Examination of Witnesses (Questions 260-279)
Mr Michael Lewis, Mr Kevin McCullough and Mr Sarwjit
Sambhi
19 MAY 2008
Q260 Chairman:
Gentlemen, thank you very much indeed for coming and sparing your
time. As you know, this Committee is looking into renewable energy
and the target for this country, which at the moment looks like
15% of our total energy by 2020. We are looking at whether this
can be achieved, what the likely complications are in achieving
that in 12 years' time. For the record, I am going to ask Mr Lewis
to start off with an opening statement and pass to your colleagues,
and then we will have questions from the floor.
Mr Lewis: Thank you very much, Chairman.
My name is Michael Lewis. I am Managing Director for Europe at
E.ON Climate and Renewables. That is a new unit we have set up
within the E.ON Corporation to deal with our international renewables
business. We have centralised all of our activities across Europe
and North America into one functional unit which now manages our
entire renewables business plus our JI/CDM business, that is to
say, the flexibility mechanisms under the Kyoto Protocol. In terms
of my opening statement, I will say a few words about E.ON's aspirations
and what we are intending to do in growth and how we see the UK
fitting into that. We are the seventh largest wind energy generator
in the world at the moment. We have 1.3 GW of capacity, with approximately
90% wind. We are aiming to grow to 4 GW by 2010, and that is spread
across Europe and North America, so there will be approximately
2 GW in North America and 2 GW in Europe. We have a coverage of
around nine countries at the moment and we are both onshore and
offshore but the majority is onshore wind at the moment. In terms
of how renewables fits into E.ON's overall strategy, we announced
some 11 months ago that we were aiming to reduce our CO2 emissions
per unit of generation by 50% by 2030. Renewables is one of the
central pillars for achieving that. Looking out to 2015—we
do not go out to 2030 yet in terms of our planning—we aiming
to go to 10 GW of renewables. As I said, in terms of where the
UK fits into our plans, we are very keen on continuing to grow
our onshore portfolio, which is currently around 250 MW, both
wind and other technologies, at the moment biomass, where we have
the largest dedicated biomass plant which recently opened in Scotland,
and, of course, offshore. We already have Scroby Sands, which
I understand the Committee visited recently, and we are currently
building Robin Rigg and have a number of other projects in planning.
So the UK is certainly one of the major markets where we aim to
grow.
Mr McCullough: My name is Kevin McCullough
with RWE Innogy, the second German utility represented on the
panel. Our company in the UK is npower Renewables, and npower
Renewables has in construction at this moment up to 670 MW worth
of wind in the UK, of which about 500 is currently operational
and the rest in construction. We built the first offshore wind
farm, North Hoyle, in 2003-2004 and are currently building our
second at Rhyl Flats off the coast of Wales. Like my colleague
here, we have aspirations to grow that further on the back of
the Renewables Obligation mechanism here in the UK. Our focus
as RWE however is not just the UK; it is EU 27, and whilst there
is no hard wall at EU 27, that is the focus of our deliberations
for renewable deployment, and we are looking to invest in excess
of €1 billion per year from this year onwards. The vast majority
of that in the early years will be targeted towards the UK but
as other markets open, especially in large-scale offshore, and
the competing market will be offshore Germany, North and Baltic
Seas, and increasingly moving on to the Netherlands so that we
get the high-volume deployment throughout Europe. Briefly, my
background is 24 years in the power sector here in the UK, starting
on black fuel plant, coal and gas, throughout the Eighties and
nineties, sometimes international work developing power plants
around the world, with a two-year spell in retail business here
in the UK, consolidating retail businesses which have now become
the npower retail brand. For the last five years I have been dedicated
to renewable development of various types, chiefly wind but including
hydro, biomass and, most recently, marine, both wave and tidal
sources here in the UK.
Mr Sambhi: I am Sarwjit Sambhi from Centrica.
I head up our UK power business, which is currently seven operational
gas-fired stations across the UK and 360 MW of wind, a mix of
both onshore and offshore wind. I am also responsible for our
two construction projects. One is the construction of the gas-fired
Langage plant in Devon and also the construction of the Lynn and
Inner Dowsing wind farm in the Wash. In terms of our future investment
in power generation, we are investing most of our capital in offshore
wind. After the projects that I have just mentioned, the next
big project we will be looking at is the Lincs offshore wind farm
project and further beyond Lincs, which is a 2011 project, we
have Docking Shoal and Race Bank, 500 MW each, which we see to
be constructed in the 2013-2015 timeline.
Chairman: Thank you very much.
We have five key questions to ask from five members of the Committee.
After we have gone through those we will then pick up any other
issues that colleagues would wish to put but please, if you think
we have missed anything that you would like to record for our
inquiry, please do so.
Q261 Lord Ryder of Wensum: Can I
please kick off with a general question about the targets and
whether or not you believe that the 15% and 20% targets respectively
are achievable?
Mr McCullough: I will certainly give
a view. If you look at the various components that make up the
target being achievable, one is clearly the sector responding
on the back of the RO mechanism to develop the requisite number
of projects. From an industry perspective, I think we can definitely
say that we have responded. We have something like 2.4 GW of installed
capacity now, we have 6-7 GW awaiting determination in the various
stages of planning and consenting, and 9-10 GW of other projects
across the whole sector awaiting submission to the planning process.
If you look at the total volume of gigawatts within the planning
and consenting cycles, there is in excess of that required to
meet the 2015 targets in the UK already. Clearly, however, not
all of those will or perhaps should be determined. There will
be good, bad and indifferent projects in there. But I think in
terms of the industry responding, it has responded well. Of the
two main blockers to that, one is grid access and the other is
the length of time within the various stages of planning that
it takes for a project to be determined, either positively or
negatively. Some of my own projects—and again, I think probably
for those people represented on the planning, they are quite often
in that open-ended planning determination stage for in excess
of two or three years, and when you are talking about very large
infrastructure projects of 500, 700, 1,000 MW, that is a very
costly exercise for the sector to maintain on an open-ended determination.
So it is achievable but there are certain things that have to
really be accelerated in terms of supporting the industry response,
because we already have responded, and making sure that grid and
planning align to make it a reality.
Q262 Lord Mitchell: Can I just ask
on that, what if you had to assign probabilities in your own mind
as to the achievability of certainly the 2015 target that you
mentioned?
Mr McCullough: My personal belief is
that unless the Infrastructure Planning Commission is created
with teeth and therefore an ability to really accelerate determinations
through the planning process, you are probably looking at best
at 70% realisation of the targets, and that is an "at best"
scenario, from our view. We have significant issues with the various
differentiators between planning regions and whilst we always
want to seek to have a local content and a very significant local
content in determination, unless there is a smoothing of the process
that means that we can get to a determination, positively or negatively,
and move on, it will be no better than a 70% at best. That is
a personal view.
Mr Lewis: Can I add to that? I endorse
everything that Kevin has said. There are a couple of additional
points I think it is worth making. The question really is, what
is the target? With the energy efficiency target in the background,
of course, the renewable target flexes up and down depending what
happens to gross energy consumption. If you look at some of the
studies that have been done on a European basis, if primary energy
consumption stays about the same and you are asked to get to an
additional 600 TWh of RES, if (a) we meet the energy efficiency
targets and (b) the efficiency targets are translated into primary
energy consumption reduction—a big "if" but if
those two things happen, that number falls to around 280 TWh,
which is a significant reduction in the amount of renewables you
need. I think there is a question mark there over the extent to
which energy efficiency can play a significant role. I think the
Commission has been quite clever in tying it to energy consumption
because it does give the Member States an incentive to reduce
energy consumption because that in turn reduces the amount of
RES you have to build. That is point number one. The second point
is that flexibility is also important in achieving the pan-European
target. We at E.ON are looking at the business from a pan-European
perspective and, as far as we are concerned, it would be better
if we could meet the target from a European perspective at least
cost, i.e. through some kind of tradable mechanism that allows
you to exploit the resources that are cheapest first but spread
the cost across all of the Member States. That is an important
point as well. If you look at the countries that have the most
wind on the system, namely Germany and Spain, it shows what can
be achieved when the system is set up to deliver it. In the UK
last year we had an additional 0.5 GW of wind. In Spain there
was 3.5 GW added to take them above 16,000 MW. That means if you
could replicate the 3.5 over a 10-year period, yes, you can achieve
the target. If we stay where we are today—I do not think
we will, by the way, as Kevin has said, but if we do, we certainly
will not achieve it. It is very difficult to put a probability
on it because there are so many variables, but I do think that,
from our perspective, flexibility and looking at the role of energy
efficiency are also key.
Q263 Lord Ryder of Wensum: Is there
anything further you would like to say about the role of energy
efficiency measures?
Mr Lewis: I think the only thing I would
add is to go back to this point about the extent to which energy
efficiency is translated into a reduction in energy consumption.
I do not know the answer to this but I do think it is important
that when energy efficiency measures are taken, we actually look
at what impact they have in terms of energy consumption, because
the so-called rebound effect does indicate that even if you increase
the energy efficiency of heating and lighting in houses, it is
not necessarily reflected in a drop in energy use because people
either turn the thermostat up a notch or leave the lights on.
Q264 Chairman: Just before we leave
Lord Ryder's question about targets, would you like to comment
about the target date? One of the earlier witnesses—I do
not know whether you have had a chance to look at the web and
read some of the earlier evidence—suggested 2030 might be
a more acceptable target than 2020, to avoid the problem of too
much early emphasis on wind generation and with all the problems
that that might create in terms of intermittency, et cetera, and
indeed pressures on the supply chain. Do you have any views about
the date itself?
Mr Sambhi: From our perspective, when
we look at the date, 2020 is achievable. You raise an issue around
intermittency—we do not see that as insurmountable. We are
not the company that runs the grid system, so the Grid are the
experts but the evidence that we have heard from the technical
experts suggests that you can manage a grid with a significant
amount of intermittency. Yes, the rest of the generation in the
portfolio has a different role to play. That just makes the requirement
for change more necessary. In terms of supply chain, the bottlenecks
that we are seeing at the moment are ones that can be overcome,
in say, a few years. You can move manufacturing capacity for,
say, some of the rolled steel components and of, say, the towers
to the UK. In fact, we know that some manufacturers are considering
that. Vessels has been quoted as a potential bottleneck. The lead
time for constructing a new vessel is a couple of years and, when
we look down the list of new vessels that are being floated around,
if you pardon the pun, it is quite significant. All of the issues
that we see today around potential barriers to getting a steep
build rate of wind power we do not see as issues that will continue
over a number of years.
Mr McCullough: I think any step to extend
the window of opportunity for targets in my view would be retrograde.
In the opening marks I made about the target question I said the
sector has responded and is responding. All of us—and there
are many companies represented in this sector—have a good
many projects that will be capable of making the targets achievable.
The challenge that we have, and why I believe that it would be
retrograde, is that the largest factor about making these targets
are achievable now that the sector has responded in terms of the
industrial players is that it would be a very disappointing thing
to put a target back because we thought that there was insufficient
vigour to make sure that things like determination and planning
consenting we could make work by the IPC, or that we could look
at the supply chain to make sure that it was responsible enough
to meet that demand. Talking about that latter point, if you look
at the supply chain, yes, renewables, in particular wind, is the
most cost-effective form of generation in high volume, and the
Renewables Obligation certificates and indeed the various tariffs
that exist around Europe are intended to actually bring that higher
volume generation to the fore quickest and soonest, so that we
can meet those targets and have an alternative to carbon-intense
technologies. I think the point that is made about whether such
high volume in one particular technology, in this case the one
that is closest to the market, wind, will deter others such as
marine, wave, tidal, et cetera, or even geothermal, solar thermal
and the like I think is a bit of a moot argument. We have a responsibility
to make sure that we do this in the most cost-effective way, and
I think we can very soon get lost in the romance that these technologies
are closer to market than they are. They are not. We as an individual
company, RWE Innogy, are investing currently in two different
types of marine-based technologies, and there are others represented
as well. But the reality is that we are now in that valley of
death situation with these technologies where there are numerous
types that need commercial assistance to make it from the design
board or the swimming pool in the university lab to actually take
it into a harsh reality environment. The banding of the Renewables
Obligation to give those extra ROCs per megawatt hour installed
I believe is sufficient to actually make them suitably attractive
and, frankly, if we delayed through indirect means or otherwise
targets for, effectively, wind because it is the cheapest to market,
we would fall significantly shorter of the target than I illustrated
earlier.
Mr Lewis: I would only add to that I
think the single most important variable in getting companies
like E.ON and my colleagues here to put the resources into delivering
this target is that we have a certain amount of credible commitment
in terms of governments and the EU wanting the target achieved.
If they start fiddling around and saying "Well, actually,
we are going to push it back a little bit, or we are going to
change this", you automatically create uncertainty, which
in turn starts to make us ask questions about the long-term credibility.
So I think now the target is in place and there is a very firm
framework, that has given us a basis on which to commit the resources,
which is indeed why we created E.ON Climate and Renewables.
Chairman: That is remarkable unanimity
by all three witnesses and actually very encouraging, if I might
say so. For the benefit of my colleagues who have just joined
us, to say that all three witnesses have affirmed that a 15% target
in terms of energy consumption coming from renewables, principally
wind, is achievable, subject to certain conditions, but practically
achievable by 2020. We are now going to move on to the next question.
Q265 Lord Walpole: Good afternoon.
I was one of the people who were fortunate enough to go to Scroby
Sands and I must say I thought that your colleagues put on a very,
very good presentation to us. I thought it was most interesting.
I was going to ask you what impact you think the regulations controlling
grid reinforcement and expansion will have on encouraging renewables
but before I do that, do you think that the energy consumption
in this country and in the EU will ever become static or go down,
bearing in mind the number of houses we are told we need to build
in this country and the number of households and cars we are going
to have? Is it possible it would ever come down, the total energy
consumption?
Mr Lewis: That is a bigger question than
just renewables. Is it possible? I guess we have seen a decoupling
to some extent of economic growth with energy consumption. If
we can start to drive that—and this is the point I made
earlier—if you can translate energy efficiency, the technical
solutions of energy efficiency, into a reduction in primary energy
consumption, then yes, there is no reason why you cannot do that.
The question is, how do you actually achieve that?
Mr McCullough: If I may add, my Lord
Chairman, it is a very interesting conundrum and one that I would
prefer to answer in terms of global sustainability, if I may,
because if you look, clearly, the net growth in the UK is actually
not that significant; it is a small percentage year-on-year, but
what we are actually seeing behind all of that—and this
is common to most developed Western European and North American
countries—is a declining demographic in that the population
is getting older, the birth rate is getting smaller and, as that
shifts, I think within the foreseeable future, certainly by the
2050 targets when we are talking about CO2 reduction, energy efficiency
moves, it is likely that we will see some decline in that kind
of time frame, but before we get there I think we have a peak
to see that we have not yet reached, and it is very hard, as my
colleague from RWE Innogy has said, to actually model what that
will look like but all of us, as energy companies, clearly have
that in mind because in order to actually deliver growth for our
shareholders we have to have a view on what the longer-term view
of market size is. So rather than actually see total volume size,
what we are looking at seeing, and where most of the energy is
being expended in new product base is in the scope of energy efficiency
and energy services, so that you move away from the scenario where,
as a consumer, you pay less for the unit consumed the more you
use it, which has a weird irony to it in this age when you are
trying to conserve energy and increasingly you are seeing products
brought to the market where that trend is turning, and, coupled
with demographics, certainly for western European countries, it
will plateau, in my view, and it will eventually shrink, but not
for a number of years to come.
Q266 Lord Walpole: I think that is
a very helpful reply. Could we go back to the grid then? What
impact do the regulations controlling grid reinforcement and expansion
have on encouraging renewables?
Mr Sambhi: The grid issues that we have
for a high wind build rate are really around the various models
that are being discussed as to how you invest. The current model
is user basically commits to underpinning the investment that
Grid would make. Alternative models that are being considered—and
you may have heard the expression—are connect and manage,
for example. Now, there are issues with the current model. For
example, they do not promote what one might call riskier investments,
such as—I will pick an example—we have lots of capacity,
say, in Scotland; we have onshore bottlenecks in terms of grid
in getting that surplus to England; a riskier investment might
be a long sub-sea cable, but that is not in the remit of National
Grid. It is not rewarded for taking riskier investments like that.
Connect and manage has a disadvantage in that you can build all
the generation plant and once it is built you might not actually
have the grid there to take the power away, so you have built
all this renewable power but actually it cannot run. Nobody has
the answer in the industry yet. This is what the Transmission
Access Review Group is reviewing and as part of the CUSC modifications—sorry
to introduce a bit of jargon -they are soliciting industry input.
Q267 Lord Walpole: I do not know
which one of you—and I am going to put my foot in it now—was
going to do the Outer Hebrides project.
Mr Sambhi: It was not any of us.
Q268 Lord Walpole: That, to my mind,
seemed quite extraordinary that someone was going to put 250 large
wind turbines out there, and the cost of bringing the stuff even
to the mainland must have been totally astronomical, let alone
joining up to the grid, which I suppose exists up there somewhere
because it must join up the nuclear stations. It just seemed to
me it was not on. Am I totally wrong?
Mr Sambhi: This is the Lewis project?
Q269 Lord Walpole: Yes.
Mr Sambhi: Aside from the local planning
issues, the economics of the project were never going to be great.
The fact that you have three major suppliers sitting here and
none of them invested should tell you something.
Mr McCullough: The Isle of Lewis project
was an AMEC/British Energy project jointly so they are best placed
to comment on the economics. However, in that kind of scenario,
just to give some context, on the one hand, you have absolutely
superb wind conditions. You also have a community that is predominantly
rural and clearly in high need of local, sustainable work for
many people, not just through construction. So you have on the
one hand the balance of the Highlands and Islands' need for good
and long-term jobs against any of the large infrastructure projects
around the British Isles, which at best have a grid connection
that takes us to the coastline. So for any of the projects that
the three of us are working on at the moment, all of them very
large scale, we have this dilemma: at the best we get to the coastline
and then we have to look at establishing grid connectivity. So
simply because the Isle of Lewis wind farm happened to be on the
Isle of Lewis, the principle of it being off the mainland is no
different actually to that being on any large-scale wind park
of 500 or 700 MW around the actual shoreline. The infrastructure
cost is, in my view, going to be of the same order of magnitude.
Coming back to your core question about basically can the grid
cope, we have to bear in mind that this is not unique for renewables
and the grid infrastructure in the UK was built on very large
centres of generation. When you look at what is happening on the
broader picture beyond renewables, on 1 January this year, for
example, the Large Combustion Plant Directive clock started ticking
on very many of the ageing coal/fossil fuelled fleet that will
be closed by 2015. If you overlay on that the Magnox reactors
that will also close in that time and the AGR fleet that will
diminish by 2018-20, we are looking at a total large-scale change-out
of some form of about 40% of all of the installed capacity in
the UK by 2020. That is a phenomenal change that the grid has
to cope with. Typically, for the projects that we have all built
on this panel, to date they have been more or less of the type
that would be classed as distributive local energy grid connections
so that they connect at a lower voltage distributed energy and
are easier for us to manage, providing that there is spare capacity
on the grid locally to do that. So when siting a wind project—and
this is what will determine the good, the bad or the indifferent—it
is not only about wind, it is not only about location, it is about
the grid connectivity, so that the cost of that can be minimised.
One of the key challenges that we have—and frankly, this
is where I would encourage members of the Committee, if not canvassed
already, to canvass the views of National Grid and Ofgem on this
matter, because certainly working on various panels looking at
grid, there is a real healthy interest by the National Grid Company
and the distributive generation companies to look at innovative
ways, including connect and manage, to explore what alternatives
exist. At the moment we have the ironic situation where the grid
code that the National Grid has to adhere to was based on those
very large centres of generation, land-based around the power
stations that we have seen all around the UK, and the same rules
apply to making that determination whether it is type X, Y or
Z generation, irrespective of the volume of megawatts being considered.
One of the prohibitive things that they have clearly is that means
that extends the cost base of their work and, being a regulated
business, that has implications for Ofgem and ultimately the consumer
but it is one of those essential steps that National Grid have
to go through with users in the system such as ourselves that
need that point of connection to really explore in a lot more
detail what work can be achievable, because the sizing of the
grid at the moment is historically built around very large centres
of generation, increasingly; even the largest of the wind farms
that we are looking at around the shores are smaller than the
1,300 MW sizing of any line loading, for instance, in the UK.
Therefore it does need to be re-energised and reinvigorated debate,
and that has to be with the experts, who are National Grid.
Lord Walpole: I think
that is very helpful.
Q270 Chairman: Make we just ask,
just to pursue Lord Walpole's question, you saw the Times
article at the end of last week showing a diagram of a possible
National Grid offshore high-voltage cable running from the Northern
Isles literally right round the coastline to connect large offshore
wind farms. How realistic is that?
Mr McCullough: From a purely technical
perspective, that capability exists not just round the UK but
to link into Europe is perfectly feasible. We have interconnections
now through France at 4 GW, that takes predominantly the nuclear
flow into the UK from the French generators. We have interconnectors
throughout Europe. There is no real technical challenge meaning
that cannot be extended to the sea and marine environment. The
real challenge comes in the practical financial challenge of who
pays, and there is a huge investor position to be taken there,
because you are not looking at anything that will have short-term
returns. You are talking about a hugely expensive offshore grid,
technically feasible, but that provides a challenge that at some
point in the chain the consumer will, unless there is some other
scheme brought to bear, have to actually bear the cost of that.
Mr Lewis: May I just add to that? I think
that is absolutely right. The key thing here is there is a huge
amount of new capacity that needs to come on to the system, both
renewables and replacement for the capacity that is going to fall
away as the LCPD comes into effect. The key question is, what
is the most effective way of creating a grid that satisfies that?
It may be an offshore high voltage cable. It may be something
else. The point is, we need a strategic approach to look at the
plausible scenarios and what grid system is the right one, rather
than the ad hoc system we have at the moment, where you build
a project, you connect it and, if it triggers reinforcement, you
have to reinforce the grid. The question is, given that we are
planning to expand offshore massively, what is the right grid
configuration and therefore how should NGT, or someone else, be
incentivised to make that happen in the least cost way to the
consumer, who ultimately will have to pay for it? I think that
is the key: taking a longer-term view of planning and finding,
at least approximately, what the right answer is rather than a
more ad hoc approach.
Q271 Lord Powell of Bayswater: I
just wanted follow up on that particular point. Could you illustrate
the sort of incentives you think would be necessary to make that
feasible, in very broad terms? I am not suggesting it is a very
easy calculation to make.
Mr Lewis: The incentives they have at
the moment are fine in terms of the rate of return on investment,
or RPI minus X system. You get the investment. It is a question
of when is the investment done? Does it anticipate growth or does
it trail growth? At the moment we have seen a number of projects
waiting for grid reinforcement to come on. It is always behind
the curve, and therefore you have projects waiting to come on
rather than anticipating that the grid has to change in advance,
providing incentives in advance. The problem is that the Grid
will not do that because they would then have to take the risk
that they are not rewarded for that investment through the regulatory
mechanism. If there can be some kind of system whereby Ofgem agrees
in advance that certain investment is required and NGT can pass
that through in their transmission system charges, then you will
get anticipation rather than waiting to make the investment. I
think it is the timing issue.
Q272 Lord Powell of Bayswater: I
see that point. Do you think it is do-able consistent with European
regulation on things like subsidies and so on?
Mr Lewis: I do not see why not. You are
not asking them to take a subsidy. What you are saying is we need
to have an anticipatory mechanism to ensure that the right strategic
bridge is built and they are rewarded for the investment they
make.
Q273 Lord Powell of Bayswater: It
looks a bit like state aid, does it not?
Mr Sambhi: The requirement is to allow
a higher rate of return on these assets. That is not a subsidy.
That is saying that actually, you are not going to take away the
rent that the investor deserves because of the risk they have
taken.
Q274 Lord Mitchell: Can I say, on
these mega-projects that we have been describing, mega-capital
commitments, if we look at other countries where it may be pertinent—I
suppose we are talking about Spain, Denmark, France—do you
see ways where the process is different there that would enable
it to happen better there? In other words, do we have lessons
to learn from what they are doing?
Mr Sambhi: When I look back on the penetration
that renewable energy has had, say, in Germany, the lesson learned
for me is that they have introduced something and they have stuck
with it. Yes, they have a different support mechanism for renewable
energy in Germany in the form of feed-in tariffs and yes, that
could work in the UK but, as far as I see it, in the UK today
we have the RO, the renewables obligation. It is a young mechanism;
it has been in place since 2002-2003, and we have to give it the
run time before you start seeing the kind of penetration that
we have on the Continent. That is why one of the things—back
to the first question: are the targets achievable? One of the
requirements from my perspective is maintenance of the RO, because
now, five years down the road in terms of having the RO, we are
starting to see investor confidence—not just utility investor
but other forms of investor—starting to get comfortable
with offshore wind risk. A big part of that is that they see the
RO as something that is durable and works. The key for meeting
the targets is to extend the duration and increase the absolute
level of the RO.
Lord Mitchell: I must
say, my Lord Chairman, I think that is a really fundamental point.
Q275 Lord Rowe-Beddoe: I would just
like to say that I endorse the sentiment expressed by the Lord
Chairman in receiving your commitment to seeing that this target
could happen. That is somewhat different to previous witnesses
that we have heard here, and bearing in mind, obviously, that
all three of you have identified two major blocks—one, grid
access, which we have been discussing, and the other was planning.
I think it is fair to say that my understanding is that all three
organisations say that unless there is considerable improvement
in both those areas, the energy targets will not be met. Can we
just focus for a moment on planning? There is about to be before
Parliament the Planning Bill. Can you comment as to whether you
see this as a significant step forward to improve the planning
process?
Mr McCullough: The one thing that is
incredibly positive is that all of the stakeholders involved in
the various aspects of planning and ultimate determination have
realised that we have a problem, and the problem is very severe
and needs to be addressed. The challenge that we have is that
we have had various rounds of initially planning policy guidance
issued to local planning authorities, and indeed regional planning
authorities, because the way these matters are approached in Scotland
and Wales is somewhat different to in England. That planning policy
guidance was initially very soft and not uniformly adhered to
in terms of taking what constitutes good, bad or indifferent projects.
Then the somewhat strengthening planning policy guidance moving
on to planning policy statements, which tend to have more teeth,
again, a positive step to try and help educate and show by example
local planning authorities what makes good and bad planning determinations.
Still we are looking at a situation where many of the projects—just
one example, a 750 MW offshore wind farm, Gwint y Mor, a Round
Two offshore site, went into the planning determination process
in December 2005 and prior to that it had three years of very
extensive deliberations about environmental impact assessments,
strategic siting, marine ecology, ornithology, et cetera, as you
would expect, yet still we are here now with that not determined.
We have local support but we have the challenge of Secretary of
State determination, placed with many other challenges for determination
to be made. The bottom line is that we are not getting these determinations
through in anything like a timely enough manner. You are seeing
a trend in the sector; you are only seeing, frankly, the people
with the biggest cheque books capable of keeping these projects
alive, because to actually keep those kinds of infrastructure
projects alive and sustain them through a further round of iteration,
including public inquiry, is a fairly dangerous thing to do in
terms of making sure that you come anywhere close to the targets,
because it is incredibly costly. To go back to the Planning Bill
in itself, again, I think there is a recognition that initial
guidance was well-intentioned but did not materialise any real
difference in the determination process. The policy statements
that were intended to reinforce that, again, only very incrementally
added a phase shift. We all hope that the Planning Bill somehow
finds a way to allow that planning process to be more vigorously
run through in the timetables required for that particular process.
I have to say, at this stage I hope that that is the case but
I am very doubtful that we will see any real material benefit
in the short term, because there is a lag involved. No matter
what the Planning Bill says, there is the education process that
has to take place throughout the various planning authorities,
of which there are many.
Q276 Lord Rowe-Beddoe: If that be
true, then clearly, your earlier statement that we can achieve
this target by 2020 must be under very serious consideration.
Mr McCullough: My earlier statement was
based already on the knowledge of what I know about the planning
determinations.
Mr Lewis: Having said that, I think there
are some positives. Let us not be too negative about it: moving
towards a single consenting process, having national issues dealt
with nationally and local issues dealt with locally are all good
steps forward which mean that you will not have unnecessary delays,
asking whether wind is needed at all in a public inquiry when
that policy has already been decided by Parliament. All of those
things are a good step forward but, I agree, these things take
time to move through the system, even once the Bill has been passed.
It takes time to implement, and time is something we do not have
a great deal of before 2020. The only other thing to say is there
are still a large number of projects below the 50 MW threshold
that I am sure will not be covered, but when you look at offshore,
the larger projects, yes, I think the Planning Bill will have
an effect on the ability to get those projects approved.
Q277 Lord Rowe-Beddoe: The infrastructure
planning.
Mr Lewis: Correct.
Q278 Chairman: Could I come back
to the answer that you gave to the earlier question, particularly
Mr McCullough from nPower? Could you just develop your point a
little further for the benefit of the Committee, because we have
already had Ofgem and National Grid give evidence. Could you just
develop the sequence that you believe would enable us to comfortably
achieve—or perhaps with some effort—these targets,
that is to say, Ofgem permitting National Grid, with appropriate
returns on investment, to invest in anticipation of requirement
and then for the contractors to respond?
Mr McCullough: I think it is a two-step
process, the first of which is not that onerous. One of the things
that we in the industry, certainly RWE and nPower, and, I believe,
others have been calling for is the ability for NGT to have a
properly funded scope of work to look realistically at the changing
landscape of connectivity in the UK. We are an island and we have
had a legacy of very large-scale centralised generation, and that
landscape is changing very dramatically. The technology or focus
is, of course, renewables because, as we touched on earlier, the
vast majority of new projects are not actually the mega projects;
they are very many small, locally connected, distribution voltage
connections that are quite quickly eating into the spare capacity
that is available to allow that generation to run whenever there
is a renewable source available to allow it to run, so in no encumbered
way. There is a transmission access review, as already mentioned.
There are several working groups that have brought forward many
people into the different processes to actually look at the solutions
to this, but one of the things that we are calling to look at
is the broader scope of looking at and making sure that Ofgem
in particular understand that, one, we have the initial scoping
exercise to do, and then ultimately what will result is perhaps
a review of the landscape which talks about connectivity, especially
as it results in very large-scale offshore grid infrastructure,
even before you get to the type of the map that you referred to
in The Times that shows a grid network around the UK, potentially
linked to Europe. We are talking about binary connections here.
At best, where projects are adjacent, we can look at synergies
and benefits by putting a grid access point that can connect one
or more, but the way we are looking at the geographical dispersal
of those projects at the moment, they are very much one-off connections
that at the moment have unique solutions, depending on where their
point of connectivity is.
Q279 Chairman: I know, but you are
talking about an increase in capacity, and ultimately the consumer
has to pay, and presumably pay up front. I do not understand how
we can have a significant increase in grid capacity, because those
who will supply the finance will obviously require an appropriate
rate of return and therefore prices must rise, must they not?
Mr Sambhi: In terms of the cost of total
investment, generation and grid?
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