Memorandum by ScottishPower
ScottishPower, as one of the few UK organisations
with practical experience across the complete energy supply chain
in both the UK and also in the US, believes that a long term framework
is essential to deliver the required mix of competition, fuel
security and CO2 reduction. Our views on the headline issues raised
in the Inquiry are:
Without modifications to policy natural
gas will continue to secure an increasing share of the electricity
market, becoming the dominant fuel by 2020, entailing risks of
dependence on regions prone to political instability. The value
of keeping existing coal, once cleaned up, as part of the medium
strategy should be keeping existing coal, once cleaned up, as
part of the medium strategy should be recognised in terms of fuel
diversity and security. In view of its cleanup costs coal will
need support, such as a "Coal Obligation" or similar
measure, preferably within the framework of a market reward system
which recognises diversity.
Energy policy should establish a
long term framework which will deliver liquid markets attracting
large players across the complete supply chain. Large players
are essential for long term stability in a market environment
where short term shocks are inevitable. While niche markets should
be encouraged for smaller players it is essential that a framework
is in place that incentivises major players to adopt new technologies
with environmental and social benefits. Renewables will grow initially
but further support and targeted R&D will be needed to bring
new technologies to the competitive market and to integrate these.
Combined Heat and Power has suffered as a result of increased
gas prices and the New Electricity Trading Arrangements. A better
climate for CHP investment should be developed.
Policy to encourage energy efficiency
and demand reduction in the domestic sector should include the
new Energy Efficiency Commitment, energy services development,
demand side management, energy efficiency standards and new technologies.
To encourage energy efficiency in businesses policy should include
energy services for businesses, environmental taxation, emissions
trading initiatives, support for the Carbon Trust, incentives
targeted at small and medium-sized enterprises, distributed generation
and demand side management.
Open markets have resulted in lower
energy prices and can deliver reduced costs of compliance with
environmental and social goals. We consider market solutions as
also being key to helping vulnerable customers out of fuel poverty
by 2010. We believe a competitive market can provide the incentive
for "innovation in design" and "efficiency in delivery"
if clear incentives and structures are put in place.
Future energy policy should be market
oriented wherever possible and should recognise the intrinsic
value of each major policy element. Wherever practicable these
elements should be monetised, included in the cost of supply,
and made tradable. The major elements of such a policy should
security of fuel source (short, medium and
avoidance of unnecessary energy use;
ScottishPower welcomes the opportunity to contribute
to the Committee's Security of Energy Supply Inquiry at this time
when many critical issues are facing the energy sector. We have
submitted our views on broad energy policy to 2050 to the Government's
Energy Policy Review and the key areas for action, particularly
in the areas in which we have particular experience and expertise.
1.1 ScottishPower Experience
ScottishPower is one of the few organisations
with practical experience across the complete energy supply chain
in the UK and also in the US. ScottishPower owns and operates
coal, gas, hydro and renewable generation and provides transmission,
distribution and supply services in both countries. We also have
considerable experience in wind development and in clean coal
technologies. Our US activities also extend to coal mining. We
supply 3.5 million energy customers across the UK and 1.5 million
customers in the northwest US. As power purchasers, sellers and
traders we have direct experience of the west coast US electricity
markets which recently have been extremely volatile.
It is from this background that we have developed
the considered views set out below.
1.2 Future Energy BalanceScottishPower
It is clear from published information that
without further action nuclear output in the UK will decline rapidly
over the period 2010-2020. Coal fired generation will progressively
cease to be competitive as controls on SO2 and NOx are tightened
by the Large Combustion Plants and Ceilings Directive. From 2008
it is likely that only four or five major coal-fired stations
will remain operational and that from 2016, due to the requirement
to fit selective catalytic reduction, these remaining stations
are likely to cease to be competitive.
Renewable energy from onshore and offshore wind
is likely to develop over the period to 2010 to a level which
enables the Government's 10 per cent target to be met provided
planning restrictions are addressed. However, the current buyout
level of 3p per kWh for renewables will not be sufficient on its
own to incentivise extensive development of other technologies.
Further substantial support will be required to achieve this and
R&D funding should be targeted at bringing those technologies
which have the prospect of being competitive to a stage of development
where they can compete in the market.
The take up of energy efficiency measures has
been slow. Whilst the Government's new Energy Efficiency Commitment
and Fuel Poverty Strategy, which we welcome, will have an impact
this will not be sufficient to reverse the 1-2 per cent per annum
growth in demand nor to impact significantly on the energy replacement
requirements of lost nuclear and coal output. Combined Heat and
Power has suffered as a result of increased gas prices and the
New Electricity Trading Arrangements. Until electricity prices
rise eg as a result of coal and nuclear closure, or there is a
change in policy, this situation is unlikely to change.
Without modifications to policy natural gas
will continue to secure an increasing share of the electricity
market, becoming the dominant fuel by 2020. Even with a competitive
market and with interconnectors linking to other markets, issues
of global political stability would make a dominant gas share
a major concern for secure and diverse energy supplies.
Our detailed comments on the issues raised in
the Inquiry in which ScottishPower has particular expertise, mainly
in the UK but also in the US, are as follows:
2. FUEL MIX
2.1 Existing Coal
ScottishPower owns and operates 3.5GW of coal-fired
generation plant in the UK and 6.1GW in the US. We are implementing
initiatives aimed at achieving best practice in terms of generation
performance and costs at our UK stations while at the same time
maintaining the flexibility to optimise energy trading. We have
undertaken extensive benchmarking of these stations against an
international peer group and have investment programmes in place
implementing the findings to continue to reduce fixed costs, improve
engineering and operational efficiencies and enhance environmental
ScottishPower's coal purchasing strategy
is based upon the objective of achieving competitive fuel prices
while balancing the need for security and flexibility of supply.
ScottishPower purchases the majority of its coal from Scottish
suppliers under long term contracts securing the majority of coal
requirements from local sources, including low-sulphur supplies
from Scotland's only active deep coal mine. Around 1,600 people
are employed in the coal industry in Scotland.
We believe that existing coal, once
cleaned up should have a role in the medium term, to 2020. Loss
of this valuable capacity will exacerbate the shortfall in output
and its replacement by natural gas could limit future choice.
The value of keeping existing coal, once cleaned up, as part of
the medium strategy should be recognised in terms of fuel diversity
and security. Coal's value in terms of providing balancing services
will also increase with anticipated increases in intermittent
output from renewable energy sources and small scale embedded
The Environmental Protection Act
authorisations for coal-fired plant, which implement the European
Union Ceilings Directive and Large Combustion Plants Directive
limit the total bulk emissions of SO2 and NOx progressively over
time and require all but very low load factor plant to fit flue
gas desulphurisation for SO2 and selective catalytic reduction
for NOx. The latest revisions to timescales require flue gas desulphurisation
for SO2 to be fitted to high load factor coal plant by 2008 and
selective catalytic reduction for NOx to be fitted by 2016. Plant
not meeting the 2008 standard will be able to opt for 20,000 running
hours followed by closure.
ScottishPower has pioneered the development
of gas reburn which, when used in conjunction with special burners,
can reduce emissions of NOx from large-scale, coal-fired power
stations by up to 80 per cent. ScottishPower has been awarded
a Queen's Award for Enterprise in the Sustainable Development
category a result of fitting gas reburn at its major coal-fired
station in Scotland. Gas reburn works by replacing about 20 per
cent of the coal used for generation with gas resulting in reductions
in NOx emissions of up to 80 per cent. In addition emissions of
SO2, dust and ash are reduced by 20 per cent, carbon is reduced
by up to 10 per cent and unlike some of the alternative technologies
available, there is no requirement for the storage of potentially
hazardous chemicals on site nor for the disposal of contaminated
by-products. ScottishPower has invested £20 million in the
gas reburn project, making it the biggest research and development
project into emission control carried out by a UK generator in
While techniques such as gas reburn
combined with a trading regime for NOx should enable existing
plant to comply with the tightening NOx controls from 2008 to
2016, it is our view that without additional support only four
or five major coal-fired stations will continue to operate until
2016 and will then close due to the requirement to fit selective
Most existing large coal plants were
built in the 1970's and are already some 30 years old. These plants
could operate until 2020 but major investment will be required
in the near future to enable such life extensions. Much retrofitting
has been done at these plants to the main process components such
as parts exposed to stress from temperature, pressure or rotation,
and to wear and corrosion. However, major decisions on these plants
will be made in the next few years and if it is not clear to the
owners that the plants will have a continuing role beyond 2008
and 2016 then the investments required to extend the station lives
to 2020 will not take place and existing coal will cease to have
a role beyond 2016. Without a clear role and support all existing
coal stations will close by 2016.
In the US controls on coal are principally
via the Clean Air Act. Improvement programmes are driven by reduction
targets for SO2, State Air Quality programmes and by Regional
Haze reduction programmes. Litigation via the New Source Review
provisions of the Clean Air Act has also resulted in a number
of eastern US utilities agreeing to fit flue gas desulphurisation
and selective catalytic reduction and has the potential to drive
all major coal-fired plant throughout the US to full retrofit
over the next 10 years. The impact this would have on energy costs
and potentially fuel security is currently being reviewed.
In order to support coal we propose that consideration
is given to the introduction of a Coal Obligation, or similar
measure, which would reward coal for its flexibility and storability.
This could operate on a similar basis to the proposed Renewables
Obligation by requiring all electricity suppliers to purchase
a specified proportion of their total requirements from coal-fired
generation with a suitable but-out price if purchases fall below
the required level. Initially the money raised by this means would
be invested by coal-fired generators in their existing plants
for life extension and environmental improvement projects. However,
progressively these funds could be incentivised into clean coal
technology developments as set out below.
2.2 Clean Coal
For coal to have any role post 2020 we believe
it will be essential to develop clean coal technologies. Currently
available clean coal technologies have the potential to generate
electricity at significantly higher efficiencies reducing CO2
emissions by up to 25 per cent while also eliminating virtually
all particulate and SO2 emissions and greatly reducing NOx levels.
However we believe it is important at this stage to incentivise
the development of new clean coal generation that also incorporates
CO2 capture and sequestration, which is particularly appropriate
for Scotland in view of the potential use for CO2 in enhanced
oil recovery and life extension of North Sea oil reserves. There
could be significant benefits to the UK manufacturing industry
from exporting clean coal technologies to countries which are
heavily dependent on coal for power generation, such as India
and China together with significant progress towards the achievement
of global climate change targets. Clean coal technology is a significant
component of national energy policy in the US with potential significant
funding for new technology coal-fired plant. New coal generation
appears attractive both for coal-producing states within the US
and for price-concerned customers. Because of natural gas price
volatility and significant short-term supply shortage, generation
that relies on plentiful domestic coal supplies is seen as an
appropriate addition to the resources mix for ScottishPower and
for the western US region as a whole. ScottishPower is working
closely with other stakeholders around western US to explore the
further use of plentiful, low-sulphur western coal supplies.
It is important to avoid a hiatus in coal generation
through clean coal technologies not being able to take over from
existing coal between 2010 and 2020. We therefore propose that
the Coal Obligation or its equivalent, as set out above, progressively
becomes a Clean Coal Obligation. The rate of transfer from coal
to clean coal is a matter of judgement. However, in our view existing
coal, even cleaned up, is unlikely to have a role from 2020 onwards
and thus clean coal should be developed to a stage where it is
capable of providing all required coal-fired generation from 2020.
ScottishPower has access to 1.7GW of gas-fired
generation plant in the UK and 0.5GW in the US. In the UK we have
recently acquired a 715MW combined cycle gas turbine station and
have also started commercial operation of a newly constructed
400MW combined cycle gas turbine station in which we hold a 50
per cent share. Our generation strategy involves the development
of a variety of new supply options in a way that mitigates environmental
risks while providing adequate supply at reasonable cost.
In the UK ScottishPower purchases
gas to meet the needs of its generation and supply businesses
using a combination of long, medium and short term contracts with
gas producers for the supply of gas on a non-interruptible basis.
ScottishPower has three long term contracts, with remaining terms
of 7, 13 and 16 years, for supply from major gas fields. For the
latter two, these contracts can terminate earlier if the reserves
of the fields have been fully depleted.
In the UK the development of a gas
storage site was completed in 2000 and during the 2000-01 winter
the facility was extensively used to meet the peak demand of some
450,000 customers, as well as exploiting the sales opportunities
both when market prices rose to the highest sustained levels experienced
since the market opened to competition in 1996 and arising from
the volatility of gas prices between mid-week and weekends. In
light of the experience gained, a feasibility study is underway
aimed at substantially upgrading the daily delivery rates and
incorporating an additional reservoir to increase capacity. In
addition ScottishPower has entered into an agreement to develop
a salt cavern gas storage facility for which planning approval
is being sought.
Energy policy must ensure that gas
does not become the dominant fuel because of the risks that this
would entail eg if supplies became dependent on regions prone
to political instability. This issue has been recognised in Europe
and is one where the UK should make a common case with its EU
The development of gas storage facilities
should be encouraged in view of the diminishing capabilities of
the North Seas Fields to provide the necessary swing.
ScottishPower is obliged to purchase 74.9 per
cent of the output of British Energy's two nuclear power stations
in Scotland under long term contract. ScottishPower's share is
equivalent to 1.8GW.
Nuclear output in Scotland, accounting for over
50 per cent of Scottish electricity demand, is well in excess
of the level in England and Wales. Such a level of inflexible
nuclear plant places a strain on other flexible plant, such as
coal, particularly at times of low demand such as the summer months.
Even if one of the Scottish nuclear stations were to close after
2010 the output from the remaining station would still account
for a higher proportion of Scottish demand than the proportion
of demand in England and Wales currently supplied by nuclear stations.
The issue of a falling share for nuclear thus
requires to be addressed in England and Wales well before it needs
to be addressed in Scotland.
ScottishPower is committed to significant investments
in renewables in the UK and the US which will improve profitability
as well as meeting environmental obligations. We have recently
commissioned our tenth onshore wind farm in the UK. This wind
farm is the first purely commercial wind farm developed in the
UK operating without support from financial incentive schemes
for renewable energy, such as the Scottish Renewables Obligation
or the Non-Fossil Fuel Obligation. Exploiting a site with excellent
wind resource and utilising technology which reduces the cost
of producing wind energy, it demonstrates that onshore wind is
reaching commercial viability and will soon be able to compete
with other energy sources. It confirms the benefits of support
for such technologies from Government to achieve commercial viability.
ScottishPower currently has 98 MW
of onshore wind generating capacity in the UK with a further 30
MW wind farm, the most productive in the UK, planned to be operational
next year. We are committed to becoming the lead UK wind generator
with currently over 400 MW of wind projects throughout the UK
undergoing detailed environmental assessment in support of planning
applications. While this is predominantly onshore plant it includes
extensive testing on the feasibility of constructing a 30-turbine
offshore wind farm off the Lancashire coast.
In the western US while new fossil
generation will be required to meet the critical needs of the
market, renewable generation is targeted to make up a growing
percentage of the overall generation mix for ScottishPower and
for the region as a whole. ScottishPower aims to become the region's
leader in new renewables development and sales with current projections
of 1,000 MW of new wind and geothermal resources by 2005. ScottishPower
will re-licence and continuously improve operations at its US
hydro facilities, which provide 1,000 MW of low-cost, reliable,
renewable generation. Market based mechanisms in the US, such
as "green tags", together with the designation of some
"low impact" hydro, provide a clear financial incentive
to develop new renewable generation and to reduce impacts from
existing hydro facilities.
In our view the proposed Renewables
Obligation represents a good example of how intervention to achieve
a particular policy objective can be managed by a market-based
approach. It also sets a good example in terms of long term certainty
with the proposed level of the Obligation set out to 2011, the
proposed minimum level set to 2027 and the statement from the
Government that it has no plans to reduce the level of the Obligation
once in force. The proposed Obligation, with the current but-out
price of 3p, when taken together with Climate Change Levy exemption
will encourage the development of onshore wind generation but
further support will be required for other technologies. This
should be targeted at those technologies which have the prospect
of becoming competitive to enable them to reach a stage of development
where they can compete in the market.
A particular issue for renewables
is gaining planning permission. While the onshore wind farm planning
success rate in Scotland, with 66 per cent of wind farms gaining
planning permission over recent years, is significantly better
than in England and Wales over the same period this is still a
major barrier to development. Government has recognised the important
role that planning has to play if renewable energy targets are
to be met and renewable energy planning guidelines in Scotland
have recently been revised with the aim of striking the correct
balance between local environment and Government energy policy.
We welcome the progress that has been made in Scotland but still
believe that further streamlining would be beneficial. It is important
that any changes to planning processes fully take into account
the associated network requirements to ensure that developments
are not delayed because the network operator is having difficulty
gaining planning permission for overhead line connections. ScottishPower
recognises the importance of preparing the ground with local authorities,
environmental organisations and local people before formal planning
applications are submitted. In all our recent planning applications
we have developed our proposals in consultation with these bodies
before submission but still are faced with a prolonged process
to obtain approval.
The issues of planning permissions and network
connections require to be resolved if the Government's renewables
targets are to be met. Planning procedures require to be streamlined
and network connection policy should not impose excessive costs
on renewables developers.
3.2 Combined Heat and Power
ScottishPower has various CHP plants under development.
Current market conditions are not favourable for further investment
in CHP. However, we are still targeting 10 per cent of our portfolio
from CHP by 2010 in anticipation that energy policy will recognise
the importance of CHP and create a better climate for investment.
In the US we have recently taken a share of the output from a
new 484MW co-generation plant and are targeting the continued
development of a balanced portfolio.
A better climate for CHP investment should be
4. ENERGY CONSERVATION
4.1 Domestic Energy Efficiency & Conservation
In the domestic sector, our efforts for energy
efficiency are recognised as leading class. Our activities include
offering customer solutions for low energy lighting, insulation
programmes, heating and controls, draft-proofing, and appliance
Most recently, we have developed a concept called
Energy Sense, which offers customers an end to end service in
energy efficiency from the initial free survey to measure installation.
We are also Joint Venture partners with EAGA as part of the NESTMakers
Company that is involved in the delivery of new HEES scheme marketing
To encourage energy efficiency and demand reduction
in the domestic sector, we believe the following aspects of policy
to be of greatest importance:
Energy Efficiency CommitmentWe
are currently involved in reviewing the latest proposal document
from DEFRA in regard to the new EEC for the period 2002 to 2005.
At this stage, there are a number of issues that we are keen to
point out in regard to policy, namely (i) the need to have an
overall objectives and end-point of the scheme (as we do for renewables
in 2010) which can be used to determine when market failure is
corrected; (ii) the trade off between environmental and social
objectives needs to be fully recognised, and; (iii) the penalty
for non compliance is not as explicit as in the proposed Renewables
Obligation. ScottishPower's full response for this document will
be copied to the PIU for information in early October.
Energy services developmentWe
remain convinced that the reform of the current 28 day rule will
encourage suppliers and others to: (i) foster the development
of new services that will integrate the benefits of energy efficiency
with energy pricing, and; (ii) encourage the leveraging of private
capital for housing improvements.
Demand side managementWe believe
there are gains to be accrued for domestic electricity customers
(particularly those with electric space and water heating) related
to the introduction of demand side management techniques in domestic
properties. In some cases, intelligently controlled DSM can be
used to optimise generation plant to minimise the amount of CO2
emissions further upstream in the energy value chain. We would
be keen for Government policy to fully recognise the benefits
of this via new regulatory and market incentives.
Energy efficiency standardsThe
forecast growth in housing suggests an increase of 1.8 million
households by 2010 and a further increase of 1.7 million by 2020.
To arrest the growth in associated energy consumption from these
new properties, it is extremely important that sufficient attention
is focused on expanding the Labelling Schemes for Appliances and
improving Building Regulations beyond their present levels. To
implement any further changes, long term planning and advance
notice from Government is an essential component of policy.
Emergence of new technologiesWe
believe there is a future role for domestic scale distributed
generation, though this should not be over-stressed at this stage.
For photo-voltaics, we view this as an important energy source,
but limited in scale and scope. In regard to Fuel Cells, we anticipate
growth in this technology, but not prior to 2008 for domestic
properties. For micro-CHP, we anticipate adoption within the energy
market from 2003 onwards, with uptake dependent upon the forecast
system costs and market incentives.
4.2 Energy Policy for the Business Sector
ScottishPower has experience in serving the
energy needs of commercial and industrial customers across the
entire spectrum of energy requirements. In examining the energy
policy for this sector, there are a number of key concerns that
must be accounted for:
effective market competition;
energy efficiency and productivity;
the impact of taxation and market regulation.
To encourage energy efficiency in businesses,
we believe the following aspects of policy to be of greatest importance:
Energy services for businessScottishPower
has been at the forefront of service development for business
energy customers. We have led initiatives in shared saving schemes,
demand management, monitoring and control and CHP. We support
the Government's initial objectives in this area via the introduction
of Enhanced Capital Allowances for energy efficient technology
and the formation of the Carbon Trust (with associated funding).
Generally, the policy instruments
appear to be in the right direction. However, if the Government
has serious ambitions for customers outwith the Climate Change
Levy Agreements to undertake investment in energy efficiency,
it must scale its commitment accordingly. In practice, this means
that the current £100 million being recycled from CCL funds
should be increased towards a figure of £250 million or more
to make a reasonable impact.
introduction of new levies and taxes for business customers must
be managed very thoughtfully. Industry research suggests that
the overall elasticity of demand for energy use is low, other
than for selected applications and customer types, and tax increases
in themselves are unlikely to have a desired affect of reducing
demand. Any new environmental taxation proposals must consider
the impact on competitiveness for UK industry and the compliance
costs for suppliers and customers alike and their ability to meet
initial objectives (often CO2 reductions).
CCL Agreements and flexible mechanismsScottishPower
supports the introduction of emissions trading initiatives to
help towards more sustainable forms of generation. The flexible
mechanisms developed in the future can also be designed to include
the active participation of suppliers and customers as part of
their energy supply agreementeven outwith those industries
with CCL agreements. To enable this, customer information, carbon
weighting of fuel, administration and trading must be made as
simple as practically possible.
Carbon TrustWe welcome the
creation of the Carbon Trust. As the trust rolls out its operations,
we anticipate that one of its key functions is to facilitate market
transformation programmes to improve the uptake of current energy
management technologies as well as new ones. The scope of activities
for the Carbon Trust should be spread across the entire business
sector rather than simply the needs of larger energy users. This
would enable prospective customers to have a simple one stop shop
for energy management needs and act as a good focus for all government
programmes looking at energy productivity in business.
Small and medium-sized enterprisesOne
of the key policy challenges for energy productivity is the ambivalence
of small and medium sized enterprises to engage in efficiency
and conservation measures. To make inroads to this challenge,
small businesses require easy access for assistance from a body
such as the Carbon Trust, good quality information for decision
making and grants and incentives to make investment decisions
Demand Management and Distributed
GenerationThe government may also wish to keep under review
the advantages and disadvantages of the separation of supply and
distribution businesses. Important to the deployment of some new
technologies for distributed generation and demand side management
is ease of access to information and the management of control
and monitoring systems in regard to the distribution system.
Practical energy savingsWithin
the PIU papers for Energy Productivity, it is outlined that there
is a very large opportunity to gain savings from the commercial
and industrial energy sector. In theory, we agree with this position.
In practice, however, to unlock these savings requires creative
customer solutions in energy services, full coverage of all parts
of the business market and economic incentives, as suggested above.
ScottishPower is keen to see the creation of
energy markets that can provide suppliers and customers the option
of a seamless energy services product able to deliver energy needs,
safely and efficientlyshould they wish it. To realise this
potential in the energy market, we believe that policy can be
constructed in such a way to a deliver a new structure, regulation,
penalties and incentives to allow lower UK emissions, lower overall
customer costs, and an improved supplier profitability.
5. FUEL POVERTY
ScottishPower has devoted a great deal of effort
to provide affordable warmth for vulnerable customers. We view
this as an important Government priority and we have offered a
range of constructive suggestions following our review of the
UK Draft Fuel Poverty Strategy.
Above all, we consider market solutions as being
key to helping vulnerable customers out of fuel poverty by 2010.
We believe a competitive market can provide the incentive for
"innovation in design" and "efficiency in delivery"
if clear incentives and structures are put in place.
Central to the Government's energy objectives
over the last few years has been the achievement of a reduction
in those who are affected by fuel poverty. In the recent UK Draft
Fuel Poverty Strategy, the objective of eradicating fuel poverty
for vulnerable customers by 2010 was outlined.
It is now widely accepted that the problem of
fuel poverty is caused by three inter-related factors, namely:
poor housing conditions; low household incomes; and the level
of domestic fuel prices.
ScottishPower believes that, for the Government
to be successful in eradicating fuel poverty, it must view the
issue from a multi-agency approachwith a strong focus on
managing each of these factors in an intelligent and effective
In practice, this means a series of programmes
to improve housing quality in the UK, the creation of a strong
and inclusive society where households have the opportunity to
improve their income levels, and a contribution from the energy
sector which can deliver lower overall fuel costs consistent with
meeting environmental objectives.
For energy specifically, the best contribution
that can be made by energy suppliers is to focus on their strengths
in serving customers with the lowest and most effective overall
tariff or energy services package.
This could range from the provision of basic,
affordable price packages to the offer of a service "bundle"
of energy and non-energy servicesdepending on customer
requirements and commercial incentives. We believe it is for energy
supply companies to apply their strategies in a way that is suitable
to market opportunity, with a minimum of necessary regulation.
In addressing specific policy issues, we have
responded in full to the Government's Draft Fuel Poverty Strategy
as well as the Regulator's Social Action Plan. Our views can be
summarised as follows:
Targets for Governmentthe
focus on government targets should also ensure a consistent baseline
and measurement approach across the UK via the many administrations
Co-ordination of activitieseffective
regional co-ordination to encourage partnerships between the private,
public and voluntary sectors, within the competitive energy market;
Levels of pricesthe impact
of regulatory obligations should be kept to the necessary minimum
to ensure the level of prices for domestic customers is kept as
low as possible by the working of the competitive energy market;
Changes to energy market structurefor
the market to best serve vulnerable customers, we have outlined
proposals for the energy market to facilitate:
(i) revisions to the forthcoming
Energy Efficiency Commitment;
(ii) emergence of a new energy
services market that can encourage the attraction of private capital;
(iii) the availability of innovation
in new tariff design and demand side management options; and
(iv) development of improved,
low cost methods of bill payment that link to customer needs in
partnership with Government and other partners.
Managing reductions of those in fuel
povertythe focus for the Fuel Poverty Strategy programmes
can be helped via a review of overall programme effectiveness
coupled with a review at a local level of client satisfaction;
Managing industry capacity and renewing
skillsto ensure there is adequate supply side management
of skills and capacity to meet the growing demand for improvements
in housing fabric;
Hard to heat propertiesco-ordinated
action between Government and industry to address the specific
energy savings problems facing those in less traditional properties.
Helping customers in debtthe
introduction of new regulations to assist customers out of fuel
poverty helped via debt transfer. However, in doing so, suppliers
must be enabled to exercise commercial freedom in the management
of customer contracts.
ScottishPower's views can be summarised as follows:
Working with the grain of markets
is more appropriate than detailed regulation.
The value of such issues as fuel
diversity, building infrastructure and tackling fuel poverty needs
to be recognised and rewarded within the market.
Energy policy should establish a
long term framework which will deliver liquid markets attracting
large players across the complete supply chain.
The current regulatory regime will
not necessarily deliver the desired outcome and will need to be
reviewed to deliver the new policy aims.
If a diverse mix of fuels is to be
secured, in view of cleanup costs, coal will need support, such
as a Coal Obligation or similar measure preferably within the
framework of a market reward system which recognises diversity.
Renewables will grow initially but
targeted R&D will be needed to bring new technologies to the
competitive market and to integrate these.
Social and Energy Efficiency Obligations
Energy supply now encompasses tackling
fuel poverty, helping increase energy efficiency etc and the reward
system must reflect that.
Customer awareness of the need for
change/action is essential and Government will have a strong role
to play, in partnership with others such as ScottishPower.