Examination of Witnesses (Questions 420-439)
MR BRIAN WILSON, MP AND JOHN DODDRELL
WEDNESDAY 24 APRIL 2002
420. Is there enough going into Research and Development? We have talked about £200 million over three years. It does not sound very much at all to me.
(Brian Wilson) I am sorry, I think it is proportionate to the kind of demands coming forward, and I think it is very widely appreciated by the industry
Mr Challen: It will be appreciated, but if you compare it to the cost of decommissioning a nuclear power station or Dounreay, which is being decommissioned and returned to an environmentally safe condition for billions of pounds over 50 years, that just puts it into context.
David Wright: The way I put it into context is the kind of demand that is coming forward and whether the money we have in place is sufficient to meet it and to support the kind of initiatives we need to reach the targets we are going to, so it is just that we each choose our own context.
421. Does that mean then that the DTI is taking on board the recommendation that was in the PIU report about taking immediate steps to increase the level of funding for R&D?
(Brian Wilson) We have just added £100 million to the level of funding and the two technologies that were given particular emphasis there were offshore wind and biomass. There is a lot of money available to support these technologies. I do want to say something about wave because I really do believe in it. Part of the problem with these things is that people have been doing R&D projects for donkeys years, but they never actually get to the stage of commercial application. It is not an academic exercise we are funding here, it is actually attempting to create an industry and a generator of serious amounts of electricity.
422. Honestly, you said you have a particular hunch about wave and tidal, and of that £100 million that has been allocated, only £5 million of that has gone to wave and tidal. If that is your own hunch of where the future really lies, why did you only give it 5 per cent of the budget?
(Brian Wilson) As I say, it is proportionate to the number of companies that are working on developing it, and if anyone comes forward for plausible proposals for R&D work on wave power, then the door is open.
423. But again, you are being very passive in all of this, are you not?
(Brian Wilson) No. In the case of wave power, I assure you I am being very active and that is going to have some practical effects in the near future. I will be delighted if the Committee would come and look at the work that results and be enthused as I am by wave power. There is one commercial wave power station in the world operating and that is in Isla, I would like to see these things being produced like sausages because I think there is application for them in hundreds of locations in this country, never mind in the rest of the world, and we have to get it to the stage where we actually have a serious industry. My personal commitment is that we do not lose the lead in wave power in the same way as 20-odd years ago, we lost the lead in wind power.
424. So why have you budgeted differently?
(Brian Wilson) I think we have been round that course and the tide is coming in again.
Chairman: Now we come to the business of Embedded Generation and the interconnectors and so forth and the spending on infrastructure because this is a very important point. I know Malcolm Savidge wants to ask you something.
425. Can I start the question really by saying, as you know, the report to the Scottish Executive suggested that roughly 75 per cent of all Britain's energy needs might be supplied from renewables from Scotland. I think that illustrates a point. I mean, I recognise there are opportunities for producing renewables far nearer to the areas of greatest demand, but obviously one of the real questions is not going to simply be production; it is going to be distribution. Can you say a little bit about what you think are the prospects for improving the infrastructure as a National Grid?
(Brian Wilson) Can I say, on the point of the Scottish Executive Report, it does identify this huge resource, but I think it would also recognise that if you were going to realise the whole of that resource then the questions of public acceptability that you would run into would be absolutely massive compared to even the ones we are talking about at the present time. That point aside, clearly there is a huge potential with the quality of the wind resource. For instance, the Hebrides resource is significantly superior, I am told, to what exists on the mainland. That is the reason why companies are looking at carrying out developments there, not because of some attachment to doing it in Lewis or doing it in Skye, it is because of the quality of the resource. Therefore, they recognise as part of that kind of project planning they have to build in appropriate costs of creating the infrastructure that will allow them to get the product to market. What I did initially to try and kick start that process was to commission a Consultant's Report on sub sea cable down the Western Seaboard. That preliminary piece of work was done, they established basic feasibility, and there is now more intensive work going on which is looking not only at the sub sea option but also at strengthening land-based transmission and some hybrid of the two, sub sea and land based. I have asked for that work to be completed by the Autumn. It also fits in very closely with another policy initiative which is evolving, which is to create a single British market in electricity rather than two separate markets in England Wales and Scotland. The Scottish companies are going to want to get their power out if they are going to face increased competition in their own territory. So the whole thing is moving forward pretty well and I believe we will get a technical solution that is also an economically viable solution when these discussions are completed.
426. Thank you very much indeed. You refer in your Memorandum to the DTI/Ofgem Distributed Generation Coordinating Group. Has that actually produced any reports yet, or what progress has it made so far?
(Brian Wilson) It is work in progress. It is a recognition of the significance of the issue.
427. Ofgem are only proposing to allow Embedded Generators to spread the cost of deep connection charges over a number of years. Do you regard that as a satisfactory way of progressing?
(Brian Wilson) There are a lot of issues with Ofgem that we are discussing within the wider framework of Government Policy and Objectives, and a particularly appropriate time to do that is after a year of NETA's operations and these are discussions which are now going on.
428. Would you need legislation, do you think, to change the way those arrangements work, and, if so, how quickly could you look at them?
(Brian Wilson) I think anything that cut across the Utilities Act which was legislated for in the very recent past would clearly need legislation in itself.
429. But clearly, the emphasis or the priority is not on environmental issues in terms of the regulator there?
(Brian Wilson) I hear what you say, and my concern, going right back to the beginning of this discussion, is that there should be consistency across Government and there is no point in paying lip service to certain aspirations if what is happening on the ground is pulling in another direction, and I think these forces at some point have to be reconciled.
430. The DTI began consulting on Embedded Generation in 1999 and the Embedded Generation Working Group reported in January 2001. Is there anything you can point to which Ofgem has done to reduce the barriers facing Embedded Generators?
(Brian Wilson) Not very much, no.
431. So that is the problem. That is a barrier to getting smaller producers into the system?
(Brian Wilson) I think there are real problems in getting smaller producers into the system and I think that that is something which we continue to address. As I say, it forms part of wider discussions with Ofgem about the compatibility of the mandate which they are pursuing and some of our other policies. That is a perfectly healthy dialogue with an independent regulator who clearly gives a high priority to driving down prices, but I have a wider range of responsibilities and therefore I have to try to reconcile the various objectives.
432. I do not know whether you were the Minister at the time, but your department did set out the Draft Social and Environmental Guidelines to Ofgem, which was meant to harmonise their approach more closely with Government Policy. The Energy Review says these should be strengthened; do you think they should?
(Brian Wilson) Yes.
433. And what sort of changes should happen?
(Brian Wilson) It is a very difficult area because independent regulation is virtuous and is, in general, good for the consumer, and we have just reinforced that principle through the Utilities Act and the establishment of Ofgem. Therefore, it is glib to be over critical of Ofgem because they clearly have taken their remit, they have pursued it extremely enthusiastically and they have been very, very effective in terms of the primary obligation to the consumer, which is to drive down the cost of electricity. The stage we are at now is the reconciliation, the review of the workings of NETA and the impact that that is having on other aspects of Government Policy. I would hope that we can make progress on that because at the end of the day I think everybody recognises that there are environmental obligations and social obligations as well as merely economic ones.
434. How much is that something that could be picked up by the Competition Bill that is going through Parliament, with the large implications that that has the regulators there within that and for competition?
(Brian Wilson) I do not think that is the purpose of the Competition Bill and I do not think we are talking about legislation. I think this could be resolved by a sensible review of the application of policy and a sensible balance, both of Government aspirations and indeed obligations, alongside those of Ofgem.
435. Is there not a further problem, though, in respect of the recommendations of the PIU Report in respect of shadow pricing and a suggestion/recommendation that at some stage there needs to be a full recognition of the wider costs of renewable energy and the way in which then, with that greater transparency, you are probably going to have increased fuel costs. So that then links directly back to the whole debate about fuel poverty and about how Government pays for those social obligations and responsibilities as well. How do you see all that circle being squared?
(Brian Wilson) I hope we are driving forward the Fuel Poverty Agenda but there is a lot of work going into this, both within Government and also in cooperation with the Utilities. I must say, in fairness to the Utilities, there is a lot more imagination being shown towards this problem than ever happened under the old regime. That is something we want to encourage, and rather like fuel efficiency, energy efficiency, we want to look at best practice and then extend it to the rest of the country. I think in fairness to Ofgem, Ofgem wouldI know because I have heard them doing itmake a very strong case for their own commitment to remedying fuel poverty.
436. The PIU Review recommended that, "The department should redefine its general energy policy objectives and the new objectives should be the pursuit of secure and competitively priced means of meeting our energy needs, subject to the achievement of an environmentally sustainable energy system". You did not actually answer. We wanted your views on that in the questions we have put, but you did not actually reply to that in the Memorandum which you sent us. Could you reply to it now?
(Brian Wilson) I welcome it.
437. Are you going to redefine, therefore, the energy objectives of the department?
(Brian Wilson) I am not going to answer that now. Along with colleagues, we will look at forms of words, and I think that the whole thrust of the Energy Review is to raise the primacy of environmental considerations. I think that is something of a landmark for which the Review should be given credit, and certainly I would hope that we would never have an energy policy again which ignored the environmental responsibilitiesthe great challenge of the 21st Century of combatting climate change. We cannot go on in that vein, and therefore energy policy and industrial policy should, to a very large extent, be driven by environmental obligations. The great trick to get the balance right is that you achieve the environmental aspirations without doing damage to your economic policies and your competitiveness. I believe that can be done, but it is a matter of getting the balance right.
438. Could I just follow up on NETA, and, in the light of that answer, how we are going to get the balance right for the smaller and renewable suppliers in the new electricity trading arrangements?
(Brian Wilson) That is what I have just been discussing. As I say, NETA has been operating for a year and it results from legislation which Parliament has passed within the past two years. NETA is a young creature. IT is about to be extended: NETA is about to be metamorphosed into BETTA, covering the whole of the UK. That in itself will raise a lot of questions about the treatment of the more peripheral areas of the country and some of the questions that flow from that.
439. Are we going to be stalled for a little while? Is this maybe another year or two years? In the last year, the first year of its operation, 44 per cent of the small suppliers and renewables have dried up and CHP in particular has suffered very badly. Are we going to be stalled for a year or two whilst we wait for a transitional
(Brian Wilson) I signed off a written Parliamentary reply today which gave the figures for the proportion of electricity generated from CHP and renewables during the first two months of NETA as compared to a year previously, and I did not like what I was signing off. We have now had a year of NETA, and let us just have a look at what the comparable figures are for the first year of NETA, but clearly, if they are in any way a reflection of the first two months, then we have a problem. It is a problem which I think should be addressed because I do not think, and I repeat this, I do not think there is any point in stating targets, for instance, from CHP, if what is happening on the ground is pulling in the opposite direction. Again, as I finishit is not for me to say I am endingbut by saying there has to be transparency, there has to be consistency across Government in what we are doing, and if that means pulling together the different strands of policy and policy making, then so be it. That seems to me to be eminently sensible, but I am certainly not interested in saying, We are aspiring to X on renewables or Y on CHP if figures that I am then giving in a Parliamentary answer show that exactly the opposite thing is happening in practice.