23 JANUARY 2004

Claire Durkin, Adrian Gault and Iain Todd

  Q1  Chairman: Good afternoon and may I welcome our three witnesses and those others who have come along to listen to this first public evidence-taking session of this inquiry into the practicalities of renewable energy. May I draw the attention of those present to the information note that is available which, among other things, sets out our Members' declared interests, which will also be published in the eventual record. So, to save time, we will not go through them here. May I thank the witnesses for their written submissions, which we found very helpful and formed an excellent basis for discussion. May I urge the Committee and, indeed, the witnesses to be brief; the Committee to be brief in their questions and the witnesses to be as concise as is reasonable in their answers. May we begin, for the record, by asking each of our witnesses to identify themselves and say who they are and what they do?

  Ms Durkin: If I could start: Claire Durkin, I am Director and Head of what is termed the Energy Innovation Business Unit, which is a pretty opaque title. I am Under-Secretary responsible for the primary energy businesses, so my interests span coal and nuclear, oil and gas, as well as renewables. I also have nuclear safety and security and clean up for the Former Soviet Union within my unit. I do have specific responsibility, and I know that is one of the questions, for the renewable targets.

  Mr Gault: I am Adrian Gault. I am Director of Strategy Development in the Energy Strategy Unit. I am an economist.

  Mr Todd: Iain Todd. I am Director of Renewable Energy Industry Development within Claire's command. I also look after Oil and Gas Industry Development in Aberdeen.

  Q2  Chairman: Thank you very much. May I begin, from the Chair, to say that there are a number of pieces of factual information that we would be very grateful to receive from you. It may not be entirely sensible to seek this from you orally today, but if I could just outline the points that we would like you to cover and then perhaps you could let us have it at slightly more leisure in written form. In particular, we would be interested in a summary of the main policy instruments, current or imminent, which are designed to promote renewables and low carbon energy generation, including the Renewables Obligation, climate change levy, emissions trading, etc. We are particularly interested to know how these interact with each other and examples of how they apply, or will apply, would be useful. We would also like to have a feeling for the background regarding the non-fossil fuel obligations and the transitions to renewable obligation and what was the cost of the non-fossil fuel obligation; what does it affect and how have the Government's objectives changed from one to the other? Could you specify what forms of electricity generation have been covered, both by the non-fossil fuel obligation and the Renewables Obligation, since 1990? What is the position today, for example, regarding hydro, energy from waste, clean coal technology, methane from coal versus methane from landfill and so on? If you could let us have that information, we would be very grateful.

  Ms Durkin: Certainly.

  Chairman: Now, I think at this point Lord Flowers has what was to be a supplementary to that and I wonder if you would ask that, Lord Flowers?

  Q3  Lord Flowers: I wanted to ask a rather general question which is not related just to renewables, although I think it has a particular importance there. I want to know where the duty of supply lies. I am not thinking of it purely in terms of the bad night we are going to have next week when we run out of fuel, maybe. I am thinking of it in the long term when one is planning for additional resources, additional power stations or whatever, which happen to be, in the nature of things, on a ten year time scale or so. So, from that point of view, where does the duty of supply lie or is there one?

  Ms Durkin: There is a chain of duties that would be pertinent. Overall the duty falls to Government to ensure security of supply and it is therefore with the DTI, working through the Secretary of State, to ensure that we have the policies in place that will secure sufficient energy. I think that there is a real consciousness that the heart of the matter is there. From there, however, there is the chain of duties and the immediate duty beyond falls to Ofgem—they have statutory responsibility to ensure that the privatised mechanisms work in such a way that the lights stay on. From Ofgem we have the responsibilities of those managing the grid and the NETA obligations to ensure that the balance is right. But ultimately the responsibility is with Government.

  Q4  Lord Flowers: But is the responsibility such that if there is a great failure, not a little failure obviously, a big failure, that heads will fall?

  Ms Durkin: I am sorry, I do not think it is necessarily just the size, it is the nature of the failure if we are talking about whose head would fall. There have been investigations in terms of small failures in London and Birmingham. These were investigated both by Ofgem, with their duties to ensure that the people looking after the grid were looking after it adequately, and by the Engineering Inspectorate, who work on behalf of the Secretary of State, to ensure that all is right and proper in that area. So the Secretary of State has not washed her hands of responsibility and the reports are coming out in that area. So I do not think it is a question of degree, I think it is a question of the nature. If, for instance, it was a straightforward matter of neglect, then the people who have neglected it, either those who neglect it or those who should be ensuring that they do not neglect it, would be the focus of attention. But were it the fact that we had completely ignored energy policy and paid no due diligence to what we ought to be paying due diligence to, then of course it would fall to Government.

  Lord Flowers: Thank you very much. I suspect we shall return to this in the course of our inquiry.

  Q5  Chairman: Would you say that the UK is on course to meet the targets that are set out in the White Paper? Where do we stand today and how does this compare with the Renewables Obligation target of 4.3 per cent for 2003-04?

  Ms Durkin: I would assert that I believe we are on course. You will not be surprised to know that we have discussed this at great length in the last few days to decide exactly to what extent we can assert this. The current position is very low. We started off dismally, but last year we reached 1.7 per cent. This is not very good. To get to 10 per cent is a huge climb. We have done a great deal of independent research and we have worked closely with the Carbon Trust to see what needs to be done and just how feasible it is in order to try and get a better sense of the reality. And by reality I do not just mean economists, but engineers and the supply chain and the real things that have to go into the ground and into the sea, etc. This is a large piece of work that we ought to be publishing in the next two weeks and obviously we will send it to the Committee. It concludes that we can reach the target, but it certainly illustrates just how big a climb that is and just how many things have to be dealt with on the way. A number of the things to be dealt with fall to Government. Would it be helpful if I highlighted some of these? The strongest message that came out was that the big incentive is the Renewables Obligation, but that the Renewables Obligation stopping at 2010 was an inhibitor for investment: the return on the Obligation needed to go beyond 2010 for offshore wind development. There was concern about the grid and what we were doing about the grid and there was concern about planning and planning consents. We are responding to these matters. The first we have, I am very pleased to say, responded to positively and in December we announced an extension of the Renewables Obligation to 2015 and we believe that will make the biggest difference in terms of confidence in the market and investment. We have a number of working parties on grid transmission and on grid, which we may turn to later, I am really quite optimistic and pleased that we have our best people working on this. The grid needed strengthening anyway and it needed updating. This is a real opportunity to make sure that, over the next few years, it becomes the strongest and best and we can be really proud of it. In terms of planning, as you may know, there is new planning guidance in draft from ODPM for England and it is being prepared in Wales. We have already seen improvements in planning consents. Iain is working extremely closely with the MOD and with all the other planning interests to smooth the path of the planning. So we are trying to tackle those inhibitors that fall to Government. We are also putting a lot of effort into working alongside industry in terms of the supply chain. We commissioned some work from Garrad Hassan on the engineering aspects which showed there was no killer problem to reaching the target. But I do not want the Committee to think that we have had a look and it is okay, it is in the bag. We know perfectly well that it is a huge steep curve. We will need to do consistently as well as Germany in terms of the amount of gigawatts Germany is putting in at the moment. It is a big challenge for us.

  Q6  Chairman: Thank you very much. Do you have specific projections for rates of installation of turbines and so on? I mean I take it it is largely wind that you are concerned with?

  Ms Durkin: Certainly for the 2010 target it is pretty much expected, from now on, that the new build will be wind. I know we will get back to that, but I would like to say to the Committee that if we are to reach the 2020 aspiration, we really need to diversify. We will not be looking to reach the 2020 mark target aspiration just on wind. We will be seeking to diversify. We are looking at biomass and we are interested, in the longer term, in fuel cells and a whole range of options. But for the 2010 target you are absolutely right, we have to build wind. It is not for Government to decide, it is for the industry to decide how much should be on-shore and how much offshore. If we are assuming something like 50/50, there actually may be more on-shore. It very much depends on planning: on-shore is cheaper and therefore if the planning is easier there would be more on-shore.

  Q7  Chairman: Excuse me, I do not quite see how fuel cells help you. How do you generate the hydrogen?

  Ms Durkin: Sorry, I was simply trying to indicate that for longer term cleaner energy, and the carbon abatement targets, we are trying to look right across and I see fuel cells as one option. So no, it will not be directly for the 2020 target, but looking for a cleaner energy economy I would like to see the hydrogen element there.

  Q8  Chairman: Well, hydrogen is only clean if you generate the hydrogen from a clean source.

  Ms Durkin: Indeed.

  Q9  Chairman: And that is not necessarily the case?

  Mr Gault: I was not sure if your question wanted us to go wider in terms of progress towards achieving the carbon objectives overall in the Energy White Paper?

  Q10  Chairman: Yes.

  Mr Gault: Would you like an update on that?

  Chairman: I think not at this stage. Thank you. Lord Lewis, I think you have a question.

  Q11  Lord Lewis of Newnham: What actual investments are you making in order to ensure this? I mean are you backing any particular programmes and, if so, who is doing this?

  Ms Durkin: I will answer very briefly and then allow for more detailed information from Iain. In terms of the money going towards renewables, the biggest source is by far the Renewables Obligation which covers all the technologies. It is estimated that will be up to probably a billion pounds a year by 2010. In   addition, we have direct investment from Government to business, we have capital grants and for the 2010 target the capital grant for offshore wind is the most significant. We looking at something, at the moment, around £10 million for installation. As well as capital grants, we have research, development and demonstration monies. The detail is hugely complicated, but the research and development funding is around £19 million a year. Altogether up to 2006 we have a package, including capital grants etc, of around £350 million. Iain is the detail man.

  Mr Todd: Our strategy is that the Renewables Obligation will give uniform support to all technologies and then we can tailor that by the additional support to individual technologies through capital grants for the near-commercial technologies and through R&D grants for those that are rather further from market. So we have four major capital grants schemes; we have off-shore wind farms, biomass, photovoltaic and community/household. And then when you move to technologies such as marine, these would be supported through our R&D expenditure at this time.

  Q12  Lord Young of Graffham: In taking steps to encourage the delivery of your 2010 target of 10 per cent, you are obviously relying on wind, but are you, in any extent, relying on private wind sources? In other words, smaller wind for residential accommodation so people could put up their own?

  Mr Todd: Our community and household scheme is open to individual householders and individual communities to bid for Government support across a whole range of technologies. They would certainly include small scale wind turbines of the type that you might put on an individual house or an individual farm.

  Q13  Lord Young of Graffham: Have you considered suggesting that that gets some sort of tax allowance to encourage people to do it?

  Mr Todd: This is a capital grant to meet a percentage of the initial cost, so it is a flat rate. There is a scheme in England and a separate one in Scotland. Typically on a wind turbine you might meet 30 per cent of the cost, let us say, from Government.

  Q14  Lord Wade of Chorlton: You mentioned the grid and the issues relating to the grid; have you also resolved the issue of the connector between Scotland and England?

  Ms Durkin: We hope that through the Energy Bill that is going through at the moment, with the introduction of BETTA, we will have a real GB-wide connection.

  Q15  Lord Wade of Chorlton: But you have not yet resolved that issue and you have not allocated the money that has got to be necessary to do it?

  Ms Durkin: No. It will be allocated and be resolved through the Bill and it will happen straight away, so the answer is yes.

  Q16  Lord Patel: My question relates to UK policies for encouraging renewables and how they compare with other countries such as Denmark or Germany? Are there any lessons that we can learn from them? If there are, how are we going to implement the UK policies?

  Ms Durkin: Iain spent yesterday in Berlin, so he has hot off the press information when it comes to the European countries. One lesson that I have learnt is just how far behind our leading competitors we are and I have been trying to puzzle out just why that is so. It seems to me that the biggest lesson to learn was that governments in other countries had given a lead for a long time, loud and clear and confident, that this was a serious development. I think that through the Renewables Obligation, the profile that that we have given to renewables generation is just starting to bite in Britain—that it is serious and that it can be big. So I think it is a question of scale and confidence. There are different mechanisms certainly in different countries and Iain can draw the distinctions, but I do not think the Renewables Obligation and the different mechanisms are a critical distinction. I think the critical distinction is the length of time Government has led and been determined that there will be renewables in these countries.

  Q17  Lord Patel: So we have no lessons to learn from them about their policies?

  Ms Durkin: Sorry, we have lots of lessons to learn; some good and some to avoid. But Iain—

  Mr Todd: Yes, there are two principal types of support mechanism in Europe. There is an obligation type system and there are feed-in tariffs where generators are awarded a certain amount of money by Government per unit of electricity. It is true that the feed-in systems in Germany and other countries have produced very significant amounts of renewable generation. I too would emphasise though the similarities that face every country in supporting renewables. As Claire said, we must have long term Government commitment and we must also have the ability to vary support between technologies. Iin a feed-in system there are different tariffs for technology and, in our case, as I said, we can tailor technologies through the capital grant system. I think that there are a number of objectives that any support system must meet. We obviously want it to be effective, particularly cost-effective. We do expect the system to drive down costs over time and we do expect it to be able to migrate to a full commercial system in due course. I think that the two schools score maybe differently against each of these criteria and perhaps a feed-in tariff system might be more appropriate to the early stage of development of a technology, but as you reach the fuller commercial stage perhaps an obligation system is more suitable. But I think if you are going to judge these systems on their outputs, we know the feed-in system has many achievements. I think our system is very young, first of all; it is only in its second year of Obligation. But we do have some very firm evidence of much investment in the pipeline and the second major announcement last month, over and above the Obligation going to 2015, was the announcement of the Round 2 Offshore Wind Farm Awards. There we announced expressions of interest from industry of 7,000 megawatts of offshore wind generation and that is a very important signal that the obligation system is driving us towards very significant amounts of renewable generation.

  Q18  Baroness Sharp of Guildford: I want to turn to the question that we touched on earlier but did not pursue which is this one of how far the targets for renewables, which are now extended to 2015, relate also to the wider emission targets?

  Ms Durkin: Briefly, but then Adrian—he is the expert. Our aspiration for 2020, in terms of carbon emissions, will be met, half of it through energy efficiency—and that is half household and half industry. A quarter of it would be met by developing our renewables in the way that we hope and the final quarter will come partly from transport and partly from the trading in carbon emissions. This is how we have adumbrated it in the White Paper. We will continue to look at that. All I would say in terms of the renewables is that it contributes a quarter but it is of a different nature, because we are not just saving carbon, we are actually developing an industry and we are developing a significant sector. So that is why it takes different tools than carbon abatement. Adrian is the expert on carbon abatement.

  Mr Gault: I think that description is exactly right. In the Energy White Paper we looked at what further carbon savings we thought we would need to be achieving by 2020, over and above existing policy, in order to be broadly on track to the long term goals which would have been set for 2050, a 60 per cent CO2 reduction by that point, and estimated that we needed something like another 15 to 25 million tons of carbon a year. As Claire has just described, within that there is a significant contribution, 3 to 5 million tons of carbon, that we are expecting to come from the 20 per cent aspiration for renewables at that point.

  Q19  Baroness Platt of Writtle: You pin a large amount, half of your hopes, on energy efficiency. I was not in Denmark, but I understand that there was a focus on local solutions and incentives for local communities and that we lie very far behind on that. Certainly in a lifetime in local government, in Essex we did do a great deal in terms of energy efficiency, but I do not see it much in the media. What is being done to encourage energy efficiency locally?

  Ms Durkin: I am pausing only because I really dislike civil servants who say "Oh well, that is not my department" and unfortunately it is not our department. Defra is in the lead in terms of carbon efficiency and I am sure they do not want me to say the wrong things in terms of everything that they are doing. However in terms of looking at the Obligation, that we mentioned earlier, we certainly looked at better buildings and what we needed to do in better buildings. One of the things that came out quite clearly in our research, is that within Government we needed a stronger focus on construction, which is sponsored by our Department, our interest in energy and ODPM interest in buildings. A stronger focus would be hugely desirable. There is a lot going on in Defra and I think they are due to publish a report and future plans as part of the Energy White Paper (which is a joint DTI/Defra White Paper). But if I may, could we ask Defra to write to the Committee?

  Chairman: Thank you.