Select Committee on Trade and Industry Minutes of Evidence

Examination of Witnesses (Questions 686-699)




  686. Good afternoon, Mr Holliday. Perhaps you could introduce your colleagues and we will get on with things.
  (Mr Holliday) I am Steve Holliday. I am National Grid's Group Director for Europe, which includes being Chief Executive of our business here in the UK. On my right is Jeff Scott, who is the Director in the UK responsible for System Operation and Trading, responsible for maintaining the voltage and security of supply in the UK minute by minute. On my left is Charles Davies, who is our Commercial Director in the UK. His prime responsibility is ensuring our capital investment programme in the network and that we continue to invest at a level appropriate for a regulated business, actually providing the service we do in the UK, which is the transfer of bulk power from generators to distributors and suppliers in England and Wales.

  687. We have been getting quite a lot of evidence in the last few weeks and hours about the desirability of embedded generation, turning the system on its head from the gigantism I would have identified with the old CEGB regime under which to all intents and purposes we are still living. You have poo-poohed that. You say it is rather inconvenient. It kind of questions the flexibility of the existing system if we are not going to be able to accommodate embedded generation or forms of renewables and things like that. Would you like to comment on that?
  (Mr Holliday) Embedded generation, renewables, what have you, for us is not a stark either/or debate. There is a role in life for both. It is worth going back and reminding you just what the transmission system does. Firstly, it transfers bulk power between England and Wales in the most efficient manner we can. That is assisted a great deal by having a diversity of generation capability. The second thing is about maintaining the quality and security of the system. That becomes a more complex issue the more intermittent the generation sources are. We have flagged continuously our ability to handle intermittent generators but recognise as well that the higher the percentage of generation which comes from intermittent sources, potentially the higher the cost of accommodating that. There is an extreme case as well in terms of embedded generation. The National Grid was set up originally to ensure that there was security of supply across England and Wales. The more you move towards generation being purely local, one of the penalties you have to pay is the fact that you lose that security of supply. We are in the fortunate position as we sit here today that we have an infrastructure in place which is able to provide people across England and Wales with a great array of generation from diverse sources and therefore a huge amount of security of supply.

Linda Perham

  688. On the issue of difficulties with planning consent, you say in paragraph 12 that often presents difficulties for builders of new overhead lines and new power stations. You also suggest that consideration should be given as to how to conduct the process such that it does not needlessly restrict the rate of development of new power generation. How could the process be accelerated? Do you feel it is something which is out of your hands because the Government have to act, or is there any pressure you can put on the Government to change the way planning consents are progressed?
  (Mr Holliday) It is worth saying that transmission lines are not only essential but they are big and they are huge infrastructure projects. We try to avoid building any new ones at all costs. That is the option of least attractiveness, as you can imagine, for all sorts of reasons. It only gets to the situation where the only way we can continue to provide what we do provide is by building a new line that we get into that situation. Fortunately in the last ten years that has been a fairly rare occurrence. Where we must build, the process which exists today, the balance between protecting individuals and communities and ensuring that as a project developer we have some degree of certainty and control on when things will take place, is not quite right. The procedures are cumbersome, they are lengthy, to a developer like ourselves they present a huge amount of uncertainty. The timescale from the beginning and then understanding when you might actually start construction is a very large "if". I understand that there are some discussions in government at the moment about a potential two-stage process: a government process and then a local process. If that were something which could increase the efficiency of the process then it is something we should be hugely supportive of.

  689. Do small generators have problems as well, not just yourselves, in getting planning permission? It is something the whole industry would like to see resolved.
  (Mr Holliday) Absolutely.

Mr Hoyle

  690. Part of the difficulty is that they are a bit of a monstrosity and an eyesore. When local authorities do get them before them, there is quite an outrage from people who live nearby or live in the vicinity. Obviously people have health cares, for whatever reason they do have real problems which have to be addressed. I think you would agree that we do have to listen to the rights of constituents as well.
  (Mr Holliday) I hope you did not interpret my comments as meaning we should not listen to them. It was just about the process.

  691. I was just worried you were short-circuiting it so they did not have the right to object.
  (Mr Holliday) No, I was not saying that.

  692. May I move you on to security in fuel diversity? You point out that you have been a major player and facilitator in gas fired plant in England and Wales. I just wonder what in your view is the most attractive mix of primary energy for the electricity network?
  (Mr Holliday) That is a long topic. May I make a couple of opening remarks and then Charles can come in afterwards. In the main National Grid does not have a vote on diversity of fuel mix. Generation is constructed because of forces in the market and gets constructed. We sit in a situation today though where we do have a great deal of diversity. That is a very fortunate position to find ourselves in. In fact if you started with a blank piece of paper today and designed a system, it is not clear to us that you would end up with a mix of fuel sources and generation types any better than we find ourselves with today in the UK. As long as the fuel is available to generators—and that was one of the issues underlying many of your questions to Lattice—and there is a good mix of flexibility in the system, then that is fine. We can do our job in terms of the transmission of power and balance the system.
  (Mr Davies) The issue of how the market may develop over the next five or six years is obviously one of considerable uncertainty as to whether there will be more gas developments or whether things will remain relatively stable with a pretty diverse situation as we have at the moment. The only other thing I would add is that clearly the push for renewables is a step in maintaining diversity by bringing in another fuel source.

  693. Do you believe that your input in this process should be as you state in your submission, "responsive and flexible" rather than proactive?
  (Mr Davies) Absolutely.

  694. Do you have any concerns? You quite rightly put across diversity and how important it is and renewables coming into the market, but are you worried about the possible decline of nuclear and whether there should be another generation?
  (Mr Davies) The decline of nuclear will reduce diversity other things being equal. There is still a considerable amount of life left in nuclear stations as they are and the potential for other energy sources, renewables, coming back in to maintain diversity is quite a strong one. The wider issue of continued support for nuclear goes beyond our remit of being responsive in this area rather than being proactive. There are no particular features of any particular form of generation which make them less or more attractive to us.

  695. You say it is not going to run down quite so quickly. However, may I put it to you that between now and the end of the next 15 years you will have 12.5 per cent reduction in generating power if the reduction of nuclear goes ahead. The obvious quick fix would be to rely more on gas ending the diversity or reducing the diversity we have. That is what I wonder.
  (Mr Davies) Yes.
  (Mr Holliday) That is right, but we still end up with a situation where we still have quite an amount of diversity: oil, coal, gas and renewables. We are still not reliant on any one type of fuel source. If you are asking whether we can continue to do the role we do in England and Wales and balance the system and transfer energy without it, then the answer is yes.

  696. So the lights will not go out, we will not have the California problem in the UK?
  (Mr Davies) As long as there is sufficient generation capacity in the UK, then no.
  (Mr Scott) If you look at history, looking forward 15 or 20 years is always difficult. In the late 1980s who would have forecast that in the late 1990s you would have 25 to 30 per cent of generation from gas. At that stage we had a very large predominance of generation from coal. Looking forward, we are starting from a base which is an excellent fuel mix and we do have time to develop renewables, which is a key Government objective and we do have time to look at the evolution of the fuel mix and to take each stage in that technological development as it comes.


  697. Let us say that one of the features of the change, the removal of 12.5 per cent, is not replaced, that would mean you are going to have a lot of wires which are going nowhere, unless you have plans for other forms of generation.
  (Mr Holliday) That is a very different question from the question about removing the diversity and the mix. Removing 12.5 GW from the market is a very different question.

  698. That is why I am asking that. It is coming at the same issue from a different angle. In that area you might well have a vested interest, that the kind of position you are adopting at the present moment I can well understand, but if you are going to have all these wires hanging around doing nothing and you have the prospect of having to invest in alternative wires to link up with power stations as yet barely a flicker in the eye of a designer let alone an engineer, do you not get sucked into the decision-making process? The Olympian position you are adopting at the moment may be not quite so high when you are down in the grubby business.
  (Mr Holliday) No, not at all. That is a very different issue. The balance of generation versus demand is something we take an incredibly active interest in; that is proactive as opposed to the diversity of generators. We have an obligation every year to provide a Seven-Year Statement which obviously looks seven years ahead. Charles is responsible for that so can fill in some of the detail. It looks ahead at what we are foreseeing electricity demand in the UK to be, what generation capacity is planned, has a consent already been agreed and is it going to be constructed, is it a glint in some developer's eye, and pulls all this together and reviews what the plant margin is going forward. That is something which is then reviewed in detail with Ofgem. Part of that identifies very much whether the wires are redundant in certain parts or not, whether the generators which are planned are in areas where we do not have good connections at the moment and goes into planning our capital expenditure through that period as well for new tie-ins and investment in the infrastructure.
  (Mr Davies) The concept of losing 12.5GW plant without it being replaced would have a significant impact on security. What we were talking about earlier was diversity of fuel supplies. The potential for that 12.5GW to be replaced over the period we were talking about, which was up to 2015, has to be put in the perspective of the 22,000MW of generating plant which has been built and commissioned over the last ten years. So 12.5GW over 15 years is not a challenge we have not faced up to. The issue which arises is what sources will fuel that, and, clearly, the favourite for fossil fired generation is gas as it stands at the present time and the follow-up on that is renewables.

  699. It is the case that over the period you said this dramatic increase in gas took place, such was the desire of gas suppliers to sell their fuel that they were almost giving it away to the power stations at one stage. Obviously that affected everybody's perception of costs. We might not be living in as hospitable a climate for alternative fuels as we were in the preceding decade.
  (Mr Davies) Quite clearly a situation where there is plant closure will give rise to incentives to build new plant. The issue which you are talking about as to whether gas prices will then be substantially higher in the period 2010-15, and sufficiently high to make other forms of generation economic, and potentially nuclear in that sense and indeed renewables or even coal-fired plant, is one which is some distance away from us. I am sure the structure of the market is there to provide incentives in order for plant to get constructed to meet that sort of shortage you were hypothesising.

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