Examination of Witnesses (Questions 375-379)|
TUESDAY 20 NOVEMBER 2001
375. Maybe we could start, Dr Finer, and could
you maybe introduce your colleagues, and then we will begin?
(Dr Finer) Thank you, Chairman. On my
left is Keith Wey, who is the Chief Economist to the CIA, the
Chemical Industries Association. On my immediate right is Ken
Green, who is from the company Ineos Chlor, but is also the Chairman
of CIA's Utilities Committee. And on my far right is Nick Sturgeon,
who is the Manager of a subsidiary company we have, called CIA
Broking and Trading Agents, which has the shorter name CIABATA,
if you work that out, which we think would appeal to a certain
sort of politician, at least; and that is a company that we created
to manage the Climate Change Levy Negotiated Agreement with Government,
so Nick is a fount of knowledge on that.
376. Fine; well, if we may, let us start. We
have read your evidence. On the question of security of supply,
this is quite critical to the business of your members, how confident
are you that, under the present arrangements, security of supply
of energy is a given for all the businesses which come under the
umbrella of the CIA?
(Dr Finer) We think that security of supply is a term
which encompasses quite a number of issues. First of all, what
we need is energy supplies which are reliable but also are competitively
priced, and those two elements are interconnected, in the sense
that you could imagine a world in which you paid huge quantities
for energy and then they would be totally secure in every sense,
but, of course, that would be uncompetitive and we would not want
that. What one has to do, I think, is look at the different risks
that are involved, like the political risks of energy supplies
from different parts of the world, the risks of an accident. Perhaps
more in the control of authorities at the moment, and one where
we think there is a real problem, is undercapacity in, for example,
the transmission capacity for gas. So there are a number of different
risks, but overall we think we are in a pretty reasonable situation,
as long as the dependence on gas does not get too high.
377. I am glad you raised this point, because
it does come up in your document, about this potential overdependence
on gas. Is that because you, as chemists, or people involved in
the chemical industry, feel that the worst thing you can do with
gas is actually burn it and generate electricity, or is it because
you feel that we are using too much of it for that purpose at
the present moment, i.e. the generation of electricity, and to
continue to expand it would involve us becoming dependent on imports?
(Dr Finer) The first point may have influenced our
subconscious, but I do not think it was the reason we made that
statement in the written evidence. What we are worried about is
that the risk, for example, of something happening in the market
that suddenly jacks up the price of gas, as indeed happened when
the Interconnector was opened, we are worried about that sort
of risk affecting our ability to do business competitively. I
do not know if, Keith, you want to add to that.
(Mr Wey) Mr Chairman, it is important to have a diversity
of supply, so that we are not totally dependent on one source
of fuel. You are right, that the chemical industry is a very important
user of gas as a feedstock, as well as for energy purposes; but
we certainly want to make sure that we have our ability to tap
into any imports of gas when our own gas runs out. So we are very
concerned, for example, we have the adequate capacity to land
Norwegian gas, or indeed Russian gas, but, at the same time, we
feel it is important to have a range of fuels so that we are not
totally dependent on one.
378. This brings me on to my next question.
You are a wee bit coy as to how you are going to actually achieve
this range of fuels; there are different ways of doing it. For
example, the Government has said that it wants to have 10 per
cent of energy generated by renewals by 2010, and will do it by
some form of Renewables Obligation where penalties would be charged
if targets are not met. But what would you set as the figures
for nuclear or renewables, if these were to be part of the equation;
do you want Government intervention, do you want market forces,
given that sometimes different energy sources take different periods
to exploit, because of planning, or technology, or whatever? How
would you see Government, if they have a role in this, assuming
that role and assuming that responsibility?
(Mr Wey) I think there are a number of factors that
need to be taken into consideration. Yes, certainly, we feel that
there is a role for market forces, but we feel that it is very
difficult for market forces to determine every aspect. I think
that is illustrated by the present PIU review, which is bringing
in environmental considerations, long-term climate change considerations,
for example. I think one of the concerns that we have is that
an overdependence on the market can suddenly be upset by, for
example, the introduction of the Renewables Obligation; so there
needs to be, we feel, some consistency. And we feel that it is
very important to have a market situation which is competitive,
we need to make a drive for competitive markets, but recognising,
at the same time, that there are natural monopoly elements of
the system, such as the transmission networks, and we were a little
bit concerned that perhaps the regulator is going too far to try
to introduce market mechanisms into these areas, where they introduce
greater complexity and may actually distort the market rather
than make it fully competitive.
(Mr Green) Could I add that I think the market needs
to be given the primary role here. We do have to recognise though
that all markets can never be perfect, and, for instance, if the
planning process is slow and it does not allow the market to catch
up then there are going to be problems. So there is a need for
some sort of overview and some sort of monitoring.
(Dr Finer) We have not got a set of numbers at the
moment which we can give you, you know, that nuclear should be
Y per cent and renewables X, and so on, we think it will be an
evolving situation. What we do believe is that there needs to
be some sort of overall body, some sort of strategic energy authority,
or something like that, or at least this should be considered,
which, unlike the PIU, which is doing an excellent job, but will
then disband, continues in operation for ever, as it were, and
sets the overall strategy and sets the framework within which
an economic regulator would operate. And the task of that authority
would be to represent not only the economic arm of sustainable
development but also the social and environmental arms as well.
379. It used to be called the Department of
Energy, did it not?
(Dr Finer) Indeed. I think, in those days, the Department
of Energy did not have the environmental remit that you would
now see; but, yes, something like that.