RENEWABLE ENERGY ASSOCIATION

17 OCTOBER 2006

  Q80  Mr Wright: Do you not think that really it perhaps is the case that whilst the individual energy user can turn the electricity on 24 hours a day, turn on the gas cooker and the gas boiler in an instant, it is a deterrent? Is it not the case that perhaps if there was a time when there was a generating shortage when they had to turn their power off, it would be the incentive? Do you think it is the case that we have to go the extra mile to persuade people that they have got a responsibility as well in terms of the use of energy?

  Mr Wolfe: I think we would be reluctant to suggest that we need to switch them off in order to get them to rethink, but there is a lot of strong evidence—

  Q81  Mr Wright: I am not suggesting that. What I am suggesting is that perhaps it is changing the mindset. The financial incentives will probably go some way, but what I am suggesting is that perhaps it is the case that at the end of the day people do not care where the electricity comes from, as long as they can turn their lights on and use the iron.

  Mr Wolfe: Well, there is a lot of evidence to suggest that those who do have micro-renewable systems are far more aware of it.

  Mr Lee: I think there are two answers to your question actually about talking to people. You have your authorities and you have the consumer. I had the pleasure of speaking at the Party conferences in fringe meetings on climate change and the biggest thing to come back from local authorities and city planners is that they needed clear guidance from central government as they themselves did not understand, so they are looking to you for some sort of guidance, but they are all willing. On the consumer side, I think it is partly the responsibility of the market and the Government to educate the consumer and to do it in the correct manner. Germany has probably been the most successful and it has overtaken both Japan and America in installations, and its climate is not that different from our own, purely on PV. The typical consumer there is based on a feed-in tariff, but once they have had their system installed, their average usage in their own house has gone down between one quarter and a third because they are now more conscious of it and they are switching off switches. Now, part of this is because there is a monetary benefit if they are turning if off and another part of it is that they have been well educated both through the market in itself and through central government giving clear guidance.

  Q82  Mr Wright: Do you see the B&Q incentive in terms of having the Windsave turbine for sale in their shops as an incentive to put this in people's minds?

  Mr Lee: It has definitely worked. We have done a launch at Currys and in the first few weeks we had 194 people, some travelling as far as down to London to reach a store from Newcastle, so the want is there, the educational requirement is there, but does it need a message from the Government on clearance? Yes, it probably does. What they need to know is that you support it and the message that comes across is for nuclear and that there are all these others, but no one has actually come out and said, "We support this". For example, and I do not want to digress, but based on the White Paper, on the face of it, as a corporation we have invested in the country in moving our manufacturing here and we are about to treble that and we are expecting as much as 1,500 to 2,000 employees over the next 12 to 18 months. The Government has backed away from that original White Paper, so we have done it based on face value on what the Government has committed and what we are saying now is that you need to step back up to the plate and commit, if not monetarily, certainly in voice.

  Q83  Mr Hoyle: Obviously I am interested to know where there seems to be a north/south divide where you launch it in the south and people have to travel from Newcastle, so perhaps your company could look at that in the future! Is part of the issue not really that which you have touched on, that it is still a niche market, it is still small players and really we are only going to make a difference in microgeneration when we get the big energy companies and the big manufacturers to take it seriously? Is that not when we are really going to turn the switch?

  Mr Lee: I beg to differ on that because we are already a big manufacturer. You do not get bigger than the Sharp Corporation.

  Q84  Mr Hoyle: When I say "big manufacturers", it is about big energy companies actually committing their resources and their interest to making this happen.

  Mr Lee: I think you are quite correct and we, for example, ourselves have already partnered with npower, Scottish and Southern and a number of very large utility companies and they are looking at this very seriously.

  Mr Wolfe: Obviously we represent all of those companies as well. BP and Shell, RWE and E.ON and companies like that are all members of the Association and they have a strong interest in renewables. Their interest hitherto or in most cases has not extended down to the level of micro-renewables largely, we suspect, because there is no very coherent government framework for these at the moment. We believe it is very important that large and small companies get involved in this industry and we feel that the biggest single success of the Renewables Obligation, for example, has been to bring the big energy companies into the business of renewable power generation. Before the RO was implemented, it was largely independent companies, but the RO has been very successful in bringing the big companies in while still leaving independents like Renewable Energy Systems able to benefit from the business. We would like to see the same thing happening now for renewable heat, that an obligation or similar mechanism spreads the interest in this sector from a few pioneering independents like Econergy, Chris Miles' company, and it increases the market not only for them, but to the level where it is also of interest to the big players, so yes, we think it is important that the industry attracts big and small companies.

  Q85  Mr Hoyle: When do you think the big companies will come waving a cheque at these small independents?

  Mr Miles: What I would say is that the big companies have already started to wave cheques at us, but the key is—

  Q86  Mr Hoyle: And upped the price?

  Mr Miles: Yes, but the issue at the moment is that while we are driven by, shall we say, oil and oil price, I would say that the governments which have been most helpful to us are probably the Iranians and the Russians so far with their issues on security of supply. That created a huge step change in inquiries in January and February of this year. Now, I think what is extremely important to us is a long-term revenue support mechanism for renewable heat. Heat is the underdog of energy. Ofgem is electricity and gas, but it should be electricity and heat. We need a change in mindset. We talk about a grid for electricity, but we need an equivalent district heating network for heat. It is absolutely fundamental that we need a complete mindset change and it is only when we have had long-term revenue support mechanisms that I can get substantial finance into our business from either the large utilities or major venture capital firms and at the same time people like Scottish and Southern and npower think, "This is now really interesting to invest in", so these long-term revenue support mechanisms will bring the large utilities in and they will also bring the major financial players in to fund on an equal, level playing field the smaller companies like ourselves. It is absolutely critical, the mindset change, and it is recognising that heat is energy, not gas.

  Q87  Mr Hoyle: So, if I have got it right, unless they are forced, they will not really take part?

  Mr Miles: Absolutely.

  Q88  Mr Hoyle: So we need legislation to make this happen?

  Mr Miles: Yes.

  Q89  Mr Binley: As a businessman, I am immensely concerned at what I hear. I want to know whether you think you are going to be a subsidised industry for the foreseeable future or whether you feel that you are big enough, ugly enough and old enough to stand on your own feet and make this market work, quite frankly?

  Mr Wolfe: I do not think we have been talking about subsidy at any stage. I think what we have been talking about is—

  Q90  Mr Binley: Look at your paper!

  Mr Wolfe:— transforming the market. As I say, we have a centralised energy system at the moment and this needs to change. Now, one cannot just assume that companies and markets will achieve that level of quantum change without some very strong signals from government and some incentives to make the change. What we are looking for is a situation whereby we are able to build economies of scale and the like and we are able to get to the situation where there is no firm need for subsidy, but we need to get from here to there. If we assume that the market system and the status quo in terms of regulation will make that kind of change, the answer is that it will, but it will be very, very slow and we cannot afford to leave it for several decades, if not centuries, to get from where we are now to where we need to be, from a centralised fossil and nuclear fuels system, a non-sustainable energy system, to a decentralised, sustainable energy system.

  Q91  Mr Binley: Well, I am a businessman, so I am coming from that perspective, and I am concerned because you have already told us that you have got some of the very biggest players in the world in your organisation and I would have thought the real objective is to say, "This is the marketplace, let's open it up". That is what I see as good business and good marketing. What sort of incentives do you think you need—other people might call it `subsidy'—and how long will they be needed for?

  Mr Miles: Well, we are businessmen too.

  Q92  Mr Binley: Oh good!

  Mr Miles: We all represent industrial companies, but you will appreciate, as a businessman, that your primary concern is to maximise the return to your shareholders and maximising the return to your shareholders tends not to involve massive new investment in changing the way things are done, and that is needed and it does need government to show a lead and to be pointing the way.

  Q93  Mr Binley: I find that answer surprising because I think that is exactly what business should be doing, but let me ask you, what sort of subsidy or what sort of incentive do you think you need and how long do you think you need it to make this change in the marketplace?

  Mr Miles: The Renewables Obligation is a good example of an incentive. It is not a subsidy, as such, although it does provide additional income from the consumer to the renewable generator, and that has a lifetime at the moment currently stated to 2027 and that is providing at the moment some hundreds of millions of pounds per annum. If one did the same sort of thing for renewable heat, it would, in our estimation, require about one third of the level of incremental cost as is required with electricity. The big advantage of—

  Q94  Chairman: Can I just ask you, on whom would the Renewables Heating Obligation be imposed? There is a lot of opportunity for this at the domestic level, for individual householders to make a change.

  Mr Miles: The Obligation would most likely be imposed on suppliers of heating fuels, so it would be applied very high up the chain to people supplying heating fuels into the market in the same way as the Renewables Obligation is on those selling electricity to the market, so it is not necessarily the same people who would then be providing the renewable heat, but the fuel suppliers may well get encouraged to move into renewable heating, but equally they can buy certificates on the market in the same way as on the renewables market. We have mentioned several times that heat has been ignored and it is important that it should not be. Heat actually is the lower-hanging fruit in that the cost per tonne of carbon saved in renewable heat is about a third of the cost per tonne of carbon saved on electricity, so it has been done first and heat has been neglected which is somewhat bizarre, in our opinion.

  Q95  Mr Binley: That leads me on to my next question and I refer to the DTI's Low Carbon Buildings Programme which seems to be the main capital grant support available for microgeneration. Will the £50 million available under the scheme really make a difference? One would hope so. Do we really need more money and is that what you are telling us?

  Mr Lee: Sir, back to you as a businessman. The DTI scheme, we welcome it. It has had three ministers, it has had 33 changes in the last three years and for anyone to write a business plan on those sorts of changes, it is almost impossible. We basically come back to the central thing, that planning legislation is essential. Looking at the Merton rule, Merton is a prime example for you to go and visit. This is a council which is proactive, which has brought it in and people are buying into it. Is there a need for subsidy in those cases? No. Do we need a subsidy where we are now? Certainly we do in a small town. It is a big corporation, it helps to educate, it helps to bring the prices down and it helps to increase the manufacture. If you talk about investment, we have invested multi-millions in new factories and premises. We are ready to go, I think the industry as a whole is ready to go not just on PV, but in the other sectors as well, but planning in a business which has had 33 changes without clear guidance from central government is anybody's difficulty.

  Q96  Mr Bone: Do you think the DTI's commitment to implement "aggressively" the Microgeneration Strategy is credible?

  Mr Wolfe: I think it is hard to see tangible evidence to support the fact that it is being supported aggressively, as there is a very, very limited human resource involved in delivering the plan and there is no incremental budget available to deliver the strategy at all, so it is hard to see tangible evidence that they are aggressively implementing it.

  Q97  Mr Bone: One of the concerns that has come up in my area is that in Chelveston, there is a plan to have a major renewable energy plant which would have a large-scale windfarm and also a large biomass plant. My constituents have said that when they see the Government talk about aggressively implementing microgeneration, they fear that they will sweep away planning objections and aggressively want that plant for my constituency. Now, what you are saying is actually you probably do not think that is going to happen, but it does raise concerns when the Government uses words like "aggressively", which sort of means overriding local opinion. What would you say to that?

  Mr Wolfe: I think, as Andy illustrated in an earlier answer, we are not looking to planning restrictions being swept away, but, quite the reverse, we see the importance of them. What we are looking for primarily on planning is just a streamlining of the process. One of the reasons why it is so very unacceptable the way it now is with the time that it takes and, therefore, the costs that are incurred by development companies in pursuing these developments over such an extended period of time. We are not asking that the planning restrictions get swept away, but what we are asking is that what is done is done very much quicker and also avoids so much duplication. At the moment, particularly in the area of onshore wind, every sort of planning inquiry revisits the issues of, "Do we need wind? Does wind kill birds?" and a whole lot of issues get revisited at every single inquiry and there is a very good case for dealing with these on a sort of infrastructure basis, dealing with those centralised issues once and once only and then allowing the local inquiries to deal with the local issues.

  Q98  Mr Bone: I understand that point, but one thing that struck me is that the biomass is going to be decided by the County Council, the windfarm is either going to be decided by the District Council or, if it is too big, by the Government, and there seems to be no simplicity or streamlining in this at all at the moment.

  Mr Wolfe: There seems to be none at all. Clearly the Energy Review suggested that this is an area that the Government has taken note of and has a mind to change and we would be very supportive of anything that streamlines it and makes it more simple.

  Q99  Mr Bone: What people want both in the industry and local people is a quick decision, not these things hanging over them for years.

  Mr Wolfe: Quick and transparent.

  Chairman: Quick and fair.