WEDNESDAY 24 APRIL 2002
Mr John Horam, in the Chair
Memoranda submitted by the Department of Trade & Industry
Examination of Witnesses
MR BRIAN WILSON, MP, Minister of State for Industry, Energy and the Environment, and MR JOHN DODDRELL, Director of Renewables Policy, Sustainable Energy Policy Unit, Department of Trade & Industry (DTI), examined.
(Mr Wilson) Thank you very much for your welcome. I would also like to introduce John Doddrell, who is the Head of the Renewables Division in the DTI. If I could just make a few brief points. I think the fundamental one is to emphasise the extent to which the subject matter of this enquiry is absolutely at the centre of : the Renewables Agenda and the whole Energy Review impact of NETA Renewables Obligation, renewables policy as it is evolving, and particularly the importance of joined up thinking within Government in order to get all of that right. I think it is worth saying that, as I am sure you are well aware of, their Renewables Obligation since you began this process is now in place and came into effect on 1st April, and has attracted a great deal of cross party support, both in the Commons and in the Lords. So with the Renewables Obligation in place, we think we now have the main building blocks available to achieve the 10 per cent target. I know that sometimes people say, "Set more ambitious targets", my one view is that you set attainable targets before you set more ambitious attainable targets. I think the 10 per cent is attainable, but it will be a tough target and we now have a 25 year long obligation which again I believe should give investors and industry the assurances that they need to make the commitments that are necessary. We estimate that 10 per cent of electricity from Renewables by 2010 will mean annual savings of around 2.5 million tons of carbon by 2010. When we devised and implemented the Obligation, there were two issues at the front of our minds. First, it was vital that there should be a market led initiative which would stimulate competition and leave the market to decide which forms of renewables and which technologies were going to have primacy in the UK renewables mix. Government is not backing winners, it is allowing the field to run to see which renewables technologies emerge from that field most strongly. Secondly, it was also vital that any support mechanism had to be cost effective in order to maintain the competitiveness of industry and also to keep down the costs for the domestic consumer, but I do not think you can get too much of a disjunction between what it is going to cost the consumer and what the consumer is prepared to accept. You cannot see that in isolation from our other aspirations. Finally, Chairman, I just want to say that Renewables Obligation in my view represents a tremendous opportunity for manufacturing industry in the UK. I do not think it is just an energy issue or an environmental issue, I think it is a tremendous manufacturing issue that we have now put in place, something which is going to create billions of pounds of investment over the next few years, and my very strong commitment is to ensure that as many of these billions as possible are spent within the UK and give a whole new market to some of our industries which have synergies with renewable technologies, and others which can seize the opportunities that they present. I hope as we go along I can maybe say a little more about that. That is all I really want to add to the Memorandum, Chairman. Thank you.
Chairman: Thank you for saying that, Minister. As I said before the PIU this morning, and in discussing their report over a two hour period there, the first thing we would like to kick off with is to get a clear understanding of the timetabling of your responses to all that and the way the Government is looking at this from the point of view of getting some action on the ground. There has been an awful lot of analysis. We do now need some decisions. I know Mr Challen wants to discuss that.
(Mr Wilson) Maybe if I said, just about that in context, something about the timetable from here on in in response to the PIU Review, and I have been very anxious to stress at every point that the Energy Review is a report to Government rather than of Government. I think that was important not only from a governmental point of view, but also from the Review Team's point of view that they had the liberty to think freely in the knowledge that they were going to be presenting this to Government rather than being asked to draw up an energy policy. So once they have their report, which I think is a very good and thorough piece of work, it will now inform the normal policy making process within Government. The next step on that will be the issuing, very soon I hope, of our consultation document, which will in turn lead before the end of the year to a White Paper. There is a Cabinet Sub-Committee meeting within the next couple of weeks which will trigger the consultation process, and then we will come to a White Paper later in the year.
(Mr Wilson) This year, yes, absolutely. It was originally our ambition to get the White Paper out by the Autumn. I think there has been a little slippage in that, just because of the mechanisms that it has to go through in the consultation process, but certainly the White Paper should be out by the end of this year -
(Mr Wilson) The consultation period should be about 3-4 months, until the early Autumn, and then publication of the White Paper. The intention obviously is not to reinvent the wheel and to go over all the ground that has been gone over very thoroughly and very transparently in the run up to the publication of the Review, but to build on the Review, and then to incorporate that into a White Paper. Some of what the White Paper contains will involve legislation, but probably not a great deal of it, and a lot else of what is in the White Paper hopefully will be able to be implemented without legislation, and I would see advances in this sort of area as being a high priority.
(Mr Wilson) It certainly featured in the consultation, and if you ask my own view, then I think anything that pulls all these strands together is positive, but I do not think it makes sense to have a number of different avenues for various branches of energy policy to go down without some clear coordinating theme to link them.
(Mr Wilson) I think that is a legitimate criticism. If you ask if I was offering a personal view in the long term, I make it clear that I am unlikely to be around to be involved in it, but I think there is a strong case for an energy department. I think there probably always was a strong case for an energy department and the reasons for getting rid of an energy department were more political than logical at the time that happened. So whether it is brought together as a department or whether it is brought together within one department, I certainly think there is a very strong case in moving towards as much a synthesis of energy policies and responsibilities as possible.
(Mr Wilson) I certainly would not like to think of it in terms of upper hands and lower hands. This is something for the consultation and the White Paper, to look at all of this. I think it would be a mistake to treat it in terms of inter-departmental rivalries. I certainly do not see it that way. What I do see in my daily work is that there is no particular rationale to where some of the responsibilities lie and where other responsibilities lie, so it seems to me the common sense position is, as far as possible, to bring it together. It goes beyond DTI and DEFRA. For instance, one of the most striking points that was made to me during the PIU Review was that supposing we did everything that we are committed to and aspire to on the energy front, if we did nothing on the transport front, then we would still be worse off in terms of carbon emissions in 2050 than we are today. So you cannot have an energy policy which is driven by the climate change obligations without taking account of transport as well, therefore, joined up Government goes beyond just two departments.
(Mr Wilson) I do not think anyone who was sitting down to write the division of responsibilities within government today on a clean piece of paper would divide what is energy related responsibilities in the way they currently are. We would have more cohesion to them because unlike the forces which created these divisions in the first place, the driving force today is climate change and the need to -
(Mr Wilson) I do not think we say we are going to wait two years to do anything about it. As I have described, there is a process now of consultation and White Paper which will hopefully allow us to move more quickly on some of these things than others. Certainly at the outer limits there is a very wide window of opportunity, but I am in favour of doing things quickly as long as they are done properly. I think it is very, very important to get this right within the context of our evolving energy policy.
(Mr Wilson) The issue will be addressed in the White Paper, certainly.
(Mr Wilson) In principle.
(Mr Wilson) Because I think it has a crucial contribution to make to a cleaner energy mix and to meeting our obligations -
(Mr Wilson) A low carbon economy, yes.
(Mr Wilson) I think that is the driving force, but I think that there are then a great many other reasons why it is a thoroughly good thing.
(Mr Doddrell) It is likely to be slightly higher, excluding hydro. 2001 was a particularly dry year in terms of rainfall, so the existing hydro output as I understand it was slightly lower, but the underlying trend in production of other sources of renewable energy went up a bit, but please bear in mind that the instruments like the Renewables Obligation, the Capital Grants programmes and all the other things that we have been putting in have not yet taken effect in 2001.
(Mr Wilson) The Renewables Obligation only came in in April 2002. Incidentally, I am told that the figures will be published in the Summer for this year. The answer to your question is that hopefully it will show some increase, but it will not be a large increase, and that again emphasises the scale of the challenge in the remainder of the decade.
(Mr Wilson) I would say it would probably mean the end of 2003. I would also say that we are not going to meet 5 per cent in 2003, so again it emphasises the scale of the challenge thereafter.
(Mr Wilson) No, we are not going to meet 5 per cent.
(Mr Wilson) I think there are two obstacles. One is investment: you need to have investment or the commitment to investment in order to even have the theoretical possibility of getting the generation which will meet the targets. I will name three. The second one is the infrastructure: in other words, you need to have the ability to get the power to where it is needed from the places where it is generated. Again, I am happy to say more about that, but it is quite a major constraint at present. Thirdly, the projects actually have to happen, and maybe the most sobering statistic in all of this is that two thirds of the projects approved under the predecessor of the Renewables Obligation, the Non-Fossil Fuels Obligation, never actually happened, and the reason that happened mainly was because in hundreds of cases they were successfully blocked at a local level. If we continue to see two thirds of projects fail to come to reality, then we are not going to meet targets, it is as simple as that. I just use this as an example: I went to Cornwall a few months ago just after a wind farm had been opened. It was quite difficult to see where it was because part of the problem was that it was half in Cornwall and half in Devon. It was 16 turbines. I was told that this was the biggest wind farm to open in England since 1994. At that rate of progress, if we come back here in ten years' time, I do not think we will be celebrating 10 per cent from renewables. That is the reality, that projects are blocked or delayed in the way that they have been with great regularity until now. It will be extremely difficult to meet these targets, so we have to ask people who are in favour in principle of renewables to start squaring their conscience with their intellects and allow some of them to happen.
Mr Jones: Thank you, Minister.
(Mr Wilson) Whether it is Government who is failing, the statistic I have just quoted suggests that somebody is failing, and I suppose everything ends up with Government. I think that it is true that there has not been coherent success in persuading people that if they are in favour of renewables in principle, then they also have to occasionally be in favour of them in practice. I do not think that effort has really been made, because until now, they not have come forward in a sufficient way, they have come forward in a spasmodic way, and each one has been seen as an individual project. I think we are really at the start of a process now of confronting society with a more general choice, that either they are going to have a significant contribution from renewables or they are not and if they are going to have that contribution, then they are going to have to show reason in accommodating it.
(Mr Wilson) I think it is Government's responsibility, yes.
(Mr Wilson) I think that is right, but I think that is partly due to the fact that there has not been the mass of projects that really you could call this a movement as opposed to a series of individual projects.
(Mr Wilson) I do not think we will have that figure until the Summer, but we will certainly get it to you by the Summer.
(Mr Wilson) I do not think it is likely, but I do not think it is inconceivable. Certainly I am not saying there has been some great leap forward in the past couple of years. Hopefully, what I believe now is that building blocks have been put in place which will allow for the great leap forward, subject to the caveats I mentioned.
(Mr Wilson) Planning of course is not within the gift of the DTI alone, or indeed primarily with DTI. Obviously we have a strong interest in consultation and planning law, which the DTLR is conducting at the present time. One of the keys to a higher success rate is to inherit the change in planning law or the change which allows for the transportability of projects, in other words, that they are not tied to the one location: if they cannot find approval in one location then they can be moved to another. That was introduced latterly in terms of the NFFO and has also been introduced in Scotland. It is not within our gift, but we have a very strong interest in ensuring that Government policy on planning, while safeguarding peoples' legitimate right to object, is moved in that direction.
(Mr Wilson) I think maybe we are at slightly crossed purposes here. That kind of planning is very much DTI driven, and, as you say, we have now produced regional targets throughout the UK, and these targets were not entered into lightly. There was an extensive consultation with stakeholders, including the Regional Development Agencies, to see what was realistic. These have now been introduced and they are available. Oxera was involved in the preparation of them and everybody has essentially signed up to these targets. I know from going round the country that they are already seen as very valuable tools in setting figures which are attainable and which should be aimed for on a regional basis.
(Mr Wilson) It is not as quirky as it sounds. That is the first reassurance I will give you.
(Mr Wilson) I do not think we are seeing more renewables in East Anglia and Scotland, but I am quite happy to come back to you on that point. I think the factor that maybe you have not taken account of in your scepticism of these figures is offshore wind. For instance, just last week I announced the approval for the first commercial scale offshore wind development at Scroby Sands in East Anglia. That development on its own will account for 1GW of electricity, so we know a small number of large offshore wind projects can actually transform this situation. Before you come back, usually I get in first to pay tribute to the visionaries who put hydro electricity in place. I am delighted to acknowledge that, and I think it is a sobering reminder that the fact we have 2.8 per cent is due to nothing that has been done in this decade or the last decade, or indeed the decade before that that was done by people with a vision of Tom Johnson in the 1940s and then in the 1950s. Sadly, an end was put to it by an unholy conspiracy of landowners and environmentalists, but maybe we can come back to that later as well.
(Mr Wilson) We are revising the Guidance and take very much in line what has happened in Scotland. What has happened until now is that if a project was tied to one site and a campaign was successfully mounted against that site, then the project had nowhere to go. The essential thing is that the project has a life beyond one site. If you do that, then you certainly improve the success rate, although ultimately I do not think you are going to improve it enough unless you also get the change in public attitude.
(Mr Doddrell) I am hoping that they will be revised by the Summer. DTLR are leading on this. We are working closely with them to make sure that they are much more conducive to the development of renewables. I would hope that good progress will have been made by the Summer.
(Mr Wilson) Absolutely, heaven forfend. If I was still involved in the West Highland Free Press I would be very grateful for the free publicity from Mr Murdem(?), but I suppose the lesson to learn in the case of that is not to try to build a wind farm beside Sir Jeremy Isaacs's holiday home. Sadly, unemployed citizens in Skye do not have the same access to half a page of the Times to argue their case. I think the main lesson is in terms of planning, and, as I say, the transportability of projects. I do not think the differences are that great otherwise. Obviously there are more locations in Scotland which are less visible and that must be a factor in the relative number of projects, but in the Energy Department as a whole there is very close coordination with the Scottish Executive, and I think that we can learn from one another in that experience. When I was in the Scottish office I used to have responsibility for what was then called the Scottish Renewables Obligation and I think the statistics show that we made a lot of progress just by making it more flexible.
(Mr Wilson) I think there is tremendous synergy between the oil and gas industry and offshore renewables in general, and certainly there is very exciting work going on just now in the offshore wind. It is not exclusive to Scotland by any means. I visited a very admirable initiative in Blythe in Northumberland a couple of weeks ago and the aspiration there is to make Blythe, with its largely redundant coal harbour -- it has an excellent infrastructure for all sorts of renewable technology developments and it already has offshore wind turbines which are both commercial and also a demonstration in purpose, and that kind of work is going very, very well. There is a big read across between the companies that are involved in the North Sea and companies which are getting involved in the offshore wind. We can do a great deal there, and, as you know, it would pre-empt the question, but we have based renewables UK in Aberdeen specifically in order to take advantage of the synergies between oil and gas and renewables.
(Mr Wilson) Tidal energy has been around like all of these things for a long time, but without enormous progress being made in the commercial application, and it would be rash for me to say that one particular design or one particular technology linked to wind technology is going to be a great contributor. As I said in the outset, Government is not going around saying, "We know the technologies that are going to work". What we have to do is to stimulate as much activity as possible to encourage as much R&D work and innovation as possible and some of these designs and technologies are going to come through. Again, when I was in the North East of England recently, I was talking to a company which is going to put a very interesting tidal device in the water, is going to build it at Gateshead and is going to test it in Shetland during the Summer. There are interesting projects involving tidal power going on, but the precise interrelationship with wave power I will leave to the technologists.
(Mr Wilson) The capacity to produce is obviously a key element and the proximity of demand is highly relevant. I am anxious not to be led entirely down that route or else you end up saying that you have to produce where the market is and that would be a major inhibitor, not just in Scotland, but in other more peripheral parts of the UK where there is tremendous potential for renewables. I also think that in setting targets and the mix of how these targets are to be maintained is right and proper to take account of local views. As I say, the RDAs were very much involved in drawing up these targets, and if they think that biomass is the horse to bet on in their particular area, and that there is good economic reasons for doing that and good natural resource reasons for doing that, then I am not going to argue with that. Biomass in this country is at a very early stage. I visited successful biomass power plants using materials as diverse as chicken manure and straw and they operate very well, so if the South West can feed the demand and bring benefit to the rural community at the same time, then I think that is a call for the South West to make.
(Mr Wilson) The subsidy comes through the Renewables Obligation. Anyone who is into generation from renewables knows what they are going to get from the Renewables Obligation and they have 25 years' security to get it, so that is an economic call which they have to make.
(Mr Wilson) I am not sure it is a quick win. I believe it is a massive win if we can achieve it. From my perspective, I think one of the great successes so far of the Energy Review was to move energy efficiency so far up the agenda and to give it a real priority as one of the ways that we are going to meet our other obligations in the years and decades ahead. I can assure you that that is being taken extremely seriously and without waiting for White Papers or anything else, there is a lot of work being done on moving that forward. Only last week I had a meeting with the Utilities to encourage what they are doing on energy saving measures and campaigns and strategies. It is a very big plank of Government policy and again it is a cross Government in a sense; it is very much involved with both the DTI and DEFRA.
(Mr Wilson) I tend to err on the conservative side in making rash promises and setting rash targets, and, therefore, when I say it, I am saying it with the enthusiasm of someone who believes it can be done, but again, I do not have any doubts that it is going to involve a lot of work and commitment and a far higher profile than it has had in the past. Again, the answer, I would have to say that exhortation has not proved a tremendously effective mechanism, particularly in terms of the domestic consumer, so it has to be made easier for the domestic consumer, it has to be brought before them that by taking some pretty basic steps and spending very little money, we can both get lower electricity bills and also have warmer homes, and I think we have to look at all the kinds of schemes that are going on around the country and find the most effective way of getting this message across, putting the weight of Government behind it. That is exactly what I was talking to the Utilities about last week.
(Mr Wilson) I think it is achievable, but I think again there is a big hearts and minds campaign to be engaged in. Again, I think in exactly the same way as talking about renewable energy, that the biggest help to that campaign would be if people understood and were enthused by the objectives of it, that it was not just a case of them being told to do something, but actually they believed in what they were doing because they realised the contribution it was making to things which in general and in principle they do subscribe to.
(Mr Wilson) I believe that it is very important to link all of that together, but specifically on energy efficiency, I assure you there is a lot of work going on. There is an Advisory Group now operating and there is a cross Government approach to this. I promise you that you will see a higher profile certainly from my own department being given to this, and I am sure also from DEFRA than has been the case in the past.
Sue Doughty: Thank you Minister.
(Mr Wilson) Wind power is ahead of the game just now in uptake, and in people bringing forward schemes, because it probably is the most developed of the renewable technologies, not just nationally but also internationally. It has been around for a long time in this country. As I never tire of pointing out, we had the lead in wind power more than 20 years ago and did very little with it, but there has been a wind industry in this country which has developed slowly during that period. There are companies very active in it, both UK companies which are a market both at home and abroad, so you are not starting from scratch in the same way as we are, effectively, in some of the other technologies. I certainly do not think it means we should neglect other technologies and I do not think that in the longer term it means that wind is necessarily going to be the dominant contributor. Indeed, just to go back to the previous point, wind is not the dominant contributor because hydro electricity is the dominant contributor. One of the first things which I was very happy to do in this job was to bring hydro electricity within the Renewables Obligation and that has already led to our £250m refurbishment of existing hydro electric schemes. I would like to see new hydro electric schemes being developed, so hydro is still going to be bigger than wind for a while to come. My own personal enthusiasm, if you like, is wave power. I think there is tremendous potential in wave power, but again I have had an interest in this long before I was doing this job. I go back to remembering things that -- I seem to have been hearing about Salter's ducks since I was in primary school, but Salter's ducks have still conspicuously failed to produce electricity for the grid. So we have to get beyond the developmental stage and into the implementation stage.
(Mr Wilson) At the moment I would say it is because it is demand led, and at the moment we are still stimulating interest in wave power rather than being overwhelmed with applications from wave power.
(Mr Doddrell) There are not the huge projects on wave power coming forward at the moment for support in the way that there are for offshore wind. We have had 18 offshore wind projects obtaining leases from the Crown Estates and they bid into our Grant Support Scheme for offshore wind and we are hoping to get something like in excess of 1GW from those. Perhaps I could correct the earlier figure I gave for Scroby Sands: it is 70-80MW for that project. The larger figure in excess of 1GW is for the 18 initial first phase offshore wind projects, but they are at a very exciting phase and actually building on the Blythe project that has already been commissioned and going ahead with a lot more large projects. Wave energy is not yet at that stage of development.
(Mr Wilson) We think there is potential in biomass because again biomass breaks down into a number of subheadings and different technologies to invest in, so we have given a lot of priority to biomass in the Capital Grants Programme. I do not think there is any of these technologies where where people are queueing up with projects and we have underestimated what we need to invest in order to back these projects, but roughly, the programmes which we have are in proportion to where the demand is coming from, and if that changes, then the programmes can be changed. If there is a technology which is clearly emerging to a great potential then we will be right in there and backing it.
(Mr Wilson) I would not share that analysis. There is obviously some basic factual truth in it that Germany has invested in wind in a very large way and for its own particular reasons. There will be a ceiling on what Germany can do with wind in the same way as Denmark is beginning to find there is a ceiling to what they can do with wind. It is also an extremely expensive way of generating electricity on that scale, and I do believe, as I said in my opening remarks, that you have to take public opinion with you. I think that if we were going at a pace which was going to displace other generation sources and increase the cost of electricity in the way that that kind of programme would suggest, that even if it was technically applicable in the short term, it would have other ramifications as well. I think to have 18 offshore projects waiting to be in the starting grid, to be putting in place a strategy in order to identify the other locations where offshore wind is going to be feasible, that that is a proportionate programme and one which will help us to meet our targets.
(Mr Wilson) As I said, Scroby Sands as of last week is approved and they are raring to go, and it is as quickly as the technology can be put in place. My guess would be in about 18 months it would be up and running. But can I just say in all of this: if I, knowing where I want to go, this is not where I would have liked to have started from, but the fact is that we are inheriting a very, very low level of activity and we are trying to accelerate that at a pace which is going to achieve --
(Mr Wilson) With respect, business and particularly the manufacturing industry is getting the clear lead from Government and let me -
(Mr Wilson) I am happy to develop the discussion, but what we are telling them is that the Renewables Obligation is going to create a multi billion pound market. There are vast opportunities for manufacturing industry, and of course we do not have the same industry as Germany or Denmark has because we have not done that up until now. We lost the lead in wind; we are now running very hard in order to catch up, and, therefore, there is an existing manufacturer of wind towers in Wales, there is one which a Danish manufacturer, investors have been attracted into Macrahanish in Scotland, and therefore we do have an embryonic manufacturing industry. But the absolute certainty of whether it is wind or any other technology is that unless you have a domestic market, then you will not have manufacturing industry to supply it. That is why we start at this very low point, because we have had a very modest domestic industry until the present time. I tell you this, it is worse than that. What I find really pathetic is that while we are now getting into the business of manufacturing the towers for windmills, there is nobody in the UK making turbines. All of these towers that are built, we will have to import the turbines unless, and I have some reason for believing that this will be remedied, unless that is addressed. That is the position that we start from, so nobody is making any pretence about where we start from, and I am not particularly interested in recriminating about past history but you just cannot leap from A to Z in one go, you have to build, and that is exactly what we are doing now.
(Mr Wilson) Painting a bleak picture of where we start from, I certainly do not want to paint a bleak picture of how things are now developing because it is my daily job and I find it really exciting and encouraging. I find it really exciting to go to Blythe and see what has been done there, a tremendous initiative. I find it exciting to go to a conference in Manchester where there is a North West Renewables Initiative being launched and about 500 people from companies involved in that, looking at how they can get involved in renewables, and particularly in manufacturing. The same story can be repeated in different parts of the country, and although a lot of companies have come late to the opportunities in this, it is now happening and there is a recognition that this is not something at the fringes, this is something very big and something they can be part of. So on that side of things, I think it is going extremely well and at an accelerating rate of awareness. I was at the first Global Wind Power Conference in Paris two or three weeks ago. Britain was extremely well represented by companies, and it was a useful reminder that during the famine years -- there are some very good companies that have developed on the basis mainly of overseas business. We do have an embryonic industry and I think it is about to expand in a very healthy way. I thoroughly agree with what you say about the benefits of that coming to traditional manufacturing areas. Some of these jobs and some of these opportunities are going to go to the peripheral parts of the country where the resources are, but there is absolutely no reason why many of these benefits should not come to traditional manufacturing areas.
(Mr Wilson) Like Stoke-on-Trent. I am always happy to oblige entries to the local newspaper. As I said in Blythe, I think there is a lovely symmetry about the idea that Blythe, a place which has given so much to the country's energy needs historically, and is now in a depressed state, that its resurgence should be based on another form of energy. I think that in every traditional energy producing area that is something that is well worth pursuing.
(Mr Wilson) The investment is being committed by the energy companies and by other construction companies and so on on a scale that has never happened in the past. I was at an event in Scotland recently where two Scottish Utilities, Scottish Power and Scottish and Southern, between them they have committed £1 billion to renewables. It is a huge scale of investment which is available, and in addition to the Renewables Obligation which obviously underwrites that commitment, we also have a programme of capital grants of about £260 million in order to stimulate developments, particularly in those technologies which are at a relatively early stage of development.
(Mr Wilson) Yes. Again, I attended a conference in London last week, organised with the Renewable Energy Association when it was this market in rocks and investment and renewables which was being discussed and the audience was of financial institutions.
(Mr Wilson) I think that the market has changed since NFFO was introduced, and that now we need an approach which is going to stimulate a deployment of projects and the market led approach that I have described.
(Mr Wilson) I do not think it is inserting uncertainty to create a 25 year obligation which means that that premium price of electricity is going to be guaranteed for that 25 year period. I think that is a pretty high level of support.
(Mr Wilson) As I said earlier, we think the market has to play a part in this. Every project will be taken on its merits. Of course we think that the price of electricity is going to fluctuate, but the advantage to renewables in each of their forms is going to be sufficient as to give a very strong guarantee of viability to people who invest in it.
(Mr Wilson) I am aware of the danger. I think we have to watch the workings with any scheme that is put in place. We have to watch how it is actually implemented, but I would again point to the investment decisions which the big companies are making, which very often would be in cooperation with the smaller companies.
(Mr Wilson) Could I remind you, simply because it was predated.
(Mr Doddrell) The aim was to meet these renewables targets in the most cost effective way so we set an overall target as to what it is we want to achieve from renewables and leave it to the market to meet those targets in the best way it can. I do not think that will mean wind in all cases. There are other technologies that can do well under the obligation. There is hydro, land fill gas, some biomass, and other technologies that are developing that have an important role to play, and there is also the complimentary Capital Grants Scheme that I mentioned that will bring forward technologies like biomass to help us to build early demonstration plants of these technologies. From that learning, the costs will fall, and in a few years' time, we can expect to see many projects coming forward under the Renewables Obligation, so that was the thinking.
(Mr Wilson) I see the point. I think that it is safeguarded against. You are very willing to take the point on board and to look very closely at how this all begins to operate, and I think that we have safeguarded against that by also having very substantial Capital Grants available to support the developing technologies. If I go back to wave power for a minute, there is now a series of projects being developed which I hope will be in the water pretty soon, and will actually have a commercial application. Each one of them will take the process a little further on and we will be ahead - we are ahead of the game in wave power at this stage. But I have absolutely no doubt that if we need more money to be expended, wave power is beginning to fulfill its potential, and if we want to put more into wave power, then we have to juggle the figures, we have to make sure that there is that support available from larger scale -
(Mr Wilson) But as I say, it is demand driven at the price in time.
(Mr Wilson) No.
(Mr Wilson) To the best of my knowledge, nobody is waiting with a wave machine or a viable wave power option which is not being supported by the DTI, and you take it -
(Mr Wilson) You need the Research and Development, and that is exactly what is going in, therefore, I have personally encouraged Wavegem, who are one of the most successful developers of this technology, to bring forward further proposals and to get them into the water, get the technology advanced, get into manufacturing, because I believe that could be a huge growth area which would attract relatively little public opposition. You need to be pretty enthusiastic to oppose a wave power power machine.
(Mr 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 Doom Ray, 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.
(Mr 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, and also the secondary (inaudible) we would hope to increase these amounts further. But 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 and the stage we were at was wave power.
(Mr Wilson) As I say, it is proportionate to the number of companies that are working on developing it, and if anyone comes forward with proposals for plausible proposals for R&D work on wave power, then the door is open.
(Mr 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, when we lost the lead in wind power.
(Mr 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.
(Mr 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 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, because the Scottish companies are going to want to get their power out if we 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.
(Mr Wilson) It is work in progress. It is a recognition of the significance of the issue.
(Mr 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 meters' operations and these are discussions which are now going on.
(Mr 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.
(Mr Wilson) I hear what you say, and my concern, going right back to the beginning of this discussion, is that there should be consistency in a cross 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.
(Mr Wilson) Not very much, no.
(Mr 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 as a perfectly healthy dialogue between 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.
(Mr Wilson) Yes.
(Mr 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.
(Mr 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.
(Mr 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 would -- I know because I have heard them doing it -- make a very strong case for their own commitment to remedying fuel poverty.
(Mr Wilson) I welcome it.
(Mr 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 responsibilities -- the 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.
(Mr 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 metamaphosed into BETA, 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.
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 -
(Mr 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 finish -- it is not for me to say I am ending -- but 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.
(Mr Wilson) I think we should look at the operation of the first year's working of NETA and make judgments in the light of that, and that process is in hand.
(Mr Wilson) I do not share your interpretation. It depends which spin journalist you are reading that pulls it out of the long grass or kicks it into it. No, I do not. The first thing I would say is that I do not think anything we are doing on renewables is in conflict with the retention of our civil nuclear industry. I think that there is room for both renewables and nuclear power in our energy policy. In fact, if we were to look to France, the happy combination, where I think 95 per cent of their electricity comes from either nuclear or hydro electric, and that, of course, is a great virtue of being a very low emission energy mix. The starting point in this country is that about 25 per cent of our electricity comes from nuclear, and nobody has satisfactorily explained to me how we are going to meet our environmental aspirations while at the same time wishing away the contribution from nuclear. Everything we have talked about today points to the difficulties and the challenges of meeting our 10 per cent. If you lost nuclear from that mix, you certainly would not be talking about 10 per cent.
(Mr Wilson) I am obviously not going to pre-empt what the White Paper says, but I think the PIU report is very sensible on this whole area. Of course, the PIU report also says that nuclear should get recognition for the fact that it does not produce emissions.
(Mr Wilson) I think that we have to make progress on the waste issue, but I think progress will be made. I think that again the PIU Report strikes a good balance, that we do not have to go out and build, not that we build them anyway, but there is no need to go out and build nuclear power stations tomorrow. I think it would be very foolish of this country to close down that option. Let us use the next few years to make progress on the various challenges you refer to.
(Mr Wilson) I think in the very long term that is conceivable, but I think it would be very foolish at this stage to make over generous assumptions of what either of these headings are going to contribute.
(Mr Wilson) I do not believe that the progress of renewables in this country is being inhibited by our continuing reliance on a nuclear industry. That is my honest position. I think that as an example, Germany has been quoted a good deal, and Germany has stated as an aspiration to getting rid of its nuclear industry. Of course it has not yet got rid of its nuclear industry, but let us see how far it goes along the renewables road before it finalises that view. I would also point out, of course, that the Germans are, at the same time, very anxious to maintain enormous subsidies on coal because of the same decision to get rid of the nuclear industry, and I do not think anybody here would regard that as a particularly happy environmental policy.
Chairman: Minister, we have gone for a long time, but we have to close it now. As you say, it is a very central issue, what you are doing, and what we are concerned about, and we will be very interested to see how it progresses over the remainder of this year. Thank you very much indeed.