Select Committee on Trade and Industry Written Evidence


Supplementary memorandum by EDF Energy


  The UK currently consumes c 60-65 million tonnes of coal per annum, of which c 50 million tonnes is used by the electricity generation sector. UK production in 2005 was 20 million tonnes. Imports therefore accounted for c 70% of consumption, up from 50% in 2002. [70]The UK is therefore already heavily dependent on coal imports and has seen a significant change in import reliance in a relatively short period of time.


  In the long-term any adverse impact of an increasing dependence on coal imports should be mitigated by a number of factors including:

    —  Source countries for coal are diverse—even when considering the quality of coal required for UK power station combustion;

    —  Coal stocking provides security against short-term supply interruptions;

    —  Coal production and sea transport capacity respond relatively quickly to changes in demand, signalled by market prices;

    —  New port and rail capacity will be provided in the UK to facilitate local delivery. However it is important to note that although EDF Energy is contracting for long-term port and rail capacity to offset possible reductions in domestic production, we remain concerned that 1) the type of port capacity available or being developed is only able to accommodate smaller vessels, thereby increasing delivered costs and 2) significant investment will be required in both rail infrastructure and rolling stock to remove localized bottlenecks in the rail system.

    —  Opt-out of about 9GW of coal plant under the Large Combustion Plant Directive, leading to their closure, is likely to reduce the total consumption of coal in the UK by the power station sector in the longer-term.


  In the short-term (next 1-2 years) a coal supply risk does exist if a large increase in coal imports was required because of a dramatic fall in UK production, for example caused by the closure of more deep mines. This arises from a lack of deepwater port capacity with available rail infrastructure. Within two years this situation is likely to ease as new port capacity becomes operational, eg at Hull, Teesport and Blyth. Also, the fitting of FGD at Longannet will allow additional Scottish opencast coal to be used at this station potentially freeing up Scotland to England rail capacity for coal imported at Hunterston.

  A number of actions could be taken to cope with a large reduction in UK coal production in the short-term:

    —  Instead of decreasing power station coal deliveries in spring/summer to match generation patterns, available port and rail capacity could be utilised at maximum capability throughout the year—although generators would incur additional working capital costs from increased coal stock levels;

    —  transhipment of coal to smaller vessels, allowing the use of non-deepwater port capacity, is possible although costly ($12USD/tonne increase); and

    —  a large amount of fuel switching flexibility remains within the UK generation portfolio, making a reduction in coal generation and increase in gas generation technically possible, although, at current prices, this could have a large financial impact on end-consumers. An increased requirement for gas consumption would also place additional strain on the already tight gas supply-demand balance.


  While in the longer-term increased dependence on coal imports should have little adverse impact on UK security of supply, there clearly remains a role for commercially-viable domestic coal production. Such production can provide a number of indirect benefits including:

    —  locally produced coal reduces CO2 emissions associated with transportation;

    —  positive contribution to the UK's balance of payments;

    —  employment in remote communities; and

    —  retains UK production expertise in an energy source with significant future global potential, including in electricity generation with the development of clean coal and carbon capture and storage technologies.

  To create an environment in which UK-produced coal can continue to play a role in UK energy supply new coal mine developments need, in a similar way to other energy-related investments, a relevant, predictable and timely planning regime. Similarly, considerations should be given to further tranches of Coal Investment Aid, which is designed to encourage coal producers to enter into commercially realistic investment projects that maintain access to reserves, ensuring the medium term economic viability of the relevant mines. [71]


  In the short-term increased dependence on coal imports could cause difficulties. A number of options exist to manage this situation—each of these has a cost associated with it which will ultimately feed through to increased power prices. The current situation highlights the risk of overdependence on a single producer with restricted ability to substitute coal from other sources if that producer suddenly reduces production. Increased dependence on imports in the longer-term, backed up with adequate port capacity and rail paths, diversifies producer risk.

  There is however a role for commercially competitive domestically-produced coal in continuing to provide significant volumes of coal to the electricity-generation sector. To support this, consideration needs to be given to reforming the planning regime in the UK and, to recover existing deep-mine reserves, creating a successor to the Coal Investment Aid scheme.

70   Data from UK Energy Trends. Back

71   We note that European Commission is required to issue a report on the application of Council Regulation 1407/2002 on state aid to the coal industry by the end of 2006 and has recently consulted on a number of questions including whether the Regulation should be prolonged after 31 December 2010. It would seem prudent for the UK to support extension of the Regulation. Back

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