Memorandum submitted by UK COAL Mining
Limited
1. UK COAL Mining (UKC) welcomes the opportunity
to submit evidence to the Energy and Climate Change Select Committee
looking into proposals for Emission Performance Standards (EPS).
UKC is Britain's biggest producer of coal, supplying around 4%
of the country's energy needs for electricity generation. The
Group operates three deep mines and five surface mines located
in Central and Northern England with substantial reserves and
employs 3,100 people. Around 95% of the Group's 7Mt/year production
supplies the electricity generation market and as such we are
heavily influenced by policy objectives affecting the electricity
sector.
2. 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.
3. In 2009 coal generation provided 28%
of the UK's electricity needs, however European environmental
legislation to reduce NOx and SOx will have a dramatic affect
on the existing coal generation fleet.[1]
The UK presently has 28GW of coal plant on the system. 8GW of
plant will close by the end of 2015 and the majority of the remainder
will close during the period 2016-23. The replacement of this
capacity with new coal is essential if the UK is to maintain a
diverse and secure energy mix.
4. The UK is facing energy security challenges
presented by a dramatically changing global economic, geopolitical
and energy landscape. Global reserves of oil and gas are increasingly
concentrated in a limited number of countries and there is a clear
risk that global supplies will not keep pace with demand.
5. Last winter's cold spell has highlighted
our reliance on gas, with four national balancing alerts in the
first weeks of January and many industrial consumers having their
supply cut off. Future planned gas build will exacerbate this
position.
6. Coal generation, therefore is vital to
the UK's diversity and security of energy supplies especially
at time of dwindling indigenous gas supplies and volatile international
energy markets.
7. However for coal to play its part in
the UK's energy mix, within a low carbon economy, requires the
development of carbon capture and storage (CCS). A fleet of clean
coal stations with CCS would allow indigenous coal production
to contribute to the UK's security of energy supply by limiting
energy imports from either unstable or potentially unstable countries.
8. Therefore swift progress on the four
coal CCS demonstration projects announced in the Coalition Agreement
and re-affirmed[2]
in Parliament by Charles Hendry, the Minister of State, Department
of Energy and Climate Change, is imperative.
9. The current planning regime forbids the
building of new unabated coal plant, but yet allows new gas stations
to be built without carbon capture. An EPS on all plant would
send out a clear signal with regard low carbon generation, however
Government must be confident that the technology exists to achieve
the required goal in the timeframe envisaged.
10. Most importantly an EPS must not discriminate
against coal in favour of gas. If an EPS is set at a level that
simply allows the target to be met by fuel switching to unabated
gas, this would have an adverse affect on the UK's diversity,
security and affordability of energy supply.
SPECIFIC QUESTIONS
POSED BY
THE COMMITTEE
1. What are the factors that ought to be
considered in setting the level for an Emissions Performance Standard
(EPS) and what would be an appropriate level for the UK? Should
the level be changed over time?
Emissions performance standards (EPS) have been
in place in California since 2006 when a limit of 1,100lbs CO2/MWh
(500g/kWh) was introduced on all baseload electricity generation.
This is often used as a point of reference for proposed limits
in other parts of the world. At this level, it essentially prevents
the construction of unabated coal-fired power plants (efficient
modern plants emit around 1,500lbs while older plants emit around
1,800lbs CO2/MWh), whilst allowing unabated gas plant
to be built.
A blanket EPS, at the level set in California,
would not encourage power plant operators to invest in technologies
such as CCS. Rather it will lead operators to simply switch to
the cheapest, short-term option to meet energy demand and the
standards set by an EPS, which is unabated gas. It is therefore
essential that an EPS does not discriminate against coal and allows
unabated gas to be built as a result. This would adversely affect
the UK's diversity, security and affordability of energy supply.
A standard should be set which forces abatement
to be applied to both coal and gas. This should only be applied
to new build. An EPS on existing coal generation, at the Californian
level, would immediately close stations with resultant blackouts
and power shortages.
Because CCS technology is still largely unproven
in the generation sector, EPS levels have to start high and be
ratcheted down over time as more experience and confidence is
gained. Ultimately a level of 150g/kWh could be introduced for
all new fossil generation built after 2020, which would force
carbon abatement to be installed on all stations.
2. What benefit would an EPS bring beyond
the emissions reductions already set to take place under the EU
ETS?
The EUETS is currently the primary instrument
to deliver Europe's carbon reduction commitments. It is market
based and technology neutral and delivers the necessary reductions
required.
An EPS would have the effect of removing higher
carbon emitters earlier than would be the case within the EUETS.
But under the EUETS's cap and trade system there would be no absolute
benefit, as there is already an absolute limit on the amount of
CO2 emissions that can be emitted. An EPS would therefore
limit emissions from UK coal plant, which would be utilised elsewhere
either within the UK or across Europe.
Eastern European nations within the EUETS are
still heavily coal based and are unlikely to agree to an EPS scheme
which would limit use of their indigenous energy resources and
threaten economic recovery.
3. How effective is an EPS likely to be in
driving forward the development of CCS technology? Should the
UK's CCS demonstration programme cover gas-fired as well as coal-fired
power stations?
An EPS is one way of driving CCS within the
UK. Other alternatives include a CCS obligation similar to the
Renewables Obligation (RO) or the introduction of a low carbon
obligation, which would replace the RO, open to all technologies.
An EPS in conjunction with other mechanisms may provide a more
flexible approach to delivering the deployment of CCS technology.
The Committee on Climate Change (CCC) recommends
the inclusion of CCS demonstration on gas plant within the CCS
demonstration projects 2-4. The CCC argue that the "emergence
of unconventional gas supplies, particularly shale gas in North
America has called into question the previous view that coal is
inherently more secure and lower cost than gas for the longer
term".[3]
However two recent events have highlighted our
exposure to the imported gas market and illustrates that short
term price trends cannot always be relied upon. Firstly the UK
is now a net gas importer. In the first quarter of 2010, and for
the first time since 1968, gas imports exceeded indigenous production.
This was driven by high demand combined with a general decline
in UK production.
Secondly the UK has also recently been exposed
to volatile wholesale gas prices at a time of the year when traditional
gas prices have been low. In June/July day ahead prices have exceeded
50p/therm, in response to interruptions in Norwegian gas supply.
These prices are 25% higher than those experienced last January
when the UK was experiencing the coldest temperatures of the last
30 years. As the UK becomes more and more dependent on imported
gas there is a danger that prices will become even more volatile
as countries start to compete for international gas supplies.
Poyry in their report to DECC, "Global
Gas and LNG Markets and GB's Security of Supply" (June 2010),
highlighted a number of reasons why unconventional gas may not
expand at the rapid rate predicted by many analysts. These include:
Environmental impactunconventional
gas extraction, and in particular that for shale gas, will typically
result in disruption to a large area of landscape as a result
of the high number of wells required to maximise gas production.
In this respect, the environmental impact would typically be greater
than for other energy infrastructure projects such as a gas storage
facility or a power station. In addition, the extraction technique
of hydraulic fracturing will require very large volumes of water,
whose treatment and disposal are likely to provide significant
environmental challenges. In addition, where chemicals are used
in conjunction with the water, there is the potential for the
water table to be affected and a risk of contaminating the supply
of drinking water. Given these environmental implications, projects
may be subject to delay or additional cost as a result of the
licensing and permitting processes, particularly in ecologically
sensitive areas.
Geological uncertaintyin many
cases, the potential for significant unconventional gas reserves
is yet to be conclusively proven. In addition, some resource areas
are likely to provide only limited reserves which prove to be
either technically or commercially unexploitable.
Proximity to existing pipeline infrastructurethis
has proved to be an important factor in the rapid development
of unconventional gas in the US. Where potential new reserves
are remote from existing pipeline infrastructure, this may deter
the necessary level of investment to exploit the unconventional
gas sources.
In addition conventional gas prices are also
likely to rise as LNG demand recovers particularly in the rapidly
developing economies, ie China, SE Asia and South America, diverting
away supplies from NW Europe.
By their very nature demonstration projects
carry higher technical risks; and there is a better chance of
proving a commercial technology, which can be rolled out worldwide
by supporting four rather three coal projects.
Globally coal is the fastest growing fossil
fuel in particular in China and India where it is driving economic
growth. In the developing world the IEA[4]
have identified CCS on coal generation as a necessary part of
the pathway to a 50% reduction in CO2 emissions by
2050, in order to limit atmospheric concentrations to 450ppm as
identified by the G8 in 2007.[5]
Therefore CCS on coal is the technology that
needs to be proven quickly and rolled out, as it will have greatest
impact on global emission reductions. As a consequence this sector
offers the greatest market opportunity for UK export and if the
UK were to diversify its initial efforts this market could be
lost.
UK COAL believes that there is no reason to
change the stated position of the Government and it should be
reaffirmed that first four demonstration schemes should be undertaken
on coal plant. Should subsequent funds be available, the next
CCS demonstration programme should be undertaken on a gas fired
station.
4. Could the introduction of an EPS pose
any risks to the UK's long-term agendas on energy security and
climate change?
It is now generally accepted by groups including
the G8 that governments and the private sector must work together
to deploy CCS. This needs to involve policies that reduce the
commercial risk of CCS and enable the private sector to make the
massive investments that are required. To many investors an EPS
does not reduce commercial risk, but adds another regulatory risk
which increases the challenge of investing in first-of-a-kind
plants.
At present there is 28GW of coal plant on the
system. By 2016, 8GW will have closed under the LCPD. The Industrial
Emissions Directive as proposed could see substantial further
closures, possibly down to zero by 2023. Ofgem estimate that investment
of around £200 billion[6]
is required in the electricity sector to meet this generation
shortfall. At present outside of the four demonstration CCS coal
power stations proposed, replacement fossil fuel generation capacity
will be met by the building of unabated gas generation.
There are six large companies which dominate
the UK electricity market namely; E.ON, RWE Npower, Scottish Power,
EDF, Centrica and SSE. The first four in the list are foreign
owned, based in Germany, Spain and France. These multinational
companies invest in schemes based on return and regulatory risk.
If investment the UK is deemed as too risky, these companies will
simply switch their attention elsewhere with the upshot that nothing
is built and a generation gap results.
5. What is the likely impact of an EPS on
domestic energy prices?
The impact of policies designed to ameliorate
climate change is to raise domestic energy bills. DECC estimate[7]
that their existing policies will raise domestic electricity bills
by 24% by 2020, before energy efficiency measures are taken into
account.
An EPS is likely to increase prices further
as substantial investment will be required in new generation capacity.
This is difficult to quantify as it depends on the running regime
of the plant and in particular the load factor assumed. If a new
fossil fuel plant is built as backup to renewable generation then
it will be looking to generate at high prices in order to make
a return over lower running hours. An EPS would further exacerbate
running costs.
6. Are any other European countries considering
an EPS? If so, should the standards be harmonized?
To the best of our knowledge no other European
countries are proposing to introduce an EPS.
Europe's leading economic power German, still
encourages the building of high efficiency unabated coal plant
to replace older coal coal stations. This policy can reduce CO2
emissions by up to 25%, the efficiency difference between older
sub critical and modern ultra super critical plant.
Many European countries are highly dependent
on power generation from coal and lignite as can be seen from
the table below. In particular in Eastern Europe coal and lignite
is seen as essential to economic development and provides energy
security against reliance on neighbouring Russian energy supplies.
Coal Share of Electricity Generation[8]
Poland | 91%
|
Czech Republic | 60% |
Greece | 55% |
Bulgaria | 52% |
Germany | 47% |
Romania | 41% |
It is highly unlikely that European Member States would agree
to an EPS at the level envisaged by the Committee for Climate
Change/UK Government as this would have an adverse affect on their
economy and threaten security of energy supply.
7. Could unilateral action by the UK to introduce an EPS
contribute towards global climate negotiations in Cancun in November
2010?
At the recent Copenhagen talks, the EU unilaterally proposed
a 20% CO2 reduction target with an additional offer
to increase its emissions reduction target to 30% if an international
agreement was reached. This initial 20% offer was unable to kick
start the negotiations and in the end the EU was marginalised,
as the final text was brokered by China, South Africa, India,
Brazil and the USA.
In reality any international deal will centre on China and
the USA. A unilateral declaration by the UK on an EPS scheme is
unlikely to sway their opinion, if the agreement is not in their
national interest.
8. Can greater use of Emissions Performances Standards
internationally help promote agreement on global efforts to address
climate change?
Coal is the world's most abundant fossil fuel, with the majority
of the reserves residing in USA (29%), Russia (19%), China (13%),
Australia (9%) and India (7%). Coal will continue to dominate
these economies for the foreseeable future and it is therefore
imperative that policy frameworks to address climate change and
CO2 emissions also ensure continued energy security
through a role for coal in the energy mix.
Globally coal currently supplies 26%[9]
of primary energy and 40%[10]
of electricity generation. The International Energy Agency[11]
(IEA) forecast that coal will remain the main fuel for power generation
throughout the period to 2030, where its share will increase to
over 44%. Most of this growth in coal fired generation occurs
in non OECD countries which are projected to generate over two
thirds of all coal fired electricity, compared to less than half
now. Overall coal generation capacity is forecast to increase
from 1,261GW to 2,101 GW by 2030.[12]
In developing countries, where economic growth is strong,
coal drives these economies. China is the world's biggest coal
consumer, currently at 2.76 billion tonnes[13]
which is 70% of its primary energy demand. By 2030 this production
will have almost doubled,[14]
giving an indication of its dependence on coal to drive its economy.
It is highly unlikely that developing countries would adopt
policies that will limit their economic growth. As an EPS on coal
effectively can only be achieved through the introduction of CCS
and is therefore only likely to be considered if supported by
funds from developed countries.
Establishing emission standards for CO2 would
place an immediate restriction on coal-fired electricity generation
without consideration for the long-term consequences for the global
power generation fuel mix and energy security.
Consequently because of the scale of investment required
by developing countries to fit CCS, it unlikely that an EPS would
promote an international agreement. A better solution would be
to allow CCS to be included within the Kyoto project mechanisms
such as the Clean Development Mechanism (CDM). This would allow
operators in developing countries to generate Certified Emission
Reduction (CER) credits. These CER credits can be used by industrialised
countries to meet a part of their emission reduction targets under
the Kyoto Protocol and the EUETS.
September 2010
1
Large Combustion Plant Directive/Industrial Emissions Directive Back
2
Hansard: Column 987, 1 July 2010 Back
3
CCC letter to Rt Hon Chris Huhne, Secretary of State for Energy
and Climate Change, 18 June 2010 Back
4
IEA CCS Technology Roadmap, 2009 Back
5
G8 Communique, Heiligendamm Summit 2007 Back
6
Ofgem: Project Discovery, 9 October 2009 Back
7
DECC: Estimated impacts of energy and climate change policies
on energy prices and bills, July 2010 Back
8
European Commission, EU Energy and Transport in figures 2010 Back
9
BP, Statistical Review of World Energy 2010 Back
10
IEA, World Energy Outlook 2008 Back
11
IEA, World Energy Outlook 2008 Back
12
EIA International Energy Outlook 2009 Back
13
IEA, Key World Energy Statistics 2009 Back
14
IEA, World Energy Outlook 2008 p128 Back
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