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Memorandum submitted by UK COAL Mining (NPS 19)
Executive Summary
1. Greater emphasis should be placed on indigenous coal as part of a diverse, secure and affordable energy policy
2. Current planning policy on new fossil fuel stations, which only requires CCS on coal plant, is influencing developers build gas to meet the forthcoming energy gap. This will have a negative effect on both security and affordability of supply.
3. New gas fired power stations should be subject to the same requirement to fit CCS.
4. The current winter cold spell has highlighted our reliance on gas with two national balancing alerts in the first week of January and many industrial consumers having their supply cut off. Future planned gas build will exacerbate this position.
5. Coal fired generation could virtually disappear from the UK electricity mix in the mid 2020s with only the four UK Government supported commercial demonstration stations in operation.
6. The uncertainty over the future size of the coal market for power generation is hampering current investment in deep mines which has a long development lead time and payback.
Introduction
7. UK COAL Mining (UKC) welcomes the opportunity to submit evidence to the Energy and Climate Change Committee looking into proposals for National Policy Statements (NPS). UKC is Britain's biggest producer of coal, supplying around 5% of the country's energy needs for electricity generation. The Group has four deep mines located in Central and Northern England with substantial reserves and employs 3,100 people. Around 95% of the Group's 8Mt/year production supplies the electricity generation market and as such we are heavily influenced by policy objectives affecting the electricity sector.
Overarching NPS (EN-1)
8. UKC supports the high level statements contained within EN-1 that 'it is critical that the UK continues to have secure and reliable supplies of electricity' and that the UK needs a 'diverse mix of technologies and fuels'. Secure and reliable energy is a vital component of a developed society. UKC agrees that the forthcoming energy gap requires that the planning system is streamlined to ensure that decisions on energy production and infrastructure are made quickly.
9. However we are disappointed that the document doesn't acknowledge the role that indigenous coal plays and can play in the UK's energy mix and places significant emphasis on nuclear, renewables and the continued importation of gas.
10. In 2008, coal provided 31% of the UK electricity supply of which indigenous coal was responsible for 35% of this figure. Therefore 11% of the UK's electricity supply was as a direct result of the indigenous coal industry.
11. There is currently 28GW of coal plant on the UK grid, of which 8GW is due to close before 2016 as a result of the Large Combustion Plant Directive (LCPD). This is likely to fall very rapidly post 2016 as a consequence of the Industrial Emissions Directive (IED). The IED will result in the total closure of all existing coal plant unless significant investment in Selective Catalytic Reduction (SCR) is made by 2023. At present this is not likely to go ahead without greater certainty about the role of coal in the low carbon economy and what CO2 emissions are permissible. There is clearly some risk that, by 2023, all of the coal-fired power stations that are currently running will be closed.
12. Coal-fired power stations provide security and diversity of supply. They are also able to respond more quickly to peaks in demand on the electricity grid than either gas or nuclear stations. This provides a vital "load following" capability, which ensures that the National Grid is able to meet fluctuations in electricity demand. As we become more reliant on intermittent wind generation this function will become ever more important. Also coal, unlike gas can be easily stored in anticipation of future energy demands.
13. UKC believes that Carbon Capture and Storage (CCS) is vital if coal is to play a significant role in the UK's long term diverse and secure energy mix. It is therefore important that CCS development is undertaken in a timely manner and that National Policy Statements are compatible with this approach. UKC welcomes the Government's announcement that it will provide financial support for four commercial demonstration projects of 300MW net, but is concerned that no further build may be forthcoming.
14. To combat the forthcoming energy gap caused by the impending closure of coal and nuclear stations the UK market has chosen to build gas generation plant. At present there is a new 'dash for gas' underway, with 7.4GW currently in construction. The UK is already heavily dependent on imported gas and was the 5th largest gas consumer in world in 2008 with 3% of the global total after; USA, Russian Federation, Iran and Canada. The continued build will put further pressure on our need to import energy from an already highly competitive international market.
15. The choice to build gas plant has been caused, in part by Government policy which requires the fitting of CCS to all new coal stations from day one, but does not impose the same requirement on new gas build. Government policy on new gas build only requires that the plant is Carbon Capture Ready (CCR) before consent may be given. The definition of CCR requires land to be available and a technical and economic feasibility to be undertaken, but does not include a mandatory date when CCS must be retrofitted. This result of this policy is to further exacerbate the UK's security of supply position and lock in long term carbon emissions.
16. The UK's reliance on gas has been highlighted during the current winter cold spell. In the first week of January the National Grid issued two national balancing alerts and over 200 industrial customers on interruptible contracts had their gas cut off. During this week it was coal fired power stations which helped keep the lights on, supplying over 50% of demand. Also there is no doubt we have been helped in meeting this winter demand by the current economic downturn which has partially offset power requirements. In future years as the economy recovers the demand from industry will be far greater.
17. Investment in coal power stations is an essential requisite for the long term future of the indigenous coal industry. The long lead time involved in mining projects, especially new deep mine schemes means that it may be seven or eight years before the first production arrives and would require a further 10-15 years in order to make a return on the substantial investment required.
18. The uncertainty over the future market has meant mining companies have found it impossible to raise finance for viable schemes which would enhance UK energy security and provide valuable employment. One such example is at UKC's Harworth Colliery.
19. Harworth Colliery is situated in North Nottinghamshire and is currently mothballed following the exhaustion of the reserves in the Deep Soft seam in 2006. Boreholes and seismic exploration have identified up to 54Mt in the Top Hard seam which would be suitable for the local power station market. If the project went ahead the mine would produce in excess of 2 Mt per annum, which would directly replace imports as well as providing employment for 550 employees.
20. The overall cost of the scheme would be around £200m. In the current economic climate UKC has failed to attract investment from traditional sources and has subsequently approached the European Investment Bank (EIB). The EIB[1] have targeted energy production and security as a priority area for lending, but UKC has been told that although the scheme meets the criteria for funding in terms of creating jobs in an area of high unemployment, security of supply and return on investment; it fails in terms of its 'low carbon green credentials'. Therefore in order to secure funding from the EIB, they would require coal to be sold to a power station with CCS installed. Hence there is a further urgent need from a coal producer's perspective to see many CCS coal stations up and running within the UK as soon as possible to provide a continuation of the market.
Fossil Fuel Policy Statement (EN-2)
21. Despite its title, this document is mainly concerned with conditions for new coal fired plant. It takes its direction from the overarching EN-1 document which as stated above requires partial CCS to be operational on all new coal stations from the start of operations and to be completely retrofitted by 2025.
22. The planning system should not put barriers in place which would delay or discourage the building of new coal fired plant. In this respect, UKC is concerned that there should be a conditional consent requiring CO2 pipeline and storage consents to be in place before construction commences. In an emerging technology, these consents will take time and this condition risks imposing major delays in an area where rapid progress is essential. The estimated two years quoted by the Government before consent could be given, may deter operators to simply build unabated gas stations as a simpler and quicker alternative, with consequent long-term security of supply, price and high carbon lock-in risks.
23. Also UKC would wish to see a condition, at least for the publicly funded CCS demonstration plants, that new coal-fired power stations can accommodate indigenous coals. Indigenous coal production is an important constituent of our energy security and CCS stations should be designed to burn the quality characteristics associated with UK coals which are not typical of international traded coal, ie higher sulphur and chlorine levels.
24. An example where power station operators have made such investment in the past is in flue gas desulphurisation (FGD) equipment. Certain FGD coal stations in the UK can only meet SO2 emission standards by burning low sulphur imported coals. This is because they have opted to cut capital costs and not install a full blown system which would remove the higher sulphur levels associated with indigenous coals.
January 2010
[1] The EIB takes its guidance from the European Commission and its Board of Governors. Each EU Member State appoints one member to the Board, normally the Finance Minister. The UK representative is the Chancellor, Alistair Darling.
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