Examination of Witnesses (Questions 600-619)|
TUESDAY 4 DECEMBER 2001
600. I think you also said that the potential
impacts on NETA were clear even before the arrangements came into
effect. Is there anything you can put forward, not on the Government's
response, but anything that you see that could be done to help
the CHP and renewables sector, from the present arrangements and
changes to NETA?
(Dr Eyre) Within NETA?
601. Yes, within NETA.
(Dr Eyre) I think, as I said, those options that are
identified within the Government's response are potentially helpful.
I think our concern would be that within the CHP sector there
has been a serious reduction in exports, so this is quite urgent.
602. What about support or incentives for embedded
generation in general?
(Dr Eyre) We think those issues are being tackled
following the report by the Ofgem/DTI working group on embedded
generation. Again, those recommendations need to be taken forward.
Some of them can be done quite quickly, but others, I think, perhaps
cannot be adopted until the 2005 review of the distribution price
controls. There is a clear agenda there.
(Dr Lees) Again, I would say we are not experts in
this area, but we come from a very simple premise that if this
is what is desirable for the UK electricity supply, then we ought
to do it through incentive regulations, so we should actually
encourage the distribution companies to be rewarded for doing
things which are judged to be either socially or environmentally
603. You refer to the prospects for domestic
CHP. You quantify the realistic expectation as about 700,000 units
by 2010, rising to 8 million by 2020. Could you take us through
what assumptions you make in order to arrive at those estimates?
(Dr Lees) That is a single figure. The way we arrived
at it was to do various scenarios. We did a scenario based on
how we had made progress with condensing boilers, which indirectly
is steady progress21 per cent per annum growthbut
compared to the rest of Europe is disappointingly small. So we
did a realistic view, to give us a pessimistic view of what we
might think about new technology, requiring new training, new
problems of getting something new into the market, that gave us
a very much lower figure than that. We were also conscious of
looking at other people's estimates which I think range up to
4 million by 2010, so that gives you an idea of the spread. Then
we argued a lot amongst ourselves to arrive at 700,000.
604. So we are working in a range of scenarios?
(Dr Lees) Yes.
605. That implies, therefore, that there are
a range of factors which will influence those scenarios?
(Dr Lees) Correct.
606. Can we stay with that for a moment. Obviously
the first one will be the question of relative costs of installation,
the capital costs versus the revenue benefit and so on. How would
you quantify at the moment your expectation of the benefit to
the domestic user of such an installation?
(Dr Lees) The additional cost in serious production
we are hoping will be around £500 over the alternative normal
gas boiler. For that £500 we are going to save about
(Dr Eyre) It generates about £150 worth of electricity.
It is something like a three-year payback.
(Dr Lees) It is basically over 50 per cent of a typical
household's electricity that would be generated by this.
607. Correct me if I am wrong, but in this context
a three-year payback in the domestic sector is quite a long payback,
where some people, under the previous energy efficiency schemes
or replacement boiler installations, have had 1½ or 2-year
(Dr Lees) In general it has to be around 3 years,
that is the upper limit.
608. So derived from that, you are looking at
what might also be some of the ways the building regulations can
be changed, or are you talking in principle about the way in which
electricity trading arrangements interact with the supply in order
to provide a further incentive to an installation of this kind?
(Dr Lees) There is a whole host of things which have
to be sorted out before this can really take off. This is part
of why we were perhaps less bullish than in some other estimates.
We have got to sort out the regulatory aspects not just, for example,
in Ofgem in some way, but also in terms of how you actually connect
these systems into the distribution network in a cheap fashion
and in a safe fashion. It is likely that there will have to be
special rules or new rules brought in to allow all these things,
so there is a whole series of points there.
609. This is more a Transco matter than an Ofgem
matter, is it?
(Dr Lees) It still probably will come back and will
be under Ofgem, because it is actually an electricity connection,
therefore it is a distribution network. It is like London Electricity
in London, that sort of thing. In terms of how you connect in,
very clearly safety is paramount if there is a complicated series
of instructions, so we need to get general type approval, because
you cannot afford to have distribution engineers going out to
every single one of these distribution networks and checking that
it is okay. We have to get type approval that if it meets these
requirements then you can put it in. Then we have got to get them
proven independently, with independent tests and field trials,
so that they are as reliable and acceptable to customers as we
are hoping they will be. There is a whole chain of events that
they have to go through, and we have taken that into account in
610. I am not quite clear. Of the estimates
that you have made, do you have some idea what proportion of those
two figures are in relation to new build or are in replacement,
replacing existing boilers in existing properties?
(Dr Lees) Yes, in our 2010 estimates it is largely
going for the existing housing stock replacement. Beyond then
we would hope that the building regs would change in the way that
we have highlighted, so that ten years from now we are effectively
talking about zero-emission new build houses, effectively zero
emission. That is where you get your credit from micro-CHP.
(Dr Eyre) The economics of this technology are better
in older, badly insulated housing because there is a bigger heat
flow, so it generates more.
(Dr Lees) All the classic Victorian properties.
Chairman: Like this one!
611. Could I ask you the question that Steven
Tindale suggested I might ask you on this issue about lower energy
prices? That is essentially, is it the case that lower energy
prices do put at risk energy conservation campaigns, because it
is sending out precisely the wrong signals to people?
(Dr Lees) It is certainly not a help. I think his
argument, if I remember correctly, was that people's behaviour
is not that much influenced by energy prices. Certainly I think
that is true today, because we have had increasing affluence and
lower energy prices, and I think we are picking up more and more
in our research that people are saying, "Okay, I can save
£50 by insulating cavities or whatever. So what?" We
feel now that we need to move and change gear, because it is really
important, there are always cost-effective and great benefits
to UK plc, opportunities out there to save energy. At the moment
energy suppliers and everyone are having to have messages thrust
at them and they are not really that receptive. We have got to
turn that round so they are receptive. How we do that is, I think,
that we need to change the way we are trying to sell energy efficiency.
Basically our research is showing two key things. One is that
the environment is coming up the agenda. People are worried about
the floods in particular, and they suddenly realise that maybe
climate change is not such a great benefit whereby we can all
grow grapes in our back gardens, it is not as simple as that and
it is going to be more emphatic; they are worried about their
children's and their grandchildren's future. Everyone agrees it
is wrong to waste energy, and it is something we have to build
on. The second bit of research is that people often say, "Well,
if it's that important, wouldn't the Government or wouldn't the
local authority be doing something about it?" That is fair,
I think. We have to try to get local community leadership. We
are doing a pilot this year in York for a year. We are running
a major community-based project in the city of York, with the
wholehearted support of the city council, the local press, everything,
trying to make a difference in a year in both the energy efficiency
and the transport side across not just households but also businesses.
If that is successful, we want to replicate that. I am sorry,
that is a very long answer for which I apologise.
612. Clearly there is nothing inconsistent between
someone taking the view that this is a major problem and it has
to be solved on the one hand, and the view that "As an individual
my consumption of fuel is going to have no impact whatever on
the outcome, therefore if prices of fuel are low, why should I
bother?" Are you saying that, in a sense, the low price of
energy impacts in two ways: one is that it does indeed encourage
demand, but secondly, it makes insulation schemes, for example,
less financially attractive?
(Dr Lees) No, because the cost of insulation has fallen
in the last few years, so the paybacks are more or less the same,
so it is still attractive.
613. So it is amazing what a Labour Government
can do, is it not? You mention affluence. My final question is
to take up the point you made about affluence. Two things are
happening: one is that energy prices are coming down somewhat,
but also there is a fair chunk of the population who are so far
away from fuel poverty that they have never even contemplated
what that might mean. There are people who are well off for whom
their expenditure on fuel is a tiny, tiny part of their household
budget. How do you get people like that, or indeed people like
usMPs are paid quite wellseriously, how do you get
better-off people to be convinced that there is something they
need to do about energy savings? It does seem to me that in the
home there must be an enormous amount of waste still there.
(Dr Lees) Yes, you are absolutely right, and the way
is a long-term cultural change, I am afraid. It is going to take
time, but I think it starts with what we are trying to do in planning
work, which is to move the agenda onto focussing on "It's
wrong to waste energy, it's going to affect your children and
your grandchildren, the environment they live in." We need
to do something about climate change as a real issue. It starts
with that and it then requires local leadership and local community
spirit to tackle this. This is where it is important that we get
the BBC Look North and we have got the Yorkshire evening press
involved in these things.
614. I think you touched on some of the things
I was going to ask, but I read the other day a comment that the
most overlooked opportunity for energy generation was energy conservation.
Domestic consumers have been given the message for a long time,
but the impact overall has been pretty low. I was going to ask
you what you were going to do. I think that in outlining those
pilot schemes you have given some idea of that. Could I touch
on two specific things which have struck me in terms of personal
experience when I was preparing for this Committee. Do you do
any estimates of the results about the take up of certain initiatives?
For example, I noticed this energy-saving light bulb offers an
energy saving of 80 per cent technically. Do you have an estimate
of the energy saved if all domestic households switched over to
energy-efficient light bulbs?
(Dr Lees) Yes, we do, but, as you would expect from
a canny Scot, we have done it in terms of switching over to the
most cost-effective light bulb, so we are assuming it is something
like six, where on average there would be six compact fluorescent
light bulbs per house. The answer is in here. I cannot remember
it off the top of my head. In terms of lighting CFLs, we could
save 5 terrawatt hours per annum by 2010.
615. So you have the figures on that?
(Dr Lees) Yes, we have the figures for what those
would be. It is in this document which you should have had as
(Dr Eyre) It is about 5 per cent of domestic electricity.
616. On the same light bulbs, do you do any
work, for example, with social housing associations? I notice
again that with my electricity bill there is an offer on six bulbs
for £15 instead of £54. Do you do any work promoting
this sort of take up to encourage more domestic take up?
(Dr Lees) This may seem initially a very strange answer,
so do not panic, is what I would say. We are increasingly doing
less work, which is good news because the energy suppliers
are increasingly doing the work.
617. Like this one?
(Dr Lees) Like those offers. That is the way we want
it to go. We want the energy suppliers to take energy efficiency
on as part of core business.
618. Finally, have you done any estimate on
the take up of green electricity schemes such as the one here
in London Electricity's green tariff, in terms of the impact overall?
(Dr Lees) Yes, we have. We monitor it for quite a
few of the companies, including London Electricity. I am sad to
say that there are only something like 20,000 to 25,000 households
in the UK who have taken up the tariff to date. It is quite disappointing.
On the other hand, I am not aware of any electricity supplier
that has gone out door-stepping on green tariffs, like they do
on some other things.
619. So you think the companies themselves could
do a lot more to encourage that sort of take up?
(Dr Lees) Yes, I am sure they could.