Annex
KEY QUESTIONS
FROM THE
ENERGY REVIEW
Q.1 What more could the Government do on the
demand or supply side for energy to ensure that the UK's long-term
goal of reducing carbon emissions is met?
ABB agrees that the Environmental challenge
is a key issue that needs to be tackled and believes that the
Government can impact long-term levels of emissions through a
coherent policy framework to remove market barriers to implementation.
Demand Side Energy and the Importance of High Quality
Equipment
Technology that can help reduce carbon emissions
have been developed and successfully marketed overseas, however
take up of the new technology has been slow in the UK. ABB believes
that there are several ways in which the government can intervene
to encourage the use of high quality and technologically advanced
equipment.
The importance of implementation:
— the Utility Industry is one where
high quality equipment can help build sustainable and energy efficient
delivery systems;
— demand side customers have to be
able to install the most efficient equipment to reduce energy
usage, such as motors and drives which reduce CO2 emissions; and
— replacing old equipment like for
like will not create a sustainable future and will undermine other
schemes to reduce carbon emissions.
The impact of implementation:
— If ABB replaced all old drives and
motors in our global customer sites (but not in those of our competitors),
with new variable speed drives, we could save the amount of energy
equivalent to that produced by building 10 large nuclear power
stations.
Creating Incentives:
— Business Rates: The Government could
use business rates to provide incentives for investment in the
appropriate technology.
— The Emissions Trading Scheme (ETS):
This scheme will also play its part. However, put figuratively,
ETS needs to be carrot and stick, rather than just stick.
— Use of the Carbon Trust's UK model
of ETS: This model has many advantages over the European model
and in particular creates opportunities, for emission reduction,
not just in half-hour metered premises but more widely.
— A Coherent Policy Framework: Implementation
of the new technologies is currently market led, and would benefit
from higher level planning and a UK policy framework. The current
framework makes energy inefficiency profitable for individual
companies at the expense of the infrastructure as a whole.
The need for a coherent policy framework that
takes a holistic approach can be illustrated with reference to
the following examples of infrastructure that impact the whole
energy system in the UK:
The Importance of Networks
Electricity demand is connected to electricity
supply by networks. These very networks either enable or disable
flexibility of generation in terms of the mix of generation methods
or in terms of the connection methods employed to meet demand.
The documentation for this very review appears to assume that
the future replacement of network equipment will be merely like
for like. Failure to replace network equipment with upgraded kit
is a missed opportunity.
The concept behind current networks was an
"hierarchical" system. In this system power flows from
conventional large power generation through a Transmission Network
and then on through a, mainly passive, distribution network. This
old design is now so inflexible that it proves inadequate to cope
with the mix, and the geographical locations, of new distributed
generation and storage facilities.
It is the networks, not Nuclear Plants, that
have the longest replacement lead times. Networks have an average
replacement age of 40 years. It is unusual to be given a chance
to implement a wholesale equipment replacement programme and,
therefore, to do things differently. We have just such an opportunity
now. Unless we seize it the opportunity will be wasted and we
shall bequeath a chronic problem to future generations.
The Environment and Under Grounding
An important area where the Government could
also assist is in the promotion of under grounding technology
for overhead power transmission lines, in particular when such
lines go through areas of outstanding natural beauty (AONBs).
This technology has been used for 50 years on the continent. A
programme of under grounding offers three major advantages:
— it avoids the long delays caused
by planning deliberations about overhead cable;
— it makes power connections in an
environmentally friendly way; and
— it strengthens our grids and provides
power quality improvements.
Technological Barriers or Market Barriers to Reducing
Carbon Emissions
The Energy Review Document suggests there are
a number of technological challenges to be overcome (page 56 "In
the absence of significant breakthroughs in the electricity storage
technologies ..."). But these technologies are already installed
and proven. In Alaska ABB has installed an electricity transmission
storage system delivering 27MW for 15 minutes (and which can provide
up to 46MW for 6-7 minutes). It has been operational since 2003
and is operating in extreme conditions.
Technology is not the problem, the problem is
market barriers which hold up the deployment of effective technology.
These market barriers are a complex combination of economic, environmental
and regulatory factors. A key reason why the true value of technology
is not recognized is because of the procurement models introduced
to deliver cheap electricity to the end consumer. These models
were created in response to different regulatory incentives. These
incentives in turn had been put in place to drive behaviour a
certain way but had several undesirable side effects , such as
reduction of any commercial R&D in the field to almost zero
for 10 years. But there are two serious problems with the procurement
models as follows:
— The models have tended to take account
only of capital cost not combined operational and capital costs.
— Many of these models do not consider
the effect of power loss or power quality, omissions which then
have to be corrected in other ways, which leads to even more inefficiencies.
In addition, technology already adopted overseas
has failed to gain a foothold in the UK because the market in
the UK is so highly fragmented. The free market approach suits
our company fine but the way the market has been split has given
rise to some perverse outcomes. There are circumstances in which
the return from an investment does not accrue to the company initiating,
and investing in, a project but to another company engaged in
another element of the project altogether. A company is unlikely
to make an investment that assists another company and not itself!
Examples of this anomaly are available if required.
By the same token, typically, technology that
has been used overseas in excess of 25 years with safe operating
conditions is not considered safe enough for the UK regulatory
regime. ABB would therefore suggest that the regulatory regime
be reevaluated in the light of overseas practice.
Financing and completing the largest renewable
energy projects is only a realistic option if they have an advanced
and high quality infrastructure to enable them. This is especially
so for the UK's off-shore wind farms, an example of a low risk
technology that have been proven in off-shore oil platforms in
the North Sea. This, and other, technologies can deliver an off-shore
grid system that could also strengthen our inter-connection with
neighbouring countries while protecting us from fault transference
or helping us in black start conditions (should this ever be necessary).
The economic case is clear but co-ordinated government project
management would be needed to deliver this major additional infrastructure.
This infrastructure would also allow future renewable wave or
solar power to be connected in a cost effective manner. Details
are available on request.
Q.2 With the UK becoming a net energy importer
and with big investments to be made over the next 20 years in
generating capacity and networks, what further steps, if any,
should the Government take to develop our market framework for
delivering reliable energy supplies? In particular, we invite
views on the implications of increased dependence on gas imports.
Q.3 The Energy White Paper left open the option
of nuclear new build. Are there particular considerations that
should apply to nuclear as the Government reexamines the issues
bearing on new build, including long-term liabilities and waste
management? If so, what are these, and how should the Government
address them?
Q.4 Are there particular considerations that
should apply to carbon abatement and other low-carbon technologies?
Q.5 What further steps should be taken towards
meeting the Government's goals for ensuring that every home is
adequately and affordably heated?
Comments are also invited on the following issues,
as described in the text:
(i) the long term potential of energy efficiency
measures in the transport, residential, business and public sectors,
and how best to achieve that potential;
(ii) implications in the medium and long
term for the transmission and distribution networks of significant
new build in gas and electricity generation infrastructure;
(iii) opportunities for more joint working
with other countries on our energy policy goals; and
(iv) potential measures to help bring forward
technologies to replace fossil fuels in transport and heat generation
in the medium and long term.
Our current free market approach is very good
at encouraging the development of innovative commercial models
for stakeholders but this market is not good at designing the
most coherent technical architecture for UK Plc. Each of the players
in the market will be driven by a different set of commercial
imperatives for their business giving rise to different technical
solutions which increase the return on their investment. For example,
in the electricity market, when each stakeholder has optimised
their commercial model from 40 plus different generators, one
transmission operator (but three asset owners) and 14 distribution
companies it is unlikely that the best technical solution will
be delivered for UK plc. It is more likely that the commercial
models will fail to deliver a whole system approach. Technical
solutions are normally designed on a whole systems basis. By "cherry
picking" components or mixing different parts of different
solutions it may be possible to deliver the lowest cost but technical
coherency will almost certainly be lost. There are many examples
that can be given upon request.
There is indeed the prospect of "significant
new build in gas and electricity generation infrastructure"
and it will be in place for 40 plus years. If this new infrastructure
is not designed to be flexible then all our options for the future
are limited. Normally commercial and regulatory models change
more frequently than the physical components of infrastructures—we
face a choice between designing in flexibility, capacity, reliability
and security as a coherent whole system or leaving these matters
to market forces.
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