Examination of Witnesses (Questions 340-358)
MR STEPHEN ALDRIDGE, MR NICK HARTLEY, MR GORDON MACKERRON AND DR CATHERINE MITCHELL
WEDNESDAY 24 APRIL 2002
340. Is not the problem with these units, as Mrs Walley was mentioning, with the Sustainable Development Unit that they are inevitably seen as attached to one particular department and get subsumed within that department and get rather ignored by the rest of Government?
(Mr Aldridge) The Sustainable Development Unit has an across-Whitehall remit. It is also the case that the Cabinet Office DPM chairs the Committee on the Environment. So, again, there are ministerial mechanisms.
Chairman: It does not workperiod.
341. You mention the point that there had been a reorganisation of Government departments. There have been two of these big reorganisations now. As was explained to us (because we took evidence on this several months ago) the whole point of this new Sustainable Development Unit within DEFRA was that it was going to have a cross-cutting look across the whole of Government. The practical reality is that because it sits in one department it is quite often identified with the agenda of that department. You have recommended, for worthy reasons I think, setting up another unit with a sustainable focus in another department of government when we were already told there is a cross-cutting unit being set up in DEFRA. There is a risk here of paralysis by analysis. We have got all these different groups looking at these different issues coming up with a welter of data but the real problem is that no one wants to take any decisions.
(Mr Aldridge) Two points on that one. One of the conclusions of the review was that there was a need for enhanced analytical capability in the energy policy area in order that Government is better placed to address the sort of issues we have been talking about this morning, so one can identify trends and take a view on when one should be amending and adjusting policies according to changing circumstances. In terms of enabling the work of these units to lead to action and to change, there are reporting lines to ministers. In the case of the Sustainable Energy Policy Unit the proposal is that it should report to the Ministerial Sub-Committee on Energy Policy in order that decisions could be taken as and when required.
Mr Francois: To be fair, I think I can see why you have recommended setting this unit up. Equally, to be fair you have touched on a bit of a sore point with us as a Committee because with all these different re-organisations and responsibilities being transferred from one place to another, you, with all good faith, come in here this morning and recommend setting up another one. Perhaps you can understand from our perspective why it is not an entirely satisfactory recommendation to make.
342. The Government claim to desire not to pick winners and you appear to accept that concern, but how genuine is that? Surely, the renewables option really favours wind and the Government's capital funding programme, if it does not pick winners, picks losers? Tidal and wave energy get a lack of funding, particularly tidal, and that seems quite surprising because one would have thought there might be opportunities for the very same infrastructure for offshore wind to be also used by tidal energy.
(Mr Hartley) I have to agree with you that "not picking winners" is quite a slippery phrase. Some favouring of options is needed in order to make any progress in the short run. Of course I agree with that. It is a matter of the scale of the commitment and also the extent to which one can try out some options and then see how successful they are and if they are not successful move on and try other ones. In terms of spending capital money it seems to me that a fairly wide range of options should be developed. That is one of the objects. It is not picking one winner, it is picking a fairly wide range. Clearly you have to have some sort of sequencing and priorities in the short run. As far as wind being the option that comes out of the Renewables Obligation, I think it is at the moment and to that extent wind will clearly be the favoured technology.
343. Mr Francois rightly said there is a danger of paralysis by analysis. One of the things that could be said about the report is that it has not taken account of the reality of British decision-making at the political level. There has been over the last two or three decades far too much analysis and far too little decision making. That is why we are where we are, and why Denmark is where it is, why France is where it is with nuclear power, and why Germany is where it is on wind and hydrogen cars, for example, and we are nowhere despite having huge and enviable resources. Would it not be better to have a wholly different report produced by you, something which give them a very tough, aggressive action planafter all, yours is a report to the Government not of the Governmentsaying in your view very decisively what needed to be done now enabling them to react? They may say this is rubbish or we do not want to go as far as this, but that would have produced the necessary friction you need to get the thing moving because they have not moved for too long. Have you not failed with too many options, too much blandness and too much lack of realism about the political environment in which you are operating?
(Mr Hartley) I started off by saying that we did not seek to produce an energy plan and I have no regrets about that. I would not trust an energy plan going to 2050 which had been produced by anybody because it is not something I would wish to implement. It would be bound to be wrong. What it needed is a set of policies which enables Government and markets to make the right sort of decisions and to adjust their own decision making in the light of new signals. I have said we need new signals in terms of carbon evaluation. Inevitably decisions about energy policy are going to continue to be made within the market. I would not for a moment suggest that was wrong.
344. For example, is the Government spending of its £200 million of capital investment, backing various options, right? That is not just the market, that is Government making decisions. Are they right or are they wrong?
(Dr Mitchell) There is a wide range of renewable technologies that have not been developed very far. Insofar as all those technologies need to be developed, then it is right that the Government disperses the money throughout those technologies which it has chosen to do.
345. It cannot just say, "We will have ten per cent for everybody and get on with it." We have to make some choices somewhere or you are not even allowing the market to make choices. We talked to Scottish Power yesterday and they said the weakness of this report is that it does not paint a scenario that enables us to have sufficient confidence that the future will unroll in a secure sort of way in which we can make decisions.
(Dr Mitchell) Being a member of the Energy Review Team, of course I am allowed to disagree. I do not think that the review is bland and it is not bland because of the way that the framework is set out at the beginning by saying that the energy system is the source of climate change emissions and that the energy system has to take responsibility for those, and that in questions of tradeoff to do with climate change the environmental objectives should take preference.
346. I agree with that.
(Dr Mitchell) So I must admit that I do not agree with this notion of blandness. I would say it is far harder and much more important that you establish that framework and principles of how you move forward with energy policy because if you establish that framework in an appropriate way then energy policy will roll out from it. These other questions are secondary; it is that framework which is primary.
347. Have you not left Government (who, after all, are only a bunch of politicians and civil servants who do not know much about this area) with all the hard decisions?
(Dr Mitchell) We have made these clear recommendations and now we will see whether or not they agree with us.
348. Given that in your opening comments you said that much of this would be driven by markets and by commerical decision-making as well, can we take one example because anybody can say anything, and it is the question of what you do that really counts. Take, for example, the Appendix to Chapter 7 where you talk about NETA and say NETA is an absolute barrier to renewable energy. In this country we have a liberalisation agenda and we have a regulator, and we have a regulator that somehow or other seems to be semi-detached, if I can put it that way, from Government. Then you make a recommendation that by 2003you perhaps know it better than I do thatyou expect there to have begun some implementation of transitional arrangements from DTI and Ofgem. Who is going to tell Ofgem what to do when Ofgem have been set up with a carte blanche to do what they like?
(Dr Mitchell) Ofgem clearly has to act within its duties.
349. Have you told Government it must change its duties?
(Dr Mitchell) We would see a vision of energy policy being developed within the Sustainable Energy Policy Unit.
350. We do not have one at the moment. You have said by 2003 we want to get a change. You want transitional arrangements for something to be done about this barrier that you identify as being the way in which NETA is undermining the renewable policies in a way such that we have less kilowatts from renewable energy in 2002 than we had in 2001. Implementing Government agreements cannot wait. We do not have this unit you are talking about. How are things going to get changed? How is your PIU Report going to change the way we get things done? We can all sign up to anything. It is doing it that counts, surely?
(Dr Mitchell) We would say that Ofgem should be developing transitional arrangements in parallel to a number of other measures that are being undertaken to try and ameliorate the difficulties with NETA. They should be developing transitional arrangements and a transitional arrangement is essentially something that can be implemented and last for a period of time until it seems that the small generators can work fairly adequately within NETA.
351. Can I ask what you have in mind by transitional arrangements? What does it mean?
(Dr Mitchell) The PIU did have a consultant called ILEX which developed a transitional mechanism for us but we did not think that it was our place to say what that transitional mechanism should be.
352. Could you tell this Committee what it should be?
(Dr Mitchell) Yes. It was essentially a mechanism that did not require legislation, that would get through state aid and was a combination of an averaging of system buy and system sell prices with some kind of multiplier so that different technologies could be benefited in different ways and you could work out what the cost was.
353. Subsidised by Government?
(Dr Mitchell) It would either be subsidised by Government or be paid for by all customers equally. That was just one mechanism. We asked this consultant to give us their opinion of what they thought would be the best mechanism. We wanted to see what mechanisms could be brought forward.
354. You specifically say that by 2003 these transitional arrangements should come into effect. If we have not even got a proposal from this report to put to Government how can you expect that?
(Dr Mitchell) I do not think it is our place to say what that transitional arrangement should be. There are many people and many companies out there who have their views of what a transitional measure should be. Ofgem should bring those options together.
355. You do not think a change of legislation is needed?
(Dr Mitchell) Ofgem and the DTI need to see whether or not legislation will be required and Ofgem need to talk to the DTI at a very early stage in case they are unable to develop a transitional mechanism. It does need to be put into place now. Also Ofgem should be bringing forward the various options that are out there and coming to an agreement with all the actors that are going to have to work with this. I do not think it is our place to say that we like this transitional measure. It should be something that should be brought together following discussion with the industry. If there is a problem with Ofgem saying that they are unable to do that because it is not within their current duties, it absolutely is the place of Government now to make sure that the legislative arrangements are put in place so that can happen, because whilst there are a number of measures being undertaken by both Ofgem and DTI to try and overcome these difficulties with NETA, we are not sure whether or not they will be successful or when they will be successful. As you say, it is such an important problem that it does have to be dealt with. We have tried very hard to take account of what is happening now but, on the other hand, also saying yes it is very important so let's move forward. If Ofgem cannot do it without legislation then the Government has to start moving.
356. Can I pursue this a little bit. We have got Mr Aldridge now within the PIU and this one small example within the broad scale of things of something that could be done that could make a real difference. What confidence do you have that Ofgem could deliver this? Given the cross-cutting nature of the PIU Report, how does this square with the Competition Bill that was introduced to Parliament last week and other changes which are going on in terms of regulation because all of these responsibilities become one step removed from Government? Have you made an assessment of whether or not Ofgem can deliver? What timescale are you talking about? We would have to introduce some pretty quick changes to legislation if you want those changes to get made.
(Mr Hartley) Our report was not about all of the detailed issues of energy policy which are on the table at the moment. This is a very good example which we should use and have used of how energy policy-making happens within Government at the moment. But it was not our job to pick up every single immediate issue and put forward a solution to it.
357. Whose job is it? Who within the Cabinet Office is going to take this and run with it?
(Mr Aldridge) The next steps in terms of responsibility are set out in the report. As you know, the way the PIU works is that once a project is completed the team disbands and puts in place mechanisms for handing over implementation to the relevant department, in this case the DTI. The next step, as you know, will be consultation on this report and then a White Paper by the end of this year. There is a change in responsibilities.
358. We are not going to have by 2003 a change in the regulator, are we? It is a meaningless recommendation.
(Mr Hartley) It is not as though both the DTI and Ofgem are not pursuing these issues urgently; they are. They do recognise the importance of NETA for embedded generators and there is a lot of work underway at the moment. We still need to see how that pans out and what the end result is. We do say it is very clear that the importance of this is such that the DTI should also consider the fail-safe option of what happens if we cannot get the right conclusions from existing mechanisms. We make that conclusion very clearly. We say it is for the DTI to think about that now.
Chairman: Thank you all very much indeed. You can appreciate we have found this a fascinating session. I hope you also found it interesting. It is certainly an enormously interesting area and an extraordinarily important and topical one. I am sure the Prime Minister is very grateful for what you have done. Thank you very much indeed.