Memorandum submitted by the Institution
of Electrical Engineers
The Institution of Electrical Engineers is pleased
to respond to the Environmental Audit Committee's inquiry on "Keeping
the Lights On: Nuclear, Renewables and Climate Change". The
IEE is submitting a response in the form of an Annex which addresses
a number of the questions raised by the inquiry, where the IEE
feels best qualified to contribute to the debate. The IEE's submission
includes an assessment of the extent of, and the factors affecting,
the potential "generation gap"; estimates of the different
cost components and delivery timescales for current and forthcoming
electricity generating technologies; and an assessment of the
capacity and strategic benefits of renewables and nuclear power
in the context of security of supply.
The IEE's 120,000 members are drawn from a broad
range of engineering disciplines, representing a wide range of
expertise from technical specialists to business leaders. Many
of the most experienced members of the IEE, and their sector peers,
voluntarily participate in a variety of IEE policy guidance groups.
To these groups they bring their wealth of personal experience
and knowledge, independent of commercial interests, to address
the policy issues of the day and give the IEE independent and
authoritative views of trends in technology and engineering. This
response has been prepared on behalf of the IEE Trustees by the
Energy Sector Panel whose details can be found at: http://www.iee.org/Policy/sectorpanels/energy/index.cfm
Input from the IEE Membership was requested in preparing this
response.
SUMMARY
The IEE maintains that all conventional and
low carbon technologies presently hold various types and levels
of risk. These can only be balanced out by maintaining a degree
of diversity. The principle of diversity should apply to the primary
sources, the development of technologies, the physical assets,
and the knowledge essential to maintain them, in order to ensure
the UK's adaptability to future energy demands.
Energy policy has significant social and political
dimensions, and we acknowledge that a wider social dialogue is
required beyond the engineering community to resolve these.
THE EXTENT
OF THE
"GENERATION GAP"
The generation market's behaviour is the aggregation
of commercial decisions by all its players. There are a number
of uncertainties affecting projections of generation capacity
over coming years, a significant component of which is policy
uncertainty. In our response, we supply estimates based on widely
used power market models. We conclude that if no new new dispatchable
plant (ie coal, gas, nuclear or similar, that can generate on
demand) plant is constructed we believe shortages of capacity
could be in the order of 4 GW in 2010, 9 GW in 2015 and 12 GW
in 2020. If the market responds this shortage could be eliminated,
though this may come at the expense of reduced diversity in the
supply mix.
FINANCIAL COSTS
AND INVESTMENT
CONSIDERATIONS
Estimates of the different cost components and
construction timescales of current and forthcoming generating
technologies are supplied, based on available evidence and reasonable
assumptions regarding technology and fuel costs. Regarding the
potential for generation from renewable sources, we argue that
the parameters for future development are contingent on the acceptability
of the price impacts of fiscal support mechanisms, and on the
technical challenges of integrating renewables into the electricity
system.
STRATEGIC BENEFITS
Nuclear power can contribute to security of
supply within a low-carbon generation mix by providing secure
base load electricity. New nuclear build would require lead times
of 9-13 years in total; however, the operating lives of the existing
fleet may be extended. Renewables offer long-term security of
supply, but in the short term the variability of certain renewables
needs to be managed.
DETAILED RESPONSE
1. In terms of the electricity system, the
IEE believes that a prudent energy policy should seek to balance
the need for security of supply with the environmental imperative
of reducing carbon emissions, within reasonable cost bounds. In
its two-year review of the Energy White Paper, the IEE stated
that:
"All conventional and low carbon technologies
presently hold various types and levels of risk. These can only
be balanced out by maintaining a degree of diversity. The principle
of diversity should apply to the primary sources, the development
of technologies, the physical assets, and the knowledge essential
to maintain them, in order to ensure the UK's adaptability to
future energy demands." [201]
2. The IEE's submission will be limited
mainly to technical and engineering issues. Energy policy has
significant social and political dimensions, and we acknowledge
that a larger social dialogue is required beyond the engineering
community to resolve these. Attributable costs such as the cost
of emissions abatement, decommissioning, and the environmental
impacts of all types of generation are subject to such considerations
and are therefore a matter for wider social debate.
THE EXTENT
OF THE
"GENERATION GAP"
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?
3. The generation market's behaviour is
the aggregation of commercial decisions by all its players, which
are driven by considerations such as short and long term profit
potential, the impact of environmental regulation, as well as
technical and safety considerations. This is difficult to predict
with certainty and estimates are likely to change over time.
4. NUCLEAR. Our present expectation is that
the phase-out of nuclear power stations will remove 2.4 GW of
Magnox plant by 2010. The AGR stations will enjoy longer lives,
most likely in excess of their currently projected design lives,
and the recent announcement by British Energy of a 10 year life
extension for Dungeness B bears this out. Overall we predict reductions
in total nuclear capacity of:
— 3.4 GW by 2010, rising to
5. COAL. It is harder to predict coal plant
closures, as these will depend on the response of station owners
to environmental regulatory pressures and to conditions in the
energy market, particularly the competitive position of coal.
At the moment:
— 13 GW of coal fired capacity has
"opted in" to Large Combustion Plant Directive 2 (LCPD2),
implying it will invest or has invested as appropriate in flue
gas cleanup to run into the medium to long term.
— 6.1 GW of coal plant has opted out
of LCPD2, meaning that it will run at low load into the future
and must close by 2015.
— 9.6 GW of coal plant has not yet
committed (including all the plant in Scotland), implying uncertainty
as to whether this plant will receive investment and stay open,
or be run down for closure.
Trends in carbon pricing which will also impact
the prospects for coal plant strongly.
6. Predicting this behaviour is difficult,
but we believe that:
— around 0.5 GW of coal plant will
shut by 2010;
— increasing to 4 GW by 2013;
Whether this results in a generation gap will
depend on the extent to which new gas fired and renewable plant
is built, and on what happens to electricity demand.
7. GAS. There are currently no new gas fired
combined cycle plants under construction in the UK, but a large
number of proposed projects are in development that could at least
in theory be brought forward in 3-4 years. Owing to the extent
of uncertainty in the market, generators are at present not willing
to commit to the financial risks of commencing construction, preferring
to focus on low cost development work. Such uncertainties include
the cost of carbon, the extent of coal plant closures, government
policy changes including the possibility of new nuclear build,
future gas prices, and the extent of renewables build. However,
rising wholesale prices resulting from generation shortage could
in themselves encourage construction of new plant.
8. Subject to investors becoming confident,
we would expect:
— around 4 GW of gas-fired combined
cycle capacity to be commissioned by 2010, with
— a further 5 GW by 2015, and
Clearly if these projects do not come forward
generation will be short, but this will be a result of market
confidence rather than more fundamental issues of supply and demand.
An important strategic factor relating to gas plant build is concern
over over-reliance on imported gas and the extent of world supply
and the UK's import and storage capacity.
9. RENEWABLES. Renewable generation (particularly
wind) is currently the subject of intense activity as a result
of highly attractive government incentives.
— National Grid anticipates 5.5 GW
of new wind capacity by 2011/12;
— beyond this we would expect around
3.5 GW more by 2015; and
— a further 3 GW by 2020.
There are uncertainties in this—offshore
wind technology is not yet fully proven and could be vulnerable
to a loss of confidence if early projects do not perform, while
planning and transmission constraints may limit the development
of onshore wind. Other renewables (eg wave, tidal, biomass) are
not strongly incentivised at present and are generally technically
immature, leading to our assuming very low deployment levels at
this stage.
10. DEMAND. National Grid continues to predict
demand increases at the transmission network level (ie net of
distributed generation and savings from energy efficiency). They
currently predict peak demand increasing from 61.5 GW in 2004-05
to 65 GW in 2011-12, however these predictions are subject to
wide ranges of uncertainty (plus 9.7 GW, minus 16.9 GW). Clearly
the potential of energy efficiency measures and installation of
distributed generation to reduce demand on the network is substantial,
but has not been subject to practical implementation. The potential
for demand side measures has not been sufficiently explored. The
current suite of energy efficiency measures has performed disappointingly,
and there is clearly a need for innovative policy measures in
this area. However, since electricity systems have to be planned
conservatively (to minimise the chances of power shortages), we
believe it appropriate to base policy decisions on continuing
gradual increase of demand at the transmission network level,
unless and until there is real evidence of this changing.
11. There are a number of uncertainties
affecting projections of generation capacity over coming years.
If no new dispatchable plant is constructed we believe shortages
of capacity could be in the order of 4 GW in 2010, 9 GW in 2015
and 12 GW in 2020. If the market responds with new gas plant this
shortage could be eliminated, though this may come at the expense
of reduced diversity in the supply mix.
FINANCIAL COSTS
AND INVESTMENT
CONSIDERATIONS
What are the main investment options for electricity
generating capacity? What would be the likely costs and timescales
of different generating technologies?
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?
12. Capital costs for different generation
technologies are reasonably well established for gas and onshore
wind, less certain for offshore wind and clean coal[202],
and very uncertain for wave, tidal and nuclear. Our estimates
of construction costs for utility scale plant are:
— £0.4 million/MW for gas fired
combined cycle;
— £0.8 million/MW for onshore
wind;
— around £0.9 million/MW for clean
coal;
— around £1.4 million/MW for offshore
wind; and
— we conjecture £1.5 million/MW
for wave and tidal.
— We are unwilling to comment on likely
nuclear costs as there is a large element of cost uncertainty
at the present time, much of it related to contingent (including
legislative) costs.
Transmission costs are not included in these
estimates, as these depend on plant location. In general, gas,
coal and nuclear plant will tend to be constructed close to strong
transmission links whereas renewable plant tends to be away from
such links.
13. Cost of generated electricity requires
making assumptions about cost of finance, availability, efficiency
and fuel cost. Of these, fuel cost is currently subject to the
greatest uncertainty. Based on fuel prices of £3/GJ for natural
gas and £1.65/GJ for coal, we calculate cost of generated
electricity at the station gate to be:
— 4.8p/kWh for onshore wind;
— around 3.5p/kWh for clean coal;
— around 6.9p/kWh for offshore wind;
and
— we conjecture around 10p/kWh for
wave and tidal.
— As well as the uncertainty of nuclear
capital cost, there remains uncertainty over end of life clean-up
costs which affect the electricity cost from nuclear.
It is noteworthy that clean coal plant could
become cost effective if gas prices rise further compared to coal.
These prices do not allow for the cost of carbon credits, which
is currently highly uncertain into the future, but has the potential
to bring thermally generated electricity costs much closer to
some renewables. They also exclude the costs associated with intermittency
of renewable power, which vary depending on the extent of intermittent
renewables on the system. There is an ongoing debate around the
real costs of intermittency. The UK Energy Research Centre (UKERC)
is currently undertaking an extensive independent assessment study
of the published evidence which is due for publication at the
end of the year.
14. Construction timescales fall into two
components—the time to gain permits, shape the project and
get financing, and the build time. Assuming permitting for a given
site is straightforward and therefore allowing a two year pre-construction
development period, total time from first studies to first generation
would be:
— around four years for a gas fired
plant;
— three years for onshore wind;
— five years for clean coal;
— three to four years for offshore
wind; and
— three to four years for wave and
tidal.
These times can become much longer if planning
issues for the project and/or its electrical transmission connections
become problematic.
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?
15. The arguments over technical and physical
capacity revolve around two issues:
— Is the resource available at cost
effective prices to support high levels of renewable generation?
— Can the renewables be integrated
into the electricity system in a way that allows an adequately
reliable service to be provided to customers?
16. Available onshore resources include
wind, hydro, energy crops, waste, solar, and offshore there is
wind, wave and tidal energy. A range of studies have been undertaken
as to the extent of these resources and we would respectfully
refer the committee to these. As a generalisation, there is an
extensive untapped renewable potential offshore. Energy crops
and waste may hold significant potential for renewable generation
onshore, although the precise extent is still subject to assessment.
Offshore the principal barriers are technology development and
cost reduction, whilst onshore, policy development to support
the energy crop supply chain and the use of waste for electricity
generation would assist in their further development. Again in
general, renewable generation (except onshore wind and hydro)
has high capital costs compared to thermal plant, meaning its
widespread deployment in place of thermal power would create significant
price impacts. The cost differential may be lessened if carbon
prices strengthen further, but electricity customers may have
to become accustomed to paying more for electricity.
17. The integration of renewable power into
the electricity system presents challenges.
— Firstly, the location of renewable
resources is often remote from load centres and existing transmission
infrastructure. Large transmission line connections are necessary,
and gaining planning consent for the construction of new transmission
lines presents serious difficulties. Wind energy development is
currently stalling in Scotland as a result of this, while the
last major transmission line planning process took eight years
to gain consent.
— Secondly, some renewables (principally
wind) produce a variable output and need some level of back-up
to ensure continuity of supply to customers. This issue is sometimes
overplayed, and studies have shown the level and cost of such
back-up to be modest provided wind is less than 10% of the generating
capacity. However as this rises towards and beyond 20% the cost
of back-up will become more and more significant.
STRATEGIC BENEFITS
If nuclear new build requires Government financial
support, on what basis would such support be justified? What public
good(s) would it deliver?
To what extent and over what timeframe would nuclear
new build reduce carbon emissions?
18. Should a decision to build a new nuclear
station be made today, the licensing and planning process would
be expected to take around five to eight years before construction
could commence. Construction itself would be expected to take
four to five years.
19. Noting the inevitable constraints of
resource in a large construction programme we would suggest indicatively
that around 1 GW of nuclear capacity per annum could be added
thereafter. Once operational the nuclear plant would have negligible
carbon emissions and would displace gas and coal fired plant.
The mix of such displacement would depend on market conditions
at the time.
To what extent would nuclear new build contribute
to security of supply (ie keeping the lights on)?
20. Nuclear generation provides base load
electricity that is not vulnerable to short term fluctuations
in fuel supplies, or renewable energy resource. As such it would
make a positive contribution to electricity supply security in
the same way as the present nuclear fleet. To achieve the same
security from gas fired plant would depend entirely on managing
fuel supply diversity, import capacity and the provision of gas
storage infrastructure. Coal fired plant offers similar security
to nuclear since international coal markets are highly liquid
and supplies are readily available, as is import infrastructure,
as well as remaining UK mine capacity. Renewables offer long term
security of supply as the resource is internal to the UK, but
in the short term the intermittency of certain renewables needs
to be managed. While a secondary matter, we would note here that
an increasing proportion of nuclear plant is detrimental in the
rare but very onerous situation of a national electricity grid
failure (as has happened elsewhere in the world recently). This
is because nuclear stations cannot come back on line quickly after
an unplanned disconnection from the grid. In the recent major
USA disruption the return of full supplies to consumers was hampered
by the unavailability of exports from nuclear generation in Canada
for this reason.
22 September 2005
http://www.iee.org/Policy/sectorpanels/energy/IEE_Energy_Policy_Briefing_Feb05.pdf
201 "The Energy White Paper, Two Years On"
(February 2005) Back
202
"Clean coal" is used here to refer to high-efficiency
coal-fired plant, rather than carbon capture. Back
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