Select Committee on Welsh Affairs Written Evidence


Memorandum submitted by the Energybuild Group

  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.

OVERVIEW

  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 grid.

  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.

COAL GENERATION IN WALES

  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.

PRICE FLUCTUATORS

  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 from Nuclear.

  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.

INDIGENOUS PRODUCTION IN WALES

  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 the works.

  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 Glynneath—Aberpergwm.

  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 of production.

  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.

CONCLUSIONS

  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.

RECOMMENDATIONS

  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.

OBSERVATIONS

  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 lobby.

  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 generation zones.

  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





 
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