Select Committee on Environmental Audit Written Evidence

Memorandum submitted by Drax Power Limited


  1.  Drax Power Limited (Drax) is the owner of Drax Power Station, the largest, cleanest and most efficient coal-fired power station in the UK. The output capacity from the plant's six generators is 4,000MW and at current output levels it utilises around 10 million tonnes of fuel (principally coal) to supply some 7% of the UK's electricity needs. The plant has the capability to be operating at high load factors up to 2025 and beyond, particularly if market conditions enable it to invest in appropriate environmental upgrades.


  2.  There is a range of initiatives which could be taken in the energy sector to ensure that the key objectives of security of supply, competitive markets and fuel poverty initiatives are achieved simultaneously with environmental compliance. These include the potential use of new nuclear plant, the expansion of the renewable/biomass programme, increases in efficiency of coal-fired plant and the development of carbon abatement technologies. Each of these needs to be considered but the appropriate investments will only materialise if long-term certainty can be realised through a stable and consistent environmental and climate change policy.

  3.  It is important that much more clarity is developed in the Government's long-term planning to ensure that the Power Generation Sector can deliver the substantial investment programme needed. In particular, there needs to be much more consistency in policy formulation and implementation across Government, particularly between DEFRA and the DTI.

  4.  The energy sector operates on long timescales and investment in a new plant or retrofit abatement technology, with typical payback periods of 10-15 years, is unlikely to happen without a much higher degree of certainty relating to the extent of future regulatory change, especially in the overlap of energy and environmental policies. The potential for "stranded assets" is currently too high to enable significant investment.


  5.  By 2020, on current projections, 60-70% of the UK's electricity may be generated from gas, with 80% of that gas being imported. This is not a particularly robust policy since much of that gas will originate from areas of low political stability. In addition, the uncertain medium to long-term outlook is not promising because input fuel volatility means that there are no price signals to sustain an early new CCGT build programme. In the interests of security of supply at a competitive price, Drax firmly believes that there needs to be a move away from an over-dependence on gas in the future UK generation mix.

  6.  The uncertainty in the future gas market, combined with the uncertain future of nuclear and the slow and economically inefficient renewables programme, means the current coal-fired generating capacity needs to remain in service. According to Government projections, as given in the recent Updated Energy Projections, output from coal-fired generation in 2020 will be around 62TWh. This indicates that a substantial tranche of coal-fired plant will need to be fitted with both Flue Gas Desulphurisation (FGD) for SO2 control and Selective Catalytic Reduction (SCR) for NOx control by that time.

  7.  Many renewable energy sources are intermittent and cannot follow demand (or load). They, therefore, require both the back-up and independent load-following generating capacity which the coal plant can provide.

  8.  The world has abundant coal reserves—almost 200 years of proven reserves—and the Government needs to ensure a regulatory climate conducive to investment at existing coal-fired power stations which would enable them to supply electricity reliably for many years to come. It is now time for a serious re-consideration of the vital role that coal-fired generation can play in helping to provide Britain with a long-term secure energy supply at a competitive price, which, with assistance to promote low carbon technologies, can also be in line with the Government's environmental targets.

  9.  We recognise that environmental pressures are set to increase and that these will be the critical parameters affecting coal burn in the period up to 2020 and beyond. Indeed environmental legislation and regulations will, over the coming years, ensure that it is only the cleanest and most efficient coal-fired plant that survives. Hence the UK requires a much improved regulatory framework to facilitate investment in emissions abatement technology to enable these plant to meet current and future environmental pressures. In particular, the pressure is on the coal-fired generation industry to invest in technology to significantly reduce carbon dioxide emissions.


  10.  A great deal is happening in order to encourage the coal-fired plant to implement lower carbon technologies. The Renewables Obligation (RO) was amended for co-firing specifically to provide a mechanism for developing the energy crop market and the DTI has recently published a Carbon Abatement Technologies (CAT) strategy. Drax fully recognises that if significant reliance on fossil fuels continues beyond 2020, there is a need to research, develop, demonstrate and deploy a range of Carbon Abatement Technologies.

  11.  It is critically important for energy and environmental policy-making in the UK to recognise that the application of these technologies would enable boilers such as those at Drax to emit CO2 in comparable amounts to CCGT plant. This would put coal and gas on a similar policy footing and would reduce, or even reverse, the view that coal-fired plant cannot operate within a carbon-constrained economy.

  12.  The scale of these CAT programmes demands that they receive Government support and this is fully justified given the potential carbon savings that come with world-wide application.

  13.  Drax foresees such a programme happening in three or more stages:

    (a)  Co-firing uses existing generating capability; it is an efficient, effective and relatively simple means of reducing overall CO2 emissions. Costs are lower than alternative renewables generation technologies and there is no "new build" environmental impact, which is often associated with other renewables sources. Co-firing has emerged as a credible renewables technology and it is already making a difference through delivering significant savings in CO2 emissions. But, more importantly, only minor capital investment is required in existing plant to enable a biomass throughput of up to 10%. Beyond that level, it is anticipated that increasing biomass throughput to 20% would require significant expenditure (for example, in burner and materials handling facilities) but this is still potentially commercially and environmentally attractive. If all the opted-in (under the LCPD) coal-fired plant were modified to burn 20% biomass (by heat output), the savings in CO2 would be 10 million tonnes per year or nearly twice the total savings the Government is seeking to be made in CO2 emissions by all power stations by 2010. Drax alone is capable of making savings of up to 4.4 million tonnes of CO2 through co-firing, that is, some 80% of the Government's target for the sector.

    (b)  Investment in feedwater heating systems using either biomass or, more likely, gas could give rise to substantial further CO2 reductions of up to 20%. This is achieved partly by the substitution of gas or biomass for coal, but also because better use is made of the waste heat from the gas turbine exhaust than would be the case in a more expensive, stand-alone CCGT plant. The additional fuel is utilised with a thermal efficiency equivalent to a Combined Heat and Power plant.

    (c)  The UK fleet of coal-fired power stations, with unit sizes in the range 500-660MW and efficiencies of 35-38% (LHV), is typical of the large, sub-critical boiler-turbine plant built in the 1960s to 1980s, with Drax the leader in terms of size and efficiency. However, more recent plant built overseas in Europe and Asia use supercritical boiler-turbine technology and achieve efficiencies in the range 42-46% (LHV), a technology that is now standard in China for large power stations. Replacement of Drax's existing boilers with supercritical units would require a 12-18 month outage but would improve the efficiency of the unit by 17-20%.

    (d)  In the long term, carbon sequestration deserves examination. Whilst not on the horizon just yet, we believe that further work is necessary to ascertain its economic and environmental implications and to that end we welcome the attention afforded Carbon Capture and Storage in the Government's CAT strategy.

  14.  Figure 1 illustrates the incremental savings that can be made in CO2 emissions with each of the above technologies:

  15.  The following table compares the capital, generating and CO2 abatement costs for onshore and offshore wind power (assuming a capacity factor of 25% and excluding the necessary back-up costs that would be required for wind power and any costs that might be required to strengthen the electricity grid) with a retrofitted 600MWe advanced supercritical (ASC) coal-fired boiler operating at a 60% load factor. The calculations assume a given level of CO2 savings against existing coal-fired plant operating at 36% efficiency.
600MWe Supercritical Retrofit 234MWe Installed Wind Turbines Onshore 234MWe Installed Wind Turbines Offshore
CO2 savings (kte/yr)471 475475
Capital cost (£m)116 175216
Generation cost (p/kWh)1.81 3.7525.52
Cost of CO2 abated (£/te) 124062


  ¹  15 year write off

  ²  20 year life

  16.  The table illustrates that wind power is significantly more expensive in terms of capital cost, between two (onshore) and three (offshore) times more expensive in terms of generating costs and at least three (onshore) and five (offshore) times more expensive per tonne of CO2 abated.


  17.  We believe that with the right policy framework, that is one that supports and encourages the examples given above, coal-fired generators such as Drax would be able to provide continued secure and competitive supplies of electricity, whilst contributing to emissions reductions targets for many years to come. However there are several policy issues which need to be resolved before such a programme could be considered.

Biomass Policy Requirements

  18.  Through the RO and the CAT Strategy, co-firing could make a major contribution to realising the Government's commitment to reducing CO2 emissions. However, the current regulations under the RO are putting this important contribution at risk. Instead of encouraging the growth of co-firing of biomass at Drax, the current regulations introduce a level of uncertainty that is both reducing Drax's confidence in both the short and long-term markets and delaying or even losing altogether, a real opportunity to reduce CO2 emissions.

  19.  In our view the RO should be able provide the necessary incentive for Drax to develop both the equipment to co-fire biomass as an increasing component of the plant's long-term fuel procurement strategy and to ensure that the biomass supply chains are well founded. However, the willingness to invest in the necessary technologies and processing plant, and particularly in contracting for the relatively expensive energy crops which generally require Renewables Obligation Certificates (ROCs) support to make them commercially viable, is critically dependent on the perception of magnitude and stability of the future ROC price.

  20.  We recognise that in the long term the combination of an increase in the price of CO2 under the EU Emissions Trading Scheme (EU ETS) and a more competitive biomass market may make co-firing biomass economically viable without ROC support. Whilst future expectations of high biomass throughputs at Drax are predicated on that assumption, that position is some way off and in the short to medium term we look to the RO as a vehicle through which Drax can "kick-start" a high volume biomass industry, including the production of quantities of energy crops.

  21.  We are, therefore, concerned that, from April 2006, the proportion of an electricity supplier's obligation under the RO allowed to come from co-firing reduces from 25% to 10%. This is likely to lead to an oversupply of co-fired ROCs, a collapse in their market price, a significant cut in the extent of co-firing at Drax and a consequent increase in CO2 emissions. The risk of a lower, or even negative, return to Drax through co-firing post-2006 means that we are becoming much more risk-averse when contracting with farmers and biomass suppliers. In turn, farmers are expected to become even more reluctant to plant energy crops, which may take up to four years to mature, as they fear being left with un-saleable crops.

  22.  Drax Power has put forward to the DTI one option to tackle the short-term problem of a surplus of co-fired ROCs. Instead of having a cut-off for redeemable ROCs, there would be a reallocation of the total ROC value over all redeemed ROCs, ensuring that they all achieve the same average value. This would mean that, in the event of a cap being exceeded, there would be a smooth reduction in ROC prices rather than a situation where their value collapses to zero. An electricity supplier, therefore, would continue to receive value from co-firing or banked ROCs in the event that the relevant cap is exceeded. The effect of the proposal is to share the risk of an excess number of co-firing ROCs, and this therefore removes the advantage that vertically integrated companies have through the potential to secure value at the expense of independent generators.

  23.  The Government has rejected this approach on the grounds that it is not looking to change the co-firing limits in the RO, that it would make the RO more complex and that it may require primary legislation. We are not, however, aware that any alternatives have been proposed either by the Government or other interested parties. It is our concern that if nothing is done, the opportunity for encouraging significant reductions in CO2 emissions at zero net cost to the consumer will be lost. This would be unfortunate given the fact that climate change policy is high on the political and public agenda.

  24.  The prospect of such an event is already inhibiting independent generators, such as Drax, from securing a market for our eligible renewables generation and it could significantly affect the extent of CO2 reduction that we can effect. In addition, and perhaps more importantly, it will considerably impair our plans for entering into long-term contracts with farmers, foresters and landowners for energy crops. We firmly believe that a collapse in the price of ROCs would be highly embarrassing and damaging, not only to confidence in the RO and the market but also to our ability to develop the technology necessary to co-fire energy crops into the future.

  25.  Without such a mechanism, the current ROC limits will certainly constrain total energy crop usage and will seriously impact total UK CO2 reduction both in the short and long term. This would appear to fly in the face of the Government's recently announced CAT Strategy, which fully recognises the contribution that co-firing can make to reducing emissions of CO2.

Plant Upgrading Policy Requirements

  26.  If 12GW of the UK's 28GW coal-fired fleet were retrofitted with advanced supercritical boilers and turbines, the saving in CO2 would be almost 10 million tonnes of CO2 each year or around 11.5% of the amount of the annual reduction that the Government is seeking by 2010 compared with 1990.

  27.  However, for a feedwater repowering, or an advanced supercritical boiler/turbine retrofit, considerable amounts of capital would be required and such investment would only be made if there was sufficient confidence in the long-term market conditions as well as a confidence in the technologies to be employed. The Government could make a significant contribution in both these areas, particularly by supporting a supercritical retrofit project to demonstrate the substantial efficiency improvements that can be made at existing power stations such as Drax; Government support of around £30 million is needed.

  28.  In respect of commercialisation, all forms of low-carbon energy will cost money, whether coal or gas with carbon capture, renewables or nuclear. The RO has encouraged some investment, particularly in wind farms, but at £1 billion per year by 2010, it is expensive. Mechanisms are required to encourage investment in clean coal technologies, with rewards closely linked to improved environmental performance. Such a mechanism needs to be in place quickly, in order to provide the incentives to modify coal plant within Phase 2 of the EU ETS.


  29.  There will continue to be a significant future reliance on fossil fuels for electricity generation. Hence, there is a need to research, develop, demonstrate and deploy a range of Carbon Abatement Technologies. Government support is critical to this process to ensure that the power generation sector delivers the substantial investment programme needed and, in turn, delivers the significant CO2 savings that are possible.

  30.  Appropriate market-based mechanisms are required to encourage investment in clean coal technologies, with rewards closely linked to improved environmental performance.

  31.  As one of the most economic and efficient renewables technologies, the uptake of co-firing biomass under the RO should be maximised and not constrained by regulations. The Government needs to recognise the inherent flaws and introduce a mechanism into the RO to ensure continuity in support for co-firing in the short term, preferably along the lines already suggested by Drax.

21 September 2005

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