Examination of Witnesses (Questions 160-177)
Ms Nicola Pitts and Dr Lewis Dale
28 APRIL 2008
Q160 Lord Rowe-Beddoe: Therefore,
in the light of the size of what has to be done, do you think
that there is a case to look at and perhaps revise what you do
hear in that whole area compared to the success in certain countries
you mention in the European Union because of the different approach?
Dr Dale: There is certainly a public
policy issue to be looked at, at the advantages to getting wind
connected, but also the flip-side is there are some consequences
of this approach. If you guarantee the date by which wind can
come on and the price, then what happens if the connection is
more expensive or there are some problems getting deeper infrastructure
and there is some congestion? Those systems, effectively, pass
those costs straight through to the customers, consumers, and
so I think Ofgem and BERR have to decide, on a public policy basis,
to what extent is the regime moved to one that is friendly, easier
and more certain for renewables developers but risks more cost
perhaps falling to consumers in the shorter term.
Q161 Chairman: In an ideal world,
what would you like Ofgem to do?
Dr Dale: Our licence duty is to develop
an economic and efficient system and to meet our licence obligations.
We will try to do that as best we can. I think these kind of public
policy questions really lie beyond the scope of our duties within
our licence.
Q162 Chairman: No, I am asking you
what in an ideal world you would like changed?
Dr Dale: We would like to see the renewables
connected and developed as quickly as possible and government
targets met; so things which advance renewables is what we would
like to see.
Q163 Chairman: That means relaxation
in terms of Ofgem's control over your tariffs, over the prices
ultimately raised and paid by the consumer.
Ms Pitts: I think in terms of our tariffs,
those are very tightly controlled, and so there would be a sort
of finite sum that we would collect which would be heavily regulated.
I think the issue is whether the risk is on the developer or whether
the risk is on the consumer at the start, bearing in mind that,
quite obviously, the consumers do bear a lot of the risk in any
case.
Q164 Lord Walpole: I was wondering
whether I could ask Mr Dale, as an engineer, not as a manager
or anything else, about the cheapest way of moving energy. Is
it cheapest to move it in a pipe or is it cheapest to take it
along lines and at what voltage? Why is it AC when DC loses less
heat?
Dr Dale: If the energy is in the form
of gas in the first place, it is cheaper to move it by pipeline.
Gas pipelines are very efficient at moving energy, but if your
energy is in the form of wind and you harness it with a wind turbine,
it is probably best to move it as electricity, and higher voltage
is more efficient than lower voltages, particularly over long
distances, I think for two reasons. Losses are lower at high voltage
but also there are economies of scale in network. So, per unit,
high voltage networks are much cheaper than a low voltage network,
although you would not think so when you look at the absolute
capital cost.
Q165 Lord Walpole: And AC and DC?
You do not get heat loss in DC, do you?
Dr Dale: Yes, but DC has losses as well,
particularly in converter stations. The trouble with DC is that
it is less easy to switch and at the moment you need pretty much
point to point DC links, so there is a lot of extra cost with
these because of the converter station. On average, AC transmission
losses in Great Britain are 1.5%.
Q166 Lord Whitty: Can I just go back
to the figure of the queue. I think you said there were 47 gigawatts
in the pipeline—pipeline is the wrong word—of which
23% had already got permission. Is that right?
Dr Dale: Yes.
Q167 Lord Whitty: And of those that
had a firm date for when they want the connection, what proportion
are dissatisfied with that firm date? In other words, where have
you not managed the queue to optimise the developer satisfaction?
Dr Dale: Of the renewables projects,
I think we are talking about, at most, half a dozen projects.
For example, in Scotland 16% of projects have got planning permission,
most of those have got a position in the queue that they find
acceptable, but there are some projects which have got planning
permission now but connection and access dates later than they
wanted. Some of them we have managed to move forwards as gaps
in the queue open up. So it is a small number.
Q168 Lord Whitty: Those in which
planning permission has been denied, is it?
Dr Dale: In part, yes.
Q169Lord Whitty: Or the investment goes away.
Dr Dale: Yes. So it is a small number,
and we hope to make it even smaller.
Q170 Lord Whitty: So although it
is a small number, there is quite a lot of attention drawn to
it. Do you think your management of the queue in that sense could
be improved or do you think it is more a question of the planning
system bringing them on stream in an orderly way rather than some
taking a lot longer than others?
Dr Dale: I do not want to get too much
into the history of the queue, but a very significant feature
in Scotland was the process by which the market transitioned from
NETA and a separate Scottish arrangement into a GB arrangement,
and access rights were basically granted to anyone who applied
before a certain date, which was in the future, so just about
everyone who was thinking about developing a wind project applied
before that date. I think that was the origins of the queue, which
has set us quite a conundrum to try to work our way out of it.
As I said before, I think there are number of ways of tackling
it and they boil down to making sure that the people that are
most ready to use access get moved forward and the ones who are
not able to, perhaps because their planning permission has been
denied, are moved later. The second area is to make sure that
the capacity that they are waiting for gets built. Unfortunately,
some of them are waiting for the Beauly-Denny reinforcement within
Scotland, and that is the subject of planning.
Chairman: We will recess for 10 minutes.
The Committee suspended from 5.00 p.m. to 5.09
p.m. for a division in the House Chairman:
We will start again.
Q171 Lord Whitty: The issue of intermittency.
Is it likely to be a significant problem for meeting energy targets?
What measures would either the UK or the Grid, or whoever, need
to take to ensure that intermittency was not undermining the achievement
of the renewables target?
Dr Dale: I think, because electricity
has to be balanced, generation and supply continuously, second
by second, then intermittent sources like wind are an issue, but,
that said, there are advantages of having a Europe-wide transmission
network because while weather systems are the size of the UK they
tend not to be the size of Europe and so across Europe there is
more diversity between different wind sources to be exploited.
Also, if you have a network you can share the reserves across
a bigger area and that makes the balancing costs cheaper. The
work we have done on the UK is to look at the cost of balancing
the Great Britain system, and those costs come out somewhere between
three and a half pounds a megawatt hour of wind energy produced
to seven pounds a megawatt hour of wind energy produced. For 40%
renewables, which would be something like 140 terawatt hours of
wind energy, if demand stays much as it is today, then in total
that is something between 500 million and a billion pounds per
annum of balancing cost. I think that is a kind of business as
usual cost. The lower end is if balancing gets cheaper because
you have perhaps more interconnectors to use reserves in Europe,
or maybe there is new storage plant, or things of that nature.
The more expensive end is if you have significant constraints
also to manage within the GB network, but that is the range. We
extrapolate from balancing costs we currently see.
Ms Pitts: I think there is also an issue
about looking at this in a different way, because I think that
the energy system has grown up really trying to satisfy every
additional piece of demand that might be out there, and so issues
like concentrating on energy efficiency, looking at ways to reduce
peak demand potentially through things like microgeneration, rolling
out smart meters to make people more aware of the energy that
they are using, but, of course, if you have smart meters, then
you could have differential tariffs which actually encourage consumers
to use power off-peak. I think there is a range of issues, not
going down the business as usual but really trying to think a
bit more creatively about this, and in the future you could have
consumers on tariffs which potentially allowed the National Grid
from its central control room to turn their fridges down by a
degree, or something like that, which does not sound a lot on
an individual household, but if you tried to extrapolate that
across the whole of the country could actually make quite a significant
difference in terms of balancing the costs of that.
Q172 Chairman: Could you put Lord
Whitty's question and your reply into the context of the increase
in consumer prices? You talked about half a billion to a billion.
What percentage increase are we talking about?
Dr Dale: I think you have to take into
account the fact that wind is displacing other fuel. So, while
balancing costs may go up a bit, it might be that other factors
are reducing the cost of electricity, but, just in terms of the
balancing costs, if three pounds to seven pounds a megawatt hour
of wind produced per 40% of the wind, then for 100% of the load
it would be something like one pound a megawatt hour to two pounds
a megawatt hour for all customers.
Ms Pitts: The other thing to say is that
transmission costs are actually quite a small proportion of the
bill when you compare energy costs and also the supply costs as
well. They are currently around 3 or 4%, and even though that
balancing figure would double in the scheme of things, that would
not be a significant amount of money per individual customer.
It sounds a lot on its own.
Q173 Lord Whitty: The Chairman is
trying to say is what does this mean for average bills, for household
or for business?
Dr Dale: One to two pounds a megawatt
hour on the wholesale price is point one to point two pence a
unit on a consumer's bill.
Q174 Lord Whitty: Also on pricing,
is there a tension between all these measures for encouraging
renewable generation and a commitment to more sophisticated locational
pricing?
Dr Dale: The purpose of locational pricing
is so that generators take into account the cost of the network
in deciding what they do with their projects, where they locate
them, et cetera, so it is what drives the efficient development
of generation and network, but that said, people who are trying
to develop wind projects see any additional cost as another hurdle.
We are faced with our duty, which is to be economic and efficient,
we have licence obligations to charge in accordance with our cost-effective
methodologies, which we must keep under review. If there is a
case, though, for treating renewables or wind differently, I think
that is a matter for Ofgem and BERR to consider. Again, I think
it goes back to the issue we discussed earlier about whether you
keep the level playing field or try to get wind going at the moment.
You make a tilt in their favour.
Ms Pitts: To give you an idea, people
talk about locational charging as being a cost on renewable generation
in Scotland but, because of locational charging, Scottish consumers
benefit to the tune of around £100 million per annum. In
making any change there will be winners and losers, but it really
depends where that policy driver is.
Q175 Lord Bradshaw: This is a fairly
leading question. We have heard quite a bit about planning and
the last remarks about BERR and Ofgem. Is it fair to say it is
the planning system, which has been much criticised and is about
to be reformed, or is the real problem a lack of clear government
policies for off-shore and on-shore developments? Which is the
biggest obstacle? Is it clarity of objective or is it simply the
planning system?
Ms Pitts: I think that there are two
issues here. The first is really will people make decisions? Bearing
in mind that generators have to have a portfolio, will they choose
things that are easier to build, which would probably take you
down the gas generation route, but then you do have things like
ROC mechanisms, and in terms of providing those sort of incentives
for wind I think the ROC mechanism does that. If there is something
at the middle that stops that, I genuinely think it is planning
and the difficulties of getting through that system and the uncertainty
of doing that. I would see that as a massive blocker that could
be removed relatively quickly. Of course, in Scotland they are
also bringing forward planning legislation, which will be critical
because of the wind resources in Scotland but also the need to
build lines through Scotland because demand will be in the south.
Q176 Lord Bradshaw: If the planning
system is reviewed, are there any other regulatory or other obstacles
which are in the hands of BERR or Ofgem which need to be tackled
at the same time?
Ms Pitts: Going back to what I said before,
there is the issue of the whole framework which we need to sort
through to make sure that that is pointing in the right direction,
green lights going forward, and the other issue is very much connecting
things. People concentrate on the wind farm or the wind farm development,
and it sounds very simple, but people forget about the networks.
That might be the slightly boring part of it, but it is very much
getting the network investment in place at the right time to meet
things like the 2020 targets.
Q177 Chairman: I think we have run
out of time We will be writing to you perhaps with some additional
questions that members of the committee have and our special adviser.
Thank you for very much for your patience. Do stay. We have got
two more witnesses, Energywatch and Ofgem, but thank you very
much indeed.
Ms Pitts: Thank you.
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