Examination of Witnesses (Questions 80-100)|
WEDNESDAY 30 JANUARY 2002
80. You were here when we had a lot of discussion
about trading arrangements and NETA. You have been talking in
your note about exempting wind power or renewables from exposure
to the balancing market for a limited period of time. We would
be interested to hear why you think that should happen. You said
a limited period of time; is it realistic to think that time would
(Mr Goodall) The proposal for a limited period of
time may alternatively be a threshold. It is rather like this
ten per cent by 2010 question. There is a risk now of throwing
the baby out with the bath water in that on the one hand we have
a policy to introduce renewables and if we have a balancing market
there is a price penalty. It is a disincentive, particularly for
very small participants, to enter and grow that market. It may
be, as we get to a certain threshold of volume or we could equate
that to a period of time, we will be able to live with the pain
of NETA as it is presently configured in a way that right now
is such a disincentive as to disallow for things like aggregation,
consolidation or other aspects that are being suggested.
(Mr Still) When NETA came in last March, wind was
less than half of one per cent of the United Kingdom's electricity.
Perhaps it did not get the full attention in the NETA reorganisation
as it should have done, especially as we are looking forward now
to 2010 where it could be five per cent or more. The effects of
NETA have been harsh on wind because of its unpredictability.
Pre-NETA, projects were getting 30 pounds per megawatt hour. Now,
conventional projects are getting in the range of 16 to 18 pounds
per megawatt hour. Some wind projects are getting in the region
of 8 to 12 pounds per megawatt hour because of the unpredictability,
because the systemand that includes consolidation which
does not work at this moment in timehas not worked.
81. From what you are saying, I would have thought
it would be true for something like solar energy as well where
you have an element of unpredictability. It sounds a little short-sighted
for NETA to say that here we have a developing technology which
is all set to run, apart from its availability, and yet the calculations
are taking a much more cautious view of the opportunity that there
(Mr Still) I think you are right. I have been chairing
the Unpredictable Renewables Sub-Group of the Consolidation Working
Group and what we have been trying to argue is what you see in
the memorandum. However, in the translation from our report to
maybe what comes out tomorrow you may not see such an emphasis
placed on our views when it has been edited within the system.
82. Will you similarly be continuing to make
(Mr Goodall) Yes. It fairly dominates our lives at
the moment. NETA appears to have been designed for 1990 whereas
policy for energy appears to be looking to 2010. There is some
light at the end of this tunnel in that we appear to have the
ear of many people. My concern is that we will get lost in the
debate, that it will continue for a long time and be quietly forgotten.
We are demonstrating quite effectively now that there is definitely
an effective NETA which adds a cost to renewables, particularly
wind, which is an artificial, additional cost. What we are seeking
to do is to ensure that, notwithstanding the general operation
of NETA, which is widely considered to be a good thing; it has
helped drive down prices and so forth, clearly can be shown to
be a disincentive for very small entrants. That is particularly
difficult to reconcile with the government's ambitions for so-called
small scale community schemes and for the mythical hill farmer
looking to diversify because it is adding additional cost into
a very complex process already.
83. That is a very strong point and very worrying
in terms of where the business is going in terms of opportunities
(Mr Still) We are happy to pay the real cost of putting
wind on to the system. In Denmark, that is in the region of about
£1 per megawatt hour. In the United Kingdom since NETA came
into operation, that has been up to a factor of ten. We are looking
for cost reflexivity and fairness and we are not getting that
from the system at the moment.
84. You mentioned about consolidation of outputs
into a single trading unit. Do you think this could happen? Do
you think there is a role for a government agency possibly, such
as the Non-Fossil Fuel Purchasing Agency, to help consolidate
(Mr Still) We could be exempt and supply direct to
the National Grid, for example, which would give us a similar
result to a single cash up price.
(Mr Goodall) I see no evidence of consolidation working
(Mr Still) We would echo that a consolidator coming
into the market has to make a profit as well and we have to see
that passed on to the generator, not just taken out by another
85. It always seems surprising how many people
own any piece of the action before it turns up down the wires
in the house. With renewable generators, what is the real world
in terms of this? Do people tend to contract with their local
electricity supplier? Do they shop around for people to contract
(Mr Still) We shop around.
(Mr Goodall) That is another issue, particularly for
smaller parties and their ability to do that. The deal they can
run, particularly if we are looking at output trading under the
obligation, the value of the rock, the green value, how much they
retain themselves and how much they sacrifice to the contract
is perhaps an issue as well that is worth considering. That is
the cut and thrust of the market in which we are now finding ourselves.
86. Moving on to the number of players, you
are increasing the number of people all the time. In the note
you have provided, you mention farmers today and industrial companies.
Are the industrial companies looking to provide sufficient for
their own purposes or are they looking at the sites they have
as a means of producing energy which they can sell?
(Mr Still) It can be both. Probably under the trading
conditions at the moment if they can generate on their own site
it may be beneficial for them to export and take advantage of
the renewable obligation certificates when they come into force.
That will just be a straight, commercial trade.
(Mr Goodall) Indirectly, you raise an interesting
point in that if you were to look at our telephone logs of calls
we get there is a great deal of interest from people interested
in what they can do themselves rather than who they physically
buy their electricity from. An awful lot of people seem to want
to put a wind turbine on their house, in their garden or whatever.
It is interestingand it relates to comments made by colleagues
from CHPA about micro-CHP and the nature of the changing gridto
anticipate the interest and the appetite for much smaller systems
as well as the large supply we are coming to rely on as well.
It is beginning to be looked at but it is a long term issue that
we ought to come back to. That is a future revision and anticipation
of whatever follows NETA, perhaps ten years from now, which may
seem like a long way away, but it is racing up quite quickly,
as to how we further strengthen the opportunities for introducing
more and more smaller scale renewables in CHP for the system,
which is universally supported, as well as the larger projects
we are seeing introduced now.
87. The complexity of trading must be a bit
of a disincentive at a time when we are trying to grow the market.
If I were thinking about having some sort of renewable energy
on my house, I would think: "Do I really want to get involved
in this, given the complexity of the problem?" or if I had
a small business or a warehouse.
(Mr Still) I think you are right. In the middle of
the night, it may be best for you to get up and turn the wind
turbine off because some of our projects are paying to put electricity
onto the grid in the middle of the night because that is the way
the system has been designed. That seems crazy.
88. We have a lot of different players here.
Is there anything that will make all these smaller players start
consolidating and the big boys start buying in? Some of the petroleum
companies are now concentrating very hard on renewables. Do you
see any way forward on the trading by having large organisations?
(Mr Goodall) Do you mean, at the risk of being ultra-controversial
to my members, the larger companies can look after themselves?
Whether one can find smaller companies and those that do not even
exist yet finding a way of acting collectively is a fraught situation
to imagine and will unavoidably have a cost added to it that may
mean it is just not workable.
(Mr Still) Larger companies could come in and facilitate
the smaller companies but it will take some money before it gets
onto the market where the electricity is sold. It is a bit like
a consolidation market.
89. I am not seeing a lot of light at the end
of the tunnel. We have this massively complicated trading arrangement,
lots of small players, NETA not particularly helping the situation,
no opportunity that we can easily see to consolidate into the
larger organisations. What we really want is the renewables industry
encouraged and a fair wind, if I might use the phrase.
(Mr Still) Yes. We see the renewable obligation coming
in, certificate trading assisting the wind farms in their generation
and that will happen. It has been delayed. We hope it is in operation
by 1 April of this year. It should have come in at the same time
as NETA came in last year so we have been for a year without any
form of certificate trading. We hope that will make it work but
we do not just want to be penalised by the effects of the system,
like NETA, at the same time. We want to have a fair and level
playing field and see fair cost reflexivity.
90. You heard the comments from CHPA that they
would like to see small producers outside NETA. Is that a view
you share as being the way forward?
(Mr Goodall) I would say just exempt wind or probably
renewables at large just to a certain point, to allow it to get
going, to get to a critical mass, to make it competitive with
the self-styled, larger generating entities that exist. I have
yet to find an adequate understanding as to why that could not
be done. There is nothing wrong with saying, "Oops, we got
it wrong." Failing that, maybe a single cash up price might
be a solution that would enable any participant to not suffer.
There may be any number of other tweaks that can be made to adjust
and reduce the unnecessary burden of additional cost on renewables
which are incorrectly perceived as much more expensive than conventional
generation anyway. It is a bit difficult to live with the fact
that we are having to pay for the privilege of trading. Ultimately,
we would like the recognition that it was wrong on that occasion.
The instruments to adjust and compensate are imperfect and simply
lifting it out of the system may be the best solution of all.
91. You talk about the cost of putting wind
onto the system. I assume you were talking about the day-to-day
costs of production and getting into the network. There are also,
I believe, concerns about the cost of connection to the network.
Could you elaborate on that?
(Mr Still) Generation conventionally is at the extremes.
It is in the old coal fields of England; it is in the extremities
where they have nuclear power stations. Where the wind is we may
not have a strong grid connection. There may not be wires of the
size to take significant amounts of new generation to the system.
There are barriers releasing energy from Scotland through the
interconnectors, so there needs to be a plan which says, "This
is where we want to have the wind or renewable technology. This
is how we are going to get it to market." That may come to
the forefront when we talk about a major deployment of offshore
wind. We may find one area say, for example, off East Anglia which
is the best place in the world for wind, for whatever reason,
but it has a very weak grid infrastructure so somehow we have
to promote the establishment of a strong grid which will take
the wind from an area where we as a country designate it as the
best place to put offshore wind.
92. Who pays for connection at the moment?
(Mr Still) At the moment, we pay.
93. Who would you like to see pay?
(Mr Still) We are happy to pay our fair share but
quite often we see grid reinforcement and deep reinforcementI
have seen it in Scotlandtrying to be placed on a new generator
coming onto the system rather than the backbone of the grid which
is there and which is the country's asset. It should be reasonable
and it should be as fair a playing field when we put something
on the grid as any other form of generation.
(Mr Goodall) We are openly begging the question what
is the role of government in participating in this. I am not saying
we necessarily know the answer. I am certainly not asking for
a handout. Because the grid is in a process of change anyway,
it gets replaced. It gets rerouted and new bits get put in. There
is a need to think strategically in anticipating what will happen
and there are quite properly questions to be asked: are we comfortable
with making this entirely a private activity? What kind of concerns
can we have about how companies will behave in these markets?
What is the role of government and, for that matter, the regions
in this? With respect, I throw it back to the Committee and others
to say let us get the debate open and quite frank.
94. Where in government should it be?
(Mr Goodall) Everywhere, I think.
95. What about the present splits between DTI
and DEFRA? How do you think that is operating? How can you get
it more joined up?
(Mr Goodall) I do not know whether a split can operate,
with respect. There are times when we wonder whether there is
truly the joined up thinking that we see described. For example,
to introduce a controversial case, offshore wind and the MoD.
Here we have a very clear direction that offshore wind is considered
to be a good thing and there is considerable commercial interest
in it and we have one arm of the government, the MoD, who have
their concerns and issues. Bringing the two together to a happy
conclusion is something that we are looking forward to but we
do not quite see how that is going to happen. It is a notoriously
difficult process to introduce oneself into.
96. What is the problem with the MoD?
(Mr Goodall) The MoD have two major concerns about
wind farms, both on and offshore. One is related to low flying,
tactical flying areas and the other is radar. They are legitimate
97. They are resolvable?
(Mr Goodall) I am convinced that the technical issues
are resolvable. By way of example, perhaps I can point out that
there are 23,000 megawatts of wind stored around the world. Most
of our NATO cousins have wind turbines. There are wind turbines
on airfields in Germany so there are solutions to radar issues.
It is just a matter of agreeing what the standards are and adjusting
and taking the appropriate steps. More complex issues are related
to low flying and tactical flying which are to some extent an
element of judgment and choice, which we will be returning to
in due course as we roll out the anticipated evolution of further
offshore wind which will bring some of these very much to the
98. As an East Anglian MP in Peterborough and
having looked at this excellent document and seen that you only
have a four per cent target for the east of England, I do very
much hope that you will contact me and talk to me. I would like
to do all I can to help.
(Mr Goodall) Thank you. It is not our target. What
we have done there is indicated how an equitable share of the
DTI's indicated target might be. That is simply how it would divvy
up on an equitable basis and that is only onshore wind as well.
99. It is very low however when we consider
we have 39 per cent in Scotland.
(Mr Goodall) If I may give you another example, it
was not that long ago that the received wisdom from ETSU was that
it was not possible to have wind in East Anglia at all, which
came as terrible news to the people who operated wind turbines
100. I am interested in some of the observations
that have been made about the possible financial responsibilities
for investment in the development of the necessary grid links.
You would not want, as I understood what you were saying, to be
burdened with that cost. You feel it is rather unfair. Let us
imagine it is in Scotland and you have a wind farm there and whatever
you are able to produce for the grid. The linkages with the grid
and the grid itself you would think would be matters for someone
(Mr Goodall) Let us imagine there is a very large
potential somewhere. A developer will routinely expect to pay
the connection costs to the backbone. If there is an enormous
distance between that project and the backbone, that will be a
significant, additional cost. If those costs are rolled into the
project cost, as one would routinely expect, it may make that
project unaffordable under the obligation itself. If I can use
an analogy which I have been toying with, it is a bit like the
encouragement of the building of a new housing estate away from
an existing settlement. Of course, the developer of that estate
will put in the plumbing and make the connections to communal
drains. Then they will find that they are several miles away from
the existing, big drains. If that development has been encouraged
by that local authority as the great place to put it, or even
by a higher authority, does the burden still fall on that property
developer to make that large connection because they have been
directed to or is there a role for other entities to participate
in that because it has been directed to be built there. It is
not necessarily the easiest or the cheapest but it has been chosen
as the best by all parties concerned. I beg the question; I do
not necessarily have the answer. That is properly a matter for
(Mr Still) It may be that to add a 50 megawatt project
in one area would need a large grid reinforcement because of the
structure. You could possibly add 1,000 megawatts in that area
with only a marginal increase in that first increase in infrastructure
because you have to put in a long transmission line. That is what
we have to look at. It is somebody out there investing first and
then charging those projects which come on the fair price for
using it. There may need to be a National Grid or a similar organisation
which invests in infrastructure and gets its return, as it does
at the moment, further down the line.
Mr Best: Rather like Railtrack.
Chairman: We ought to end the session on that
note. It has been a very interesting session on a fascinating
topic. Thank you both very much indeed.