Memorandum by EDF Energy
ABOUT EDF ENERGY
EDF Energy is one of the UK's largest energy
companies. We are a vertically integrated company with a balanced
portfolio of business throughout the energy chainfrom generation
through to supply. Most pertinent to this inquiry:
We are the 5th largest electricity
generator in the UK. We own and operate an 800MW CCGT (combined
cycle gas turbine) power station at Sutton Bridge and 4 GW of
coal-fired generation assets that are currently being fitted with
Flue Gas Desulphurisation equipment, as well as CHP and renewable
EDF Energy is a major supplier of
gas and electricity, with over five million electricity and gas
customer accounts throughout the UK, supplied through our retail
brands EDF Energy, London Energy, Seeboard Energy and SWEB Energy.
We own and operate the electricity
distribution networks serving London, the East and South East
of England, which means that around one quarter of the UK population
relies on our distribution networks for their electricity. This
makes EDF Energy the largest electricity distribution network
operator in the UK.
We are a major owner and provider
of private electricity infrastructures in the UK including those
for the major London airports, the London Underground, the channel
tunnel rail link, the Docklands Light Railway and Canary Wharf.
We are also a partner in the Metronet consortium.
We are part of EDF Group, a leading
European utility and a world leader in nuclear generation.
EDF Energy is committed to finding the right
balance between providing sustainable financial returns and investment.
EDF Energy is pleased to have the opportunity to contribute to
the Trade and Industry Committee's inquiry into the government's
Inquiry Question 1
EDF Energy welcomes the government's Energy
Review and supports the need to put in place an energy policy
that tackles climate change while ensuring secure energy supplies
and affordable prices. We believe that as part of a diverse energy
mix the construction of new nuclear power stations in the UK,
particularly in view of the forthcoming closure of existing nuclear
power stations, should be part of the solution to the challenges
of reducing CO2 emissions, increasing security of supply and limiting
energy price volatility.
There are a number of issues that need to be
addressed and particular considerations that apply to new nuclear
build. Our view of what these are and how they can be addressed
is outlined below.
1.1 CCGT is currently the preferred technology
for replacing decommissioned generation capacity, because of low
risk, short construction time and low capital investment. However,
if this dominant technology continues to be deployed, the government
may not meet its carbon reduction targets.
1.2 Nuclear power, through its whole life
cycle, does entail some carbon emissions as the energy required
to construct, fuel and decommission a nuclear plant may be sourced
from fossil fuel generation. However, if one compares the CO2
emissions produced on average during the complete life cycle of
a nuclear plant with the emissions produced by fossil fuel plants,
the emissions, as reported by the OECD Nuclear Energy Agency,
are from 11 to 22 gCO2/kWhe for nuclear against 385 gCO2/kWhe
for natural gas plants and 755 gCO2/kWhe for coal fired plants.
1.3 As a result, replacing 10 GW of the
UK's current nuclear capacity with CCGTs would result in a 4%
increase in carbon dioxide emissions from 1990 levels.
1.4 The present reserves of oil, gas and
coal would allow, at the present rate of consumption in the world,
consumption for about another 41 years, 67 years and 164 years
respectively. These figures are rough estimates but world consumption
is continuously increasing.
1.5 However, there is a consensus that oil
scarcity might become a problem within 30 years, and that gas
reserves might not last as long as foreseen, since consumption
could increase faster than expected and gas could be used as a
substitute for oil to provide liquid fuels. Coal is plentiful
and well distributed around the world, but coal when burned is
also the worst CO2 emitter and in addition requires additional
treatment to minimise sulphur and dust emissions.
1.6 With the present world nuclear fleet
and standard fuel cycle, uranium reserves would sustain nuclear
generation for about 85 years if using only well known reserves
at a price below 130 $/kgU, or for about 270 years if using all
known resources. The next generation of reactors, known as Generation
4, with fast breeder reactors, will allow these periods to be
extended to several thousand years.
1.7 The government will be more likely to
meet its policy objectives at minimum economic cost if it reduces
regulatory barriers to the implementation of as many alternative
low carbon technologies as possible and provides a stable long
term policy framework, so that industry can make informed investment
decisions from the maximum number of options at any one time.
1.8 If the electricity supply industry is
to develop and construct a programme of new nuclear power stations,
there needs to be a process that:
Produces a clear statement of energy
policy with broad political support that explicitly acknowledges
the contribution nuclear power can make to an economically sustainable
low-carbon diversified energy mix;
Provides for an appropriate degree
of public participation in the consideration of the generic issues
of new nuclear construction such that these issues do not have
to be re-examined as part of the planning process for each potential
Enables the site specific issues
alone to be the focus of the planning process for each potential
Results in the granting of the necessary
licences, authorisations and consents within predictable timescales
and in a manner that progressively reduces regulatory and project
Encourages competition by pre-licensing
standard international designs with the minimum of modification
for the UK market and allowing final selection of a site-specific
design to be as close to the investment decision as possible;
Enables the decision to proceed with
construction to be taken only when all significant design related
consents, authorisations and approvals are in place.
1.9 Practical steps have to be taken to
provide such a process, and in particular:
All key approvals should be granted
before the first plant order is placed;
The preparation of a Strategic Environmental
Assessment by the government for a new nuclear programme will
be an opportunity to consult with stakeholders, reassure the public,
and document the generic environmental impact of such a programme,
and will allow the early identification of potential sites;
The Nuclear Installations Inspectorate
(NII) should be asked to assess a number of reactor designs. A
procedure for pre-licensing that would allow a group of prospective
licensees to come together at an early stage to present suitable
designs for NII assessment should be favoured. A licensee will
emerge from this group later, for the formal licensing application
for a particular project;
In addition to the pre-licensing
assessment of the plant design, the NII should proceed separately
to a pre-licensing assessment of potential sites;
The NII pre-licensing and licensing
arrangements should include opportunities for public consultations.
This should mean, at the time of the Section 36 consenting process,
that the public inquiry can focus primarily on local issues;
The NII should be encouraged to review
the European Utilities Requirements for alignment with its Safety
Assessment Principles, and to take advantage of reviews conducted
abroad by other safety authorities to speed up its own assessments;
There is a need for strong co-ordination
across government departments of the inputs that will need to
be made to the different parts of the process.
We believe that these measures are necessary
in order to secure a long term regulatory framework, to render
the process time controllable and to attract long term investors.
1.10 For reasons of practicality and public
acceptance, it is likely that the present nuclear sites would
be the most appropriate for the development of new nuclear plants.
A first assessment indicates that there is probably enough room
across these sites as a whole to install a nuclear programme of
10 GW. However, appropriate arrangements will have to be made
by the government to render this feasible.
1.11 Given that with new reactor designs
accidental radioactive releases would be much lower than from
the past designs, it should be possible for these new third generation
reactors to be authorised on all existing nuclear sites.
1.12 On nuclear sites where plant decommissioning
is in progress, all measures should be taken to avoid the dismantling
of facilities, including overhead lines, and nothing should be
done to prevent their re-use.
1.13 The government should make arrangements
to ensure the sites are made available to investors at fair market
1.14 Owners of new nuclear plant will require
comfort that the existing limits on third party liability (the
monetary limit is expected to be raised to 700 million in
2006) will continue to be applicable. The insurance market appears
to have capacity to cover most risks within the proposed limits
post 2006, although debate on some detailed issues is continuing.
1.15 Decommissioning and Dismantling (D&D)
is a normal phase in the life cycle of any type of power plant,
the costs of which would be forecasted and accounted for at the
1.16 D&D of nuclear power plants is
now a mature activity in a competitive market place, since tools
and techniques exist, are accurately costed and are in use world-wide
to perform this activity efficiently. There are two approaches
in useimmediate direct dismantling, and safe enclosure,
followed by dismantling.
1.17 Decommissioning is being performed
successfully under the responsibility of the operator (such as
EDF in France) or under the responsibility of a dedicated government
agency (such as the Nuclear Decommissioning Authority in the UK).
1.18 Future reactors will be easier to decommission,
because decommissioning is being taken into account to a greater
extent than previously as part of the design process. This, and
the nature of the newer designs, means that their D&D will
produce much smaller volumes of waste. It should be noted that
D&D activities do not produce high-level activity waste but
rather quantities of low-level or very low-level activity waste.
1.19 Key success factors are:
An efficient, appropriate, controlling
organisation. The model generally applied is that the operators
and government have arranged this, in agreement with the relevant
Funding availability. Similarly,
the operators recognise that they will be responsible for providing
the funding, under a regime to be agreed with government, as described
below. Regimes exist already in other countries that could be
used as models.
A clear licensing process. This is
a crucial area that government can facilitate.
Defined routes for D&D waste.
Once produced by the D&D process, depending on their specific
origin within the plant, D&D wastes are either radioactive,
to be treated just like other radioactive waste described below,
or non-radioactive general building waste. Two-thirds of D&D
waste falls into this latter category. Agreeing the approach and
final destination of radioactive waste will be another crucial
area that government should facilitate.
1.20 There is extensive international experience
of safely and successfully managing reactor waste; this experience
is not a barrier but a positive asset for the development of nuclear
1.21 There is no basic difference between
waste from existing and future new reactors, but volumes from
a 10GW programme of new reactors would add less than 10% to the
total existing radioactive waste in the UK requiring disposal.
1.22 Technology already exists, which can
be deployed today, to manage high-level waste and spent fuel from
nuclear reactors in two distinct ways.
Fuel can be reprocessed. Potentially
re-useable materials (plutonium, uranium) are segregated and are
recycled for energy needs, using MOx fuel. This approach is currently
being followed in France and Japan and it has been used in other
countries in Europe (Germany, Belgium and Switzerland). High level
waste is vitrified into a solid glass-like matrix to be contained
within a stainless steel drum; this provides storage in passive
and safe conditions for decades, within small volumes.
On-site storage. Alternatively, fuel
can be stored in engineering facilities awaiting future reprocessing
1.23 Reprocessing in the UK has generated
significant quantities of re-useable materials (plutonium and
uranium), which could be recycled as MOx fuel; some of it is already
being recycled in this way. The existing UK plutonium stockpile
represents a valuable energy resource. Two new modern light water
reactors could be fuelled for their full lifetimes using only
this plutonium stockpile.
1.24 The picture for low level waste (LLW)
is similarly consistent, as all countries with developed nuclear
power programmes are either storing their LLW for near-surface
or geological disposal (the choice often being largely a matter
of strategic convenience) or have repositories in operation. France,
Japan and the USA are among the countries that like the UK have
major facilities for near-surface disposal of LLW that have been
operating successfully for decades.
1.25 Modern repository designs, such as
Drigg, are typically concrete vaults located in shallow excavations
that will be covered over and securely sealed after operations
cease. A typical concept for such repositories is that access
to the completed facilities will be kept under institutional control
for 300 years, after which time the emissions of the wastes will
have decayed to background levels, such that free access to the
land would be possible.
1.26 Worldwide, about 40 near surface disposal
facilities have been safely operating during the past 35 years
and an additional 30 facilities are expected to be in operation
over the coming 15 years.
1.27 There are already funding models that
have been successfully implemented in other countries, such as
recently in Sweden, whereby operators fund the cost of spent fuel
management and waste disposal. Potential UK operators recognise
that they will take financial responsibility for this activity,
under a regime to be agreed with government, as described below.
1.28 Society is the ultimate legatee of
nuclear waste. Therefore, government must ultimately take title
to the waste. Before taking their final investment decisions,
operators will need to agree with government the timing, title
transfer conditions and the methodology to derive the transfer
1.29 There are two fundamental activities
to be financedradioactive waste deposit/disposal and power
1.30 Various financing models have been
adopted by different countriesthe most recent being that
promoted in Sweden. However, the overarching requirement is that
funds are collected in time to cover the disposal and decommissioning
costs as they fall duethis is normally done by way of a
payment or levy based on output produced, and collected from the
operators by an entity isolated financially from the operators.
There is either partial or a total control of that entity by the
1.31 The contribution rate is either fixed
(in the US it is fixed at 1 US dollar/MWh) or revisable according
to a budget estimate. In the latter case the order of contribution
rate observed is also about 1 US dollar (~g1 Euro) per MWh.
1.32 A further consideration is to allow
for the premature closure, for whatever reason, of one or more
plants. This might mean that the full decommissioning fund would
not have been provided. Various approaches have been adopted,
ranging from formal guarantees by the operators to the amalgamation
of the growing decommissioning funds across more than one plantin
order that sufficient for a closure is available at an early stage.
1.33 The approach to be adopted in the UK
would need to be agreed between government and the operators,
before the investment decisions, that would best incentivise investors
whilst providing the safeguards required by all stakeholders.
1.34 As soon as the regulatory barriers
are removed and the procedures clarified, as identified above,
there are realistic scenarios under which new nuclear build is
economic when compared with the principal alternative, new CCGT
plant. The main determinants of relative attractiveness, at the
time of an investment decision, are the forecast prices of gas
and of carbon emissions, and the expected costs and risks of the
large capital investment required to build a nuclear plant.
1.35 Considering the present trend of gas
prices, the serious concern around carbon dioxide emissions, and
progress in nuclear design, the relative attractiveness of nuclear
today is being given serious consideration.
1.36 There are strong indications today
that new nuclear would be competitive. The regulatory framework
needs now to be rendered fit for purpose so that implementation
by private companies is feasible.
1.37 An important element in this framework
is the visibility and predictability of the market price of carbon.
If this is not clear, on the basis of firm, long term international
agreements around target emission reductions and the trading of
permits, then government should give serious consideration to
creating and supporting contractual carbon price hedging mechanisms
that will facilitate investment in all low carbon technologies,
Inquiry Question 2
What are reliable energy supplies (security of
2.1 Security of supply is the expectation
by consumers that they will have access when they require it (physical
SoS) to reasonably and predictably priced electricity and gas
2.2 Economic SoS is the delivery of the
required energy at a reasonable price, which is in itself a function
of fuel diversity and fuel price (both its absolute level and
its volatility). In terms of economic risks, it is clear that
disproportionate dependence on a single fuel exposes UK electricity
consumers to significant financial risks associated with gas price
2.3 Different classes of customer require
different levels of security of supply. For example, some industrial
and commercial customers may see interruption as an opportunity
to earn revenue (or in the current market framework reduce transportation
or transmission costs) through the provision of balancing services
to the system operator or shippers/suppliers. In contrast, domestic
customers are likely to view any supply interruption as a major
inconvenience and consequently place a high value on supply continuity.
2.4 A number of factors contribute to physical
gas security of supply including:
diverse sources of gas;
diverse, flexible and reliable infrastructure
(import, production, storage, transportation);
sufficient deliverability to meet
peak demand (extreme cold weather);
sufficient alignment and transparency
in market mechanisms (eg cashout regimes) to allow available gas
to flow to markets which require it;
access to transportation infrastructure
to allow available gas to flow to markets which require it; and
adequate resilience to cope with
infrastructure failure or exceptional weather conditions (spare
capacity/adequate demand response).
2.5 The key feature of gas security of supply
in the coming years is the forecast decline in UKCS production
and increasing reliance on imported gas. The magnitude of imports
is forecast to be around 40% by 2010, 85% by 2015 and 90% by 2020.
In the current transitional phase from UKCS self-sufficiency to
import dependence UK capacity supply margins are tight. However
sufficient import infrastructure is being constructed by the market
(eg LNG terminals at Isle of Grain and Milford Haven, IUK upgrade,
BBL and Langeled pipelines) or is planned, so that forecasts indicate
healthy supply capacity margins from known projects until at least
2.6 Along with increasing import dependence,
concerns have also been raised regarding:
the level of dependence on countries
viewed, at present, as being politically unstable;
the fact that the UK is "at
the end of the pipe" for gas that needs to be transported
the fact that new import infrastructure,
whilst providing capacity, does not guarantee the physical flow
the relatively low proportion of
storage relative to UK annual demand compared with other European
risks of physical failure of key
elements of infrastructure, eg Rough storage facility, St Fergus
and Bacton terminals.
2.7 We believe that, despite this increase
in import dependence, a number of indicators imply that a reasonably
high level of security of supply will be maintained. These indicators
Predicted increase in number of import
terminals. This will result in a more diverse set of physical
locations for landing gas in the UK than currently exists.
Commentators predict that the source
of imports to the UK will be diverse (Norway, Algeria, Qatar,
Russia, Netherlands), with no overdependence on a single source
Continued UKCS production continues
to cover annual firm demand until at least 2010. This gives the
UK significantly greater protection against long-term supply interruption
compared with many other EU countries. For example, France, Germany
and Italy can supply 20% of annual demand from storage, compared
with 4% in the UK, and yet indigenous production in those countries
covers only 20% of annual demand compared to 95% in the UK. Based
solely on current projects the UK will maintain 40% coverage of
annual demand by own production and storage until at least 2012.
Around 30% of UK electricity generation
capacity is gas-fired CCGTs, accounting for approximately 25%
(25bcm) of UK gas demand. A significant proportion of these CCGTs
are either on commercial interruptible contracts or can switch
to alternative backup fuels. For as long as the UK retains a balanced
portfolio of electricity generation fuels, at least until the
closure of opt-out coal and oil plant by 2015 under the Large
Combustion Plant Directive, the UK has a significant fuel-switching
capability that can be used to reduce gas demand when necessary.
New commercial storage projects that
are currently being planned could double the existing storage
capacity of the UK from c 4bcm to c 10bcm by 2010 (equivalent
to 9% of annual demand).
The large number of small projects means that as a portfolio they
inherently provide a greater level of security of supply against
infrastructure failure than an additional single large storage
The interaction between commercial
storage facilities and the market means that, unless there is
a physical supply interruption, normal commercial activity will
ensure that typically they do not deplete until late winter, because
forward prices will respond to perceived future supply shortages
from reduced levels of gas in store and will signal the need for
Mechanisms exist to protect firm
supplies and priority customers via market arrangements (eg the
use of monitor levels which acts as a quasi strategic storage
2.8 What is not entirely clear at present
(other than via a supply licence obligation in respect of domestic
consumers) is what level of security of supply either the UK government
or consumers require. By this we mean which classes or magnitudes
of events the gas market must provide protection against (severe
weather, infrastructure failure, political cessation of gas supply)
without resorting to enforced demand reduction. Combined with
this uncertainty, it is unclear how much different classes of
consumers are prepared to pay for the cost of overcapacity retained
for occasional, emergency use (eg a strategic storage facility).
Below we discuss a number of options that exist for influencing
the level of security of supply in the UK gas market and give
our views on them.
2.9 Political relations with major gas
The UK government, both directly and through the
EU, can attempt to influence the governments of major gas producing
nations to maintain gas supplies/develop appropriate market and
EDF Energy supports the sixth priority, "towards
a coherent external energy policy", of the recent EC energy
policy green paper.
2.10 Gas strategic storage
The economics of constructing a new long-range gas
storage facility have been discussed in a recent report by Ilex
They conclude that it is unlikely that a second storage facility
with the long-range characteristics of Rough (2.8bcm facility
with 190 days to fill, 67 days to withdraw) will be constructed
because either gas prices are high and the cost of cushion gas
(estimated at £2 billion) is prohibitive or gas prices are
low and winter-summer differentials are unlikely to be sufficient
to deliver an adequate return for the developer of this type of
2.11 It has been suggested that, rather
than the market providing a commercial long-range storage facility,
alternative non-market funding arrangements could be used to ensure
that such a facility is constructed (eg funded by NGG and the
cost smeared across consumers, or those consumers whose supply
is protected by the gas held in store). Such a concept is beset
with difficulties, not least as to the conditions under which
the facility would be used and the effects it would have on investment
incentives. For example, it is unclear whether shippers would
have normal commercial access to such a facility or whether it
would be ring-fenced for emergency use only. If the former, its
presence would damage the signals for commercial storage projects
(new and existing) and additional import infrastructure. If the
latter, it is unclear what definition of emergency would trigger
its use, ie whether it would be emergency due to severe weather,
infrastructure failure, market failure if gas failed to flow through
other commercial import infrastructure, or economically damaging
gas prices. If used to protect supply in any of these cases, the
presence of the strategic store will reduce the ex-ante incentive
on shippers/suppliers to contract for adequate levels of gas,
capacity or storage to ensure security of supply for their customers,
which in turn would reduce the incentive for investment in commercial
2.12 The effect of a strategic storage facility
can also be reproduced using other tools, for example by interrupting
particular classes of gas customers, CCGT fuel switching, etc.
However, the integrated nature of gas and electricity security
of supply (the latter being dependent to a certain extent on continuity
of gas supply) further complicates the issue. For example, commercial
interruption of an electricity consumer, thereby reducing electricity
demand and allowing a CCGT to reduce its gas consumption, could
be a more cost-effective mechanism for improving gas security
of supply, given that gas is the priority fuel, since, unlike
electricity, it does not fail safe. Without detailed analysis
of the UK energy system it is unclear whether a strategic storage
facility, particularly one which is reserved for emergency usage,
is the most cost-effective solution to resolve supply-demand imbalances
in extreme conditions.
2.13 Even if strategic storage were deemed
necessary, a further consideration must be whether the storage
should be held at a national level or whether it could be most
efficiently delivered at an EU level.
2.14 Whilst conceptually additional storage
capacity increases security of supply, the reality of the situation
is that the construction of a non-commercial facility would change
the composition of infrastructure in the market in which it operated.
As a result there is no guarantee that it would actually increase
security of supply.
2.15 If, however, liberalisation of European
gas markets fails and it becomes clear that mis-alignment of the
UK market with continental markets persists, restricting the flow
of gas to the UK even at times of high UK prices, the concept
of UK strategic storage may need to be reconsidered.
EDF Energy does not support the construction
of strategic storage facilities outside the normal commercial
framework at this point in time.
2.16 Reforming the current arrangements
for protecting physical security of supply to non-daily metered
Originally, the safety net for NDM customers existed
under the "top-up" mechanism which was an obligation
on Transco to keep gas storage levels high to guarantee supplies
to all firm loads. Such injections were, in practice, never necessary.
This regime was replaced with the introduction of gas safety monitor
levels which are used to guarantee supplies to domestic and priority
customers. This transferred the risk from NGG to shippers, whose
gas could now potentially be trapped in storage, and was accompanied
by more penal cashout arrangements leading up to, and in the event
of, an emergency. Furthermore, the removal of the "85% rule"
that allowed NGG to interrupt supplies to interruptible customers
in the event of demand reaching 85% of a one in 20 year demand
event for energy balancing purposes means that demand-side response
can now be accessed by NGG only in an emergency. Only a few of
these users have interruptible supply contracts with shippersthe
result is that there is now less chance that the flexibility offered
by these customers will be used to manage demand prior to an emergency
EDF Energy supports the increased demand-side
participation in securing supplies for NDM customers within an
appropriate commercial framework. Market-based mechanismseg
contestable contingency storage contractsare preferable
to mechanisms that distort commercial positions and that do not
provide choice (as is the case with the current arrangements).
2.17 Removal of barriers within the EU
that prevent the efficient flow of gas to those markets that signal
it is required
European energy market liberalisation should help
to remove market risks that gas does not flow through the import
infrastructure in response to price signals. Combined with this,
increased information transparency across the whole EU gas market
will assist market participants in moving gas across Europe. Improved
information provision in the UK relating to UKCS production and
planned usage of import infrastructure would also greatly benefit
the UK market. Effective "use-it-or-lose-it" regimes
should apply to all import infrastructure across the EU and on
border pipeline capacity rights. This includes UK import infrastructure.
EDF Energy supports the further liberalisation
of European gas markets.
2.18 Reforming obligations on gas suppliers
to protect security of supply
The current arrangements allow suppliers to
source gas however and whenever they wish to supply their customer
base, including relying on the prompt market. We consider any
obligation on suppliers to contract in excess of seasonal normal
demand or commit a defined percentage of their total gas supply
to storage (for example, as a mechanism to force a requirement
for increased storage) to be counter-productive. This is because
it could constrain gas that would otherwise get to market in a
similar fashion to the French and German rules that contributed,
in part, to reduced gas flows to the UK this winter.
EDF Energy does not support any change in the
current gas supplier security of supply obligations.
2.19 Increased stability in the regulatory
Regulatory intervention increases risks for market
participants. In this phase of major investment, both in physical
infrastructure and contractually, to bring new supplies of gas
to the UK market, it is essential that a stable long-term framework
is established and maintained. Continual regulatory intervention
and change is damaging to security of supply, as witnessed this
2.20 Planning and permitting
It is essential that planning and permitting processes
for new gas infrastructure projects are streamlined where possible,
to enable as rapid as possible a physical response by market participants
to market signals.
Inquiry Question 3
UK ELECTRICITY DEMAND
Definition of Microgeneration
3.1 It is useful to have a consistent definition
of microgeneration. EDF Energy accepts the description in the
DTI Microgeneration Strategy and Low Carbon Buildings Programme
Consultation (June 2005) document which describes microgeneration
as, "The production of heat and/or electricity on a small
scale from a low carbon source."
3.2 EDF Energy believes that microgeneration,
producing heat and/or electricity on a small-scale from a low
carbon source has a role to play, using technologies such as:
solar photovoltaic (PV).
ground source heat pumps;
thermal/active solar heating systems.
Combined Heat and Power:
3.3 In terms of size, these units are placed
in a domestic setting and have on average an output of 1kW, and
a realistic 5kW maximum power output.
3.4 EDF Energy believes that diversity is
the key to providing security of supply in a low carbon future.
Some of the benefits of microgeneration include:
increased power output capacity for
UK marketalbeit small scale;
reduced power losses through proximity
of production to demand;
potential for use as a backup power
source in the event of distribution failure;
potential for reduction in carbon
output depending on fuel source used; and
greater customer engagement and thereby
awareness of the value of energy.
3.5 It is therefore important that the right
conditions are achieved for microgeneration to flourish and with
the necessary encouragement through appropriately targeted incentives.
3.6 There are many barriers to be overcome
before microgeneration can make a contribution in the short to
medium term. These include:
Products availableIn the current
immature stage of product development, available microgeneration
technologies have yet to achieve a customer friendly "plug
and play" proposition. Health and safety issues also need
to be overcome, with potential for increased electric shock hazard
being potentially greater than with more traditional solutions.
EconomicFrom a supplier viewpoint,
as with any new technology the costs will be higher than for conventional
sources until economies of scale can be developed. From the customer
perspective, long payback periods imply that customers would not
adopt microgeneration for economic reasons alone. The overall
solution will also require backup supplies to be available when
local generation is insufficient to cover needs, and to cover
failure of the microgeneration supply.
PlanningFor some of the micro
technologies, planning consent may be required, which can delay/put
off potential users.
MeteringAt present all electricity
exported into the network must be half-hourly metered. The industry
is currently working on load profiles that could potentially remove
the requirement for half-hourly export metering.
3.7 We believe that microgeneration should
be supported up to the point when commercial products are viable.
After this point the micro-generation technologies should be free
to compete with other forms of generation to meet energy policy
goals. We see no case for extending cross-subsidies from demand
customers to those with microgeneration over the long-term.
3.8 As part of the Renewables Obligation
2005-06 Review we supported proposals to reduce the administrative
burden on micro renewable generation to claim Renewable Obligation
Certificates. The measures were the removal of the requirement
for "sale & buyback" arrangements and the ability
to allow agents to act on behalf of a number micro generators.
Both of these measures we understand are to be brought forward
for implementation in April 2007, which will provide an additional
revenue stream for microgeneration installations.
3.9 Distribution Network Operators need
to receive sufficient and timely information on microgeneration
connected to their networks, to ensure that technical and operational
risks are clearly assessed and understood, and that efficient
solutions are identified and funded.
3.10 For widespread adoption of microgeneration
to be feasible, the devices must be reliable, economic to purchase,
and above all easy to maintain, withcruciallysufficient
trained maintainers/installers available.
3.11 In overcoming these barriers, much
work is yet to be done to further develop and prove the efficiency
of microgeneration technologies. In an update on its ongoing field
trial of Micro-CHP, the Carbon Trust reported:
"Very preliminary results for Micro-CHP
indicate its performance is not as encouraging as had been hoped
at the outset of the trial. About a third of the Micro-CHP installations
in the trial would appear to reduce emissions and about a third
increase them with the remainder showing no discernable difference."
3.12 Currently all microgeneration technologies
are at a very early stage of their development. There are predictive
techniques available for estimating the take-up of new products,
based on the behaviour of different segments of customers. However,
these can be applied only when products are proven in use and
are commercially available.
3.13 Even if one took the optimistic and
unsubstantiated view that, at the present time, there were no
longer any significant technical and economic barriers to the
take-up of microgeneration products and one then applied such
predictive techniques, the diffusion of innovation and customer
adoption would be expected to play out from 2005 to 2025-30 before
maximum penetration had been achieved. Even then only a proportion
of households, perhaps less than 15%, would have adopted microgeneration.
On this basis, microgeneration would account for no more than
5% of UK generation by that time. Nevertheless, we support continued
investigation of the potential for microgeneration and a measure
of government support to encourage development and deployment,
so that performance and economics can be better assessed.
3.14 Some of the most optimistic microgeneration
projections are from the Energy Savings Trust (EST). The EST has
predicted a large volume of generation to come from micro CHP.
However we believe that the number and unpredictability of the
influencing factors (eg advancement of the technologies, speed
and effectiveness of legislation, continued government subsidy)
undermine the confidence of any such predictions.
3.15 The EST projects the contribution of
microgeneration under optimistic market assumptions. Idealised
factors include the confluence of all influencing factors, not
the least of which is continuing government subsidy and an Energy
Export Equivalence (tariff) that is favourable to the consumer.
In addition, the projected demand for domestic electricity is
assumed to be a constant throughout the projection model whereas
in reality it must be recognised that the trend is towards increased
demand to fuel the growth in electronic devices in the home.
3.16 The low current level of customer engagement,
due to the barriers highlighted above, implies that for the foreseeable
future customers will be responding to, not driving, any increase
in adoption of microgeneration.
3.17 Growth potential in the meantime will
be driven by those customers whose concerns about the environment
are supported by sufficient income to enable them to invest.
60 Demand reduction is an integral component of gas
security of supply, eg interruptible contracts, commercial demand
reduction and self interruption in response to price signals all
have a role in managing one in 20 year peak day demand in the
current market. Back
National Grid Gas, Gas Transportation Ten Year Statement. Back
National Grid Gas, Gas Transportation Ten Year Statement. Back
Note however that in the Ten Year Transportation statement one
scenario describes a rather different situation with the UK acting
as a gateway and conduit for gas being imported into the EU. Back
National Grid Gas, Gas Transportation Ten Year Statement. Back
Storage, Gas Prices and Security of Supply, Ilex Energy Consulting
Limited, 2005, a report for the UK Offshore Operators Association. Back
EDF Energy storage project tracker. Back
Green Paper-A European Strategy for Sustainable, Competitive
and Secure Energy, Commission of the European Communities, 8 March
Storage, Gas Prices and Security of Supply, Ilex Energy Consulting
Limited, 2005, a report for the UK Offshore Operators Association. Back
NGG has demonstrated that of the 30mcm demand-side response achieved
this winter, 20mcm/day came from CCGTs fuel switching or self-interrupting. Back