Memorandum submitted by TXU
1.1 Background to TXU
TXU provides electric and natural gas services,
merchant energy trading, energy marketing, energy delivery, telecommunications,
and energy-related services, and is a leading energy retailer
in the US and in the world. With $40 billion in assets, TXU is
one of the most influential energy companies worldwide.
TXU services in Europe include energy trading,
power generation and energy sales in three main regionsthe
UK, the Nordic Region, and Mainland Europe.
TXU in the UK has around 5.5 million customers,
making it one of the country's largest energy retailers, in addition
to being one of the leading energy traders in the UK. TXU also
owns significant electricity generation capacity in the UK, including
coal fired and CHP plant, and has a significant stake in the generation
and trading of electricity from renewable sources.
1.2 Scope of the Present Inquiry
TXU believes that the adoption of low-carbon
(as opposed to non-carbon) technologies can make a significant
contribution to the achievement of carbon emissions reduction
targets in the short and medium term and can provide a necessary
intermediate step towards a non-carbon fuel economy. In our view
it is therefore necessary to include low-carbon technologies within
the range to be considered by the present inquiry rather than
restricting the scope to non-carbon technologies alone. This memorandum
of evidence covers both low-carbon and non-carbon technologies
and sets out TXU's current view on how RD&D might be targeted
to best advantage. We have sought to balance the requirement to
achieve forthcoming emission reduction targets with the need to
include technologies that may have potential to deliver non-carbon
options in the longer term.
2.1 Granting and Support Mechanisms
TXU believes that it would be very helpful to
make granting and support mechanisms for RD&D in low carbon
technology simpler and clearer. Currently there appear to be a
wide variety of granting initiatives under way from a multiplicity
of agencies and government departments. It is often difficult
to identify what is available and where to find out about it.
The creation of a single web page consolidating all relevant agency
and government information together with application details would
be very helpful. It would also be helpful to reduce the number
of agencies involved by merging the Energy Savings Trust and the
Carbon Trust for example.
In addition it can also be cumbersome and bureaucratic
to apply for grants and in our experience the application process
often absorbs disproportionate resource with only the slim possibility
of being successful. It would also be helpful if grants of over
50% funding were to be made in appropriate cases and if a proportion
of the grants could be paid in advance to defray financing expenses.
An accelerated application process for bona-fide companies would
also be helpful.
A variety of mechanisms for the support of RD&D
other than straight granting of funds may be possible. Clearly
granting of funds will be very important for research and in the
early stages of development, and also for demonstration project
support and field trials of pre-production technologies. An alternative
to grant funding might be to consider a range of RO (Renewables
Obligation) type mechanisms directed at new technologies which
need development and where a wide diversity of approaches are
possible and are to be encouraged. This would promote a competitive
approach that would drive down costs. However, in our judgement,
it would lead to excessive costs for consumers if used for the
support of more mature technologies. Support mechanisms and policy
need to be flexible and capable of adjustment as technologies
reach maturity and come down in cost and as practical limits of
contribution to overall demand are reached. This will avoid over
subsidising mature technologies.
3. THE SCOPE
TXU believes that there is potential for international
technology transfer and multi-national companies with regional
operations appear particularly well placed to exploit these opportunities.
There is likely to be potential in giving preference to RD&D
proposals that have international technology transfer as a key
element. An example where this may be especially helpful is in
applications of distributed generation where networks access issues
have been raised and solutions found.
It would be worthwhile looking carefully at
what other governments in Europe and beyond are doing to support
the commercialisation of low-carbon and non-carbon technologies.
In particular the Dutch and Spanish governments have support arrangements
for PV that appear to be encouraging commercial and industrial
4. THE EFFECT
TXU believes that the effect of privatisation
of the energy industry and liberalisation of the energy market
has been to reduce dramatically the expenditure on RD&D in
the energy sector. Low margins have reduced the cash available
and the time scales over which returns from research and development
effort are expected are now much shorter than previously.
However, in our view much of the expenditure
previously devoted by the energy industry to RD&D, in particular
prior to privatisation, was poorly targeted with inadequate commercial
Privatisation of the energy industry has forced
a reassessment of the energy industry's role in RD&D. TXU
believes that RD&D expenditure by the energy industry, although
much reduced by privatisation and liberalisation of markets, is
now much better targeted and aligned to its key role of promoting
the commercialisation of emerging technologies as opposed to pure
R&D to which it was ill-suited. However, the energy industry
with the current sharp commercial focus is ideally placed to identify
leading technologies and give a view on the assistance needed
for those most likely to make a commercial contribution.
5. TXU RESEARCH,
5.1 Co-Firing of Biomass
TXU owns Drakelow, Ironbridge and High Marnham
power stations and is currently pursuing the prospect of co-firing
of biomass at these locations. It would also be technically possible
to convert some of this capacity to burn only biomass fuel.
5.2 Carbon Dioxide Capture and Storage
TXU owns a number of power station and associated
premises where significant opportunity for capture and storage
in subterranean aquifers is believed to exist. Investigation of
this potential is at the feasibility stage and various technology
options are being assessed in particular the use of oxy-fuel combustion
followed by carbon dioxide scrubbing and subterranean storage.
5.3 Domestic and Small Business Micro CHP
TXU is currently developing domestic and small
business micro CHP units for launch in the UK market. TXU has
applied for Carbon Trust funding for this work and the submission
has been put on the reserve list. This project includes field
trials of Stirling engine based technology for the domestic market.
Experience from the "Alpha Trials" last heating season
has been fed back to the manufacturer and product modifications
made ready for "Beta Trials" this winter. Whilst TXU
is committed to full development and launch of a commercial product,
this would benefit greatly from subsidies to help customers cover
the marginal capital cost of the initial units over and above
5.4 Fuel Cells
TXU has been carrying out joint work with Johnson
Matthey on the development of a fuel cell for electricity generation
at domestic level. This is currently at the prototype design stage.
The project has received DTI support that has been vital to the
progress made to date, however the procedure for obtaining this
support was in our view disproportionately laborious and there
would have been clear benefit in making the process easier for
bona-fide companies such as TXU.
5.5 Solar Photovoltaics (PV)
TXU is currently the only electricity retailer
to offer a net metering tariff as a limited volume demonstration
for customers with solar photovoltaic panels. This is called "Solarnet"
and the terms are that the customer is paid the same rate for
energy exported to the network as they pay for energy they import.
However despite the favourable terms the demand for this tariff
from customers has been low which suggests that much development
work remains to be done by manufacturers to reduce the cost of
the panels before they become financially attractive to customer.
Nevertheless, TXU is demonstrating its commitment
to PV by installing the largest "building integrated"
development in Europe on its new business centre currently under
construction in Ipswich. The building incorporates 200kW of BP
Solar panels into its fabric and will open for business during
TXU believes there are good opportunities currently
available to adapt existing smaller capacity coal fired power
stations for firing of biomass. This opportunity will have a limited
lifetime as future restrictions on emissions from coal fired plant
increase the likelihood of closure of the lower capacity units
where the fitting of SOx and NOx reduction plant is not worthwhile.
The technology to carry out the conversion to fire biomass is
fairly well established but the funding of an early demonstration
project would be very helpful in commercialising the procedures.
The conversion of old power stations to burn
biomass would also help create demand for biomass, in particular
energy crops, and stimulate production as well as creating jobs.
The converted power stations would reduce emissions by displacing
the higher emissions produced by pure coal burning plant.
It would also be helpful to encourage the development
of co-firing of biomass to reduce emissions in coal fired power
stations. This could be done through the Renewables Obligation
rather than by grant funding. Relaxing the requirement for 75%
of co-fired biomass to be made up from energy crops from 2006
and extending the eligibility beyond 2011 would be a good start
towards achieving this.
TXU believes the technologies for exploitation
of biomass as an energy source are fairly well developed and ideally
positioned to make a significant contribution given the boost
to developer confidence that successful demonstration would provide.
However, the main difficulty with these technologies will be securing
adequate fuel supply. It is therefore essential to promote the
plantation of short rotation energy crops and the establishment
of processing and handling facilities at an early stage in parallel
with demonstrations of the generation plant.
6.2 Carbon Dioxide Capture and Storage
TXU welcomes the recent announcement by the
DTI of a study of potential for carbon dioxide capture and storage.
Carbon dioxide capture and storage seems very promising and the
carbon savings could be highly significant. There is a clear need
for support in the development of this technology, since no power
generator in the current very competitive market is able to afford
such work. Capital grants are not the only means of support that
might be used although it would initially need government assistance.
In the longer-term credit under the Renewables Obligation, Emissions
Trading Scheme, or similar future mechanism could provide adequate
incentive for ongoing development and application.
In the short term, retrofit of capture technology
to existing power stations seems a lower cost option than fitting
to new build installations. There are a significant number of
very large point sources of CO2 on or near the East
Coast that could link with enhanced oil recovery potential in
the North Sea. Just a handful of installations could save over
10 MT per year of carbon emissions.
TXU believes carbon capture and storage could
be a major future business opportunity for the UK. We are favourably
positioned in Europe for geologically suitable sites particularly
as the North Sea oil industry reaches its twilight phase. As well
as preserving existing North Sea jobs and creating new jobs onshore,
the opportunity to capture carbon dioxide emissions over and above
our Kyoto targets would allow UK plc to sell internationally traded
carbon credits that could provide a significant source of export
In our view it is necessary now to press ahead
with significant research and development on the options. These
include the following:
pre-combustion CO2 separation
of hydrocarbons to form hydrogen fuel;
post combustion separation using
carbon dioxide scrubbing techniques;
oxy-fuel combustion technology;
further geological research to alleviate
concerns over slow seepage; and
technology relevant to transport
and injection into geological storage.
In parallel with technological research and
development, urgent work is needed to establish an appropriate
legal framework for carbon dioxide capture and storage.
6.3 Micro CHP
TXU believes that a major opportunity exists
for small scale or micro CHP at the domestic and small business
levels. In our view further refinement and field trials of pre-production
units is needed if this potential is to be exploited.
Support for the necessary development and field
trials would be helpful, and also financial support to help customers
cover the additional capital costs of micro CHP units in the early
days of marketing while they are relatively expensive compared
to conventional boiler systems.
TXU have recently proposed a simple and practical
alternative arrangement to overcome the complex and high cost
metering currently thought to be needed for micro-CHP and other
micro generation technologies and would welcome support for a
demonstration project installation.
6.4 Fuel Cells
In TXU's view there is very little fuel cell
R&D activity in the UK compared to some other countries and
insufficient support being given to applications of fuel cells
outside the automotive industry. Nevertheless we believe there
is considerable potential for the high conversion efficiencies
offered by fuel cell applications as an additional strand of technology
applied to the domestic and small business sector.
In addition we think there will be significant
application of fuel cells in the industrial and commercial sectors
where the larger quantities of CO2 generated could
be linked with carbon dioxide capture and storage technology described
These applications are in our view at the development
and prototyping stage and making funds available for RD&D
support is urgently needed.
Fuel cells are a natural follow-up to Stirling
engine technology for micro CHP in the home and for small businesses
and TXU sees them as the second stage of the emerging micro generation
market. It would clearly be helpful to link the funding support
for the two technologies as part of the same overall opportunity
to reduce emissions well into the next decade.
The extraction of liquid bio-fuels from energy
crops would also merit support through funding of demonstration
projects leading to commercialisation. The production of bio-ethanol
is a significant business in the USA and this could be extended
to the UK given suitable demonstration support. In France the
production of bio-ethanol from sugar beet in the winter and cereal
crops in the summer has shown the potential for a new year-round
industry with its associated jobs. An additional benefit of bio-ethanol
as a fuel is that it can be used to make a contribution to emissions
reductions in the transport sector.
In common with the biomass applications described
in section 6.1 it will essential to secure adequate fuel supplies
through the plantation of short rotation energy crops and the
establishment of processing and handling facilities at an early
stage in parallel with demonstrations of bio-fuel production plant.
Further development and commercialisation of
biomass gasification technology when combined with gas engine
generators and heat recovery would also benefit from demonstration
project support. This would have additional potential to make
a useful contribution to renewable energy targets through Energy
from Waste schemes.
6.6 Solar Photovoltaics (PV)
Low take-up of our demonstration "Solarnet"
tariff tends to support the view that more research is needed
to get the costs of solar photovoltaic panels down. PV is presently
very high cost due to the difficulty in obtaining the high purity
silicon needed to make the panels. The only source is off-cut
material from the microchip industry and the fact that it is a
single source may be the root of the problem. Support is needed
for the PV industry to develop volume upstream production capability
to drive down the cost.
However, thin film PV technology may hold the
ultimate answer to getting the costs down to levels where large-scale
commercialisation might become a reality.
TXU do not believe there is a high probability
the PV will deliver a significant contribution to the UK's renewable
electricity targets before 2010.
6.7 Offshore Wind
In TXU's view offshore wind technology is fairly
well developed but needs further demonstration support if projects
of sufficient magnitude are to proceed promptly. However, the
development of offshore wind turbines is currently hampered by
the fact that there is no mechanism for consent to be granted
for new sites. In addition the confusing overlap of governmental
stakeholders and planning authorities make it very difficult for
developers to bring forward prospective proposals.
Connection charging and issues associated with
bringing the power onshore remain to be solved and the current
Ofgem work with Distribution Network Operators to produce revised
arrangements could do with speeding up. Support through an interim
payment of the connection charge for a demonstration project would
be very helpful.
6.8 Tidal Energy
Tidal energy technology appears to be available
and capable of commercial exploitation but needs demonstration.
The problem with tidal barrage or coffer damming techniques is
finding a demonstration project that is large enough to be meaningful
but not so expensive that it becomes an unreasonable risk.
The development of sub-sea tidal current turbines
appears to offer an incremental approach that is more appropriate
for modest RD&D support.
6.9 Energy Efficiency
TXU believes that the technology and techniques
for achieving energy efficiency are already well developed but
considerably under-utilised. In particular the long-term nature
of the investment is not attractive to businesses focused on short-term
issues or householders who prefer to invest in consumer desirables.
The challenge is to incentivise investment by business and to
get people to change attitudes and lifestyle. We believe it would
be appropriate to provide funding for research to identify the
reasons for poor uptake and to help develop solutions.
However, in our view there is a considerable
opportunity to improve energy efficiency in the transport sector.
TXU believes that a combination of further work to improve car
fuel efficiency and the use of judicious taxation policies to
incentivise motorists to prefer more efficient cars is likely
to be the most productive approach.
19 September 2002