Examination of Witnesses (Questions 300-317)
Malcolm Wicks, Mr Simon Virley and Mr Tim Abraham
2 JUNE 2008
Q300 Chairman: Before we move onto
Lord Walpole can we just pick up two points that Lord James made.
Minister, could you comment on the significance of offshore wind?
The Committee did visit off Great Yarmouth and an onshore wind
facility at Avonmouth. There are three specific points which I
hope you can comment on. First of all, are we over reliant on
offshore wind and what sort of contribution to this 15% of total
energy consumed in this country is offshore wind likely to contribute?
Secondly, the point Lord James made about supply chain which is
a point that came up several times during our visits. Thirdly,
the importance of perhaps a high voltage underwater grid connection
for offshore wind farms around the United Kingdom, particularly
in the north North Sea and the Hebrides.
Malcolm Wicks: Let me try to tackle the
first question and my colleague Simon Virley will I think come
on the next two questions. In terms of how we get to the 15%,
we are not in the business of disaggregating and setting targets
for different technologies. Obviously the Committee will understand
that that would not be the sensible approach. Having said that,
as things stand at the moment I think that offshore wind does
look like a very favourable development. As we know as individuals
but as we know from research we are blessed—if that is the
correct word—with a huge wind resource in the British Isles
and also I am advised that we are blessed too in the sense that
the waters around parts of Britain at least where we need to erect
offshore wind turbines are relatively shallow so obviously that
helps the economics. We therefore could see a truly massive expansion
of offshore wind terminals. I am bound to say, however, that we
do need to bring forward some of the new technologies. I have
mentioned wave and tidal and although I do not think myself that
they will be making a huge contribution by 2020 I would have thought
nevertheless in the next decade we will see successful deployment
of the very exciting technology in terms of wave and tidal. Many
companies are in the business at a stage where technology is being
tested in the water although very little has been tested in the
water for long enough I think my judgment would be that offshore
wind is particularly important. There are, however, these very
important issues about the supply chain and also about grid connections
which my colleague Simon Virley will cover.
Mr Virley: You are right to say that
the supply chain blockages are a significant issue at the moment,
including the number of vessels available to actually deploy some
of these turbines offshore. What industry are telling us is that
the main solution from the point of view of government policy
is to provide a stable long term policy framework for renewables
against which the private sector can invest in this country and
to confirm that the Government is going to meet its targets and
therefore the private sector can invest against that assurance.
In our renewable energy strategy that we will be consulting on
this summer, as the Minister has indicated, we will be setting
out some of the long term policy framework that we will be putting
in place in order to give investors that confidence, as well as
a number of specific interventions of particular bottlenecks such
as on gear boxes, publishing research around that as to the facilitative
actions we can take from Government, including with the regional
development agencies to tackle some of those specific blockages.
There are a suite of measures on supply chain that we will be
developing. On the issue of the grid and the transmission system,
we are working with National Grid, the other transmission companies
and Ofgem on what the strategic grid might need to look like in
a world where we have a significant amount of renewable energy,
including coming from offshore wind. That will include consideration
of whether there needs to be new high voltage transmission lines
as you say, potentially under sea, coming down from Scotland.
You will be aware of the problems there have been with the onshore
connections. We will be publishing again some results of our work
with Ofgem and the transmission companies on what the strategic
grid might need to look like going forward as part of our renewable
energy strategy, so there is work under way on that aspect as
well.
Malcolm Wicks: I would just add that
the European Commission have established a stream of work and
appointed, as I recall, the former German minister Adamowitsch
to look at issues around a European grid for renewables in the
North Sea which is another interesting indication of where things
could move in the future.
Q301 Lord Walpole: I find it interesting,
Minister, that wherever we get to with a question you have answered
half of it but not quite. May I ask you what measures will need
to be taken at an EU and indeed a national level to ensure reliability
and predictability of energy supply? To what extent will intermittency
be an obstacle to achieving the target, particularly if the amount
of renewable electricity gets up to, say, 40%?
Malcolm Wicks: I will ask one of my colleagues
to come in on the European dimension of this. In terms of the
United Kingdom, I did touch on it earlier. If one thinks of us
hitting the target, as we will, by 2020 a considerable proportion
of our electricity will be coming from renewables because it is
in the electricity sector, however difficult, that one can see
more rapid developments than say in terms of fuel for our motor
cars for example. You could be thinking, I am advised 35%, 40%—you
get different estimates—of our total electricity, so the
issue of intermittency is clearly a very important one and people
think that they are the first person to tell you that the sun
does not shine all the time and the wind does not blow all the
time. We are not in the world of central planning—you will
be pleased to know—nevertheless one has to think about the
situation where, not by 2020 so much because the first new nuclear
power station may not be built by 2018 or 2020, but going forward
after that you could see a significant proportion of our energy
coming from nuclear. I think in terms of the diversity, therefore,
and the flexibility in the system there will always been that
need—or at least in the foreseeable future—for fossil
fuel power stations including coal power stations to bring that
flexibility into play that any system of this kind will need
Q302 Lord Walpole: Could I just put
another point to you, one that I have asked of someone else before,
but when do you think that our total energy requirement level
will start to come down? We have to save as well as produce less.
Malcolm Wicks: I agree with that.
Q303 Lord Walpole: Do you think it
will?
Malcolm Wicks: Yes, I do. I think the
first part of any sensible energy strategy and also the first
part of any sensible climate change strategy is about trying to
constrain and then reduce energy demand. Indeed, I think that
with every day which passes with concerns about the price of a
barrel of oil and wholesale prices of coal and gas, that becomes
clearer and clearer. I think we can look forward to a future where
energy demand comes down. To give you an example, I spent the
morning at the headquarters of the Building Research Establishment
near Watford where on their site now a number of housing construction
companies—I walked round six or seven of them—have
constructed either zero carbon housing or very, very low carbon
housing; they are the highest standards in terms of thermal efficiency
of housing you would ever see. Actually in those dwellings you
need to expend very small amounts of energy to keep warm. I think
we will see demand for electricity coming down, but not tomorrow.
Mr Virley: Shall I return to the issue
of intermittency and just expand on the answer? There are a number
of aspects to this, the first, as the Minister has mentioned,
is the need for conventional plant to remain on the system to
run when the wind is not blowing. We recognise that and are doing
modelling around that at the moment. There are a number of other
aspects, the second of which is to ensure that the EU market is
working correctly and that the interconnectors are working correctly
so we have diversity of supply. Of course the more wind farms
you have the more chance that at least the wind is blowing somewhere
around the coast and there is a diversity point there in that
the expansion should ensure that the wind is blowing somewhere
across the UK. Finally, there is the role that demand management
and storage, as you indicate, could actually play going forward
in terms of managing the demand side of this equation as well
as the supply side. There are a number of mechanisms there to
cope with the intermittency issue which we think can be dealt
with, although there will be some cost to it.
Q304 Lord Walpole: You are putting
a great deal of extra work on the grid, are you not?
Malcolm Wicks: Yes, including the work
of the National Grid itself. I have had a presentation from them
on this very issue.
Q305 Chairman: We have heard evidence
that Ofgem should have its remit extended to make CO2 reduction
a primary duty. A key example of why this matters is that current
Ofgem rules prevent the National Grid—we are advised—making
strategic investment needed in advance of new renewables. The
question we would appreciate your guidance on is: should Ofgem's
remit be changed? If not, how can National Grid behave in a more
strategic fashion to make investments with the agreement of Ofgem
and in the interests of meeting the targets we have talked about?
Malcolm Wicks: Again, if I may, we will
do this in two parts with my colleague Simon Virley coming in
on the second more detailed and authoritative part. We have looked
long and hard at this question and of course it is a very serious
question because there is Ofgem at the moment with a primary duty
towards the customer. That is fair enough, it is very important
in terms of ensuring there is competition and indeed they are
undertaking a new inquiry just to check the competitive system
is as competitive as many of us assume, and they have secondary
objectives in terms of sustainability but also in terms of what
one might call the social policy here to tackle what has now become
known as the issues around fuel poverty. We have looked at this
and our judgment is that we should not have a radical interference
with that but that we should issue new guidance to the regulator,
to Ofgem, on the issues around sustainability and indeed the social
implications of that. I think you get into some difficult territory
if you have two or three primary duties. There would always be
this question of balance. I think we also feel of course that
it is the major role for Government with supporting players to
tackle issues around sustainability and climate change, and it
does make sense to have a regulator that is particularly keen
to make sure that issues of affordability are not lost in the
debate. Simon, would you like to add something?
Mr Virley: Just on the specific point
about how we incentivise National Grid and the other grid companies
to make the strategic investments that are going to be needed.
We have been working with Ofgem on the Transmission Access Review
to be published shortly and that will include some proposals around
how the regulatory regime might need to change to facilitate that
investment. We will be coming forward with some proposals on exactly
this point very shortly which should facilitate the necessary
investment.
Q306 Chairman: Could I just ask you
about the timescale of that, is that likely before the consultation
period ends?
Mr Virley: Yes. At the moment we are
intending to publish the Transmission Access Review certainly
before the summer recess so that will be in good time for your
Lordship's report.
Q307 Chairman: Will that naturally
come to this Committee or could we make arrangements to have it
forwarded?
Malcolm Wicks: We will make sure it does.
Q308 Chairman: That is much appreciated;
thank you. We have been concerned in taking evidence, certainly
in Bristol, that the consumer might have some resistance to the
higher costs of energy derived from renewable sources. I am thinking
particularly of solar. We heard evidence of the cost of solar
panels, the reduction in the grant available, the difficulty now
in installation, but more generally is there any evidence of what
I would call consumer resistance to the introduction of this renewables
target?
Malcolm Wicks: Again, particularly against
a backdrop of the last couple of weeks and the increasing concern
about the cost of energy of different kinds, whether it is gas
bills or the fuel we put in our motor cars, we have to have a
huge regard to this. The simple truth is that the measures that
we are now taking at a UK level and a European level to tackle
climate change add to costs. One of my colleagues might have the
exact figure but from memory, if you look at our electricity bills
now, I think 14% or 15% might be through the different climate
change measures. I am thinking of the European Union ETS, I am
thinking of the Renewables Obligation in particular because, as
you have implied, renewables are relatively expensive at the moment.
They are relatively new technology, or if they are not new technology
they are newly deployed in this country such as photovoltaics.
I think we do need to ensure that going forward to our 15% target
in 2020 that we are as rigorous as possible in trying to find
the most cost effective solutions and methods to reaching the
15% target. This is something I am very, very mindful of and it
is one of the reasons, as we touched on earlier, that while we
feel that some degree of trading in Europe in terms of how we
hit the target could be very appropriate, not least because of
the estimate I gave, the last one percentage point as it were
could be the most expensive percentage point of all.
Q309 Lord Mitchell: Minister, I think
I heard you say that you had high confidence that we would hit
our target by 2020 (I do not think that is your exact wording,
but words to that effect). In our evidence we have had a variety
of probabilities put on that likelihood occurring, some have been
quite pessimistic, some have been more optimistic, but even the
more optimistic of them have said that they are going to need
a fair wind to hit that target. Certainly, speaking for myself,
I find myself in some degree of confusion in being able to put
my finger on a likely outcome to this target being hit. I wonder
if you could help me on that.
Malcolm Wicks: I am a long term optimistic,
sometimes a short term pessimist, but this is quite a long term
target to 2020. We have signed up to this at heads of state level;
it is European policy. We are now going through a process with
the Commission on talking about the details of this, meanwhile
here in the UK we are developing the strategy that we have been
talking about which we will be consulting on. I make two judgments
about this. One is that it is extremely demanding but I am confident
that we can find a way of hitting that target. We need to take
a number of radical steps, although I think the mainstream here
in terms of deployment will be developments like offshore wind,
but not exclusively. One of the reasons I am particularly keen
on micro generation is because I think you have to get the citizen
involved in this. I think there are a lot of citizens out there,
the group I think of as the recycling cohort, those of us who
spend rather a lot of time recycling things. My wife has me now
washing out empty cat food tins and plastics, empty bottles of
lemonade and things like that. I think those are the people who
are actually beginning to look to their homes and their transport
systems to ask what extra steps they can take to help us on this.
Micro generation is very important. At the other extreme macro
generation is very important which is why we have said we have
said about the Severn Barrage and why in principle we think that
could be a significant source of renewable energy in the future,
but we are not gung ho about that, we are looking at the environmental
implications, however if that could be brought about it could
be five per cent of the nation's electricity and we need to build
up in that way to the 15% for all energy from renewables.
Q310 Lord James of Blackheath: Minister,
I noted carefully when you answered my earlier question, your
comment about the priority, as I understood you to say, of getting
the environmental issues straight by the generation from renewable
fuels. Does that not imply a significant risk that if we concentrate
on that solely and fail to achieve it we are hit by the double
whammy of failing on that score and at the same time failing to
achieve mounting cost fuel market alternative sources on a cost
effective basis of existing fuel which we can use to win the time
to get to the position of having the renewable fuel available?
Should you not be applying both objectives simultaneously, renewable
fuel and development of existing sources at maximum?
Malcolm Wicks: When you use the phrase
"renewable fuel" do you mean general renewable energy?
Q311 Lord James of Blackheath: I
mean wind and hydro and all those.
Malcolm Wicks: We have to move forward
on a number of fronts and we are hardly inactive. Prime Minister
Blair set up an energy review which he asked me to lead. After
consultation that led to an energy White Paper; that in part led
to the Energy Bill. Now we have the new targets set by the European
Commission which we are looking at, but we are moving forward
on a number of fronts. We have hardly been inactive on nuclear;
it has been controversial but this is the first government for
a long time really to grasp that nettle.
Q312 Lord James of Blackheath: It
will take time, Minister.
Malcolm Wicks: Of course it will. We
are thinking long term about this. Meanwhile I have said what
I said about the UKCS, the North Sea; we have a very active relationship
with the oil production industry there. Also, because we do recognise
that the world, including the UK, will be burning fossil fuels
for the foreseeable future, we are a lead nation in developing
technologies around carbon capture and storage and indeed will
be among the very first nations—possibly with Norway and
maybe with someone else—to demonstrate the whole range of
carbon capture and storage because we do believe that in a world
that will be burning fossil fuels we have to find ways of successfully
taking out and storing the CO2 which are there with the fossil
fuels.
Q313 Lord James of Blackheath: We
all know that if you cannot beat them then join them, and if we
cannot beat the existing sources of fuel at 113 dollars a barrel
then we should surely be getting every last barrel out that we
can at a lower cost. You talked about North Shetland being non-cost
effective because it was deep. I was told that I could not get
the oil out of the Argyle Field 30 years ago; it cost me £12.4
million to buy one ship that could get it out of the depth of
the Argyle Field and I would bet that for not a very big increment
on £12.4 million I could get the oil out of North Shetland
today.
Malcolm Wicks: Well, we may need your
help.
Q314 Lord James of Blackheath: I
do not have my Masters licence any longer!
Malcolm Wicks: The West of Shetland project
is an extremely taxing one. I think it is becoming more economic
because of the price of a barrel of oil. That is why, very proactively
as a government, we are working with four major energy companies
to see what the possibilities are there. Of course further afield
that is why in Canada it has now become certainly very economic
to look at the oil sands, for example. You are right, with the
price of a barrel of oil being very high it becomes more possible
to extract fossil fuels.
Q315 Lord James of Blackheath: I
think you will recognise then, Minister, that throughout the remainder
of this debate over how many months it continues this is an issue
on which I will continue to concentrate and I am sure you will
also.
Malcolm Wicks: I look forward to that.
Q316 Chairman: Minister, may I just
come back to the targets themselves? This may sound like a cynical
question, it is not supposed to be but we have had evidence that
somehow the target of 20% renewables by 2020 seems rather over-simplistic,
it may have been plucked out of the air quite late at night in
the Council of Ministers or indeed by members of the Commission.
Is it not time to perhaps think more flexibly that perhaps the
target should be 2030? Perhaps it should be expressed in more
specific sub-sector targets, particularly for wind which is, as
I think you have indicated, likely to be the major contributor?
And why 15% for the United Kingdom? It looks like a calculation
that has not been based on deep scientific or objective analysis.
Forgive me if that sounds cynical, but I would appreciate your
comments.
Malcolm Wicks: It did not suddenly come
out of the air; there had been earlier proposals, as I understand
it, from the European Commission. The European Parliament looked
at this with some care and I think proposed 25%. All this was
part of the process before the Commission decided on 20%. Obviously
it was not 19% and it was not 21%; it is a rounder number than
that, so let us not pretend there is an absolute detailed scientific
precision. I think it is based on the judgment and seen in the
context of the European Commission's own targets about greenhouse
gas emissions and the Commission's ambitions—which we share
fully, indeed we have helped lead the debate—on tackling
climate change. My understanding of the science is that we do
not have an awful lot of time to try to get on the right side
of the emissions balance sheet. I would be loath to accept an
argument that we should now postpone.
Q317 Chairman: Thank you very much
indeed. We have just hit our target time of 5.15. We look forward
to receiving further information, particularly about the consultation.
The session is now closed.
Malcolm Wicks: That just shows we can
meet targets!
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