Energy Security and Net Zero Committee
Wednesday 2nd September 2026
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09:13
Speaker 1
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Speaker 1
We're talking about certain elements of it, but there needs to be a real focus on look at it in terms of I mean, in some ways, the reform of the retail market. And as a result, through that, you then start to look where the policy costs lie. I would say that electricity should not be taking the full weight of the policy costs that sit. I would see that actually, if you had much more of what you might call a rising block tariff type system, you would put a lot more of the policy costs on the higher bands of that.
Those tiers, those sort of layers. I think that there is a case for some legacy taxpayer funding of some of these policy costs. And there's also obviously a little bit of a burning platform on the renewable obligation, the historical renewable obligation. Legacy costs. And that really should in many ways, in my view, go into general taxation or be repurposed around renewable PPAs that actually the government could in some ways coordinate long term PPAs to give them the surety without it hitting in terms of additional policy burden on customers.
Those tiers, those sort of layers. I think that there is a case for some legacy taxpayer funding of some of these policy costs. And there's also obviously a little bit of a burning platform on the renewable obligation, the historical renewable obligation. Legacy costs. And that really should in many ways, in my view, go into general taxation or be repurposed around renewable PPAs that actually the government could in some ways coordinate long term PPAs to give them the surety without it hitting in terms of additional policy burden on customers.
09:14
09:14
Speaker 1
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Speaker 1
I think I think you need a calibrated piece on it, but you certainly need equality across those. You need to ensure that their incentives to electrify as well. And so at the moment, we've got massive disincentives. When you start to look at in particular, the CNI sector is absolutely shocking where we are in terms of electricity costs in comparison to our OECD equivalents. So I think we need to have a really, really big rethink.
I think there's also something interesting about demand. And that is the more we get electricity demand on the system, the lower the whole system costs will be. We are moving from a from a commodity based system to a fixed asset based system. And as a result, what we need is actually more users on the system rather than less. And that would actually reduce the percentage of of the electricity levies currently. But from what I understand, if you look at the team at Disney's, there is many fewer people looking at the demand side of the system than is looking at supply side.
And I think we need a real readjustment to ensure that we're focused on increasing electricity demand. And I think CNI is one of the really, really sort of low hanging fruit that we need to, to focus on.
I think there's also something interesting about demand. And that is the more we get electricity demand on the system, the lower the whole system costs will be. We are moving from a from a commodity based system to a fixed asset based system. And as a result, what we need is actually more users on the system rather than less. And that would actually reduce the percentage of of the electricity levies currently. But from what I understand, if you look at the team at Disney's, there is many fewer people looking at the demand side of the system than is looking at supply side.
And I think we need a real readjustment to ensure that we're focused on increasing electricity demand. And I think CNI is one of the really, really sort of low hanging fruit that we need to, to focus on.
09:16
09:16
09:17
Speaker 2
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Speaker 2
Yeah. So so certainly I think that's the first step to rule that out as it assists towards affordability. If I can just if I can just go back to pick up on some of the things Laura was saying as well. So that's a good first step in terms of whether the interventions made so far by the government. So the Aro and the VAT are certainly welcome, and I've had a good impact in keeping some people from going into fuel poverty, but they definitely aren't sufficient at the moment.
If you just look at what prices have done. So they went down by 7% in April. A good chunk of that is down to down to the Aro. But then they went back up 13% in July and will go up again in October. So what those interventions have been doing is, is offsetting other increases driven by wholesale costs. So so that's not so we do need further action. And in terms of policy costs, we think that the remainder of the Aro renewables obligation could be moved off bills and also feed in tariffs.
And an important aspect of that is those should be permanent permanent changes. So carry on to to carry on beyond 2029. And in terms of of where that money would come from, we do think that needs to come through general general taxation. So we've estimated that that additional cost is about 1.3 billion. And we'd expect it to bring down household bills.
If you just look at what prices have done. So they went down by 7% in April. A good chunk of that is down to down to the Aro. But then they went back up 13% in July and will go up again in October. So what those interventions have been doing is, is offsetting other increases driven by wholesale costs. So so that's not so we do need further action. And in terms of policy costs, we think that the remainder of the Aro renewables obligation could be moved off bills and also feed in tariffs.
And an important aspect of that is those should be permanent permanent changes. So carry on to to carry on beyond 2029. And in terms of of where that money would come from, we do think that needs to come through general general taxation. So we've estimated that that additional cost is about 1.3 billion. And we'd expect it to bring down household bills.
09:18
09:18
Speaker 2
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Speaker 2
Certainly. So I think I think we'd be the view that this is necessary, that this sort of support is given and therefore the money needs to come from somewhere. So you're left with a choice of it being energy bill payers or through taxation and that that choice, we think taxpayers being more progressive is the better is the better choice.
09:18
Speaker 2
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Speaker 2
So no, no, but thank you for raising that. So I think I will politely disagree with the rise in block tariff. So as Laura was saying that you'd end up with policy costs in that higher unit rate for higher usage. So then you've got the several issues with that. But one of those is that we have low income, low income households who have high energy usage. So people on traditional electric heating or people with medical dependency.
So it ends up the people who are most likely to be in fuel poverty end up paying more through a rising block tariff. And also, you can see in some of our more different policy aims that it makes it can make heat pumps more expensive and EVs more expensive. So so it doesn't particularly align with align with, align with those wider policy aims either.
So it ends up the people who are most likely to be in fuel poverty end up paying more through a rising block tariff. And also, you can see in some of our more different policy aims that it makes it can make heat pumps more expensive and EVs more expensive. So so it doesn't particularly align with align with, align with those wider policy aims either.
09:19
Speaker 2
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Speaker 2
So if you were going to do that then then you would need to accompany it with some actions that look after those gas users who would be worse off. So again, again, as we go through the energy transition, it becomes a scenario that that, that, that more affluent households will be the first to move with heat pumps. So again, what you're left on with gas can tend to be poorer households. So if we're going to move things onto gas, it needs to be accompanied with some some targeted bill support, which we think we need in any case.
But it would be absolutely necessary to have some targeted bill support that that make that make sure those who are those who are in vulnerable situations are in need of support, get the support to offset any increases through moving it to gas. So contingent on extra help consumers.
But it would be absolutely necessary to have some targeted bill support that that make that make sure those who are those who are in vulnerable situations are in need of support, get the support to offset any increases through moving it to gas. So contingent on extra help consumers.
09:20
09:20
Speaker 1
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Speaker 1
Can I make a broader point? And I think actually, I mean, I hate the term vulnerability because I don't think it actually gives any texture to where we are. But fundamentally, we're all vulnerable in the energy market. It's a market that was designed 35 years ago. I do not know any other market that has stayed static in that sense. And we're absolutely putting risk onto customers who have to take risks that they have no levers to, to deal with.
We're selling them kilowatt hours that they're not interested in. We're not designing it around different customers. And at the moment, we have competition between different colored logos. That's more or less where the competition lies. So fundamentally we need however one does it. There needs to be a very serious focus on the retail reform agenda. We're always talking about the system reform, but we must ensure that customers are getting what they want, which is outcomes, not kilowatts.
When it comes to the block tariff, New Economics Foundation has done a huge amount of work on this, and it's 83% of low income families would fit within the essential service, the so-called first block, and that would be highly regulated, very similar to the broadband market, where you've got a highly regulated, essential service with all the social support that goes into that. And then beyond it, you would have a much more competitive market that would allow for a lot more tailoring around different people's needs.
Now, certainly, Andy is right that there are about 18% of low income families who fall out of that. The work that's been done shows that you can have energy on prescription, which certainly you should have anyway. If you've got a dialysis machine. It's ludicrous that the NHS gives it to you, but doesn't give you the money to plug it in. Right? So you've got a whole cohort there.
You've then got particular support that you can do to people with pension credit. So you've got a group there and you actually get then to a very, very small group, which has been alleviated actually by the by the removal of the two child benefit cap. So actually you start to get to a very, very few number of people who, of course, we've got to focus on. But currently, nobody is benefiting from the retail market at the moment.
It is opaque and not much. We
We're selling them kilowatt hours that they're not interested in. We're not designing it around different customers. And at the moment, we have competition between different colored logos. That's more or less where the competition lies. So fundamentally we need however one does it. There needs to be a very serious focus on the retail reform agenda. We're always talking about the system reform, but we must ensure that customers are getting what they want, which is outcomes, not kilowatts.
When it comes to the block tariff, New Economics Foundation has done a huge amount of work on this, and it's 83% of low income families would fit within the essential service, the so-called first block, and that would be highly regulated, very similar to the broadband market, where you've got a highly regulated, essential service with all the social support that goes into that. And then beyond it, you would have a much more competitive market that would allow for a lot more tailoring around different people's needs.
Now, certainly, Andy is right that there are about 18% of low income families who fall out of that. The work that's been done shows that you can have energy on prescription, which certainly you should have anyway. If you've got a dialysis machine. It's ludicrous that the NHS gives it to you, but doesn't give you the money to plug it in. Right? So you've got a whole cohort there.
You've then got particular support that you can do to people with pension credit. So you've got a group there and you actually get then to a very, very small group, which has been alleviated actually by the by the removal of the two child benefit cap. So actually you start to get to a very, very few number of people who, of course, we've got to focus on. But currently, nobody is benefiting from the retail market at the moment.
It is opaque and not much. We
09:23
09:23
Torcuil Crichton
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Torcuil Crichton
you, chair. Thank you all for coming in. And we'll return to the subject in just a minute, I think. Social tariffs is essentially what we're talking about here. If we're talking about different skills. Jack, we haven't heard from you yet. How can it be done or should it be done and how can it be done?
09:24
Speaker 3
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Speaker 3
So, you know, the introduction of a social tariff is something that would be a decision for for government. It's absolutely something that we stand ready to be able to implement through the regulatory processes, but it's ultimately a decision for government. I think it's just worth pointing out on the previous conversation that we are thinking deeply about where the costs fall through undertaking cost allocation and recovery review within Ofgem, about how we allocate those costs effectively balancing the trade offs between affordability, efficiency and driving electrification as well.
But but ultimately it can be done. But it's ultimately a decision that sits with government.
But but ultimately it can be done. But it's ultimately a decision that sits with government.
09:24
09:24
09:25
Torcuil Crichton
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Torcuil Crichton
Andy and Laura, I do like this debate on block tariffs, but as well as decarbonising energy, I want to organize energy as well. So for viewers at home, by which I mean me. Can we just have a rising block. Tariffs as I understand it, is you pay more if you use more. Is that right. I mean, give me an A, B, c explanation of it. And Andy, maybe if you give me an Andy why is why is why is Laura wrong on that on because we could I mean, Laura's prescription would leave 1 in 5 people who are in poverty, still in poverty, if I understand that.
Right, Laura.
Right, Laura.
09:25
Speaker 1
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Speaker 1
I mean, the sort of easy thing is it's very, very similar to the broadband model where you have a highly regulated essential service. The actual amount of what we need for for functioning, the essential piece has been specified. And actually everybody would have it. It's a universal in many ways benefit and it's a decarbonisation benefit. And we think that you can actually create that by looking at the current network costs, not future network costs, because this is the system, this is the consumption that is in existence today.
You would look at ensuring that it was highly regulated and possibly a pass through that knows can deliver distribution networks. Then on top of that, then if you go above that, then you start to come into the competitive market where lots of tailoring is needed. I mean, currently the energy sector sort of divides 60 million people into six archetypes. You know, Amazon divides us into 150 000 archetypes.
So we're not delivering tailored propositions. But that essential service would take away a lot of, in some ways, the pressure for low income households. It's also an unbelievably useful way to, to drive efficiency, because the current incentives in the system is all about selling more rather than getting more from less.
You would look at ensuring that it was highly regulated and possibly a pass through that knows can deliver distribution networks. Then on top of that, then if you go above that, then you start to come into the competitive market where lots of tailoring is needed. I mean, currently the energy sector sort of divides 60 million people into six archetypes. You know, Amazon divides us into 150 000 archetypes.
So we're not delivering tailored propositions. But that essential service would take away a lot of, in some ways, the pressure for low income households. It's also an unbelievably useful way to, to drive efficiency, because the current incentives in the system is all about selling more rather than getting more from less.
09:27
09:27
Speaker 1
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Speaker 1
Oh, yes. I mean, there are lots of lots of countries around the world that do it. I mean, there's an interesting example in Dubai where actually, because everybody in the higher tiers are buying energy efficiency services because they're trying to stay below that. The next threshold, they've reduced their consumption total consumption by 4.5%. That's a lot of energy that the whole system then benefits from because the incentives line up.
09:27
09:28
Speaker 2
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Speaker 2
yes, there's a few observations on rising blocks. So we don't think that's the solution. So we've touched on low income households with high energy consumption. So I won't go over that again. Then some other parts. Then we're on this path to electrification. So so this is a change that will is likely to increase costs for people looking to put in heat pumps or EVs. So you're distorting the incentives.
09:28
09:28
09:28
Speaker 2
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Speaker 2
Were no, no sorry, the running costs of heat pumps. But we then have an impact on on your choices. When when when when install installing then there's a, I think there's a, there's a, there's a fairness. There's a fairness question as well. So a couple of examples I could pick out if, if, if you're, if you're someone who split their time between two properties, you, you could have quite a high energy usage because, but because it's split over two properties, you'll avoid those higher, higher rates.
So there's a question about whether that's fair. And also people with solar panels will naturally naturally be offsetting some of their energy. So again again could be avoiding that higher rate. And as they're more likely to be affluent households, that means to a fairness question. I think
So there's a question about whether that's fair. And also people with solar panels will naturally naturally be offsetting some of their energy. So again again could be avoiding that higher rate. And as they're more likely to be affluent households, that means to a fairness question. I think
09:29
09:29
Speaker 2
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Speaker 2
You're saying, essentially, I think potentially that's right. I've just got a final point on practicalities as well. Just to actually implement it. It requires requires having a smart meter and a functioning smart meter. So we know the smart rollout is not yet expected. We're not expecting 100% coverage. And there are issues which we know about whether all smart meters are operating properly. So there are practical, practical issues as well with implementing.
09:29
Speaker 1
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Speaker 1
I mean just to say that actually the way it's been designed is total energy consumption. So you can shift your allocation from gas to electricity. So you wouldn't have that problem about electrification. But my very last point on this is this retail market is not working. It is not functioning. And I would urge the government to set up a sort of six month taskforce to look at all these options and to start to reconfigure around a 21st century experience for customers.
Could I just
Could I just
09:30
09:30
09:30
09:30
09:30
Speaker 3
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Speaker 3
Of course we don't have a view and that's for ministers to decide. But I think it is worth pointing out that you either have that base block as being lower, and therefore you have to make sure that cost is covered from the higher bands or elevated rates, or it's in effect, the same rate as currently. So I think it's the design is very interesting because I think you could either bear down on that base one, but you'd have to consider where that would be funded from in effect, or it looks a lot like today's unit rates with additional.
09:31
09:31
09:31
Melanie Onn
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Melanie Onn
09:32
Speaker 3
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Speaker 3
I think, you know, I think there is a real focus on delivering the investment and the generation we need. But at the same time, I think we absolutely understand and agree that to deliver a low carbon system and a clean power system, you need a well functioning, well participating demand side. So you have part part consumers that can actively participate in the market, as well as more services to help actually provide the flexibility as well. I think we are seeing a focus on demand.
We're seeing it with regards to ensuring there are flexibility services. We've seen a million participation in demand flexibility services. We're seeing greater sort of offerings with regards to tariffs that are available for we've seen Sunday Saver, for example, which is people get a free hour in the on the Sunday because they've been reducing their demand at other times of the week. So I think there is a focus. I think demand side is understood and agreed to be a really important part of moving to that clean power and net zero system.
And it is key to make sure that we bear down on the overall cost of that system. So we, we, we're making sure that there are all the.
We're seeing it with regards to ensuring there are flexibility services. We've seen a million participation in demand flexibility services. We're seeing greater sort of offerings with regards to tariffs that are available for we've seen Sunday Saver, for example, which is people get a free hour in the on the Sunday because they've been reducing their demand at other times of the week. So I think there is a focus. I think demand side is understood and agreed to be a really important part of moving to that clean power and net zero system.
And it is key to make sure that we bear down on the overall cost of that system. So we, we, we're making sure that there are all the.
09:34
09:35
09:35
09:35
Graeme Downie
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Graeme Downie
Thank you very much. Chair at the. I will resist the urge to carry on that bit and let colleagues pick it up later on. But just I want to develop some of the kind of themes around consumer participation, tailoring and outcomes around flexibility in the system and where that is and how we actually make it work. So I'll start with with you, Laura. I mean, what proportion of households realistically can expect to benefit from increased flexibility on that retail side in the next, say, 5 or 10 years?
09:36
Speaker 1
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Speaker 1
Okay. So firstly, everybody benefits from flexibility. So it's not a zero sum game, whatever. But I absolutely agree. Strangely enough, I think there are some really exciting business models out there that are actually starting to really capture what you might call those low income stroke people with disabilities market, but there are lots of barriers to what you might call energy service provision. And I think we're going to look at the future as being much more energy services rather than commodities.
So I have two two examples. One, and these are two companies I'm involved in. One is called Cirro homes. They turn social housing into power stations. Everyone's bill gets reduced by about a third. And then there's long term revenue from solar batteries, heat pumps. And this is where actually. So these are people in social housing, low income families. Once you start to understand that you can create these portfolios, you really start to move forward.
The second is the EV charging Omi, who delivers EV charging and flexible charging for Motability. So those are people with disabilities. And I think that what we need to do is to not ensure that so-called vulnerable people are left out of the market. What we need to do is design things around all sorts of different characteristics.
So I have two two examples. One, and these are two companies I'm involved in. One is called Cirro homes. They turn social housing into power stations. Everyone's bill gets reduced by about a third. And then there's long term revenue from solar batteries, heat pumps. And this is where actually. So these are people in social housing, low income families. Once you start to understand that you can create these portfolios, you really start to move forward.
The second is the EV charging Omi, who delivers EV charging and flexible charging for Motability. So those are people with disabilities. And I think that what we need to do is to not ensure that so-called vulnerable people are left out of the market. What we need to do is design things around all sorts of different characteristics.
09:39
Graeme Downie
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Graeme Downie
That is, rather than relying on the middle class person, because I've got an EV, I've got a heat pump. I know how to use this system. So rather than concentrate individuals, you think there should be more measures that are concentrating on groups. So the the onus is not placed on an individual, household or person to access that flexibility. Someone accesses it for them. Would that be a fair characteristic?
09:39
Speaker 1
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Speaker 1
Absolutely. I mean, we in the energy sector have been trying to turn customers into electrical engineers for years, and they really do not want it. What they want are services. Your mobile phone, you don't know where the data is coming from. You don't care. What you've got is your package. You know what you've got, and you've got clarity and control over when you start to get to your ceiling. And that's the sort of provision not selling units of something I don't understand and I don't know how to control.
09:40
Graeme Downie
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Graeme Downie
And Jack just actually, I will pick up on the point. Melanie as well is it doesn't. So again, we don't this is happening probably at quite low scale at the moment, but it's an option that's available. It is happening. How much pressure is government putting on you to accelerate that and make it happen very quickly? And on what timescale are they saying this is the kind of solution you should be helping to deliver?
09:41
Speaker 3
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Speaker 3
So I think there are a set of actions and we are driving these forwards. Like I said, there's a flexibility roadmap we're working in conjunction with government on that sets out a series of action to make sure that we're deploying that technology. Smart meters, but also aggregators, these these parties that can aren't your supplier. We're regulating scale.
09:42
Graeme Downie
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Graeme Downie
Can you give us some sense of timescale and market penetration for when that can happen? Because again, we do this in so many ways where there's all these great solutions, whether it's in energy in any other sector or it's wonderful, it works here, and the pilot never becomes more than a pilot. So how are we trying to really push and accelerate that? So it becomes something that is not just a nice to have, but becomes verging on a requirement? Well,
09:43
Speaker 3
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Speaker 3
indeed. And that's that's entirely the point of having a key roadmap about the actions, because we need to drive through the next few years. Regulatory frameworks roll out of flexibility across the board at system level and consumer, so that we can deliver a significant amount of flex in the next few years to. A
09:43
09:43
Graeme Downie
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Graeme Downie
09:44
Speaker 1
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Speaker 1
I mean, there are business models out there. There are quite a few regulatory barriers, not ofgems fault, but historical barriers. We need to get rid of those and allow these certain things, like if you're in social housing, you can't, and your local authority is buying the energy as a service. You can't benefit from the Warm homes discount, right? So we've got 800 000 people in this country who are eligible for the Warm homes discount, but because they're going through a buyer, let's say, which is an organization like local authority or a housing association, they can't access it because it's regulated that you have to be the bill payer, right? So there are lots of these things that stack up.
And I mean, I can share with the committee about five different areas that would really unlock that social housing piece.
And I mean, I can share with the committee about five different areas that would really unlock that social housing piece.
09:46
09:46
09:46
09:46
Speaker 2
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Speaker 2
So a quick general observation. I'll try and do some specifics. So so there's definitely an appetite from consumers out there certainly is an appetite effectively to save money. So so we've done surveys that said 68% of, of people who aren't on a time of use tariff as an example of flexibility would be interested if it would save them money. So the appetite is there and I agree entirely with, with, with Laura. We need to see this as an opportunity but not a necessity.
People shouldn't have to turn their life upside down to get an affordable bill. But if we do this right, even if they don't engage, they'll get a lower bill that otherwise would have been if we if we get this, get this right. So but then in terms of some of the what are the barriers? The big one is the big benefits from flexibility about having having tech, having assets that you can be flexible with. So one of the things we're waiting for, the Warm Homes plan committed to setting out further detail in this spring spring of 2026 about what the what the the new fuel poverty scheme would be so locally delivered fuel poverty scheme.
So that's that's a key plank in helping broader people get assets more more broadly. So we're waiting waiting for that. And also just a quick one on the on the automation point, we agree it's a key thing is to get these automated automated solutions. And there's been good progress about the people who are going to provide those solutions. Having been put under a licence of the load control licence, it's called. So we need to make sure that isn't delayed. And again, just as you touched for innovation in the retail innovation in the retail market, there's currently a what's called a universal service obligation.
That means if you want to act as a supplier, you have an obligation to service everyone, which prevents specialisation, which is slowing down innovation. So again, that's another area where I think that there could be further further consideration.
People shouldn't have to turn their life upside down to get an affordable bill. But if we do this right, even if they don't engage, they'll get a lower bill that otherwise would have been if we if we get this, get this right. So but then in terms of some of the what are the barriers? The big one is the big benefits from flexibility about having having tech, having assets that you can be flexible with. So one of the things we're waiting for, the Warm Homes plan committed to setting out further detail in this spring spring of 2026 about what the what the the new fuel poverty scheme would be so locally delivered fuel poverty scheme.
So that's that's a key plank in helping broader people get assets more more broadly. So we're waiting waiting for that. And also just a quick one on the on the automation point, we agree it's a key thing is to get these automated automated solutions. And there's been good progress about the people who are going to provide those solutions. Having been put under a licence of the load control licence, it's called. So we need to make sure that isn't delayed. And again, just as you touched for innovation in the retail innovation in the retail market, there's currently a what's called a universal service obligation.
That means if you want to act as a supplier, you have an obligation to service everyone, which prevents specialisation, which is slowing down innovation. So again, that's another area where I think that there could be further further consideration.
09:49
09:50
Speaker 3
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Speaker 3
I think there is a key point to make, which is we we have to deploy a significant amount of network build, which we're doing, and that is a key, key part of the energy system. But like I've said, the consumer led flexibility and rolling that out alongside the system flexibility we'll get from batteries is a key part of that. So I completely agree that consumer led flexibility is a key part of running an energy system that is lowest overall.
Cost flexibility benefits everybody because it lowers that overall cost as well. As you have more consumers actively participating in the market, empowered to do to do that with not only those with the the assets, EVs, etc., but also just generally with appliances and more engagement in the market is a very positive thing.
Cost flexibility benefits everybody because it lowers that overall cost as well. As you have more consumers actively participating in the market, empowered to do to do that with not only those with the the assets, EVs, etc., but also just generally with appliances and more engagement in the market is a very positive thing.
09:52
09:52
Speaker 2
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Speaker 2
I don't I don't agree with that. The levies are an important way of making bills more more affordable, I guess. I think, as I was saying earlier, I think consumers, consumers are interested in ways of ways of saving money. So it seems to me this is consumer led flexibility is that opportunity. So we should be we should be trying to kind of optimise that, whether it's I agree with Jack. It's part of a part of the picture that we still need.
We still need to be building network. But regardless of whether we describe it as being the most important thing or the only thing, it is just a good thing. So we should be doing everything we can to encourage it.
We still need to be building network. But regardless of whether we describe it as being the most important thing or the only thing, it is just a good thing. So we should be doing everything we can to encourage it.
09:54
09:54
09:54
Lizzi Collinge
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Lizzi Collinge
Thanks. I just want to keep going on the flexibility thing for a moment. We've had a lot of discussion in this committee about consumer side flexibility. And Andy, you mentioned automation. I suppose this is actually maybe to Jack as much as anything, the direction we're going in, are we relying on consumers having to decide actively, or are we trying to build systems that automate flexibility to make it cheaper for them, which what is the direction we're going in?
09:55
09:56
09:56
Speaker 3
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Speaker 3
Well, I think there's three is there's the being part of the flexible system. And those that can participate are able to either they choose to through your, the Whizzy apps or they actively go to a, a aggregator, a party that is willing to automate for you this energy service provision. But at the same time, we need to make sure that we absolutely need to maximise that flexibility. But then we don't set up a system that then unduly penalises those that can't or won't participate in the system and the energy system as well.
So I think it's about the choice and the ability to participate and giving, making sure you have the technology rolled out so that as many people can participate and then giving that choice about, yes, you can participate on your own, or actually there may be benefits, or you may be easier for you to participate in a different setup, be that through aggregators or through suppliers.
So I think it's about the choice and the ability to participate and giving, making sure you have the technology rolled out so that as many people can participate and then giving that choice about, yes, you can participate on your own, or actually there may be benefits, or you may be easier for you to participate in a different setup, be that through aggregators or through suppliers.
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Speaker 2
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Speaker 2
just I. think regardless of how you do it, as your question was, getting to the consumer needs to make a choice at some point, even if you automate it, at some point, you are making, you are making a choice. And what our research has shown is there are significant gaps in the information and advice that's available. So how are people making informed choices? And we know that people want independent, tailored expert advice.
Some some to take for example, time of use tariffs. We've found that if you researched before, before going on a time of use tariff, you're a lot more satisfied with the experience. So 86% compared to 54% who went on a time of use house without researching. So that's that's a big area we've got we've got to fill that, fill that fill that energy information and advice gap. So, so consumers are properly empowered to make the right choices.
Some some to take for example, time of use tariffs. We've found that if you researched before, before going on a time of use tariff, you're a lot more satisfied with the experience. So 86% compared to 54% who went on a time of use house without researching. So that's that's a big area we've got we've got to fill that, fill that fill that energy information and advice gap. So, so consumers are properly empowered to make the right choices.
09:59
Lizzi Collinge
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Lizzi Collinge
Thank you. I also wanted to talk a bit more about fair risk allocation. So we've been told by Ian and others that customers are treated as the default cost recovery mechanism. And Laura, it sounds like you agree with that. But what would a fairer allocation of risk look like between consumers, generators, suppliers and governments? So you've talked about various mechanisms for how you would structure the bills. Are there any other comments you'd like to make about how we allocate that risk fairly?
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Speaker 1
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Speaker 1
Right. So Ian is absolutely right. So much risk is socialised and I have no lever to manage that risk. And it just gets smeared across my bill. I'm sorry to bang on about this essential service, but if you had that as a regulated entity, if a supplier went bust, I mean, first of all, that supplier would not go bust because it would be regulated. So if a supplier goes bust in the competitive market, that's the supplier and shareholders problem.
That's not my problem. Currently what we've got is we've got a system where there's no differentiation between or there's no risk allocation to businesses making the right choices. We pick up the pieces. So I think the essential service helps with that because I think it takes the the so-called risk, it puts it into the marketplace. But fundamentally, you know, currently we're going to get to a stage where customers are going to be paying £100 for overall debt.
We've got all sorts of issues around any I mean, the capacity market, the balancing market, all of these things we as customers are taking, why is it not the responsibility of the system itself and the actors, the developers to balance their systems? Let's push the risk back into the system and not socialize it.
That's not my problem. Currently what we've got is we've got a system where there's no differentiation between or there's no risk allocation to businesses making the right choices. We pick up the pieces. So I think the essential service helps with that because I think it takes the the so-called risk, it puts it into the marketplace. But fundamentally, you know, currently we're going to get to a stage where customers are going to be paying £100 for overall debt.
We've got all sorts of issues around any I mean, the capacity market, the balancing market, all of these things we as customers are taking, why is it not the responsibility of the system itself and the actors, the developers to balance their systems? Let's push the risk back into the system and not socialize it.
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Speaker 2
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Speaker 2
A couple of observations? I think a big part of getting this risk allocation right is the work that we're doing on consumer consumer outcomes. So this is about putting the responsibility on the companies to ensure they're a good consumer outcomes. So for instance, about fair value making, making sure that products are appropriate for consumers and not just when they sign up to them, but throughout their length of their length of that contract. We, we've long talked having a consumer duty that does that.
But I think what we're doing on consumer outcomes, if they if we can get the right outcome specified, and then we find an effective way we've been able to to enforce against those that should help with the help with the balance. And the other point, which is a separate point, is about risk, risk and return. I am concerned that there's a lot of investment needed in the energy system. So quite rightly, regulators look at look at can look at where that risk sits.
But if you are going to move risk from the companies and on consumers, then the level of returns those companies companies are making need to adjust for that as well. We've seen the when the retail market was under pressure, Ofgem was quick to intervene to make sure to make sure the retail price cap allowed extra money for the suppliers to cover bad debt costs and extra wholesale costs. But there was there was never a. That never rolled on to, okay, we've given you all this support.
We've managed the risk for you. We now now need to look at the returns you're making to reflect that lower level of risk, that part of that never flowed through into into the return. So if you're going to look at if you're going to de-risk companies, you then need to make sure the returns are lowered to, to.
But I think what we're doing on consumer outcomes, if they if we can get the right outcome specified, and then we find an effective way we've been able to to enforce against those that should help with the help with the balance. And the other point, which is a separate point, is about risk, risk and return. I am concerned that there's a lot of investment needed in the energy system. So quite rightly, regulators look at look at can look at where that risk sits.
But if you are going to move risk from the companies and on consumers, then the level of returns those companies companies are making need to adjust for that as well. We've seen the when the retail market was under pressure, Ofgem was quick to intervene to make sure to make sure the retail price cap allowed extra money for the suppliers to cover bad debt costs and extra wholesale costs. But there was there was never a. That never rolled on to, okay, we've given you all this support.
We've managed the risk for you. We now now need to look at the returns you're making to reflect that lower level of risk, that part of that never flowed through into into the return. So if you're going to look at if you're going to de-risk companies, you then need to make sure the returns are lowered to, to.
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Lizzi Collinge
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Lizzi Collinge
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Speaker 3
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Speaker 3
So we can think about the the the entities that we regulate and network companies would be a good example of this, which is it is absolutely right that we focus our regulatory regime to bear down on costs and make sure that there are regular and consistent scrutiny on those. I think there's an example that I think we're alluding to, which is with regards to the regulated asset value of network companies increasing, driven by inflation. That was that was recognised and that that that did occur.
But it's the equivalent of sort of your house price going up. You only realise that value if you then sell it. And I think we did go away and we did rightly test whether we should reopen that price control process. And if it was deemed that that wasn't the appropriate thing to do. And most people agreed with that. And then we've taken action for the next price control to make sure that we bear down and, and sort of make sure that that can't happen again, both in our transmission price control and our distribution price control.
I think also just coming back to the point about the risk allocation is absolutely something that we consider when we take decisions on a sort of upstream level, if you like, about when we take decisions, we must think about where the risk is best allocated, but also can be managed as well. And that is something that we of course, we bear down on the costs that occur, but then think about how they allocate. And if you allocate.
But it's the equivalent of sort of your house price going up. You only realise that value if you then sell it. And I think we did go away and we did rightly test whether we should reopen that price control process. And if it was deemed that that wasn't the appropriate thing to do. And most people agreed with that. And then we've taken action for the next price control to make sure that we bear down and, and sort of make sure that that can't happen again, both in our transmission price control and our distribution price control.
I think also just coming back to the point about the risk allocation is absolutely something that we consider when we take decisions on a sort of upstream level, if you like, about when we take decisions, we must think about where the risk is best allocated, but also can be managed as well. And that is something that we of course, we bear down on the costs that occur, but then think about how they allocate. And if you allocate.
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Speaker 3
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Speaker 3
Well, ultimately the cost costs have to be recovered. And it is the it is on the bills that they are recovered and that. We have to think about that. If you allocated them at the. For example, on the generators, would that result in an increase in cost of capital. Would that therefore feed through ultimately to bills to contract for difference to capacity market or other mechanisms? So it's about these costs have to be recovered.
We have to think about the best way to allocate them, bear down on them. And ultimately if parties are able to manage them, they should be allocated that risk to those that can manage them.
We have to think about the best way to allocate them, bear down on them. And ultimately if parties are able to manage them, they should be allocated that risk to those that can manage them.
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Claire Young
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Claire Young
Just a very quick question. Andy, you mentioned the increasing complexity, and we saw a massive increase in price in in switching during the late 20 tens, late 2000, early 20 tens, because increasingly you had websites that were able to do comparisons. That becomes much harder in the current thing in the current environment where you've got increasing complexity, if you are having flexibility, you have to not just know how much electricity you use, but when you use it, could you feasibly move some of it, all those sorts of things.
So just quickly, do you have any thoughts on how we ensure that this increasingly complex environment isn't just used to cover up passing on more of these costs to consumers?
So just quickly, do you have any thoughts on how we ensure that this increasingly complex environment isn't just used to cover up passing on more of these costs to consumers?
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Speaker 2
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Speaker 2
So I think one of the key points that we've got to make sure, at its simplest, we've got to make sure there are comparison tools available that consumers can use and get the information they need. And I think a key part of that is therefore data. So we and there is work going on about on with this, but we've got to make sure that the consumers are able to share their data. So so they can get these comparisons, but also always maintain the agency.
So they have clear control about who's using their data and and what for. So I think that getting that bit right as a key enabler, I think is the, is the first step. And then then comparison tools, but making sure consumers always feel in control, always are in control of who's using their data and for what purpose.
So they have clear control about who's using their data and and what for. So I think that getting that bit right as a key enabler, I think is the, is the first step. And then then comparison tools, but making sure consumers always feel in control, always are in control of who's using their data and for what purpose.
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Lizzi Collinge
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Lizzi Collinge
To your profile, you put it out to the. market and then the market comes to you to say, I can deliver you this package, that package, or whatever, rather than this other way around where we're having to. understand the overall structure. And it's just such a lovely way of feeling in control. You're giving your data and then you're doing . The
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Speaker 1
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Speaker 1
should there be caps or cost redistribution within the system. Yeah. So there are regional variations between between those and that that is reflects the. different for example, the. differences between the. networks that that exist in each of the areas. The cost allocation recovery review, which I mentioned a few times that we're undertaking. Part of that is considering whether that is an. appropriate difference between different.
regions and whether it would be appropriate to. legalize or flatten, if you like, across the different regions. I think from the stakeholder engagement we've had so far, it's it's sort of a bit. inconclusive about whether what the solution to that would be. It sort of starts to move into the conversation we're having before about, does. redistribution therefore need to be more of a social policy? A question for for ministers, I think it is.
And of course, there are questions about incentives as well. So if you are leveling or changing the regional disparities, then how do you still maintain the incentives on the network companies, for example, in each area to manage their network . The most
regions and whether it would be appropriate to. legalize or flatten, if you like, across the different regions. I think from the stakeholder engagement we've had so far, it's it's sort of a bit. inconclusive about whether what the solution to that would be. It sort of starts to move into the conversation we're having before about, does. redistribution therefore need to be more of a social policy? A question for for ministers, I think it is.
And of course, there are questions about incentives as well. So if you are leveling or changing the regional disparities, then how do you still maintain the incentives on the network companies, for example, in each area to manage their network . The most
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Mike Reader
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Mike Reader
effectively? If actually if those prices went higher, they got liberalised out? Do you think we are moving quick enough to address the unfairness in the system? If you're in the Highlands, you're in a renewable energy generating area. You've got high amounts of. transmission infrastructure as well. When you're paying the highest costs, you know, surely this is . Something that
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Speaker 1
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Speaker 1
the government should be doing, and Ofgem should be doing a lot, moving a lot quicker on. Yeah. And there is specific support in in the very north of Scotland, which is, which is run by government. And I think it's also with with the way the structure. And it feels a bit. counterintuitive with that. I do recognise that. But the way that we have the system is that we need to make sure that where you build the.
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Mike Reader
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Mike Reader
In North Scotland is a is a further distance and the costs have to be recovered. Andy just on that, obviously, we talked about this kind of difference in some of the charging. We've also now seen the turn up trials where people will get low or free energy on demand with with this constrained areas. Do you think the government is consistent in how they're approaching this? Well, I think in terms of location charging, I think my reflection is we need to think about what kind of a useful signal and what's not a useful signal.
So I was thinking about this on the way in. So I think if you've got if you've got a system in some parts of the world, let's say the system is at its peak. When you've got air conditioning load in the middle of the summer in the afternoon. And another part, it's the traditional winter peak around tea time, we need to make sure that those signals are reflected to consumers to get the most.
So I was thinking about this on the way in. So I think if you've got if you've got a system in some parts of the world, let's say the system is at its peak. When you've got air conditioning load in the middle of the summer in the afternoon. And another part, it's the traditional winter peak around tea time, we need to make sure that those signals are reflected to consumers to get the most.
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Mike Reader
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Mike Reader
Efficient, efficient answer. Which I think does mean that we do need. locational charges. And I think we do need to return to that discussion as we go into the 2030s. But that's a slightly different point to that. Doesn't mean the typical bill has to vary, but I think that time of use signal, it's important that we make sure that works on a rotational basis. So I think we probably do need to return to that.
When the government approached this review of the energy market, do you think they weighed enough the consumer versus industry? There was a lot of talk about investor confidence and clean power, and the risk, if we move to regional locational pricing on the investment needed to deliver Clean Power 2030. But do you think there was enough focus on the impact of consumers and their bills? I think I think that choice was genuine and a difficult trade off. But to get specific about where we are now, I do think the program that's replaced it, the Reformed National National Pricing.
When the government approached this review of the energy market, do you think they weighed enough the consumer versus industry? There was a lot of talk about investor confidence and clean power, and the risk, if we move to regional locational pricing on the investment needed to deliver Clean Power 2030. But do you think there was enough focus on the impact of consumers and their bills? I think I think that choice was genuine and a difficult trade off. But to get specific about where we are now, I do think the program that's replaced it, the Reformed National National Pricing.
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Mike Reader
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Mike Reader
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Lizzi Collinge
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Lizzi Collinge
energy, should they have bill reductions or other financial benefits? Yes, absolutely. And I think that anybody who takes. infrastructure on is, you know, part of the system actually and needs to to have some benefits. I just also picking up on what other people have been saying about locational pricing . If we're to scale business models, and that's where we're going to have to get to, whether it be the social housing thing or, you know, the home ownership.
package or.
package or.
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Lizzi Collinge
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Lizzi Collinge
We're going to have to have. national cost to consumers. Now, what happens behind the scenes is a different matter. And they might have to manage their their business models across different. locational pricing systems. But I do think the government has made the right choice about locational pricing. And I think that we really need to get a stable.
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Speaker 5
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Speaker 5
Even I. New head of policy for renewable UK, Rachel Hodges. I'm a senior grid and regulatory manager at. Cubico Sustainable Investments. But I'm here. representing Irig, which is the. independent Renewable energy. generators group. I've got a list of the members. Can I say who they are? It's beware.
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Christopher Chope
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Christopher Chope
We'll start with questions from Christopher. Good morning. Under the revised national pricing structure, we've got the opportunity to have some radical changes. Would you agree with a radical change which would ensure that we would no longer pay producers of renewables for their electricity output when . That output was
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Speaker 5
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Speaker 5
Then you need to have some sort of security of what return you're going to get on that investment. And actually a network that. operates that should have efficiently should have a level of. constraints in it. Otherwise you are. overbuilding your network. We already have. generators that are not paid when they're turned off under active network management in the.
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Speaker 5
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Speaker 5
They don't have control about how much. transmission network capacity is built and how much more. generation is connected, and who is connected, who's turned off when. So that would bring a level of risk that they would have no control over. And I, I risk should be allocated where risk is best able to be managed. And that is not a risk that .
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Speaker 4
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Speaker 4
Investors in renewable energy would be able to manage. And if I can just add to that, we have the market in the Irish market next door, where I spent six years working, where generators aren't paid back, and it's really inhibited investment. So if we look at Northern Ireland, the renewables investments have been very poor as a result and it does increase the cost of capital. So ultimately you end up increasing the cost of investment or even worse, deterring investment altogether, which itself increases costs for .
Consumers
Consumers
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Christopher Chope
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Christopher Chope
because you're not availing of the potential renewable investment. Can I encourage you to be a bit more imaginative? Because at the moment, the producers of these, this renewable electricity, when it's not needed, they have no incentive to build their own storage facilities and operate on the basis of waste. Not want not they do. And and so if if they were not paid for the the electricity we don't need, then they will have an incentive to store that electricity and get themselves.
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Speaker 5
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Speaker 5
Of renewable energy and batteries has not been something that was within the regulatory framework for the last few years. It's starting to change now, like hybrid metering and rules about. co-location and how they're treated. But it might be a little bit too little, too little, too late. And there's a huge amount of standalone batteries that are being built, and they might not be in the exact place that you need them.
Actually , putting a battery on a wind farm in Scotland might not be the best place for the.
Actually , putting a battery on a wind farm in Scotland might not be the best place for the.
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Christopher Chope
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Christopher Chope
would necessarily be the most cost effective way of doing it. Okay. You articulate the producer interests in this. Yes. Can I, can I ask you a another challenge question for most of production in this country, the producers do not get subsidised for the costs of transmitting their production from the place where it's produced to the place where it is used, whether it be aggregates, for example, or in the old days, coal, that what is happening at the moment with electricity is that the costs of transporting that electricity on the grid from the place of production to the place where it's needed and is used, that cost is borne not by the producer, but .
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Christopher Chope
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Christopher Chope
about that, I could talk about that all day. And I'm very happy to answer questions because time is short. Can I ask you one more one more radical question? And that is one of the constraints upon the the grid is if there's too much produced and not enough is being used, then we end up paying the producers and so on. Would not an alternative be for the end user to receive free electricity when there is over production? We know that if electricity is free, then the consumption goes up by as much as 30%.
And wouldn't that be a way of ensuring that instead of paying the producers for the overproduction and getting nothing in return, the consumer would actually be able to . Benefit.
And wouldn't that be a way of ensuring that instead of paying the producers for the overproduction and getting nothing in return, the consumer would actually be able to . Benefit.
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Speaker 6
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Speaker 6
We can't get access to a grid connection for that. So the whole point of the grid connection reform has actually been to reduce a large number of battery connections. And now it is now impossible to put in an application to ask for an import, because there is still such an over volume of bears in the system. And therefore, while you might want us as a want a as we don't have an operating wind farm in Scotland to .
Put batteries in,
Put batteries in,
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Speaker 5
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Speaker 5
that's a, a favourable goal, I yeah, I don't believe renewables are building so that they can be turned off and paid. That is not their aim. If we build the grid that is planned in the short term and just a small amount of a targeted grid, those constraint payments would be. significantly reduced. And the aim under Connect and Manage, which was the policy that was introduced about ten years ago, was that renewables would build, then the grid would be built.
And what has happened is the grid has not kept in . Line
And what has happened is the grid has not kept in . Line
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Speaker 6
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Speaker 6
Rosalind, would it make it more attractive for fossil fuel investment? One of the key concerns with fossil fuel investment, if you were to do it, is lead times for a gas turbine, which are five years. So if you put in an order for a new gas turbine, it's not going to arrive until nine on 2031. But we can build you a solar farm of the .
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Speaker 5
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Speaker 5
any evidence that would justify revisiting that decision? So both capacity and deemed CFDs are both got sort of pros and cons and and can be delivered in a way that is possible. But it's the devil is in the detail. So I think there was quite a lot of concern about both because of the way that they could be cause issues if they were not right.
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Speaker 4
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Speaker 4
Benefits that are coming back that the Rosalind talked about, do they feel it? Yeah. I mean, I think the essential thing way I think the CFD is it's a hedge on behalf of consumers. And it's the most effective hedge we have in the market. So if you compare CFD prices to corporate PPA prices, it's around about £10 per megawatt more for a corporate PPA price than you get in the CFD based on sort of.
analysis and what we anticipate for for our prices. And if you actually go merchant that that kind of break even price is up to. 20 to £35 per megawatt more. So we're, we have this mass consumer base that we're doing a hedge on behalf of, and it's incredibly effective and it's driven the best prices that are available in our market. And in terms of locational signals, careful all my words.
We the the best locational signal for the wind industry is, is, is wind resource. And that often gets missed out in the debate. So what the CFD has done has pushed you to the best, most economic, most efficient sites in terms of, of generation. And we also obviously have then seabed leasing, land pricing. There are so many locational signals already in the market that I don't think are sufficiently acknowledged.
Sometimes when we have have that debate. So those locational signals are there. I think we're we we we perhaps need to move the conversation to. And it was you touched on it around capacity and deemed CFDs is is we have a model that's been about getting more and more generation. And that's what we needed. And now we're moving. towards a more system needs. So we still need more renewables.
But, you know, a reform of the CFD, rather than a tearing up of some of discussed, is the right .
analysis and what we anticipate for for our prices. And if you actually go merchant that that kind of break even price is up to. 20 to £35 per megawatt more. So we're, we have this mass consumer base that we're doing a hedge on behalf of, and it's incredibly effective and it's driven the best prices that are available in our market. And in terms of locational signals, careful all my words.
We the the best locational signal for the wind industry is, is, is wind resource. And that often gets missed out in the debate. So what the CFD has done has pushed you to the best, most economic, most efficient sites in terms of, of generation. And we also obviously have then seabed leasing, land pricing. There are so many locational signals already in the market that I don't think are sufficiently acknowledged.
Sometimes when we have have that debate. So those locational signals are there. I think we're we we we perhaps need to move the conversation to. And it was you touched on it around capacity and deemed CFDs is is we have a model that's been about getting more and more generation. And that's what we needed. And now we're moving. towards a more system needs. So we still need more renewables.
But, you know, a reform of the CFD, rather than a tearing up of some of discussed, is the right .
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Speaker 4
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Speaker 4
Has that been too late? The greatest definitely come too late. We've been arguing for 20 years in industry. We need anticipatory investment. And just as we're starting to move towards that, there's people saying maybe let's not build the grid, but all that does is push the problem back, just like we did in the last decade when we just connected and managed. And that maybe made sense in the context of the time, but we didn't build necessarily grid necessary grid in the last decade, which we're paying for through constraint costs and, and the inability to connect new projects that Rosalind's referred to.
And we can't keep kicking the can down the road. We need to invest in grid now. So just produced a report yesterday that said for eight years delay in grid.
And we can't keep kicking the can down the road. We need to invest in grid now. So just produced a report yesterday that said for eight years delay in grid.
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Speaker 4
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Speaker 4
It's about the cost is about . £7.5 billion and that's year on year. So every the more we debate whether or not we need grid, the more we push costs onto consumers, the more we delay. I think in the grid does take time. And I think in the interim, we absolutely do need to look at those flexibility services. And I think I touched on the last panel looking at demand side, looking at industrial electrification. That's where the conversation needs to be going.
So I think the framing of the conversation is how do we utilize renewables? We have better rather than whether or not renewables are the right solution. Because we had that conversation for 14 years, we've had a consensus on it. Every government has agreed on that in the last 14 years, and we need to keep that as being the framing of the conversation. Moving on to how do we utilize them better? How do we electrify industry and and maximize the .
Investment the
So I think the framing of the conversation is how do we utilize renewables? We have better rather than whether or not renewables are the right solution. Because we had that conversation for 14 years, we've had a consensus on it. Every government has agreed on that in the last 14 years, and we need to keep that as being the framing of the conversation. Moving on to how do we utilize them better? How do we electrify industry and and maximize the .
Investment the
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Melanie Onn
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Melanie Onn
consumers already made in renewables rollout? Just one final point. I've got time for one final question. A sustainable energy. association have suggested that we extend CFDs to cover 25 years, potentially maybe 30 years, repowering, maybe 50 years, who knows? Anyway, they said 25 years for CFDs to actually cover the lifetime of projects. Do you think that that as a panel is something . That
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Speaker 1
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Speaker 1
It's the right kind of conversation to be having. I do think. repowering is a really. important thing to be considering, and something that has slipped through the cracks on like this strategic spatial energy plan and a lot of the other reforms and, and, and. thinking we've got a lot of. renewables that are there that are going to be coming to the end of their life. And how do they how do we keep them or, or allow them to extend or, or replant?
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Speaker 2
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Speaker 2
So that we don't sort of start from scratch and have them fall off a cliff. I'd like to be very specific, though, that there's a distinction between a solar farm and a wind farm that benefited from a 20 year rock, which was commissioned in 2008. It would have assumed a 20 year asset life, and it received a 20 year rock to support a 20 year assumed asset life. If it is going to continue to.
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Speaker 1
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Speaker 1
As Rosalind just suggested? I don't think we're going to lose it, but I think it's it's really unclear. So one of our the AIA members is Nadara. They've got quite a large fleet of of onshore wind. And they're looking very closely at. repowering all of those projects. But the rules and the. regulations about grid. connections and planning consent.
And, you know, it's just sort of a minefield of it's just sort of been lost .
And, you know, it's just sort of a minefield of it's just sort of been lost .
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Speaker 1
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Speaker 1
a replacement for renewables? Obligation for those. projects will always need to be like a route to market and investor confidence. I think when you were talking about the. 25 year CFD, I think that would be welcomed by some because it does give that the the extension to 20 years gave a really good sense that that this country was serious and that it wanted to provide that sort of hedge, that sort of.
confidence in the market going forward. So, so something that deals with the tail or the. repowering or something that gives that confidence that we want you and we . Want you
confidence in the market going forward. So, so something that deals with the tail or the. repowering or something that gives that confidence that we want you and we . Want you
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Speaker 1
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Speaker 1
Much lower operating costs in the form of solar or wind. Can I just say something that's really important to say, and that is that projects that are getting towards their end of their rock life are. actually seeing different things in the markets than, than what happened when they made their investment decision. And the main thing to come back to is the. transmission network use of system charges, which have gone.
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Speaker 1
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Speaker 1
But because they can't afford to run. What do you think the government should do about that? Well, a fix to the charge is part of the package of reform national pricing, but that might not come in until 2029. There's meant to be a. transitional move. between what is. currently in play and what will be and reform national pricing. But we need something now, and if we don't, then even projects that are bidding into R7 and R8 are having to guess what might be there in the future.
And the. volatility of. tenuous across the country and across projects is, is something that a risk that.
And the. volatility of. tenuous across the country and across projects is, is something that a risk that.
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Speaker 5
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Speaker 5
So what do you think about either of those options? I think the wholesale CFD that's currently being discussed and potentially expanded to more of a kind of pot zero type model is, is a very kind of useful approach. And, you know, obviously a lot of the focus at the minute is around cost. And the reason why costs are high in the GB market is because the amount of time gas sets the price. So moving to a wholesale CFD for projects that are currently receiving the wholesale price is a real opportunity to reduce the number of hours when when gas sets the price, the build out of renewables is already doing that, but it would help accelerate it.
So see that as as as the right approach, as I kind of referred to.
So see that as as as the right approach, as I kind of referred to.
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Speaker 5
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Speaker 5
Corporate PPAs are definitely an important part of the market for those who aren't successful either in the mainstream CFD or the the wholesale CFD. If if it's. established it's an alternative route to market. It does see projects getting built. And actually it's a good hedge for those industrial. consumers who, who, you know, need a way of fixing their prices. So there's a role for, for corporate PPAs. But if I don't think it's ever, it's complimentary to CFD rather than a replacement.
So if you look at the Republic of Ireland, where. 22% of their power demand is from data centres, so they have that big industrial demand load and they have a target for. 15% corporate PPAs by 2030. And certainly when I was working in that market, nobody believed that was going to be achieved. So I think that just gives you a kind of there is a ceiling. Because . Corporate
So if you look at the Republic of Ireland, where. 22% of their power demand is from data centres, so they have that big industrial demand load and they have a target for. 15% corporate PPAs by 2030. And certainly when I was working in that market, nobody believed that was going to be achieved. So I think that just gives you a kind of there is a ceiling. Because . Corporate
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Speaker 5
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Speaker 5
There are things and we responded to what needs to happen to make them easier. I think some of the things that government could do, particularly for, for for some of the larger industrial users, they'll have their own energy manager. They can negotiate these things for a lot of smaller actors. having a form of. underwriting where maybe. creditworthiness is an issue. And that would that would particularly help.
Don't bring bring down that cost of capital where you almost have template. contracts to at least start the discussion with, you know, they, they these could help, I suppose, those who aren't as experienced in the . Corporate
Don't bring bring down that cost of capital where you almost have template. contracts to at least start the discussion with, you know, they, they these could help, I suppose, those who aren't as experienced in the . Corporate
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Graeme Downie
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Graeme Downie
people still to ask questions. Graham. Then. Torquil, thank you very much, chair. I just want to move on and talk. Stephen, you touched on this earlier on about the capacity market and what it looks like in the future. So we've heard evidence that the current format, the capacity market is expensive and provides. distortive market market signals and in particular, that it should be reformed to look at hybrid assets such as solar and storage.
And Stephen, from your perspective, what does a.
And Stephen, from your perspective, what does a.
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Speaker 5
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Speaker 5
Capacity market look like in the. 2030s and how do we get there? Well, I think what it does is procure a lot more. flexibility and. You know, start, start to get that. deliverability of flex because we're seeing high termination rates of storage projects and the capacity market currently. So it's clearly not working as things stand. I suppose I could probably tell you better the problems of today rather than the solutions, but that is something we're working on.
We have developed a problem statement capacity market. So but in terms of where we need to get to is we need to. recognise we almost need to set the exam question again, you know, because what is the capacity market trying to do today as opposed to when it was established. And for me that is about. procuring more flexibility. It's , it's yeah, it's, it's about ensuring we can get those.
deliverability of storage projects. Again, back to that kind of . Question
We have developed a problem statement capacity market. So but in terms of where we need to get to is we need to. recognise we almost need to set the exam question again, you know, because what is the capacity market trying to do today as opposed to when it was established. And for me that is about. procuring more flexibility. It's , it's yeah, it's, it's about ensuring we can get those.
deliverability of storage projects. Again, back to that kind of . Question
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Speaker 5
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Speaker 5
same procurement mechanism you need for, for storage. I suspect it's not. And I think there whilst it's it's technology neutral, it isn't actually the design means that it works for certain technologies and not others. So we do need to tailor it more for the technologies we want to incentivise. Rather than this, as I say, what's called a technology . Neutral
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Speaker 2
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Speaker 2
What, what from your perspective looks like an incentive. I think Stevens point about resetting the exam question is a brilliant way of framing it, because at the moment, the capacity market is trying to do a lot of things and is becoming a very tortured beast, whether it's to encourage the new build gas and how on earth we work out to underwrite an economic case for 35 years of running a gas plant, or to encourage new build, solar and storage.
I think. addressing how we view de-rating factors is a key thing to do. We've just seen. interconnectors now be treated as far more cautiously than they ever were, and yet battery storage is still given very aggressive de-rating factors. And that would be something that could then be. adjusted when we see how batteries actually are. operating and can do that. absorption that we need just to bring out the rate of change in terms of energy storage.
I think. addressing how we view de-rating factors is a key thing to do. We've just seen. interconnectors now be treated as far more cautiously than they ever were, and yet battery storage is still given very aggressive de-rating factors. And that would be something that could then be. adjusted when we see how batteries actually are. operating and can do that. absorption that we need just to bring out the rate of change in terms of energy storage.
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Speaker 2
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Speaker 2
In battery energy storage capacity. And the capacity market is the only. mechanism that. incentivizes build effectively. Batteries have been built with a merchant risk. Now we're facing with batteries. uncertainty in the forms of what will long duration energy storage do to the battery. market and address how that will impact .
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Speaker 1
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Speaker 1
And, and thinking more beyond sort of co-location of solar and storage, but where structured storage be storage has not been given any location or signals at all. There are there is under the connections reform, there was like blocks of zones of. storage allocated as to how much we needed where. But, but the way that it was then came out in the wash meant that we've actually ended up with. wherever it can be.
And I still don't think those signals are there as to what we want it to do and where we want it to be. And I think. co-located using the grid capacity that's there rather than building new grid for it. Like they have a real use that CEP to have a really good think about . What
And I still don't think those signals are there as to what we want it to do and where we want it to be. And I think. co-located using the grid capacity that's there rather than building new grid for it. Like they have a real use that CEP to have a really good think about . What
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Speaker 5
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Speaker 5
I think, well, it depends what you mean by gas, of course. A measure of success or failure. Well, I think look gas plays a useful role. So but I think if you're you're talking about hydrogen read ACG. I think that's again where we need to be moving to. So if we're talking about clean gas, I think is, you know, if we're starting to incentivize that, if we're starting to see that transition, then we'll have succeeded.
Just taking gas out of the system creates other problems. So I think it's it's what gas we're using . And how
Just taking gas out of the system creates other problems. So I think it's it's what gas we're using . And how
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Speaker 2
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Speaker 2
gas in a very different world? In a separate inquiry, we're about to open to say about what gas we're using. One of the things I've heard people say so often is drill the North Sea for its oil and gas. It must be recognized how mature a gas basin the North Sea is, and that I recall seeing if you based it on. 2023 abstraction levels. There were as 11 years left of gas in the North Sea.
So if we're asking what a project in. 2036 would run on and we've maintained our drilling levels, it wouldn't be North Sea gas.
So if we're asking what a project in. 2036 would run on and we've maintained our drilling levels, it wouldn't be North Sea gas.
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Torcuil Crichton
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Torcuil Crichton
Thank you chair. Thank you very much. Thank you chair. Thank you all for coming in. I'll limit myself because time is short. And Stephen, you talked about power purchase agreements, and we used to think they'd save the world for a small agenda. But you see, there's quite a bit of uncertainty there about about underwriting.
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Speaker 5
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Speaker 5
Significantly and the risk that brings down the risk then as well. Yeah. Because you know, that that, that that's a big deterrent for on the generator side. If, if your off taker doesn't have. creditworthiness that, you know, and for a case of a lot of smaller companies that may be the case. So having that, that protection in place is, is useful. And as I say, we'll, we'll bring down, you know, I talked about the gap between the .
CFD
CFD
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Speaker 2
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Speaker 2
were talking about how corporates and industry that had long term hedging were. withstanding the recent price spikes very well. And if you view a power purchase agreement as a long term hedge, then those who are in the money power prices this afternoon are going to £200 a megawatt hour for one of the. 4 p.m. to 5 p.m. . Type
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Bill Esterson
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Bill Esterson
To welcome back to this morning's session of the Energy Security Net Zero Select. Committee and Inquiry on reviewing the electricity market. Welcome to Minister Michael Shanks again, who is joined by Dan Osgood. Osgood, the director of Heat and business energy at Disney's. You're both very welcome. We look forward to your comments. We've had some brilliant sessions this morning and in previous sessions, which you will have seen, which is, I'm sure, inspired my colleagues to ask lots of follow up questions.
I will start with this one.
I will start with this one.
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Speaker 9
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Speaker 9
To reduce bills overall? Well, thank you chair. It's good to be with you all again. I think the first thing to say is, look, the Prime Minister was very clear when he announced the VAT reduction that it isn't going to solve. everyone's energy bill problems, but it's about giving people some breathing space on the cost of living and to demonstrate that we are taking action on that.
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Speaker 9
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Speaker 9
A frequently have these conversations with people who say, what difference does £45 make? I can tell you from meeting a lot of constituents, that makes a huge difference, actually, in making the the pay packet reach to the end of the month. But it's not the solution to to the overall problem. And we've been really honest about that. We did take action in the budget last year to take. £150 off.
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Speaker 9
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Speaker 9
know this committee has talked about on a number of. occasions to make that happen. And it's obviously for the for the Chancellor to make further announcements. I would say, though, there's two other things. First is what the last two price caps have. demonstrated more clearly than anything is that our exposure to fossil fuels continues to be the. driver of people's bills going up, entirely driven by what's going on in the Middle East.
And so I don't think we can, as much as we absolutely do have to do the short term support, we can't separate it from the fact that every day we remain exposed to fossil fuels. We risk bills going up further and further and further. And if the government doesn't do the long term strategic thinking for how we break that link, we will constantly be here talking about what short term sticking plaster measures we can do to bring down people's bills.
We do have to do that in the short term, but what we're also doing is the long term change that gets people off this volatility. And it's worth remembering, you know, a few years ago, you were having the same conversations here when we spent tens of billions of pounds bringing down people's bills because of our exposure to fossil fuels. The government then didn't learn the lessons that they should have. We're now in the second of these fossil fuel crises.
In four years. We're determined. We do learn the lessons. So short term work is under way to support people.
And so I don't think we can, as much as we absolutely do have to do the short term support, we can't separate it from the fact that every day we remain exposed to fossil fuels. We risk bills going up further and further and further. And if the government doesn't do the long term strategic thinking for how we break that link, we will constantly be here talking about what short term sticking plaster measures we can do to bring down people's bills.
We do have to do that in the short term, but what we're also doing is the long term change that gets people off this volatility. And it's worth remembering, you know, a few years ago, you were having the same conversations here when we spent tens of billions of pounds bringing down people's bills because of our exposure to fossil fuels. The government then didn't learn the lessons that they should have. We're now in the second of these fossil fuel crises.
In four years. We're determined. We do learn the lessons. So short term work is under way to support people.
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Speaker 9
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Speaker 9
Bills in the next few months? Well, look, the Secretary of State has. outlined absolutely our commitment to looking at what short term bill support there is. The VAT cut was done very, very quickly in Andy Burnham coming in. The Minister for Energy Consumers, I am sure, would happily come and have a longer conversation with you about these matters. I would just say, though, you're right to say I said the same answer two years ago, but in that time, actually, we're now in a crisis in the Middle East, and we have been.
protected in some part by the fact that we've deployed renewables onto the system, which has saved us millions of pounds every single week in gas that we have displaced. So this crisis could have been a huge amount worse if we had not been doing what we've been doing for two years. So yes, my answer is the same, but we are making progress. But I'll come back to this point unashamedly. There are no shortcuts to the absolute long term work we need to do to protect us.
And the short term work is what Prime Minister, the Chancellor, the Secretary of State are working on, and we've done all the work in the background so that we can, if we are introducing targeted support, for example, we've got much more.
protected in some part by the fact that we've deployed renewables onto the system, which has saved us millions of pounds every single week in gas that we have displaced. So this crisis could have been a huge amount worse if we had not been doing what we've been doing for two years. So yes, my answer is the same, but we are making progress. But I'll come back to this point unashamedly. There are no shortcuts to the absolute long term work we need to do to protect us.
And the short term work is what Prime Minister, the Chancellor, the Secretary of State are working on, and we've done all the work in the background so that we can, if we are introducing targeted support, for example, we've got much more.
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Bill Esterson
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Bill Esterson
But I'm sure my colleagues would happily come and give you more detailed evidence. Yes, you are representing the department and the government, so we're going to ask you these questions, and we're going to keep asking them something that has been proposed. Where I've had evidence is the success of salary. sacrifice in EVs has been. instrumental in their uptake and in creating the the rollout and the market in electric vehicles in the UK.
And there are advocates for it in solar battery storage and, and in, in heat pumps who provide evidence that bills could come down net by something like. 4 to £500 on . Average
And there are advocates for it in solar battery storage and, and in, in heat pumps who provide evidence that bills could come down net by something like. 4 to £500 on . Average
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Speaker 9
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Speaker 9
Is this something you are advocating? Look, I've had a number of meetings with people who are in this space and looking at what could be done around not just solar, but batteries and other. technology through salary sacrifice. I think it's a really interesting idea. Rightly, salary sacrifice schemes are regulated very carefully and introduced by the Treasury, because there is a risk that we end up with just all sorts of things that people might want to buy in their daily lives through salary sacrifice schemes, which of course come off people's pay before tax.
So there are there's obviously a very clear process that has to go through with this, but I'm interested in all of these ideas. The faster we can roll out the deployment of this technology, the better. We have obviously announced a number of schemes, not least the. £15 billion Warm Homes plan that is a technology agnostic, that is about supporting households to buy whatever. technology is suitable for them. We're doing everything we can to roll out cheaper technology to people.
Plug in solar is now legal in the UK for the first time, very popular in the rest of Europe, so we're doing everything we can. I'm . Open
So there are there's obviously a very clear process that has to go through with this, but I'm interested in all of these ideas. The faster we can roll out the deployment of this technology, the better. We have obviously announced a number of schemes, not least the. £15 billion Warm Homes plan that is a technology agnostic, that is about supporting households to buy whatever. technology is suitable for them. We're doing everything we can to roll out cheaper technology to people.
Plug in solar is now legal in the UK for the first time, very popular in the rest of Europe, so we're doing everything we can. I'm . Open
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Speaker 9
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Speaker 9
Using salary sacrifice. I'm positive about all sorts of things, genuinely. And look, I don't we don't rule things out in principle. I'm up for any suggestions that come forward about how we can deploy these things faster. We obviously it's not as simple as me just saying I like the sound of something. Salary sacrifice schemes. The Treasury will be pleased to know, I do understand have to be regulated very carefully, but there are good examples of where it works, bike to work schemes and and all sorts of things where it has made a huge difference to changing the.
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Christopher Chope
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Christopher Chope
Thank you very much, Mr. Christopher. Minister, a suggestion that came up in the last session was that one way in which we could help hard pressed consumers would be to provide electricity, which is available, but is not needed when it is overproduced on a renewables basis. If we provided that electricity free at the point of use, and we know from evidence that that would increase demand by some 30%, and it would also reduce the balancing costs, and it would prevent the that unused electricity, which had already been paid for under the contracts for difference, just going to waste.
So why can't we introduce a free electricity at times of peak supply.
So why can't we introduce a free electricity at times of peak supply.
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Speaker 9
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Speaker 9
The renewable energy? So it's a great question at risk of me just saying I'm in favour of all of these things. I am in favour of looking at how we do that. And we've launched a pilot scheme, which Ukri is taking forward to in some areas of Scotland, to look at how we do deploy excess wind in the system instead of paying it to turn off. How can we turn up demand to to use that and take some of the policy costs off so that people can.
genuinely increase their demand domestically, make use of that power. It helps the system out. It seems to me an.
genuinely increase their demand domestically, make use of that power. It helps the system out. It seems to me an.
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Speaker 9
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Speaker 9
Much more fair way of, of doing it, rather than just turning off the wind and not getting the opportunity from that. But we obviously want to study quite carefully the mechanics of how that would work. And there's a number of things in this. This goes to the heart of the overall flex strategy that we have, which is we do see a really important role for people being able to, through their own choices, not forced by the government, but being able to choose when to turn up their demand to help the system out, but also to get cheaper bills.
As a result, we need to sort of do a bit of a, I say, an experiment, a bit of a pilot to see how that behaviour actually shifts and if the systems can cope with it. We are still at a relatively early stage in the deployment of smart meters and market wide half hourly settlement, and the tech for people. individually to have control over these things. There's some really good schemes out there already, but there's not many.
And so this is part of how we get that to the place where most people can take advantage of it. But we want to . Do that
As a result, we need to sort of do a bit of a, I say, an experiment, a bit of a pilot to see how that behaviour actually shifts and if the systems can cope with it. We are still at a relatively early stage in the deployment of smart meters and market wide half hourly settlement, and the tech for people. individually to have control over these things. There's some really good schemes out there already, but there's not many.
And so this is part of how we get that to the place where most people can take advantage of it. But we want to . Do that
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Speaker 9
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Speaker 9
That's that's when we'll have the results later this year. We'll start the pilot, but we should start to get I haven't seen the exact design of the study yet, but we'll start to get some data from that quite quickly. Some of this is about consumer behaviour, understanding exactly how people can engage with it, and then also measuring if the system benefits are what we think they are. Because I've seen the same data you have, it seems entirely reasonable to .
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Christopher Chope
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Christopher Chope
Assume that's how it would work. But we obviously need the evidence to do that. When you were answering the chair, you were talking about the policy costs and the raw material costs, and that are only a small proportion of the costs that consumers are paying, and the policy costs are going up significantly now, projected to increase much more because of the, the costs of of balancing. And what are you doing to reduce those costs in, in the context of the government's policy of reducing the burden on consumers and linking in with that, why are we subsidizing the expansion of the electricity grid to this enormous extent, when we are also facing the need to apparently eliminate the gas grid, because eliminating the gas grid is going to add enormous costs to .
The
The
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Speaker 9
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Speaker 9
I'll go through both of those. They are really important. I think the first thing I'd say is I really dispute this. characterization of policy costs as just covering everything that's on the bill. That actually is the generation of electricity. If you look at what people included in that bucket of policy costs, it includes the contracts for difference that are actually right now generating 40, 50% of our electricity. So that's not in my mind, just some sort of abstract policy the government has decided to pursue.
It is the generation of electricity, which is the whole point of of it being in the bill. Second thing is the grid is. absolutely essential for every single part of our lives. The generation that gets power to our homes and businesses and the demand that we use every second of the day. Frankly, if the grid isn't invested in, it falls over and we all pay the price. But also there is an opportunity cost of not investing in the grid.
Now, there are demand projects that could deliver economic growth that are not able to connect. Because we haven't invested in the grid for decades. So we do have to invest in the grid. And this is partly my answer to the chair's question about there's no shortcut to this. The constraint payments are an appalling indictment of the fact that for decades we have not invested in the grid properly. If we had done that, if we had.
strategically planned where we were building renewables projects and connected them.
It is the generation of electricity, which is the whole point of of it being in the bill. Second thing is the grid is. absolutely essential for every single part of our lives. The generation that gets power to our homes and businesses and the demand that we use every second of the day. Frankly, if the grid isn't invested in, it falls over and we all pay the price. But also there is an opportunity cost of not investing in the grid.
Now, there are demand projects that could deliver economic growth that are not able to connect. Because we haven't invested in the grid for decades. So we do have to invest in the grid. And this is partly my answer to the chair's question about there's no shortcut to this. The constraint payments are an appalling indictment of the fact that for decades we have not invested in the grid properly. If we had done that, if we had.
strategically planned where we were building renewables projects and connected them.
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Speaker 9
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Speaker 9
We wouldn't have the same degree of. constraints and people would have cheaper bills as a result. The answer now isn't for us just to say, well, we'll just put that off for another couple of decades. Hope the grid can be patched. together and keep paying billions of pounds in constraints. The answer is to invest so that we save money in the long term. And all of the calculations are that by investing in the grid now, yes, there is an upfront cost to people.
I've been really open about that. But we will reduce constraints to the degree where people's bills actually go down. As a result, there is a net saving from doing this investment. Finally, chair, just with your indulgence on the Gas point I, we published a response to our security of supply consultation just a few weeks ago. I was really clear in my foreword to that that the gas grid is one of the country's most important assets.
It. Unlike the electricity grid, the gas grid has actually been invested in quite significantly over over the past few decades. It's very resilient, as is the electricity grid, and it will continue to be important for decades. 80% of homes have a gas boiler. We are not going to shift. overnight to a different.
I've been really open about that. But we will reduce constraints to the degree where people's bills actually go down. As a result, there is a net saving from doing this investment. Finally, chair, just with your indulgence on the Gas point I, we published a response to our security of supply consultation just a few weeks ago. I was really clear in my foreword to that that the gas grid is one of the country's most important assets.
It. Unlike the electricity grid, the gas grid has actually been invested in quite significantly over over the past few decades. It's very resilient, as is the electricity grid, and it will continue to be important for decades. 80% of homes have a gas boiler. We are not going to shift. overnight to a different.
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Speaker 9
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Speaker 9
we do want to look at what happens as people start disconnecting, as they are from the gas grid. How do we maintain the overall grid until the very last customer has come off that process? So I'm not closing down the gas grid. It is a really important asset. It will remain so for decades. And while I absolutely hope I'll be back at this committee 30, 40 years from now to answer questions on this, I suspect I won't be, and the grid will still be doing the role it will be in that time, but it .
Will
Will
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Speaker 9
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Speaker 9
government consider revisiting locational pricing? Yeah thank you. Look, I think it's fair to say we agonised over this. Maybe not as much as Dan who has done this work under various governments. The reform to our energy markets has been a long standing programme of work that we've tried to answer some really difficult questions as part of that, and I think the. debate publicly and within the industry came down to zonal pricing or national pricing.
Actually, there were a whole series of other things under that around constraint management and balancing entitlement reform and everything else that just didn't quite get the same attention.
Actually, there were a whole series of other things under that around constraint management and balancing entitlement reform and everything else that just didn't quite get the same attention.
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Speaker 9
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Speaker 9
On why we went for reform , national pricing really came down to the question of building the system we need in the coming years was absolutely critical for how we bring down people's bills and deliver our energy security. And all of the evidence we saw was that zonal pricing had a much more significant risk to that investment. It would have been a decade of.
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Speaker 9
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Speaker 9
trying to unravel exactly how the market would work, who would be in which zone, what they would pay. You know, a whole series of really complex changes that would have taken a decade. And in the interim, the evidence pointed to an increase in the cost of capital difficulty building things, investor flight from the UK. Now, as always, there's a judgment call about how much we believe some of that. But the view we took was it was more important to build the.
infrastructure rather than do a reform that would have would have really had an impact on that. We also think that reform, national pricing is the opportunity for us to have a fair system across the whole of Great Britain. Now, I speak as a Scottish MP. If I had my. self-interest purely their zonal pricing on the face of it would have been good for my constituents. But the evidence I saw was that actually that was quite mixed.
The cost could actually have.
infrastructure rather than do a reform that would have would have really had an impact on that. We also think that reform, national pricing is the opportunity for us to have a fair system across the whole of Great Britain. Now, I speak as a Scottish MP. If I had my. self-interest purely their zonal pricing on the face of it would have been good for my constituents. But the evidence I saw was that actually that was quite mixed.
The cost could actually have.
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Speaker 9
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Speaker 9
And projects that were building for renewables would have been much less. investable in parts of the country where they're currently being built. So there would have been a real trade off in terms of investment jobs. And actually some of the calculations where bills might well have stayed the same or gone up. So we chose reform national pricing as the option to reform the system, but without changing the, the, the .
Sort
Sort
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Speaker 9
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Speaker 9
The question about revisiting it, what circumstances? Look, we have no plans to revisit it, obviously, like we don't rule out in the future. Looking again at the whole market, I think the Prime Minister has been very clear in the last couple of days. Markets generally in this country have not worked for people well enough. They have not delivered the things that people claim they have delivered. And so we are constantly looking at how we can reform markets to make them work for people.
But equally, we want to get on with the reforms that we've currently agreed to do and deliver on those so that people . Can feel
But equally, we want to get on with the reforms that we've currently agreed to do and deliver on those so that people . Can feel
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Claire Young
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Claire Young
the benefit of those. So there's no plans to reopen the remap process. I'll come back to the fairness question in a minute, but dealing with the sort of getting on with it one, the whole debate led to some quite a long period of uncertainty. And so have you learned any lessons from that? And are you going to be publishing any further analysis to restore.
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Speaker 9
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Speaker 9
I think you always you always learn lessons from. processes that, you know on the other side of them you wish could have been more efficient and faster. I think Rima was a particularly complex piece of work that went on for a number of years. Dan would be able to give me more of the backstory than I can. Certainly before we came into.
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Speaker 9
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Speaker 9
a number of different iterations of that, and I think there were some really significant questions and all of that. And credit to the previous government actually for for engaging in the discussion on some of those reforms. I'm not sure there was a particular way we could have come to a. conclusion much faster, but I'm sure there were ways we could have been more efficient. I think what it did throw up was that any time we talk about market reform, there are clearly interests across.
industry that will try and shape the debate. And it became a very binary. debate that actually, I think in reality, Rima was about much more than than, than just the binary debate of zonal or national pricing constraints.
industry that will try and shape the debate. And it became a very binary. debate that actually, I think in reality, Rima was about much more than than, than just the binary debate of zonal or national pricing constraints.
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Speaker 3
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Speaker 3
could to. Do you want to add just picking up the second part, second part of your question on sort of next steps. So in April, we published the delivery plan, setting out our plans on the detail of reform national pricing . That included a. consultation on how we're going to reform the different policy levers that affect what investment happens, where and when across the power system to address some of the sort of historic.
misalignment problems that the minister set out. So we're looking at the responses to that consultation at the moment, and our . Aim is to set
misalignment problems that the minister set out. So we're looking at the responses to that consultation at the moment, and our . Aim is to set
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Speaker 9
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Speaker 9
choosing our MP? No, I don't think so. And I think the work is moving forward as quickly as possible. And indeed, we we will start to see the outcomes of that in the coming months. I think it is worth just. remembering how significant the strategic spatial energy plan is as a piece of work. This is a first of a kind attempt across the entire country to come up with a series of pathways, of which the Secretary of State will choose about what our energy system will look like to 2050.
It's not it's not a one time process. It will be an iterative process. But it's the first time we've sat down and done this. And underneath that is also really important work around regional energy plans, which look more at the demand side. These are really important pieces of work, and I think it was right that we took the time to get as much consultation from stakeholders as possible to shape these. We commissioned it alongside the Scottish and Welsh governments because that partnership is obviously absolutely critical.
So making sure that relationship got that moving forward, I think I think we have we have done the right thing by taking time and doing it methodically. And I think the team that have set up to do this work has been moving as quickly as possible, and I think it it will be clear once it is published, just how much we have been lacking any kind of strategic plan to . Siting
It's not it's not a one time process. It will be an iterative process. But it's the first time we've sat down and done this. And underneath that is also really important work around regional energy plans, which look more at the demand side. These are really important pieces of work, and I think it was right that we took the time to get as much consultation from stakeholders as possible to shape these. We commissioned it alongside the Scottish and Welsh governments because that partnership is obviously absolutely critical.
So making sure that relationship got that moving forward, I think I think we have we have done the right thing by taking time and doing it methodically. And I think the team that have set up to do this work has been moving as quickly as possible, and I think it it will be clear once it is published, just how much we have been lacking any kind of strategic plan to . Siting
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Claire Young
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Claire Young
Decisions for the past 20 plus years in this country. Okay, so turning to the fairness aspect of it. Which is one of the other reasons for rejecting locational pricing. regional disparities already exist. Demand, you know, demand turn up trial is going to provide cheap electricity in some areas. So how do these . Things
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Speaker 9
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Speaker 9
Position or arguments on fairness? Look, it's a really fair challenge. I think we want to I, I hate to say we want to get the balance right, because I know that sounds like an answer. I'm trying to tell you both sides of this, but the reason about national pricing for me is that we make the mistake of thinking that the cost to a. consumer is separate from the investment cost in building it in the first place.
I make this argument often with SNP colleagues. All this infrastructure is built in Scotland, funded by bill payers right across Great Britain. It doesn't just exist in Scotland by magic. If the fact that it's in Scotland. And so there is. If we want to have a coherent Great Britain energy system, which we pool and share from different parts of the country, nuclear is increasingly being used in Scotland. When the wind isn't blowing, then we do need to share the fairness across every bill payer as well.
And so I think that was right at the heart of the decision. And on some of the demand trials. This is one of the questions I was sort of saying to Sir Christopher. We do want to see how this works in practice. Partly, if there is a system benefit of being able to turn up demand in Scotland that obviously. specifically helps those consumers, but it actually has a benefit to everyone in the system as well.
And that's a win win. So I think there are trade offs here, and I want to sort of look at the evidence to decide it all. I'm as much as possible keen to see that we don't have disparities in pricing across the country, but where there are opportunities for people to take advantage of flexible.
I make this argument often with SNP colleagues. All this infrastructure is built in Scotland, funded by bill payers right across Great Britain. It doesn't just exist in Scotland by magic. If the fact that it's in Scotland. And so there is. If we want to have a coherent Great Britain energy system, which we pool and share from different parts of the country, nuclear is increasingly being used in Scotland. When the wind isn't blowing, then we do need to share the fairness across every bill payer as well.
And so I think that was right at the heart of the decision. And on some of the demand trials. This is one of the questions I was sort of saying to Sir Christopher. We do want to see how this works in practice. Partly, if there is a system benefit of being able to turn up demand in Scotland that obviously. specifically helps those consumers, but it actually has a benefit to everyone in the system as well.
And that's a win win. So I think there are trade offs here, and I want to sort of look at the evidence to decide it all. I'm as much as possible keen to see that we don't have disparities in pricing across the country, but where there are opportunities for people to take advantage of flexible.
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Speaker 9
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Speaker 9
from electricity bills. Why stop there? Look, I'm not saying we can't remove those policy costs. My argument was just people sort of, I think, to make an argument, say all of these costs on bills are policy costs as if it's somehow our, you know, desire to tackle climate change that is putting up your bill. It's not it's generating electricity. That's the point I make. But what we have said is that where we can, we will take some of those costs off bills.
The renewables obligation was the way we were able to take. £150 of costs off bills. The renewables obligation will start to phase out, I think, from next year, in fact, for for the remainder of it for for a ten year period. So that will start to diminish. And I think we are having conversations across government about what more we can do to take costs off bills. But as always, there is a balance there between the costs that taxpayers can pay and the .
Costs of
The renewables obligation was the way we were able to take. £150 of costs off bills. The renewables obligation will start to phase out, I think, from next year, in fact, for for the remainder of it for for a ten year period. So that will start to diminish. And I think we are having conversations across government about what more we can do to take costs off bills. But as always, there is a balance there between the costs that taxpayers can pay and the .
Costs of
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Claire Young
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Claire Young
building the future energy system. So we look at all those costs. Finally, do you support introducing a social tariff or something that was discussed earlier as a rising block tariff, where you'd have a lower block, which was the essential block that would be be cheaper? Do you support over those options ? And if . So,
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Speaker 9
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Speaker 9
How should it be funded? How should they be funded? Well, again, I, I know we have a member, a former member of this committee who would love to come and talk to you, who's now leading on this work in the department. I think this is what I was saying before. We are looking at all options about how we can target support to people who need it the most. I think a social tariff is raised often, but actually people have very different ideas of what it means, who would be part of that group, how we would define that group, what the the bill discount would look like.
So I think we want to sort of look at all of these options. In the meantime, what we've been doing is taking all the action across government so that if we were going to introduce any kind of targeted support, unlike when the invasion of Ukraine happened, when we had no levers to target.
So I think we want to sort of look at all of these options. In the meantime, what we've been doing is taking all the action across government so that if we were going to introduce any kind of targeted support, unlike when the invasion of Ukraine happened, when we had no levers to target.
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Speaker 9
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Speaker 9
when will we see faster connections? Look, I think I said to this committee before I really share the. frustration about this programme, and I've said that to industry. I've been very open and I've certainly said it to to Neso and to the transmission owners. It it has been an extremely complex piece of work, and we should just, I think, reflect on the fact we had a queue that had. 700GW waiting to connect, that had got completely out of.
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Speaker 9
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Speaker 9
been kicked out of the queue as a result. Now, the the connections process that then. followed has been painful, and I've reflected my frustration with that. But it has been essential. And I think the other thing I'd just say is I understand why people are frustrated if their connection date has shifted from where they thought it would be. But the truth is that because the process had got so out of control before the connection dates people had before were a work of fiction.
In most cases, it was never going to happen. People had connection dates a year from now, where not a single piece of civil engineering work had been done to actually build the the connection. So what we have sought to do is get the process going as fast as possible, and then make sure that the engineering assessments about actually building those connections are . Accurate
In most cases, it was never going to happen. People had connection dates a year from now, where not a single piece of civil engineering work had been done to actually build the the connection. So what we have sought to do is get the process going as fast as possible, and then make sure that the engineering assessments about actually building those connections are . Accurate
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Speaker 9
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Speaker 9
Ofgem who should be holding Neso to account? Where does the buck stop for this problem? The Ofgem regulates Neso, so Ofgem has a role in this. We have sought to create a partnership to how we manage it. So I can write to the committee with the exact dates. But several months ago, when it was clear that the process was off track, we as a department took much more central management of the governance of it.
We set up a series of.
We set up a series of.
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Speaker 9
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Speaker 9
A gold command, which is chaired by the Department, to really manage the the strategic level. And then I think weekly meetings on the detail of individual connection offers to try and speed up the process. That has had an effect. I think the other thing I'd just I'd be really honest about this. We have learned a lot from this first window about what to do differently in the next one, not least on communication with people and and how people engage with the system.
We will have another window of connections. This isn't a one time process.
We will have another window of connections. This isn't a one time process.
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Mike Reader
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Mike Reader
for energy, so I'm not sort of shucking the responsibility for it. In a letter to Railpen, you said there are no regulatory levers available to require Neso and National Grid to allocate additional resources or to provide redress. And that was frustrating. And that was quite a while ago. In relation to Bicker Fen, are you taking steps to make sure the . Regulator
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Speaker 9
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Speaker 9
teeth to force Neso to address these problems? Well, the regulator is working on these sorts of address these problems and actually the problems have been addressed. The offers are going out of the door. We can give you the most up to date data that's publicly available on how many connections have gone out there now almost entirely with National Grid, Scottish Power and Ssen to get those assessments done and the offers out the door. So I .
Think the
Think the
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Speaker 9
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Speaker 9
Quantified what that cost has been to the taxpayer? No. And we it's very difficult for us to. quantify what a developer chooses to put into their bids. They will make different. calculations based on different factors. And I would come back to the point I made a minute ago, though, that developers were also pricing in the risk that the connection offer they had actually was never going to materially happen, and were often kept having developed a project, but actually not being connected to the grid when they hoped it would.
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Speaker 9
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Speaker 9
To be later adopted by the grid? We think. We think it should. Yeah, we I do want to see much more innovation in this space. We are seeing some of that already. Some of the independent nos are doing more of this work. We have a real interest in looking at what more innovation could be delivered, thinking creatively around how we build some of these things. So if it is faster and more efficient for someone else to build it, and then, as you say, either hand it back to to one of the toes or continue to operate it.
We're interested in those ideas. I do want to be really clear, though, around some of the trade offs in this is it's actually about how we have system access to connect these projects. We're going to, at the end of this.
We're interested in those ideas. I do want to be really clear, though, around some of the trade offs in this is it's actually about how we have system access to connect these projects. We're going to, at the end of this.
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Speaker 9
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Speaker 9
Face some really significant challenges around grid upgrades that need to connect into the existing grid, will require a series of outages and management of the system to allow that to happen. If we have lots of independent development going on, it can't happen in isolation to the rest of the grid. It all has to to be coherent. So again, I'm open to ideas in this space. I think one of the things the Prime Minister has said in terms of public control of these things is we do want to see much more public, the public, in the general sense, being able to shape these decisions , benefit from it.
We shouldn't be looking at just private companies being the only people who can . Operate in
We shouldn't be looking at just private companies being the only people who can . Operate in
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Speaker 9
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Speaker 9
etc., should be publicly operated? Well, to be fair to the previous government, I'm sure they regret it now, but they did nationalise niso and it's now publicly owned. Credit to them for that. I think partly what the Prime Minister said yesterday is if we go back over the past 30, 40 years, I'm not sure you would design a system that has three transmission owners that are private companies and have a monopoly on their .
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Speaker 9
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Speaker 9
delivery of a. significant amount of upgrades that particularly National Grid. But all of the transmission owners are driving forward in the public interest, holding them accountable for the costs in that, but also holding them accountable for delays, which ultimately result in constraint costs that billpayers pay so much more direction and public.
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Melanie Onn
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Melanie Onn
people wanting to ask questions. Melanie, then Lizzie, then Torquil. Thank you. I just wanted to follow on on from Mike's questions around grid, because we've just heard some evidence about grid costs and the acceleration of costs going up to nine times the original expectations of projects. Have you had any. consideration about any government. intervention or any assessment of how much that . Is
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Speaker 9
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Speaker 9
which are the examples. Surely that's universal. It's universal. But obviously projects are of a different size and scope, and sometimes the engineering assessments of a particular connection have resulted in a more efficient way of delivering that connection, not building a new substation or something. I mean, I'm not I'm not giving specific examples, but I'm sure we can share that with the committee. But costs are increasing. There's no doubt about that.
It is. The nature of building things right now is it's more expensive to do that. Connections are not immune from that. We do. expect costs to be kept to an absolute minimum wherever possible. Ofgem is looking at more it can do to bring down those costs, and has been doing a review of some of that work, but there's no doubt costs are increasing. We will do whatever we can to keep those costs to a minimum and to get things built.
That's good for . Bill payers,
It is. The nature of building things right now is it's more expensive to do that. Connections are not immune from that. We do. expect costs to be kept to an absolute minimum wherever possible. Ofgem is looking at more it can do to bring down those costs, and has been doing a review of some of that work, but there's no doubt costs are increasing. We will do whatever we can to keep those costs to a minimum and to get things built.
That's good for . Bill payers,
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Melanie Onn
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Melanie Onn
But it's also obviously good for developers who are paying that cost for connection as well. We tend to focus on grid. connection when it relates to energy projects and generation. But generally businesses talk about a struggle to. access grid. connections for for new enterprises. What assessment has there been by your department of how grid connections are holding back inward investment into the country? Have you got any specific examples? Do you use that either with with National Grid or with Treasury,
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Speaker 9
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Speaker 9
It is a real challenge. You're absolutely right. And I think we focused primarily on the generation. Q to begin with because it was so out of control. But the demand Q has is now our focus as well and has been increasing significantly, not least with a huge number of speculative data centres that our assessment is are never going to be built, but are taking up the space in the queue we are looking at, and we've consulted on how we will reform the demand side.
It is obviously more difficult than the generation side, where we can be fairly objective about the types of generation we want, and where clearly there become trade offs around different businesses, housing developments, whatever that might need power. But we are determined to do that. I think it also feeds into the wider question around the regional energy system plans which have been developed, which we'll look at a much smaller part of the country. What are the demand projects that are coming forward? Partly because you're right about the economic growth opportunities that we're missing, because they just can't get a connection on time.
But also, we know now that electrification is likely to be the key route to. decarbonisation for most of industry. And so the only way that will work is if there are sufficient connections for them. So we are working on all of that. One of the things that's been most successful, which I think I spoke to this committee about before, is the Connections. Acceleration Service, which is a government initiative working with the transmission owners, working with Niso on a select number of projects to try and get them through the system faster.
It doesn't guarantee them a faster connection, it doesn't have any special treatment, but it just tries to move the system much more efficiently, planning all these kind of things. And that has been successful . To date.
It is obviously more difficult than the generation side, where we can be fairly objective about the types of generation we want, and where clearly there become trade offs around different businesses, housing developments, whatever that might need power. But we are determined to do that. I think it also feeds into the wider question around the regional energy system plans which have been developed, which we'll look at a much smaller part of the country. What are the demand projects that are coming forward? Partly because you're right about the economic growth opportunities that we're missing, because they just can't get a connection on time.
But also, we know now that electrification is likely to be the key route to. decarbonisation for most of industry. And so the only way that will work is if there are sufficient connections for them. So we are working on all of that. One of the things that's been most successful, which I think I spoke to this committee about before, is the Connections. Acceleration Service, which is a government initiative working with the transmission owners, working with Niso on a select number of projects to try and get them through the system faster.
It doesn't guarantee them a faster connection, it doesn't have any special treatment, but it just tries to move the system much more efficiently, planning all these kind of things. And that has been successful . To date.
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Lizzi Collinge
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Lizzi Collinge
The conversation that Sir Christopher started. But first of all, I've just got a couple of quick questions about plug in solar. So plug in solar kits that are. legal to plug in without an electrician sign off are now on the market, but there are also kits where you still have to get electrician sign off . When they're
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Speaker 9
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Speaker 9
difference? Yeah, look, we partly the rollout of this has been obviously making sure we've got the highest safety assessments completed before we agreed to roll these out. And then secondly, working with retailers to make sure that the retail offer covers all of those risks and the way that any of these suppliers have to do with any electrical products that they sell in the store, there is a range of different options. Our advice has been that these will work in most domestic settings, but most people should get an electrician to, to, to do some kind of view on, on the impact it has on their particular property.
They will not work for everyone. But the evidence from across Europe is that a significant number of people are able to take advantage of it, and it will bring down people's bills if they . If they
They will not work for everyone. But the evidence from across Europe is that a significant number of people are able to take advantage of it, and it will bring down people's bills if they . If they
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Lizzi Collinge
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Lizzi Collinge
do it. But obviously, safety should be everyone's top priority. So a consumer going into a. retailer looking at the different kits that are on sale, some of which you legally need to have signed off by an electrician, some of which you don't legally need to have sign off. You can just plug straight in. Do you think that's clear to them at a point . Of
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Speaker 9
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Speaker 9
that. And when we'll plug in batteries be available, do we have a timeline for that? No, but we are really interested in this. And there are obviously we want to go through another set of safety and. regulatory procedures, particularly for batteries, but it does seem the most sensible outcome is to be able to pair the solar with the battery to deploy the . The
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Lizzi Collinge
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Lizzi Collinge
Have almost all agreed that. flexibility should be a strategic priority, not least because it reduces constraint costs. However, Octopus Energy told us that flexible. assets are only. incentivised to support the system less than a third of the time. So what is the government's strategy to close that gap? What is the government's strategy over the next few years to.
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Speaker 9
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Speaker 9
Increase the use of flexibility in the system and reduce constraint costs? It's a really good question. I think this is genuinely such an exciting part of what is possible. If we deliver on what is in the flexible flexibility roadmap, that there is a huge consumer benefit to this and it helps the system. We were really ambitious in the Clean Power Action plan. We set a target for how much would be delivered by flex.
We're now we have appointed a flexibility Commissioner Cathy Maclay. There's a team now working on delivering on all of that. And so there's a huge opportunity for doing that. The second part of it is how the system then really makes use of those flexible assets. We've just or Ofgem has announced the. 7.5GW of long duration energy storage in the first window of the cap and floor scheme.
We're now we have appointed a flexibility Commissioner Cathy Maclay. There's a team now working on delivering on all of that. And so there's a huge opportunity for doing that. The second part of it is how the system then really makes use of those flexible assets. We've just or Ofgem has announced the. 7.5GW of long duration energy storage in the first window of the cap and floor scheme.
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Speaker 9
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Speaker 9
Is part of that was to be as ambitious as possible. It was an Ofgem decision, but I wanted to really emphasize we wanted as much as possible, but also that Nyiso then has to really work on how they use those assets strategically on the system to get the flex that we want. The the whole system has to work in a much smarter way. There is work underway within Nyiso to do that, but a lot of the actions in the flexibility roadmap are around has been even more efficient at that.
And looking at things like smart local energy. systems in a much more regional focus on. flexibility and dispatch. So there's all series of options. I'm really ambitious about this. Some of it comes down to basics like we still haven't 100% delivered market wide, half hourly settlement, although we're a lot closer and there are a lot of smart meters is going to be critical for people to really take advantage. But that work is underway and then the strategic work is happening as well.
And looking at things like smart local energy. systems in a much more regional focus on. flexibility and dispatch. So there's all series of options. I'm really ambitious about this. Some of it comes down to basics like we still haven't 100% delivered market wide, half hourly settlement, although we're a lot closer and there are a lot of smart meters is going to be critical for people to really take advantage. But that work is underway and then the strategic work is happening as well.
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Lizzi Collinge
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Lizzi Collinge
If when we deliver on the plan, there's a real benefit to the system and consumers . And you in response to Sir Christopher, you talked about people should be able to choose what sort of level of. flexibility they're into in a practical sense, from our. constituents point of view, how are we going to enable people to get the benefits of. flexibility when they don't have the knowledge, time or.
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Speaker 9
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Speaker 9
Inclination to get nerdy about solar panels and batteries and things? It is so critical. Look, we've said throughout partly to try and tackle the nonsense telegraph headlines. That is, you know, Michael Shanks is forcing you to turn your dishwasher on at a certain time, which is just nonsense. The whole thing is, is voluntary. People should get some economic benefit from it to drive their decision making, which then helps the system.
So partly I think it has to be as straightforward as possible where people do these things already. It's because the app on their phone or the system they've got is really. efficient or in fact completely.
So partly I think it has to be as straightforward as possible where people do these things already. It's because the app on their phone or the system they've got is really. efficient or in fact completely.
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Speaker 9
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Speaker 9
you plug your car in at night and it just runs without you having to do anything. And it charges the the car throughout the night. So it has to be as straightforward as possible. The other thing we've really been clear on the Warm Homes plan outlines this more than anything, is we really want to focus on those households and. families who can gain the most from this, but who are often the most distant from being able to take up that technology, often because they've just got a million other things to be thinking about.
It has to be accessible to everybody to, to get the real benefits. We will require suppliers to do a lot of that work. So to be really effective themselves at how they deliver this. But the systems and processes are also about, you know, trying to make the time of use data and everything as efficient as possible for, for consumers. It's worth just, I mean, I've just got some statistics here that just give some scale of this, that the number of domestic customers that use these time of use tariffs has grown by.
6 to 8% in the 12 months to July. So we are seeing . A really
It has to be accessible to everybody to, to get the real benefits. We will require suppliers to do a lot of that work. So to be really effective themselves at how they deliver this. But the systems and processes are also about, you know, trying to make the time of use data and everything as efficient as possible for, for consumers. It's worth just, I mean, I've just got some statistics here that just give some scale of this, that the number of domestic customers that use these time of use tariffs has grown by.
6 to 8% in the 12 months to July. So we are seeing . A really
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Lizzi Collinge
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Lizzi Collinge
to. 835,000 households in 12 months, because you can increase something by a lot. But if it's a small number to start with, it doesn't really matter. So talking about reporting and data, some witnesses have proposed annual. reporting on gas use, renewable. curtailment and flexibility. Do you think that . Would be
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Speaker 9
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Speaker 9
will you. consider introducing that? Yeah, some of this data is already published. I think the we are looking at the Clean Power Unit is looking at what more kind of dashboards could be made available to the public in terms of our delivery of clean power. There are a lot of tools out there that other people have developed around. What are real time energy use is as a country, I've got a thing on my smartphone that tells me every two minutes how much we're using of low carbon versus the others.
I'm sure others are as nerdy as me at these things, but we do want to see if there's more data we could make available to the public, partly to tell the story of actually, this is already working for consumers, contrary to some of the right wing media, but also so that people can take advantage of those opportunities and see, if I was part of that, maybe my bills would come down as well. So we will look at what options there are to publish.
We are obviously conscious that the minute you publish data, it is out of date,
I'm sure others are as nerdy as me at these things, but we do want to see if there's more data we could make available to the public, partly to tell the story of actually, this is already working for consumers, contrary to some of the right wing media, but also so that people can take advantage of those opportunities and see, if I was part of that, maybe my bills would come down as well. So we will look at what options there are to publish.
We are obviously conscious that the minute you publish data, it is out of date,
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Torcuil Crichton
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Torcuil Crichton
first, back to grid connections. And, you know, I've got an interest in community grid connections . And the Prime Minister in the Commons last night, after he'd answered the previous. 123 questions, agreed with me that. community grid connections should be given a priority over private company connections. Yet your department's response to this committee's call for that was that the department. rejects the. recommendation and remains agnostic over granting community energy .
Special
Special
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Speaker 9
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Speaker 9
And we are working on how we define community energy groups, which will make some of this more straightforward. We are also doing whatever we can to support community energy groups who do have connection offers, and I know I'm working on on one in your constituency, which is a particularly good example of where there's a real opportunity here. But I'm also conscious that if we start to create carve outs across how this how connections work, we do create an even more complex system.
We also potentially risk the actual construction of some of that connection being held back by projects not being ready when they say they're ready. So there are a series of factors in principle. I'm absolutely in . Favour of
We also potentially risk the actual construction of some of that connection being held back by projects not being ready when they say they're ready. So there are a series of factors in principle. I'm absolutely in . Favour of
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Torcuil Crichton
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Torcuil Crichton
it as well. In practice, I'd like to see exactly how we could make it work, and it's not quite as straightforward. And I will continue this conversation, I'm sure, over many weeks and months on security. Clear, clear. You said in Parliament earlier this year that Nyiso failed to meet its security standards on a hot day in June. I mean, if that's proved to be correct, do you have any confidence in ESA .
Or
Or
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Speaker 9
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Speaker 9
Not a single customer was disconnected from the grid. We had. unprecedented weather conditions right across Europe, in fact, which. affected the grids in most countries. They met demand. They stayed within the statutory limits. There is obviously now a review being. undertaken into the whistle blowing. accusations that Claire Coutinho has raised with me. That review is is underway. It is moving as quickly as possible.
It will be weeks rather than than months before the conclusions come from that. And we will learn whatever lessons there are to learn from it. But I would just emphasize the fact that the data that we know right now, without any kind of review is the . System
It will be weeks rather than than months before the conclusions come from that. And we will learn whatever lessons there are to learn from it. But I would just emphasize the fact that the data that we know right now, without any kind of review is the . System
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Torcuil Crichton
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Torcuil Crichton
worked under huge strain. It worked. Another aspect of security, and I know you've just written to to Graham Downie about this is the Ming Yang yard in Ardersier and the Highlands and Islands, which was rejected on security grounds. That's been questioned again by the First Minister, by John Swinney and by lots of other people, including the company itself. I know national security is important, but can you give us we need more transparency and .
More
More
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Speaker 9
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Speaker 9
clarity on why that didn't go ahead. Can you give us any? The first thing I'd say is that the factory has been conflated with the decision that we made and understand entirely why. Obviously, the question that we were asked as a government by developers was, would we see mingyang turbines deployed in UK waters? We carried out a national security assessment and deemed that we would not, and therefore the factory obviously became not an investment proposition.
On that basis, I can't go into the detail that is in that national security assessment, but I have sought to brief the First Minister on as much detail as we are able to so we can understand that decision. And I think my one point, which I have still never heard any counter to, is I'm a Scottish member of Parliament. I'm a Minister for energy. I would clearly love to announce jobs being created in the north of Scotland.
What possible ulterior motive could I have that would lead the UK government to make this decision? Other than a very high bar for a national security.
On that basis, I can't go into the detail that is in that national security assessment, but I have sought to brief the First Minister on as much detail as we are able to so we can understand that decision. And I think my one point, which I have still never heard any counter to, is I'm a Scottish member of Parliament. I'm a Minister for energy. I would clearly love to announce jobs being created in the north of Scotland.
What possible ulterior motive could I have that would lead the UK government to make this decision? Other than a very high bar for a national security.
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Speaker 9
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Speaker 9
don't come from that yard, where will our wind turbines come from? Well, that's partly why we're investing more than. £1 billion through GB in building engineering in the UK. We're working with a series of developers in Europe to build factories to build these turbines. We want much more of this built in Britain. There's no doubt the European supply chains. I was just in Norway last week having this conversation with European ministers.
There isn't enough of that supply chain in Europe and in Britain, because we've relied too much on things being built from elsewhere. There is a shared objective right across the continent now to shift that, and we will build these supply chains in Britain and in .
There isn't enough of that supply chain in Europe and in Britain, because we've relied too much on things being built from elsewhere. There is a shared objective right across the continent now to shift that, and we will build these supply chains in Britain and in .
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Speaker 9
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Speaker 9
Are they right? I don't think it's the only way, but it is a very important way. And. They're doing great work, particularly around heat networks, which I think is something we've been really behind on as a country compared to the rest of the country. So it compared to the rest of Europe. So there are real opportunities. I do think flex is a quick win in a lot of ways. If we can get consumers to take advantage of it quickly, I don't think it is the sole answer to these things.
And I think even if we accept. flexibility and support on bills and everything else we're doing is part of the short . Term
And I think even if we accept. flexibility and support on bills and everything else we're doing is part of the short . Term
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Speaker 9
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Speaker 9
and how much. Well, as I said to, to, to Lizzie earlier, I think we're already seeing consumers benefiting from this now. So it's happening right now. It is starting to gather pace market wide. Half hourly settlement is a very sort of nerdy thing. But actually it is the thing that unlocks people being able to take much more use of time of use tariffs and benefit from it. People are buying smart appliances more than they've ever .
Bought before. So I
Bought before. So I
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Graeme Downie
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Graeme Downie
Accelerate it. Good. Brian, very briefly, just to pick up some of the points made by Lizzie earlier on about. flexibility and how we get that, particularly app vulnerable consumers and those on lower incomes. We heard evidence in our first panel session today about work that allows a. portfolio of shared flexibility so that the consumer actually doesn't necessarily individually have to, to do that. But we also heard that actually those elements of the woman's home plan that makes it harder for those.
consumers to actually be part of, of a portfolio. Can you maybe talk a little bit about how you make sure flexibility does help those on low incomes and who are most vulnerable, who are less likely to, frankly, have the time to go into an app and make sure that they actually can do that thing, because those are the people we should be targeting. How do we make sure. flexibility doesn't bypass those people? And on the specific question, can you write to us with information on how we're making sure the Warm Homes plan doesn't unintended through unintended.
consequences block people from taking part in those plans? And just very quickly, how are we making sure that those kind of projects are rolled out at speed and at pace? Because a lot of what you've said today has been talking about pilots and initials, how do we get that to scale as well? How do we start accelerating that . Really, really
consumers to actually be part of, of a portfolio. Can you maybe talk a little bit about how you make sure flexibility does help those on low incomes and who are most vulnerable, who are less likely to, frankly, have the time to go into an app and make sure that they actually can do that thing, because those are the people we should be targeting. How do we make sure. flexibility doesn't bypass those people? And on the specific question, can you write to us with information on how we're making sure the Warm Homes plan doesn't unintended through unintended.
consequences block people from taking part in those plans? And just very quickly, how are we making sure that those kind of projects are rolled out at speed and at pace? Because a lot of what you've said today has been talking about pilots and initials, how do we get that to scale as well? How do we start accelerating that . Really, really
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Speaker 9
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Speaker 9
as you've said, that is one of the key opportunities as well? I think I can go one further than writing to you and encourage you to invite my colleague, Martin . McCluskey, Who is Mr. Warm Homes Plan and is desperate to speak to this committee. And that's on the record now , because I think you're absolutely right. And look, the Warm Homes plan is all about trying to take as agnostic a view as possible about what the solutions are, but to to.
genuinely intervene in some of the poorest households, to create warmer homes and more energy efficient homes. And so if there are any kind of issues that are holding back those particular households, then we should tackle that. I think your point around sort of looking at kind of innovative schemes that pull some of these things together. I mean, I'm really interested in things. We launched a constitutional community, batteries. I'm interested in looking at options that aren't just flexibility for individual households, but could be a whole block of flats that benefit from.
genuinely intervene in some of the poorest households, to create warmer homes and more energy efficient homes. And so if there are any kind of issues that are holding back those particular households, then we should tackle that. I think your point around sort of looking at kind of innovative schemes that pull some of these things together. I mean, I'm really interested in things. We launched a constitutional community, batteries. I'm interested in looking at options that aren't just flexibility for individual households, but could be a whole block of flats that benefit from.
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Speaker 9
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Speaker 9
That mean they're not taking individual decisions on things. I think having. information in people's hands is one of the most invaluable things to know that if they turn on something at a particular time, it will be cheaper. I think all households can benefit from that. But then we also have to look at the data divide and how how much people have access to the internet and things. There's still a big divide on that.
And so all of this is part of the flexibility roadmap. I will make sure it's also on the radar in the Warm Home Warm Homes Agency. And in the question of pace, there's a lot of work going on at the moment, partly around getting the Warm Homes Agency moving forward, but also across government on. devolution to make sure that in England, for example, these powers are being devolved wherever possible, down to local strategic .
Authorities
And so all of this is part of the flexibility roadmap. I will make sure it's also on the radar in the Warm Home Warm Homes Agency. And in the question of pace, there's a lot of work going on at the moment, partly around getting the Warm Homes Agency moving forward, but also across government on. devolution to make sure that in England, for example, these powers are being devolved wherever possible, down to local strategic .
Authorities
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Speaker 9
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Speaker 9
It can be a reason not to do things . At the same time, I get the point. And I think the Warm Homes Agency is a good example of this. The whole aim is to imagine a shop front that is a trusted source of information. Apart from anything else, we've got a confused landscape of insulation providers that no one really knows who to trust. We've clearly gone through a period of. evaluating past schemes and finding huge.
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Speaker 9
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Speaker 9
that will be a national front to that. That gives a really clear shop front on the options that are available to people, but the delivery should be done locally to take account of local priorities. So I think the national delivery is absolutely moving ahead. It's not being paused at all. Local delivery will be levers put in Scottish Government, Welsh Government and local mayors hands to do some of their local work, things like what Adi have raised around heat networks, for example, where some parts of the country .
Are really
Are really
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Speaker 9
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Speaker 9
these pilots? Well, genuinely on I mean, the one I'm responsible for that we've talked about today that Sir Christopher raised around Free wind, if we're going to call it that. I want to see the evidence for and if it works, we should be rolling it out right across the country. And it's likely to be the east of England and parts of . Wales
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Speaker 9
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Speaker 9
the things I consistently hear is that it's not just about money, it's about capacity and communities to expertise. We've hollowed out local government through austerity. A lot of the experts in these spaces were some of the first to to lose their jobs as part of that austerity programme. So we have to build this back up again. There is good work happening. We just . Need to get
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Speaker 9
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Speaker 9
We we want to be very clear that these companies are delivering a service for the public, and they're being funded by bill payers. And so we are trying to work to keep their costs to an absolute minimum. We closed a loophole in the latest. transmission period to make sure that they couldn't benefit from inflationary increases. We'll do the same with the distribution companies. I think it is worth, and far be it for me to defend the company profits.
I'm certainly not going to do that, but it is important to recognise. National Grid, for example, is a is a number of different businesses who make revenue from a number of different sources. The part I'm responsible for is their . Transmission
I'm certainly not going to do that, but it is important to recognise. National Grid, for example, is a is a number of different businesses who make revenue from a number of different sources. The part I'm responsible for is their . Transmission
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Bill Esterson
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Bill Esterson
nonetheless. Challenging the chair of a select committee. That's very interesting, Minister. In particular, we were told that the grid. connections system has not speeded up at all. And they will tell you in detail. I think it's a valuable. conversation for you to have. Whereas earlier you said to us that you've made progress. It doesn't sound, from what we heard in the previous panel, as .
If
If
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Speaker 9
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Speaker 9
Well, look, let me say two things. Clearly progress is being made. And if you look at the data, which is publicly available, but I'm happy to share more detail on that with the committee. I look at the data several times a week to see the connections that are going out of the door. They are going out much faster than they have been, and a significant number are now out and offers accepted. Not enough, but but a number are.
It took too long. I've not I've not said anything to the contrary. It has been a frustrating process. It has been a painful process. It has been an expensive process for a lot of. projects that have been held up because of that. But fundamentally, I would also just say the. alternative was a system that was never actually going to be. delivered and offers that stood there on paper, but actually were not being engineered and built and delivered.
And so as difficult as this has been at.
It took too long. I've not I've not said anything to the contrary. It has been a frustrating process. It has been a painful process. It has been an expensive process for a lot of. projects that have been held up because of that. But fundamentally, I would also just say the. alternative was a system that was never actually going to be. delivered and offers that stood there on paper, but actually were not being engineered and built and delivered.
And so as difficult as this has been at.
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Speaker 9
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Speaker 9
not getting the location of the storage rather than where it is. Well, I'm not sure I agree with that. But part of the strategic spatial energy plan is looking at some of these questions as well. I think the issue you're probably alluding to is where there was a connection process for a solar farm that is now delayed because they want to locate a battery. The challenges that is materially a different .
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