The Economics of Wind Power
House of commons
TAKEN BEFORE THE
Energy and Climate Change Committee
Tuesday 10 July 2012
Dr Robert Gross, Professor Sam Fankhauser, Professor Gordon Hughes and Dr David Kennedy
Robert Robinson, Jeremy Elgin and Adrian Snook
Sarah Merrick, William Heller and David Handley
USE OF THE TRANSCRIPT
This is a corrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee, and copies have been made available by the Vote Office for the use of Members and others.
The transcript is an approved formal record of these proceedings. It will be printed in due course.
Sir Robert Smith
Dr Alan Whitehead
Witnesses: Dr Robert Gross, Director, Energy Policy and Technology, Imperial College, Professor Sam Fankhauser, Grantham Research Institute on Climate Change and the Environment, Professor Gordon Hughes, Global Warming Policy Foundation, and Dr David Kennedy, Chief Executive, Committee on Climate Change, gave evidence.
Q1 Chair: Good morning and welcome to the Committee. Can I ask the public to come in as quietly as possible, please? We have a very big agenda to get through before lunchtime and I do not want to waste any time now. This is the first of three panels we are seeing this morning, so we need to get through this bit of the session in about an hour, if witnesses and Members will please bear that in mind in their questions and answers.
I will begin by declaring my non-financial interest as the unpaid President of the Renewable Energy Association. I wish to make clear I have absolutely no financial interest in wind power of any kind. I have both supported and opposed applications for wind turbines in my constituency, and I will continue to treat each one on the merits of the case.
I would like to ask a general question to begin with, and I want to ask it on an assumption, which I realise not all the witnesses necessarily share. If you believed that Britain needs more low-carbon electricity, do you think that onshore wind offers better value for money than some other low-carbon renewable technologies, including offshore wind?
Dr Kennedy: I can have a go at that. Certainly we at the Committee on Climate Change believe that we should be decarbonising the UK economy, as set out in the Climate Change Act. We think that means a need for early power sector decarbonisation, as we have discussed here many times before. Within that, onshore wind is an attractive option in the sense that it is a cost-effective, low-carbon technology. The kinds of numbers we work with for the cost of onshore wind are around about £90 per MWh at the moment, falling to £80 per MWh over the next decade or two. You can compare that to offshore wind, for which at the moment we work with numbers of about £150 per MWh, falling to £100 per MWh over the next couple of decades, so there is a cost advantage in onshore wind. If you compare that to investing in unabated gas-fired generation with a rising carbon price, the cost of that generation starts to reach £100 and more per MWh over that same time frame. So, investment in onshore wind is attractive, and investment in offshore wind is necessary, given the limits to investments in onshore wind, but both of them will be preferred over time to investment in CCGT generation.
Professor Fankhauser: Can I just reinforce two things that David said? The first thing to say is that the assumption with which you started is very important-that we need low-carbon generation if we want to take our carbon budget seriously.
Chair: That is not the purpose of this inquiry, though.
Professor Fankhauser: But it is worth saying.
The second thing to reinforce is that we are also worried about electricity bills, as many people are, and onshore wind does have an advantage when it comes to keeping electricity bills low, but we do have to acknowledge that there is occasionally an environmental trade-off. As you said in your opening remarks, that is a question of case by case, rather than a sweeping generalisation on onshore wind.
Dr Gross: Certainly three of us are going to agree violently on this. There is evidence from around the world, and we are in the middle of a big review of the cost of generating electricity for the UK Energy Research Centre. Both renewable and non-renewable are included within that dataset, and it is very clear that in terms of generation costs-I think we are going to come on to infrastructure, intermittency and so on as we go forward-they are not showstoppers, and certainly in terms of generation costs onshore wind is among the cheapest of the low-carbon options. Offshore wind is rather more expensive, but there are good reasons to hope that the costs can be brought down.
Professor Hughes: Can I perhaps play the role of dissentient? You asked the question to begin with about low carbon and then added renewable. If you look at low carbon, in my view nuclear power is clearly the cheapest of all when you are looking at the electricity system as a whole. When you add the constraint of renewables, at the moment offshore wind is more expensive than onshore, but my personal view is that that is going to reverse as we get more onshore wind. The performance of onshore wind is going to deteriorate because of lack of desirable sites, while the costs of offshore wind are likely to come down and there is a less of a problem with intermittency on it. So, I think we have to be careful about two things, which is insisting it has to be renewable in a rather narrow definition and, secondly, about the question of the prospects today and the prospects in, say, 10 years’ time.
Q2 Chair: We shall know in a day or two whether we will have the DECC view that support for onshore wind should remain at 0.9 of a ROC, or whether what is reported as the Treasury’s view-that it should come down to 0.75 of a ROC-will prevail. I think that we expect an announcement very soon. Which one do you think is right?
Dr Gross: I think the danger is that it is being turned into a political decision when it is a techno-economic decision that should be made in a transparent way, in a way that persuades the international investment community that Britain takes investment in low-carbon seriously, including nuclear and carbon capture and storage-we are not just talking about renewables here-and works out the level of support it needs in a transparent way that avoids it being captured by vested interests, and then decides on the level of support. The danger is that the contention that it should be reduced because of political concerns is quite the wrong way to go about making-
Q3 Chair: Putting that to one side, let us get a clear answer. Do you think it should be 0.75 or 0.9?
Dr Gross: The evidence suggests to me that 0.9 is a perfectly reasonable figure at the moment, because developers in this country have to manage uncertainty around electricity wholesale prices. If-as we intend to over time, and as we see in other countries-we had a fixed FiT, I would suggest that the level of support could be slightly lower.
Professor Hughes: That presumes that the ROC is a good system of supporting renewables-I think it is a dreadful system. The answer to that question is, first, shouldn’t we have a better way of dealing with it? However, if you are going to stick with renewables, wind farms in general are extremely profitable at 0.9 of a ROC. They could perfectly well be brought down to a lower level than that. Whether it is 0.8, 0.75 or 0.7 is something that is going to vary a great deal from site to site, rather than as a general rule.
Professor Fankhauser: Yes, I think the main thing is what you just said at the end: different wind sites have completely different profitabilities, so it is, again, very hard to generalise. At 0.9, I am sure there are wind farms that are overly profitable, if you will, but we have to see what is the total amount of onshore wind that we want to encourage, and we have to look at those sites that are perhaps not the most profitable that we want to put through the pipeline as well.
Q4 Chair: Are you both advocating a site-by-site negotiation for the level of support, which depends on the profitability of the site? That seems to be a passport to endless lobbying.
Professor Hughes: That was why I said that ROCs is a terribly bad system because it is a mechanism that rewards energy rather than providing electricity capacity, given that there are zero operating costs. If you want wind power, you want to incentivise the investment, which would be a different mechanism. My personal view is that you ought to have a bidding mechanism, not a mechanism that just has a standard price. Negotiating site by site would be absurd.
Dr Kennedy: It is something to be considered in the context of the EMR. If you have some sites that need 0.5 ROCs and some that need 0.9 to pay everybody-0.9 is not ideal, but I think that is where we are with the renewables obligations. There is an opportunity to differentiate within the EMR.
Q5 Chair: Professor Hughes, suppose we did have a bidding system and that led to lots of successful bids by onshore wind developers and no successful bids from nuclear generators. Would you be quite happy about that?
Professor Hughes: I would regard that as being a better outcome than one that just simply gave an undifferentiated subsidy. Whether there are successful bids or not will depend on the terms of what is being offered, and that is the great problem in a bidding system. By and large, bidding systems where they are operated around the world have separate pools for separate kinds of technology.
Q6 Chair: Leading on from that-this is to all of you-what proportion of UK electricity generation should come from wind power in, say, 2020?
Dr Kennedy: To repeat the scenarios that we have talked about before, I think over the next decade, in terms of onshore and offshore wind, they could account for about 20% of total generation. That is consistent with the Government’s approach to meeting the renewable energy targets in Europe, but it is also a sensible thing to aim for in the context of meeting carbon budgets. We have set out an indicative scenario for 2030. It is not a blueprint-I am always very careful to say that-but in that indicative scenario what is sensible to aim for in broad terms at the moment, we think, may be 40% renewables. Most of that would be wind generation in 2030, with 40% nuclear, 15% CCS and a little bit of unabated gas-fired generation on the system for balancing purposes.
Dr Gross: It is perfectly reasonable to be looking to wind in the period to 2020 to be providing somewhere in the region of a fifth to a quarter of UK electricity requirements. That would be equivalent to something like-without wanting to be over-specific-10 to 15 GW offshore and 10 GW or so onshore. Numerous studies-system modelling studies and engineering-based studies-that look at the way the system is utilised and operated suggest that kind of proportion could be accommodated with a minimum amount of energy being wasted through curtailment, for example. It would lead to almost a one-for-one reduction in carbon emissions, although there will be some impact because of having greater amounts of variation on the system, and it is completely consistent with the kind of build rates that we have seen achieved in our near neighbours.
I might add, if we could build as much wind by the mid 2020s as the Chinese appear to be able to build in a single year, we would meet our targets quite comfortably.
Professor Fankhauser: It is no surprise that I fully agree with the CCC targets. I am signed up on those. I would just reinforce what Rob said. Those numbers are not outlandish, if you compare them to what is happening in Denmark, for example, which already has 20% wind and 30% renewables, or Germany, which has 15% renewables in electricity. We are not going out on a limb by doing that.
Professor Hughes: The real question is what the country is willing to pay for. We could probably have 30% or 40% wind if people are willing to pay a very high price. When people do serious economic studies of real markets, the efficient level of wind, unsubsidised, is below 5%. That is detailed studies of north-western Europe that I am familiar with, and other ones. The simple answer is: what are you prepared to pay for? The question will be that that is a cost that is going to be borne by the public at large. In other words, if you do not make the public pay, it will be down below 5%.
Professor Fankhauser: Could I add a little quibble to that? What do you mean by "unsubsidised"? We have to factor in a cost of carbon in all that, so the level of subsidy would have to be relative to fossil fuels paying the full cost of carbon. Then it might change what you just said.
Professor Hughes: The studies I am referring to already have a carbon price that exceeds the maximum that the Government envisages for 2020.
Q7 Chair: It has been suggested that a system that relies heavily on wind power may produce emissions as high as one that runs only on efficient gas, because part-loaded fossil fuel power stations are required when the wind is not blowing strongly enough and they will release more emissions than efficient gas turbines running on their own. What is your view about that argument?
Dr Kennedy: I can come back on that. I think you are quoting an argument from Gordon’s paper, among others. What I strongly agree with in Gordon’s paper is that what you need to do here is very detailed system modelling to understand what the impact is in terms of emissions, and that is what we have been doing over the last several years. Just to give you a sense of what that modelling says-again it comes out of our detailed modelling-in 2020, with a 20% share of wind generation, we would go from a carbon intensity on our power system of 500 g of CO2 per kWh at the moment. That goes down to about 300 through switching from coal to gas generation, and then it goes down from 300 to 200, so that is a very clear saving because of our investment in renewables over the next decade. If you go beyond that, again our detailed modelling says that with a 40% share of renewables, you need only about 5% unabated gas-fired generation to back that up. In 2030, we think that combination of 40% renewables, other low-carbon technologies and a bit of gas will get us that 50 g of CO2 per kWh carbon intensity, which is a very familiar number.
If you go further out in time, you can get higher levels of renewables-60%, 70% or 80-with only very limited gas-fired generation to balance the system. So, to finish off that argument, I think there is a suggestion that you would be better off investing in unabated gas than wind and, from an emissions perspective, that would give you a bigger bang for the buck. If you think out to 2050 and our power system where we expect to have demand of 500 TWh, if you have a carbon intensity of gas-fired generation that gets as low as 350 g, you multiple those together and the emissions from a gas-fired power system would be much more than the 160 million tonnes allowed for the whole economy under the 2050 target. So, unabated gas is not the way to go. It is incompatible with our carbon budgets. Investment in renewables and intermittent generation, alongside other low-carbon technologies. I agree with Gordon that it is not all about wind-it is about wind, nuclear and CCS-but that is what we need to do to meet our carbon budgets in the legislation.
Dr Gross: Can I just address the very specific question that you asked, and I will address it in the short term-so, looking to 2020? I can’t think of an appropriate word to describe the notion that the carbon emissions that are taken back through the part loading of the fossil fuel plant exceed the carbon emissions that are saved. Balderdash; it just is not correct. The only way that could possibly occur would be if you did some utterly bizarre things in the power system that a market-based system or any kind of sensible, economically operated electricity system anywhere in the world simply would not do.
We do know that if you part load an old 1990s CCGT gas-fired power station, its efficiency will be reduced as a result, but what would happen is that the efficiency might go down from being say about 50% to the low 40s, but you will not be part loading all the CCGT on the system. A whole range of things will happen on the system as the wind comes in. The system already has to cope with very large swings in demand on a daily basis. The first plants that you switch off are the oldest, least efficient, most polluting, highest carbon plants. That is the way the market works to optimise the utilisation of plant in the power system, so there will be a modest penalty associated with accommodating wind on the existing system, but that penalty is extremely small in comparison with the emissions reductions that are available from wind, effectively, by reducing the burn of fossil fuel and by turning down fossil fuel plants. As we look out, say to 2030, we can see a number of things that can help to reduce that take back, if you like, still further.
One of the most exciting things that is happening in the power sector market at the moment is that the manufacturers of combined cycle gas turbines are focusing very hard on maintaining their efficiency through a wider range of operating conditions. We are getting quite close to the theoretical maximum that we can achieve in terms of efficiency with CCGT at peak operation. Those 1990s CCGTs were designed to base load. They were not designed for the kind of deep cycling that we might need-not by 2020 but perhaps by 2030-and through improvements in that technology we should see this penalty reduced. It can be reduced further if we have increased interconnection, demand response and storage. The Committee, I know, is already familiar with many of those things. I am very happy to provide some supplementary detailed technical input on the question of managing intermittency.
One further point I would like to make, because I know this has also been touched on, is the notion that we end up curtailing vast amounts of our low-carbon power as soon as we get anywhere near our targets. That really is not correct either; again, I can provide a detailed supplementary on that point.
Professor Hughes: We disagree. I have as much experience of modelling power systems as Dr Gross has. We are simply making different assumptions about what is going on. Everything that he has referred to is on the basis that what we are doing is essentially using old CCGTs within a circumstance of a system to back up the intermittency on the wind power side. What you really have to do is look forward. What one is looking forward to is the replacement of quite a lot of retiring capacity-nuclear power and other elements of our system that are going to go offline over the next 10 to 15 years. When you do that, you have a choice between investing in gas CCGTs, which are very efficient, as has been explained, or alternatively you put in an awful lot of wind power and you do not, by and large, put in CCGTs-you put open cycle plants in instead. The consequence is that open cycle turbines are much less efficient, and it is that mechanism that is the route by which you can finish up with the result that I have described, which I stand by.
Essentially, this is not something that is a matter where we are differing on the technologies. What we are differing on is the way the system operates and the changes that you are looking forward into the future about.
The other thing I should say is that it really does depend on the nature of the system. We are talking about hugely detailed elements of systems. If we had a lot of hydro power in Britain, it would be a completely different story, but we don’t. That is the great sadness from the point of view of wind power in the UK, which is that wind is a wonderful complement to hydro power, but a very bad complement to a variety of other sources that we have.
Dr Gross: Can I come back very briefly? With respect, we can all hypothesise, arm wave and make up scenarios on the back of an envelope where we do irrational things with the energy system, and the result is that costs go up or carbon emissions go up or something like that. I am not referring to hypothetical instances where we do things that are just, frankly, plainly daft. I am not referring to my own modelling; I am referring to colleagues in electrical engineering at Imperial College, and I am referring to a vast international literature that has looked at this. It is not the case that nobody has thought of these things anywhere else in the world, or thought of them before in this country, and what I am talking about is what would happen to the system on any kind of rational, cost-effective basis for replacing old plant, which has to happen, and managing wind, managing nuclear-which also brings challenges because it is rather inflexible-and managing demand swings.
Q8 Barry Gardiner: I am interested in seeing what effect an increase in wind generation may have on investment in gas. There is a chance, is there not, that it will make investment in gas less attractive, because gas will face future lower load factors which will increase the uncertainty of the revenues that one can expect from gas-fired power stations? What do you think the impact is going to be of having greater wind on the investment appetite for building gas?
Professor Hughes: In my view, we have just described the current system. You invest on the basis of the expected revenues that you are going to get out of generating and selling electricity into the market. Two things are going to happen, and nobody disagrees about this: first, the difference between the peak and the low troughs of prices is going to get more extreme than in the past, so it is going to become more important as to when you expect to be able to sell your power. The second thing is that certain kinds of power are going to get dispatched less and therefore generate less revenue. The normal response to that around the world has been to abandon the idea that you only compensate people for selling electricity, and that you create what is known as a capacity market of some form or other and you reward people in that way. If you do that, you can get investment in pretty much what you want, provided that you run the auctions or the compensation correctly. If, on the other hand, we stick to paying people only on the basis of energy, you are going to push up the cost of capital for everybody, because essentially what happens is that the risks that you are going to be expected to bear are going to be greater, and therefore they will want to have a higher return before they put out their investment and they will seek to recover their returns over a shorter period of time, which either translates into higher prices or less investment.
Dr Kennedy: I think we can agree on this one. Clearly, if you do not know what the load factor of your gas-fired plant will be, you would be pretty worried about putting money in and whether you would get a return on your investment. That is well acknowledged by, I think, pretty much everybody here. We need a capacity mechanism in the context of moving to a low-carbon system. There is a capacity mechanism within electricity market reform. Whether that is the right mechanism, we can debate and discuss-it is not for today-but certainly we need to feel confident that the gas-fired generation will come forward. I think there is a corollary of that: do we really want the gas-fired generation investment coming forward if it is just going to sit there and not generate apart from, for example, when there is a lull in the wind-the 5% load factor on average that I have talked about? The answer is, yes, you do. The cost of having it sitting there doing nothing is not very much. Bear in mind that of the total cost of a gas-fired generation plant, only about 15% is the capital cost, so 85% is the operating costs, which you don’t incur if it is just sitting there not running.
Dr Gross: I think we have found something that we broadly agree about. As you bring more zero fuel cost generation into a system, you tend to depress the average wholesale price and you tend to make prices more volatile. That can make investment in new gas generation more risky and therefore less attractive. I think the real challenge is to make sure that we reward flexibility in all its forms and minimise the cost of achieving that flexibility, and that might be through more flexible gas plant. It will also be through the other things that we have touched on already, in particular increasing interconnection and demand response.
Q9 Barry Gardiner: Even among you guys who have disagreed so violently-or three to one have disagreed so violently so far-there is unanimity that electricity prices are going to rise as a result of our push on renewables and about the increase that that will have in a knock-on effect on gas prices as well, or electricity from gas.
Professor Fankhauser: I think the thing we agreed on is that we need a capacity payment, and then you can then ask what the overall cost is of making the system flexible enough to deal with the extra wind capacity. The numbers that the Committee on Climate Change has produced suggest that this is a relatively low cost. If I remember rightly, it is about 1p per kWh. That covers everything that you need on the transmission system, on interconnection and on back-up capacity. The whole strategy of dealing with this new power sector is about 1p per kilowatt hour, which is extra money but not too much.
Dr Gross: I think it depends entirely on what you assume might happen in looking over the next 10 years to gas prices. We are all agreeing that there is a need for more flexibility and we are all agreeing that investment in gas may become more risky. I don’t think that that therefore means that we were all agreeing that the impact on consumers is hugely deleterious, or in fact that the cost of gas was going to go up as well-quite the reverse. Having a lot of renewables can depress the average wholesale price of electricity, which is a beneficial thing for consumers.
Barry Gardiner: I was just going to come on to that.
Dr Gross: A sense of perspective is very important. The kind of impact of moving to decarbonise the electricity system, if we do it carefully and intelligently and over a period of time, with the right regulatory structure in place, is very modest in comparison with the kind of dramatic swings that we have seen in electricity and gas prices as a result of international commodity price movements, in particular for the price of gas.
Dr Kennedy: I think we have said the headline figure before. If we do all the things that we have suggested we need to do over the next decade, it would increase the electricity bills in 2020 for the typical dual-fuel household by £100 relative to today’s level. Within that, about £70 is due to the support for renewables, and within that about £50 is due to supporting wind in particular, rather than biomass-and most of that £50 is offshore rather than onshore wind. Those are the facts, and we always say quickly after that there is an energy efficiency opportunity of about £100 that we should try very hard to get, and if we can, bills will stay at the current level.
Dr Gross: Bills roughly doubled in the period from 2005 to 2009, and that had nothing to do with renewables and everything to do with the international-
Q10 Barry Gardiner: You sound like a bunch of politicians. The pushback I am getting is-I think you are all agreeing with me, aren’t you?-that prices are actually going to go up?
Dr Kennedy: There is a clear cost-let’s not pretend that there isn’t-which is £100, and let’s not say that the £100 doesn’t matter because of energy efficiencies. It is £100-accept it, debate it and discuss it. As Gordon says, "Are you prepared to pay it as a society?" That is the question, and it is a political question.
Professor Hughes: I don’t think you expect us to agree on what the cost is, but we agree that it is going to go up.
Q11 Barry Gardiner: Professor Hughes, you will have seen that there is some research that suggests that because there may be a merit order effect, as has been evinced in Germany and in Denmark, it may lower the price of electricity because it has displaced power from generation with higher marginal cost. Do you accept that is also a factor that we need to put into this mix?
Professor Hughes: Yes, that is indeed possible, but it is only looking at a small-
Q12 Barry Gardiner: Sorry, is it possible, or has it happened in Denmark and Germany? I thought the research showed that it actually took place.
Professor Hughes: Yes, I would entirely accept that, but that is because the subsidies that are required there to bring that extra capacity are taken out of the calculation. In other words, the marginal cost has gone down, but the fixed cost has gone up. That is all part of the story that the Committee on Climate Change has as well.
Q13 Barry Gardiner: In those same calculations that you would wish to do, are the subsidies for fossil fuels taken into account?
Professor Hughes: Are you saying are they taken into account?
Barry Gardiner: You were offering me a scenario. You said that in those studies that is the case, but it is the case because they haven’t taken into account the subsidies that are being given to the renewable sector. So, I said that if you factor that in, does your argument-that that might not be quite as beneficial and lower for prices-hold good if you then factor in the subsidies that have been given to the fossil fuel sector? I am asking you if it is a fairly straightforward balancing act.
Professor Hughes: The simple answer is that my argument would not be changed by those. In other words, the overall cost has gone up. What you started with was the statement that, at the margin, the costs of generating a certain amount of electricity have gone down because we switched from burning coal to having wind, which has a very low marginal cost. I accept that. But what I then said is that there is a subsidy to wind plants that is being recovered outside the system, and that means-
Q14 Barry Gardiner: Then I asked you whether you had factored in the other side of the equation-the subsidies that are given to fossil fuels.
Professor Hughes: Yes.
Barry Gardiner: You have?
Professor Hughes: Yes.
Q15 Laura Sandys: Can I just come in on that? I don’t know whether the panel believe that when we start to look at 2030, or 2020 to 2030, we should start considering decoupling the energy prices that are domestically generated and those on the international market. Do you feel that international wholesale prices are distorting-and will distort into the future-the cost of renewable energy generation?
Professor Fankhauser: At the moment there is some, but not very much, interconnection with the UK electricity system and other electricity systems, which means that there is not much of a link between our electricity prices and other electricity markets. It is indirectly through the fuel price. If we have a future where you would interconnect more, you would expect prices to be more similar. That is the whole idea of trading.
Professor Hughes: We have a system where the market price is, for a large part of the year, driven by the gas price, so the argument we are dealing with is can we decouple that. My answer would be that pretty much you can’t, because you are going to finish up with the gas price-at least for a considerable period of time-being the back-up that drives the marginal price for a lot of the time. You are going to be operating in two regimes. One regime is where we have lots of wind because the wind is blowing and you don’t need very much gas generation to be on stream to determine the market price, so the market price is going to be lower during that period. Then you will have other periods where you need gas generators to operate, and then they have to recover their marginal costs, in which case it is the gas price. My view of the market is that that is going to be the majority of the time.
Dr Kennedy: Under the electricity market reforms, if we are successful-if we decarbonise the system and if we get back to that 50 g of CO2 per kWh emissions in 2030-most of it will be paid for under the contracts for difference. There will be a little bit to pay for, which is the balancing generation, and that will not be the dominant thing within consumer bills. So we will decouple from the gas price. There is a question: is there a benefit in decoupling from the gas price over and above the carbon benefit of decarbonising? That depends on what you think the risks are of being in a high fossil fuel price world. If you think that is a very significant risk, there is an additional benefit to being decoupled from the gas price.
Q16 Laura Sandys: Certainly when you look at consumers-whether they are consumers or businesses-volatility is one of the biggest problems. It is one of the biggest difficulties for business functioning. If one is talking about the opportunity of decoupling from a volatile international marketplace, does that not deliver energy security on price?
Dr Kennedy: Yes, it gives you price stability. Just to give you a sense of what you pay for under the contracts and what you pay for not under the contracts-so you are still exposed to gas price volatility-95% of the market would be under contracts for difference in 2030 with a predictable price and 5% would be subject to volatility because that is around unabated gas-fired generation  . You move away from the current situation where the price is almost fully determined by the gas price.
Professor Hughes: This is really what a lot of this is about: do you want a market system for electricity or do you want the CGB? Basically, the system that David is describing is the CGB. We just go back to a Government-managed market, in which case the price that is charged is essentially the average price to customers.
Q17 Laura Sandys: But if you are consuming energy that is not gas primarily, why should it be linked to a gas price?
Professor Hughes: If you have a market price-
Laura Sandys: But why would that be a gas market rather than a different market?
Professor Hughes: Because with a market price, that is set by the marginal cost of the last, most expensive generator that has to come on stream. Essentially, if you were running gas at all, that is the most expensive marginal cost and sets the market price. That is the way the market price has gone over the last 20 years. The situation that has been described here is one in which we abandon that basic market structure. We move to a structure in which everything is driven by complicated agreements that come down to an averaging mechanism over a period of time.
Dr Kennedy: That is what we are doing in the electricity market reform anyway.
Dr Gross: I think it is important just to avoid a certain amount of overstatement and conflation around all of this. What the electricity market reform agenda aspires to do-it is another matter, in which this Committee is also deeply involved, as to whether it will manage to do it or not-is to provide long-run, fixed-price contracts for what I describe as asset based generation, so that is nuclear and the renewables. They are not subject to the kind of price excursions that you would see with a CCGT because 70% or 80% of the electricity price that CCGT effectively produces is a product of the input fuel price that is required to burn. It is perfectly reasonable, I think, to envisage a future-as is the case at the moment in France, for example-where your domestic electricity prices are less subject to the vagaries of the international price of gas than we have seen in recent years in the UK. It may well be that as we look out into the future, we are into this golden age of gas and the price of gas falls. I think that remains to be seen. I don’t know; it is extremely uncertain. But, it is also the case that fossil fuel prices have historically been extremely volatile, and it is likely to be the case that the price of gas continues to be volatile. Although the points that Gordon makes about price setting, the marginal plant and everything are completely valid, if a smaller fraction of your overall electricity sales are going through the system- Already, the electricity companies smooth out a whole bunch of volatility due to time of day and time of year, and the consumer doesn’t see those, whether they are a small business or a household. If you move to a system that has more renewables and more nuclear, you move to a system that has more stable prices for its consumers. That is absolutely unequivocal.
Chair: Let’s move on a bit.
Q18 Albert Owen: Can I just come back to the issue that the Chair first asked about: comparing onshore and offshore wind generation? You mentioned in particular that both are going to come down substantially over the next few years, but have you taken into account the intermittency in transmission that is associated with that? Is that part of the cost that you have just given, Dr Kennedy, when you gave your figures of down to £80 for onshore and down to £110 for offshore?
Dr Kennedy: Sam gave you the estimate of the intermittency cost, which is up to about 1p per kWh. It doesn’t ever get more than that. For low levels of intermittency it is less, but as you get to very high levels of intermittency-I am talking about 70% or 80% on the system-we think that the intermittency cost is 1p per kWh. That is a small proportion-10%-if you take offshore wind in the longer term at 10p per kWh. It does not change the fundamental economics of whether it is sensible to develop offshore wind. It is, even when you account for the intermittency costs.
Q19 Albert Owen: What about economies of scale here? We flew over one of the largest wind farms. You are not going to get that on land anywhere, are you-that kind of volume of more predictable wind-so is this really factored in correctly? We are talking about planning applications that are coming in in my area of north-west Wales, which is relatively windy on land and offshore, but the scale of the offshore generation is so much that certainly the technology will improve in the future so that you can have direct currents. The technology and the Government policy are moving in a way that will make offshore wind far more economic in the long term than onshore. Why should we be bothering with onshore when the margins that you have just given exist?
Dr Kennedy: I agree that we can get offshore wind costs down very significantly; I have said from £150-plus at the moment to-
Q20 Albert Owen: It is the sheer volume as well. I don’t think we are dealing with the sheer volume of what we can get from offshore wind. Is it predictable?
Dr Kennedy: When we look at how do you get down from £150-plus to £100 and possibly lower, we ask all those questions. What can you do in terms of scaling up? We break apart a wind turbine, we look at the construction process and we look for the scope for cost reduction in all of those, and that is where the £100-a 35% cost reduction over the next decade or two-comes from. Can you ever get it below that? Possibly, but it then becomes more uncertain, and you have to get it below that to say that it is cheaper than onshore wind.
Professor Hughes: I think you asked the overall question. To be fair to offshore wind, it has a higher expected load factor and it will operate for more years. Potentially, if we diversify around the UK, it should be less intermittent collectively than onshore wind. From that point of view, there are a variety of ways in which having it at a fairly large scale can potentially bring down the costs. With actually building wind farms, they are incremental. The major economy of scale is simply a transmission capacity from bringing onshore on the transmission, but the turbines are not big by the standards of electricity generating units and you just have an awful lot of them that you have to put down in one way or another. It is a small economy of scale maybe, but not a huge one per se in the overall scale of things. What really counts is the system as a whole.
Q21 Albert Owen: Comparing onshore and offshore?
Professor Hughes: Yes, that is right.
Dr Gross: Can I just come back to your original question of what transparent and what is included and what is not included? The offshore wind developers are obliged to bear the cost of the connection to the shore. That is paid for through their subsidy under the RO, and that is a distinction between the requirements for wider transmission system upgrading, which is not paid for through the renewal subsidy and does not show up in those cost numbers, and the specific connections to the offshore farms that does show up in those cost numbers. The cost of the wider transmission system upgrading has been looked at in considerable detail by something called the Electricity Network Strategy Group, which involves Ofgem, DECC, the national grid, some of the big companies and some independent experts, and it sounds like a very large number. I think the current estimate is something of the order of £8.5 billion to do all of this upgrading-not just to connect wind farms but the upgrading that we need. But when you annualise that over the lifetime of that asset and then divide it into the overall electricity sales in the country, it ends up being a rather small number-I think it is something in the order of between £5 and £6 per household per year.
I do think there is a need to be more transparent about some of these costs. The costs of the renewables obligation are reported very transparently and the costs of the offshore connection are borne by the offshore developers, but some of the wider issues around managing intermittency and some of the transmission costs could be reported more clearly and transparently. There is a need for more work, because it is complicated-making the complicated simple is difficult-and that might cut through some of the disagreements that you might see between some of the members of the panel this morning.
Albert Owen: It is good to get disagreement at times for us to formulate a balanced report.
Professor Fankhauser: I would just re-emphasise where the numbers that David has given come from. There are elements where offshore wind is better than onshore, and there are issues where onshore has an advantage. The maintenance of offshore will probably always be more expensive just because of the location and the difficulties of that. The construction of offshore will almost always probably be more expensive than onshore. But then offshore has advantages, as we have heard, in terms of the load factor. Probably the intermittency is less, but that depends on sites, and the environmental impacts of offshore are slightly less as well. So there are certain elements where offshore has an advantage and there are elements where onshore has an advantage. The aggregate picture is the one that David has given you.
Q22 Albert Owen: One thing that has been lost in this debate and argument very recently is microgeneration and community benefits. We are talking about building the biggest, the most and the cheapest, and we have lost the arguments about how the community and individual households can benefit. Would you like to comment on that?
Professor Fankhauser: Yes, for me it depends a little bit on technology. Obviously things like nuclear and offshore are inherently suitable for the occurrence of the big utility model.
Q23 Albert Owen: I am not suggesting every household has a nuclear power station.
Professor Fankhauser: You’ve just been pushing for offshore. You can imagine onshore systems that are community based. If we are honest, the UK is not quite as good at getting those off the ground as, for example, Germany or Denmark, where you have municipally - owned small power systems. Somehow that is not the culture; that is not the economic system that we have. Probably that is one of the reasons why our planning process takes longer and has a lower success rate than that in, say, Germany or Denmark.
Q24 Albert Owen: I don’t think many people who object to onshore wind farms would object to micro if it was done on a small scale and there was community benefit in the way that solar panel has been rolled out, in many ways.
Dr Gross: I think it depends on what you mean by micro. If you are talking about full-size wind turbines-say 1.5 to 2 MW turbines; big wind turbines-owned by communities, that model has been very successful in facilitating the roll-out of wind in our near neighbours. For various reasons, we did not hit on a policy mix in this country back in the mid-1990s that was conducive to that. They did-I think largely by accident. So we have this kind of legacy where we have never created the conditions for communities to get involved in investment in wind farms. We haven’t created a supportive constituency in the way that some of our near neighbours have. We are not the only country in the world with stringent planning laws by any means; I think that is very important.
I would just qualify that. If you talk about micro, I think there are costs and technical issues around very small wind, which suggests to me that although it absolutely has a role in some locations-I am talking here about much smaller wind turbines, which have a niche and are very important, and there are some absolutely terrific UK products available-I don’t think we should expect it to be able to displace significant amounts of larger, industrial-sized wind turbines. That is just not technically feasible. In terms of solar, we are seeing the costs coming down and the available resource, even in the south of England, is potentially quite significant as we look further ahead into the future if we can get the costs of that down. I think there are things that need to be done to facilitate this kind of community involvement in small wind farms, not necessarily micro-wind.
Professor Hughes: I come from a part of Scotland that is probably similar to your part of Wales. I am also chairman of our local community council, which is the equivalent of the parish council, and I can tell you that even individual wind turbines on people’s farms are intensely controversial in that kind of area, let alone big ones. Two things we have learned: we in Scotland have an organised community benefit arrangement where roughly £5,000 per MW is contributed. You will find that most of those funds are not regarded with great favour by the local inhabitants. Secondly, opportunities for ownership of small-scale turbines and so forth are extremely constrained by the situation with landownership and a variety of other things. I would be very sceptical that there is, as it were, the opportunity to do the sort of things that have been done in Denmark in my area of Scotland and probably your part of Wales as well.
Q25 Chair: Professor Hughes, you said that the problem of intermittency might be less for offshore wind than onshore wind. Why is that?
Professor Hughes: Yes, because of the overall area of wind that can be captured. Imagine doing them off the north-east coast of Scotland and the south-west coast of Cornwall; that is a fairly large area and the wind is less affected by onshore topography in various ways. What you can get is steadier and longer periods of time in which collectively all of the offshore wind farms may be able to generate. I have looked at the figures in detail for the last year. You will find that at the lowest period, literally no onshore wind farm anywhere in the UK is operating. On the other hand, there is the possibility, at least, that if it is well placed and diversified, offshore might get 5%, 10%, or even 20% operating at any time.
Q26 Chair: Just leaving aside the possibility of planning objections, are you saying that there are no sites available onshore that could achieve the same outcome as offshore?
Professor Hughes: It is an inherently smaller area, so the diversity and the wind conditions are inherently going to be less than when you start to consider the whole of Britain’s waters around the United Kingdom as a whole.
Q27 Sir Robert Smith: I had better remind the Committee and the witnesses of my entry in the Register of Members’ Interests, particularly to do with the oil and gas industry and a shareholding in Shell.
When it comes to offshore construction costs, are we confident about the experience of bringing these things down when a lot of the offshore to date has been near shore rather than seriously offshore, and we are going to be looking at steel jackets and a lot more infrastructure in the construction phase? Can we be that optimistic about the costs coming down?
Professor Hughes: When people talk about the costs coming down, they talk about them coming down relative to a series of increasingly high baselines as you move further and further offshore. So, yes, it is significantly more expensive if you are going to go 50 miles out than if you are going to be only 10 miles out because, in part, the conditions that the turbines have to withstand are potentially going to be a great deal more potentially threatening and the waters are deeper. What one is talking about is prices that come down over time for a given site.
Q28 Sir Robert Smith: We have already touched quite a bit on the community benefit as an attempt to balance the community impact. Do you think the Government’s idea for England of business rates being kept by the local council will help to make people feel that the wind farm is having at least a positive local benefit at the same time as having an impact on their environment?
Professor Hughes: It might change the attitude of the councils. It will not change the attitude, I suspect, of much of the population.
Q29 Sir Robert Smith: Can anything more be done to share the benefits locally?
Professor Fankhauser: There are various things in addition to sharing the benefit. It is also a process one has to go through and people have looked at the process in places like Germany and Denmark. They have found that early on there is quite proactive involvement of the community in addition to the benefit sharing. It was also that some of the projects did originate from the local community, rather than being imposed on it, and then sharing the benefit. As Rob said, I think there is a whole different institutional / regulatory psychology in some of the other countries that we might have to look at.
Dr Gross: If you look at what happened in Denmark and Germany, for example, there were a number of factors that facilitated things. In Germany, they created these closed mutuals where the local people who had a few quid to spare could invest in the wind farm-say a 20 MW wind farm-and they would get a return from that. First of all they had a fixed feed-in tariff, so the returns were very secure provided the turbines didn’t fall over and they put them somewhere reasonably windy. They also had opportunities to benefit from advantageous loan conditions from various state, quasi-state or municipal lending institutions. They were able to roll this out and benefit from this at a much earlier stage than we are at now.
I think Gordon is absolutely right in questioning the extent to which we can replicate all those things, but I do think we need to move away from the notion that we are just going to do this as business as usual, where a big company comes in with a big landowner and effectively gives a bone to local town hall in the hope that it will shut everybody up and stop them being unhappy. I think we need to have a thoroughgoing look at each of the different components of policy in this country, starting with the nature of the instrument and starting with the feed-in tariff, and going through to looking at the Green Investment Bank and other provisions, including the tax system, and seeing the opportunities for greater community ownership of wind. I don’t think we are doing that because that is going to provide us with dozens of gigawatts of wind in a huge hurry, but I do think it needs to be looked at in order to make this something that people feel more part of and therefore less oppositional towards.
Professor Hughes: In the end this is about what goes on on the ground. I look at it from the perspective of a fairly local view. When it comes down to it, what is involved here is who benefits. There is a certain value of having wind under a guaranteed tariff and all the other things in a particular location, depending on whether it is windy, such as being well located to the transmission network and so forth. That is going to be divided between the community and the landowner, and so the more we give to the community, the less will be available to the landowner, who will therefore be much less likely to co-operate in locating them. On the other hand, if we give it all to the landowner, the community resists a great deal. That is a balance that is extremely hard to strike, and it is very hard to strike in the most remote, least populated and typically concentrated ownership parts of the country, like my part of Scotland. Wales is a bit different in this respect. In essence, the conflict that you can see in southern Scotland or in northern Scotland is that the people who live there do so because they want places that are wild, untouched and typically remote, and they do not like having wind farms around them because that spoils the inherent virtue of the landscape from their point of view. That is a very difficult conflict to resolve.
Q30 Sir Robert Smith: Nevertheless, in view of your enthusiasm for a market approach in respect of other areas of energy policy, is there anything wrong in principle with saying to someone, "Okay, you have this natural advantage of living in this beautiful remote place. We want to take away part of that advantage and we are prepared to compensate you financially"? There is nothing wrong with that in principle, is there?
Professor Hughes: No, nothing at all. I am entirely, in principle, in favour of that. If we have a planning system that incorporates true compensation for the people who are affected, it would seem to me to go a long way, but we don’t. We have a planning system that has essentially encouraged people to take polarised positions rather than negotiate to reach, as it were, the deal that makes sense for everybody.
Q31 Sir Robert Smith: Is there a bigger debate where that environment you are looking at is also going to be impacted by climate change, whether you are living in the remote area or in an urban area? If you are going to have to tackle climate change, you may have to play your part.
Professor Hughes: This is the small versus the large. It is not going to make the slightest bit of difference to the extent of climate change whether we have a few wind turbines in my neighbourhood or not. The issue is that that is going to happen or not happen, and in the way that is going to happen. The question is whether we have the wind turbines that undermine my locality, to which the answer is the kind of negotiation that Mr Yeo was referring to.
Chair: The shortcomings of the planning system, though relevant to this inquiry, are going to take us down a track we do not have time to complete.
Q32 Ian Lavery: I was looking at job creation for onshore and offshore wind farms, and there is a lot of scepticism with regard to how many jobs have been created or are likely to be created. How many jobs has the onshore industry created to date, and what are the prospects for further employment in the future?
Professor Fankhauser: I don’t know the aggregate UK numbers. There are statistics that say how labour intensive, as it were, different types of technology are. The one statistic I have, which is from a US study, says that coal and gas typically use one job per MW, if you derate it. Wind is more in the range of 0.7 to 2.8 jobs, so you could potentially have more jobs per MW in wind than you have in coal and gas, but there are certain dangers in doing that. First, jobs occur at different points in the value chain, if you will, and wind jobs tend to be mostly in construction and manufacturing, while coal jobs tend to be a lot in extraction, so not all of those jobs actually would happen in the UK.
As an economist, I would also point out that more jobs per MW is the same as saying these are low - productivity, and therefore potentially low-paying, jobs, so this is not necessarily something we would want to see. My summary of this question is that there is no job penalty from going to low-carbon, but it is not obvious that there is a clear job benefit either.
Professor Hughes: Counting green jobs is an intensely controversial issue. I have written about it and the simple answer is that if you look at a very narrow definition, probably a very small number of jobs have been created. If you look at a larger definition that takes account of the knock-on effects in the rest of the economy, it is clearly negative. Again, I will draw locally on a very simple story. We have lots of wind farms, and we also have, right next door, my neighbour, who is a rather successful health spa. That health spa is a very small business, relatively speaking, but it employs 160 people, which is more than all of the wind farms in my local authority, which have something of the order of 1.5 GW generating capacity in that. That gives you a sense of scale, because one is from an investment of a couple of million pounds and the other is from an investment of well into the hundreds of millions.
Dr Gross: Sam and Gordon are both absolutely right that the creation of net jobs in the economy is very complicated and vexed. You are effectively moving money around within the economy. You are taking some money away from consumers and spending it on the construction of wind farms. The kind of output analysis, or the general equilibrium modelling that looks at the economy and how it adjusts to those kinds of transfers, is non-trivial. I think the evidence suggests that things that have a net economic benefit, such as energy efficiency, save money and create jobs. I think the evidence suggests that things like renewable energy move jobs around.
However, given that a number of countries around the world are going after renewable energy and these green targets in a serious way, the question has to be for Britain: how many of these jobs we are managing to make stick here in this country? I would refer the Committee to a recent report on the French plans to develop their offshore wind resource, which they did through a series of tenders. There were a couple of British companies represented in those tenders, but they have managed to attract straightaway the construction of four new factories in north-west France. We are still struggling to persuade Siemens-I think it is-to go ahead and build a factory in north-east England, even though we are in the lead on the development of offshore wind. Without getting into arcane debates about net job creation, net job destruction, general equilibrium modelling and the economy, I think there is a clear need to ensure that more of the real high-end engineering jobs associated with doing this stuff stick here. That is a policy-driven situation, because other countries are going after it.
Q33 Ian Lavery: In the shift to renewables we are seeing a lot of job losses in the fossil fuel sector. How does that compare with job creation in the renewables sector?
Dr Gross: I think the biggest job losses that you are seeing in the conventional energy system result from moving from domestic coal to imported coal and from imported coal to gas. There are far fewer jobs involved in running a modern combined-cycle gas turbine than there were 30 years ago when running a large coal fired power station with a nearby coal mine supplying it. I think that is to do with a long-run technological change in the economy. It is to do with the fossil fuel transition that we have seen and it has an awful lot less to do with-
Q34 Ian Lavery: I am just asking if you had any comparable figures on the loss of jobs in the fossil fuel sector and job creation in the renewable sector. Are there any comparable figures?
Professor Hughes: Historically there is no doubt that the loss of jobs in fossil fuels has been much greater than the creation in renewables, but that is not just because of the promotion of renewables-that is just simply exhaustion.
Dr Kennedy: If you look at how much we have invested in renewables, it is not very much to date, so just on that fact alone you can’t have displaced many jobs through what we have done in renewables. It is other factors, as both Gordon and Rob have said.
Professor Hughes: But the real problem in the future is not fossil fuel production; it is manufacturing. It is energy-intensive manufacturing where the job losses will occur in future as a result of higher energy prices.
Q35 Albert Owen: We have talked about economics, technology, planning and siting, but one thing we have not talked about-it has been raised a lot in the evidence that we have been given-is the public health implications of people living in close proximity to wind turbines. Have there been any comprehensive studies that you are aware of and, if so, what were the outcomes?
Professor Hughes: The effects are controversial. Some people appear to be significantly more vulnerable to certain kinds of disturbance from wind turbines, particularly low frequency noise and a few other things. I would not say that there is any overwhelming evidence that there are significant health effects. People individually may suffer quite badly, but I don’t think collectively there is a large impact.
Q36 Albert Owen: Is that because you don’t know or you don’t think there is, or is it that the evidence is not available?
Professor Hughes: There isn’t at the moment enough evidence, such as controlled studies to monitor the health of people over a significant period of time. It would be something that would be worth doing but it has not, to the best of my knowledge, been done on anything other than a very anecdotal basis.
Q37 Albert Owen: Do you think the Government have a responsibility to do that?
Professor Hughes: That the Government have responsibility? Yes. If we are going to go down this route, you would very much want to set up a basis for monitoring and carrying out a long-term study. It will take 10 years but, sadly, that is the way it is.
Professor Fankhauser: I would agree with that, but if you look at the literature of the negative impact generally of wind, what dominates is the visibility, followed by impact on wildlife-birds and bats in particular-and then everything else is a distant third. Whether that is because-
Q38 Albert Owen: I fully accept that, but my argument is when a large wind farm comes before planning, it is very controversial-those are the big issues-but the proposed developer is asked to conduct with the local authority an environmental impact study. They have other impact studies, but a health study is not available, and I am suggesting that should be given greater weight.
Professor Hughes: It is exactly like the electromagnetic radiation associated with transmission lines, for example. It is something that you can only establish by quite long-term monitoring studies. One ought to do that-it has been done in the case of EMF-and I think that as a precaution you can at a relatively low cost do that for wind farms as well.
Chair: We have two other panels, I am afraid. Thank you very much indeed for your time this morning. It has been a very useful and interesting evidence session for us.
Examination of Witnesses
Witnesses: Robert Robinson, Secretary, Montgomeryshire Local Council Forum, Jeremy Elgin and Adrian Snook, gave evidence.
Q39 Chair : Thank you for coming in. We only have 30 minutes for this session, so I will ask my colleagues to be concise and that you be concise in your answers. As I think you are giving evidence to this Committee for the first time, but I will not have a prolonged introduction. As I understand it, Mr Elgin, you have a planning application going in for a wind farm.
Jeremy Elgin: Correct; a turbine.
Q40 Chair : Mr Snook, you are an opponent of an application in your neighbourhood?
Adrian Snook: I live 485 metres from the nearest turbine.
Q41 Chair : Mr Robinson, you represent the forum, which also have concerns about it?
Robert Robinson: Not this particular wind farm, sir. It is about the Mid Wales situation, which no doubt will come out as we go along.
Q42 Chair : Perhaps each of you would like to say what you think public opinion on wind power is in your own neighbourhoods?
Adrian Snook: I have arranged for the Committee to have access to a few pages from the Crick Parish Newsletter. It is a publication that used to be full of nice social things like fetes etcetera. If you look at it now, what you will find is a breakdown of wind farm applications. So I think when you look at somewhere like the TAN 8 areas of Mid Wales, or if you look at Daventry District, you are looking into the future-a successful policy, as some would see it. And so I think you need to distinguish between polling data that shows overall a positive inclination towards renewable energy as a superset and wind energy as a subset, and you need to understand that over the last 10 years a schism has taken place. What has happened is that wherever the public has come into contact with the wind energy industry and the process of application and planning, that positive motivation has vaporised and has been replaced by feelings of negativity and fear. That is the overwhelming feeling, as well as hostility, because frightened people do not react in the way that you might like them to. An American jurist once said, "You can’t expect detached reflection under an upraised knife," and that is how people feel.
So what you have is a situation where half and possibly more of the population around the country may well look at onshore wind turbines and see the same things that I saw five years ago: which is an icon of responsibility and modern, benign technology-all of these lovely things. Unfortunately, the good will of the British population has been abused and squandered through a very ill thought-out policy. It is the policymakers who brought those choices to a population who are in the dock, frankly. What you have is a very different picture, where the industry will continually highlight the modest positive motivation among the majority of the population, particularly the urban population, and then in areas like Daventry District what you see is a situation where the wells of resentment have overflowed. They have run into each other and now Daventry District is a lake of resentment and unfortunately-I will wind this up-all the studies done by Parsons Brinckerhoff, Arup, Pöyry et al were working under a misapprehension. The capacity of the UK for onshore wind development is not to do with geography, topography and meteorology; it is to do with the willingness of the host population to accept what you are forcing upon them. The terms of the offer are absolutely critical. What should have happened in Daventry District, if in the TAN 8 areas of Mid-Wales and in Sedgefield constituency, for example. If the resource was genuinely as valuable as it was said to be, then local people should have been treated with respect and dignity, and they should have been engaged with in a positive way with safeguards meaning that local people would have some confidence.
Robert Robinson: We took a different view in Mid Wales. Here we are not talking about being against renewable energy; we are looking at the sheer scale of what is trying to be imposed on a rural community. We have a 56,000 population in Montgomeryshire who are looking at something approaching 630 185-metre-high turbines. With that comes a 20-acre football pitch-sized hub and a 400 kVA line. You can imagine the feeling in Mid Wales is not that particularly favourable, but we could hold a public meeting, and I can just see you sitting there and saying, "How many people turned up?" "500." "That’s excellent, what is your electorate?" "5,000." Not terribly representative. What one council did in Mid Wales, in particular Welshpool, was a door-to-door survey where the leaflet was delivered and the questionnaire collected the following morning from the doorstep. This leaflet was seen by the industry and by the county councils to make sure that it was as unbiased as possible. I can leave with the Clerk the detailed breakdown of this, but the nuts and bolts of it are that we had a 42% return showing an 80% concern at the level and scale of what was being imposed, mainly because the wind farm companies, the county councils, the Welsh Assembly and Parliament, I am afraid, have not engaged with the communities over what they will be prepared to accept.
Q43 Chair : To clarify, are you implying that if the scale of the proposal was significantly less, most of those concerns would be-
Robert Robinson: I believe that is probably the case. It is the sheer scale that you are looking at. We have wind turbines in Mid Wales already, and there was no worry when they came. It is the massive infrastructure and, indeed, the transport implications of 7,500 abnormal loads, of three lots in each, over a matter of three or four years.
Q44 Chair : Is that a proposal that is disproportionate to the-
Robert Robinson: Absolutely.
Q45 Chair : I am not absolutely clear, is it also envisaged there will be overhead transmission lines resulting from this?
Robert Robinson: Yes.
Q46 Chair : Technologically, it is possible, at slightly greater cost, to bury those.
Robert Robinson: This brings us to the point that was made by the gentleman on my right: the public feel alienated. They have not been involved; they have been talked to rather than discussed. If somebody came to Mid Wales and said, "The number of turbines is going to be reduced by x and the cabling is going underground," I think you would be talking a different story. It is the fact that you have all these bits thrown into one. It is not just Mid Wales; I know North Wales feels the same. I administer the North Wales Association of Councils and they all feel very much the same way.
Jeremy Elgin: I am obviously on a different scale. I am just looking to do one turbine. Interestingly, where I am trying to put my turbine is right next to an existing power line, so we have no issues on that front. I find myself in some degree of agreement with the view of my colleagues. There are pools of people who are vehemently opposed, but the reaction that I have had is that there is a much larger-albeit mainly silent, unfortunately-majority who realise that we can no longer carry on with the way we are going. Part of the issue is trying to get those people who are in favour motivated to make a stand. It is far easier to motivate people to be against something than to be for something.
We are having some interesting discussions. We have engaged a lot with the community, but one of the problems is that the planning system, by its very nature, is adversarial. Before we put our application in, we had to do a terrific amount of work and the opportunities to try to engage with the community in the wider aspects were limited. We ended up having to dampen down the rumours that we were going to do this and that-"I hear you are going to put up 50 turbines." We were just looking to do one. I was strongly advised, until we got our plans in order, to keep relatively quiet, which we did, but we have had public consultations and articles in the press and on the radio. Once I get beyond about a kilometre from the proposed site, there is significant support. I think that degree of support is reflected in the national polls that we have seen on wind turbines, but my problem is trying to get them out.
Q47 Sir Robert Smith: Have any of you discussed-I am really looking at the objectors here-with developers how the problems can be alleviated? The issue of scale is a very straightforward one, but are there other ways in which these threats could be made less threatening and more acceptable?
Adrian Snook: I think one of the problems has been that Government policy over a long period of time has been very simplistic. It has more or less said, "Let us focus on creating incentives for investment and removing barriers to deployment". Incidentally, in the renewable energy road map, I am described as a non-financial barrier to deployment, rather touchingly. Basically, if you do that, if you get the express train running, ultimately these things will be steamrollered through. It was entirely predictable that there was going to be huge anxiety about it. It is probably the biggest change to rural land use since the Enclosure Acts, and the focus has been basically on preventing local authorities zoning for wind turbines, preventing the use of any discussion about the utility or the practicality of the application as an objection. Of course, existing planning law means you can’t object on the grounds of the originator of the scheme. I think the originator of the Yelvertoft wind farm was a fuel bunkerage business based in the Bahamas, for example. It does not really matter whether it is a local property developer, a foreign property developer, or one of the big six utilities with a history of doorstep selling; it really doesn’t matter- there is an absence of trust.
What happens, typically, is that a developer will come to a village, they will keep their development secret. They will also keep their detailed costings secret and the reasons why they have selected this community. They will just say, "It is financially viable for us." They will then come and announce their plan. In the case of the Watford Lodge wind farm, it was for five 126-metre  wind turbines-the same height as the turbines at Chedburgh airfield to which you objected, Chair, back in July 2007. And after three years of trench warfare, the scheme that has been implemented is exactly the scheme that was put forward. I do not think the Government have fully appreciated the commercial impact of removing local residents’ ability to say no to an offer. If you are trying to negotiate with somebody and they are saying, "Look, our friends at DECC are behind this. This is a national policy. Resistance is futile. You will be assimilated into the UK energy infrastructure." It’s very difficult to negotiate on that basis. Our hands are tied behind our back. I did try, in the early stages, to talk to the developer about coming up with a mechanism whereby there would be some kind of compensation for neighbours-some kind of underpinning that said, "Okay, if your property values are depreciated, or you do not like the impacts, you can move away"-but they are not going to negotiate with me. Commercial businesses do not give money away for no reason. They do not make concessions, precisely because you have given them carte blanche backing, and I do not blame them for that. They are in the business of maximising shareholder value. It is in the nature of the beast.
If you create a banking sector-style, light-touch regulation of a sector, fuel it with subsidies and send it hurtling towards the population, you can’t in any way be surprised that the population take fright and resist. What I really object to is the fact that we are being demonised as "anti-winders" or something. We are not; we are just ordinary people who want a bit of dignity in our life. If these things are built-when they are built-how do you think people will feel about them when they are lying there at night hearing them spin away? The farmer hears money dripping into a bucket; they feel violated.
Robert Robinson: We have spent a fair bit of time, in Mid Wales, talking to National Grid, Scottish Power and the wind farm companies. The difficulty we have come across in each and every case is that we are dealing with an individual site. An individual site in itself is not an issue to us; it is the accumulation of the whole lot that has caused us a problem. That is really where it has come from. The one thing that seems to be insurmountable, irrespective of your view on pylon lines and hubs and so on, is the transport issue of trying to bring abnormal loads down roads that are barely the width of one lane of the M4 for both directions of traffic. The amount of work and infrastructure that has to be put in on those small roads even to accommodate the first lorry is pretty grim. That is what, locally, we have had difficulties discussing. The conversations have been very good and helpful, but we have a problem once we try to talk about the overall infrastructure.
I do know that a transport plan for the whole of Wales has been prepared, but apparently it is not publicly available. I wonder why? It is probably because it reflects the figures-again, I can leave them with the Clerk afterwards-that have been accepted by the Welsh Assembly Government as correct for the sort of transport we are looking at, which is something approaching 630,000 extra vehicle movements on Mid Wales roads. We do not get a quarter of that in a year because they can’t fit on them. Yes, we have had good discussions, but when you start moving away from an individual wind farm, you have a difficulty and that creates a great problem.
Jeremy Elgin: The one comment I would make is that we are no longer in a situation where there is a no-impact solution. We have been told, and we have all heard, about the number of power stations that we are going to close down and the forthcoming problems on the global energy situation. We have a global population increase. China is now the largest importer of energy; it also has the largest national currency reserve. We are going to have to increase and change the way we generate electricity. We are going to have to put in new infrastructure, and a lot of the comments and the opposition will apply, I think, to virtually all forms of infrastructure, whether it be road, rail, airport runways and so on. We have a problem. We all want to have electricity when we turn on the switch. What got me going on this, when I first started, was an article I saw in The Daily Telegraph where the head of the National Grid was quoted as saying the days of the domestic customer having electricity 24/7 are probably going to come to an end. I find that worrying. If we have to have wind turbines-and I think that is a good way of producing electricity-I think that is a price well worth paying.
Q48 Sir Robert Smith: You are saying it is a price well worth paying. I suppose the question is how that price is shared out between the local community, the council and wider society, in terms of the benefits and the-
Robert Robinson: Yes, but let us take that a stage further. You will be looking, in this room, at the cost of generating electricity, the cost of a pylon line, the cost of a turbine. We then have to look beyond that where you have massive scale in the centre of Mid Wales, where it is a small community-its tourism is equal to farming. They are the two big industries in there, and our view is that putting that amount of infrastructure in one community will take away from tourism what you are gaining elsewhere. That is not easy to put pound notes on-pound coins; I am showing my age now. I think the scale is the thing we are looking at here.
Q49 Sir Robert Smith: One of the things they are thinking of doing in England is allowing the councils to keep the business rates that come from projects like that.
Robert Robinson: The council keeping the business rates-it depends which council you are talking about. If you are talking about a county council, I think not. If you are talking about a town or community council, I am afraid you have to look at a number of them and say, "Are they capable of dealing with that sort of money?" Welshpool is a very big council, but a lot of the other community councils in Mid Wales are not so big. I am not so sure the public would see that any more as being bought off, and I am not so sure that is what they are looking for. Individual wind farm sites in themselves are not an issue to us. As I said, it is the scale that needs to be sorted. If only communities could have clarity very, very soon on what that scale is going to be, I think things would quieten down a bit more again, assuming that there is a reduction. At the moment there is this fear that was mentioned of what is actually coming.
Jeremy Elgin: I would agree with a lot of that. My experience, when we were talking about community funding and stuff like that, was that it would just disappear into an amorphous pot and the benefit would not be identified. What a lot of my neighbours have said to me is, "If I can get cheap electricity, or electricity at a reduced rate, I would support it." Unfortunately, there is no mechanism where I, as the owner and operator of a turbine, can supply electricity to those in the immediate vicinity. If there was a mechanism in place to do that, I would see a significant increase in the support for the turbine.
Q50 Sir Robert Smith: Could you not make a financial transfer based on their bills?
Jeremy Elgin: We probably could. That has been suggested, but people then started clamming up. I also think this could be a role for the local authorities. All local authorities and companies are now saying, "We want to increase the amount of renewable energy that we consume ourselves." My understanding is that local authorities can now sell energy. I think this could be a role that the local authority could take on by acting as a mechanism to take on the electricity and making that available. It is psychological as well: "That’s my turbine; I can see it."
Q51 Sir Robert Smith: You know that you are getting something.
Jeremy Elgin: Yes.
Adrian Snook: I publicly welcomed that announcement when the then shadow Energy Minister actually announced it and it was quoted in the Telegraph. I think the problem with it is that if this money is going to a local planning authority, it could well have a divide-and-rule effect, or a perceived divide-and-rule effect, and it could be corrosive on trust. So one of the key touchstones that has been ignored in this whole process is proportionality-the principle that those people most adversely affected by a development should benefit proportionately and actually have a proportional input into the shape of the scheme. The tyranny of the mass seems to be the argument that runs: that it is in everyone else’s interest and everyone else in the process needs to be incentivised, and you, sir need to make sacrifices. I have spent a lot of time selling things in my life, and I have to say it is probably the worst sales pitch I have ever heard.
Robert Robinson: One thing that has come through very clearly when we have talked about community benefit in Mid Wales, which I know is always talked about separately from the planning system-I accept that-is that the original proposals in our particular areas were to have appointed trustees. We opposed that vehemently and we do now. We believe they should be elected representatives so that the public, if they feel that money is not being dealt with properly or where they would like to see it, have a way of dealing with it through the ballot box. We think that is quite important.
Q52 Sir Robert Smith: Do you think there are any lessons to be learned from Denmark and Germany, where there is much more community involvement?
Adrian Snook: I have put some recommendations in my evidence and one of the suggestions I made is that there seems to be an inconsistency in the approach. Moral blackmail is being applied to rural communities saying, "This is in the national interest. This a national emergency. You shall comply." At the same time, basically, it is a free-for-all commercial market. There is a mixed message there and I think you need to have some kind of check and balance that says you should not be treating those people who are making sacrifices in the national interest unfairly, and there should be some kind of mechanism to assuage their fears, if they are groundless, in advance and to compensate them if they turn out to be grounded. The Promotion of Renewable Energy Act is one piece of legislation I highlighted in the report. I am not saying it is perfect, but that is one area, and the experience in Denmark was also highlighted earlier on.
The problem is we are where we are. We have passed a window of opportunity, frankly. The rural population is frightened, they are frightened because of what they perceive to be an alliance between DECC, the energy industry, the Institute of Acoustics working party on wind turbine noise, Parsons Brinckerhoff, Arup, Pöyry-all the organisations that are driving this forward. And so they do not feel they can trust a word that any of those organisations or Renewable Energy UK says on the matter. Unless you fix that, then the fear that exists in the rural communities is going to persist. So in addition, with the recommendation on a property compensation scheme, and of course the industry will have no objection to that, because there is no property devaluation so it will not cost them a penny.
Robert Robinson: I will give you the shortest answer that you will probably have this morning. I do not think Denmark or any other country abroad has any relevance whatsoever to what happens in this country, so the answer is no.
Jeremy Elgin: I would like to contradict what Mr Snook says about the fear and everything else. There is concern among a section of the rural population. Where I am, there is also a lot of support, as I said, but it is quiet. He who shouts loudest gets heard most, and the people who are shouting loudest are the objectors.
Adrian Snook: Those most seriously affected.
Robert Robinson: I would suggest to you that although that is a fair comment, with the survey that was carried out in Welshpool-there was no pressure; you did it in the armchair of your own home-we still had the same result of objections on the scale that we are talking about.
Adrian Snook: I have huge sympathy for Jeremy because he is actually the victim. In fact, the energy industry is a victim because it was set excessive expectations by politicians. There was no way they could force this through on this basis across the country for a dispersed energy system. The political damage was just going to be ridiculous. So they were set excessive expectations, but it is not going to say it, because it are not going to bite the hand that feeds, but I will say it on its behalf. Then with Jeremy, unfortunately-people are putting in these outlier applications in small areas. The local population, those immediately adjacent, look at the available information, look at DECC, and look at all these other bits of information, which all appear to be aligned with each other in a coalition of interest. They look at the situation in Daventry District where two turbines of similar size were consented-completely uncontested and uncontroversial, on an industrial estate-and then all hell was unleashed with 93 turbines in the planning system within 15 miles. The market punishes virtuous behaviour; they punish the neighbours of virtuous people like Mr Elgin. Then when this kind of application is made up, the resolution is, "Kill it. Kill it early." That may seem unfair, but, "Please stop. The industry is very keen-"
Robert Robinson: Chair, the question was about the comparison with Denmark. We are spending an awful lot of time going off the point. I am sorry.
Q53 Albert Owen: The three of you have mentioned the planning system. The previous group of witnesses mentioned it being polarised; you mentioned it being unfair in many ways. What can be done to redress the balance? We have, as has been outlined earlier, the energy companies and the Government at various levels, but at local level there is supposed to be supplementary planning guidance. Do you think they should be strengthened so that they safeguard local communities? Should there be democratic election? Is that a weak link in the planning process, do you think?
Jeremy Elgin: It is possibly even the opposite. We have national guidance, the MPPF, EN1, EN3 and so on. What we are seeing is councils trying to put in policies that are diametrically opposed to that. On one side we have-
Q54 Albert Owen: Could you explain that? Are you saying there is not local supplementary planning guidance in place?
Jeremy Elgin: No. I will give you a concrete example. Milton Keynes are bringing in, or have brought in, a SPD-I understand that that is what it is-that will effectively stop wind turbine development within Milton Keynes, or make it extraordinarily difficult. So on one side we have central Government with the MPPF, and local councils have to have policies in place to encourage or develop renewable energy, and on the other side places like Milton Keynes are saying, "We are going to bring in this SPD that will stop it".
Robert Robinson: If you are going to find a way forward, particularly with Mid Wales-we keep coming back to the scale-I think it needs decision makers to meet with the community councils to see if there is some common ground that could take us forward. If that does not happen, I can see opposition at every stage, irrespective of what the planning system offers. It is about engagement with local councils who need to feel they have been engaged with and not just consulted in a way so that when the paper comes out, as has been said earlier, nothing has changed or been taken into account. It is this dialogue that is needed to be had, not just over one bit, but over the whole conglomeration of putting them all together.
Q55 Barry Gardiner: Mr Snook, you have painted a very clear picture of the winners and losers, and you gave us this graphic description of yourself lying in bed in the evening and hearing the turbines go around, and the drip, drip, drip of the money coming in to those who are developing them. But you then used a phrase that was interesting. You used the word "dignity", and the sense was that there was this loss of dignity. What I want to bottom out with you is: if it is a matter of dignity, I assume that this is something that is a point of principle-it is non-negotiable. Or if there is this drip, drip, drip-this is what seemed to be the case when we were talking about whether those who were suffering the adverse consequences of the development also got cheap electricity-how much cheap electricity is your dignity worth?
Adrian Snook: First of all, I can hear no turbines currently. I am in the position of many, many people in Daventry District where they have consented but unconstructed turbines, and I think the problem is that the whole debate has become very polarised. What happens is the proposals from developers spring fully formed and are then presented to the local community for consultation. So the turbines were placed where they were placed and they were the size they were and so on. The developers expect opposition and they have to consult them purely as a planning nicety, really. There was not any material change made, so the net result is that aspects of these applications are unacceptable in many dimensions. Two of the turbines, for example, run across the line of an avenue of trees for a place called Watford Court and of course that is now a scheduled ancient monument. It is a place that has a lot of sentimental meaning for local people.
Chair: The question was about whether there is enough conversation about it. We understand the emotive nature.
Adrian Snook: The compensation has to be greater if the loss is greater. Do you understand what I am saying? Because these schemes are being put forward in a thoughtless way without pre-application consultation, the affront to dignity is greater and the emotional response is that much more.
Q56 Barry Gardiner: I understand, but what you are saying is, "Let’s have pre-consultation and, in a sense, an ongoing negotiation so that we can bottom out how much the grove of trees is worth," and so on. But isn’t that precisely what this Government have tried to put an end to-these interminable planning decisions, discussions and negotiations meaning that nothing ever gets built? When you are dealing with something as important as electricity generation, which we all accept-Mr Elgin spoke about when you switch the switch on you want the electricity to be there-how are you going to get around the problem of interminable negotiations over single generators in different parts of the country stopping what the national priority of keeping the lights on?
Adrian Snook: I think the publicised comment by the Member for South Suffolk-
Adrian Snook: -about the need for a bribe was insensitively put, if you don’t mind me saying so sir, but the fact that after all these years of energy policy formulation the actual balance should be too far out of kilter for that blunt instrument to be used is an indictment of the policymakers. So, yes, we are in a bad place. For all concerned we are in a bad place.
Q57 Barry Gardiner: But I am asking you for a solution. I think we can all accept we are in a bad place.
Robert Robinson: The solution comes with what I said a few moments ago: involving the community with decision makers so that collectively you can come up with the best for the community, taking both sides into account, rather than having this standoff that seems to happen on each occasion. Of course, when you get a standoff, that is when the planning system has difficulty coping.
Q58 Dan Byles: Is it different to any other planning issue? Is this different to a motorway, a road or a factory?
Robert Robinson: No.
Adrian Snook: It is in a sense that you can access the motorway normally. HS2 is an example where it was deemed to be in the national interest. Local people couldn’t get on HS2 because it didn’t stop there, so there is a precedent that would seem- apposite in that sense.
Robert Robinson: The motorway idea brings perhaps a benefit to a lot of communities. I think what Mid Wales sees with the sheer scale of it is that the benefits are gained by the few, but are going to affect the many.
Jeremy Elgin: I do not think in the much wider population there is a full realisation of the issues and the problems that this country is facing with its electricity generation. I think if we could have a lot more publicity about the downside that this country is potentially facing in terms of securing its energy resources, which leads to points about employment and so on, we could have a much more open debate.
Q59 Ian Lavery: I want to get back to employment, very briefly. According to a study commissioned by DECC, onshore wind farms support roughly 8,600 jobs and bring in £550 million to support the UK economy. Do you have any evidence of this?
Jeremy Elgin: Yes. I am going to throw in one other slight curveball on this one. Many companies now do environmental audits and have green policies about the energy that they produce with their manufacturing process. In fact, there is now an additional standard called WindMade for which companies with a percentage of their energy requirements generated from wind can apply. Consumers and investors are now taking these issues very seriously and I think that companies looking to invest in the United Kingdom will increasingly require a green energy generation capacity as a pre-requirement for that inward investment.
Robert Robinson: The suggestion was made that if Mid Wales needed to have a fairly large number of turbines-or indeed anywhere around Wales or the UK-they could perhaps be made on site, which would remove the big transport issues that come with it, and the answer came back from Parliament that there was not the expertise to do it. I would suggest that the very first wind turbine didn’t have the expertise to do it either, so I don’t see why that could not be the case and, again, that would give a much longer term employment benefit. Looking at the turbines that we have at the moment, there was an employment benefit-some of it locally, some of it not-when the turbines were being built, but once they were built the actual employment benefit was very small.
Q60 Ian Lavery: If there were more jobs being created, would that mean there would be less public opposition to the wind farms?
Robert Robinson: It would go into the mix. I am coming back to this consultation with the group of community councils. That could go into the mix, a subsidy could go in the mix, and then you could come up with an agreed way forward. This could be done in three months, and then you would have a chance of seeing your renewable energy policy in Mid Wales moving forward with some public backing, but you are not going to get that unless all this is put together.
Q61 Ian Lavery: Would there be less public opposition to wind farms with more jobs being created?
Robert Robinson: Possibly. I wouldn’t like to say how much less opposition there would be, but there would certainly be less opposition because it would reduce the amount of transport that was needed.
Jeremy Elgin: I think an internationally recognised viable energy generation and supply infrastructure within the United Kingdom will obviously attract significant numbers of jobs from investors looking to come to the UK. Companies will look at this when they are setting up their manufacturing operations with an increasing level of priority, I think.
Adrian Snook: I think one of the interesting case studies could be provided by the Member for Ynys Môn in the sense that if you look at what is happening in Anglesey, what you have is a nuclear power station that locals desperately want new investment in.
Albert Owen: Not everyone.
Adrian Snook: Well, many of the people want it. They have a situation where they have an aluminium smelter that is not operating and they also have a large number of applications for largely unwelcome wind turbines, so it is a very difficult balance to be struck between all of those various elements.
Q62 Sir Robert Smith: May I ask one quick question of Mr Robinson? You were mentioning transport during the construction phase. Does the developer have to bear the cost of improvements to the road infrastructure that are necessary during that transition?
Robert Robinson: Yes, that is the idea, but then there is also the ongoing maintenance after roads have been knocked about and then reinstated, and we all know how they do not go back. We are also left with a legacy of corners that look as though they have been chopped off for giant lorries but are never used any more. We also have the issues that seem to be ignored of local knowledge, and I particularly refer again to the Welshpool area because they have a thing called the Leden Brook and it lies underneath the road. I don’t care how many wheels you have on your lorry for axle-loads; that is likely to collapse, and yet we are told, "Oh, no, that will be all right because the load is spread".
There are also implications regarding large lorry movements down narrow main streets and places like Llanymynech on the borders between England and Wales is one of these places where the buildings are 150 to 200 years old. They are right up to the street, and with lorries going past on a continual basis, if the weather conditions are not right that earth will move, and you will then end up with structural problems. Who is going to pay for that, because insurance companies won’t? You have issues surrounding the aspects of that as well.
Adrian Snook: I didn’t fully answer the question that the gentleman  asked me and I just wanted to say that the prerequisites for a solution are the recommendations in my evidence.
Chair: Thank you very much indeed for your time this morning. It has been very helpful.
Examination of Witnesses
Witnesses: Sarah Merrick, UK and Ireland Government Relations Manager, Vestas, William Heller, RewewableUK, and David Handley, Chief Economist, RES, gave evidence.
Q63 Chair: Good morning. Thank you very much for coming in. I think you have heard some of the earlier evidence. In view of the pressure of time, I will dispense with formal introductions-we know who you are, and I think you know who we are.
Could I start with a general question about the current debate on ROCs. If there was a reduction below 0.9-I think we are going to get an announcement very soon-will that make a difference to the profitability of this industry?
David Handley: I think, yes, it will make a fundamental difference. There is an evidence base for a 0.9 setting of the ROC banding. Moving below that sends a very damaging signal to investors-to onshore wind developers such as ourselves-which means that we will not be able to invest, first of all, and that we will have to rely on either other higher cost low-carbon technologies, or we have to import more gas, with the increasing costs associated with that.
William Heller: There will be a large impact. The consultation that the industry just went through was whether we could reduce the ROCs from 1 to 0.9. We and the rest of the industry have basically made decisions and made investments on the likelihood that it would go from 1 to 0.9. To change that, as David said, without any consultation or evidence would be devastating in terms of how people would view making investments in the renewable industry-not just for onshore wind farms, but all investments.
Sarah Merrick: Can I add here that the evidence suggests that 0.9 is the level that the ROC band should be and I think it is particularly worrying that there seems to have been an impression that you can keep regulatory risk in one section of the wind industry? As a manufacturer that works across both sections of the industry, if the same developers and investors work across the two, and if you introduce the sort of level of political risk to the renewables obligation and potentially other support schemes, it sends a very worrying signal to the whole of the wind industry.
Q64 Chair: We have been told two things. One is that the cost of wind power is going to come down-no less an authority than the Committee on Climate Change says by the end of this decade it will be competitive with gas. Secondly, we were told a couple of hours ago that some individual schemes are much more profitable than others. If there was a reduction below 0.9, wouldn’t that do two things: spur the faster movement down the cost curve, because businesses tend to respond to these situations; and focus, as seems rather desirable, developments in the most profitable places?
William Heller: You may lose some individual wind farms by going from 0.9 to 0.75, but that really isn’t the point. The point is that investors-people who put up the financing-will basically see greater risk and stop investing. Our company operates right across Europe. To the extent that we don’t see certainty here, we will just basically invest elsewhere, and therein lies the problem. We have made significant commitments based on 0.9-based on what the consultation was-and just to change it at the last moment will have significant impacts. It is not just what wind farm gets built or what does not, but whether people will be willing to invest overall in this industry.
David Handley: To add to that, I think we have seen the costs come down, which is why we have moved from 1 ROC down to 0.9, and that is a very evidence-based banding level. If you reduce it further than that, you are creating a false economy, because you are making a trade-off in terms of the delivery of onshore wind, which is the cheapest technology, with higher cost technologies or increased gas imports.
Q65 Chair: When will the wind power be weaned off the subsidy regime, if ever?
Sarah Merrick: Are you talking about onshore or offshore?
Chair: Let’s start with onshore.
Sarah Merrick: I think there is evidence that costs are coming down. There is also the fact that as gas prices and carbon prices increase electricity prices, the differential that wind needs will obviously come down, too. I think for offshore, as has been spoken about already today, a lot of work is going on within the industry to get costs down to £100 per MWh. When you talk about weaning off subsidies, it is very dependent on the electricity price.
William Heller: Currently onshore wind farm economics compare favourably with nuclear when you are doing all-in costing, so it is a question of what level it needs to come down to, but onshore wind is fully competitive with nuclear at this point.
David Handley: To add to that question, it is very important to recognise that gas prices have trebled since 2000. If they carry on at that same rate of increase, it is very likely that we will see cost-effective onshore wind by 2015/2016. Certainly onshore wind is cost-effective in places like Chile and Turkey, and it reaches grid parity in those countries.
Q66 Chair: What about other countries? Which other countries offer different levels of support for wind power?
Sarah Merrick: There is a very wide range of levels of support, but I think it is important to look at what the developer pays within its project. In the UK developers pay for transmission charges and other charges as if they were any other generator. That is not necessarily the case in other markets.
William Heller: Our company operates across Europe and we target more or less the same rate of return under very different regimes. In the United Kingdom the system here is that the developer pays for virtually all the secondary costs, whereas in places like Germany they don’t, so you can’t just compare the level of the tariff; it is an all-in. As I said, returns are relatively similar across most of the major European markets for onshore wind.
Q67 Chair: Given the importance-and we have certainly heard this from other investors-you attach to certainty, which are the countries that have a more stable and predictable policy regime, if any?
David Handley: I think Germany is a very good example of this. I think in Germany there has been stability within the regime and now that they are introducing a change to their regime, similar to the EMR proposals that we are going through, they are keeping the old regime open to investors until they get confident with the new regime and making sure there is that sort of to-ing and fro-ing that is eligible.
Q68 Chair: Do investors in the nuclear industry regard Germany as a country with stable policies?
David Handley: Apologies, I was concentrating on the onshore wind and renewables industry.
Q69 Dr Whitehead: There are arguments that wind power companies should bear quite a lot of the costs of grid extensions, additional transmission costs and the costs relating to providing back-up for intermittent wind power. What is your view about that, and what do you think would be a fair proportion of the costs that might be borne?
William Heller: The cost of grid and transmission is actually quite clear-the developer pays for virtually all of it. They pay 100% of the cost to build to a local substation where the transmission network exists. They are expected to pay approximately 85% of any reinforcements in the general area. The other 15% is considered benefits to the transmission network, so the split is about 85:15. They are supposed to pay 100% of the cost of large transmission networks across the entire United Kingdom, which is why the costs in the north of Scotland are much higher than if you have a renewable project in the south. From our perspective as an industry, we are paying full fare, if not perhaps more, because our perspective has been that the charging allocation for what is called "use of system" is penalising projects in the north, where most of the wind projects are currently placed. So, the perspective is we are paying full fare and perhaps even more.
Q70 Dr Whitehead: There have been some suggestions that, for example, as wind penetrates to a greater extent into the overall capacity of the country as a whole, the power that operates to back up that greater penetration operates at a lower efficiency, and therefore should be compensated for that low efficiency by wind. Is that a fair argument?
William Heller: In the first panel of the morning, one of the gentlemen was talking about that. The costs of back-up, as you said, are quite small. Some of the studies are talking about very large numbers. They are talking about how much it costs to back up a wind farm with a gas turbine. That is clearly not the way the system operates, but system-wide studies have shown that costs of back-up are quite small right now and are not going to rise very much.
David Handley : Certainly from our perspective it is very clear that the costs that are included within reports like the Arup report that feed into the RO banding are a very complete cross-section. It is very easy to use incorrect assumptions and a simplistic model to create a false conclusion about how these costs may or may not change over the future. However, robust studies from places like the National Grid, Climate Change Committee, Pöyry and Redpoint, which have the detailed models, show that these costs are minor to insignificant.
Q71 Dr Whitehead: What does the projected cost reduction-we have heard of perhaps 30% by 2030 for offshore wind-look like in terms of round 3, and indeed possibly beyond round 3, where the assumption will be that turbines will be placed in ever deeper waters? What is the loss of competitiveness and cost reduction of deeper waters as a metric related to the overall cost reduction curve that is likely to be achieved as far as offshore is concerned overall?
Sarah Merrick: I think, in terms of the Crown Estate’s cost reduction pathways report, there was seen that there was a trade-off between slightly higher costs going further offshore because you get far higher wind speeds offshore, which compensates.
Q72 Dr Whitehead: Is that a straightforward relationship or, as I suspect, rather more complicated?
Sarah Merrick: I suspect it is rather more complicated, but broadly there is a trade-off so it is not very far offshore. There is a reason why they would be that far offshore and that is to capture the higher wind speeds.
Q73 Dr Whitehead: So you would say the curve is, broadly speaking, valid with marginal perturbations, rather than a substantial loss of cost reduction as a result of deeper water?
Sarah Merrick: Certainly the Crown Estate report would suggest that.
David Handley: I think one of the panel members earlier suggested that potentially it was possible for offshore wind costs to come down to such a level that you therefore didn’t need onshore wind, and I think that is a very dangerous assumption to be making. There are some real cost savings to be made, but there is a risk about how deliverable they will be and over what time schedule. We would need to work very hard. Achieving those cost reductions is going to be very dependent on policy and the level of political commitment, and we can’t sacrifice onshore wind on the presumption that those cost savings are going to be there.
Q74 Dr Whitehead: Do you think there are further things that the Government could do in terms of policy initiatives that will assist that cost reduction process? Are there any things you might identify, or is the cost reduction process in your view entirely within the realm of scale of installation and better arrangements?
David Handley: I think, from our perspective, that long-term vision and long-term political certainty are the key things for driving investment. If we can get the investors in, we can get the costs down, and that would be to everybody’s benefit.
Sarah Merrick: Going back to the Crown Estate’s pathways report, it is very clear in that, and the Cost Reduction Task Force Report, that there are decisions all the way along the supply chain with developers and investors. In order for those decisions to be made, and to make the investments that are needed to drive costs down, everyone in the supply chain, investors and developers need to have that long-term visibility of what the market is going to be doing and what the volumes will be. I think, without that confidence, that it is going to be difficult for those cost reductions to be delivered.
Q75 Dr Whitehead: On the subject of the Crown Estate, just briefly, do you think that the system-the Crown Estate charges a licence fee to offshore, makes money and gives it to the Treasury, and then the Treasury provides you with a renewable obligation-is anything to comment on, or is that a perfectly reasonable system as far as costs are concerned?
Sarah Merrick: It seems reasonable. I have not heard anyone raising any substantial concerns.
William Heller: It is consistent with the overall approach within the UK that the project developers pay the full cost and so the total amount of compensation available reflects that. If you go to Germany, where a lot of the costs are covered centrally, and transmission and connection to the network are free, it is a very different approach. Here we are basically saying pay for everything, including access to Crown Estate property.
Q76 Dr Whitehead: This is rather a speculative question, I guess. Are you seeing, as more offshore wind is built, the development of opposition levels to that offshore wind beginning to emerge? Is there an emerging view that the idea that offshore wind’s competitiveness was particularly based on the fact that it was not onshore might thereby be eroded?
Sarah Merrick: I think we have seen difficulties that some offshore projects have had, particularly around the onshore substations. I think there is a concern that consenting is quite a challenge for offshore, and the perception that putting things offshore and consenting is not an issue clearly is not true. Both London Array and Dudgeon have had considerable difficulties getting planning for their onshore substation, and there is clearly a very robust and thorough consenting regime in place for offshore, as well there should be.
I think in terms of concerns within the industry, there are concerns about the ability for the consenting regime to deliver according to the time scales that are set out and, in terms of the industry’s development, those sorts of delays could pose a risk to the deployment of the sector.
Q77 Dr Whitehead: Are you experiencing development of specific groups, for example, that have been set up to oppose offshore?
David Handley: I think the opposition groups for offshore wind are probably less orchestrated and less organised. I think there are opposition groups that are having an increasing voice. I would probably say there is less of a concerted campaign from the offshore sector. However, it is probably increasing, I think, given time.
Q78 Sir Robert Smith: We have discussed with the other witnesses the balance of benefits and costs of onshore wind particularly, and obviously there is a benefit to society of low-carbon generation and a benefit of more generation on the system, but the costs are in the local community of impact on the environment and the impact on those living close to the turbines. I think, Mr Handley, your company said in its submission that you have come up with, or are looking at, innovative ways of trying to reward the community. Do you have any examples of these, and how effective they have been in engaging the community?
David Handley: First and foremost, it is very important to stress that community engagement and dialogue with the local communities has to be and will always remain the best way of approaching this. We then look at things like community funds and we are very supportive of things like the Local Government Finance Bill, which would hopefully put more funds through to the local communities. In terms of moving things forward, we have undertaken polling in terms of what would be most attractive to the local communities that we are operating in-whether it would be things like community ownership, shares within the wind farm company or discounted electricity schemes. We are in the process of trying to launch a pilot discounted electricity scheme where the discount is effectively to each household independent of their electricity supplier within a certain radius of the wind farm. All the indications are that this should be very positively received by the local communities we are operating in.
Q79 Sir Robert Smith: Have you found any administrative barriers to achieving that?
David Handley: Certainly, and this is part of the reason why we are doing it as a pilot scheme. We have found very significant administrative barriers, not least in just making sure that we do not fall foul of the Bribery Act, as an example, to try to make sure that this is administered fairly and independently, that there are no catches and that it is eligible to all households. That is part of the reason why it has taken quite a number of years to try to pull this together and actually get it off the ground.
Q80 Barry Gardiner: Is that tapered? In terms of the radius, as you go further from the scheme, does the discount become less? If not, you are going to have a cliff effect, aren’t you?
David Handley: Yes. I would need to get back to you. I can provide precise details to you, but I would need to get back to you with those details, if that is okay.
William Heller: We have looked at those. We have two different sorts of programmes within our company. One is to build a community turbine along with the wind farm that we are building. We have done one and we have two others that are now going through the planning process, but what has happened is that before the feed-in tariff it was very difficult for local communities to be able to put together the funding and build their own turbines. So what we did in one of our firms was we went for planning for 14 machines, and then we helped the community get the 15th turbine approved, because we had done all the EIA work, and we basically lent it to them and then when they had that planning permission we basically built the machine for them. We operate it for them, but they own it and get the benefits of it. Elsewhere-this is on four other wind farms that we have-we sell to the local community, again with a perimeter around it, the ability to buy into the wind farm and basically own a piece of it. It is essentially a debt product-it is FSA approved-and it has been very popular. We have 2,500 coinvestors in Scotland investing in our wind farms, so for every wind farm that we do, we either do a community machine or we do this direct community investment in the wind farm.
Q81 Sir Robert Smith: Are there any improvements that can be made in the structure of the renewables regimes to make it easier for the community to be involved?
William Heller: I think the biggest improvement was to have a feed-in tariff for a single machine. The reason that we did this community turbine attached to our farm is that they had all the volatility, so they therefore could not really get good financing on it. If it was a fifteenth of a wind farm, it made it a lot easier, but with a feed-in tariff with greater certainty, a local community or individual can now probably get reasonable financing terms and can build a single machine. That was not the case several years ago.
Q82 Sir Robert Smith: Do you think anything more could be done in terms of compensating by looking at the fall in values of property prices near to wind farms and compensating the owners?
William Heller: There have not been a lot of studies, but the studies that have been done have concluded that there has been no fall in housing prices. There is a lot of uncertainty during the planning process, but a planning process can take five or six years, so people are very worried at that point.
Q83 Sir Robert Smith: Sort of a planning blight.
William Heller: Yes. As I said, there is the uncertainty of whether it will be built and how it will look when it is all done. But the studies that have been done after the fact have concluded there has been no fall in housing prices by building wind farms in a local community.
David Handley: To add to that, the uncertainty created through the planning process is a real issue, and I think that goes for all infrastructure developments. I think the solution to that is streamlining the planning process so that uncertainty is resolved as quickly as possible.
Q84 Dr Whitehead: I have a request for information. I wonder if you could supply the Committee with information about, or point to calculations that relate to, the portion of the cost of supplied electricity that is represented by the Crown Estate licensing of your offshore farms.
Sarah Merrick: Yes, we could do that.
Q85 Dr Whitehead: Do you have an indication of that at present, or is that something you could supply?
Sarah Merrick: I certainly do not have one to hand. I am sure we could speak to someone about it, yes.
Q86 Sir Robert Smith: When you are doing your applications and considering the impact of your development, how much do you look at the additional infrastructure required, such as the pylons and the traffic on rural roads?
David Handley: Things like pylons and road traffic are a very large substantial part of the environmental impact assessment that every developer will carry out. We spend an awful lot of time trying to devise the most effective transport routes and communicating with the local communities about transport issues to try to minimise any disturbance on them, and that is a very fundamental part of the whole planning application process.
Q87 Sir Robert Smith: From your experience of the different planning regimes within the United Kingdom, do you think there is any best practice that can be learned from one nation in the UK by another?
David Handley: In terms of the details of planning permissions and planning applications, that is probably beyond my remit. I am more on the financial and economic side of things. We can certainly get back to you with some details on that.
William Heller: Were you saying within the United Kingdom or compared with other countries?
Q88 Sir Robert Smith: Different parts of the United Kingdom obviously have different planning regimes-Scotland, England, Wales.
William Heller: We operate in all the regions. They are not that different. Scotland has larger planning regions and so what you tend to have within a council is more specialisations. You will have some people that become experts within the area of infrastructure or renewables even, whereas in England the planning regions tend to be much smaller. There is nothing that can really be done about that; that is just a structural issue. But as I said, we don’t see massive differences across the United Kingdom. Some areas are more difficult than others, but that is not a function of the planning process.
Q89 Chair: Britain is now a leader in offshore wind generation. Good. This is going to be quite a growing market internationally. Other countries are getting into it quite heavily, including China. Why aren’t we doing better in the supply chain?
Sarah Merrick: I think although the UK is a leader, as we discussed earlier on, wind, and especially offshore wind, is at very early stages. More generally, there are issues to do with the investment climate and whether the supply chain has the confidence or the long-term visibility that it might need. Where the UK is likely to go in terms of supply chain, there is very good evidence that there will be a lot of supply chain jobs created in the UK and jobs more widely in terms of servicing and construction jobs. I think the UK is very well placed to reap the benefits of that.
Q90 Chair: That does not really rest very easily with Vestas’ decision last month, does it? There is great opportunity, but you are pulling out.
Sarah Merrick: I am not able to comment in any more detail.
Q91 Chair: I realise there is a legal difficulty, but it is hard to reconcile what you said, whatever the reasons are. Here we are: a world leader in generating the thing, with big export markets as well as a big domestic market, and a massive amount of licences being offered and applications that have been approved, but actually no one wants to build anything.
David Handley: I think this largely comes down to the political certainty as well. The level of change that the industry is going through with the EMR is very substantial. We are not direct investors in terms of plant and equipment in the supply chain, but if I was in that position, I would be waiting for the outcome of that and waiting to see what the political fallout of things like the ROC banding decision is going to be before I would be prepared to make any lengthy commitment of further investment.
William Heller: It is a matter of certainty that there is going to be a very large global market-no one disputes that. It is a question of making investments in the supply chain, which are generally 20 to 25-year investments, and people, having gone through the ROC consultation and EMR, have a lot of uncertainty in the market, so it is difficult to say "Are you willing to put a several hundred million pound investment down for a 25 year return?"
Q92 Chair: Is it really your view that the developments that are planned and the reliance that the Government are placing on a huge contribution from offshore wind are not going to happen?
William Heller: No, the opportunity for large investment is ours to lose. We should be the natural locus for offshore wind globally.
David Handley: I think it is very important that the findings of the CBI report, published last week, showed exactly how the green economy was growing and that it was export-led growth. I think that is very encouraging. That shows that there is the opportunity, and there is the opportunity, as William said, to lose.
Sarah Merrick: I think as well, even from Vestas’ perspective, the UK offshore market is still the leading offshore market globally.
Q93 Chair: From our point of view, it seems frustrating that here we have this potentially great industry on the doorstep. We have a lot of expertise. Some of the technology that was developed for the offshore oil and gas industry has some applicability for offshore wind when you go out into the deeper water and so on, yet we are sitting around saying, "Well, because there is some uncertainty about EMR we are not going to do anything until we know about that." Here is a great global industry, which we are currently potentially a leader in, and we are saying "For goodness’ sake, don’t let us take this opportunity."
Sarah Merrick: I think there is a real issue about, as we have discussed at length, the level of confidence people have in the investment environment that there is and whether or not that enables people across the whole supply chain and the investment community and developers to make those long-term decisions. At the moment it is very difficult to see that there is much visibility in terms of what is likely to happen beyond the end of the RO, which I think does make it very difficult for investors to make those long-term decisions. That is not just developers; I think it is across the whole-
Q94 Chair: Do we need the passage of the legislation and the announcement about contracts for difference and so on before anyone is going to do anything, in effect?
William Heller: I don’t think we need the conclusion. What we need is to have the industry feel that it is moving forward in a proper manner and that we will get some reasonable conclusions from the process. We do not have to have all the answers right now.
Sarah Merrick: I think there is a lot of work going on within the industry, certainly off the back of the Cost Reduction Task Force and the Crown Estate’s pathway study. The industry is looking at how it can work much better together in terms of developing alliancing strategies and what it can learn from the oil and gas sectors so that we can get the costs down and we can put the industry in a position to deliver.
Q95 Sir Robert Smith: Obviously there is the read-over of technology from the oil and gas industry to the further offshore and construction side, certainly, but there is the challenge that globally both industries are facing a skill shortage, an expertise shortage and a resource shortage, and also that the cash flow of an oil and gas contract is very different from the cash flow of an offshore wind project?
Sarah Merrick: Skills is obviously a big issue that the industry is working very hard to address. I don’t know enough of the detail about oil and gas, but I certainly know that the industry is working very hard to see what contracting structures it might be able to replicate that might benefit offshore wind.
David Handley: It is an industry-recognised issue-skills shortages-and it is something that the industry, whether it is onshore or whether it is offshore, is working very hard to try to tackle. We are engaging with local universities and schools. We are trying to get engineers, showing them what they can be doing, getting them out to site and really trying to communicate with them so that we have got these engineers coming through the skills gap.
Q96 Barry Gardiner: This report that was done for RenewableUK has a huge variety of direct jobs created-from 1,800 on the central estimate of 13 GW right up to 42,400 if you envisage going to 31 GW. Is that really credible-42,400 new jobs? Shell came out and said that there is a risk that public subsidies in renewables will end up going to Asian manufacturers. They think it is going to be built elsewhere.
David Handley: As the previous panel were alluding to, there are a lot of complexities when defining or trying to define and predict what job creation is going to do over the next 20 years, but if you have real growth in a sector such as onshore wind, such as offshore wind in the renewable sector, then those will create a lot of jobs. The scale of the deployment that we are talking about of over 30 GW will generate these levels of employment there. So, yes, it is realistic and I think that has been supported by the evidence, which is showing increasing growth over the last couple of years in the renewable sector.
William Heller: If I could just say one thing about the Asian imports. The turbines basically come out of Europe. Europe basically deploys European-made turbines because they are higher technology. There are lower-cost machines available but there are, as far as I know right now, no Asian turbines operating in Europe. There are very few of Indian manufacture. They tend to be more of a commodity. They are cheaper but they are not really designed for the sort of conditions that we have particularly in Northern Europe, which requires much higher levels of technology in the machines. So the European industry is holding its own very, very well.
Q97 Barry Gardiner: You do not think that it is just a matter of time?
William Heller: The whole industry is moving and so there is a lot of innovation going on. Europe has a significant advantage. They are not going for the generic machines. No, I do not believe that we are going to be basically in a generic machine environment. There is too much value in capturing the maximum amount of wind in what are very good wind conditions but are complicated wind conditions, particularly in Northern Europe. So, no, I don’t believe they will catch up because the advanced machines will continue to advance.
David Handley: Just to add to that, it is very noticeable that that comment came through from Shell when our gas imports are probably increasing and going to be an increasing part of our balance of payment exposure over the next 10 to 20 years. So, we have imports. At least by investing in wind, we have an upfront hit at the moment and we can hopefully develop a supply chain to minimise imports, but after that the resource is there and it is free.
Chair: Thank you very much for your time this morning. It was very helpful.
 Witness Correction: ‘95% of the market would be under contracts for difference in 2030 with a predictable price and 5% would be subject to volatility because that is around unabated gas-fired generation’, should read ‘the large majority of the market would be under contracts for difference in 2030 with a predicable price and around 5% would be for unabated gas-fired generation’.
 Witness correction: Whilst I did say 126 metres, the proposed Watford Lodge Turbines are in fact stated to be ‘up to 125 metres’ in height in the consented planning application.
 Note by witness: gesturing towards Barry Gardiner and referring to question 57.