Memorandum submitted by International
Power plc
(I) ABOUT INTERNATIONAL
POWER
IPR welcomes the opportunity to contribute to
the Energy and Climate Change Committee's call for evidence on
an Emissions Performance Standard (EPS) for CO2.
International Power plc (IPR) is a global independent
power generation company with interests in over 32,000 MW of generation
capacity in 21 countries. This includes approximately 5000 MW
of plant in the UK market where, in partnership with Mitsui &
Co., it owns and operates the coal fired station at Rugeley, Deeside
Power CCGT, Saltend Cogeneration Plant in Hull, First Hydro Pumped
Storage Stations at Dinorwig and Ffestiniog in North Wales, and
Indian Queens peaking plant in Cornwall; the company also has
a share in Derwent Cogeneration plant. These assets represent
a 7% market share, making IPR one of the country's largest independent
power producers.
IPR is one of the world's top 10 owners and
operators of wind farms with an installed capacity of over 1100
MW, much of which is in Europe. The company is keen to develop
its renewable portfolio further and is hoping to develop a range
of projects in the UK as part of this strategy.
(II) SUMMARY KEY
POINTS
— IPR supports the widely acknowledged
need to reduce carbon dioxide (CO2) emissions as part
of the response to climate change and that substantial decarbonisation
of UK electricity generation by 2030 is an important part of this
response.
— IPR does not support the introduction
of an EPS for either new or existing generation plant. IPR believes
that the European Union Emissions Trading Scheme (EUETS) is the
primary regulatory mechanism by which to bring about reduction
of industrial CO2 emissions.
— IPR believes that the EUETS should be
allowed to continue to operate without undue distortion in order
to best meet objectives (eg through adjustments to the overall
cap to achieve the required overall reduction). Prescribing technology
specific restrictions will limit flexibility in achieving overall
reductions targets and impact on the efficiency of the scheme.
It would also undermine the EUETS, indicating a lack of confidence
in the ability of the EUETS to function as intended.
— IPR believes that the introduction of
an EPS may also have a damaging effect upon investment decisions
needed now to ensure a smooth transition to a low carbon economy.
Carbon Capture and Storage (CCS) should become the relevant Best
Available Technique (BAT) for abatement of CO2 emissions
from new plants, when it is commercially available. Until then
IPR welcomes Government's support for demonstration CCS projects.
— To provide a diverse energy mix, coal
with CCS will be an energy source not only in the UK but throughout
the world for the foreseeable future. Therefore investment in
coal needs to be encouraged as is the case with the demonstration
CCS plants. An EPS will not serve to encourage this investment
or the similar investment required to develop CCS for gas fired
plant.
— Existing plant in the latter part of
its natural life cycle has decreasing operational load factors
as more modern generation replaces it. In a speech at the Economist
UK Energy Summit on 24 June 2010 the Secretary of State for Energy
and Climate Change said "We need a meaningful carbon price
to underpin investment decisions". We note the Government's
plans to introduce a carbon price floor in order to achieve "meaningful"
levels. Application of an EPS in addition to such measures at
best seems redundant, and at worse potentially damaging to security
of supply should older fossil plant be regulated out of the market
at times when reliable capacity is required.
— If despite these arguments the
Government is wishes to introduce EPS, the latter should only
apply to new coal plant, addressing the highest carbon
intensity generation.
(III) ON THE
QUESTIONS POSED
IN THE
CALL FOR
EVIDENCE
Q1: What are the factors that ought to be
considered in setting the level for an EPS and what would be an
appropriate level for the UK? Should the level be changed over
time?
1. IPR does not consider that an EPS is
a useful option to encourage reductions in CO2 emissions
and the investment needed to move to a low carbon economy and
acceptable security of supply. The alternative pathway that IPR
would welcome is a move by the UK to work with other EU Member
States to strengthen the EUETS to make it more effective; this
is particularly important given the desire to move from 20 to
30% overall carbon emission reduction target and the associated
need to decarbonise the electricity sector.
2. With this in mind, existing fossil plant
will be increasingly impacted by the Industrial Emissions Directive
and will eventually close. However the short-term operation of
this plant can help to contribute to the longer term decarbonisation
process by providing necessary security of supply during the period
in which CCS and low carbon generation is brought to commercial
fruition thus, reducing the risk of new fossil plant being built
which ultimately does not contribute to the low carbon future.
3. If the Government is seriously
set on introducing an EPS, it should be applied only to new
coal plant so as not to threaten security of supply. In addition
Government should be clear about the detail of what an EPS is
intended to achieve over and above the requirement to fit CCS.
If it is to stop unabated coal generation in the event of CCS
failure, then an EPS would have to be set at the appropriate level
to achieve this but also avoid replacement generation at a higher
carbon emission rate.
Q2: What benefit would an EPS bring beyond
the emissions reductions already set to take place under the EU
ETS?
4. IPR does not think that an EPS offers
any benefits over a properly functioning EUETS. On the contrary
IPR believes that an EPS would only serve to weaken and undermine
the EUETS, indicating that the EUETS is not functioning as intended
and that Government lacks confidence in the EUETS. An EPS would
threaten security of supply and ultimately lead to higher prices
for consumers.
Q3: 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?
5. The development of CCS is not dependent
on an EPS being in place; there is already interest in industry
to proceed with CCS. Successful development of CCS is much more
dependent on the success or otherwise of the four demonstration
plants. If CCS development is successful, then an EPS is not needed;
if CCS development is unsuccessful or is successful later than
expected, then unabated coal will still be difficult to operate
in a world of relatively high carbon prices and a declining carbon
emission cap for the sector.
6. The electricity sector will need some
gas in the future to provide "shape" in the market,
peaking plant, and stand-by generation. With this in mind it makes
sense for one of the demonstration projects to be a gas-fired
technology.
7. A properly functioning EUETS will be
more likely to push forward development of CCS compared to an
EPS, and preserve an acceptable level of security of supply.
Q4: Could the introduction of an EPS pose
any risks to the UK's long-term agendas on energy security and
climate change?
8. The introduction of an EPS on existing
plant would have a severe impact on energy security. IPR considers
the EUETS to be a preferable means by which to protect short term
energy security and to encourage a positive short-to-mid term
response to climate change. While it can be argued that an EPS
would help to support the UK's climate change agenda, IPR believes
that this issue must be assessed along with associated issues
and not in isolation. Therefore the best way to encourage the
climate change agenda in electricity supply, to protect security
of supply, to help prevent fuel poverty, and to encourage diversity
of fuel supply, is to focus on the EUETS and encourage the development
of CCS. These tasks go hand in hand with the need to continue
the encouragement of energy efficiency and the development of
non fossil sources of electricity.
Q5: What is the likely impact of an EPS on
domestic energy prices?
9. DECC's Updated Energy and Emissions
Projections published in June 2010 show electricity prices
are set to rise between 60% and 85% between 2010 and 2025, consistently
across the various scenarios presented. The contribution of coal
is projected to drop dramatically over this period while gas generation
continues to make a significant contribution. The imposition of
EPS on fossil plant, particularly gas, would lead to higher cost
generation options being adopted than would otherwise be the case,
resulting in higher costs to consumers.
Q6: Are any other European countries considering
an EPS? If so, should the standards be harmonized?
10. IPR is not aware of any other European
countries considering an EPS. It is also worth noting that an
EPS was considered for inclusion in the Industrial Emissions Directive
but did not find sufficient support for ultimate inclusion.
11. The US State of California EPS of 500
gCO2/kWh introduced in 2007, cited by the Conservative
Party as the example for a similar possible measure in the UK
before the General Election, is the only form of carbon legislation
in that state—California does not have an equivalent to
the EUETS or a carbon tax on fossil generation.
Q7: Could unilateral action by the UK to
introduce an EPS contribute towards global climate negotiations
in Cancun in November 2010?
12. To date, unilateral action has not proven
to be effective approach and IPR does not consider this to be
a prudent strategy. IPR believes that it would be more beneficial
to focus on improving what is already under consideration, for
example the setting of meaningful targets within an agreed framework,
the role of CDM, and international collaboration in the development
of abatement technologies and renewables.
Q9: Can greater use of EPSs internationally
help promote agreement on global efforts to address climate change?
13. While they will wish to work to the
end of tackling climate change, it is unlikely that the major
economies will want to risk their growth prospects by the imposition
of an EPS similar to that under consideration in the UK. If available,
they will want to use their indigenous fossil fuel reserves for
the economic benefit of their people. Therefore it would be better
to focus on making CCS work and to speed up the CCS development
timetable as much as possible.
14. The EUETS is now well established in
the EU as an effective way to bring about reductions in CO2
emissions—emissions trading has also provided an effective
mechanism for addressing SO2 and NOx emissions from the power
sector in the US. It is also worth noting that the EU ETS has
also proved an effective is vehicle for engaging developing countries
in climate change mitigation by offering a "market"
for Clean Development Project credits. The success of this engagement
suggests strengthening the EU ETS, and encouraging ETS development
in other countries is a more effective forward.
September 2010
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