Select Committee on Trade and Industry Minutes of Evidence

Examination of Witnesses (Questions 600-619)



  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 good.

Mr Lansley

  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 progress—21 per cent per annum growth—but 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 paybacks.
  (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 our estimates.

  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!

Mr Berry

  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 us—MPs are paid quite well—seriously, 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.

Mrs Lawrence

  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 a supplementary.
  (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.

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