Select Committee on Trade and Industry Minutes of Evidence


Examination of Witnesses (Questions 720-722)

STEVE HOLLIDAY, CHARLES DAVIES AND JEFF SCOTT

TUESDAY 4 DECEMBER 2001

  720. The other factor there is the demand and the peakiness and the unpredictability of demand. Are there further steps that you would like to see considered which would help to offset the peakiness of demand or, as you express it, to communicate prices to consumers more effectively? Is that some sort of smarter metering system or how would that price signal be communicated?
  (Mr Holliday) There are two halves to the demand question. First of all one of the things NETA has done is to incentivise the marketplace to provide some services for short response. Historically that has tended to be on the supply side in terms of generators: who can come up, and get off, the system very quickly. What we have seen, as that is now priced, and there is an understanding of price, is some demand side response, as well, of systems which are tied directly into the Grid, so major industrial consumers, who can switch off very quickly for a short space of time, have provided that service.

  721. Like the chemical industry used to have interruptible contracts.
  (Mr Holliday) Indeed.
  (Mr Scott) About 30 per cent of our standing reserve and frequency response capability is held on demand side providers.
  (Mr Davies) On the domestic side, you are absolutely right, the issue is about smart metering into households and whether, if one is to impact to get price messages through to the domestic customer. That is really an issue which suppliers of electricity may take up as being in their competitive advantage. If you can attract lots of customers who are not home at half past five on a winter's evening because they are still at work, but who are in effect, as the situation is at the moment, deemed to have a demand at that price because of the way the system works, then you can offer a lower tariff to those people or a lower charge. There is an offsetting effect there which is that the people who are home at half past five on a winter's night and are using electricity, will, potentially, see themselves having a higher charge for electricity. That is an issue fundamentally for suppliers to develop as part of the competitive supply market as I would see it. From the National Grid point of view, it really comes back to Jeff and operating the system, but the issue is that people's reactions, when there is a large enough number of them, are relatively predictable. It may cost you money and it may cost money to have plant ready to deal with five million people turning on their kettles at the end of the football match, but Jeff's people do an excellent job in predicting how many of them are going to do it and getting the plant ready to do it.
  (Mr Scott) In a sense providing the response capability to deal with 5,000 people switching on their kettles at the end of the World Cup game, or indeed providing the response capability to deal with the loss of a generator at short notice is part of the very short timescale requirement to be able to meet these unexpected events on the system. That cost is a cost that we incur and are incentivised to try to reduce the cost of providing the capability to deal with it. That is quite reasonably a shared cost across the industry.

  722. Where domestic consumers are concerned, it all depends upon the elasticity of their demand and I would guess their price elasticity is not great. They are pretty resistant. On the short-term, short-demand, turning on the kettle, they are not really going to be affected by that, so it is going to be more difficult to achieve with domestic consumers.
  (Mr Holliday) Indeed.
  (Mr Davies) Yes.

  Sir Robert Smith: Should you sell your information about people switching on their kettles rather than watching the adverts which people have paid to put on at the end of the World Cup?

  Chairman: I take it that you do not advertise at that particular point because everybody is in the kitchen. At that point, it is appropriate for us to thank you for your evidence. If anything comes up which you would like to supplement your evidence with, we should be happy to accept it. We shall take the liberty of asking any further questions if we feel there are any gaps. I think you have been very full and very generous with your time. Thank you very much, we appreciate it.





 
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