Joint memorandum submitted by the Department
of Trade and Industry and the Department for Environment, Food
and Rural Affairs
OVERVIEW
1. The Energy White Paper published in February
2003 set out the overarching long-term framework for energy policy,
based on four goals:
— To put ourselves on a path to cut
the UK's carbon dioxide emissions by some 60% by about 2050, with
real progress by 202[1];
— To maintain the reliability of energy
supplies;
— To promote competitive markets in
the UK and beyond, helping to raise the rate of sustainable economic
growth and to improve our productivity; and
— To ensure that every home is adequately
and affordably heated.
2. Within that strategic context it gave
high priority to energy efficiency and renewables but also emphasised
that it could not define the detail of individual policies needed
over the next twenty years and beyond. It proposed keeping the
nuclear option open, whilst not ruling out the possibility that
new nuclear build might be necessary at some point in the future
if we are to meet our carbon targets. Before building any new
nuclear power stations there would have to be the fullest public
consultation and a white paper setting out our proposals. The
Prime Minister has stated that a decision on nuclear power will
need to be taken during this Parliament.
3. We continue to believe that the goals
set out in the Energy White Paper provide the right framework
for our energy policy, and that they are achievable. We keep our
progress and our policies under review, for example through the
Climate Change Programme Review and the Renewables Obligation
Review, both of which are ongoing.
4. The desired outcome of environmental
regulation is to shift the overall generation mix towards cleaner
technologies. The EU Emissions Trading Scheme, Large Combustion
Plant Directive, Integrated Pollution Prevention and Control Directive
and National Emissions Ceiling Directive will all operate in the
same direction, providing incentives and limits on emissions to
encourage a move towards cleaner forms of generation.
5. The detailed responses below are based
on the policies set out in the Energy White Paper and include
updated information (eg from revised projections, or conclusions
of reviews) where available.
6. The Committee additionally requested
data on (a) the operational availability of nuclear power stations,
ie the extent to which they had delivered their rated capacity
individually, in total and by year; and (b) on the social cost
of carbon.
7. In relation to (a), the Government does
not hold data on an individual station basis as this information
is regarded as commercially confidential by the generators. They
do provide data on a company basis for statistical purposes but
this information is also commercially confidential and, under
National Statistics protocols, cannot be released without the
permission of the companies themselves. The annual Digest of UK
Energy Statistics does however include data showing the electricity
supplied, plant load factors and thermal efficiency covering the
nuclear industry as a whole and we have included this information
at paragraph 43.
8. In relation to (b), the Committee requested
the research reports by the Stockholm Environment Institute and
AEA Technology, produced for the interdepartmental group set up
in October 2003 to take forward the review of the social cost
of carbon. We will be pleased to send the Committee copies of
the reports as soon as final, approved versions are available.
A. THE EXTENT
OF THE
"GENERATION GAP"
Q1 What are the latest estimates of the likely
shortfall in electricity generating capacity caused by the phase-out
of existing nuclear power stations and some older coal plant?
How do these relate to electricity demand forecasts and to the
effectiveness of energy efficiency policies?
9. We do not expect there to be any shortfall
in electricity generating capacity. Based on current DTI Energy
Projections, between 2005 and 2020, total electricity generation
is projected to increase by 5.5%. The share of nuclear generation
is currently 19% and is projected to be 18% in 2010 and 7% in
2020. The share of coal generation is currently 33% and is projected
to be 26% in 2010 and 16% in 2020. These are central projections,
but there is a wide range of possible scenarios, depending on
various factors including decisions by generators made in response
to market conditions and other regulatory factors.
10. Nuclear generating capacity is projected
to decline by 3GW between end 2003 (when nuclear capacity stood
at just under 12GW) and 2010, and by a further 5GW by 2020. It
seems likely that some coal plant will also close by 2010. This
could result from a number of factors, including the assumption
that gas prices will show some decline from current high levels,
the impact of carbon trading, limits on operation brought about
by environmental measures, including that of the Large Combustion
Plant Directive, and by general wear and tear impacts.
11. The central projections assume that
reductions in nuclear and coal capacity are made good by the construction
of new plant capacity, mainly in the form of Combined Cycle Gas
Turbine (CCGT) plant and renewables.
12. DTI published updated details of energy
and emission projections in November 2004 in order to inform decisions
about the National Allocation Plan under the first phase of EU
Emissions Trading. The projections listed the main changes that
had been taken into account in making the revisions. The document
is included in this submission as Annex 1.
13. An addendum was published soon after
which showed the projections to 2020. This document is attached
as Annex 2.
14. Fuel demand projections by final users
are shown in Annex 4 of both these publications. Overall, these
indicate gradually rising demand to 2010 and 2020, though this
is not true for all individual sectors. The projections take into
account factors such as growth in population, households (eg the
increase in single-person households) and transport. They assess
the impact of only current environmental policy measures in looking
beyond 2010. They will be updated to reflect the expected impact
of any new policies proposed by the Climate Change Programme Review,
due to report later this year.
The table below summarises the projections by
sector in comparison with recent actual figures (drawn from the
Energy Projections, attached in full at Annexes 1 and 2).
FINAL ENERGY DEMAND (MTOE)
| |
| |
| Sector | 2003
| 2010 | 2020 |
| |
| |
| Residential | 47.9 | 44.7
| 46.6 |
| Transport | 56.0 | 62.2
| 71.4 |
| Service | 19.5 | 21.5
| 21.9 |
| Industry (excl iron and steel) | 31.7
| 31.7 | 35.6 |
Total | 155.1
| 160.0 | 175.4
|
| |
| |
Energy efficiency policy
|
| | |
15. Energy efficiency has been identified as the most
cost effective way to deliver all four of the Government's energy
policy goals, as set out in the Energy White Paper, including
those to reduce carbon emissions and ensure security of supply.
16. The Performance and Innovation Unit's 2002 Energy
Review showed that the technical and economic potential to improve
energy efficiency exists on a scale such as to provide up to half
of the savings necessary to put the UK on track to reduce carbon
emissions by 60% in 2050. Across the economy as a whole it estimated
that we could reduce electricity use by up to 20% or more, and
the Climate Change Programme policies aim to achieve reductions
of around 7% by 2010. These savings will be achieved at net benefit
to the economy.
17. The Energy Efficiency Standard of Performance (EESoP)
scheme (1994-98), the first energy efficiency scheme for energy
suppliers, was audited by the National Audit Office (NAO) in 1998.
In their report, the NAO[2]
showed that the cost of achieving energy savings equated to an
average cost of saving electricity of around 1.8p/unit. This was
less than the average price of off-peak electricity by customers
using an off-peak tariff (an average in the period to March 1998
of around 2.7p) which was the lowest price that domestic customers
could pay, and much less than the average price paid for electricity
used for other purposes.
18. In April 2004, Energy Efficiency: The Government's
Plan for Action (the Action Plan) was published, following
up the Energy White Paper and setting out the Government's strategy
for improving energy efficiency across the economy, with a particular
focus to 2010. The Action Plan set out how the Government planned
to secure annual carbon savings of 12 million tonnes by 2010 and
save UK households and businesses over £3 billion per year
on their energy bills. The Action Plan aimed to deliver a step-change
in energy efficiency, using a combination of strong, consistent
Government action including regulatory mechanisms, fiscal incentives,
leadership, awareness-raising and education, coupled with effective
market-facing support programmes delivered by organisations like
the Carbon Trust and the Energy Saving Trust. Key measures include:
raising building standards; an obligation on energy suppliers
to promote energy efficiency; product design, labelling and minimum
standards; emissions trading and the Climate Change Agreements,
and innovation. Within this programme, around 20% of the energy
savings (and about 35% of the carbon savings) are expected to
be from electricity.
19. Within the current review of the Climate Change Programme,
the Government is also looking across the economy, at what new
or strengthened policies and measures could best contribute to
the long-term step change in energy efficiency.
20. In the short term, the Government's focus is to get
existing energy saving products and technologies to be taken up
widely in every sector. But to ensure that we can continue to
deliver efficiency gains in the future we need to ensure that
new technologies allow us to design buildings with low or zero
carbon emissions, to retrofit difficult to tackle buildings such
as those with solid walls, and to introduce low-energy products
and appliances such as Light Emitting Diode (LED) lighting and
sophisticated building controls. Much can be achieved by working
with manufacturers to encourage low-energy appliance design, and
to back this up with tighter equipment standards negotiated at
EU level. The Energy Efficiency Innovation Review, as an input
to the Climate Change Programme Review, has looked in detail at
the key low-carbon technologies where Government support could
make a significant difference to delivery. We continue to support
innovation on low carbon technologies through for example, the
Carbon Trust and DTI's Technology Programme.
B. FINANCIAL COSTS
AND INVESTMENT
CONSIDERATIONS
Q2 What are the main investment options for electricity
generating capacity? What would be the likely costs and timescales
of different generating technologies?
21. The main investment options for future large scale
electricity generating capacity are gas (using CCGT where technically
and financially feasible) and coal (with or without capture and
storage of the carbon emissions), nuclear, Combined Heat and Power
(CHP) and renewables. There is a wide range of estimates for the
future costs of these technologies. These depend on the assumptions
made, among other things, about fossil fuel prices, carbon prices,
trends in the capital costs of the plant concerned, the economic
life of different types of plant and the rates of return required
on the investments.
22. The Energy White Paper set out a "vision"
of the energy system in 2020 and this included a diverse range
of generation, including a range of renewables such as wind, wave,
tidal and biomass; more microgeneration; and a significant role
for gas generation.
23. The 2003 Energy White Paper set out the Government's
policy on nuclear generation, namely that while it was an important
source of carbon-free electricity its current economics made it
an unattractive option for new carbon-free generating capacity
and that there were also important issues of nuclear waste to
be resolved. However, it did not rule out the possibility that
at some point in the future new nuclear build might be necessary
if we were to meet our carbon targets.
24. The Department is aware of a number of recent studies
on the comparative economics of alternative generation technologies,
such as nuclear. These include reports by the Royal Academy of
Engineering, University of Chicago, Massachusetts Institute of
Technology and Oxera. In Annex 3 we summarise the main conclusions
of recent studies published by the Government and also by other
organisations.
What are the likely construction and on-going operating costs
of different large-scale technologies (eg nuclear new build, CCGT,
clean coal, on-shore wind, off-shore wind, wave and tidal) in
terms of the total investment required and in terms of the likely
costs of generation (p/kWh)? Over what timescale could they become
operational?
25. There is a wide range of estimates of generation
costs depending on the assumptions mentioned in the response to
Question 2 above (namely fossil fuel prices, carbon prices, trends
in capital costs of plant, the economic lifecycle of the plant,
and rates of return required on the investments). In particular,
the range of possible costs for each technology tends to be so
wide that it is very difficult to predict now whether one might
be cheaper than another or by what margin. By 2020, however, we
would expect a broader range of renewable generation technologies
to be commercial.
26. The timescales for making these forms of generation
operational will vary widely between those that are already developed
technologies (such as onshore wind) and those that are not yet
widely commercially available (such as wave and tidal). Lead-in
times for the design, planning, consent and construction of individual
projects can vary widely according to individual circumstances.
With regard to nuclear new build, how realistic and robust
are cost estimates in the light of past experience? What are the
hidden costs (eg waste, insurance, security) associated with nuclear?
How do the waste and decommissioning costs of nuclear new build
relate to the costs of dealing with the current nuclear waste
legacy, and how confident can we be that the nuclear industry
would invest adequately in funds ring-fenced for future waste
disposal?
27. There is very little evidence on the robustness of
cost estimates for new nuclear build as there is currently only
one plant being built in Europe. In its 2002 Energy Review, the
Performance and Innovation Unit noted that the construction of
Sizewell B took seven years, and cost estimates were revised upwards
by at least 35%. In 2000 money, the construction cost was approximately
£3,000/kilowatt including first of a kind costs (and around
£2,250/kilowatt if first of a kind costs are excluded)[3].
Past experience of cost overruns in non-liberalised electricity
markets, however provides no guide to the prospects for new nuclear
build in a liberalised market.
28. On 11 August the Nuclear Decommissioning Authority
published its draft Strategy for decommissioning and clean-up
of the UK's civil nuclear sites. It updated estimates of the total
lifecycle costs of operations, decommissioning and clean-up to
£56 billion and warned that these costs could rise significantly
in future due to the cost of dealing with higher hazard legacy
facilities especially at Sellafield and also as a result of the
possibility that certain nuclear materials might need to be reclassified
as waste. Set against this though is the NDA's aim to drive down
the cost of our liabilities by 10% by 2010, through new approaches
and innovation. This work will take decades and is to some extent
without precedent.
29. The experience gained by the industry of building,
operating and decommissioning nuclear power stations over the
last 50 years might enable technological and design advances that
could reduce the costs of decommissioning any new generation of
reactors. The position remains, however, that as no such reactors
have yet been decommissioned, we cannot know the exact costs that
decommissioning them might entail. Moreover the present experience
of the NDA in assessing the cost of decommissioning our existing
power stations is that cost estimates have risen.
Is there the technical and physical capacity for renewables
to deliver the scale of generation required? If there is the capacity,
are any policy changes required to enable it to do so?
30. The Renewables Innovation Review, undertaken by DTI
and the Carbon Trust in 2004, was a comprehensive exercise to
identify the key renewable technologies for the delivery of UK
targets and aspirations and the barriers to the development and
deployment of these technologies. The conclusion of this review
was that there are no technical barriers to achieving the 2010
target or the 2020 aspiration for renewable electricity set out
in the Energy White Paper.
31. The UK benefits from vast natural renewable resources
particularly wind, wave and tidal. However, in meeting the 2010
target, we expect wind, both onshore and offshore, to make the
biggest contribution. At present, onshore wind is the only renewable
technology that is both economically viable and has scope for
expansion under the current Renewables Obligation (RO) regime
in the UK. Biomass (including landfill gas) currently accounts
for the largest percentage of RO generation but several forms
of biomass which are currently economic are constrained by limited
resources (such as landfill gas) or by regulation (such as the
co-firing of residues in coal-fired power stations) and so wind
development dominates the near-term forecast of renewables growth.
32. Biomass has the potential to supply around 6% of
electricity demand by 2020 and the Government is supporting the
bio-energy industry with a package of measures to help establish
the crops, develop supply chains and create markets. This includes
working with farmers and industry to develop markets and promote
uptake of bioenergy from purpose-grown energy crops, forestry
and other sources such as biodegradable waste. It has also announced
grants of over £60 million for energy crops and biomass.
The Committee will also be aware that the Biomass Taskforce, led
by Sir Ben Gill, is due to report shortly with its recommendations
to Government.
33. Despite this, we are aware that 2010 target is still
demanding but we are doing everything we can to get as close to
the target as possible. To this end, there are a number of key
barriers to renewables that the Government is working to address:
— upgrading the transmission grid so that renewables
in peripheral areas realise their potential;
— finance and investment; and
34. Grid upgrades are on the critical path to delivering
the 2010 target. The Government is progressing the regulatory
changes required to incentivise the necessary grid upgrades for
example in the consultation on "Adjusting transmission charges
for renewable generators in the north of Scotland"[4].
35. The Government is also working with the renewables
sector to monitor and minimise planning risks, aviation issues
and public opposition through the Aviation Issues Working Group,
the Renewables Advisory Board and the DTI's renewables communications
campaign "It's Only Natural"[5].
36. The aim of the Government's communications campaign
is to overcome concerns about the impact of wind farms. Example
of recent success was includes the organization of a series of
events to provide planners and councillors with the information
they need to make an informed decision on planning applications.
A further example is the collation of educational material on
renewables for primary and secondary schools.
37. A key factor required to deliver continued progress
on renewables is for the Government to provide a stable regulatory
context for investment. This has been fostered using the Renewables
Obligation (RO), the Government's main support mechanism for renewable
electricity. Maintaining investor confidence has been a key message
in the 2005-06 Review of the RO.
38. The Government is working with organisations such
as Scottish Enterprise and the British Wind Energy Association
to promote business development activities such as a Guide to
working with turbine manufacturers and other supply chain activities.
39. Offshore wind is likely to be required at scale to
achieve the Government's targets in full. Work done for the Renewables
Innovation Review by Garrad Hassan[6]
has indicated that there are only a limited number of engineering
obstacles to off-shore wind development and that these can be
overcome by appropriate and timely action, including maintaining
a stable policy framework to encourage investment in some areas
of the supply chain process and enablement of timely planning
consents. Round 2 offshore wind projects will require substantial
debt financing and therefore an appropriate financial framework
will be important in encouraging investment. The Government has
held meetings with Round 1 and 2 developers to push forward on
build schedules for Round 1 and to understand and develop a workplan
to overcome any obstacles to Round 2 including the development
of the offshore grid regulatory regime.
For further information
40. The key conclusions of the Renewables Innovation
Review are attached at Annex 4 and full findings are available
at:
http://www.dti.gov.uk/renewables/renew—2.1.4.htm
What are the relative efficiencies of different generating
technologies? In particular, what contribution can micro-generation
(micro-CHP, micro-wind, PV) make, and how would it affect investment
in large-scale generating capacity?
Relative efficiencies
41. Estimates of generating efficiency vary according
to the mode of operation and exact type of plant. A summary of
the efficiencies assumed for the main types of plant considered
in the November 2004 Energy Projections exercise together with
recent performance drawn from the Digest of UK Energy Statistics
(DUKES) is as follows[7]:
— Existing CCGT fleet, recent performance: 45% to
46%.
— Existing coal fleet, recent performance: 34% to
35%.
— New coal in 2010: 45% to 52%.
— Existing oil, recent performance: 20% to 26%.
— Renewables (wind and other primary sources): 100%.
— Biomass, recent performance: 25% to 30%.
— Nuclear, recent performance: 37% to 38%.
— CHP: recent performance: 70% to 90%.
42. The Government is committed to increasing the efficiency
with which electricity is supplied as well as generated. Defra
published the Combined Heat and Power (CHP) Strategy in April
2004, which sets out a framework of measures to support growth
in CHP capacity, including the exemption of Good Quality CHP from
the Climate Change Levy, and reiterates the Government's commitment
to its target of at least 10 gigawatts of installed Good Quality
CHP capacity by 2010. CHP can increase the overall efficiency
of fuel utilisation to as much as 70% to 90%. CHP typically uses
a third less fuel than conventional energy installations and can
potentially save up to 40% on fuel bills. Around 90% of CHP schemes
are now gas-fired, with natural gas one of the cleanest fuels
for energy generation. The Government is working with industry
to maximise the delivery of existing CHP measures and further
measures are being considered as part of the Climate Change Programme
Review.
43. The efficiency of nuclear stations has been rising
in recent years as older, less efficient stations have closed,
but outages in 2004 have reduced the efficiency in data collected
for that year. The table below shows thermal efficiency[8]
alongside the plant load factor[9]
and overall system load factor[10].
This gives a general indication of how intensively each type of
plant has been used. For nuclear generation, it shows that nuclear
stations were in use on average for over 70% of the time, but
this reflects the fact that nuclear generation provides baseload
power.
Plant loads, demand and efficiency
MAJOR POWER PRODUCERS (1)
| Unit |
2000 | 2001 | 2002
| 2003 | 2004 |
Simultaneous maximum load met (2)(3)
| MW | 58,452 | 58,589
| 61,717 | 60,501 | 61,013
|
of which England and Wales | MW ..
| 51,020 | 51,548 | 54,430
| 52,965 | 53,795 |
| Scotland | MW ..
| 5,861 | 5,504 | 5,688
| 5,909 | 5,579 |
| Northern Ireland | MW ..
| 1,571 | 1,537 | 1,599
| 1,627 | 1,639 |
| | |
| | | |
| Maximum demand as a percentage of UK capacity
| % | 81.1 | 80.0
| 87.7r | 84.6r | 83.2
|
Plant load factor |
| | | |
| |
Combined cycle gas turbine stations
| % | 75.0 | 69.7
| 70.0r | 59.8 | 60.3
|
| Nuclear stations | " |
70.5 | 76.1 | 75.1r
| 77.8r | 71.0 |
| Hydro-electric stations: | |
| | |
| |
| Natural flow | " |
37.2 | 27.4 | 33.8
| 22.5 | 37.2 |
| Pumped storage | " |
10.7 | 9.6 | 10.5 |
10.8 | 10.5 |
Conventional thermal and other stations (4)
| " | 39.2r | 40.2r
| 40.6r | 50.0 | 47.7
|
| of which coal-fired stations | "
| 50.8 | 56.0 | 55.9
| 65.0 | 62.0 |
All plant | "
| 52.5r | 53.0r |
53.9 | 55.8r | 54.1
|
System load factor | "
| 67.4 | 68.7 |
64.8 | 67.0 | 66.3
|
Thermal efficiency |
| | | |
| |
| (gross calorific value basis) |
| | | |
| |
| Combined cycle gas turbine stations |
" | 46.6 | 46.7
| 47.2 | 46.4 | 46.8
|
| Coal fired station |
37.7r |
36.2 |
35.8 |
36.3r |
36.5r |
36.2 |
| Nuclear stations | "
| 37.3 | 37.3 | 37.6
| 38.1 | 37.9 |
| |
| | | |
|
(1) See paragraphs 5.49 and 5.50 for information on companies
covered.
(2) Data cover the 12 months ending March of the following
year, eg 2004 data are for the year ending March 2005.
(3) The demands shown are those that occurred in Scotland
and Northern Ireland at the same time as England and Wales had
their maximum demand. See paragraph 5.56 for further details.
(4) Conventional steam plants, gas turbines and oil engines
and plants producing electricity from renewable sources other
than hydro.
Source: Digest of UK Energy Statistics 2005, Chart
5.10, page 136.
Microgeneration
44. Microgeneration has the potential to play a significant
role in moving towards Government's objective of sustainable,
reliable and affordable energy for all. The Energy White Paper
acknowledges the contribution microgeneration could make towards
the Government's vision of our energy system in 2020 by suggesting
that there will be "much more local generation" and,
more specifically, "much more microgeneration, for example
from CHP plant, fuel cells in buildings or photovoltaics".
The Government's commitment to microgeneration has been demonstrated
through a variety of support measures including £41 million
of support for solar photovoltaic projects (through the major
PV demonstration programme and field trials) and £12.5 million
of support for household and community renewables through the
Clear Skies Initiative. The Government is developing a strategy
for the promotion of microgeneration with the aim of creating
the right competitive environment for these technologies to fulfil
their potential.
45. Increased deployment of these technologies could
have a beneficial impact on all four of the Government's energy
policy goals:
— Reducing carbon emissions—with buildings
contributing around 47% of carbon dioxide emissions in the UK
the widespread incorporation of low carbon heat and electricity
generating technologies into houses, commercial premises, schools,
etc could have a real impact in terms of reducing emissions.
— Ensuring reliable energy supplies—widespread
microgeneration reduces the load on the distribution network,
whilst more diverse and local generation also reduces transmission
losses and, if deployed on a widespread scale, would help the
UK to develop a more diverse portfolio of sources of supply.
— Promoting competitive markets—microgeneration
could give consumers a wider choice of products from which to
gain their electricity and heat. It also allows suppliers to offer
more innovative energy services packages that may include a microgeneration
element.
— Affordable heating for all—microgeneration
is currently a more costly contributor to reducing fuel poverty
than energy efficiency measures. Yet, if the fairly substantial
upfront costs of microgeneration technologies could be defrayed,
the lower energy bills associated with such technologies could
contribute to reducing fuel poverty.
46. At the moment it is difficult to predict the contribution
that microgeneration will be able to make to these goals. The
range of technologies envisaged, the different stages of their
development and the fact that the overall industry is in a formative
stage makes it difficult to develop reliable trend data to quantify
the future benefits each technology will bring, to assess how
cost curves will develop, and to predict the extent to which the
market will develop.
47. These difficulties in establishing the contribution
microgeneration technologies can make in terms of heat and electricity
generation make it hard to estimate the effect microgeneration
will have on investment in large-scale generating capacity. The
impact will depend on the extent and the speed with which microgeneration
is taken up by consumers and businesses. But the lack of trend
data, allowing the reliable prediction of future uptake makes
it difficult to quantify the overall impact and the timing of
that impact.
48. Through our consultation on the microgeneration strategy
(launched on 23 June and closing on 23 September) the Government
is hoping to develop a more substantive evidence base than currently
exists.
Q3 What is the attitude of financial institutions to investment
in different forms of generation?
What is the attitude of financial institutions to the risks
involved in nuclear new build and the scale of the investment
required? How does this compare with attitudes towards investment
in CCGT and renewables?
49. The Energy White Paper stated that the current economics
of new nuclear build make it an unattractive option. The high
upfront capital costs involved in a new nuclear plant, together
with the longer construction timescales are likely to influence
the attitude of financial institutions. Compared with gas (and
some renewables), new nuclear involves longer timescales between
investment and cash flow.
How much Government financial support would be required to
facilitate private sector investment in nuclear new build? How
would such support be provided? How compatible is such support
with liberalised energy markets?
50. It is unclear at this stage what, if any Government
financial support would be required to facilitate private sector
investment in nuclear new build.
What impact would a major programme of investment in nuclear
have on investment in renewables and energy efficiency?
51. It will remain important to increase energy efficiency,
irrespective of the future composition of generating capacity,
as part of the Government's policy to restrain energy demand and
reduce greenhouse gas emissions. New nuclear plant would be one
element in the portfolio of generating capacity, alongside others
including renewables. The Government remains committed to its
declared targets for renewables capacity.
C. STRATEGIC BENEFITS
Q4 If nuclear new build requires Government financial support,
on what basis would such support be justified? What public good(s)
would it deliver?
52. The Government's position on new nuclear build was
set out in the 2003 Energy White Paper. Any decision to opt for
new nuclear build would require full public consultation and a
further White Paper. Considerations such as the public good delivered
and justification for support would form key aspects of such a
consultation and decision-making process.
To what extent and over what timeframe would nuclear new build
reduce carbon emissions?
53. The extent to which new nuclear build could reduce
carbon emissions would depend on the alternative form of generation
which was being displaced. Government policy remains as stated
in the Energy White Paper and consequently no timeframe for new
nuclear build has been considered.
To what extent would nuclear new build contribute to security
of supply (ie keeping the lights on)?
54. The market framework creates strong incentives on
participants to contribute to security of supply. Price signals
help consumers, suppliers and producers to see when supplies are
relatively plentiful or tight and to respond to those signals
through reducing demand or increasing supply through the release
or creation of additional capacity appropriate to the need.
55. Currently nuclear generation acts as a baseload power
source because stations run continuously (aside from outages).
This means that it is not as flexible a source of power as gas
or coal-fired stations which can come on- and off-line according
to peaks and troughs in demand. (See also paragraph 43)
Is nuclear new build compatible with the Government's aims
on security and terrorism both within the UK and worldwide?
56. Government believes that acts of terror must not
prevent us from going about our day-to-day business. This includes
the country's ability to meet its energy requirements. The proper
response to the potential threat from terrorism against nuclear
power stations is to make sure that they are appropriately secure
rather than ruling out building them. Government policy remains
to keep open the option of building new nuclear power stations.
However, Government recognises the particular concerns that nuclear
installations give rise to. For this reason, the security of nuclear
materials and process is independently regulated and is kept under
constant scrutiny. All licensed nuclear sites need to satisfy
the requirements of the Nuclear Industries Security Regulations
2003, which make provision for the protection of nuclear material,
both on sites and in transit, against the risks of theft and sabotage,
and for the protection of sensitive nuclear information. The Government
is confident that this approach will ensure that security measures
will continue to be robust and effective.
Q5 In respect of these issues [Q4], how does the nuclear
option compare with a major programme of investment in renewables,
microgeneration, and energy efficiency? How compatible are the
various options with each other and with the strategy set out
in the Energy White Paper?
57. The Energy White Paper set out a long-term strategy
to deliver our environmental, security of supply, competitiveness
and social goals. It could not prescribe in detail the individual
policies to be pursued over the next 20 years but it did set out
key principles to guide the development of those policies. These
included:
— An emphasis on energy efficiency as the cleanest,
cheapest and safest way of addressing all our goals;
— An emphasis on delivering through a well-designed,
transparent and open energy market, through the use of market
instruments such as emissions trading;
— Recognition that nationwide and local electricity
grids will need restructuring to adapt to the emergence of more
renewable and microgeneration;
— An emphasis on diversity as the best way of protecting
ourselves against interruptions in supply, sudden price rises,
terrorism or other threats to reliability of supply;
— The need to consider the impact of new energy
policies on all our energy goals, in line with our overall approach
to sustainable development.
58. The White Paper stated that in reducing carbon emissions
our priority was to strengthen the contribution of energy efficiency
and renewable energy sources. It also cautioned that ambitious
progress was achievable but uncertain. It recognised that nuclear
power is currently an important source of carbon-free electricity
but highlighted economic and waste issues that needed to be resolved
in order for it to be considered as part of any future low-carbon
generation capacity. To this extent, all the forms of generation
mentioned in Question 5, as well as energy efficiency, are covered
by and consistent with this strategy.
D. OTHER ISSUES
Q6 How carbon-free is nuclear energy? What level of carbon
emissions would be associated with (a) construction and (b) operation
of a new nuclear power station? How carbon-intensive is the mining
and processing of uranium ore?
59. Nuclear generation is carbon free at the point at
which the electricity is produced. Construction of a nuclear power
station—or indeed any other large-scale generating facility—would
involve significant volumes of steel and concrete, both of which
produce carbon emissions in their manufacture. But the associated
carbon emissions would have been included in the cost of the steel
and concrete through mechanisms such as the Climate Change Levy
and the EU Emissions Trading Scheme.
60. A number of reports and papers have been written
on the subject of the lifecycle carbon emissions of nuclear generation
and the particular emissions associated with the mining and processing
of the fuel. These have produced a range of estimates, depending
on factors such as the grade of the ore and the depth of the mining
operation. The Government cannot comment on the reliability and
objectivity of individual studies.
Q7 Should nuclear new build be conditional on the development
of scientifically and publicly acceptable solutions to the problems
of managing nuclear waste, as recommended in 2000 by the RCEP?
61. As stated earlier in this response, the Energy White
Paper highlighted the long-term management and disposal of nuclear
waste as an important issue to be resolved. Since then, Government
has taken steps to address this issue.
62. It established the Nuclear Decommissioning Authority
(NDA) in April 2005 to take responsibility for the decommissioning
and clean-up of the UK's older, publicly-owned, civil nuclear
sites, previously owned by British Nuclear Fuels plc (BNFL) and
the United Kingdom Atomic Energy Authority (UKAEA). The NDA is
currently consulting on its Strategy for this work (available
at http://www.nda.gov.uk ).
63. The Government has also, in conjunction with the
Devolved Administrations, established the independent Committee
on Radioactive Waste Management (CoRWM) to assess the options,
and to provide a recommendation, on the best means of managing
the UK's higher activity radioactive waste in the long term. CoRWM's
recommendation is due to be delivered in July 2006.
64. Government is also undertaking, again in conjunction
with the Devolved Administrations, a review of policy for the
long term management of the UK's low-level radioactive waste,
where the issue is one of how we best use the kinds of disposal
routes that already exist. This review is also due to be completed
around the middle of 2006.
65. All this work will involve substantial programmes
of public and stakeholder engagement, and once recommendations
have been delivered, we would expect to have a much clearer picture
of how the nuclear waste issue can be addressed, and this can
be drawn upon as a component of the decision-making process.
Annex 1
UPDATED EMISSIONS PROJECTIONS
FINAL PROJECTIONS TO INFORM THE NATIONAL ALLOCATION PLAN
(NAP)
11 NOVEMBER 2004
INTRODUCTION
1.1 The UK published projections of carbon dioxide[11]
and non-CO2 greenhouse gas emissions[12]
alongside the Climate Change Programme in November 2000. These
formed the basis of the UK's Third National Communication under
the United Nations Framework Convention on Climate Change (October
2001)[13].
1.2 The current exercise to update the UK CO2 projections
is ongoing and takes account of the environmental and other policy
developments since the previous exercise and updates the assumptions
underlying the previous projection.
1.3 For the purposes of the EU Emissions Trading Scheme
(EU ETS) National Allocation Plan (NAP) these are the final projections.
1.4 A provisional projection, based on an initial set
of assumptions was published in July 2003[14].
These preliminary results were used within the draft National
Allocation Plan issued for consultation in January 2004. Further
work and revised assumptions based on consultations since October
2003 provided the basis for further revisions to the projections.
These were published in a working paper in May 2004[15],
and set out the assumptions and detailed results underlying the
projection that was used in the NAP submitted to the European
Commission and related consultation document in April 2004.
1.5 This paper, presents the results of further revisions
to the projections that have taken place since May 2004. This
work has helped inform the final decision on the level of the
overall UK emissions cap in October 2004 and revisions to the
April NAP. The results are arranged as follows: Part one provides
a summary of the headline projection and main changes since the
April NAP projection. Part two provides the sectoral projections.
Part three provides energy demand results and Part four provides
detail on energy supply.
1.6 The DTI UK Energy Model is the basis for the UK CO2
projections. The sector classification and the principal source
of energy statistics is the Digest of UK Energy Statistics (DUKES)[16].
The energy sectors modelled are power stations, offshore sector,
refineries and other energy producing industries. The energy demand
sectors are Residential (or Domestic), Services (Public and Commercial),
Road and Other Transport, Industry (excluding Services) and Agriculture.
PART ONE—SUMMARY
Headline projection and main changes since April 2004 NAP
1.7 This central baseline "with measures" CO2
projection is illustrated in Figure 1 against the UK domestic
goal of a 20% reduction in CO2 emissions from 1990 level.
Note: 2003 and 2004 figures are provisional estimates
only.
1.8 Figure 1 illustrates the path of total UK carbon
dioxide emissions, historic and projected from 1990 to 2010. The
projection reflects recent revisions to carbon emission factors
for coal used for electricity generation and natural gas, but
does not yet include a further adjustment for a more recent change
to other coal and oil emissions factors which have not been incorporated
in the historical data. The projection of emissions in 2010 is
141.3MtC (518 MtCO2)[17].
1.9 Overall this headline figure represents around a
14% reduction in CO2 emissions on the 1990 levels by 2010[18].
The historical fall in emissions between 1990 and 2002 is estimated
to be –8.2% taking account of the revisions to coal and gas
emission factors already incorporated in the projections, and
is estimated to be –8.5% when all revisions have been made.
1.10 The projection allows for savings in carbon emissions
from environmental measures announced in the Climate Change Programme
(Nov 2000) and from subsequent measures. The savings from these
measures amount to around 9MtC in 2005 and around 15MtC in 2010.
More information is provided in Annex 1.
1.11 Overall emissions fell steadily throughout the 1990s
in part due to switching out of coal into gas. They have been
relatively level in recent years. The latest projection in 2005
is below the 2000 level. In part this reflects estimated savings
from the Climate Change Programme measures beginning to work through
and offsetting increases in emissions expected from the power
generation sector compared with 2000.
1.12 Emissions from electricity generation in 2005 are
estimated to fall a little from actual levels in 2003, reflecting
a modest switch from coal use to gas. Such a switch has begun
to be observed in the first half of 2004. It is projected also
that imports of electricity will be substantially higher in 2005
than in 2003, continuing the trend emerging during 2004.While
there are many uncertainties about projections even a year ahead,
the projection for 2005 is broadly consistent with recent generation
patterns.
1.13 Table 1 compares the latest projection with that
which informed the April NAP (May 2004 working paper).
Table 1
LATEST PROJECTION (FINAL NAP) COMPARED WITH APRIL NAP
PROJECTION, MTC AND (MTCO2)
| 1990 |
1995 | 2000 | 2005
| 2010 |
Final NAP | 165.1 (605)
| 153.5 (563) | 152.7 (560) |
151.4 (555) | 141.3 (518) |
| April NAP | 164.9 (605) | 154.9 (568)
| 153.1 (561) | 150.3 (551) |
141.4 (519) |
| "UK domestic goal" (1) |
| | | | 132 (484)
|
| |
| | | |
Notes: Figures are presented in carbon equivalent
MtC and carbon dioxide (MtCO2) 1MtC= MtCO2 12/44.
Revisions to carbon emission factors for coal and gas have an
impact on historic data including 1990.
(1) UK domestic goal as 20% reduction on "current 1990"
figure.
Implications for the April 2004 NAP
1.14 The National Allocation Plan submitted to the European
Commission in April 2004 explained that the number of allowances
would be reviewed at the time of submitting the final plan, in
light of the ongoing work on the energy projections, the review
of Climate Change Agreement targets for 2006, any potential changes
in fuel intensity for the Iron and Steel sector and the receipt
of verified data from operators. The changes in energy projections
set out above and revisions to emission factors, together with
the finalisation of the Climate Change Agreement targets leads
to an increase in projected emissions from the UK installations
covered by the EU ETS for the period 2005-07 of around 15.3MtC
(56.1 MtCO2) compared to the position in April 2004.
1.15 The Government has considered how to reflect this
increase in emissions in allocations under the National Allocation
Plan. The Government is proposing to increase the total number
of UK allowances for the period 2005-07 by 5.4MtC (19.8 MtCO2)
allowances.
Main changes since April NAP
1.16 The main changes to the projections since May 2004
have been:
— Fossil fuel price revisions—revisions to
near term oil prices due to recent developments in world oil prices
(fossil fuel price assumptions given in Annex 2).
— Power generation revisions reflecting emerging
new data, revised fuel price assumptions and other factors detailed
later in this paper.
— Industrial growth—revisions to growth assumptions
informed by independent research commissioned by DTI and Defra
from Oxford Economic Forecasting and CRU respectively. The report
from Oxford Economic Forecasting will be available on the DTI
website shortly.
— Carbon emission factors—revisions to coal
and gas carbon emission factors as set out above following research
commissioned by Defra.
— Climate Change Agreement—renegotiated targets
for voluntary agreements by industrial companies and trade sectors.
— Climate Change Programme—revision to estimates
of impact of environmental policy measures.
— Re-estimation of Road Transport projection based
on DfT assumptions of efficiency impact of Voluntary Agreements.
DIFFERENCES BY
SECTOR
1.17 The changes from April 2004 projection to the latest
projection shown in Table 1 are the result of the impact of changes
listed above on the sectors as shown in Table 2 for 2005 and 2010.
1.18 Estimated emissions from the power sector in 2005
are higher than in the April projection mainly due to higher estimated
electricity demand, the impact of revised CO2 emission factors,
revised plant efficiency assumptions, lower nuclear output and
the impact of revisions to energy price assumptions, only partially
offset by other factors. The projection in 2005 is now broadly
consistent with recent generation patterns.
1.19 The power sector projected emission in 2010 has
fallen slightly compared with the April projection. This is due
to higher renewables generation in line with the Government policy
of 10% of generation from renewable sources and upward adjustments
to the nuclear output assumptions19[19]
and inclusion of impact of more climate change programme measures
in 2010.
1.20 The increase in refinery emission projections of
0.2MtC in 2005 and 2010 since the April NAP is due to a re-classification
of a Combined Heat and Power (CHP) plant that was previously modelled
in a different sector to the refineries sector, which is where
it is classified in the Digest of UK Energy Statistics.
Table 2
CHANGES BY SECTOR APRIL NAP AND FINAL NAP PROJECTION
|
| 2005 | 2010
|
|
| Power stations | +4.7 | –0.5
|
| Refineries | +0.2 | +0.2
|
| Residential | –0.3 |
–1.1 |
| Services | –0.1 | 0
|
| Industry | –1.2 | +0.9
|
| Transport | –0.8 | –0.6
|
| Other Transport | –0.5
| –0.5 |
Agriculture/afforestation/Land use
change
| –0.8 | –1.1 |
Allocation of previously unallocated
policy measures
| — | +2.7 |
Total difference | 1.1MtC
| –0.1MtC |
April NAP | 150.3MtC
| 141.4MtC |
| Latest projections | 151.4MtC
| 141.3MtC |
|
| |
|
PART TWO—SECTORAL
EMISSIONS PROJECTIONS
1.21 Table 3 provides a comparison between the latest
emission projection by sector and the April 2004 projection.
Table 3
PROJECTIONS OF SECTOR CARBON EMISSIONS
| |
| | | |
| Actual (1)
|
Final NAP Projection
| April NAP projection
|
| 2000 | 2005
| 2010 | 2005 |
2010 |
| |
| | | |
| Power Stations | 43.1 | 44.8
| 37.4 | 40.1 | 37.9
|
| Refineries | 4.4 | 5.4
| 5.5 | 5.2 | 5.3
|
| Residential | 23.0 | 21.2
| 20.5 | 21.5 | 21.6
|
| Services (including agriculture) | 8.1
| 7.3 | 7.5 | 7.4
| 7.5 |
| Industry | 33.8 | 33.7
| 31.6 | 34.9 | 30.7
|
| Road Transport | 31.7 | 32.4
| 34.5 | 33.2 | 35.1
|
| Off-road | 1.5 | 1.5
| 1.5 | 1.6 | 1.6
|
| Other Transport | 2.8 | 2.4
| 2.5 | 2.8 | 2.9
|
Total | 148.5
| 148.6 | 140.9 |
146.8 | 142.5 |
Afforestation since 1990 | –0.35 (4)
| –0.46 | –0.65 |
–0.45 | –0.7 |
| unallocated measures (2) | |
0 | –1.34 | 0
| –4.05 |
| LUC (5) | 4.17 | 3.25
| 2.43 | 4.0 (3) | 3.6
|
| UEP "all measures" baseline | 152.7
| 151.4 | 141.3 | 150.4
| 141.4 |
Notes
(1) Actual data for 2000 is provided by NETCEN. The data is based on revised power sector coal emission factors and natural gas in all sectors. Inclusions of further revised fuel emission factors will further revise these.
(2) The latest projection "unallocated measures" reflects some further firming up of policy measures since April 2004. As a result some of the savings in this category in the April projection have now been distributed to appropriate sectors.
(3) Provisional working estimate.
(4) Afforestation since 1990 not counted as a measure in historical emissions. Total forest uptake in 2000, 2005 and 2010 projected to be –3.2 MtC, –3.4 MtC, and –3.4 MtC respectively, but this could not all be counted against emissions under the Kyoto Protocol.
(5) LUC emissions estimates are under review.
Power sector [20]
projected emissions
1.22 Detail on the background to the power sector projections
is provided in part four.
1.23 Power station capacities can be regarded as fixed
over the medium term, allowing for capacity coming into production
as a result of previous investment decisions. The near term outlook
for emissions is thus essentially dependent on estimated total
electricity demand and the mix of coal, gas and carbon free sources
of electricity.
1.24 A number of changes have been made since the April
power sector projections, changing both the short and long term
outlooks:
— The emissions factors for coal and natural gas
have increased and decreased respectively following research commissioned
by Defra.
— Projected electricity demand has increased, partly
as new data suggested that the original estimates were too low.
Higher demand directly translates into higher emissions, in both
2005 and 2010.
— Revisions to plant efficiency assumptions for
coal and CCGT stations, again largely derived from new data, have
also increased emissions on balance in both 2005 and 2010.
— Projected generation from nuclear plants in 2005
has been reduced as the result of technical adjustment, bringing
the projection into line with the definitions used in the modelling
process and thereby increasing emissions in 2005. Conversely,
projected nuclear generation in 2010 has been increased, as described
in paragraph 1.19, resulting in a decrease in 2010 emissions compared
with the April projection.
— Revisions to short term energy price assumptions
are likely to have contributed to increased emissions in 2005
due to fuel price relativity changes.
— Other changes have tended to decrease projected
emissions in 2005. Principally these are higher assumed electricity
imports—where new data suggests a significant rebound in
2004 from depressed 2003 levels—together with the impact
of the Climate Change Programme.
1.25 The net effect of these revisions has been to increase
emissions in the short term broadly consistent with recent experience.
OIL REFINERIES
1.26 Oil refinery emissions have been adjusted in the
light of increasing yield shifts towards lighter fractions. A
throughput of 87Mt of crude has been assumed reflecting a recovery
of the industry from unplanned outages in the early 2000s. The
result of these improvements is to leave the emission estimates
unchanged. In order to maintain consistency of definition with
the Digest of UK Energy Statistics, emissions from CHP plants
that are closely associated with the refinery sector are included
in the estimates.
Service sector emissions
1.27 Changes to the service sector since the April projection
are some 0.1MtC in 2005. This was the impact of minor adjustment
in the fuel demand due to revision of the near term fossil fuel
prices and the impact of the natural gas emission factor.
Residential sector emissions
1.28 The upward revision to the near-term fossil fuel
price assumptions between April and the latest projection had
the impact of reducing domestic fuel demand slightly. However,
more significant reductions were the result of firming up of several
environmental policies which enabled the impact to be more directly
attributed to the domestic sector and thus included in the energy
model rather than any underlying change in domestic demand since
April, and the impact of revised natural gas emission factor.
Transport sector emissions
1.29 Modelling revisions to the road transport sector
incorporated specific assumptions about the progress towards the
Voluntary Agreements with motor manufacturers to improve overall
vehicle efficiency. Adopting efficiencies agreed with DfT suggested
higher impact of these measures than previously estimated. There
is therefore a further reduction, including a downward revision
to fuel burn in the Other Transport sector amounting to 0.8MtC
in 2005 and 0.6MtC in 2010.
1.30 Table 4 illustrates the latest Road Transport emission
projection assuming the current Voluntary Agreements for the years
2000-10 (excluding the expected changes to carbon emission factor
changes for oil products) compared with the April NAP.
1.31 The new vehicle fuel efficiency improvement assumed
in the latest projection is 2.4% per annum between 2004-08 and
0.6% thereafter.
Table 4
LATEST ROAD TRANSPORT EMISSION PROJECTION COMPARED WITH
APRIL NAP PROJECTION IN MTC
| |
| |
| 2000 | 2005
| 2010 |
| |
| |
| Latest projection | 31.7 |
32.4 | 34.5 |
| April NAP | 31.7 | 33.2
| 35.1 |
| Change | | –0.8
| –0.6 |
| |
| |
| |
| |
PART THREE—ENERGY
DEMAND
1.32 Annex 4 provides the latest projected energy demand
by broad sector by fuel compared with the 2000 and 2003 actuals
based on the Digest of UK energy Statistics (DUKES).
1.33 Annex 5 provides the latest projected energy demand
and emissions projection for the Iron and Steel industry compared
with historical data on the UEP basis.
1.34 Table 5 illustrates the historic and projected average
annual per cent energy intensity improvement by broad sector implied
by the latest projections.
Table 5
HISTORIC AND PROJECTED AVERAGE ANNUAL PER CENT ENERGY
INTENSITY IMPROVEMENT BY BROAD SECTOR IMPLIED BY THE LATEST PROJECTIONS
(%)
| |
| | |
| Residential | Services
| Transport | Industry (1)
|
| |
| | |
| 1990-95 | 0.81 | 0.14
| 1.09 | 1.45 |
| 1995-2000 | 0.98 | 2.80
| 0.93 | 2.05 |
| 2000-05 | 3.19 | 3.34
| 1.56 | –0.73 |
| 2005-10 | 2.66 | 2.26
| 0.59 | 1.72 |
| |
| | |
Notes: Energy intensity is energy divided by an index of sector growth represented by GDP in Residential and Transport sectors, by appropriate GVA growth in service and industry sectors.
(1) Total industry energy excludes an estimate for energy used in transformation which is consistent with the Digest of UK Energy Statistics presentation.
| | | |
|
| |
| | |
PART FOUR—ENERGY
SUPPLY, GENERATION
This section provides detail on the assumptions made and
general background to the latest power sector projection.
Capacity and Generation Assumptions
1.35 It is assumed that most of the existing coal fired
stations survive at least until the beginning of the Large Combustion
Plant Directive (LCPD) control period. The maximum potential output
from Combined Cycle Gas Turbine (CCGT) plants is increasing as
new plants progress through the commissioning stage. Some plants
previously in receivership have also resumed operation, or will
shortly do so. Longer term, we expect some resumption of CCGT
build as a result of more favourable market conditions, a revival
of confidence and as some coal and other plant closes. In view
of the age structure of the coal station fleet and with tightening
emission limits, there seems to be some potential for power stations
to be repowered, or operations otherwise modified. Nonetheless
it seems likely that some plant will not remain operational through
to the end of the decade.
1.36 Assumptions about future nuclear generation in these
projections broadly reflect company announcements. In recent years,
generation from nuclear power stations has remained below the
levels of the late 1990s.
1.37 Imports of electricity fell to very low levels in
2003 as a whole, while electricity exports increased, both serving
to increase the requirement for domestic generation and therefore
increasing emissions. In 2004 however, it has become clear that
electricity imports have rebounded very strongly in association
with higher domestic wholesale prices.
1.38 Government is committed to ensuring that the contribution
from renewables increases over time. The share of generation accounted
for by renewables is assumed to be 10% in 2010 and increases to
15% by 2015.
Other Assumptions
1.39 Sulphur dioxide—Flue Gas Desulphurisation
(FGD) Plant
There have been a number of proposals to retrofit FGD to
coal stations. It is assumed that FGD capacity in the latter part
of this decade is around 12GW. Some FGD plant is currently being
fitted, but it is unclear to what extent this will be available
during 2005.
1.40 Nitrogen Oxides
It is assumed that nearly all coal stations remaining on
the system during the latter half of this decade will have some
form of over-fire air system fitted, or will achieve corresponding
emission reductions. Indeed, some companies have already announced
plans to fit this type of equipment to some generating units.
There may be exceptions to this standard, reflecting station-specific
conditions. In terms of the impact on the projections, controlling
NOx by retrofitting such equipment will add a modest amount to
the costs of generating from coal power stations.
1.41 Pollution Prevention and Control (PPC)2[21]
and Wider Environmental Considerations
It is assumed in these power sector projections that there
are continued incentives to achieve the highest possible operational
efficiency of coal-fired and CCGT power stations and to reduce
the underlying level of emissions, both to reduce CO2 emissions
and also reflecting a period of transition from the current acid
gas control regime to that pertaining under the LCPD. For purposes
of the 2010 projection, the coal sulphur content in unabated plant
is set to be less than 1.0%, which appears broadly consistent
with the aims of environmental policy in the longer term. The
projected amount of generation from coal plant in 2010 is consistent
with either implementation method for the LCPD, though this may
entail the use of other fuels or techniques at coal plants to
meet required limits. A significant amount of coal plant capacity
is assumed to be opted out of the LCPD requirements and will therefore
close before the end of 2015. It also seems likely that some plants
deciding to opt out will generate for only a limited period and
will close before, or perhaps during 2010. Clearly it is difficult
to predict when such closures might actually happen and further
sensitivity work is planned to examine the impact of earlier,
accelerated closure and also a higher survival rate beyond 2010.
COAL IN
POWER GENERATION
1.42 In general, the competitive position of coal in
the last few years has improved due to significant increases in
gas prices and generally low coal prices.
1.43 Another key factor supporting the use of coal in
generation has been a move by the generators to lower-sulphur
coals allowing higher coal-fired generation within given sulphur
limits. Flexibilities available to those constructing FGD plants
will also have enhanced the short-term outlook for coal, though
the impact of the flexibilities as distinct from the impact of
generally favourable market conditions is difficult to gauge.
Notwithstanding this, it seems likely that plant and/or company
SO2 emission limits may have recently either limited the total
coal generation, or perhaps its distribution between plants and/or
companies.
1.44 Against the trend of the last few years, however,
there has been a significant shift in recent months towards cleaner
forms of generation. Coal generation has fallen significantly
and gas generation has risen to historically high levels. This
may partly be explained by a modest shift in the relativity of
gas to coal prices, favouring increased gas use. Coal prices have
increased in recent times. The bulk of the increase in coal prices
will have been in imported fuels, requiring a difficult trade
off for station operators between using low sulphur but relatively
expensive imports, lower cost but higher sulphur domestic coals
and the use of generally expensive gas. It is possible that the
recent trend towards higher gas use may not persist, as gas prices
have risen significantly in recent months on the back of much
higher crude oil prices. While this may mean that coal claws back
some competitiveness, other influences, such as emission limits,
may also act to moderate coal use.
Carbon price analysis
1.45 The results of the modelling analysis of power station
responses to assumed low to medium carbon prices in the years
2005 and 2010 is illustrated in Annex 7.
THE PATTERN
OF ELECTRICITY
GENERATION
1.46 The power sector generation by fuel is given in
Table 6 below.
Table 6
ELECTRICITY GENERATION BY FUEL, IN TWH[22]
| 2000 |
2005 |
2010 |
| Coal | 111.9 | 116
| 90 |
| Oil | 2.1 | 2
| 2 |
| Gas | 127.0 | 135
| 145 |
| Nuclear | 78.3 | 80
| 65 |
| Renewables[23]
| 10.1 | 15 | 40
|
| Imports | 14.3 | 10
| 8 |
| Pumped storage | 2.6 | 2
| 2 |
TOTAL | 346.3
| 361 | 352 |
| |
| |
| |
| |
1.47 This projection suggests a fall in coal generation
from recent high levels[24].
The recent increase in wholesale electricity prices is assumed
to continue to lead to a reversal of the recent trend towards
lower electricity imports, as well as to reduced exports. Prospective
increases in CHP and other own generation will also act to dampen
demand on the "grid"[25].
There is already a clear indication of an upswing in generation
from these sources, on the back of rising wholesale prices.
[http://www.dti.gov.uk/energy/environment/energy_efficiency/chpreport.pdf]
1.48 It should be stressed that these results do not
embody any impact from the EU-ETS.
1.49 Table 7 shows a comparison of the fuels used by
generation for the latest projections compared with the April
projection.
Table 7
COMPARISON OF LATEST PROJECTION AND THE APRIL PROJECTION
| |
| | |
| April NAP (TWh)
| Final NAP Projection (TWh)
|
| 2005 | 2010
| 2005 | 2010 |
| |
| | |
| Coal | 113 | 106
| 116 | 90 |
| Oil | 2 | 2
| 2 | 2 |
| Gas | 116 | 132
| 135 | 145 |
| Nuclear | 84 | 61
| 80 | 65 |
| Renewables | 15 | 39
| 15 | 40 |
| Other[26]
| 12 | 13 | 12
| 10 |
TOTAL | 344
| 353 | 361 |
352 |
| |
| | |
| |
| | |
1.50 Compared with the April projection, the key changes
in the latest projections for 2005 are that electricity demand
is higher, with coal and gas fired generation higher as a consequence,
and nuclear output is lower. In 2010 coal generation is now lower[27],
while gas and nuclear generation are higher. Demand in 2010 is
restrained by the impact of the Climate Change Programme.
1.51 The projected growth in total final electricity
demand between 2002 and 2010 is around 0.7% per annum. This compares
with growth in the previous decade of around 1.7% per annum. Demand
on the "grid" is restrained by the growth in other sources
of supply such as CHP.
ANNEX 1—Climate Change Programme measures
ANNEX 2—Fuel price assumptions and historic path
of oil prices
ANNEX 3—Industrial sector output
ANNEX 4—Final energy demand (projected and historic)
ANNEX 5—Iron and steel industry energy and emission
projections
ANNEX 6—Historic and projected UK carbon emissions
in MtC
ANNEX 7—Carbon Price Analysis
Annex 1
|
| Climate Change Programme Measures included in latest projection
|
Total carbon savings (MtC)
|
| 2005 |
2010 |
|
| DOMESTIC | 1.02 | 3.01
|
| Policies include EEC, Warm Front, Building Regulations (2002) and Community Energy
| | |
INDUSTRY | 3.28
| 4.89 |
| Policies include CCAs, UK ETS, Carbon Trust programmes and Building Regulations (2002)
| | |
SERVICES | 0.49
| 0.89 |
| Policies include Building Regulations (2002), UK ETS, Carbon Trust programmes, UK ETS and public sector programmes
| | |
TRANSPORT | 3.02
| 4.42 |
| Policies include Voluntary Agreements, the 10 Year Plan, Sustainable Distribution, and Off Road programmes
| | |
AGRICULTURE | 0.46
| 0.65 |
| From afforestation since 1990 |
| |
| TOTAL | 8.26 | 13.86
|
Total CCP savings including "unallocated" measures
| 8.26 | 15.20 |
"Unallocated" measures
| 0 | 1.34 |
| Policies include additional CCAs, Building Regulations (2005), minimum product standards.
| | |
|
| |
|
Notes:
Definition of "unallocated": Measures which are currently
less firm or detailed but are nonetheless "funded"
Figures are based on information provided by Defra for Business
(industry +services) and Domestic.
The estimated impact from CCA's in industry and the savings for
the VA in Transport are based on DTI analysis/ model outturn.
The DfT 10 year plan saving of 1.1MtC has been assumed in transport.
"Further Measures"
Savings from a third group of measures, still subject to negotiation
when the final modelling assumptions had to be made, have not
(yet) been included. These include further CCAs, Carbon Trust
programmes, the Energy Performance of Buildings Directive and
market transformation effects, with savings likely to fall in
the range 0.6-0.8MtC/y.
Annex 2a
FOSSIL FUEL PRICE ASSUMPTIONS
| Real 2003 prices |
Crude Oil $/bbl |
Natural Gas Beach Price p/therm |
ARA Coal NAR $/tonne |
| 2005 |
30.0 |
24.6 |
77.1 |
| 2006 |
28.6 |
24.6 |
79.1 |
| 2007 |
27.3 |
23.0 |
67.5 |
| 2008 |
25.9 |
22.0 |
43.4 |
| 2009 |
24.6 |
21.0 |
35.0 |
| 2010 |
23.2 |
20.0 |
35.0 |
| 2011 |
23.6 |
20.3 |
35.0 |
| 2012 |
24.1 |
20.6 |
35.0 |
| 2013 | 24.5 | 20.9
| 35.0 |
| 2014 |
25.0 |
21.2 |
35.0 |
| 2015 |
25.4 |
21.5 |
35.0 |
| 2016 |
25.9 |
21.8 |
35.0 |
| 2017 |
26.3 |
22.1 |
35.0 |
| 2018 |
26.7 |
22.4 |
35.0 |
| 2019 |
27.2 |
22.7 |
35.0 |
| 2020 |
27.6 |
23.0 |
35.0 |
Note: The projected and past oil prices are illustrated in the following chart. This puts into context the current 2005-10 oil projection.
FOREIGN EXCHANGE RATE ASSUMPTIONS
|
| Exchange
Rate £1 = $USD
|
|
| 2005 | 1.828 |
| 2006 | 1.796 |
| 2007 | 1.777 |
| 2008 | 1.769 |
| 2009 | 1.768 |
| 2010 | 1.772 |
| 2015 | 1.736 |
| 2020 | 1.700 |
|
| 
