Examination of Witnesses (Questions 440-448)
Mr David Halldearn
5 JUNE 2008
Q440 Chairman: Is there a feeling
that greater authority should be vested in the international group
of national regulators?
Mr Halldearn: I think there is in the
sense that what European regulators believe is that having predictable,
consistent regulation is one of the key factors in ensuring we
have a sound investment climate. We need to make sure that when
people invest their money they understand the basis upon which
regulators are taking their decisions. Having other forms of involvement
in the energy markets adds to uncertainty, which undermines investment.
We believe that European regulators should have the ability to
take regulatory decisions and have them applied. One of the problems
we see, of course, is the framework of European law does not actually
help us clearly to achieve that outcome. What we find is the idea
of delegating powers to a European body like ERGEG, or the proposed
Regulatory Agency, contravenes some tenets of European law, particularly
things like the Meroni doctrine, which makes that problematic.
Some of the things we have been trying to do have been to work
around those constraints to see if there are ways in which we,
as regulators, can have at least an extremely strong influence
on decisions so we can get as much of that predictability into
the business of regulation as we can. I have to say, we have had
some success at a national level because the proposals that we
see in the Liberalisation Package are aimed at giving national
regulators much more autonomy and authority. That is a pretty
good outcome as we see it so far.
Q441 Lord Powell of Bayswater: I
wanted to ask about another aspect of the market and how it will
operate with the renewables, and that is the Guarantees of Origin.
We have had some discussion with different witnesses on this today,
with the Commission taking the view this is an important part
of the renewables programme that countries should be able to trade
renewables, whereas people like Greenpeace and Friends of the
Earth saying it is a complete cop-out and should not be allowed.
Do the regulators have a view on how this would operate? Would
they have a role in supervising the operation of Guarantees of
Origin?
Mr Halldearn: Yes, regulators do have
a view on Guarantees of Origin. In fact, we issued a press release
just today, which I will let you have.
Q442 Lord Powell of Bayswater: You
knew I was going to ask the question!
Mr Halldearn: Part of it is about Guarantees
of Origin. We think that producing energy from renewables should
be done in the way that is most efficient. Having Guarantees of
Origin and certificates that enable people to trade we think is
a good thing. We do have some concerns about the particular proposals
that are in the package because we are concerned that whatever
is there is robust, efficient and, indeed, people can use them
so that there can be trade. We want to make sure that there is
no fraud, no double-counting, and the whole process is efficient.
Yes, in principle we think it is a good thing.
Q443 Lord Paul: Will that not just
take people's attention away from what they are supposed to achieve
if they get it through trading?
Mr Halldearn: We think the answer is
no. The aim is to try and tackle climate change and climate change
is a global issue. If there is a market which is particularly
suited to producing energy from renewable sources, and another
one which is perhaps less suited, then we think the incentives
should be there so that you can get the production in the right
place. At the end of the day, the reduction in CO2 is going to
be the same.
Q444 Lord Paul: Would it be tantamount
to a question of richer and poorer countries instead of the ability
to generate energy from renewable sources?
Mr Halldearn: It depends on the value
of the renewable output, I suppose, but I do not really see it
like that. I see it much more as one where really the aim is to
try and get the most efficient outcome. If we have got €100
to spend on getting a certain amount of CO2 reduction and it is
more expensive to do it in one country rather than another, then
in reality we are going to get more CO2 reduction by doing it
in the place that is most efficient.
Q445Chairman: Can I return to the issue of unbundling
because Germany's electricity supply is not unbundled along the
same lines as it is in the United Kingdom in substance, yet Germany
is held up as being a country where the industry is allegedly
reasonably efficient. Is there not a dichotomy there, or am I
misrepresenting either one or both sides of that equation?
Mr Halldearn: We certainly hear from
people who are trying to participate in that marketplace that
the German market is actually quite difficult to get into and
the competition, according to some people who are trying to enter,
is not very effective. It is certainly true that in relation to
the development of renewables Germany has been quite good, and
there are particular rules there that oblige the development of
renewables. I suppose one would have to drill down a bit more
to see whether the particular approach that has been taken in
Germany has resulted in the most cost-effective way of developing
renewables and whether the particular model they have there is
something one could replicate across Europe. One of the risks
that regulators see with the proposals on renewables is that the
targets are very aggressive and very ambitious. We want to meet
the targets on sustainability and we also want to meet the objectives
on competitiveness and security, and regulators believe the most
effective way to do that is to have competitive markets and market
mechanisms to hit these sustainability targets. One option for
countries, however, may be to take a rather more centralised approach
and a centralised approach could potentially undermine the achievement
of competitive markets. Yes, we think that achieving and moving
towards more sustainable generation is not an option, it is something
we have to do. We are worried there are risks that, if we are
not careful and take our eye off the ball, then in trying to achieve
these targets and solve the associated problems there may be a
tendency in some countries to go for central solutions rather
than market solutions which would tend to undermine the operation
of the competitive market and, therefore, we would fail to achieve
one of our other objectives in Europe.
Q446 Chairman: Can I just ask you
about the measurement of performance for both the setting of national
targets, 15% in the case of the UK, but also for the feasibility
of the trading of Guarantees of Origin. Could you tell us how
the trans-national organisation of regulators standardises the
measurement of output? It may be very simple for all I know.
Mr Halldearn: We have groups of regulators
that actually sit down and worry about these sorts of issues across
a wide range of areas. One of the areas that we are focusing on
now is worrying about how we deal with price controls and cost
of capital and how we standardise our approach to those things
so that we can improve the way regulators work. We have not yet
focused on this question, I have to tell you. We have not focused
on the question of how you would standardise the definitions that
could then be used for Guarantees of Origin, but you are quite
right to identify that as an issue which would need to be addressed.
Like all these things, at one level it is very simple because
a megawatt hour is a megawatt hour, but when it comes to ensuring
that they are measured properly to the right standard, that the
time periods are the same, because the value of electricity changes
according to time. All of these things are ones that would need
to be addressed.
Q447 Chairman: I am going to ask
one more question, if I may. We heard in evidence last week in
the United Kingdom and in the press again today, and in the Minister's
statement in the House of Commons yesterday, about offshore wind
farm expansion in the United Kingdom. Let us take a practical
example, Denmark and the United Kingdom, because we heard evidence
of the possibility of common, very large offshore wind farms feeding
electricity into low voltage connections, or even high voltage
grid connections, buried under the seafloor. Can you see any difficulties
in co-operation between national regulators where there are bilateral
national agreements?
Mr Halldearn: As we sit here today there
are difficulties, largely because national regulators are national.
They are statutory bodies and they have national duties, all of
them. The one thing they do not have is obligations, duties, to
look across the border and think about issues which are to the
common benefit of everybody. They are bound in law to look at
the national picture. The new Energy Liberalisation Package extends
the duties of national regulators. Then I think we will be in
a much better position and energy regulators will be driven to
have a broader picture. Will that solve all of the problems? Probably
not overnight. There are difficult questions which arise, not
just technical questions. Some of the issues you raise are clearly
technical ones and from technical problems flow things like how
one allocates costs and all of the things that need to be done
to make sure investment happens and the electricity flows. There
are other questions about if you start to join markets together
and share the proceeds of renewable generation, then who gets
the benefit, who incurs the costs, and are one set of consumers
going to be better off than another. These are issues which are
not unique to the issue of development of renewables, these are
issues that regulators understand are there and we have to work
through. I am afraid I think we probably have some rather difficult
discussions to come on some of those questions.
Q448 Chairman: Definitely a final
question from me. We had evidence from Greenpeace and Friends
of the Earth this morning and one suggestion as far as small renewables
energy generators are concerned was that there should be a one-stop
shop dealing with issues from planning, regulation, financing
even. There was a feeling expressed by the ladies who gave evidence
that the processes in certain countries were just too complicated
to get a project off the ground. We were struck in our last report
by SOLVIT, and we were impressed by SOLVIT as a concept and also
how it has been operating in the United Kingdom incidentally.
Is there any case for a SOLVIT for renewables?
Mr Halldearn: I think anything that reduces
barriers to entry for small companies is good. In principle, of
course, it is good. The difficulty one always comes across is
how you ensure that this agency then has the authority to deal
with things like negotiating planning consents and all of those
things, because behind it all you still have different authorities
with different interests. Yes, in principle it is a good idea
is the answer.
Chairman: Thank you very much indeed
for coming and helping us.
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