Select Committee on Trade and Industry Written Evidence

Submission to the Energy Review Team, Department of Trade and Industry



  The Confederation of UK Coal Producers (CoalPro) represents member companies who produce over 90% of UK coal production. CoalPro is not opposed to the development of any other form of energy. CoalPro is pro-coal.

  CoalPro believes in a balanced energy policy and is opposed to over-reliance on any single form of energy. In particular, CoalPro is concerned that within the next 20 years, the UK will be dependent on gas for well over half of its electricity generation and that up to 90% of that gas will have to be imported.

  CoalPro's main response is set out in a covering letter to this Annex. It sets out the issues for the future of electricity generation and coal production in the UK, and makes certain policy proposals in relation to both.

  CoalPro's comments on the individual questions on which the consultation document seeks responses are set out below in this Annex. These comments are restricted to those issues on which CoalPro is competent to comment.

Q.1  What more could the Government do on the demand or supply side to ensure that the UK's long-term goal of reducing carbon emissions is met?

  On the demand side, much is made of the possibilities of energy efficiency and changes in behaviour. The objectives are laudable but CoalPro counsels against placing too much hope that they will result in massive reductions in carbon emissions. If it were that easy, it would have been done by now.

  On the supply side, it is clear that, even with the enormous effort and expense required to develop renewables and microgeneration, and even with similar effort and expense to develop a replacement programme of nuclear power stations, the UK will be dependent on fossil fuels for 60% or more of its overall energy requirements for perhaps several decades. It follows from this that the UK's long-term goal of reducing carbon emissions by 60% by 2050 cannot be met unless the abatement of such emissions from the consumption of fossil fuels is addressed.

  It is equally certain that a technology that is absolutely fundamental to such abatement, and perhaps the only way to achieve large scale reductions relatively early, is the widespread application of carbon capture and storage (CCS) at large point sources. A specific developments programme is needed to address this issue and is dealt with at Q.4 below. Relying solely on fuel switching from coal to gas will be wholly inadequate and gives rise to major security of supply and price risks (see Q.2 below).

Q.2  With the UK becoming a net energy importer and with big investments to be made over the next twenty 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.

  Recent events have comprehensibly demonstrated the security of supply and price risks of an increased dependence on gas imports. In this context, it is important not to make an artificial distinction between security of supply and price. They are two sides of the same coin in that as security of supply becomes more fragile, so the price will go up as countries and businesses seek to secure energy supplies. If prices rise to the extent that businesses have to reduce production, relocate or cease operating, or the fuel poor are left with inadequate heating, that is the equivalent of losing their supply.

  The consultation document rightly refers to the investment taking place in new gas supply infrastructure. It does not follow that there will be any gas to flow through it and it certainly does not follow that prices will fall. Similar investment is taking place in North America, the Mediterranean Basin and South and East Asia. The increased reliance on gas imports risks still being reliant to a degree on the European market (ultimately Russia) whilst at the same time becoming increasingly reliant on the world market. There is no guarantee whatsoever that the latter will be any more benign. The recent agreement by Russia to build gas pipelines to China further highlights the risks. It may always be possible to obtain the gas that we need if we are prepared to outbid all other players at excessive costs to the economy.

  An excessive over-reliance on imported gas can be avoided by reducing the reliance on gas for electricity generation. Over this winter this has occurred because of the high price of gas relative to coal and coal has provided over half of the UK's electricity generation. Over the longer term, the relative abundance of global coal reserves, including significant UK reserves, compared with the relative paucity of gas reserves, including declining UK reserves, means that the price differential must move inexorably in favour of coal. Recent announcements on investments in FGD at coal-fired power stations mean that nearly 20GW of coal-fired power plant has opted in under the LCPD. Allied with life extensions at some nuclear power stations, this means that capacity at existing generating plant will be up to 10GW greater in 2015 than seemed likely only a few months ago, thus serving to reduce the medium term dependency on imported gas.

  There remains the risk, however, that the low initial capital costs of gas plant mean that, in an uncertain world, investment in new capacity will be gas-fired. CoalPro recognises the difficulty of intervening in the market to "fix" shares for generation from particular fuels. There may however be merit on security of supply grounds for government to maintain a watching brief to ensure that generation capacity based on particular fuels does not fall below a certain minimum. Market forces can then determine the actual fuel mix.

  The Government can improve the market framework to reduce the reliance on gas in two respects. First, under the EUETS, for Phase 2 and beyond, the Government can grant carbon allowances for new plant which are fuel and technology specific. Second, the Government can guarantee long-term carbon allowances for new, higher efficiency plant on the German model. In Germany, allowances have been guaranteed for up to 18 years and this has stimulated significant investment in higher-efficiency coal-fired plant.

  Minimising the dependence on imported gas means relying more on coal. World coal reserves are abundant. It is less well appreciated that the UK still has several hundred million tonnes of coal reserves that can be economically extracted at costs which CoalPro believes will be competitive with the long run average of delivered world coal prices. The amount of coal-fired generation capacity that will be fitted with FGD means that there are no issues associated with the acceptability of indigenous production.

  Coal offers numerous security of supply and price advantages compared with reliance on imported gas including the ability to stock large quantities. These advantages will be enhanced by including within the coal supply mix a significant proportion of indigenous production. Coal supplied from the UK offers security against the volatility of international coal prices, freight rates and exchange rates and a reliance on limited port capacity. Strains on a congested railway system are reduced. The network infrastructure issues referred to on p 55 of the consultation document also apply to coal. Imported coal also relies on extensive infrastructure in the supplying countries, the full economic costs of which in the case of Russia are not yet reflected in pricing, and results in increased transport-related carbon and sulphur emissions.

  The main impediment to maintaining and increasing UK coal output is access to the significant reserve base at both deep and surface mines. Deep mines require periodic injections of capital to access new areas of reserves without which they will close prematurely. The necessary investment will not be forthcoming if coal supply contracts are short term and subject to the vagaries of international prices. Within the past three years these have varied from $30 per tonne up to $80 per tonne and back to about $60 per tonne delivered to North West Europe. Such a commercial environment is not "bankable" for such long-term capital intensive operations.

  CoalPro urges the electricity generating industry and the UK Government to consider developing a framework which will enable longer term coal contracts to be agreed at prices which smooth out the volatility of international markets and which recognise the additional security advantages of indigenous production. Investment will then be forthcoming. In addition, CoalPro believes government should consider tax credits or similar mechanisms to encourage generators to burn indigenous fuels at times when these are disadvantaged because of temporary low world prices.

  The UK has several hundred million tonnes of coal reserves that could be extracted by surface mines. The greatest impediment to production is the difficulty in obtaining planning permission. Planning guidelines in England apply a presumption against approval for surface coal extraction unless strict conditions are met. No such presumption applies to any other form of development and specifically any other mineral extraction. It is illogical, discriminatory and absurd at a time when indigenous fossil fuel production is declining.

  This presumption against has recently been introduced in Scotland. At the same time, the new Scottish guidelines introduced a 500 meter buffer zone as opposed to the 200 meter that applies to some other minerals. This will sterilise large areas of reserves and eliminate a number of potential sites completely. Draft planning guidelines in Wales propose a 350 meter buffer zone which will have the same effect. Arbitrary fixed buffer zones are not based on any objective criteria and should be replaced by ones which are assessed on site-specific criteria for each application.

  CoalPro also believes that a number of mineral planning authorities in England are not taking proper account of the planning considerations that enable the presumption against to be overcome. There are other sterilisation issues where applications to extract coal are refused, only for the site to be subsequently developed, or where coal extraction in conjunction with a wider development is refused. This is the antithesis of sustainability.

  This competitive ratcheting up of requirements across the devolved administrations and amongst mineral planning authorities is strangling surface coal production and is wholly irresponsible against a background of restricted and expensive energy supplies. Surface coal production has fallen from 18 million tonnes a year to 10 million tonnes a year over the past decade. CoalPro urges the Government to remove the presumption against, to replace arbitrary buffer zones with ones assessed on site-specific criteria, to ensure that mineral planning authorities properly apply planning guidance and to ensure, on energy policy grounds, that a similar regime applies throughout the UK.

  Planning guidelines for some other minerals require a landbank of future permissions to be maintained so that the nation's need for essential materials can be met. There is a market for coal in the UK substantially in excess of indigenous production and import capacity for internationally sourced coal is tight. Over the past winter, coal-fired generation provided over 50% of UK electricity and indigenous coal was a major component of supply. Without this level of generation, electricity supply difficulties would almost certainly have occurred. There is therefore a demonstrable need for indigenous coal production which should be taken into account as a material consideration when applications for surface mines are considered. CoalPro urges the Government to adjust planning guidelines accordingly and ensure that this applies across the UK.

  If an adequate landbank of permissions can be built up, surface coal production could be increased to 15m tonnes a year providing invaluable additional indigenous energy production at a time of constrained an expensive imported supplies. A landbank of permissions would provide a strategic reserve of coal in the ground which could be used to supplement indigenous energy production as required.

  Surface mines are also subject to Government imposed cost pressures that do not apply to the UK's international competitors. Recent increases in the duty on off-road diesel have increased costs significantly. The level of duty is well above the European minimum and does not apply to non-European competitors. When considered in conjunction with the climate change levy, this amounts to double taxation. Gas oil used for electricity generation is exempt for this reason. CoalPro asks the Government to apply a similar exemption for diesel used in the production of coal, virtually all of which is used for electricity generation.

  Indigenous coal production also offers other substantial economic benefits in terms of employment, tax revenues and the balance of payments. These benefits will be lost if access to the UK's coal reserves continues to be impeded. Any further reductions in employment risks losing the industry's skills base.

  In this context, the EU State Aids regime is designed, inter alia to maintain and secure access to reserves. CoalPro recommends that the various options available under the regime should be retained over the long-term.

  CoalPro therefore proposes the following policy agenda in relation to UK coal production:

    —  Development of a commercial environment for the UK's deep mines which provides long-term contracts at prices which smooth out the vagaries of international coal prices in order to encourage investment to access new reserves.

    —  Consider tax credits or similar mechanisms to encourage generators to burn indigenous fuels at times when these are disadvantaged by temporary low world prices.

    —  Remove the presumption against surface coal mining applications from planning guidance in England and Scotland.

    —  Replace arbitrary fixed buffer zones in planning guidance in Scotland and Wales by ones which are objectively assessed on site-specific criteria.

    —  Change planning guidance to require the need for coal to be taken into account.

    —  Ensure on energy policy grounds that planning guidance, adjusted as above, applies throughout the UK.

    —  Ensure mineral planning authorities follow guidance and allow surface coal extraction in all cases where reserves would otherwise be sterilised.

    —  Exempt coal mining operations from duty on red diesel.

    —  Retain the options to maintain and secure access to reserves under the EU State Aids regime over the long-term.

Q.3  The Energy White Paper left open the options of nuclear new build. Are there particular considerations that should apply to nuclear, as the Government re-examines the issues bearing on new build, including long-term liabilities and waste management? If so, what are these, and how should Government address them?

  CoalPro believes in a balanced energy policy and is not opposed to a programme of nuclear new build to replace stations as they close. It would, however, be imprudent to regard nuclear new build as a "silver bullet" solution, just as it would be imprudent to place excessive reliance on any other technology or fuel source.

  CoalPro is not competent to comment on the detailed issues associated with new build, including long-term liabilities and waste management. There will be many other bodies who will profess to be able to do so. CoalPro urges Government to afford them a healthy degree of scepticism.

  It is clear, however, that new build will not take place without supporting market mechanisms. Amongst these will need to be some form of Government guarantee associated with long-term liabilities.

Q.4  Are there particular considerations that should apply to carbon abatement and other low-carbon technologies?

  CoalPro is not opposed to the development of any particular carbon abatement or low-carbon technology but urges Government to avoid excessive reliance on intermittent renewable sources that are inflexible and cannot meet peaks in electricity demand. The enormous costs associated with some of the more exotic renewable technologies, such as marine technologies, may offer more reliability but will do nothing for affordability.

  CoalPro is not competent to comment in detail on most of these technologies and the response is therefore restricted to low carbon coal technologies.

  Investment in low-carbon coal technology offers a way forward which will both address carbon emissions and enable the UK to continue to make use of abundant world and the UK's own significant coal reserves. Initially this will require investment in higher efficiency coal plant, either by the application of supercritical boiler technology to pulverized fuel plant (new or retrofit) or by new integrated gasification combined cycle (IGCC) plant. When combined with up to 20% of biomass in the fuel stock and feed water heating, these technologies can reduce carbon emissions from coal-fired plant to levels close to those from combined cycle gas turbine plant.

  Continued progress in reducing carbon emissions by co-firing with biomass is under threat because of the reduction in the cap under the Renewables Obligation (RO) with effect from April 2006. CoalPro recognises that the Government is reconsidering this but emphasises that a decision is urgent. To maximise potential in this area, it is also important to resolve the issues associated with off-site blending of biomass with coal.

  The final stage in delivering low-carbon coal technology is to capture the carbon dioxide emissions from such plants and store them underground in either exhausting oil and gas fields to enhance oil and gas recovery or in deep saline aquifers. CO2 can be captured from the flue gases at supercritical pulverized fuel plant, or at the pre-combustion stage at IGCC plants. 85% of CO2 emissions can be abated in this way. Combined with biomass, the reduction can be even greater. IGCC plants are less well proven but offer the additional advantage that removal of the CO2 at the pre-combustion stage provides a stream of hydrogen that can be used either for electricity generation or, in the longer term, as a replacement motor fuel. It is imperative to recognise, however, that the cost penalty associated with carbon capture and storage (CCS) means that investment in higher efficiency coal plant is a prerequisite.

  It may be that with the present relativity between coal and gas prices, investment in higher efficiency coal plant is competitive with new gas plant. Investors are unlikely to commit, however, in the absence of longer-term certainty. The most pressing problem is to provide regulatory certainty and, in particular, to make available long term carbon allowances beyond phase 2 of the European Union Emissions Trading Scheme (EUETS) which itself has yet to be finalised and which will only extend to 2012.

  The German government has made available carbon allowances for up to 18 years. This has stimulated investment in higher efficiency coal plant and a number of projects are now proceeding. A similar regime in the UK may well bring forward investment. CoalPro urges the Government to introduce such a regime.

  Additional instruments may be necessary to stimulate investment in CCS, whether from coal or gas plant. Whilst all the individual elements of the technology have been proven to some degree, there remain risks associated with combining them and Government assistance for a small number of demonstration plants, involving both coal and gas, may be necessary. The £35 million available under the CATS strategy is unlikely to be sufficient. CoalPro asks the Government to provide additional assistance for demonstration CCS plants.

  Large-scale deployment of CCS technology is by definition not economic compared with conventional fossil fuel generation technologies. It will require further policy instruments. In addition to the long-term carbon allowances proposed above, mechanisms such as a replacement or extension of the Renewables Obligation to a low-carbon obligation, or contracts with Government to provide a floor price for carbon will be necessary.

  Development of low-carbon coal technology as set out above will minimise carbon emissions whilst avoiding the risks of over dependence on gas. All low-carbon technologies will be relatively expensive and it is not the place of this response to discuss the costs of the various alternatives, which are both subjective and site-specific. However, general indications are that low-carbon coal technology is broadly competitive. It thus offers secure, clean and affordable energy for the long-term.

  CoalPro therefore proposes the following policy agenda in relation to UK electricity generation:

    —  Reversal of the reduction under the RO of the cap on co-firing of coal with biomass.

    —  Resolution of the issues associated with off-site blending of coal and biomass.

    —  Provision of long-term carbon allowances to stimulate investment in higher efficiency coal-fired generation.

    —  Government assistance for carbon capture and storage demonstration plants.

    —  Extension of the RO to a low-carbon obligation or a mechanism to provide a floor price for carbon, to enable large-scale deployment of low carbon coal technology and CCS.

Q.5  What further steps should be taken towards meeting the Government's goals for ensuring that every home is adequately and affordably heated?

  In general terms, the continuing availability of diverse and secure sources of energy, including fuels for electricity generation, is an essential pre-requisite for ensuring adequate and affordable home heating.

  No doubt, an extension of energy efficiency measures across the housing stock, including through building regulations, can make an important contribution. It would be a mistake, however, to place excessive reliance on such measures. If it were that easy, it would have been done by now.

  There is one area in which the new Building Regulations act against both the alleviation of fuel poverty, and a reduction in carbon emissions. Customers are being driven away from solid fuel as a matter of policy. They are effectively being prevented from choosing solid fuel and are thus forced to use more expensive oil, gas or electricity. Customers who at present use these more expensive fuels are being prevented from switching to cheaper solid fuels. Given constrained gas supplies, this is also causing security of supply concerns.

  As many solid fuel appliances are designed to be multi-fuel and also burn logs or wood products of various kinds, this is also acting to prevent a net reduction in carbon emissions. Customers burning gas are being prevented by the Building Regulations from switching to a cheaper alternative which would also result in a net reduction in carbon emissions.

  CoalPro recommends that Government urgently reviews the way the Building Regulations operate and are being applied to ensure customers are able to have a free choice to seek the lowest cost alternative.

  The consultation document also invites comments on certain other issues.

    (i)   The long term potential of energy efficiency increases in the transport, residential, business and public sectors, and how best to achieve that potential.

      CoalPro has only one point to make under this topic. There must be a net carbon footprint gain if a higher tonnage of more accessible, easily transported indigenous coal is burned by UK generators.

      (ii)   Implications in the medium and long term for the transmission networks of significant new build in gas and electricity generation infrastructure.

      CoalPro is not competent to comment on gas and electricity infrastructure issues but wishes to point out that there are also issues associated with the railway infrastructure.

      A greater reliance on indigenous coal as opposed to imports would reduce strains on a congested railway network, associated maintenance costs and port capacity. Furthermore, some of the proposed investment in upgrading this infrastructure could be deferred or even eliminated completely.

      (iii)   Opportunities for more joint working with other countries on our energy policy goals.

      This is essential if the concentration of CO2 in the atmosphere is to be stabilised and ultimately reduced. Whatever efforts are involved in reducing CO2 emissions in the UK, and the costs of so doing, will come to nought if progress is not also made elsewhere, and particularly in the developing economies. Technology transfer will be essential, but will only happen if the technologies are first developed and demonstrated to be effective. As carbon capture and sequestration may be the only technology capable of effecting large emissions reductions from the rapidly increasing amount of coal-fired generating plant in the developing world, it is incumbent on developed countries, including the UK, to demonstrate that this type of technology can work to the point where multiple large scale commercial applications are possible. CoalPro has commented elsewhere in this response on what needs to be done on CCS to get to this point.

      At the same time there are opportunities for an appropriate "division of labour" and hence also costs amongst the developed economies. In particular, CoalPro points out the work now beginning in the US FutureGen project.

      These propects for joint working also provide great opportunities for the UK economy in design, engineering and contract work.

      (iv)   Potential measures to help bring forward technologies to replace fossil fuels in transport and heat generation in the medium and long term.

      CoalPro supports measures to increase the availability of biofuels for motor transport and small scale microgeneration/CHP installations for domestic and local heating needs, but is not competent to comment further on these.

      Perhaps the greatest opportunity to achieve reductions in carbon emissions from these sectors lies in the potential for using hydrogen as a motor fuel. Two routes have been put forward for producing hydrogen—from fossil fuels and by electrolysis. The latter is proposed by supporters of renewables such that electricity generated by renewables is then used for the electrolysis of water to produce hydrogen. The energy requirements of electrolysis are enormous and this route is likely to be horrendously expensive.

      A much more promising route is from fossil fuels. When combined with carbon capture and storage, this offers a low carbon route at reasonable cost for both electricity generation and transport. With gas likely to be both expensive and subject to supply constraints, coal will be at least an equally suitable and economic source. Production of hydrogen from coal requires gasification of coal in the first instance and pre-combustion capture and sequestration of CO2. The resultant gas, essentially hydrogen, can then be used either to generate electricity or as a transport fuel. IGCC technology is thus required for electricity generation.

      Elsewhere in this response, the case is made for higher efficiency electricity generation from coal. Supercritical boiler technology associated with post-combustion CCS is one alternative but the greater long-term potential lies in the deployment of IGCC technology with pre-combustion CCS and the associated production of hydrogen.


19961997 19981999 200020012002 20032004 2005
Consumption (million tonnes)
Total7163 635659 64596261 62
Power Stations5547 494247 52495351 52

Production (million tonnes)
Total5048 413731 32302825 21
Deep3230 262117 17161613 10
Opencast1617 141513 14131212 10
Other21 1111 11

Imports (million tonnes)
18 202120 23362932 3643

  It follows that a presumption against indigenous coal production is a presumption in favour of imports.
YearTotal EnglandScotland Wales

1996-9716,2258,379 5,5852,261
1997-9816,2888,206 6,3321,750
1998-9914,9647,034 6,4221,508
1999-0014,9296,165 7,2241,540
2000-0113,2534,774 7,0781,401
2001-0214,4735,113 8,1861,174
2002-0313,0974,953 7,0741,070
2003-0411,6273,674 6,7761,177
2004-0511,7782,720 7,6321,426
2005-0610,1531,204 7,7391,210
2001-02 2,355
2002-03 2,727
2003-04 1,270
2004-05 24
2005-06 1,711


2004-05 2005-06
m tonnesm tonnes

  At times, in the 2005-06 winter, coal-fired power stations were providing over 50% of UK electricity demand.

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