Enterprise and Culture Committee, 16 Mar 2004

Meeting date: Tuesday, March 16, 2004

Official Report 243KB pdf

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Renewable Energy Inquiry

Item 2 on the agenda is our inquiry into renewable energy. The first panel of witnesses comprises Charles Davies, who is the director of commercial policy for National Grid Transco, and Dr Lewis Dale, who is the regulatory strategy manager for National Grid Transco. I ask the witnesses briefly to say what their jobs entail, after which we will move to questions.

My primary role at present is as the director of the BETTA—British electricity transmission and trading arrangements—project. I am also involved with other aspects of commercial policy such as charging and contractual arrangements.

My job is primarily associated with our on-going discussion with the Office of Gas and Electricity Markets, the regulator, but I also look after combined heat and power and renewable issues in the company.

You have submitted a full paper in evidence, which I suspect would repay rereading several times. I will ask a couple of general questions—I am sure that my colleagues will pick up the technical details. Most of the paper seems to be predicated on the development of wind energy either onshore or offshore. Is that because you reckon that that is the most likely scenario? The paper pretty well ignores tidal or wave energy.

Our evidence is based on the work that we have done to respond to renewables. As our paper points out, the Department of Trade and Industry's transmission issues working group has asked us to consider reinforcements to our network. Charles Davies and I are involved in the distributed generation co-ordinating group and we have been asked to examine intermittency issues. Wind power is seen as the front-running renewables technology; people expect to see a great deal of it by 2010 and they are asking us about the network issues that would arise for wind power with a high-voltage transmission system.

We have had discussions with wind power developers who are thinking about connecting directly to our system or who are talking to distribution networks in England and Wales. I am sure that many other renewables projects are talking to the distribution companies, but, as they would not need to talk to the high-voltage network, we have had little contact with them up to now.

Why would those projects not need to talk to the high-voltage network?

We own and operate the 400kV and 275kV transmission system. As a rule of thumb, a connection to our system would be the most economic option only for a large generator—certainly with more capacity than 100MW. Smaller generators would normally talk to their distribution network operators and connect at a lower voltage. If they do not require a generation licence, they might never have a commercial relationship with us.

Surely if a lot of small generators are coming on line, their activities will have consequences for the part of the network that you manage.

That is certainly the case. The small generators will have an impact on the flows on our transmission system. Clearly, if 10 50MW generators connect to a distribution network in a particular area, the 500MW that are generated will have a significant effect on the flow on our system, increasing it in an exporting area or reducing it in an importing area. Nevertheless, at least in England and Wales, those generators will connect to and have contractual relationships with the distribution networks and we will be aware of them via our contacts with the distribution networks.

Our next panel today will include witnesses from a project that gives houses their own windmill—if I can put it that way. If such technology were significantly to take off, what would be the impact on the grid?

Central heating boiler replacements that produce electricity are another such technology. We have considered scenarios in which there are large amounts of distributed generation of various sorts. Generation at the lower voltage level in the home or near to where the electricity is consumed certainly alters the flows on distribution networks and, to some extent, changes the way in which those networks operate. At the high-voltage level, we might find that there is less flow from our network on to the distribution networks and we might even find that the direction of the flow changes, so that distribution networks transfer electricity to us.

Although the flows on the network might change as a result of such generation, our role will probably remain, first, to make large bulk transfers of energy around the country. For example, Scotland is rich in renewables, but there is a lot of load in the south-east, so the power must find its way through our network to meet that load. Secondly, our role in ensuring that generation and demand are balanced from second to second will continue, although the way in which that balancing is done might change because the generation is no longer from large power stations but from much smaller power stations.

I am not sure exactly how much electricity can be generated from such projects—we will find out when we hear from the next panel of witnesses. Could lots of small generation of that type make your job easier, or cheaper?

That would depend on where the generation was—

Everywhere, I presume.

Gas-fired CHP generators in the home, for example, will be close to the large load centres and the power will not need to be transported very far. However, in relation to wind power, there will tend to be more generation in the windier areas, so we could still expect to see a need for large bulk transfers.

The second aspect of our job is about balancing. Predictable small generators do not add much to our balancing task, but very intermittent generators—I suspect that small wind generators will be as intermittent as bigger wind generators—will require us to take additional balancing actions to deal with that intermittency.

Good afternoon, gentlemen. I found your paper challenging—it was not always easy to follow. Would I be right in thinking that the outcome of the discussions on BETTA will have a significant influence on the kind of renewable energy that is economically viable and on the various possible scenarios that you paint in your paper? I take it that those discussions, which are at a fluid stage, are important.

They are important—

I am sorry, but I should have declared an interest. I am a very small shareholder in your company.

The outcome of the discussions on BETTA is important in a number of areas, not least that of renewables, but primarily in establishing proper and efficient arrangements for running a single Great Britain market and a single Great Britain transmission system, in place of the separate systems that we have at present. From a National Grid perspective, we have to look at the issue in two ways: from the point of view of our current role as transmission owner and operator in England and Wales and from that of our potential future role as system operator for the Great Britain system.

Would it be fair to say that, as the only other two transmission operators are in Scotland, and they are still generators, transmitters and distributors, we have to take cognisance of the fact that the comments that you are making would have a significant effect on your competitors? Changes in BETTA, or indeed changes in the capacity of the interconnector, would have a significant commercial implication for your company and for the two Scotland-based companies that are involved in distribution.

Commercial elements are involved, but I would not agree that we are competing with the Scottish companies in any respect. Our licence precludes us from involvement in generation and supply activities, so we are not involved in any way in those activities in England and Wales, nor would we be in Scotland. We are clearly involved in transmission activities in England and Wales and have the potential to be involved in Scotland. However, those are monopoly activities that are subject to regulatory oversight; they are not competing activities, because, under the proposed BETTA licensing arrangements, each of the three transmission licensees will have a geographical area in which it is the transmission owner.

Nevertheless, it would be fair to say that, in the regulatory environment that BETTA sets out, there are different drivers that will influence how well each of the companies does. That almost runs contrary to the idea behind BETTA. Your submission mentions several times that the arrangements are cost reflective and that variations to those arrangements are almost always made to keep the transmission side of the two Scottish businesses viable. The bulk of the profits of Scottish Power, for example, comes from the lines rather than from the distribution side or the generation side. BETTA will have a big influence over that and therefore over whether those companies can afford to invest in the connections that are required to deliver the renewables, let alone anything else.

I certainly have no in-depth knowledge of the structure of the accounts of Scottish Power or Scottish and Southern Energy, or of where the bulk of their profits come from. However, I do not believe that the BETTA proposals as they are currently structured in any respect involve head-to-head competition between National Grid and the transmission owners of the two Scottish companies, which will remain their licensed business. I do not think that there is anything in the proposals that are currently being consulted on that would lead to such a circumstance.

Will you say a little more about why there must be early decisions in advance of the introduction of common market arrangements for GB-wide transmission access? Why do we need early decisions about how the interconnector and other infrastructure changes that might be required will be dealt with?

Currently, there is a capacity and a capability to send 2,200MW of electricity from Scotland to England, which is based on a contractual agreement that has been established between National Grid Transco and the two Scottish transmission companies. If renewable energy is expanded in Scotland—and we all expect that to happen; certainly our Scottish colleagues say that there has been a great deal of activity and many connection applications—that will lead to increased requirements for transmission capability, so that electricity can go from areas in which it is produced to areas in which it is likely to be consumed, such as the south of England. Scotland already has a generation plant surplus.

The longer such decisions are postponed, the more restricted the capability of developing Scottish renewables resources will be, because the physical infrastructure will not be in place to transmit electricity from the additional generating capacity in Scotland to the market in England. There must be an increase in the physical capability of the system to move the megawatts from the new wind farms in Scotland to the demand centres in England and Wales. Therefore, we think that the sooner such decisions are made, the better.

Any greater predominance of offshore energy would more likely be south of the border and capital costs and the cost to the consumer would be lower. Is it fair to say that?

The capital costs of reinforcing the transmission infrastructure would be lower, but the capital costs of the offshore wind generators are likely to be higher and the connections from the wind generators to the shoreline—which are not included in the joint study that was undertaken with Scottish Power and Scottish and Southern Energy—are not included in those costs. Certainly, the transmission reinforcement cost is lower, but offshore wind costs are likely to be higher.

I take it that that is what you are talking about in paragraph 30 of your written submission, where you say:

"We believe that the most appropriate approach would be for Ofgem to agree the need for an initial co-ordinated set of reinforcement works in Scotland and England & Wales so that future funding of the associated investment costs can be assured."

What exactly does that mean?

For investments that we make in our network, we receive future funding if Ofgem agrees that the investments have been efficiently incurred. Part of our written evidence explains that it is difficult to demonstrate, using existing methods, that our planned investments are efficient. We could wait until BETTA is in place and generator projects are under way in Scotland and use that to demonstrate that reinforcements are a good idea. Unfortunately, that could mean that there would be a long period when the network would be undersized and a barrier to the development of renewable generation in Scotland. Therefore, we suggest that, rather than wait until a definite need is apparent because people have built wind turbines, it would be a good idea to develop the network in parallel with such developments to ensure that the capacity exists when they start operating, which would secure their route to the market.

Effectively, you want Ofgem to say to you, "We think that this amount of capital investment is needed. Go ahead and we'll allow you to recoup the costs of that plus make a reasonable profit in your charging." Is that correct?

Yes.

Have you had any indication of whether that suggestion is being favourably received?

Ofgem consulted last October on possible ways forward for dealing with the investments. We and the Scottish transmission companies are having to extend our price controls by a year. We expect Ofgem to deal with that issue as part of the regulatory arrangements for extending our price controls. There will be an opportunity for dealing with that this summer.

I am sure that your written submission is comprehensive and that it is comprehensible to people who understand such matters. However, I find it somewhat opaque—perhaps my colleagues would concur with that view. The last sentence of your submission—in paragraph 49—states:

"Measures that will improve the incentives in the electricity market to maintain security of supply, however, are likely to increase the imbalance costs faced by intermittent generators."

Can you explain what that means?

In the new electricity trading arrangements markets, which were introduced in England and Wales in April 2000, generators and suppliers can buy and sell electricity and self-operate their generators to meet their contracts. National Grid's role is to do the residual balancing. The vast majority of the electricity that is bought and sold in England and Wales is controlled by the parties concerned—more than 95 per cent of energy is largely driven by generators self-dispatching themselves to meet their contracts.

The incentives on generators to follow their contracts and on suppliers to contract for the electricity that their consumers require come, in part, from imbalanced charges—that is, charges for not following their contracts. If a generator contracts but then does not generate to meet that contract, we as the system operator have to find electricity from somewhere else at short notice. The cost of that action is met through imbalanced charges on the generator concerned.

Thank you. That was a good explanation. What are the measures that you speak of that would improve the incentives to maintain the security of supply?

There are some questions about the future security of supply. For example, last summer we saw historically low plant margins—the surplus of generation over peak demand for the coming winter. On that basis, we informed the market and tried to encourage generators to bring plants out of mothballs to meet those peak demands. One of the measures that are being discussed to try to encourage generators not only to keep their plants in service and not mothballed, but to build new generators, is to alter the imbalanced charges to make the consequences of not having enough generation more severe. One can see that that would be good for encouraging generators into the market and for dealing with the security of supply, but, if the generator is intermittent—such as a wind turbine, given that the wind blows hard or less hard on a particular day—imbalanced charges could give rise to more commercial difficulties.

Am I correct to say that, because of the way in which the charging regime is going, people will find it less attractive to invest in wind turbines?

That could be one of the outcomes. We have to distinguish between charges to pay for the networks and to ensure that there is enough network capacity and charges that arise in the energy market between the market participants to encourage them to have enough generation to meet the contracts that they enter into. We are talking about the latter. Those charges arise in the energy market—they have nothing to do with National Grid. However, they form an important part of ensuring that people meet their contracts.

I think that I understand that. The net effect of what you suggest seems to be that it is more in the financial interests of the generators to develop less intermittent forms of energy production. Do you agree?

Yes.

Paragraphs 42 to 44 of your written submission set out the standby generation requirements in some detail, but I am not clear on the cost. You say that about one third of conventional capacity

"can be retired without any increased probability that load reductions would be required due to generation shortages on cold days".

You go on to say that, as the amount of wind increases, a smaller proportion of conventional capacity could be retired. You talk about the costs of that in paragraph 48, in which you reckon that an additional £40 million per annum would be necessary for 8,000MW of wind turbines. What would be the cost for the larger example that you give? Would that still fit in with your point that

"economic and market factors will become increasingly important"?

How do those two issues relate, if indeed they relate at all?

First, I will explain the different sums of money that we are talking about in our submission and where they occur as a result of the present structure of the electricity market. The

"£40m per annum for 8,000MW of wind turbines"

is the cost that we estimate might be required to deal with short-term intermittency and the additional balancing tasks that we would face. When I say "short-term", I am talking about the last few hours before real time.

Wind is a more intermittent form of generation than the generation that we see at present in the electricity market. To some extent, the intermittency gets averaged out with demand forecasts and other uncertainties in the market. Nevertheless, our estimate of £40 million is based on the fact that wind will be less certain in the short period before real time. Reserves and frequency-responsive generation would have to be brought into service for that period of time.

That issue is separate from the need to keep standby capacity in the electricity market to deal with peak demands on days when there is very little wind. That is not a cost that we, as National Grid Transco, would see; it would be borne by the generators and suppliers in the larger electricity market.

In our calculations, we tried to work out how much existing generation—I am talking about thermal power stations—would need to be kept in service to deal with cold days on which there was little wind. That is the issue to which we refer in paragraphs 42 to 44, whereas paragraph 48 addresses purely the short-term balancing in the last few hours of operation.

Thank you for clarifying that.

You mentioned the costs that would be borne by suppliers in the larger electricity market. Would they be willing to bear those costs? Would they say, given those costs, that it was worth while for them to get involved in wind generation? At what level might the suppliers say that they were not prepared to bear the costs?

That is a very good question, and one to which we would like to know the answer. If the market works efficiently, as more and more wind power is developed the costs of keeping flexible generation in the market will appear in the power prices in the market. I presume that that will either encourage flexible generation to remain in service or encourage customers to contract with forms of generation that are different from intermittent wind generation. It is difficult to predict which of those two outcomes—

In other words, more reliable forms of generation.

Quite so. There are more reliable, less intermittent forms of renewables.

In paragraph 13 of your submission, you estimate the network reinforcement costs. Did you assume a level of small scale and micro scale—by which I mean a level of less than 500kW or so—or were the costs assumed to be purely from larger wind farm developments?

The key issue in respect of the figures in paragraph 13 is the location rather than the voltage of the connection.

In the studies, particularly the onshore study, we assumed that there are levels of renewable generation in Scotland. Our scenario provided for levels of 2,000MW, 4,000MW and 6,000MW. The transmission reinforcement costs will be the same, in essence, regardless of whether there is a large number of small generators of 500kW or less, or a smaller number of larger generators. The local connection costs may be different, because there will be variations in the system's flows, as we said earlier. I gave the example earlier of using 10 50MW generators or one 500MW generator. Equally, one could cite the example of ten 500kW generators or a 5MW generator, which would still affect the flows on the system.

The companies that act as transmission operators in Scotland at present may see the situation as one of negative demand, or of decline in demand, in the exporting area. Such decline will lead to increased exports from the exporting area, however, and in our judgment will require a certain level of transmission reinforcement. As far as we are concerned, the issue is the location of generation rather than the voltage of connection.

Perhaps the next panel of witnesses will discuss the prospect of a large number of houses in Scotland having individual wind generators. From our point of view, the important fact is that the generators are in Scotland, not that they are small individual generators. That is what we were trying to sort out in paragraph 13 of our submission.

Would not the effect of such generators be purely to reduce demand, in Scotland or wherever? I understand that some of the micro-generators are on the consumer side of the meter and that, therefore, they are not exporting back but merely reducing the level of demand. Does not that reduce the flow?

Let us examine the arithmetic. The numbers are broad, but let us assume that demand in Scotland at a particular time is 4,000MW and generation in Scotland at that time is 6,000MW. Therefore, 2,000MW is being sent to England and Wales. If 1 million homes suddenly acquire a wind generator and demand in Scotland decreases from 4,000MW to 3,800MW, Scotland will be capable of exporting an additional 200MW to England. Demand will have reduced and the balance between demand and generation will have changed from 2,000MW, in my first example, to 2,200MW. That will be seen as negative demand or as a reduction in demand, but it will provide for the potential to increase the flows on the transmission system and it will require reinforcements.

I come not from Scotland, but from south Wales, which imports a large amount of electricity. If windmills were placed in south Wales, the flows on the transmission system would be reduced even though the windmills would be operating at the individual household level. The demand in homes in south Wales and the flows that we have to put there would both be reduced. The question of how local generation, or distributed generation, affects the need to reinforce the transmission system relates to location and the existing flows on the system.

I think that I understand. Less generation of all kinds in Scotland, and more in south Wales and south-east England, would help National Grid Transco the most.

No.

The unstated assumption in the discussion that we have just had is that if micro-generators are introduced into people's homes, they will consume less electricity.

The effect on the transfers south into England and Wales would depend on what happened to the other generation in Scotland. At the moment, Scotland has a surplus of generation, which is why it exports to England and Wales. If more generation is brought on but existing generation is not closed, there will be even more power to export. Of course, there could be a scenario in which micro-generators replaced existing generators in Scotland, in which case the exports to England and Wales would remain the same and the reinforcements would not be required. The effect would depend on the overall balance between total generation in Scotland—whatever the type—and total demand in Scotland.

I want to return to a comment that Chris Ballance made. I think that he said that we would like there to be more generation in the south and less in Scotland.

I will put that another way. I was making the point that that would be most helpful to you, in terms of avoiding the need for network reinforcements.

I accept that entirely. It is our job and we have an obligation to meet the requirements of users; what I like or do not like is irrelevant. If generators want to locate in Scotland, it is our job to provide a service to them and to reinforce the network. I agree with your point, as you restated it.

That brings me neatly to my next question. We have talked a lot about the Scotland-England interconnector, but will you tell us a little about the interconnector with France? Does it have a role to play and would it be worth mentioning?

The interconnector with France is different from the one with Scotland—at this point, as a non-engineer, I will get technical and Lewis Dale will have to tell me where I get it wrong. The interconnector with France has a capacity of 2,000MW, which is about the same as the one across the border between Scotland and England. It is direct current, rather than alternating current, which means that it is controllable. We set a dial and say, "How much do you want to send and in what direction?" With an AC system, the power flows according to various laws of physics, which I am sure that Lewis Dale can describe more accurately than I can—

Perhaps we will skip that bit.

The point is that one cannot control the flows in the same way. One current is controllable, the other is not—that is the non-engineer's understanding. The flows over the England-Scotland border are determined by how much generation is on in Scotland and in England, what the demand is and so on.

The French interconnector was built in the mid-1980s as a joint project between the old nationalised industries: the Central Electricity Generating Board and Electricité de France. Pre-privatisation and up to the late 1990s, it exported almost continuously from France to England as a base-load 2,000MW. Since then, because of falling prices in the England and Wales market and rising prices in continental Europe, the flows have been more evenly balanced and the interconnector has not been utilised as fully as it used to be. Sometimes the electricity flows from England to France and sometimes it flows from France to England. The flows on that interconnector are determined by suppliers, not by National Grid Transco. We operate the interconnector, but the flows depend on the contracts that people in England have struck to take supplies from France and vice versa. That is the background to the French interconnector—I am not sure what else you had in mind when you asked about it.

I wanted to understand more about that interconnector, because I knew that it existed but I knew nothing about it. I have no idea whether it has a bearing in terms of alternatives for network reinforcements and whether it has extra capacity that could be used to help to balance a large amount of wind power.

The flows in our existing system in England and Wales are predominantly from north to south; there is generation surplus in the north and demand surplus in the south. In the GB market, the situation is even more marked. As we said, there is surplus generation in Scotland. From a system point of view, having the potential to in-feed 2,000MW from France to England is extremely useful, because it reduces the amount of transmission investment required. Of course, in the opposite situation, if we were exporting 2,000MW to France, we would be adding to a demand that is already excessive. That would cause more issues of system reinforcement to arise.

Lewis Dale might want to talk about how we deal with intermittent energy sources.

It is possible to use the controllability of the link to France to address some of the intermittency issues that we have spoken about. Whether that is the right thing to do depends largely on the price of the service. Calling on large amounts of power at short notice is a premium service. It is more expensive than getting base-load. We have to compare getting that service from France with getting it from coal stations, oil stations, gas stations or any other provider. Increasingly, we can call on the demand side. Cement works and aluminium smelters can switch off their demand very quickly to help us to balance things. The link to France is one of our options, but time will tell whether it is the most cost effective.

I would like to ask you more about that last point, on reducing demand. Has that happened? What is the capability for that?

Getting more electricity on to the system at very short notice is quite a specialised service area. A number of providers can provide that service. There is pump storage in Scotland and north Wales; there are gas turbines that can be run up; and some coal stations can operate in a mode that provides extra power. However, those are expensive options. Because the activity is fairly lucrative, some demand takers have found it worth their while to respond either to the market price or to instructions from their control centre to turn down their demand very quickly—sometimes automatically. In that way, they alter the balance of supply and demand at very short notice.

I was not aware of that possibility. Has it happened often?

Since NETA, which has tended to identify better the costs of such services, the demand side has increasingly played its part in that activity.

We have contracts with people who are large users—predominantly steelworks, aluminium smelters and cement works. They either provide an instantaneous response to a drop in generation—by shutting down a pot line aluminium smelter, for example—or provide for reserve after about 10 minutes or so.

A point that is often made by those who are against wind farms in all their manifestations concerns the problem of intermittency. In paragraphs 37 and 39 of your submission, you seem fairly bullish about how well you can cope with intermittency. Paragraph 37, in which you talk about coping with balancing costs, says that, if the amount of wind is limited, the situation can still be accommodated. You seem to be implying that you do not see that as much of a problem. You say that even the problem of the 140-millisecond dip that trips everything out, as happened in Germany, can be accommodated with investment. Is that a fair appraisal of what you are saying?

That is right. As Charles Davies explained, the intermittency issues can be dealt with by using aluminium pot lines and so on. We can call on all sorts of services to address wind intermittency, so we do not see that there will be a technical limit. In fact, around the world, there are some islands that have 100 per cent wind; they have standby generation, battery storage and the like, but inherently there is not a technical issue. It is just a question of ensuring that the standby or storage, or whatever you use to address the intermittency, is there and paid for. The economics are probably the biggest issue.

Some of the technologies that have been used in wind turbines up to now have been very sensitive to voltage dips, which can cause them to trip off the system. However, wind does not make up a large proportion of the generation, so if some of the turbines trip off from time to time that has not been a serious issue. However, if wind makes up a large proportion of the generation, losing it all at once will obviously be difficult to deal with.

We have been discussing that issue with manufacturers and wind developers, and such discussion is occurring across the world. You may be aware that Ireland has called a moratorium on the development of wind power while that issue is being addressed. We want to avoid such difficulties, and any barrier to the development of wind power, by ensuring that that problem is sorted out before it becomes a serious issue. Our understanding is that manufacturers can solve the problem in the design of the wind turbines and the control systems that they use.

Thank you very much. We reserve the right to write to you again to ask for clarification if we discover on second reading that there are things that we have not understood.

I apologise. We shall have another look at our drafting capabilities and thin down our evidence.

I am sure that it was more the nature of the topic than your drafting.

Please write. We will be more than happy to respond.

Thank you for your evidence.

I was going to suspend the meeting briefly, but I think that in view of the hour we should carry on. We move to the second panel of witnesses, to whom I apologise for the fact that we are taking their evidence a bit later than we had planned.

We have with us Angela Duignan, who is the project development manager of Baywind Energy Co-operative, and David Gordon, who is the chief executive of Windsave Ltd. Will you tell the committee briefly what each of your respective firms do?

Baywind Energy Co-operative Ltd is the first and largest community-owned renewable energy scheme in the UK. Energy4All, which is a subsidiary of Baywind, was set up to spread the concept of community ownership, which is prevalent in countries such as Denmark and Germany. Community ownership maximises the economic benefits from wind farms because the turbines are owned by the community in which they are placed, so the profits stay within the community.

Where are you based?

Our office is in Cumbria.

I am grateful to the committee for giving me the opportunity to present information on Windsave and to answer the committee's questions. Most of the evidence that the committee has heard so far involves renewable generation on a large scale, particularly offshore and onshore wind. I hope that I can help to persuade the committee that small is also beautiful, and that the product that we have developed can make a significant contribution to the renewable energy target, quite literally at household level.

I am particularly pleased to be giving evidence to a committee of the Scottish Parliament, since the micro wind generation system that we have brought to the market is a Scottish concept, which will largely be manufactured in Scotland and will be marketed first here in Scotland. I would sum it up as a Scottish opportunity. We have a product that is a world leader, with all patent rights secured, and which has potential application wherever the wind blows.

There are three main strengths to the product—

I wonder whether I could stop you there. I did not want a long presentation, because there is a fair bit about the company in your submission. Is your product in commercial development or is it awaiting demand from the consumer before you can begin to produce it commercially?

It has been produced commercially and we are getting ready to roll it out in June or thereabouts. We have finished all our trials and tests, and all our prototypes.

What does the product look like? What size is it compared with, say, a conventional television aerial?

The diameter of a wind blade is 1.5m, and the size of the generator is 210cm by 300cm, so it is quite small.

Obviously, the cost of the product will come down if many people take it up, but if I was your first customer, what sort of payback would I be looking for?

You would get a payback in less than five years.

How much will a unit cost?

It will cost £750.

What percentage of a household's electricity will be provided by the unit?

It will save in excess of 15 per cent.

So the majority will still come from traditional power supplies.

Yes; the unit provides supplementary power.

Do you envisage any planning problems in urban areas? People get into difficulty getting planning permission even for satellite dishes, which are smaller than the system you describe.

That is a fair comment. I am sure that certain areas may not be too happy, but to date, all the local authorities to which we have spoken from the north to the south have been exceptionally helpful and have bent over backwards to help us to do some sort of roll-out. However, we are still at the early stages of getting a direct picture.

You gave us a figure for the purchase cost of the unit. Does it cost significantly more on top of that to install? You talked about there being a three-pin plug, but I presume that there will still be costs.

The figure that I gave includes fitting.

That is an interesting proposal. I remember that many Highland crofts used to have a windmill at the back, which was generally used for pumping up water from a well. A small windmill at the back of a croft would not be an unusual feature in the Highland landscape. Clearly, there will be a direct benefit to a householder who decides to install one of the units, but is there any tie-in with the renewables obligation certificate regime?

Yes. At present, we are going through the clear skies accreditation process. Once that has been completed, we intend to issue an annual green dividend cheque back to the consumers.

So if I install one of your machines, I will get a cheque back. From whom will the cheque come?

The cheque will come annually through the Co-operative Bank, which will handle the matter for us. The money that is generated from the electricity will be paid by the DTI and will go into a trust account to ensure that it is safe and sound. We can enable that process because we have built into the unit a remote metering facility and we have the host software that can read the meters monthly. More than a year ago, we were involved with the DTI because at that point micro-generation had to produce 1MW a month to qualify. Through a Government white paper, that figure has now been changed to 1MW per annum.

Is the machine on the consumer side of the meter?

Yes.

So it does not feed into the grid. If I have one of your machines installed and go away on holiday, does that period qualify for anything and, if so, why?

Every household has a 300W to 400W base-load, whether that is the security system or the fridge ticking away. Because there is an inbuilt sensor in our system, it supplies only the amount of energy that the household needs.

I have a question for Angela Duignan. Some of the committee members were in Denmark recently, where we discovered that a lot of the wind generation there is a result of community involvement—many communities own wind farms. One reason why they are running into problems in some areas is that, as the wind farms get larger and larger, they are less about serving the community and more about a commercial venture, albeit one in which the community has shares. How do we avoid that problem?

Denmark has reached a high level of generation from wind power—on the west coast, the figure is up to 25 per cent—whereas we are at around 1 per cent. We are nowhere near the same level of saturation. We are working with larger developers who have consented projects so that we can buy one turbine out of 10, 20 or 50 and offer it up for community ownership. Our marketing is done locally, which is how Baywind was formed. Priority is always given to local people. In that way, the project maintains its local identity. The board members are drawn from average, everyday people in the neighbourhood. That is exactly what has happened with Baywind, which is a locally run co-operative for local people. That is what we are promoting.

So you do not have any plans to expand outwith your own area, and you are sticking with what you have got. Is that correct?

No. After Energy4All was set up, we started an expansion process, which involves negotiating with the big developers so that, when they go into an area—we have one agreement with Falck Renewables and the Renewable Development Company, or RDC Scotland, which has just got consent for Boyndie wind farm—

For what, sorry?

Boyndie wind farm is a seven-turbine project up in Aberdeenshire. We hope to be able to give a proportion of that wind farm to the local community, so that the profits can stay in that community, which can have its own green energy co-operative to address environmental measures. That is what our activities in Cumbria involve. We have taken the Baywind concept and we are using that model where we can to reach agreements with developers wherever a commercial wind farm is being constructed.

You are acting almost as a facilitator. Where the local community does not have the knowledge or the experience, you are saving it from going up the learning curve that you had to go up when you set up. Would that be a fair summary?

Yes, that is what we are doing. We are being assisted through the Co-operative movement, which is supporting us in that work.

You are involved in a relatively small wind scheme in the South of Scotland region, at Lauder. Do you have any experience of working with bigger wind schemes? What reception do you get from Scottish Power and other electricity people?

We have approached all the wind farm developers to ask whether they would be interested in giving a proportion of the developments to community ownership—in fact, it is not giving, as the developers get paid for the turbine. So far, we have only the one deal in Scotland, which I mentioned earlier. There is some reticence on the part of some people in the industry to partake in such schemes, but we are working with them to overcome their hesitations, which are normally drawn from the perceived complications of legal and financial agreements. The best way to put it is that we are working on them.

Are the legal and financial implications particularly complicated? Do you have the solutions on hand?

Each wind farm is set up separately, and it depends on the company and on how the projects are financed. It is done on a case-by-case basis, but I would say that anything can be resolved if the will is there. We would like a lot more energy to be put into promoting the idea.

Your submission mentions

"run-of-river hydro schemes that are virtually unexploited".

I do not think that we have heard about "run-of-river hydro schemes" from anyone else. Could you expand on that?

There are some run-of-river hydro schemes being developed at the moment. When I went through all the technologies—biomass, wind, hydro and solar power—I found that, when we get down to schemes that communities can develop themselves, the costs, risks and requirements for knowledge are prohibitive. Very little grass-roots development is going on in the UK at the moment, and that is what I was referring to. Hydro developers are working on such schemes, but I was referring more to the community-based opportunities—I did not explain that very well.

You spoke about community ownership increasing public acceptance and satisfaction. That point is well made, and we heard it made in Denmark. What could the committee recommend to encourage community ownership?

Energy4All is doing work on developing community ownership through the generosity of Baywind members—who are based in Cumbria—who believe in community ownership. Much of the debate on community benefit has focused on trust funds, which are a separate issue. The community ownership idea has much more potential, but it has gone unnoticed so far. We must bring it to the attention of communities that the opportunity for community ownership exists and that now is the perfect time for it because the planning stage is the most fruitful time for exploring and developing community ownership.

I have further questions about Baywind. I thank you for your interesting written submission, which is thought provoking and encouraging and shows considerable ambition. However, I am keen to explore further what you believe needs to be done to translate that ambition into reality. It strikes me that, relative to what has been achieved since Baywind was established in 1996, you need to up the pace to a phenomenal extent. I am casting around for anything that you might like to add about how momentum can be achieved.

Energy4All is applying community ownership within the context of renewable energy, but it clearly has wider applications and I am particularly interested in hearing more about that. You made international comparisons with Denmark and Germany. I defer to the experience of committee colleagues who, unlike me, were in Denmark recently and may have the answer to my question. In Denmark and Germany, to what extent is a substantially higher level of community ownership of renewable energy schemes a product of a wider prevalence of community ownership in general and to what extent is community ownership prevalent only in the renewables sector? Can you unpick some of that to give us a sense of where we are relative to everybody else and how we might get closer to them, if that is where we want to go?

Sure. First, 1996 was almost eight years ago, but Baywind is probably the only large-scale, community-owned renewable energy development in the country. We are unique, but four new wind farm co-operatives should come on stream this year alone: three in England and one in Scotland. We must prove that community ownership can work under the ROC system. The main problem has probably been that the renewables industry has been banging its head against a brick wall. However, now that the permissions are coming through and the megawatts are getting on to the ground, the concept of community ownership can be brought in. We have resolved most of the grid connection and planning problems, so now is the time to introduce the concept of community ownership. That is why we seek support at this stage.

We must promote the idea of community ownership, particularly in rural areas, so that communities themselves can provide the services that they need. I note that the committee is carrying out a broadband inquiry. The Phone Co-op sponsors a community broadband network, which allows communities to supply services that they need but perhaps cannot get from a developer, who is interested only in financial benefits. In contrast, social enterprises service the community within which they exist and work, which turns a business's emphasis round completely. Profits are important, because otherwise a company would not exist—we have returned good profits every year since we began operating—but a business can both service its community and make a profit. The revival of social enterprises has started. The more awareness there is of the opportunities that are out there, the more those opportunities will be taken up and the more examples of community ownership we will have. I believe that the idea of community ownership can be expanded from renewable energy into everything.

Can you elaborate a little on the wider Co-operative movement, to which you referred a couple of times, in terms of who is working with you to develop community ownership models and where? Have you any comment on the plan to establish the co-operative development agency—which is a specific Executive commitment—and how that might have a bearing on your work? I hope that I got the agency's title correct.

Baywind is a co-operative and we work accordingly, with a one-member, one-vote system. The minimum investment is £250 and the maximum is £20,000. Further, we created a savings scheme when we first set up to enable people who could not manage the £250 minimum investment to work towards it. The idea is to open involvement in the co-operative to as many people as possible. The Co-operative movement, which gave Baywind a support grant, is developing a renewable energy network and is about to get an officer on board to help with that. However, we are currently the only renewable energy co-operative. I do not know whether that answers your question.

It does. Anything that you can add to what we know will help the committee. If we assume that we agree with the model that you have presented, what can be done by public policy intervention to promote community ownership and make it happen more extensively?

We are considering the issue from two angles. First, we accept that, because of the policy, the risk and the money involved, big companies lead most wind farm projects—it is a risky business to be involved in. Most of our work is focused on such projects and, as I said, we are doing that off the back of the Baywind shareholders, so any assistance that we can have to support our work would be greatly welcomed. Secondly, the grass-roots level is untapped. If a community is committed to renewables, it immediately comes up against the barriers of knowledge and risk money. Overcoming such barriers is the key to getting other technologies, particularly biomass, off the ground. A developer will choose the most profitable sites, but wind and biomass are everywhere. Therefore, the issue is about tapping into such resources and tapping into the needs of all the communities that want green energy.

I have a final, specific question on a similar theme. In your written submission you made a point about grant support:

"If grants offered by government could be match funded by private equity through co-ops many more schemes would be available".

Can you elaborate on what kind of grant regime you want in place?

Only one grant scheme is available for community renewables and it is available only if the renewables project is a not-for-profit one. To me, that contradicts the point of community ownership, which is to get an alternative income stream into rural areas that do not often get offered an investment opportunity such as renewables. The grant scheme had to fit with European Union state-aid rules, but there are ways round those and I would like them to be explored.

I have a short question for David Gordon. You predict that 190,000 units will be installed within the next six years. That seems to be a very optimistic prediction. That figure must be the equivalent of more than 10 per cent of Scottish houses. How realistic is that prediction?

Once consumers see that they can save energy quickly, a large roll-out will take place. Many of the 190,000 units that are predicted for Scotland—the figure excludes England—are for small and medium-sized enterprises and commercial organisations. When we launched in early December, there were 40,000 hits on our website and we have an extensive order book. Providing that we get a fair wind, we should be able to get a reasonable roll-out.

Something tells me that you may have used that analogy before.

I am sorry. I remind members that the savings are immediate.

You make the perfectly reasonable point that having installations on public sector buildings would send a strong message. Has interest in the scheme been expressed by the Scottish Executive and local authorities? Do you believe that the Executive should push it more?

The response from local authorities and government bodies in Scotland has been terrific. We have a list of contracts for units that we are ready to install. Public sector bodies have been super.

I was hesitating to recommend the Scottish Parliament, because that would probably count as a design change and serve as an excuse for charging another £20 million or so.

Don't go there.

We will not go down that route.

The cost might end up as £7,500 a unit.

I thank both witnesses for their evidence.