Select Committee on Environmental Audit Memoranda


Memorandum from Aquila Energy Limited

  Aquila would like to thank the Committee for accepting our submission regarding this important issue. Aquila Energy Limited is the UK arm of Aquila Energy Corporation, an international energy wholesaler and risk management company headquartered in the US. The company provides risk management services to participants in the UK gas and electricity markets. We will, for example, reduce the business uncertainty faced by a small electricity generator by paying them a fixed or benchmarked price for their product and carrying the risk of price movements in the electricity market ourselves. I use this example, because it outlines exactly the kind of service we might offer a small generator of electricity from renewable resources.

  In recent months Acquila has had considerable dealings with companies involved in the exploitation of coal mine methane (CMM). This source of gas, which is ideally suited to small scale electricity production, is not covered by the present iteration of the Renewables Obligation (RO). In our opinion it merits inclusion.

  In this paper we outline the benefits coal mine methane production provides in terms of environmental protection and sustainable development. We argue in the second part of the paper that the eligibility criterion for certification under the Renewables Obligation is inappropriate. In our opinion it betrays a general misconception as to what a market led approach to green policy means. In the concluding section we express our hope that a level playing field will be created for all energy sources that are both green and help deliver a sustainable energy supply to UK customers. Only with an even-handed commercial regime will the most effective emissions-reducing energy schemes get off the ground.


  Coal mine methane's eligibility for RO certification should be decided on the basis of two factors: the energy source's "greenness" and its claim to "renewable" status.


  There are over 900 disused coal mines in the UK leaking very significant quantities of methane (a potent greenhouse gas) into the atmosphere. This methane can be trapped and commercially exploited through small scale electricity generation projects. It is estimated that there is enough methane available from this source to sustain a significant coal mine methane (CMM) industry for at least fifty years. UK plc would derive significant economic and environmental benefits from this development.

  Over a 100-year period, methane is 21 times more effective at trapping heat in the atmosphere than carbon dioxide. The US Environmental Protection Agency estimates that recovering and using just 1 billion cubic feet (Bcf) of coal mine methane is equivalent, in terms of greenhouse gas reduction, to taking nearly 90,000 cars off the road. As of 1998, CMM use in the US was 43 Bcf/a (1.2 billion cubic metres per annum): therefore the development of this sub-sector has enabled a reduction in greenhouse gas emissions equivalent to keeping around 3.5 million cars off the road. Power produced by CMM will do more to reduce greenhouse gas emissions per unit of electricity produced than any biomass source or indeed, wind, wave, hydro and solar energy sources. CMM is very "green".


  Gas from disused coal mines is not "renewable" in the sense that it will be around forever, and it can be argued that the intention of renewable policy should be to promote only "evergreen" technologies such as wind, water and sun. However, there are many very compelling reasons for not accepting this reasoning.

  Coal mine methane will be commercially exploitable for 50 to 100 years (ie over the long-term). Unlike wind power, which has a big problem with short-term sustainability (i.e. the wind doesn't blow all the time), gas seepage is fairly constant. Capture and use of this gas therefore contributes to "sustainable" energy development for the long-term.

  Technological change, and the relative cost changes it inspires, largely determines the development of energy sources. Water was a major source of energy before coal. King coal was later superseded by oil, and natural gas has in the last ten years become the fuel of choice for power generation in the UK. As the cost of an "evergreen" technology like wind falls (due to technological improvements in turbine manufacture perhaps) it will increase its presence in the UK electricity market. But just because it is "renewable" does not mean we will use it in perpetuity. There is 800 years worth of coal to be dug up in Britain but market forces are likely to leave it where it is. Wind, wave, CMM, biomass and solar energy sources will similarly be embraced and abandoned by the market.

  The country should not therefore limit its promotion of "sustainable energy sources" to those ones that can be sustained forever, because such a goal ignores the fundamentals of technological change in the energy sector. Coal mine methane can make a useful contribution to the UK's energy balance over the long-term. It contributes to a "sustainable" energy policy and this contribution should be recognised in the Renewables Obligation.

  Fuels that are not "evergreen" are already included among those eligible for RO certification. Methane from landfill and sewage—both forms of waste—is classified as "renewable". Disused coal mines emit the same methane molecules as refuse and effluent and those molecules have exactly the same impact on the atmosphere, it would be perverse to accord them a lower commercial classification under the RO. Aquila urges the Committee to correct this anomaly by bracketing CMM with other waste-based eligible electricity sources.


  An ideal environmental tax/subsidy regime would tax or subsidise sources of energy according to how much they pollute or how renewable they were considered to be. In such a way the positive and negative externalities of the various sources of energy would be incorporated within the price mechanism. The market would then make an economically rational determination of which energy sources to use.

  Clearly such a policy is an ideal and not perfectly realisable in practice. But the ideal scenario does demonstrate that the starting point of green energy policy should be to ask how much a particular technology damages or improves the environment. With renewable policy (as distinct from climate change policy), the question should focus on how much the energy encourages "sustainability".

  The Renewables Obligation seems to start off by asking which renewable technologies are "viable" and where are "not", so as to focus government support on those technologies that are not currently viable. Viability is the wrong criterion to use when determining which renewable technologies should be eligible under the Renewables Obligation. If all renewable energy sources were supported by the Renewables Obligation, some technologies would become "viable" when once they were not. Other technologies—such as large-scale hydro and waste—would become more profitable than they currently are. Increased profitability is a signal to the market to develop in a certain direction. Only with the even-handed application of eligibility criteria can the government provide the market with appropriate price signals.

  The government hopes that through its approach the conditions can be created for "take off" of new technologies. The danger of this policy is that the technologies supported may not take off, and an opportunity to extend the use of new technologies that are "partially" viable at present will have been squandered.

  What do we mean by "partial viability"? In most cases scale plays a big part in the viability of an energy project. The Renewables Obligation has made a distinction between the viability of small and large hydro projects. It has not, however, made any distinction between the size of waste projects. Whilst large coal mine methane projects are currently viable, many smaller projects are not. Failure to classify this technology as eligible will prevent relatively small CMM projects from getting off the ground.


  If a technology provides tangible environmental benefits and can reasonably be classified as renewable, Aquila believes it should be supported under the Renewables Obligation. We feel that the current outline of the Renewables Obligation is unduly technology focused, despite efforts to be otherwise. It seems designed to make techno-savvy (and commercially unattractive) energy sources "viable", whilst ignoring an opportunity to extend the share of electricity production derived from waste and other (less glamorous) renewable energy sources.

  Coal mine methane has a bright future in the UK with or without government subsidy, tax breaks or redistributive levies. Nonetheless the extent of its development will depend on the commercial regime it faces. The technology does more to prevent global warming than a wind turbine and it is as much a waste product as landfill gas. Coal mine methane should therefore be considered "eligible" under the Renewables Obligation. If it is not, the government will needlessly retard the development of renewable electricity production. Moreover, unequal treatment of renewable technologies will lead to an economically inefficient allocation of resources. This inefficiency will be borne by the British consumer through their electricity bills.

  The creation of a level playing field for all providers of renewable energy will be the key to making the Renewables Obligation a success. Some renewable technologies such as nuclear energy and large-scale hydro may be felt to have environmental drawbacks that legitimately prevent their designation as "eligible". No such drawbacks exist with coal mine methane. If this technology is allowed to complete fairly (i.e. with its environmental value recognised) it may do much to help the UK reduce its greenhouse gas emissions and meets is 2010 renewables target.

  Aquila hopes the Committee will deem CMM "renewable" in the same way as other sites that emit methane molecules as waste are deemed renewable energy sources. We also hope the Committee will look closely at the RO's eligibility criteria and carefully consider whether the government should be promoting technologies according to (un-)viability rather than the good they do for the environment and long-term sustainability of UK energy supply.

January 2001

previous page contents

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2001
Prepared 9 May 2001