In January 2006, the Energy Minister and the DTI launched the latest energy review consultation document to address the UK’s energy challenge in securing clean, affordable energy for the long term.
This report is the response to the review by Miller Argent (South Wales) Limited (“Miller Argent”).
Miller Argent is the developer of the Ffos-y-fran Land Reclamation Scheme in Merthyr Tydfil, South Wales. The scheme will reclaim over 1,000 acres of acutely derelict land and will recover 10.8 million tonnes of Welsh Dry steam coal by opencast methods.
Whilst obviously in favour of indigenous coal, Miller Argent has objectively looked at the bigger picture in forming its response to the review. In essence, it endorses the Government’s aspirations for a balanced mixed, clean energy portfolio. Miller Argent, however, seek to question the Government on the composition of that mix and how the Government’s objectives to reduce emissions can be achieved.
Whilst there are many forms of energy use, such as transport, industry, heating and electrical generation, Miller Argent’s contribution to the consultation process relates mainly to the generation of electricity and the general mix of methods to achieve this in the UK’s best interests.
What is clear from the UK Coal industry and from the discussions that Miller Argent has had, is that this review must lead to a clear, coherent long term strategy from government and not a further review in three years' time.
As a general comment, Miller Argent has found the overall picture of the Energy Review disappointing, in that it appears to give little credence to the current and future contribution that coal-fired power generation has and can play particularly in relation to the UK’s vast indigenous coal reserves. In fact, it covertly discriminates against coal by including such erroneous and misleading price projections and assumptions at the end of its consultation document. If those figures were to be believed, no investor would get involved with coal. Last winter, approximately 50% of the electricity generated in the UK was produced by coal due to the price and low availability of gas. Without coal, power shortages would have occurred.
Miller Argent firmly believes there is a role for coal in the UK’s future power generation portfolio, as well as a compelling argument with regard to security of supply for the promotion and use of indigenous coal.
The Government has set four goals for the Country's Energy Policy:
(i) To put ourselves on a path to cut the UK's CO2 emissions by some 60% by (about) 2050 with real progress by 2020;
(ii) To maintain the reliability of energy supplies;
(iii) To promote competitive markets in the UK and beyond, helping to raisethe rate of sustainable growth and to improve our productivity; and
(iv) To ensure that every home is adequately and affordably heated.
Miller Argent believes that there is actually a fifth goal:
(v) To set an example and to lead the rest of the world in securing a clean and affordable energy industry.
The UK currently accounts for around 2% of world emissions, of which the generation of electricity accounts for approximately a third (<1%). This is likely to decrease as the power consumption of developing countries, such as China and India, increases.
Whatever we do in the UK will have little impact on this serious global issue. It could be argued that the greatest enemy of the environment is world poverty. However, through technical innovation, we can help others cut emissions; the impact of which will be far greater than what we can do solely inthe UK. It will also have the additional benefit of improving our economy as we export our technology and expertise to other countries.
Whilst these Environmental Actions are laudable, we must also be careful not to damage our economy to the extent that we can no longer compete with the rest of the world. The Government therefore needs to ensure there is an appropriate balance of prosperity and growth, together with the necessary protection of the environment.
In 2005 the maximum electricity generation capacity in the UK was in the order of 75GW. It has roughly stayed at this level for the last 10 years. However, electrical consumption has increased over that same period by about 16%. This represents an average year-on-year increase of over 1.5%.
At the same time, because no real generating capacity has been added over the last decade, the plant margins have dropped from c.39% to c.14%. The old CEGB (Central Electricity Generating Board) recommended a plant margin of 24% to ensure security of supply. We are told that on 29 December 2005 this dropped to 4% in a one hour slot which is extremely dangerous and almost led to power outages in the UK.
Assuming demand continues to increase at 1.5% per year until 2020, this will be an overall increase of 23% on current demand. This produces two concerns:
However, this is only part of the problem, as it will be compounded by the fact that a number of nuclear and old coal power stations will have closed. This will reduce capacity even further and exacerbate the problem.
The conclusions to this are:
(i) We need to maintain, as a minimum, our current level of power generating ability and programme in replacements for the old units which will close, remembering that it takes years to deliver a scheme - taking it through the planning application process, construction, then commissioning etc.
(ii) Accept that in the short term electrical demand is going to increase, particularly with the level of housing requirements that are expected to come forward in the UK.
(iii) Renewables are not the answer but they are an important part of the solution and our future energy mix.
The current review seems to point to UK Plc relying on 80% gas and 20% renewables for electrical generation in the long term. Miller Argent believes this is seriously flawed for three reasons:
Firstly: Gas as a solution will not reduce carbon emissions by 60% of the current energy mix.Gas fired generation still produces approximately half the CO2 emissions per MWh of that produced by coal. Therefore gas-fired generation is still a significant producer of CO2.
If a future scenario is to use 80% gas, high levels of CO2 will continue to be produced. Furthermore if demand for electrical consumption continues to rise at similar rates as it has done for the last 10 years, it is doubtful whether the 60% reduction target in CO2 emissions will be met by 2050.
Therefore whilst accepting gas has a major part to play in our future energy mix, to deliver the Governments objective of a clean supply, the real answer must be finding ways of capturing the CO2 and storing it for emissions from gas as well as from coal.
Secondly: Security of supply, particularly with gas, is now recognised as a major issue.
The recent incident of Russia switching off gas supplies to the Ukraine and Europe have brought the security of supply issue home.
A balanced and mixed energy portfolio is the easiest way of minimising the impact of security of supply.
In the case of coal, this risk can be further minimised by a significant proportion of the UK's coal requirements coming from indigenous sources. This will eliminate an over-reliance on coal imports.
Last winter over 50% of the UK's generation was provided by coal, brought about because of a combination of the security of supply issue and the price risks associated with an over-reliance on gas for electricity generation.
A lot of our coal imports, particularly for Wales, come from Russia. If the Russians control both the gas and coal supplies, the risks associated with security of supply will increase.
A nuclear generating capacity within the UK will increase the amount of indigenous energy the UK can supply.
Thirdly: Wind generation requires a back-up for when the wind doesn't blow.
The Government, in this energy review, seems to point to wind as the major source of renewable energy. In reality, wind power currently only plays a very small part in the renewable portfolio with biofuels and wastes providing the greatest.
All forms of renewable energy should be embraced, with priority and assistance given to the more reliable sources. Biomass and co-firing currently play a greater role in renewables and this, where possible should be developed further.
Without hydro, biofuels and wastes, the renewable contribution would be negligible.
The most serious flaw with wind power is that sometimes the wind just doesn't blow! This can happen, for example, in a really cold period when an anti-cyclone occurs. When this happens back-up generation would need to be provided. The only forms of current generation that can react quickly enough when there is a lack of wind are coal and gas, with coal being the easiest. Much can be learnt from Denmark who have embraced wind totally but now have problems with back-up generation and rely on importing energy from other countries to meet its power demand.
The conclusions from this section are:
(i) A balanced, mixed energy portfolio is required to meet the future generation needs of the UK; this includes gas, coal, nuclear and renewables.These comments relate only to the issues that we feel competent to answer or have knowledge to comment upon.
Question 1 - What more could Government do on the demand or supply side to ensure that the UK's long term goal of reducing carbon emissions is met?
In our view, actual electrical demand is still set to increase in the forseeable future (up to 2020) by at least 1-2% per annum. Over the last ten years, even when we have had little or no manufacturing growth, yet power demand continued to grow at over 2% per annum. This is not surprising due to the growth in the population and the increase in the number of homes being constructed. The ODPM has set out aspirations for continued housing growth for the future. Associated with this is an increase in demand for more electrical appliances to serve them.
We believe there is a key role for nuclear, gas and coal to provide a balanced mix and that renewables should be developed where economically possible.
However, the real long term solution in reducing emissions to the atmosphere is for the development of carbon capture and storage ("CCS") from the key point of power generation. This applies to both gas and coal.
The Government should help / fund / incentivise / spearhead the development of this CCS technology to get demonstration projects up and running as quickly as possible. Not only will it address the emissions issue, but as the UK Government leads the way forward we can then sell the technology overseas, thus helping our economy.
To avoid market distortion, the Government needs to provide an equal playing field on which all energy sources can compete. It must also create a platform so that private industry can make the long term investments required to deliver the UK's Energy Strategy.
For coal the development and promotion of clean coal technology is also key to coal's long term future. These stations have the ability to generate far more efficiently and therefore will produce less CO2 emissions.
Question 2 - With the UK becoming a net energy importer and with big investments to be made over the next twenty years in generating capacity and networks, what further steps, if any, should the Government take to develop our market framework for delivering reliable energy supplies? In particular, we invite views on the implications of increased dependence on gas imports.
North Sea gas and oil has begun to run out, far quicker than the Government expected, forcing a reliance on imported energy (mainly gas).
Too heavy a reliance on imported gas would be folly and we must look, at least in the medium term, to coal and nuclear-fired generation, with a greater use of our indigenous coal reserves. This, along with nuclear, provides a greater internal supply in the UK and would minimise reliance on others and provide for a greater security of supply.
Due to the timescales of getting new clean coal and nuclear power stations through the planning process, the Government must clearly set out this need, enabling such applications to be delivered and the necessary investments made.
If nuclear is not to be supported and dependence on imported gas minimised, then we must turn even further to coal. In doing so we must reinforce our security of supply by utilising the vast indigenous coal reserves that remain in the UK. To enable this, there needs to be a Planning Policy Framework that can deliver these reserves rather than the current presumption against. This should be addressed immediately if indigenous coal has a role to play in the future. Time is running out!
The key to looking at new clean coal power stations, new nuclear reactors and opening up new indigenous coal reserves is to attract sufficient investment. Currently the UK coal industry works on such short horizons, that raising finance is extremely hard. For example, a coal sales contract is considered long if it is for three years, and is more likely to for be for 12-18 months. Finance can only be raised to carry out mining on the basis that mining will only take place for this short period, even if the overall potential coaling period of a mine is 10 years plus.
Miller Argent feels that the Energy Review only refers predominantly to investment in the gas infrastructure, which overlooks the need for the infrastructure investment in all types of energy if a balanced energy portfolio is going to be robustly provided. It is not only the generating infrastructure that needs investment, but also the distribution network. Without long term commitments, sufficient investment is unlikely to come forward from the private sector. The Government can help by delivering a stable platform on which long term investments can sensibly be made.
If, as Miller Argent believes, CCS is the real way forward for reducing emissions in the UK in the long term, the Government needs to focus strongly on developing policy to deliver and incentivise accordingly. This will enable CO2 emissions from both gas and coal to be reduced.
Gas prices have risen dramatically over the last year and a further increased reliance on imported gas, as currently envisaged by the current Energy Review, will only increase such prices as the ransom potential becomes greater. This cannot be the way forward if one of the Government's objectives is for an affordable energy supply.
Electricity Generation prices have already increased by 30-40% over the last two years and a similar further increase is predicted shortly.
Question 3 - The Energy White Paper left open the options of nuclear new build. Are there particular considerations which should apply to nuclear as the Government re-examines the issues bearing on new build, including long term liabilities and waste management? If so, what are these, and how should Government address them?
The Government, in this energy review, seems to point to wind as the major source of renewable energy. In reality, wind power currently only plays a very small part in the renewable portfolio with biofuels and wastes providing the greatest.
All forms of renewable energy should be embraced, with priority and assistance given to the more reliable sources. Biomass and co-firing currently play a greater role in renewables and this, where possible should be developed further.
Question 4 – Are there particular considerations that should apply to carbon abatement and other low carbon technologies?
The most serious flaw with wind power is that sometimes the wind just doesn't blow! This can happen, for example, in a really cold period when an anti-cyclone occurs. When this happens back-up generation would need to be provided. The only forms of current generation that can react quickly enough when there is a lack of wind are coal and gas, with coal being the easiest. Much can be learnt from Denmark who have embraced wind totally but now have problems with back-up generation and rely on importing energy from other countries to meet its power demand.
Question 5 - What further steps should be taken towards meeting the Government's goals for ensuring that every home is adequately and affordably heated?
It is obvious that every home and new home constructed should be energy efficient, in order to minimise the resources required to heat and light them. The Government should do all it can to incentivise home owners and builders, either through financial assistance or legislation on new houses, to make homes more energy efficient and to encourage micro-generation where possible.
However, this is only part of the story, as energy will still be required: potentially more than is currently envisaged, due to growth in the UK's housing stock, together with the direct link for more and more electrical goods to serve those homes.
The key question is: how can affordable energy be provided? Last winter, the sharp rise in gas prices, combined with the Russians cutting off the gas supply to their neighbours clearly demonstrated the problem of an over-reliance on gas. As a result, 50% of electrical generation came from coal last winter. Miller Argent has also been informed that on 29 December 2004 the safety margin for one hour dropped to 4%. This is a serious issue and reinforces the security of supply issue.
It is, therefore, obvious that the UK needs to be able to develop new power stations be they coal and/or nuclear, to meet the UK's power demands. In addition, we need to be able to have access to obtain fuel sources (i.e. coal / biomass, etc.) where possible from within the UK. This leads to what we believe is one of the major obstacles to delivering this - the planning system.
Unless the Government clearly states that there is a need for new coal and nuclear stations and for access to strategic indigenous energy reserves, it will continue to be impossible to deliver such stations and resources through the planning system, and little or no new investment will be made in these sectors.
Miller Argent's Ffos-y-fran Land Reclamation Scheme (which will hopefully realise c.11 million tonnes of coal), will have taken six years to take the project from conception of the planning application to delivery of the first tonne of coal, at a cost of many millions of pounds.
For a new power station (be it coal or nuclear) a typical delivery period is likely to be:
2-4 years - Putting together application and environmental assessment studies
1 year - Application process
1 year - Planning Inquiry
1 year - Decision
3-5 years - Construction
1 year - Commission
This equates to 10-14 years from conception of a proposed power station to commencing electrical production. This takes us immediately to 2016 and beyond, assuming we started yesterday, but in reality it is likely to be another 1-2 years before we have a robust energy policy in place to warrant such investment to give the confidence to bring forward such applications.
Financial investments can only be made on the basis of a sound and well structured delivery process. The risks associated with the current planning framework, for both new power generation plant and indigenous coal reserves, reduces the private sector's ability to invest in these markets.
Long term commitments are required to raise sufficient finance to make long term investments in the energy sector.
It is also only fair to point out that wind farms (inshore and offshore), even with huge subsidies, also encounter similar problems in the planning process.
Whilst the environment is extremely important, and we all must do what we can to protect it, there must be a balance between prosperity and growth, and with the environment.
From a world perspective energy poverty is a major challenge. Coal is the first choice fuel for developing countries and will give energy security and enable sustainable development.
All these issues are inter-related and provide for a place for clean coal technology and carbon capture and storage. For the UK's part, we must have a clear mechanism to deliver them.
The conclusion is:
It will be too late - the lights will go out unless the Government acts now and sets out a clear and coherent Energy Strategy. This must include a push towards clean coal technologies in the medium term, and Carbon Capture and Storage in the long term.
DTI Projections
In the review, Annex C refers to emissions projections and fossil fuel price assumptions, with a separate document showing how these DTI projections are derived. This document sets out low to high scenarios for coal prices, with the low equating to $1/Gj in 2020 (at today's prices). There is no site in the UK that can provide coal at these prices and there are likely to be only minimal imports that can. If this is the case there will be no coal contribution to power generation and the suggested mix of energy solutions will not happen. Miller Argent believe the pricing set out in the Appendices regarding the mix and price is seriously flawed and very misleading.
In the light of the gas situation that occurred last Christmas and the points previously made in this response, we believe these figures need to be revisited and the UK CO2 projections reviewed.
The projections also need reviewing in light of the number of coal power stations that have now opted in to fit FGD.
National Safety and Security
Coal unlike gas and oil does not explode and is therefore unlikely to be a target for terrorists. Nor would a Coal-fired Power Station have the same security issues as a Nuclear Power Station. Furthermore storage of Coal stocks is simple, safe and cheap.
Fuel Oil
Fuel Oil accounts for 20-30% of the operating costs of an opencast mine. In September 2006 fuel duty will have gone up by 146% from March 2003 levels impacting on opencast's already slim margins. However, if fuel duty is charged at the standard rate as proposed, it will have the potential to kill the Opencast Coal Industry single-handedly.
Skilled Work Force
If the Coal Industry is forced into a decline in the short term and then expected to suddenly come into production 5-10 years later, when the anticipated energy problems become dire, it will be too late. The skilled work force and expertise of the Coal Industry will be lost with little hope of getting it back.
A critical mass needs to be maintained within the industry, otherwise it will fail. The Coal Industry believes this point is fast approaching.
Some conclusions:
Indigenous coal is and has to be competitive with the world coal markets. If not it will fail.
To compete the UK Coal Industry must have a level playing field and not be unduly penalised compared to its competitors.
There is a role for indigenous coal in the UK.
The facts before us appear to be:
1. We want:
A Clean, Affordable and Secure Energy mix for the long term
2. In doing so:
The energy solution needs to be balanced with the economy and environment
If the solution damages the economy and growth, we will never be able to convince the rest of the world of the way forward, and the UK will fall further behind.
3. The Solution:
A balanced, mixed, clean energy portfolio comprising renewables, gas, coal and nuclear
An over-reliance on gas will severely affect security of supply and affordability. We should be looking towards optimising our indigenous resources.
4. To provide a balanced mix:
An equal playing field must be available to all the energy sources to avoid distorting the markets
Coal is currently penalised far greater than any other source of energy.
5. Reducing CO2 emissions:
Carbon Capture and Storage needs to be developed in the long term to reduce the impact of CO2 from both gas and coal-fired power generation
This is one area where the Government could help spearhead research and development and promote demonstration projects. Carbon Capture is needed for both coal and gas generation.
In the short to medium term Clean Coal technology power stations can play a major role in reducing CO2 emissions compared with existing Coal Fired Power Stations.