Memorandum submitted by RWE npower
SUMMARY
1. RWE npower, part of the RWE Group, owns
and operates one of the largest and most diverse portfolios of
power generating plant in the UK with over 9,000 megawatts (MW)
of large gas, coal and oil-fired power stations and cogeneration
plant. Our retail arm, npower, is one of the UK's leading suppliers
of electricity and gas with around seven million customers.
2. We are pleased to respond to the select
committee's inquiry into emission performance standards. Investment
in new low carbon generation will be essential for the UK to meet
its greenhouse gas emissions targets of an 80% reduction in emissions
by 2050. However it is important that a clear strategy is developed
to ensure that new investment is delivered in a cost-effective
way that does not adversely impact on either security of energy
supply or UK competitiveness.
3. We are concerned that proposals for introduction
of an EPS on new coal-fired power stations, whilst not necessarily
setting more stringent emissions limits than existing coal policy,
could set an unacceptable precedent for either new gas fired generation
capacity or existing coal-fired power stations. Raising the possibility
of an EPS for gas plant beyond 2020 will lead to investor uncertainty
and is likely to lead to security of supply concerns in the 2020-30
period as old nuclear and remaining coal plant are closed.
4. Whilst we recognise that CCS is likely
to play an important role in low carbon generation in the future,
the priority must be in ensuring that the technology is adequately
demonstrated and that investors have the certainty needed to make
decisions around the high level of capital investment that will
be needed to achieve a low carbon energy supply. Prematurely setting
an EPS on either coal or gas plant will not contribute towards
this certainty.
RESPONSE TO
SPECIFIC QUESTIONS
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?
5. The key factors that should be taken
into account in deciding either the need for an EPS or the level
that an EPS should be set at are as follows;
— Will an EPS be effective in delivering
investment in low carbon electricity generation capacity?
— What are the likely impacts of introduction
of an EPS on investor confidence in the UK? In particular are
there any consequences for electricity security of supply?
— What impact will there be on electricity
prices and consumers from introduction of an EPS?
— What level of emissions is achievable
from commercially available technology? What are the practical
implications for a demonstration plant?
6. The stated aim of the EPS as set out
in the Coalition programme for Government is to prevent coal-fired
power stations being built unless they are equipped with sufficient
carbon capture and storage to meet the emissions performance standard.
However, the coal strategy set by the previous Government already
requires any new coal-fired power station to demonstrate CCS on
at least 300 MW net capacity with the expectation that CCS would
be retrofitted to its full capacity by 2025. Given this strategy
introduction of an EPS is considered to be unnecessary and premature.
7. We are concerned that an EPS, whilst
acting as a moratorium on construction of coal fired power stations,
will do nothing to incentivise demonstration and development of
CCS technology. Development of CCS demonstration must be part
of a wider strategy for delivering a low carbon energy system
which requires a comprehensive strategy to ensure that the necessary
investment is forthcoming.
8. The EUETS remains the key mechanism which
will deliver emissions reductions in the electricity sector in
the UK. Additional policies may be necessary to incentivise investment
in specific low carbon forms of electricity generation. However
an EPS, whilst it would prevent investment in unabated coal, would
not provide any incentive for investment in other low carbon electricity
generation capacity.
9. Whilst doing nothing to encourage generators
to invest in new low-carbon generation an EPS could have potential
impacts on investors' confidence in investing in new infrastructure
in the UK. As a mechanism it would penalise investment in technologies
with high levels of CO2 whilst failing to create appropriate
incentives or an effective framework to deliver the necessary
investment in low carbon technologies. Rather than focussing on
an EPS Government should consider what is needed to make it attractive
for investors to invest in low carbon technology.
10. Regulatory changes that could potentially
impact on the return of an investment will impact on investors'
decisions on investment in new power plant capacity in the UK.
The potential for the introduction of future emissions standards
for either coal or gas fired power stations will have an impact
on investors decisions on whether to invest in the UK and which
power plants to invest in. This could have significant implications
for security of electricity supply in the UK and consequently
electricity prices for consumers.
11. Suggestions that the level of an EPS
could also change over time or that an EPS could be introduced
for gas fired power stations built after 2020 increases exposure
to political risk, which can only have significant negative impact
on investor confidence.
12. It needs to be recognised that whilst
carbon capture and storage technology is a potential for future
low carbon generation of electricity the full chain has not yet
been demonstrated and is not likely to be commercially available
for a number of years. It is far from clear that warranties on
performance standards vendors will be able to offer and how these
might impact on the cost of CCS.
13. Setting an EPS for a coal fired power
station with demonstration plant fitted to 300MW is also likely
to be difficult where the operating pattern of the unit with CCS
fitted is difficult to predict at this stage. The fact that the
CCS is at the demonstration stage would mean that it is very difficult
to set a meaningful EPS until it is clear that the unit with CCS
fitted is fully operational and meeting expected CO2
removal efficiencies. It is therefore difficult to see what can
be achieved by setting an EPS prior to CCS being judged commercially
available.
14. An EPS may have a role to play in setting
future standards for fossil fired power generation but this should
only be introduced once the technological performance and costs
of CCS on both coal and gas-fired plant have been adequately assessed.
15. Once CCS is commercially available we
would expect it to be evaluated through the EU Commission BREF
process (Reference Document on Best Available Techniques) whereby
technical experts evaluate the performance of combustion technologies
and advise on what standards are achievable and should be applied
through the environmental permitting process. In considering appropriate
standards a number of factors would need to be taken into account
including appropriate compliance periods, age of plant, whether
to include or exclude start-up and shut-down, scope for derogations
and exclusions etc.
What benefit would an EPS bring beyond the emissions
reductions already set to take place under the EU ETS?
16. The EUETS sets the overall level of
emissions that will be achieved in the traded sector out to 2020.
Introduction of an EPS will therefore not result in any further
reductions in CO2 emissions from the traded sector.
17. If investment in the UK resulted in
greater reductions of CO2 than would have occurred
if an EPS had not been introduced, these would clearly have to
be paid for by increased energy costs for UK consumers. In addition
the overall emissions reductions required across the EU would
be easier to achieve as a consequence of higher UK investment
and the overall cost of carbon across the EU would reduce. Competitors
elsewhere in Europe would therefore benefit from lower costs of
carbon and consequently energy. In effect UK customers would be
subsidising customers elsewhere in Europe.
18. The threat of any introduction of an
EPS or mandatory retrofitting of CCS on gas plant would act as
a strong deterrent for investment in new plant at a time when
a significant amount of existing coal and nuclear capacity will
be closing. This could then result in the perverse consequence
of higher UK CO2 emissions if existing coal fired power
stations remain open for longer.
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?
19. An EPS will not drive forward the development
of CCS technology. If investors perceive that it is too risky
to invest in new coal plant with demonstration on one unit because
it is not clear that a future EPS level would be achievable, it
could in fact act as a delay in driving forward the technology.
Many pan-European companies such as RWE have a number of options
for investment across Europe. Uncertainty around introduction
of an EPS in the UK could result in investment decisions favouring
other European countries rather than the UK.
20. Rather than focus on an EPS to drive
development Government should aim to ensure that investment in
low carbon technologies is attractive to investors. Once the technology
has been demonstrated effectively on the first round of projects
through funding via the CCS levy and European funding the next
stage of investment should be driven by the same criteria as investment
decisions in other low carbon technologies.
21. To ensure that low carbon investment
is achieved in the most economically efficient way then it is
important that there is a level playing field for making choices
between alternative low carbon investments.
22. Unabated fossil fired power generation
may still have a role (albeit a much smaller role) in the electricity
generation mix and in the transition to a low carbon electricity
system. In particular unabated gas generation may be a necessary
back up for intermittent renewables.
23. In addition to recommending consideration
of an EPS for new gas fired power stations from 2020 onwards the
CCC has recommended that serious consideration should be given
to funding at least one gas demonstration project. However the
relatively low CO2 intensity of the emissions from
a CCGT would result in a very high cost per tonne of CO2
abated compared with other technologies. We do not believe that
CCS on gas fired plant will be a competitive or cost effective
means of reducing CO2 emissions in the UK for a significant
period of time. The focus should be on demonstrating the technology
on coal-fired power stations which remains the global priority.
Given this context it is not clear what benefits there would be
from demonstration on gas fired plant. In addition it is likely
to lead to significantly higher demonstration programme costs
for the consumer.
Could the introduction of an EPS pose any risks
to the UK's long-term agendas on energy security and climate change?
24. Introduction of an EPS will not stimulate
investment in low carbon technologies and, if introduced for gas
plant in addition to coal, could deter investment in high efficiency
CCGT plant. If introduction of an EPS leads to delay in investment
in new capacity then clearly energy security could be impacted.
Delayed investment will tend to maintain older higher emissions
plant on the system for longer, making it harder to achieve UK
climate change goals.
What is the likely impact of an EPS on domestic
energy prices?
25. If an EPS is introduced in a way that
does not constrain investment decisions beyond the current policy
on new coal fired generation then it is unlikely that an EPS would
result in any impact on domestic energy prices.
26. However if the manner of introduction
of an EPS leads to delays in investment in new capacity (particularly
new gas fired generation) and Government fails to come forward
with an effective framework for encouraging investment in low
carbon technologies this could result in a shortage in capacity
and domestic energy prices are likely to rise.
Are any other European countries considering an
EPS? If so, should the standards be harmonized?
27. As far as we are aware no other European
countries are currently considering introduction of an EPS. However,
we understand that a legislative proposal for the introduction
of an EPS from 2020 was discussed in the Dutch Parliament earlier
this year, but has not progressed since the Parliament re-formed
following elections.
Could unilateral action by the UK to introduce
an EPS contribute towards global climate negotiations in Cancun
in November 2010?
28. Introduction of an EPS would send out
the message that the UK Govt does not consider that the EUETS
will be sufficient as a mechanism to meet Kyoto and successor
targets.
29. This is likely to lead to lack of confidence
in whether global mechanisms will contribute to reductions in
greenhouse gas emissions and potentially make it harder to reach
agreement on these mechanisms.
Can greater use of Emissions Performances Standards
internationally help promote agreement on global efforts to address
climate change?
30. Emission performance standards can be
part of the mechanisms to address climate change but it is difficult
to see how emissions trading and EPS can be used alongside each
other. The aim of an emissions trading scheme is to deliver emissions
reductions in the most economically efficient manner. Imposition
of an additional standard will reduce the economic efficiency
of the scheme.
31. Suggestions of a mandatory EPS would
be unacceptable to countries with significant domestic fossil
fuel reserves, until such time as CCS is proven to be technically
and commercially viable at scale.
September 2010
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