Select Committee on Science and Technology Minutes of Evidence

Examination of Witness (Questions 100 - 119)



  100. Did you learn from that non-survival of the first winter? Was it a valuable experience?
  (Dr Martin) I think there were lessons but, as I say, I do not think that damns the original Osprey concept. Before we committed to being involved, in the contribution I have described, we had done our own technological assessment. We have a strong renewable engineering capability in the company and we concluded that that device had great potential, which is why we were supportive of it. The particular reasons why it failed were more to do with the particular example rather than the general principle that lay behind it.

  101. What is your investment policy towards renewables in general and towards wave and tidal energy in particular; your philosophy, if you want to give us your philosophy, but it would be rather nice if your philosophy was backed up with Scottish pound notes?
  (Dr Martin) We are very proud of our heritage of being the lead in renewable generation and would very much like to continue in that position in the United Kingdom, so I am glad to be here. The route that we have taken through that hitherto has been to invest approximately £20 million (of Scottish or English pound notes) per annum in renewable energy. The purpose of that investment has been to sustain the hydro facilities which were built in the fifties and sixties of the last century. Those machines are now obviously 40 to 50 years old and a power plant typically has a life of 40 to 50 years. All our hydro is now in that age range and to keep it going we have found it necessary to invest £20 million-odd over approximately a 15-year programme, so we had committed to a £300 million investment programme which completely dwarfs any other investment in renewables in this country.

  102. Is that not largely maintenance of what you have?
  (Dr Martin) I would submit that that investment is necessary to keep what the nation has. The position at the moment, with the decline in the price of electricity, means that that investment no longer meets our criteria so we have stopped that programme completely at the moment. I am studying at the moment de-commissioning hydro and I would like the Committee to note that point.

  103. Because gas generation is cheaper than hydro with the high maintenance costs you have at the moment?
  (Dr Martin) Fundamentally the price of electricity has come down in this country which makes that investment in keeping Scottish Hydro going less attractive than other opportunities. Indeed, it does not meet our investment hurdle rates. Therefore we have stopped that programme. The solution, to move on along that particular line, is for the plants in the 10 to 30 megawatt range to receive some form of support. At the moment they are not eligible for renewable energy certificates. As such they are not economic to refurbish. The larger schemes are, and we have done most of those.

  104. Is this high spend on maintenance and refurbishment of the very important hydro schemes in Scotland a result of neglect in previous years?
  (Dr Martin) I believe not. I believe it is a result of natural ageing. We have been investing as a private company since we were privatised in the early nineties and we concluded that that was a sensible thing to do for the larger of those hydro machines. To finish your question, you were asking about ongoing investment. The Board has recently passed an investment in wind, our first, because we felt that sustaining the hydro was the right thing to be doing with this £20 million, but we have recently committed to our first wind power.

Dr Turner

  105. Given your criteria do you think that wave and tidal energy sources are viable as potential providers of electricity?
  (Dr Martin) Yes, I do. The reason why I say that is that there is considerable energy available if we set aside cost. Certainly in a science and technology discussion such as this we perhaps should afford ourselves the luxury of setting aside cost and set ourselves the criterion of pounds per tonne of carbon dioxide avoided. I think that should be the success criterion rather than raw electricity generation price.

  106. Having said that, it has still got to fit into a commercial system somehow. What do you see as the main obstacles that need to be grappled with before either of these sources can be viable for commercial exploitation?
  (Dr Martin) The primary difficulty is commercial credibility. In order for these devices to be bankable there has to be the first move into the demonstration stage. That is the one that is very expensive to do and very difficult for the companies that are working on it, largely unfunded by the public sector, at the moment.

  107. DTI's published wisdom is that wave energy is unlikely to be a significant energy source until after 2010 at the very earliest, or 2025 in the case of tidal stream technology. Do you agree with those assessments?
  (Dr Martin) I agree that it is post-2010, so in so far as meeting the 2010 objective of ten per cent I think that both of these technologies are likely to be irrelevant. By the 2025 timescale I think they could well be relevant and that depends upon the effort and funding that is put in.

  108. Do you think, given sufficient energy and investment, that these two technologies could be brought into use more quickly than the DTI's estimate, which I can understand they are wavering a bit about anyway now? Could we bring that timescale forward?
  (Dr Martin) I believe we could, but not before 2010 to have any commercial or CO2 impact.

  109. As a commercial company what would encourage you to invest more into wave and tide?
  (Dr Martin) The straightforward answer is an economic return on our investment that fits the risk profile. It has to be said that placing devices, particularly surface devices, in the Western Approaches is a high hazard exercise, so you are looking for considerable rates of return, in excess of 15 per cent. I will just put a marker down because these numbers are often bandied about in vague terms and I think in excess of 15 per cent is to put a scale on it, and probably 20 per cent for a technology of this riskiness. Possibly submerged devices, which are less susceptible to the changes in energy spectrum, could have a lower risk once they are developed to the stage that wind devices are, so they have some catching up to do, but potentially deep water is a more benign regime than surface.

  110. How much of a problem is it for a supply company like yourselves, given the fluctuating levels of energy available from these sources? Is that something that you can handle theoretically?
  (Dr Martin) Yes, it is. An attraction of wave power—I will start there—is that the fundamental driver is wind on the long fetches of the Atlantic and that is reasonably predictable. The wave fronts arriving off-shore United Kingdom can be predicted with some degree of confidence and, worked in conjunction with a thermal or a nuclear system on shore, it would be possible to fit in quite considerable volumes of renewables, particularly when you consider that we are just about to enter the new energy trading regime where this thermal plant will be flexing on a half-hour basis. The capability of the on-shore thermal fleet to react can be fitted in with a view of weather fronts arriving from the south west, the prevailing wind. Indeed, we do that in the way we operate our hydro schemes at the moment. We are making very good use of long range and medium wave weather forecasts and weather radar and we do exactly that in mixing our hydro and our thermal fleets to best economic advantage. Taking tidal, it is altogether more predictable, driven by the moon.

  111. That would make it even more attractive, would it not?
  (Dr Martin) Yes.

  112. You are still going to be left with some variations, so would you be interested in investment as a company in efficient means of energy storage?
  (Dr Martin) The short answer is no. We have efficient means of energy storing. I also operate a pump storage plant because it has a turn-round efficiency of about 75 per cent. There is a pump storage plant in England. The fuel cell branded technologies for energy storage at the moment are extremely expensive, have low turn-round efficiencies and have considerable self-discharge, which means that the energy seeps away whilst it is in storage. Those deficiencies are not present in pump storage and I would suggest that, certainly for a commercial company like ourselves, the correct way of handling the variations and uncertainty in these renewable sources, is by using stored energy as fuel in responsive gas burning equipment. By far the most economical way of handling short run variations in a power system is to have rapid start gas turbines available on the grid, and we also operate about 400 megawatts of those. This is a very cost effective way of doing it and we made the decision to invest in those plants quite willingly. At the moment we have more planned and they are with the DTI for consent.

Dr Gibson

  113. The principal sources of wave and tidal energy are some distance from the main demand load centres. What implications will this have for the grid and do you think they can be overcome commercially at a viable price?
  (Dr Martin) Yes. A lot of the United Kingdom's marine resource is off the north west coast of Scotland. The grid in that area is designed purely to service the very sparse population density and to harvest the hydro which is out there. The hydro tends to be in that same area because it is on the westward facing slopes of the mountains, picking up the incoming water from the prevailing wind.

  114. It sounds romantic and beautiful.
  (Dr Martin) It is. It is a great way of making energy. The grid in layman's terms is full up there. In addition, once the finer arteries of electricity collection, which are principally the wooden pole lines, come together to a transmission level, which is principally pylons in layman's terms—those transmission wires were built purely to harvest the hydro and are full with respect to the present rules under which the grid is designated to operate. I make this point deliberately. We are very supportive of new renewables where they can be accommodated, but the rules under which we are required to operate—it is not a choice—are very safe rules, and we have actually proposed a slightly more relaxed standard of operation for these rural systems and the main transmission systems to enable access for more energy onto the system. This is entirely practical and these sorts of standards are in operation in other countries. We have submitted proposals for that to Ofgen and the DTI; they are under consideration at the moment and we are hopeful of a helpful outcome. The contribution that could make would be of the order of a few hundred megawatts, but every little helps.

  115. Suppose we went further than that and we really made it big news. Who is going to pay for that?
  (Dr Martin) The concern we have, rather than stretching existing systems which is what I have just been talking about, when you get to the point where you have to make serious capital investments (and the first tranche of these capital investments would probably be of the order of £200 million just to put a scale on that), is that that cost could well fall on the Scottish customer, of whom in the north of Scotland there are 600,000, whereas in the United Kingdom as a whole there are about 22 million customers and I think we ought to take a UK-wide view here, that it is a United Kingdom renewable resource, not a Scottish problem.

  116. We are devolved now, are we?
  (Dr Martin) We are indeed. We would submit therefore that it is wrong for 600,000 customers to bear that transmission use of the system charge, which is the technical term for this, for that extra investment. Therefore we believe that the renewable energy that is bought should pay its own way in both its capital expenditure and its investment in the grid, both shallow, which is the immediate connection, and deep. We believe that the economics of renewable energy have to be made sufficiently attractive for it to pay its own way and to pay for its own transmission investment.

  117. No question of a partnership between Government and other groups of companies and so on? You do not see a partnership developing like the Tube, for example? You are not involved in those kinds of arguments or thinking?
  (Dr Martin) Yes. There are many models that can be applied to this. Our company has a propensity to invest in the right things with the right returns. We are in fact the largest wires operator in the whole of the United Kingdom and, providing the returns are right, we would be prepared to invest and we also have the balance sheet capacity to do so.

Dr Kumar

  118. The Government has set targets to produce electricity, ten per cent from renewable sources by 2010. Do you consider this to be a realistic aim or sufficiently ambitious?
  (Dr Martin) As far as the realistic aim is concerned, that number derives I think from holding our position in a European context. If you stand back from it for a moment and think globally, whether the United Kingdom is 2.6 per cent as now or ten per cent makes very little difference to the world. The real issues are in China and India where CO2 growth is considerable. In a sense the United Kingdom's contribution is irrelevant to the CO2 debate on a global scale. I believe that the United Kingdom's primary contribution to the global issue should be its brains, not its paltry contribution to CO2 saving. That is where I think the research and development discussion today is important. Rather than the United Kingdom meeting its ten per cent target by what will frankly be on-shore wind and refuse burning (if it is allowed), both of which are developed technologies, or whether the United Kingdom develops something fresh which can make a contribution in China and India and actually bring us export potential, I think is the question.

  119. Could you put a figure on the long term, say, for 2020 and beyond that? What figure would you put on it?
  (Dr Martin) My formal answer to that is that almost the whole number is irrelevant. It is what we do to act on the places where renewable energy really an make a significant contribution in the growth. I will come back to your point, but if I can just illustrate it: the Three Gorges project in China is 18,000 megawatts. That is about a third of the installed capacity of the United Kingdom. That is what we should be contributing to, not playing around with spending taxpayers' money or electricity customers' money on building devices to hit some arbitrary target in this country, if we think of CO2 as a global issue.

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