Memorandum submitted by E.ON UK
DIVERSITY IN
FUEL SUPPLY
AND THE
ROLE OF
THE COAL-FIRED
GENERATION AND
CARBON CAPTURE
AND STORAGE
Key Points
By 2020 we expect 25GW of new generating capacity
to be needed to replace closing coal, oil and nuclear power stations
and meet some demand growth. This is one third of total UK capacity.
The UK faces a massive challenge as we seek
to achieve reductions in carbon dioxide emissions whilst making
sure that electricity supplies remain secure and affordable for
consumers.
Delivery of this investment should not be taken
for granted and there is a risk that the UK will find itself with
capacity shortages, with adverse consequences for the reliability
and price of energy which policy makers need to take seriously.
Unless the goals of lower CO2 emissions, secure
and affordable energy are met in a balanced way, we believe the
goal of reducing carbon emissions will be put at risk.
We believe that the UK needs a diverse range
of energy sources for power generation to achieve these objectives.
More efficient use of energy is vital and renewable
energy technologies can also meet some of this generation gap
but they cannot bridge it on their own.
Continuing construction of gas-fired plants
alone will leave the UK highly exposed to the price and availability
of gas. This could lead to rises in the price of gas and power
in the medium term with adverse consequences for consumers and
the UK economy.
We believe some new, more efficient, coal-fired
capacity is justified to ensure the diversity of energy sources
we need to provide secure and affordable energy supplies.
We recognise that new coal-fired power generation
still gives rise to significant CO2 emissions, and therefore carbon
capture and storage (CCS) will be required in the longer term.
However, new coal plant will make a contribution to lower emissions
as CO2 emissions per unit of output will be of the order of 20%
lower than the plants they are replacing.
The proposed new Kingsnorth power station will
be built carbon capture ready and, once the technology has been
demonstrated at a commercial scale, we will retrofit CCS to the
new units as soon as regulatory and market conditions reward the
investment.
We have entered Kingsnorth power station into
the Government's CCS demonstration competition and see this as
a tremendous opportunity to demonstrate CCS technology.
CCS is an essential technology if CO2 emissions
from fossil-fired plants in China, India and other countries reliant
on coal are to be reduced and global emission reduction targets
are to be met.
Without Kingsnorth or a similar supercritical
plant, post-combustion CCS cannot be demonstrated at a commercial
scale in the UK.
E.ON UK
1. E.ON UK is one of the largest retailers
of electricity and gas in the UK and has over seven million customer
accounts nationwide. We are the second largest generator in the
UK, with over 10GW of existing capacity and produce electricity
from gas, coal, and renewable energy sources. We distribute electricity
to five million customers in the Midlands through Central Networks.
2. E.ON is one of the largest developers
of renewable technologies in Europe. E.ON has 7,300MW of renewable
energy in operation in Europe and North America and by 2010 intends
to invest about
6 billion in this sector. We expect to double this
capacity to 15,000MW by 2015 and triple this capacity by 2030.
In the UK we have one of the UK's first offshore wind farms in
operation at Scroby Sands and operate one of the UK's largest
biomass generating plants at Steven's Croft. We are also building
the Robin Rigg offshore wind farm in the Solway Firth. We have
consent for the London Array Project in the Thames Estuary, which
would be one of the largest offshore wind farms in Europe, and
have applied for consent to build the 300MW Humber Gateway offshore
wind project.
3. We are also developing a number of distributed
technologies including microCHP and ground source heat pumps (in
which we are the market leader), and biomass-based CHP and district
heating schemes. We are very actively encouraging consumers to
use less energy with new innovative products such as real time
displays.
4. We have a substantial programme of investment
in new plant to replace the coal and oil stations we are closing.
We are building a gas-fired combined heat and power plant in Kent
and have approval to build a gas-fired combined cycle gas turbine
(CCGT) plant in the Midlands. We have also applied for consent
to build a new coal-fired station at Kingsnorth, alongside the
existing station which will close. Kingsnorth has been entered
into the Government's competition to demonstrate CCS technology
at a commercial scale. We explain the reasons for this in the
rest of our evidence below. We wish to build at least two nuclear
plants in the UK and have entered into an agreement with AREVA
and Siemens to help deliver those plants.
The need for investment, diversity and the role
of coal-fired generation
5. The scale of the investment challenge
facing the UK power sector is daunting. 8.7GW of coal and 3.7GW
of oil-fired capacity, which have been opted out of the Large
Combustion Plants Directive, will close by 2015, and 7.4GW of
nuclear plants will have closed by 2018 unless their operating
lives are extended. Assuming growth in demand of 0.5% annually,
the UK may need 25GW of new capacity by 2020. This is one third
of present total UK generating capacity of 75GW. From our own
perspective, we will have closed our coal-fired plants at Ironbridge
and Kingsnorth (2.9GW) as well as our 1.3GW oil-fired plant at
Grain—about two-fifths of our total generation—by
2015 and need to replace that generation. Delivery of all this
investment should not be taken for granted and there is a risk
that the UK will find itself with capacity shortages with adverse
consequences for the reliability and price of energy which policy
makers need to take seriously. We have stressed to Government
the need to put in place a planning and regulatory framework which
incentivises its delivery.
6. We also need to meet this generation
gap while continuing to provide secure electricity supplies for
our customers, reduce CO2 emissions, and doing what we can to
keep prices as affordable as possible. These potentially conflicting
objectives need to be met in a balanced and sustainable way. If
energy is not secure and affordable, public attention will shift
to the priorities of keeping warm and paying their bills, and
away from reducing CO2 emissions, making the policy goal of reducing
emissions much more difficult to achieve.
7. If these objectives are to be met in
a balanced way, we believe we need to retain a diverse range of
energy sources for power generation. In 2007 the UK generated
43% of its electricity from gas, 34% from coal, 15% from nuclear
and 5% from renewable sources, with the remainder met by oil and
net imports. This diversity provides important benefits and reduces
our exposure to changes in the price and availability of any one
fuel source, enhancing the security and affordability of the price
of energy to the consumer. We need to retain this diversity in
future while continuing to reduce CO2 emissions.
8. More efficient use of energy is vital
and renewable energy can also meet some of this generation gap.
We expect to see a major increase in the volume of electricity
from renewable energy sources, particularly in light of the proposed
EU targets for renewable energy for 2020, and this will help deliver
a large reduction in emissions from the UK power system. However,
from a security of supply perspective, wind has some drawbacks.
Wind farms will only generate about one third of their theoretical
maximum throughout the year and less than 10% of UK wind capacity
can be relied on to meet peak demand at any one time. This means
that nearly all wind capacity has to be backed up with generating
capacity from alternative sources to provide for those times when
wind speeds are too low or too high. Renewable electricity can
also be very expensive. For example, the current lifetime cost
of generating electricity from offshore wind farms is around twice
the current average annual cost of power on the UK wholesale market.
9. Distributed technologies also have a
potentially significant role to play. However, some of these technologies
such as micro-wind and photovoltaic cells are still very expensive
and will not make a major contribution for some years. Even in
Germany with very high levels of financial support, electricity
production from solar energy is only around 0.3% of total electricity
production. Some are reliant on gas as a fuel source. Others such
as biomass-based district heating schemes are logistically complex
and raise local air quality issues. The availability of sufficient
biomass which meets sustainability criteria is also an issue as
is the potential effect on food supplies.
10. Some of this gap will be met by gas-fired
plant and indeed a number of gas-fired CCGT plants are under construction,
including our plant at Grain. It would be possible to build more.
They have relatively low capital costs and can be built quickly.
However gas prices have risen to very high levels and the outlook
is uncertain. We are concerned that continuing construction of
gas-fired plants alone will leave the UK highly exposed to the
price and availability of gas, just as the UK's domestic gas supplies
decline and as we become much more reliant on imported gas. We
already expect to be 80% dependent on imported gas by 2020. This
could have adverse effects on the price of gas and power with
potentially severe consequences for consumers and the UK economy.
If no new coal or nuclear plants are built, then the UK could
be 70% reliant on gas for power generation by 2030.
11. New nuclear will also make a contribution.
However, no more than one or two plants are likely to be in operation
by 2020 and none by 2015.
12. We believe that some new, more efficient,
coal-fired capacity is therefore needed to provide a secure and
affordable transition to a low carbon energy system. This will
be cleaner coal, with CO2 emissions per unit of output being 20%
lower than the plants they are replacing. In terms of CO2 reduction
this is preferable to keeping existing plants in operation but
we recognise this can only be a transitional solution to the CO2
impact. The longer-term potential for coal-fired generation within
a low carbon world lies with the potential to fit CCS technology
which can capture and permanently store 90% of the CO2 emissions
from the plant. Without CCS, we do not see a long-term role for
coal fired generation. The proposed new Kingsnorth power station
will be built carbon capture ready and, once the technology has
been demonstrated at a commercial scale, we will retrofit CCS
to the new units as soon as regulatory and market conditions reward
the investment.
13. We have therefore applied for consent
to build the new Kingsnorth power station to help bridge the generation
gap in a way which will help the UK to meet all its energy goals.
We also see it as a tremendous opportunity to demonstrate CCS
technology and accelerate its roll-out. CCS is an essential technology
if CO2 emissions growth from fossil-fired power plants from China,
India and other countries reliant on coal are to be reduced. It
also means that the capability will exist to achieve radical reductions
in CO2 emissions from the new coal and gas plants we build in
the UK. The Government's competition requires the submission of
bids based on post-combustion capture of emissions. This effectively
requires the construction of a supercritical plant as it is not
economically feasible to retrofit it to existing coal plants on
a commercial scale. Without Kingsnorth or a similar supercritical
plant, post-combustion CCS cannot be demonstrated at a commercial
scale in the UK, which would be an opportunity lost. We discuss
CCS further below.
14. From an environmental perspective gas
plants have lower emissions than coal but the economics of retrofitting
CCS to gas plant is much less attractive, perhaps requiring a
carbon price of
80/tonne to be commercially viable compared to around
40/tonne for coal. In time all fossil-fired plant
is likely to need CCS if we are to meet our 2050 targets but gas
plant would be fitted with CCS much later than coal plant assuming
a continuing upward rise in carbon prices.
Kingsnorth and Government Policy
15. Government energy policy recognises
the need for a diverse electricity generation mix to help deliver
secure energy supplies and in particular that coal-fired generation
can make an important contribution to the UK's energy security
and the flexibility of the UK energy system. However, it also
acknowledges that, in order to have a long term future, the environmental
impact of coal must be managed effectively. We see our application
for consent to build Kingsnorth together with our entry of Kingsnorth
into the Government's CCS competition as very much supporting
that approach.
16. The UK has a competitive energy market
and this approach allows generators to make their own choices
regarding investment within the framework of energy and environmental
policy put in place by Government which is designed to ensure
that the market works in a way which is consistent with achieving
the Government objectives in a balanced way. In terms of climate
change, the principal policy mechanism which applies to the generation
of electricity is the EU Emissions Trading Scheme (EU ETS). This
works by imposing a cap on total emissions from power generators
and other large sources of CO2 emissions. The European Commission
has proposed that CO2 emissions from the sectors covered by the
EU ETS should by 2020 be 21% below 2005 levels and 30% below 2005
levels if there is a comprehensive international agreement. This
approach allows generators to determine how best to provide secure
and affordable supplies within this overall cap which ensures
that total CO2 emissions continue to decline.
17. This means that any new coal plant built
will have to buy CO2 emission allowances from the market, preventing
any other power station from using them. Thus new coal plant will
not in fact give rise to any increase in overall emissions—they
will only generate if they can displace emissions from other units,
most likely older and less efficient coal units elsewhere in Europe.
18. We expect the EU ETS to continue to
drive CO2 emissions downwards to a point where the power sector
is largely or entirely carbon free by 2050. Carbon capture and
storage technologies will make some contribution to the 2020 target
and will have a major role to play in achieving the 2050 objective.
19. For companies such as ours, stability
in Government energy policy is vital. Constant changes in the
rules of the game create risks for investors and make it far more
difficult to justify investments commercially. The Government
has only recently set out its overall approach to energy in its
2007 Energy White Paper Meeting the Energy Challenge. Governments
are of course entitled to make changes, and may wish to alter
the balance in the priority they give to climate change, security
of supply and affordability objectives. But the consequences need
to be fully spelt out. They also need to allow time for investors
to adjust taking account of the long lead times for capital investment
in this sector.
Current state of play with Kingsnorth
20. E.ON submitted an application to the
Government for consent to build the new Kingsnorth power station
in December 2006, which will be built next to the existing station
which will be closed when the new station is completed. The local
planning authority, Medway District Council, raised no objections
to the application and neither did the statutory consultees[1]
although a number made other comments. The Secretary of State
considers the application in light of the views of the planning
authority and the statutory consultees and in the context of its
overall approach to energy and environmental policy.
21. We have made clear that the new Kingsnorth
station will be capture ready in that it is designed to facilitate
the retrofitting of CCS once it is commercially demonstrated.
This involves configuration of the plant to facilitate the capture
of CO2 emissions, the provision of sufficient space for installation
of CCS equipment, and identification of a route for a pipeline
connection to an appropriate sub-sea geological storage facility.
22. There is, however, ambiguity about the
meaning of "capture ready". In the light of this, E.ON
UK proposed in March 2008 that the Government should not decide
on the project until after it had completed its consultation on
what this means in the context of consent conditions. We hope
the Government will publish its consultation as soon as possible.
However, we do not now expect a decision on the project until
later in the year. We have not withdrawn or deferred our application
for consent and we expect discussion of other potential consent
conditions to continue on a timetable which would not delay a
decision further.
23. At the same time, E.ON UK announced
its intention to enter Kingsnorth into the Government's CCS demonstration
competition. We expect BERR to confirm whether the bid has been
short-listed for further assessment in the next few weeks. A final
decision is expected in 2009. There is a limit to what more we
can say about the bid publicly as it is in competition with other
projects.
24. Kingsnorth also has potential to supply
heat to housing developments, public and commercial buildings.
We have identified illustrative potential heat loads mainly to
the west of the power station arising from existing and new developments
proposed in the Medway, Gravesham and Dartford areas as part of
the Thames Gateway development. This feasibility work will continue
over the next few months.
Carbon Capture and Storage and Government Policy
25. We believe the development of CCS technology
is essential if global CO2 emissions from fossil-fired plants
are to be reduced and global emission reduction targets are to
be met. Many countries do not have access to large gas reserves
and coal-fired generation is the only viable source for much of
the power needed to support their populations. There are a number
of technological options for capture but all involve transmission
of CO2 under pressure by pipeline to a geological storage facility.
26. For an independent view, the IPPC has
published a special report on the technology. http://www.ipcc.ch/pdf/special-reports/srccs/srccs_wholereport.pdf.
This states that `CCS has the potential to reduce overall mitigation
costs and increase flexibility in achieving greenhouse gas emissions
as one of a number of mitigation technologies which also include
nuclear power, renewable energy sources, enhancement of biological
sinks, and reduction of non-CO2 greenhouse gases'. While demonstration
of post-combustion CCS technology at the scale of a large coal-fired
plant is a significant engineering challenge, it is important
to recognise that the technology is already available and in operation
at smaller scales.[2]
E.ON is well placed to develop this technology given its extensive
engineering experience available at its Power Technology Centre
in Nottingham and at its sister facilities in Germany.
27. The Government has been criticised for
developing CCS too slowly and for choosing post-combustion technology
only for its demonstration competition. From our perspective it
would of course have been desirable if the Government had decided
to support the demonstration of the technology earlier, and to
have funded clean coal technology generally on a more consistent
basis at higher levels of funding. On the other hand the UK is
the only country which has committed to fund a commercial demonstration
project so far. The key issue now is to ensure that this commitment
is carried forward. As far as the choice of technology is concerned
we support the choice of post-combustion technology given that
only one project will be supported and that a key objective is
to demonstrate the technology so that it can be applied to the
bulk of coal-fired plants which are or will be under construction
in China and elsewhere.
28. We believe that further demonstrations
of CCS technology at a commercial scale are very important, including
pre-combustion technology with an integrated gasification combined
cycle (IGCC) plant which has the potential to integrate CCS into
power generation on a more economic basis in the longer term.
It seems unlikely that the Government will be able to support
further projects in the very short term given the other pressures
on public expenditure. We should therefore look to funding from
other European countries either for further projects in the UK
or elsewhere in the EU. The US has its own FutureGen project which
our sister company E.ON US is supporting. This project will need
renewed focus after the Presidential elections later this year.
22 May 2008
1 Statutory consultees include English Nature, Environment
Agency, Medway Council, Kent Wildlife Trust, Kent County Council,
Countryside Agency, English Heritage, RSPB, Medway Ports Authority
and Hoo St Werburgh Parish Council. Back
2
To quote the IPPC: "Post-combustion capture of CO2 in power
plants is economically feasible under specific conditions. It
is used to capture CO2 from part of the flue gases from a number
of existing power plants. Separation of CO2 in the natural gas
processing industry, which uses similar technology, operates in
a mature market. The technology required for pre-combustion capture
is widely applied in fertilizer manufacturing and in hydrogen
production. Although the initial fuel conversion steps of pre-combustion
are more elaborate and costly, the higher concentrations of CO2
in the gas stream and the higher pressure make the separation
easier. Oxyfuel combustion is in the demonstration phase and uses
high purity oxygen. This results in high CO2 concentrations in
the gas stream and, hence, in easier separation of CO2 and in
increased energy requirements in the separation of oxygen from
air." Back
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