APPENDIX 17
Supplementary memorandum by EDF Energy
THE IMPLICATIONS OF INCREASING DEPENDENCE
ON COAL IMPORTS
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.
LONG-TERM
IMPLICATIONS
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.
SHORT-TERM
IMPLICATIONS
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.
FUTURE ROLE
OF UK COAL
PRODUCTION
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]
SUMMARY
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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