Examination of Witnesses (Questions 106-119)
Lord Oxburgh
21 APRIL 2008
Q106Chairman: Lord Oxburgh, thank you very much
indeed for coming. You were the distinguished Chairman of the
House of Lords Select Committee on Science and Technology, on
which I briefly served as a co-opted member. Lord Oxburgh, I understand
it might be possible, as far as you are concerned, and helpful
to us if you could make some opening remarks, and then we have
allocated one or two questions, but other colleagues will come
in during the course of proceedings.
Lord Oxburgh: Thank you. Maybe I should
declare interests, in a sense, as is the custom. I chaired the
Science and Technology Committee inquiry into renewable energy,
which published its report in the summer of 2004 and at that time
I became so intrigued by renewable energy that I have subsequently
become chairman of a small wind company, a bio-diesel company,
and another company which I think has a totally novel form of
renewable energy, which is going to be the least controversial
of any. Looking at renewable energy in the context of your inquiry,
it does strike me that the EU has done something exceedingly important,
exceedingly bold and also exceedingly challenging. The timescale
which has been set really means that the main renewable technology
as far as electricity generation is concerned really has to be
wind. There are going to be massive requirements for investment,
both in generation and in the grid infrastructure. It is not often
realised that the investment in the grid infrastructure is of
the same order of magnitude as that in the generating capacity
itself, and both are pretty slow to build and slow to change.
In terms of increasing the proportion of wind in the generating
portfolio, up to about 10% mixed in with conventional generation
does not really present a problem. Obviously, wind has a difficulty:
the wind does not blow all the time, and there was a rather stark
analysis of the difficulties of operating or supplying electricity
when you have a significant wind a fraction in the annual report
of the chairman of E.ON about 18 months ago, when they experienced
a massive drop in generating capacity over something like 24 hours
from Christmas Eve through to Christmas Day. It made it exceedingly
difficult for them to manage supply. All of this can be done but,
as the proportion of wind in your portfolio increases above 10%,
it actually becomes more and more challenging. It means that you
have to have very good interconnectors between different parts
of your system and that you have to be able to manage your grid
with a level of sophistication which really has not been customary
or necessary in the past. It also means that there have to be
significant amounts of co-ordination, and within Europe transfer
of electricity between different generating countries, and indeed
across the Channel. I very much to subscribe to the views of Dieter
Helm on this, that to make all this work it needs system thinking.
It needs a systems approach with a degree of planning and co-ordination
which is, I have to say, not entirely consistent with leaving
everything to the market. You really have to set out rather more
carefully the parameters within which the market operates and
this must be EU-wide, otherwise, if we achieve this level of renewable
generation without that co-ordination, we shall suffer difficulties
over the security of supply. So I think it is essential. The UK
within that system worries me quite a lot. I returned to the conclusions
of this report and I do not think we would want to alter any of
them. I think some of the predictions that we made have unfortunately
come to pass. The first point to perhaps draw your attention to
is that the Renewables Obligation Certificates, the ROCs, which
operate by setting an increased target for renewable generation
each successive year, have a built-in difficulty. They are fine
from one point of view but, because the value of the ROC declines
during the year as the target of that year is approached, so does
the incentive to invest. We pointed out in this report that this
meant that effectively the year's target is not so much a target
as a cap, and the ROC system really means that never more than
around 70 to 75% is ever likely to be achieved, because once that
amount of the target has been achieved in any one year, the incentive
is too low and too risky for anyone to want to invest. The second
problem is one which can be fixed relatively easily, and that
is that the present arrangements really only extend to 2015. Beyond
2015 there is no incentive for anyone to invest simply because
the arrangements are not yet clear. That can be done, and I suspect
will be done, but it is important that it be done in a timely
fashion, because achieving the objectives we are talking of here
depends on significant new build in the post-2015 period, 2015
to 2020. Finally, we have a bizarre arrangement in this country,
where the success of the national renewables plan really depends
on the decisions of a series of totally independent and unco-ordinated
third parties, none of which has the achievement of the national
plan among their objectives. I am thinking, for example, of Ofgem,
which has an important role, which has certain obligations; I
am thinking of the grid owning and management companies; and then
the enormous diversity of planning authorities around the country—and
bear in mind that normally planning has to be achieved for the
generation capacity and then a separate planning application for
the connection, for the transmission lines and what-have-you,
and these will be different authorities in many cases working
to different timetables. It is worth bearing in mind that although
I think there is a statutory requirement that planning authorities
return a result within 16 weeks or something like that, I am told
by people in the wind business that the average time in reality
is not much short of three years. This is a major problem. I do
not know whether that is enough to set the ball rolling, Chairman?
Q107 Chairman: It certainly is. Could
I just press you a little bit further on whether you think the
United Kingdom obligation, if it turns out to be 15% as opposed
to 20%, within the European Union is achievable? I think you have
indicated one or two factors that need to be addressed but is
it achievable, realistically, by 2020?
Lord Oxburgh: It is achievable if we
attack some of the problems that I have mentioned. I think it
is a little humiliating that we have to be given a lower target
than everyone else, than most others, but be that as it may, yes,
I think it is achievable.
Q108 Lord Rowe-Beddoe: Can I come
back to that? The humiliation is because we could not do 20%;
there is no way we can actually achieve 20%?
Lord Oxburgh: It would be pretty difficult.
I will not say there is no way, but it is a matter of what priority
we give it. For those of us who were brought up during the war,
when you have to do things and you make it your absolute priority,
you can do it but, without that kind of commitment, no, we probably
would not have made 20%.
Q109 Lord Rowe-Beddoe: May we talk
a little bit about supply? You have mentioned the security of
supply. What is your view of our dependency on third country suppliers?
Lord Oxburgh: Are you talking of general
security of supply of our electricity supply in the UK?
Q110 Lord Rowe-Beddoe: Yes.
Lord Oxburgh: As we look forward, we
are going to have to replace somehow or other the nuclear capacity
which is going to go out of service over the next ten to 15 years.
Whether we do that is interesting. Obviously, there is a political
and business side to this but what people should recognise is
that there is an enormous waiting list for nuclear reactor vessels,
which are massive castings. I am told that Areva, a French supplier
of these, but they are not very different from anyone else, has
a waiting list of ten to 12 years at the moment. It does not mean
that it is not possible to buy someone else's place in the queue,
but there is limited capacity globally to build new nuclear reactors.
Something is going to have to be done for that. The resource which
is likely to be least politically sensitive and most widely available
is coal. Coal power stations, even with the most modern power
station technology, if you gasify it and so on, is not very efficient
and it is, of course, very dirty from a CO2 point of view. Of
course, the current concern is whether we can develop carbon capture
and storage to capture the CO2 at the power station and do something
with it to prevent it going into the atmosphere. I regard this
as one of the true international priorities because—and
this is a slight digression, I am afraid but if you look at the
world's coal, really two-thirds of the world's coal is in three
countries: the United States, India and China. The United States
is going to burn that coal for reasons of energy security; India
and China are going to burn it because they do not have much else.
Really, finding a way to manage those coal emissions is almost
the highest priority, in my view, in managing climate change,
because their mass is so great that if we cannot do that, a lot
of the other things we do are not going to count very much. I
put that as a very high priority and I am disappointed that the
Government has somewhat backtracked on its commitment to supporting
this. So coal is likely to be an important aspect here. Our gas
supply is, fortunately, less dependent on Eastern Europe than
the rest of our European neighbours because we have a good supply,
and we have a strong supply from Norway on which we can rely.
Gas will also come in in a liquefied form into new terminals which
are being built. Along with that, of course, we have renewables,
and on the timescale we are talking about here, wind is the only
significant contributor here, along with a certain amount of hydro.
Its leaves in the background the whole question of the Severn
barrage and things of that kind but I would say probably not too
bad if you want an overall assessment of our security of supply
until 2020 but we have to see beyond that.
Q111 Lord Rowe-Beddoe: The concern
of the nuclear reactor, which was something that I was unaware
of, does give rise to the question of the gap which we hear people
talking about. Obviously, as you said, I thought perhaps a little
optimistically, some of the nuclear energy would be there for
another 15 years—I was thinking it was more like 10 or 12—if
that goes and is not replaced, although we are told that it is
likely to be replaced, if we do not have the methodology with
coal and we are struggling with 15% renewables, we could have
a very dangerous situation.
Lord Oxburgh: We are going to become
progressively more dependent on gas, and gas-fired power stations
are the quickest to build. They are roughly one-third the cost
of coal-fired power stations or maybe half the cost of a coal-fired
power station of equivalent capacity, but of course, you are vulnerable
for your supply and in terms of the cost of your supply. So you
are quite right.
Q112 Lord Rowe-Beddoe: What are the
environmental concerns with gas?
Lord Oxburgh: They are less than those
of coal but they are significant, and although the people with
the real incentive to develop carbon capture and storage are the
coal people, gas will benefit from it as well. I should have mentioned
at the beginning that what is going to be important, and we have
not really got to live with yet, is the European Emissions Trading
Scheme as it comes in after 2012, because that is likely to be
quite tough. A number of the allowances for power generators are
going to be auctioned and that will put non-emitting power sources
at a competitive advantage.
Q113 Chairman: Could I just clarify
something? 10% of our total energy generation coming from wind—is
that because of the intermittency problem?
Lord Oxburgh: I said until 10% there
is not really a problem, because normally you have a significant
amount of slack in your generating capacity. You have your maximum
notional requirement, which for this country is something like
60 GW, and we have something under 80 GW of capacity at the moment,
and this is for when things are offline and so on, being repaired
or suddenly break down. Within that cushion, as it were, you can
cope with the intermittency of around 10%—you should not
take that figure too rigorously. Eleven is probably okay and in
some circumstances nine might be difficult, but it is around 10%—but
when you get above 10%, that is when you really have to begin
to manage things a little bit more carefully.
Q114 Chairman: Understood, but we
are less than half a per cent at the moment for wind.
Lord Oxburgh: Yes, we have a long way
to go.
Q115 Lord James of Blackheath: I
would like to ask some questions concerning the extent to which
there are issues resulting from the accessing of new energy sources,
present energy sources by the existing grid systems, and the compatibility
particularly of the systems by which that access is achieved,
whether the change to different forms of energy are going in their
own turn to invalidate the existing access infrastructure and
require a huge investment in the changing of that infrastructure
to be able to use it.
Lord Oxburgh: I think that is a very
good point. To some extent I have referred to this in what I have
said so far but it certainly means much more sophisticated management
of the grid on a local basis. As you are well aware, our electricity
system at the moment largely is based on the concept of a small
number of large-capacity generating sites with radial distribution
of electricity, and what we are going to go through is a system
with much more distributed generation. You will find electricity
flowing in opposite directions down your distribution systems.
To avoid trip-outs, and consequently local black-outs, you have
to be quite clever. You may also want to have local back-up capacity
associated with this distributed system. It is going to require
a different approach to electricity generation in the country,
and I come back to this general view that we cannot just leave
this to the unbridled market; it is going to require a significant
amount of thought and planning.
Q116 Lord James of Blackheath: Can
I twist the question on to another aspect, please? Could you define
the differences between the infrastructural issues in the United
Kingdom and those in continental Europe, where much resourcing
of fuel resources may be coming from outside continental Europe,
other countries, and where there has to be therefore considerable
storage, and talk a little about the compatibility of those storage
systems for inter-relating the distribution networks within the
grids of other countries, particularly where we in England have
to turn, say, to France for resourcing?
Lord Oxburgh: Let me begin by saying
I am not very familiar with some aspects of this. When you are
talking of storage, what do you mean?
Q117 Lord James of Blackheath: I
have understood a lot of the resourcing is coming out of France
via Russia—I wish I knew, because I have been asking this
question here as to what the storage resources are for Gazprom
and in other places and what security these have and what certainty
of provision they can achieve on redistribution when required
by other countries. It seems to me that there has been very limited
flexibility in distribution equipment in the past. I speak as
somebody who was in at the beginning of the North Sea oil development,
which was really the most fundamental thing. It was just a tube
down which you poured the petrol. It is very difficult to conceive
of that being diverted now if you found a huge excess of gas capacity,
to divert the same infrastructure into gas resourcing, which would
be a very quick fix for a lot of problems if it could be done.
How in the same position can you rely upon a source for electricity
generation in the UK which has been driven by oil in the past
and converted to a gas resource coming out of Europe, or anything
else of that sort in future?
Lord Oxburgh: I understand. In principle,
conversion from oil to gas is not too difficult. It can be done
and, of course, much more provision is being made for storage
of gas within Europe. Storage is generally in abandoned reservoirs,
oil reservoirs and gas reservoirs but ideally gas reservoirs,
and indeed, other situations can be found for sub-surface gas
storage as well. I have not reviewed that situation recently but
certainly this is fairly high up on the European Union's agenda,
because if we were to see interruptions of gas supply from Eastern
Europe for whatever reason, political or otherwise, at the moment
we would be in considerable difficulties without such store.
Q118 Lord James of Blackheath: I
have a nightmare vision that France corners the market in resourcing
the entire gas requirements of Europe and then says "Oh,
what a shame. We cannot get it to you so we will have to keep
it all for ourselves."
Lord Oxburgh: An interesting nightmare!
Q119 Lord James of Blackheath: An
interesting nightmare which I venture to suggest is not entirely
imaginary.
Lord Oxburgh: That may be so.
Chairman: A fascinating point but I do not think
we will go down that path at the moment.
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