Q481 Lord Turner of Ecchinswell:
Tempted as I am to make an aside on Lord Lawson's aside on the
Minister's aside, I will avoid that and move to the third question,
which relates to the other thing which Sir David King (who I do
not think could be accused of being unbiased between renewables
and nuclear) said last week, which was that he believes there
is a problem in going above, say, 20 per cent reliance on wind
because of intermittency. Clearly, if we go to 30 or 35 per cent
from renewables we will probably be going above 20 per cent in
wind, maybe to 25 per cent. At what level do you think intermittency
problems become seriously large, or do you believe that it is
simply a matter of the cost of back-up, and what do you think
is the rough cost of that back-up?
Malcolm Wicks: Let me speak briefly,
and then I will ask my colleague, Tera Allas, to come in on this.
If it is confirmed that our target as part of the wider European
target is that 15 per cent of all energy (of course, it is not
just electricity it is all energy) should come from renewables
by 2020, then given the need for some real caution about renewables
and motor cars—where the current concerns are about biofuels—a
significant effort needs to be made in terms of renewable electricity.
We are talking in terms of, maybe, 30 to 35% of our electricity
by the end of the next decade, 2020, coming from renewables. All
the advice we receive is that that is possible—the National
Grid can be run that way. The National Grid itself is doing a
great deal of work looking forward to see what a grid would look
like. The challenge is to the Grid, with a significant proportion
from renewables and then, after that, perhaps, a growing proportion
from nuclear. So a great deal of technical work is being undertaken.
So although I have learnt a great deal from David King when he
was the Government's Chief Scientist, I do not agree with his
analysis of this one. Tera, would you like to come in?
Ms Allas: I will, perhaps, just go into
some more detail. That is basically our understanding and all
the engineers, consultants and other groups of people we have
spoken to suggest that there is not any technical reason why you
could not have very significantly more wind on the system. So
even at penetrations of 30-35 per cent, technically, the system
should be able to operate. You would need changes to the system
in the form of faster response, or more fast response, utilised
more often when the wind speeds change unpredictably, and that
would incur some costs. The kind of costs that have been estimated
by SKM (a consultancy for us) in the scenario of 30-35% renewable
electricity in 2020 are, roughly speaking, £4 per megawatt
hour for the kind of short-term system balancing costs for each
unit of electricity in 2020, and then further costs of enabling
the back-up that needs to, basically, stand aside in order to
kick in when the wind is not blowing, of roughly £0.9 per
megawatt hour—so adding up to, in total, roughly, £5
per megawatt hour of electricity.
Q482 Lord Turner of Ecchinswell:
Which would be about a half-a-pence per kilowatt hour—just
so that we can relate it to a retail electricity price of 10p
or 11p per kilowatt hour.
Ms Allas: Yes.
Lord Turner of Ecchinswell: So £5 per megawatt
hour, just for clarification, is half-a-pence per kilowatt hour.
Q483 Lord Lawson of Blaby:
Could I ask one specific question? What do you regard as the capacity
credit of wind power?
Ms Allas: There are various different
analyses. Our analysis suggests that it, first of all, depends
on the penetration of wind; it depends on the penetration of other
renewables on the systems—so intermittent renewables from,
let us say, marine—but, broadly speaking, the estimates
we have seen are between 10 and 20 per cent capacity credit, which
of course is not the same as the amount of electricity that that
wind farm will be generating, which is the load factor, which
is more like 30 or 40%.
Q484 Lord Lawson of Blaby:
That is an unusually optimistic estimate. The value used to run
the Danish wind power said it is approximately 0, and most people
think it is around 5%.
Ms Allas: It obviously depends on how
you define capacity credit. The way we have decided to define
it is so you can compare apples to apples. In other words, what
is the contribution of wind to security of supply, and in order
for you to maintain exactly the same level of security of supply,
how much can you rely on the wind to blow is a probabilistic concept.
The nukes are not there 100% of the time either, the gas-fired
power stations are not there 100% of the time either, so you have
to take into account the average availability and the distribution
of the availability, and its correlation with demand. If you take
all those things into account, then the probabilistic calculation
gives you roughly 10 to 20%, but it does depend on what you assume
about the distribution of wind. Obviously, wind does not blow
every hour of the year; the more distributed it is across the
country the more it will be available, and there are very few
hours when there is no wind at all across the UK.
Q485 Baroness Hamwee:
You mentioned the need for fossil fuel generation to back-up renewables.
How much? Secondly, are new nuclear plants flexible enough to
provide back-up to renewable generators? I take it that is part
of the assessment that you are carrying out at the moment, but
perhaps you could just amplify on that.
Malcolm Wicks: Yes, I think so. I am
loath to answer the "how much" question, partly because
I do not know and partly because for good or ill—I think
broadly for good—we are no longer in the era of national
planning, where a minister of power sits in a chair and writes
out percentages or figures. I have said earlier that looking forward,
as it were, nuclear becomes more and more important, but after
2020; renewables will have become very important by 2020. However,
I think, partly for reasons of just security and diversity, we
also need fossil fuels, and partly because it helps the system
operate in extremis. It is easier to bring electricity
into the Grid from a gas-fired power station or a coal power station,
so I understand, than it is to turn up the switch, as it were,
which is not easy with nuclear power or from renewables. It is
very interesting that two winters ago, when we faced some quite
serious difficulty because the Langeled pipeline had not come
on tap from Norway and we were facing quite a tight winter, with
gas prices rising very high at one stage in that winter for several
months, I think, some 50 per cent of our electricity was from
coal, whereas it is normally about one-third, I believe.
Q486 Baroness Hamwee:
Forgive me, I do not mean this as impertinently as it is going
to come out—
Malcolm Wicks: Do not worry.
Q487 Baroness Hamwee:—national
planning or not, you are going to have done internal calculations,
and are you not going to have to share those in order to take
the public with you along what are controversial routes, whether
one is in favour, on the one hand, of renewables above all, or,
on the other, nuclear?
Malcolm Wicks: My colleague Simon Virley
will come in but what I was implying was that although, obviously,
for certain work you need to make certain assumptions, I do not
think, in a competitive energy market, it is sensible for government
to prescribe the number of gigawatts from this source or that
source, or the precise amount of nuclear energy. Simon, do you
want to come in?
Mr Virley: Just to say that we have published
some scenarios in our consultation document, and one of the scenarios
that we have illustrated in here, which is a scenario with 32
per cent of electricity coming from renewable energy, the sort
of additional plant you need on the system is about 30 gigawatts
of additional renewable capacity coming on by 2020 relative to
2008, and about 17 of additional conventional plant. That is just
one of the scenarios that we have illustrated in the consultation
document. As the Minister says, these are scenarios based on a
host of assumptions: change the assumptions and you will get a
different result.
Q488 Chairman:
Can I ask a follow-up question on this? The fossil fuel generators
which are needed as a back-up to renewables will run at a lower
than normal percentage of capacity, and that implies that there
will be an increase in carbon emissions per unit of electricity.
That is the nature of the engineering, we are told. Could you
let us know what would be the net impact on carbon emissions taking
account of the use of that back-up capacity, assuming that we
are at about 30-35% renewable-generating electricity?
Mr Virley: I can give you that figure.
The net saving from the scenario that you have illustrated is
about an additional 20 million tonnes of carbon dioxide in 2020.
That is outside of the sectors that are already capped by the
Emissions Trading Scheme. That is the net impact of the scenario
of 32% renewable electricity that has been modelled in our renewables
consultation.
Malcolm Wicks: May I just add to that
that. Much depends on the development of carbon capture and storage
or sequestration technology. It is difficult to predict that but
the UK is a leading nation in CCS. We will have our demonstration
project hopefully demonstrating the technology by 2014, something
of that order, and what one would like to think is that during
the course of the next decade we will see CCS being demonstrated
and becoming more universalised as a technology, and if that turns
out to be the case, as I would hope and expect, then it affects
the scenarios about CO2 emissions.
Chairman: I think we will come back to
carbon capture a little later. Lord Layard?
Q489 Lord Layard:
This is pursuing the same point that we have been discussing about
the overall wholesale cost of electricity. In your consultation
document you suggest that that would fall with renewable generators
replacing the more expensive conventional ones. How is that consistent
with this problem of having to keep the conventional ones going
because of intermittent output?
Malcolm Wicks: May I turn to my chief
economist.
Ms Allas: First of all, we need to separate
price and cost. I was not sure if I heard you correctly.
Q490 Lord Layard:
I corrected myself.
Ms Allas: I probably misheard you but
what will go down is the wholesale price of electricity. As we
discussed earlier, costs in terms of the electricity system would
have to be higher because we are implementing some of the higher
cost renewables, but putting that aside, the lower price of wholesale
electricity is a result of having more renewables pushing out
some of the higher cost fossil fuel plants in the short term.
How that is consistent with there still being quite a lot of fossil
plant on the system is because the fossil plant will kick in exactly
in the hours when the wind is not blowing, which is exactly the
hours in which prices will be much higher than that average, so
even though the time-weighted average price will come down, there
will be maybe five or ten per cent of hours in the year when prices
are very significantly higher than average and they will be sufficiently
high to remunerate the very low load factor plants within the
conventional system, so if you look at the hours in which the
low load factor plant is generating, they actually make quite
a lot of money from those few hours.
Q491 Lord Griffiths of Fforestfach:
The document just referred to by my colleague Lord Layard says
that the Government is committed to the EU proposal of 15% of
energy from renewables by 2020 and then it makes a very strong
statement for a Government document and says it is a "very
challenging target". The question is: are you really committed
to this? If you are committed to it and you find as we approach
2020 that this target is not going to be met, does that mean that
you will be increasing your subsidy for example to the renewables
sector? If I were a producer in that sector and I thought I might
switch from what I am doing and go into renewables, what could
you tell me which would ensure that this would be a profitable
investment, because it is a highly uncertain situation?
Malcolm Wicks: First of all, I hope that
strong statements and Government documents are not always strangers!
Q492 Lord Griffiths of Fforestfach:
There have been many failures along the way!
Malcolm Wicks: I think we are just talking
in plain English; it is hugely challenging. These are not weasel
words. We are committed to achieving this target, but to show
the scale of the challenge, we are talking about percentages of
all energy, at the moment probably 1.5 per cent of all energy
is coming from renewables in this country. It is now about five
per cent of our electricity but only 1.5 of all energy, so it
is obviously a ten-fold increase that we need to achieve, so,
yes, it is very challenging. We have set out in our Renewable
Energy Strategy Consultation published a week or so back how we
hope to move in that direction. We do need to have regard to cost-effectiveness
because I am very conscious that at the moment at the top of the
agenda in terms of energy concerns is the sheer price of energy,
and certainly gas and electricity in the home, so we need to be
sensible about this, which is why we are in favour of some trading
within the European Union on these issues because our analysis
suggests that the last one percentage point, as it were, of renewable
energy would probably be the most expensive point to achieve,
and if through some sensible trading within the EU we can bring
that cost down then on behalf of the consumer we should do that.
Q493 Chairman:
Leaving the trading to one side just for a moment, just as a matter
of fact, at the European level has the decision been taken that
our target should be 15 per cent? Put slightly differently, if
the Government were not committed to it, is there still any scope
for renegotiation?
Malcolm Wicks: It is still being discussed
and I think we will know for certain by next spring, and so there
is discussion going on, but the Commission have produced draft
targets for Member States and all Member States are now looking
at the implications. We have published our document and the discussion
still goes on, but it is going to be there or thereabouts.
Q494 Lord Best:
You have picked up on the point, Minister, that one extra per
cent from 14 to 15 is extremely expensive and you have explained
how it may be possible to negotiate around that, but is the 15
per cent target only really possible if British funding of renewable
energy projects overseas can count towards the target?
Malcolm Wicks: I think it is possible
to hit the target without that. The idea that there could be some
extra European development and funding as part of a trading mechanism
is something that is being discussed. It is not clear yet what
the final European judgment will be on that.
Q495 Lord Kingsdown:
But Lord Best just made the point that going to 15 per cent is
far more expensive than going to 14 per cent. Is this not an argument
for negotiating a slightly lower target or is that not done?
Malcolm Wicks: I think it is an argument
for looking at sensible ways of hitting the target. I do not myself
think it is an argument for saying let us try to go for ten per
cent, but the idea of trading is perfectly sensible. It is something
we have looked at. We have also suggested in the past that because
we are ahead of other European Union nations (Norway is where
we are I think) in developing carbon capture and storage, we have
said to the Commission could this not somehow be allowed for in
the setting of our target, not because CCS is renewable because
it is not but because this is another expensive technology, so
there has been some discussion on that as well.
Q496 Lord MacGregor of Pulham Market:
I would like to turn to biofuels and ask you a number of questions
about that. As you know, the recent Gallagher Review called for
biofuels to be introduced more slowly because of uncertainties,
one of them being the estimated recent effects on food prices,
and others as well, and the Government seems to have accepted
that target of introducing it more slowly. The review also warned
that current policies might increase rather than cut greenhouse
gases not least because of the implications on forests. I am not
talking about the UK but in Brazil, et cetera. I would be interested
to know your view about that as to whether you agree that current
policies on biofuels might increase rather than cut greenhouse
gases? Then the question of timing: does this derail your plans
for ten per cent of fuel to come from renewables if we are becoming
more cautious about biofuels, and also your hopes of reaching
the EU's overall renewables target by 2020?
Malcolm Wicks: I do not think it undermines
our efforts to hit those targets, but clearly we are all learning
a great deal about biofuels and, as you have said, what we have
learned is partly about the law of unintended consequences. We
have learned that there is absolutely no point in, as it were,
appeasing Western consciences on climate change and on renewables
if it leads to terrible consequences in terms of food crops, so
I think all of us in this debate are pausing for thought and reassessing,
and the Gallagher Review has helped us do that, but perhaps Simon
Virley could add to my general comments.
Mr Virley: In essence, we are slowing
down on biofuels to make sure that we are reviewing the evidence
to make sure that we have got the right sustainability criteria
in place to ensure we bring through the right biofuels, biofuels
that will reduce greenhouse gas emissions rather than increase
them, and that science is evolving rapidly all the time. What
the Gallagher Report has said is that ten per cent by 2020 might
still be possible but it would only be possible subject to those
stringent sustainability criteria being in place, so that is the
basis on which we are moving forward now.
Q497 Lord MacGregor of Pulham Market:
Can I ask a supplementary and perhaps declare a form of interest
in that I was a former Director of Associated British Foods which
has got the British Sugar biofuels plant. In terms of greenhouse
gases and feasibility and the law of unintended consequences,
we are really talking about imported biofuels by and large because
the effects are actually in the United States and Latin America
rather than here where the aspect of alternative land use and
food crops does not really apply. I imagine that is the case and
it is the import of biofuels that is the main concern.
Mr Virley: It is one of the concerns
and obviously we need to also look at the full carbon cycle of
the biofuels that are being produced, including the transportation
element, so in a sense moving forward on this we need to get the
sustainability criteria in place and the controls in place to
ensure that we are using the right kind of land and making sure
that we are using the right biofuels that are actually reducing
greenhouse gas emissions and that is the evidence that we are
trying to pull together now.
Q498 Lord Lawson of Blaby:
Minister, you said that you were very concerned about cost-effectiveness
because you were concerned about the burden on the consumer which
is going to be a huge burden for them and we can already see that.
We have already established that as far as nuclear is concerned,
the cost-effectiveness yardstick really goes out of the window,
but you have focused particularly on using trading to increase
cost-effectiveness. I would like, if I may, to ask you two questions
on that front which really are closely related. One comes from
the excellent written evidence which your Department has given
us, where you say, and I will remind you: "Without effective
and workable trading provisions which allow for a more efficient
use of renewable resources across Europe, it will not be possible
to meet the 20 per cent EU target cost-effectively. Independent
research carried out by Poyry Consultants for the UK suggests
that full and open trading could save the EU up to €7 billion
a year in 2020, chiming with the Commission's own impact assessment—although
this is unlikely to materialise." My first question is why
is it unlikely to materialise? The second question is this: clause
25 of the Climate Change Bill lays down that "the Secretary
of State must ensure that at least 70 per cent of the effort undertaken
for compliance with section 5(1) is achieved by domestic emissions
reductions..." In other words, there is a maximum of 30 per
cent that can be done by trading, even if 40 per cent or 50 per
cent would be much more cost-effective, so why do you have that
clause?
Malcolm Wicks: I think when looking at
this you need to judge it against a number of criteria and one
which we would emphasise is cost-effectiveness. Another one—and
I touched on this earlier—is about energy security. I think
we need to do our best in the future to get the balance right.
We can argue what the right balance is between the energy that
we will need to import into our nation as our own reserves of
oil and gas in the North Sea and wider UKCS decline and getting
the balance right between imports and what I would simply call
home-grown energy. I do feel myself that the more energy we can
produce in this country as a safeguard for the nation is very
sensible. Therefore if it was theoretically sensible to build
all the renewables in Asia or Africa, I do not think that would
help us in terms of our energy security. The other thing is a
commonsense test. I think when people see a British target they
would not be terribly convinced if we hit most of that target
by doing things abroad. I think it is sensible that we do most
of it here in Britain.
Q499 Lord Lawson of Blaby:
I do not think that really answers the question, if I may say
so. It does not answer the question as to why in your written
evidence you say that the increased cost-effectiveness through
trading is unlikely to materialise. Also I would say that the
trading does not in any way diminish our energy security. In fact,
if it did, we would not want to do as much as that, but I do not
think it does and I do not see how it does.
Malcolm Wicks: I suppose I am just working
on an assumption that a wind farm here in Britain in extremis
is more likely to be secure than a wind farm on some corner of
Europe. That is what I was getting at. Let me ask my colleague
Tera Allas to comment on the other point you raised.
Ms Allas: On the question about why the
benefits of trading are unlikely to materialise, it should say
unlikely to materialise "in full" so the €7 billion
that has been estimated per annum savings is a theoretical number,
assuming perfect competition, assuming a perfectly liquid trading
mechanism, and assuming essentially least cost way of meeting
of the EU's overall target across 27 Member States. Obviously
it is underpinned by some assumptions about costs and resources
in each of those countries. In reality, the kind of trading mechanisms
that are being negotiated within the scope of the EU Directive
are not going to be those kinds of fully liquid and totally competitive
and entirely transparent mechanisms and indeed, even if they were,
there are no markets that are totally perfect competition in this
world, so it is a kind of theoretical number. We would expect
that with a good trading system, which still was within the scope
of the Directive you could probably get most of it, but you will
never get the full theoretical benefits of competition in any
market.
Lord Turner of Ecchinswell: Could I clarify
something in what Lord Lawson said. I think I am right in saying
that the amendment to which Lord Lawson refers is an amendment
not in the Bill—
Lord Lawson of Blaby: Yes it is; I have
got it here. I think Lord Turner ought to know the Bill since
he is Chairman of the Climate Change Commission Committee!
Lord Turner of Ecchinswell: My understanding
was that the issue of how much we should rely—
Lord Lawson of Blaby: I will read it
out. It is section 25 and it is headed "UK Domestic Effort"
and subsection (1) says: "The Secretary of State must ensure
that at least 70 per cent of the effort undertaken for compliance
with section 5(1) is achieved through domestic emissions reductions
and domestic removal of sinks." This is in the Bill.
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