Category Archives: Policy & Regulation

06.04.13
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Tim Yeo’s decarbonisation amendment speech to Commons in full

I draw attention to my entry in the Register, especially my interests in energy industry.

In doing so I emphasise, as I have done before, that my views on climate change, on the need for Britain to move more swiftly to a low carbon economy and to cut its dependence on fossil fuels, were formed two decades ago when I had ministerial responsibility for this area of policy.

I’ve not changed these views at any time since then. I’ve repeated them publicly and privately on many occasions throughout the last 20 years. My views have never been influenced at any time or in any way by my financial interests.

All those interests were acquired after I left the Shadow Cabinet in 2005. That was 12 years after I accepted the overwhelming scientific consensus on this subject and began campaigning for a more urgent response to the challenge of climate change.

Various bloggers, columnists and others, including one or two Honourable Friends, who insinuate otherwise, and who ignore this scientific consensus, invariably overlook my strong and consistent support for nuclear power, a low carbon technology which should be part of Britain’s energy mix.

I’m grateful for this opportunity to debate the amendment in the name of honourable members from all parties and myself.

The amendment is based on a unanimous recommendation made in July last year in the Report of the Energy and Climate Change Committee on the draft Energy Bill.

The Govt accepted many of the Committee’s recommendations, and by doing so materially improved the Bill.

I congratulate my RHF the Secretary of State and his team on their response to our Report and on the outcome of their negotiations with the Treasury on a range of issues, including the LCF.

However for a variety of reasons the need for the amendment we are debating is even greater now than it was when my Committee’s Report was published.

Firstly, despite some positive signs about the Govt’s support for low carbon electricity generation, the publication on the day of the Autumn Statement of the Gas Strategy confused many investors.

The possibility that the Govt might sanction 37 GW of new gas fired generation capacity rests uneasily with its acceptance two years ago of the 4th Carbon Budget which covers the period 2023 to 2027. It suggests that the purpose of next year’s review of the 4th Carbon Budget is to water it down and weaken incentives for low carbon investment.

The understandably envious glances cast across the Atlantic by the Treasury at the transformation of the US gas market in the wake of the exploitation of shale gas have not passed unnoticed.

Not surprisingly there are now doubts in the minds of many prospective investors about the depth of the Govt’s commitment to decarbonising electricity generation.

On the issue of shale gas incidentally the ECC Committee was one of the first bodies to urge the Government, more than two years ago, to approve more exploration and testing to establish the scale of Britain’s shale gas reserves.

If our dependence on imported gas can be cut and if consumers can be protected against the fluctuations in international gas prices which have been the main cause of the rise in domestic energy prices in the last few years then that is wholly to be welcomed.

However my Committee also warned in our more recent Report on Shale Gas that it would be rash to base energy policy on the assumption that Britain will soon be a major shale gas producer.

The opposition to exploring for shale gas in Sussex which is already emerging is a foretaste of the battle for public opinion which must be won before domestic production of shale gas on even a modest scale can occur.

The case for a diversified energy mix is therefore as strong as ever.

Secondly, although we hear regular warnings about a looming capacity crisis in electricity generation, and the consequent risk of power cuts, there is a curious complacency about the Government’s attitude.

Investment in new generating capacity is now at a low level.

The nuclear talks between Government and EDF remain unfinished. Even if, as I now expect, they are brought to a successful though belated conclusion it will be 2020 at the earliest before a single KW of electricity is generated by a new nuclear power station in Britain.

New investment in coal is unlikely to occur until an economically viable form of Carbon Capture and Storage is available. Despite the huge potential market for CCS there is no sign anywhere in the world of this happening.

I am an enormous fan of CCS. It is the single technology the world most urgently needs to address Climate Change but we may have to wait another decade or even longer for a breakthrough on this front.

Meanwhile coal can currently be imported cheaply from America so our remaining coal fired power stations are running flat out.

Gas generation, the great white hope of many people, is currently so unprofitable that, far from large scale new investment taking place, some plant is currently mothballed.

Critically, potential investors in gas generation are holding back until the details of the Government’s proposed capacity mechanism are known. I urge my Right Honourable Friend to publish these details as soon as possible.

With a decision on nuclear still awaited and fossil fuel generating investment at a standstill it might be thought that money would pour into low carbon renewables. Even here the picture is unclear. For example, according to new figures from Bloomberg, the flow of funds is actually slowing down.

Doubts about whether a future Govt will stay committed to supporting low carbon technologies after 2020, fears that instead it will bet the farm on another dash for gas, and a lack of clarity about the level of strike prices to be proposed for the new Contracts for Difference regime have all unsettled investors.

The only certain consequence of this is that investment will be slower and the risk of a capacity crisis greater.

The element of perceived political risk will lead investors to seek higher returns for investment in the UK energy market.

Higher returns to investors mean higher prices for consumers.

My amendment directly addresses these issues.

By itself it will not immediately alter the low carbon pathway on which the Govt has already embarked, most notably by its acceptance of the 4th Carbon Budget.

But the prospect of the 4th Carbon Budget being watered down in next year’s review is simply another unwelcome uncertainty.

The amendment removes that uncertainty. It requires the Secretary of State to set, no later than 1April 2014, a decarbonisation target for 2030 for electricity generation.

As currently drafted the Bill merely gives the Secretary of State a power to set such a target without compelling him to do so. It also prevents him from exercising this power before 2016.

Suggestions that this amendment would force him to set the target at 50 grams per Kwh in 2030 are mistaken. The amendment requires him to set the target in accordance with advice from the Committee on Climate Change. If he does not follow the advice of the Committee on Climate Change he would have to explain why.

The CCC would not have a free hand in advising the Government. It would still have to take account of all the matters already referred to in the Bill in Clause 2 section 2. These include READ OUT (a) to (e).

http://www.publications.parliament.uk/pa/bills/cbill/2013-2014/0004/2014004.pdf

In truth therefore this amendment is not very revolutionary. It seeks to bring forward by a couple of years something which the Government is contemplating doing anyway.

If it is indeed true, as the Secretary of State asserted yesterday, that we are heading for substantial decarbonisation of electricity anyway, what objection to this amendment can there possibly be?

There is now very widespread support for it. Only two weeks ago the CCC published a report recommending that a target for reducing carbon emissions from electricity generation by 2030 to 50 grams per Kwh should be set in legislation, with flexibility to adjust this in the light of new information as the amendment provides.

A wide range of businesses and trade bodies have backed it. The Aldersgate Group for example, whose members include Microsoft, Marks & Spencer, Aviva, Sky, PepsiCo, British American Tobacco and others, are strong supporters.

Many companies with interests in the supply chain and with potential to create jobs in Britain want to see it passed.

A wide range of voluntary bodies are campaigning for it, including the Women’s Institutes,

Even among HMs there are signs of enthusiasm. At the Lib Dem Party Conference last September the Chief Secretary to the Treasury proposed a motion to establish, and I quote, “a target range of 50-100g of CO2 per Kwh for the decarbonisation of power sector in addition to existing carbon reductions.”

If every Lib Dem MP who supported the Chief Secretary that day joins me in the Aye Lobby at 4 o’clock the amendment will be carried. I am sure that all my Honourable Friends on the Lib Dem benches are keen to take this opportunity to strengthen their well known reputation for consistency.

Even the Government itself seeks powers in the Bill as it stands to introduce such a target. But for some reason they don’t want to do so until 2016 at the earliest.

The problem with this St Augustinian coyness, this promise of possible future chastity in the matter of greenhouse gas emissions but please God, not just yet, is that by 2016 many investment decisions will have been made.

If these lock Britain into a high greenhouse gas emission future they will either prevent us from meeting our climate change commitments or else will lead to the construction of fossil fuelled generating capacity which has to be subsequently scrapped.

2016 is also after the next General Election. Delaying a decision until then creates another needless but harmful element of doubt about the Government’s true intentions.

I therefore urge HMs on all sides to support this amendment. Doing so will remove an element of uncertainty whose presence hampers investment, increases the risk of a capacity crisis and raises electricity prices unnecessarily.

This amendment will not impose on the Government today any commitments it does not already claim to embrace.

Furthermore it will not remove the need for even greater priority to be given to demand side measures and to energy efficiency, issues which I wholly support.

By itself it will not raise electricity prices in the next seven years by a single penny because the total sums spent on subsidising low carbon electricity in the period up to 2020 has already been capped by the LCF.

By contrast the Treasury’s own cherished floor price for carbon does raise prices and add to consumer and business bills making British industry less competitive relative to the rest of the EU but does so in a way which does not cut emissions by a single kg.

Without the amendment this Bill, whose early passage through Parliament is desperately needed for economic and security reasons as much as for environmental ones, will be needlessly weakened.

I commend the amendment to the House.

11.29.12
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Ten things DECC told journalists at the Energy Bill press conference

Energy journalists were treated to not one but all three DECC (Commons) ministers – Secretary of State Ed Davey, Energy Minister John Hayes and Climate Change minister Greg Barker (plus two senior civil servants) at today’s Energy Bill press conference in the bowels of Whitehall Place. Here are the juicy bits.

1. On nuclear strike price negotiations

Ed Davey: The negotiations for Hinkley Point C are ongoing. EDF would like to conclude by the end of the year and we’re working with them to try and do that. It’s a major negotiation and it’s going very well.

Jonathan Brearley (Director of Energy Strategy and Futures): When deciding strike prices we have to compare the levelized cost of electricity with what happens to the gas price. As this so uncertain we have a range of scenarios. For nuclear the levelized cost estimate is around £80/MWh by 2020. This doesn’t necessarily feed directly into the strike price as we have to factor in the cost relative to the future price of gas, which is very uncertain, and the length of the CfD contract.

Simon Virley (Director General for Energy Markets and Infrastructure): The EU State Aid talks are ongoing, we have a good constructive dialogue with the Commission and we have done so for many months. We’ll have to wait and see what the Commission comes back with when they finally make their views known.

2. On the Levy Control Framework

Davey: We have full flexibility over how the Levy Control Framework is spent to make sure we can meet our 15% Renewable Energy Directive target. We haven’t decided what the mix could be. It’s unlikely to [be spent entirely on wind] but clearly wind is going to get quite a lot as our Renewable Energy Roadmap envisages a great deal of offshore and onshore wind by 2020.

I will write a letter to National Grid next year to give them guidance over their first CfD delivery plan. Within that I will give them guidance to make sure we’re on the least cost pathway to 2050. Many consider the MARKAL model to be the least cost pathway with significant power decarbonisation. I will not be mandating them but I will be giving them clear guidance.  This is what I agreed with the Chancellor.

3. On a decarbonisation target

Davey: I’ve made the case for a target and as part of our agreements with the Chancellor we’ll be bringing forward amendments to give powers to set that. But the target will be set in 2016 when the Fifth Carbon Budget is set for the whole economy, not just for the power sector.

Linked to the guidance I’ll be giving to National Grid, I think this approach will give the signals the industry are looking for. Our central modelling, which is the least cost path to 2050, is 100g/kWh in 2030, but we are modelling 50g/kWh and if you had an endgame of 200g/KWh.

4. On energy efficiency ‘negawatts’

Greg Barker: It’s very difficult. The concept of the negawatt – that the cheapest unit of energy is the one you don’t use – is very simple. But actually creating an at-scale system which places value on that, which can be verified, traded and brings genuine additionality at scale is really difficult.

Britain could be a ‘World Leader’ in this and I want us to go beyond California and Japan and establish a new benchmark for delivering energy efficiency. But don’t let anyone tell you it is easy. Getting down to the nitty gritty is really, really difficult and I don’t underestimate the challenge.

5. On onshore wind ‘targets’

Davey: There are no targets in the Renewable Energy Roadmap, there are pathways and aspirations. We don’t micro-manage where all those private investors put their money.

Both John and I have been saying that we will meet our onshore wind aspiration but different people like to report our words slightly differently.

We are not dictating the mix of renewables now or in the future. This is not a statist approach saying ‘We’ll have 5 GW of this, 6 GW of that and 7 GW of the other’. We are moving towards the market deciding the amount of onshore wind in the 2020s.

6.  On whether the Energy Minister dislikes onshore wind

John Hayes:  There are issues about community consent and I’ve always said that there are issues about the aesthetics and the relationship between localities. The planning system takes into account the concerns between any development and its locality.

7. On shale gas

Davey: The Chancellor will have a number of things to say about shale gas in next Wednesday’s Autumn Statement. The Cuadrilla decision [to permit the resumption of hydraulic fracturing, aka fracking] is mine to make on an almost quasi-judicial basis and we haven’t set a date for that, and I’m not prepared to give a date for that.

There are certain things I have to have and things I have to go through in the proper process before I make that decision. I am going through that process now.

8. On a capacity market

Davey: We think the evidence for a capacity market is extremely strong. If you don’t have intervention we will have very expensive peak prices. A capacity market would reduce those peaks and offset the capacity payments.

We haven’t yet decided to introduce it because we want to see more evidence before we make a final decision next year.  This is a major intervention and it’s absolutely sensible we wait for further advice from National Grid and Ofgem.

9. On the impact on consumer bills

Davey: By 2020 the impact on consumer bills will be £94 a year. Our latest estimate suggests our energy and climate change policy will see bills down £95 by 2020 than they otherwise would have been. The cost of exempting energy intensive users from CfD levies would be socialized across the rest of business and consumers.

Barker: There’s a difference between prices and bills. It is misleading to focus only on price. In Germany, prices are higher but bills are about the same as the UK because they use less energy. In the 21st century you have to incorporate usage and efficiency alongside price.

10. On whether an exemption for energy intensive users disincentivizes investment in on-site power

Barker: We are the early stages of a renaissance of industrial CHP. Yesterday I had a meeting with Business Minister Michael Fallon and the Economic Secretary to the Treasury [Chloe Smith] to think at a strategic level specifically to drive CHP and embed on-site generation in the economy.

01.09.12
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The Rough Guide to Community Energy – free book

Rough Guides has published a new book titled The Rough Guide to Community Energy.

With financial backing from retailer Marks & Spencer and distribution by energy efficiency pressure group 10:10, the new book is being distributed for free to encourage Britons to launch carbon-cutting and renewable-energy projects in their local communities.

The Rough Guide to Community Energy is a ’how-to’ guide for community energy projects, covering everything from setting up a group to picking a renewable technology, as well as providing advice on finances and governance. The book features many case studies of community energy projects, including wind, solar PV, solar thermal, heat pumps, biomass, hydro, CHP and energy efficiency.

The book can be downloaded here: The Rough Guide to Community Energy (2.74 MB PDF; right click and select ‘Save target as…’ to download)

Printed copies are also available for the price of two first-class stamps and an A5 envelope. To receive a printed copy, simply send a self-addressed A5 envelope with two first-class stamps to the following address:

Community Energy book

10:10

8A Delancey Passage

Camden Town

London NW1 7NN

12.05.11
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Vattenfall abandons 500 MW Jaenschwalde carbon capture plant in Germany

Vattenfall was to retrofit a 250 MW coal unit with post-combustion CCS and build a new 250 MW Oxyfuel unit at a cost of €1.5 billion. Courtesy Vattenfall

Swedish power utility Vattenfall has abandoned a planned 500 MW carbon capture and storage (CCS) plant at Jaenschwalde, Germany, expected to cost €1.5 billion, after the German federal government rejected a bill allowing underground carbon storage.

The 500 MW CCS demonstration project was to utilize a new 250 MW Oxyfuel boiler and see another 250 MW boiler retrofitted with a post-combustion capture unit. The EU-supported project would have been operational by 2015/16.

In July, Germany’s lower house approved a bill allowing the underground storage of carbon dioxide but it was rejected by the upper house on September 23. Following the rejection of the bill by the Bundesrat, a mediation committee was formed, which adjourned twice in November without result.

In a statement, Tuomo Hatakka, Vattenfall´s country manager for Germany, said: “We must unfortunately accept that there is currently insufficient will in German federal politics to implement the European directive so that a CCS demonstration project in Germany could be possible.”

Hatakka said that a clear legal framework was needed and the existing draft for the CCS law is, without substantial improvement, insufficient for multi-billion investments in further development of carbon capture technology.

The Swedish state-owned utility said it would continue to further development of CCS. Vattenfall is a main partner in UK’s largest CCS pilot plant at Ferrybridge Power Station in West Yorkshire, which opened 30 November.

The company said it will also continue the test operation of the CCS pilot plant at Schwarze Pumpe, Germany, and work for the development of a European storage infrastructure.

12.02.11
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Point Carbon slashes Phase III EU ETS carbon price prediction by €10/tonne on Eurozone woes

 

Point Carbon predicts an average EU ETS carbon price of just €12/tonne for Phase III

The average EU Allowance (EUA) price in the third phase of the EU’s Emissions Trading Scheme (EU ETS) will be €12/tonne, predicts Thomson Reuters Point Carbon.

The most depressed price levels will probably be seen in the 2013-2015 period when the average price of EUAs could drop to as little as €10/tonne before rising again in the 2018-2020 period, reaching €16/tonne in 2020 on the basis of a tightening supply-demand balance.

The €12/tonne figure is €10/tonne less than Thomson Reuters Point Carbon’s July 2011 forecast and barely more than a third of the forecast issued this time last year.

“The main reason for this drastic change is the global economic crisis which has multiple impacts on the global carbon market”, explains Anne Kat Brevik, Commercial Manager at Thomson Reuters Point Carbon.

“Not only do we see industrial output and associated emissions down – we predict by some 700 Mt for the period up to 2020 – but also we see governments recoiling from taking tougher climate action in the wake of domestic economic hardship”. Just four months ago it seemed likely that the EU would adopt a 25% emissions reduction target for 2020, “however, the new forecast is now based on a 20% emissions reduction scenario, which we consider a more realistic outcome given today’s severe sovereign debt crisis in the EU, resulting in the market being long in EUAs in the third phase”, she said.

However, any final decision on the overall emissions reduction target will likely not be taken before the start of phase 3, and the option to agree on a 25% target will most likely remain on the table for the next few years.

According to Marcus Ferdinand, Senior Carbon Analyst at Thomson Reuters Point Carbon, “despite these very gloomy predictions, we do not expect prices to deteriorate further in the short term, partly because the power and heat sector still needs to buy credits on a continuous basis in order to back-up their future power sales and partly because as long as a possible move beyond a 20% target still exists, we assume that this inherent uncertainty will deter the industry sector from selling off their entire length.

“As the emissions trading scheme continues beyond 2020, with a steadily decreasing allocation, operators can also bank allowances to meet future compliance needs instead of selling off the surplus at low prices in the short term”.

That said, if the current debt crisis does lead to financial markets drying up, pronounced industrial selling would likely ensue as industrial installations attempt to monetize their EUA length in order to boost cash flow. “If such a situation should materialize, we could see a further substantial drop in EUA prices”, Ferdinand conceded.

11.21.11
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Tea tariffs: How much it costs to make a cuppa

Ever wondered how much it costs to boil the kettle when making your cup of tea? Well, Andrew Moir of bigmouthmedia has been in touch to let you know. Working with price comparison site Confused.com, bigmouthmedia came up with this graphic, comparing each of the Big Six’s prices with those of Europe (as of November 2011) to show the annual cost of making five cups of tea a day.

Do Britons really have it so bad when it comes to rising electricity prices? Courtesy Confused.com, bigmouthmedia

10.28.11
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Is carbon capture & storage a dead parrot?

Carbon capture and storage has to overcome fundamental technical and regulatory barriers to become a viable commerical proposition

As part of researching a forthcoming Gas Turbine World article about retrofitting CCS for gas-fired power plants, last night I attended a ‘Green in the City’ panel discussion put on by EcoConnect to discuss the future of carbon capture technology. Attendees would be forgiven for thinking carbon capture has no future.

There is no shortage of financing available for CCS. Norway has called CCS its “moon landing” and has state oil company Statoil on the case. The EU’s NER300 programme to fund at least eight CCS demonstration projects is worth around €3-4 billion. In the UK, the Government’s £1 billion pot funded out of direct taxation to pay for up to four CCS projects remains unspent after it pulled the plug on Scottish Power’s Longannet scheme.

CCS is seen as essential for the decarbonisation of the power sector. As Klaus Lackner, Professor of Geophysics at Columbia University, said: “Either you have CCS, or you deny climate change. Or you abandon fossil fuels.” Difficult to argue with. But is the solution to decarbonizing the power sector piping CO2 hundreds of miles out to sea, sticking it under the seabed and putting a big plug on top? And should it need a carbon price of $200 per tonne to be economically viable, as Lackner suggests?

According to Dr. Alan Knight OBE, a former chair of the UK Government’s Roundtable on Sustainable Consumption, no. Knight sees CCS as little more than convoluted landfill. “The big companies like Google are not turned on by carbon landfill,” he said. “Isn’t it better to create commercial products with CO2? Those carbon molecules are an exciting resource for fuel security and food security.”

Far better to give the £1 billion from the CCS pot, says Knight, to projects of the type mentioned in the articles here, here, here and here.

I digress. Besides the cost of building carbon capture units, the operational costs, the thermal efficiency penalties and other engineering drawbacks, the other crucial element of CCS – storage – appears to have been overlooked. This is a shame says Dr. Ward Goldthorpe, who heads up the Crown Estate’s CCS programme, because the amount of CO2 to be stored to hit IEA 2050 carbon targets requires infrastructure three times the current size of the entire European gas industry.

The problems of storing CO2

There’s a general impression that captured carbon dioxide can be easily transported across the existing natural gas pipeline infrastructure, swapping CH4 for CO2. That could be highly dangerous, according to the UK Health and Safety Executive, due to highly corrosive ‘dense phase’, pressurized CO2.

The problem is that CO2 captured from power plants always contains moisture. Wet CO2 is very acidic and the potential for corrosion, leakage and even explosions is such that either the CO2 will have to be dried, which imposes a further efficiency penalty, or the pipelines have to made from corrosion-resistant steel. Both techniques could be prohibitively expensive.

The FEED study of the UK’s failed Longannet project is quite an eye-opener.  Anyone who thinks Norwegian Prime Minister Jens Stoltenberg was exaggerating when he likened CCS to landing on the moon should have a look at the Longannet ‘Post-FEED Top 50 Risks’ document. Notice how many of the Top 10 concern CO2 storage.

While Europe is relatively advanced in CO2 storage, namely the Norwegian enhanced oil recovery (EOR) projects, a huge amount of technical work needs to be done for regulating CO2 with impurities, i.e. water, says Goldthorpe. “The regulatory framework is essentially adapted from the US petroleum industry, but a lot of CO2 transport in the US is pure CO2. Devising standards for the CCS industry that can cope with CO2 plus impurities is still a work in progress.”

Goldthorpe says the major stumbling block for CO2 storage from power plants is the total lack of a value proposition. “Unlike the EOR projects in the US, we are trying to implement in one fell swoop integrated CCS projects with no associated value proposition at all. The public funding is not prepared to underwrite the awkward risk-sharing and liability issues which pop out of the integrated model.”

DECC says “developing storage sites may be an uncertain, potentially time-consuming, costly and risky business opportunity”. That’s putting it mildly. But if CCS is to take off, these issues need urgent addressing. Is it worth the expense?

10.21.11
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Shale gas in the UK: Why Chris Huhne is not screaming “Frack, baby, frack!”

UK energy secretary Chris Huhne (right) is wary of another dash for gas

The UK Department of Energy and Climate Change’s (DECC) response towards recent domestic shale gas developments has been notably reserved and avoids the partisan hyperbole of environmentalists and oil & gas industry players alike. Why? Isn’t shale gas the best thing since sliced bread?

In case you hadn’t heard, Cuadrilla Resources, a joint venture between Australian drilling firm AJ Lucas and private equity firm Riverstone, announced on 21 September that the Bowland sedimentary rock basin in Lancashire, for which it holds shale gas exploration licenses, holds a total potential resource of 200 trillion cubic feet of gas, or more than ten times existing UK natural gas reserves.

It must be stressed that Cuadrilla’s estimate is for ‘gas in place’ in the Bowland Basin and not reserves. It is very much a guesstimate calculated, in a nutshell, by multiplying the area of shale rock by an average figure of how much gas could be extractable from this particular type of shale.

Since Cuadrilla’s announcement last month, there has been a plethora of newspaper and radio reports in the British press, most focusing on how shale gas is a potential ‘game-changer’, a lifeline in hard economic times much like North Sea oil in the 1970s and 1980s. A prominent former energy minister, Nigel (now Lord) Lawson called shale gas “the most exciting technological development [in energy] I can ever recall”.

The current administration, however, does not seem to share the belief that shale gas is manna from heaven. Furthermore, due to land ownership rights – UK shale rock belongs to the Crown Estate and not whoever owns the land above – it expects shale gas development to be substantially limited compared to the United States, where it really has been a game-changer. Energy minister Charles Hendry MP says: “There has been only very limited interest in shale gas, and there is only one drilling application at the moment, with Cuadrilla.

“It has potential for the United Kingdom but the issues here are very different from those in the United States in terms of land ownership rights, which I think will impede its development here compared with the rate in the US. It has a potential role to play, but it will be done within very strict environmental constraints.”

Sensible stuff. There is huge controversy over fracking. Of most concern is evidence that hydraulic fracturing, or ‘fracking’ – essentially pumping lots of water, sand and chemicals at high pressure to fracture shale rock – causes earthquakes and contaminates the water table. The British Geological Survey has suggested that two fracks at depths of 2.0 and 2.7 kilometres did cause two small earthquakes earlier this year, leading DECC to place a moratorium on it. DECC met with Cuadrilla on 13 October to discuss how the developer intends to mitigate this risk of earthquakes.

A call by Millicent Media to DECC earlier this week confirmed the department has received a report from Cuadrilla and that it is currently under review with the BGS. Sadly, DECC couldn’t confirm a deadline for a decision on whether or not to lift the ban on fracking. My hunch is that the evidence on earthquakes and fracking will be inconclusive and DECC may allow Cuadrilla to resume exploration – but not to commence exploitation – with some caveats attached.

Impact on renewables?

There is also fear that shale gas will derail plans to decarbonize the UK power sector by choking investment in renewables and nuclear. The argument goes that shale gas, and therefore gas-fired power generation, is cheap, so there is no need to build expensive wind farms, solar panels or nuclear reactors.

It ain’t necessarily so. While shale gas potentially offers a major boost to the UK economy, not least in tax revenues, gas is traded internationally and linked to oil prices. Cheap gas does not automatically mean cheap electricity; Italy is heavily reliant on gas for power (60 per cent of generation) and it has the highest electricity prices in the world.

Secretary of state for energy Chris Huhne MP is sceptical of suggestions of cheap gas and is wary of another Lawson-style dash for gas. Speaking at a press conference on 20 October to announce changes to renewables subsidies he said: “There are great uncertainties over the future of fossil fuel prices. If there is a [University of Oxford professor of energy policy] Dieter Helm-world with a massive fall in the cost of gas, then we will need a policy which supports substantially more gas with CCS in the generation mix.

“If we will live in a very high fossil fuel price world – and there are analysts who suggest that’s more likely – then the UK needs to have more renewables and more nuclear. UK energy policy has to be robust to these types of uncertainties.

“These polices are not mutually exclusive. Like with pensions funds, you don’t put all your eggs in one basket. You don’t bet the farm on one particular technology or scenario. To have energy security, low-carbon and affordability we need to spread our bets.”

10.19.11
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“Show us the money” says Alstom after Scottish Power’s Longannet CCS project collapses

Alstom, Drax and National Grid have proposed building a 426 MW gross oxy-fuel CCS plant at the 4 GW Drax coal plant.

French power OEM Alstom wants part of a £1 billion UK Government pot to fund carbon capture and storage (CCS) projects for its proposed 426 MW oxyfuel project at Drax power station after Scottish Power’s Longannet project collapsed.

On 19 October the UK’s Department of Energy and Climate Change (DECC) announced Scottish Power’s £1 billion scheme to build a 300 MW demonstration unit at the 2400 MW Longannet coal fired power plant had collapsed after the utility demanded an additional £500 million to secure 100 per cent project financing. Energy secretary Chris Huhne said: “A decision has been made not to proceed with Longannet but to pursue other projects. One billion pounds will be available for a new process and we are expecting a number of promising bids from both Scotland and England.”

Philippe Paelinck, Alstom’s director of CO2 business development, told Millicent Media that DECC should consider investing in its planned stand-alone 426 MW oxy-fired CCS plant at Drax’s 4 GW coal plant site at Selby, North Yorkshire.  As part of the project National Grid and an offshore partner would develop a transmission system out to the southern North Sea where the CO2 would be stored permanently.

“The UK government should give us the money from the Longannet plant so we can build the Drax project,” he said. “We are ready to go. Longannet was looking for 100 per cent financing and Scottish Power is worried about its coal assets,” he said.

Paelinck said the collapse of the Longannet project was symptomatic of the parlous state of European utilities’ balance sheets. “It is a sign of the current weakness of European utilities. It is increasingly difficult for European utilities to make such bold investment decisions. Their business model has been chewed up by all kinds of measures like nuclear phase-outs, increased penetration of renewables, carbon taxes and so forth. It is not a good climate to make big investment decisions [for CCS].”

The Alstom executive remains optimistic about the prospects for CCS despite the latest setback. “I am not worried about CCS being pushed out in favour of cheaper alternatives, ” he said.

“From our discussions with DECC we see a strong will to decarbonize the power sector and I do not see their stamina sapping. We are having some confidential discussions with utility customers about retrofitting a full-size power plant with CCS and we may see some new projects popping up in the coming months.”

10.12.11
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SSE’s wholesale market auctioning – Heads they win, tails we lose

SSE's chief executive Ian Marchant has made a game-changing move. But will it pay for consumers?

The decision by Scottish and Southern Energy (SSE) to auction 100 per cent of its power generation reflects a growing realization among the so-called ‘Big Six’ UK utilities that the status quo is finished, the game is up.

Consumers, regulators, politicians and pressure groups have been keen of late to put the boot into energy companies, who have never been among the most popular corporate entities at the best of times.

Presently, the Big Six are under investigation for illegal door-stop selling practices; statutory regulator Ofgem, via forensic accountants BDO, is investigating how they make their profits; they’ve been threatened with an anti-trust Competition Commission investigation; and in his recent Conference speech Labour leader Ed Miliband MP singled out energy companies as prime examples of anti-social businesses and demanded an end to their “rigged market”. And all the while, EU energy commissioner Guenther Oettinger has made repeated noises about the need for a single European electricity market.  

So, tired of having to defend SSE against accusations of profiteering after yet another biannual double-digit price rise, SSE’s chief executive Ian Marchant has decided to “open up” the market by auctioning 100 per cent of its power output on the day-ahead wholesale market. Exactly as Ed Miliband wished.

Will it be a good deal for consumers?

Marchant says full auctioning will provide transparency, thus disproving consumer groups’ claims that wholesale price movements cause retail prices to, in Ofgem’s words, “go up like rockets but fall like feathers”.

Some believe 100 per cent auctioning all electricity would spell the end of the Big Six vertically-integrated business model. However, Marchant told the Financial Times that the case for a single company both generating electricity and supplying customers will remain compelling, as higher wholesale prices squeeze retail profits, but help the generation side.

In other words, heads they win, tails we lose. One analyst told Millicent Media: “It is a smart move by SSE which Ofgem and government will take ages to work out the full ramifications of and do anything about. SSE will just write CfDs [contracts for difference] between their generation and supply businesses.

“If one of the Big Six sells its power at the highest price to another supplier its generation business wins. If it sells it at a lower price then its retail business wins because it will pass all of the generation costs on to customers,” the UK-based analyst added.

It is unclear how the Big Six selling their own power to their own traders on the wholesale market will necessarily lead to lower retail prices for consumers. Furthermore, whether or not SSE’s idea will improve liquidity for non-Big Six players is moot. There are other factors involved like credit requirements.

It may still be necessary for the Big Six, who account for 99 per cent of the UK market, to give up their cherished vertically-integrated business model. Something Marchant’s decision may have been calculated to avoid.