Select Committee on Science and Technology Appendices to the Minutes of Evidence


APPENDIX 16

Memorandum submitted by TXU

INTRODUCTION

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 regions—the 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.  GOVERNMENT POLICY ON RESEARCH, DEVELOPMENT, AND DEMONSTRATION

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 FOR INTERNATIONAL CO-OPERATION

  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 scale installations.

4.  THE EFFECT OF PRIVATISATION ON RESEARCH, DEVELOPMENT, AND DEMONSTRATION IN THE ENERGY INDUSTRY

  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 focus.

  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, DEVELOPMENT AND DEMONSTRATION

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 conventional boilers.

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 2003.

6.  PRIORITIES FOR SUPPORT OF EMERGING TECHNOLOGIES

6.1  Biomass

  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 income.

  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 above.

  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.

6.5  Bio-fuels

  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



 
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