2 The UK power sector: trends and
5. Before examining any proposal for an EPS in detail,
it is important to understand the broader context within which
it would be established. In this section we set out how emissions
of greenhouse gases from the power sector will need to decline
in future and the implications this has for maintaining adequate
generating capacity. We also give a brief overview of the current
policy landscape and assess its impact to date in achieving reductions
of emissions from the power sector.
Greenhouse gas emissions from
the power sector
6. In 2009, emissions from the power sector accounted
for 31% of the UK's total carbon dioxide (CO2) emissions
and 26% of total greenhouse gas emissions. Switching from coal-fired
to gas-fired electricity generation in the 1990s had led to a
decrease in emissions from the sector. However, as the rate of
substitution of gas-fired for coal-fired capacity slowed and electricity
demand continued to rise, emissions began to grow again, increasing
by 9% between 2000 and 2008. In 2009, emissions fell once more.
This was owing to the combined impact of demand reduction as a
result of the recession along with an increase in the use of low-carbon
nuclear power and a reduction in coal-fired generation.
7. The Climate Change Act 2008 set legally binding
targets to reduce the UK's emissions of CO2 by at least
34% by 2020 and 80% by 2050, compared with a 1990 baseline. The
Committee on Climate Change (CCC) has suggested that the 2050
target can only be met if there is a very substantial decarbonisation
of the power sector by 2030, combined with electrification of
heat and transport.
According to this analysis, the carbon intensity of the whole
sector needs to be less than 70 gCO2/kWh
8. We have a very long way to go to meet this target.
The estimated carbon intensity of all electricity generation in
the UK in 2009 was 452 gCO2/kWh. Within this, the estimated
carbon intensity of coal electricity supply was 915 gCO2/kWh
and gas was 405 gCO2/kWh.
9. The chart below shows the scale of the challenge
ahead in achieving almost full decarbonisation of the power sector
at the same time as meeting increasing demand.
Chart 1: Declining carbon-intensity and increasing
generation of electricity to 2050
Source: Committee on Climate Change
10. A modern unabated coal station has an intensity
of around 850 gCO2/kWh, a modern gas plant is around
380 gCO2/kWh and nuclear is 7-22 gCO2/kWh.
Carbon capture and storage (CCS) technology could help to reduce
carbon emissions from coal-fired and gas-fired power stations
although it is not yet known whether the costs of incorporating
CCS would force consumer prices up to unaffordable levels. It
could bring the carbon intensity of electricity produced from
coal down to around 130 gCO2/kWh and from gas to around
Lord Turner argued that there cannot be a role for coal without
CCS beyond 2020 nor for gas without CCS beyond 2030 if we are
to hit our long-term climate targets.
The only exception to this might be plant that only operates for
a small number of hours each year to provide peak capacity or
back up when other plants are not able to generate (for example,
wind turbines on days when the wind does not blow).
Investment in new generating capacity
11. Around 20GW of existing generating capacity is
expected to be retired over the next decade as nuclear power stations
come to the end of their working lives and some coal-fired power
stations close as a result of the Large Combustion Plant Directive
and the European Industrial Emissions Directive. This generating
capacity is urgently needed to ensure that future demand for electricity
can be met. The new capacity will most likely consist of gas-fired
and offshore wind plant since new nuclear power stations are not
expected to come on line until about 2020. Until CCS is shown
to be economically viable it is not possible to predict when,
or even if, new coal fired power stations will meet any part of
Britain's future electricity supply requirements. In any event
they will not make any contribution until after 2020.
12. The load factor for wind farms is lower than
for other power stations (because wind is an intermittent source
of electricity), so more capacity will need to be built in order
to provide equivalent generating power. The UK's total generating
capacity is therefore forecast to increase significantly by 2020
to around 100-130 GW.
13. Further investment will be required beyond 2030
in order to meet the growing demand for electricity that will
come from increased electrification of heat and transport. The
Committee on Climate Change (CCC) told us that up to 40GW of new
low-carbon plant would be needed between 2020 and 2030.
It is not possible to predict what the nature of this new capacity
will behow much will be nuclear, how much renewables and
how much fossil fuel with CCSas this depends on a wide
range of factors, including fuel prices and the policy framework.
14. The CCC told us that it was possible to imagine
a future scenario in which coal was not used at all in the energy
mix but where it was also possible to meet electricity demand.
However, the Minister was clear that the Government's preference
would be to retain coal as part of the fuel mix:
We see an important role for coal. We think that
the future will involve a range of low-carbon technologies [...]
We certainly see an important role for clean coal - coal with
15. Dr McElroy and Mr Farrow also told us that there
would be a future role for gas; as part of the transition to a
low carbon system and as flexible plant to provide back up to
intermittent sources of electricity.
The policy framework
16. Investment decisions about new generating capacity
will be guided to a large extent by the nature of the policy landscape
within which they are made. There are a number of policies currently
in place in the UK that aim to encourage investment in low-carbon
technologies. These include:
- EU Emissions Trading System
(ETS). The EU ETS includes the power sector and primarily works
to reduce emissions in line with an overall cap. A secondary aim
of the EU ETS is to encourage investment in low-carbon technology.
However, it has not been successful in achieving this aim to date.
This is because the carbon price generated by the System has been
too low and too volatile to provide a strong enough signal to
investors. In addition,
the carbon price is subject to political risk, which poses another
level of uncertainty to investors.
WWF and Greenpeace pointed out that the rate of emissions reductions
experienced under the System to date will need to be vastly increased
if it is to keep in line with the CCC's proposed decarbonisation
pathway for the power sector.
- Renewables Obligation (RO). The RO is designed
to supplement the income of renewable energy generators. It requires
energy companies to source a growing proportion of their electricity
from renewable sources each year. It has had some success in stimulating
investment in renewable energy sources; since the scheme's introduction
in 2002, renewable electricity generation has increased from 1.8%
to 6.6% of the UK's total electricity.
However, the RO does not apply to other (non-renewable) low-carbon
sources of energy, such as nuclear, fossil fuels with CCS and
some types of energy from waste.
- CCS demonstrations. The Government has committed
itself to a programme of support for the demonstration of CCS
technology on four power stations. The first demonstration will
be awarded up to £1 billion of funding and the competition
to select a power station was launched in 2007. In 2010 two projects
were awarded funding to conduct front-end engineering design (FEED)
studies. E.ON pulled out of the competition in October 2010, leaving
only the ScottishPower consortium at Longannet in Fife in the
race. The competition for the remaining three demonstrations is
scheduled to be launched at the end of 2010. It is not yet clear
whether the other three demonstrations will also be funded from
existing Departmental budgets or from a new levy, which would
be paid by electricity suppliers (and therefore ultimately by
electricity consumers) and then disbursed to selected CCS projects.
The Government plans to make this decision in Spring 2011.
In addition to the four demonstrations, there is also a requirement
that all new coal fired power stations in England and Wales demonstrate
CCS on at least 300 MW (net) of total capacity as a condition
of planning consent, with an expectation that they will fully
install CCS by 2025. New gas-fired plant must be "CCS-ready".
17. There is a large mismatch between the scale of
low-carbon investment that the current policy framework is likely
to deliver and that which the CCC says is necessary to meet our
long-term climate goals. In particular, it is very unlikely indeed
that the EU ETS will provide a sufficiently strong investment
signal in the near future, not least because the recession has
produced a surplus of permits which can be carried over into the
next phase of the System.
Professor Gibbins and Dr Kennedy highlighted the need to plan
now for future low carbon investments, stressing that without
the proper market arrangements in place now, the necessary infrastructure
will not be able to come on line in the 2020s.
18. We believe that the policy framework as it
currently stands is grossly inadequate and will not deliver adequate
investment in new low-carbon generating capacity for the 2020s
and 2030s. The Government has acknowledged this fact and plans
to consult shortly on a number of reforms to the electricity market.
Reforms to the electricity market are required urgently in order
to ensure sufficient investment is made now to deliver infrastructure
for the 2020s. The Government must not delay in conducting its
consultation and delivering a White Paper in Spring 2011. Any
slippage of the timetable will jeopardise climate change and energy
2 Department for Energy and Climate Change, Energy
Trends, March 2010, p 21 Back
Committee on Climate Change, Building a Low Carbon Economy,
December 2008 Back
Grams of carbon dioxide emitted per kilowatt hour of electricity
Ev 39 (DECC) Back
Ev w15 10 (SSE) Back
Carbon footprint of electricity generation, POSTnote 268,
Parliamentary Office of Science and Technology, October 2006,
available at: www.parliament.uk/documents/post/postpn268.pdf Back
Q 4 (Turner) Back
Q 4 (Gibbins), Q 5 (Turner), Ev 58 (CCSA), Ev 70 (AEP) and Ev
w28 (RWE npower) Back
National Audit Office, The Electricity Generating Landscape
in Great Britain, July 2010 Back
Q 2 (Kennedy) Back
Q 4 (Turner) Back
Q 121 Back
Q 67 (McElroy), Q 68 (Farrow) Back
Environmental Audit Committee, Fourth Report of Session 2009-10,
The role of carbon markets in preventing dangerous climate
change, HC 290 Back
Ev 43 (E3G), Ev 58 (CCSA), Ev 73 (Green Alliance), Ev 79 (ClientEarth),
Ev w24 (UKCCSC and UKERC), Ev w32 (Statoil), Ev w33 (EDF), Ev
w49 (Shell), Ev w54 (Sussex Energy Group), Ev 61 (WWF-UK and Greenpeace-UK)
and Ev w66 (GE) Back
Ev 61 (WWF-UK and Greenpeace-UK) Back
Renewables Obligation, Department of Energy and Climate Change
website, October 2010, www.decc.gov.uk Back
HM Treasury, Spending Review 2010, October 2010 Back
Environmental Audit Committee, The role of carbon markets in
preventing dangerous climate change, Fourth Report of Session
2009-10, HC 290, paragraphs 36 and 27 Back
Q 2 (Gibbins; Kennedy) Back