Emissions Performance Standards - Energy and Climate Change Contents

2  The UK power sector: trends and targets

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.[2]

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.[3] According to this analysis, the carbon intensity of the whole sector needs to be less than 70 gCO2/kWh[4] by 2030.

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.[5]

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.[6] 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 60 gCO2/kWh.[7] 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.[8] 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).[9]

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.[10]

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.[11] It is not possible to predict what the nature of this new capacity will be—how much will be nuclear, how much renewables and how much fossil fuel with CCS—as 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.[12] 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 CCS.[13]

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.[14]

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.[15] In addition, the carbon price is subject to political risk, which poses another level of uncertainty to investors.[16] 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.[17]
  • 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.[18] 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.[19] 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.[20] 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.[21]

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 security objectives.

2   Department for Energy and Climate Change, Energy Trends, March 2010, p 21 Back

3   Committee on Climate Change, Building a Low Carbon Economy, December 2008 Back

4   Grams of carbon dioxide emitted per kilowatt hour of electricity generated Back

5   Ev 39 (DECC) Back

6   Ev w15 10 (SSE)  Back

7   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

8   Q 4 (Turner) Back

9   Q 4 (Gibbins), Q 5 (Turner), Ev 58 (CCSA), Ev 70 (AEP) and Ev w28 (RWE npower) Back

10   National Audit Office, The Electricity Generating Landscape in Great Britain, July 2010 Back

11   Q 2 (Kennedy) Back

12   Q 4 (Turner) Back

13   Q 121 Back

14   Q 67 (McElroy), Q 68 (Farrow) Back

15   Environmental Audit Committee, Fourth Report of Session 2009-10, The role of carbon markets in preventing dangerous climate change, HC 290 Back

16   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

17   Ev 61 (WWF-UK and Greenpeace-UK) Back

18   Renewables Obligation, Department of Energy and Climate Change website, October 2010, www.decc.gov.uk  Back

19   HM Treasury, Spending Review 2010, October 2010 Back

20   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

21   Q 2 (Gibbins; Kennedy) Back

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