Memorandum submitted by the Energybuild
This submission addresses certain generalities
in relation to national energy supply and then focuses on the
type of energy environment the current energy strategy in Wales
is offering to coal companies such as Energybuild.
The political map of the United Kingdom changed
when devolved powers were awarded to Wales through the Assembly
together with the establishment of the Scottish Parliament.
Within the boundaries of these two countries
there is a reflection of their political status by the way they
contribute to the generation and consumption of power.
Scottish generation covers the full spectrum
from Hydro through wind power and fossil fuel to Nuclear but is
relatively isolated geographically with restricted export/import
capacity for electricity through the wires controlled by inter-connectors
into the main UK electricity grid.
Welsh energy production while having a similar
fuel diversity is both geographically contiguous and integrated
into the national grid with much shorter transmission distances
and therefore has greater flexibility for overall power distribution.
In South Wales deep sea berthing facilities
allow direct access to the world supply of traded fossil fuels
which, following conversion, can be transmitted into the western
section of the gas and electricity networks via pipeline or the
The question therefore must be how to sustain
the diversity in generation and consumption at commercial prices
and how these prices may be affected by various factors including
social and environmental constraints.
The development of any of these energy forms
will continue to require political intervention either through
parliamentary dictates or application of subsidy either to implement
more contentious forms such as nuclear and even wind power or
supporting new technology to sustain more traditional forms such
as fossil fuel burning. The alternative is to allow the wholesale
price of power to rise and be maintained at levels to attract
private finance to new builds or new technology. The general wholesale
price required to sustain this investment is most probably too
high to be politically acceptable.
There is one dominant coal station in South
Wales which is the Aberthaw Station in the Vale of Glamorgan.
Owned by RWEnpower they have recently opted into the Large Plant
Combustion Directive and commenced retrofitting of Flue Gas Desulphurisation
during 2006 to meet the deadline of implementation of the directive
in January 2008.
This decision has given a new lease of life
for coal companies in Wales operating in the anthracite field.
If RWE had opted out of the LPCD the market for Welsh anthracite
would have ultimately been limited to the added value products
which in turn are derived from the volume market for indigenous
anthracite created by such power plants as Aberthaw.
Due to normal supply and demand economics together
with security of supply it is assumed that RWE will always operate
a purchasing strategy that will utilise both indigenous and imported
fuel. Politicians however will need to scrutinise these national
purchasing and generation profiles to decide where dictates and
subsidy will apply and to which specific fuel type/s.
An example of this is the application of the
two grant aid schemes for coal awarded to the coal industry in
UK and in particular where this scheme has sustained production
and further investment in South Wales at Aberpergwm operated by
the Energybuild Group.
It is the application of this investment aid
and application of clean coal technology at Aberthaw Power Station
that has given the board of Energybuild the confidence to place
the company on the AIM market to raise funding for the continued
development of the Aberpergwm Mine.
A feature of current coal supply contracts to
the generators and others is the relationship of the price of
world coal to indigenous supplies. Wales directly taps the world
market for various types of fuel supply ranging from gas, coking
coal, steam coal and anthracite.
Indirectly the National Grid supplies Wales
with a more diverse fuel supply produced from indigenous resource
to imports of various raw materials and electricity generated
While logistics dictates what can be sourced
from the world market into the Welsh raw material requirement
the other factors are foreign exchange and political intervention
into supply as seen recently with Russian gas.
Foreign exchange is normally reflected by the
status of the dollar especially in fossil fuel purchase and transportation
where most flows use the dollar as the standard currency for international
transactions. Latterly the dollar has weakened significantly against
sterling making imports ostensibly cheaper but FOB and shipping
prices tend to react by increasing although usually following
a three to six month delay. However this is most likely going
to change whereby world trade will adopt alternate currencies
such as the Euro and the Rouble and related transactions to the
dollar standard may well create some lasting distortion to traded
commodities such as coal.
One specific danger is that the dollar continues
to weaken against sterling but the demand for Euro's and Rouble's
sustains a high value of these currencies in the future against
sterling increasing the cost of favoured suppliers such as Russia.
America has proven historically it is not budget deficits or similar
economic factors that affect a currencies value but demand for
the currency in question.
As a hedge against a possible shortfall in imports
whether currency related or political the development of indigenous
energy reserves provides a secure alternative where cost can be
controlled within commercial parameters.
South Wales has the only alternative source
of fossil fuel being used by local industry and power generation
ie coking coal, anthracite and to a lesser extent steam coal.
RWE have secured a future market for current
mining companies in Wales and Corus could potentially expand that
market with the introduction of anthracite PCI to the manufacture
of coke and development of a local coking coal mine adjacent to
Current production of anthracite in South Wales
comes from two main sources namely Celtic Energy and Tower Colliery.
They will produce over 1M metric tonne between them for power
generation at Aberthaw during year 2007.
All of Celtic's production is from opencast
operations with Tower production coming from the colliery at Hirwaun.
In terms of volume Energybuild are currently
third in line producing some 150kmt per annum to Aberthaw together
with graded coal from both opencast and the drift mine at GlynneathAberpergwm.
There are several other smaller producers operating
a drift mine and opencast sites.
It is understood that Celtic's sites will continue
at current levels for many years but Tower will suffer reserve
exhaustion at the end of 2007.
Therefore the current coal supply balance between
imports and indigenous for Aberthaw is approximately 2:1 respectively.
With no other projects being awarded planning
or attracting financial support then that ratio would reach 3/4:1
respectively by the end of 2007.
Assuming similar levels of production from current
opencast operators together with the recent planning award to
Miller-Argent at Ffos y Fran total opencast schemes would produce
approximately 50% of Aberthaw's future requirements. These would
have to be sustained by continuing planning awards to extensions
and new schemes in the future. This latter requirement has proved
increasingly difficult due to new planning guidelines and social
responsibilities needing to be addressed.
The major reserve blocks of anthracite remaining
in South Wales require deep mining techniques to extract and the
large reserve in the Neath Valley proven by British Coal prior
to pit closures has attracted the government aid scheme to maintain
development in this reserve for future investment. This is where
Energybuild are looking to expand production to over 600kmt pa
from current levels effectively replacing the Tower Colliery levels
Other entrants into the deep mining sector may
well increase production levels beyond current projections with
schemes due to commence during 2007.
While the combination of opencast and deep mine
production may just fall short of Aberthaw's total requirement
it would minimise the risk of currency and political factors restricting
the use of a power plant injected with longevity and compatibility
to utilise an indigenous fuel source.
Central government will effectively decide on
the diversity of generation but local factors play a major role
in certain areas of the country.
South Wales has a viable coal resource used
by existing power and steel plants.
Deep and short sea port facilities allow companies
to balance the supply equation.
Support of indigenous surface and underground
coal production minimises the exposure to international factors
restricting the supply of imported fuels.
Government and Assembly support has helped to
maintain the coal mining sector with the potential to exploit
indigenous coal reserves in South Wales.
Due to EU dictates it is difficult for the Welsh
Assembly to get involved in any direct subsidy scheme but it is
hoped this will continue from central government and the EU.
Over recent years mine closures have decimated
communities where generations of families would work "down
the pit". However the ageing population of the remaining
workforce is creating a dearth of people with the required skills
to immediately take up employment underground and on the surface
even in the modern environment mining now operates.
Training for all type of skills which can also
be used in alternate industries needs to be addressed in centres
linked to the industry.
Detailed analysis of the logistics required
to support the development of mining operations needs to be implemented
with views on how this can be developed with minimal social disturbance.
On a broader note Wales can offer the environment
for the development of alternate technologies due to geographical
location and type of terrain.
Severn Barrage type developments are probably
the ultimate but elevates debate to levels only seen by the nuclear
Wind power via the grid is expensive even without
transmission losses taken into account but direct connection to
a consumer synchronised with alternative power sources can be
effective especially in outlying areas. Geothermal, solar and
hydro parallel power sources could even result in carbon neutral
Combined heat and power plants could be a reality
alongside major industrial plants but would require heat transfer
infrastructure which is not common to this country.
Lastly they all require financial incentive
the same as main stream generation to secure a "lights on"
guarantee for the future.
11 January 2007