Select Committee on Trade and Industry Appendices to the Minutes of Evidence


APPENDIX 31

Memorandum by ScottishPower

SUMMARY

  ScottishPower, as one of the few UK organisations with practical experience across the complete energy supply chain in both the UK and also in the US, believes that a long term framework is essential to deliver the required mix of competition, fuel security and CO2 reduction. Our views on the headline issues raised in the Inquiry are:

    —  Without modifications to policy natural gas will continue to secure an increasing share of the electricity market, becoming the dominant fuel by 2020, entailing risks of dependence on regions prone to political instability. The value of keeping existing coal, once cleaned up, as part of the medium strategy should be keeping existing coal, once cleaned up, as part of the medium strategy should be recognised in terms of fuel diversity and security. In view of its cleanup costs coal will need support, such as a "Coal Obligation" or similar measure, preferably within the framework of a market reward system which recognises diversity.

    —  Energy policy should establish a long term framework which will deliver liquid markets attracting large players across the complete supply chain. Large players are essential for long term stability in a market environment where short term shocks are inevitable. While niche markets should be encouraged for smaller players it is essential that a framework is in place that incentivises major players to adopt new technologies with environmental and social benefits. Renewables will grow initially but further support and targeted R&D will be needed to bring new technologies to the competitive market and to integrate these. Combined Heat and Power has suffered as a result of increased gas prices and the New Electricity Trading Arrangements. A better climate for CHP investment should be developed.

    —  Policy to encourage energy efficiency and demand reduction in the domestic sector should include the new Energy Efficiency Commitment, energy services development, demand side management, energy efficiency standards and new technologies. To encourage energy efficiency in businesses policy should include energy services for businesses, environmental taxation, emissions trading initiatives, support for the Carbon Trust, incentives targeted at small and medium-sized enterprises, distributed generation and demand side management.

    —  Open markets have resulted in lower energy prices and can deliver reduced costs of compliance with environmental and social goals. We consider market solutions as also being key to helping vulnerable customers out of fuel poverty by 2010. We believe a competitive market can provide the incentive for "innovation in design" and "efficiency in delivery" if clear incentives and structures are put in place.

    —  Future energy policy should be market oriented wherever possible and should recognise the intrinsic value of each major policy element. Wherever practicable these elements should be monetised, included in the cost of supply, and made tradable. The major elements of such a policy should include:

      security of fuel source (short, medium and long term);

      CO2 avoidance;

      avoidance of unnecessary energy use;

      fit with social policy;

      balancing services.

1.  INTRODUCTION

  ScottishPower welcomes the opportunity to contribute to the Committee's Security of Energy Supply Inquiry at this time when many critical issues are facing the energy sector. We have submitted our views on broad energy policy to 2050 to the Government's Energy Policy Review and the key areas for action, particularly in the areas in which we have particular experience and expertise.

1.1  ScottishPower Experience

  ScottishPower is one of the few organisations with practical experience across the complete energy supply chain in the UK and also in the US. ScottishPower owns and operates coal, gas, hydro and renewable generation and provides transmission, distribution and supply services in both countries. We also have considerable experience in wind development and in clean coal technologies. Our US activities also extend to coal mining. We supply 3.5 million energy customers across the UK and 1.5 million customers in the northwest US. As power purchasers, sellers and traders we have direct experience of the west coast US electricity markets which recently have been extremely volatile.

  It is from this background that we have developed the considered views set out below.

1.2  Future Energy Balance—ScottishPower View

  It is clear from published information that without further action nuclear output in the UK will decline rapidly over the period 2010-2020. Coal fired generation will progressively cease to be competitive as controls on SO2 and NOx are tightened by the Large Combustion Plants and Ceilings Directive. From 2008 it is likely that only four or five major coal-fired stations will remain operational and that from 2016, due to the requirement to fit selective catalytic reduction, these remaining stations are likely to cease to be competitive.

  Renewable energy from onshore and offshore wind is likely to develop over the period to 2010 to a level which enables the Government's 10 per cent target to be met provided planning restrictions are addressed. However, the current buyout level of 3p per kWh for renewables will not be sufficient on its own to incentivise extensive development of other technologies. Further substantial support will be required to achieve this and R&D funding should be targeted at bringing those technologies which have the prospect of being competitive to a stage of development where they can compete in the market.

  The take up of energy efficiency measures has been slow. Whilst the Government's new Energy Efficiency Commitment and Fuel Poverty Strategy, which we welcome, will have an impact this will not be sufficient to reverse the 1-2 per cent per annum growth in demand nor to impact significantly on the energy replacement requirements of lost nuclear and coal output. Combined Heat and Power has suffered as a result of increased gas prices and the New Electricity Trading Arrangements. Until electricity prices rise eg as a result of coal and nuclear closure, or there is a change in policy, this situation is unlikely to change.

  Without modifications to policy natural gas will continue to secure an increasing share of the electricity market, becoming the dominant fuel by 2020. Even with a competitive market and with interconnectors linking to other markets, issues of global political stability would make a dominant gas share a major concern for secure and diverse energy supplies.

  Our detailed comments on the issues raised in the Inquiry in which ScottishPower has particular expertise, mainly in the UK but also in the US, are as follows:

2.  FUEL MIX

2.1  Existing Coal

  ScottishPower owns and operates 3.5GW of coal-fired generation plant in the UK and 6.1GW in the US. We are implementing initiatives aimed at achieving best practice in terms of generation performance and costs at our UK stations while at the same time maintaining the flexibility to optimise energy trading. We have undertaken extensive benchmarking of these stations against an international peer group and have investment programmes in place implementing the findings to continue to reduce fixed costs, improve engineering and operational efficiencies and enhance environmental performance.

    —  ScottishPower's coal purchasing strategy is based upon the objective of achieving competitive fuel prices while balancing the need for security and flexibility of supply. ScottishPower purchases the majority of its coal from Scottish suppliers under long term contracts securing the majority of coal requirements from local sources, including low-sulphur supplies from Scotland's only active deep coal mine. Around 1,600 people are employed in the coal industry in Scotland.

    —  We believe that existing coal, once cleaned up should have a role in the medium term, to 2020. Loss of this valuable capacity will exacerbate the shortfall in output and its replacement by natural gas could limit future choice. The value of keeping existing coal, once cleaned up, as part of the medium strategy should be recognised in terms of fuel diversity and security. Coal's value in terms of providing balancing services will also increase with anticipated increases in intermittent output from renewable energy sources and small scale embedded generation.

    —  The Environmental Protection Act authorisations for coal-fired plant, which implement the European Union Ceilings Directive and Large Combustion Plants Directive limit the total bulk emissions of SO2 and NOx progressively over time and require all but very low load factor plant to fit flue gas desulphurisation for SO2 and selective catalytic reduction for NOx. The latest revisions to timescales require flue gas desulphurisation for SO2 to be fitted to high load factor coal plant by 2008 and selective catalytic reduction for NOx to be fitted by 2016. Plant not meeting the 2008 standard will be able to opt for 20,000 running hours followed by closure.

    —  ScottishPower has pioneered the development of gas reburn which, when used in conjunction with special burners, can reduce emissions of NOx from large-scale, coal-fired power stations by up to 80 per cent. ScottishPower has been awarded a Queen's Award for Enterprise in the Sustainable Development category a result of fitting gas reburn at its major coal-fired station in Scotland. Gas reburn works by replacing about 20 per cent of the coal used for generation with gas resulting in reductions in NOx emissions of up to 80 per cent. In addition emissions of SO2, dust and ash are reduced by 20 per cent, carbon is reduced by up to 10 per cent and unlike some of the alternative technologies available, there is no requirement for the storage of potentially hazardous chemicals on site nor for the disposal of contaminated by-products. ScottishPower has invested £20 million in the gas reburn project, making it the biggest research and development project into emission control carried out by a UK generator in recent years.

    —  While techniques such as gas reburn combined with a trading regime for NOx should enable existing plant to comply with the tightening NOx controls from 2008 to 2016, it is our view that without additional support only four or five major coal-fired stations will continue to operate until 2016 and will then close due to the requirement to fit selective catalytic reduction.

    —  Most existing large coal plants were built in the 1970's and are already some 30 years old. These plants could operate until 2020 but major investment will be required in the near future to enable such life extensions. Much retrofitting has been done at these plants to the main process components such as parts exposed to stress from temperature, pressure or rotation, and to wear and corrosion. However, major decisions on these plants will be made in the next few years and if it is not clear to the owners that the plants will have a continuing role beyond 2008 and 2016 then the investments required to extend the station lives to 2020 will not take place and existing coal will cease to have a role beyond 2016. Without a clear role and support all existing coal stations will close by 2016.

    —  In the US controls on coal are principally via the Clean Air Act. Improvement programmes are driven by reduction targets for SO2, State Air Quality programmes and by Regional Haze reduction programmes. Litigation via the New Source Review provisions of the Clean Air Act has also resulted in a number of eastern US utilities agreeing to fit flue gas desulphurisation and selective catalytic reduction and has the potential to drive all major coal-fired plant throughout the US to full retrofit over the next 10 years. The impact this would have on energy costs and potentially fuel security is currently being reviewed.

  In order to support coal we propose that consideration is given to the introduction of a Coal Obligation, or similar measure, which would reward coal for its flexibility and storability. This could operate on a similar basis to the proposed Renewables Obligation by requiring all electricity suppliers to purchase a specified proportion of their total requirements from coal-fired generation with a suitable but-out price if purchases fall below the required level. Initially the money raised by this means would be invested by coal-fired generators in their existing plants for life extension and environmental improvement projects. However, progressively these funds could be incentivised into clean coal technology developments as set out below.

2.2  Clean Coal

  For coal to have any role post 2020 we believe it will be essential to develop clean coal technologies. Currently available clean coal technologies have the potential to generate electricity at significantly higher efficiencies reducing CO2 emissions by up to 25 per cent while also eliminating virtually all particulate and SO2 emissions and greatly reducing NOx levels. However we believe it is important at this stage to incentivise the development of new clean coal generation that also incorporates CO2 capture and sequestration, which is particularly appropriate for Scotland in view of the potential use for CO2 in enhanced oil recovery and life extension of North Sea oil reserves. There could be significant benefits to the UK manufacturing industry from exporting clean coal technologies to countries which are heavily dependent on coal for power generation, such as India and China together with significant progress towards the achievement of global climate change targets. Clean coal technology is a significant component of national energy policy in the US with potential significant funding for new technology coal-fired plant. New coal generation appears attractive both for coal-producing states within the US and for price-concerned customers. Because of natural gas price volatility and significant short-term supply shortage, generation that relies on plentiful domestic coal supplies is seen as an appropriate addition to the resources mix for ScottishPower and for the western US region as a whole. ScottishPower is working closely with other stakeholders around western US to explore the further use of plentiful, low-sulphur western coal supplies.

  It is important to avoid a hiatus in coal generation through clean coal technologies not being able to take over from existing coal between 2010 and 2020. We therefore propose that the Coal Obligation or its equivalent, as set out above, progressively becomes a Clean Coal Obligation. The rate of transfer from coal to clean coal is a matter of judgement. However, in our view existing coal, even cleaned up, is unlikely to have a role from 2020 onwards and thus clean coal should be developed to a stage where it is capable of providing all required coal-fired generation from 2020.

2.3  Gas

  ScottishPower has access to 1.7GW of gas-fired generation plant in the UK and 0.5GW in the US. In the UK we have recently acquired a 715MW combined cycle gas turbine station and have also started commercial operation of a newly constructed 400MW combined cycle gas turbine station in which we hold a 50 per cent share. Our generation strategy involves the development of a variety of new supply options in a way that mitigates environmental risks while providing adequate supply at reasonable cost.

    —  In the UK ScottishPower purchases gas to meet the needs of its generation and supply businesses using a combination of long, medium and short term contracts with gas producers for the supply of gas on a non-interruptible basis. ScottishPower has three long term contracts, with remaining terms of 7, 13 and 16 years, for supply from major gas fields. For the latter two, these contracts can terminate earlier if the reserves of the fields have been fully depleted.

    —  In the UK the development of a gas storage site was completed in 2000 and during the 2000-01 winter the facility was extensively used to meet the peak demand of some 450,000 customers, as well as exploiting the sales opportunities both when market prices rose to the highest sustained levels experienced since the market opened to competition in 1996 and arising from the volatility of gas prices between mid-week and weekends. In light of the experience gained, a feasibility study is underway aimed at substantially upgrading the daily delivery rates and incorporating an additional reservoir to increase capacity. In addition ScottishPower has entered into an agreement to develop a salt cavern gas storage facility for which planning approval is being sought.

    —  Energy policy must ensure that gas does not become the dominant fuel because of the risks that this would entail eg if supplies became dependent on regions prone to political instability. This issue has been recognised in Europe and is one where the UK should make a common case with its EU partners.

    —  The development of gas storage facilities should be encouraged in view of the diminishing capabilities of the North Seas Fields to provide the necessary swing.

2.4  Nuclear

  ScottishPower is obliged to purchase 74.9 per cent of the output of British Energy's two nuclear power stations in Scotland under long term contract. ScottishPower's share is equivalent to 1.8GW.

  Nuclear output in Scotland, accounting for over 50 per cent of Scottish electricity demand, is well in excess of the level in England and Wales. Such a level of inflexible nuclear plant places a strain on other flexible plant, such as coal, particularly at times of low demand such as the summer months. Even if one of the Scottish nuclear stations were to close after 2010 the output from the remaining station would still account for a higher proportion of Scottish demand than the proportion of demand in England and Wales currently supplied by nuclear stations.

  The issue of a falling share for nuclear thus requires to be addressed in England and Wales well before it needs to be addressed in Scotland.

3.  ENVIRONMENTAL POLICY

3.1  Renewables

  ScottishPower is committed to significant investments in renewables in the UK and the US which will improve profitability as well as meeting environmental obligations. We have recently commissioned our tenth onshore wind farm in the UK. This wind farm is the first purely commercial wind farm developed in the UK operating without support from financial incentive schemes for renewable energy, such as the Scottish Renewables Obligation or the Non-Fossil Fuel Obligation. Exploiting a site with excellent wind resource and utilising technology which reduces the cost of producing wind energy, it demonstrates that onshore wind is reaching commercial viability and will soon be able to compete with other energy sources. It confirms the benefits of support for such technologies from Government to achieve commercial viability.

    —  ScottishPower currently has 98 MW of onshore wind generating capacity in the UK with a further 30 MW wind farm, the most productive in the UK, planned to be operational next year. We are committed to becoming the lead UK wind generator with currently over 400 MW of wind projects throughout the UK undergoing detailed environmental assessment in support of planning applications. While this is predominantly onshore plant it includes extensive testing on the feasibility of constructing a 30-turbine offshore wind farm off the Lancashire coast.

    —  In the western US while new fossil generation will be required to meet the critical needs of the market, renewable generation is targeted to make up a growing percentage of the overall generation mix for ScottishPower and for the region as a whole. ScottishPower aims to become the region's leader in new renewables development and sales with current projections of 1,000 MW of new wind and geothermal resources by 2005. ScottishPower will re-licence and continuously improve operations at its US hydro facilities, which provide 1,000 MW of low-cost, reliable, renewable generation. Market based mechanisms in the US, such as "green tags", together with the designation of some "low impact" hydro, provide a clear financial incentive to develop new renewable generation and to reduce impacts from existing hydro facilities.

    —  In our view the proposed Renewables Obligation represents a good example of how intervention to achieve a particular policy objective can be managed by a market-based approach. It also sets a good example in terms of long term certainty with the proposed level of the Obligation set out to 2011, the proposed minimum level set to 2027 and the statement from the Government that it has no plans to reduce the level of the Obligation once in force. The proposed Obligation, with the current but-out price of 3p, when taken together with Climate Change Levy exemption will encourage the development of onshore wind generation but further support will be required for other technologies. This should be targeted at those technologies which have the prospect of becoming competitive to enable them to reach a stage of development where they can compete in the market.

    —  A particular issue for renewables is gaining planning permission. While the onshore wind farm planning success rate in Scotland, with 66 per cent of wind farms gaining planning permission over recent years, is significantly better than in England and Wales over the same period this is still a major barrier to development. Government has recognised the important role that planning has to play if renewable energy targets are to be met and renewable energy planning guidelines in Scotland have recently been revised with the aim of striking the correct balance between local environment and Government energy policy. We welcome the progress that has been made in Scotland but still believe that further streamlining would be beneficial. It is important that any changes to planning processes fully take into account the associated network requirements to ensure that developments are not delayed because the network operator is having difficulty gaining planning permission for overhead line connections. ScottishPower recognises the importance of preparing the ground with local authorities, environmental organisations and local people before formal planning applications are submitted. In all our recent planning applications we have developed our proposals in consultation with these bodies before submission but still are faced with a prolonged process to obtain approval.

  The issues of planning permissions and network connections require to be resolved if the Government's renewables targets are to be met. Planning procedures require to be streamlined and network connection policy should not impose excessive costs on renewables developers.

3.2  Combined Heat and Power

  ScottishPower has various CHP plants under development. Current market conditions are not favourable for further investment in CHP. However, we are still targeting 10 per cent of our portfolio from CHP by 2010 in anticipation that energy policy will recognise the importance of CHP and create a better climate for investment. In the US we have recently taken a share of the output from a new 484MW co-generation plant and are targeting the continued development of a balanced portfolio.

  A better climate for CHP investment should be developed.

4.  ENERGY CONSERVATION

4.1  Domestic Energy Efficiency & Conservation

  In the domestic sector, our efforts for energy efficiency are recognised as leading class. Our activities include offering customer solutions for low energy lighting, insulation programmes, heating and controls, draft-proofing, and appliance replacement programmes.

  Most recently, we have developed a concept called Energy Sense, which offers customers an end to end service in energy efficiency from the initial free survey to measure installation. We are also Joint Venture partners with EAGA as part of the NESTMakers Company that is involved in the delivery of new HEES scheme marketing tasks.

  To encourage energy efficiency and demand reduction in the domestic sector, we believe the following aspects of policy to be of greatest importance:

    —  Energy Efficiency Commitment—We are currently involved in reviewing the latest proposal document from DEFRA in regard to the new EEC for the period 2002 to 2005. At this stage, there are a number of issues that we are keen to point out in regard to policy, namely (i) the need to have an overall objectives and end-point of the scheme (as we do for renewables in 2010) which can be used to determine when market failure is corrected; (ii) the trade off between environmental and social objectives needs to be fully recognised, and; (iii) the penalty for non compliance is not as explicit as in the proposed Renewables Obligation. ScottishPower's full response for this document will be copied to the PIU for information in early October.

    —  Energy services development—We remain convinced that the reform of the current 28 day rule will encourage suppliers and others to: (i) foster the development of new services that will integrate the benefits of energy efficiency with energy pricing, and; (ii) encourage the leveraging of private capital for housing improvements.

    —  Demand side management—We believe there are gains to be accrued for domestic electricity customers (particularly those with electric space and water heating) related to the introduction of demand side management techniques in domestic properties. In some cases, intelligently controlled DSM can be used to optimise generation plant to minimise the amount of CO2 emissions further upstream in the energy value chain. We would be keen for Government policy to fully recognise the benefits of this via new regulatory and market incentives.

    —  Energy efficiency standards—The forecast growth in housing suggests an increase of 1.8 million households by 2010 and a further increase of 1.7 million by 2020. To arrest the growth in associated energy consumption from these new properties, it is extremely important that sufficient attention is focused on expanding the Labelling Schemes for Appliances and improving Building Regulations beyond their present levels. To implement any further changes, long term planning and advance notice from Government is an essential component of policy.

    —  Emergence of new technologies—We believe there is a future role for domestic scale distributed generation, though this should not be over-stressed at this stage. For photo-voltaics, we view this as an important energy source, but limited in scale and scope. In regard to Fuel Cells, we anticipate growth in this technology, but not prior to 2008 for domestic properties. For micro-CHP, we anticipate adoption within the energy market from 2003 onwards, with uptake dependent upon the forecast system costs and market incentives.

4.2  Energy Policy for the Business Sector

  ScottishPower has experience in serving the energy needs of commercial and industrial customers across the entire spectrum of energy requirements. In examining the energy policy for this sector, there are a number of key concerns that must be accounted for:

      quality of supply;

      security of supply;

      effective market competition;

      energy efficiency and productivity;

      the impact of taxation and market regulation.

  To encourage energy efficiency in businesses, we believe the following aspects of policy to be of greatest importance:

    —  Energy services for business—ScottishPower has been at the forefront of service development for business energy customers. We have led initiatives in shared saving schemes, demand management, monitoring and control and CHP. We support the Government's initial objectives in this area via the introduction of Enhanced Capital Allowances for energy efficient technology and the formation of the Carbon Trust (with associated funding).

    —  Generally, the policy instruments appear to be in the right direction. However, if the Government has serious ambitions for customers outwith the Climate Change Levy Agreements to undertake investment in energy efficiency, it must scale its commitment accordingly. In practice, this means that the current £100 million being recycled from CCL funds should be increased towards a figure of £250 million or more to make a reasonable impact.

    —  Environmental taxation—The introduction of new levies and taxes for business customers must be managed very thoughtfully. Industry research suggests that the overall elasticity of demand for energy use is low, other than for selected applications and customer types, and tax increases in themselves are unlikely to have a desired affect of reducing demand. Any new environmental taxation proposals must consider the impact on competitiveness for UK industry and the compliance costs for suppliers and customers alike and their ability to meet initial objectives (often CO2 reductions).

    —  CCL Agreements and flexible mechanisms—ScottishPower supports the introduction of emissions trading initiatives to help towards more sustainable forms of generation. The flexible mechanisms developed in the future can also be designed to include the active participation of suppliers and customers as part of their energy supply agreement—even outwith those industries with CCL agreements. To enable this, customer information, carbon weighting of fuel, administration and trading must be made as simple as practically possible.

    —  Carbon Trust—We welcome the creation of the Carbon Trust. As the trust rolls out its operations, we anticipate that one of its key functions is to facilitate market transformation programmes to improve the uptake of current energy management technologies as well as new ones. The scope of activities for the Carbon Trust should be spread across the entire business sector rather than simply the needs of larger energy users. This would enable prospective customers to have a simple one stop shop for energy management needs and act as a good focus for all government programmes looking at energy productivity in business.

    —  Small and medium-sized enterprises—One of the key policy challenges for energy productivity is the ambivalence of small and medium sized enterprises to engage in efficiency and conservation measures. To make inroads to this challenge, small businesses require easy access for assistance from a body such as the Carbon Trust, good quality information for decision making and grants and incentives to make investment decisions straightforward.

    —  Demand Management and Distributed Generation—The government may also wish to keep under review the advantages and disadvantages of the separation of supply and distribution businesses. Important to the deployment of some new technologies for distributed generation and demand side management is ease of access to information and the management of control and monitoring systems in regard to the distribution system.

    —  Practical energy savings—Within the PIU papers for Energy Productivity, it is outlined that there is a very large opportunity to gain savings from the commercial and industrial energy sector. In theory, we agree with this position. In practice, however, to unlock these savings requires creative customer solutions in energy services, full coverage of all parts of the business market and economic incentives, as suggested above.

  ScottishPower is keen to see the creation of energy markets that can provide suppliers and customers the option of a seamless energy services product able to deliver energy needs, safely and efficiently—should they wish it. To realise this potential in the energy market, we believe that policy can be constructed in such a way to a deliver a new structure, regulation, penalties and incentives to allow lower UK emissions, lower overall customer costs, and an improved supplier profitability.

5.  FUEL POVERTY

  ScottishPower has devoted a great deal of effort to provide affordable warmth for vulnerable customers. We view this as an important Government priority and we have offered a range of constructive suggestions following our review of the UK Draft Fuel Poverty Strategy.

  Above all, we consider market solutions as being key to helping vulnerable customers out of fuel poverty by 2010. We believe a competitive market can provide the incentive for "innovation in design" and "efficiency in delivery" if clear incentives and structures are put in place.

  Central to the Government's energy objectives over the last few years has been the achievement of a reduction in those who are affected by fuel poverty. In the recent UK Draft Fuel Poverty Strategy, the objective of eradicating fuel poverty for vulnerable customers by 2010 was outlined.

  It is now widely accepted that the problem of fuel poverty is caused by three inter-related factors, namely: poor housing conditions; low household incomes; and the level of domestic fuel prices.

  ScottishPower believes that, for the Government to be successful in eradicating fuel poverty, it must view the issue from a multi-agency approach—with a strong focus on managing each of these factors in an intelligent and effective way.

  In practice, this means a series of programmes to improve housing quality in the UK, the creation of a strong and inclusive society where households have the opportunity to improve their income levels, and a contribution from the energy sector which can deliver lower overall fuel costs consistent with meeting environmental objectives.

  For energy specifically, the best contribution that can be made by energy suppliers is to focus on their strengths in serving customers with the lowest and most effective overall tariff or energy services package.

  This could range from the provision of basic, affordable price packages to the offer of a service "bundle" of energy and non-energy services—depending on customer requirements and commercial incentives. We believe it is for energy supply companies to apply their strategies in a way that is suitable to market opportunity, with a minimum of necessary regulation.

  In addressing specific policy issues, we have responded in full to the Government's Draft Fuel Poverty Strategy as well as the Regulator's Social Action Plan. Our views can be summarised as follows:

    —  Targets for Government—the focus on government targets should also ensure a consistent baseline and measurement approach across the UK via the many administrations and agencies;

    —  Co-ordination of activities—effective regional co-ordination to encourage partnerships between the private, public and voluntary sectors, within the competitive energy market;

    —  Levels of prices—the impact of regulatory obligations should be kept to the necessary minimum to ensure the level of prices for domestic customers is kept as low as possible by the working of the competitive energy market;

    —  Changes to energy market structure—for the market to best serve vulnerable customers, we have outlined proposals for the energy market to facilitate:

      —  (i) revisions to the forthcoming Energy Efficiency Commitment;

      —  (ii) emergence of a new energy services market that can encourage the attraction of private capital;

      —  (iii) the availability of innovation in new tariff design and demand side management options; and

      —  (iv) development of improved, low cost methods of bill payment that link to customer needs in partnership with Government and other partners.

    —  Managing reductions of those in fuel poverty—the focus for the Fuel Poverty Strategy programmes can be helped via a review of overall programme effectiveness coupled with a review at a local level of client satisfaction;

    —  Managing industry capacity and renewing skills—to ensure there is adequate supply side management of skills and capacity to meet the growing demand for improvements in housing fabric;

    —  Hard to heat properties—co-ordinated action between Government and industry to address the specific energy savings problems facing those in less traditional properties.

    —  Helping customers in debt—the introduction of new regulations to assist customers out of fuel poverty helped via debt transfer. However, in doing so, suppliers must be enabled to exercise commercial freedom in the management of customer contracts.

6.  CONCLUSIONS

  ScottishPower's views can be summarised as follows:

Broad Policy

    —  Working with the grain of markets is more appropriate than detailed regulation.

    —  The value of such issues as fuel diversity, building infrastructure and tackling fuel poverty needs to be recognised and rewarded within the market.

    —  Energy policy should establish a long term framework which will deliver liquid markets attracting large players across the complete supply chain.

    —  The current regulatory regime will not necessarily deliver the desired outcome and will need to be reviewed to deliver the new policy aims.

Fuel Mix

    —  If a diverse mix of fuels is to be secured, in view of cleanup costs, coal will need support, such as a Coal Obligation or similar measure preferably within the framework of a market reward system which recognises diversity.

Environmental Policy

    —  Renewables will grow initially but targeted R&D will be needed to bring new technologies to the competitive market and to integrate these.

Social and Energy Efficiency Obligations

    —  Energy supply now encompasses tackling fuel poverty, helping increase energy efficiency etc and the reward system must reflect that.

    —  Customer awareness of the need for change/action is essential and Government will have a strong role to play, in partnership with others such as ScottishPower.


 
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