House of Commons - The revised draft National Policy Statements on energy

The revised draft National Policy Statements on energy - Energy and Climate Change Contents

5 The need for new capacity and the climate change implications

67. The Government believes that the need for new energy infrastructure is so acute that it will not be necessary to consider in detail whether there is a demonstrable need for each individual proposed development. Part 3 of EN-1 establishes the "need case" for new Nationally Significant Infrastructure Projects (NSIPs) for energy in England and Wales. It sets out the national need for:

new electricity infrastructure projects, including renewable, nuclear and fossil fuel electricity generation;
new electricity network infrastructure;
nationally significant gas infrastructure; and
new nationally significant oil infrastructure projects.

The revised need case

68. Our predecessors recommended that the Government should strengthen the need case set out in EN-1.[88] Since the original draft NPS, the need case in EN-1 has been revisited in line with this recommendation, both in terms of the period covered by the Government's assessment and the level of need. The revised NPS extends the need assessment, which previously focused on the period up to 2025, to take into account the up-to-date modelling and DECC's Pathways to 2050 analysis. The revised NPS also tightened the assessment of need for new gas capacity, in line with the Committee's recommendation.[89] DECC's central projection for UK gas demand in 2020 is now around 70 billion cubic metres (bcm) per annum compared with around 85 bcm in 2010.[90] However, on central assumptions about domestic gas production and use, net import demand for gas is now estimated to rise from around 31 bcm in 2010 to 37 bcm in 2020 and 53 bcm in 2025.[91]

69. The Committee heard different views on the robustness of the revised need case. RenewableUK welcomed the expression of need for renewables in the NPSs.[92] On the other hand, Friends of the Earth thought that the need case was far off the mark.[93] The following two sections explore two issues highlighted to use as remaining outstanding in the Government's handling of the need case.

RELATIVE NEED

70. EN-1 sets out a static need case: the need for individual infrastructure projects is assessed against the overall need case set out in EN-1 without regard to the amount of capacity already consented or under construction. Or, as CPRE put it, "'need' is still, for the purposes of the IPC, considered to be a simple, monolithic 'need: yes' or 'need: no'".[94]

71. Part 3 of the EN-1 points to several challenges that the UK must face in order to achieve energy security as well as climate change mitigation. These including the need to replace capacity that is ageing or due to be closed under the EU Large Combustion Plant Directive (LCPD) and the need to bolster capacity to balance an increase in the supply of energy from intermittent renewables alongside increasing demand.[95] Current generating capacity is roughly 85 GW and 22 GW is expected to be taken offline by 2020.[96] Alongside this capacity challenge, the UK is committed to producing at least 15% of its electricity from renewables by 2020 and to reducing greenhouse gas emissions by at least 80% by 2050 under the Climate Change Act 2008.

72. In response to these challenges, EN-1 includes an assessment of the generating capacity that will be required over the next decade and a half.

Figure 1: Generating capacity requirements, according to EN-1

Current generating capacity 85 GW

Requirement by 2025 113 GW

Of which new build 59 GW

Renewables to meet UK renewables targets 33 GW

Other capacity required 26 GW

Renewables already under construction 2 GW

Non-renewables already under construction 8 GW

Balance expected of non-renewables 18 GW

Source: Revised Draft Overarching National Policy Statement for Energy (EN-1)

73. According to EN-1, the IPC should gauge applications for development consent for energy infrastructure "on the basis that the need for those types of infrastructure has been demonstrated by the Government and that this need is urgent".[97] The requirements summarised in Figure 1 form the basis of that assessment of urgent need. However, witnesses argued that individual applications should be assessed not on these figures alone, but on the basis of these figures relative to the amount of new capacity already in the pipeline.[98] CPRE argued that the IPC and MIPU and ultimately the Secretary of State should be aware of infrastructure projects that are already underway when considering whether to consent to another application. This would mean that the assessment of need for new capacity would become less as more projects are approved.[99]

CARBON CAPTURE AND STORAGE

74. A number of witnesses focused on carbon capture and storage (CCS) as an important tool in the UK's efforts to meet its greenhouse gas emissions targets by reducing the emissions into the atmosphere of greenhouse gases from fossil fuel generating plants (i.e. coal-fired and gas-fired power stations and perhaps also biomass-powered plant). The emissions would not be reduced by CCS, but the gases would be captured and stored indefinitely. The Minister of State, Charles Hendry MP, told the Committee that the Government "are putting a great deal of resource into making sure it does work, but the plan B can be a range of alternatives". These included biomass, gas, pump storage and "other technologies that can come in to take up the slack".[100] Friends of the Earth also claimed that it would be possible to decarbonise the economy without CCS using "more energy efficiency, greater renewables than the Government are saying, greater decentralised energy, a real effort put into storage technologies and interconnectors with Europe [... and] there would have to be some role for using unabated gas plant at peak times".[101]

75. The NPSs place a significant emphasis on CCS and carbon capture readiness (CCR). The revised draft overarching NPS (EN-1) clarifies that all combustion power stations of at least 300 MW capacity will be required to be Carbon Capture Ready (CCR). The Government plans to introduce an Emissions Performance Standard (EPS) to prevent new coal-fired power stations from being built without CCS.[102] This is a significant undertaking, because coal remains a relatively cheap and abundant energy source that is easy to store, making it an important part of the UK's energy mix, in terms of both affordability and security of supply. The Minister, Charles Hendry MP, told us in our inquiry on EPSs that "We see an important role for coal [...] We have 60 plus years of coal supplies which are readily accessible [...] we think this is an area where we should be leading, and therefore we think that actually provides a great opportunity for a renaissance of coal in the UK".[103] Section 4.7 of EN-1 describes CCS as an "emerging technology", but makes little reference to any commercial and technological uncertainties associated with carbon capture.[104]

76. However, Peter Atherton of Citigroup Global Markets told the Committee that it is "clear from what's happened with the UK process that [investment in CCS] is unattractive to most companies".[105] When asked about the second, third and fourth CCS demonstration projects that the Government intended to support, he went on to tell the Committee that "There is no evidence that the major, UK-based facilities have any appetite to build those three; that is for sure".[106] We examine the market for investment in energy infrastructure in paragraphs 96-105 below.

77. We conclude that there is a worrying lack of contingency arrangements should key technologies, such as carbon capture and storage, not prove viable. Without carbon capture and storage, the effort required to meet our energy security and climate change targets would be almost insurmountable. We recommend that section 4.7 of EN-1 should include clearer recognition that carbon capture and storage is economically and technically unproven and that it should lay out a contingency plan for decarbonising the economy without carbon capture and storage.

CARBON IMPLICATIONS OF A NEW DASH FOR GAS

78. Estimates in EN-1 indicate that 59 GW of new build may be required by 2025 [see Figure 1]. EN-1 says that "the Government would like a significant proportion of this balance to be filled by new low carbon generation", but it is ultimately left up to the market to determine what kind of energy is brought forward.[107] Friends of the Earth argued that the way in which the need case in the revised draft NPSs is formulated could lead to a "new dash for gas", similar to the rush toward the use of natural gas in the 1990s after UK energy markets were liberalised, because of the relative cheapness of natural gas and the speed with which gas-fired capacity can be brought online.[108]They claimed that on top of a substantial amount of gas already in the pipeline, there was a further 20 GW of potential gas capacity being considered by the IPC already.[109] This capacity, if built, could meet all the projected need and leave little room for the development of renewables.

79. In order to mitigate the risk that new conventional generation would crowd out renewables, the previous Committee recommended that "A potential future option could be the introduction of a hierarchy of preferred generation technologies to guide more directly the IPC's decision-making".[110] The Government did not agree with this recommendation, responding that "The implementation of the Planning Act 2008 [...] does not represent a departure from the established view that the development of new infrastructure is a market-led process," and that the NPSs did not constitute "a move towards setting detailed targets for the construction of particular types of infrastructure".[111] When we asked witnesses about their view of the argument that the implementation of a hierarchy of technologies would be more costly than a market-led process, Simon Bullock of Friends of the Earth responded that "I believe that the Minister, in his evidence, stated that it would be. I don't see any evidence from him that that would be the case".[112]

80. We recognise that gas will continue to play a role in the UK energy mix. Gas plant provides low-cost, flexible generation that can be brought online quickly and reliably. Limited generation by unabated gas may be important at times of peak demand in order to balance an increasing amount of intermittent generation from renewable sources. A dash for gas, however, would have considerable implications for the UK's climate change mitigation targets, especially in the event that CCS does not become commercially or technologically viable. Unabated, a new supercritical gas power station—an integrated gasification combined cycle (IGCC) plant—would emit approximately 350 grams of carbon dioxide per kilowatt hour (gCO2/KWh).[113] The Committee on Climate Change has suggested that there is limited scope for investment in unabated gas capacity beyond 2020 in their recommendations for the fourth carbon budget under the Climate Change Act.[114] According to their analysis, the carbon intensity of the whole energy sector needs to be less than 70 gCO2/kWh by 2030.[115]

81. In order to mitigate the risk of a second dash for gas, witnesses recommended that the NPSs should include an interim goal of decarbonising the electricity sector by 2030. This is in line with the advice Committee on Climate Change that the sector should be substantially decarbonised by 2030.[116] As Friends of the Earth made clear: "It is the total emissions under the curve over the whole 40 years between now and 2050 that matter, not just the end point".[117]This means that way the UK responds to the need case in EN-1 will have an impact on climate change. The objective of decarbonisation of the electricity sector by 2030, said Friends of the Earth "gives a clear steer that we need to be decarbonising really fast through the 2020s and that some generating mixes would not be compatible with that target".[118] The Minister told the Committee that "[…] we would expect the system to be substantially decarbonised by 2030".[119] He acknowledged that much of the effort required to achieve this goal would be made through other policies, such as electricity market reform, and not through the NPSs.[120]

82. In their response to the previous Committee's Report, the Government stated that it would "be watching both the flow of applications for consent to the IPC and the outcome of those cases to determine whether they are in line with the expectations about future infrastructure development on which the NPS policies were based".[121]

83. We welcome the Government's acceptance that the assessment of need for a project application should not be made in isolation from an awareness of projects already complete, underway or consented. However, we believe that this approach should be incorporated in the overarching National Policy Statement, EN-1, and not relegated to an assurance in the Government's response document. The IPC and MIPU should have a duty to provide the Secretary of State with the information necessary to make his decision on each application. During the transitional period in which the IPC is the decision-maker, it is important that it should also have regard to the flow of projects and capacity already consented.

84. We are concerned by the risk that the NPS need case may have a perverse impact on the development of new capacity, by encouraging too much new gas plant. We recognise the continuing importance of gas-fired generation in the UK but are worried that, as drafted, the NPSs could lead to a second "dash for gas". This would make it very difficult for the UK to meet its renewable energy and greenhouse gas emissions reduction targets, especially if carbon capture and storage does not prove viable in the short term. To avoid this contingency, in deciding individual applications, the Secretary of State must take into account the volume and kind of capacity already consented or under construction.

85. We remain adamant that the recommendation of the Committee on Climate Change that the electricity sector should be substantially decarbonised by 2030 should be set out in EN-1 as an explicit goal for consideration in planning applications.

Nuclear energy and radioactive waste

86. The draft nuclear NPS (EN-6) was revised by the Government and now lists eight sites (as opposed to the ten in the original draft) that the Government deems to be potentially suitable for the deployment of new nuclear power stations before the end of 2025.[122] The Government believes that these identified sites could be used for 16 GW of new nuclear power (with some sites hosting more than one plant) and that the industry is keen to invest in new plant.[123] There are currently three consortia interested in investing in new-build nuclear.[124] EDF Energy plans to build four new nuclear plants in the UK, with the first two at Hinkley Point, followed by two at Sizewell, subject to the right investment framework being in place. Centrica are partners in the project (the 80/20 joint venture), though EDF will run the reactors.[125]Each of these European Pressurised Water Reactors (EPR) will generate around 1,600 MW of electricity.[126] E.ON has formed a joint venture with RWE npower to develop new nuclear power stations in the UK. Their current aim is to be operating their first new power station in the UK by around 2020.[127] ScottishPower and Scottish and Southern Energy also plan to construct new nuclear power plants in the UK. Last year, the consortium acquired a purchase option on the Sellafield site from the Nuclear Decommissioning Authority. The partners are currently preparing a detailed plan to install a new nuclear plant on this site with a capacity of 3,600 MW.[128]

87. With new nuclear power stations taking approximately six years to build, the very earliest that a new power station could be brought online would be 2018.[129] Three sites in the original NPS (Dungeness, Braystones and Kirkstanton) have since been confirmed as unsuitable.

88. In addition, the Government has committed itself to finding a long-term "geological disposal facility". It is committed to making the voluntarist and partnership approach to site selection work through the Managing Radioactive Waste Safely (MRWS) process. It will establish a reconfigured Geological Disposal Implementation Board to be a high profile oversight group, chaired by DECC Ministers and involving key stakeholders. An executive steering group has also been established, chaired by the Chief Executive of the Office for Nuclear Development, to provide leadership and oversight of geological disposal and hold the Nuclear Decommissioning Authority (NDA) to account as the implementation body responsible for delivery.[130]

89. The Minister told us that:

We are very committed to the approach of the previous Government, who took a voluntarist approach to finding a community prepared to host this. That, inevitably, is a gentle process. There have been three expressions of interest from within Cumbria—two from district councils and one from the county council—and we are taking those forward.[131]

The nuclear NPS states that the Government has satisfied itself that:

geological disposal of higher activity radioactive waste, including waste from new nuclear power stations, is technically achievable;
a suitable site can be identified for the geological disposal of higher activity radioactive waste; and
safe, secure and environmentally acceptable interim storage arrangements will be available until a geological disposal facility can accept the waste.[132]

90. Therefore, the Government has decided that it has adequately addressed the question of whether effective arrangements will exist to manage and dispose of the waste that will be produced from new nuclear power stations and that the IPC should not consider this further.[133]

91. The Government's Response to the previous Committee's report stated that "On the basis of the NDA's current indicative timetable, a Geological Disposal Facility (GDF) is expected to be available to take spent fuel from new nuclear power stations from around 2130".[134] According to the Government's new high-level timeline, the possible first consignment of legacy waste to a facility will be in 2040.[135]

92. However, we received evidence that cast doubts on the Government's belief that a geological disposal facility would be identified and made operational by 2130. According to the Stop Hinkley Campaign, international experience is not as advanced as the Government suggests: as Friends of the Earth pointed out, there wasn't an operational geological disposal repository anywhere in the world.[136] Sweden, widely cited as an exemplary model, has not even got to the stage of receiving regulatory approval for its plans. Whilst there have been expressions of interest, the UK does not have a clear volunteer "host" community for a geological disposal site or a confirmed geological formation.

93. In response to the previous Committee's recommendations, the Government revised the nuclear NPS so that it clarified the onsite facilities necessary to manage radioactive waste. It also reviewed the estimate that 160 years of on-site storage might be needed before waste could be transferred to the long-term storage site. However, with waste being stored for 50 years after the end of the nuclear power station's life (an operational lifetime being around 60 years), on-site storage would still need to be found for 110 years. Friends of the Earth were concerned that the Government appeared to be accepting the risk associated with interim storage of radioactive waste on sites such as Sizewell where there was chance of flooding over the next 120 years.[137]

94. Whilst we acknowledge the changes that the Government has made to the nuclear NPS, it must make clear that interim storage facilities for up to 110 years of radioactive waste will be necessary for new build nuclear plant.

95. We welcome the arrangements to set milestones for the work to identify a Geological Disposal Facility for the long-term storage of radioactive waste. We conclude that the Government should continue to report progress made by the Nuclear Decommissioning Authority towards identifying a facility, including providing us with copies of the annual report to be published on milestones reached.

Investment in new capacity

96. DECC has estimated that £200bn will be needed to meet supply and sustainability targets by 2020 as demand grows and a large amount of ageing plant is taken offline. Estimates from other sources are higher. For example, the report The €1trn decade—revisited, calculated that UK investments for renewal of utility infrastructure (including water) would require €320bn to meet government environmental targets and replace/renew the asset base (this equates to £220bn compared to the Government's estimate of £200bn investment required).[138] The report argued that roughly €10bn was invested each year currently, but it calculated that the UK would face a shortfall in investment of €139bn in investment in utilities (including water) in the next decade.[139] The report also drew attention to possible problems with skills, organisational capacity and supply chain hold-ups for investment in new UK capacity. The supply chain difficulties were attested by the witnesses in our one-off evidence session with the "Big Six" generating companies, who pointed to a skills shortage in the nuclear industry in particular.[140] Peter Haslam of the Nuclear Industry Association, on the other hand, told us that there was a strong skills base in the UK which would transfer between decommissioning sites and new build sites. He also referred to Government initiatives such as the National Skills Academy for Nuclear which intended to improve the skills base.[141]

97. The NPSs are intended to help deliver that investment by streamlining the planning process for major infrastructure projects and providing certainty for investors. The Minister told the Committee that:

[…] the United Kingdom is now one of the most interesting places in the world for new nuclear. One can look at the companies keen to build here and without subsidy, and we hope that that is going to be a key part of the mix going forward.[142]

He continued:

I think that the thoroughness with which [the NPSs] address those issues gives investors a significant amount of security. Investors know which factors may be considered to be material, and which factors will not be considered to be relevant to an application. We have sought to do that in order to give that degree of security and structure.[143]

98. Jane Smith, on behalf of the UK Business Council for Sustainable Energy, and Peter Haslam, of the Nuclear Industry Association, agreed that the NPSs would be key in providing a stable, long-term policy framework to attract investment.[144] Peter Haslam argued that it was vital to have long-term planning policy for the nuclear industry and that the NPSs, together with the expected electricity market reforms, would enable projects to go through on time without undue delay (unlike, for example, Sizewell B which had suffered significant delays in the planning process).[145]

99. However, other witnesses painted a different picture to us. Malcolm Chilton of Covanta Energy Ltd, representing the Renewable Energy Association believed that the NPSs would "probably improve matters slightly", but that it was difficult to attract bank funding for renewable projects at the moment and that investors would first be assessing the interim arrangements whilst the new system bedded in.[146] Matt Thomson of the Royal Town Planning Institute questioned whether "from a planning perspective", the revised NPSs would provide greater certainty for energy investors. He thought that the weakness with NPSs as they stood was that they did not provide guidance on how decision makers should weigh up proposals for energy infrastructure against competing uses for the land.[147]

100. The UK has signed up to the EU Renewable Energy Directive, which includes a UK target of 15% of energy from renewables by 2020. Under the Climate Change Act 2008, UK emissions must be reduced by at least 80% by 2050, compared to 1990 levels. According to EN-1, all commercial scale (at or over 300 MW) combustion power stations have to be constructed Carbon Capture Ready (CCR) and new coal-fired power stations are required to demonstrate Carbon Capture and Storage (CCS) on at least 300 MW of the proposed generating capacity. The Government plans to introduce an Emissions Performance Standard (EPS) to prevent coal-fired power stations from being built without CCS. EN-1 now notes that new coal-fired power stations will need to meet the EPS.[148]

101. The complete chain of CCS has yet to be demonstrated at commercial scale on a power station. Whilst there is optimism that the technology involved in CCS will be effective, very little is known about the costs of CCS. There is uncertainty about the future deployment of CCS and whether this will be achieved economically. The Government is supporting the cost of four commercial-scale CCS demonstration projects. The Government has committed £1bn to the first project at Longannet. Only Scottish Power is left in the competition for this project.[149]

102. Peter Atherton, one of the authors of The €1trn decade—revisited, told the Committee that the UK was attractive to investors due to the support mechanisms for renewables and because the governments in other European countries had revised subsidies for renewables (for example Germany, Spain and Czech Republic). However, investors were wary of the political risk of the UK government being unable to maintain its current policy position and then following others on the continent in withdrawing subsidies in the future.[150] In addition, due to difficulties in the utilities sector in the last 18 months, many companies had far less investment capacity today than they would have had previously. Mr Atherton felt that whilst the NPSs would be "part of the mix", investors were more interested in risk-reward: the construction risks and power price risks.[151] He believed that, due to the UK's infrastructure needs, companies were being challenged to roll out "frontier" technologies such as CCS, new nuclear and offshore wind "far faster than they would naturally do them".[152]

103. Whilst the first contract for a demonstration CCS plant is being awarded, Mr Atherton told us that there was "no evidence that the major UK-based facilities have any appetite" to build the other three CCS plants that the Government desired.[153] Whilst there were projects on CCS taking place around the world, Mr Atherton told us that companies were struggling to find an economic way to do it in the UK.[154] He believed that the most straightforward way for the Government to increase investment in an unproved technology such as CCS would be for the Government to create a regulated asset and transfer the commercial risk from the developer to the consumer/taxpayer.[155]

104. On the subject of new nuclear build, Peter Haslam and Jane Smith thought that the NPSs and electricity market reform would encourage the necessary level of investment to get 16 GW of new nuclear online by 2025 as envisaged by the Minister.[156] Peter Atherton disagreed and argued that it would be "extraordinarily unlikely and extraordinarily challenging" due to five risks discouraging investors: planning, construction, power price, operation and decommissioning with the greatest risks of these being construction and power price, especially in the UK where the private sector was being asked to take on those risks alone.[157]

105. We conclude that whilst the NPSs could encourage long-term investment in essential energy infrastructure, investors may find the commercial risks of new technologies in particular too high. Consequently the level of investment in new energy infrastructure will not be sufficient to meet our energy security and environmental targets. Mechanisms within electricity market reform such as capacity payments and "contracts for difference" will be vital in ensuring there is adequate private sector investment in the UK's energy market. As part of our inquiry into electricity market reform we will call on the Government to set out how it will encourage the investment of at least £200billion over the next decade.

88 HC (2009-10) 231, para 12 Back

89 HC (2009-10) 231, para 29 Back

90 Department of Energy and Climate Change, The Government response to Parliamentary Scrutiny of the draft National Policy Statements for Energy Infrastructure, October 2010, para 4.27 Back

91 Department of Energy and Climate Change, The Government response to Parliamentary Scrutiny of the draft National Policy Statements for Energy Infrastructure, October 2010, para 3.84 Back

92 Ev 46 Back

93 Q 129 Back

94 Q 153 Back

95 Directive 2001/80/EC Back

96 Department of Energy and Climate Change, Revised draft overarching National Policy Statement for energy (EN-1), October 2010, paras 3.3.22 and 3.3.7 Back

97 EN-1, para 3.1.3 Back

98 Q 133 Back

100 99 Q 94 Back

Back