Supplementary memorandum from Innogy plc
1. Could you clarify whether in referring
to a "15 year life" in your response, you are referring
to investment horizons, rather than the Renewables Obligation?
The reference to a "15 year life"
relates to the remuneration period over which a capital-intensive
investment such as a wind farm would typically be assessed. For
hydro projects this is likely to increase to 25 years or longer.
Consequently, while the Renewables Obligation is proposed to be
in place until 2027, there remains the risk that it could be changed
by successive Governments as it will be implemented by an Order
laid before Parliament rather than through primary legislation.
2. Dr Count refers to Innogy supplying "25
per cent" of UK electricity. Could you confirm this figure?
According to Ofgem,
the acquisition of Northern Electric's supply business by Innogy
in August 2001 increased Innogy's domestic electricity customer
base to approximately 5.5 million, a quarter of the GB domestic
electricity market by customer numbers. Innogy's supply business
has approximately 19.6 per cent of supply to domestic electricity
customers in Great Britain by volume and about a quarter of the
supply market to Industrial and Commercial customers in GB by
3. Please could you provide a note on the
issue of planning consents in Wales? It would also be helpful
if you could extend this note to include a comparative view on
differences between England, Wales and Scotland.
British Wind Energy Association (BWEA) figures
indicate that since mid-1999 only four out of 18 wind farm planning
applications in Wales have been consented; eight have been refused
and six are still undetermined and awaiting planning inquiries
or the results of planning inquiries. Two of these inquiries involve
National Wind Power (our wind power subsidiary) sites, Cwm Llwyd
and Gelligaer, which we submitted for planning in 1998-99 but
neither has yet been determined. The planning history of these
two projects is typical of our experience with wind farm planning
applications in Wales.
Cwm Llwyd was submitted with its comprehensive
Environmental Impact Assessment (EIA) in December 1998 and was
called in by the Welsh Office early in 1999, before the local
planning authority could vote on it. We had to wait until January
and March 2001 for the inquiry to take place (in two parts) and
we are still waiting for the decision, though we were told several
months ago that the Inspector's report and recommendation had
been sent to the Welsh Assembly planning department. On a project
the size of Cwm Llwyd (30 MW) each year's delay results in significant
The planning application for our 20 MW Gelligaer
project in South Wales was submitted (with its full EIA) in July
1999; although planning applications should be determined within
4 months it was 21 months before the application was considered.
The planning authority, Merthyr Tydfil CBC, voted 18 to 12 in
favour of the project on March 7 2001 and it was called in for
inquiry on March 12. We have yet to be given a date for the inquiry,
but it will be at least 18 months before an inquiry is held and
the decision made.
The success rate of wind farm planning applications
in England is similar to that for Wales, but the Scottish planning
system has been more willing to recognise the importance of the
clean energy benefits that wind farms provide. DTI statistics
show that seven out of 12 (ie 58 per cent) of the projects that
won SRO contracts in 1994 were consented and operational by December
2000. By contrast only nine out of 31 (ie 29 per cent) of the
projects that won NFFO3 contracts in 1994 were operational by
the same date, ie December 2000.
4. Please could you provide a note on how
to promote awareness and public understanding among domestic customers?
The carbon emissions issue is not an easy issue
to get across to domestic consumers in a meaningful way. Many
householders do not believe that their efforts would have a meaningful
effect. Perhaps the challenge is to do for energy efficiency what
has been done for DIY and gardeningie a high profile investment
in prime time broadcasting, either as programmes or advertisements.
The cost would be high but a clever creative treatment could demonstrate
the benefits. The benefits to households should be emphasised
first, such as increased value of the property and reduced bills
for example. The benefit to the environment could be concentrated
on after thatie the practical outcome for the environment
resulting from the individual's actions, measured in a way that
people can relate to.
5. How might the Home Energy Conservation
Bill affect Innogy as a company?
The Bill concerns the Home Energy Conservation
Act 1995 which places targets on District, Borough and Unitary
Councils to achieve improvements in energy efficiency by 2010,
for homes in their area. The Bill seeks to strengthen the Act
by moving from ministerial guidance to a statutory duty. It seeks
to bring about greater co-ordination to the problem of houses
in multiple occupation through a system of licensing. There is
no new policy associated with it and it will have no effect on
public spendingthe emphasis is on productivity improvements/reduction
in bureaucracy and increased focus on energy efficiency and fuel
The effect on Innogy/npower is likely to be
requests from local authorities for
EEC schemes/funding (and we have a limit on what we can allocate);
a formal requirement for us to provide
information on our energy efficiency programmes for each local
authority, so that each can complete their HCA returns (this could
be a cost issue if no centrally held database is developed by
the Energy Saving Trust/Electricity Association); and
requests for fuel poverty programmes
in their area. Our Health Through Warmth programme and sponsorship
of Warm Zones, which are partnerships with NHS and local authorities,
put us in a good position to respond to these requests, however
resources are limited and local authorities may make more demands
than the industry can afford to support.
6. What examples of grandfathering rights
can you point to in European countries other than Turkey?
In terms of an environmental example of the
application of grandfathering rights, this was a guiding principle
in the design of the Danish CO2 emissions trading scheme. The
initial allocation of emissions allowances to existing electricity
producers was grandfathered on the basis of historic emissions
over the period 1994 to 1998.
Grandfathering has also been used in the regulation
of other industry sectors within Europe. Examples include the
allocation of quotas under the EU and UK Milk Quota Regulations
and the allocation of UK airport landing and departure slots.
7. How much consideration has Innogy given
to investment in other forms of renewable generation, such as
biomass, and how do costings currently compare?
Innogy has considered other forms of investment
in renewable generation. The available resource and current economics
of renewables dictate that onshore and offshore wind will form
the majority of new build under the Renewables Obligation, although
there is likely to be a requirement for capital grants to kick-start
investment in early offshore wind projects. While landfill gas
and small hydro projects are viable, the availability of suitable
sites is the major constraint. Biomass projects are unlikely to
be economic under the Renewables Obligation without both capital
grants and agricultural subsidies. We anticipate that biomass
projects would require a generation price in excess of £60
per MWh as compared with £25-40 per MWh for onshore wind.
8. In your response you say that "CHP
merits some support". Are you in favour of a CHP Obligation?
If not, what form of support do you suggest?
In the short term Innogy believes that the viability
of CHP should be improved by modifying the NETA balancing mechanism
through the adoption of a single cash-out price, reducing gate
closure to one hour or less and allowing ex-post notification
The heat output and a significant proportion
of the electricity output from CHP are utilised by the host site.
Consequently, it is difficult to see how a CHP Obligation on electricity
suppliers could be designed which would be an effective support
mechanism, given that this could only be associated with surplus
electricity sold through the wholesale electricity market.
We believe that any medium-term support mechanism
for CHP should recognise benefits of the associated carbon savings
and translate these into a financial benefit to the plant operator.
In the longer term, as emissions trading markets
develop, increasing constraints on carbon emissions should mean
that the value of carbon in such markets eventually becomes sufficient
to ensure the appropriate remuneration of CHP plant. However,
this is unlikely to happen in the current decade.
9. You say that you "see less of the exercise
of that secondary [environmental] duty from Ofgem". In what
ways do you think Ofgem could take more account of this duty?
The Utilities Act 2000 placed secondary duties
on Ofgem to promote the efficient use of gas and electricity and
to have regard to the effect of licensed activities on the environment.
The general broadening of the duties of regulators
to encompass economic, social and environmental effects is attractive
in terms of promoting sustainability but inevitably blurs the
edges of previously well-defined roles. Whilst it is desirable
for all regulators to have regard for the environmental effects
(or social or economic effects) of how they discharge their primary
duties it is also desirable to have clarity in who is responsible
for setting environmental policy and who is responsible for implementing
The problem area is more likely to be in implementation
where the actions of agencies such as Ofgem and the Environment
Agency have the potential to overlap and potentially create conflict.
Avoiding contradictory regulatory pressures on industry will require
close ongoing consultations between them. If this does not happen
the outcome will be increased uncertainty, risk and cost.
The introduction of competition into gas and
electricity markets is well advanced and regulation (essentially
as substitute for competition) should now focus on areas of natural
monopoly, the pipes and wires businesses. A broader range of secondary
duties (social and environmental) should not be a reason for a
regulator to remain in areas where their primary objective has
been achieved. Although Supply is sufficiently competitive for
Ofgem to remove price controls they have produced draft guidelines
on Green Supply Offerings in the context of the Renewables Obligation
which if followed would deter suppliers from promoting green electricity.
That would not help deliver the challenging targets for renewable
Given their duty to promote competition, environmental
areas where Ofgem should be focusing are:
ensuring implementation of environmental
policy does not unnecessarily distort or dilute competition in
gas and electricity markets. Examples of this are inappropriate
application of emission abatement standards and support for particular
fuels or technologies;
promoting the development of emissions
trading mechanisms compatible with the existing gas and electricity
developing market mechanism that
facilitate delivery of energy and environmental policy such as
modifying NETA (and designing BETTA) to assist CHP and renewables;
assisting the development of energy
services to deliver efficiency improvements by removing barriers
such as the 28-day rule.
1 Source: August 2001: Innogy Holding plc's
proposed acquisition of the electricity supply business of Northern
Electric plc: A consultation paper by Ofgem. Back