Memorandum submitted by Drax Power Limited
SUMMARY
1. Drax supports the EU Emissions Trading
System (EU ETS) as the key policy instrument for reducing emissions
of carbon dioxide from the electricity generation sector and the
main energy intensive industries both in the UK and across the
EU. The implications of introducing an Emissions Performance Standard
(EPS) in the UK need to be considered within this context, for
example, whether it would amount to double jeopardy for UK players.
2. The need for the urgent development of
Government policy to better address Carbon Capture and Storage
(CCS) is clear. Drax recognises it as one of the critical technologies
which needs to be implemented in order to address the challenges
of climate change whilst maintaining a diverse energy mix and
the consequential security of supply benefits. However, the principal
early objective for the UK CCS programme should be to develop
an appropriate regulatory and financial support framework which
will provide confidence to investors and developers through the
demonstration and follow-on phases.
3. An EPS might be a realistic tool for
the regulation of plant built under a future regime of full CCS
deployment, but not before. If Government is concerned about the
potential for new coal plant operating without CCS, there are
sufficient well-established mechanisms already available to prevent
this happening.
INTRODUCTION
4. Drax Power Limited is the operating subsidiary
of Drax Group plc, and the owner and operator of Drax Power Station
in North Yorkshire. Drax Power Station is the largest, cleanest
and most efficient coal-fired power station in the UK. At current
output levels its coal and alternative fuel burn approaches some
10 million tonnes per annum, and its six 660MW units supply some
7% of the UK's electricity needs.
EMISSIONS PERFORMANCE
STANDARD
5. Drax supports the EU ETS and the principle
of a price for carbon as the most appropriate way to incentivise
the uptake of low carbon technologies. Drax is concerned that
the introduction of an EPS may introduce further regulation with
the same aim, effectively introducing double jeopardy. For that
reason, the introduction of an EPS needs to be considered within
the context of a market already regulated in terms of carbon emissions.
6. Drax believes that the highest priority
for Government is to set out a (demonstrator and post demonstrator)
framework in the very near future in order to detail the expectations
and requirements for future CCS plant. This would need to cover
both the regulatory regime and the financial support mechanisms.
7. Any such framework would have to be capable
of evolving into a platform for the large-scale deployment of
CCS in the UK, including transport and storage. We believe that
a target of 20-30GW of CCS deployment by 2030 should be adopted
by Government. This target was suggested by the Climate Change
Committee (CCC) which has considered scenarios in which up to
20-30GW of coal plant could be operating with CCS by 2030. We
note that the UK is currently experiencing a new "dash for
gas" which will result in a high level of "locked-in"
fossil CO2 emissions together with a high future dependence
on imported gas; a situation which will only deteriorate unless
coal CCS can be brought on line quickly.
8. The key issue for a potential investor,
such as Drax, is the removal of investment uncertainty combined
with the introduction of policies and regulations which provide
realistic objectives and incentives. In order to achieve a substantial
amount of UK CCS plant, a potential investor will need to be very
clear about the risks and other implications of investing in an
integrated project comprising generating/capture plant, transport
pipelines and long term storage.
9. At this stage in the development of the
technology, therefore, setting an EPS on the capture element without
specifying the remainder of the regulatory "package"
would be premature. In particular, it would be inappropriate to
second-guess the detailed regulation of a future integrated capture/transport/storage
system whose likely costs, market structure and technological
performance are imperfectly known and where the different components
may develop at different rates. The whole point of demonstrator
plant is to establish the limits of the technology, and hence
setting up regulatory regimes in advance which penalise failure
will be counterproductive.
10. An EPS might be a realistic tool for
the regulation of plant built under a regime of full CCS deployment,
when it could be a part of the "best available techniques"
(BAT) requirement, but not before. If Government is concerned
about the potential for new coal plant operating without CCS,
there are sufficient mechanisms already available to prevent this
happening. The mechanism for retrofitting existing plant already
exists in the consenting/permitting process and the requirement
to justify the use of BAT, the definition of which will incorporate
an analysis of whether CCS is technically proven and whether it
can compete in the market place. All plant, in particular those
which are currently being built as capture ready (ie coal and
gas), would then be expected to retrofit to BAT standards over
a defined period of time.
CONCLUSION
11. The impact of an EPS in the UK needs
to be considered in the context of a wider EU market already regulated
in terms of carbon emissions. As far as providing a further incentive
to invest in CCS, the unilateral imposition of an EPS on an embryonic
industry may perhaps signal intentions by Government, but unless
it is accompanied by a clear package of market, financial and
regulatory requirements it will be an empty gesture which may
turn out to be counter-productive.
September 2010
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