Examination of Witnesses (Questions 140
WEDNESDAY 6 FEBRUARY 2002
140. A quick question about the UK Emissions
Trading Scheme. There seems to be a consensus that electricity
generators will need to be included in this. What are your views
on this? What impact would it have on your ability to deliver?
(Dr Count) Again, we come back to the scheme. We would
like to see an Emissions Trading Scheme. I think, again, what
I would counsel against on emissions trading is second-guessing
what each sector can do in carbon reduction. In our view, the
right way is to say across industry let's reduce carbon by so
many per cent and let the players across the industry find the
right price to do that. That will be an efficient mechanism.
141. Does that mean a carbon tax?
(Dr Count) I think ultimately it is a cost of carbon.
It may look similar but ultimately what we will get is a much
more efficient technology solution to that problem. I think it
will be a lower-cost solution than a carbon tax but it does impose
a cost on reducing carbon. It does not come for free but the incentives
are different from a carbon tax because it is the industries competing
for the cost of that.
142. Just one final question really about what
the Government should be doing to encourage renewables. The head
of Ofgem said that NETA does not penalise intermittent generators.
He said the problem was not with NETA and that if the Government
wanted to encourage renewables it would have to pay for them.
Would you share that view?
(Dr Count) Yes, I think NETA goes to the fundamentals.
Fundamentally we know that in any market an unreliable source
is less valuable than a reliable source and ultimately reducing
carbon comes at a cost so we should be overt in how we structure
Sue Doughty: Thank you. You have been very clear.
143. I wanted to return briefly to the point
of technology you were discussing with Miss Doughty and tempt
you, if I could, to gaze into your crystal ball. If not wind,
what is the most likely technology in renewables to come forward
in the next couple of years?
(Dr Count) If I gaze at my crystal ball all I know
is that I will be wrong!
144. It might be more correct than we can be.
(Dr Count) I do not think there is one solution and
trying to strive for a single solution is the wrong approach.
If we look at what we are trying to do in reducing carbon, and
I do not rule out carbon reduction in coal fired generation, ultimately
I may argue why does that not qualify for threepence a unit? That
might stimulate that research. I do not know today whether you
can meet that cost of reduction. Clearly gas plays a part in the
equation. I think energy efficiency plays a big part in this,
much more efficient use of heat and power. Wind power plays a
part. My judgment, having started my life with renewables and
waves and tides, is that they are more difficult technologies,
simply because of the cost of them, and they are further away.
I think in our country solar is more difficult but solar will
play a part in other countries and, ultimately, dare I say it,
the nuclear industry may have a part to play in carbon reduction.
That is a political issue. We can maybe say it because we stand
outside the industry. I think one has to look at a series of technologies.
The other technology that will play a big role is primary fuel
cells where you are using hydrogen and oxygen.
145. That was not in your submission to the
(Dr Count) I think fuel cells are being developed
fast in the United States. We did mention distributed generation
and that is really where fuel cells come in. Power closer to the
consumer is going to mean that you have to generate less energy
because you lose less in the transmission system. So we would
certainly believe fuel cells play in that equation.
146. That is an interesting response, I think,
because we are examining renewables and what you gave there was
a very comprehensive response much wider than renewables. There
was not a very clear renewable technology that was coming out
of that. If I can give an example from my own constituency where
one of your wind farms is placed about seven or eight years ago,
which is a half megawatt turbine. The latest wind farm coming
in is going to be a two megawatt turbine, in other words four
times the size in terms of generation. More or less during all
the intervening time I and my predecessors have been trying to
get a biomass scheme off the ground and have still failed. That
reflects really on what you were saying a little earlier. Does
it not just underline that unless there is an actual additional
government emphasis on renewables that really it is only wind,
and offshore wind perhaps in particular, that is going to get
a free passage, I suppose, in the next five years of this energy
(Dr Count) I agree with the sentiment. I would not
say free passage; somebody has got to pay. It is right for the
Government to decide who should pay ultimately and we cannot fudge
that and ultimately the consumer or taxpayer pays.
147. We pay whether it is taxes or increased
price for energy.
(Dr Count) Ultimately one has to judge good value
for money but we are then going into saying are government best
in choosing the technology winners? Why has biomass not got off
the ground? Because the economics do not justify it. There are
other technologies that can reduce carbon. If offshore wind power,
which has a considerable resource, is a better technology to reduce
carbon than biomass, why should the consumer be concerned? If
ultimately in the long run we run out of that resource and we
believe carbon reduction has a greater value, then other technologies
will then flow through.
148. Coming back to this point about the risk
to investment of government changing its policy. How worried are
investors that the Government will change the Renewables Obligations
(Dr Count) There is clearly a concern because ultimately
there is an order there. There is nothing enshrined in legislation
as to the sustainability of that over a 15-year life and with
its heavily capital intensive nature, if you are not certain that
there is going to be underlying structure there, there is a concern.
Where there is a normal market structure you can look at the fundamentals
of the market. So, yes, there is a degree of concern.
149. What can you do about that?
(Dr Count) I would go back and say primary legislation
that gives grandfather rights that secures us with no stranded
150. That is something that you would certainly
very much like?
(Dr Count) We would like to see that.
151. Is it unusual in government legislation
to have grandfather rights?
(Dr Count) Across Europe when I worked with National
Power on the international scene, Turkey in particular has grandfathering
rights. It is always an issue to deal with stranded assets. When
you change a market mechanism then you always have this problem
of stranded assets and it is a good mechanism that deals with
it. It is not uncommon across European structures.
152. Is that not a case of wanting your cake
and eating it, essentially wanting to be able to have that certainty
about where to invest, but the down-side of that is how do you
then keep abreast of the new technology that might be in the interests
of environmental sustainability?
(Dr Count) Two points. First of all, we are quite
happy to take the market risk. If the market price goes down because
there is over capacity, that is a risk we as investors take. We
are prepared to take the technology risk of the technology not
working. The other considerable risk is whether the wind blows
as often as you anticipate. That is quite a considerable investment
risk. If the structure is unaltered then that is a risk we should
take. What is the difficulty is a structure that we know can be
changed. What is the incentivisation to develop the new technologies?
We are always going to be developing technologies that can make
a better return against that market structure. There are always
competitive advantages if I can bring in a new technology or a
supplier can develop and sell a new technology. Let us take wind
turbines. Vestas are a huge supplier. If somebody can develop
a compatible turbine then they are going to be incentivised to
come in and take their market share.
153. Supposing there was the technology that
might make biomass more competitive and easier. Is that not just
going to be hard luck as far as the wind turbine manufacturers
or suppliers are concerned?
(Dr Count) That is the market. If you look across
market structures, across the globe what has happened over the
last decade is that gas turbines have been developed by the suppliers
and are now commanding some 60 to 70 per cent of the new power
market there. What they have done is displace the old steam technologies.
That will always happen in any market but that is market risk;
that is not government influenced.
154. That is something you are saying you really
have a tradition of handling. The market technology risk is down
(Dr Count) Yes.
155. The political risk you cannot assess because
you have no idea what is going to happen. That is down to the
(Dr Count) That is right.
156. That is how you would separate them.
(Dr Count) That is how I would separate them. That
is right and proper. Our equity holders should take those market
risks. We are best placed to judge those risks.
157. But how would you expect Government to
fulfil its obligations to more sustainable development if you
were wanting it to intervene or to perhaps steer the direction
towards different routes?
(Dr Count) I do not have a problem with the Renewables
Certificate. You have done that and that will stimulate the development
of the technology. It is for Government to decide the level. All
I want is a stable political background to make that investment
and it is for Government to decide at what level, what hurdle
should they put in there to stimulate the technologies or the
objective that they need.
158. Do you mean hurdle or incentive?
(Dr Count) Incentive.
159. I would like to start off with a direct
question to Dr Count who has said to us that he has spent most
of his working life promoting renewables. Would you not say, Dr
Count, that if you have been doing that in this country it must
have been a deeply dissatisfying experience because in the Renewables
Obligation we have a stunning 10.4 per cent of electricity etc
to be sourced from renewables? Even last year Peter Hain, then
the Minister of State, said that really we had been the slowcoach,
we had started way behind everybody else, and we have been talking
about wind and the fact that, as Mrs Doughty mentioned, the RO
significantly favours wind. What I would say is, wow! Five per
cent target when, as you mention in your PIU submission, Denmark
has a 50 per cent target for wind. We have been to Denmark in
the last parliamentary session. It is very environmental, very
forward-looking and it has a 50 per cent target for wind. Why
is that? What have you done about it to try and press Government
to do a bit more forward thinking and are we talking about weasel
words and a lack of political will?
(Dr Count) I will briefly answer and then hand you
over to Mike who can give good examples of where we have dichotomies,
particularly if we focus on the planning issues. Ultimately what
have we done? Our role is clearly to protect our shareholders
and do what is right for our shareholders within a market framework.
If we are given the rules of the game then we have to work within
those. I think there are some frustrations. We get frustrated
on joined-up government here.