 Fy enw i, y dynion, dweud o'r 17 ymdogf yn 2015 o'r Fy enwau a'r Týrhyw ymgyrchu. Felly, rwy'n fawr i'r pannu, rwy'n fawr i'n gwych gyda'r gweld, a'i gael i'n gwneud o'r gallu ei eistedd yn y gallu. Can I remind everyone please to turn off or at least turn to silent any mobile phones and other electronic devices so they don't interfere with the sound equipment? Item 1 on the agenda this morning. We have two negative instruments to consider. The first is the late payment of commercial debts. Scotland Regulations 2015, SSI 2015-226. Do any members have any issues they wish to raise in relation to us? No. Are we content simply to note that instrument? We are content, thank you. The second instrument is the Debt Arrangement Scheme Scotland Amendment Regulations 2015, SSI 2015-216. Do any members have any issues they wish to raise in relation to that? No. In that case, are we content to note the instrument? I agree. We are agreed. Item 2 on the agenda. We are continuing our inquiry into security of supply and we have two panels joining us this morning. I would like to welcome our first panel with us. I should say that we did invite Amber Rudd, who is the Secretary of State at DEC, to come to the committee. However, Westminster is sitting at the moment with a heavy legislative programme and with a Government with a majority of 12. I think that it is understandable that the minister was not able to make the trip to join us. However, we have two excellent substitutes in the form of John Fines, who is director of energy strategy at networks and markets at DEC, and Dan Monzani, who is head of security of electricity supply. Thank you both for coming along. We are going to allow about an hour and maybe ten minutes or so for this session. I remind members that I always do if they would keep their questions short and to the point, and if we could have answers as short and to the point as possible. That would be helpful in covering some of the topics that we would like to get through in the time available. Before we get into questions, Mr Fines, do you want to say something by way of introduction to set the scene? Thank you very much. Firstly, thank you for the invitation. It's obviously a very important issue with lots of different elements to it, so it's always valuable to share perspectives on it. I know that you've had a number of good discussions so far. As you said, the Secretary of State is sorry that she can't be here, but she's certainly been very keen to make early contact with the Scottish Government and looks forward to a positive working relationship on the range of issues that we have. You'll understand that it's fairly early days for new ministers after our election, and I hope you'll bear with me if there are areas where you're seeking policy detail, which I don't have today, but I'll obviously do my best to answer the questions that you do have. On the substance, you've had masses of evidence already. Question clearly, how do you maintain and ensure a very high level of security of supply in an efficient way in order to keep bills down as low as you can do? There's quite a lot of action under way in the short term with national grid and off-gem to buy new balancing services. For the medium term, we have the greater investment in networks to ensure connectivity within GB and the operation of the capacity market. In the longer term, we have a very active programme of protein to connection between GB and other European markets and potentially further field, and work is going on in order to ensure that the market signals are such to make the most efficient answer that we can. We believe that we're making good progress, but as I said, this is a very important area, and we expect to remain a really key focus for us over the coming months and years. With that, I'll probably stop and leave as much time as possible for your questions and interests. Can I maybe start off by picking up some of the comments that you made in relation to the broader policy agenda? I think that we're all aware of the trilemma that faces policy makers on energy balancing, decarbonisation, affordability and security of supply. In terms of decarbonisation specifically, where is the Government now in terms of decarbonisation of the energy mix and our route towards that? There are two parts to the argument. First, there are some areas where the trilemma points in different directions, but that's not universally the case. It might be worth bringing in the interconnection story a little bit here. Earlier this year, we reached a final investment decision on a project that would connect the Norwegian electricity market with the GB market for the first time. That's a project being taken forward by National Grid on our side and StatNet on their side. That's a project that is a win on all the dimensions of the trilemma because there is a lot of hydrogeneration in Norway in which they're seeking a market for an attractive market for that because of our size and our prices. They're keen to have the connection, but it also helps us to stabilise our system and particularly to deal with any surges in wind generation that we may have in the future. You have quite a natural match between the generating mixes of the two countries. That order is also projected to bring down consumer bills in this country. There you have a low-carbon solution that has a positive element on security, supply and potentially a bill saving, too. There are things like that that you can do. I would have thought that the new Government would be interested in seeing whether there's more things like that could happen. There is another project that goes from Norway to Peterhead in principle called NorthConnect, which again could be quite an interesting part of the future. It's wrong to think that these things always are as trade-offs. More broadly, on the decarbonisation agenda, the Secretary of State will need to be thinking through the detail of that, particularly what we do in the 2020s. She is keen to make progress on the promotion of renewable power, but she will want to think carefully about the financial commitments that she makes and where the financial resources are best directed among the range of technologies that may be there. For the time being, there's a bit of time to do that. We believe that we've made good progress through the renewables obligation and the early CFDs, which set us extremely well for the 2020 milestone on the electricity side. I would expect there to be more work over the next year or so running in and out of the spending review that looks at the position in the 2020s and sets a course. Thank you. It's quite helpful just to set the scene. I'm going to bring in Dennis Roberts. Thank you and good morning. Energy and climate change in terms of priority. Is it an equal priority? Are we looking at ensuring the energy supply, but are we also ensuring that we are meeting our targets in terms of climate change? I'd have to slightly guess where the Secretary of State would be. I expect that she would say that security of electricity supply is the first thing you have to achieve, because if you don't achieve that, then people will reasonably be asking what you're doing and the decarbonisation is not something that you do accepting an unreliable power supply. I thought that that would be the primary objective. You've then got a question about your respective positions of decarbonising and the pace with which you do that and what that's going to cost. There's a series of interesting decisions in there. It's fair to say that technology is moving extremely fast in some of these areas. I don't think that it's any secret that this department has been surprised pleased but surprised with the pace with which things like solar generation PV cells have come down in price over time. There's always a question about the extent to which you are buying the technology that is in front of you now and the extent to which you are waiting and promoting research and development in the hope that something better will be there at the time when you need it. Those are the sort of debates that will need to happen in the run-up to the spending review thinking about we've got 2020 but what is the right pace and what is the right mix in the 2020s and how soon can some technologies potentially operate without financial support because that ultimately is a better place to be where technologies are competing on their own merits and without particular sets of government intervention. I'd also say here that the operation of the CFD auctions has been quite interesting in as much as we have set previously administrative strike prices for a range of technologies and we've been pleased to see the strike, the prices in the auction clearing at lower levels for those and so we need to understand what that looks like but that's another illustration of the fact that it's quite hard to know sitting where I sit exactly what the market is going to be doing and offering in future. I hope that helps. Dan, do you want to come in? I just had a sentence or two by way of comparison to the capacity market where again we had an auction that was technology neutral and again it cleared well below what we would have forecast and indeed many independent external advisers and commentators would have predicted. So I think that points to another one of those areas where we're trying to optimise rather than choose within the trilemma trying to use competition to make the decarbonisation and security and supply pathways as affordable as possible. You can probably see where I'm coming from. It's whether or not we're looking at ensuring that we're trying to make the climate change targets so to do that we'll look at what's there in terms of the technologies or what energy supplies we can move forward with. With respect to that, is the UK Government in the suggestion that they're going to remove the subsidies for onshore wind? Does that not send out a negative message for investors? Does that not then impact on the A, security of supply and B, does it not remove an aspect of trying to achieve your climate change targets? We believe that we're on track for the carbon budgets. We believe that we're on track for the electricity element of the 2020 targets. From the security supply point of view, wind is helpful, but of course you're in the security supply context thinking about the reliable capacity that you can bank on, so to speak, at a time of system stress. That's the reason why you derate wind in order to make sure that you don't assume it to be there if maybe the wind isn't blowing. I personally don't think there'd be a major issue from the security supply point of view as the Government moves forward on its manifesto commitment. I should say that, as I said at the start, this is fairly early days. We are thinking about this back at the shop, and I hope there'll be more details of that soon. On the impact on the supply chain and commercial investment, that is absolutely something that is in the minds of ministers and they'll be factoring that in when they develop the plans that they have to meet their manifesto commitment. You can understand the reasoning behind the questions in that we are concerned that if the UK Government continues to send out what I consider to be a negative message, investors will walk away. Even if the fact that they've got maybe plans there already and they may just take that tip and say, okay, we're just going to walk away. In that respect, you don't have your security of supply. I understand that wind is intermittent, but when it does blow, you get good results in terms of providing the connection to the grid. Is the UK Government looking at an alternative? If it is a hintly point, that doesn't come on stream to what, 2030? You've got a huge period between the 2020 to 2030 that will you have that security of supply? As I said before, the effect on investment confidence is a key consideration. Obviously, there has been a lot of investment under both the renewable obligation and now a very good demand for the contract for difference. The contract for difference has been developed as a product that provides a gain to consumers but also provides a private law contract that is extremely appealing to private sector investors. It's an instrument that they recognise and we believe that they have confidence in. We think that that was shown through the response to the so-called FEAR DR, the final investment decision enabling for renewables project that we had last year where we had a very strong demand from the market. Of course, that is providing a significant pipeline of projects in the coming years. By setting the delivery control framework, which is an envelope of affordability, you agree with the Treasury up to 2021. We've given a really strong signal of forward money to developers. We think that's gone down extremely well. As far as I know, that's the most positive forward commitment of money that in Europe, certainly, I can't think of others that are more out there. Does there need to be this debate about what happens in the 2020s and the best way of allocating scarce financial resources? Absolutely. That's where the spending review comes in and I'm sure that these debates will play out over the coming months. I don't expect the Scottish Government to be an important player in that as would others. I think this might be a good moment to mention how the capacity market will work alongside the carbonisation. You're right to say that many forms of low-carbon energy, including wind, do contribute at some level to security of supply. The way we ensure that there's an overall level of security of supply that meets our reliability standard is that we work out what that equates to in the number of gigawatts of supply that we think we'll need to meet peak demand. We then net off four years in advance how much renewable and other low-carbon generation will be on the mix. So if you like, whatever the position is with regard to our pathway towards decarbonisation, we take that out of the equation and then buy what remaining capacity is necessary through the capacity option. So four years ahead, we are taking an assessment of what the generation will be and then making sure that we procure enough capacity to meet the reliability standard. We can then fine-tune that one year out again. I think that I probably understand most of that anyway. Is there a gap that you mentioned in the 2020s to 2030s? How can you say with any certainty that we've got the security of supply during that gap? I think that we've got long-anit probably closing maybe earlier than we expected. We don't know what's happening at Peterhead yet with regard to carbon capture. I'm just wanting to tease out from you, if you can, what's happening in this gap. I know that you say that you've got a review and there's discussions going on, but can you give us any indication what you believe would be the direction of travel for the UK Government to meet that gap in the 2020s to 2030s? The UK Government has been clear that it does want to see new nuclear coming forward, but what I've been trying to expand on a little bit is that there's a number of things that may come in, and it's quite hard to know exactly which one will materialise. I've talked about, in the way that there are also projects to potentially connect Iceland up to the GB market. Iceland is a market in which power generation is extremely cheap. Connecting it up to the GB market would be an extremely ambitious thing to do, but there are some developers who believe that that can be done. There's some difference about what that might cost, but at its most optimistic, people think that that could come in and be quite a competitive offering and quite a reliable offering as well. There are some people who think that the cost of photovoltaic in combination with storage may also drop to the point where that becomes cost-competitive. The question is how much do you bank on that? You've got the carbon capture and storage competition going on at the moment and the number of others interested in that worldwide too. You may find that CCS costs come down. That becomes an attractive thing to do and that also potentially helps more with your security supply issue than things like wind. The proof of the pudding there will be how reliable are these things to operate. I wouldn't like to say what the right durating factor for Peterhead's CCS project would be if they win the money through the competition. Ultimately, you have the potential to have more gas-fired power stations. We have a lot of new gas projects that have planning permission to proceed. Those are primarily closer to demand, but in a highly-networked GB system they would also provide security supply to Scotland as they do to all parts of GB. From the security supply point of view there are a number of ways that could be met. As I said before, there will be this debate about what extent you want to be locking in one particular solution and how much you are prepared to spend to do that. Part of that argument depends on what view you take of fossil fuel prices. If you are someone who thinks that fossil fuel prices are going to be high, then renewables particularly look increasingly cost-effective, marginally speaking. If you are someone who believes that they are going to be lower, that may give you a different view of where the best thing to go is. Obviously, we are working very hard with the Scottish Government in setting up the oil and gas authority in order to maximise the recovery of oil and gas. You can see from that that we are not taking a particular view of where fossil fuel prices may be. Thank you. I will bring in Gordon Wood. We have a quick follow-up on that. Just a quick question on Dennis Robertson's earlier comments about the UK Government's intention to end onshore wind subsidies. Currently, Scotland has got 37 onshore wind projects of 50 megawatts or above awaiting to go ahead. How will this announcement affect those projects? More important, you talked about investor confidence. Bearing in mind that these 37 projects will have borne substantial costs to get to the point in their act, what message does that send out to people who want to invest in renewable technology? It will depend on the details of the announcement that is made. Previously, in the previous Parliament, the Government made changes to consider the great periods that are applicable to projects and to strike the right balance between cost-effectiveness for the consumer and to keep value for money, but also recognising the expectations of the developers. Those are the issues that ministers are thinking very carefully about. Equally, this is a manifesto commitment to the direction of travel is quite clear, but I will need to ask you to wait until I get a bit more the direction of travel of the actual announcement. Just on that point of value for money, there was a press release that came out from Ian Marchion, Chairman of Infinite Energy. The proposed approach contradicts the Government's manifesto commitment to, I quote, meet our climate change commitments cutting carbon emissions as cheaply as possible to save money. As the cost of substituting more expensive alternative technologies to ensure wind would needlessly add several hundred million pounds every year to energy bills. How does that value for money? We believe that we are on track to meet the electricity component of the 2020 renewables target. For 2030, there is a European target that does not specify the renewables content. That is to remember states about how they break that down between the different sectors. It is possible to have a discussion about the right investment mix in the 2020s to position yourselves for the long term. There is a second point of this which is at what point a renewable technology does no longer needs financial support from the energy bill payer in order to deploy. The third point is that, as well as a carbon impact, those schemes potentially have a visual and a broader environmental impact which this Government believes needs to be taken into account. Going back to where I started, I think you will need to wait and see if you could bear with it the detail of what ministers are going to say on these points which I expect shortly. Just so that we are clear, Ms Fife, do we know when an announcement is likely to be made? I don't know, I'm afraid. I've got a brief follow-up to give you a minute to move on. Briefly coming back to the issue at Norway and Iceland, I'm not against foreign investment, but clearly in this situation where we have effectually a monopoly in terms of system operation, why would we look at that alternative investment with just cost implications, currency implications, balance of payments implications, political implications, management implications? Why are we looking at investment there as opposed to developing further capacity and clearly we're talking about hydro in Scotland? So it really comes down to the economics of the thing. I've laid out some of these. The price differential between the Norwegian power prices and the UK power prices means that it's possible to import hydro at UK market prices but there's no need for additional financial support. It's a very large bit of infrastructure which is paid for on the arbitrage between the two markets. So that's maybe the first point to make. The second point is why is there not more hydro development going on inside GB because there are companies that say we have these great schemes and they would really help to stabilize the grid and so on and so forth. I might ask Dan to comment in a moment about the operation of the capacity mechanism on this but my understanding is that these projects are eligible for 15 year contracts. The capacity mechanism is technology neutral so that if a project offers value for security of supply and is the best value of achieving that aim and it's a hydro pump storage project then it should be perfectly able to win. If it doesn't wish to compete in the capacity mechanism it's perfectly possible for them to seek an agreement with National Grid to provide balancing services because one of the advantages of pump hydro is it's a very fast response. It's also conceivable that they could support the investment by providing insurance for people who are playing in the capacity market but who face the penalties if their project is not available at a particular time because those penalties are designed to be a strong encouragement for people to be there at times of system stress. So there's a number of potential ways in which these projects could proceed. Why are they not? It may be that there is something else going on that is preventing them from coming forward. Maybe there's some other market failure we haven't described so far. Or it may be that these projects although they are great pieces of engineering actually are not the most cost effective ways of ensuring security of supply. But that's the debate that we need to have. People will come and talk to us about the market incentives for storage to see whether there is something that we've missed that we need to be bringing forward because don't get me wrong if there's a bit of technology that can allow us to achieve the security, carbon and cost implications with better more efficiency, I'm all for it. But the question is what is that thing? I wouldn't say there are alternatives actually. Probably what Norway does is if anything it displaces thermal generation in this country because it'll be largely importing on a baseload basis. If you're thinking about pumped hydro that is a technology that gets used for particular instances of sudden urgent surges in demand and so that is used from time to time. You'd never be able to pay for the Norwegian infrastructure, the connector between us and Norway if it was only being used at times of extreme system stress. The arbitrage only works if it's consistent trade and that's because there's a systematic difference between the prices. So the Norwegian hydro is in a different part of the market from the possibility of UK hydro. So I certainly wouldn't see those as competitors. Dan, do you want to add anything about hydro which is exactly right? What we do in the capacity market is a couple of things. One is we try to allow technologies to compete against each other so we can find out exactly which is the most economic delivering capacity. Obviously we are talking here about capacity at peak and therefore there are some interesting technologies like hydro, like interconnection like demand side response as well which I wanted to mention which have the potential to meet those peak demands for periods. The second element of the capacity market design sort of technological neutrality which I think is really important here is the way it's been designed to mirror the electricity only market so that as John says you can earn revenues elsewhere for example through arbitrage or through selling base load power which hopefully contains some elements of remuneration for your capital costs that energy bill payers have to pay to provide that capacity. Those two combined we are trying to drive out the lowest cost for consumer for delivering capacity at peak. I'm conscious of the number of members who want to come in but I'm most conscious of the time and we've got a number of topics we want to cover so I'll bring other members back in later and I'm going to move on to Lewis Macdonald. Thank you very much. I'd like to start with and I know other colleagues will pick up the demand side. The supply side in GB is dominated by a small number of really quite powerful privatised corporations. Does the Government feel that it has the leverage it needs in dealing with those major players and if so what is that leverage? How does Government use the mechanisms you've been discussing to achieve shifts in priority by companies which are large corporations in their own right? If I could start with the microphone then perhaps we'll talk more generally about that. Again within the capacity market for a start about 70% of generation is big six as you say but 30% is independence. One of the things that was very important to us in the capacity market was making sure that when new build was developed it wasn't completely fixed to develop on balance sheet nor was it impossible for independence to bring forward new projects and what we found was I think nine new build CCGTs pre-qualifying for the last auction of which seven were from independence so we were quite pleased in the design of the auction that we had allowed independence to enter and compete through a project finance basis against the big six who presumably are making use of their balance sheet and the strengths that you identify. John, I don't know if you want to talk more generally. If we're using acronyms it's very helpful for the point of view of the official reporters if at least in the first instance you spell out what you're referring to. CCGTs are a combined cycle gas turbine. A few remarks on that. The first is that the UK market is not very concentrated by European standards and as Dan says there's a significant amount of independent particularly generation that exists. Of course we have got the competition and markets authority investigation going on now to see if they consider there's any adverse effects on competition. They put out an updated issue statement earlier in the year. They are an independent process and I have no special insight into where they will go but reading that it seemed to me that they were mainly talking about the retail end of the electricity and gas markets. There are some elements about locational pricing and so forth but those are sort of market design upstream rather than the point that you're getting at. As Dan said we are seeking to frame policy in a way which allows independence to come in. That's partly on the generation side. The contract for difference is also good for independent generators and on the networks side we have a regime of competing the offshore links that we have and we are looking to with off-gem see whether we can introduce more competition for onshore assets which we believe will keep national grid on their toes. The use of the auctions we think is a very powerful way to drive value and make sure that we don't end up with control being exercised by one or more players. That's partly CFD and partly capacity mechanism. Dan might want to talk a bit more about the extent to which the capacity mechanism has brought forward things that we wouldn't have thought of immediately such as really small scale gas generation that is operated in effect as a virtual power station that could be something that's quite interesting to Scotland in time as well and one of the characteristics of the Scottish system at the moment is that there's a small number of quite large chunks of thermal generation and of course if you've got a large chunk and it does shut then there's always the question about what does that mean as it happens we think that Scotland is very well provided for generation and with the investment made in transmission we think you're pretty well placed but of course the transmission pricing also changes when one of these large chunks comes off and so it may be that a power station shuts that means that transmission pricing in a particular area drops very significantly and then there's a response either with the investment of potentially new hydro if that's what keeping it back previously or potentially some of these smaller scale thermal generation that helped to fill that gap and it's quite an organic system potentially that there's one other point I might just mention which is to do with National Grid's role as system operator because of course National Grid has a fully merchant arm which is doing some interconnection business and various other things it has a regulated system arm for the transmission regime and it has this system operator role which is much more akin to a public policy function and there has been quite a lot of debate about whether we have the right separation within National Grid about that on the one hand they have a lot of skills and strengths and they're a very pressional body I believe you had Mike Calviw previously and he certainly knows his stuff and they have already taken action to strengthen the separation within National Grid in order to give confidence that this is done in a way which isn't affected by the broader commercial incentives but you may not have also picked up that this is an issue that Ofgem is thinking about because through one of their projects they are strengthening the planning and delivery role of the transmission and system operator we're hoping to get this entrepreneurial competition going and maybe in future if what you end up with is a system with more storage and more demand side response and less wire then you could imagine that the potential conflicts of interest between that and the system planning role could become more stark I think that National Grid themselves realise that and recognise that and I think they are thinking about what they can do in response to that I personally don't worry about how they're operating at the moment in fact when they first provide the advice to us on the capacity mechanism our view was that they were slightly under stating or very under stating of the potential benefit of inter connectors to system security in GB and if their merchant arm so to speak was influencing their advisory arm you'd expect the opposite to be happening so I think they've been a bit whiter than the white and actually further work has shown as born out actually that there is a more positive contribution to security supply from inter connectors but that is an issue that should we have an independent system operator some places in the world do that might position ourselves for it meanwhile there's another debate going on should you have a system architect in here some very eminent engineers are saying look the electricity system is changing by historic standards very rapidly a lot of new stuff is coming on in great volumes we've always had a a predict and provide model is that really where it needs to be over the long term and can we be sure that it will remain secure and represent value for money and I think that is also a fair question to be asking and I think that you've had some debate about that in this committee as well but we have no particular view at this stage one of the other witnesses we heard from recently was Malcolm K who made the point in relation to the capacity market that there was nothing in it to optimise a particular mix of investment in different types of supply or to ensure a light balance between supply investment and demand investment so one of the you yourself described it as technology neutral and not by accident but intentionally so what a consequence of that is that a lot of the actual contracts under the capacity market are to thermal generators in order to provide or back-ups supply is there something that can be done with the capacity market mechanism to incentivise new technologies, whether renewable technologies or new technologies, low-carbon technologies particularly looking ahead to the 2020s to talk through it because absolutely that is part of the intended future Dan will talk about that in a moment in general I'd say not purely about the capacity market but about the sort of questions I would say we need to be asking ourselves are we sure that there are no barriers for these things coming forward that we haven't seen and maybe barriers that we ourselves have put in the way because it may be that there is plenty of demand side response out there but there's something in the way we've done the licensing or something else that prevents it and that would be therefore a daft thing to be doing is there a barrier secondly is there the right set of market signals allowing people to take these decisions we're rolling out smart meters at the moment and there's quite a lot more of that to come if you're a very large user of electricity at the moment then you're quite aware of what the price is when you use it but if you're a medium size or a small one then you aren't but if you haven't got the information about usage at particular times then it's quite hard to see how you will be able to secure the value which could actually help everybody one of those things as I talked about the start that could be a carbon and a security and a cost effectiveness gain potentially but there's also a huge amount of R&D that's going on in this area Ofgem has had a scheme the low carbon networks scheme under the previous regulatory settlement they have some more arrangements going on now but it's not only actually the network and energy companies who are doing it you can see quite a lot of interest from companies such as Google in developing technologies that might be able to run over the top of these other things and provide people with services that they really want so again this is an area which I would have thought ought to be a very wide area of debate and particularly important for Scotland because of the development of renewables that you have and I was interested to read the discussion you had with the representative of WWF because the question could you run a system in tiny renewables is something where this sort of response becomes very important so there's an area that you're interested in that'll be something that could be a lot of co-operation on just passing over to Dan now so the capacity market is to take your question about how it can make sure low carbon is taken as part of the mix as well capacity market is focused on the prime objective of making sure we meet the reliability standard so that we keep the lights on it's sole focus that doesn't mean it's not compatible with our decarbonisation objectives but principally we achieve the decarbonisation, increasing decarbonisation of the base load mechanisms like the CFD which bring forward things like offshore wind and so forth and nuclear to displace aging plants it's also true that we have differential environmental costs in the energy only market so for example coal plant typically will pay for the price of the carbon which is roughly double what a gas plant would pay that means when it comes to competing in the capacity market those costs are reflected on the bids it's able to make and so to some extent the capacity market reflects the broader environmental measures that are affecting the whole wholesale market but we have to keep it focused primarily on delivering security of supply albeit the costs of those bidding in and therefore the merit of those who win and lose will be affected by broader environmental legislation in that world where we are increasingly decarbonising the base load there's a very interesting space which we've talked a lot about today for a mixture of different technologies some of which will contribute to that low carbon base load others will be specialists in dealing with peaking demand so they will typically therefore not compete with the low carbon base load which will have very low marginal costs and therefore will run much of the time but might be really specialist to be able to respond flexibly or at reasonable costs at times of high demand and as John Sir there's a quite interesting dynamic within the capacity market in bringing forward both competition between technologies we know and expect and innovation and I will be honest with you I did not expect to see large numbers of small scale gas plant that are networks together in cases coming together that are very efficient at making just those periods of demand and that's quite an interesting picture of the market where you've got a low carbon base load and some specialists dealing with the peaking that could equally well be served by demand side response interconnection storage and pump storage of that you are specifically what more we can do and we're certainly not complacent we're trying to be technologically neutral but that doesn't mean we don't spend a lot of time with each of the individual technology companies trying to understand what barriers they're finding and one of the things we're doing for the demand side response sector is to respond to their feedback that they would be able to compete most effectively one year in advance of the delivery year rather than four years ahead so what we're doing is we're running essentially two prototypical transitional arrangements auctions which are one year ahead auctions for capacity in 2016-17 and 2017-18 exclusively for demand side response those companies can compete can build their business model increase their efficiency in time to compete against all technologies in the 2017 auction at T-1 so expect amounts to announce the parameters for the first of those transition arrangements auctions in the next few weeks and we look forward to seeing a liquid auction coming forward on that basis I know Patrick Harvie was keen to follow up some of these questions on demand side response thanks convener good morning I suppose that it links in fairly smoothly from what you've been talking about the emphasis that we've heard that needs to be there on demand side response both reducing overall demand and a more sophisticated approach to managing demand seems to me requires a long-term transformation of a whole host of areas of our lives and our economy you talked about the 15-year contracts that are available for supply through the capacity market why don't we have that long-term approach to the demand side you talked about this one-year auction now we'll all be interested to see what happens out of that but there doesn't seem to be the same long-term commitment to ensuring that projects can deliver a really substantial a gender of transformation we actually started from the position where everyone should have one-year contracts and that you'd have an auction every year and we moved away from that position only in those areas where we thought that the capital requirements of particular projects were such that you would need to be able to immortalise those capital costs over a longer time span so we introduced three arrangements for those who had refurbishing capital investments above a threshold and 15-year contracts for those who have new-build projects with a high level of capex we continue to engage with the demand side response sector but they have not presented us with evidence of a large capital requirement that is equivalent to something like a new-build power station or a new-build storage system but surely the capital requirements for example a local authority to transform its housing stock would be greater than the capital requirements for one of the small gas stations that you mentioned a moment ago right, well I mean there's two different things that you identified in your opening remarks actually between lowering the overall demand at all times, energy efficiency and managing the demand at peak and what we're focused on in security supply is making sure we can meet that peak demand because that's when it's most difficult to keep the lights on so it may well be a cost per unit of government objective if you like that energy efficiency in the housing stock is a very efficient measure it's nearer I've worked on myself and I know that to be the case but it doesn't necessarily deliver you very much capacity or reduced capacity need at peak demand because the bulk of its benefit is reduced carbon emissions reduced energy build costs at all times of the day so it's about buying different things and so it's really the on-demand side response I was talking about in terms of the capital requirements because that is where we have a really exciting opportunity to flex our requirements at peak demand I was also interested in the level of coherence that can be between what we would describe as devolved responsibilities in Scotland or for the bulk of the GB picture one government has responsibility for over the previous years I was involved in trying to persuade the Scottish government to do more on energy efficiency and one of the problems they kept coming up against was that they would risk losing some of the money that the energy companies have to put in that's defined at UK level and so that might end up being spent somewhere other than Scotland so we wouldn't get more bang for the buck for putting in extra public funding and that's hopefully going to be resolved under the Smith proposal some of the issues there will be handed to the Scottish government but surely we're still in this position particularly when we start looking at housing policy when we start looking at this more electrification of transport devolved transport policy that more sophisticated demand side response is still going to be split between two governments is there going to be a difficulty that we continue to encounter that replicates that problem with the energy company obligations in the rest of that demand side response agenda I'll let John talk to the devolution picture in a second but I think it's worth reflecting the benefits that we can also get from dealing with security supply at a whole system level so Scotland has a peak demand of around I think 5.4 gigawatts of the order of about 10 times about 54, 53, 54 gigawatts and within a larger system you've got scale, you've got more diversity you're able to manage therefore higher levels of intermittent generation and so there are big benefits there indeed it's the same argument we're making about our increased interconnection with some of the other countries like Norway and Iceland that John talked to which could help both specifically Scotland and GB generally so there are really big benefits from managing a system at a slightly larger scale but there are also obviously there's a sort of specificity point on various points about what might be best dealt with at a more regional or national level it's a really interesting question actually and I'm not sure I know for certain what the answer is it seems to me that we've ended up through the Smith commission with quite a good balance that brings the levers over energy efficiency more into line where building regs and local authorities are and I think there's tremendous potential in there there's no detriment element to that to the other parts of GB2 during the Smith process I wasn't aware certainly people didn't talk to my team and I as far as I know about the links between that and transport and heat just thinking it through on the spot at the moment the heat and the electricity systems are more separate they probably will converge but it's quite a long time frame for that in the first instance what I'd expect to happen is for energy to flow from the power system into the heat system so if you have times of very low wholesale prices then using that power for space or water heating is a very efficient way because it keeps that useful because the engine is a useful form later in the day or for tomorrow and those should be possible to come through simply based on the power price differentials at different times of day so there'll be an opportunity for all sorts of people whether they're local schools or local communities or the Scottish Government to think about what is their solution on heat going to be in future and given what we can see about the changing dynamics in the power sector do you want to be positioning yourselves to take advantage of those things but I'm not sure there's a can I explore an example please let's assume that we're in a point where there is a longer term commitment to demand side response so longer term contracts can be available for those kind of projects we've also moved into a period where there's much higher level of electrification of transport and a Scottish Government in future decides that the most efficient and most valuable money demand side response policy it can propose is around transport planning is around the design of transport infrastructure now that's currently by the Scottish Government from within its resources would it be possible within this capacity market for a bid to be made to ensure that that funding comes from the energy system from the GB capacity market rather than from devolved Scottish resources so we have a well do you know the answer this is already done or is it essentially so you have to to bid into the capacity market you have to bid capacity market unit which is either a generator or someone who can reduce demand not one of the ancillary services that supports those so neither could you bid a transport network in than you could a for example an electricity network but it could well be that of course some of those costs flow around the system in different ways that if you have for example some technology that makes use of the batteries in electric vehicles in your transport system that in some way that is able to lower demand at peak times either by stopping batteries from charging or by drawing on the stored energy there that that capacity can be bid into the capacity market similarly actually one of the potential advantages of electric vehicles is that they can charge during the night and if you have a system with a lot of renewables on them the wind can be blowing at a time when you actually don't want the energy and so the ability to draw off some of that energy at the right times is potentially in the future as important as not having a demand at peak and so that would be something that would allow that to be profitable within the energy market and as I mentioned before also bid a capacity market unit into the capacity market so it sounds like the answer is yes and if the security supply benefits in there can be captured then there may still be a question of to what extent is tax payers money put in to secure other benefits as well but if those particular thoughts start coming out in more detail I think it will be well worth a more detailed conversation about them I'm just keen that we don't end up if the current constitutional situation pertains I'm just concerned that we don't end up doing that we can do more in Scotland but finding it impossible just because the two systems don't fit together properly and of course in any separation systems dialogue is going to be really important and working closely with Scottish Government officials so we can work through these things jointly is an important part of the way we try and work time for one just briefly on a slightly broader question than just the demand side the subject to the enquiries is security of supply and I'm just wondering whether you can reflect on some of the arguments that we've heard from other witnesses that if we are in a position where we're seeing more distributed generation, more distributed storage, more ever connection as well as the demand side response is security of supply the right concept to be talking about does the link between where generation happens and where consumption happens is relevant in that it's shorthand what we're really talking about are people getting the energy services that allow them to go about their business and do their things as they want to reliably that's what we're trying to capture but you're right there's a little bit of a hangover of where it's come from the solution to security is supply and that's absolutely not where policy is on whether we have the right term for that but security supply has a lot of currency so to speak at the moment but the policy absolutely supports the full range of responses you've been talking about I think Joanne Lamont had some questions around a similar area it's really just one of the suggestions has been I suppose it's a matter of policy between the Scottish Government and the UK Government that the security of supply debate creates an uncertainty which means it's less likely that people will move to a fully renewable means of getting energy and I wonder whether that is reflected in the discussions that you have but certainly one witness put it to us was that it gave to keep talking about security supply almost creates a circumstance where it's less likely that people will have confidence and take the risk of developing those technologies fully and I wonder whether you think that that is the case and secondly is it complicated by the fact that clearly UK level nuclear energy is seen as a reasonable way of helping with security supply whereas in Scotland that's not the case If I take that comms point that's an extremely important point I think we win half the battle by actually securing the system and the other half by making sure people believe we're going to secure the system and that is both in terms of building confidence that we can manage a transition to a low carbon future but also confidence for business to make investment decisions confident in the knowledge that they will have the supply of energy that they need so we spend a bit of time for example trying to am a journalist of course but trying to make sure that they understand the steps we're taking they know we've got a plan they know we used it last winter and it worked effectively to maintain adequate security margins to meet our security standard that we have the same plan in place now the fact that we've acted somewhat earlier this winter in preparation for this winter there's been a lot of time with business stakeholders in particular making sure that they understand those messages a response to talking about security supply in the media that implies that we're minutes away from blackouts which we certainly aren't and it is something that we spend an awful lot of time making sure we're not getting near that point at all and we're absolutely maintaining an adequate security standard across the whole of Great Britain Just to add to that I mean this is an area where the challenge has got more complicated over the last few years and this is it's partly to do with coal prices that are very low and what that means when coal plant has to come off the system progressively because of European legislation which creates a cliff edge it's partly that the power mix is changing so if you're a gas fired power station and before you would have run pretty consistently and you're in future going to need to run more from time to time because of including other things the change in renewable generation the whole thing is moving and that's partly why we have some pretty chunky action underway in order to make sure that this remains okay but I hope it doesn't chill renewables investment I mean my argument would be if you can't explain to people that it's going to be okay then that is what will undermine actually the action we've taken is more like to say actually invest in renewables and it makes a lot of sense for Scotland to explore its renewable resources as well as part of the GB mix because you can see here's how the whole thing fits together and if Scotland were an island in the middle of the Atlantic and we're saying right now we're going to have entirely wind that will be a different sort of cattle of fish but it ought to be an unlocking thing to say actually security supply is sorted by these mechanisms and actually that's consistent with our low carbon future and just a final observation I haven't seen it impacting on the enthusiasm for development or the broad support for decarbonising power that I've seen in the UK Parliament and when the electricity market reform legislation went through it commanded very significant cross-party support and still does so in a way I think that's part of the answer probably two facts because I think it's very easy looking forward to think how impossible transition looks but looking backwards it's quite striking how much we've achieved so in 2014 I think 19% of power was from renewables that's quite a big increase over a relatively short period of time and over the three years to this winter I think around 10 gigawatts of coal and oil would have come off the system so there's quite a remarkable transition in a relatively short period of time maintaining stable levels of security of supply that meet our reliability standards I haven't talked to your nuclear point I'm sorry about that I mean there are plenty of differences around GB and broader UK about how people feel about different power sources and you need to respect and work with those differences and I think the same thought is probably behind the Conservative party manifesto on on-draw wind planning that these things only work well when the people who are nearby are prepared to accept them we had a quick comment earlier about whether Hinkley is going to comment on whether that would fill the gap well that's one thing that maybe and nuclear power stations are very large chunks of base load generation they have some risks from a security supply point of view but since there was every other power source so the UK Government's view is as part of a balanced portfolio they have their part to play but we completely understand that different parts of the country will regard these in different ways thank you thank you very much to go straight to your point about nuclear speaking to our witness two weeks ago from Ofgem she was quite clear that the decision to invest in Hinkleysea was a political decision would you agree with that? it's a decision taken by ministers rather than by Ofgem absolutely just as the decision about how much living control framework monies be made available and the distinction into those different competitive pots we have a process at the moment exploring the potential for the lagoon in Swansea to see what they can always that would look like again the decision to enter into that is a political decision and the decision ultimately about whether to put the results into it is also also political and yes it's a five-year contract compared to the 15-year contracts that are given to renewables including pump storage that we talked about earlier and certainly the SSE and Scottish Power are very very clear that the transmission charging made it very difficult for them to go ahead with the pump storage proposals that they had planning permission for so there is one would think that in favour of nuclear and against pump storage certainly they see that they can't go ahead with it under the current regime so under the coalition government there was a policy of no public subsidy for new nuclear which was set out in parliament and there's certainly been a very careful examination of equal treatment between new nuclear and other technologies that does not mean it's exactly the same in many respects the treatment of new nuclear is more onerous on the new nuclear developers than on others I suspect as we talked about earlier the pump storage question is slightly different because it may be that if the barrier is the transmission charging then that may change it may be that there's some other barrier that prevents that from coming forward or it may be that projects don't offer best value I'm not taking a view on that How could it be argued that they don't offer best value in Hinkley C this? The assessment of value for money for Hinkley C was based on a range of low carbon alternatives we're examining gas plus carbon price we're also examining renewable alternatives and taken in the round when it concluded that the CFD offered best value and it was put to the European Commission for approval on that basis but these debates are still going on I can't take today what new ministers haven't been part of those It's a political It's a political dimension The European Commission has already said that it will put money on to consumers bills Any contract for difference with a strike price that is higher than the average price of power in the market will add to consumer bills and the extent to which it will do that depends on your view of the forward power price Given that you and Ofgem have accepted that we're operating within a political framework in terms of these interconnectors that you mentioned earlier I would imagine there's a very large capital cost involved in those interconnectors Have you any idea what it's going to be to give a ballpark figure for Iceland or Norway? They are extremely costly I'm afraid that I haven't got the Iceland numbers or the Norway numbers in my head but none of that is funded on the balance sheets of the companies promoting it so in effect what they are doing is they are bringing the money forward for that and they're taking a bet they'll be able to make their money back on the price differentials between the two markets so they're operating in a way because they're operating within a regime called the cap and flaw regime which means that if they make extremely good returns then they will share some of that venue bill payer and if for some reason the project despite being operational makes extremely poor returns then their debt is covered so that's a regime that Ofgem has developed but that allows what it means that the promoter themselves is taking a significant commercial risk in deciding to bring these projects forward and that's designed to make sure that they are building the projects which they think are going to actually add a significant amount of value If you design a regime that makes it more cost-efficient to build an interconnector to Iceland or Norway then it does to build pump storage in Scotland one might suggest that that's a political decision There are often slightly different products so interconnection can provide both base load power and capacity at peak so in a sense you're getting two different things of value there pump storage is a specialist in providing capacity and these things compete for the capacity elements of those of what they can provide through the capacity market and there isn't a political dimension within that because the political choice has been to allow them to compete equally as technologies against each other whether they can earn revenues in other markets for example in the electricity market only as interconnection can that is of course a normal merchant process that they would go through and by and large that actually allows them to be more competitive and to allow the amount of consumer support that's needed for that technology versus another that might only offer one benefit There are transmission charges affecting Scottish energy production that don't affect the energy that we're importing from these other countries, why's that? Sorry, would you mind repeating that question? If you import energy through an interconnector from other parts of Europe those energy providers don't face the transmission charges that an energy provider in this country would Now I have to confess not actually knowing the detail that I can write to you on this if you like of the exact charging arrangements that occur when you connect as an interconnector I'm pretty certain they do but I actually don't know the answer to the question so I will write to you My understanding is that they don't One more question This is actually on a different topic it's on the upgrade of the transmission system which is obviously happening everywhere I represent the south-west of Scotland where the transmission line between Carlyle is needed upgraded When off to a gem where in front of us last week Kirsty Berg said that they were considering putting a lot of these projects out to tender Now Scottish Power and SP Energy Networks are already consulting on that project between Strunrar and Carlyle If the Government then decided to have a policy change and put it out to tender the whole thing would be considerably slowed down Can you give us an indication of whether it's likely to be out to tender? I can't give you an indication on that particular project In fact it's off gem who are suggesting that greater onshore competition would pay dividends for consumers but I'd say they'd be sensible about it so if it's already making progress like that we'd certainly need to look very carefully about whether that was the right one to be starting with I should say that my understanding is not that this is a policy that would mean all projects would be delayed and put out to tender immediately, this is a relatively new thing to do for these sorts of assets so we would need to be sensible about it but I can't tell you unfortunately the detail of that particular one I think that the thing was that they already started a process several years ago and then suddenly it's kind of out of the blue there's a suggestion that it might be put out to tender but it seems a bit silly and wasteful really so this came out of a project that off gem itself has been has been running it's certainly an area where ministers are interested because it offers the prospect of of greater savings for the consumer but I'm sure they'll be sensible about it okay we've got ten minutes left I've got three members who want to come back in and ask them all to be brief I think we should touch on carbon capture and storage so there's an oil and gas UK conference in Aberdeen today considering the relationship between government and companies in the production of oil and gas my question is around the storage of carbon in depleted reservoirs offshore what is the position in relation to liability in other words do the private investors who are taking forward carbon capture and storage expect government to cover the liability in the event of CO2 escaping from those carbon stores and secondly connected to that we had evidence last a couple of weeks ago from Stuart Heslidane who works in this area who was suggesting that the crown estate ownership of the poor space in relation to those reservoirs potentially might be affected by the Smith agreement on the crown estate case would that liability therefore be devolved to the Scottish Government so this is quite a complicated area I know a bit about it my understanding is that the question of liability is part of the debate about the terms of any support under a contract that's awarded following the CCS competition but the best of my knowledge has not yet been resolved you are right that CO2 offshore storage is proposed to be transferred under the Scotland Bill currently in the House and that would mean that the Scottish Government would need to put leasing plans in place but I suspect the answer to your question about the ultimate liability is it would depend on the nature of the contract which is negotiated in parallel with the CCS competition that's very helpful but can I understand then if your view is that this responsibility is devolved the contract when negotiated at the end of this demonstration phase would be negotiated currently by deck would therefore the negotiation be changed by devolution would the Scottish Government have to be at the table or would the Scottish Government take over that negotiation for Scottish reservoirs to be honest this is about the outside of my area of expertise and I wouldn't like to offer you an answer on that but what I'll do is I'll take that back and feed that into colleagues thank you very much we've touched upon the subject of strike prices a number of times this morning but I want to ask you about a specific case the Prime Minister wrote to the convener of Western Isles council Angus Campbell on 2 December strike price for island generation will be forthcoming and this is Western Isles so when do you expect UK Government to announce that the strike that strike price and how important is it to ensure we harness the renewable energy generation potential for our islands so this is an area where I'm going to start to fall back on what I said at the start about ministers still working through Secretary of State just had a conversation with Fergus Ewing in which they recommended to work together on this issue so I'm sure that will happen but I can't give you a timetable unfortunate need today we were in a situation that six months after that letter came through and obviously time is important to get this done as quickly as possible because islands have been waiting for a long time for an answer I mean is there no indication at all whether it's going to be this year or next year or 10 years time well clearly it would be very disappointing if it was 10 years time but I can't offer you any more indication of timing than I've already said I'm afraid just because I just don't have it I think to be fair we were told in the previous session it would be the autumn of this year just look for clarifications Good morning thank you for your explanation about the role of national grit in terms of its transmission operation and system operation however it is a monopoly and decisions are taken at the top do you think we'd be better off with a publicly owned and managed system operator I'd say it's a live debate at the moment what is the status of the debate at least it's further up the agenda apparently a big button at least the issue appears to be further up the agenda because it wasn't even on the agenda so can you tell us where the debate is at so the situation is that it's formed part of the initial briefing that we shared with our ministers but they have a number of things on their desk and they'll need to be thinking about that as I said earlier it seems to me that national grit have a series of skills and strengths and the current system works well and they've already made some changes in order to make sure that they are fair and seem to be fair but it seems to me that Ofgem are thinking about it as well particularly in the future when you're thinking about whether if you have more storage and more demand side response and so forth whether that strengthens the case for an independent system operator and I'm sure that ministers will want to take a view on that it seems to me personally a fairly finely balanced argument Okay, and just one other question I mean in an open letter in March 2015 from the director of transmission network at national grit they said however to ensure that we can maintain system stability and even the most extreme circumstances we are in discussions with thermal generators in Scotland to procure some additional voltage control support from April 2016 a final decision outlining our plans will be announced by the end of March 2015 we haven't seen it, have you seen it? They announced a voltage control contract with Peterhead we can probably dig out some details or ask National Grid to do so if you'd like to The overall plan it's just been Peterhead that they've talked about or is there an overall because it's overall system sustainability My understanding was that it wasn't about the capacity it was about managing the quality and security which required a very remote possibility where a number of thermal plants in Scotland were unavailable I think it was a 1 in 600 year possibility that they would not be able to maintain voltage stability without one further capacity unit they therefore went out to Tender and Peterhead with a successful unit so they're now comfortable they have all the tools they need to maintain the system integrity in Scotland Thank you Okay Thank you very much, we're at the end of our time Can I thank the... The Times offered to supply further information in writing it would just be helpful to know if we'd be able to see that before we consider a draft report Yes indeed We're not on time to look at a draft report till September so I hope that will give us Mr Find sufficient time to respond to our inquiries Sign then It's extremely busy over the summer Okay, can I thank you both very much for coming along I appreciate that you've taken the time to come to Edinburgh to speak to the committee Thank you for that and we'll now have a short suspension to allow a change of mind Okay, if we can reconvene I'd like to welcome our second panel We're joined by Fergus Ewing Minister for Business, Energy and Tourism We're joined today by Dr Graham Sweeney co-chair of the Scottish Government's thermal generation and CCS industry leadership group and Dermot Rattigan who is head of energy markets at the Scottish Government Minister, do you want to say something by way of an opening statement? Yes, thank you very much, convener and good morning to all I'm pleased to have the chance to address the committee on the matter of energy security As you say, I'm joined by Dr Graham Sweeney who's co-chair of the Scottish Government's thermal generation and CCS industry leadership group Graham is also a member of the Scottish Energy Advisory Board a body co-chaired by the First Minister also alongside me is Dermot Rattigan who is a senior policy adviser in the Scottish Government's electricity division and his work relates to the market for electricity I welcome this inquiry, convener The timing is apt Our energy system is in transition as we grapple with key demands around energy security affordability and reducing carbon emissions UK government reforms of the electricity market have introduced new support mechanisms for renewables and capacity and the energy mix is changing as the contribution of renewable energy grows and other forms of generation retire We have some concerns about the direction of UK policy and regulations for example transmission charges and their implications for our security of supply in Scotland From a security of supply perspective we are particularly concerned that UK capacity margins have declined from 15% in 2009 to as low as around 2% in 2016 There is no certainty on UK renewables policy beyond 2020 Recent statements from DEC concerning onshore wind have the potential to damage investor confidence Electricity is an important part of total energy demand but other components and transport are even greater in scale as many of your witnesses have pointed out and we need to consider the interactions between each as part of the energy system Most policy powers over energy matters are reserved to Westminster and some UK decisions reflect priorities different from those of the Scottish Government We have sought to work constructively with the UK government where possible and will continue Indeed I can inform the committee today at the time keen to set up a joint intergovernmental group to work with the UK Government on storage solutions This proposal from the Scottish Government is in part resultant from examination of the extremely useful evidence this committee has received thus far Before we take questions I want to note just a few initial points First of all, Scotland has huge energy resources We are the most energy rich nation in the European Union and the choices we make on energy have profound impacts for Scotland's social and economic welfare As evidence to this committee has shown we need greater clarity around responsibilities for security of supply and the direction of UK policy We must convener maintain a balanced mix of energy sources that has always been our position Our energy focus goes far beyond electricity We recognise the importance of a comprehensive and holistic approach to the whole energy system and in conclusion I look forward to exploring these and other topics with the committee this morning Thank you Minister and you have touched on the whole range of topics that we are keen to cover We have got about an hour maybe just a few more moments more than an hour so I would ask members to shorten to the point and responses short to the point as possible Minister Feel free to bring in your officials as and when you wish On the broad policy area you mentioned the electricity generating policy statement from the Scottish Government We have heard some evidence that needs to be updated You will probably be familiar with comments on the record from Professor Paul Younger of Glasgow University talking about Government strategy We heard from Gina Hanrahan of WWF who said that WWF believed that EGPS was no longer fit for purpose and we heard from Professor Stuart Hazeldine who you will be familiar with from Edinburgh who said in his written evidence that the expected closure of Longannet to the Scottish Government to its lack of coherence strategy for electricity generation energy supply and climate ambition delivery in the period post 2020 Why do you lack a coherent strategy? Well so far as we do not lack a coherent strategy I should say That is obviously not Professor Hazeldine's view I work closely with Professor Stuart Hazeldine and Paul Younger very recently and work very closely with Stuart I think that it is undoubtedly the case that the EGPS was prepared some time ago and since then there have been a number of significant developments such as the threatened closure of Longannet developments such as the introduction of EMR and now post the UK election considerable uncertainty as to what the UK's policy is going to be for the future of longshore wind so there have been substantial changes and therefore I think it will be appropriate in due course to consider the necessity of the updating of the EGPS and therefore I accept that as all documents which have been prepared in the past they need to be reviewed and re-considered I don't actually think that's the key issue facing us today I think the key issue is what are the right choices that Scotland and the UK should be making and I think those are so far as I can ascertain from my reading of most of the oral evidence convener that you've had over I think three weeks I think there's an awful lot of meaty issues that we can come on to discuss this morning in policy terms but like all documents that are historic of course it needs to be reviewed and refreshed and updated I can see that I don't know if Dermot Rattigan would like to add further to that I mean we keep all of these documents under review I think the challenge that we have I suppose on coherence is the challenge that comes from UK policy and I think you've had you've had a lot of evidence to the committee about the coherence of UK policy and as the minister said things are changing we have a new government at Westminster now so they're starting to take decisions on energy policy which will affect the way we proceed in Scotland so the opportunity to review EGPS I think we wouldn't look at it on its own we'd look at it alongside other documents that relate to heat and transport and we're trying all the time to bring those together and make them more consistent and coherent across the piece so as the minister said we would look to review that the opportunity to do that might be after the next Scottish election I'm not sure we haven't taken the decision about that yet so the defence to incoherence is all right for us to be incoherent because Westminster is incoherent too OK Other members want to come in I'll start with Dennis Robertson That's good to be here and good morning Minister you touched on your opening statement about the onshore subsidies from UK Government and they're proposing that they're going to remove these now given that we've had significant investment already for a lot of these projects are you concerned that the A that the projects may not continue and do you think maybe there should be a grace period for those companies to ensure that they perhaps could continue with the appropriate subsidy I have seen the press reports and therefore I am obviously aware of the UK Government's apparent intention to remove or reduce subsidies for onshore wind we wait to see precisely what decision if any will be taken and when but just responding generally to the question convener I think there's three concerns about any move to reduce the level of legal obligation contract support for onshore wind and perhaps to do so as the press have reported a year early, namely in 216 rather than as planned in 217 and just to put things in context I think it was only in 213 that there was a review of the appropriate level of subsidy for each method of generating electricity for newables in other words only two years ago convener was showing official UK Government review that concluded amongst other things in reducing the amount of support for onshore wind from one rock to 0.9 rocks and we supported that in other words there was agreement that that downward reduction was justified not least because the costs of onshore wind have been coming down so a lower subsidy is appropriate so we supported that but that decision was only made two years ago and it was made on the basis of the EMR system coming in in 217 now I say that because that's the investment context those were the rules under which investors made decisions to invest huge amounts of money on the basis of the rules as set by the UK Government if it is the case that Amber Rudd makes a decision to bring forward the ending of the ROP regime that has been reported in the press by a year then there will be a huge amount of sunk investment in projects that will now no longer be able to go ahead despite the fact that investors acted on the basis of the UK regime as it was and as they promised it would be and I think there's two there's three sources of concern first of all the consumers will face higher cost of electricity and the reason for that is very simple that onshore wind is the least expensive large scale method of generating renewable electricity that's demonstrated by the recent the first round of CFDs where I think the option price was around £80 or £82 per megawatt hour for generating electricity from onshore wind my recollection in relation to the strike prices were around about £114 to £120 now that means that if as I understand it the UK Government will have more offshore wind instead of onshore wind then it's a simple mathematical equation to work out that there will be a huge extra and avoidable cost to the consumer who will have to pay a huge amount more now I haven't done the computation but Keith Anderson has and he's on record as saying that the additional cost to the consumer of a decision which is expected by the UK Government will have to wait and see what they do and we have urged them not to pursue such a policy but the cost as estimated by Keith Anderson would be between £2,000 and £3,000 million now I would have thought that the UK Government would have wished to avoid exposing the consumer to unnecessary cost far less unnecessary cost which a leading industry figure well respected the boss of Scottish Power has estimated at between £2,000 and £3,000 million and that does not seem to me to be a sensible or indeed a rational decision to take the second group of people who I think will suffer greatly will be if such a decision were to go ahead will be communities because if there is a a damoclian sword it is going to be swiped on projects community projects that cannot get grid connections because they have difficulty we believe in getting grid connections on the distribution network may well be less stranded and may well be the first to say the games of OGI we can't go ahead with these projects so it's not all about big companies convener it's not all about big companies you know who are able to look after themselves you might say it's about community projects as well and lastly of course the sunk investment in the schemes that may not go ahead will cost a number of jobs a significant amount of investment and lastly my understanding from the industry is that 75% of the projects that are at risk are in Scotland and therefore the brunt of any decision on the lines that have been predicted will fall on this country okay minister can I just say if we have a slightly shorter answer to the questions that will be quite helpful thank you minister so from your statement there your answer to the question you would support then a grace period for those companies that have already made an investment to ensure that they can go ahead with their projects we do not believe that an early closure of rocks is a sensible decision and I've already conveyed our concerns in a letter to Amber Rudd and in particular we think that to make such a decision would expose the UK Government and therefore the taxpayer and the consumer to the serious risk of judicial review the outcome of which may be uncertain if however to answer Mr Roberts' question briefly is to be such a decision then it must be ameliorated by grace periods and those grace periods should be widely drawn to cover projects and planning minister do you welcome the Scottish Conservative support from Jamie McGregor that onshore wind is something that he said that this is conservative policy to support onshore wind I very much welcome that and I look forward to an endorsement convener from your good self as to the clear statement from your colleague Jamie McGregor and I don't have the document in front of me but I think I can remember it because it was somehow brought to my attention he said that the Scottish Conservative support onshore wind appropriately cited and I hope that that's something that not only Mr McGregor supports and I know that you don't have to like some of your colleagues disclose a financial interest in this regard Minister I'm very conscious of the fact that you will have to determine this particular appeal so it might be better not to go too far down this route but as you mentioned me it's probably fair to say I've always agreed that my party policy position has always been that onshore wind has a part to play as part of the energy mix I should say for that I very much appreciate that which would come before me but I don't make a comment on any particular project so it's a fair comment Thank you I think Lewis Macdonald wants to come in on this as well The electricity generation policy statement minister that you mentioned you talked about the issue of coherence but this policy statement is less than two years old surely the issue here is not so much about coherence but it's about its impact so the Scottish Government says it wants two and a half gigawatts of two thermal power in Scotland but nobody's listening the Scottish Government can say what anything it wants it doesn't have the clout to actually influence the big privatised companies which control this market Well I think that's a very good argument for independence if I may say so because plainly we sought to have the powers precisely to have a say over these matters but I do agree to one extent that our eGPS which incidentally conveniently just for the record and from memory a Langbank is in record as quoting of WWF you quoted them earlier Langbank said that our eGPS was perfectly feasible and the achievement of the 220 target was technically possible and Gina Hanrahan who gave evidence to this committee also said that they welcomed our decarbonisation target of 230 but regarding eGPS we think that there needs to be a balance and we said that we needed 2.5 gigawatts of thermal generation progressively fitted with carbon caption storage within a timescale that that is part of our eGPS which contains a commitment to generate 100% of the electricity that we consume from renewable sources by 220 but the last point I make in response to Mr McDonald's question convener is this that as Scottish power have indicated the reason the Causa Causans the main reason why they are minded to close Laugannet is because they face higher transmission charges than if they were generating electricity and for example Surrey and as matters stand at the moment whether it's Laugannet or Peterhead who are operating at much reduced capacity as was stated in evidence to a previous committee hearing of this committee the fact is that as long as these transmission charges are of the order of 30 million per station more than they would be if they were generating in Surrey then surely it's not no one could expect that any company are going to make an investment decision Mr McDonald in new thermal plant the serious question I asked the minister was not about a constitutional question it was about how the public sector government at whatever level deals with corporations of the scale of Scottish power and simply quoting Scottish power with approval doesn't exactly demonstrate a willingness or a capacity to take on those players and to try and influence the market what does the Scottish government given its powers that it does have how does it intend to influence the decisions that are made by these companies we have worked very closely with Scottish power with SSC and with a huge number of companies and I would submit particularly in the renewables field we have done so to great success at what influence do we have well I can tell you Mr McDonald go and speak to companies and see what they think about the Scottish government and our reputation about renewables what they think and what they have told me over the past four years increasingly is they welcome the policy certainty in Scotland and what they're concerned about is the policy confusion and uncertainty that has existed down south where at the one point new of rocks 0.9 for onshore wind and then in a manifesto they say they're going to scrap new subsidies new subsidies mark my words and then they apparently are minded to scrap existing subsidies or reduce them not new subsidies but existing ones so no wonder the companies that I have spoken to convener over several years now are happy with the approach that the Scottish government say of trying to decarbonise energy over a realistic time frame and clearly encouraging renewable energy and perhaps convener that's why we have had so many companies seeking to perform their developments in Scotland Minister that when asked about how government can develop policy independently of corporations you simply quote your good relations with those corporations I think the problem is that you're not addressing the question of leverage but can I move on to a slightly different question that's not already about onshore wind what's the Scottish government doing to examine other possible areas of renewable technology and you were critical there of the UK government DEC has certainly been very positive about solar photovoltaic energy and we heard that quoted this morning by the witnesses we had in front of us from DEC what's the Scottish government doing that commitment to developing solar photovoltaic in Scotland and how much does the minister being aware I'm sure of the balance of the evidence given by DEC this morning how much does the minister believe that other renewable technologies can contribute to the targets in the 2020s first of all I just say that it wasn't industry that set our target at 100% renewables it was the Scottish government so if there's some sort of new suggestion that companies are driving our policy well that plainly I would suspect doesn't really stand up to scrutiny to answer the question of course we believe that there should be a mix of renewables and our policy has clearly supported that we have been very supportive of solar and we have also been supportive of hydro of tidal and marine of biomass of anaerobic digestion earlier convener I remarked on the need to look at storage solutions including pump storage which perhaps we may come on to but also looking at the matters which were raised in evidence by witness about Tesla batteries, about liquid air about hydrogen and I read the evidence of numerous witnesses who made a number of telling points as well as energy efficiency measures which should never be neglected or forgotten about so we have I don't think anyone convener has ever criticised on it before about not supporting renewables I'm not sure if Mr McDonald is now doing so but if so I would say good luck I'm asking a very specific question minister the department of energy and climate change of the UK has given a commitment to a very significant deployment of solar PV on government buildings a gigawatt to be installed in the government estate is that something the Scottish Government would look to replicate? I can see the Scottish Government and myself looking at that we have been looking at that for some considerable time and I know that that is something that the Scottish Government within its various portfolios because I'm not in the lead of government buildings energy solutions but I do know that they are looking at how our energy is used more effectively energy efficiency measures and solar could well play a part in that so I can and it's a serious point Mr McDonald makes I can provide him with a total assurance that that is something that is at the current time and extremely important Richard Lyle Thank you Good morning minister I'll take my questions in a verse since Lewis MacDonald raised one of the points I was going to put up it's your election and if you go round most schools now you see a lot of solar panels on the roofs would it be the intention in your discussion with and I know it doesn't come under you but in your discussion with the housing minister to look at encouraging when new houses are being built both private housing association or council that we look at installing that condition that solar panels solar panels are on the roofs most people are looking at that nowadays would you encourage that? Well I think it certainly is sensible to look at using public estate the roofs of public estate for solar panels and I think there's an element of that in Scotland I think there's a room for a lot more of that I don't have responsibility for what happens in schools or indeed convener on top of schools but I'm sure that that is a suggestion that should be considered fully perhaps if Mr Lyle would like to write to the education secretary then I would be entirely supportive of that being properly explored I would also write to the housing minister in regards to encouraging solar panels on new built both private housing association for a number of years we were always told that the Scottish power of Scotland was exporting well over 20% extra capacity in power within Scotland given the mismanagement of Westminster energy policies that's resulted in a capacity margin which already said is as low as 2% by some estimates can Scotland rely on generation from the south of border or does it not make sense to ensure that we have sufficient generation here in Scotland? Well there's a number of questions in there firstly so far as the margin the security margin is concerned I mentioned in my opening remarks that this is dwindled to a level which many commentators may feel is powerlessly low I'm looking for a quotation that I can't find but I can't remember it anyway and that is that various academic experts of including Sir John Armit I think used to advise the Labour Party that a better margin would be in the region of 10% to 20% Professor Helm Professor Helm I'll bring in Graeme Sweeney if I may in a minute he's Dieter Helm the Professor of Energy Policy at University of Oxford north of 10% but probably less than 10% and I think anyone can see that a margin of 2% are thereabouts is powerlessly low and of course there are other problems that are as low as that because that means that when supply and demand are equally balanced then the suppliers can push up the prices ok if there's oversupply prices come down so it's not actually good for the consumer the other factor that occurs to me is that we have had extensive discussions with National Grid about this and we take a different view and I'll bring in Graeme Sweeney to talk about some of our concerns about the start and voltage stability some of which has been considered by your witnesses but one of the suggestions that we understand was considered by National Grid over the past year or so in relation to what happens where long at it to cease operation is that they would introduce power barges now this was something that we eventually discovered from National Grid they were considering they didn't raise it with us when they initiated the consideration of using power barges in Scotland and we were extremely concerned about that because plainly such a method of meeting supply is normally associated with meeting supply in developing countries where there is no major electricity supply not in a country like Scotland and the implications for security for maintenance of security services of other issues were not matters that we had the opportunity to consider because the National Grid did not consult us about it and that is why I welcome the assurances that National Grid have now made to have a more transparent relationship with this Parliament brought about in part by the work of members of this committee so we are concerned about the security of supply we think that there's considerable problems with it not all of which I've touched upon convener, but whether from Scotland or GB basis a margin of 2% to 5% is not sensible, it's bad news and it's something that must now be addressed Maybe Minister I could just again exhort you to maybe slightly shorter answers Well they are complicated questions I don't think I even answered all the questions there because there was about three and I only answered one of them Doctor Sweeney Thank you, convener you rightly ask so what are we doing and as always I like to act within the space that we have to create new options for the future so what are we doing we took the matter of security of supply appropriately seriously we commissioned a review led by Isabue Cannon which confirmed our suspicions the commission on energy market regulation added their view that this was likely a serious issue and we commenced an interaction with national grid particularly around this winter which has just passed as it turned out it was a relatively mild winter that wasn't the point in that process we have understood a great deal more about the way national grid undertake the task but not sufficient to be able to understand exactly what might happen in the future the key issue that has arisen out of this and the clarity over this I think has come out of this process is the matter of black start we should be absolutely clear that post the closure of Long Anet our black start performance will deteriorate substantially it was around 12 hours beforehand it may go out to as much as 30 hours afterwards this leads to these matters going on the risk registers of companies which are least likely to invest in the future and electricity is not just as is often characterised about keeping the lights on it's about keeping the water pumping and the telecoms working so these are real matters of concern the energisation of that system would require almost all of the pumped hydro to be available prior to the re-energisation after the black start all of this is a clear set of concerns it's also clear to us as a result of this process that we don't understand how they do quality trade-offs how did they even think that the power barges should be part of the solution set we will know more they have committed to us that they will bring to this Parliament an annual Scottish capacity assessment for open and transparent review and this is a huge progress over where we were before but it's also clear because you have heard evidence that and whether it's south of the wash or south of the Watford gap depends on how you want to view it it is very clear that the only place to any thermal capacity is as close to London as you can get a capacity licence this is in part because the grid prefer wires to generation capacity and therefore they want to connect everything but from our point of view the case for a regional factor to determine there should be continuing activity is part of our overall economic growth so we need to formulate a policy platform through whatever our interactions are that gets us to a change in the terms and conditions of this otherwise we will indeed see substantial erosions of our capacity to perform Dr Sweeney, thank you very much can I ask you and I can't remember who the witness was but we had a witness who came in front of us who said don't you worry they could all close down all we need to do is turn the voltage down what would you say to that so I understand of course you could indeed undertake general synthetic message you can change the voltage by the way we do that now and you can also operate at a different cycle or phase we do all of that now and on the days when we have been close to the margin we have done all of that already I would not recommend that you rely on that as a forward solution it's part of the toolkit but it won't solve the problem it's on this point it's quite important because we did take a lot of evidence on this I'm just looking at the official report for the 20th of May when we had with us a whole host of expert Professor Ian Arbin from the Institute of Mechanical Engineers Professor Keith Bell, Strath Clyde Professor Gareth Harrison Professor Colin McInnis Professor Edward Owens Professor Michael Riley Professor Lawrence Slade Professor Alan Walker Professor Keith Bell in that evidence session Professor Keith Bell was very clear that he did not believe that the capacity margin set by national grid was too low and I asked the rest of the panel if anyone disagreed with him we've got this whole array of people who've spoken to the committee who disagree with the evidence you've just told us so I understand the point so I think a little bit of this depends on how you asked the question and by the way you did have evidence from Professor Helm which said that whilst the historical capacity margins were too high and I agree with that the issue was whether or not very low capacity margins were sustainable going forward and the critical question here is on what are you going to rely so we would argue that very low capacity margins are unlikely to help us with our net black start conditions and are unlikely to promote economic growth for us so there is an overall case for optimising the way in which you drive welfare here as opposed to an entirely mechanical view of what may be the minimum margin you can live with because it's clear on occasions with these capacity margins that we have now we have managed to survive when there has been very very low contributions from the renewable system and that's been testament to the way in which that operates so we would argue it needs to be higher and we would argue that the case for regionally based criteria is clear and should be made with a loud voice I would also accept Dr Swinney that additional capacity needs to be paid for and that will impact on consumers bills so I understand that capacity needs to be paid for the more telling point is that in the absence of capacity and outages the costs need to be paid for too so we need a resilient system and we need to have an economically optimised outcome you don't want to build too much capacity but you don't want too little capacity because the economic activities that are reduced as a result of that are substantial Lewis MacDonald briefly sorry Mr Rattigan I just wanted to add a couple of points to what Graham was saying there you start to meet consequences of a lower capacity margin even before the lights go off and I think that's the point that the ministers are highlighting from Dieter Helm Dieter Helm said as the capacity margin falls inevitably prices go up that isn't the factor that national grid have to work into their assessments it's not something they have to give a count on but that seems logical as demand and supply narrow the gap between demand supply and narrow as the prices go up so there's a consequence there Scottish waters evidence the gentleman who spoke he said they are taking action now to reduce their reliance on the grid now they're doing that because they've identified this as an issue so again there's another cost there the other thing that I picked up from Scottish power electricity networks written evidence was that there's three issues you need to think about capacity you need to think about the overall level of power on the system that they said that the issue that's local is flexibility and there may not be a GB issue but there has been an issue in Scotland now we know that because national grid have had to procure additional voltage control services before the western HVDC cable links up so they're already taking action there and again there's a cost to that and then lastly the point that Keith Bell made he said that he didn't think that there was a capacity issue as such but one thing that he said which I think was interesting was that national grid don't have to make a calculation between whether you have more generation in an area like Scotland or whether you have more grid and that trade-off isn't always made now it could be that the cheaper solution for Scotland is to have more generation here and that's the point that Graham's making too so those I think those give a more rounded picture of why narrowing capacity margins are a problem even before the likes start to go out I've got some members not to come in on this briefly you lose them at all Given what has been said here and Dr Sweeney did not dispute the Keith Bell's analysis that there was no capacity reason for additional capacity but so it seemed to me interested to know what the vision is so if there is a revised electricity generation policy statement coming forward would the government still anticipate new thermal plant and would that still be the case even if the carbon capture and storage demonstration projects fail to demonstrate commercial viability at scale good question thank you it is a matter of some curiosity isn't it that those thermal power plants which are most likely to progress in Scotland are intimately linked with the CCS story although you could also argue from the point of view of meeting over all energy and climate change targets that's a good thing but if those did progress we'd have about half of what was in the EGPS and that's already a substantial step forward I think that the key point here is that the resilience of the system is the key and we need a proper I would say plan as opposed to a set of independent marketplace interventions that adds up to that resilience system we want to have for one high penetration of renewables it's clear we all want that and the issue is that to complement that so this is not a one thing or another you have to do them all there is a very clear economic case for including thermal power with CCS at the European level by the way it will cost 4 trillion euros more to decarbonise without CCS let me make one other point about all of this because these are linked issues which the case we need to make is that many industrial activities have carbon process emissions and those need to be dealt with too that makes the CCS story also particularly important we can either offshore the CO2 or we can offshore the jobs and we ought to be clear about that with 1.3 million jobs at stake so regional factors play here as well and one of the key things that would change all of these outcomes was if we had clarity over the use of CO2 for enhanced oil recovery in the North Sea and I'll recommend to you that you have a look at the Scottish karma capture and storage report on that that was released yesterday so these things all come together as part of how that story should build up renewables absolutely but you need this if you don't have it you end up with the power stations in the south you can't evacuate the CO2 we missed the climate targets and we have no regional stability in the way in which we previously described but just let me be clear about what's not in the answer you just gave if carbon capture and storage does not prove effective and successful at commercial scale there is no government plan B no well I think I'll ask that on behalf of the Government first of all you heard in evidence from Stuart Hazeldine that it is expected that the Peterhead project which he said is simpler than the White Rose project is expected to go and stream before the end of this decade so I think to postulate failure when the expert witness on this topic Stuart Hazeldine has already said that it's likely to succeed and convener I've had the opportunity to visit Peterhead and see the presentation as expected that this project will go ahead Shell and SSC are wholly committed to it what we would like to see in Scotland is more CCS going ahead and I think Professor Hazeldine also pointed out that there is another interesting project of Summit Power which would allow a CCS project using coal and decarbonising the use of coal as a method of provision of electricity would go ahead so I don't think we should postulate failure when we're getting happily for the first time ever quite close to limited success We shouldn't postulate failure minister That's what you were doing No, not at all, I hope the project proves to be very successful however it is a demonstration project and my question is simply if it doesn't prove to be as successful what is plan B? My understanding convener is that the UK Government and this may be an imperfect understanding but the UK Government are supportive of CCS so I look forward to having a constructive relationship with Amber Rudd and we will work together in relation to delivery of more CCS projects Indeed, we think that there is a matter for jocularity convener You haven't answered the question Mr McDonald's asked three times I am answering the question that he said you need a plan B Why should we have a plan B when we're going ahead with a CCS project there's another one in the wings and there's a willing partner in the UK that doesn't really arise It's a demonstration project I just wanted to say that I had said earlier that we should seek to ensure that the capacity mechanism when it comes into play has a regional correction factor in it for a range of reasons and that would provide a route to thermal power but it's clear that for everybody those policy changes need to be in place because we often talk about this stuff as if it was extraordinarily high risk and entirely unknown I just think it's useful to understand where we sit competitively We characterise ourselves as the people who care most about the matter of getting energy and climate policy to converge so that we can meet both of these targets We often characterise the North Americans as not caring about this stuff at all and yet the Americans are putting 60 million tonnes of CO2 underground every year and learning how to do all this at scale The Canadians are doing it The Australians are doing it and the Chinese are doing it so the task for us is we should get out there and do it and if you want a very very specific view of it we should go to Canada and Saskatchewin Saskatchewin has a relationship with Canada perhaps quite like the relationship of Scotland with the Kingdom and there they have brought online already this project so he's not beyond us to do this and all of the portents to do this are good You said rightly that we've had a whole array of different positions with capacity margins and there was some reference to Professor Bell he didn't say if he was all right because in page 19 20 May he said that it's right that some national grid scenarios suggest that the margin will get small in the next couple of years so well we don't want to talk about the constitutional problem let's talk about the competency problem there are two elephants in the room a bull elephant and a somewhat baby elephant the bull elephant being the national grid and the baby elephant being off-gem Do we actually believe that the national grid is the right body to deal in profitability as it had two years ago is that the right body to act and depend upon as a systems operator Well I don't think the technical expertise is in doubt of national grid and I think there were various witnesses who supported that view I think the question more is who ultimately is responsible for security of supply in the UK Now I would argue that it's the UK energy minister and ultimately the UK cabinet that should be the answer to that but when as earlier this year the first minister and myself raised this issue with the UK government it's plain that the UK government immediately take the position that national grid is essentially the arbiter of these matters and I think that that is inherently an unsatisfactory position You know whilst I've no complaint particularly about the fact that national grid is a private company nonetheless one can't exclude consideration of the fact that they do have a commercial interest in matching the profits for their shareholders so I think a bit more clarity in ultimate responsibility for UK energy policy would be desirable in theory it's the cabinet but in practice it's the national grid and I'm not sure that that's I'm not making any aspersions about anybody here but it's a perfect recipe for success I would say that it isn't national grid's remit to keep the lights on as we tend to describe it and anyway operationally they separate generation from transmission and it's hard for me to see how you could be accountable for that outcome if you do that and we've made the points about the way in which they operate if you looked back to the commission on energy market regulation published last year you'd have seen that the proposal for any putative independent regulator in Scotland was proposed to be different from that structure and to have clear accountability for the delivery of the keeping the lights on strategy it is very difficult so difficult I'll say there is no one to actually go and talk to about that so that you can get a coherent answer to the problem so changes required because the changes we are going through are not marginal changes to what we had we had a huge and super legacy and we benefited from that over a long period of time the forward changes are substantial but on one side we're going to move to a completely different world we need somebody to plan to be resilient in that world and we need to know who that is John McArthur Thank you very much Can I say that I welcome the minister's announcement this morning that you're going to approach the UK Government about a joint working body on storage solutions can you tell us what Scottish Government's priority is with regard to storage solutions Well thank you we believe that storage solutions should play a greater part in the overall mix and I should say that I had suggested last year, last November to the UK Government in a letter that there should be a group set up to consider pump storage solutions and that was rejected in January this year by the UK however my proposal this morning is that we should widen out from pump storage to considering storage solutions as a whole because since last year we're aware of the considerable debate about a wider range of storage solutions that exist in the world in fact one of your witnesses put it well there should be storage solutions at transmission, distribution and at household level not just one but I think on a macro level these are in pump storage and we have in crookin and curry glass crookin and foyers two existing stations but we also have as I think Mr Brody pointed out or Mr MacDonald in questions before two consented schemes around the Great Glen which really could provide an excellent purpose I think Mr Rattigan has got quite some useful technical information that perhaps would be helpful for a Joe McAlpine we've been we speak regularly to all the companies so I'll particularly focus on the large scale point about pump storage but as Mr Ewing said we want storage at all levels from the top, the system level at the local level and within houses and businesses and I think there was enough evidence to your committee that suggests the value of storage it doesn't seem to be coming forward in the way that people would hope that it would and in many cases it doesn't yet seem to stack up economically now at the large scale level for pump storage the companies that have schemes that are on the drawing board they can't take them forward at the moment because they're very capital intensive they're projects that need to work over very long periods of time, decades to pay back under the capacity market as it's being designed at the moment it doesn't support that kind of new investment in large scale storage so one of the solutions that might come forward which should be similar to the deal that exists for interconnectedness is maybe that there would be a cap and floor type mechanism where revenues below a certain point you know if the storage that came forward wasn't making a minimum amount that would be made up but also if the storage proved to be more economically successful than had been thought at the beginning those revenues would be paid back to the taxpayer so we're in the process of thinking about how the policy could be designed and that's exactly why we want the kind of group that the ministers just pointed out we would want to develop that with industry and the UK Government Thank you very much when I spoke to two weeks ago when Ofgem was giving evidence the Ofgem representative admitted that the reason why Hinkley Sea was getting more public subsidy than pump storage a 35 year contract compared to 15 years was a political decision and that the Ofgem were working within that political framework is that something that how does one overcome that obstacle given that it's not actually based on what's most economical but there's an ideological decision driving it there's certainly the option is there to the UK Government to agree bilateral contracts that would underpin the building of new pump storage and as I've said there's been arrangements are now being made to support the development of new interconnectors and there they're having to reach a regulatory settlement that sets these caps and floors that allows them to be built so something like that would be probably the kind of mechanism that would unlock new pump storage but also that the capacity market needs to change so longer term contracts could be given to underpin the building of these kind of assets we think pump storage is uniquely beneficial because it has so many benefits at the system level it's very fast it comes on very quickly in a matter of seconds from spinning reserve it's incredibly reliable it's probably the most reliable type of generation that exists so it's availability at times of peak is near to 100% and it helps reduce costs of the system so there's constraints elsewhere renewable energy having to be constrained off or the need for more transmission upgrades to be built it offsets some of those costs so despite all of those benefits there isn't yet a policy mechanism which allows the companies that have schemes on the drawing board to progress them to take a financial decision Can I ask Dr Sweeney you mentioned earlier black start and you talked about hydro pump storage and do you see an expansion of hydro pump storage as important to dealing with black start in future Yes we do I think it's a critical part of the mix Right and when you were talking about the need for a regionally based criterion for investment is that what you're thinking along those lines that we should have more regionally based criterion for investment in pump storage? Indeed it's not to be limited to any particular part of the solution Indeed you need regional criteria across the piece to be part of the way in which we undertake this task agreed Thank you very much I just want to ask the minister this particular constituency question that I asked this morning The minister is aware that SP energy networks have been investing or have been looking at some time of upgrading the transmission line between Stranraer and Carlisle There is no evidence to this committee They said that they were looking at putting such schemes out to tender I spoke to SP energy networks in Glasgow on Monday and they were unsure as to what this meant for their plans to upgrade the line between Stranraer and Carlisle which obviously has very serious implications for businesses in my area because obviously parts of the line date back to the 1930s couldn't get an answer this morning from Dec on that Would that concern you because obviously the whole thing would be slowed down considerably It's already out to consultation If it was put out to tender it would be slowed down for a number of years Well I'm not aware of all the details so I think perhaps the best thing I can do convener rather than make any comment about matters and facts on which I'm unsighted I will look into the matter and write to you convener to clarify matters Thanks very much Thanks convener Some of the evidence we've heard over the last few weeks has suggested that when Longannock closes and putting to one side the black star issues there could be times when we have to import electricity from the rest of the UK especially when the wind isn't blowing although overall we will still remain a net exporter of electricity Has any work been done to calculate how often this potential need to import electricity is likely to happen? Well at the moment of course we're part of the GB energy system and we support the integrated electricity system but we still export the vast majority of the time around 98% I believe of the time Scotland is exporting and therefore that matters as they stand at the moment, plainly the loss of Longannock will significantly alter that balance and that is a matter of concern especially when I think it is self-evidently the case that although there is scope for a new thermal generation for example in Kenzie where I granted consent for a new gas power station or in Peterhead where they have mothballed most of their capacity could be reused that's not going to happen because of the transmission charges so I think Mr McDonald is right to say that as well as the economic consequences of the loss of Longannock which will be of serious concern around the area and in Fife as we are considering with the Fife council and social concern too as well as to Hunterston and the railways and many contractors that will also have an adverse effect on our exporting electricity down south I don't know if Mr Rattigan wants to add to any of the various technical aspects of this convener I think the pattern of exports and imports will change there's an awful lot of further renewables capacity in the planning system in Scotland and if that was to come through that is dependent as the minister said earlier on on the continuation of support systems that are in place at the moment so the pattern of exports and imports between Scotland and England will change and on days when it's very windy we will be exporting very heavily and other days we'll be importing but Mike Calhview I think when he was at the committee in March he said most of the time that Scotland will still be exporting power and the design of the grid, the national grid and the Scottish transmission companies are taking forward enables that the ability to import and export is rising quite significantly particularly after the west coast HVDC link is connected I just want to ask we're in a situation where you've just identified that most of the time we'll be exporting but there is a need for this base load capacity in Scotland a lot of the evidence has suggested that we can depend on the rest of the UK but having said that we're aware that up to a quarter of the UK's generating capacity is due to close and we're also aware that they are becoming more and more dependent on interconnectors when the Belgium interconnector comes on and the one from Norway comes on then interconnection power will virtually double is it sensible for us to have to depend on the rest of the UK for electricity or does it make more sense to ensure that we have sufficient base load here to meet our own requirements the outcome is essentially driven by the market signals so we as Mr Ewing has said there is scope to increase our output in Scotland from Peterhead but at the moment the way gas prices are the way the transmission charging system works that capacity that's there won't be used so at the moment the market signals are driving more imports coming into Scotland and more imports coming in from other countries now we are not the government doesn't oppose more interconnection capacity we want that to happen it's something that can bring real benefits to consumers there's an interconnection project that's planned to link from Norway to Scotland as well now that potentially has significant consumer benefits for Scotland but that will go ahead depending on the economics of that project a lot of those things it's hard to know how things will turn out in the next few years because they're not driven by a plan they're literally driven by how the market is evolving now some of the plants that are due to close in England may stay open for longer and they may be to some extent propped up by short term contracts from national grid or they get short term capacity contracts to continue a little bit longer but it's quite hard to get a picture of what will happen going much further out because the market is very dynamic and it's not working towards a plan it's working towards what the economics drive much of that power generating capacity south of the border that's due to be closed is going to be replaced by the nuclear plants that they intend to build and in April there was pressure reports about a nuclear plant in Normandy which is similar to the one that's in plan for the UK which says that there is manufacturing anomalies in components which are particularly important for safety and I was just wondering does the Scottish Government support the UK Government's plans to build new nuclear particularly given one the cost to taxpayers or bill payers and what concerns does the Scottish Government have about technical problems facing the French nuclear industry and what that might mean for the new nuclear programme there is no doubt that the proposed Hinkley Point power station is extremely expensive and more expensive than onshore wind and for a longer period the subsidies are convenient to last 35 years as opposed to 15 years and the headline a strike price is £92.50 that is index link so that will increase and in addition to that there is loan guarantees but on top of all of that we've got I think the case that as you know convener the of dex budget of £3 billion that over £2 billion goes for decommissioning costs of existing nuclear stations and briefly and in Finland both of these stations have gone massively over budget and there are I think a treasury source presumably a non-official source said over the weekend that consideration has been given to the viability of going ahead with Hinkley Point as well as potential challenge from Austria and doubts from the EU so I think there's quite a few critics Hinkley Point project primarily on the grounds that as Peter Atherton said at £5 million per megawatt capacity Hinkley will be by my reckoning the most expensive conventional power station in the world Before I bring in Patrick Harvie I'll just briefly fill out with two points first on your last point about nuclear I would simply refer you minister to the evidence we took on the 20th of May from Professor McInnes Professor Harrison, Professor Bell on whole system costs how you have to compare caseloads from nuclear with intermittent power from wind with the additional cost of backup and storage but I appreciate that these are matters of political debate but I just wanted to follow up on the question of transmission charging because you mentioned that twice what is the Scottish Government's proposal on transmission charging well we have for about a decade campaign for a fairer regime a postage stamp regime where it would be the same throughout the UK when the First Minister led that charge the process was long in fact it's taken several years but off-gem as you know convener were minded to recommend a proposal where there would be effectively a reduction of the level of transmission charges in Scotland and we were supportive of that although we would like to have seen it going further but as you know as well convener that decision which was minded to have been introduced I think in April next year or even this year is now being delayed till at least next year with the possibility of it being further delayed so I think it is an example of where in the UK the regulatory system has actually failed in just about every respect the delay minister as you know is there is a judicial review I think that's the problem but I'm glad you've clarified that you seek a postage stamp system and we're told on 3 June by off-gem that they looked at a postage stamp system and one of the reasons they did not pursue that is that they found that this would add £7 billion to consumers bills now in reply to a question from my colleague Dennis Robertson a few moments ago you were quoting I think Keith Anderson from Scottish Power talking about additional costs to consumers of £2.3 billion and you said and I wrote this down that would not be a sensible or rational decision and the last time I studied arithmetic £7 billion was a higher figure than £2.2 billion or £3 billion so if it's not sensible or rational to add £2 billion or £3 billion to consumers bills why is it sensible to add £7 billion? Well as I said convener we are supportive of the minded two proposals of off-gem which do not produce that extra cost but you yourself said convener in relation to the transmission charges in Scotland which is the issue we're talking about and I believe you said this to BBC Radio on the 17th of February and I quote the way the current transmission charging system is set up does discriminate against long-anit and that's a matter of concern for me well it's a matter of concern for me too but sadly in the UK the UK government has chosen to do absolutely nothing about it and we are mire... To be fair minister that is untrue because Project Transmit does address these issues and does deliver a substantial cut to the transmission charges for Scottish producers? Well if it comes into effect but the point I'm making convener is that you're right to say it is subject to judicial review but it will be too late won't it and the UK government in our invitation to intervene declined so to do and I think we are in agreement that the charges are discriminatory from a business point of view how can they be anything else but we have been prepared to accept the minded two proposals which would not have had the effect that you've described so I would dispute your thesis to that extent Okay and my final question on this because I need to bring in Patrick Harvie we also heard from Ofgem that we moved to a postage standard model as is your position, as you propose that we need an increase in consumer bills in the north of Scotland amongst your constituents and a decrease in consumer bills and consumers in London should pay less and consumers in the north of Scotland should pay more No, that's not our position at all Ofgem claimed the impact of postage standards charging would be That's not our view and of course you're not mentioning that there are additional charges that are faced by consumers in the north of Scotland uniquely in the UK something that we have also identified as being unfair I think that the bigger picture is if the UK Government chooses to use the most expensive methods of generating electricity such as new nuclear costing incidentally a sum which is four times more for one power station, a hinkly point four times more than the aggregate subsidy for renewables under the first 10 years of its existence if it chooses to do that and if it chooses to instead of using onshore wind choose more expensive renewable sources then of course anyone can see that the consumer will have to pay more and pay more unnecessarily I think we'll go round in circles on the respective cost of technology I'll bring in Patrick Harvie Thank you, convener Good afternoon, I'd like to explore some of the demand side issues which I think it's fair to say there seems to be pretty broad agreement from all of the witnesses that we've heard from that a great deal more needs to be done on the side management as well as demand reduction overall I think it's the view of both Governments that a great deal more has to be done in this area and your own opening remarks Minister talked about the need for a holistic approach to electricity, heat transport, seeing these as part of a coherent energy system One of the issues where we already discussed a bit of a problem there for example when the issue of solar photovoltaics were raised you said that's a matter for another minister I suspect if we looked at the demand side reduction on transport you would say there's a balance of responsibilities across ministerial portfolios there as well How does the Scottish Government envisage this debate moving on and achieving that coherent holistic approach to demand reduction and demand side management across all three of these aspects of our energy system what needs to be done to get to that point? All Scottish Government ministers work together to achieve the objectives of decarbonising our means of electricity supply and also tackling energy efficiency as Mr Harvey rightly says so we work together in these things the target of producing total final energy demand is 12% by 2020 and I think it's reasonable to point out that as a practical means of demonstrating our support towards energy efficiency we have devoted quite a considerable amount of money particularly into helping tenants and home owners into introducing energy efficiency measures into their own homes totaling I believe around half a billion pounds and I think that's had broad support across the parties including from Mr Harvey so there's a lot more to be done but all ministers are in the course of doing it the point about mentioning other ministers in relation to solar panels being put in roofs is simply that other ministers are responsible for the public estate not me but I can assure you that we all work very closely together and we meet regularly such as with myself and Margaret Burgess to discuss these things and there is a common will to achieve the objectives that we share in this respect with Mr Harvey I'm not trying to make a combative point at all but I'm sure the minister would recognise that this is a developing agenda we're not there yet and I'm trying to explore what direction this debate needs to go in what more the Government feels that it needs to do to develop this agenda particularly the relationship between different government departments for example the national infrastructure priority status that's been given to some of the measures on heat will the same approach be taken on electricity and transport is that the kind of direction that you envisage this going in the future I think that's indicative of our broad support across the portfolio areas I can't really speak for my colleagues specific commitments but certainly we have come forward with a heat plan and a network programme of delivery of that quite ambitious targets to for example extend the use of district heating across Scotland this is not particularly the topic of this inquiry perhaps but as witnesses have pointed out we are talking about four fifths of all energy use in heat in Scotland so I think it is wrong just to ignore it so we want to see the progress that was pointed out to the waste of the heat that goes into the fourth from Longanna and quite right so companies in Scotland like Star Refrigeration that are taking forward cooling systems so that's another area where we need to make progress a third example and I'll maybe stop at that with your admonition to be brief convener is quite a lot more I can say but the eco we believe could be run more effectively from Scotland in relation to that matter which I explored with our previous panel I was keen to see that particular matter put on the agenda for devolution and I think it can hopefully avoid some kind of mismatch when the Scottish Government tries to do more do you share my concern that there's still the risk of similar problems arising in the disconnect that can exist between Scottish decision making and UK or GB decision making whether under the current constitution or a GB electricity market that serves independent jurisdictions that's likely to still to have political as well as regulatory decisions made at UK or GB level which will make it harder to achieve that demand side response agenda when it connects to devolved issues what's necessary to achieve that kind of coherence I've first explored it within the Scottish Government but now between the two Governments I think I can wholeheartedly agree with Mr Harvey that there's a risk of disconnect between the Scottish and UK Governments and to be serious convener I think there's a concrete example of that that just last year in the autumn there was a considerable delay in the UK Government informing the Scottish Government about the extent and the nature of the announcement about energy efficiency measures and the nature of the budget there was an announcement made I think to a Liberal Democrat party conference but the actual details of the amount of money that we were to get and how it was spent wasn't forthcoming for several weeks thereafter so there's a risk of disconnect we tried to work constructively with the UK Government but perhaps for the first time convener I wholeheartedly agree with Mr Harvey on a matter that he's raised that the opportunity really, regardless of the party politics involved regardless of the constitutional debate there is always going to be the danger of decisions at UK or GB level that don't make it easy for us to achieve the kind of things that we all agreed should be achieved on the demand side in Scotland and I'm trying to get some opportunity to explore solutions to that how do we oil the wheels a bit how do we make sure that that works better rather than that we make sure we have opportunities to blame one another for the problems very fair question I'll give you what I hope is a constructive and straightforward answer which is that one of the ways we can do this is by working with the UK Government on for example joint governmental committees I've suggested today that there should be one for storage and to focus particularly on pump storage but I would also point out that there has been one convener in relation to the islands onshore the islands delivery group to devise solutions to connect the western and northern isles to the grid and that is I think I don't think there's any other joint governmental groups on a specific policy project and task and therefore without going too much to details of that the progress that we made on that joint committee would not have been made where they're not that joint committee and that is one of the reasons why I made what I hope was a positive suggestion in the opening remarks that the extension of use of joint committees where we work together on serious challenging problems is one of the ways to overcome the risks that I think Mr Harvey to be serious quite correctly describes just finally I wonder whether you can confirm for me whether or not there's currently an advisor bringing specific skills and experience to bear on demand side response on the Scottish Energy Advisory Board and if not whether that's something you tend to consider well we have such a vast array of skills and experience such as Dr Sweeney that I'm sure we do but to take the question seriously I will go away think about that and I will write to you convener to respond to specifically as to whether that is the case that's helpful thank you okay I appreciate we are behind time one more questioner thanks very much I welcome the idea of a joint ministerial group between you and the UK Government I wonder whether as a practical suggestion a joint ministerial group amongst your own ministers round this particular issue round achieving your targets round climate change would be really useful so you don't have to get Mr Lyle to write a letter to the education secretary but you actually do look at things like how do you create and centre for housing associations through funding to look at these areas if you've got schools getting built what we're building in at the very early stage to maximise the benefits from that but I'm interested in there's two things briefly first of all we all know that the whole question of energy is deeply political your government is entirely legitimate to have a position on nuclear power stations other governments will have a different view but would you agree with me that given the pressure round climate change none of that can simply be on a basis of cost and when you said that it didn't make sense it was done at a UK level because onshore is cheaper does that mean that it's the position of the Scottish Government you would have a presumption favour of proposals for onshore rather than offshore because you'll know that for a lot of people we take the view that we're near capacity on onshore I don't know if I agree with that but your position is simply one of cost that presumably would have implications for those who want to develop projects offshore I think there's three questions there so to be brief convener we do not consider cost alone at my opening remarks I said that we consider the trilema if you like cost, security of supply and carbon emissions so we consider the consumer we consider the planet and we consider the practicalities of the generation secondly onshore wind we do not have a presumption of the sort that Joanne Lamont says we will only support wind farms appropriately cited the process for that is one with which members will be familiar but it is a robust process that is taken extremely seriously and therefore all decisions are made entirely on their merits in that case with offshore and indeed any other ministerial decisions that have to be taken under section 36 of the energy acts the last point I would say is we already have a grouping of ministers it's called the cabinet subcommittee in climate change and it's doing its work reasonably well and I can assure Joanne Lamont as she will know from her time in ministerial office that there's very close cooperation between ministers in every conceivable means of communication on these matters and we will continue so to do I want to talk just a bit about this issue about the security of supply doctors when he says it's not simply a technical issue if you were to take the view that it simply is a technical issue which can be addressed which is I think the view I would take would you share the concerns of some people who have come to the committee who believe that the whole question of security of supply is in going full throttle for renewable developments I apologise I'm just not quite sure of the point that Joanne Lamont is making I want to try to answer the question I don't know if you want to rephrase it that the danger is that if you accept it it's more than simply a technical issue to be sorted you create a bit of paralysis around the system so we will need to continue getting all of this balance right and it's inhibiting the development of real renewable options I don't think I agree with that I can see the theory but I think the practice at the moment is that the risk to developing further renewable capacity is one, we don't know what the long term target is because the UK Government haven't said so they haven't committed to a de-carb target by 230 and two, we don't know what the announcement is going to be with regard to onshore although it's nice that there's like to be one and three, this is causing commercial mayhem and grave concern amongst communities in Scotland as we speak so I think that convener is the greatest source of uncertainty and I may say it's a risen after a very brief period of certainty there was a hiatus of certainty amidst the huge huge periods of uncertainty when EMR was being devised we thought that was over but now it's been reintroduced by the UK Government decision floated in the newspapers and we just hope that they will listen to voices of communities consumers and companies and reflect those views in any decision that they may take what do you think the Scottish Government can do to address the sense that people have around the question of security of supply that renewables approach is unreliable and that we might see the lights going off to think about how we're going to manage all of that when it does feel to me that possibly there may be those with an interest in a matter in whose interest it is to talk up uncertainty well you know as I've always said I think there needs to be a variety of meeting our electricity needs a variety of sources of generation the nature of that variety will change from fossil fuels to various different types of renewables we do undoubtedly need more storage solutions to counteract the intermittency of renewables that's why we have been arguing the case for several years and from an operators point of view the national grid are perfectly happy with and very enthusiastic about onshore wind as I learned when I visited the headquarters some time ago to educate myself about how they actually operated the grid so yes I do agree with Johann Lamont that there is some public disquiet about that perhaps stimulated by some over excited news coverage but the operators the people who actually work in the industry recognise the enormous value of renewable energy and the Scottish Government will press on with our ambitious vision for Scotland as a renewable powerhouse of the UK and indeed Europe you would prefer not to be managing any sense of security of supply from nuclear energy well I've made a different kind of range of topic convener but perfectly happy to answer that as I have done before many occasions we don't believe that new nuclear power stations are the right way ahead for various reasons including costs that I've covered particularly the enormous cost of decommissioning which I hope the committee will look at in its report because they are truly mind boggling and account for two thirds of dex budget per annum although maybe you could check that but as far as the existing power stations go we have Hunterston and Tornes they have been very well managed and run over the years and one of them has had a life extension the other we expect will have a life extension possibly to 230 at Tornes, Hunterston 223 I think those are the dates that are in my mind so they will be generating for some time to come and after all the money has been sunk and invested in nuclear power stations it is sensible for them to operate safely and provide electricity needs particularly when we're in danger of losing further thermal generation from coal so I think that's a pragmatic approach that we have adopted regarding nuclear and a principled one but we are on a transition to meeting our energy electricity needs from more renewable sources and that is the direction that we will continue to travel in Scotland and seeking to work constructively with the UK Government towards that end Okay, I think that that's concluded so I'm sorry we're a little bit over time minister thank you for your time this morning thank you to your officials and the committee will now go into private session