Renew On Line (UK) 41
Extracts from the Jan-Feb 2003
edition of Renew
|Welcome Archives Bulletin|
The new White Paper on Energy is still eagerly awaited, although it’s hard to see how it will deal with the conflicting views that emerged during the consultation process. The consultation was meant to be based, at least in part, on collecting responses to the Cabinet Offices PIU report. That recommended ‘keeping options open’ and in particular treating nuclear power as just an option for the future if renewables, CHP and energy efficiency did not deliver.
However, in an outspoken remark to The Times on Sept 1st, Brian Wilson, the Energy Minister, said "There comes a point at which a formulation about keeping an option open actually becomes a formula for closing it down." Evidently, with the problems facing nuclear power growing by the minute, he was in no mind to stall any longer! Indeed, when British Energy hit its cash crisis in Sept, just before the close of the review consultation period, the government had to bail it out- with a £410m loan, later expanded to £650m and now rolled over until March. There was also a government commitment to provide on average £150-200m pa over the next 10 years towards BE’s nuclear liabilities, although it added that the cost should fall thereafter.
Somewhat pre-empted, the review nevertheless went ahead, with quite a range of views emerging. The Royal Academy of Engineering claimed that the government’s energy policy was "hopelessly unrealistic" and that far too much was expected from renewables. It also expressed scepticism about the government’s assumption that gas supplies will continue to be plentiful and relatively cheap - the RAE say that gas shortages could arise as soon as 2004 if there was a severe winter. It backed nuclear power as the way ahead, arguing that existing nuclear waste would have to be dealt with, whatever the decision on new-build reactors, and replacing Britain’s nuclear capacity would only add 10% to existing volumes of waste. Ian Fells, Professor of Energy Conversion at the University of Newcastle and a member of the academy panel, said it had been seeking to "inject a bit of reality" into energy policy. "The recent review had laudable aims, but it is largely wishful thinking. People don’t realise you can’t just build thousands and thousands of wind machines and put them into the North Sea- there are severe engineering constraints. We have only three construction barges large enough. I’m staggered by the naivety of it."
This brought some sharp responses from amongst others Mark Whitby, President of the Institution of Civil Engineers, who said, in a letter to the Times, ‘I am amused to see Ian Fells arguing for new nuclear power stations as a means of providing "reliable, secure generation" just two weeks after Torness was unexpectedly closed "indefinitely" after reactor problems, thus removing at a stroke 12% of British Energy’s annual output’.
Replying to Fells’ charge that it was naive to think engineering can overcome the constraints involved in deploying a large number of wind machines in the North Sea, he commented ‘There is nothing naive in this. British engineering has risen to greater challenges, in the North Sea and elsewhere. He cites the fact that the UK has only three large construction barges. I would build more. The 20% target is achievable- a recent report for the Scottish Government reckoned that there is enough potential wind and wave power around Scottish coasts to supply 75 % of Britain’s electricity needs- and with it we have the opportunity to develop an export industry in wind machines and perhaps even green electricity. What may be naive in my view, however, is to think that nuclear power offers a quick fix: the granting of planning permission for new stations has historically been protracted, nuclear power is uneconomic, it is less reliable than we have been led to believe, our nuclear engineers are ageing, and we have not yet begun to address seriously the issue of nuclear waste.’
Friends of the Earth were even more critical "This is typical of the way conservative energy engineers zero in on the technologies they know rather than on those that offer the best prospects for the environment. It is scaremongering by people wedded to the concept of heavy generation by nuclear power."
That is of course what one would expect of the nuclear lobby. Given subsequent events, it is interesting to look back at the submission made by British Energy to the PIU review published in Feb. last year. It now looks distinctly odd. They called for 10 new reactors costing £10bn in all, and said ‘the amount of equity funding required would be up to £250m per year depending on the level of debt achieved’ adding that ‘British Energy believes that it would be in a position to provide this level of funding from its own cashflows thus enabling the programme to be wholly financed by the private sector’. This now seems almost surreal. To be fair, BE assumed that there would be a 1p/kWh operating subsidy via a ‘Carbon-free Obligation Scheme’. The Royal Society is now backing something similar as an alternative to the Climate Change Levy- a 1p/kWh carbon tax , although, as with the NFFO, its benefits would be shared with renewables.
Back in the real world though, this all seems rather far off. BE is now struggling just to survive. SERA has argued that the one way to keep BE going now was to stop reprocessing BE’s spent fuel- that would save around £200m p.a.. But it says this should only be a stop gap, since the nuclear plants should be phased out. As it happens, with Torness and Dungeness off line and some other AGR’s in trouble, that seems to be well on the way. In which case one might hope that the government would decide that enough was enough and give up on nuclear, old and new. That message was reinforced by a report by the ILEX consultancy for Greenpeace, which concluded that all of BE nuclear plants could be switched off within 2-3 years, while still maintaining overall security of supply, with a 20% excess capacity. It added that if some already planned gas turbines were brought forward we could also switch off the Magnox.
RPA on Renewables
Leaving the nuclear issue aside, there were some useful submissions on renewables.
The Renewable Power Associations evidence was one of the most forthright. It argued that the Renewable Obligation (RO) could deliver the 10% target, but ‘only if certain changes are made and further support is focused in specific areas’.
Its list of problem areas included the difficulty in getting grants and contracts through the bureaucracy, and the unwillingness of banks to invest in projects when, if the overall renewables programme was successful, the value of the ROC’s would decrease. The RPA also noted that the planning system ‘remains a crucial barrier to the development of renewables’, and felt that ‘Ofgem’s duties (or its interpretation of its current duties) should be widened to enable it to facilitate delivery of the renewables targets’. Unless problems like this were dealt with, the RO would only achieve around 7% of UK electricity (see our front cover).
The British Wind Energy Association predicted that between 4.2 and 10GW of wind energy will be installed by 2010, but, while welcoming that, the RPA felt that ‘a diverse portfolio of technologies will be required to meet the target- development of wind energy alone, to meet future environmental targets is unlikely to be favoured by society at large, and misses the opportunity for the UK to engage in the rapidly expanding global market for renewable energy technologies’.
Overall, while welcoming wind, the RPA felt that the programme was in trouble. In particular it noted that there was a crisis facing the biomass sector, which could undermine the aim of providing energy diversity, and felt that, although capital grants, of the sort currently offered to energy crop and offshore wind projects, were suitable for support of technologies that are at the R&D stage, ‘they are not considered appropriate to support the commercial demonstration of new technologies where an enhanced income would better match higher operating costs and ongoing operational risks’.
It felt that ‘early commercial demonstration projects such as biomass plants or certain offshore renewable installations would benefit far more from additional long term support of revenues. This is to compensate for higher operating costs; arising from either the use of a novel fuel supply chain (e.g. woody biomass, energy crops) or higher operating costs of new offshore devices or wind turbines in, say, deeper locations.’
It added ‘The UK made a good start with emerging technologies as a result of the NFFO programme and has significant marine resources to exploit, it would be a major mistake not to build on these opportunities. What is required to deliver a diverse portfolio of renewable technologies is a way of giving technologies other than onshore wind, landfill gas and refurbished hydro adequate levels of bankable income to enable projects to be developed, without reducing the level of support currently available for onshore wind, landfill gas and other established renewable technologies. Within the obligation itself the options for increasing generators’ income to the level required for emerging renewable technologies are limited to increasing the buy out price or the size of the obligation. There may be scope for providing additional income to emerging technologies from sources outside the Obligation.’
In the longer term, it strongly supported the 20% target proposed by the PIU, but argued that ‘if a 20% target is set, it should not undermine nearer term targets’. It noted that ‘there has been a trend towards nearer term more modest targets being usurped by more ambitious targets set further into the future. For example the emphasis on 1500 MW dnc by 2000 (for the NFFO) was replaced by 5% of UK electricity requirements being met by renewables by 2003 and this 5% target is now overlooked in favour of the 10% target by 2010. Whilst at the same time, we have not even met the target of 1500 MW dnc by 2000. The latest data available shows that we have only just passed 1000MW dnc.’
The Energy Saving Trusts evidence fleshed out the position on energy efficiency, unsurprisingly backing the PIU calls for ‘step changes in energy efficiency and vehicle efficiency’ and confirmed that the PIU’s proposed target of a 20% cut in energy consumption by 2010 was feasible. Also unsurprisingly it noted that ‘Ofgem could benefit from revised duties or direction from Government’.One of the specific new programmes it suggested was an inefficiency tax - on things like conventional light bulbs.
In addition to its main focus on energy efficiency, EST also operates a number of programmes to support renewables, including the Major PV Demonstration Programme, offering 50% grants for installing PV on homes, and it supports ten of the Energy Efficiency Advice Centres to provide renewables advice to individuals, community groups and local authorities. Drawing on this experience the EST noted that ‘The major benefit of these programmes is that they are small scale. Large scale developments have frequently been unable to proceed because of opposition in land use planning processes. Successful small-scale renewables do help communities appreciate the benefits of the technologies and recognise there are no negative impacts, thus making them more receptive to larger scale developments. Experience (notably in Denmark) has shown that communities are also more persuadable when they will have a direct economic investment. Developers in the UK would do well to follow this lead and include local economic investment and potential gain in their plan.’
The EST supported the overall target proposed by the PIU of a 20% contribution from renewables by 2020, and noted that, although ‘small-scale renewables will only deliver of a small share of the overall increase in renewable energy output, they can greatly assist in overcoming the planning, familiarity and public acceptability barriers that currently restrict renewables investment’.
Actually that may be too cautious- the contribution from smaller projects might not actually be that small. The EST note that ‘both micro CHP and household scale renewables are likely to increase significantly over the next two decades. Our estimate is that there might be up to 8 million micro CHP units alone in place by 2020’. However it foresaw ‘grid network problems as these technologies become widely installed’ and added ‘if Government and the Regulator (Ofgem) does not act to overcome these potential difficulties they will become a barrier to installation’.
On cue OFGEM came out with its own warnings on the network linking issue
Ofgem on wind-link cost
The cost of connecting wind farms and other renewable energy projects could rise to at least £1bn, according to Ofgem the energy regulator. Up to 10000 renewable energy schemes and 1,000 energy-efficient, combined heat and power plants might need to be connected to networks if government targets are to be met, and OFGEM director Callum McCarthy told the FT that this would ‘represent a massive change in the pattern of generation, and in the operational demands which will be placed on transmission and distribution systems’.
He added that Ofgem would only allow operators to pass on development costs if connections to networks provided greater value for customers. To do otherwise "would run the risk of encouraging wasteful investment based on unrealistic aspirations rather than actual demand".
In addition to these technologies, EST noted, ‘in the longer term, the development of hydrogen could have network implications, as it could lead to increased demand for distributed generation to produce hydrogen for static or transport uses. On the other hand, hydrogen might well enable the use of intermittent renewables, by providing effective energy storage.’ But, it said ‘we would not expect either of these effects to be significant in the next 20 years’.
* As mentioned in Renew 140, EERU and SERA both backed a 30% by 2020 target, which now, given that Scotland is thinking of a 40% target (see later), seems not unrealistic.
Friends of the Earth produced a useful new computer model with a scenario which suggests that the UK could reduce its carbon dioxide emissions by 29% by 2010, and 45% by 2020, using a mix of renewables, CHP and energy efficiency, plus fuel switching from coal to gas, and a bit of clean coal/IGCC, but no nuclear.
‘Tackling Climate Change without Nuclear Power’: www.foe.co.uk/resource/reports/climate_chnge_without_nuke.pdf
White Paper- NETA to go?
The White Paper on energy policy is due out any day now. There are rumours about major changes to NETA, the New Electricity Trading Arrangements, to safeguard the future of both nuclear power and renewable energy. There are also likely to be major changes in BETTA, the proposed new extension of NETA, which was being developed to include Scotland in improved ‘British Electricity Transmission and Trading Arrangements’. The modifications are likely to include new arrangements to ensure that the transmission links are upgraded to cater for the expansion of renewable energy capacity north of the border. As far as NETA goes, there have been rumours that capacity payments will be made to generators to give them incentives to have plant on stand-by. As it is, NETA only rewards those who can meet spot-price determined demand.
But British Energy’s hopes of being exempted from the Climate Change Levy were flattened by a letter sent to Combined Heat and Power Association, by Patricia Hewitt, Trade and Industry secretary. She told the CHPA "The government has no plans to exempt British Energy, or other nuclear-generated electricity, from the climate change levy". She added "The climate change levy is not a carbon tax. It has been designed as a downstream energy tax to encourage all sectors of business and the public sector to improve energy efficiency. Excluding electricity generated from nuclear would take a fifth of the UK’s electricity out of the levy, reducing the incentive on business to use electricity efficiently and reducing the levy’s beneficial effects on carbon emissions."
She also insisted at a Greenpeace Business conference in Oct. that the crisis at British Energy was "not in any way driving" the development of UK energy policy or the content of the White Paper. She said she would not be rushed into taking decisions on the basis of problems at individual firms. But she admitted that NETA, was being looked at by the government and Ofgem in the overall energy review.
Certainly something has to be done to reduce the impacts of low wholesale prices on renewables and CHP. Its also worth noting that, as the Institution of Chemical Engineers have commented, low wholesale prices mean that only "the oldest, fully-depreciated, most inefficient and dirty coal-fired stations ... can be operated with any margin of profit".
With its US owners unwilling to help out, TXU Energi, the UK offshoot of the giant US company TXU, which took over Eastern and Norweb, went into administration. AES the US company, who run the giant DRAX B coal plant, have also been hit. So has Powergen- it shut over 25%of its capacity. It has described the UK electricity market as "bust", saying that BE’s situation "is a problem for the whole industry" and the market "is simply not sustainable". It suggested that the government should immediately close down BNFL’s six Magnox nuclear power stations and should ‘set a clear direction for energy policy and a market framework that establishes an appropriate balance between the fuels’.
What can be done?
Revamping NETA has the disadvantage of helping nuclear as well as renewables and CHP. An alternative solution would be to allow British Energy to fold and let the LMA phase out BE’s nuclear plants, as well as BNFL’s remaining MAGNOX reactors.The LMA has £48bn earmarked for this, but BE’s assets and the money the government would otherwise have to shell out to keep BE going, could be used to start the decommissioning process without having to draw on this reserve. As we noted in our update to Renew 140, we wouldn’t miss the power from BE nuclear plants, or from BNFL’s elderly Magnox, for a while, given that we have 30% overcapacity. But as more old coal plants retired, as is planned, their output would have to be replaced. If they are replaced by gas fired plants (CCGT and CHP) there will be a net reduction in emissions. However, even with an accelerated energy conservation programme, overall energy demand seems likely to grew. To deal with that, and also to begin to replace the remaining coal plants, and then the gas plants, we would need to accelerate the expansion of renewables. That could be achieved by raising the 3p/kWh buy out price established for the Renewables Obligation to say 4p. The 3p/kWh ceiling was imposed in order to keep consumer price rises down to around 3 or 4% by 2010. An extra 1p might put an extra 1% on electricity prices charged to consumers by 2010. The public consultation recently carried out by the DTI on attitudes to energy and the environment clearly indicated that the public believes tackling pollution and checking global warming is more important than keeping costs low. So a 4 or 5 % rise by 2010 should not be too unpopular. But we’d be surprised to see that taken up in the White paper...
Leaving BE, NETA and so on aside, we can expect some more general longer term commitments, including a response to the 2000 report from the Royal Commission on Environmental Pollution, which called for cuts of 60% in UK greenhouse gas emissions by 2050. At the Greenpeace conference last year, Patricia Hewitt said that it was ‘already it is clear that action on that scale- in the UK and internationally- is what we need’. Tougher targets could mean more action on the demand side, through the climate change levy, but Ms Hewitt said there was more encouragement needed on supply also. "We still remain well behind our main European partners. On average, EU countries generate 14% of electricity from renewable sources. We generate 2.6%. I must say that this is pathetic. It is due to years of underinvestment, both public and private, as well as to difficulties in the planning process which we are now addressing."
Well yes, exactly. The solution is not to waste more money on nuclear and get on with renewables.