Emissions Performance Standards

Memorandum submitted by Drax Power Limited (EPS 23)

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 (i.e. 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