Speaker: Lord Deben
5th September 2018
All-Party Parliamentary Group on Energy Costs
‘Progress with the Clean Growth Strategy’
Chair: Lord Whitty
Speaker: Lord Deben, Chair of the Committee on Climate Change
Chair’s Opening Remarks:
I’d like to extend a warm welcome to you all to this, the 45th meeting of the All-Party Parliamentary Group on Energy Costs.
I am Lord Whitty, a Labour Peer and a vice-Chair of this Group, sitting in for Lord Palmer, who has had an unfortunate accident whilst parking his motorbike.
The Committee on Climate Change is an independent, statutory body established under the Climate Change Act 2008. Its purpose is to advise the UK Government and Devolved Administrations on emissions targets and report to Parliament on progress made in reducing greenhouse gas emissions and preparing for climate change.
The CCC published its Annual Report in June. The Report found that the UK is on track to miss its legally binding carbon budgets in 2025 and 2030, due to lack of progress in cutting emissions from buildings and transport.
It also said Ministers were spurning low-cost options, such as onshore windfarms, home insulation and tree-planting. Lord Deben commented that housebuilders were “cheating” buyers with energy-inefficient homes and that motor companies were holding back the rollout of clean cars.
Home insulation installations are among the cheapest carbon cutting measures but the cancellation of government incentives has caused a 95% drop since 2012. The Government has also cancelled plans to make new homes zero-carbon and ‘must produce new policies and stick to them’ according to the Committee’s Chief Executive. He went on ‘The big emissions cuts seen in electricity production, as renewables replace coal, shows action can be taken: We have seen what happens when the Government takes an enlightened view and steps in.”
We have with us this afternoon Lord Deben, the Chair of the Committee and former Secretary of State for the Environment. We knew him as John Gummer MP then and he was always a notable campaigner for the environment.
How will Government meet its commitments? Will it take the advice of the Committee? There is no better person to ask, so over to you, Lord Deben
Lord Deben, Chair of the Committee on Climate Change
I’d like to start by making a very important point. Ministers and the public are very unaware of some of the fundamental faults in the system which makes it very difficult for them to deliver what they ought to deliver when they think they’ve been delivering. To take one particular example: the housebuilding industry. We do have a problem and people always say that the real problem is the houses we’ve already built, and that is true. But if you’re building 200,000 houses a year, and if you’re trying to build 300,000 houses a year, there’s no point in making it worse! I’ve never understood this argument, that because this is the biggest problem then you don’t have to think about that problem, which is something that you can deal with.
Now I’ve raised this particular issue to start with because it enables one to display a number of the peculiarities of our system that make it so difficult to get these things right.
Firstly, very few people know that 35% of the houses being built today are being built to standards we abandoned four years ago. This is because housebuilders have turned themselves into land speculators – that’s what they are. The land that they are now building on, part of their land bank, is affected not by today’s building regulations but by the regulations that were in force when they got their planning permission. Why on earth have we not said that when there are new building regulations they apply to anything that’s built after that? Of course, the builders would object because their whole system is based on making money out of the land bank rather than providing homes for our people.
There are other things too – we make false divisions. If we reduce our energy consumption by changing the construction methods, that works very well. But we can further reduce energy consumption for example by putting in every shower in every home a heat recovery system. That could make a very major contribution. The shower’s hot water goes straight down the drain but with a converter most of that hot water could go back into the heating process. The shower would cost £300 more, but that is a small price to pay for a significant reduction in carbon footprint and also heating costs over the lifetime of the house. The recovery system is solid state and will last at least as long as the lifetime of the bathroom.
So we can do things like this, but they don’t quite fit into the system. We should be doing things like this in every new house being built, but of the major house-builders only one is doing something. Why isn’t everybody doing it? Why do we allow people to build houses that don’t have these very simple things?
My second point is that we have a system which we’ve hidden the effects of because of our success, and then we have a system where there are all sorts of examples where we could do so much better, but the institution doesn’t work in that way. There are many others apart from the two I have mentioned.
The third thing is that there is no sense of urgency in some Government Departments. Transport doesn’t seem to understand that we have rising emissions. They have had success elsewhere but they haven’t done things which they could have done. There are all sorts of issues which we can raise, for example an exciting development by Sainsbury’s, now in the final testing phase, is to carry the final mile of deliveries on electric bicycles.
There is a very interesting map of the City of London that shows deliveries in that area starting at 0430. By 10 am the roads are completely clogged with people delivering, some to the same or nearby places, and no system to reduce that. The Department of Transport’s response is to talk about the proportion of congestion in the country as a whole and that vans are only 16% of the issue, but that’s not the point. The point is, what can we do easily that is cost-effective and also applies itself to some of the most difficult places? An idea that works in the highlands and islands of Scotland could be implemented in the City of London – up there deliveries are actually only done by one company, because they have created a system to reduce the costs significantly. Why don’t we make it too expensive for people to deliver on their own, and start to have proper routes so that people drop off and do one route, rather than having five vans doing the same thing? We have to find ways to make this sort of thing possible.
An example is very tall buildings – we really haven’t thought through properly the servicing of very tall buildings. We have ended up with a situation where it’s almost impossible to travel in the City and then the City makes it even more impossible by making rules because it’s impossible!
I talked recently to a CEO of a major finance house in Victoria Street. They moved there because their customers were just not prepared to attempt to get into the City. Very many of the new financial institutions have moved outside the City because of the problems. But there are ways through this and the ways are to be innovative.
We have in the Department of Transport a department that has failed to be the innovative department it should be. It should be thinking about how to live in a world where we need to reduce emissions. The DoT is not meeting the needs of today.
Another department which has a real issue is the Department of Housing and Local Government. We are not setting the standards we ought to have, we are not insisting that those standards are imposed early enough, and in a whole range of other ways we have been institutionally very backward. To take just one example that I know about from my own business, why is it that every single district council in England has got a different list of the products that it recycles? When the Quality of Life Committee (which I chair) recommended to the incoming Coalition Government that they should change this, the Secretary of State said that to do so would interfere with Local Government independence. As if that mattered!
The 8 District Councils of Suffolk are all different, so when I recycle at my sister-in-law’s home I have to read a different list from the one I am used to, which I do because I am a nerd about things like this – but I am in the minority. What happens in practice is that people find it too complicated and therefore do not recycle. A system exists now whereby all plastic can be recycled, so why are we not developing a system so that everyone has the same standards and recycles everything that can be recycled?
The company that have developed this facility to recycle all plastic waste have been trying to get an installation and have ended up with their first one being in Scotland, because the Scottish Government is very much in advance of what the rest of the UK is trying to do. And where are the next installations going to be? In the Netherlands, because Brexit means that they dare not do it in Britain because they do not think that they can service the majority of companies in post-Brexit Britain. I make no apology for the fact that, as Chairman of the Climate Change Committee, we think that Brexit will do serious damage to all that we are trying to do, making it more difficult at every level to implement things. We are a bit fed up with politicians who seem unable to stand up and say that this is all a nonsense, and diverting us from some of the most important things that we are trying to do.
The final thing that I would like to draw attention to is that we have allowed people to get away with the opposite of the truth. About three years ago, the CCC instituted some work which no one had done before. We were trying to find ways to talk about issues in a manner which could be understood by everyone. For example, I don’t know what a “kilowatt hour” is – because I can’t imagine either a kilowatt or a kilowatt hour. It doesn’t have a picture. I know that there are people who do understand this but I have to admit that I don’t know whether it’s pounds per kilowatt hour or pence per kilowatt hour, or something else. I think that’s true of most people, so what we did was to look at the cost of energy on people’s bills, which is something they do understand. 80% of the country is on dual tariffs and instead of talking about the energy price we started talking about the bills – so much for gas and so much for electricity. They could then work out how the bills were affected by our green measures. We discovered two very simple figures when we started talking about bills instead of energy price. One was that bills were £9 more than they would be because of the cost of green measures, and the other was that they are £20 per month less because of the results of green measures and other things. So everyone in this country who is on a dual tariff is, on the whole, £11 per month better off because of our system. Boilers and toasters and everything else now use much less electricity, so if you look at the family use of electricity it’s going down all the time. This is something that we’ve never been able to get into people’s minds. The Daily Express ran a campaign about the fact that the European Union was going to take away our kettles, when all they were doing was, quite rightly, saying that you couldn’t produce and sell a kettle that was not energy-efficient. One of the reasons why I find Mr Dyson so difficult is that the reason he doesn’t like the European Union is that the EU said that his vacuum cleaners had to become more efficient. So this great British nationalist who has sent his workforce to Malaysia to manufacture these things objected to the fact that the fact that the EU were setting standards about things that really mattered. One of the things that we’re concerned about is whether these things will be continued because this is the only way in which people’s bills will fall. We have to find ways of using less energy and therefore putting less pollution into the atmosphere.
We need to find ways that make it easy to be good and difficult to be bad. I don’t think this is a question of winning people’s hearts and minds to make decisions they wouldn’t otherwise make. I think it’s about having an institutional system which makes it easier not to waste, not to create pollution, not to produce the kind of climate change effects that we’re producing. So, as I said, make it easy to be good and difficult to be bad. I know that that won’t make us more moral, but it will actually reduce the emissions.
Questions and Comments
Colin Calder, PassivSystems: It’s true that we need standards to reduce consumption and increase efficiency, but the future is about controlling demand to match supply, because supply is coming from variable sources that are not all controllable, and increasingly the equipment that uses energy has got to adjust its behaviour to the variability of supply. That requires information flow from all energy-using equipment into a system that is sending out the right sort of pricing signals to get the equipment to behave in the way that will minimise the cost of low-carbon energy. So, as we look at Brexit and its impact, one of my biggest concerns is how do we get to having data standards for the flow of information between equipment and an energy market which today doesn’t even understand what a digital energy market should look like?
Lord Deben: I think there are two things to unpack from that. Firstly we have all been brought up with a very old-fashioned view about energy, which is that you have big centres that make it and wires to distribute it. We went to great lengths to make sure that even the remotest village would be connected. And this is one of the many hidden things that people don’t take into account: the changes which are going to take place are not just about decentralisation and that the grid will be very different, but also that all this is going to happen because of the technology that will happen. Digital energy control is going to be a wholly different thing from anything we’ve had before. The Daily Mail and the Daily Express always talk about this almost as a ‘spying’ issue – that the system will be ‘spying’ on you and can tell when you will be doing your washing! Of course what we really need is a system whereby first of all people respond to price signals so that they know that if they can set their machine to operate at the cheapest time, and the smart meter at its best will enable that.
The other thing is, we need to have a system whereby people can contribute, so that they can tell the generator that they are prepared to have their air conditioning, heating or whatever, down one degree when energy is in short supply, in return for a financial incentive.
But these are simple examples, not about the complicated issues of balancing the grid and dealing with the inputs. In 20 years’ time almost every vehicle will be a taker of power as well as a generator of power, so we need a system to deal with this kind of thing. It’s all an essential part of what Government should be taking about. My problem is that I’m not sure that Ministers even understand that. They do in the Departments that matter but it is right across Government where these decisions have to be made. This is part of a real agenda. You cannot ask people to change their habits, live more frugally, knit their own woolly hats . . well, you can ask them but they won’t do it! What we have to do is to use modern technology to allow people to live in the way they have become used to, but not destroying the earth at the same time. And that’s why this bit – the digital bit that Colin has just raised – is going to be so essential if we are going to win this battle because it has to be automatic. It has to work just because it works, and it has to be central to everything.
Fiona Woolf, Energy Lawyer: Five little words that you just said, “smart meter at its best”. I have a smart meter and it’s not very smart at all. All it does is allow the energy company to read my meter without visiting my house. I fear that it will take a long time to achieve the digital vision you have and that this is typical of the kind of thing that requires Government intervention. The data handling also needs very careful consideration, as data will be in the hands of what is essentially a monopoly. At the moment I am chairing a project for the National Grid, focussed on voltage support in the South East of England. The problem is caused by a lot of renewables and other things. Instead of building reactive capacitors onto a rather difficult network, we’re going to be creating a market in reactive power for demand-side response. When the project finishes next year we hope to roll it out to the rest of the country. It is essentially about software development and innovation to bring together the kind of digital energy system we need.
Lord Deben: The Government does have to intervene and set standards. The trouble is, it often tries to go beyond that gets into all sorts of messes and terrible discussions, and it really does have to learn that it has to be more courageous in dealing with the Big Six and tell them that we’re just not going to have it any more . . . no more being threatened that the lights will go off, which is how the Big Six have got everything that they’ve wanted. It’s about time Government realised that we have a margin which is significantly greater than we actually need and what we need is for that margin to become greater because we use it more effectively and efficiently. So I do think that the Government has to intervene but that it also has to be much more courageous in taking on the big boys. I do think that our society is becoming a megapolis, becoming dominated by people who are too powerful to fail and who use the possibility of them failing to put pressure on the Government. The Government has got to become a lot wiser to that.
Alistair Green, ESP Consulting: Made a point about interconnectors and Ireland and said that his independent analysis showed that the system is dangerously close to failure.
Lord Deben: I’m not saying that there aren’t moments when we do need to have a much more flexible system, but the point I’m making is that the arguments with Ministers are always broad-brush arguments, and we really need to get down to the realities and where the issues really are. For example, what is the role of interconnection, not only from the UK to Ireland but also between the rest of Europe and Britain? Also, the time difference and the peaks difference means we could be doing much more along those lines.
We don’t look at these issues in the broad base that you really have to. For example, if we are going to talk about whether it is worth spending money on a connection with Norway, we can only do that if we have been really objective about what the needs are, and you should not listen to people who have an interest in certain kinds of outcome, and you should take seriously what the advice is. Personally I am in favour of that particular connection and I think it is important but I don’t have much feeling that it’s being looked at with the kind of objective view that I think is necessary. I just think it’s too big an issue. Ministers are led down the path of very simple answers to problems, and it’s always a case of “you must do this, Minister, otherwise the lights will go out”.
Lord Whitty: Isn’t it also true that the question of margin is dramatically put to the ‘powers-that-be’ in terms of peak, if not the totality of the system, and if you could have mechanisms whereby you could spread the demand side across the day, and on the supply side you had better storage systems, then what we describe currently as a dangerous margin is nowhere near a dangerous margin.
Alistair Green, ESP Consulting: Agreed. But the world you’re talking about hasn’t yet come: we’re in for a very interesting 20 years. I’d like to mention some other work we’ve been doing for Ofgem and some issues we’ve found. You mentioned intelligent devices e.g. fridges and washing machines talking across networks. Some climate change actions rely on the active participation of customers, which really isn’t going to happen because in general they’ve got better things to do with their time than get out of bed to switch on a washing machine. So that’s just not going to happen until we’ve got automation. But then, what happens if there are communication problems in the system, or the security is breached, or if a device gets hacked?
Colin Calder, PassivSystems: First of all picking up on Lord Deben’s points, what’s the problem we’re trying to solve? This in my mind is what Government should be focussed on, and I just don’t feel that that’s happening at the present time. This country has to take 27 million UK households from having high-carbon heat and transport to low-carbon heat and transport: that’s the problem we have. A number of academic studies have suggested that the cost to the consumer is between £150 and £300 billion of additional expenditure over and above the normal boiler replacement costs. So the problem in my mind is this transition and who pays for it, because no consumer is going to put their hands up to pay to have a home that is in exactly the same state as it is today, apart from having a lower carbon footprint. So that’s the problem. The question is how do we create a market structure that gives the right price signals to the consumer to change their behaviour so that they go and buy a piece of equipment that will take them from high carbon to low carbon. Secondly, how does that equipment interact with any digital energy market that delivers value from the energy system that funds that cost difference? We’ve just finished a project in Wales called the Freedom Project which we did with Wales and West and WPD (gas and electricity operators). This project involved putting air source heat pumps into homes that retained the existing heating system, whether it be gas, oil or LPG. The outcome of the project is that because of the controls that we have developed, we can now use the home as a heating plant. So instead of building lots of new standby power stations that will be used between 5% and 10% of their time to backfill intermittency of solar and wind generation, the home will do that job instead by using the gas from the boiler. The project report, out next month, will say that if all UK homes participated in a demand flexibility market that delivered that outcome, then we would deliver savings to consumers of £15 billion a year, and we would not need to build 25% of the currently planned windfarms, nuclear and other power stations.
So, I’m really asking politicians in Government to focus on (in my mind) the biggest political issue: the cost of taking consumers from high carbon to low carbon is horrendously high, because the equipment is expensive, and unless we solve that problem we are going to continue to meet enormous resistance from consumers either because they won’t do it or because there’ll be an enormous outcry at the price they are being forced to pay to do it.
Lord Deben: The prospect that we’re talking about is that you’d run on renewable energy – electricity – until the problem comes where there’s too much pressure because there’s not enough wind or solar, and then automatically all these boilers would go over to the alternative hybrid, whether it’s gas or whatever. And because of that there would be enough profit in the business, so to speak, that you could provide people with the hybrid boilers that they’d need and they wouldn’t have to pay more for a replacement.
The problem you’d have with this is that people don’t think of it in that way and the second problem is that if we’re going to do it effectively you’d have to have people signing up for a service, and you’d really have to have people signing up to receive the service of so much energy per month at so much cost. It would be (say) a five year contract. It’s a different way of doing it but that’s what you’re going to have to do if this is going to work. And, my goodness, we’ve got to be better at explaining to people why that’s an advantage. To some extent of course you get out of your problem because you’re not now talking about an individual fridge communicating – you are talking about a service which is provided, and if it goes down the provider knows that he has to be there to put it right very quickly or we’ll move to another provider, and it’s that thing that you have to have I think.
Alistair Green, ESP Consulting: If you look worldwide you will see examples of where it has been effective.
Colin Calder, PassivSystems: I think the UK is in a tremendous position to become a global market leader in the field, but we have to get our heads around the old and the new business models. Drawing a comparison with retail, there is no resemblance between companies like Amazon which have hit the high street hard, and the old bricks-and-mortar retailers. Similarly with energy companies, there will be no comparison between the old and the new and we have got to come to terms with that. And if any of you think that this is a long way off, here’s some advance information. We are launching this hybrid solution a week on Saturday in the market, under the RHI (Renewable Heat Incentive) scheme and – yes – we are going to have an interesting time selling this to customers as a service. What we need to be looking at is how do we get rid of the RHI in March 2021 and unlock the value of these hybrid systems in a way that provides the continuing stream of revenue that funds this to go to mass market. And that’s the political issue, the policy issue, that needs to be addressed urgently.
Lord Whitty: Yes, the difficulty is getting across to the consumer that it is better than the present system.
Colin Calder, PassivSystems: I totally agree with you, and to give you an idea, we take a normal home and we put in an air source heat pump and overnight 80% of that home’s heat comes from the heat pump, with no other physical changes to the property. All we do is use the gas boiler either to respond to stress on the grid or when the electricity network is more carbon-intensive, so we respond to the real-time carbon signal coming off the grid. Because of the way the controls operate, the 80% change to using electricity means we halve the consumer’s energy bill if they are on oil or LPG, so today the consumer proposition is a very interesting one. We’ve yet to get to the same levels of cost-benefit with a gas-connected customer.
After some further discussion, questions and comments, the meeting closed at 5.30 pm.