APPENDIX 13
Memorandum by The Coal Authority
IMPLICATIONS OF
THE INCREASING
DEPENDENCE ON
COAL IMPORTS
The Coal Authority (CA) welcomes the opportunity
to submit evidence to the Trade and Industry Select Committee
inquiry into Energy Policy and, in particular, to address the
extension of the terms of reference to include the implications
of the increasing dependence on coal imports. Specifically the
CA is grateful to the Committee for accepting this submission
after the published closing date.
The CA is responding to the consultation as
the owner of unworked coal and mines of coal throughout the UK
and as the body which regulates certain activities of the mining
companies to whom it grants licences to work coal. As the owner
of unworked coal, with a duty under the Coal Industry Act 1994
to hold, manage and dispose of its assets (including coal), the
CA wishes to see the commercial exploitation of its coal estate.
To fulfil this duty and achieve its aims the CA is interested
in the factors which will influence the working and utilisation
of coal. The Government's energy objectives, policies and strategies
are major factors in deciding coal's future.
Accompanying this letter is the CA's submission
to the Energy Review, which outlines our view on current energy
issues. [57]Before
I draw your attention to the relevant sections in relation to
this inquiry, I would first like to outline the situation explaining
why coal imports have been rising over recent years.
Contrary to Government forecasts coal burn for
electricity generation has been much higher than predicted. The
electricity generation sector accounts for around 85% of UK coal
demand. In 2005 this market grew by 3.4% to 52.2mt, reflecting
the stronger competitive position of coal against gas. Since 1999
coal consumption in the electricity generation sector has grown
by 27%. However, over the same period, indigenous production has
fallen from 48.5mt to 25.1mt (-48%). Coal still remains a major
energy source within the UK, accounting for around one third of
electricity generated in 2005. Over the recent winter coal has
been meeting 50% of average weekday demand.
Electricity generators want to burn coal; it
is the fuel of choice in the current liberalised energy market,
even taking into account environmental costs. In the UK, imported
coal has been taking an increasingly higher proportion of this
market despite domestic coal having lower costs than the price
of international traded coal and the increase in flue gas desulphurisation
equipment at power stations reducing the need to import on quality
grounds.
Coal imports have been rising simply because
indigenous coal production has been unable to meet demand and
this trend looks set to continue unless action is taken. Coal
production in the UK has been falling for many years. There was
extensive rationalisation of the nationalised industry before
privatisation. More recently production has fallen more rapidly
than the market as deep mine collieries have reached the end of
their economic lives and surface mines have found difficulty in
obtaining planning permission. In 2005 UK production fell to its
lowest recorded level of 20.6 million tonnes.
There is an abundance of coal remaining within
the UK but that alone is not enough to sustain production; economics,
environmental issues and political attitudes are also relevant
factors in the part indigenous coal will play. The industry has
the ability to produce around 20 million tonnes per year via conventional
mining methods for the foreseeable future, but change is needed
for this to happen. I would in particular like to draw your attention
to Appendix 2 of the CA's submission, which gives a summary of
the coal reserves position in the UK.
The indigenous industry faces two main problems;
in deep mines it is the ability to maintain the periodic investment
needed to access new areas of reserves and with opencast mining
it is the difficulty in obtaining planning permission.
Future investment into deep mines must be covered
by contracts which allow producers to mine the coal, develop further
coal faces and provide adequate risk adjusted returns. Contracts
linked to the vagaries of international prices, which have varied
between $26/t to $80/t delivered into North West Europe over the
last three years, make investment planning very difficult.
Without further investment in UK collieries
accessible reserves will be effectively lost to the nation forever.
In order to acquire the necessary price levels to promote investment,
the CA believes it is important for there to be a framework (possibly
influenced by Government intervention) which will enable long
term coal contracts to be agreed at prices which reflect a premium
for the reliability of the "local" product, and with
a mechanism that smoothes out the volatility of international
price fluctuations.
Achieving security of supply and a balanced
energy mix does not come without cost. At present we have the
Renewables Obligation and historically the Non Fossil Fuel Obligation
(NFFO) to support nuclear. Going forward there will certainly,
have to be a market mechanism introduced to encourage new nuclear
build. Providing a mechanism to help deep mine investment is simply
an extension of this principle.
The UK has several hundred million tonnes of
coal reserves that could be extracted by opencast methods. The
greatest impediment to production is the difficulty in obtaining
planning permission. The introduction of Minerals Planning Guidance
Note 3 (MPG3) in England and Wales in 1999, introduced a presumption
against approval for opencast coal extraction unless strict conditions
are met, and opencast production in England has fallen by 61%
since its introduction. No such presumption applies to any other
form of development and specifically any other mineral extraction.
This presumption against has now been introduced in Scotland and
there is a real danger that a similar trend may develop.
The CA feels that opencast mining should be
treated, within the planning process, in the same way as "other"
minerals. This would still require proper consideration of environmental
and community issues, but would provide the need for a "secured"
supply of indigenous coal within a strategic planning framework.
This would take away the perception created by the "presumption
against" principle that coal starts from a negative position
and is somehow less important than other minerals.
The CA believes that Government should review
planning policy to remove the presumption against and ensure that
national need is taken into account in a similar fashion to the
statement of need on LNG terminals recently made by Alistair Darling
the Secretary of State for Trade and Industry.
Sections 5 and 6 of the CA's main submission
goes into further detail on the issues outlined above but I would
like to draw your attention in particular to Appendices 3 and
4.
Appendix 3 shows the projected output level
from the UK opencast sector. The opencast sector annual production
will be maintained at around 11 million tonnes for the next 4
years, as sites which have planning consents or are expected to
receive consent come into production. However, without new consents
output will drop, with the major reduction in 2010
Appendix 4 shows the potential for deep mine
output, but that is achievable only with the necessary investment.
Without it, production declines and accessible reserves become
exhausted between 2014 and 2020, depending upon whether all the
identified resources at the existing mines can be converted into
reserves and worked successfully.
In summary, indigenous coal can provide a buffer
against vagaries of energy supply. The energy market is continually
shifting and a viable coal industry can help mitigate fluctuations
in energy demand and price volatility, whilst providing both security
and diversity. If an indigenous industry is not maintained then
coal imports will continue to grow and the UK's indigenous coal
resource and its benefits will be lost to the nation forever.
Director of Mining Projects and Property
12 June 2006
57 Not printed. Back
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