Welsh Affairs Committee
Oral evidence: Grid capacity in Wales, HC 218
Wednesday 18 May 2022
Ordered by the House of Commons to be published on 18 May 2022.
Members present: Stephen Crabb (Chair); Simon Baynes; Geraint Davies; Ruth Jones; Ben Lake; Robin Millar; Dr Jamie Wallis; Beth Winter.
Questions 71 - 101
Witness
I: Julie James MS, Minister for Climate Change, Welsh Government.
Witness: Julie James MS.
Q71 Chair: Welcome to this session of the Welsh Affairs Committee on our investigation into grid capacity in Wales. We are joined this morning by Julie James MS, the Welsh Government Minister for Climate Change. Minister, it is great to have you at this session.
I am going to kick off the discussion by asking you in broad terms what your understanding is of the current grid capacity in Wales. How concerned are you that grid capacity constraints interfere with and hamper our net zero ambitions in Wales?
Julie James: Thank you very much, it is a real pleasure to come and give evidence this morning. The Committee will be well aware, I know, that Welsh Government are committed to achieving net zero and this means major changes to our energy system and infrastructure. The gas and electricity networks are already being asked to work in very different ways.
We have four regions in Wales that we have asked to complete energy strategies; they have already completed those strategies and we are delivering two pilot local area energy plans. We will have a complete set of those by 2024. This is important because they will give us the insight we need into future grid needs. We obviously do not have the capacity we need right now, but it is very important to plan for what we need for the future, rather than react to the current situation.
Those local energy plans will give us that insight into future need, and we will then be in a strong position to work out exactly where we need grid in greater detail. The Committee, I am sure, has received evidence about the problems we have at the moment. You will be aware that we have transmission scale electricity grid along the north and south coasts, but large areas of Wales have only gas and electricity distribution networks, and that is a major challenge as we decarbonise heat and transport.
We absolutely do need new infrastructure. The difficulty for us is to understand exactly where and what we need, so that is the point of the plans. We also want to be sure that the need for new developments is factored into the best long-term plans with regard to the impact on people and important industries like tourism, farming and so on. That requires very careful thinking.
In September last year we announced a project to establish the Welsh grid, called Future Energy Grids for Wales, and that looks out to 2050 to understand what networks would be needed to support the net zero energy system and serve communities best. There will be work to generate three to five whole energy system scenarios for Wales. They will all recognise we are part of the wider Great Britain energy system, but reflect the unique characteristics of and opportunities for the Welsh energy system. Their purpose is to enable the network operators to plan and build the networks we need for net zero and the interim 2030 targets. We expect the resulting grid plans to inform Future Wales: The National Plan 2040.
So we have done quite a lot of work since announcing that, and I am grateful for the support of all the network companies operating in Wales. We have appointed the Energy Systems Catapult to lead the work after an open competition, and it is well placed to advise us in this technical project.
The catapult has identified a series of questions we need work to answer and a list of assumptions for agreement, with focus on the areas where the different participants are likely to have different views, such as the balance between electrification of transport and the likely role of hydrogen, and how we get the balance for that.
In June we will move to the second stage of that work and the Energy Systems Catapult will use its whole system model, which is an internationally peer reviewed model called energy system modelling environment, to model potential pathways, and that will help us to understand the combinations.
I suppose we are looking to develop the most optimised system, working with our DNOs across Wales, and with Ofgem and the UK Government, to set out an action plan for getting from where we are now, which is clearly not sufficient, to where we need to be. I am not yet in a position to tell the Committee or anyone else quite what that looks like until we have completed that piece of work.
Chair: That is very helpful; thank you very much for that introduction. Geraint Davies, please.
Q72 Geraint Davies: Welcome, Minister. So that we are clear, what is the balance of responsibility to provide the extra grid capacity between the UK Government and the Welsh Government? Do the UK Government realise the challenges and needs of Wales?
Julie James: Yes, so grid is not devolved to Wales, although we obviously would like it to be. It is a little bit of a frustration for us that we do not have any of the levers necessary for that. Having said that, we do work very well with the DNOs and with the UK Government, and we have been doing this set of plans that I have just outlined for the Committee alongside them.
My Deputy Minister has recently written to the Secretary of State about the need to work together and the officials have just begun the process of working together as well. It is looking good at the moment, but it is a bit early to be able to give the Committee a definitive answer about how that is working.
Q73 Geraint Davies: If a new project came forward, such as the Swansea Bay lagoon, how reasonable would be the upfront connection costs for developers? Would we have the grid capacity to immediately take that extra energy, or is a lot more infrastructure work needed to be done by the UK Government and, indeed, the Welsh Government to allow that?
Julie James: The current grid is definitely not fit for purpose. We know that even the transmission network in the south is not fit for purpose. We clearly need to move extremely quickly away from the current market-based mechanisms. I am sure that the Committee is aware—I know that you are, Geraint—that the developers are expected to pay for the connection and upgrade of the network when that happens. That clearly is a barrier to current development. What we do not have, though, is any way of planning out exactly what that might look like. That is an issue for things like a Swansea Bay tidal lagoon-type project, but it is also a huge issue for the Celtic sea floating wind projects. I am sure you have had evidence from various energy companies about the worry about how to get that energy back onshore and what those plans might look like.
One of the reasons why we are doing the projects that I just outlined to the Committee is to have a better way of predicting future need so that we can get back to a planned model, not doing it when the market has a project ready and willing to go. You will be aware that the Swansea tidal lagoon has been through a number of iterations and, as a result, that work has not been done. Clearly there will be a need for a project of that sort locally. We are trying to get away from that market-based approach to this planned approach that puts the interests of citizens and their low carbon future first, rather than the market-driven approach that we have had in the past. We absolutely think that that is the only way to do it, so we are having those conversations with both Ofgem, which has looked a bit more favourably at this in very recent times, because it was quite resistant previously, and with the UK Government. We are in the middle of those negotiations and I am not yet in a position to say how that is going to come out.
Q74 Geraint Davies: So you think that some of the developers’ costs should be taken in by Government, in essence—the UK Government or the mixture. What about planning delays? Regarding shortening the time, do you think there are problems with planning delays to get connection to the grid? Do you think that could be shortened or not?
Julie James: It depends what you mean by planning delays. Energy operators have quite a lot of permitted development rights already in Wales. Planning delays in terms of planning for the grid connection has certainly been an issue.
You paraphrased a little bit what I said so, just to be clear, I am not saying that the UK Government should pay. What I am saying is you need a planned system of infrastructure that everybody agrees so that we can figure out the best way to pay for that, and not just frontload it on which project comes forward first. That obviously works against the projects that come forward first, so everybody hangs back when you do not have a decent system for doing it. I wasn’t trying to shift the basis of payment; I was trying to shift the basis of planning so that everybody could see what was required upfront and be able to factor that into it.
Q75 Geraint Davies: It is a strategic approach, yes?
Julie James: Yes.
Geraint Davies: Thanks, I will leave it there.
Q76 Ben Lake: Thank you, Minister, for your time this morning. You did mention earlier that, of course, the way in which we are using the grid, or the demands placed upon it, have changed significantly. One of the things that has become apparent to anybody with an interest is that a lot of the potential renewable energy generators, as it were, are located in areas where historically they were not centres of energy generation. You might guess that I am referring to mid-Wales in particular. I am just interested whether you believe there is a need for the national grid to proactively invest in the grid in areas such as mid-Wales and to anticipate potential energy projects rather than, as you mentioned earlier, to react to plans and whether you have had any information from potential energy projects as to how the higher connection costs are perhaps impacting on some of their plans?
Julie James: Yes, for sure. Absolutely that is a problem we recognise. We know that there is no transmission network other than on the coastal routes in the north and south, and even the one in the south isn’t really fit for purpose.
I know the Committee knows all this already, but they are small-scale lines built to supply power to homes with a much lower level of demand than we are anticipating in the future, and the cost of upgrading is prohibitive for people. That goes for a number of low-level energy systems as well. Power generated from collections of communities coming together to put solar panels on their roofs and so on are having real problems with uploading that energy to the grid because the connection is not there and it is not designed for that.
We know that the DNOs have tried to bring groups together across mid-Wales, but the commercial confidentiality and so on under which they operate has made that very difficult indeed. I go back to what I said in the first place: we need to get these local energy plans in place. We need to be able to understand what that future demand looks like, and then we need to have a much more proactive approach to planning, not just a reaction to commercial opportunity, because the cost will be prohibitive for that commercial opportunity when there is no transmission network and the first project up needs to pay for that. That clearly cannot work.
It just underlines the point I made in my answer to Geraint Davies, which is that we need to switch from this market-led approach to a planned approach that allows everyone to look at what is required and then share that cost out appropriately. Some of that will fall to the Government, for sure, but some of it will then be able to be distributed among the various groups wanting to connect into the grid or provide the grid, in fact.
Ben Lake: Thank you.
Q77 Dr Wallis: Minister, I appreciate the answer to this question is probably quite difficult, but you have mentioned on several occasions that the grid itself is not fit for purpose. What assessment has the Welsh Government made of the level of investment required in Wales to prepare the grid for decarbonisation?
Julie James: As I say, we are in the process of making that assessment. I outlined a number of measures when I was answering the question that the Chair posed to me about how we are trying to work that out. That is the answer to the question. I am not yet in a position to answer that question definitively, but we have a series of plans and an adviser in place to help us to get there. We expect to have that plan next year in its draft form and then we will be able to work with the DNOs, the UK Government and the grid in order to be able to implement that. The Committee is a little bit ahead of us in asking that question, because I am not yet in a position to know the answer, but we have all the systems in place to find out the answer.
Q78 Dr Wallis: I thought that might be the case, Minister. Could you assure us that electric vehicles, smart technology, alternatives and so on will be included in your assessment?
Julie James: Yes, absolutely. For EV charging, both for public service vehicles, buses and so on, and for private individuals, we are not just waiting until the plans come out. We are working with the DNOs to provide additional electrical capacity to enable the connection of charging infrastructure with support from the Green Recovery Fund. Transport for Wales is just beginning a mapping exercise of the required bus charging facilities and that will be completed in August, when I will be able to provide further details.
We have also been engaging with a series of expert groups and heavy goods vehicle operators to scope out the potential demand for depot and public charging for zero emission HGVs as well. There is engagement with CALSTART and the Netherlands Government on delivering the zero emission HGV plan that we signed at COP26.
We have a lot of interest in that from HGV operators across Wales. We have the UK’s first commercial electric articulated HGV near Cardiff being deployed from January of this year. We are working very closely with that industry to ensure that we have charging facilities available as well. When the energy plans are available we hope that they will feed into the bigger plan for the grid to support some of that stuff. We are not sitting on our laurels just waiting for the plans; we are doing a number of other things as well.
Dr Wallis: Thank you, Minister. Before I hand over to the Chair, I would just remind you that there are plenty of companies in Bridgend that would love to be a part of your plan. Thank you very much.
Q79 Simon Baynes: Thank you, Minister, for your time this morning. I wanted to move on to electric vehicles, smart technology and alternatives to grid reinforcement and ask: how are the Welsh Government working with the UK Government and stakeholders to ensure the grid and associated infrastructure are prepared for the predicted uptake of electric vehicles in Wales? I know from anecdotal evidence that we are not there yet in being able to make significant journeys across Wales using electric vehicles in terms of recharging points. That is my first question.
Julie James: I am afraid it is a similar answer to the one I just gave, of course, because we are in the process of Transport for Wales scoping out the plans for that, working with the various operators in the field and the DNOs. Obviously not having a transmission network is a real problem for mid-Wales in particular, so it is about upgrading the network. We expect the regional organisations that are putting their plans together—the plans are whole-system plans, so transport, heat and power plans as well, not just grid—to be able to put this planned approach in place. It is a very similar answer to the ones I have already given, I am afraid.
Q80 Simon Baynes: Would you support the establishment in Wales of a scheme similar to Project Rapid and the rapid charging fund?
Julie James: Yes, we are not adverse to any kind of scheme being installed. What we want to do, though, is to have a plan for it and understand exactly where the demand is, what the market is likely to provide on its own and what we need to be able to ensure that that happens. That will be very much part of the mapping exercise that we are undertaking, which I hope will be available in August.
Simon Baynes: Thank you, Minister.
Q81 Beth Winter: Diolch yn fawr. Good morning, Minister. I wanted to focus a bit on Welsh Government’s energy policy and dig a bit deeper around the progress that has been made to develop a long-term plan for energy in Wales. Obviously the Welsh Government have very ambitious targets. We have the Climate Ministry established. What progress do you feel has been made?
Julie James: Thank you, Beth. We have worked very hard to make sure that we have enabled our regional arrangements to work on their overarching plans. That is a whole-system plan, so we are looking not only at the electricity grid, but at hydrogen and gas grids and so on. You will know that we have huge problems in Wales with people who are using off-grid oil, for example, and one of the things that is very frustrating for people is when they can see windfarms out of their windows, but they are themselves on off-grid oil. So it is about working with developers to ensure that there is community input into that and that off-grid homes can take advantage of the electricity that is on offer.
We are very keen to encourage local groups to come together to do that. We have a whole series of efforts to make sure that we have community involvement, engagement and ownership, working alongside both the DNOs and the energy companies to work on different plans to do that.
We have recently, with our Banc Cambria project and with the Development Bank of Wales, looked at ways of enabling communities to get together what can be a daunting sum of money for them. A sum of £10 million sounds like an absolutely unachievable goal to many of the communities of Wales, so it is about working out ways that we can take a stake on their behalf via the Development Bank of Wales and allow them to buy into that slowly and to maximise some of the community benefits around those projects as well. I am particularly keen on working with communities to come together to make sure that we have the energy plans in place to allow them to put retrofitting of their homes in place following on from the learning that we are getting out of what we call the Optimised RetroFit Programme so that we know what tech works on which house. We can assist people to put the best tech in place for their house and then get them off the oil and on to the electrical-based products, such as air source and ground source heat pumps and all the rest of it.
That is not a solution for all homes in Wales, so it is a case of working with them to make sure we have the right solution and then the energy project that their community is hosting or in sight of is able to deliver those benefits. All of that comes back to my opening remark, which is that it all needs planning out. We are working hard with getting our energy plans in place across Wales and then that will allow us to assist communities to get the very best deal out of it. I am very determined that in exploiting Wales’s fantastic natural resources, this time the communities of Wales benefit from it and it is not all exported elsewhere, as happened in previous industrial revolutions.
Q82 Beth Winter: I very much welcome those comments and your commitment to consulting and involving local communities because some of the feedback we have had from stakeholders is about getting clarity around the targets of the Welsh Government. I think you have answered that query in depth—thank you.
Have your discussions with regulators and operators informed the Future Wales national plan? To what extent have those discussions influenced the content of the plan?
Julie James: Absolutely, so the Future Wales national plan had extensive consultation before we put it into place. It is very much a living document; it should not be seen as a dusty old plan that is on the shelf. We very much keep it under review. There is a formal review every five years, but we keep it under review constantly.
We absolutely spoke to the energy providers, the DNOs in particular, and Ofgem and others, in putting that plan together. Obviously the future plan is a huge plan. We spoke to communities right across Wales. I had some extremely enjoyable sessions with secondary school children who, as I know you know, Beth, are some of the most difficult people to deal with in question terms. They have no inhibitions about asking you difficult questions. I am very confident that we consulted widely on the plan. The DNOs, in particular, are very aware of issues in Wales about the transmission networks, in particular, and that this new set of policies that we are putting in place will allow us to factor into that plan a plan-based system that gets us away from this very damaging market-led system where the first operator has to pay the cost.
Q83 Beth Winter: You have touched on the constraints and limitations. Did you want to say anymore about those and what the Welsh Government can meaningfully achieve to address the issues posed by grid constraints caused by external factors? How could those be overcome in terms of any suggestions you have?
Julie James: As I said in answer to an earlier question, it is a frustration that we do not have sufficient powers to ensure those networks support our net zero ambitions. We have levers around planning, environmental consents and in general leadership in trying to get these plans together. We have set that very strong direction through Future Wales, the establishment of my portfolio, of course, and the publication Net Zero Wales, which I hope the Committee is also aware of. It has a lot of operational aspects of this inside it.
We have worked very collaboratively in Wales over the last two years to identify opportunities and challenges, and to co-develop these joint plans. In my previous role, prior to the First Minister appointing me to his, you will know, Beth, that I was the Local Government Minister in Wales and was instrumental in setting up the regional arrangements that have been really helpful in getting us to have these strategic plans. Those regions are also about to develop their regional planning infrastructure plans, which will help with this as well. Unfortunately, though, we cannot make the necessary changes to the regulatory and funding regimes to deliver on them because that is not devolved. We have been very clear that we think we should have the powers to decide on grid infrastructure in Wales. It was a clear position in the development of the Wales Act. I have never seen a policy argument for why on earth this is reserved.
We need to get away from this market-based mechanism as fast as possible in order to be able to plan this out. It is very firmly our view that of course we will work with the DNOs, the UK Government and Ofgem, but it would simpler, faster and easier if we had the capacity to do it ourselves.
Beth Winter: Diolch yn fawr—thank you.
Q84 Chair: Thank you very much, Beth. I am going to bring in Ruth Jones in a moment, but could I just come back to your earlier remarks? You highlighted floating offshore wind and the challenges of ensuring enough grid capacity to see the Celtic sea vision realized. What are the specific projects or opportunities that you see as being particularly at risk? You have mentioned floating offshore wind. Are there any other particular areas on which you feel right now, because of grid capacity constraints, that we are just not in a position perhaps to seize these opportunities in a timely way?
Julie James: Floating offshore in the Celtic sea is one of the biggest projects. That is going to generate an absolute step change in electricity generation over the next 10 years. Being absolutely certain that the grid is capable of receiving that into Wales and upgrading it accordingly is a big issue for us. Any suggestion that that capacity should be taken in via Devon or somewhere would be very damaging indeed to the ability of the transmission network to be fit for purpose in Wales. I just want to put that on record as well. We are obviously working with the Crown Estate. I cannot resist the opportunity to say, “Which should be devolved to Wales,” I am afraid, but we are working closely with it to make sure that we maximise that.
I hope the Committee knows that we have recently reached an agreement that there will be a freeport in Wales, and that will factor into this, I am sure, in terms of energy receipt from the floating wind.
I touched on some of the other constraints in my answer. I am sure the Committee is aware that we are very keen for community generation of energy, and particularly our low-carbon home programme and our individual housing programme. We work with firms across Wales for collective energy purchase and collective energy supply, and those are really problematic, particularly in mid-Wales, outside the south and north Wales transmission networks, because there just is not the capacity for them.
We have then a whole series of closed loop systems coming into play. Maybe the Committee is aware of the issue in Baglan—it is less than optimal, shall we say. It is clear to us that we require a network that allows both small-scale community generation and large-scale renewable generation to be easily and swiftly connected into a decent grid that has both transmission and supply attached to it. When we get these plans I will be able to go into much more detail about exactly where that is in Wales. I don’t have the plans yet.
Q85 Ruth Jones: Thank you, Minister, for joining us this morning, it is really good to see you.
I want to go down to a very local level now because obviously we have talked about the overarching infrastructure. Thinking about local communities now, you have already alluded to the fact that some can look at wind turbines when they are still on oil. How important is it that these local communities that house the grid and energy infrastructure get the direct benefit from doing so?
Julie James: It is extremely important, isn’t it? If we are going to gain wide support for the new infrastructure that is likely to be needed for net zero, the communities absolutely need to be able to see the reason for it and see the benefits for them of having that energy on their doorstep. Those have to be real benefits too, not just philanthropic—“Aren’t you great for hosting it for the rest of us?” There have to be real, meaningful things for those communities. I went through this a little bit in answering Beth about some of the things we would like to be able to see, but we want to involve representatives of the regions and sectors in developing the case plans for the new grid as part of the energy planning that I spoke about earlier.
We have published a policy on local ownership of energy generation that says that all new developments should be at least part owned by people and businesses in Wales because, again as I said to Beth, we are very determined that this time in exploiting our natural resources the people of Wales will directly benefit from that, whereas in previous exploitation of resources, particularly coal and so on, it was very much exported out of Wales.
We are particularly interested in something called the Ripple Project, which I hope the Committee is aware of, where people or businesses can buy into a co-operative that owns the turbines and get electricity for what it costs to produce it. That helps with pressure on the cost of living across Wales, which I am sure the Committee is familiar with. They have a potential to support household finances and demonstrate clear benefits, which comes away from the community benefit where you will know that individuals cannot benefit from that. We have villages with beautiful town halls and beautiful village greens, but the people themselves live in houses that are substandard with high energy costs, so we need to get away from that to where that community can genuinely benefit in its living standards from the energy generated. All the things I mentioned previously—I am sure the Chair will not want me to reiterate—about retrofit of housing and the right tech, and how we can pay for that and benefit the community overall, will be really important in this space.
Q86 Ruth Jones: A final question from me: you highlighted the co-operative nature of these projects, so what incentives are the Welsh Government offering to these communities?
Julie James: We have something called the Welsh Government Energy Service, which supports the community energy sector, and we are putting a skills plan alongside that that benefits the local communities. The incentives are jobs, skills, retrofit of your home, energy produced at cost for you without the additional costs and so on. We have made £150 million in grants and interest free loans to local authorities available over that time to work with communities to stimulate some of those projects. The Chair is probably going to say I am not being succinct, but all the stuff about local area energy planning and so on that I have already mentioned comes into that answer as well.
Ruth Jones: Thank you, Minister, for your comprehensive response. I will now hand you back to the Chair.
Chair: Minister, you are model of succinctness this morning, so we are getting through the ground very quickly. Geraint Davies next.
Q87 Geraint Davies: Minister, you mentioned that the grid is not devolved, so what is your assessment of UK Government policy in terms of futureproofing the grid in order to help to deliver the benefits you have been mentioning?
Julie James: On a positive note, it is good to see the UK Government building capacity on the grid by establishing additional teams in order to do that. I do support the view that we need to maximise existing networks before building more but it is not clear to me at all that the UK Government fully understand the pressure on existing networks in Wales and the immediate need to sort that out.
There is the whole issue about the existing regime of market-led funding inhibiting change and development in Wales. I am not yet at all happy that they fully understand the full impact of the issue of the first operator up having to pay the real serious cost. I hope for a much more positive reception from UK Ministers for the findings from our future grids project I mentioned at the beginning. I think I already said that Lee Waters, the Deputy Minister, has written to the Secretary of State about co-operation on that, and our officials have been better engaged more recently with UK Government officials on that.
I remain hopeful that we will have some movement, but I am not yet at all sanguine that they fully understand the immediacy of the difficulty in many parts of Wales.
Q88 Geraint Davies: From the point of view of the Committee making recommendations, given that providing the grid is not devolved at the moment, should we be recommending that—given that you believe in a planning approach, and you have ambitions for renewables and the inclusion of communities—you should be much more engaged with UK Government so that you can work together to deliver these outcomes for all our communities?
Julie James: I would put that the other way around—they should be much more engaged with us. I do not want to give the impression we are not engaging with them but, yes, absolutely.
I think the fundamental is to get your head around the idea that a market-led approach where there is absolutely no transmission network just cannot work, because that first operator up just cannot—
Q89 Geraint Davies: Therefore, regarding futureproofing, if it is done on an atomised basis of first come, first served or whatever, as opposed to a planned strategy, then it cannot be properly futureproofed unless there is a strategic plan into which the developers are feeding in a certain way.
Julie James: Exactly. Also from the developer’s point of view, it gives them certainty because they can see what the plan is, they can see what their contribution to that plan ought to be and they can put their affordability packages together knowing that. Whereas at the moment you are guessing into the wind what that is going to look like. I know from my conversations with them that they find that as frustrating as we do.
Geraint Davies: Thank you.
Q90 Simon Baynes: The next question, Minister: do you welcome BEIS’s recent commitment to introducing multipurpose interconnectors for renewable energy projects, whereby the costs and risks associated with connecting the grid can be shared between developers connecting at the same point?
Julie James: Yes, we absolutely do. We think the commitment is very sensible. Anything that rationalises the amount of infrastructure needed is obviously rational, particularly as very large parts of Wales are protected landscape and there is a real need to minimise the amount of disruption to that landscape.
Currently windfarms connect individually to the shore and operate independently of the existing interconnectors, so that would enable offshore wind and interconnectors to work as combined assets. Clusters of offshore windfarms could connect in one go and plug into the energy system of the neighbouring county, for example. That reduces the necessary amount of works onshore and the impact on coastal communities is kept to a minimum by doing that.
I mentioned the Celtic sea opportunity, which we absolutely have to grasp as the United Kingdom with both hands. It is an excellent opportunity to plan the grid infrastructure to deliver that efficient, manageable, publicly acceptable infrastructure in a way that allows those coastal communities to both benefit from and not be overly impacted by the onshoring of the energy. We absolutely think it is sensible. We need to work very carefully with those communities to make sure that we maximise the opportunities of it.
Q91 Simon Baynes: Do you think that British energy security strategy provides enough information for stakeholders to make long-term investment plans in Wales?
Julie James: Forgive me, but just to start off with a negative, we do not support the plans for further oil and gas leasing, given our position as founding members of the Beyond Oil and Gas Alliance. We think that is incompatible with our net zero commitments.
There are a number of areas where we want to work together to implement the strategy. We support the scaling up of offshore wind and we need clarity from the Crown Estate on what this means for the leasing rounds in the Celtic sea. I am afraid I cannot resist the opportunity of saying that the Crown Estate should be devolved to Wales as it is in Scotland. That would help, but we work well with them. We need clarity on the long-term pipeline of leasing to bring the investment in our ports and supply chains up to make sure we maximise economic and social benefits we want. We also want to understand what is proposed to shorten the consenting and licensing processes for those offshore developments. There are implications for us and we want to be able to work jointly with the UK Government to have a system that supports both the climate and nature emergencies, and the exploitation in particular of the Celtic sea opportunity, but there are many others. As I have repeated a number of times in the Committee, Lee Waters, my Deputy Minister, has written to the Secretary of State covering a range of areas where we want to work with UK Government very constructively and I hope that is going to happen very soon.
We have had a number of helpful interactions between our officials and I look forward to the interministerial groups starting to work in this field as well.
Simon Baynes: Thank you, Minister. Back to you, Chair.
Q92 Ben Lake: Minister, you have alluded in an earlier answer to some of the challenges that sometimes arise collecting energy to the grid when it comes to the landscape and natural environment. I am just interested to understand how you think the environmental cost and financial cost considerations should be balanced, in particular when we are using underground cabling instead of overhead conductors in areas of outstanding natural beauty?
Julie James: That is always a very tricky one, isn’t it? Often opposition to energy generation nearby is not the energy generation itself; it is the transmission cables that are used to take the energy away. We absolutely have to have the right balance here. We have to balance the nature and climate emergencies we are facing, the cost of living crisis we are facing and the need to get this energy on stream with a variety of landscapes in Wales that are highly protected, very beautiful and support our tourist industry, which is vital to many parts of Wales, and have that discussion with the UK Government on how to value those other things appropriately when considering the undergrounding issue.
There is the immediate disruption of the undergrounding against the long-term ability to restore the countryside and not have the very unwelcome overhead transmission lines that people really do not like in my experience. The only way we can do that is to involve local people in all those decisions about what they want to see, what the benefit is to them, what their ambitions are for their countryside, and what they feel about the disruption when undergrounding is taking place as against the long-term benefits once it has been done. There is the whole issue about the loss of energy along the transmission lines, which is helped by undergrounding requiring less energy to be generated in the first place.
It is a complicated answer because you do need to have that local engagement. Each landscape needs to be looked at in its own right. The kind of land that you are building it on needs to be looked at. If you are doing it through peatlands, undergrounding is a very different proposition to if you are doing it elsewhere. That is a complicated answer, I am afraid, because this is complicated and we need to look carefully at each of those landscapes. We need to be able to appropriately value them when making the economic decision of whether to do it or not.
Q93 Ben Lake: If I may say, I have appreciated your candour, Minister, and forgive me if I am just restating the simple and obvious, but it does rather underline the importance of these plans that you are currently undertaking, because at least if potential demand and subsequently potential for generation can be identified, there is, I would imagine, a better way of justifying some of the financial costs, as well as the natural environment and the way that sometimes can hinder it.
Forgive me if this is rather off the wall, but we talk a lot about offshore wind and energy projects, particularly in the Celtic sea, and it has been suggested that there may well be some scope of a sort of floating grid where you would effectively have interconnectors around the coast of Wales from which many projects would connect. It may well alleviate some of the headaches when it comes to improving the capacity of the grid in Wales. Very simply, is it something that has been brought to your attention at all, Minister?
Julie James: Yes, we have had some discussion about the possibility of floating interconnectors or bottom fixed interconnectors as well. It is certainly something under discussion. I would want to understand a lot more of what that meant for the onshoring of the energy. It still has to be onshored. If you have a big interconnector, you have a much bigger energy supply coming on to the shore, so how does that fit into the grid planning and so on? It is a little bit future tech as well, as I understand it. I am no expert on that, but I have been told by a number of people who are that it is a little bit future tech.
We want to have a look at the optimum way of getting that energy to where it is needed to be used. Whatever minimises the infrastructure and maximises the benefit is something we absolutely have to look at.
Q94 Chair: Minister, could I come back on a couple of things that you have said in your evidence this morning? Several times you have made the point that you would like to see the Crown Estate devolved to Wales. Apart from the totemic political significance of wanting to see it devolved, what practical difference do you think devolving the Crown Estate to Wales would make in the context of what has been quite a technical discussion about delivering sufficient grid capacity for Wales?
Julie James: Leaving aside the obvious economic benefit that the Crown Estate gains from exploitation in the Celtic sea, which would be an amount of money that would come to the Welsh Government—
Q95 Chair: It is the revenue you want from the Crown Estate?
Julie James: The revenue is one of the issues—we are always open to having new revenue, of course—but much more importantly it is about having a much bigger say in the planning and leasing cycles, and how they work and fit into the rest of our planning. I cannot emphasise enough that we work well with the Crown Estate. This is not a criticism of it in any way—I want to make that really clear. It consults us, but it would clearly be better for us to be the decision maker so that we could plan things out than it is to be a consultee, effectively.
I cannot emphasise enough that we work well with the Crown Estate, but that is not the same thing as having control over how those leasing land work—exactly where, exactly what is in, exactly what is out and so on. It is that control piece that is more important, although the revenue is also an issue, there is no doubt.
Q96 Chair: Another striking thing that you have said several times this morning, Minister, is about the need, in your view, to move away from a market-based approach to delivering. You have been very strong on that and very clear. If the market approach is the wrong one and the planned approach is the right one, how do you ensure that there is not an oversupply or an inefficient use or waste of resources? You have lots of projects lining up saying we would potentially need grid capacity, but not all those projects come to fruition. We talked about the Swansea Bay tidal lagoon earlier, and that could not get across the line in terms of a value-for-money proposition. Given the approach that you seem to be outlining, someone would have had to have gone ahead and, by now, paid for grid transmission capacity for a lagoon that could not get financing, right?
Julie James: Of course it would have helped its financing if it had understood what the infrastructure costs might look like and being a first-up operator is a real problem. I know that was not the only issue and I don’t think we are going to go into detail on what the issues for the previous tidal lagoon proposal were, but affordability and connection is definitely one of the issues. They were, as I am sure the Committee is aware, looking eventually at a closed loop system for Swansea because of the difficulty. That is the point, isn’t it? I would love to get to the point where our problem was oversupply, but we are a long way off that.
Working very hard on these plans, making sure they are as futureproofed as possible, making sure that the operators and DNOs understand what they look like, so that they can put their investment programmes in place appropriately to do that, and giving them more certainty would definitely be of assistance. Particularly in areas where there is no transmission network, being the first up to want one is obviously a big problem. How do you plan that without those costs falling on the first-up people? That has been a big problem in Wales.
It seems to me that we have to come away from that. I hope I was very clear in my earlier answer to Geraint Davies that this is not about shifting the cost to the Government, but about letting everybody plan out their investment strategy in a way that means that we can futureproof the system. It is not about shifting the burden to the public purse—I want to be very clear about that.
Q97 Chair: If the private sector is still going to be the funder for this infrastructure, basically what you are saying is that they will have to change their risk appetite to take on more speculative investment. If it is not market-led, where you have the market mechanism bringing that new investment on stream, and if it is about planning on the basis of what could happen, that inevitably will mean bigger risk taking for the private sector.
Julie James: There is a role for the Government here. We would certainly have to put some public money into derisking some of that. I mentioned in an earlier answer that sometimes the commercial confidentiality problem between the operators has got in the way of some of the engagement we wanted to do. I know the DNOs want to have this plan system, so we have had that discussion. I feel sure that you could get past those things in a range of legal ways were we to be able to get to a plan system that would allow people to have a better understanding, and it would derisk the project because you would know what the planned level of infrastructure was and you would not have to take the risk that your project would be the first up with all of the costs that come with putting that first set of lines in.
It is pretty much a no-brainer that we are not going to get those developments in mid-Wales unless we can sort out the grid upfront. This is an attempt to get to a different system. Both the UK Government and Welsh Government will have to play a role in the derisking of the initial phases of that, but once the plan is in place, obviously everybody can see what that looks like. We would hope to have widespread agreement of what the plan should look like and then people can put their investment strategies in place accordingly.
Chair: Thank you; that is a very helpful answer. Geraint Davies, you wanted to come in.
Q98 Geraint Davies: Again, just pressing on this point so we are clear, I think what you are saying is that if there is known and planned infrastructure in place for grid capacity and private investors come forward, they will know what that is and they can invest knowing what those costs are. They can therefore deliver renewable energy at a lower cost because they will not have to buy and borrow at a higher risk premium from the marketplace, and therefore they will be able to deliver lower cost renewables to the people of Wales. Is that correct?
Julie James: Yes, that is very much our position. It happens to be our position for other forms of infrastructure as well. We are about to put the strategic regional planning arrangements in place in order to allow our developers of other kinds of infrastructure—roads, schools, hospitals and so on—a similar kind of certainty for where we think those infrastructure projects should be in Wales. The regional arrangements I spoke about are also developing the plans for those. That kind of plan-led approach has helped us in the past to get those projects right. We have lots of lessons learned from not having got it right as well.
Q99 Geraint Davies: Finally, as an example, I know in London that there are a number of plans and consents for incinerators. In fact, across London they have been agreed and they all happened. They have a massive overcapacity. A more planned and strategic approach is to allow low-cost entry to manage the market in the interests of the community. In your case, if you have extra green energy, we can always export that to England, yes?
Julie James: Yes, obviously we hope that Wales will be an exporter of renewable energy. Certainly with what is planned for the Celtic sea and for Liverpool Bay coming on stream, we absolutely will be net exporters of that energy. In being a net exporter, I would very much hope that the people of Wales would be getting very much cheaper energy bills as a result.
Geraint Davies: Hear, hear.
Q100 Beth Winter: As well as talking about the current and future energy requirements, we have spoken previously, haven’t we, about the history and the past legacy of the coal tips, in particular? I noticed this week you restated your clear belief that it is for UK Government to step up and pay for the safety of the tips. You have launched the consultation on coal tips. Is there any further update you have on that because that does have implications for the future of energy of Wales? You have a lot of competing demands, haven’t you?
Julie James: Yes. On coal tip safety, I made a statement in the Senedd earlier this week launching the consultation on the Law Commission’s proposals. Just to be clear, there are three phases for coal tips: one is the monitoring; the second is the maintenance; and the third is the remediation.
We have put in place the money to put the monitoring and maintenance in. There is absolutely no way the Welsh Government can afford the remediation. The legacy of coal is something that the whole of the UK has, and we have a disproportionate number of the tips. I think the UK Government’s stance on this is outrageous.
Yes, the more things we have to use our money for, the less we have to use for other things, clearly.
Q101 Chair: We are coming to the end of our time with you—thank you, Minister. I will pick up on one more thing that you mentioned earlier. You mentioned the joint UK-Welsh Government announcement on freeports. Continuing my interest in floating offshore wind, is it your understanding that the framework that the two Governments have agreed would allow or enable collaboration between different ports in Wales? I am thinking particularly the south Wales ports, where there is a such a big opportunity emerging around floating offshore wind. It is bigger than just one port; you are going to need ports working together to handle the work. Is there a danger with the freeport process that it pits ports against ports, or would the framework you have agreed allow for that collaboration, which I think from talking to some of the developers and players in this field is what they want to see?
Julie James: Yes, it definitely does allow for that collaboration. I will just repeat what my colleague, the Minister for the Economy, Vaughan Gething, said in plenary only yesterday here in Wales. He has been lobbied extensively by everyone with a port in their area. He will make his announcement in due course, but what we are looking for is collaborative projects that make the best out of all of our port capacity across Wales. I am just repeating exactly what he said to members of the Senedd yesterday. That is absolutely right. It is exactly what we want to see—ports collaborating and coming together to make the most of the opportunity available.
Chair: On that note, I hope the collaborative spirit of the port of Milford Haven will be featuring in your discussions in due course.
Minister, thank you very much, it has been a very useful and interesting session. I appreciate how frank and succinct you have been in your answers. It has been very, very good. Thank you very much, and thank you to my colleagues on the Committee for making it a very worthwhile exercise.