Examination of Witnesses (Questions 720-722)|
TUESDAY 4 DECEMBER 2001
720. The other factor there is the demand and
the peakiness and the unpredictability of demand. Are there further
steps that you would like to see considered which would help to
offset the peakiness of demand or, as you express it, to communicate
prices to consumers more effectively? Is that some sort of smarter
metering system or how would that price signal be communicated?
(Mr Holliday) There are two halves to the demand question.
First of all one of the things NETA has done is to incentivise
the marketplace to provide some services for short response. Historically
that has tended to be on the supply side in terms of generators:
who can come up, and get off, the system very quickly. What we
have seen, as that is now priced, and there is an understanding
of price, is some demand side response, as well, of systems which
are tied directly into the Grid, so major industrial consumers,
who can switch off very quickly for a short space of time, have
provided that service.
721. Like the chemical industry used to have
(Mr Holliday) Indeed.
(Mr Scott) About 30 per cent of our standing reserve
and frequency response capability is held on demand side providers.
(Mr Davies) On the domestic side, you are absolutely
right, the issue is about smart metering into households and whether,
if one is to impact to get price messages through to the domestic
customer. That is really an issue which suppliers of electricity
may take up as being in their competitive advantage. If you can
attract lots of customers who are not home at half past five on
a winter's evening because they are still at work, but who are
in effect, as the situation is at the moment, deemed to have a
demand at that price because of the way the system works, then
you can offer a lower tariff to those people or a lower charge.
There is an offsetting effect there which is that the people who
are home at half past five on a winter's night and are using electricity,
will, potentially, see themselves having a higher charge for electricity.
That is an issue fundamentally for suppliers to develop as part
of the competitive supply market as I would see it. From the National
Grid point of view, it really comes back to Jeff and operating
the system, but the issue is that people's reactions, when there
is a large enough number of them, are relatively predictable.
It may cost you money and it may cost money to have plant ready
to deal with five million people turning on their kettles at the
end of the football match, but Jeff's people do an excellent job
in predicting how many of them are going to do it and getting
the plant ready to do it.
(Mr Scott) In a sense providing the response capability
to deal with 5,000 people switching on their kettles at the end
of the World Cup game, or indeed providing the response capability
to deal with the loss of a generator at short notice is part of
the very short timescale requirement to be able to meet these
unexpected events on the system. That cost is a cost that we incur
and are incentivised to try to reduce the cost of providing the
capability to deal with it. That is quite reasonably a shared
cost across the industry.
722. Where domestic consumers are concerned,
it all depends upon the elasticity of their demand and I would
guess their price elasticity is not great. They are pretty resistant.
On the short-term, short-demand, turning on the kettle, they are
not really going to be affected by that, so it is going to be
more difficult to achieve with domestic consumers.
(Mr Holliday) Indeed.
(Mr Davies) Yes.
Sir Robert Smith: Should you sell your information
about people switching on their kettles rather than watching the
adverts which people have paid to put on at the end of the World
Chairman: I take it that you do not advertise
at that particular point because everybody is in the kitchen.
At that point, it is appropriate for us to thank you for your
evidence. If anything comes up which you would like to supplement
your evidence with, we should be happy to accept it. We shall
take the liberty of asking any further questions if we feel there
are any gaps. I think you have been very full and very generous
with your time. Thank you very much, we appreciate it.