Official Report 491KB pdf
Good morning, ladies and gentlemen. Welcome to the 17th meeting in 2012 of the Economy, Energy and Tourism Committee. I welcome members, witnesses and observers in the public gallery. I remind everyone to turn off all mobile phones and BlackBerry-type devices, which might interfere with the recording equipment.
Scottish Hydro Electric Transmission Ltd, of which I am managing director, is part of the SSE group but is separate in legal and regulatory terms. It is growing and it is impacted significantly by the work that the committee is considering.
I clarify that the main purpose of the job that I now do for Orkney Islands Council—I was formerly director of development services at the council, so I have lived and worked in Orkney for many years and know it well—is to ensure that the council’s ambition that Orkney should have a major renewables industry is not frustrated by the lack of grid. I have been working on that for about three years. There has been slow progress and many problems remain. We will no doubt touch on those in the next hour.
I am a project director for AMEC, which is a FTSE 100 company. We are in a 50:50 gross asset value arrangement with EDF Energy Renewables to develop a large wind farm close to Stornoway. I have been involved in that for the past two years and have been actively engaged in discussions with National Grid and SHETL on the subsea interconnector to the Western Isles.
I will also get my tuppenceworth in. North Connect is a joint-venture project by Scottish, Norwegian and Swedish partners to build an interconnected power cable between Scotland and Norway by 2020. We hope that that will play a big part in helping Scotland towards its 2020 renewables target.
In effect, I am here to represent SP Transmission Ltd. Our role is similar to the one that Ian Funnell described. We operate the transmission system in the central belt of Scotland and have a pivotal role in getting energy from Scotland to the wider market in Great Britain.
I am the head of customer services at National Grid, which is the Great Britain system operator for the electricity market, so we operate the network across Great Britain. We also manage the commercial side of the connections process on behalf of our colleagues at Scottish Power and SSE. In addition, we own and operate the gas transmission network across Great Britain and a number of gas distribution networks in England.
Thank you all very much for your brief opening statements. We have a large panel this morning and I am hoping to get through our questions by 11.30, but we have quite a lot of ground to cover. I have asked members to direct their questions to specific witnesses, as far as they can. If you want to respond to a question that is not directed to you, please try to catch my eye and I will bring you in if I can. Obviously, you cannot all answer every question, or we would be here until 11.30 tomorrow morning. I have also asked members to keep their questions as short and focused as possible. If you could keep your answers as short as possible, that would be extremely helpful.
Community Energy Scotland made a submission to the committee regarding projects that would not get access to the grid because others that had not achieved planning permission had that access. It told us that, currently, a large number of dormant projects are jamming up the system and preventing viable schemes from connecting. Do you agree with that? I put that question to those who manage the grid—SSE, Scottish Power and National Grid. Has that become an issue?
At a transmission level, since the introduction of connect and manage—the new arrangements for connecting—in 2009, the picture has changed dramatically. Whereas I would have recognised that situation for transmission projects before 2009, the introduction of connect and manage has very much loosened up the process. We no longer have a queue for connection across Scotland at a transmission level other than in areas where we have particularly challenging consent or new-build conditions such as the islands, south-west Scotland and Caithness. However, I am conscious that, at a local level in some areas, there are still challenges for particular projects in transmission and distribution. I will let my colleagues expand on that.
I wholly agree with Duncan Burt’s comments. The idea behind connect and manage was to maximise the amount of generation that was sitting in the queue that could be brought on as quickly as possible because of the status of those projects’ planning consents relative to other parties. Ultimately, however, connect and manage represents about 20 per cent of the overall package of solutions regarding connection to the network. What we are focused on discussing today is building the infrastructure to provide the additional capacity, which is 80 per cent of the solution. In recent years, a lot of our focus has been on building additional capacity in the interconnectors and connection circuits to ensure that every project that is viable and has planning consent can get connected as quickly as possible. In the transmission review process, which both Scottish companies have been fast-tracked on, there are a number of built-in additional incentives to ensure that the transmission companies provide quotations for connection as quickly as possible and, once a quotation has been accepted, that we get the developers on the bars as quickly as possible.
The connect and manage process is dynamic, and we review it. One recent example was that we granted consent to people further down the queue as developers ahead of them in the queue were unable to bring their projects to development. It is not a stagnant process.
So developers cannot hold their place in the queue.
I recognise that description, and you are right that that can happen. As I said, the connect and manage process is very dynamic. If someone has consent and is ready to connect, we should be able to accelerate them, and we will go as far as we can to connect them. As Scott Mathieson said, that is subject to getting the assets and consent in place, and building the infrastructure. Given the number of on-going projects, getting all that together can take a year or two, or even a few more years, but that is not a significant issue.
My question is directed mainly at Mr Burt. We have been talking about the connection of renewables projects, such as hydro and wind projects. You have said that you will try to give priority to those projects that have received consent. What priority do you give the supply for renewables projects in the grid in comparison with existing nuclear, gas-fired and coal-fired power stations? We are managing to increase the number of renewable projects that are connected to the grid, but what priority do those projects have in comparison with Torness or Hunterston, for example, in terms of access to the grid? Does the National Grid give undue priority to ensuring that we continue to get power from the nuclear power stations?
Our duty is to act in a completely non-discriminatory way to ensure that we facilitate a strong competitive market for electricity supply. In that regard, we neither discriminate in favour of nor against any particular type or source of generation in terms of access to the grid, the speed and timescales for connection, or how we dispatch plant to manage that in real time. How we manage the system in real time is based on the prices that different parties put in and the economics of the market. That tends to mean renewable power because, obviously, its source of power is the wind and that is free at the point of delivery, and nuclear, which is more inflexible. Those two sources tend to be the last to be dispatched or reduced in output. I hope that that answers your question.
That does not really answer my question in terms of priority. We are not just comparing wind and nuclear power; we are also comparing hydro power. Some of the committee members visited a small-scale hydro scheme last week, where the local community has taken the initiative to connect the hydro plant to the grid. The connection to the grid has been secured but the supply is intermittent and is affected by, for example, the base-load from nuclear power plants. How much more renewable energy could be produced in Scotland if the projects were not being slowed down, closed down or shut off to accommodate that nuclear base-load?
From my overview of how we have balanced and managed the network over the past few years, I can assure the committee that there have been no instances in which we have reduced output from wind or any other renewable to allow base-load nuclear to run. That is not something that is played into our dispatch decisions. You will be aware that, on a number of instances, we have reduced renewables output—generally from wind farms in Scotland—to manage overloads on the transmission network. Indeed, I am aware that that also happens for some services on the distribution network. We have certainly seen output reductions from renewables where there is a limit on the capacity of the local grid, but we have not had to, at any point, dispatch down renewables to allow nuclear or fossil fuel plants to keep running.
It is in the local grid capacity that there has been a shutdown of the input from wind turbines in particular. When will we see improvements to the capacity to allow that energy to be transmitted into the national grid?
As the committee will be aware, there are a number of large on-going projects. The National Grid and Scottish Power were very pleased to announce recently the final decision to proceed with the western bootstrap, which is, if you are familiar with the terminology, the link that runs from Glasgow to Liverpool. That will deliver an extra 2GW capacity between England and Scotland.
Mr Baster, have any issues been identified in relation to the energy that is produced by the Orkney Islands Council’s wind farm project gaining access to the national grid?
The council does not have projects as such—the projects are carried out by private companies. Another feature of Orkney is that it is not so much onshore wind that is the interesting renewable source as it is the marine side—wave and tidal. There are substantial plans to produce up to 1GW of electricity in the waters around Orkney.
My reading of the United Kingdom draft energy bill, which was published yesterday, is that it allows marine technology developers to look at setting up a marine grid, and there was some enabling legislation in the Marine (Scotland) Act 2010. Would that help with the Orkney problem or do you really need provision to be grounded on land?
We need both. We need the marine side—Orkney is majoring in that and is leading the development of that side of things—but it needs to be linked to the more tried-and-tested technology, which is onshore wind.
No, that is fine.
My question is also for Mr Baster. What you have just described is a chicken-and-egg situation. I have talked to some of the personnel at SSE, and concern was expressed about what would happen if we proactively went out and supplied grid connections to places such as Orkney. There is a fear that we would have a stranded asset, for the want of some big developer. However, that is surely an absurd position to take. Given the developments at the European Marine Energy Centre, and given that there is no dispute that wave and tidal devices are rapidly approaching the point at which they can be commercially deployed, surely the fear of having a stranded asset is groundless and we should just get on, get the cables in and do it quickly.
Obviously, I agree with that. There is a strong case for going ahead and doing that on a strategic and anticipatory basis. If we put the basic infrastructure into the area that has the highest resource, it is inevitable that it will be used. The chances of having a stranded asset are minimal. In any case, what is relevant is what the cost of the stranded asset would be to the consumer. When Ofgem announced that it was fast-tracking SHETL’s and Scottish Power’s plans for the next eight years, it said that the additional cost to the consumer would be 35p per annum, so, at the end of eight years, it would be £2.80, which is less than the cost of a pint of beer. All the projects for the islands would take up approximately £1 billion out of that £7 billion, so the potential cost to the consumer is 5p per year.
Someone from transmission needs to respond to the point.
There are two aspects. The needs case is one of the imponderables of the regulated businesses. As Jeremy Baster quite rightly said, there is no critical mass on Orkney yet. There is no big onshore wind development on Orkney that would trigger something that would ultimately be needed. Our initial response is to put a 132kV connection to Orkney to supplement the two connections that are already there.
I support what Ian Funnell has said. However, where we have not anticipated the necessary investment being made, we have asked the regulator for mechanisms that allow the funding to be given within our price control format. We have to demonstrate a credible requirement to connect the generation to our network but, even if the cost is relatively immaterial, it is still a cost to consumers throughout the UK at a time when prices are going up overall. We have to be conscious of that.
I am greatly reassured that the regulator is starting to understand all this, but do you not think that he or she should have got there much sooner than this?
Project transmit has already been through a lengthy process. For two years, many people who are at this table have been fully involved in that process. As members are aware, a number of options have been on the table, and we have put options on the table to help or increase the benefit to the island communities that are seeking to expand. Project transmit still has at least another year to run for the detailed proposals to be finalised and, through that, we will have an opportunity to take another look at options for island charging and ways in which such charges can be reduced or mitigated. We have put forward a number of options in the past, including taking account of additional demand security that those island links will bring to the communities in question and the benefit of being able to connect with renewable generation.
I am sorry to say that I am still detecting a degree of complacency. The draft UK energy bill seems to be placing our energy fortunes in the arena of gas generation, but no one is under any illusion that world gas prices will go down rather than up. Given the tidal capacity of the Pentland Firth alone, do you not agree that you should just get on and do this and that Ofgem needs to get its act together and start making up its mind much more quickly on such basic issues?
First—
Perhaps I can interject, Mr Burt, to stress that this is not so much about the benefit to the islands, important though that is, but about the great benefit that turning on that energy stream will bring to consumers across the UK.
I should point out that we can put those questions to Ofgem in a few weeks’ time, but I am happy to let the panel respond.
We are absolutely not complacent; in fact, we are absolutely focused on creating a regime that underpins and facilitates investment. Connect and manage is a great example of that, and we have also changed up-front underwriting arrangements to reduce the up-front burden particularly on early-stage marine, tidal and island wind developers in getting connected to the grid. I am sure that SSE and Scottish Power will attest to the fact that they have plans for those developments on the block and ready to go, but as far as I am concerned there are questions of timing and regulatory underpinning to deal with before those plans can be taken forward.
Orkney, for example, has to be connected to somewhere—which, in its case, will be the north mainland—and that connection will have to be reinforced all the way down the north mainland. That work is on-going. We are building the network to get to that position and to be able to move to the next stage, which will be the first Orkney connection.
Thank you.
I affirm the comments that were made by Duncan Burt and Ian Funnell and make it clear that for a long time now we have had a very strong focus on this issue. The industry was pushing the Department of Energy and Climate Change for the establishment of what became the energy network strategy group, which laid out a blueprint for building infrastructure to connect between 11GW and 17GW of renewable energy. Furthermore, over the past two years, we have worked with the regulator to create a price control format to deal and cope with this uncertainty, which we have never had before.
Patrick Harvie wants to pursue issues around security of supply, but before I bring him in, I have a question about the grid. The committee has received written evidence in which it has been suggested that if the proportion of energy that wind power contributes to the grid goes above a certain level, that will create problems for grid management, because of the intermittency issues to which Mr MacKenzie referred. Is that an issue that you recognise? Is there an optimum level of wind-generated energy, beyond which there start to be management problems for the grid?
A number of reports and documents discuss that issue, but the view of National Grid as an operator is that running the grid is already a complex and detailed operation, as I am sure that the committee can envisage. Variable sources of power such as wind add another dimension to that, but it is simply a different dimension. It is another issue that we need to manage. We are not complacent about that, but we consider it to be well within our capabilities to have available, now and in the future, the tools that we need to run the system as it arrives, even if it involves significant amounts of wind.
Before I move on to other matters, I would like to pursue the issue that the convener raised. My first question is for Mr Burt. I have read some of your written evidence and I have heard you speak at public events at which you almost seemed to imply that intermittency—or, at least, the kind of intermittency that comes from wind—could be seen as a positive thing and as something that helps with some aspects of management. Although there might be periods when wind output across the UK or Scotland gradually reduces, there will not be a sudden drop-off of the kind that would happen when, for example, Torness gets shut off. Is the slightly more predictable and slightly slower-changing intermittency of wind power easier to manage than the sudden impact that occurs when, for example, a nuclear plant has to be shut down?
In the same way that we are non-discriminatory around access, I would like to be non-discriminatory in answering that question.
I will quote from some evidence that we got from a group called Communities Against Turbines Scotland:
I totally agree with you. From the point of view of grid management, we see every megawatt that is generated from wind as avoiding the need to generate a megawatt from an alternative source. At the moment, given the market, that alternative source would be a mixture of coal and gas. Wind power reduces the carbon intensity of the grid. That is not just a National Grid view; it is entirely consistent with the view of the Committee on Climate Change.
I want to explore the three scenarios that you mention in your written evidence, which are entitled “Slow Progression”, “Gone Green” and “Accelerated Growth”. You talk about the gone green scenario and produce figures for that. For example, you say that renewable electricity production will reach 106 per cent of Scottish consumption by 2020. However, you do not tell us what the accelerated growth scenario would look like. Is that a suggested scenario in which we could produce much more than the 100 per cent equivalent by 2020, or is that about longer-term growth?
It is a bit of both. It suggests that it is possible to do more by 2020. I do not have in front of me the figures for the accelerated growth and gone green scenarios of renewable energy production by 2020, but I am happy to provide those to the committee. The accelerated growth scenario generally anticipates a higher level of renewable and wind penetration by 2020.
Is that in terms of gigawatt capacity rather than output?
Absolutely.
Let us move on to Scottish Power’s written evidence. It is perhaps a self-evident statement, but it is clearly put, that
On the policy front, one of the key issues for us is the planning consents for transmission upgrades. There are two aspects to the policy. Does it create the right incentives for renewable generation projects to connect and come forward? I think that EMR moves us forward. Does it go far enough? We need to review what was published yesterday in a bit more detail and cogitate on that.
With regard to what you describe as dubiety, we will have an opportunity later in the inquiry to put some questions to the UK minister with responsibility for energy. I would be keen to hear what members of the panel think are the key issues that we should raise in order to ensure that the UK Government hears the concerns that exist or clarifies some of the areas of the plans down south around which there may still be some dubiety.
Our position from the start has always been that we need clear signals from Government. Ultimately, we are a core transmission business. We are electrical engineers who facilitate the connection of a balanced portfolio to our network to secure access to the grid for those who want to sell energy and to secure security of supply for the end customer. We need an overall system that provides certainty about the blueprint that we are building towards. We think that we have greater certainty now than we have had over the past five years to a decade. We are looking for support from Government and legislators to enable us to meet the extremely ambitious targets that have been set. Those targets come not only from EMR, but from our plan that requires us to recruit 1,500 resources in our supply chain for our £3 billion investment—that is before we have taken account of Scottish Hydro or, indeed, National Grid’s investment plan in England and Wales.
To reinforce that point, I cannot stress enough the need for certainty throughout the supply chain—from the planning consents to support for individual projects, whether it comes from the regulator or the Government. UK plc is increasingly competing in a global market, so we must attract those who supply the plant and materials to build that infrastructure. We have to make this a place where it is easy to do business. Certainty is what drives that.
I echo that. In order to develop a balanced portfolio and secure energy supplies across Scotland and the UK, with a low-carbon mix of wind, nuclear, marine and hydro technologies, along with potential carbon capture and storage developments, that is balanced by gas, which is used to smooth things out on occasions when the wind is not blowing, we need a climate of strong political support and engagement in order to deliver the long lead-time items in the supply chain. As Ian Funnell said, we need the international investment to help fund that and we need to develop our skills base in order to deliver the expertise that people need if they are to build and run the industry.
I concur with everything that has just been said. We are all looking at massive financial investment, whether in the grid or in renewable projects. The investors in those projects will have to take a long-term view, which means that there has to be certainty and transparency. The rules must not change every five years.
Mr Burt, if I heard him rightly, said to Patrick Harvie that a higher level of wind power would displace gas-burning production. Who makes that judgment? Is that something that National Grid does? Do you decide to turn down the output from gas when you have X amount of wind? Do you have a policy approach that favours low-carbon sources of energy over high-carbon ones?
The majority of plant or generation running choices in the UK are made by the wholesale market and therefore by the economics of each generation technology. Naturally, because wind in effect has a zero-cost input fuel and very low costs when it is running, it will tend to run when it is available and market economics will mean that gas or coal—whichever is the most expensive—will naturally run down when it is windy. Likewise, when there is less wind or less nuclear or coal, other technologies that are slightly more expensive in the short term will pick up and run.
Mr Mathieson has already answered some of my questions, so I will throw a curve ball at you. Yesterday, the draft energy bill was published. There is a dash for gas, a major fillip for nuclear power and blows to renewable energy. Regrettably, we still have to comply with some decisions that are made by the London Government. You have talked about getting signals from legislators. What input did you have or were you asked to provide to the Westminster Government before the draft energy bill was published?
National Grid is working closely with the Department of Energy and Climate Change on electricity market reform. We have had direct input into the draft bill via the team that is working on that. We are looking at the overarching design for electricity market reform and some of the underlying policy issues. As Scott Mathieson said, we are in the early days of digesting the full contents of the draft bill, so it is difficult to comment on particulars. However, the overarching policy perspective is not particularly targeted at one source or another. We see the bill as an important tool in underpinning large capital investment in lots of low-carbon technologies, whether that is onshore wind, offshore wind—
Or nuclear.
Exactly. We do not see it as particularly—
So you do not see a bias in the prolonging of existing nuclear power stations and the building of new ones.
No.
Mr Mathieson has already alluded to the next issue that I want to ask about. The written evidence from National Grid talks about the need to engage communities and to reduce the “passion” in relation to the development of major energy projects. I ask Mr Burt, Mr Funnell and Mr Mathieson to give an indication of how they are engaging and to say what role local councils play in that engagement, particularly planning personnel in the planning cycle.
I will come in first. Our community involvement has been transformed in the past few years. The amount of investment that we put into working with communities bears no resemblance to what we were doing four or five years ago. We have full-time community liaison officers who work proactively with local communities and community councils, which has paid dividends to us and to the communities.
We have seized that opportunity. Agreeing the fast-track process a year in advance meant that we were able to contact the Minister for Energy, Enterprise and Tourism to say that we would like to establish an energy upgrade forum. We invited SHETL, and the National Grid will be invited too.
That is fine—I appreciate that, and I was aware of it, but there is a level below that, which is the community itself. One would wish the planners, either individually or collectively, to reflect the community’s views. How are you reaching down into the bowels of the country to the communities that are being affected?
As Ian Funnell outlined, our strategy is that every major project has an appointed community liaison officer who will engage directly with the affected communities and try to understand exactly what the impact on them will be. The nature of the infrastructure that we build is such that some people do not find it as aesthetically pleasing as engineers do—there is no doubt about that—and we need to work with people in that regard.
I interpreted Community Energy Scotland’s view as being that the planning system has not engaged fully with the community and some projects are jamming up the system.
There is certainly a big opportunity in the renewables sector, particularly with offshore wind and interconnection, to pull through the Scottish experience in working in the North Sea. We are in the early stages of development. In the early part of this year, we went through the tender process for our main consultancy packages for the environmental impact assessment survey and consenting phase of the job, and I am pleased that AMEC is now on board as our EIA consultant, and that Exodus is the route engineering consultant looking at the options for the route across the North Sea.
But are the skills being provided from Scotland? I presume that part of the tendering process was about where the skills are or how they can be developed.
Indeed it was.
Do you see a problem with that?
I do not think so, no. Those skills are here and come from the oil and gas industry and its long history. We certainly weighted the tendering process towards that and those companies that have a strong presence in Scotland. Both of the companies that we have engaged have offices in Edinburgh and Aberdeen so there is no issue with picking up on those skills. It was also good to see that other sectors are moving into the area: two thirds of the responses to our requests for interest were from more traditional power sector consultants and one-third to half of them were from the oil and gas sector.
That is my concern. In the energy industry, companies are poaching people from each other when what we need is a feed in of skills to the overall industry. Do we have that? Is there a level of entry of engineering skills into the overall sector?
It probably has some way to go in that respect, but we are on the journey towards that situation. At the conferences that I attend, I see much greater engagement between power sector people and oil and gas companies. They are working together now to build the industry, which is good to see.
Mr Funnell wants to come in, but John Park has other questions on skills. I will let John in first and let the panel members come back to the point.
I will broaden out the discussion. When we have heard evidence about skills from a lot of people during the inquiry, we have focused on potential future manufacturing opportunities in the renewables sector. Given that we have spoken about grid capacity and the skills that will be needed to build and sustain that capacity, it would be good to try to understand the skills needs that the likes of SSE, Scottish Power and National Grid see for the future and whether you believe that we have the structures in place to ensure that those needs will be met.
My answer will cut across the questions from Mr Park and Mr Brodie. In the past three and a half years, the head count in my business has grown tenfold. To respond to Mr Brodie’s questions, I recognise that the pool in which we are fishing for skills is quite limited. The sector is no different from many others in trying to pick up on a lost generation. From the early 1990s to the mid-2000s, very little recruitment was undertaken in the space that we are discussing, so all of us have a similar challenge.
I echo all that. We are talking about both high-grade engineering graduates and the general uptake of the science, technology, engineering and mathematics—STEM—subjects in schools. The process starts at school and round the kitchen table at home. We need to build from there.
I am thinking of the Scottish Council for Development and Industry conference that I went to a couple of months ago at Our Dynamic Earth, which celebrated 40 years of oil and gas. Today, there are 400,000 people in the UK working in oil and gas, and we know from the recent Scottish Renewables survey that there are about 11,000 people in Scotland working in the renewables space.
From my perspective, and I am sure that other committee members will agree with me, it is heartening to hear that, although we are in a competitive market in one sense, you recognise that there is an interdependence and a wider reliance on ensuring that skills levels are kept at a point that will help you to recruit people at sensible levels of pay and ensuring that the skills pipeline comes forward so that we have an industry going forward. That applies not just within your organisations, but throughout the supply chain.
I do not think that we can emphasise enough Duncan Burt’s point that it is important to create at an early stage in schools a learning environment that promotes science, technology, engineering and maths, because those are the basic building blocks. We should not think that that will necessarily drive everybody towards being a chartered engineer, because there will be highly technical craft jobs. As we go forward, the technology that operates in the industry will fundamentally change. The fitter who is working on an oil circuit breaker today will not be doing the same on the high voltage direct current link in a converter station.
We work with the University of the Highlands and Islands and Highlands and Islands Enterprise to look at training facilities and what we can do, not just at the engineering level but at the semi-technical and craft levels.
That is a common theme.
I come from a civil engineering background and I am new to the power sector, having joined it two years ago. It has struck me how narrow the market is for skills, resources and the supply chain, particularly for some of the specialist kit. You mentioned manufacturing. We are facing a narrow market with the HVDC technology. There is a risk in narrow markets of overheating prices and delays in timescales.
If there are examples of how you are building capacity, particularly to support the supply chain—which is one of the key areas—you would be more than welcome to share them with the committee at some point.
My questions about the supply chain have been answered, but I have some other questions.
The industry is beginning to tackle that issue. There is a joint group with industry called the electricity networks futures group, which is looking at building a number of scenarios. It is not just electric vehicles. In the Department of Energy and Climate Change projections, there is the potential for an increase in reliance on electric heating sources. In addition, because of the feed-in tariffs over the past year, about 750MW of photovoltaics have been connected to the UK grid. A number of technologies will be seeking access to the grid, all of which have very different load characteristics. We are beginning the process of what we call RIIO-ED1—review 1—which is the same as the transmission review but for electricity distribution. That will take effect between 1 April 2015 and 31 March 2023.
I can add only a little to that. The challenge is perhaps more technical than anything else. The network that connects your home and mine to the grid copes with our cookers, power showers and all that stuff, but if everyone comes home of an evening and plugs in their cars, that would be equivalent to everyone turning on two or three power showers instantaneously. The network was not designed for that.
I will bring all that together. We have talked a lot this morning about the development of transmission networks. I want to leave in your minds the thought that, in this decade and beyond, there will be a growth in transmission, but towards the end there will be a significant and equivalent growth—as Mr Mathieson and Mr Funnell have said—in distribution, which will be consumer driven by the pick-up of electric vehicles, electric heat pumps and everything else.
Obviously there are huge challenges to deal with, particularly in distribution, but my plea—which the committee has made to energy companies in the past—is that the tariff structure be kept as simple as possible in order to ensure that, instead of the confusion that we have had up to now, the consumer understands how much they are paying when they use power.
It is difficult to answer that, because we are still considering the consequences of the bill that was published yesterday. However, the predominant factor that drives the location of renewables is resources—in other words, access to land and wind. To be honest, I do not think that there is a direct correlation, but we need to think through the proposal and consider whether it will have any indirect impact or unintended consequences.
Slightly changing tack—and perhaps going to the other end of the scale—I want to ask a number of brief questions about the heat target. Last week, the committee heard about a number of local district heating schemes, and in its written submission Scottish Power says:
We are more than prepared to elaborate in further written evidence, but at this point I simply note that the industry’s current set-up has a number of quirks. For example, as a distribution or transmission business, I am not responsible for the contractual relationship with or the end bill to the customer, and distribution network operators that run district heating schemes in franchise areas cannot have a direct contract with a local authority in that respect.
Clearly, we still have some way to go with regard to district heating. I believe that the report that is referred to in the Scottish Power submission is being compiled by WWF with support from Scottish Power and the Scottish Environment Protection Agency. Is that final report likely to be available before Parliament’s summer recess? If not, could you arrange for committee members to have sight of it as soon as it is ready?
I will check on that and advise members.
That would be appreciated. Thank you.
I have heard of the scheme, but obviously I am not in a position to comment on it. I represent a joint venture of partners whose sole aim is to develop and build the interconnector with Norway. All I would say is that the greater the interconnection that can be put in place by 2020 and beyond, the greater will be the facility for getting power from the cheapest source at any point in time—to refer back to Mr McMillan’s point—to where demand is. We want to get the cheapest power from anywhere in Europe to wherever it is required, or to store it in Norwegian pump-storage hydro. If Scotland is to meet its 2020 targets, it is important that it is well interconnected with the rest of the UK, Ireland, Europe and possibly Iceland. That will help to achieve those goals.
To my knowledge, the link with Iceland has been talked about for at least 15 years, if not more. It is technically feasible. The economics, certainly in the short term, are probably entirely questionable and landing points are similarly entirely questionable. I doubt very much whether Shetland is the right landing point—it is probably absolutely not. The landing point should be much further south than Shetland. The project is at an embryonic stage.
I think that Shetland was brought into the equation to help with the transfer of energy from Shetland. We will wait and see what happens there.
In closing, I want to pursue a couple of questions about export and import. Dr Blanchfield, I understand the conceptual argument for your proposals. How does the business case stack up? What is the payback on the very substantial up-front capital investment that you are going to make?
We are talking about a large investment. We are in the early stages of development, but we are looking at an outline capital cost of upwards of £1.5 billion, which is €1.7 billion or so. The business case does stack up, but you should appreciate that it is based on what we know about current daily price fluctuations. A daily cycle of cheaper nighttime electricity might go across to Scandinavia to supplement peaks in demand in the day. The wind-hydro interoperability works across that as well, and we can predict that and model it for 2020 because we can look at various scenarios. There is also a seasonal cycle. The Scandinavians have significant problems in dry summers and icebound winters because they are so dependent on hydro power. The interconnection works both ways; it is a win-win.
That is interesting.
That is certainly a risk. The concept has been suggested by a lot of people about Denmark. However, one of the main pieces of empirical evidence that counters that is that Denmark and Norway are currently developing their fourth interconnection link, and there have been three in the past 30 years. If the situation was harming Danish industry and the country’s economy, we would not expect Denmark to be going for a fourth interconnector with Norway. However, we must consider such scenarios to find out what the impact might be. You referred earlier to Scottish wind having to be constrained at certain times. Although you might get a low price for that power in exporting it to Scandinavia, that is better than it being constrained and off the network entirely.
We definitely recognise the scenario. As Dr Blanchfield said, it is a risk. However, many measures can be taken to mitigate that risk, such as ensuring that we get right electric-vehicle charging and the smart use of energy, so that we use the energy locally when it is available and capture wind power locally in the community and in the region, rather than export it all to Norway for storage in hydro to be imported back later.
I apologise to the members who want to ask supplementary questions, but we are already over the planned time and we have had a long session. I thank the witnesses for their evidence, which has been extremely helpful.
I welcome our second panel of witnesses. Shane Slater is the director of Element Energy, Rebecca Trengove is the head of marketing and corporate affairs at Axeon and Paul Nelson is the managing director of Allied Vehicles. I invite you to make brief introductory remarks.
Element Energy is a low-carbon-energy consultancy that is based in Cambridge and London and we have been doing quite a lot of work on low-carbon transport. We produced for WWF a report in 2009 on electric vehicles in Scotland.
Axeon is Europe’s leading independent designer and manufacturer of battery systems for electric vehicles. We are headquartered in Dundee, where we have 75 people, and we have a manufacturing facility in Poland.
Allied Vehicles is a medium-sized Scottish company with 355 employees and it is located in Glasgow. We have a £65 million turnover. We adapt about 3,500 vehicles a year, which are mainly wheelchair vehicles and taxis. However, we have branched out into electric vehicles. In the past couple of years we have made about 150 electric vehicles, which makes us one of the largest—if not the largest—UK-owned electric vehicle manufacturers.
Mr Nelson has provided us with the opportunity to look at an electric vehicle after the committee meeting.
The only problem, convener, is that you have to sit in the front seat and go “Vroom, vroom.”
I look forward to looking under the bonnet.
It is quite quiet.
We will go straight into questions. John Park will start this time.
I apologise to Shane, because I know Rebecca and Paul quite well, having been interested in the production of electric vehicles for some time.
That is a very good question about one of these chicken-and-egg issues. We did a piece of work on the issue in the report for WWF in 2009 and in a number of studies for the United Kingdom Committee on Climate Change around the same time. We have done a more recent study for the Energy Technologies Institute that looks at the appropriateness of electricity recharging infrastructures for EVs. There are a number of dimensions to that. We have to look at the availability of off-street parking, for example, because a common issue in urban areas is the lack of availability of such parking, which is much more common in less urbanised areas.
The evidence from electric vehicle trials suggests that two different types of charging are needed. I am sure that John Park will be aware that vehicles can be charged at different rates and that, with a slow charger, it might take up to eight hours for a vehicle with a completely run-down battery to be fully charged. Clearly that would not be feasible for people trying to drive from Edinburgh to Aberdeen.
There is a price drive behind fast charging. Electric vehicles have only a limited range and if that range can be achieved only after a very long charge it will be very difficult to make such vehicles price competitive. If faster charging allows vehicles to cover more miles in a period, you will be able to recoup the difference.
On a more general point, we have discussed the sort of infrastructure that will be needed and the public sector intervention that will be required to make it happen. Might public sector procurement policy or any other Government policies help in that respect?
Government really needs to do some pump priming here. I mentioned the significant price difference with regard to electric vehicles; I have to say that I do not see that difference ever being totally eliminated. After all, if you compare the components of an electric vehicle with those of an internal combustion engine vehicle, you will find that although that they have a similar motor and drive system the electric vehicle will always have a battery. The battery in the vehicle that members will see after the meeting is about 28kWh, whereas the battery in your phones is about 1.5kWh. Of course, you can compare that as much as you like, but that battery will always cost money. The only way the price will be recovered will be by having cheaper energy to keep the vehicle going. The Government has to pump prime with that price difference. It has to lead by example, which it has been pretty reluctant to do so far.
I would echo many of Paul Nelson’s comments. Some of the trials that the Scottish Government has been running with initial public procurement have found good evidence that savings can be made. For example, Dundee City Council replaced six diesel vans with four Mitsubishi i-MiEVs, which are fully electric vehicles. The council reckons that, by implementing use of the electric vehicles and rejigging the way in which vehicles are used, it can make annual savings of £1,500 in fuel costs and 11.4 tonnes of CO2 emissions. Big savings are there to be made.
When we tendered in London on electric vehicles, we had to listen to a presentation from the Metropolitan Police insisting that the vehicles on which we were tendering had to be the same price as internal combustion vehicles. I pointed out to the chap that if he factored in the fines that the European Union is going to levy on London for its lack of clean air, he would see that our vehicles are very cheap.
Should we be looking at any international comparisons to learn some lessons?
There is an interesting example in Paris, which has introduced a fairly major fleet of about 8,000 electric vehicles that can be hired. It is like a Parisian version of the Boris bike but with electric vehicles as opposed to bikes, although bikes can also be hired.
They do not have Barclays Bank adverts on the side, do they?
No. I think it is called Vélib. That is a great example of a city looking at how people use transport. In urban areas in particular, we probably need to have a complete rethink about how individual transport is used. We are now moving into a world in which it might not be practical or affordable for everyone to own a car.
It is important to incentivise the outcome that you want. If that outcome is reduced carbon emissions from the transport sector, and the public sector is going to help with that, it ought to be the metric that is used rather than just looking at particular technologies. The evidence shows that technology can change very quickly, so it is difficult to ensure that we choose the right technology. We could have something along the lines of a target for CO2 emissions per kilometre, a feed-in tariff or the transport equivalent of a renewables obligation certificate.
I touched on that issue in the question that I put to the previous panel. You raised the issue of technology. I do not come from a technical background, so my question might seem silly to some.
It is not vastly different.
No, it is not vastly different. Stuart McMillan raises a great point by mentioning PCs, because the analogy does not hold. Battery technology does not change at that rate. We know that because we have recently done a piece of work with Shane Slater—on which he might want to elaborate—on projected battery costs over the next 15, 20 and 30 years.
I ask Stuart McMillan to elaborate on his question. Is your point that it is difficult to set policy in the context of changing technologies?
No—I was going to tie my question into the point about the cost of energy. Rebecca Trengove talked about the potential in the next 10 to 15 years. If even some of the developments are successful and commercially viable, as was said in the previous evidence session, the issue then will be that this is not just about electric cars or ferries, because there are all the other elements. There is no guarantee. I understand supply and demand, so I know that there is no guarantee that the off-peak costs will remain fairly low.
We should look at other countries that have been successful in incentivising new technologies. An example is the photovoltaics industry in Germany. While this country—or I guess London—was wondering whether to develop, say, 10 buildings with photovoltaics, Germany had developed a feed-in tariff, which transformed the landscape. That was about 10 years ago. For an investment of about €5 billion, there was around €4 billion of internal investment in new manufacturing capability. The Germans got the timing right. Before the industry developed and matured, Germany got in early and captured that. One of the objectives should be to understand where the potential might be to do that in an early and emerging market. Germany basically developed a market for the product—it incentivised the development of a whole market. Batteries are relatively heavy, so it makes sense to produce them relatively locally. Therefore, it is feasible that that might happen here.
An additional point, which is a little tangential to Shane Slater’s point, although it harks back to the question, is to do with energy storage. The Scottish Government has ambitious targets for the amount of renewables to come into the grid. By their nature, renewables are intermittent, so the energy needs to be stored in a way that can be used. Electric vehicles could have a role in that through vehicle-to-grid technology. On a sunny day such as today, if I had driven to the Parliament in my electric car, it could be sitting outside being charged up by solar panels. I could then drive the 5 miles home and the unused electricity could be fed back into the home grid. There are opportunities that might mitigate some of the potential cost increases as energy prices rise.
There is no lower-carbon output than an electric vehicle that uses energy that has been renewably generated, as it is 100 per cent carbon neutral. The more that we can replace internal combustion vehicles with that type of vehicle, the better off we will all be.
I will follow up on that last point. We are doing that as a company. We are involved in a couple of projects that are looking specifically at domestic energy storage for, in this case, solar panels. We see such energy storage as another potentially fairly major revenue stream and one that could be required in Scotland.
I know that other members have supplementaries, but I will probe slightly more fundamental issues that Mr Nelson touched on. For the finances to stack up, this all has to be based on the assumption that there will be a supply of cheap electricity. However, hydrocarbon fuels are not, in themselves, horribly expensive; they are horribly expensive only because the Government taxes them so much. If I were the Chancellor of the Exchequer and I saw a huge shift from hydrocarbons to electricity, I would know that there would be a huge hole in the public finances. Would I not therefore just lump the tax on electricity?
That is my concern.
And that will make electric cars no longer competitive.
No, it will not make electric cars no longer competitive. You have not brought two factors into the argument. First, although we have perhaps not reached peak oil now, we will reach it shortly. I am an accountant and I know that, as something gets scarcer, its price goes up, so there is that cost implication. The other factor that you have not brought into the equation is the cost to us of carbon emissions.
I understand that point, but if I were Chancellor of the Exchequer, I would be concerned about balancing the books.
I totally agree. The point that I made previously was that I can see no alternative to taxing electricity at some stage.
I return to that point. That is already happening because, as Shane Slater said, car companies are already investigating how to make petrol cars far more fuel efficient. Making the existing car stock more fuel efficient is already reducing the Treasury’s tax take and it is already concerned about that. The Treasury will have to fill that hole somehow, but the money does not necessarily have to come from electricity.
Rebecca Trengrove mentioned economies of scale and Government involvement. It seems to me that, without talking about long-distance travel, there are many opportunities in local travel to use electric vehicles, for example as taxis, ambulances and buses. How engaged are local authorities and health boards with the likes of yourselves?
We have had a lot of support from the Transport Scotland sustainable transport group, from local people and from individuals within Scottish Enterprise and Scottish Development International.
Interactions with local authorities are piecemeal because local authorities do not work collectively with the Scottish Government. When there were the Scottish public procurement grants—initially two years ago and then last year—rather than there being one order from the Scottish Government, the funding was disbursed among all the different local authorities. That meant that the local authorities were not getting economies of scale through purchasing. It also means that the experience from all those trials has not yet been aggregated and presented collectively. That is a pity, because there has been a lot of good practice.
It is also very frustrating.
It is very frustrating, particularly when Scotland has the leading battery company in Europe and an electric vehicle manufacturer. We sometimes feel that we have to work quite hard to get the support locally, whereas in England—in the West Midlands in particular—people are falling over themselves to support the industry, because they can see that that is the way that the automotive industry will go.
I cannot imagine that anything like that would ever happen in Dundee.
One example of good practice elsewhere would be what is happening in the north-east of England. Nissan, which has a big plant in Sunderland where it is producing the Leaf and will be manufacturing batteries, is collaborating with Gateshead College on courses to teach the apprentices who will work on electric vehicle batteries how to service them and on allowing them to go into local manufacturing companies such as Newcastle-based Smith Electric Vehicles. That is an excellent example of what could be done with colleges in Scotland.
And that is not happening anywhere in Scotland.
That is right.
You are talking about the city I love.
I do apologise.
Allied Vehicles recently won the Institute of the Motor Industry national training award because of the training programmes in which we have been involved. However, when we had initial discussions with Skills Development Scotland and Transport Scotland on setting up a similar college in Glasgow, we got the distinct impression that we would be treading on the toes of some of our educational establishments if we were to do that and felt that Government support would be directed more at setting up such a facility in an educational establishment rather than on-site in some factory.
Do you take teachers into the factory as well?
You have hit the nail on the head. We must educate our teachers in the fact that manufacturing jobs are essential and that manufacturing is a good place to work.
I will pick up on that point briefly. We have done work on encouraging kids to get involved in STEM subjects. The introduction of the curriculum for excellence provides a great opportunity to incorporate more of that in schools. Companies would be up for that. We have gained a lot from our activity, as did the school that we were involved with.
A number of members want to speak, but I am conscious of the time, so if people are brief in their questions and responses, that will help.
Rebecca Trengove mentioned that electric vehicles have the potential to iron out peaks and troughs in electricity demand through being charged when there are troughs and being discharged in houses when there are peaks. How much of a move from normal vehicles—for want of a better phrase—to electric vehicles would be needed to increase the demand for electricity? Does the system have enough potential for a major move?
There is potential. If a number of electric vehicles charge up in the same neighbourhood—on one street in Chelsea, say—that is enough to impact on the electricity supply, so smart charging is important to the introduction of electric vehicles. That means that people do not just go home, plug in and charge straight away at what is likely to be peak time. A smart charger selects the time that is cheapest and at which demand is less.
I ask Rhoda Grant to clarify the effect that she is thinking about.
I am talking about needing further generation to cope with demand.
If smart charging operates—it will almost certainly be required in any case, for a whole bunch of business reasons that have nothing to do with electric cars—vehicles will be charged overnight or the opportunity will be available to dispatch vehicles. That block of energy can be moved around during the day to a great degree and we can take advantage of the electricity system.
I have brought with me a useful graph from SSE, which I can pass round for members. It shows that using smart charging to shift when vehicles are charged means that the peak is not added to. Charging overnight fills the trough.
On the chart, the off-peak demand is 40GW and the peak demand is 60GW. Using the area between 40GW and 60GW would mean no additional demand.
I would like to explore some of these areas a little further. There has been some discussion of the impact of the change to electric vehicles on the way we travel and use transport. Part of the issue is that, as Shane Slater made clear, CO2 reduction is not going to be dependent simply on switching one technology for another; it will be about the level of traffic and whether we stabilise, reduce or continue to increase transport demand. We are not talking about simply stopping putting fuel in a tank and starting to put electrons in a battery; the issue is a change in our relationship with energy. That is what I would like to explore.
The trials that have been run to date of consumers using personal cars all suggest that most do not use anything like the range that an electric car has. Something like 50 per cent of journeys in this country are less than 5 miles; 64 per cent are less than 10 miles; and 90 per cent are less than 25 miles. The typical range of an EV is around 70 miles, which means that people would generally use only a small amount of the battery each journey. I could drive to work and back and need only a fairly small top-up.
The work that we have done showed that the consumer’s desire to have the infrastructure in place for any electric vehicle that they might purchase is terribly important. The perceived disutility of not having such infrastructure is significant.
It was partly to do with that, but it was more general. Forgive me if my point is a wee bit abstract, but there seems to be a tension around the consumer’s desire to use the new technology in a way that they feel comfortable with, but which is sometimes irrational. I am in the Green Party, so I should not admit this, but I do not like going out of the door without fully charging my phone, even if I know that I will probably use only half the charge during the day. The issue is about not only what is technically achievable but what irrational behaviour there will be. Is there a tension between what people want and what the system needs? How much behavioural change can we expect? How does that impact on the way in which we move about?
You are absolutely right. There is a massive tension between what people want and what the vehicles can deliver. From the evidence that we have generated to date, I am not particularly concerned about what the system can provide in the foreseeable future—that is, the next 10 to 15 years. The issue is that, although trips of 10km to 20km or even 40km are well within the technical range of an electric vehicle, when people purchase vehicles, they look at the fact that cars at the moment can go for 400km or 500km. Journeys of that length are extremely rare, but you lose the ability to make them when you purchase an electric vehicle. I would argue that it will be a long time before a battery-powered electric vehicle will be able to deliver that range at a competitive cost, if it ever happens.
Just to allay Patrick Harvie’s concern, you would only be topping up the battery unless you left the charger plugged in. That is what we do with our electric vehicles.
I would like to be ahead of Patrick Harvie in the queue when it comes to buying my first electric car, especially because we are getting to the position that, although the capital cost might be higher, the overall costs over a three-year period will be lower. However, I live in a rural area and I am beginning to become concerned that I will never get the opportunity of that good value and, as usual, Patrick will have an advantage over me because he is an urbanite. Is the realistic assessment simply that people in rural areas and the Highlands and Islands region will be left behind and will not have the benefit of this technology?
As Shane Slater said, there is a range of different types of electric vehicle. I suspect that a purely electric vehicle might not suit your needs, but a plug-in hybrid electric vehicle such as the GM Volt, which will be launched later this year as the Vauxhall Ampera, might be a solution. That will have both drivetrains. The electric drivetrain will probably do you about 40 miles on a single charge, but if you need to drive from Kingussie down to Edinburgh—I do not know where you are based—you could do that with the internal generator. That could be a solution for you.
I am old enough to remember the battle between VHS and Betamax.
He still has them.
You are not wrong.
You do not want to buy Betamax again.
If I am to be an early adopter, where should I put my money? What should I buy?
I would buy a plug-in hybrid. That sounds like the sort of thing that would suit your needs. Hydrogen fuel cells have been talked about for decades and they have still not been delivered, although they probably will be at some point.
The final question comes from John Wilson.
It has been interesting to hear about the new technology and the developments that have taken place. I was particularly interested in Ms Trengove’s remark that although her company is based in Dundee, it manufactures its batteries in Poland. She should not worry—she is not the only person I have a question for.
That is the case with any vehicle. The position would be pretty comparable with that for any other vehicle.
Perhaps I could make a correction; thank you for picking me up on that point. Axeon is an international company that is headquartered in Dundee. At the moment, we make all our electric vehicle batteries in Dundee. The manufacturing site in Poland, which is the result of an historical acquisition, services the other side of our business, which is in power tool and electric bike batteries.
We get the major drive components from the European Union—from Italy—which is really strange, considering that this room is dedicated to the memory of the guy who invented the electric motor. We try to source as many of the components as we can in the UK. Our batteries come from Axeon in Dundee. They are composed of Chinese cells. We also have batteries that are composed of imported Korean cells, the casings for which we are starting to manufacture.
I thank the panel for their answers, and I look forward to both companies making more major announcements about the creation of job opportunities in Scotland.
Thank you very much. It has been quite a short session, but I think that we have got through the major points in an hour. I am grateful to members of the panel for coming along.
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