Examination of Witnesses (Questions 220
- 239)
TUESDAY 17 JUNE 2008
Dr Keith MacLean, Mr Sarwjit Sambhi and Mr Bob Taylor
Q220 Lord Layard:
Could you tell us how much capacity is held in reserve to cope
with fluctuations in the wind and how much more reserve capacity
will be needed as the proportion of wind within the system increases?
Does the backup have to come from fossil fuel?
Dr MacLean: The answer to that is partly
what we were saying before, that there is already currently somewhere
between ten and 15 gigawatts of capacity that is kept in reserve
over and above what is technically needed to meet the absolute
peak in the system. It is over 20 per cent at the moment but that
number is coming down rapidly as plant closes and is not replaced.
Our companies have all worked together on a report from the UK
Business Council for Sustainable Energy and I am happy to give
the Committee a copy of the paper or a link to that. We have calculated
that we will need an extra 17 gigawatts of capacity in order to
balance the increase of renewables from about five gigawatts to
55 gigawatts, so 17 gigawatt increase in the backup. That can
be in the form of generation or storage or demand side measures
which will allow either the peaks to be met or the other situation
that we have that if, for instance, in the middle of the night
a gale is blowing, it is raining very hard, the tides are all
doing what they are doing very well, we are quite likely in a
high renewable penetration world to be generating far more energy
than we have actually got demand for at the time and that will
make storage as an element of that 17 gigawatts much more important
in order to be able to harvest all of that energy. That is 17
gigawatts over and above what would be held at the moment.
Q221 Lord Lawson of Blaby:
Have you got any figures on the cost of storage?
Dr MacLean: The cost of storage at the
moment is relatively high. I am not a great expert in that area
but there is a lot of work being done at the moment, for instance
in Scotland, looking at what more we can do with storage and what
we can do with the existing hydro plants that are there in order
to be able to better use them for those sorts of purposes. We
are talking about an order of magnitude of change but one which
we think, by 2020, could play a significant role in that overall
one, but it will not replace the need for a big proportion of
that 17 gigawatts to come from some form of despatchable generation.
Q222 Chairman:
I think Lord Lawson was asking whether you had anything on paper
that you could give us.
Dr MacLean: No, I do not have at the
moment. We are currently commissioning some work on that and we
will have to share that at a later date.
Q223 Lord Moonie:
Have you done any modelling work on, for example, charging batteries
as a means of looking to the future or production of hydrogen?
Dr MacLean: One of the very interesting
measures that is being considered at the moment is to use peak
capacity for the charging of batteries for electric hybrid vehicles.
In carbon terms, even using current grid electricity and the carbon
intensity of that, it is actually preferable to charge the battery
of a hybrid vehicle from the mains than by doing it through the
inefficient internal combustion engine of the car itself. As we
move to a situation of 30 or 40 per cent renewables it then becomes
much more attractive to use electricity for batteries for vehicles
and for heat storage as well through immersion heating. You are
then actually looking at the much wider picture of heat and transport
as well as electricity in order to make the best use of the resource
that you have.
Q224 Lord Layard:
I do not quite understand the return to the individual company
that is supplying the wind energy. Is there some linkage between
the wind capacity and the backup capacity?
Mr Sambhi: Today the requirement for
backup for wind is relatively small because wind as a percentage
of the generation mix is tiny. To answer the question of whether
today we hold backup generation the answer is no because the grid
has enough reserve capacity in the system to cope with fluctuations
in supply from wind farms in the UK. Fast forwarding to the future
where the share of wind is much bigger, then there will be a requirement
almost to create a new market which is a backup market and so
your last question about the incentive for companies, today in
the current market design there is limited incentive and that
is one of the things that the industry is discussing at the moment:
how should this backup plant be rewarded? Is there a regulated
mechanism? Is there a market for backup that is created amongst
the generators? So we have not solved the problem; we know what
the problem is but there are different solutions.
Mr Taylor: If you think about it at the
moment, we have some 76 gigawatts of capacity on the system. Over
the next 12 years a third of that will close out anyway, that
is the old coal plant and the old nuclear plant. We have the challenge
of potentially supporting some 40 gigawatts of variable renewables
capacity which can vary between being 40 gigawatts and four gigawatts
and that will require us to replace and invest in capacity to
support the renewables capacity that will be coming on the system.
That is a very significant challenge and one that needs to be
thought about holistically in terms of the costs of running a
system with that mix.
Q225 Lord Macdonald of Tradeston:
When you come to the need for backup sources for your wind farms
if it is not required yet, what do you think the net effect will
be on carbon emissions? As the amount of wind capacity rises can
you help with the equation of how the carbon emissions will decline?
Dr MacLean: All of the calculations are
based on energy rather than capacity and I think it is important
that we split out the two issues. Let us take, for example, one
of the scenarios we are working on that we reach a penetration
of renewables of 40 per cent, it means that 40 per cent of the
electricity will be generated by fuel free means and the remaining
60 per cent will require us to burn fossil fuels or to use nuclear
plants in order to provide that. The carbon equation is based
purely on that energy; it is only in a tiny, tiny way impacted
upon by the amount of capacity that we have sitting there in the
system. In a world where we expand the system that we have at
the moment of 70-something to 120-something then that increase
in capacity does not have a significant impact on carbon. It is
only when you actually start running the plant that the big benefit
of renewables is that it displaces the need to burn fuel in order
to create that energy. That displacement is what is giving us
the carbon saving and it is unaffected almost completely by the
capacity that we have sitting there.
Q226 Lord Macdonald of Tradeston:
It is quite a simple reduction.
Dr MacLean: Yes, absolutely simple, based
on that penetration level.
Mr Sambhi: Let us say we went to 40 per
cent renewables and let us say we had 20 per cent nuclear and
the balance of electricity being provided by fossil fuels—so
the balance is 40 per cent—that is nearly half of what we
have today. In simple terms you are halving the amount of carbon
emitted.
Q227 Lord Lawson of Blaby:
Lord Macdonald has a point because if, to take an extreme case,
you went to 100 per cent renewables there would still not be 100
per cent reduction in carbon emissions because you still require
the backup.
Mr Sambhi: You could not go to 100 per
cent renewable energy because there will be days where the wind
does not blow.
Q228 Lord Lawson of Blaby:
Exactly, that is the point.
Dr MacLean: Even if you did get to a
very high penetration the only carbon there is in the system comes
from the embodied carbon that you have because you have built
the thing and for any fuel that you burn as you run it. That is
the simple equation and the embodied carbon is so much lower than
the carbon from the combustion process that it can be pretty much
ignored for the purposes of that calculation.
Q229 Lord Paul:
What have been the main obstacles to building more renewable power
stations? Is it the money? Is it the planning permission? Or is
it the connection to the network? Does it make any difference
who owns the network? Have you done any studies that if you built
a brand new fossil fuel plant and then at the same time if you
are asked to supply 20 per cent of renewable energy, what will
be the difference in cost to the consumer?
Dr MacLean: There are a lot of points
there; I will take the first part. The two main blockers that
there are to progress are planning and grid. It is not the availability
of money; it is not the support mechanism. The Renewables Obligation
has created a lot of interest; it has created a lot of backing
from investors. Our problem is that there is a queue of projects
waiting to get on to the system and either they cannot get planning
permission or, when they do get planning permission, they cannot
connect to the network. All of us are very supportive of the Planning
Reform Bill and the ideas in there to speed up decision making.
We do not expect every decision will be a yes; we want quick "yeses"
and quick "nos". The decisions are not better but if
they can be made in months that is better than years as we have
at the moment. Grid access must be reformed to allow renewable
generators to connect to the system when it is technically possible
for them to do so. At the moment that is not happening. We must
also, on the planning side, ensure that we are building what new
network needs to be built in order to accommodate the renewables
in those areas where they are going to be developed. That is going
to be particularly true of the offshore wind where we are going
to have to ensure that there is a lot of investment not only in
the wires to bring the power in but also onshore to make sure
it gets to the right places once it is there. Those are the two
things and I hope one of my colleagues will come up with an answer
to the second part.
Mr Sambhi: Lord Paul, could you please
clarify your second question because I am not sure I fully understood
it?
Q230 Lord Paul:
If you have to build a new plant for fossil fuel generation and
if you have to supply along with that 20 per cent of renewable
energy, what will be the cost to the consumer?
Mr Taylor: Assuming that the figures
I quoted a little earlier on which were of the order of £100
a megawatt hour for offshore wind versus the base costs of coal
without the cost of carbon which is around £50 a megawatt
hour, if you were doing 20 per cent by offshore wind and displacing
the coal you would incur a 20 per cent increase I think of the
overall cost. That is just a quick calculation that can be done
from the figures that we quoted in the evidence. I would just
like to add to the comments from colleagues. I fully agree with
the issues of the grid, planning and supply chain. I think, given
the scale of investment that we are now talking about here (if
we go to 30 gigawatts of offshore wind we are talking about £60
billion plus investment just in the actual plant itself without
other investments in new support capacity and transmission) one
of the things that of course is an issue is the attractiveness
of the market for investors that have a choice across a whole
range of countries. We have seen some examples of that most recently.
Q231 Lord Paul:
I was not asking the question about your costs; I am talking about
delivery to the consumer which includes connection and storage
backup.
Mr Taylor: I am sorry I am not able to
answer that. My answer was really just an implied increase in
the wholesale cost.
Q232 Lord Moonie:
Shell has recently pulled out of the London Array offshore wind
farm project in which E.ON is an investor, citing unfavourable
economic factors. Could you expand a bit on the economic problems
facing offshore wind compared to onshore projects and other forms
of renewable generation? Do you think this is going to change
over time?
Mr Taylor: In a sense I have to leave
Shell to make their own comments, but the comments they have made
are that they are reviewing their investment options including
opportunities to invest in onshore wind in the US and they have
concluded that they wish to dispose of their share as was announced.
Everything is relative and they were looking at other options
for their investment. The investments in offshore wind are significant.
London Array is £2 billion-plus for one gigawatt of offshore
wind and therefore these are big investments. We are now looking
at that in the light of what has happened with Shell and of course
reviewing that project to understand the economics and to work
with the supply chain to try to make sure that the economics work
for that project. I cannot really go into too much more detail
really on that, suffice to say that there is bound to be a delay
as a result of Shell—who had a third of that project—deciding
to sell their share. We hope to resolve this as quickly as possible
so that we can determine whether that project goes ahead or not.
Q233 Lord Moonie:
Is one gigawatt the headline figure or the 30 per cent figure?
Mr Taylor: That is the headline figure,
so its contribution will be of the order of 38 per cent of that
on average.
Q234 Lord Moonie:
Is the winter profile any better than for onshore?
Mr Taylor: I do not have the exact figures
but on average over a portfolio of wind farms we actually have
an average contribution during the winter peak periods of around
eight per cent. I cannot quote what we expect during that period
specifically for the London Array project.
Dr MacLean: Perhaps in contrast we have
just made an announcement in recent weeks of a big offshore project
which will be the biggest in the world—assuming we are there
before the London Array—of half a gigawatt and that is an
even higher cost per gigawatt than Bob was talking about there.
It is 500 megawatts for £1.3 billion. We are putting our
money where our mouth is; we believe that we can make the economics
of that project work. We would be delighted if the capital costs
were lower but we still believe in the environment we are investing
in at the moment that that makes economic sense for us to move
ahead with what is a very, very significant investment. I just
want to reinforce the point, it is very difficult to compare capacity
and energy. We are building the project because we get money for
providing energy not providing the capacity. The capacity is almost
an irrelevance. As with a car the capacity of the engine is actually
far less of interest than the acceleration, the fuel consumption
and the top speed, depending on which particular one you are interested
in. You can get a lot of power out of a low capacity. It is really
a misleading comparison. The renewable world is a different one.
We have looked at hydros with capacity factors of less than 20
per cent quite happily and they do a good job for what they are
designed to do, which is to provide energy at particular times.
Wind and tide and wave will do exactly the same. Let us see the
energy rather than the capacity.
Q235 Lord Griffths of Fforestfach:
I would like to ask you questions about carbon capture and storage.
One is what are the challenges to making it commercially viable?
Secondly, in terms of your own company, what is the potential
of CCS for cutting your own carbon emissions? Thirdly, how advanced,
if at all, are the plans of your own companies to install these
facilities in plants? Fourthly, is there anything the Government
should be doing to enable this technology to be developed more
rapidly? Fifthly, in the chart we have from E.ON the marginal
cost of coal compared to coal plus carbon capture seems at first
sight to be almost negligible; I just wondered if you could comment
on that.
Mr Taylor: On the last point, the reason
why it looks comparable with coal is because if you have carbon
costs at 40 euros a tonne then when you add the cost of carbon
on to an unabated coal plant you see it approaching a similar
kind of cost.
Q236 Lord Lawson of Blaby:
Where do you get that figure from?
Mr Taylor: It is based on some of our
own analysis plus other publicly quoted figures for a view of
commercially proven costs of carbon capture and storage.
Q237 Lord Lawson of Blaby:
The cost of carbon?
Mr Taylor: In our information you can
see we have quoted it at 20 euros a tonne, we have quoted it at
40 euros a tonne, and this is basically looking at future scenarios
of carbon costs dependent on the European Emissions Trading Scheme
and the decrease in caps.
Q238 Lord Lawson of Blaby:
So it is pretty contextual.
Mr Taylor: It does make some assumptions
about the price of carbon as a result of the European Emissions
Trading Scheme. That is why you see the figures aligning when
you assume a certain cost of carbon. I have just a few comments
on carbon capture and storage and then I will offer it across
to colleagues. The importance of carbon capture and storage probably
cannot be understated. Coal, whether we like it or not, is a very
important part of the energy resource both in the UK but particularly
elsewhere in the world, in China and India. As you know, in China
in 2006 they built 90 gigawatts of coal plant—a modern coal
fired plant—but of course unabated coal plant in terms of
carbon emissions. I think if we are serious about solving and
reducing carbon emissions from generation plant then carbon capture
and storage is a fundamental issue to be addressed. In terms of
the technology, in essence the components of the technology exist
today and are used at a smaller scale and in their various parts
across aspects of the energy industry today. You can see examples
of carbon being sequestered and stored underground, whether that
is for enhanced oil recovery or into depleted gas fields elsewhere.
There are three or four fairly sizeable examples of that.
Q239 Lord Griffths of Fforestfach:
In the UK?
Mr Taylor: Not in the UK, in Norway,
Algeria and Canada. If you look at transporting CO2 over long
distances through pipelines there are a lot of examples of that
particularly in the US where they do pipe CO2 over quite long
distances—1000 kilometres plus—as part of enhanced
oil recovery processes as well. When it comes to the capture part,
how you capture CO2 from either post-combustion, combusting coal
and then treating the flue gases and separating out the CO2 from
the flue gases, there again some of that technology exists but
it is smaller scale at the moment. For pre-combustion there are
examples of other aspects of how you capture carbon. One of the
issues is that there needs to be a major initiative to establish
a large scale demonstration project. There are number of initiatives
for the pre-combustion process and the US are trying to get some
of that off the ground. The UK Government has come forward with
its competition for a demonstration project for post-combustion
carbon capture and, as you will see in our evidence, we submitted
an application to compete for funds to be able to demonstrate
large scale carbon capture and storage in the UK. The main issues
to be sorted are scaling issues—scaling up this technology—integration
issues, so operating it as an integrated chain, as part of a power
station as well, and also research and development to make the
process more efficient because at the moment there is a sizeable
amount of power and energy that is needed in order to operate
the process itself. There are issues to be solved and the next
decade should really be about the demonstration and commercialisation
of that technology.
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