cursory revision

cursory revision
The Energy
Challenge
ENERGY REVIEW
A Report
JULY 2006
The Energy Challenge
Energy Review Report 2006
Department of Trade and Industry
Presented to Parliament by the Secretary of State for Trade and Industry
By Command of Her Majesty
July 2006
Cm 6887
£22.00
© Crown copyright 2006
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Contents
Foreword by the Rt Hon. Tony Blair MP
4
Preface by the Rt Hon. Alistair Darling MP
8
Introduction
Executive Summary
Chapter 1: Valuing Carbon
Chapter 2: Saving Energy
Chapter 3: Distributed Energy
Chapter 4: Oil, Gas and Coal
• International Energy Security
• Oil and Gas
• Coal
• Energy Imports
Chapter 5: Electricity Generation
• Renewables
• Cleaner Coal and Carbon Capture
and Storage
• Nuclear
Chapter 6: Transport
Chapter 7: Planning for Large-scale Energy Infrastructure
Chapter 8: Meeting Our Goals
Chapter 9: Implementation
10
12
27
36
61
77
78
83
84
86
92
98
107
113
126
134
149
156
Annexes
161
3
Foreword by the
Rt Hon. Tony Blair MP
A clean, secure and sufficient supply of energy is
simply essential for the future of our country. We
need energy to heat and light our homes, to power
our businesses and to transport people and goods.
Without it, we could not function as an economy or
modern society. Even minor disruptions in supply,
after all, can cause major problems for communities
and businesses. Ensuring we have a sustainable,
secure and affordable energy supply is one of the
principal duties of Government.
As a nation, we have been fortunate up to now that our energy needs have
been met largely from domestic sources. Coal, with oil and gas from the
North Sea more recently, have driven our economy. Investment in nuclear
power has also provided a significant proportion of our electricity.
But we now face two immense challenges as a country – energy security
and climate change.
First, we will soon be net importers of oil, and dependent on imported gas at
a time when global demand and prices are increasing. Energy consumption
by China and India, for example, is projected to double by 2030. At the same
time, many of our coal and nuclear power stations are coming to the end of
their lives. Without action to ensure reliable supplies and replace power
plants, there will be a dramatic shortfall in our energy capacity and risks to
our energy security.
Second, and even more important in the long term, is the impact that our
sources and use of energy are having on our planet. The evidence is now
compelling that the activities of humankind – and greenhouse gas emissions
in particular – are changing the world’s climate. Temperatures are rising and
so are sea-levels. Extreme weather is becoming more common.
There is no scientific consensus yet on how much time we have to avoid
dangerous irreversible climate change. But the overwhelming majority of
experts believe climate change is already underway and, without collective
action, will have a hugely damaging effect on our country, planet and way
of life.
The prime source of greenhouse gas emissions is the production and use
of energy. If we are serious about tackling climate change, the centrepiece
of our programme – in the UK and across the world – must be in ensuring
we power our economy and way of life in a cleaner, greener and more
efficient way.
4
Department of Trade and Industry THE ENERGY CHALLENGE
Overcoming these two major challenges – which are faced across the world
– will require hard decisions both nationally and internationally. It was to
consider our energy needs and to come up with long-term sustainable
solutions that the Government set up the energy review last year. Its findings
are the basis for this report.
The review underlines the fact that there is no simple, single solution to
the energy challenges that we and other countries face but that a balanced
approach, driven by technological advances and increased efficiency, will
be needed. It also sets out a framework of action at home and abroad to
strengthen our energy security.
It is clear that we must significantly increase investment in, and support for,
renewable energy so that it plays a larger role in our energy needs. This is
vital not just to give us a secure source of energy but also to meet our
obligations to our children to tackle climate change. It is for the same reason
that much greater emphasis must be given to finding alternatives to oil as an
energy source for transport.
This document sets out how this can be done. But it also makes clear that
wind, wave or solar power, let alone less established technologies, are not yet
enough by themselves.
We need, as well, to put a much greater emphasis on the efficient use of
energy. Such changes not only cut bills for organisations and families but also
cut carbon emissions. The review sets out an ambitious strategy for securing
more of the heat, light and power we need in ways that reduce the demand
for energy and how now we can do much more to encourage its smarter and
more efficient use.
This is not just a task for government, although government must give a lead.
We will provide incentives to use cleaner fuels, work with power producers to
provide more information about the costs and impact of energy use and with
manufacturers and retailers to phase out energy inefficient products.
In the end, however, we must all – government, business and individuals –
play our part by changing behaviour. If enough of us do, even small changes
can make a big difference. If every UK household installed just three energy
efficient light bulbs, the electricity saved would supply all our street lighting.
But neither renewable energy nor greater energy efficiency can provide the
complete solution to the shortfall we face. This will depend on securing
energy supplies from abroad, in new nuclear power stations to replace those
becoming obsolete and replacing older coal-fired stations with cleaner, more
efficient technology.
5
Foreword by the Rt Hon. Tony Blair MP
The review also calls for more effort to encourage and support the local
generation of power. There is significant potential in the future to use smallscale local generation to provide affordable and reliable energy. All this is
important both for limiting our dependence on imported gas and for tackling
climate change.
Important as national measures are on climate change, it is only acting on an
international basis that effective action can be taken. The UK, for example,
only accounts for some 2% of global carbon emissions which are expected to
rise by another 50% by 2030. It is vital, therefore, that the UK continues to
give a lead internationally and to push for a post- 2012 framework that
includes China, India and the US.
The scale of the challenges we face, both domestically and
internationally, is great. The proposals included in this report set out
how we can overcome them to secure our country’s future prosperity
and the health of our planet.
6
Department of Trade and Industry THE ENERGY CHALLENGE
7
Foreword by the Rt Hon. Tony Blair MP
Preface by the
Rt Hon. Alistair Darling MP
Energy is essential to just about every aspect of
our life and to our continued economic prosperity.
But today, we face two big challenges: climate
change and security of energy supplies.
Without urgent action, at home and abroad, we
face a damaging rise in temperature bringing with
it a huge threat to our planet.
At the same time, the UK is entering a new era for
energy supplies. For years, we have been selfsufficient in gas and oil, thanks to North Sea production. There are still many
years of production there, but in future, we will increasingly depend on
imports to meet demand. That is why it is so important to look for ways to
cut demand for energy. Our aim must be to grow our economy whilst cutting
waste and using every unit of energy as efficiently as possible.
In the UK it is estimated there is scope for saving many million tonnes of
carbon dioxide each year through energy efficiency measures – from smart
metering and energy saving lightbulbs, to a radical scheme to incentivise
suppliers to save their household customers energy.
But this is only part of the story. We also need to look at the nature of the fuel
we use. It is essential that we get the incentives right now for investment in
low-carbon options, from offshore wind to tidal power, and even cleaner fossil
fuels. Carbon capture and other measures could help us do more to reduce
harmful emissions.
The mix of energy supply in the UK has served us well over many years. And
that is essential for the future too. Cleaner coal, oil and gas, more renewable
sources of energy. But we also need to look at nuclear power. It currently
provides almost 20 per cent of the country’s electricity needs, but most of
these power stations are scheduled to close over the coming two decades.
A good deal of our coal plant will also close. In the near term, some of this
capacity will be replaced by renewables. Some of it is also likely to be filled
by gas. But, if we do nothing, the reality is we will have to rely increasingly
on gas. The Government believes nuclear has a role to play in the UK not
only in reducing emissions but also to maintain the diversity of our electricity
generation mix.
8
Department of Trade and Industry THE ENERGY CHALLENGE
Transport accounts for around 30 per cent of the total UK energy use, and
around a quarter of carbon emissions. The Review includes a number of
measures. If, to take one example, we were to double the use of biofuel,
this could save another 1 million tonnes of carbon a year by 2015, equivalent
to taking a million cars off our roads.
We also need to tackle problems with getting planning consent. We have
a responsibility to ensure that our planning system deals with investment
proposals in an efficient and timely way. Proper scrutiny and challenge will
remain essential, but it is time to overhaul the present planning system.
Full implementation of the proposals and potential further measures set out
in this report will get us on course to making real progress in emissions
reductions by 2020.
They make a substantial contribution to meeting the challenge of climate
change and of providing the cleaner and secure supplies of energy we need.
9
Preface by the Rt Hon. Alistair Darling MP
Introduction
Energy is a vital part of every aspect of life in modern Britain. The
Government has four long-term goals for energy policy:
• To put the UK on a path to cut our carbon dioxide emissions by some 60%
by about 2050, with real progress by 2020;
• To maintain reliable energy supplies;
• To promote competitive markets in the UK and beyond, helping to raise the
rate of sustainable economic growth and to improve our productivity; and
• To ensure that every home is adequately and affordably heated.
In November 2005 the Prime Minister announced a major review of the
country’s progress on achieving these goals. The Review has been led by
Malcolm Wicks, the Minister for Energy. This document is the Review’s
conclusions and it will be followed by a White Paper around the turn of
the year.
We face two major long-term energy challenges:
• Tackling climate change, along with other nations, as global carbon
emissions from human activity continue to grow; and
• Delivering secure, clean energy at affordable prices, as we become
increasingly dependent on imports for our energy needs.
The scientific evidence for climate change, caused largely by the build-up of
carbon dioxide and other greenhouse gases in the atmosphere, continues
to strengthen. Without urgent action, there will be a damaging rise in
temperature. Some 70% of global emissions come from the way we produce
and use our energy. So energy policy has a vital part to play in tackling
climate change.
If we are to effectively tackle climate change we need a global response
with national governments taking action. We made progress last year at
Gleneagles and Montreal. But we now need to accelerate discussions on a
future framework for after 2012. Time is short. The UK is committed to the
EU’s 2 degrees Celsius objective which remains a valid objective in terms of
avoiding dangerous global climate change impacts. In the next 12 months we
need to begin to build a global consensus about the scale of the action we
need to take, and the long-term goal we’re all working towards.
The UK is entering a new era for our energy supplies. The North Sea has
given us self-sufficiency in oil and gas, but this is now changing. In the future
we will increasingly depend on gas imports to meet demand and by the end
of the decade we will become a net importer of oil.
10
Department of Trade and Industry THE ENERGY CHALLENGE
These developments are unfolding against a backdrop of rising global demand
for energy as India, China and other countries rapidly grow their economies.
Global demand for natural gas is projected to increase nearly twofold by 2030.
The main reserves of oil and gas are concentrated in a few regions of the
world: Russia, Central Asia, the Middle East, and Africa. Two countries –
Russia and Iran – account for nearly half the world’s proven gas reserves.
With energy demand growing, there is a risk that supplier countries don’t
make sufficient or timely investments to increase output to meet demand.
There is growing competition between countries to secure energy supplies.
And, of course, there are risks of political instability and weaknesses in
governance.
As world demand for energy grows, national access to adequate energy
supplies will become an increasingly important strategic objective. It is critical
that the UK has access to the energy we need to support our economic
prosperity. We must be alert to any steps by other nations to deny fair and
open access to energy reserves.
Combined with a strong international policy, we must promote the growth of
our own home-grown energy resources – from maximising output from the
North Sea to microgeneration (small scale generation of heat and electricity
for homes or buildings).
We believe that the UK’s framework of competitive markets, regulation and
public policy is sound, but we have concluded that within that framework
there is a need for new policy initiatives if we are to meet the very significant
challenges we will face in the coming decades.
This report sets out the next steps we need to take in responding to the
energy challenges facing the United Kingdom. It makes a number of proposals
for actions to be taken now, identifies proposals on which Government
intends to consult further, and indicates areas where Government considers
there is further work to be done. In doing so it explains how we will work
with the devolved administrations to identify action in areas of devolved
responsibility which will help us achieve our shared goals.
As we build our energy future, it will be vital to ensure that the talents of our
science base help us achieve our energy goals to reduce emissions and
maintain reliable supplies. We therefore announced in the 2006 Budget that
we shall establish a National Institute for Energy Technologies.
11
Introduction
Executive Summary
The Carbon Challenge
The world’s economies need to get on a path to being significantly less
carbon-intensive. This means using less energy in our products and services
and changing the way we produce energy so that more of it comes from
low-carbon sources.
A key step to achieving this in Europe has been the introduction of the EU
Emissions Trading Scheme (ETS). By putting a price on carbon it creates a
strong economic incentive for more energy efficiency and investments that
help reduce carbon emissions. The Government is determined to ensure that
the EU ETS develops into a credible long-term international framework for
pricing carbon.
To achieve this we are working with the European Commission on proposals
for the third phase of this Scheme – which should be more ambitious in
reducing carbon across the EU than previous phases – to begin in 2013.
We need a strengthened ETS; key to this is signalling the direction of EU
emissions reductions over a longer period into the future than the five years
in phase II. This will give more certainty to companies planning long-term
investments in power stations and other energy intensive assets. We will
keep open the option of further measures to reinforce the operation of the
EU ETS in the UK, should this be necessary to provide greater certainty
to investors.
On present policies, the UK is on course to exceed its target under the first
commitment period of the Kyoto Protocol, which is to cut greenhouse gas
emissions by 12.5% on 1990 levels throughout the period 2008-2012. The
welcome strong performance of the UK economy over the past nine years
has, however, led to growing energy consumption. This growth combined
with higher levels of electricity generation from coal has led to higher carbon
emissions in the UK. So we now need to take further action to help us move
towards the goal of cutting carbon emissions by 60% by 2050.
Saving energy
The starting point for reducing carbon emissions is to save energy. The
challenge is to secure the heat, light and energy we need in our homes
and businesses in a way that cuts the amount of oil, gas and electricity
we use and the carbon we emit.
12
Progress on energy efficiency requires all of us – companies, individuals and
Government – to recognise that we have a role to play. The main obstacles
to the take up of energy efficiency are lack of information about costs and
benefits, absence of appropriate incentives, and lack of motivation among
consumers. We propose measures that will provide individuals and companies
with more information and clearer incentives to make better use of energy.
Department of Trade and Industry THE ENERGY CHALLENGE
In total by 2020, we estimate the measures we propose on energy efficiency1
could be a saving of 6 – 9 MtC (million tonnes of carbon), around 4 – 6% of
our total emissions in 2005, on top of the 12 MtC saving that will come from
the policies announced in the 2006 Climate Change Programme by 2010.
In our homes people need more information about the amount of energy
we use and its environmental impact. We should require energy suppliers
to provide their customers with more information about their energy use over
time and advice on saving energy. There are other tools coming that will also
help householders. Trials are starting this year to test the impact of a range of
modern technologies in providing real-time information to households about
their energy use. And the new Home Information Packs, provided to all new
buyers and tenants, will include comprehensive data on the energy efficiency
of the house.
We will lead a drive to raise basic standards of energy efficiency. Working
with other governments, manufacturers and retailers, we will seek to phase
out the least efficient light bulbs, remove the most inefficient white goods
from the market and limit the amount of stand-by energy wasted on
televisions, stereos and other consumer electronics.
We are already building new homes that are much more energy efficient
than previously. For example, new homes use around a quarter of the energy
to heat and light compared with the average existing home. We will put in
place measures to take us towards our long-term ambition of making all
new developments carbon neutral. These measures will provide strong
support for the use of on-site electricity generation, such as solar panels or
mini wind turbines.
And we are proposing to look at how we can radically transform the role of
energy supply companies so that they have strong incentives to work with
their customers to get more out of the energy we use in our homes, rather
than simply selling more energy.
The EU Emissions Trading Scheme and the Climate Change Levy are the key
instruments to encourage business to save energy and cut emissions. But
there is wide potential to make cost-effective energy savings – around 1.2
MtC by 2020 – in many businesses and public services not covered by the EU
ETS and we will bring forward proposals to incentivise making those savings.
We shall consult on a proposal for a mandatory emissions trading scheme –
an Energy Performance Commitment – alongside other options, for achieving
our carbon reduction aims in this sector.
Government too has to change its behaviour and take energy efficiency even
more seriously in the buildings and operations it is responsible for. We will
change the way Government procures buildings, goods and services in order
to reduce energy use across the central Government estate. We aim to make
the central government estate of buildings carbon neutral by 2012, with any
shortfall to government targets ‘offset’ by payment into a central fund and
ploughed back into sustainable energy projects.
1 Including carbon savings from recent announcements on carbon neutral developments and carbon neutral
Government.
Executive Summary
13
Energy saving measures will also help us meet our security of supply
objectives. For example, the proposals outlined in this paper will reduce gas
consumption by between 11 and 15 billion cubic metres in 2020 (roughly
10 – 13% of expected gas consumption by 2020).
More energy efficient transport
Transport accounts for around 30% of total UK energy use (mostly from oil)
and around 25% of UK carbon emissions. Emissions from road transport in
the UK are projected to peak around 2015 and thereafter fall as growth in
demand for transport moderates, fuel efficiency in transport continues to
improve and we start to use more lower-carbon fuels, especially biofuels.
However, there may be more cost effective opportunities to save carbon in
the longer term as new technologies are developed and applied.
Government has established the principle that fiscal measures can play a part in
achieving our environmental goals and will continue to examine how fiscal and
other policy instruments can achieve these aims. Company Car Tax and Vehicle
Excise Duty have already been reformed to reflect this, and combined with
savings expected from the Voluntary Agreement on new vehicle fuel efficiency,
these measures are expected to deliver reductions of 2.3 MtC in 2010.
We will continue to press the European Commission to seriously consider the
inclusion of road transport in the EU Emissions Trading Scheme, potentially
saving between 4 and 7 MtC in 2020. And we are working to get aviation
included in the EU ETS as well.
We are also pressing for new EU targets on new car fuel efficiency to be
finalised as soon as possible. We believe the Commission should consider all
options for ensuring these targets are met, including mandatory targets with
trading. We will also seek to raise awareness amongst consumers so that
they can make informed choices about the type of cars they buy and how
they use them.
Cleaner energy
Cost-effective ways of using less energy will help move us towards
our carbon reduction goal. But on their own they will not provide the
solution to the challenges we face. We also need to make the energy
we use cleaner.
Distributed energy generation, including low-carbon heat
Most of our electricity is generated in large power stations, and around three
quarters of our heat comes from gas fed through a nationwide network. This
centralised model delivers economies of scale, safety and reliability. But
a combination of new and existing technologies are making it possible to
generate energy efficiently near where we use it, potentially delivering lower
emissions, increased diversity of supply and in some cases lower cost.
14
A ‘distributed energy’ system using these technologies could radically change
the way we meet our energy needs in the long-term. Heat and electricity can
be created locally from renewable sources. Where we use fossil fuels, local
generation allows us to capture the heat generated in that process and use it
Department of Trade and Industry THE ENERGY CHALLENGE
nearby. Smaller-scale systems have the potential to be more flexible and to
reduce the energy we lose in networks. And a more community-based energy
system could lead to a greater awareness of energy issues, driving a change
in social attitudes and, in turn, more efficient use of our energy resources.
It is not yet a question of leaving our centralised system behind. Less than
1/2% of our electricity comes from microgeneration, and Combined Heat and
Power plants (capturing the heat from electricity generation) provides about
7%. Most small-scale renewables, for now at least, are expensive compared
to large power stations. And there will be tough transitional issues. To
capitalise on our best renewable resources, for example, we need to continue
extending our networks to the remote locations where they are found.
To understand its true long-term potential, and the challenges we face in
getting there, we will commission a high-powered investigation of the
potential of distributed energy as a long-term alternative or supplement to
centralised generation, looking at the full range of scientific, technical,
economic and behavioural issues.
But we must grasp the opportunities offered by distributed energy today.
Government is therefore taking forward a series of measures to encourage
the use of low carbon and distributed technologies, with action at community
level and to encourage individuals. We will be removing barriers, where
viable, in planning, in selling electricity and in accessing the benefits of the
Renewables Obligation. We are encouraging Local Authorities to take action
appropriate to their communities, and will be announcing new powers and
duties for the Mayor of London. There will also be the potential to use the
recently announced Environmental Transformation Fund (ETF)2 to encourage
distributed generation.
And with Ofgem we will undertake a comprehensive review of the economic
and other incentives that currently impact on distributed generation, including
those that affect energy supply companies and the operators of distribution
networks.
Large scale electricity generation
Over the next two decades, it is likely that we will need around 25 GW (Giga
Watt) of new electricity generation capacity, as power stations – principally,
coal and nuclear plants – reach the end of their lives and close. This will
require substantial new investment and is equivalent to around one third of
today’s generation capacity.
Power station investments are long term and we need to have in place the
right framework to incentivise those investment decisions to be made at the
right time and to limit carbon emissions, helping us lock in substantial carbon
savings for years to come.
Over the next few years, new investment is likely to be in renewables,
especially wind, and gas-fired power stations. Longer term, there are other
low carbon forms of generation that can contribute to meeting our goals.
2 The Environmental Transformation Fund was announced in June 2006. The fund will provide a boost to
investment in renewables and other low carbon technologies.
Executive Summary
15
We propose a number of measures to improve the market framework for
investment:
• a strong commitment to carbon pricing in the UK, through improving the
operation of the EU Emissions Trading Scheme
• a strengthened commitment to the Renewables Obligation
• proposals for reform of the planning regime for electricity projects
• a clear statement of our position on new nuclear build
• new arrangements for providing improved information about future trends
in energy supply.
Renewable electricity
Renewable energy is an integral part of the Government’s strategy for tackling
climate change. We propose a range of measures to promote its growth –
taken together we believe we can achieve 20% of our electricity coming from
renewable sources by 2020.
The Renewables Obligation (RO) is the key support mechanism for the
expansion of renewable electricity. It has succeeded in bringing forward major
developments of the most economic forms of renewable energy, in particular
onshore wind, landfill gas, and co-firing of biomass in coal power stations.
The cost of the RO is met by electricity consumers. It allows renewable
energy, which is currently more expensive to produce than coal, gas or
nuclear, to be competitive with them. Its rationale is that, as these are new
technologies, they are yet to achieve the full economies of mature
technologies. We propose to strengthen the RO in two ways.
First, we will increase the level of the RO. At present, it is due to rise to about
15% in 2015-16 and remain at that level till the Obligation ceases at the end
of 2026-27. We now plan to ensure that the level of the Obligation always
stays above the level of renewables actually installed, up to a 20% obligation.
This will boost investors’ confidence in the returns they can make from their
projects.
Second, we propose to consult on adapting the Renewables Obligation to
reflect the fact that some technologies are better-established and no longer
need the full support of the Obligation, and so that it begins to provide more
support to emerging technologies – such as offshore wind. We propose to
consult on whether and how we might “band” the Obligation to provide
differentiated levels of support to different renewable technologies. Any
change would not be introduced until 2009 or 2010. The new arrangements
would not apply to projects in operation before the changes were introduced.
In this report, we set out the strategic role of renewables in the energy
system. We also announce that we will consult on changes to the planning
inquiry rules. Taken together, these should help reduce planning delays to
renewable projects while recognising the rights of people to object to
applications.
Much of our renewable resource, potential and planned projects are to be
found in Scotland, where the promotion of renewable energy is the
responsibility of Scottish Executive Ministers. We will work with them to
deliver on our UK-wide targets.
16
Department of Trade and Industry THE ENERGY CHALLENGE
Renewables should also benefit from the Environmental Transformation Fund.
This boost for renewables will add carbon savings of around 0.7 – 1.5 MtC
per year by 2020 to the savings the RO is already helping to deliver. Our
proposals will not increase the impact of the RO on bills. Additional
renewables will also contribute to our security of supply goals, for example
by displacing gas power stations that might otherwise be built (around 1 – 2%
of gas consumption in 2020).
Replacing nuclear power stations
Nuclear power is currently an important source of low carbon electricity in the
UK. The existing fleet of nuclear power stations will close in the years ahead.
Our assessment is that higher projected fossil fuel prices and the introduction
of a carbon price to place a value on CO2 have improved the economics of
nuclear as a source of low carbon generation.
We have concluded that new nuclear power stations would make a significant
contribution to meeting our energy policy goals. For illustrative purposes, if
existing capacity were replaced, then by 2030 our carbon emissions would be
around 8 MtC lower – equivalent to total emissions from twenty two 500MW
(Mega Watt) gas-fired power stations – than otherwise, and our gas
consumption some 13% lower.
It will be for the private sector to initiate, fund, construct and operate new
nuclear plants and to cover the full cost of decommissioning and their full
share of long-term waste management costs. But in view of the potential
benefits for our public policy goals, the Government proposes to address
potential barriers to new nuclear build.
By early next year, the Health and Safety Executive will develop guidance for
potential promoters of new nuclear power stations. This will explain how they
can obtain assessment of possible reactor designs before committing
significant sums to planning and construction.
On nuclear waste, the report of the Committee on Radioactive Waste
Management, due later this month, following its interim report published in
April, will provide the basis for a decision on the long-term management of
waste by the Government and the Devolved Administrations.
We are also setting out a proposed framework for considering the relevant
issues and context in which planning inquiries should be held. This would be
set out in the Energy White Paper to be published around the turn of the year.
To support preparation of this White Paper, we are consulting on the
proposals outlined in annex A of this document.
For nuclear new build, considerations of safety and security will be
paramount, as they are with the regulation of our existing nuclear plant.
Cleaning up fossil fuels
The Government believes that coal has a role to play in our generating mix.
During this winter over 50% of our electricity generation came from coal-fired
stations, underlining the benefits coal brings in delivering secure electricity
supplies. To have a long-term future coal needs to tackle its heavy carbon
Executive Summary
17
emissions. Carbon Capture and Storage (CCS) is an emerging technology
which could reduce the carbon emissions of coal or gas power stations by
80 to 90%. If CCS were economic and technically feasible on a large scale, it
could deliver substantial reductions in carbon emissions, not just in the UK,
but also in rapidly developing countries such as China and India.
The UK has some natural and commercial advantages – such as a strong oil
industry and old oil fields where carbon dioxide could be stored – that mean
we could be well placed to benefit from this technology. We will therefore
continue to work with international partners on CCS and to remove regulatory
barriers. The Government believes that the next step in the development of
CCS would be a commercial demonstration, if it proved to be cost effective.
Following HM Treasury’s recent consultation on CCS, more work will be
undertaken on the costs of such demonstration projects, and a further
statement will be made at the Pre-Budget Report. Successful demonstration
could lead to CCS saving several million tonnes of carbon on an annual basis
in the 2020s.
Developing alternative fuels for transport
Alternatives to petrol and other fossil fuels are already being used in a variety
of forms of transport. But it will take decades before we see a real shift away
from oil as the predominant fuel source. We propose a Transport Innovation
Strategy that will help to bring forward cleaner technologies and fuels. We
also intend that the level of the Renewable Transport Fuel Obligation should
rise above 5% after 2010/11. Provided certain conditions are met, and for
example we were able to raise the level of the obligation to 10% by 2015, we
would save a further million tonnes of carbon a year, equivalent to removing
another 1 million cars from our roads.
The Energy Security Challenge
Security of supply
The challenges of reducing carbon emissions and ensuring security of
supply are closely linked. Security of supply requires that we have good
access to available fuel supplies, the infrastructure in place to transport
them to centres of demand and effective markets so that supply meets
demand in the most efficient way. Many of the measures already
described for tackling carbon emissions also contribute to the healthy
diversity of energy sources that is necessary for meeting the energy
security challenge.
There are two main security of supply challenges for the UK:
• Managing increased dependence on oil and gas imports; and
• Ensuring that the market delivers substantial and timely investment in
electricity generating capacity and networks so that households and
businesses have the electricity they need at affordable prices.
With production from our own reserves of oil and gas in decline we will
increasingly rely on international markets to give us access to the supplies we
need. For example, we could be importing as much as 90% of our gas needs
by 2020 compared with 10% or so now. This brings risks:
18
Department of Trade and Industry THE ENERGY CHALLENGE
• The largest global reserves of oil and gas are concentrated in Russia,
Central Asia, the Middle East, and African countries. We shall become
increasingly reliant on supplies from these regions.
• Global energy demand is forecast to grow strongly. This will mean greater
competition for supplies.
• There is a risk that supplier countries may not make sufficient or timely
investments to increase output.
• The global oil market has tightened, with a decline in spare production and
refining capacity. The OPEC share of the crude oil market is projected to
increase from 40% now to around 50% by 2030.
• Unlike oil, gas is not currently traded in a global market. While increasing
shipments of Liquefied Natural Gas may make the market more flexible,
gas is now largely supplied into regional markets and constrained by
access to pipelines which may cross many countries.
• Overall, these trends could put upward pressure on prices and encourage
increased political intervention in international energy transactions.
Our response
We need to respond to these challenges with:
• A strong international agenda to promote more open and competitive
markets.
• A market framework in the UK that is positive for investment and diversity
of supplies and for the growth of our own home-grown energy.
Our international agenda is active on three fronts.
First, bilaterally, we are building stronger political relationships with energy
producers to ensure UK energy suppliers have fair access to energy supplies.
Second, within the EU, we are backing the Commission in securing effective
implementation of a competitive, liberal energy market. This will address
anti-competitive behaviour and ensure more reliable UK access to gas coming
into European networks.
Third, multilaterally, we are working to strengthen the dialogue between
consumers and producers so there is a better common understanding of the
mutual benefits of investment in exploration and production, rapid deployment
of cleaner and more efficient technologies, and open trade in supplies.
For the UK, the Government believes that the best way to maintain energy
reliability is through energy diversity – in our sources of energy, our suppliers,
and our supply routes. Competitive markets can help us achieve diversity, as
companies themselves seek diversity in order to manage risks.
Market information and projections
We need to improve the quality of information and analysis about the outlook
for gas and electricity supplies. This should make the market work more
effectively, and it will help government judge how far our regulatory
framework looks likely to deliver reliable supplies. Currently, the Joint Energy
and Security of Supply working group is designed to bring together market
information, helping investors make informed choices. We shall bring forward
proposals in the autumn to build on and improve these arrangements.
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Executive Summary
Securing electricity supplies
The large investment needed in new electricity generation will be a big test
for our market-based system. The incentives for companies to build new
power stations need to be consistent with the economy’s need for capacity
to be added in a timely way. We shall continue to monitor the investment
outlook very closely, including through the new arrangements described
above. It will be particularly important for the market to respond to the
prospect of significant coal power station closures in the period up to 2015,
brought about by EU environmental legislation. Adequate investment in
transmission networks will also be essential. Ofgem are consulting on
proposals to allow a big increase in investment over the period 2007-2012.
By setting out in this report the Government’s position on renewables, nuclear
power, and carbon pricing, we believe we will provide energy companies and
investors with greater clarity about the future. The proposals set out in this
report to streamline and simplify the planning process for large-scale energy
projects should reduce delays in delivering the significant new investment the
country will need to meet its energy demands over the coming years.
Coal
Coal-fired generation continues to meet around one third of electricity demand
on average and during the winter of 2005/6, in response to high gas prices, it
met about half of demand. This illustrates the important contribution made by
coal-fired generation to the UK’s energy security and the flexibility of the UK’s
energy system.
The future for coal must be to become cleaner. “Clean coal”, in particular
CCS, can make this a reality.
Generators have already recognised the importance of coal and have
committed significant investment to enable 20GW, or about two thirds, of
existing coal-fired capacity to comply with new EU legislation. Coal-fired
generation will therefore continue to play an important role in the UK’s energy
system, provided that its environmental impact can be managed effectively.
The Government will convene a coal forum to bring together coal-fired
generators, coal producers and suppliers, power plant suppliers, trade unions,
small businesses and other parties in order to help them to find solutions to
secure the long term future of coal-fired power generation and UK coal
production.
Securing gas supplies
There are three elements in our strategy for securing our gas supplies:
• maximising economic recovery from the North Sea;
• limiting our dependence on gas; and
• managing the risks in higher gas import dependence.
Maximising exploitation of UK oil and gas reserves
Estimates of the oil and gas remaining to be produced from the UK
Continental Shelf (UKCS) range from 21 to 27 billion barrels of oil equivalent.
Analysis suggests that if the higher estimates are right and if investment in
exploration and development can be maintained near current levels, then
20
Department of Trade and Industry THE ENERGY CHALLENGE
production in 2020 could be equivalent to a million barrels day higher than if
investment falls away (split roughly equally between oil and gas production).
The underlying geology and future oil and gas prices are the dominant drivers
of investment and hence ultimate recovery levels. But we have identified
actions that could be taken now to boost the attractiveness of investment in
the UK compared to other regions of the world. This will help recovery from
fields that are already producing and establish infrastructure to the west of
Shetland for our undeveloped heavy oil resources. The Treasury’s review of
the fiscal framework will also be important.
Limiting UK gas dependence
It will be for energy producers and consumers to decide how much gas we
should use within the market framework we have established. But the action
we are taking in support of our carbon goals should have the effect of reducing
the amount of gas we need in our economy and hence our demand for imports.
But gas will continue to be needed for heat because at present there are no
cost effective alternatives that could be implemented at scale. And the
economics of gas-fired power stations are likely to mean they remain
attractive for new investment.
Managing gas import risks
Many countries, including most of our competitors, are already energy import
dependent and have been for many years. Whilst we should avoid excessive
dependence on gas as a single source of our energy, it will continue to play
a very important role. So we will need to prepare for higher levels of imports
and manage the attendant risks.
Promoting more open and competitive international markets, is central to our
strategy for managing a much higher level of gas imports.
Facilitating the timely construction of sufficient storage and import
infrastructure to meet our energy needs is also critical. The private sector has
already responded to our increasing import requirement by committing £10bn
of investment in new gas pipeline and storage projects. As with electricity,
Ofgem is consulting on proposals that would allow a big increase in gas
network investment over the next five years. We will need to find the right
balance between the national need for timely delivery of this infrastructure
and local concerns as these projects come through the planning system.
We propose to consult in the autumn on measures to improve the consenting
regime for gas infrastructure.
We also need to review whether there are clear enough incentives for the UK
market to develop sufficient flexibility – including, for example, gas storage –
to meet these challenges. We shall seek the views of energy suppliers and
users on the effectiveness of current gas security of supply arrangements,
and whether they need strengthening as we become more dependent on
gas imports.
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Executive Summary
Delivering competitive prices through effective markets
Over the past decade, the UK has benefited from the most competitive gas
and electricity markets in the EU and G7 with prices in the UK decreasing
substantially since energy market liberalisation. However as the UK
increasingly becomes a net importer of energy, we may be affected by the
interaction of the UK’s liberalised energy market with the less liberalised
energy markets in the rest of the EU.
The UK suffered some very high prices this past winter. Despite this, flows
through the UK-Belgium gas interconnector averaged 60% of total capacity
which indicated that the EU market was not responding to price signals as
would be expected in a competitive market. We asked the Commission to
investigate, specifically to establish whether this may have been due to
abusive behaviour or distortions in the wider EU gas market. We are awaiting
the results of the Commission’s inquiry.
Two recent reports from the European Commission on the functioning of EU
electricity and gas markets identified serious problems: the high degree of
market concentration; vertical integration being used as a barrier to new
entrants; the lack of market integration; the lack of transparency; and the lack
of well functioning and transparent market mechanisms for setting prices.
These problems have led to significant extra costs for UK consumers
We will continue our drive for EU energy markets liberalisation and
integration, by working with the European Commission to enforce and
strengthen internal market legislation and to make full use of European
competition rules to tackle anti-competitive practices, and to influence the
future direction of European energy policy as set out in the European
Commission’s Green Paper3.
We also remain committed to improving the functioning of the UK’s energy
markets as the best way to deliver competitive prices. Our proposals improve
the effective functioning of UK energy markets through:
• greater information transparency leading to more informed investments
and decision making;
• improved planning helping to facilitate investments coming onstream in
a timely way and
• a consultation on whether our gas security of supply framework is fit for
purpose as we become increasingly import dependent.
These measures should reduce pressure on fossil fuel prices and the
likelihood of price volatility. Our proposals to improve energy efficiency should
also help reduce the energy bills of business and household consumers.
Protecting vulnerable consumers
Everyone should be able to afford an adequate energy supply and live in a
warm home. Between 1996 and 2003, considerable progress was made in
tackling fuel poverty, with the number of UK households in fuel poverty falling
from 5 million to around 1.5 million.
22
3 “A European Strategy for Sustainable, Competitive and Secure Energy” published on 8th March 2006.
Department of Trade and Industry THE ENERGY CHALLENGE
This was thanks to a range of factors – not least economic growth, progress
in tackling poverty in vulnerable elderly households and households with
children, and specific fuel poverty policies. Those policies include the Winter
Fuel Payment, and the Warm Front programme and its equivalents in the
Devolved Administrations, under which 1.5 million homes across the UK have
received assistance. Rising fuel prices mean that fuel poverty remains a major
long-term challenge. We will therefore take steps to better target existing
support. And in dialogue with energy companies and other interested parties,
we will keep our policy framework under review.
What do our proposals deliver?
By implemeting these proposals, the UK will be much better able to respond
to the increased risks associated with the move to increased UK gas import
dependence and the need for substantial new investment in electricity
generation.
And on climate change, full implementation of these ambitious proposals will
be a significant step in the right direction, getting us on course to achieve real
progress in emissions reductions in 2020 and on the right path to achieving
our goal of cutting the UK’s CO2 emissions by 60% by 2050.
Carbon emissions would be between 19 and 25 million tonnes lower in 2020
than our current projections. That’s a cut of 13 – 17% on what we anticipate
our 2020 emissions would be otherwise.
We are proposing to establish a new Office of Climate Change, which will
monitor progress towards our carbon goals and ensure coherence of action
across Government departments to achieve them. And we shall continue to
study the merits of carbon budgeting as a means of helping deliver our goals.
In taking forward the proposals and further work set out in this report, we will
continue to consider the regulatory impact our proposals will have on different
groups and sectors within our society. These include companies and
organisations that will play a direct role in helping us deliver our objectives –
such as energy suppliers, regulators, and local and regional authorities – as
well as businesses and individuals who will be affected by new requirements
arising from our proposals – product manufacturers, retailers, and
homeowners for example.
The Government is clear in its determination to achieve its energy policy
objectives through an approach that is consistent with the principles of good
regulation. Over the coming months, we will work to refine our estimates of
the benefits the measures in this report are expected to deliver and the policy
and administrative costs that will arise. Only measures that are well-targeted,
reasonable and proportionate will be implemented. We will assess this on a
case-by-case basis, while having regard to the collective regulatory impact on
business and other parties.
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Executive Summary
Introducing Chapters 1-9
The following chapters set out the detail of the Government’s proposals.
Many of these proposals help us make progress against more than one of our
energy challenges.
• Chapter 1 sets out our overarching approach to saving carbon and giving
incentives to reduce carbon dioxide emissions.
• Chapter 2 sets out the Government’s proposals to increase the efficiency
of the products and services we use at work and at home and to improve
the standards and heat efficiency of buildings.
• Chapter 3 sets out the Government’s proposals on distributed energy. This
includes proposals on combined heat and power (CHP), microgeneration
and proposals to encourage the development of renewable forms of heat.
• Chapter 4 sets out the Government’s proposals on oil, gas and coal. This
includes steps to make international markets for oil and gas work better;
to encourage companies to maximise investment and production from the
UK’s fossil fuel resources; and to help reduce the risks associated with the
UK’s increasing reliance on gas imports.
• Chapter 5 examines the electricity market and the need for substantial
new investment in power stations over the next two decades. This
includes proposals on renewables, cleaner coal and carbon capture and
storage and on civil nuclear power.
• Chapter 6 discusses the steps Government will take to reduce carbon
dioxide emissions from transport.
• In chapter 7, we set out the steps the Government will take to improve
the planning process for all energy infrastructure. The proposals include
planning improvements for gas infrastructure (e.g. pipelines, LNG terminals
and gas storage) and electricity generation, including renewables, CHP,
fossil fuel and nuclear power stations.
• Chapter 8 highlights the progress the overall package of proposals could
help us make by around 2020 towards addressing our energy challenges.
In this chapter, we also describe the potential for future technologies to
help us make more rapid and cost-effective progress in the coming
decades.
• Finally, in chapter 9, we summarise the next steps, including the actions
and timing of the proposals and consultations we plan to launch after
the summer.
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Department of Trade and Industry THE ENERGY CHALLENGE
BOX 1: THE UK ENERGY SYSTEM
Energy is essential to nearly everything we do. We use it in transport, to
generate the heat that we use in homes and businesses and to power
our lights and other appliances. Increasingly we are learning how to use
natural and renewable sources of energy such as sunlight, water, wind
and crops to meet these needs. We remain however, heavily reliant on
fossil fuels which, when burnt, release greenhouse gases.
For transport we currently rely almost entirely on oil – 99% of our road
transport relies on it, in the form of petrol or diesel.4 Indeed oil and
transport are intimately linked, with around 74% of our oil going to
transport. Heat is generated mainly from gas, but we also use electric
heaters and burn small amounts of oil, coal and other natural substances.
For lighting and the powering of appliances, we use electricity. Capturing
only the major flows from raw fuel through to end use, we might think of
our energy system in simple diagram form:
CHART 1: THE UK ENERGY SYSTEM
Oil
Gas
Coal
Renewables
Transport
Gasoline or Diesel
Heat
(homes and business)
37%
34%
5%
Electricity
Nuclear
Power services
(homes and business)
20%
High CO2
Zero/Low CO2
Depends on initial generation
Source: DTI, 2006
Electricity plays a key role in this system. It is not a fuel, but rather a
conduit of energy generated from a mixture of coal (34%), gas (37%),
nuclear (20%) and renewables (5%)5. When the use of fossil fuels to
generate electricity is added to their uses in transport and providing heat,
we get a full picture of our reliance on fossil fuels.
4 DTI Energy Flow Chart. 2004, www.dti.gov.uk/files/file11248.ppt
5 The remaining 4% consists mainly of electricity imports and oil.
25
Executive Summary
26
CHAPTER 1
Valuing Carbon
The only way in which the international community will
limit the rise in carbon emissions is if governments,
industry and individuals take into account the costs
associated with the emissions for which they are
responsible. A key role for Government is to put in place a
framework which, by placing a value on carbon, provides
a financial incentive for businesses and households to
incorporate the climate change impact of their activities.
1.1 A carbon price is essential for making lower carbon emissions a business
imperative. Companies that face a price for carbon will be incentivised to
reduce their emissions, either through energy efficiency improvements,
investing in new technology, or switching to the use of less carbon-intensive
sources of energy.
1.2 Establishing a price for carbon is best done internationally because
climate change is a global problem requiring collective action. Reducing
carbon emissions can incur costs. These costs differ depending on country,
sector and company specific factors. Acting together through international
agreements provides the widest range of options for reducing carbon
emissions, so that the most cost-effective can be taken up first. It also avoids
potential distortions in international competitiveness.
1.3 The UK’s carbon policy framework comprises a number of international
and domestic policy measures. Some of these generate a value for carbon
directly (such as the Climate Change Levy); others generate an effective price
through a regulatory framework (such as the European Union Emissions
Trading Scheme (EU ETS), the Renewables Obligation and the Energy
Efficiency Commitment).
1.4 The introduction of the European Union Emissions Trading Scheme (box
1.1) in January 2005 effectively created the world’s first international carbon
market. The UK has played an active role in the creation and development of
the EU ETS, which forms the cornerstone of our carbon policy framework.
BOX 1.1: THE EUROPEAN UNION EMISSIONS TRADING SCHEME
(EU ETS)
The European Union Emissions Trading Scheme (EU ETS) represented a
major step forward in EU action to reduce emissions from carbon. The EU
ETS currently covers around 11,000 power stations and large businesses
across Europe, responsible between them for about half of the EU’s carbon
emissions. Each Member State sets a target level of emissions and
allocates ‘allowances’ to emit carbon dioxide (measured in tonnes).
27
Valuing Carbon
BOX 1.1 continued
The overall number of allowances allocated should be set below industry’s
normal emissions levels; each company with a shortfall must either
reduce its own carbon emissions or buy allowances from other
companies. This enables companies who can easily lower their carbon
emissions to make large cuts in emissions and sell their allowances to
those who find it harder to do so. The benefits of creating such a market
is that it allows emissions reductions to occur where it is most costeffective.
The buying and selling of allowances between companies creates a
carbon price (expressed in Euros per tonne of carbon dioxide – €/tCO2).
The trading periods for buying and selling run in set phases. Phase I of the
scheme covers the period 2005 to 2007, with the second phase running
from 2008 to 2012.
Any emitter that does not hold sufficient allowances to cover its emissions
is liable to pay an ‘excess emissions penalty’ of €40 for each tonne of
carbon dioxide emitted not covered by allowances under Phase I (rising to
€100 in Phase II). Even having paid the financial penalty, the developer
will still have to ensure they hold an amount of allowances which includes
the excess emissions in the following year, thereby creating further
incentives to reduce emissions rather than face the penalty.
The EU ETS does not, in itself, determine the amount of carbon emissions
saved within the UK over time – this will be determined by the price of
carbon (which is determined internationally) relative to the cost of lowering
emissions in the UK. If investment in reducing carbon emissions in the UK
remains expensive relative to the EU and beyond, the effort we require of
industry in the UK will not necessarily translate into emissions reductions
here. But emissions will be reduced globally through the efforts of UK
organisations. This is important, given the need to reduce concentrations
of greenhouse gases on a global scale, and for these reductions to take
place in the most cost-effective way.
In some cases, UK efforts to reduce carbon emissions also may result
from investment in one of the ‘flexibility mechanisms’ under the Kyoto
Protocol to which the EU ETS is linked. These are the:
• Clean Development Mechanism (CDM) – a mechanism that allows
developed nations to achieve part of their reduction obligations under
the Kyoto Protocol by funding projects in developing countries that
reduce emissions; and
• Joint Implementation (JI) – a programme under the Kyoto Protocol that
allows industrialised countries to meet part of their required cuts in
greenhouse gas emissions by paying for projects that reduce emissions
in other industrialised countries).
28
Department of Trade and Industry THE ENERGY CHALLENGE
1.5 The market for carbon under the EU ETS is still developing, but already
around €7.2 billion worth of carbon trading has occurred in the first year of
the EU ETS, with a growth in financial products, and a massive upsurge in
investment in the Clean Development Mechanism (CDM) – from $400 million
in 2004 to $1.9 billion in 2005.
1.6 The volatility in the carbon price since the EU ETS began (see chart 2)
reflects, in part, a nascent EU ETS that is continuing to develop and evolve.
But the price volatility also reflects some of the underlying aspects of the
EU ETS (such as current information reporting arrangements) that need to be
strengthened in order to improve its future effectiveness.
CHART 2: THE EU EMISSIONS TRADING SCHEME ALLOWANCE PRICE, JAN 05 – JUN 06
35
30
€/tCO2
25
20
15
10
5
0
Jan 05
Jun 06
Source: DTI, 2006
1.7 There is uncertainty for investors regarding the coverage and structure of
future phases under the EU ETS. A clear and stable long-term carbon policy
framework is important for creating the confidence and certainty that is
needed to underpin changes in industry behaviour. This is particularly
important for investments in long-lived assets (such as power stations)
because the profitability of such investments is affected by the carbon price
years into the future, along with other factors, such as fuel prices, technology
risk and regulatory/planning risks (some of which are discussed in other parts
of this report). Investors have to take a view on how these factors will change
over time, affecting the returns on their investment. But the carbon price is
generated through a scheme which operates under parameters (for example,
caps on emissions) set by governments. Uncertainty over the future shape
and development of these parameters will create difficulties for investors.
1.8 A number of factors could reduce this uncertainty. For instance, the
European Commission has made strong statements on its intention to ensure
real scarcity of permits in the EU ETS for Phase II, stating it will use all the
political and legal tools at its disposal to do so. The reconciliation results of
the first year of the first phase of the Scheme will provide a more reliable
base for the Commission’s assessment of plans.
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Valuing Carbon
1.9 However, while the market for carbon allowances is likely to become
progressively tighter, certain factors (such as legislative delays) could lead
to a lack of market clarity. In the absence of a clear and stable carbon policy
framework, investors may consider delaying investment decisions. If
investment is not timely, this could create risks of a tighter supply-demand
balance in the electricity sector (and hence potential energy price volatility).
The absence of such a longer-term framework may also discourage
investment in low carbon technologies. This could undermine the ability
to deliver significant carbon savings towards our 2050 goal.
1.10 The Government is fully committed to the EU ETS – it is the best longterm mechanism for securing least-cost emissions reductions across the EU.
The EU ETS has the potential to form the basis of a long-term global carbon
trading market. It will remain the central element of the UK’s emissions
reductions policy framework, with its continued existence beyond 2012
assured under European legislation, which includes rules for setting the level
of emissions reduction required.6
1.11 Phase II of the EU ETS will play a critical role in helping to set the future
direction of travel for the EU ETS. Government recently announced a cut in
the UK’s allocation of 8MtC (below business as usual levels) under Phase II,
which is consistent with moving towards our long-term 60% carbon reduction
goal and illustrates our strong commitment to the Scheme. But we must now
work with others to ensure that, across the EU, the Scheme creates clear
incentives for early investment in low carbon technologies and continues to
drive reductions in carbon emissions at least cost.
1.12 The Government will continue to work with the European Commission
and the other EU Member States regarding the direction, ambition and future
reinforcement of the EU ETS. Strengthening and reinforcing the Scheme is
necessary to provide firms with the long-term certainty they need.
1.13 The Government will also aim to secure agreement to a number of
changes to the Scheme which will help to strengthen it post-2012. These
include:
1.13.1 Providing greater clarity on when and how limits (caps) on
emissions will be decided in future. Announcing our long-term intentions
for the EU ETS will provide early certainty for investors in low carbon
technologies and signal an EU-wide commitment to reducing carbon
emissions beyond 2012. We need to signal the direction of EU emissions
reductions much further into the future. And we will continue to set our
caps in a manner that ensures the UK plays its part in reducing overall EU
carbon emissions, consistent with our 60% carbon reduction goal by 2050.
30
6 Unless revised as a result of the review of the EU ETS Directive, future caps must be consistent with the
factors outlined in Annex III of the Directive, which includes Kyoto obligations and the potential to reduce
emissions.
Department of Trade and Industry THE ENERGY CHALLENGE
1.13.2 Simplifying and harmonising the Scheme, particularly the
way that allowances are allocated, so that there are clear and strong
incentives to invest in low carbon technology, and to prevent distortions
to the EU internal market. Across the EU, the methods used to allocate
emissions allowances must move towards clearly rewarding clean
technology while not creating incentives for industry to increase their
emissions in order to gain higher allocations in the future. This will require
EU action to:
• rule out updating of baselines for ‘grandfathering’ (the method used to
allocate allowances based on historical emissions);
• use a more standardised allocation methodology across EU sectors
through ‘benchmarking’ (the method used to allocate allowances for
emissions based on average emissions by product); and
• move towards more auctioning of allowances.
1.13.3 Ensuring the market functions more efficiently. Improving the
transparency of information on allocations in advance of trading periods
will improve visibility on the fundamentals driving long-term EU allowance
prices. Clear, easily accessible information on final allocations – as well as
the basis of allocation decisions – should be made freely available to
ensure confidence in the EU ETS market.
1.13.4 Considering whether more sectors – and more greenhouse
gases – should be included in order to maximise opportunities for
significant, cost-effective carbon savings. Such consideration should take
into account, among other factors, the technical potential to reduce
emissions, the costs of abatement, the regulatory burden on industry
and the impact on sectors already in the Scheme.
1.13.5 Thinking globally to develop a more liquid and efficient
market. The Kyoto Protocol has established the international framework
for a truly global carbon market. The EU ETS is the largest of several
carbon markets worldwide, and already links to Kyoto Mechanisms (JI/
CDM – see box 1.1) outside the EU, incentivising significant investment in
developing countries. Industries covered by the EU ETS can use credits
from the JI and CDM markets to meet their obligations in the EU scheme,
although the limits to their usage are set by each EU Member State.
The UK is committed to working with international partners to deliver a
strengthened international framework for the global carbon market through
international agreement at UN level. In the interim, the focus should be on
ensuring a consistent, robust approach to the use of credits across the EU
in Phase II. Maintaining markets for credits from JI/CDM projects beyond
2012, as well as linking the EU ETS to other carbon markets as they are
implemented, will also be crucial to encouraging market investment and
confidence, and fostering the development of an efficient global carbon
market up to and beyond 2012.
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Valuing Carbon
BOX 1.2: TACKLING CLIMATE CHANGE
Climate change is a global problem requiring urgent international collective
effort built on a shared understanding of the scale of action needed to
stabilise the climate. There must be a shared commitment to take action
in response, involving national and local governments, businesses and
individuals.
Climate change will only be addressed through both technological
development and a robust, inclusive and binding international treaty. For
that reason the Prime Minister has said that the international debate must
focus on the scale of action needed, and how the international framework
needs strengthening to deliver it. Without greater clarity on what we are
trying to achieve in the long term, it is very unlikely that the world’s shortterm efforts will put us on the right path. A long-term goal would send an
essential signal to the private sector and others who have a key role in
delivering low carbon technologies. Uncertainty leads to delayed or shortterm decision-making, and risks negative consequences for
competitiveness and security of energy supply.
A clear, disciplined multilateral framework that produces the investment in
research and development in science and technology is needed to create
a global low carbon economy. The UK, working in partnership with other
countries, can play a leading role in assembling this framework, drawing
on important lessons learnt in different countries and sectors. The UK
cannot act alone – with UK emissions of carbon dioxide comprising only
2% of global carbon dioxide emissions (in 2003), it is imperative that all
nations play their part (see chart 3).
CHART 3: GLOBAL EMISSIONS OF CARBON DIOXIDE, 2003
15%
38%
6%
Others
Japan
Other EU countries
UK
23%
USA
5%
11%
Russia
China
2%
Source: IEA, 2005.
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Department of Trade and Industry THE ENERGY CHALLENGE
In recognition of the global nature of the problem, the United Nations
Framework Convention on Climate Change (UNFCCC) was agreed
at the Earth Summit in Rio de Janeiro in 1992. To date, 189 countries
have ratified it, including all major developed and developing countries.
The ultimate aim of the Convention is to stabilise greenhouse gas
concentrations in the atmosphere at a level that would avoid dangerous
anthropogenic climate change.
The Kyoto Protocol (to the UNFCCC), agreed in December 1997, was
designed to establish agreed, deeper cuts in emissions needed to prevent
serious interference with the climate. Developed countries agreed to
reduce their overall emissions of a basket of six greenhouse gases by an
average of 5.2% below 1990 levels over the period 2008 – 2012, with
differentiated, legally binding targets. The Protocol came into effect on
16th February 2005 and provides the first ever framework for international
action with binding targets and timetables for reducing greenhouse gas
emissions. With over 150 countries having ratified it, the Protocol
represents a very important milestone in tackling climate change.
But the Kyoto Protocol is only the first step, mapping action for the first
commitment period (2008 – 2012). At the UN meeting in Montreal in
December 2005, all countries agreed to begin discussions on the way
forward beyond 2012. It is vital that all major countries are part of a future
framework for action, including the US and major developing economies
like China, India and Brazil. It was against this background that the Prime
Minister put climate change on the international political agenda in 2005
by making it a priority for the UK’s Presidencies of the G8 and EU.
The G8 Gleneagles Plan of Action aims to increase the speed with
which we reduce greenhouse gas emissions. The Gleneagles Dialogue
on Climate Change, Clean Energy and Sustainable Development aims
to provide a forum for continuing discussions amongst the G8, China,
India, Brazil, South Africa, Mexico, and other countries with significant
energy needs. It enables participating countries to work together to speed
up international progress on the shared challenges of addressing climate
change, energy security and access to energy. One of the key outcomes
from Gleneagles was agreement to establish the Energy Investment
Framework led by the World Bank and other international finance
institutions to fund investment in clean energy technologies over the next
few years. This will be a powerful facility to engage with developing
economies, and to incentivise their move towards low carbon
technologies.
The EU has played an important leadership role in tackling climate change.
The UK is keen to work with EU partners to secure agreement to further
action in the EU, in particular strengthening the Emissions Trading Scheme
beyond 2012 and making it the heart of a global carbon market. The UK
will also work in partnership with the EU to enhance our efforts to help
India, China and other developing countries grow their economies on a
sustainable, low-carbon path.
33
Valuing Carbon
BOX 1.2 continued
A sound understanding of the global economic implications of climate
change is an essential foundation for an informed international debate
about the future. The Stern Review on the Economics of Climate Change,
which will report to the Prime Minister and Chancellor in autumn this year,
will contribute to this understanding, by setting out how climate change
could impact on growth and development, identifying the costs and
opportunities from tackling it, and exploring elements of a robust
international response.
1.14 The UK will also need to ensure that its work on international climate
change is closely aligned with issues relating to security of supply and
international energy security. Policy and objectives between these two areas,
which together combine to pose the global energy challenge, should be very
closely linked.
1.15 It is vital that we progress our priorities for strengthening the EU ETS in
a timely manner given the significant investment challenge currently facing
the UK electricity generation sector. It is likely that we will need new
electricity generation investment equivalent to around one-third of our existing
capacity, and given these assets typically have lives of some 20 – 40 years,
it is essential that a clear and stable carbon policy framework is in place to
incentivise timely and low carbon investment.
1.16 The Government is committed to there being a continuing carbon price
signal which investors take into account when making decisions. This is
particularly important given the scale of new investment required in UK
electricity generation capacity. The EU ETS is here to stay beyond 2012 and
will remain the key mechanism for providing this signal. The Government will
continue to work with its international partners to strengthen the EU ETS to
make it more effective. We will keep open the option of further measures to
reinforce the operation of the EU ETS in the UK should this be necessary to
provide greater certainty to investors.
34
Department of Trade and Industry THE ENERGY CHALLENGE
Proposals on Valuing Carbon
The Government will aim to secure EU agreement to a number of
changes to help strengthen the EU ETS post-2012. These include:
• Providing greater clarity on when and how caps/limits on emissions
will be decided in future;
• Simplifying and harmonising the EU ETS, particularly the way that
allowances are distributed, so that there are clear and strong
incentives to invest in low carbon technology, and to prevent
distortions to the EU internal market;
• Ensuring the market functions more efficiently;
• Considering whether more sectors – and more greenhouse gases –
should be included in order to maximise opportunities for significant,
cost-effective carbon savings; and
• Thinking globally to develop a more liquid and efficient market.
The Government is committed to there being a continuing carbon
price signal which investors take into account when making decisions.
The EU ETS will remain the key mechanism for providing this signal.
The Government will continue to work with its international partners
to strengthen the EU ETS to make it more effective. We will keep open
the option of further measures to reinforce the operation of the EU ETS
in the UK should this be necessary to provide greater certainty to
investors.
35
Valuing Carbon
CHAPTER 2
Saving Energy
If we are to achieve our goal of a 60% reduction in carbon
dioxide emissions by 2050, then we need to look not just
at reducing our carbon intensity through low carbon
energy sources, such as renewables, but also at saving
energy. The challenge is to deliver cuts in emissions in
ways that impose least costs on our economy. Up to now,
no major country has been able to grow its economy
whilst delivering a sustained reduction in energy
consumption. But using every unit of energy as efficiently
as possible has to be our ultimate ambition. This may
even lead to an absolute reduction in energy demand in
the longer term. To this end, we are bringing forward
ambitious proposals to deliver smarter and more efficient
energy services – the heat and light we use in our homes
and the power we need for our industries and transport.
The current situation
2.1 Saving energy is key to meeting our long-term energy challenges. It can
help us reduce carbon emissions, which is vital if we are to tackle climate
change. At the same time, by allowing us to use less energy for the same
level of output – whether in industrial productivity or heating our homes – it
can contribute to the security of our energy supply, to our economic growth
(by lower bills for firms and consumers) and to tackling fuel poverty. Our
ultimate ambition must be to use every unit of energy as efficiently as
possible while maintaining our prosperity and competitiveness. If we could
do this – essentially by wasting less energy – we might need to build fewer
power stations in the decades to come than we might otherwise have to do.
So energy efficiency is integral to our overall policy.
2.2 We have already put measures in place to promote energy efficiency.
By 2010, those measures will reduce the UK’s carbon dioxide emissions by
over 7% compared to 1990 levels.7
2.3 But more needs to be done. Most energy use remains highly inefficient.
For example, an average home requires four times as much energy to heat
it as the average new home. And on current projections, if we do nothing,
energy use and carbon emissions will rise after 2010 (for details see annex C).
This is because economic growth is anticipated to increase energy demand;
without further action, as current nuclear generation capacity is lost, it may be
36
7 Action set out in the Energy White Paper, the Energy Efficiency Action Plan and both the 2000 and 2006
Climate Change Programmes, will deliver a reduction in the UK’s carbon dioxide emissions of 16% below
1990 levels. 40% of this improvement will be from energy efficiency measures.
Department of Trade and Industry THE ENERGY CHALLENGE
replaced by higher-carbon sources; and many energy efficiency policies are
currently only committed until 2010/2013. A strong policy framework will be
needed for the longer term, and these proposals begin that work.
2.4 We can improve energy efficiency in two ways:
• reducing the amount of energy that we need to support our economy
(our energy demand) through technological improvements, for example to
the structure of buildings so as to reduce the energy required for heating
and cooling or to appliances so they require less energy; and
• changing our behaviour to reduce the amount of energy that we waste.
2.5 Many energy efficiency measures, such as insulating a building or
switching to efficient light bulbs, can be cost-effective – meaning that, over
the long term, they pay for themselves by reducing energy bills. We estimate
that by 2020 businesses and households could save around 25 MtC through
cost-effective energy efficiency measures. Policies in the 2006 Climate
Change Programme will deliver up to 10 MtC of that by 2010, and another
3 – 5MtC by 2020, but, as technologies develop, further savings could be
made across a wide range of sectors. These include: energy-intensive
businesses (around 2 MtC by 2020); non-energy intensive businesses (5 MtC);
and the domestic (9 MtC) and the public sectors (1 MtC).
2.6 However, although it would deliver cost savings, businesses and
households are not making the most of the full potential of energy efficiency.
The Energy Efficiency Innovation Review, published in November 2005,
summarised the reasons for this:
• lack of appreciation of the true costs and the long-term benefits of energy
efficiency measures;
• market misalignment, due to regulatory failures, external budget
constraints or split incentives (e.g. the tenant pays the energy bill so the
landlord has no incentive to invest); and
• inertia, lack of interest, knowledge or awareness.
2.7 Government needs to respond to different market failures in different
ways. In some cases regulatory interventions (e.g. building regulations and
appliance standards) can be the most effective and cost effective response.
There is also a role for better information (e.g. product labelling), incentives
(e.g. the Climate Change Levy and the exemptions from it available through
Climate Change Agreements); and market mechanisms (e.g. trading).
A package of measures will be the most effective approach.
2.8 We consider that we can make the most impact with policies that
address the reasons why businesses and households do not make the most
of the opportunities to save energy.
Our aspiration
2.9 If we are to increase energy efficiency across the board, all sectors of
society will need to play their part. This means creating the conditions for
people and organisations to change; demonstrating the benefits (such as saving
money, and improving the environment); and making action easier. It also
means continuing to support innovation in the technologies for energy use.
Saving Energy
37
2.10 With the electricity and fuel we use in our homes and our cars,
individuals are responsible for nearly half of the UK’s energy use and carbon
dioxide emissions (see chart 4). In the home, three quarters of the carbon
dioxide we emit comes from energy used for heating and hot water and a
fifth from lighting and appliances (see chart 5). Making homes – both new
homes and the existing housing stock – more energy efficient is key to
reducing our carbon dioxide emissions. For Government, this means both
ensuring that people and communities have access to more energy efficient
homes and equipment, and leading a new push to make thinking about
carbon and energy an integral part of the culture. This will involve providing
the information, advice, support networks and incentives to support energy
efficiency and to change behaviour.
CHART 4. CARBON DIOXIDE EMISSIONS BY END USER IN THE UK, 2004
(MILLION TONNES OF CARBON)
5.7 MtC
41.7 MtC
60.5 MtC
Public sector
Business
43.1 MtC
Transport (including freight)
Residential
Source: DTI, 2005
CHART 5. RESIDENTIAL CARBON DIOXIDE EMISSIONS, 2003
5%
20%
22%
53%
Cooking
Space heating
Lights and appliances
Water heating
Source: Defra, The 2006 Climate Change Programme
38
Department of Trade and Industry THE ENERGY CHALLENGE
2.11 The energy market itself has a key role to play. The current market is
very much focused on the delivery of units of energy; profits come from
increasing sales. We need to ensure that the regulatory and market
framework for energy is in line with the objectives of energy saving and
reduced emissions, and so stimulate a market for the supply of energy
services – warmth, light and power rather than energy per se.
2.12 The Government must lead by example and it has set itself the ambition
of delivering carbon neutral central government by 2012. Government,
including Local Authorities, as one of the country’s largest owners of land and
buyers of goods and services, can bring strong purchasing power to bear to
drive up energy efficiency standards. Central and local government have the
potential to set market standards for goods and services that will become
over time the norm for all purchasers.
2.13 The following proposals build on current successful measures and
address key gaps and weaknesses identified. They focus on:
• raising energy efficiency standards for new buildings and for the products
we buy;
• providing the structure in which a market for energy efficiency services
can flourish, to improve the energy performance of existing homes and
businesses, and bring forward the new demand side technologies needed
to deliver longer-term energy efficiency improvements;
• increasing awareness in all sectors of society and providing the
information, advice and support, which stimulate citizens to improve
energy efficiency and cut energy waste;
• providing appropriate incentives for each sector of society to take up
energy efficiency measures; and
• leading by example.
Raising energy efficiency standards for new
buildings and for the products we buy
Carbon neutral developments
2.14 Around 30% of the houses that will be standing in 2050 are yet to be
built. So while improving the existing housing stock is very important, it is
equally vital to ensure that new houses are built to the highest possible
cost-effective energy efficiency standards.
2.15 The Government has made considerable progress on this issue in recent
years. Part L of the Building Regulations for England and Wales, which
governs energy efficiency, has been repeatedly tightened. The changes
introduced in 2002, 2005 (covering new boilers and windows) and April 2006
have collectively delivered a 40% improvement in the energy efficiency
standards of new houses.
39
Saving Energy
2.16 But we are determined to go further. As we have recently announced8,
our long-term ambition is to move towards carbon neutral development. This
will take time to deliver. But a series of measures – a mixture of regulation,
guidance, encouragement, and demonstration – is already in hand to move us
significantly towards it. Government is:
2.16.1 Developing the 5 Levels for the Code for Sustainable Homes (CSH).
The exact levels will be announced later this year, but we have already
indicated that even Level 1 will require energy efficiency performance
above the current Part L of Building Regulations. And Level 5 will require
that new homes be carbon neutral.
2.16.2 Making clear that the levels should be taken to indicate the longterm direction of Building Regulations. This gives the construction industry
a clear steer regarding our long-term intentions in this area.
2.16.3 Reviewing the guidance that accompanies Building Regulations,
with a view to simplifying them and improving compliance with them.
This is important, as the frequent changes to Part L have been difficult
for certain (especially small) builders to keep up with. We need to clarify
this guidance, and ensure that all new houses are built to the required
standard. This is one of a number of steps we are taking to improve
compliance with the Regulations (see box 2.1.).
2.16.4 Requiring all Government-funded new housing in England (such as
English Partnerships and Housing Corporation developments) to meet the
EcoHomes “Very Good” standard (equivalent to Level 3 of the CSH).
Government is leading the way with this measure. It is also helping to
develop the necessary skills and capacity in the industry to raise standards
for all new houses.
2.16.5 Introducing energy performance certificates, for both new and
existing buildings (see section 2.5.8). These will show how energy efficient
a house is, and therefore how high the fuel bills are likely to be. They will
therefore act as a powerful new indicator for buyers, significantly raising
the profile of energy efficiency.
2.16.6 Developing a new Planning Policy Statement (PPS) on Climate
Change. Government plans to consult on this later in 2006, and introduce
it in 2007. Complementing the CSH, which covers the fabric of new
developments, the new PPS will make clear that the location and design
of new developments should also promote the reduction of carbon
emissions. This will be done through, for example, promoting mixed-use
developments and reducing the need to travel. The new PPS will also
encourage the use of more sustainable energy sources, including
microgeneration, and Combined Heat and Power.
2.16.7 Strongly urging local planning authorities in England to set
ambitious policies for the percentage of energy in new developments to
come from on-site renewables. PPS 22 gives them the power to do this.
40
8 In speech by Yvette Cooper, Minister for Housing and Planning, to the Green Alliance, 17/5/06. See:
http://www.communities.gov.uk/index.asp?id=1500138
Department of Trade and Industry THE ENERGY CHALLENGE
The Housing and Planning Minister made it clear in a statement to
Parliament in June 2006 that all English planning authorities should include
policies in their development plans that require a percentage of the energy
in new developments to come from on-site renewables, wherever viable.
We will continue to monitor this situation, with a view to taking further
action, if necessary, to ensure that local authorities set appropriate targets
in this area.
2.16.8 Consolidating all these measures in a series of demonstration
projects. Again, this shows Government leading the way, showing what
can be achieved in new developments. These include:
• a demonstration project by English Partnerships, working with local
partners, in Northstowe, Cambridgeshire, to create a new settlement
of 10,000 homes, which will aim to achieve a 50% reduction on energy
use compared with conventional housing;
• English Partnerships (EP) running a second phase of the Design to
Manufacture competition, building on the lessons learnt from the £60K
house, and pushing the boundaries further. EP is challenging the
industry to build low cost, low carbon and zero carbon homes, but this
time looking at whole developments rather than individual homes; and
• undertaking a feasibility study into the Thames Gateway becoming a
low carbon development area within a decade, and whether and how
fast we can move towards zero carbon thereafter.
2.17 With these measures the Government is moving towards our long-term
ambition of achieving carbon neutral developments. Obviously, the carbon
savings associated will depend on how long reaching that goal takes. But they
will ultimately be very significant. There are currently around 170,000 new
houses built in England and Wales each year, and each emits around 0.8
tonnes of carbon per year. So if, for example, the goal were reached by 2020,
we would save around 0.4 MtC by 2020, and 4 MtC by 2050.
2.18 Scotland has devolved responsibility for improving the energy efficiency
standards of new build houses and the Executive is currently carrying out
similar work in relation to reviewing building regulations; introducing energy
performance certificates for buildings; planning policy, and permitted
development rights. As part of this work, it will also consider better guidance
and monitoring of compliance with building regulations.
41
Saving Energy
BOX 2.1: ENSURING COMPLIANCE WITH BUILDING
REGULATIONS
As noted in Section 2.16.3 above, the Government recognises that
ensuring full compliance with Building Regulations – particularly Part L on
energy efficiency – is an issue.
We took steps to address this when the new standards for Part L were
brought in in April this year. The Government:
• introduced mandatory pressure testing and commissioning for new
buildings;
• simplified the approach to showing compliance, and provided much
more detail on ways of doing this;
• launched the largest ever training programme for new Building
Regulations, including “train the trainer” events, regional road shows,
and sending an e-learning pack to every Building Control Surveyor; and
• extended self-certification schemes to reduce burdens on local
authorities, and make compliance more likely.
And since then, the Government has gone further. We have:
• taken powers in the recent Climate Change and Sustainable Energy
Act 2006 to extend the time period for local authorities to prosecute
breaches of energy efficiency standards. This used to be possible only
within 6 months of completion of the work. Now authorities can
prosecute within 6 months of discovering a breach (provided
proceedings begin within 2 years). This is a very significant change;
• used that same Act to mandate a report to Parliament on compliance
with Part L standards, to ensure they are given proper scrutiny; and
• worked with the industry to develop 7 Building Control Performance
Indicators, of which ensuring compliance is one. These will give
building control bodies a framework to monitor and improve their
performance in key areas, such as ensuring compliance.
These measures are all in addition to our review of Building Regulations
guidance, referred to in section 2.16.3. Together they form a
comprehensive package, and demonstrate our ongoing commitment to
addressing this issue.
Raising Standards for Energy-Using Products in Our Homes
and at Work
2.19 Making the energy-using products in our homes and offices more
efficient will help us to cut carbon emissions. The Government will work at
international and EU level and with manufacturers and retailers in the UK to
remove the least energy efficient products from the market. We will build
markets for the best by setting a firm agenda to progressively raise standards.
This will stimulate innovation and competition in the supply chain.
42
2.20 Much of our energy use goes to power appliances in our homes and
businesses. For example, electric motors account for two thirds of all
business electricity use, driving machinery, pumps, fans etc – which is
equivalent to 40% of all the UK’s electricity consumption (see chart 6).
Department of Trade and Industry THE ENERGY CHALLENGE
Another 25% of the UK’s total electricity is used to power lighting and
appliances in the home. If we do nothing, this domestic use is predicted to
rise by 20% between now and 2020 as new energy using products – such as
computers and gaming consoles – become more common-place in the home.
If we are to reduce this growth in energy demand we need to find ways to
make the products we all buy and use more efficient.
2.21 We use several ways to drive improvements in the energy efficiency of
products, including EU legislation, voluntary agreements, labelling schemes,
and building standards. The Government’s Market Transformation Programme
supports this work9. This is turn sits within the Government’s broader
Sustainable Consumption and Production Strategy (see footnote below). Our
future policy will build on and strengthen this existing Government action.
2.22 We have identified several groups of products for action:
• domestic lighting;
• consumer electronics such as set top boxes, television sets and chargers;
• white goods such as fridges, freezers and washing machines;
• static electric motors and drives used in machinery such as pumps and
fans (as used, for example, in air conditioning systems); and
• office equipment such as computers, printers and photocopiers.
2.23 Aiming to limit stand-by power consumption, which in 2004 used 8% of
all residential electricity and is a rising trend, is also a priority for the Market
Transformation Programme. We will continue to press at international level for
full implementation of the International Energy Agency’s 1 Watt initiative to
reduce stand-by power consumption.
CHART 6. ELECTRICITY USE BY UK BUSINESSES
(FIGURES IN TERAWATT HOURS, 2005)
31 TWh
74.2 TWh
66% of total use is for
electric motors used
by industry to power
lifts, conveyor belts, air
conditioning, heating systems,
pumps and compressors
Commercial
117.2 TWh
Industrial
Energy Industry
Source: Defra's Market Transformation Programme
9 The Government’s Market Transformation Programme works with industry and other interested parties to
drive and underpin sustainable improvements in the energy efficiency and other environmental
characteristics of products. (http://www.mtprog.com/). For more information about the Government’s
Sustainable Consumption and Production Strategy see www.defra.gov.uk/environment/business/SCP/
Saving Energy
43
2.24 We will continue to work at the international, EU and UK levels to
stimulate competition in the innovation and supply chain to raise standards
through:
• the ranking of products, (e.g. through performance indicators, labels and
lists); and
• the setting, publication and implementation of efficiency standards, using
all suitable policy instruments.
2.25 Under the new framework directive on the Eco Design of Energy-Using
Products (EuP), adopted in 2005, proposals will be brought forward to set
standards for 14 products identified as priorities under the EU Climate Change
Programme, including consumer electronics, lighting, heating, white goods
and electric motors. These standards will apply across the EU and we in the
UK will press for ambitious standards to be delivered under this Directive.
Furthermore, delivering on our Gleneagles G8 commitment, we will take the
lead in promoting international cooperation in setting product standards and in
developing global responses to these issues.
2.26 At home, the Retailers’ Initiative, announced in Budget 2006, is a key
element of our products programme. The Government is working with major
retailers and the Energy Saving Trust to introduce voluntary schemes to raise
the energy efficiency of the goods they sell. Initially it is expected that these
schemes will focus on consumer electronics but they may be expanded to
other products.
2.27 The potential for cost-effective carbon savings from this policy are high:
if we can raise standards for all the priority products sold in the UK, we can
avoid over 1.3 MtC by 2010 and up to 4.7 MtC by 2020.
Providing the structure in which a market for
energy efficiency services can flourish
Energy Efficiency Commitment Phase 3
2.28 Demand for energy services in the residential sector is rising by an
average of 1.5% per year, equivalent to 0.6 MtC per year. But if the household
sector is to contribute to our 2050 goal, energy use would need to fall by
around 1.8% per year. This means we need to increase the efficiency of our
homes and the lights and appliances we use in them and to reduce the
amount of energy that we waste.
2.29 To encourage energy efficiency, Government needs to create the right
frameworks and incentives for energy efficiency services – that is, practical
assistance and advice helping homeowners and businesses waste less
energy and use it more effectively – to flourish.
44
2.30 The Energy Efficiency Commitment (EEC) is one of the principal policy
mechanisms by which we deliver energy efficiency into the home. Under
EEC, energy suppliers are required to achieve targets for the promotion of
energy efficiency improvements in the household sector in Great Britain.
It has been highly successful at doing so and in a very cost-effective way. In
the first three-year phase of EEC, which concluded in March 2005, suppliers
delivered measures – including loft and cavity wall insulation – which will save
Department of Trade and Industry THE ENERGY CHALLENGE
0.4 MtC each year, saving consumers £9 for each £1 spent and reducing
consumer bills by £3bn over the period to 2020.
2.31 The second phase of the EEC runs from 2005 – 08. The 2006 Climate
Change Programme has already announced that the target for suppliers to
promote energy efficiency improvements will be increased by a further
50 – 100% under the third phase, which will run from 2008 – 2011.
2.32 With the passing of the Climate Change and Sustainable Energy Act
2006, the Government needs to consider changes to EEC that could allow all
forms of microgeneration and other measures affecting consumer behaviour
to be eligible under the Scheme. This would open up EEC, allowing suppliers
to offer more options for the delivery of carbon savings, with a larger range of
measures and more scope for innovation and competition amongst suppliers
to encourage consumers to reduce their energy demand. The Government
will therefore be consulting this summer on whether to extend the range of
measures allowed under the third phase of EEC.
Supplier obligation to target household emissions
2.33 Government is committed to maintaining a household obligation on
suppliers in some form until at least 2020. The level of ambition from 2011
should at least be equal to that under EEC3, delivering a minimum of
3 – 4 MtC by 2020.
2.34 The EEC has been very successful at delivering technical measures
such as loft and cavity wall insulation, but it does not address the important
issue of consumer behaviour, getting us to reduce waste or think about the
energy efficiency of the appliances that we buy.
2.35 The Government therefore wishes to incentivise energy suppliers to
engage more actively with customers in order to deliver greater energy
efficiency in the home. We want to provide the right stimulus for them to
develop new market opportunities to sell energy services, rather than just
energy per se, so what the consumer buys are services for heating, lighting
and powering their homes, in the most energy efficient way practicable. One
way to achieve this, as identified by 2005 Energy Efficiency Innovation
Review, could be to move in 2011 to a supplier obligation based on a tradable
target set in terms of reducing absolute energy demand or carbon emissions
from the household sector. Such an obligation, if introduced in this form,
would replace the current Energy Efficiency Commitment once its third phase
expires in 2011. It would focus energy suppliers’ attention on how to deliver
energy efficiency to their customers as a marketable service rather than a
regulatory requirement. Our energy companies are willing to go in this
direction – to change their whole business model – if we support them
through the right policy framework. This is a major shift in thinking.
2.36 In the period up to 2011, we will seek to use the experience gained
from EEC3 and the money announced in Budget 2006 for smart meter trials
and other innovative measures and to learn whether and how this can best
be done. Our long-term ambition is to incentivise a sustained reduction in
household demand. We will carry out further analytical work and consultation
with interested parties before deciding the final scope and objectives of the
post-2011 framework.
Saving Energy
45
Increasing awareness and information in all sectors
of society
2.37 Householders are more likely to invest in energy efficiency
improvements and to reduce the waste of energy if they are provided with
timely, specific and relevant information on their energy use and how much it
costs. Combined with the information in Home Information Packs showing
where energy efficiency improvements can be made, better and more timely
information will help householders make decisions on where and how they
can make real savings on their energy bills. This will complement existing
work by the Energy Saving Trust and measures set out in the UK Climate
Change Programme.
Better energy bills
2.38 The Government proposes that it will mandate, from 2007 onwards,
improvements in the information provided in domestic customers’ energy
bills, requiring bills to provide comparative historic energy use in graphical
form (showing a customer how much energy they have used over previous
periods), supported by information on energy efficiency.
2.39 Currently, between 25 – 50% of domestic bills supplied by energy
suppliers at any one time are estimated. Unless they are using a pre-payment
meter, current metering and billing arrangements provide little in the way of
incentive for householders to think about how they use energy and the
consequences their energy use has on climate change.
2.40 Studies show that consumers respond to the provision of historic
information on their energy use in their bills, particularly when it is combined
with more frequent and accurate bills10. The information also needs to be easy
to understand. Consumers surveyed by Ofgem11 preferred simple bar charts
on bills to compare their own energy use with the last quarter or the whole
of last year, but disliked benchmarking with ‘average’ homes. As this latter
approach is suggested as being “useful” in the Energy Services Directive,
it requires further examination. We will consult with Ofgem, the energy
suppliers and interested parties as to what useful comparative benchmarking
information can be provided cost-effectively in bills to aid customer
awareness.
2.41 At present, energy suppliers are obliged to read meters once every two
years. This licence requirement is under consideration in Ofgem’s current
review of gas and electricity supply licences, and the suppliers are advocating
its removal. However, the full benefit of improved billing is realised when
customers are provided with frequent, accurate bills. Replacing the existing
requirement with a requirement to read meters annually, while also allowing
suppliers to meet their obligations with customer self-reads may well improve
information available to customers without increasing the regulatory burden
on suppliers. We will consult further with Ofgem, the energy suppliers and
interested parties on how we can cost-effectively improve the frequency at
which customers are provided with accurate bills.
46
10 Studies report savings of up to 12% per year on energy use.
11 http://www.ofgem.gov.uk/temp/ofgem/cache/cmsattach/8401_consumer_fdbak_pref.pdf
Department of Trade and Industry THE ENERGY CHALLENGE
2.42 We estimate that even if the provision of historic information only
delivers modest changes in behaviour, this proposal is highly cost-effective.
Even if households only reduce their energy use by 0.25%, this will save
0.08 MtC by 2010 and just under 0.1 MtC by 2020. The proposal would add
a one-off cost of 10-20p to a household energy bill in the first year.
2.43 Like the residential sector, most business customers receive a mixture
of accurate and estimated bills over the course of a year. A study conducted
for the Carbon Trust highlighted that access to timely energy data and the
provision of accurate bills are a barrier to energy efficiency management in
the business sector. The Government will therefore also consult with
interested parties on the provision of information similar to that proposed for
households for business customers not currently covered by half-hourly
electricity and gas meters.
Real-time displays for households
2.44 The technology is available that can provide householders with direct,
instant information on how much energy they are using and how much it
costs by transmitting information from the electricity meter to a portable
display. A recent study in Canada over a two and a half year period showed
that households reduced their energy bills by an average of 6.5%12.
2.45 Powergen is currently testing a real-time electricity display to determine
the extent of energy saving that it can deliver to UK households. The results
of this trial should be available in 2007. Other energy suppliers may propose
further trials of displays under the trials of smart meters co-funded by
Government and the energy suppliers, announced in the 2006 Budget.
2.46 The Government considers that real-time displays provide an effective
means for households to check their energy use and can play a key role in
helping householders to reduce their energy bills by identifying ways to save
energy. Following on from the trials being conducted by Powergen, we intend
to discuss with Ofgem, the energy suppliers and interested parties how best
to rapidly roll out the provision of real-time displays which provide instant
energy consumption and cost information on electricity use.
2.47 Our analysis indicates that such electricity displays will help us realise
real carbon and energy benefits if there is a rapid roll out. If we started a
5-year programme to install such devices in households in 2007, we could see
a 0.3 MtC saving by 2010, rising to 0.4 MtC by 2020. We estimate that this
could add £2 – 6 per year to energy bills over the 5 year period, but would
more than pay for itself through energy savings and hence reduced bills.
2.48 Currently there are no commercially available displays that can provide
real-time information on gas use. The trials of smart meters, announced in the
2006 Budget, provide a means for meter manufacturers to bring forward such
technology and to demonstrate its costs and benefits.
12 A summary of the various studies can be found in: Darby S. (2006) The effectiveness of feedback on
energy consumption. A review for Defra of the literature on metering, billing and direct displays.
Saving Energy
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Smart meters for homes and businesses
2.49 “Smart meters” – that provide instant updates on energy use – and
other sophisticated forms of monitoring can provide information that help
consumers make more informed choices. The Government considers it
should examine the scope for more sophisticated monitoring of energy usage,
its costs and benefits through the forthcoming trials of residential smart
meters and other forms of feedback about electricity and gas consumption,
as announced in the 2006 Budget.
2.50 Smart meters have the potential to deliver many benefits to the energy
supplier and the consumer13. They allow remote reading, avoiding the need for
house calls and so ensuring energy bills are accurate. Smart meters can also
be used with variable tariff structures for electricity consumption, for example,
to discourage electricity use during peak periods. They can therefore
contribute to improved energy security, as some network reinforcement and
peak generation capacity could be avoided. Smart meters with an “importexport” facility allow consumers installing micro-generation such as small
scale wind, solar (PV) panels or micro-CHP to sell their spare electricity to
the grid.
2.51 Purchase and installation costs of smart electricity meters vary from £40
to £180, depending on function. Ofgem have estimated that the total cost of
installing and maintaining one-way smart meters could be up to £5 – 8 billion14.
In comparison, the current cost to gas and electricity customers of installing,
reading and maintaining meters is £800 million15 each year. These costs are
estimated against a backdrop of little or no data on the implications of rapid
roll-out to the likely costs and benefits of smart meters.
2.52 Our own analysis suggests that the full benefits of smart meters would
not be realised unless there was a full roll-out. However, a full-scale smart
metering programme could have serious implications for energy prices,
potentially increasing annual gas and electricity payments by £20 each for
ten years.
2.53 Ofgem recently published their opinion on the role and value of smart
metering16. They wish to work with industry to remove those barriers that
currently inhibit more innovative metering and to encourage inter-operability of
meters between different suppliers. They also announced that they would not
re-regulate responsibility for metering onto the network operators.
2.54 While smart metering technology is commercially available for the
electricity market, further development is required to overcome technical
issues for gas metering. The Government expects the metering industry to
develop technology for gas customers similar to that already available for
electricity, taking advantage of the Government-sponsored trials to test
effectiveness.
48
13 Owen G. & Ward J. (2006) Smart meters: Commercial, policy and regulatory drivers. Report published by
Sustainability first. http://www.sustainabilityfirst.org.uk/publications.php
14 These costs do not assume any savings from bulk purchase or bulk roll-out.
15 Ofgem(2003) Factsheet 26 “Introducing competition in metering”. March 2003.
16 Ofgem (2006) “Domestic Metering Innovation – Next Steps Ref. 107/06. 30 June 2006.
Department of Trade and Industry THE ENERGY CHALLENGE
2.55 Metering trials, co-funded by Government and the energy suppliers,
will start this winter, with results available from 2008. They provide the
opportunity to explore the wider benefits of smart metering to the UK
economy. This includes the value of gas smart meters, where information is
currently lacking. Through the trials we can test the effectiveness of smart
meters in comparison with cheaper options such as improved billing and realtime displays. There is also the potential to test the value of different tariff
structures on peak load shifting and energy reduction.
2.56 More also needs to be done to create a demand from business for
smart meters and to raise awareness of energy efficiency.
2.57 The Carbon Trust is conducting a smart metering trial amongst SMEs
to promote awareness and build support for smart metering. Early results
suggest significant energy savings are possible. Once the results of this trial
are available, in late 2006, the Government will be in a position to discuss
with relevant parties how to address the barriers to smart metering in the
business sector along with ways of improving awareness and information
on energy efficiency.
Home Information Packs (HIPs)
2.58 The information available to homeowners about the energy efficiency of
their homes will be further improved by the introduction of Home Information
Packs (HIPs) in England and Wales, which will include energy performance
certificates.
2.59 Under the EU’s Energy Performance of Buildings Directive, energy
performance certificates will be required for all buildings on change of
occupation – such as when they are bought, sold or rented. For existing
houses, Government is implementing this requirement by including the
certificates in HIPs. They will be rolled out in England and Wales from June
2007. The Scottish Executive is currently considering the implementation and
roll-out of this directive within the domestic sector in Scotland.
2.60 As the Government recently announced17, the certificates will rate the
energy efficiency of a house on a scale of A to G. Prepared by qualified home
inspectors, they will include information on the current average costs for the
heating, hot water and lighting of the house. And, crucially, they will include
practical advice on which energy efficiency measures the owner/occupier
could carry out to cut carbon emissions from the house and improve its
energy efficiency rating.
2.61 The focus will especially be on measures, such as cavity wall insulation,
and thicker loft insultion, that will quickly prove cost-effective. But the
certificates will also list measures, such as solar panels and wind turbines,
which could cut carbon emissions even further. Around 1.5m homes are put
up for sale each year, and research shows that the vast majority of home
improvements are carried out within 6 months of the purchase of a property.
The certificates, therefore, will help to inform and influence the behaviour and
spending decisions of up to 1.5m households per year.
17 On 14 June 2006 – see: http://www.communities.gov.uk/index.asp?id=1002882&PressNoticeID=2174
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2.62 Energy performance certificates will also be required for non-domestic
buildings. And all buildings used by public authorities or institutions, and
frequented by the public, will be required to display their certificates, enabling
the public to see and compare performance.
Looking at new measures to improve the existing housing stock
2.63 As the measures set out in this chapter make clear, the Government
recognises the vital importance of tackling the existing housing stock. 70% of
the houses that will be standing in 2050 have already been built, and many of
the oldest ones are much less energy efficient than more recent ones.
2.64 So in addition to the energy efficiency measures set out here, the
Government will continue its in-depth review of the existing stock, which
was announced by the Minister for Housing and Planning in September 2005.
It will conclude this work later this year.
Providing incentives for each sector of society
The large non-energy intensive business and public sector
2.65 Government policy to address emissions from business has so far
been primarily focused on the energy intensive industries, through their
participation in the EU Emissions Trading Scheme and Climate Change
Agreements. Corporate leaders18 have called for the Government to address
the gap in its current policy coverage by developing “strong new policy
instruments” to “focus on the large, non-energy intensive users of energy
in the commercial and public sectors”. The Energy Efficiency Innovation
Review demonstrated that there are significant opportunities in the large
non-energy intensive sectors to improve energy efficiency which are not
currently being exploited.
2.66 Government believes that large commercial and public sector
organisations have significant potential to achieve cost-effective carbon
reductions. These large organisations cover about 15 MtC of emissions and
analysis suggests they could cost-effectively save 0.5MtC per year by 2015,
rising to 1.2 MtC per year by 2020.
2.67 The Government therefore proposes to consult later in the year on the
most effective measures for achieving these reductions.
2.68 Analysis by the Carbon Trust concluded that participation in a mandatory
auction-based emissions trading scheme, which targeted energy use related
emissions, would incentivise the uptake of energy efficiency measures within
the large non-energy intensive sector. Other policy options, which could also
achieve energy efficiency improvements, include benchmarks on energy use,
and voluntary reporting on emissions.
50
18 The Corporate Leaders Group have highlighted “that there is a need for further policy action if we are to
realise the potential economic and environmental benefits of energy efficiency”. The UK Business Council
for Sustainable Energy have also pointed to this gap in our energy and climate change policies and called
for “strong new policy instruments” to “focus on the large, non-energy intensive users of energy in the
commercial and public sectors”.
Department of Trade and Industry THE ENERGY CHALLENGE
2.69 The consultation will therefore put forward a proposal for a mandatory
emissions trading scheme, alongside other options for achieving our carbon
reduction aims in this sector, and will invite views.
2.70 In order minimise administrative burden, the Government’s proposal
for such a trading scheme (or Energy Performance Commitment) will target
emissions from energy use only by large organisations whose electricity
consumption is greater than 3,000mWh/yr19 and which are not included in the
EU ETS and Climate Change Agreements. This would involve some 5,000
organisations in total, comprising sectors such as supermarket chains, hotel
chains, government departments and large local authorities. Auction revenues
would be recycled to participants.
Climate Change Agreements
2.71 The UK business and public sector is subject to a tax on their energy
use – the Climate Change Levy – designed to incentivise industry and the
public sector to reduce their demand for energy. In order to protect the
competitiveness of the most energy-intensive sectors of industry, Climate
Change Agreements (CCAs) were introduced as part of the Climate Change
Levy package. Under these agreements, participating industries receive an
80% discount from the climate change levy, provided that they enter into
agreements to meet energy efficiency targets or reduce their carbon emissions.
2.72 CCAs currently run until 31 March 2013. The final target period is 2010,
and facilities that meet this target will be eligible to continue to pay the
reduced rate of the Climate Change Levy until 31 March 2013. State aid
approval for the CCAs was, unusually, granted for ten years up to 31 March
2011, because of the need for long-term stability for industry to plan for and
invest in energy efficiency measures. A further state aid notification will
therefore be required to cover the final two years of the current agreements
and any extension of the agreements beyond 2013.
2.73 CCAs have successfully delivered substantial carbon savings in their first
five years and are expected to continue to perform well. There are over 6,000
companies, covering over 14,000 sites in 54 sectors, now covered by
agreements, with new applicants continuing to come forward.
2.74 In order to underpin achievements to date, Government will consider, in
good time before the expiry of the current agreements, the future of CCAs
and how we can take the objectives forward.
Leading by example
Carbon neutral government
2.75 The Government has announced its intention that, by 2012, the
Government office estate will be carbon neutral. As part of this commitment
we have set an aspirational target to reduce carbon emissions from central
Government buildings by 30% by 2020. The Government has already
introduced carbon offsetting for official air travel.
19 An analysis of this proposal can be found at:
www.defra.gov.uk/environment/climatechange/trading/uk/pdf/nera-enviros-report-060428.pdf
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2.76 This measure will save approximately 0.8MtC per year and is designed
to deliver a significant improvement in the way the Government manages its
land and buildings sustainably.
London
2.77 Over the last year, we have been reviewing the powers of the Greater
London Authority (GLA). As part of this review we have looked at a possible
strategic role for the Mayor on energy and climate change in London. We
propose a new statutory duty on the GLA to take action to mitigate the
effects of climate change and adapt to its unavoidable impacts. The Mayor
will publish a Climate Change and Energy Strategy setting out his plans for
mimimising emissions of carbon dioxide caused by the use of energy in
the capital, helping eradicate fuel poverty and harnessing the economic
opportunities for London from investment and innovation in energy
technologies and energy efficiency. He will also publish a Climate Change
Adaptation Strategy setting out how the capital should adapt to the effects
of climate change.
Local authorities
2.78 It is important that local authorities take action to combat climate
change, in a cost effective way, taking account of local circumstances and
priorities. Our proposals to provide a real incentive for local authorities to take
action on climate change will be set out in the Local Government White Paper
this autumn.
2.79 In Wales, all local authorities have signed a declaration on climate
change committing them to producing a climate change action plan. Energy
efficiency will be a critical area of importance in the development and
implementation of these plans.
Local and community action
2.80 If we are to be successful in delivering the long-term cuts in carbon
emissions that we need to avert dangerous climate change, the involvement
of individuals will be critical. There are many barriers to individual
engagement, but we anticipate that local authorities and community groups
can play a key facilitating role. Research, such as that undertaken by Futerra
for Government in 2005 (available on the DEFRA website), has shown that
engagement at a local and community level is important. This is because
attitudes to climate change are more likely to be changed through individual
interaction and because climate change messages need to have local
relevance to appeal to people.
2.81 It is for this reason that Defra launched its Climate Change
Communications Initiative last year, aimed in large part at local and community
level initiatives. This year, under the Climate Challenge Fund, we have already
approved £4.8m worth of projects designed to raise awareness about and
change attitudes towards tackling climate change. Examples of organisations
that will receive funding include the Scouts, who will be encouraging
members to ‘Be Prepared for the Future’, and the Women’s Institute who will
develop EcoTeams to help bring home the realities of climate change.
52
2.82 The 2006 Climate Change Programme stressed the importance of local
and regional government in delivering emissions reductions, both as
Department of Trade and Industry THE ENERGY CHALLENGE
community leaders and through their own estates and operations. It set out a
package of measures to encourage action by local authorities. There is already
excellent practice in some local authorities and the Government supports the
work of the Energy Saving Trust and the Carbon Trust in disseminating and
encouraging good practice.
2.83 But we recognise that individuals identify with different communities –
some may look towards their local authority, parish councils or neighbourhood
group; others may feel closer to clubs, societies, faith groups or other interest
groups. We want to understand these links and the opportunities they present
to overcome barriers to individuals taking action personally to combat climate
change.
2.84 Over the next 12 months, DCLG, Defra, DTI and HM Treasury will
undertake a joint study which will look at the role of ‘community level’
approaches to mobilising individuals, and the role of local authorities in
particular in making them work effectively. It will draw on experience of what
initiatives have worked and which haven’t in both the environmental area and
other policy areas, such as public health. In the light of this information, the
study will also examine what new policy options, such as tradable personal
carbon allowances (PCA), could be deployed to stimulate local action and
consider their relative pros and cons. We expect it to report to Ministers in
the first half of 2007.
Government procurement
2.85 We intend to save energy across the Government estate and to use the
power of Government procurement to get better value for money through
competition to provide more efficient and sustainable buildings, goods
and services.
2.86 The Government buys goods, services and capital assets to provide
better public services and how it does so can make a big difference, both to the
achievement of its sustainable operational targets and to its external credibility.
2.87 The Government will play its part in reducing its energy demand by
developing and implementing, for central Government departments,
mandatory energy efficiency and sustainability standards for the goods and
services we procure. We will also encourage their adoption more widely in
public procurement.
2.88 These standards will apply to services which directly affect carbon
emissions from the Government estate, wherever cost-effective – for
example, services for the lighting and heating of its building and for IT.
2.89 In practical terms this means we will:
• Set and periodically raise ambitious energy efficiency standards for
Government procurement of goods and services, adopting global best
procurement standards for energy use wherever cost-effective;
• Extend, publish and maintain a list of forward-looking Government
sustainable product standards (currently the ‘Quick Wins’ and other
procurement guidance) to encourage market innovation and stimulate
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53
competition amongst suppliers to bring forward improved buildings, goods
and services that are good value for money; and
• Establish a clear framework of accountability and capacity to deliver within
Government sustainable procurement.
2.90 The Sustainable Procurement Task Force (SPTF) published its National
Action Plan on 12 June 2006. The Action Plan set out 6 recommendations in
order for the UK to become amongst the leaders in the EU by 2009 (as we
committed to the Sustainable Development Strategy 2005) and it identified
10 public sector procurement priorities for Government of which one was
energy. It estimated that the total value of public sector procurement was
£150bn. The public sector accounts for a greater proportion of sales for the
growing environmental industries sector, currently worth some £25bn, than
any other single UK customer.
2.91 The Government will give a full response to the report in the autumn.
2.92 The Office of Government Commerce estimates that Government can
reduce energy use by 10% through behavioural change to reduce waste and
a further 5% through use of more energy efficient products and services. It is
currently developing a cross-government collaborative approach to deliver
more effective procurement and use of energy within the Government Estate,
focusing on cost reduction through better procurement, energy management
and consumption reduction. The work will begin delivering in 2007.
2.93 As an example, we estimate that, if central Government procures only
products meeting current best practice in energy efficiency, it could costeffectively save about 40,000 tonnes of carbon per year from its use of IT
equipment and lighting. More important will be the demonstration effect to
business; the leverage effect of UK Government procurement power; and the
dynamic effects on producers through the forward commitment – which will
encourage the market to develop better performing products.
Fuel poverty
Energy Efficiency measures can help consumers cut their electricity and
gas bills. They can be one of the ways to help tackle the problem of fuel
poverty, and ensure that the most vulnerable consumers can afford to
heat their home to an adequate standard.
2.94 Everyone should be able to afford an adequate energy supply and to live
in a warm home. This social aspect of energy has driven policy since 1997.
The number of households having to spend disproportionate amounts of their
income on fuel bills has declined.
2.95 Fuel poverty is defined as the need to spend more than 10% of income
on fuel to maintain a satisfactory heating regime. Between 1996 and 2003,
the number of vulnerable households in fuel poverty fell from around 5 million
to around 1.5 million across the UK. Strategies to end fuel poverty depend
ultimately on improving housing standards and rising incomes, policies that
have been given priority.
54
Department of Trade and Industry THE ENERGY CHALLENGE
2.96 One of the key background reasons for the reduction is a stable
economy with high employment and income growth. The UK economy is
currently experiencing its longest unbroken economic expansion since
quarterly records began, with GDP now having grown for 55 consecutive
quarters. The economy has generated 2.4 million additional jobs since 1997.
2.97 In addition to a stable economy, good progress has been made on
tackling poverty in vulnerable elderly households and households with children.
Since 1997, pensioner poverty has fallen by over two thirds in absolute terms,
lifting 2.1 million older people out of absolute low income and around 1 million
pensioners out of relative low income. A single pensioner is now guaranteed
a minimum weekly income of £114.05 compared to just £69 in 1997.
Additionally, the Winter Fuel Payment is a significant, well-timed payment,
which reassures older people about keeping their homes warm in winter.
2.98 For households with children, recent data shows that between 1998/99
and 2004/05, the number of children in relative low income households fell
from 3.1 million to 2.4 million on a before housing cost basis. As a result of
reforms, by April 2006 families are on average £1,500 a year better off than
they were in 1997.
2.99 The Government has put in place a range of specific fuel poverty
policies that are having an increasing impact. Thanks to Warm Front and its
equivalents in the Devolved Administrations – Scotland’s Warm Deal and
Central Heating Programme, Wales’ Home Energy Efficiency Scheme and
Northern Ireland’s Warm Home Scheme – some 1.5 million homes have been
helped. Other policies helping to tackle fuel poverty include the Energy
Efficiency Commitment, with a proportion of measures directed towards a
priority group of low income customers, and the Decent Homes Standard in
England, through its requirement that, for a home to be decent, there must
be a certain level of thermal comfort. As a result of energy efficiency
measures provided through the first phase of EEC (2002-05), low income
households are now benefiting by some £127m a year. By helping
to improve the energy efficiency of fuel poor households these schemes
improve their quality of life.
2.100 The effectiveness of all schemes is examined periodically, and changes
are made to improve their impact. There is an increasing role for Benefit
Entitlement Checks in fuel poverty programmes, which both increase
household income and establish eligibility for assistance.
2.101 Other bodies also help to tackle fuel poverty. These range from
charities such as National Energy Action and the National Right to Fuel
Campaign, who carry out valuable research into best practice in tackling fuel
poverty, to Ofgem and energywatch in their work encouraging best practice
and making sure the market works for vulnerable customers. Energy suppliers
also pursue a variety of actions to help their most vulnerable customers,
including measures such as the Home Heat Helpline which provides
vulnerable customers and their representatives with a central point of
information relating to the range of help available from their supplier and
others.
55
Saving Energy
2.102 Rising energy prices will now, however, reverse the downward trend in
fuel poverty. Figures for 2004 showed that fuel poverty remained broadly
unchanged relative to 2003, with analysis suggesting that the total number of
vulnerable households in fuel poverty is likely to rise by around one million
households in England between 2004 and 2006. In the latter part of the
decade, fuel poverty is forecast to fall, as energy prices stabilise and incomes
continue to grow, but there are still likely (on this central price scenario) to be
over a million vulnerable households in England in fuel poverty, excluding
consideration of energy efficiency measures available under our main
programmes (see chart 7).
2.103 This new trend poses a particular challenge. Government has already
acted to start to meet the challenge of rising energy prices on achievement of
the fuel poverty targets. An additional £300m has been made available to UK
fuel poverty programmes over the period 2005 – 08. This additional funding
takes fuel poverty funding in England alone in 2005 – 08 to over £800m.
Government has also pledged to continue Winter Fuel Payments for the
length of this Parliament. Measures such as this, the Pension Credit and the
Child Tax Credit, continue to improve the incomes of vulnerable and lowincome households.
CHART 7. HISTORIC AND PROJECTED NUMBERS OF VULNERABLE HOUSEHOLDS
IN FUEL POVERTY IN ENGLAND AFTER ECONOMIC EFFECTS (MILLIONS)
Number of vulnerable households
in fuel poverty (millions)
4.5
4.0
3.5
3.0
2.5
2.0
High
1.5
1.0
Low
0.5
0.0
1996
1998
2000
2002
2004
2006
2008
2010*
Year
^ Positions in 2005 and 2006 are based on the modelling of the impact of income and energy prices
movements on the number of vulnerable households in fuel poverty.
* Position in 2010 is based on modelling and shows central price scenario as the main bar, with lines
indicating the level of fuel poverty under the low and high price scenarios. These are based on an oil price
in 2010 of US $40/barrel (bbl) under the central case, $20/barrel under the low case and $67/barrel under
the high case.
Source: DTI, 2006
56
Department of Trade and Industry THE ENERGY CHALLENGE
Fuel poverty within the Energy Review
2.104 It is clear though that further action is needed to tackle fuel poverty.
We need to ensure that:
• we get details of the help that is available to those who need it most;
• we explore further ways to reduce a household’s energy bills via energy
efficiency measures;
• the energy a household consumes is competitively priced; and
• households who are eligible for benefits are claiming them.
2.105 Looking ahead, we will be taking forward work in each of these areas.
Immediate action
2.106 In conjunction with the Devolved Administrations, we will step up
our efforts at getting the wide range of existing assistance to those most
vulnerable to the effects of fuel poverty. We have been looking at the data
sources to identify a simply defined group. Those on (or eligible for and then
ultimately in receipt of) Pension Credit aged over 70 are the group we have
identified to target. Overall, around a fifth of this group were fuel poor in
2004, compared with 6% of the population as a whole, giving an improved
chance of someone helped being in fuel poverty. This group covers over a
quarter of the fuel poor in 2004. We will, as a priority, work with industry to
get measures to this group.
2.107 We need to use effective communication methods to ensure these
households come forward. We will continue to work with a wide variety of
partners such as DWP, where we can learn from the experience of the Local
Pension Service, which in the period ending March 2006 has made over one
million face-to-face visits, and has established joint teams with local
authorities in 96 areas, the ‘Warm Front Scheme’, energy suppliers; and
voluntary organisations to maximise our reach. We will develop a strategy
to ensure assistance is given to as many of these households as soon
as possible.
2.108 In this work it is important that Government and those who provide
measures, advice and support work together to ensure vulnerable customers
are helped and resources are not wasted in duplicating activity. We need to
build on experience such as the Warm Zones initiative, an area-based
approach that enables a systematic identification of vulnerable households
and a co-ordinated delivery of necessary improvement and related services.
2.109 Once a household has come forward, we will do all we can within the
current schemes to take that household out of fuel poverty. This can include
a benefit entitlement check to ascertain eligibility to Pension Credit and other
benefits, the available measures and referral to energywatch products that
will make choosing the most appropriate tariff more straightforward.
2.110 We recognise that older households in receipt of Pension Credit are
not the only group suffering from fuel poverty. We will consider rolling out this
approach to further identified vulnerable groups after this winter.
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Saving Energy
2.111 For some households the challenge is in the availability of energy
efficiency measures to tackle fuel poverty. The development of new
technologies has the potential to help tackle the legacy of cold homes.
We will explore the scope for using some of the money already available for
the Low Carbon Building Programme to install new technologies (including
biomass and heat pumps) to bring renewable sources of energy to elderly
households and others in cold homes. In Scotland, the Scottish Executive has
recently announced a pilot scheme to test the use a combination of domesticscale renewable technologies to tackle fuel poverty.
Longer-term actions
2.112 Under the Energy Efficiency Commitment (EEC) at least half of all
energy savings are currently directed at a ‘Priority Group’ of low income
customers. The scheme has been highly successful at delivering energy
efficiency measures in a very cost effective way. In the first three-year phase
of EEC, which concluded in March 2005, suppliers exceeded their targets,
delivering measures that will save 0.4 MtC per annum.
2.113 We are currently considering changes to EEC over the period
2008 – 11, and as part of this will consider how the scheme’s social
objectives should be met in future. The exact details of EEC from 2008 will
be subject to an initial consultation this summer, followed by a Statutory
Consultation next spring.
2.114 Through EEC and other measures, energy suppliers play an important
role in mitigating the impact of high energy prices on the most vulnerable in
society. Building on the companies’ recognition of their responsibilities in this
field the Government now wishes to work with them and other key players to
examine how the continuing challenge of fuel poverty can be best addressed.
Conclusion
2.115 The measures outlined above will have a positive effect on the lives of
some of those most vulnerable to the effect of cold, damp homes. However
there are still a range of issues that need to be addressed.
2.116 Beyond the immediate actions being put forward, further progress
towards the Government’s fuel poverty targets will depend on measures to
increase the incomes of the fuel poor or to reduce their bills. The Government
will continue to monitor the impacts of various factors on the vulnerable fuel
poor and examine the effectiveness of current measures.
2.117 In dialogue with the energy companies and other interested parties we
will continue to keep the policy framework under active review.
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Department of Trade and Industry THE ENERGY CHALLENGE
Summary of Energy Saving proposals
• The Government will move towards its long-term ambition of carbon
neutral development in England and Wales by:
i) setting stretching energy efficiency levels for the Code for
Sustainable Homes;
ii) making clear that these will govern the future direction of
Building Regulations;
iii) reviewing the Building Regulations guidance to improve
compliance with them;
iv) requiring all government-funded housing to meet at least Level 3
of the Code for Sustainable Homes;
v) introducing energy performance certificates for new and existing
houses;
vi) developing a new Planning Policy Statement on Climate Change;
and
vii) strongly urging English planning authorities to set ambitious
policies on renewable energy.
• The Government will work at international and EU level and with
manufacturers and retailers in the UK to remove the least energy
efficient products from the market and to build markets for the best
of them by setting a firm agenda to raise standards progressively, so
stimulating innovation and competition in the supply chain.
• We will launch a statutory consultation next spring on phase 3 of the
Energy Efficiency Commitment. Prior to this we will hold an informal
consultation this summer to explore whether we can extend the
range of measures allowed under EEC.
• The Government is committed to maintaining a household obligation
on suppliers in some form until at least 2020. We will do further work
on the option of moving after 2011 to a supplier obligation based on
tradable targets or caps for household energy demand or carbon
emissions.
• The Government proposes that it will mandate, from 2007 onwards,
improvements in the information provided in domestic customers’
energy bills, requiring bills to provide comparative historic energy
use, supported by information on energy efficiency.
• We will consult with interested parties on what further useful
comparative benchmarking information can be provided and how we
can cost-effectively improve the frequency at which customers are
provided with accurate bills.
• We intend to discuss with Ofgem, the energy suppliers and interested
organisations on how best to roll-out rapidly the provision of realtime displays which provide instant energy consumption and cost
information on electricity use.
• The Government will examine the scope for more sophisticated
monitoring of energy usage, and its costs and benefits, through the
forthcoming trials of domestic smart meters and other forms of
feedback about electricity and gas consumption.
• The Government will also work with interested parties to address the
barriers to improved metering and billing in the business sector,
including the possibility of introducing smart metering.
59
Saving Energy
• The Government proposes to consult later this year on the
introduction of a new measure for the large non-energy intensive
organisations which lie outside the EU ETS and Climate Change
Agreements.
• The Government will consider, in good time before the expiry of the
current agreements, the future of the Climate Change Agreements
and how we can take the objectives forward.
• The Government will play its part in reducing its energy demand by
developing and implementing, for central government departments,
mandatory energy efficiency and sustainability procurement
standards and will encourage their adoption more widely in public
procurement.
• Beyond the immediate actions being put forward, further progress
towards the Government’s fuel poverty targets will depend on
measures to increase the incomes of the fuel poor or to reduce their
bills. The Government will continue to monitor the impacts of various
factors on the vulnerable fuel poor and examine the effectiveness of
current measures.
• In dialogue with the energy companies and other interested parties,
we will continue to keep the policy framework under active review.
60
Department of Trade and Industry THE ENERGY CHALLENGE
CHAPTER 3
Distributed Energy
Generating energy near where we use it – “distributed
energy” – can potentially lower emissions, increase the
diversity of our energy supply and, in some cases, lower
costs. We will look at the potential of distributed energy
as a long-term alternative or supplement to our current
highly centralised system. At the same time, we will take
steps to encourage the use of low carbon and distributed
technologies by individuals and communities, to increase
awareness of their potential and to remove barriers to
their adoption.
What is distributed energy?
3.1 The UK energy system is highly centralised. Most of our electricity is
generated in large power stations connected to a high-voltage ‘transmission’
network and transported to regional low-voltage ‘distribution’ networks for
distribution to points of use. More than two thirds of our heat comes from
gas that is fed through a nationwide gas grid. Both our electricity distribution
and gas networks are optimised for a one-way flow, from a small number of
entry points out to industry and buildings.
3.2 But there are a number of ways of producing heat and/or electricity for
a home, housing development, industrial site or local community, and of
connecting these sites through small-scale electricity or heat networks.
‘Distributed energy’ is a broad term used to denote this diverse range of
technologies. Its essence lies in generating energy near where it is used
(see box 3.1).
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Distributed Energy
BOX 3.1: DISTRIBUTED ENERGY
There were differences in the way the term ‘distributed energy’ was
understood in submissions to the Review. For some it related solely to
energy used near where it was generated. In this report we take a broader
view, using the term to refer to the wide range of technologies that do not
rely on the high-voltage electricity transmission network or the gas grid.
This includes:
• Distributed electricity generation, including:
– All plant connected to a distribution network rather than the
transmission network;
– Small-scale plant that supplies electricity to a building, industrial site
or community, potentially selling surplus electricity back into a
distribution network; and
– ‘Microgeneration’, ie small installations of solar panels, wind
turbines or biomass/waste burners that supply one building or small
community, again potentially selling any surplus; and
• Combined Heat and Power (CHP) plants, including:
– Large CHP plants (where the electricity output feeds into the
transmission network but the heat is used locally);
– Building or community level CHP plants;
– ‘Micro-CHP’ plants that effectively replace domestic boilers,
generating both electricity and heat for the home; and
• Non-gas heat sources such as biomass, wood, solar thermal panels,
geothermal energy or heat pumps, where the heat is used in just
one household or is piped to a number of users in a building
or community.
3.3 A ‘distributed’ system could fundamentally change the way we meet our
energy needs, contributing to emissions reduction, the reliability of our energy
supplies and potentially to more competitive energy markets. The main
advantage of the traditional system has been its ability to reduce costs
through economies of scale. Gas in large quantities or electricity made in large
power stations has been cheaper than other alternatives, despite the cost of
transmission over long distances. But a combination of new and existing
technologies are opening up the possibility of accessing benefits at a regional
or local level.
3.4 New information and communication technologies can help us to monitor
and control the electricity system in more sophisticated ways. Emerging
energy storage equipment will help us to manage electricity flows on a local
scale – most balancing of supply and demand for electricity is currently done
centrally. And mass adoption of small-scale generating technologies (for both
heat and electricity) would bring down their prices. The result could be
economic benefits achieved at a local level rather than through a centralised
system.
62
Department of Trade and Industry THE ENERGY CHALLENGE
3.5 There are many advantages to generating energy locally. Chief among
them is the potential for more efficient use of our fuels. When using oil, coal,
gas or biomass/waste to make electricity, we can use existing Combined Heat
and Power (CHP) technology to capture the heat generated and to use it
locall.20 The closer our power stations are to the users of heat, the more we
can deploy CHP, reducing the need for an additional heat supply. Given our
increasing need to rely on gas for heat, this is potentially a significant benefit
in terms of both carbon reduction and reliability of supply. Further efficiencies
lie in reducing the amount of energy we lose in transmission and distribution
across large distances.
3.6 Another benefit of distributed generation is that small-scale renewable
technologies can be deployed at a local level. There is also evidence that
a more community-based energy system might lead to a greater awareness
of energy issues, engaging people in the supply of energy and, in turn,
prompting them to consider how to use it more efficiently. Energy Review
submissions outlined a number of other proven and potential benefits of
distributed energy applications, for example in providing back-up energy
supply, reducing energy costs in some circumstances, and reducing the need
to invest in transmission networks.
3.7 Perhaps the most innovative demonstration of the potential of distributed
energy has been by Woking Borough Council, which achieved cuts of 77% in
carbon dioxide emissions from energy efficiency savings in its own buildings
over the period 1991-2004 and invested the profits in renewable energy
projects, installing 10% of the UK’s solar PV capacity and the UK’s only fuel
cell CHP by 2004. Among other achievements, Woking Council has developed
a network of over 60 local generators, including Combined Heat and Power
plant, to power, heat and cool municipal buildings and social housing. Many
town centre businesses are also connected to this local energy supply.
Why do we not have more distributed energy?
3.8 Despite the progress made in Woking and in other local areas such as
Kirklees in West Yorkshire (see Box 3.2), distributed energy accounts for only
a small proportion of our total energy supply. Renewable electricity and
Combined Heat and Power plants connected to the distribution grid make
up well under 10% of our electricity generation. Off-grid heat generation
represents less than 10% of our heat market.21 Of these, technologies that
bring energy generation down to a community or household level – such as
the small-scale heat and electricity installations and community heat and
electricity networks used in Woking – represent around 1 – 2%.
20 It is not possible to capture the heat from renewables such as micro-wind turbines or solar photovoltaics.
21 ‘Off grid’ here used to refer to heat generation that does not depend on either the gas grid or on
electricity.
Distributed Energy
63
BOX 3.2: KIRKLEES COUNCIL
Kirklees Council in West Yorkshire has long been a leader on
environmental and sustainability issues. It has developed a district-wide
renewable energy strategy, established a solar thermal promotion scheme
and a corporate capital grant fund for renewable energy. 79 energy
efficient homes have been created where owners have invested in solar
electricity panels or micro wind turbines. Kirklees now accounts for nearly
5% of the UK’s installed capacity of solar photovoltaics across schools,
homes and civic buildings. They have also fitted over 160 houses with
solar thermal heating and supported a 15kW wind turbine on a local sports
college.
3.9 The reasons for current low levels of distributed generation vary by
technology and are examined separately below. Three barriers are, to differing
degrees, common across them. One is lack of information and awareness.
The positive examples of Woking, Kirklees and elsewhere suggest that other
developers and planning authorities may be missing cost-effective
opportunities to invest in and promote community level electricity networks,
CHP, microgeneration and alternative heat technologies. The Government’s
recent Microgeneration Strategy21 identified lack of awareness as a key
obstacle to the take-up of microgeneration by households, as did our
response to the the report of the Biomass Task Force in the context of using
biomass for both electricity and heat.23
3.10 There are also a number of potential practical barriers. For example,
planning permission is often required for installation of microgeneration in
a home. The processes required for small electricity generators to receive
payment for electricity sold back to the grid, or to access the potential
financial benefits of the Renewables Obligation,24 are complex and timeconsuming; and there are currently a number of factors that might be making
it more difficult than is necessary to develop local private wire electricity
networks.25
3.11 Finally, most types of low-carbon distributed generation, especially
microgeneration of electricity, are currently expensive compared to more
conventional technologies in most circumstances, with high upfront
investment costs. But the cost of the best new technologies should decline
over time if there is a receptive market and a fair chance to compete. We
need to be doing all we can to ensure that we are not missing cost-effective
current opportunities, and that we are providing the context in which new
technologies can take hold, build scale and become competitive over time.
64
22 http://www.dti.gov.uk/energy/sources/sustainable/microgeneration/strategy/page27594.html
23 http://www.dti.gov.uk/energy/sources/renewables/renewables-explained/biomass/governmentresponse/page28196.html
24 The Renewables Obligation is described in the Renewables section.
25 Private wire networks are stand-alone networks, some of which are capable of operating without
connection to the grid. The main private wire networks are in specific applications such as at the UK’s
largest airports and on the London Underground system. Electricity is created specifically to provide
electricity for users connected to the private wire network. Surplus electricity not used on the private
network can in the case of some private wire networks, be sold back into the local grid.
Department of Trade and Industry THE ENERGY CHALLENGE
Incentivising Action at the Regional, Local, and
Community Levels
3.12 It is inherent in the nature of distributed energy that community
leadership will have a significant role to play. In his submission to the Energy
Review, the Mayor of London outlined a range of actions that will be taken
forward as part of London’s Climate Change and Energy strategy. Other
regional bodies, and some local authorities, including Aberdeen, Leicester,
Sheffield and Southampton, have plans to move forward on distributed
generation. Merton Borough Council was among the first of a growing
number of Local Authorities to set a target for 10% of the energy on new
developments in its area to come from on-site renewables.
3.13 Not all communities will have the same potential, because of
differences in geography, population density and wealth. It is imperative,
however, that we make the most of opportunities to act cost-effectively
where they exist. We will introduce therefore a series of measures aimed to
promote the growth of distributed generation at community level.
3.14 First, the Mayor of London has already launched a series of initiatives in
the area of distributed generation. But as noted in Chapter 2, we will shortly
announce a new statutory duty on the GLA on climate change. Among other
things, the Mayor will be required to produce a Climate Change and Energy
Strategy which will put forward plans to minimise carbon emissions from the
use of energy in London. This should give a further boost to the growth of
distributed generation in the capital.
3.15 Second, the Housing and Planning Minister made it clear in a strong
statement to Parliament in June 2006 that all planning authorities should
include policies in their development plans that require a percentage of energy
in new developments to come from on-site renewables, wherever viable.
3.16 Third, we will set out proposals that provide a framework to encourage
all local authorities to take action on climate change in the Local Government
White Paper later this year. It is important that all local authorities take action
to combat climate change in a cost-effective way, taking account of local
circumstances and priorities.
3.17 Finally, we explained in Chapter 2 that we will be consulting on a range of
options to improve energy efficiency in the large commercial sector including the
option of a mandatory emissions trading scheme. This consultation will also
consider whether larger Local Authorities and public bodies should be included in
these measures26. If so, this will provide a direct incentive on those bodies to
invest in low carbon measures.
3.18 In addition to action at the level of local government, we are also taking
forward a series of measures that will promote demand for distributed
generation technologies from households and developers. A process to
remove the obstacles to installing microgeneration on existing buildings is
already in place (see section 3.36). But the majority of the growth of
26 Any new burden on local authorities will be funded as agreed under the existing new burdens agreement.
Distributed Energy
65
renewable generation and community electricity and heating schemes will
come from new build where renewables such as photovoltaics and
microwind, as well as associated infrastructure such as heating pipes and
electricity wires, can be built into the building fabric. But a process to remove
the obstacles to installing microgeneration is already in place. See section
3.36 below.
3.19 Our series of proposals aimed at energy efficiency in the housing stock
were outlined earlier in chapter 2. They are equally important to the promotion
of low-carbon generating technologies as they are to energy efficiency. They
are that:
• Government confirms its ambition to support the move towards carbonneutral developments, through implementation of the Code for Sustainable
Homes and making clear that this will set the direction for further
tightening of Building Regulations. Carbon neutrality will not be possible in
most developments without some form of distributed energy;
• We will undertake a feasibility study into the Thames Gateway becoming
cost-effectively a low carbon development area within a decade, and
whether and how fast we can move towards zero carbon thereafter. We
will look in that context at the major role distributed generation can play in
achieving low carbon development; and
• We will consult on the form of the third phase of the Energy Efficiency
Commitment (EEC) in the second half of this year. We will consider
whether to make changes to EEC that could allow all forms of
microgeneration to be eligible under the Scheme.
Large-Scale Combined Heat and Power
3.20 While many of the most exciting growth opportunities in Combined
Heat and Power lie with community and building level schemes, and while
the Government is bringing forward a range of measures to encourage
these27, the great majority of our CHP capacity will continue to come for the
near future from large-scale plant. Because it cannot be transported long
distances, opportunities to use the heat from large electricity plants are
limited mainly to places where a large industrial heat user is located nearby.
But where a long-term buyer for the heat can be found, we must ensure that
the full potential of large-scale CHP is captured.
3.21 Between 1997 and 2000 favourable market conditions, in conjunction
with the Government’s stricter consents policy for new generating plant led
to a strong rise in CHP capacity. Total capacity stood at 5.6 GW in 2004, 90%
of which was in large-scale plant. Modelling by Cambridge Econometrics,
assuming a medium allowance price under the EU Emissions Trading Scheme
(EU ETS), estimates that by 2010 total CHP capacity will be in a range 9.3 –
9.6 GW. This modelling is subject to uncertainty and depends significantly on
carbon price assumptions.
3.22 Concerns have been raised about the impact of Phase I of the EU ETS
on CHP. In developing the Phase II National Allocation Plan the treatment of
66
27 Set out elsewhere in this chapter.
Department of Trade and Industry THE ENERGY CHALLENGE
CHP has been carefully considered. Government has consulted on proposals
to create a separate sector for incumbent (existing) Good Quality CHP plant
and a ring-fenced New Entrant Reserve for new plant generating Good Quality
CHP electricity. Government has also consulted on favourable allocation
arrangements to new entrant CHP relative to non-CHP through the New
Entrant Reserve. We have decided to introduce changes that will result in
more favourable treatment for CHP in Phase II than in Phase I.
Announcements will be made in due course.
3.23 Various other policy measures were introduced to support CHP as part
of the Climate Change Programme. These include:
• Climate change levy exemptions on fuel inputs to Good Quality CHP and
on all Good Quality CHP electricity outputs;
• Enhanced Capital Allowances eligibility to stimulate investment;
• Reducing the rate of VAT rate to all domestic micro-CHP appliances.
Distributed Electricity Generation
3.24 Many of the economic incentives and the potential barriers to
investment in medium-scale electricity stations, whether connected to the
distribution or the transmission network, are shared with large-scale
generation and are discussed in chapters 5 and 7. The specific circumstances
and barriers facing CHP and microgeneration are also addressed separately.
A description of the types of generation connected to the distribution network
is set out in box 3.3.
BOX 3.3. BREAKDOWN OF ELECTRICITY GENERATION
CONNECTED TO DISTRIBUTION NETWORKS
The majority of our current distributed electricity generation takes the form
of medium-scale dedicated electricity plant (see chart 8). Its heat is not
captured. This plant operates in essentially the same way as large plant
but connects directly into a distribution network rather than the
transmission grid. In this report, we make a number of proposals for
bringing forward more renewable electricity generation.
The vast majority of the UK’s Combined Heat and Power plant (CHP) is
located on industrial sites; very little of it provides electricity for residential
buildings. Most of our CHP is fuelled by gas, though a small proportion is
CHP plant fuelled by biomass/waste. CHP represents around 7% of UK
electricity. Two thirds of this connects into distribution networks, the rest
to the transmission network.
The final form of distributed electricity generation is microgeneration in the
home or in a larger building, for example micro-CHP, mini wind turbines or
solar photovoltaic panels. See Microgeneration heading, below. There are
only around 3,000 installations currently in place in the UK. These can also
be used to supply surplus electricity back to the distribution grid.
A negligible amount of our electricity is generated in this way.
67
Distributed Energy
CHART 8. GENERATION PLANT CURRENTLY CONNECTED TO UK DISTRIBUTION
NETWORKS
Other (mainly gas)
CHP
Hydro
Onshore wind
Landfill gas, sewage gas
Waste incineration
Offshore wind
Biomass and energy crops
Tidal stream and wave
Photovoltaics
5205
3937
1058
944
781
497
212
43
7
6
(MW)
1000
2000
3000
4000
5000
6000
Source: DTI, 2006.
3.25 However, investors in these diverse technologies share a common
interest in being able to access the distribution grid without undue hassle and
in being rewarded appropriately for selling electricity and other services such
as balancing of the distribution system. It is also in the interests of these
investors for Distribution Network Operators (DNOs) to invest in distribution
networks and to explore innovative ways of more efficiently meeting the
demands and realising the benefits of increases in distributed generation.
3.26 There is an argument that greater long-term certainty around future
industry direction would facilitate more investment and innovation in the
networks than Ofgem’s current 5-year pricing reviews allow. This needs to be
reconciled with Ofgem’s need to ensure that investments in networks are costeffective and do not create unnecessary costs for consumers. In this regard we
welcome Ofgem’s recent announcement that it will draw together and publish
scenarios for the potential long-term development of the networks.28
3.27 Ofgem and the Government have done much over the last five years
to improve arrangements for medium-scale generators. In 2004 Ofgem
announced new incentives for distribution companies to connect all forms of
distributed generation, and to invest more in innovation. These incentives
only apply to new connection applications since April 2005, so there is as yet
limited experience of their operation. Work is also ongoing between Ofgem
and the industry in regard to small-scale installations.29
3.28 The Government remains concerned, however, to ensure that the
overall impact of the regulatory regime is not to discriminate against
distributed generation in any unjustifiable way or to disincentivise desirable
investment in distribution networks. It is possible, for example, that current
price controls create an unnecessary disincentive for Distributed Network
Operators (DNOs) to invest in upgrades or to facilitate connection of small
generators.
68
28 Ofgem has committed to take into account the joint Ofgem-Government review announced below in the
development of these scenarios.
29 In particular, projects under the Distribution Working Group are looking at a wide range of issues including
connection terms, metering/trading and access to the incentives for renewable generation. However,
other groups (e.g. the BSC and CUSC Panels, the Grid & Distribution Code Review Panels, the DTI and
Ofgem’s recently formed Microgeneration Forum) are also dealing with issues that impact unlicensed
generators. (This work is focussed on electricity rather than heat).
Department of Trade and Industry THE ENERGY CHALLENGE
3.29 A number of submissions to the Review highlighted more specific
regulatory barriers, for example in relation to licensing. Among other things,
the licensing regime offers protection to consumers and, through competition,
ensures that consumers can choose their suppliers. However it was argued to
us that the current class exemption regulations for electricity licencing place
an unnecessary limit on the economic potential of private wire networks, by
limiting supply to residential customers to 1 MW (about 1,000 homes) for
each private wire site and placing a 5 MW aggregate limit on trading
between sites.
3.30 In this context, the Government and Ofgem will lead a comprehensive
review of the incentives and barriers that impact on distributed electricity
generation including CHP. This Review will report in the first half of 2007.
Its scope will include, but not be limited to:
• The economic and other incentives on suppliers to buy electricity from
distributed generators;
• The economic costs and benefits, and other incentives on DNOs to
connect new generators and to invest in upgrading distribution networks
in order to accommodate increasing amounts of distributed generation;
• The incentives on DNOs to engage in innovation aimed at minimising the
costs and capturing the benefits of distributed generation;
• Options for resolving potential barriers to the sale of electricity from small
generators, for example:
–
licensing procedures; and
–
technical standards for connection and for network operation.
This review will take place in combination with the study announced in the
2006 Climate Change Programme into the licensing and exemption
arrangements govering small-scale CHP and renewables.
3.31 In addition, the Climate Change and Sustainable Energy Act 2006, which
received Royal assent in June, empowers Government to require all energy
suppliers, through licence modifications, to offer to acquire exported
electricity. The Secretary of State has to make a decision whether to use
these powers twelve months after commencement, that is, in the second half
of 2007. If energy suppliers do not develop a system to acquire electricity
from microgenerators, the Government will intervene.
Microgeneration
3.32 Microgeneration refers to small-scale installations that generate heat,
electricity or, in the case of micro-CHP, both. Potentially installed in an
individual home, better opportunities for microgeneration are often found in
larger buildings or developments where scale benefits can be accessed, for
example in a school, building development or hospital (see box 3.4).
3.33 Microgeneration has been the focus of particular Government attention
over the last 6 – 12 months, with the Microgeneration Strategy (April 2006)
enhanced by the Climate Change and Sustainable Energy Act 2006 and
Budget 2006. The Microgeneration Strategy will be implemented aggressively
by Government, and the powers acquired by Government under the Climate
Change and Sustainable Energy Act 2006 will be exercised where appropriate.
Distributed Energy
69
Key policies include:
• Easier access to the monetary benefits of Renewable Obligation Certificates;
• Producing reports on energy measures for local authorities – including
promoting microgeneration – that authorities will have to have regard to in
the exercise of their functions, under the Act;
• Promoting community energy projects;
• A review of communications activity to assess how to improve information
provision; and
• A new power for Parish Councils to promote microgeneration in their own
parishes.
BOX 3.4: MICROGENERATION
Microgeneration is defined in section 82 of the Energy Act as the smallscale production of heat and/or electricity from a low carbon source.
The technologies covered by this definition are:
• Heat producing technologies:
– Solar water heating installations account for 79,000 out of the total
of 82,000 installations
– Heat pumps (ground source, air source, water source). Ground
source heat pumps are starting to gain prominence as on ‘off gasgrid’ heating solution, but the requirement for ground works makes
them more attractive in new build or as part of a substantial
refurbishment
– Biomass stoves and boilers provide space and/or water heating
from a variety of fuels such as wood pellets, woodchips, logs and
non-wood fuels.
• Electricity producing technologies:
– Solar photovoltaics can take the form of a bolt-on panel or roof-tiles
and are perhaps the most architecturally attractive technology, yet
remain one of the most expensive solutions in most cases
– Micro-wind. Small-scale building-mounted turbines are a relatively
new innovation and are one of the cheapest technologies
– Micro-hydro installations are limited by the availability of suitable
locations
•
Combined heat and power technologies at the small-scale mainly use
natural gas as a fuel but provide electricity as well as heat. The two
systems closest to market use reciprocating engines or Stirling
engines, with fuel cells being an alternative source of power.
70
3.34 Budget 2006 allocated an additional £50m of capital grants for
microgeneration. Using this fund, Government is working to set up a
framework agreement whereby a number of suppliers agree to provide
microgeneration installations at reduced prices, secure in the knowledge that
they will have access to the market created by the £50m grant funding. This
is designed to provide a level of certainty for suppliers in return for reduced
retail prices for their products. It is hoped that participation in the framework
will encourage suppliers to invest in larger-scale production, bringing down
prices on a permanent basis and stimulating demand yet further. Expressions
of interest were published mid-June, and we aim to have the programme up
and running by the end of the year.
Department of Trade and Industry THE ENERGY CHALLENGE
3.35 The Government is giving particular attention to schools. We have
already pledged significant funds (around £5.5 billion in 2005 – 06) to spend
on maintaining and improving school buildings, with the aim of rebuilding or
renewing every secondary school and refurbishing half the primary schools in
England over the next 10-15 years. We need to ensure that these new and
refurbished schools demonstrate substantial energy efficiency savings and
carbon reductions.
3.36 As announced in the Microgeneration Strategy, Government is also
working on changes to the planning system which will make it much easier
for homeowners to install microgeneration equipment on existing houses. The
aim of this work is to ensure that, as far as possible, homeowners will be able
to install solar panels, photovoltaic cells, domestic wind turbines, etc without
having to apply for planning permission.
3.37 Government recognises that uncertainty over the planning status of new
equipment, and the cost and time it takes to obtain planning permission,
are real barriers to the more rapid adoption of such technologies. We are
therefore proposing to ensure that, as far as possible, all such technologies
are exempted from the need for a specific planning application through the
General Permitted Development Order (GPDO).
3.38 The most recent version of the GPDO came into force in 1995, when
few people were aware of microgeneration’s potential and so was not drafted
to accommodate it. Government will therefore up-date it, with the objective of
making these new technologies “permitted development”, wherever this can
be done without removing essential safeguards that protect the interests of
neighbours and local amenity.
3.39 This work will involve amending a Statutory Instrument (SI) and it is
necessary to undertake appropriate public consultation before changes come
into force. The key target dates for this work are as follows:
W/c 5 June 2006
September
End October
End Jan 2007
Spring 2007
Summer 2007
Autumn 2007
Consultant contract commences
Consultants complete assignment
Interim report to Parliament
Public consultation commences (3 months)
Consultation ends
SI and User Guidance drafting completed – 6 week
consultation
Secretary of State reports to, and SI laid before,
Parliament
Commencement
Developing alternative fuels for heat
3.40 It is difficult to break down precisely the sources of heat used in the UK,
as use of fuels outside the gas grid is not measured comprehensively. It is
estimated that around three quarters of our heat comes from gas delivered
through the national gas grid. Another 8% comes from electricity, for example
in the form of electric heaters in the home. The remainder is ‘distributed’ heat
generation, most of it from fossil fuels (eg domestic coal fires or heat from
Distributed Energy
71
coal or oil used in industrial processes), and a small portion from renewables
(e.g. from biomass/waste plant, solar heating panels, geothermal and/or heat
pumps).
3.41 Some investors in low carbon renewable heat technologies are put off
by uncertainty in the long-term demand for their product, inhibiting investment
and cost reduction. While some of these technologies are mature, others
have the potential for significant cost reduction. Even the mature
technologies, such as biomass, could enjoy cost reductions with scale and
the development of supply chains.
3.42 Costs will come down only with a much more vibrant market. The best
way to strengthen market development is to combine grant funding with
appropriate incentives on the users of heat to invest in low-carbon solutions.
We make a number of proposals, outlined earlier in this Chapter, to underpin
the long-term demand from buyers of heat (such as households, developers,
local authorities and central government) to invest in low carbon technologies.
3.43 As well as taking measures to underpin demand, it is essential to
remove barriers to the development of emerging low-carbon heat
technologies. Aggressive implementation of the Microgeneration Strategy,
outlined in paragraph 3.33, will benefit low carbon micro-heat installations.
In the specific case of biomass, Government recently committed in its
response to the Biomass Task Force report (April 2006) to taking forward a
wide range of initiatives aimed at removing barriers to market development.
3.44 The Climate Change and Sustainable Energy Act 2006 placed a duty on
the Secretary of State to promote renewable heat. The UK provides a direct
incentive for renewable electricity generation (the Renewables Obligation) and
will be bringing into force a Renewable Transport Fuels Obligation in 2008,
but no equivalent instrument for renewable heat. While renewable heat
technologies have received grant funding through Clear Skies, Bioenergy
Capital Grants Scheme, Community Energy and the Low Carbon Buildings
Programme, and while we have committed further funding to renewable heat
in England through a new 5-year Biomass Heat/CHP programme,30 they do not
receive additional revenue support.
3.45 There have been a number of calls for a Renewable Heat Obligation or
other market-based mechanisms to support renewable heat. In particular we
note that in the absence of an equivalent to the Renewables Obligation there
is potential for a distortion of the market for biomass in some regions, as
demand from local biomass or co-fired electricity plant pushes up its price.
The Biomass Task Force found that the most efficient use of biomass is in
dedicated heat or preferably CHP plants, rather than dedicated electricity plant,
and that there are circumstances where biomass heat was already economic.
3.46 The Government noted in its response to the Biomass Task Force (April
2006) its recommendation that a Renewable Heat Obligation should not be
pursued at this time, but indicated that we would further consider the
evidence on such a measure. However a number of practical difficulties need
to be addressed in relation to the implementation of a direct market-based
72
30 Announced in the Climate Change Programme Review (2006)
Department of Trade and Industry THE ENERGY CHALLENGE
incentive for heat. Unlike the transport fuels market, and the electricity
market, where there are easily identifiable suppliers, both the supply and
demand for heat are very diverse. There are difficulties in defining on whom
a Renewable Heat Obligation, for example, would be placed, and how the
amount of low-carbon fuels provided by a supplier could reliably be measured.
There is also a risk that measurement and management required to run such
a scheme would create significant administrative burdens.
3.47 We will however continue to be open to solutions to these practical
issues and will report on this in April 2007. The proposed EU Renewable
Heating and Cooling Directive, expected later this year, and further
developments of the market for renewable heat technologies over time may
hasten this process. We will also consider outputs from the recently launched
Carbon Trust’s £5m Biomass Heat Acceleration Projects, which aims to help
make the biomass heat market self-sustaining by reducing costs and
addressing supply-chain risks.
Is Distributed Energy an Alternative to a
Centralised System?
3.48 Our current energy system serves us well in many ways. It captures
scale benefits in electricity and in the distribution of heating fuel. Recently
announced price control proposals will see up to £5 billion invested by 2012
with a minimal impact on bills, and efficiency gains have halved costs in the
electricity transmission network since privatisation. Our networks are 99.98%
reliable31 and meet high safety standards. We are beginning to see a marked
growth in uptake of renewables, and the prospects for offshore wind are
promising. We must protect the best of these outcomes, while grasping the
potential of distributed energy to reduce emissions, increase reliability of
supply and reduce costs.
3.49 Moving towards a distributed energy system will bring challenges. For
example, potential savings due to a reduced need for investment in large
power stations cannot be captured until we have reliable capacity in smallscale plant. Given the current low levels of small-scale generation, this may
take many years. And the technologies necessary for a truly distributed
energy system, notably electricity storage, are still emerging. Investment in
networks will need to continue over the next ten to fifteen years to ensure
that renewables, particularly in the north of Scotland and offshore, are brought
online. See annex E.
3.50 Cost is currently a key limiting barrier for many of the technologies,
especially in small scale electricity generation. The stiffening up of long-term
demand and the removal of barriers, along with the measures announced in
this report, in Budget 2006 and in the Microgeneration Strategy, are major
steps in bringing these costs down. In particular, our comprehensive review
with Ofgem will aim to ensure that we have the right regulatory framework
for Distributed Network Operations and the National Grid to invest
appropriately, as part of their re-investment cycles, in technologies that will
allow the long-term transition towards a more distributed energy system.
73
31 Source: Ofgem
.
Distributed Energy
3.51 Because the most economical and most convenient opportunities for
uptake of community and local energy are in new build, the shift will not
happen overnight. And the kinds of communication and information measures
laid out in the Microgeneration Strategy and the Government Response to the
Biomass Task Force are crucial if there is to be quicker take-up of
microgeneration than we have seen with energy efficiency technologies.
3.52 In the meantime, innovators are finding ways to make the economics
work, in particular by making efficient use of fuels through CHP schemes.
They must be encouraged. One benefit currently available to the customers of
some private wire networks is that they do not pay the costs of the Climate
Change Levy, the Renewables Obligation, transmission extension or
distribution upgrades. Yet some of these networks feed into the grid and rely
on it for back-up. As this kind of distributed electricity grows, the impact on
prices for grid-users (who do pay these costs) will grow. In the early stages
of growth for distributed generation, the impact of this cross-subsidy will be
minimal.
3.53 In the light of the many competing considerations in this area, and
of the real potential of distributed energy systems, we will undertake a
wide-ranging review of the long-term potential and challenges of distributed
generation, including Combined Heat and Power, as an alternative or largescale supplement to centralised generation. Incorporating a range of scientific,
technical, economic and behavioural issues, it will be taken forward as part of
a Foresight Project looking at sustainable energy management in the built
environment, by the Office of Science and Innovation.
3.54 We must recognise however that we will be heavily dependent on much
of our centralised infrastructure for decades to come. We need to foster the
growth and development of distributed energy in a way that maintains and
strengthens the safety and reliability of supply. And energy must remain
affordable. In order to achieve our carbon and energy security goals, we must
make the most of our renewable resources – such as wind and, in the longer
term, marine. These are located predominantly in such remote locations that
much of the electricity they generate will have to be transported to energy
users in distant locations through our transmission networks.
DISTRIBUTED ENERGY: SUMMARY OF PROPOSALS
Incentivising Community and Building Level Distributed Energy
1. Government confirms its ambition to support the move towards
carbon neutral developments, through implementation of the
Code for Sustainable Homes and making clear that this will set
the direction for further tightening of Building Regulations.
Carbon-neutrality will not be possible in most developments without
some form of distributed energy.
2. We will undertake a feasibility study into the Thames Gateway
becoming a low carbon development area within a decade, and
whether and how fast we can move towards zero carbon thereafter.
74
Department of Trade and Industry THE ENERGY CHALLENGE
3. We will consult on the form of the third phase of the Energy
Efficiency Commitment (EEC3) in the second half of this year. We will
consider whether to make changes to EEC that could allow all forms
of microgeneration to be eligible under the Scheme.
4. In the longer term, Government will work with a wide range of
industry and consumer groups to consider whether EEC3 could be
replaced with an obligation on suppliers to cap growth of emissions
from the household sector. Distributed energy and energy efficiency
options investments will be the most common way of achieving this
goal.
5. We will shortly announce a new statutory duty on the GLA on climate
change. This should give a further boost to the growth of distributed
generation in the capital.
6. We will expect all planning authorities to include policies in their
development plans that require a percentage of energy in new
developments to come from on-site renewables, where viable.
7. We will set out proposals that provide a framework to encourage all
planning authorities to take action on climate change, in the Local
Government White Paper later this year.
8. We will consult on a range of options to improve energy efficiency
in the large commercial sector including the option of a mandatory
emissions trading scheme. This consultation will also consider
whether larger Local Authorities and public bodies should be included
in these measures. If included, this would provide a direct financial
incentive on these bodies to invest in low carbon heat and electricity
technologies in their own buildings.
9. We will aim to achieve carbon neutrality in the central government
estate by 2012 (as described in Chapter 2).
Large-Scale Community Heat and Power
10. We have decided to introduce changes to allowance allocations that
will result in more favourable treatment for CHP in Phase II of the
European Emissions Trading Scheme than in Phase I.
Announcements will be made in due course.
Distributed Electricity Generation
These proposals are in addition to the proposals made in the
Renewables section to bring forward renewable generating capacity.
11. The Government and Ofgem will lead a comprehensive review of
the incentives and barriers that impact on distributed electricity
generation including CHP. This Review will report in the first half
of 2007. Its scope will include, but not be limited to:
• The economic and other incentives on suppliers to buy electricity
from distributed generators;32
75
32 eg The impact of the Balancing and Settlement Code on rewarding exported electricity.
Distributed Energy
• The economic and other incentives on DNOs to connect new
generators and to invest in upgrading distribution networks in
order to accommodate increasing amounts of distributed
generation;
• The incentives on DNOs to engage in innovation aimed at
minimising the costs and capturing the benefits of distributed
generation;
• Options for resolving potential barriers to the sale of electricity
by small generators, for example:
– licensing procedures (including exemptions);
– technical standards for connection and for network operation.
12. The Climate Change and Sustainable Energy Act 2006 empowers
government to require all energy suppliers, through licence
modifications, to offer to acquire exported electricity. The Secretary
of State has to make a decision whether to use these powers twelve
months after commencement, that is, in the second half of 2007.
If energy suppliers do not develop a system to acquire electricity
from microgenerators, Government will intervene.
13. Government will undertake a wide-ranging review of the long-term
potential and challenges of distributed generation, including Combined
Heat and Power, as an alternative or large-scale supplement to
centralized generation. Incorporating a range of scientific, technical,
economic and behavioural issues, it will be taken forward as part of
a Foresight Project looking at sustainable energy management in the
built environment, by the Office of Science and Innovation.
Microgeneration
14. The Microgeneration Strategy will be implemented aggressively by
Government, and the powers acquired by Government under the
Climate Change and Sustainable Energy Act 2006 will be exercised
where appropriate. Key policies included:
• Easier access to the monetary benefits of Renewable Obligation
Certificates;
• Producing reports on energy measures for local authorities –
including promoting microgeneration – that authorities will have
to have regard to in the exercise of their functions;
• Promoting community energy projects;
• A review of communications activity to assess how to improve
information provision; and
• A new power for Parish Councils to promote microgeneration in
their own parishes.
15. Government will consult on changes to the Planning system with a
view to making it easier for householders to install microgeneration
equipment on existing houses by removing the need to submit a
planning application.
Alternative fuels for heat
16. Proposals 1-9 and 13-14 will all impact on alternative heat technologies.
76
Department of Trade and Industry THE ENERGY CHALLENGE
CHAPTER 4
Oil, Gas and Coal
Today around 90% of the UK’s energy needs are met by
fossil fuels, and they will continue to be the predominant
source of energy for decades to come. Energy plays an
important role in our economy and lifestyles; therefore we
need to be confident that the market and Government
energy policy will deliver reliable supplies of energy at
competitive prices to people and businesses.
4.1 Like most countries we already import coal, gas and oil to meet our
needs. As production from our own oil and gas fields and coal reserves
declines, we will become yet more reliant on imports. By 2010, imports could
be meeting up to 40% of the UK’s total gas demand, rising to 80 – 90% by
2020. The UK is also expected to become a net importer of oil (on a sustained
basis) by 2010, and we are already a net importer of coal.
4.2 We need to have confidence in the international markets where we will
source supplies. Getting more of our energy from further away will inevitably
mean longer and more complex supply chains, and we need to be sure that
our market framework is robust for this new situation.
4.3 To achieve this we need a resilient and flexible energy system. This
means a diverse system based on a mix of fuel types, a variety of supply
routes, international markets that efficiently allocate resources, back-up
facilities such as storage, and a robust infrastructure to transport energy
supplies to centres of demand.
BOX 4.1: THE ROLE OF OIL, GAS AND COAL IN THE UK ENERGY MIX
Developments in low carbon technologies and improvements in energy
efficiency will act to reduce demand for and thus decrease our reliance on
imported fossil fuels. Nevertheless, fossil fuels will constitute the majority
of our energy mix for the foreseeable future, particularly oil and gas.
Global energy resources are still plentiful, and markets are well-developed
to deal with increased trade.
Nearly our entire transport system relies on petroleum products, in the
form of petrol or diesel for road transport and kerosene for aviation. Our
homes and places of work are mainly heated by gas, and in recent years
gas has also increased its share in the electricity generation mix. Even
with the growing importance of gas in the generation mix, coal-fired
generation continues to meet around a third of electricity demand on
average and during the winter of 2005/2006, in response to high gas
prices, it met about half of demand. This illustrates the important
contribution made by coal-fired generation to the UK’s energy security
and the flexibility of its energy system.
77
Oil, Gas and Coal
International Energy Security
4.4 As our demand for imports increases, so our energy security will be
increasingly linked to the reliability of suppliers and the effectiveness of the
international markets for oil, gas and coal.
Reliable suppliers
4.5 Global coal reserves are dispersed and abundant throughout the world
and we have well-established relationships with our key suppliers. In 2005,
approximately 44Mt of coal, or three quarter of total UK consumption, was
imported from a number of source countries including South Africa, Russia,
Australia and Colombia.33
4.6 Global oil and gas reserves are heavily concentrated, in Russia, Central
Asia, the Middle East and North Africa. The Middle East will remain the
largest oil producing region; OPEC holds approximately 75% of proven
reserves and its market share is projected to rise from 40% in 2005 to 50% in
2030. In 2004 the UK imported 90 million tonnes of oil and 14 million tonnes
of oil equivalent of gas.34
CHART 9. WORLD PROVEN RESERVES OF NATURAL GAS (2004)
56.7
7.5
6.6
71.6
13.8
12.3
7.3
4
World total: 180 tcm as of 1 January 2004
Source: Cedigaz, 2004
4.7 It is in gas where our demand for imports will grow most strongly,
providing up to 80 – 90% of expected consumption by 2020. Norway will
remain a significant supplier of gas to the UK in the medium term, along with
Algeria and Qatar. Over time we are likely to import more from other potential
areas such as Russia, the Caspian and Nigeria (chart 9 illustrates where
natural gas resources are located).
78
33 Source DTI Energy Trends www.dti.gov.uk/energy/statistics/source/index.html
34 At the same time we exported 93 million tonnes of oil and petroleum products and 7 million tonnes of oil
equivalent in gas.
Department of Trade and Industry THE ENERGY CHALLENGE
4.8 There are strong incentives for supplier countries to build reliable
relationships with consuming countries given their heavy reliance on the
revenues from the energy they export. Nevertheless, the UK’s exposure to
international risks will increase gradually over the medium term, as our net
energy imports increase and as supply chains lengthen. These risks include:
• constraints on the investment needed in the exploration, production and
transport of energy;
• limited access to reserves or transport infrastructure. Over half the world’s
oil reserves, for example, are either completely restricted to national oil
companies, or offer only limited access to international business;
• a lack of information or misunderstandings between consumers and
producers about their respective policies;
• inequality, social unrest, corruption and the threat of terrorism. They
compromise the working environment, increase the likelihood of supply
disruptions, hamper investment and increase the costs of oil and gas; and
• accidents and natural phenomena. They are difficult to predict, but their
impact on global and regional markets can be significant, as we witnessed
after Hurricane Katrina last year. The risk of accidents will increase as
supply chains lengthen and trade in energy expands.
4.9 The impact of these risks – whether in leading to sharply increased prices
or curtailing supply – needs to be evaluated against trends in the world’s
demand for energy.
4.10 There has been strong growth in energy demand worldwide, particularly
in emerging economies, such as China and India. Greater competition for
energy supplies is leading to tighter global energy markets and higher prices
(chart 10 shows projected energy demand by fuels up to 2030).
CHART 10. GLOBAL ENERGY DEMAND TO 2030, BY FUEL
6,000
5,000
Mtoe
4,000
3,000
2,000
1,000
0
1970
1980
1990
2000
2010
2020
Oil
Coal
Gas
Other
renewables
Nuclear
Hydro
2030
79
Source: IEA, 2005
Oil, Gas and Coal
4.11 Global oil demand grew by 4.2% in 2004, and global coal demand rose
by an estimated 8%, with particularly strong growth in China. Oil prices have
more than doubled and coal prices have risen by nearly a third over the last
three years. Gas prices have also increased by more than 50% over the same
period (see chart 11).
80
80
70
70
60
60
50
50
40
40
30
30
20
20
10
10
0
0
J M S
01 01 01
J M
02 02
Gas
S J
02 03
M S J M
03 03 04 04
S
04
J M
05 05
p/therm
$/barrel
CHART 11. OIL AND GAS PRICES
S J M
05 06 06
Oil
Source: DTI, 2006
Effective markets
4.12 International trade in fossil fuels is expected to double by 2030,
increasing the interdependence of consuming and producing regions. The
effectiveness of global energy markets where this competition for resources
will be played out is therefore of crucial importance. There are a number of
challenges that need to be addressed:
• there are problems with transparency (particularly of data) in the oil market;
• progress towards liberalisation in the EU energy market – a key source of
gas supplies for the UK – has been disappointing. Reports by the European
Commission cite a number of weaknesses: the high degree of market
concentration; vertical integration being used as a barrier to new entrants;
the lack of market integration; the lack of transparency; and the need for
well functioning and transparent market mechanisms for setting prices.
At the same time, the Commission is becoming more active in promoting
competition in the energy sector, and we support this; and
• the market for Liquified Natural Gas is also still developing (see box 4.2).
80
Department of Trade and Industry THE ENERGY CHALLENGE
BOX 4.2: LIQUEFIED NATURAL GAS
Liquefied Natural Gas (LNG) is natural gas which has been liquefied by
reducing its temperature to minus 160 degrees Celsius at atmospheric
pressure, usually to allow for transportation by ship. Upon reaching its
final destination LNG can be re-gasified and injected into a country’s gas
pipeline system.
In 2005 LNG producers included Indonesia, Malaysia, Qatar, Algeria,
Australia, Trinidad & Tobago and Nigeria. Major importing countries
included Japan, South Korea, Taiwan, USA, Spain and France. LNG
accounts for around a quarter of internationally traded gas and 7% of
global gas demand, and is growing fast. It is currently mainly traded on a
regional basis, serving consumers in the Atlantic Basin and Asia Pacific.
However, LNG offers the potential to create a more global market for gas
by creating a link between these two main consuming regions. LNG can
also enable gas-importing countries to have more diverse gas supplies
and import routes, thereby potentially increasing security of supply and
competition. Worldwide, significant additional capacity in export facilities,
shipping and import facilities is planned; by 2010 such capacity is
expected to have broadly doubled. The UK is expanding its LNG import
facilities, adding more than 100 million cubic meters/day of capacity over
the next five years.
4.13 To respond to these challenges, our international energy security
strategy will be reviewed later this year and will focus on the following
outcomes:
• An open international energy markets framework
– we will continue our drive for EU energy markets liberalisation and
integration, by working with the European Commission to enforce
and strengthen internal market legislation and to make full use of
European competition rules to tackle anti-competitive practices, and
to influence the future direction of European energy policy as set
out in the European Commission’s Green Paper “A European Strategy
for Sustainable, Competitive and Secure Energy” published on
8th March 2006.
– we will work to achieve an open investment framework in the
production and transportation of energy that allows the best technology,
skills and experience to be deployed around the world to best effect,
and a system of clear, stable and non-discriminatory rules and
regulations for activity in the energy sector.
– we need to ensure that there is an effective regulatory framework
to enable business to exploit oil and gas fields and have the confidence
to invest in new pipelines. Building and consolidating political links with
Norway, Algeria, Qatar, countries of the Caspian region and other states
will be important to enable the private sector to establish contracts
with potential suppliers.
– we will work with other member states and the European Commission
to build a stronger voice across Europe when speaking to third
countries seeking to invest in the European energy market.
Oil, Gas and Coal
81
– We will also work to remove barriers to enable both producing and
transit nations to join multilateral treaties such as the European Energy
Community Treaty and the Energy Charter Treaty. These instruments
establish rules which govern trade and investment in energy and related
equipment, and enable disputes to be resolved through law.
• Transparency and good governance in the energy sector
– transparent, accurate and timely data help the market function
effectively, allowing prices to signal the required levels of investment.
We will therefore continue to promote the Joint Oil Data Initiative
(JODI) as a credible mechanism for the exchange of oil market
information; and explore with our international partners how the
publication of objective data might similarly improve the way in which
gas markets function.
– We will continue to promote the Extractive Industries Transparency
Initiative as applicable to all energy resource-rich countries.
• Effective international contingency arrangements to guard against
physical supply shocks in world oil markets
– Existing IEA oil emergency response mechanisms proved to be
effective in response to the disruptions caused by Hurricanes Katrina
and Rita. However, the proportion of world oil consumed by non-IEA
countries is increasing. We will therefore continue to support the work
of the IEA in encouraging member and non-member countries to
maintain and develop oil security arrangements for use in the event
of oil supply disruptions.
• Political and economic stability in source and transit regions
– We will continue, through the UK’s foreign policy, bilaterally, through the
EU and through multilateral organisations, to promote security, justice
and prosperity globally.
Making the most of our own resources
4.14 Making efficient use of the UK’s own energy reserves brings obvious
benefits both in the contribution it can make to a diverse UK energy mix but
also to the economy in terms of jobs, investment and national income
generated by the sector.
4.15 Oil and gas production from the UK continental shelf (UKCS) peaked in
1999, and currently still supplies three quarters of our total energy needs.
Production is expected to rise strongly in 2007 – capital expenditure has been
higher in response to high oil prices and the large Buzzard oil field will soon
reach full production – but will fall afterwards.
4.16 Coal producers in the UK continue to produce around 20Mt of coal each
year, despite a significant decline in production over the last decade. This met
around a third of demand from UK generators who are the biggest consumers
of coal produced in Britain, with a small proportion being used in heavy
industry and to heat homes.
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Department of Trade and Industry THE ENERGY CHALLENGE
Oil & Gas
4.17 After 40 years, UKCS production is now declining. However high oil
prices encouraged a record number of offshore licence applications last year35.
If the 9% per annum trend decline rate seen over the last 3 years is resumed
after 2008, production would follow the path illustrated by the base case
profile in chart 12. However, if investment levels are maintained, the rate of
decline could be slowed, to perhaps 4% a year as illustrated by the slower
decline case in the chart. That would deliver significantly higher oil and gas
production (an extra 1 million barrels of oil equivalent (boe) a day in 2020) and,
consequently, greater recovery of the UK’s remaining oil and gas reserves
(nearly 7 billion boe of extra production by 2030).
CHART 12. TOTAL UK CONTINENTAL SHELF OIL AND GAS PRODUCTION (TO 2030)
Million barrels of oil equivalent/day
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
1999
2003
2007
2011
2015
2019
2023
2027
UKCS Oil and Gas Production
Actual/Base Case
Slower Decline Case
Source: DTI – United Kingdom Offshore Operators Association, 2006
4.18 Geology and the levels of future oil and gas prices will be key
determinants of future investment activity, but we need to ensure that the
right conditions are in place to attract investment in exploration, development
and production; Government is already working closely with industry to
achieve these objectives through PILOT (a joint Government and industry oil
and gas task force set up in 1998 aimed at making the North Sea more
competitive), which has helped generate significant interest in offshore
investment in recent years.
4.19 There are a number of areas where concerted action now by
Government and industry will boost investment in the UKCS over the next
10 to 15 years irrespective of oil and gas prices:
35 The 2005 Round was one of the most successful Offshore Licensing Rounds ever, with the highest level
of Blocks being applied for in 30 years.
Oil, Gas and Coal
83
• Maximising investment in already producing fields. Using regulatory
powers if necessary, Government must press for full investment in fields
that are already producing, We will immediately refocus the DTI’s
Stewardship initiative36 on maintaining reliability and encouraging nearby
exploration and should see results in these areas by the middle of next
year.
• Establishing a Taskforce for meeting infrastructure needs to the west
of Shetland. We are establishing a Taskforce with Industry to get the right
infrastructure (for example pipelines) in place to the west of Shetland so
that, with minimal impact to the environment, we can speed up
development and exploration in the area. The Taskforce will report by the
end of the year.
• Ensuring the development of a dynamic market fit for the future. The
commercial framework needs to change so that it encourages the industry
to be dynamic in the future by facilitating a strong market in assets and
rapid access to infrastructure. For example, the DTI is moving to a webbased system of licence assignments that will substantially speed up deal
making and reduce costs, especially for smaller firms. We will also
continue to build on the work of PILOT to secure the long-term future
of the industry in the UK.
4.20 It is also vital to ensure we have the right fiscal approach. The Treasury
is already discussing with industry the wider structural issues of the oil and
gas fiscal framework. In particular, the Treasury is looking at how it can best
deliver Government’s objective of maximising the economic recovery of our
oil and gas reserves while promoting investment and providing the UK with
a fair share of the revenues from a national resource.
Coal
Current UK coal production
4.21 British coal production has fallen significantly in the last decade. In
1995/1996 over 50Mt was produced from 83 deep and 122 surface mines. By
2005/2006 production had fallen to around 20Mt from 13 deep and 31 surface
mines. Two of the remaining deep mines have since been ‘mothballed’ by
their operator.
Support for UK coal producers
4.22 The Government has provided support schemes for the industry. In
2000-2002 the DTI operated the UK Coal Operating Aid Scheme. £163m was
approved to pay operating aid. Coal Investment Aid (CIA) was introduced in
2003 to provide up to £60m of support for capital investment by 2008.
84
36 The DTI “Stewardship Initiative” creates a mechanism to determine whether field owners are fully
identifying opportunities and providing a means to realise them. Under the Stewardship initiative the DTI
requires that asset owners consistently do the right things to identify and then exploit opportunities, and
that assets are in the hands of those with the collective will, behaviours and resources to achieve this.
Department of Trade and Industry THE ENERGY CHALLENGE
Remaining UK coal reserves
4.23 The Government believes that it is right to make the best use of UK
energy resources, including coal reserves, where it is economically viable and
environmentally acceptable to do so.
4.24 As with oil and gas production, current and forward prices and geology,
which can be very challenging in the UK’s mature coalfields, are key drivers of
investment for UK coal production. There has been recent investment in new
deep mine production, such as the re-opening of abandoned developments at
Aberpergwm colliery and current work to revive Hatfield colliery. Overall the
environment remains challenging with two of the remaining deep mines (at
Rossington and Harworth) having been ‘mothballed’ over the last year.
4.25 Table 4.1 below shows estimates of deep and surface mine reserves
identified in reviews commissioned by DTI in 1998 – 2004 adjusted to reflect
subsequent mine closures and production and the uprating of newly proved
reserves at ongoing mines. It shows an ongoing decline in reserves. Some of
this decline could be reversed if surface mine output were at least maintained
at recent levels subject to striking the right balance between the legitimate
interests of the coal producers, the environmental impacts and the needs of
communities.
4.26 In addition to this, there is thought to be in the order of 400 million
tonnes of recoverable coal at other prospects, most of which would require
either new mine developments or significant new investment at existing or
former mines.
Table 4.1: Estimated UK Coal Reserves
Million tonnes
1998/9
2002
2006
2010
2020
540
151
110
100
70
Surface Mines
325+
89
45
7
–
TOTAL
865+
240
142
107
70
Deep Mines
4.27 The Government will convene a coal forum to bring together coal-fired
generators, coal producers and suppliers, power plant suppliers, trade unions,
small businesses and other parties in order to help them to find solutions
to secure the long-term future of coal-fired power generation and UK coal
production. The forum will facilitate dialogue within the industry and work to
ensure that we have the right framework, consistent with our energy policy
goals, to secure the long-term contribution of coal-fired power generation and
optimise the use of economical coal reserves in the UK. Further information
about the forum’s remit and participants will be announced shortly.
4.28 An important driver for UK coal investment is demand from coal-fired
generators in the UK. Coal-fired generation continues to meet around a third
of electricity demand on average and during the winter of 2005/2006 it met
about half of demand, reflecting its continued importance in the UK’s energy
system. To have a long-term future coal needs to tackle its heavy carbon
emissions. But coal-fired generation technology is becoming cleaner and
85
Oil, Gas and Coal
carbon capture and storage (CCS) offers the promise of genuinely low carbon
electricity generation from fossil fuels. Detail about the Government’s actions
to promote cleaner coal and CCS are set out in Chapter 5.
Energy Imports
Managing the risks associated with energy imports
4.29 We have already outlined our international energy strategy in the section
above. This is an important part of managing the risks associated with our
increasing reliance on imported energy. But we must also consider whether
our domestic energy market framework creates the right incentives for
a sufficient and timely response to our need for more imported energy.
We want incentives that deliver the new investment required in energy
infrastructure (e.g. pipelines) and sufficient security (e.g. through storage).
4.30 We have long been importers of oil and coal and the infrastructure and
markets to support this are well developed. Oil and coal are traded in global
markets capable of adjusting to changes in demand and supply. And they
are easy to transport and store. There were roughly 15 million tonnes of coal
stocks at the end of 2005, equivalent to a quarter of annual demand.
Emergency oil stocking arrangements are provided through the IEA and EU.
However, the Government needs to continue to ensure that future legislation
and targets (e.g. on air quality, carbon emissions and renewable fuels)
which affect the domestic oil supply chain are informed by an understanding
about the long-term impact on likely investment, the supply of fuels and
prices to consumers.
4.31 It is in gas that the biggest changes are needed; we are moving from
a position of virtual self-sufficiency to, by 2020, being 80 – 90% reliant on
imports (see chart 13). While worldwide Liquefied Natural Gas (LNG) supplies
and import capacity are forecast to double between 2005 and 2010, long-term
contracts, limited liquidity in the market and shipping distances mean that
gas is largely supplied into regional markets. Gas supplies could also be
constrained by access to pipelines which cross many countries. In the future,
however, a stronger global market for LNG might develop (see box 4.2).
As a fuel, gas is more complex and more costly to store than coal or oil
and there are currently no international arrangements to manage disruption
to supplies, unlike in oil.
86
Department of Trade and Industry THE ENERGY CHALLENGE
CHART 13. UK GAS IMPORTS 2005 AND 2020
100
80
60
%
Other imports
40
LNG imports
Norwegian imports
20
Europe imports
UK Production
0
2005
2020
Source: Wood Mackenzie, 2004
4.32 There are a number of trends affecting the UK gas industry over the
next two decades. Some will have positive, and others will potentially have
negative, implications for security of supply. The large amount of new gas
import and storage capacity planned and being developed over the next few
years should ensure a comfortable margin of ‘spare capacity’ over expected
winter peak demand37. The projects should also help increase the diversity of
sources and physical infrastructure (e.g. supply routes) to deliver gas to the
UK. At the same time, increasing dependence on imports from or through
markets that are further afield and which are not always open and competitive
can increase the risk of price volatility and reduce supply reliability. However,
there is a risk that any new infrastructure required after the successful
delivery of the current wave of investment might not be added in a timely
manner, which risks creating imbalances between supply and demand.
4.33 This risk of ‘tightness’ in the balance between demand and supply could
lead to relatively high and volatile prices, which could have a considerable
impact on the economy. In fact, if new infrastructure is not forthcoming or is
delayed, there is a risk of price rises, costing consumers hundreds of millions
of pounds. For example, a 1p/therm increase in price on a winter day adds
approximately £1 million to the wholesale cost of gas; over a winter this might
equate to some £200 million.
4.34 To minimise these risks we need to ensure that new infrastructure
comes on stream in a timely fashion to enable us to bring more gas to the
UK, but we also need a more flexible market, for example through the
provision of more storage capacity located close to the market, and greater
flexibility on the part of energy users to cope with demand and supply
fluctuations.
4.35 We believe that well-functioning markets are the best mechanism to
achieve this. However, we need to ensure that the market can bring forward
37 Under IEA stocking obligations arrangements the UK currently holds 67 days of consumption in stocks
Oil, Gas and Coal
87
new infrastructure without delay and develop sufficient flexibility. This is
necessary to meet the challenges of a longer supply chain for gas and to
manage supply and demand side risks.
4.36 Recent market developments illustrate that the market is responding to
the changing pattern of supply. Some £10 billion of private sector investment
is planned over the next few years, both in terms of new pipelines, new LNG
import terminals and new storage projects, which could deliver approximately
100 billion cubic meters or more by 2015 assuming all projects are completed
– a level sufficient to meet our forecast gas import requirements. Our first
priority should be to help ensure that these projects are delivered.
Table 4.2: Planned gas imports infrastructure
Projects
Date
Max capacity
Langeled South
2006/07
70 mcm/day
Statfjord Late Life
2007/08
17 mcm/day
Expansion Interconnector
2006 (December)
from 44 to 66 mcm/day
BBL
2006 (December)
44 mcm/day
Expansion Isle of Grain
2008 (Q4)
25 mcm/day
South Hook LNG
2007 (2009)
33 mcm/day (26 mcm/day)
Dragon LNG
2007 (Q4)
27 mcm/day
Teesside LNG
under consideration
under consideration
Canvey Island LNG
under consideration
under consideration
Source: JESS, 2006
Table 4.3: Planned gas storage projects
Projects
Date of commissioning
Capacity
Aldbrough storage
Q3 2007
420 mcm
Holford storage
2008 (proposed)
170 mcm
Welton storage
2008
435 mcm
Preesall storage
2009 (proposed)
1,700 mcm
Aldbury (Phase 1)
2007/08 (proposed)
160 mcm
Aldbury (Phase 2)
2010 (proposed)
715 mcm
Bletchingley
2009 (proposed)
900 mcm
Saltfleetby
2008
600 mcm
Caythorpe
2007
210 mcm
Source: JESS, 2006
88
Department of Trade and Industry THE ENERGY CHALLENGE
4.37 Securing planning consent is a key factor in the timely delivery of such
projects. We need a regulatory and planning regime that is fit for purpose
and minimises risks and uncertainties for developers. However, currently,
investors are faced by a mix of local planning controls overseen by the
Department for Communities and Local Government and specialist consent
regimes administered by the Department of Trade and Industry. These
regimes have evolved over time in a piecemeal fashion and are not designed
to reflect the major changes in the UK gas industry, nor the technological
developments in this area.
4.38 Government will consult in autumn on the streamlining and
simplification of the planning process for gas supply infrastructure projects.
This is in line with the commitments made by the Secretary of State for Trade
and Industry earlier this year. More details for our proposals in this area are
set out in Chapter 7.
4.39 Given the scale of the change we will see in energy markets over the
next few decades, particularly in gas, it is important that Government,
suppliers and consumers base their decisions on credible transparent
information. For this reason the Government will introduce new arrangements
for the provision of forward-looking energy market information and analysis
relating to security of supply. Led from the DTI and working with key energy
market players, the objective will be to brigade in one place relevant data and
analysis on the medium- and long-term adequacy of future energy supplies
to assist energy market participants with their investment and purchasing
decisions and to help early identification of areas where policy may need to
be reviewed.
4.40 Increasing the level of insurance against supply interruptions, for
example through increased storage capacity or distillate oil back-up tanks,
adds costs to the system. It is not affordable to ensure our energy system is
100% reliable, 100% of the time.
4.41 We have considered the merits of strategic storage (see box 4.3) and
concluded that, while strategic storage could reduce the likelihood of an
involuntary gas supply interruption, this is unlikely to be an issue before the
middle of the next decade. Moreover, any intervention carries costs (in the
order of £2 billion for a ‘strategic store’ the size of the existing Rough storage
facility in the North Sea) along with the risk of unintended consequences.
The latter could be particularly detrimental in the case of strategic storage,
undermining the very objective of the policy: by creating the option for the
Government to ‘release’ gas into the market in case of a shortfall, we would
dull the incentive for private sector companies to invest in more storage or
other kinds of flexibility. The end result could be increased costs with a netreduction – not increase – in security of supply, if, for example, projects that
otherwise would be coming forward, were deterred.
89
Oil, Gas and Coal
BOX 4.3: GAS STORAGE
The UK is becoming increasingly gas import-dependent, and our ability,
during periods of high demand (e.g. winter), to rely on additional, flexible
supply from gas fields in the UK North Sea is reducing as production
declines. It is clear that gas storage – and other forms of flexibility, such as
the ability for electricity generators to switch from gas to alternative fuels –
is going to play a key role in managing fluctuations in the amount of gas
supply available and the level of demand, both from season to season and
from day to day. We have therefore commissioned detailed analysis38 of
the risks to UK gas security of supply in the next 10 – 15 years and an
examination of the costs and benefits of developing ‘strategic gas storage’.
As with any modelling exercise, it was not possible to capture all of the
complexities of the gas market. However, the findings of the modelling
(summarised below) are broadly consistent with views expressed by
industry participants as part of the Energy Review consultation.
The risks to UK gas security of supply over the next two decades were
analysed to calculate the level of risk of an involuntary supply interruption.
The work showed the probability of an interruption between 2008 – 2014
to be minimal; the planned large expansion in gas supply infrastructure
over this period provides substantial flexibility in sourcing supplies. After
2014 it estimated a 1-2% chance of a significant supply interruption.
Despite such a low probability that gas supplies will be interrupted, the
costs to the economy of such an interruption could be very high. The loss
of gas supplies to energy intensive industry has both direct and indirect
effects on suppliers to and customers of the affected businesses.
In this context, after around 2015, the model indicates that it is possible
that the level of spare gas supply capacity could again become tight for
UK consumers. While the probability of this leading to involuntary
interruptions of gas supplies would likely remain very small, the costs
of any shortfall to British industry and economy as a whole could be
substantial. If companies fail to invest to protect themselves (and any
customers they have committed to delivering gas to) against such lowprobability events (e.g. through additional gas storage or fuel back-up),
there might be a case for Government intervention, such as obligatory
‘strategic storage’.
4.42 The market is currently responding to need, as illustrated by the recent
investments in storage and infrastructure. Any further consideration on
strategic storage would likely be seen in an European and international
context, particularly following recent developments, for example the 2006 EU
Energy Green Paper or the international response to world shortages like
Hurricane Katrina.
4.43 The aim should be to ensure our framework encourages industry to
keep risks to a minimum and to do this in the most cost effective way. As we
move away from self-sufficiency, it seems timely to engage with industry and
90
38 Ilex Consulting, Strategic storage and other options to ensure long-term gas security, 2006
Department of Trade and Industry THE ENERGY CHALLENGE
consumers to assess the appropriate level of security of supply and the
appropriate mechanisms to deliver it. Government will consult in the Autumn
with both industry and consumers on the effectiveness of current gas security
of supply arrangements, their robustness as we move to higher dependence
on gas imports, and whether new measures are needed to strengthen them.
4.44 The consultation will consider the case for additional options, which
could deliver increased market flexibility. This could be achieved through
any of:
• changes in suppliers obligations, which could lead to an increase in the
level of storage capacity;
• incentives for more gas and electricity demand side response, so that
consumers reduce their gas demand when the system is under most
strain;
• measures to incentivise distillate back up for gas-fired plants, which would
encourage provision of distillate tanks enabling the release of gas to the
market in case of tightness without jeopardising electricity security of
supply.
Oil, Gas and Coal Proposals
• Our international energy security strategy will be reviewed later this
year and will focus on the following outcomes:
– open international energy markets framework
– Transparency and good governance in the energy sector
– effective international contingency arrangements to guard against
physical supply shocks in world oil markets.
– Political and economic stability in source and transit regions.
• Government will work with industry to boost investment in the UK
Continental Shelf (UKCS) over the next 10 to 15 years irrespective of
oil and gas prices:
– Maximising investment in already producing fields.
– Establishing a Taskforce for meeting infrastructure needs to the
west of Shetland.
– Supporting the development of a dynamic commercial framework.
– Ensuring appropriate technological development.
• The Government will be convening a Coal Forum to bring together
coal producers, coal-fired generators and other interested parties to
help them to find solutions to secure the long-term future of coalfired generation and UK coal production.
• Government will consult in autumn on the streamlining and
simplification of the planning process for gas supply infrastructure
projects.
• Government will introduce new arrangements for the provision of
forward-looking energy market information and analysis relating to
security of supply.
• Government will consult in the autumn with both industry and
consumers on the effectiveness of current gas security of supply
arrangements.
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Oil, Gas and Coal
CHAPTER 5
Electricity Generation
The UK currently benefits from a diverse electricity
generation mix; 37% is generated by gas-fired power
stations, 34% from coal, 20% from nuclear, 5% from
renewables and the remainder from other sources
(chart 14). This diverse generation mix reduces the UK’s
dependency on a single fuel type and helps maintain
a secure supply of electricity.
Over the next two decades, the UK will need substantial
new investment in electricity generation capacity to
replace closing coal, oil and nuclear power stations
and to meet expected growth in electricity demand.
Around 8GW (roughly a third of current capacity) of the
UK’s coal power stations must close no later than 2015
as a result of EU environmental legislation. And, based
on published lifetimes, more than 10GW of the UK’s
nuclear power stations will close by 2023. In total, the
UK is likely to need around 25GW of new electricity
generation capacity by 2025, equivalent to more than
30% of today’s existing capacity.
CHART 14. UK ELECTRICITY GENERATION MIX (2005)
5% 3%
20%
34%
Coal
Oil
Gas
Nuclear
37%
1%
Renewables
Others
Source: DTI, 2006
92
5.1 It will be for private sector companies to make the necessary investment
decisions within the regulatory framework set by the Government. We need
to ensure that this framework provides the right incentives for adequate and
Department of Trade and Industry THE ENERGY CHALLENGE
timely investment, consistent with our goal of moving to a low carbon
economy. In this context, there are risks in the current outlook, but also
opportunities.
5.2 Government’s latest energy projections39 based on a central set of
assumptions show that, without changes to the current market framework,
many of the closing coal and nuclear power stations would be replaced by
gas-fired stations, along with some renewables (see chart 15). Under this
scenario, the percentage of the UK’s electricity supplied by gas-fired power
stations could rise from 37% today to around 55% by 2020. This would
reduce the diversity of the UK’s generation mix, with more than half of the
UK’s electricity supply dependent on a single fuel type. This increased
dependency on gas for electricity generation would also be happening at the
very time the UK becomes increasingly reliant on imports for its gas supplies.
CHART 15. ELECTRICITY GENERATION MIX – PROJECTIONS TO 2020
450
400
350
(TWh)
300
Pumped storage
250
Imports
200
Renewables
150
Nuclear
100
Gas
50
Oil
Coal
0
1990
1995
2000
2005
2010
2015
2020
Source: DTI, 2006
5.3 There are also implications for UK carbon emissions. Unless costeffective technology to reduce carbon emissions in electricity generation
comes forward, for every new fossil fuel-based station, there is a risk of
locking in higher levels of carbon emissions for the 20-40 years that these
power stations operate.
5.4 Finally, new investment must be timely. If new power stations do not
come on stream in a pattern consistent with the expected closure rates of
coal and nuclear power stations, the supply of electricity may only just able
to meet demand during times of very high demand (e.g. at certain times of
the day during winter). During these periods, businesses could face higher
electricity prices. These periods of ‘tightness’ between supply and demand
might result if new power stations are delayed in the planning system so that
they do not begin operation as early as expected, potentially compromising
security of supply. It could equally occur if existing power stations close
93
39 See Annex C.
Electricity Generation
earlier than is currently expected. However, our analysis indicates that based
on existing UK capacity and the current expected pattern of power station
closure, we are unlikely to face such risks before the middle of the next
decade (see box 5.1). There is plenty of time for the market to respond to
these developments with new investment. In addition, the proposals we
make in this report to clarify the policy position on renewables and nuclear,
and the commitment to a long term carbon market and to improve the
planning regime should reduce uncertainty for investors and make it easier
for companies to respond with new investment in a timely manner.
BOX 5.1: INVESTMENT IN NEW ELECTRICITY GENERATION
CAPACITY
It is likely we will need up to 25GW of new generating capacity over the
next two decades, to fill the ‘generation gap’ left by closing coal and
nuclear stations and to meet future electricity demand. Given the scale of
this challenge, the Review has undertaken detailed work to analyse the
risks this could pose to our security of supply and to look at the costeffectiveness of a number policy options40. The options investigated
included different market-based mechanisms to encourage new build in
a diverse set of generating technologies.
The analysis highlighted some risks around the market’s ability to continue
to deliver consistently the very high levels of security of supply UK
consumers and businesses have been used to. The level of risk will
depend on a number of factors including expected fossil fuel prices, the
growth in electricity demand and the expected pattern of closure of
existing coal power stations and nuclear power stations. The closure of
coal stations will depend on individual company decisions, with stations
that are not compliant with EU environmental legislation likely to close
sometime after 2012 and certainly by 2015 when the EU legislation bites.
The closure dates for nuclear stations will depend on whether some
successfully achieve life extensions. The modelling suggests that if
closure dates coincide, market participants may not be able to respond by
developing and commissioning new power stations in a timely fashion.
Under certain scenarios, this could lead to a reduction in the amount of
spare capacity on the system to meet peak demand (e.g. demand at
certain times of the day during winter). At the same time, it is important
to recognise that this is a modelling exercise and as well as not being a
perfect predictor of the future, the model does not take account of our
proposals to clarify the Government’s position on renewables and nuclear
and to streamline planning, all of which should help ensure the market
brings forward new investment in a timely manner.
However, the modelling also indicates that in most scenarios, the risk of
having unserved electricity demand is unlikely to become substantively
higher than today until around 2015. Even then, the amounts of ‘shortfall’
between demand and supply would likely be small and could therefore
potentially be resolved by some companies voluntarily shifting their use
from peak to off-peak times in response to price signals.
94
40 Redpoint Energy, Dynamics of UK Electricity Generation Investment, 2006.
Department of Trade and Industry THE ENERGY CHALLENGE
Furthermore, the modelling showed that any intervention – such as a
capacity mechanism – would impose significant costs and some risks on
the system and, ultimately, the final consumer. The modelling indicates
that while the policy options analysed can be effective in trying to address
the issues identified around capacity shortfall, they can have unintended
and often undesirable side-effects, such as further volatility in prices or
higher carbon dioxide emissions. Such side-effects have indeed been one
of the issues identified in markets elsewhere that have implemented
capacity type mechanisms.
5.5 In analysing these risks and possible policy responses to address them
we judge that, while recognising the risks associated with our existing market
framework, the case for intervention on grounds of security of supply has not
been made. This is especially true given our understanding that the system
appears very robust to fluctuations in supply and demand under most
scenarios at least until around 2015. We anticipate that, through the enhanced
information provision arrangements for security of supply, the Government
will be in a position to monitor the development of this market effectively to
ensure that the framework continues to deliver. In addition, the proposals we
make in this report to clarify the policy position on renewables and nuclear,
the commitment to a long-term carbon market and to improve the planning
regime should reduce uncertainty for investors and make it easier for
companies to respond with new investment in a timely manner.
5.6 The opportunity is clear. Enabling an increase in new investment in low
carbon electricity generation over the coming period, will lock-in lower levels
of carbon emissions in our electricity sector for 20-40 years. Moreover,
increasing the proportion of low carbon electricity generation will increase the
diversity of the UK’s electricity generation mix and could decrease the UK’s
dependency on imported gas.
Government sets the framework and companies
make the investments
5.7 Government needs to ensure that the market framework enables
companies to make timely investments consistent with the Government’s
policy goals on climate change and security of energy supplies.
5.8 Companies need a market and regulatory framework that provides clarity
and helps reduce uncertainty. The policy proposals for electricity generation
are aimed at reducing uncertainty, incentivising investment in low carbon
technologies and improving market information.
95
Electricity Generation
Reducing policy uncertainty
5.9 Given the long-term nature of investments in electricity generation, policy
uncertainty creates a barrier to new investment. Policy uncertainty affects
the economics of all new power stations, by raising the cost of the capital
companies need to borrow to make new investments. It can
disproportionately affect technologies that require higher levels of upfront
capital investment, such as low carbon technologies. Submissions to the
Energy Review consultation particularly emphasised the need for clarity on
the Government’s future policy direction on renewables and on nuclear.
Therefore, in the following sections of this report, we will:
• Confirm and strengthen our commitment to the Renewables Obligation;
and
• Clarify our position on new nuclear build.
Reducing regulatory uncertainty
5.10 Another area of concern highlighted during the Energy Review
consultation was the need to improve the planning process for all energy
infrastructure. Uncertainties and delays caused by the existing planning
process increase the likelihood that investments in new power stations
(and other energy infrastructure such as gas storage) will not be timely.
Proposals to improve the planning process for large-scale electricity
generation are set out in a separate planning chapter. The proposed
improvements should help in two ways:
• They should provide more certainty as to the timescales for any given
planning inquiry; and
• They should shorten the overall timescales from application to a final
decision on consent.
5.11 These proposals should help to incentivise investments in all forms
of electricity generation, including low carbon technologies. More details
can be found in chapter 7.
Sending a strong signal about the value of low
carbon investment
5.12 In Chapter 1, we set out our aim to strengthen the EU Emissions
Trading Scheme (EU ETS) post-2012 so that it provides a stable and
transparent investment framework for business. The UK remains committed
to a carbon price signal; a credible and continuing carbon price is crucial
for sending a strong signal to companies about the need for low carbon
generation. The EU ETS is here to stay beyond 2012 and will remain the key
mechanism for providing this signal, and Government will continue to work
with our international partners to strengthen the Scheme to make it more
effective. We will keep open the option of further measures to reinforce the
operation of the EU ETS in the UK if this should be necessary to provide
greater certainty to investors
96
Department of Trade and Industry THE ENERGY CHALLENGE
Improving the quality of forward looking market
information
5.13 Companies will need to buy their electricity over the next 10-15 years
against a background of many uncertainties in the electricity market.
Companies wishing to invest in new power stations will face these same
uncertainties. To mention just a few of these:
• it is likely that the long term average prices of fossil fuels will be higher in
the UK than over the previous decade but neither companies nor Government
can know how future prices might evolve. The future price of fossil fuels will
affect the price of the electricity we buy;
• the exact pattern and timing of closures of coal and nuclear power stations
is uncertain and as mentioned, the pattern of closure and new investment will
affect electricity prices; and
• given the multilateral nature of the EU ETS, neither Government nor
companies can be sure the pace at which this scheme will evolve.
5.14 Against this background of uncertainties, Government believes there is
a strong case for improving the quality and dissemination of forward looking
market information for companies and investors. There was strong support for
improved information in the submissions to the Energy Review Consultation.
As we have already set out for gas, Government will introduce new
arrangements for the provision of forward-looking energy market information
and analysis relating to security of supply. Led from the DTI and working with
key energy market players, the objective will be to brigade in one place
relevant data and analysis on the medium and long term adequacy of future
energy supplies to help early identification of areas where policy may need to
be reviewed and to assist energy market participants with their investment
and purchasing decisions.
5.15 In the following sections, we set out our proposals on different forms
of electricity generation: renewables, cleaner coal and carbon capture and
storage and nuclear.
Summary of Proposals relating to Electricity
Generation
Government will:
• confirm and strengthen our commitment to the Renewables
Obligation;
• clarify its position on new nuclear build;
• bring forward proposals to improve the planning process for
large-scale electricity generation – these are set out in a separate
planning chapter;
• set out our aim to strengthen the EU Emissions Trading Scheme
(ETS) post-2012 so that it provides a stable and transparent
investment framework for business. This is covered in more detail
in chapter 1; and
• introduce new arrangements for the provision of forward-looking
energy market information and analysis relating to security of supply.
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Electricity Generation
Electricity Generation – Renewables
Renewable energy, derived from sources such as the
sun, the wind, waves, tides and biomass (including waste),
is a vital and growing component of our diverse energy
mix. If we could derive more of our energy from the
renewable sources all around us, we could reduce
our reliance on imported fossil fuels. And as renewable
energy produces very little carbon or other greenhouse
gases, it helps us cut emissions, and plays an important
part in tackling climate change.
The Government therefore proposes to strengthen
the framework that supports the development and
deployment of renewable technologies. With this strategy,
the Government believes that we can achieve 20% of
our electricity coming from renewable sources by 2020.
Background
5.16 Energy flows all around us in the environment. The wind, waves and
tides, driven by the power of the sun, or the gravitational effects of the sun
and the moon, are essentially inexhaustible sources that we can harness to
meet some of our energy needs. We can also use the crops that we grow
and some of the waste that we generate.
5.17 Renewable energy is an integral part of the Government’s long-term aim
of reducing CO2 emissions by 60% by 2050. As it produces very little carbon
dioxide and other greenhouse gases, it plays an important part in tackling
climate change.
5.18 Further, if we can increase the amount of energy we get from the
renewable sources around us, we can reduce our dependence on imported
fossil fuels. In this way, the extra diversity that renewables bring to the UK’s
energy infrastructure can make a significant contribution to the Government’s
goal of ensuring secure and reliable energy supplies.
5.19 The UK is naturally endowed with very favourable resources of
renewable energy – especially onshore and offshore wind – and there is the
potential for the UK to be a world-leader in emerging renewable technologies.
5.20 Recognising the important contribution that renewable forms of energy
can make to our energy policy goals, in the 2003 Energy White Paper
Government set a target of 10% of electricity supply from renewable energy
by 2010, subject to the costs being acceptable to the consumer, with a
further aspiration to derive 20% of our electricity from renewable sources
by 2020.
98
5.21 To help achieve this, the Government has introduced a number of
measures to incentivise the development and deployment of renewable
sources of energy in the UK, including the Renewables Obligation (RO) and
some £500m of public funding for various support programmes.
Department of Trade and Industry THE ENERGY CHALLENGE
5.22 As a result, the amount of UK renewable electricity generation has
increased substantially since 2002. Total generation from RO-eligible
renewable sources was around 4% of total electricity supplied to UK
consumers in 2005, up from 1.8% in 2002.
5.23 About 1.7 GW of wind power is now connected to the grid, enough to
supply power to almost one million homes41. Chart 16 below indicates that
energy from biofuels and waste and from onshore and offshore wind continue
to provide a growing proportion of overall supplies of energy from renewable
sources. There are also a significant number of projects currently in the
planning pipeline, with over 11GW42 of renewable projects in planning across
the UK.
CHART 16. THE CONTRIBUTION OF DIFFERENT TECHNOLOGIES TO THE UK’S
OVERALL ELECTRICITY GENERATION FROM RENEWABLE SOURCES
100
Installed capacity (%)
90
80
70
60
50
40
30
20
10
0
1996
1997
1998
1999
2000
2001
2002
Total biofuels and wastes
Offshore wind
Hydro
Onshore wind
2003
2004
Source: DTI, 2005
5.24 However, without further action and greater long-term certainty for
investors, the recent growth in renewables generation may slow between 2010
and 2020. This is because the growth in more established technologies is likely
to be constrained – by scarcity of suitable sites in the case of hydroelectric
power and landfill gas, and by planning requirements and delays in getting grid
connections in the case of onshore wind. The growth of emerging technologies
is currently constrained by their relative cost. For example, offshore wind,
which was expected to make a substantial contribution to the Government’s
10% target and 20% aspiration, is currently proving more expensive than
anticipated. This is due, for example, to rising steel prices and increasing global
demand for turbines.
41 British Wind Energy Association – www.bwea.com
42 Renewable Energy Statistics Database – http://www.restats.org.uk/2010_target.html
Electricity Generation
99
5.25 If we are to achieve 20% of electricity from renewable sources by 2020,
then both onshore and offshore wind will need to make a significant
contribution. We will also need to maximise the potential contribution from
other technologies, established and emerging alike, such as landfill gas
(including energy from waste – see box 5.3), biomass, hydroelectric power and
wave and tidal stream (see box 5.2). Therefore, the Government has considered
three main areas for further enabling the development and deployment of
renewable energy in the UK:
• strengthening and modifying the Renewables Obligation to provide
longer-term certainty and create a greater incentive for investment into
those technologies that are further from the market;
• attempting to accelerate access to the electricity grid for renewable
electricity generators; and
• tackling planning barriers to reduce delays and uncertainty for developers.
BOX 5.2: TIDAL IMPOUNDMENT SCHEMES
Tidal impoundment schemes – such as barrages and lagoons – and tidal
current technologies have the potential to make a significant contribution
to carbon reductions. In common with other power generation projects
they could bring with them a number of external benefits, but generally
are not competitive with other forms of low carbon generation.
During the course of consultation we have received a range of views
on tidal generation, in particular on the plans for a Severn Barrage, which
could provide around 5% of current UK electricity demand by 2020.
This could cost in the region of £14 billion. It is clear that while attractive
in terms of energy generation and associated benefits, plans for a Severn
Barrage would raise strong environmental concerns in view of the
designations that apply to the Severn Estuary.
We are however interested in improving our understanding of how to
make best use of the potential tidal resource in UK waters. Together
with the Welsh Assembly Government, we will therefore work with
the Sustainable Development Commission, the South West Regional
Development Agency and other key interested parties to explore the
issues arising on the tidal resource in the UK, including the Severn
Estuary, including potential costs and benefits of developments using
the range of tidal technologies and their public acceptability.
Strengthening and Modifying the Renewables Obligation
5.26 The Renewables Obligation (RO) is the Government’s main support
mechanism for the expansion of renewable electricity in the UK. Introduced
in 2002, the RO obliges electricity suppliers to source a rising percentage of
electricity from renewable sources.
5.27 The level of the obligation is 6.7% in 2006/07. Under current policy, it
would rise annually to 15.4% in 2015/16, then remain at that level until the
obligation ceases in 2027.
100
5.28 In order to meet their obligation, energy suppliers must prove they have
Department of Trade and Industry THE ENERGY CHALLENGE
purchased energy from renewable sources by presenting Renewables
Obligation Certificates (ROCs), or, alternatively, by making a fixed financial
payment (a “buyout price”), or some combination of the two. The “buyout
price” rises in line with inflation each year. It caps the costs of the obligation
to suppliers and, in turn, consumers.
5.29 The RO was designed to incentivise the most economic forms of
renewable generation. Since its introduction, it has been effective in achieving
this and has stimulated significant development of onshore wind, co-firing
and landfill gas. However, more could be done to drive further innovation and
bring forward significant growth in renewable microgeneration technologies.
To achieve the step change we need in the share of our energy from
renewables, these emerging technologies need to be strongly fostered.
5.30 We have identified the following three steps for strengthening and
widening the impact of the RO:
• extending Obligation levels to 20% (when justified by growth in renewable
generation);
• amending the RO to remove risk of unanticipated ROC oversupply; and
• adapting the RO to provide greater support to emerging technologies and
less support for established technologies. The Government’s preferred option
for achieving this is through a “banding” system, ensuring that current ROC
rights for existing projects and for those built prior to implementation of
changes are preserved. Any changes would be introduced in 2010.
5.31 We shall consult fully on the second and third of these proposals and on
the implementation of the first.
5.32 In introducing “banding”, the Government would preserve current ROC
rights for existing projects and for those built prior to implementation of
changes. We envisage the change would be introduced in 2009 or 2010.
5.33 The Government announced in March 2006 that it would look again at
the role of co-firing within the RO as part of the Energy Review. We believe
that co-firing could play a greater role in contributing to our renewable energy
and carbon reduction targets with reduced levels of support and we will be
consulting on changes to the co-firing rules.
5.34 With this strategy, the Government believes that it is achievable to have
20% of electricity coming from renewable sources by 2020.
Obligation levels
5.35 In considering options for amending the RO to ensure it continues to
meet our policy goals, the Government recognises that it is essential to
maintain investor confidence. For this reason, the Government is committed
to existing decisions on Obligation levels. The additional announcements
detailed below aim to deliver long-term ROC price certainty beyond 2015/16
and through the remaining life of the Obligation to 2027.
5.36 The Government is also committed to ensuring the costs to consumers
associated with the Obligation are acceptable. Therefore, the commitment to
extend Obligation levels to 20% will be made cost neutral by freezing the
ROC buyout price from 2015.
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101
5.37 Overall, this measure involves the following elements:
• the Government commits to maintaining Obligation levels above the level of
ROC-eligible renewable generation, to a maximum level of 20% of generation
from renewable sources. Increases in Obligation levels above 15.4% will not
occur at pre-determined stages, as with existing announcements, but will
follow a “guaranteed headroom” model, where increases are contingent
upon appropriate levels of growth in renewables generation;
• the Government will remove the automatic annual increase of the buyout
price in line with inflation from 2015. The overall package of measures will
be approximately cost-neutral to the consumer; and
• the Government will consult on measures to amend the RO such that any
renewable generation exceeding the level of the Obligation would not have
a precipitate impact on ROC prices, but rather taper gradually downwards.
Banding the Renewables Obligation
5.38 The Government has considered carefully a number of options proposed
by respondents to the Energy Review consultation to modify the RO. Of
these, we believe “banding” – whereby emerging technologies are awarded
more ROCs per MWh of electricity generated than other technologies – would
best deliver the Government’s aims of:
• bringing forward emerging renewable technologies;
• improving the overall cost-effectiveness of the RO; and
• preserving investor confidence by applying changes only to new projects
(i.e. “grandfathering” existing projects).
5.39 We therefore intend to consult on whether and how to move to banding
the RO. If the Government decides to band the RO following the consultation,
we will seek to introduce the necessary primary legislation in time for
changes to be implemented to the Renewables Obligation Order in 2009 or
2010. This is subject to identification of a suitable legislative vehicle, passage
of the legislation through Parliament and state aid approval from the European
Commission.
5.40 Banding the RO would mean giving some technologies more ROCs and
others less ROCs. In order to preserve ROC market stability, the Government
will seek to balance these factors – so that the number of ROCs in the market
does not significantly alter as a result of the change.
5.41 The DTI, the Scottish Executive and the Department of Enterprise, Trade
and Investment in Northern Ireland are committed to maintaining a strong UKwide ROC market, operating on a consistent basis, and will work together to
ensure that this is delivered. This includes liaising with the Scottish Executive
to promote complementarity with their current proposals for prioritising
support to marine energy.
Reasonable notice and grandfathering
5.42 Changes to ROC eligibility rights will be introduced only after a
reasonable notice period. The position of existing projects will be protected.
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5.43 If the RO is banded, existing projects will be “grandfathered”
– all projects operational now (i.e. that have been commissioned and
are generating electricity) will continue to be entitled to one ROC per MWh
for the remaining lifetime of the Obligation.
Department of Trade and Industry THE ENERGY CHALLENGE
5.44 For projects which become operational after this announcement but
prior to possible banding, the support they receive through the RO will
depend on the technology used. Projects in more economic technologies that
may have their number of ROCs reduced (such as landfill gas and potentially
onshore wind) will remain entitled to one ROC per MWh for the remaining life
of the Obligation. Projects in emerging technologies that may have their
number of ROCs increased (such as offshore wind, marine and photovoltaics)
will receive one ROC per MWh until the banding comes into effect, at which
point they will, as appropriate, be moved up to the new band for their
technology and receive the new (higher) number of ROCs. The one exception
to this may be emerging technology projects that receive capital grants from
the Government – as these projects are given grants on the basis of the
current level of support.
5.45 If the RO is banded, projects that become operational after this change
comes into effect will receive the number of ROCs determined by their band.
This value would not be reduced for the lifetime of the project, irrespective
of subsequent changes. The position of projects and investors will therefore
be protected.
Co-firing
5.46 When the RO was introduced, co-firing – the burning of biomass
alongside fossil fuels – was included as a transitional technology to encourage
the establishment of biomass supply chains, particularly energy crops.
Co-firing was permitted up to a specified cap and, from a specified date,
co-firers would need to use a certain minimum amount of energy crops to
be eligible for ROCs. Within the context of the Energy Review, the
Government conducted a review of co-firing. This review led to a broad
consensus that co-firing should be encouraged to play a long-term role in
reducing carbon emissions. However, co-firing is one of the most economic
forms of renewable energy and does not need full support of the RO. If the
price of carbon were sufficiently high, it might be possible that co-firing would
require no support from the RO – although this is an option for the long term.
5.47 At the moment, and probably for the next decade or so, co-firing is likely
to continue to require the support of the RO. So, if the RO is banded, co-firing
will be designated a band. This will be less than one ROC per MWh, but the
cap on the total volume of co-firing will be removed. Unlike other
technologies, however, there will be no grandfathering for co-firing – as it
requires relatively little capital expenditure.
5.48 The Government believes there is a case to continue to support UK
energy crops. One option under a banded RO would be to allocate energy
crops a higher band. In order to ensure that the UK’s energy crop market
can continue to develop between this announcement and the possible
introduction of banding, the Government will consult on an interim change to
the co-firing rules – allowing the co-firing of energy crops outside the existing
caps on co-firing.
5.49 If the RO is not banded, a cap on co-firing is likely to continue. The
Government would consult as to whether the current cap and restrictions are
still appropriate.
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Electricity Generation
BOX 5.3: ENERGY FROM WASTE
The Government’s waste policy prioritises prevention, reuse and recycling
over the recovery of energy from residual wastes. But where prevention,
reuse and recycling are not possible, recovering energy from waste could
contribute to our energy policy goal as a source of low carbon energy
where the energy so generated comes from the biomass fraction of the
waste (e.g. waste food), which is renewable; does not displace recycling,
which is even more beneficial; and does displace fossil generation.
Strong opposition from some sections of the public has hindered the
development of energy from waste technologies in the UK. This
opposition is motivated primarily by fears over supposed impacts on
human health, as well as by concerns that excessive investment in
incineration, in particular, might “lock in” wastes which could otherwise
have been recycled. The Government believes that the first of these
concerns is not supported by the available evidence, whilst the second
can be addressed through the careful design of local waste strategies.
These issues are being addressed in the Government’s revision of its
waste strategy for England, which will be published towards the end of
this year.
Next steps and timetable
5.50 The Government will launch a consultation on if and how the RO should
be banded by this autumn. This will include consultation on how bands are
set, how frequently bands are to be reviewed, the operation of the headroom
approach to setting Obligation levels, the ROC price tapering mechanism, and
changes to the co-firing rules.
Action on Grid Issues
5.51 Growth in future renewables requires connection to the electricity
network. The anticipated geographical location of much of the new renewable
generation that will be coming on stream, and of wind generation in particular,
will require the development of new transmission infrastructure in parts of
England, Wales and Scotland. Without the investment to link these
renewables to the grid, we will not see the levels of renewables delivered
that we want. Annex E discusses potential investment requirements to
accommodate different amounts of generation.
5.52 The Government is aware of a number of significant and pressing issues
that need resolution. These include current Final Sums Liability (FSL)
arrangements and the “queue” created by the confluence of the
Government’s renewable targets, the Renewable Incentive Scheme and
transitional arrangements for BETTA. Annex E discusses these in depth as
well as a number of longer-term technical and regulatory issues.
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Department of Trade and Industry THE ENERGY CHALLENGE
5.53 It is vital to resolve these issues in order to maximise the potential of
renewables and to achieve targets for their use. Ofgem and National Grid are
working to resolve these issues through the Transmission Price Control
Review and Access reform working groups. The Government will monitor
these processes closely; it is crucial that they progress to a satisfactory
conclusion.
5.54 The Government is also taking the following steps to promote electricity
network access for renewables generators, explained and elaborated in Annex
E. First, work sponsored by the DTI suggests that renewable generation may
drive the need for transmission reinforcement to a lesser degree than
conventional generation. In a cost-reflective pricing system such as ours,
this would imply that transmission charges should be lowered for variable
generating plant, such as wind.
5.55 We will work with Ofgem and National Grid, and in consultation with
industry and relevant experts, to determine whether variable generation,
particularly wind, drives network investment to a different degree than
conventional generation and, if so, whether changes to the Security and
Quality of Supply Standards for renewables as well as relevant investment
and transmission charging methodologies are required.
5.56 The Government is concerned to ensure that current rules under BETTA
relating to system security are not leading to unnecessary delays in the
connection of renewable generation. We welcome Ofgem and National Grid
working together with industry to consider the options for shared, temporary
and limited access to the transmission system with a view to giving
renewable generation priority.
5.57 The Government is also working with Ofgem and industry to develop an
offshore transmission regime to connect offshore wind and future wave and
tidal projects to the onshore grid. This is critical enabler for the development
of the marine renewable sector. The aim is to have the regime in place
by 2008.
Planning
5.58 The Government has identified a number of issues relating to the
planning system for large energy infrastructure as a whole, and a set of
proposals for addressing them. These are outlined in chapter 7.
5.59 The Government also recognises that there are specific issues relating
to planning and renewable energy generation. For example, securing planning
permission for renewables, and in particular onshore wind, can be an
especially difficult process, with developers facing much uncertainty and a
significant risk of delays. The Government proposes to tackle these planning
issues with a view to reducing delays and uncertainties for developers and
others. These proposals are outlined in more detail in chapter 7.
5.60 The Scottish Executive will implement an ambitious strategy for the
deployment of renewables in Scotland and speeding up the consenting
process, which has the potential to boost significantly the level of renewable
generation by 2020.
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Electricity Generation
Conclusions
5.61 The Government has also recently announced extra funding for
renewables and other low carbon technologies from the Environmental
Transformation Fund and further investments that will accelerate the
contribution from microgeneration and distributed renewable generation.
Taking all of these measures together, the Government believes that we can
achieve 20% of our electricity coming from renewable sources by 2020.
Measures on Renewable Energy
In order to support the development and deployment of renewable
technologies, the Government proposes to:
• Strengthen and modify the Renewables Obligation (RO) to provide
longer-term certainty and create a greater incentive for investment
into those technologies that are further from the market.
This will include:
• extending Obligation levels to 20% (when justified by growth in
renewable generation) – this will be made cost-neutral to the
consumer by freezing the buyout price from 2015;
• consulting on amending the RO to remove risk of oversupply of ROCs;
• consulting on possible adjustments to the RO (“banding”) to provide
greater support to emerging technologies and reduced support for
more established technologies;
• providing new funding for renewables through the Environmental
Transformation Fund;
• working with industry, Ofgem and the National Grid to accelerate
access to the electricity grid for renewable electricity generators; and
• working with the Devolved Administrations to ensure that across the
UK, planning systems for renewables projects can reduce delays and
uncertainty for developers and others, while maintaining the
openness, fairness and accountability of the current system.
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Department of Trade and Industry THE ENERGY CHALLENGE
Electricity – Cleaner Coal and Carbon Capture and
Storage
5.62 For many decades electricity generated from coal-fired power stations
has played a major part in meeting the UK’s electricity needs. Even with the
growing importance of gas in the generation mix, coal-fired generation
continues to meet around a third of electricity demand on average and during
the winter of 2005/2006, in response to high gas prices, it met about half of
demand. This illustrates the important contribution made by coal fired
generation to the UK’s energy security and the flexibility of its energy system.
5.63 Generators have recognised the importance of coal in their generating
portfolios and have committed significant investment to enable 20GW, or
about two thirds, of existing coal-fired capacity to comply with the Large
Combustion Plant Directives (LCPD), which restricts emissions of sulphur
dioxide and nitrogen oxides.
5.64 Coal-fired generation will therefore continue to play an important role
in the UK’s energy system, provided that its environmental impact can be
managed effectively. As Table 5.1 below shows, coal-fired generation is the
most carbon intensive of the major forms of electricity generation, emitting,
for example, considerably more carbon than gas-fired generation. This
underlines the importance and urgency of reducing the environmental impact
from coal-fired generation.
5.65 There are at present three main means of reducing the carbon
emissions from coal-fired generation – improving the efficiency of power
stations, co-firing coal with biomass, and carbon capture and storage. These
technologies are sometimes known collectively as “cleaner coal”. The
Government is taking action in each of these areas.
Table 5.1: Illustrative annual carbon emissions from 500MW electricity
generation plant43
Plant type
Carbon emissions (millions tonnes / year)
Conventional coal
0.90
Efficient coal
0.69-0.74
Efficient coal with biomass
0.60-65
Natural gas
0.36
Natural gas or efficient coal with
carbon capture and storage
<0.10
5.66 There has been and continues to be significant improvement in the
efficiency, and therefore the carbon emissions intensity, of coal-fired
generation technology. Advanced boilers, improved turbines and gasifiers can
increase efficiency of coal plant and reduce emissions by about 20%.
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43 Source: DTI, 2006.
Electricity Generation
5.67 There is the potential to increase further the efficiency of coal-fired
generation and thereby improve its environmental performance. This is an
important component of the Carbon Abatement Technology (CAT) strategy,44
which sets out the Government’s approach to supporting the development of
low carbon technologies for power generation. £25 million was initially
allocated to support technology demonstration within the CAT strategy and this
was supplemented by an additional £10 million in the 2005 Pre-Budget Report.
5.68 This CAT strategy demonstration programme will formally launch its first
call for proposals in September 2006. The first call is worth £10 million and
will focus on the pre-commercial demonstration of key components and
systems to support carbon abatement technologies. Subject to state aid
approval, later calls in the scheme for the remaining £25 million will focus on
projects which involve the demonstration of carbon abatement technologies in
operating power stations.
5.69 More efficient coal plant can also be combined with co-firing of biomass
to decrease emissions by about 10%. Co-firing has been incentivised through
the Renewables Obligation. The Government has looked again at the co-firing
rules and more detail is set out in the renewables section of this chapter.
Carbon capture and storage (CCS)
5.70 Carbon capture and storage (CCS) involves capturing carbon from
a process that produces carbon, such as the burning of fossil fuels, and
transporting it to a site where it is stored underground in geological
formations and thereby prevented from entering the atmosphere.
5.71 CCS might reduce the carbon emissions from the combustion of fossil
fuels in electricity generation and industry by 80 to 90% relative to the same
plant without CCS. CCS in conjunction with electricity generation offers
particular promise. The world still is and will continue to be highly dependent
on electricity generation from fossil fuels. In the UK, for example, fossil-fuel
based generation accounts for about 70% of UK electricity supply and about
30% of the UK’s carbon emissions. Further, rapidly developing economies
such as China and India are meeting much of their increasing demand for
electricity through coal-fired generation. So if CCS were economic and
technically feasible on a large scale, it could have a major impact on global
carbon emissions.
5.72 Each of the component parts of the CCS process is already in use in
various places around the world, including in commercial settings, although
the whole CCS process in conjunction with electricity generation has not yet
been demonstrated on a commercial scale. For instance, at the Great Plains
Synfuels Plant in North Dakota, carbon dioxide is captured in a commercial
setting and transported by pipeline to Weyburn in Canada where it is used to
increase the recovery of oil from an oil field. A project at the Sleipner gas field
in the Norwegian North Sea stores about one million tonnes of carbon dioxide
per annum in a deep saline aquifer. But neither of these projects involves
electricity generation. Indeed, because the whole CCS process in conjunction
with electricity generation has not yet been demonstrated on a commercial
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44 A Strategy for Developing Carbon Abatement Technologies for Fossil Fuel Use, DTI, 2005.
Department of Trade and Industry THE ENERGY CHALLENGE
scale, there remain uncertainties about some of the technical, environmental
and economic aspects of CCS in such a setting.
5.73 CCS nevertheless has great potential as a means of reducing global
carbon emissions. Further, the UK has a number of natural and commercial
advantages in developing CCS, because of the skills to be found within its
well established oil and gas industries, and the role that oil and gas fields in
the North Sea might play in CCS storage. Before CCS can play a significant
role in reducing carbon emissions, however, there are a number of challenging
regulatory issues that need to be resolved, both at home and abroad. CCS
also presents real and new challenges in terms of its economic feasibility.
5.74 In the UK and elsewhere a number of specific proposals for large-scale
CCS projects in conjunction with electricity generation have been brought
forward by potential operators. While many of these proposals are only at an
early stage in their development, they reflect a growing interest in CCS
technology on the part of potential generators.
Developing a regulatory framework for CCS
5.75 Before CCS can happen in the UK, a legal and regulatory framework
needs to be established which would enable operators to bring forward CCS
projects that are safe, that minimise potential environmental risks and that
assign responsibilities appropriately between the public and private sectors.
5.76 The Government will continue to work with international partners to
amend international legal frameworks to provide the legal basis for CCS.
Storage beneath the seabed is particularly important to the UK because of the
available capacity associated with depleted oil and gas reservoirs as well as
deep saline aquifers. Such storage falls under the international agreement
called the London Convention which exists to protect the marine environment
through preventing the dumping of wastes in oceans and seas world-wide.
While this prevents marine pollution, it creates uncertainty over what types
of CCS projects with carbon dioxide storage in the marine area are legally
allowed. The Government has pushed strongly to clarify these rules, and in
April 2006 a draft amendment was prepared which would allow geological
storage of carbon dioxide beneath the seabed. A separate international
agreement, the OSPAR Convention, exists to provide further protection of the
marine environment in the North East Atlantic. Signatories to the Convention
have agreed to start work to clarify and if appropriate amend the Convention
to facilitate subsea geological storage of carbon dioxide, and the Government
is supporting this initiative.
5.77 There are also a range of complex regulatory issues at the domestic
level that the Government is working to resolve. In 2006 a CCS Regulatory
Task Force was established with membership from across the Government.
The Task Force will clarify existing UK regulation and its application, identify
the need for new regulation, and develop proposals for new regulation as
required in the following areas:
• the licensing of carbon dioxide storage sites and activities offshore;
• decommissioning and long-term liabilities associated with storage facilities;
and
• licensing and regulation of onshore facilities, including carbon capture,
transport and storage and “capture-ready” plant.
Electricity Generation
109
5.78 The work of the CCS Regulatory Task Force will continue in consultation
with industry and other stakeholders in order to clarify and develop proposals
on appropriate regulations both to facilitate CCS and to ensure the
environmental integrity of CCS activities. This should include an assessment
of the issues relating to liability for carbon dioxide in geological storage,
including in the longer-term. The Government will consider the best ways to
consult as the Task Force’s work progresses, including the option of a formal
consultation covering all aspects of CCS regulation. Formal consultation on
carbon dioxide storage in the marine environment already forms part of the
Marine Bill consultation.
International cooperation
5.79 The UK has joined together with international partners to facilitate the
adoption of CCS and to encourage its development in countries with rapidly
growing energy needs.
5.80 The UK is working in partnership with Norway through the North Sea
Basin Taskforce to develop, where appropriate, common principles for the
regulation and management of carbon dioxide transport, injection and storage
in the North Sea. The Taskforce is comprised of public and private
organisations from both countries and will be reporting its conclusions to
the UK and Norwegian Energy Ministers by 2007. As announced in the 2005
Pre-Budget report, the UK and Norway have also been working collaboratively
on the issues surrounding the costs of CCS.
5.81 The development of CCS in the North Sea is likely to require a new
infrastructure enabling the transport and storage of carbon dioxide. This is a
big challenge and there will clearly be benefits in the coordinated international
development of each element of CCS.
5.82 The Chancellor and the Norwegian Prime Minister announced in June
2006 a joint project on enabling CCS in the North Sea. This will include an
examination of the likely future need for a physical infrastructure of pipelines,
the advantages of and barriers to the development of such a potential
network, and ways in which the benefits of CCS could be realised in the most
efficient and cost-effective way. The project will also examine aspects of the
international regulatory regime including the rules for CCS in the EU
Emissions Trading Scheme (see below).
5.83 The UK is also working to encourage the development of CCS in
countries with rapidly growing energy needs. As part of the UK’s Presidency
of the EU during 2005, the Government announced it was to take the lead in
setting up an EU-China collaboration on CCS with China through the Near
Zero Emissions Coal (NZEC) project which aims to demonstrate coal fired
power generation with carbon capture and storage technology in China by
2020. The UK has funded and is leading on the first phase of the NZEC
project. The UK is also actively exploring the potential for collaboration on
CCS with the Government of India, which also has a rapidly expanding power
generation sector highly dependent on coal.
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Department of Trade and Industry THE ENERGY CHALLENGE
Economics of CCS
5.84 While creating the legal and regulatory framework which would allow
CCS projects to come forward is a necessary step in making CCS a reality,
it is not in itself sufficient. CCS will only realise its potential if it is also
technically feasible, environmentally sound and economically viable. The
evidence available, including experience from existing projects involving the
capture, transportation and storage of carbon, suggests that CCS is both
technically feasible and, with suitable safeguards and appropriate choice of
storage sites, involves an acceptable level of environmental risk. Further,
studies45 suggest that shortage of suitable sites for carbon storage is unlikely
to be a significant constraint on CCS’s potential to deliver carbon emissions
reductions on a large scale. In the long run the most crucial issue for CCS
may therefore be its economic and commercial feasibility.
5.85 The costs of CCS consist of both the costs of the capture technology
and transport and storage infrastructure, and the process of capturing,
transporting and storing carbon. Further, carbon capture imposes a significant
reduction in the efficiency of the underlying electricity generation process.
There remains significant uncertainty about the scale of some of these costs,
in part because CCS has not yet been demonstrated on a commercial scale in
conjunction with electricity generation. For CCS to be commercially feasible,
where these costs are incurred by the owners of plant with CCS they must
be offset by some benefits to the owners.
5.86 Depleted oil and gas fields in the North Sea are potential storage sites
for carbon dioxide, and carbon dioxide can also be used to enhance oil
recovery from oil fields that are still active. There may be scope for reuse of
some of the oil and gas infrastructure in the North Sea for CCS. Following an
announcement in the 2005 Pre-Budget Report, the Government has opened
discussions with industry to examine structural issues for the North Sea fiscal
regime. The discussions provide a useful vehicle for HM Treasury and HMRC
to work with industry to consider ways in which greater certainty can be
provided on how existing tax rules impact on the use of assets involved in
energy production, in particular where assets have previously been used in oil
and gas exploration and production activities.
5.87 A crucial step in bringing CCS closer to economic and commercial
feasibility is ensuring that the environmental benefits that it secures are
recognised and rewarded under schemes and policies designed to encourage
carbon emissions reductions. This will help ensure that the environmental
benefits of CCS are taken into account by generators when they make
investment decisions.
5.88 Before this year it was not possible to include the impact of CCS on the
quantity of emissions countries reported to the United Nations Framework
Convention on Climate Change (UNFCCC). This meant that countries could
not use CCS to help them meet their Kyoto targets. Through its work with the
International Panel on Climate Change (IPCC) the Government has made a
major contribution to the development of new guidelines on accounting for
greenhouse gas emissions, which now allow emissions from CCS projects
45 For example the IPCC Special Report on Carbon Dioxide Capture and Storage, IPCC, 2005.
Electricity Generation
111
to be reflected in emissions reporting. This means that CCS projects will in
principle be able to help countries to meet their targets for the first Kyoto
commitment period, 2008-2012.
5.89 The development of these guidelines is a crucial step towards such
projects being counted as Clean Development Mechanism (CDM) projects,
which allow developed nations to achieve part of their emissions reduction
obligations under the Kyoto Protocol through projects in developing countries.
There are still outstanding issues preventing CCS projects from being
recognised as CDM projects at present, but the Government is working hard
with EU partners to reach agreement on this within the UNFCCC.
5.90 These new guidelines, and potentially the recognition of CCS as a valid
source of emissions reduction under the CDM, should serve to incentivise
investment in CCS projects in both the developed and developing world.
5.91 Further, the Government will continue to push for the recognition of
CCS within the EU ETS. This issue has been considered by the European
Commission through the European Climate Change Programme’s Working
Group on CCS, and a communication from the European Commission is
expected in autumn 2007 on this and other issues relating to CCS.
Next steps
5.92 In the light of the significant cooperation that the UK is undertaking with
Norway, the Carbon Abatement Technology Strategy’s £10 million call for
demonstration and the recent announcement of the Environmental
Transformation Fund, the next step would be a commercial demonstration
of CCS, if it proved to be cost-effective. Following HM Treasury’s recent
consultation on CCS, we will do more work on the potential costs of such
demonstration projects. A further statement will be made at the Pre-Budget
Report.
112
• The Carbon Abatement Technology demonstration programme will
formally launch its first call for proposals in September 2006, with
a first call worth £10 million which will focus on the pre-commercial
demonstration of key components and systems to support carbon
abatement technologies.
• The Government will continue to work with international partners to
amend international legal frameworks to provide the legal basis for CCS.
• The work of the CCS Regulatory Task Force will continue in
consultation with industry and other stakeholders in order to clarify
and develop proposals on appropriate regulations both to facilitate
CCS and to ensure the environmental integrity of CCS activities.
• The Government will continue working with international partners to
develop CCS’s potential, including through the recently announced
joint UK-Norway project on enabling CCS in the North Sea and the
EU-China Near-Zero Emissions Coal initiative.
• The Government will continue to push for the recognition of CCS
within the EU ETS.
• The Government believes that the next stage would be a commercial
demonstration of CCS, if it proved to be cost-effective. More work
on the costs of such demonstration projects will be undertaken, and
a further statement will be made at the Pre-Budget Report.
Department of Trade and Industry THE ENERGY CHALLENGE
Electricity – Nuclear
Introduction
5.93 Nuclear power is a source of low carbon generation which contributes
to the diversity of our energy supplies. Under likely scenarios for gas and
carbon prices, new nuclear power stations would yield economic benefits in
terms of carbon reduction and security of supply. Government believes that
nuclear has a role to play in the future UK generating mix alongside other low
carbon generating options. Evidence gathered during the Energy Review
consultation supports this view.
5.94 Consultation evidence highlighted regulatory barriers which are faced
by many energy projects, including nuclear. In response to this, the
Government is setting out a proposed framework for the consideration of the
relevant issues and the context in which planning inquiries should be held.
This framework would be set out in a White Paper to be published around the
turn of the year. To support preparation of this White Paper, Government is
consulting on the proposals outlined in Annex A of this document. Under this
framework, Government will assess planning applications on their merits,
taking into account the policy set out in the previous paragraph.
5.95 Planning is a devolved matter and powers to grant consent for the
construction of large power stations in Scotland have been executively
devolved, therefore it will be for Scottish Ministers to take such decisions.
5.96 Any new nuclear power stations would be proposed, developed,
constructed and operated by the private sector, who would also meet full
decommissioning costs and their full share of long-term waste management
costs. The Government does not take a view on the future relative costs of
different generating technologies. It is for the private sector to make these
judgements, within the market framework established by Government. The
actual costs and economics of new nuclear will depend on, amongst other
things, the contracts into which developers enter, and their cost of capital for
financing the project.
5.97 However, for the purposes of this report, the Government has carried
out a cost-benefit analysis of nuclear new build in order to inform its
conclusions on the potential role of nuclear power and whether the
Government should take facilitative measures to enable new build to come
forward as a generating option46. This analysis is based on a number of gas
prices, carbon prices and nuclear costs, rather than a single projection.
Nuclear is a potentially economic source of electricity
generation
5.98 The economics of new nuclear build depend on expectations about
future gas and carbon prices, as well as expected costs of building, operating,
decommissioning and dealing with the waste of a new nuclear plant. Based
on a range of plausible scenarios, the economics of nuclear now look more
positive than at the time of the 2003 Energy White Paper. However, it will be
for the private sector to make commercial decisions on investment in nuclear.
46 A summary of this cost-benefit analysis, together with other background information, is available on the DTI
website www.dti.gov.uk/energy/review
Electricity Generation
113
5.99 The following table sets out a number of scenarios:47
Table 5.2: Nuclear generation welfare balance under alternative gas price,
carbon price and nuclear cost scenarios, £m/GW
Low gas Central gas,
Central
Central gas, High gas
price
high nuclear gas price low nuclear price
Carbon price =
€0/tCO2
-2100
-1400
-400
900
1400
Carbon price =
€15/tCO2
-1500
-900
200
1400
2000
Carbon price =
€25/tCO2
-1100
-500
600
1800
2400
Carbon price =
€36/tCO2
-700
0
1000
2300
2800
5.100 The central gas price scenario (37p/therm) reflects the current market
situation. While the gas price has been around 20 pence/therm on average
over the last decade, the average price in 2005 was 42 pence/therm. Going
forward the central gas price is expected to remain high by historical
standards, in line with expectations on the oil price. Sustained commitment to
tackling climate change makes the positive carbon price scenarios more likely.
5.101 The cost of new nuclear power generation is assumed to be around
£38/MWh, as a central case. However, we have also considered a high case
of (£44/MWh) and a low case of (£30/MWh). For the central gas price
scenario (37p/therm) and a carbon price of €36/tCO2 the economics of
nuclear remain robust for generating costs up to £43/MWh. This is well above
the forecast cost of power generated from the Finnish nuclear project
currently under construction, by a margin that far exceeds any historical cost
overruns associated with nuclear projects, e.g. Sizewell B.
5.102 The cost profile of nuclear power is different from that of most other
generating technologies. Chart 17 below shows findings for the proportion
of the levelised cost of nuclear power (i.e. average cost per megawatt hour
over the life of the power station) that may be attributed to each stage of
a station’s life. The majority of nuclear costs are capital, reflecting the
complexity of the construction of the plant. By contrast, the fuel cost
represents a small proportion of the overall cost.
114
47 The table shows monetarised environmental and security of supply benefits net of cost penalties in
£m/GW, NPV over 40 years.
Department of Trade and Industry THE ENERGY CHALLENGE
CHART 17. NUCLEAR COSTS BY STAGE
3%
11%
20%
Capital costs
66%
O&M
Fuel
Back end costs
Source: DTI, 2006.
5.103 Increases in the price of fuel will have a relatively minor effect on the
economics of nuclear, because fuel costs represent only approximately 11%
of the levelised cost48. The doubling of uranium prices since 2000 has had only
a minor impact on final fuel costs and overall generation costs49. By contrast,
gas-fired generation is vulnerable to changes in the cost of fuel because this
makes up 71% of its levelised cost50.
Nuclear plays an important role in reducing carbon emissions
5.104 The full lifecycle release of CO2 from nuclear power is similar to wind
power, and much less than fossil fuel plant51. As an illustration of the many
studies which have been conducted, the Organisation for Economic
Development and Co-operation (OECD) Nuclear Energy Agency (NEA) has
published a table (see table 5.3) giving the full lifecycle carbon emissions of
a range of generating technologies.
48 DTI analysis 2006.
49 IAEA Red Book 2005.
50 DTI analysis 2006 – this assumes gas costs of 36.6p/therm, as per DTI assumptions set out in annex B.
51 Sustainable Development Commission, The Role of Nuclear Power in a Low Carbon Economy, Paper 2:
Reducing CO2 Emissions – Nuclear and the Alternatives, March 2006.
Electricity Generation
115
Table 5.3: Total Lifetime Releases From Selected Technologies
Technology (2005-2010)
GC/kWh*
1.Equivalent to GCOÇ/kWh**
Lignite
228
836
Coal
206
755
Natural Gas
105
385
Biomass
8-17
29-62
Wind
3-10
11-37
Nuclear
3-6
11-22
*Grams of Carbon per kilowatt hour of electricity produced.
** Grams of Carbon Dioxide per kilowatt hour of electricity produced.
Source: OECD Nuclear Energy Agency.
5.105 Some respondents to the Energy Review consultation questioned
nuclear’s credentials as a net producer of low carbon energy, particularly in
relation to the availability of high quality uranium ore. Lower grade ores will
require more energy to make fuel for nuclear power stations, which could
increase the lifecycle carbon emissions from nuclear power. However, it is
not expected that high-grade resources will be depleted in the foreseeable
future52. This view is endorsed by the International Atomic Energy Agency
(IAEA) and NEA; none of the planned new mining projects are of significantly
lower grade ores than that currently mined53. As such, we can have
confidence that the estimates of the lifecycle emissions from nuclear will
remain comparable with wind power, a view highlighted by the Sustainable
Development Commission54.
Nuclear contributes to increased diversity of energy supplies
5.106 Nuclear currently provides around 20% of the country’s electricity
needs and a significant proportion of its baseload capacity. However, most of
our existing nuclear power stations are scheduled to close over the coming
two decades. In the absence of new nuclear build or life extensions to
existing nuclear plant, the nuclear share of generation will decline sharply by
the 2020s. Much of our coal generating capacity is also likely to face closure
over this period. We expect a substantial increase in renewable capacity by
then. However, central projections indicate that based on the existing market
framework, many of the closing power stations would be replaced with gasfired power stations. This would increase our dependence on imported gas.
By 2020, electricity generated by gas would probably be around 55%.
5.107 There is a possibility of extensions to the scheduled lives of some
existing nuclear plant. However, this is uncertain, and will remain so for some
years. Any life extensions would help mitigate the decline in low carbon
generation in the period towards the end of the next decade. However, it is
less clear and certain that life extensions would have a significant impact on
the amount of nuclear capacity operating in the 2020s.
116
52 Sustainable Development Commission The Role of Nuclear in a Low Carbon Economy – “Paper 8 Uranium
Resource Availability”.
53 Information from IAEA member states submitted to IAEA/NEA for “Uranium 2005: Resources, Production
and Demand”, aka “Red Book”.
54 Sustainable Development Commission The Role of Nuclear in a Low Carbon Economy – “Paper 2 Reducing
CO2 Emissions – Nuclear and the Alternatives”.
Department of Trade and Industry THE ENERGY CHALLENGE
5.108 Investment in new nuclear capacity would help to sustain a diverse
electricity generation mix, by reducing the level of total UK gas consumption
and gas imports. For every gigawatt of nuclear capacity displacing gas-fired
generation, gas demand is expected to be approximately 1.3bcm lower
than otherwise (representing roughly 1% of projected gas demand in 2020).
This could make an important contribution to the diversity of our energy
supplies, particularly in light of the decline in indigenous gas supplies from
the North Sea.
Availability of fuel
5.109 Realising the potential benefits of new nuclear build would naturally
be dependent on the availability of fuel. The range of assessments of future
prospects for uranium supplies reflects the difficulty of making exact
predictions, in exactly the same way as predictions of future oil and gas
reserves are complex.
5.110 Predictions on how long uranium deposits will last in any given country
are dependent on a number of variables:
• the number of new mines and the rate at which they come on stream;
• the price of uranium ore. The price affects the mining market and may
make mining of certain deposits more viable;
• new nuclear reactor technology may use less uranium thereby extending
the lifetime of available uranium deposits;
• more nuclear reactors may be built globally, thereby increasing the demand
on available uranium deposits; and
• increased use of reprocessing to recycle used fuel and create MOX (Mixed
Oxide) fuel (a mix of uranium and plutonium) will require less uranium.
5.111 Every two years, the IAEA and NEA undertake a comprehensive
assessment of the availability of uranium, taking into account expected
production and demand levels. Their most recent report55 estimates the
identified amount of conventional uranium resources that can be mined for
less than USD 130/kg (just above the current spot price) to be about 4.7
million tonnes. Based on the 2004 nuclear electricity generation rate this
amount is sufficient for 85 years. Deposits of uranium ore are distributed
across a range of countries, including those on whom we are not currently
dependent for fossil fuels. Using IAEA figures it is possible to make a rough,
high-level estimate that reserves in Australia alone will last another 150 years,
with reserves in Canada lasting 45 years, based on current estimated
resource and production levels56.
5.112 The demand for uranium has increased in recent years, resulting in
higher prices for uranium ore. However, the IAEA expect future increases to
be modest, even with further increasing global demand. Prices are expected
to remain substantially below historically high levels of the 1970s. At the
same time the increases we have seen are expected to encourage further
exploration of uranium resources, as can be seen from the new mines
expected to open across the world and from the increasing exploration.
55 IAEA/NEA Red Book 2005.
56 IAEA/NEA Red Book 2003, updated 1 June 2006.
117
Electricity Generation
Nuclear Waste
5.113 The 2003 Energy White Paper noted that there are “important issues
for nuclear waste to be resolved”. Work is underway to tackle the legacy of
nuclear waste. The Nuclear Decommissioning Authority (NDA) is setting a
UK-wide strategy for more effective decommissioning and clean up of its
sites. The Committee on Radioactive Waste Management (CoRWM) was
established in the second half of 2003 to make recommendations on the best
options for the long-term management of the UK’s higher activity radioactive
waste. It has evaluated the options in an open and inclusive manner and
Government believes the approach they have taken will provide a sound basis
for building future consensus.
5.114 CoRWM produced interim recommendations in April. In these,
CoRWM concluded that deep geological disposal in a repository is the best
available approach for the long-term management of waste, and that a
programme of interim storage (already planned by the NDA as part of its
strategy) is required. While CoRWM has no position on the desirability or
otherwise of nuclear new build, CoRWM has however said that “in principle”
new build wastes could be incorporated within in their options, although this
would raise practical issues about the size, number and location of facilities,
which would need to be properly assessed57. CoRWM’s final report will be
published at the end of July. The Government will respond in a formal
statement to parliament as will the Devolved Administrations, setting out how
work to manage long-term waste will be taken forward.
5.115 The UK has a historic legacy of nuclear waste that it is estimated will
total 475,000m3 (high and intermediate level). Similar to France, the UK’s
legacy nuclear wastes include a complex mix of waste forms from both the
civil and military programmes which increases the technical challenges in
conditioning them for ultimate disposal. Through the NDA, and the nature
of the ownership of the current civil nuclear industry, the public sector is
ultimately responsible for delivering and paying for a long term waste
management solution. The private sector would pay its full share of the costs
of long term waste management arising from any new nuclear build.
5.116 Modern nuclear plants produce significantly less waste than early
generations of nuclear reactors by volume. CoRWM’s inventory study
suggests that if the current level of nuclear capacity were replaced with new
build, existing waste stocks would increase by about 10% by volume.
Regulatory Protection
5.117 The UK already has in place a mature regulatory framework to ensure
the safety, security and environmental risks of nuclear are managed
effectively. Before any developer is allowed to begin construction of a nuclear
power station, they must have a site licence from the Nuclear Installations
Inspectorate (NII), part of the Health and Safety Executive (HSE). This licence
certifies that the design can be operated safely with risks “as low as
reasonably practicable”.
118
57 CoRWM draft recommendations www.corwm.org.uk
Department of Trade and Industry THE ENERGY CHALLENGE
Regulatory Protection – Safety
5.118 Nuclear power stations in the UK must be designed and operated to
stringent standards which demand that all reasonably practicable steps are
taken to avoid accidents, as well as requiring multiple barriers to mitigate the
consequences of any that might occur. Safety standards have advanced over
the years and the IAEA has developed a suite of international safety standards
that reflect worldwide good practice. The recent revision of HSE’s Safety
Assessment Principles has been benchmarked against those international
standards.
5.119 Nuclear power stations are designed so that there are a number of
different safety systems, with multiple back-ups, resulting in a robust system
for responding to abnormal operation and fault conditions. The current safety
assessment principles state that safety equipment should be actuated
automatically, and that no human action should be necessary for at least
30 minutes.
5.120 The risks of a nuclear accident with significant offsite impacts are very
small. Globally, in the history of civil nuclear power there have been ten
incidents that have resulted in offsite impacts, as classified by the IAEA/OECD
International Nuclear Event Scale58. While some of these incidents were
extremely serious, the majority had only minor consequences. The
Sustainable Development Commission has described the UK’s civil nuclear
power stations have having an “excellent safety record”. In the UK, there
have been no major incidents relating to a civil nuclear power station and
there have been no events recorded either with off-site consequences or
where all safety barriers had been exhausted. The most serious incident, the
1957 Windscale accident, where there was an off-site release but no loss of
life or long-term environmental damage59, occurred at a reactor of a very early
design, designed solely for military purposes60.
5.121 Modern reactor designs are expected to reduce the very small accident
risks still further61. Modern designs have multiple layers of protection to guard
against faults and wherever possible employ safety systems which operate
passively and require no operator intervention. Passive safety systems further
reduce the human error factor, which in the past has been a factor in some of
the more serious nuclear incidents.
Regulatory Protection – Radiation
5.122 Radiological protection of employees and the general public in the UK
is covered by a structured legal framework. Any discharge of radioactivity to
the environment from a nuclear site is only permitted under an authorisation
from the relevant environmental regulator62. Doses to the public as a result of
authorised discharges are kept as low as reasonably achievable by the
regulators’ requirement that operators use best practicable means to
minimise the activity of waste discharged.
58 Sustainable Development Commission The Role of Nuclear in a Low Carbon Economy – “Paper 6 Safety
and Security”, March 2006.
59 cited in Sustainable Development Commission Report “Paper 6 Safety and Security”, March 2006.
60In response, the Government of the day set up an independent nuclear regulator, HM Nuclear Installations
Inspectorate, which is now part of HSE.
61 Sustainable Development Commission Report “Paper 6: Safety and Security”, March 2006.
62 The Environment Agency in England and Wales and the Scottish Environment Protection Agency in
Scotland.
Electricity Generation
119
5.123 Permitted dose levels to the public, as a result of nuclear industry
operations, are only a small fraction of natural background radiation, which
makes up 80% of the average annual dose. The average dose to a member
of the public, due to radioactive discharges, is 0.015% of the annual average
dose from all sources63. The largest source of manmade radiation relates to
medical exposures, accounting for 14% of the average annual dose64.
Regulatory Protection – Security and Non-Proliferation
5.124 Although the international security situation is expected to remain at
current levels in the medium to long term, the Office for Civil Nuclear Security
(the UK security regulator) considers that new nuclear build would be unlikely
to increase risks to the UK. Any new plant would be built taking the current
threat environment into account, with robustness and security built-in, rather
than retro-fitted as with the existing plant.
5.125 An international mechanism for keeping track of nuclear material,
referred to as Safeguards, is operated by the International Atomic Energy
Agency (IAEA) and the European Commission to detect and prevent diversion
of this material from peaceful use. The UK, as a nuclear weapons state, has
a voluntary agreement with the IAEA and is a signatory of the EURATOM
Treaty, both of which cover all our civil nuclear installations, as part of this
regime. Any new nuclear reactors would be covered by these agreements.
The proliferation risks from an increase in the number of modern reactors in
the UK are small; all of the plants that industry have highlighted as potential
candidate designs for new build in the UK can be considered as lowproliferation risk. To further international non-proliferation objectives, the UK
is working with US, France, Russia, Germany and other states, as well as the
IAEA, to establish international assurance of supply for nuclear fuel which is
aimed at avoiding widespread investment in sensitive enrichment and
reprocessing plants, which can have a greater proliferation risk.
Where might new nuclear plant be built?
5.126 Any new nuclear stations would be proposed, constructed and
operated by the private sector. Industry has indicated that the most viable
sites for new build are likely to be adjacent to existing nuclear power plants.
It will be up the potential participants of new build to discuss with the owners
appropriate access to suitable sites. We will undertake a further assessment
which will help developers in identifying the most suitable sites. Government
will monitor whether an appropriate market in suitable sites is developing.
Networks
5.127 The Government has examined whether the transmission network
could be a potential barrier to new nuclear generation. The costs of
accommodating new nuclear build at existing sites vary considerably. This is
because the existing capacity at some sites is lower than others. Some sites
will therefore require extensive upgrading or new overhead lines, many
requiring new planning approval. Such costs are likely to be a factor in the
private sector’s site selection process. There could also be costs incurred
from needing to upgrade the system further away from the site to
accommodate increased flows of energy.
120
63 Sustainable Development Commission Report “Paper 6: Safety and Security”, March 2006.
64 Sustainable Development Commission Report “Paper 6: Safety and Security”, March 2006.
Department of Trade and Industry THE ENERGY CHALLENGE
Supply Chain and Skills
5.128 One issue which was raised during the Energy Review consultation
was the potential for shortages in the supply chain for all types of new power
station. This is due to increased global demand for limited resources and a
shrinking skills/company base. Addressing some of the regulatory barriers
associated with civil nuclear power (as set out below) should enable industry
to undertake long-term planning, allowing pre-positioning of resources, orders
and manufacturing slots. It would also enable industry to secure the
engineering design resource from the technology provider.
5.129 The Nuclear Industry Association believes that nuclear skills are
available for new nuclear build and that potential skills pinch points can be
managed through long-term planning and training programmes. The Cogent
Sector Skills Council was licensed in March 2004 to take a strategic view of
the nuclear sector; a Cogent Labour Market Study completed in September
2005 was generally positive, with few shortages in specialist areas and
reported that the industry is making a high commitment to training. The
Engineering Construction Industry Training Board is working with its client
companies to resource a significant increase in UK investment over the
coming decade. The Energy and Utility Skills Sector Skills Council has taken
steps to ensure that the skills to support the expansion of the transmission
system will be in place.
5.130 UK Research and Development capability will be critical to the nuclear
clean-up programme going forward and may also become important to
support other strategic initiatives such as new nuclear build in the future.
While the market should provide much of the nuclear R&D that will be
needed, Government will want to ensure in any transitional period that current
key R&D capabilities are preserved and developed, potentially as part of a
National Nuclear Laboratory. We will be carrying out some detailed work over
the coming months to establish the way forward on this.
Proposals
5.131 Within the UK’s market-based framework, it is for companies to make
investments in new power stations, including investments in any new nuclear
stations. However, interested parties have made clear as part of the Energy
Review consultation that if new nuclear is to play a role in the future of UK
electricity generation, the Government needs to address a number of
regulatory barriers. Some of these barriers are common to all large energy
projects, while others are specific to nuclear. The current planning systems
creates delays and uncertainties for all energy infrastructure projects (see
chapter 7 for more detail). The inquiry for Sizewell B (the most recent nuclear
plant to be built in the UK) took 73 months, with the direct inquiry costs
reaching £30m. Our proposals to tackle the regulatory barriers facing nuclear
are set out below.
Pre-Licensing
5.132 Government welcomed the recent independent expert report published
in June by the HSE/NII that, among other things, set out the potential role of
pre-licensing assessments of candidate reactor designs. Government also
welcomes a similar report by the Environment Agency on the potential to
provide their own pre-authorisation statements in relation to radioactive
discharges. Based on these expert reports, Government has asked HSE/NII to
Electricity Generation
121
take forward proposals to introduce a pre-licensing, design authorisation
procedure, and the Environment Agency to introduce a similar system of
pre-authorisation. We expect the regulators to work closely together to
introduce an integrated regulatory framework.
5.133 The new framework would allow potential developers to apply for prelicensing approval for a generic reactor design before committing significant
sums of capital to planning and construction. Providing the subsequent
development and construction followed this “pre-licensed” standard design,
potential developers should be confident that their site licence application
would be approved by HSE/NII without significant (and potentially costly)
design modifications to address unresolved issues.
5.134 The Office for Civil Nuclear Security (OCNS) and the Environment
Agency expect to contribute to the HSE/NII’s pre-licensing process to avoid
the need to add measures to the design after the safety case has been made.
A staged approach to licensing was one of the recommendations of a recent
IAEA review as a sensible way to manage any new build. HSE will develop
guidance for this new process to be in place by the start of 2007. The
Government has asked HSE/NII to develop more detailed guidance for this
process to be in place by the start of 2007.
Planning – Setting the Policy Framework for New Nuclear Build
5.135 The recommendations on streamlining the planning process for all
large electricity infrastructure projects are outlined in detail in chapter 7. Any
nuclear projects in England and Wales would also benefit from these changes.
As is discussed in chapter 7, Scotland has its own planning system and is
taking forward work to make it more efficient. Scottish Ministers will also
take any planning permission decisions for any new nuclear power stations
in Scotland.
5.136 In addition, Government is setting out a proposed framework for the
consideration of the issues relevant to new nuclear build and the context in
which public inquiries, as part of the planning process, should be held. This
framework would be set out in a White Paper to be published around the
turn of the year. To support preparation of this White Paper, Government is
consulting on the proposals outlined in annex A of this publication.
5.137 We are seeking views on a policy framework in which national
strategic and regulatory issues are most appropriately discussed through
processes other than the public inquiry. The inquiry should focus on the
relationship between the proposal, the local plans and local environmental
impacts. The inquiry should weigh up these issues against the national
strategic or regulatory material considerations, which will have already been
established. The inquiry should also examine the local benefits of the
development and how specific local impacts of the construction and operation
of the plant can be minimised.
122
Department of Trade and Industry THE ENERGY CHALLENGE
Waste and Decommissioning
5.138 Satisfactory arrangements will need to be established for dealing
with the costs of decommissioning and waste from nuclear new build.
Government will need to be satisfied an appropriate structure is in place to
ensure that participants in nuclear new build deal with these costs. It is
important that arrangements are sufficiently robust, particularly given that
in order to comply with its international obligations for nuclear safety
Government must bear the ultimate responsibility for the management (or
disposal) of radioactive waste and spent fuel in the event that no other party
is able to discharge those obligations.
5.139 Government will engage with industry and other experts to develop
arrangements for managing these costs based on the principles set out
below. The first step will be for Government (with the support of the NDA)
and industry to have a common understanding of the likely costs of
decommissioning and waste management. Industry participants will need
to meet the financial requirements established by the Government’s
decommissioning and waste frameworks even in challenging downside
scenarios.
5.140 In the case of waste disposal costs it is recognised there will need to
be a mechanism that shares the burden between the existing legacy wastes
and the cost arising from nuclear new build.
5.141 Government intends to appoint an individual with senior management
or financial experience of major capital investment projects to lead the
development of arrangements for the costs associated with new build
decommissioning and waste management. This individual, who will be
supported by officials from the DTI, will lead discussions with industry on
these topics and make proposals, based on the principles set out below.
Further details on the work programme and timetable will be published by
the time of the White Paper.
5.142 Principles: The Risk Management Framework – Decommissioning
• There should be an upfront assessment of decommissioning costs.
• Full responsibility for decommissioning costs to be retained by the private
sector operator(s).
• Protection will be given to the public sector regarding credit risk and
reduced reactor life.
• The framework should be robust and transparent through time.
• These principles will form the basis of arrangements which will apply
consistently to all new build operators and reactor types.
5.143 Principles: The Risk Management Framework – Waste
• Delivering and paying for a long term waste management solution for
legacy waste is a responsibility that falls to the public sector. Any long-term
waste management solution developed by Government will factor in waste
from new build.
• There will be an assessment of how new build affects the cost of
delivering the national waste management solution.
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Electricity Generation
• The private sector will pay a charge covering the full and equitable costs
of managing the waste generated over the expected life of each new
power station.
• The level of this charge will be informed by work on the Government’s
long term waste management solution.
• The commercial nature of the arrangements in relation to waste disposal
will incentivise participants to operate power stations in a way that seeks
the optimal balance between performance and waste generation.
• Protection will be given to the public sector regarding changes in reactor
life and other factors.
• Provision of interim storage over the life of the plant will be the
responsibility of the operator.
• The framework should be robust and transparent through time.
• These principles will form the basis of arrangements which will apply
consistently to all new nuclear build operators and reactor types.
Nuclear Proposals
• The Government believes that nuclear has a role to play in the future
UK generating mix alongside other low carbon generation options.
• Any new nuclear power station would be proposed, developed,
constructed and operated by the private sector who would also meet
decommissioning and their full share of long-term waste
management costs.
• We will undertake further assessment which will help developers
in identifying the most suitable sites. It will be up to the potential
participants of new build to discuss with the owners appropriate
access to suitable sites. Government will monitor whether an
appropriate market in suitable sites is developing.
• Government has asked HSE to take forward proposals to introduce
a pre-licensing, design authorisation procedure, and the Environment
Agency to introduce a similar system of pre-authorisation.
• Government is setting out a proposed framework for the
consideration of the issues relevant to new nuclear build and the
context in which planning inquiries should be held. This framework
would be set out in a White Paper to be published around the turn of
the year. To support preparation of this White Paper, Government is
consulting on the proposals outlined in annex A of this publication.
• We are seeking views on a policy framework in which national
strategic and regulatory issues are most appropriately discussed
through processes other than the public inquiry. The inquiry should
focus on the relationship between the proposal, the local plans and
local environmental impacts. The inquiry should weigh up these
issues against the national strategic or regulatory material
considerations, which will have already been established. The inquiry
should also examine the local benefits of the development and how
specific local impacts of the construction and operation of the plant
can be minimised.
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Department of Trade and Industry THE ENERGY CHALLENGE
• As is proposed for the more contentious onshore wind projects,
Government will appoint a high-powered inspector whose role will be
to ensure that planning inquiries are run to clearly defined timescales,
and maximum use is made of the powers and efficiencies set out in
the major infrastructure projects rules.
• Government will engage with industry and other experts to develop
arrangements for managing the costs of decommissioning and long
term waste management based on the principles set out in this text.
• Government intends to appoint an individual with senior
management or financial experience of major capital investment
projects to lead the development of arrangements for the costs
associated with new build decommissioning and waste management.
This individual, who will be supported by officials from the DTI,
will lead discussions with industry on these topics and make
proposals, based on the principles set out below. Further details
on the work programme and timetable will be published by the
time of the White Paper.
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Electricity Generation
CHAPTER 6
Transport
Transport in the wider context
6.1 Transport dominates the UK’s use of oil with 74% of supply used to
power the cars, planes, buses, trains and lorries that we depend upon. This
produces 42 million tonnes of carbon (MtC) per annum or around a quarter of
all current UK carbon emissions. Good transport services are essential for a
successful economy and society. They provide access to jobs, services and
schools, deliver goods to shops, and allow us to enjoy our free time.
6.2 Although emissions from this sector have increased since 1990, growth
in emissions is slowing down, and is not expected to grow as strongly in the
future. Emissions from transport are projected to reach a peak around 2015
and thereafter fall. This is on the basis of projections that growth in demand
for transport moderates, fuel efficiency in transport continues to improve and
lower-carbon fuels, especially biofuels, increase their market share.
6.3 Current government policies tackle transport emissions using a full range
of policy levers. Since 1997, the Government has introduced a range of
economic instruments to incentivise take-up of lower-carbon transport fuels
and vehicles, including the Renewable Transport Fuel Obligation, reforms to
Company Car Tax and Vehicle Excise Duty. These are supported by EU
voluntary agreements on new car fuel efficiency, measures encouraging
people to make more sustainable travel choices and record investment into
public transport to give people a viable alternative to travelling by car.
6.4 Analysis for the recent Climate Change Programme Review showed that
existing Government policies in transport would save similar amounts of
carbon in 2010 (proportional to sector emissions) as in other sectors and that
had we not acted emissions from transport would have been 15% higher
in 2010.
6.5 Nonetheless, the Government recognises the scale of the environmental
challenge for transport and the urgent need for robust action to tackle the
problem of rising carbon emissions. We are committed to taking action in the
near term whilst also looking to the future and our long-term goals. That is
why we have already put in place a range of policies which taken together will
have a significant impact on transport emissions. We are working in four ways
to tackle the emissions from transport in both the near and the long term by:
• reducing the carbon content of transport fuel;
• reducing the carbon emissions of vehicles;
• encouraging moves toward more environmentally-friendly transport; and
• working in Europe to include aviation in emissions trading, and to consider
including surface transport.
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6.6 In the near-term, measures to reduce emissions from transport are often
difficult and expensive to implement. Securing a change in people’s transport
behaviour and their choice of transport is also not straightforward. In the
longer term we expect the emergence of new technologies including hybrids,
Department of Trade and Industry THE ENERGY CHALLENGE
advanced biofuels and hydrogen to play a major part in reducing transport
emissions post 2020. New vehicle technologies take a long time to feed
through to market and become more widespread.
6.7 This report summarises a range of policies which are aimed at delivering
carbon reductions in the near-term. It also focusses on putting in place the
incentives and framework necessary to pull through the longer term
technological developments to reach our ambitious 2050 carbon target.
6.8 The policies presented below reflect the fact that without policy
intervention the cars that we currently buy and the way we currently travel
will not get us to where we need to be in emissions terms, due to market
failures. These include failure of information reaching consumers to allow
them to make informed decisions and market failures that inhibit innovation
(e.g. high risk premiums, uncertain carbon markets and technology lock-in).
6.9 These policies consider cost-effectiveness as well as the importance of
supporting the development of a broad range of different technologies. They
also recognise the importance of undertaking the challenging but vital work of
securing the agreement of other countries to spread the positive impact of
such policies beyond what could be achieved in the UK alone.
Reducing the carbon content of transport fuel
The level of the Renewable Transport Fuel Obligation will be
increased provided important conditions are met.
6.10 In November 2005, the Government announced it would introduce a
Renewable Transport Fuel Obligation (RTFO). This requires transport fuel
suppliers to ensure a proportion of their sales are from renewable sources.
The RTFO will be introduced in 2008/9 with the obligation level rising to
5% by 2010/11. We estimate that this policy alone will save one million
tonnes of carbon in 2010, the equivalent to taking one million cars from
our nation’s roads.
6.11 The Government now intends the level of the Obligation to rise above
5% after 2010/2011 provided three critical factors are met:
• development of robust sustainability and carbon standards for biofuels to
ensure that they are delivering high levels of carbon savings without
leading to biodiversity loss or endangering sensitive habitats;
• development of new fuel quality standards at EU level to ensure existing
and new vehicles can run on biofuel blends higher than 5%; and
• costs to consumers being acceptable.
6.12 If these criteria are met, and for example we were able to raise the
level of the obligation to 10% by 2015, we would save up to a further million
tonnes of carbon a year, equivalent to removing yet another one million cars
from our roads. The Government will be consulting stakeholders on such
future enhancements to the RTFO as part of its consultation on the RTFO
Regulations in early 2007.
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Transport
Reducing the carbon emissions of vehicles
6.13 In addition to improving the carbon content of our fuels we are also
looking to improve the fuel efficiency of vehicle engines. Our work with
manufacturers and our European partners has secured real progress in recent
years. The Voluntary Agreements on new car fuel efficiency between the
European Commission and the automotive industry have seen new car carbon
emissions fall by 12% across the EU since 1995.
6.14 The current Voluntary Agreements on new car fuel efficiency between
the European Commission and the automotive industry are due to expire in
2008/2009. These aim to reduce new car average CO2 emissions to 140g/km;
an improvement of 25% compared to 1995.
6.15 The Government believes that while improvements have been made,
the full potential of an EU-wide scheme has not yet been fully realised. The
UK will therefore continue to work with the European Commission and
relevant stakeholders in developing successor arrangements to the current
Voluntary Agreements on new car fuel efficiency.
6.16 While any decision on successor arrangements will be subject to
consultation with the vehicles industry and other stakeholders, the UK will
maintain our stance that all options, including mandatory targets with trading,
must be considered.
6.17 Despite the work outlined above to increase the efficiency of vehicles
and reduce the carbon content of fuel, it is clear that over the longer-term, the
development of low carbon technologies is vital to secure large cost-effective
reductions in carbon emissions from the transport sector. Encouraging such
developments requires further technological developments. If the right
technologies are not brought from laboratory research and development all
the way to commercialisation, these options will be closed off, and we will be
severely restricted in our ability to reduce carbon emissions.
6.18 Technologies such as plug-in hybrids, advanced biofuels and hydrogen
are now being developed internationally. Hydrogen is an “energy carrier”
which can be used in a fuel cell (where it produces zero emissions at the
point of use) and in normal combustion (e.g. an internal combustion engine).
Studies published with this Review show that for the UK the use of hydrogen
offers significant opportunities for cost-competitive CO2 reductions in
transport by 2030. None is readily available today but they are sufficiently
promising to be worth pursuing as energy options for the UK.
6.19 In June 2005, the Government published “A Strategic Framework For
Hydrogen Energy Activity in the UK”, which included a funding package of
£15 million over four years for a UK wide hydrogen and fuel cell
demonstration programme. Currently the Government supports industrial
collaborative research and development for fuel cell and hydrogen
technologies through the programme.
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6.20 The Government has also provided funding of over £450,000 for the trial
of hydrogen-powered fuel cell buses in London as part of the EU CUTE (Clean
Urban Transport in Europe) project. £6.5 million of funding has been
Department of Trade and Industry THE ENERGY CHALLENGE
committed for the fuel cell and low carbon vehicle technology Centre of
Excellence (CENEX) based in Loughborough. The Department for Transport
announced in January, as part of their Horizons innovative research
programme, a competition for projects to investigate the options for the
further steps required to move to the adoption of a hydrogen transport
infrastructure. This will support 2-4 projects examining the practicality and
timing of the introduction of the required infrastructure to support hydrogenfuelled vehicles.
6.21 The Government announced in 2003 a £10 million programme to
encourage the development and demonstration of Low Carbon Passenger
Cars. This programme was subsequently administered by the Energy Savings
Trust (EST) and the first of three funded projects on hybrid technology was
completed successfully in 2006.
6.22 The Government commissioned an assessment of the future potential
of low carbon transport technologies, discussing the issues and difficulties
surrounding each65. This work looked at all transport technologies, vehicles
and fuels that have the capability to bring about large reductions in carbon
emissions, principally hydrogen, advanced biofuels and hybrid technologies.
It summarised the carbon abatement potential of each, the present blocks
to implementation, as well as current and future costs.
6.23 We think there is scope to do more to ensure there is a consistent,
Government wide framework for incentivising technology in transport.
We therefore propose to develop a Low Carbon Transport Innovation Strategy
to spur vital innovation in low carbon transport technologies. This will
complement the recently announced National Institute of Energy
Technologies. For all technologies that show promise the Innovation Strategy
will:
• efficiently allocate money to laboratory research and development;
• facilitate development into working products;
• find funding for practical demonstrations in the real world; and
• allow the most cost-effective technologies to come to market.
6.24 The Innovation Strategy will be evidence-based. It will aim to leverage
efficiently private sector funding, make minimal demands of public funds, and
progress the use of international partnerships to improve resource sharing and
knowledge transfer.
6.25 The Strategy will review current government policies that affect
transport innovation and make recommendations for changes and for new
policies. The Strategy will be taken forward in conjunction with the Powering
Future Vehicles Strategy Review this year. By analysing the entire innovation
system, a more co-ordinated approach to incentivising technology will be
developed. In taking forward the Low Carbon Innovation Strategy we aim to
assist not simply innovation but also the application of technologies that will
significantly reduce carbon emissions in the long term.
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65 E4Tech, “UK carbon reduction potential from technologies in the transport sector”, May 2006.
Transport
Encouraging moves toward more
environmentally-friendly transport
6.26 The Government’s record investment in transport infrastructure, to give
more people real alternatives to travelling by car, reflects our commitment to
reducing the carbon impact of transport by encouraging more environmentally
friendly forms of transport. Britain now has the fastest growing railway in Europe
– with more than a billion passenger journeys undertaken last year. People are
now travelling further by rail than in any year since 1946. Since 1996-97, rail
passenger kilometres have grown by 30%, and rail freight is up by 36%.
6.27 The foundation on which this growth has been achieved is
unprecedented levels of government investment in the rail network to
address decades of under-investment. For example, between 2004/5 and
2008/9 the Government will be spending over £23 billion on Britain’s railways
to make up for years of under-investment. Next year we will set out firm
plans for the coming five years to meet the demands of a growing railway.
6.28 Buses too provide essential alternatives to the private car, especially
where congestion – and the associated problems of air quality – are a growing
problem. The Government has worked to halt the long-term decline in bus
use. Local and central Government provides over £2 billion annually to provide
bus services that offer a genuine alternative to the car. Rural Bus Subsidy
Grant now supports over 2,200 rural bus services with over 29 million
passenger journeys made on these services annually. Total journeys taken in
England by bus have increased for each of the last 6 consecutive years; in the
last 5 years bus use in England has grown by around 8%.
6.29 But in too many places outside London, bus use is still declining.
The Department for Transport is therefore currently examining the existing
arrangements for bus provision and will be working through in the coming
months proposals for improving the public transport offer provided by buses
outside London.
6.30 Together with these investments and innovations in public transport, the
Government promotes a package of policies entitled Smarter Choices, aimed
at helping people choose sustainable travel options. Smarter Choices projects
include the Travelling to School initiative which aims to have active travel
plans in every school in England by the end of the decade. In recent weeks
the Government has also doubled Cycling England’s budget to £30 million
over the next three years.
6.31 The Government has embarked upon a programme to enhance
consumer information on transport emissions and climate change. A key part
of our strategy is to ensure individuals and manufacturers have the right
information and incentives to encourage them to make the most
environmentally friendly choices on transport.
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6.32 The decisions of individuals on vehicle purchase and mode of transport
have a significant impact on carbon emissions. We need to ensure that
consumers have the right information when buying vehicles to allow them to
make choices informed by the impact on climate change. With this in mind,
most UK car showrooms now display colour-coded fuel efficiency labels,
Department of Trade and Industry THE ENERGY CHALLENGE
developed and delivered in close cooperation with the vehicle industry and the
Low Carbon Vehicle Partnership (LowCVP), which are directly linked to the
Vehicle Excise Duty (VED) bands and which will be familiar to consumers
used to similar labels for their household white goods. We also need to make
information more readily available to travellers generally on the carbon impact
of their travel choices.
6.33 Many citizens are now seeking a clearer understanding of the carbon
consequences of the travel choices they make. The Government will
therefore act to raise awareness of transport and climate change issues and
the options available to individuals. This will be achieved by:
• improving the quality of information available to purchasers of new
vehicles; and
• improving access to information for travellers on the carbon impacts of
different modes of travel.
6.34 This approach will include developing initiatives to promote consumer
information on buying greener vehicles, on eco-safe driving, and to assist
businesses by promoting the benefits of workplace travel planning.
6.35 The Government has delivered a series of fiscal measures to incentivise
consumers to use more fuel efficient vehicles. The principle that fiscal
measures can play a part in achieving our environmental goals has been
established. Company Car Tax was reformed in 2002 to make it carbon-based.
Vehicle Excise Duty, which was flat-rate in 1997, was graduated in 2001 by
carbon emissions. In Budget 2006 the banding system was reformed,
reducing the duty for the lowest emission cars to zero and increasing the duty
for the highest emissions cars to £215. Combined with savings expected from
the Voluntary Agreement on new vehicle fuel efficiency these measures are
expected to deliver reductions of 2.3m tones of carbon in 2010. Based on the
principles of policy already established, we will continue to examine how
fiscal and other policy instruments can achieve these aims.
The UK is leading in Europe to expand the EU
Emissions Trading Scheme to include aviation,
and to consider the case for future inclusion of
surface transport.
6.36 Emissions trading uses market forces to deliver emissions reductions
in the most cost effective manner. It guarantees a specific environmental
outcome in a way that other instruments do not. It allows coverage of
environmental costs through a mixture of emission reductions within a
particular sector and purchase of reductions in circumstances where these
can be produced more cheaply by other sectors. The cost of reducing
emissions in transport is currently relatively high. Therefore transport would
be expected to buy credits from other sectors that can reduce emissions
more cheaply in the short term. This would be expected to change over time
as the price incentive helps make new technology more widespread in
transport, causing abatement costs to fall relative to other sectors.
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Transport
6.37 Larger trading schemes have greater scope for finding the most efficient
carbon reductions. Including surface transport and aviation in the EU
Emissions Trading Scheme could therefore lower the overall costs to the
economy of combating climate change.
6.38 Last year under the Presidency of the United Kingdom, the European
Union made real progress towards including aviation in the EU Emissions
Trading Scheme (EU-ETS) from 2008 or as soon as possible thereafter. The
European Commission now aims to produce a legislative proposal and impact
assessment on the inclusion of aviation in the EU ETS by the end of 2006.
The Government continues to explore options for the use of other economic
instruments and reserves the right to act alone or bilaterally if progress
towards agreements at international level proves too slow.
6.39 The European Commission is currently carrying out a review of the EU
ETS. The Government will ensure that inclusion of emissions from surface
transport is given serious consideration in this review. The Secretaries of
State for DfT, DTI, and Defra have already jointly written to the Commission
to ask them to take this step.
The combination of these policies, if fully delivered,
would substantially reduce carbon emissions
6.40 In the longer term, technology development can produce substantial
carbon reductions from transport, but this requires action now to provide the
right incentive framework. Government recognises the urgency of tackling the
problem of rising carbon emissions in the transport sector. In the medium
term, the policy package could deliver significant carbon savings – some of
which are quantified here. A successor to the existing Voluntary Agreements
and moving beyond a 5% RTFO could reduce carbon emissions from
transport by around 2 – 3 MtC in 2020. Adding surface transport into the EU
ETS with demanding caps (which the Government believes merits serious
consideration), might save 4 – 7 MtC 202066. More significant reductions
would be likely to come after 2020 as technological development enables
goods and people to be transported with lower carbon emissions.
6.41 There would be positive effects on security of supply. A successor to
the Voluntary Agreements could save approximately 3 billion litres of fuel
(petrol and diesel) per year by 2020. Every 1% increase in the RTFO could
save around 0.5 billion litres a year, replacing these with fuels from renewable
sources.
6.42 The achievement of the savings set out above would require all these
proposals to be implemented fully. This requires action by individuals,
business, by national governments and international organisations such as
the EU. The scale of the challenge is considerable, but so too are the
opportunities. The Government recognises its responsibilities to secure a
modern, efficient system that gets people to work, allows businesses to
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66 These numbers are highly dependent on several assumptions and should be thought of as indicative of the
kind of reductions that could be expected.
Department of Trade and Industry THE ENERGY CHALLENGE
operate effectively, enables goods to be transported efficiently, and allows
people to make the most of their leisure time. But we are clear that we need
to achieve these transport goals whilst meeting our environmental obligations.
Transport Commitments
• Government intends the level of the Renewable Transport Fuel
Obligation to rise above 5% after 2010/11 provided robust carbon
saving and sustainability assurance schemes can be developed,
technical vehicle and fuel standards are adequate and costs to
consumers are acceptable.
• Government will engage with key organisations, the European
Commission and other EU member states to ensure that the potential
for future inclusion of emissions from surface transport in the EU
Emissions Trading Scheme (ETS) is given serious consideration.
• Government will continue to work with the European Commission
and relevant stakeholders in developing successor arrangements to
the current Voluntary Agreements on new car fuel efficiency when
those Agreements expire in 2008/09. This must include consideration
of all options, including mandatory targets with trading.
• Government reaffirms its support for the inclusion of aviation in
the EU ETS and continues to take a leading role in its promotion.
It continues to explore options for the use of other economic
instruments and reserves the right to act alone or bilaterally if
progress towards agreements at international level proves too slow.
• Government will develop a Transport Innovation Strategy in close
collaboration with the ongoing energy innovation framework and the
National Institute of Energy Technologies. This will comprehensively
review current policies and explore others, such as second generation
biofuels and hydrogen, where necessary.
• Government has embarked upon a programme to enhance consumer
information on transport emissions and climate change. This will be
informed by continuing current research into public attitudes and
behaviours towards climate change and transport.
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Transport
CHAPTER 7
Planning for Large-Scale
Energy Infrastructure
The planning challenge
7.1 The planning and consenting system for energy infrastructure projects67
(e.g. new gas pipelines or gas storage, or investments in renewables, fossil
fuel or nuclear electricity generation) is complex, with projects falling under
a number of different consenting regimes (see table 7.1). These regimes have
similar characteristics including:
• local government involvement;
• an assessment of the proposal against the local authorities’ existing plans
for development;
• public participation;
• an environmental impact assessment; and
• the potential for a public inquiry.
7.2 These elements are necessary to maintain a regime that is fair,
transparent, has public support and that leads to better quality decisionmaking through local participation. However, these same elements can also
create difficulties for participants, including uncertainty, delays and sometimes
significant upfront costs.
7.3 Although energy policy is a reserved matter, most aspects of planning
policy have been devolved, and in Scotland the planning system as a whole is
devolved. Therefore, the relationship between Government and the Devolved
Administrations is important in building frameworks for decision making for
energy infrastructure that are fit for purpose and reduces delays and
uncertainty across the entire UK.
7.4 The timely delivery of energy infrastructure plays an important role in
maintaining the reliability of our energy supplies. Securing the necessary
consents can be a major cause of delays for all types of energy projects.
Recent experience shows these delays can be significant:
• the Scout Moor 65MW windfarm took 23 months to secure planning
permission68;
• Sizewell B, the most recently constructed nuclear power station, took 73
months to secure planning permission69;
• the North-Yorkshire grid upgrade, a major high-voltage transmission line
upgrade, took 96 months to secure planning permission70; and
• the proposed Presall gas storage facility to store 1020 million cubic metres
of gas (20% of current storage capacity) was the subject of an application
for planning permission in November 2003. A decision has yet to be made.
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67 This report uses the term “energy planning system” to refer to the sum of all the different regimes under
which energy infrastructure projects secure consents. In many instances, these consents will be deemed
to grant planning permission.
68 Consent granted under the Electricity Act 1989, which also grants deemed planning permission.
69 As above.
70 As above.
Department of Trade and Industry THE ENERGY CHALLENGE
7.5 On average, in England and Wales since 1990, where a planning inquiry
has been held as part of the consenting process, large electricity projects
have taken 36 months to secure consent71. There is an increasing need for
major new gas supply infrastructure (as discussed below), and already there is
growing evidence of increasing delays in the granting of consent. The need to
tackle planning for both electricity and gas projects was emphasised in the
responses to the Energy Review consultation.
7.6 There are several specific factors that contribute to the difficulties in securing
the necessary consents, including planning permission72 for potential developers:
• Individual energy projects are part of large national systems that provide
benefits enjoyed by all communities. The areas in which they are located
share in these benefits – and may also gain some economic advantage,
for example, in terms of employment. But the benefits to society and the
wider economy as a whole are much larger. These larger, wider benefits
are not always visible to the specific locality in which energy projects are
sited. Therefore, local opposition can often be strong. For certain energy
development, e.g. gas storage facilities; there are some geological or
environmental reasons for the siting of facilities.
• Without a clear Government policy highlighting the strategic national need
of a particular type of development, it is difficult for an inspector to give
sufficient weight to the national benefits when balancing these against
local views. As a result, public inquiries can become embroiled in debates
about national issues, rather than focusing on local issues relating to siting
of the proposed development. For example, at the Sizewell B inquiry, only
30 of the 340 inquiry days were devoted to local issues.
• Energy projects often have important health and safety considerations.
However, even though there are separate regulatory processes to ensure
these risks are managed, discussions of these issues as part of planning
inquiries can still be lengthy.
• A lack of time limits for the statutory process (both the inquiry and the
final decision-making process) makes it difficult for developers to plan
construction and procurement of key components, leading to further
delays even once consent has been secured.
• Without a clear framework placing time limits for the statutory process,
some inspectors will feel constrained as to their freedom to reduce the
inquiry time, for example, by limiting the issues in the inquiry or by relying
more on written representations. By trying to be more efficient, inspectors
may feel they run the risk of being challenged for not having discharged
their duties correctly.
7.7 The UK needs a planning framework for energy projects that takes
account of both national and local issues, reaches timely decisions and
provides more certainty of the duration of the process, while allowing the
public to participate properly in the system.
7.8 As already mentioned in previous chapters, over the coming years, we
need significant new investment in energy infrastructure:
• over the next two decades it is likely that we will need around 25GW of
new electricity generation capacity; and
71 DTI Analysis; Electricity Development and Consents Team.
72 In some cases planning permission is “deemed” when other consents are granted, e.g. permissions under
Electricity Act.
Planning for Large-Scale Energy Infrastructure
135
• as the UK becomes increasingly reliant on imported gas to meet electricity
and heat requirements, the market will need to deliver new gas supply
infrastructure such as gas storage and Liquefied Natural Gas (LNG) import
facilities, in order to maintain reliable supplies to its consumers. The
Government’s role is to ensure that the right framework is in place to allow
the market to deliver.
7.9 All new investment will need the appropriate consents under the planning
system; see table 7.1 for some of the key consent regimes that comprise the
planning system. An effective energy planning system is therefore critical if
we are to facilitate timely investment in the infrastructure and capacity
necessary to make further progress against our climate change and security
of supply goals. This is particularly important for our climate change goals,
given that planning delays can disproportionately affect low carbon
investments such as onshore wind and nuclear power.
7.10 As well as affecting the timely delivery of projects already in the
system, the uncertainty and delay associated with securing the necessary
consents can make the UK less attractive as a destination for investors in
energy infrastructure. A recent report by Ernst and Young on the relative
attractiveness of the UK for investment in renewables found that the UK’s
position had fallen because of industry concerns about planning issues73.
The need for radical, joined-up action on
infrastructure planning
7.11 The barriers facing large energy infrastructure projects are not unique,
and similar problems exist for other key infrastructure projects, for example
airports and waste projects. Work is already underway within Government
examining the difficulties for securing planning permission for all large
infrastructure projects. The Eddington Study on the Future of Transport is
examining the role of planning as a key factor affecting the delivery of
important new infrastructure. The Barker Review is looking across the piece
at the land-use planning system in England and Wales and its economic
impacts.
7.12 The specifics of any changes to the planning system for energy projects
will need to be looked at alongside the findings of this other work. However,
Government is committing now to introducing fundamental change to the
planning system in England and Wales for major energy projects, once the
findings of the other Reviews are clear later this year.
7.13 Government also proposes a programme of work to begin immediately
to tackle the planning barriers for developers of energy infrastructure. This
programme will bring benefits in the short-term as well as enabling the timely
introduction of radical change to be announced later this year. The programme
of work is focussed on three key components of an effective planning
system:
• A proper strategic context, set by Government for major energy
infrastructure developments of national importance.
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73 Renewable Energy Country Attractiveness Indices, Ernst and Young LLP, winter 2006.
Department of Trade and Industry THE ENERGY CHALLENGE
• New and more efficient procedures for the consenting regimes to enable
streamlined inquiries to focus on the relevant issues.
• Appropriate mechanisms to ensure timely action by decision makers to
prevent delays at the end of the consenting process.
7.14 Furthermore, Government will work with the Devolved Administrations
to ensure that across the UK, planning systems for energy projects can
reduce risk and uncertainty for developers and others, while maintaining the
openness, fairness and accountability of the current system.
Modernising the Scottish Planning System
7.15 Planning in Scotland is devolved and it is important to recognise that
operation of the planning system in Scotland is distinct from that in England and
Wales. It is governed by the Town and Country Planning (Scotland) Act 1997.
While the Government and the Devolved Administrations share common highlevel objectives for an efficient planning system there is no intention to
promote a single UK-wide planning system or to alter arrangements for dealing
with major energy generating developments under the Electricity Act, which,
in Scotland, remains the responsibility of Scottish Ministers.
7.16 The planning system in Scotland is currently the subject of review and
amendment proposed by the Planning etc. (Scotland) Bill 200674. The objectives
are to make it more efficient and inclusive, ensuring that community interests
remain central to the system, but avoiding delays and uncertainty where possible.
7.17 The proposals in the Bill are radical; they fall broadly within the three key
components highlighted above. Specific measures include:
• the ability to establish the need for a particular development that is of
National Strategic Importance by identifying it as a National Development
in the National Planning Framework;
• a hierarchy for development proposals requiring different application
procedures for national, major and local developments. The intention is to
make the planning system more fit-for-purpose, ensuring that responses
to each application type are proportionate;
• the introduction of new procedure rules for inquiries (to follow the Bill in
secondary legislation) allowing the decision-maker to determine the most
appropriate means of resolving the matters in dispute. This would allow
increased use of informal hearings and exchanges of written submissions
and reserve formal inquiry sessions for those issues genuinely requiring
adversarial examination; and
• the introduction of “processing agreements” for major applications which
will establish a timetable for the determination of an application, to be
agreed between the applicant and the planning authority.
7.18 We will work with the Scottish Executive closely as progress is made
with the modernising of their planning regime.
7.19 Scottish Ministers will retain powers to grant consent for large
electricity projects under the Electricity Act.
74 Further information is available from the Scottish Executive website
http://www.scottish.parliament.uk/business/bills/51-planning/index.htm
Planning for Large-Scale Energy Infrastructure
137
TABLE 7.1: THE KEY ELEMENTS OF THE PLANNING SYSTEM FOR ENERGY
INFRASTRUCTURE PROJECTS
Project
Permission/Regulation
Authority
Onshore power
stations >50 MW
and offshore power
stations >1MW
(Territorial waters)
and >50 MW (REZ)
Electricity Act 1989
(s36)
Secretary of State for Trade and
Industry
Overhead power lines
(>20kV)
Electricity Act 1989
(s37)
Secretary of State for Trade and
Industry
All other electricity
infrastructure (e.g.
small power stations,
substations)
Town and Country
Planning Act (1990)
and equivalent
Scottish legislation
Initial applications by local authorities.
Appeals and call-ins by Secretary of
State for Communities and Local
Government. With substations jointly
determined with Secretary of State for
Trade and Industry
Associated
Compulsory
Purchases of Land
and Necessary
Wayleave (granting
access to land for
developers of
overhead lines)
Electricity Act 1989
(Schedules 3 and 4)
Secretary of State for Trade and
Industry
Gas or oil fired power
station proposal of
>10MW
Energy Act 1976
(s14(1))
Secretary of State for Trade and
Industry
Gas supply
arrangements for gasfired power station
Energy Act 1976
(s14(2))
Secretary of State for Trade and
Industry
Underground Gas
storage facilities
(including surface
infrastructure) for
non-licensed gas
transporters
Town and Country
Planning Act (1990)
Initial applications by local authorities.
Appeals and call-ins by Secretary of
State for Communities and Local
Government
If application by a licensed gas
transporter jointly determined with
Secretary of State for Trade and Industry
GAS
ELECTRICITY INFRASTRUCTURE
England
138
The Planning
(Hazardous
Substances) Act 1990
and equivalent
Scottish legislation
Initial applications by local authorities.
Appeals and call-ins by Secretary of
State for Communities and Local
Government
Department of Trade and Industry THE ENERGY CHALLENGE
Wales
Scotland
Secretary of State for Trade and
Industry
Scottish Ministers
Secretary of State for Trade and
Industry
Scottish Ministers
Initial applications by local authorities.
Appeals and call-ins by National
Assembly.
Initial applications by local authorities.
Appeals and call-ins by Scottish
Ministers
Secretary of State for Trade and
Industry
Scottish Ministers
Secretary of State for Trade and
Industry
Secretary of State for Trade and
Industry
Secretary of State for Trade and
Industry
Secretary of State for Trade and
Industry
Initial applications by local authorities.
Appeals and call-ins by National
Assembly.
Initial applications by local authorities.
Appeals and call-ins by Scottish
Ministers
Initial applications by local authorities.
Appeals and call-ins by National
Assembly
Initial applications by local authorities.
Appeals and call-ins by Scottish
Ministers
139
Planning for Large-Scale Energy Infrastructure
TABLE 7.1: THE KEY ELEMENTS OF THE PLANNING SYSTEM FOR ENERGY
INFRASTRUCTURE PROJECTS continued
Project
Permission/Regulation
Authority
England
Town and Country
Planning Act (1990)
and equivalent
Scottish legislation
Initial applications by local authorities.
Appeals and call-ins by Secretary of
State for Communities and Local
Government
Underground Gas
storage facilities
(including surface
infrastructure), but
only for licensed gas
transporters
Gas Act 1965
Secretary of State for Trade and
Industry
Gas Transporter
Pipe-line Works
(Environmental Impact
Assessment)
Regulations 1999
Secretary of State for Trade and
Industry
Town and Country
Planning (General
Permitted
Development) Order
1998 and equivalent
Scottish legislation
Local planning authority can request to
Secretary of State for Communities and
Local Government that permitted
development rights should not be
applied (which would force a separate
planning application)
Commercial Pipelines
>16.093km
Pipelines Act 1962
Secretary of State for Trade and
Industry
Commercial Pipelines
<16.093km
Town and Country
Planning Act 1990 and
equivalent Scottish
legislation
Initial applications by local authorities.
Appeals and call-ins by Secretary of
State for Communities and Local
Government
GAS
LNG Import Terminals
Gas Transporter
Pipelines (pipelines
that form the National
Transmission System)
Stage 1 – Setting the strategic context
7.20 The first stage of developing a more effective planning system for
energy projects involves Government taking proactive steps to set the right
strategic context for applications for planning permission for energy
infrastructure.
140
7.21 Government will take a number of steps to set the appropriate strategic
backdrop for consideration of applications for the following energy infrastructure:
• renewable generation;
• combined heat and power (CHP);
• nuclear power;
Department of Trade and Industry THE ENERGY CHALLENGE
Wales
Scotland
Initial applications by local authorities.
Appeals and call-ins by National
Assembly
Initial applications by local authorities.
Appeals and call-ins by Scottish
Ministers
Secretary of State for Trade and
Industry
Secretary of State for Trade and
Industry
Secretary of State for Trade and
Industry
Scottish Ministers for pipes wholly
in Scotland.
Local planning authority can request
to Welsh Ministers that permitted
development rights should not be
applied (which would force a separate
application)
Local planning authority can request
Scottish Ministers that permitted
development rights should not be
applied (which would force a separate
planning application)
Secretary of State for Trade and
Industry
Scottish Ministers for pipes wholly
in Scotland
Initial applications by local authorities.
Appeals and call-ins by National
Assembly
Initial applications by local authorities.
Appeals and call-ins by Scottish
Ministers
• transmission line upgrades;
• gas supply infrastructure.
Renewable generation
7.22 Securing consent for renewables, and in particular onshore wind, can be
an especially difficult process, with developers facing much uncertainty and
a significant risk of delays.
7.23 According to industry statistics it takes an average period of 21 months
for windfarms to secure planning consent under the Electricity Act regime75.
75 BWEA – Onshore Wind: Powering Ahead, March 2006.
Planning for Large-Scale Energy Infrastructure
141
However, this figure does not represent the true extent of the delays because
this does not include applications, which have been in the system for a
significant time, but are yet to be granted consent. There are 24 projects, with a
combined capacity of more than 1.2GW that have already been in the Electricity
Act consent regime for longer than 21 months76. The majority of these are in
Scotland, although it should be noted that there is already significant installed
wind capacity in Scotland. In fact, in total, there is more than 11GW77 of
renewables capacity currently awaiting consent under the planning system
7.24 There are also significant delays experienced by smaller windfarms that
are required to secure permission under the Town and Country Planning Act
system, with decisions on average taking between 10 months in England and
27 months in Wales78, against a target to determine 60% for all “major
applications” within 13 weeks.
7.25 There are a large number of applications for wind projects – in the
region of 200 currently being considered under both consents regimes79
(Electricity Act and Town and Country Planning Act). As a result of this split
across two consenting regimes, governments, central, devolved and local
need clear objectives, whether as decision-makers or participants in the
system, to enable the planning system to work effectively and to prevent
avoidable delays.
7.26 Windfarm proposals have tended to attract controversy. There are
a number of particular issues on which individuals and groups oppose
proposals: for example on visual impact, impact on bird populations and
increasingly the cumulative impacts of windfarms located relatively close
together. Government believes that there is a need to set a clear context for
all windfarm applications, whether under the Electricity Act or Town and
Country Planning Act consent regimes.
7.27 Government policy on renewables was set out in the 2003 Energy White
Paper, and Planning Policy Statement 22 (PPS22) was issued in England in
2004 to reflect the importance of renewables to local planning. Equivalent
guidance has been issued in Scotland, via the National Planning Policy
Guidance: Renewable Energy (NNPG6) in 2000, which is now subject of
review and in Wales through the Technical Advice Note 8: Renewable Energy
(TAN8). Government has decided to give greater clarity on the strategic issues
relating to renewables. As such, we are publishing, as part of this report,
a clear statement of need at annex D. This is to be used as a material
consideration, alongside PPS22 in England and TAN8 in Wales.
7.28 The Scottish Executive is currently consulting on revised planning
policies in its draft Scottish Planning Policy (SPP6)80. The Scottish Executive
is committed to an ambitious strategy for the deployment of renewables in
Scotland and is seeking to identify means of speeding up the consenting
process, in order to bring forward achievement of its target for 40%
142
76 UK Wind Energy Database (UKWED), www.bwea.org/ukwed
77 Renewable Energy Statistics Database – http://www.restats.org.uk/2010_target.html
78 BWEA – Onshore Wind: Powering Ahead, March 2006.
79 UK Wind Energy Database, BWEA, www.bwea.org/ukwed
80 Draft SPP6 Renewable Energy states that the Scottish Executive is minded to require that certain new
developments include on-site renewable energy equipment to reduce predicted annual CO2 emissions by a
minimum of 10%.
Department of Trade and Industry THE ENERGY CHALLENGE
renewable electricity by 2020. It has also made clear that it does not see 40%
renewable electricity as a cap, and will continue to consider renewables
applications that go beyond this figure.
7.29 In March 2006, as part of the Climate Change Programme Review,
Government committed to producing a Planning Policy Statement on Climate
Change. This will set out how we expect “participants in the planning process
to work towards the reduction of carbon emissions in the location, siting and
design of new development”81. In developing this Statement, we will look at
the scope for all types of low-carbon, distributed, including CHP, and
renewable generation in delivering this objective.
7.30 We recognise the important role renewables can play and will ensure
that this work builds on the statement of need for renewables set out in
annex D of this publication, and confirms the need for renewable projects,
of all sizes, to meet our climate change ambitions. This Planning Policy
Statement will provide further support and guidance for decision makers in
the planning system in England. Therefore, Government is committing to
joint-working between DTI and DCLG to ensure the role of renewables
is firmly embedded in the forthcoming Planning Policy Statement on Climate
Change to be introduced in 2007. Government will work with the Devolved
Administrations on equivalent guidance across the UK.
Combined Heat and Power (CHP)
7.31 The strategic context for CHP is set out in the existing guidance for
developers making applications to construct power stations under the
Electricity Act. This sets a requirement for them to “explore opportunities to
use CHP, including community heating, when developing proposals for new
power stations”82.
7.32 In the 2003 Energy White Paper, Government committed to updating
this guidance to provide developers with more clarity on how best to meet
this obligation. This process started in 2004 with a consultation on the
proposed guidance and Government has since been working with industry to
more clearly establish the extent to which potential developers should explore
CHP opportunities.
7.33 Government commits to publishing updated guidance, in consultation
with the Devolved Administrations, on CHP for applications under s36
Electricity Act, by the end of this year. The guidance will include more
information, with regularly updated heat maps, on developers’ obligations to
give full consideration to opportunities to develop CHP when proposing new
power stations.
Nuclear power
7.34 Like onshore wind, nuclear power is especially affected by delays in the
planning system. For instance, the important health and safety considerations
associated with nuclear power attract significant public interest and can add
considerably to the time taken to go through the consenting process. As
81 DEFRA Announcement as part of Climate Change Programme Review, 28th March 2006
82 Guidance on Background Information to Accompany Notifications under Section 14(1) of the Energy Act
1976 and Applications under Section 36 of the Electricity Act 1989
Planning for Large-Scale Energy Infrastructure
143
already mentioned, it took 73 months for the Sizewell B power station to
secure planning consent83.
7.35 Potential developers have made clear through the Energy Review
consultation that without action to improve the planning process and to
identify and address national issues in advance of public inquiries, they will
not consider investments in new nuclear power stations.
7.36 Government is clear about the need for full public discussion and
consideration on key issues associated with civil nuclear power including
health and safety issues, and the weighing of the economic and other
benefits against potential detriments. However, Government considers that
these issues should be viewed in their appropriate context and should be
addressed appropriately up front, in advance of any planning applications.
This will avoid the same national issues arising as part of the consideration of
every proposal, therefore appropriately allowing public inquiries to focus on
local and other relevant issues.
7.37 Government is setting out a proposed framework for the consideration
of the issues relevant to new nuclear build and the context in which public
inquiries, as part of the planning process, should be held. This framework
would be set out in a White Paper to be published around the turn of the year.
To support the preparation of this White Paper, Government is consulting on
the proposals outlined in annex A of this publication.
7.38 We are seeking views on a policy framework in which national strategic
and regulatory issues are most appropriately discussed through processes
other than the public inquiry. The inquiry should focus on the relationship
between the proposal, the local plans and local environmental impacts.
The inquiry should weigh up these issues against the national strategic or
regulatory material considerations, which will have already been established.
The inquiry should also examine the local benefits of the development and
how specific local impacts of the construction and operation of the plant can
be minimised.
Transmission line upgrades for all new generation investment
7.39 Given the current age of the UK electricity transmission and distribution
system (the ‘grid’), and the anticipated requirement for new generating
capacity, it is likely there will have to be significant grid upgrades over the
coming decades. Government believes that a grid upgrade, where it specifically
relates to a new generating station should be considered as an intrinsic part of
that project. Although separate applications must be made for the generating
station and the grid upgrade, Government believes that both applications should
be considered under the same inquiry, where practicable. This will help to
reduce the risk associated with investment in both projects: generating assets
should neither be stranded, nor should grid upgrades become superfluous.
7.40 Government will work with developers of generating stations and the
transmission companies to encourage joint working to allow the consideration
of both applications together. Government will also publish new guidance in
England and Wales for applications under s36 Electricity Act to reflect this.
144
83 Deemed planning permission is granted for a development through securing consent under the Electricity
Act 1989
Department of Trade and Industry THE ENERGY CHALLENGE
7.41 Another important factor in the reliability of our supplies is the resilience
of the electricity networks. Following the storms of October 2002,
Government has been working with the electricity industry to see what
lessons can be learnt and to better prepare for the future. One of the changes
has been to amend the Electricity Safety, Quality and Continuity Regulations
2002 to include a requirement for the management of foliage near overhead
lines to prevent interference with them or interruption to supply. The statutory
instrument has been tabled for the relevant change to come into operation
on 31 January 2009. A second change being pursued by Government is in
connection with works on existing distribution lines to improve their
resilience, for example by replacing bare wire conductors with insulated
conductors. Government has therefore reviewed the overhead lines regime
and believes a better balance can be struck between changes for which the
full consent process is required and changes where a more flexible approach
can be adopted. Government will consult on its proposals for new guidance
on the consenting arrangements for overhead power lines later in 2006.
Gas supply infrastructure
7.42 Government has already stressed the importance of additional gas
supply infrastructure, and announced a programme of work to reduce
planning barriers for developers of gas supply infrastructure projects84. A key
element of this work is to aid local authorities and those involved in making
planning and consent decisions at a local level by clarifying the Government
policy context and indeed the overriding national need for new gas supply
infrastructure projects. This will help all parties to play a more effective role
in the existing planning system. As part of this work, Government published
a clear Parliamentary Statement of Need for additional gas supply
infrastructure on 16 May 2006, to be held as a material consideration in all
planning decisions.
Stage 2 – Introducing efficient inquiries
Electricity generation and overhead lines
7.43 Government, in consultation with the Welsh Assembly Government, will
update the rules for public inquiries held under the Electricity Act in England
and Wales for all generating stations with a capacity of greater than 50MW
onshore, 1MW offshore, and for overhead electric lines. The new rules will
incorporate the appropriate best practice, having regard for the rules
introduced in England 2005 for major infrastructure projects that are granted
planning permission under the Town and Country Planning Act85.
7.44 The new rules are designed to provide all participants in the planning
process with more certainty on how long the process will last. Specific
elements include the introduction of timetabling for inquiries and the delivery
of an inspector’s report, and powers for the planning inspector to run a more
efficient, streamlined inquiry, for example, through the introduction of
concurrent hearings on different issues.
84 Speech by Alan Johnson during debate on security of supply, House of Commons, 12th January 2006.
85 The Town and Country Planning (Major Infrastructure Project Inquiries Procedure) (England) Rules 2005.
Planning for Large-Scale Energy Infrastructure
145
7.45 It will also increase the front-loading of procedures, making better use
of pre-inquiry hearings where participants can discuss the relevant issues
outside formal inquiry procedures with the expectation of reaching positions
of common ground. A more efficient procedure, with fewer delays and
uncertainties, should reduce the costs of taking part in the planning process
for all participants86. Government is also considering other enhancements,
including the practicalities of introducing more written procedures into
planning inquiries.
7.46 A consultation on the detail of these changes will be launched later in
2006, with the intention of new rules being introduced in spring 2007. Other
work is underway in Scotland to reform their planning system as discussed
above.
7.47 A key factor in the timely running of an inquiry is the appointed
inspector. Therefore, Government is also committing to making use of
existing powers under the Electricity Act to appoint a high-powered inspector,
for example a senior judge or QC, for the most complex and controversial
proposals. Government considers that this should increase the likelihood that
the full benefits of the new inquiry rules will be utilised effectively. Taking
a more proactive approach in the appointment of inspectors should also
reduce the time taken between a developer lodging an application and the
start of an inquiry87.
7.48 As highlighted above, the responsibility for the granting of consents in
Scotland for large power stations and overhead lines is devolved to Scottish
Ministers. The proposed changes above will apply to England and Wales only.
Government is committed to working with all the devolved administrations to
ensure that action is being taken to unlock and improve the efficiency of the
consent regime and help allow renewable resources in the UK to be realised.
The Scottish Executive will play an important role in the delivery of increased
renewable generation, in part because the majority of proposals for onshore
wind farm proposals are in Scotland (approximately 5GW)88.
Gas Supply Infrastructure
7.49 As the production of our indigenous supplies of gas continues to decline
and the UK becomes more reliant on imported sources of gas for both
electricity and heat, there is an increasing need for gas supply infrastructure,
such as gas storage projects and LNG import facilities.
7.50 As set out in the chapter on oil, gas and coal, new gas supply
infrastructure will play an important role in maintaining a reliable supply of
energy for the UK. Securing consent is a key factor in the timely delivery of
such projects. Delays in securing consent that result in gas infrastructure not
being delivered, or arriving later than needed could result in price rises and
price volatility for UK consumers, because of the increased risk of gas
shortages at moments of high demand (e.g. a particularly cold winter).
146
86 According to industry, the direct inquiry costs for the Sizewell B inquiry for the developer alone were £30
million.
87 For example, the inquiry for the Scout Moor windfarm began over one year after the application was
submitted.
88 UKWED, British Wind Energy Association.
Department of Trade and Industry THE ENERGY CHALLENGE
7.51 However, current uncertainty over securing the necessary consents is
increasing, and there is growing evidence of “in-principle” objections from
local planning authorities to necessary gas supply infrastructure, as opposed
to objections based on the specifics of the proposal. As well as delaying the
commissioning of projects already in the system, this uncertainty increases
project costs and reduces the attractiveness of the UK investment market for
future developments.
7.52 Ensuring the UK has the right gas supply infrastructure requires a
regulatory and planning regime that is fit for purpose and minimises risks
and uncertainties for developers, while maintaining the ability for local
participation. Currently, investors are faced by a mix of local planning controls
overseen by the Department for Communities and Local Government and the
Devolved Administrations, specialist consent regimes administered by the
Department of Trade and Industry and again the Devolved Administrations.
These regimes have evolved over time and have not been redesigned to
reflect the major changes in the UK gas industry, nor the technological
developments in this area.
7.53 Government will consult on the streamlining and simplification of the
consenting regimes for gas supply infrastructure projects this Autumn.
Government will work closely with the Devolved Administrations in this
exercise, recognising the devolved responsibilities in the area of gas
consenting regimes. This is in line with the commitments made by the
Secretary of State for Trade and Industry earlier this year89.
7.54 There is also work underway to prepare for the establishment of an
offshore consent regime for new gas storage projects and LNG offshore
unloading. Legislation for this offshore work will be taken forward by
Government when parliamentary time permits.
Stage 3 – Timely decision making
7.55 The question of final decision-making is a particular issue for all major
infrastructure projects and, as already mentioned, work is underway across
Government to consider this issue, both in the Eddington Study on the future
of transport and, in England and Wales, the Barker Review of Land Use
Planning.
7.56 There are a number of options that Government is considering on how
best to ensure that the decision-making stage of the consenting process for
energy projects does not subject the developer to further, unnecessary
delays.
7.57 Government will ensure that there is a joined-up approach, working
with the Devolved Administrations, on this issue and will bring forward
proposals on options to ensure appropriate and predictable timings
for decisions on applications for energy developments. A future
announcement will be made later this year in the light of other
cross-Whitehall work on planning.
89 Speech by Alan Johnson during debate on security of supply, House of Commons, 12th January 2006.
Planning for Large-Scale Energy Infrastructure
147
Measures to introduce new planning system for
Major Energy Infrastructure
• Government is committing now to introducing fundamental change
to the planning system for major energy projects once the findings of
the other Reviews (Eddington Study and Barker Review) are clear,
later this year.
• Government will work with the Devolved Administrations to ensure
that across the UK, planning systems for energy projects can reduce
risk and uncertainty for developers and others, while maintaining the
openness, fairness and accountability of the current system.
Stage 1 – Setting the Strategic Context
• Government is publishing today a statement of need on renewables,
restating our commitment;
• Government will ensure renewables are firmly embedded in the
forthcoming Planning Policy Statement on Climate Change.
Government will work with the Devolved Administrations on
equivalent guidance across the UK;
• Government will publish new guidance in England and Wales on CHP,
later in 2006, for applications under s36 Electricity Act. It will provide
more information on developers’ obligations to give full consideration
of opportunities to develop CHP;
• Government will publish generic guidance in England and Wales on
s36 Electricity Act, including information on co-operation between
developers and the transmission companies about joining-up on
applications;
• Government will consult on new guidance in England and Wales on
the consenting arrangements for reinforcements to existing overhead
power lines later in 2006; and
• Government is launching today a consultation on a policy framework
for new nuclear build.
Stage 2 – Introducing Efficient Inquiries
• Government will introduce new inquiry rules for applications under
the Electricity Act, in Spring 2007;
• Government is committed to appointing a high-powered inspector for
the most complex and controversial energy proposals; and
• Government will consult on options for the streamlining and
simplification of the consenting regimes for gas supply infrastructure
projects.
Stage 3 – Timely Decision Making
148
• Government will undertake further work on options to ensure
appropriate and predictable timings for decisions on applications for
energy developments. An announcement will be made later this year
in the light of other cross-Whitehall work on planning.
Department of Trade and Industry THE ENERGY CHALLENGE
CHAPTER 8
Meeting Our Goals
Making progress towards our Energy
White Paper goals
8.1 In this report we underline the scale of the challenges we face in making
further progress towards our Energy White Paper goals. We will need to take
action across all fronts if we are to address these problems. Government
policy needs to deliver the right incentives for individuals, businesses and
energy suppliers to respond to these challenges in their day-to-day activities.
Impact on carbon emissions
8.2 The proposals in this report, together with other proposals announced
since publication of the new Climate Change Programme in March this year,
will save 19.5 – 25.3 million tonnes of carbon (MtC) by 2020.
8.3 The table below sets out the carbon impact of each measure; a range is
quoted to reflect uncertainty over the timing and effectiveness of the new policies.
TABLE 8.1: CARBON IMPACT OF GOVERNMENT MEASURES ANNOUNCED
SINCE THE 2006 CLIMATE CHANGE PROGRAMME REVIEW (EXCEPT
WHERE DENOTED†)
MtC abated in 2020
Better Billing
0 – 0.1
Changes to the Renewables Obligation1
0.7 – 1.5
EU Emissions Trading Scheme2
8
3
More energy efficient products
2
Nuclear new build4
0 – 1.1
Renewable Transport Fuel Obligation
0.3 – 1.1
New measure for achieving carbon savings
from large non-energy intensive organisations
1.2
Successor to EU voluntary agreements on new car fuel efficiency5
1.8 – 2.1
Continued commitment on energy suppliers to 20206
3.0 – 4.0
†Continuation of building regulations 20057
2.5 – 3.0
8
Carbon neutral government
0 – 0.8
Carbon neutral developments9
0 – 0.4
Total
19.5 – 25.3
Notes
1 These carbon savings are additional to those from
the existing Renewables Obligation and derive solely
from the proposed changes to the Obligation
2 This value is based on the proposed reduction in
carbon allocation in phase II of the EU ETS.
3 Products policy is delivered by a package of
measures, including, labeling, minimum standards
and voluntary agreements. This 2MtC saving is net
of products delivered via EEC or the new measure
for achieving carbon savings from large non-energy
intensive organisations.
4 The scale of new nuclear capacity and the timing
of its commissioning will depend on commercial
investment decisions. For illustrative purposes this
table assumes that between 0 and 1.6 gigawatts of
new capacity are in operation by 2020.
5 These estimates assume that the level of the
Renewable Transport Fuel Obligation rises to 10%
by 2015. This figure is used merely for illustrative
purposes and does not prejudge later UK decisions
on the appropriate future level of the obligation.
6 Government is committed to maintaining a
household obligation on suppliers in some form until
at least 2020. The level of ambition from 2011
should at least be equal to that under EEC3,
delivering 3-4 MtC by 2020.
7 The figures here are for contributions from
Building Regulations for 2010-2020 and have not
been included in our base line assumptions. The
figures reflect the additional savings from new
buildings, refurbishments and boiler and window
replacements between 2011-2020 due to Building
Regulations.
8 Policy was announced by Defra in June 2006.
9 Policy was announced by DCLG in May 2006.
Meeting Our Goals
149
8.4 There are further measures which could save significant amounts of
carbon. First, it is already a UK objective to include aviation in the EU ETS90.
Second, the UK has asked the European Commission to seriously consider
including surface transport in the EU Emissions Trading Scheme. This could
save 4-7 MtC by 2020. Carbon capture and storage (CCS) could in principle
bring further savings. If a 500MW demonstration project of coal plant with CCS
went ahead, this could save 0.3 MtC in 2020. We are also working to remove
regulatory and other barriers to CCS, and if CCS ultimately proved commercially
viable, very significant carbon savings might become possible beyond 2020.
Beyond 2020, if further nuclear power stations are built, we could save around
0.7 MtC for each GW of capacity installed91.
8.5 There are a number of other factors which will affect the progress we
make in achieving carbon savings over the next two decades:
• fossil fuel and carbon prices as well as attitudes to climate change that
could have a significant impact on emissions. High fossil fuel prices could
result in reduced energy consumption; high carbon prices could incentivise
a faster rate of low carbon technology development; and consumer demand
could stimulate the market for environmentally friendly goods and services;
• the potential for life extensions for existing nuclear plants, early applications
of carbon capture and storage or a higher penetration of distributed
generation technologies; and
• clarifying our carbon framework and our position on renewables and nuclear
to improve the investment environment, and helping to build investor
confidence in taking long term decisions which are consistent with our goals.
8.6 In the 2003 Energy White Paper, projections showed UK carbon
emissions reaching 135 MtC in 2020. We said that in order to demonstrate
our leadership in tackling climate change and make real progress towards our
2050 carbon reduction goal we would need to make a reduction in emissions
by 15 – 25 MtC to 110 – 120 MtC by 2020.
8.7 However, since 2003, emissions have risen on the back of strong
economic growth and higher fossil fuel prices that have been favourable
to coal-fired power generation. New projections92 suggest that UK carbon
emissions will reach 146 MtC by 2020 on the basis of current policies.
So we would now need to make bigger cuts in emissions of around
25 – 35MtC in order to reduce emissions to 110 – 120 MtC by 2020.
8.8 Table 1 above shows the impact of the proposals in this report, including
those announced since the 2006 Climate Change Programme Review, as a
reduction of up to 25 MtC in 2020. Together with further potential reductions
referred to in paragraph 8.4, these ambitious proposals are a significant step in
the right direction, getting us on course to achieve real progress in emissions
reductions by 2020 and on the right path to achieving our goal of cutting the UK’s
CO2 emissions by some 60% by about 2050. In this report the Government
provides a framework for long-term policy; it is not the last step. We will develop
and implement further measures in the years ahead and strengthen the use of
policy measures already in place. Tackling climate change requires action across
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90 This would produce carbon savings within the context of the EU scheme. Exactly how much of this would be
attributable to the UK would depend on how international aviation emissions are allocated to national inventories
under any future international agreement.
91 Assumes 1GW of CCGT capacity is displaced.
92 See annex C.
Department of Trade and Industry THE ENERGY CHALLENGE
all departments, achieving carbon reductions through different technologies and
across all sectors of the economy towards our 2050 goal.
8.9 The Government is committed to keeping under review progress towards
our climate change goals and reporting on this annually to Parliament.
8.10 To drive forward progress, we are proposing to establish an Office of
Climate Change. This will be a shared resource, reporting to ministers across
Government. The Office will have a vital contribution to make ensuring that
the analysis and policy work going on across Government is coherent and
supports our overall strategy.
8.11 In the 2006 Climate Change Programme Review we said that the idea
of carbon budgets would be considered by the Stern review of the economics
of climate change, and that this analysis would influence our work. The Stern
Review has carried out an initial assessment of carbon budgeting. And we
shall continue to study the merits of carbon budgeting as a means of helping
to deliver our goals.
Impact on security of supply
Framework for electricity generation
8.12 There has been much focus in this report on removing barriers
to investment in low carbon technologies. We are also reinforcing our
commitment to a carbon price, taking steps to enable nuclear new build and
boost renewables. These measures should increase the proportion of low
carbon technologies in the electricity generation mix and tend to reduce the
share of gas-fired generation.
8.13 If we assume that our proposals to incentivise low carbon electricity
generation will lead to the displacement of gas fired power generation, they
would reduce the share of gas in our generation mix by up to 10% and reduce
gas consumption in 2020 by up to 5 billion cubic meters (bcm) per year. This
would be part of the overall savings in gas consumption referred to below.
Gas security of supply
8.14 We have identified increasing reliance on gas (at a time of falling UK
Continental Shelf (UKCS) production) as one of the main energy policy
challenges faced by the UK. It will be for producers and consumers to decide
how much gas is consumed in the UK. However, assessing the impact of
proposals in terms of reduced gas consumption is one way of measuring their
impact on security of supply.
8.15 The proposals in this report could reduce gas consumption by around
12 to 20 bcm by 2020, which currently represents about 11–17% of our
expected 2020 consumption.
8.16 Our proposals also improve the framework for investment in the UK
Continental Shelf (UKCS), potentially delivering significantly higher oil and gas
production – up to an extra 1 million barrels of oil equivalent (boe) a day in 2020
– and reducing our import requirement. About half of this extra production
would be gas and half would be oil. The resulting cut in gas imports would be
over and above the reduction explained in the previous paragraph.
Meeting Our Goals
151
8.17 Moreover, we are consulting on the effectiveness of our current
framework for gas security of supply to assess whether it is sufficiently
robust to cover the risks associated with the move to increased UK gas
import dependence.
Impact on competitive markets
8.18 In recognition of our increasing reliance on global energy markets,
we are pursuing a strong international agenda to promote more open and
competitive markets. And we will continue our drive for EU energy market
liberalisation and integration, working with the European Commission to
enforce and strengthen internal market legislation and to make full use of
European competition rules to tackle anti-competitive practices. This will help
improve the effectiveness and transparency of international energy markets
and address anti-competitive behaviour in Europe, ensuring more reliable UK
access to energy markets.
8.19 At home, our proposals demonstrate our continued commitment to
competitive energy markets; in clarifying our position on nuclear new build,
renewables and our carbon framework we are reducing uncertainty, improving
the environment for investors. We are also improving the information available
for investors, users of energy and government so that both investment and
policy decisions are based on the most robust available information.
Impact on fuel poverty
8.20 Rising fuel prices mean that fuel poverty remains a major long-term
challenge. But our package of measures does not greatly add to this
challenge. We can and will take steps to better target existing support: by
getting details of the help that is available to those who need it most;
ensuring energy is competitively priced; and enhancing energy efficiency.
Impact on energy prices
8.21 Carbon abatement can be costly and can increase energy prices. Acting
internationally is the best way to minimise these impacts. The existence of
the EU ETS is having an impact on electricity prices in the UK – and
elsewhere – because electricity generators will factor in the cost of carbon
allowances. The size of this impact depends on the scale of effort to deliver
carbon savings across the EU and the related abatement costs. At the current
EU ETS carbon price of around €15, the impact on electricity prices could
reach around 20% for industrial and 10% for household consumers. The
overall effect will also depend upon the response of energy demand.
8.22 We have taken cost effectiveness into account in developing policies
to reduce carbon and improve security of supply, and have examined how to
reduce barriers to current policies to deliver greater carbon savings at little or
no extra cost. We therefore expect the impact on energy bills to be small. We
will undertake a full analysis of the impact of our proposals in the forthcoming
White Paper.
8.23 Recent analysis has identified that in the medium term, the costs of
mitigating climate change are likely to be of the order of 1% of global GDP,
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Department of Trade and Industry THE ENERGY CHALLENGE
with some studies pointing to ancillary benefits from improved efficiency and
more innovation, so that the cost may eventually be much less than this93.
Developing the right long-term framework for
delivering our goals
8.24 Over the long term we must continue to make progress in reducing
carbon emissions on a path consistent with our 2050 goal. We will also need
to adjust to the global depletion of fossil fuels. The actions we need to take
to address these long term challenges are closely linked.
8.25 There is a range of paths consistent with delivering secure affordable
supplies, consistent with our carbon goal for the long term. Factors which
shape these are:
• The actions of others – our 2050 carbon goal is couched in terms of a
contribution to international action to deliver the carbon savings required
to make a real impact on climate change. Commitment by others is vital
for tackling the global problem of carbon dioxide emissions and climate
change; if we act alone we risk undermining the competitiveness of our
economy. The speed with which we move to a low carbon economy will
also be determined by the actions of energy supplier countries to extract
reserves in a timely and efficient manner affecting the availability and price
of fossil fuels.
• Market developments (e.g. fossil fuel prices) – have encouraged coal use
in electricity generation but could in the longer-term result in reduced
energy consumption; high carbon prices could incentivise faster
development of non-fossil fuel, low carbon technologies.
• Technological developments – given the potential for technological
development over the longer term to help us deliver our goals at a lower
cost than today, we have always been mindful that a straight-line path to
our 2050 carbon goal may not be the most cost-effective path.
8.26 Many of the above are unknown. We need to take action now without
locking ourselves into a position which risks proving inefficient in the light of
future developments. Key to this is our commitment to keep under review
progress towards our climate change goals so that our energy policy
framework enables us to take full advantage of opportunities to make
progress towards our goals e.g. through harnessing new technologies.
8.27 Government intervention may be necessary to help make markets take
account of, and efficiently respond to, our energy policy goals. The use of
economic instruments, such as taxes and trading schemes, to incentivise
behaviour that protects or improves the environment, and to deter actions
that are damaging to the environment, is one option to enable environmental
goals to be achieved at the lowest cost and in the most efficient way.
Over the past decade, Government has introduced a range of economic
instruments in pursuit of environmental objectives, and we will continue to
explore options for introducing new ones, taking account of all economic,
social and environmental objectives.
93 Work carried out for ‘The Government’s Review of the Economics of Climate Change – led by Sir Nick
Stern and due to report Autumn 2006.
Meeting Our Goals
153
Harnessing technology to deliver our goals
8.28 Advances in technology have the potential to make genuine stepchanges to meeting our goals across the entire energy system: generation/
production, transport/transmission, storage and use largely through increases
in efficiency (demand reduction) or alternative (non carbon) energy sources.
8.29 The development of new energy technologies will be crucial in
addressing these challenges at reasonable cost. Work carried out for the
2003 Energy White Paper estimated the costs of meeting the 60% carbon
reduction goal to be two to three times higher where innovation failed to
reduce the costs of new low carbon technologies below their expected levels
in 2010. This analysis is in the process of being updated.
8.30 However, we do not know which technologies will be most effective
in delivering our long-term energy goals as many are at an early stage of
development and so their technical and commercial success is still uncertain.
It is important, therefore, to ensure that a wide-range of new energy
technologies is developed on a global scale.
8.31 Some of the areas where we hope to harness the potential of
technology are:
• improving the efficiency of the electricity system – though reliable, the
current electricity system is very inefficient both because the capacity of
the system is rarely fully employed (only during periods of peak demand)
and a large proportion of the heat generated by large power stations is
wasted into the atmosphere;
• low carbon transport systems – based upon new and emerging
technologies, principally hydrogen, advanced biofuels and hybrid
technologies. These will require significant further development to realise
their full potential for carbon savings. For example, fuel cell development
will be necessary to maximise the use of hydrogen; and
• nuclear fusion – nuclear fusion offers the potential to provide a new major
source of energy using basic fuels which are abundant and widely available
(hydrogen/deuterium from water and lithium). A fusion power station would
create no greenhouse gases during its operation and no long-lived
radioactive waste. The goal of the international fusion research programme,
starting with the construction of ITER – the experimental fusion reactor to
be built in France – is the demonstration of full-scale power generation in
a prototype power plant within 30-35 years.
8.32 The UK is already playing its part. Total government spend on R&D into
renewable and low carbon energy will be over £500m between 2002 and
2008, delivered through the Research Councils and the Government’s
Technology Programme. The publicly funded, independent Carbon Trust also
supports industry-led R&D. Also, for many technologies, the more expensive
demonstration stage of innovation is a key barrier. DTI has a range of capital
grant programmes totalling £300m which support promising technologies to
move through this phase of development to commercial deployment.
154
8.33 Government also recognises the crucial role that market influence has
on innovation and we are bringing forward proposals to restructure the
Renewables Obligation to further encourage emerging energy technologies.
Department of Trade and Industry THE ENERGY CHALLENGE
8.34 We recognise the international nature of these challenges and so we are
emphasising greater international collaboration, through the European Union
and the International Energy Agency as well as bilateral agreements, such as
that with China on carbon capture and storage.
8.35 The private sector must also play a key role in the innovation process.
Aspects of the Government’s work targeted at strengthening the investment
framework are important here if we are to move new energy technologies
rapidly from the laboratory to the market.
8.36 In recognition of the importance of collaboration between the public and
private sectors in technological advancement, we formed the Energy Research
Partnership at the end of 2005. The Energy Research Partnership brings
together high-level representatives from Government, industry and academia in
the UK. It provides leadership for energy research and innovation, including
improving understanding of what drives business investment in energy R&D.
8.37 In Budget 2006, we announced the intention to create a major new
public-private funding initiative promoting energy R&D – the National Institute
for Energy Technologies (NIET) (see box 8.1).
BOX 8.1: THE NATIONAL INSTITUTE FOR ENERGY TECHNOLOGIES
The National Institute for Energy Technologies will bring a new level of
focus, ambition and industrial collaboration to the UK’s work in the field of
energy science and engineering, and will exploit the UK’s potential to be
a world-leader in energy technologies.
It will have a “design life” of a finite period, probably a decade. The
Institute will work to objectives set in consultation with funders, including
industry contributors, and it will have a strong public-private governance
structure. We anticipate that the initial focus of the Institute will be on
research and development, although it may develop a role in demonstration
and deployment. The Institute is expected to operate with a “hub” with
a high calibre Director and “spokes” through which the main research
projects/activities are undertaken. Industry partners will be free to
undertake joint projects on a voluntary basis using their own funds.
The Chancellor’s announcement stated that the Institute might, in due
course, have a budget of £100m p.a. The Energy Research Partnership,
under the joint chairmanship of Paul Golby, Chief Executive of E.On UK
and Sir David King, the Government’s Chief Scientific Adviser, has
committed itself to raising substantial sums of private investment. EDF
Energy, Shell, BP and E.On have already announced their intention to be
involved. We envisage that the Institute will hold funds in a single “core”
pot from all funders. Funding will be allocated competitively, using existing
facilities where possible.
We are working with the companies to develop the proposal and will
shortly publish an outline prospectus for the Institute in order to seek
broader views and to gauge wider interest.
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Meeting Our Goals
CHAPTER 9
Implementation
Overview
9.1 In this report, we have set out a programme of action to make further
progress towards our energy goals to 2020 and beyond. The proposals include
measures that we will bring forward shortly, some where we will issue
consultations and others where we will undertake further analysis.
9.2 We have engaged closely with a wide range of organisations as part of
the Energy Review consultation. We will need continued close engagement
to ensure we implement our proposals in the most effective way. Delivering
secure, clean and affordable energy will need all of us to take action –
business, individuals and Government.
Better Regulation
9.3 The proposals set out in this report will be taken forward in accordance
with the principles of Better Regulation. These state that regulation should be:
• proportionate – to the risk;
• accountable – to ministers and Parliament, to users and the public;
• consistent – so that people know where they stand;
• transparent – open, simple and user-friendly; and
• targeted – on the problem, with minimal side effects.
9.4 Some of the measures we are putting forward now, for example on
planning, are intended to simplify regulation and reduce uncertainty by
removing costs and delays from the current system. Others, for example
the proposed changes to the Renewable Obligation, are intended to deliver
better ways of meeting our objectives without increasing costs to business
or consumers.
Sustainable Development
9.5 The principle of sustainable development requires that social, economic
and environmental costs are considered in policy appraisal so that the welfare
of future generations is not compromised. Sustainable Development
principles are at the heart of the four UK energy policy goals, set out in the
2003 White Paper.
9.6 The shared principles of sustainable development in the UK apply to the
Government, Scottish Executive, Welsh Assembly Government and the
Northern Ireland Administration. For a policy to be sustainable, it must respect
all five principles:
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Department of Trade and Industry THE ENERGY CHALLENGE
•
•
•
•
•
living within environmental limits;
ensuring a strong, healthy and just society;
achieving a sustainable economy;
using sound science responsibly; and
promoting good governance.
9.7 The policy package set out in this report is expected to reduce carbon
emissions by around 19 – 25 MtC by 2020.
9.8 As individual proposals are further developed, we will address the social,
economic and environmental impacts as part of relevant Regulatory Impact
Assessments.
Implementation
9.9 Some of the measures highlighted in this report re-confirm government
policy or describe measures that have already been announced (for example
the work of the Department for Communities and Local Government on
energy efficiency in buildings).
Next Steps
Carbon Emissions Reductions
Commitment to a carbon price: the Government is committed to there
being a continuing carbon price signal which investors take into account
when making decisions. This is particularly important given the scale of new
investment required in UK electricity generation capacity. The EU ETS is here
to stay beyond 2012 and will remain the key mechanism for providing this
signal. The Government will continue to work with its international partners
to strengthen the EU ETS to make it more effective. We will keep open the
option of further measures to reinforce the operation of the EU ETS in the UK
should this be necessary to provide greater certainty to investors.
Energy Efficiency
Improved Billing: we will be consulting with industry in autumn 2006, on
providing historic information on electricity and gas bills and will consider
further improvements.
UK Energy Performance Commitment (EPC): we will put forward a
proposal for a mandatory emissions trading scheme, alongside other options
for achieving our carbon reduction aims in the large non-energy intensive
sector, and will invite views later in 2006.
Code for Sustainable Homes: we will announce the 5 Levels for the Code
for Sustainable Homes later this year. All government-funded housing will be
required to reach at least Level 3 – significantly more energy efficient that
current Building Regulations.
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Review Implementation
Design for Manufacture Competition: English Partnerships (EP) will
announce details of the second phase of the Design for Manufacture
competition, using six sites across the country. EP will challenge the industry
to build low cost, low carbon and zero carbon homes, looking at the whole
developments.
We will conduct a feasibility study for delivering a low carbon Thames
Gateway over the next ten years. We will explore the scope for the Thames
Gateway to become a model site for developing emerging technologies, and
eventually moving towards carbon-neutrality.
Review of Permitted Development Rights for Microgeneration:
Department for Communities and Local Government will consult on changes
to the General Permitted Development Order in the autumn. We aim to
ensure that, so far as possible, all microgeneration is exempted from the need
for a planning application.
Energy Efficiency Commitment: we will consult this summer on whether to
extend the range of measures allowed under the third phase of the Energy
Efficiency Commitment, considering microgeneration and measures that
affect consumer behaviour.
Distributed Energy
Review of incentives and barriers: the Government and Ofgem will lead
a comprehensive review of the incentives and barriers that impact on
distributed electricity generation. This Review will report in the first half
of 2007.
Foresight Project: the Government will undertake a Foresight project on
sustainable energy management and the built environment. The project would
consider the potential future role and relationship of centralised and
decentralised energy generation in delivering the UK’s long-term energy goals.
In order to do this it would look at scientific, technical and economic issues
including: future systems for generating heat and power that are low carbon
and distributed; transmission and distribution networks; and demand
management. Demand management would range from reducing use of
energy in buildings through materials and intelligence, to exploring
behavioural, attitudinal and information barriers to changes in behaviour.
The project would report its findings in autumn 2008.
Oil, Gas and Coal
New arrangements for providing improved information and projections
for energy supply: we will introduce new arrangements for the provision of a
forward-looking energy market information and analysis pertaining to security
of supply, led from the DTI and working with key energy market players, to
brigade in one place relevant data and analysis on adequacy of future energy
supplies, presenting long-term scenarios of future supply and demand, and
identifying in a timely fashion areas where policy may need to be reviewed.
158
A Coal Forum: the Government will set up a Coal Forum to bring together
producers, coal-fired generators and other interested parties to help them find
solutions to secure the long-term future of coal-fired generation and UK coal
production.
Department of Trade and Industry THE ENERGY CHALLENGE
Gas security of supply: the Government will consult in autumn 2006 with
both industry and consumers on the effectiveness of current gas security of
supply arrangements, their robustness as we move to higher dependence on
gas imports, and if new measures are needed to strengthen them.
Investment in UK oil and gas production: the Government will work with
industry to boost investment in the UK Continental Shelf (UKCS) over the next
ten to fifteen years.
Electricity Generation
Renewables
Renewables Obligation (RO): we are proposing to extend the level of the
Renewables Obligation up to 20%, when justified by growth in renewables;
and consult on ‘banding’ the RO to give more support to emerging
technologies in autumn 2006. If, following this, the RO is to be banded, then
we will consult further on the implementation.
We will also be taking forward planning proposals that will impact on largescale renewables projects (see “efficient and streamlined” inquiries section
below), and will be monitoring the progress being made by Ofgem and the
transmission companies in resolving grid-related obstacles to the growth
in renewables.
Environmental Transformation Fund: a new fund will be established to
support renewable energy and other non-nuclear low carbon technologies.
Details will be announced in the 2007 Comprehensive Spending Review.
Cleaner coal and carbon capture and storage
Carbon Abatement Technology strategy: we will formally launch the first
call for proposals worth £10m under the strategy in autumn 2006, with a
focus on the pre-commercial demonstration of key components and systems
to support carbon abatement technologies.
Carbon Capture and Storage (CCS): the next step would be a commercial
demonstration of CCS, if it proved to be cost-effective. Following HM
Treasury’s recent consultation on CCS, we will do more work on the potential
costs of such demonstration projects. A further statement will be made in the
Pre-Budget Report.
Legal & Regulatory Framework: the Government will continue urgent work
to provide the legal and regulatory basis for CCS in the UK, and to enable CCS
to benefit from the EU Emissions Trading Scheme.
Nuclear
Proposed policy framework for new nuclear power: we are setting out
a proposed framework for the consideration of the relevant issues and the
context in which planning inquiries should be held. This framework would be
set out in a White Paper to be published around the turn of the year. To
support preparation of this White Paper, the Government is consulting on the
proposals outlined in Annex A of this document. The Health & Safety
Executive and the Nuclear Installations Inspectorate plan to issue guidance
towards the end of 2006.
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Review Implementation
Planning for large scale energy infrastructure
Strategic context
Renewable generation: the Government will ensure renewables are at the
heart of the forthcoming Planning Policy Statement (PPS) on Climate Change.
We will consult on the draft Planning Policy Statement around the turn of the
year. The new PPS will make clear that the location and design of new
developments should strongly promote the reduction of carbon emissions.
CHP Guidance: the Government will publish new guidance on Combined
Heat & Power, later in 2006, for applications under section 36 of the
Electricity Act. It will provide more information on developers’ obligations to
give full consideration of opportunities to develop CHP.
Improved planning applications: the Government will consult on guidance
for section 36 Electricity Act applications around the end of 2006, including
information on co-operation between developers and the transmission
companies about joining-up on applications.
Nuclear generation: the Government is launching a consultation on a policy
framework for new nuclear build, which will lead to the Energy White Paper
around the turn of the year.
Efficient and Streamlined Inquiries
New inquiry rules: the Government will introduce new inquiry rules for
applications under the Electricity Act. We will consult in autumn 2006 with
a view to introducing new inquiry rules in spring 2007.
Simplification for gas infrastructure: the Government will consult, in
autumn 2006, on options for the streamlining and simplification of the
planning process for gas supply infrastructure projects.
Predictable timings for final decision-making: the Government will undertake
further work on options to ensure appropriate and predictable timings for
decisions on applications for energy infrastructure. An announcement will be
made later this year in the light of other cross-Whitehall work on planning.
Transport
Renewable Transport Fuel Obligation: the Government will be consulting
on enhancements to the RTFO in early 2007.
EU car fuel efficiency Voluntary Agreements: we will consult with industry on
options to replace the current Voluntary Agreements when they expire in
2008/09. We will explore all options including mandatory measures with trading.
160
Surface transport in the EU Emissions Trading Scheme (EU ETS): the
Government will continue to participate in the European Commission’s
Review of the EU ETS and press for serious consideration of the inclusion of
surface transport.
Department of Trade and Industry THE ENERGY CHALLENGE
ANNEX A
Consultation on the Policy
Framework for New Nuclear Build
Introduction
In the 2003 Energy White Paper the Government recognised that nuclear
build might be necessary if the UK is to meet its carbon targets, but it
concluded that the economics at the time made it unattractive. A
commitment was made that:
“before any decision to proceed with the building of new nuclear power
stations there will need to be the fullest public consultation and the
publication of a further White Paper setting out the Government’s proposals”.
The Government has considered the role of nuclear generation. The
consultation document “Our Energy Challenge: securing clean, affordable
energy for the long-term” set out information about nuclear power amongst
other issues and asked whether there were any particular considerations that
should apply to nuclear as the Government re-examines the issues bearing on
new build, including long term liabilities and waste management, and if so
how the Government should address them.
After a period of public consultation and analysis, the Government has
concluded that:
“Nuclear power is a source of low carbon generation which contributes to
the diversity of our energy supplies. Under likely scenarios for gas and carbon
prices, new nuclear power stations would yield economic benefits in terms
of carbon reduction and security of supply. The Government believes that
nuclear has a role to play in the future UK generating mix alongside other low
carbon generating options. Evidence gathered during the Energy Review
consultation supports this view.”
However, it will be for the private sector to take decisions on proposing new
power stations, based on commercial considerations.
Having reached the position that nuclear has a future role, this document
sets out how the Government intends to create a policy framework under
which developers will be able to make proposals for new nuclear build, that
will be published in a forthcoming Energy White Paper. This White Paper will
set out the Government’s policy on new nuclear build.
Planning is a devolved matter, and powers to grant consent for large power
stations in Scotland (under the Electricity Act) have been executively
devolved. Therefore it will be for Scottish Ministers to decide on the relevant
issues and approach to applications made to them under the Electricity Act
regime.
161
Consultation on the Policy Framework for New Nuclear Build
The Government is seeking views on the following proposal:
BOX A1
A policy framework for new nuclear build should be developed. It would
include a nuclear “Statement of Need” and set out that national strategic
and regulatory issues are most appropriately discussed through processes
other than the planning inquiry.
The planning inquiry should focus on the relationship between the
proposal and the local plans, and local environmental impacts. The inquiry
should address these issues in the context of the national strategic or
regulatory material considerations, which will already have been
established. The inquiry should also examine the local benefits of the
development and how specific local impacts of the construction and
operation of the plant can be minimised.
The deadline for responses is 31st October 2006.
This document includes material that it is envisaged would be incorporated
within the policy framework and the statement of need. In the light of the
views received, the policy framework will be formalised in a White Paper and
form a material consideration for future planning inquires into new nuclear
build proposals. In finalising the text of the statement of need, the
Government will, of course, take into account comments received during
the consultation.
This document also includes background information to support these
changes to the regulatory framework.
There will be a separate consultation on more detailed changes to the inquiry
rules under section 36 of the Electricity Act, which apply to all onshore power
stations over 50MW and 1MW offshore. This will contain specific proposals
that will support the policy framework outlined in this paper.
How to respond
When responding please state whether you are responding as an individual
or representing the views of an organisation. If responding on behalf of an
organisation please make it clear who the organisation represents and, where
applicable, how the views of members were assembled.
A response can be submitted by email or by letter to:
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Energy Review: Nuclear Policy Framework
Department of Trade and Industry
1 Victoria Street
London
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Department of Trade and Industry THE ENERGY CHALLENGE
Email: [email protected]
Website: www.dti.gov.uk/energy/review
You can make copies of this document without seeking permission.
An electronic version can be found at www.dti.gov.uk/energy/review
Confidentiality and Data Protection
Information provided in response to this document, including personal
information, may be subject to publication or disclosure in accordance with
the access to information regimes (these are primarily the Freedom of
Information Act 2000 (FOIA), the Data Protection Act 1998 (DPA) and the
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there is a statutory Code of Practice with which public authorities must
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In view of this it would be helpful if you could explain to us why you regard
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Department will process your personal data in accordance with the DPA and
in the majority of circumstances this will mean that your personal data will not
be disclosed to third parties.
Help with queries
Questions about the policy issues raised in the document can be addressed
to:
Department of Trade and Industry
Response Centre
1 Victoria Street
London SW1H 0ET
Tel: 020 7215 5000
Email: [email protected]
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Consultation on the Policy Framework for New Nuclear Build
The Policy Framework for New Nuclear Build
The Government recognises the importance of public involvement in the landuse planning system. In the context of nuclear power stations, planning
inquiries will be an important part of this public involvement.
However, in the past, where the planning inquiry has included discussions on
strategic national and regulatory issues, as well as project specific and local
issues, it has led to an inefficient system, creating expense and uncertainty
for all participants in the system.
For nuclear projects, the Government considers that action should be taken
to address some of the “generic” nuclear issues before specific nuclear
proposals are considered through the planning system. The figure below
sets out a framework for addressing the important issues that need to be
considered before any new nuclear build can take place:
FIGURE A1
The Government
sets the strategic
context for new
nuclear build
Setting the
Strategic Context
for New Nuclear
Build
Regulators assure
safety, security
and radiological
impacts of design
proposals
Planning process
considers suitability
of specific proposal
and mitigation of
potential negative
local impacts
Consultation on a policy framework, including a
“Statement of Need” for the planning system on
nuclear power leading to a national policy statement
through a White Paper
Justification (under EURATOM Treaty) of a new
“nuclear practice” to provide a balance of the benefits
of the new practice against the potential health
detriments
Strategic Siting Assessment to set out criteria for
deciding on potential sites (and indicate how potential
sites meet these criteria) where the Government
would accept new nuclear build
Roles and
Responsibilities
of the Regulators
Health and Safety Executive ensures safety of a specific
power station design (with a reference to pre-licensing)
Office for Civil Nuclear Security ensures security of a
specific power station design
Environment Agency / Scottish Environment Protection
Agency ensures radiological and other environmental
impacts of a specific power station design are managed
Planning Inquiry to
focus on suitability
of proposal and
mitigation of
potential negative
impacts
Local issues, e.g. visual impact, environmental impacts
Other relevant issues as inquiry inspector considers
necessary
Final decision to grant permission taken by Secretary
of State for Trade and Industry/Scottish Ministers
164
Department of Trade and Industry THE ENERGY CHALLENGE
Setting the Strategic Context for New Nuclear Build
Setting a Statement of Need for nuclear power in
government policy
BOX A2
The Government proposes that the most appropriate process for
discussion of whether there is a need for nuclear power is at a national
level. This strategic position would be set out, at a national level, in the
proposed policy framework, which includes a “Statement of Need” and
will be formalised in a White Paper. Planning inquiries should not focus on
whether there is a need for nuclear power.
The UK planning system is plan-led, meaning that there is a hierarchy of plans
at national, regional and local levels that form the backdrop for any decision to
grant planning permission1. Planning applications must be determined by the
relevant authority in accordance with the development plans unless external
material considerations dictate otherwise. Planning permission for new
nuclear power stations would be decided by the Secretary of State for Trade
and Industry in England and Wales, and in Scotland by Scottish Ministers,
under section 36 of the Electricity Act 1989, as the stations would invariably
have a capacity of >50MW.
The Government can introduce such material considerations, although it is
ultimately for the courts to rule on what constitutes a material consideration.
They have held that government statements of planning policy, as well as
draft policies and plans, can be material considerations, which must be taken
into account.
How will the Government introduce a Statement of Need for
nuclear power?
Through the Energy Review, the Government has carefully considered the
relevant issues to new nuclear power:
• economics of nuclear power;
• environmental and climate change issues;
• security of energy supply issues; and
• safety, security and radiological issues, including waste, for nuclear.
Further details are available on the Energy Review website:
http://www.dti.gov.uk/energy/review/
The Government has gathered and assessed considerable amounts of
evidence on these issues and the potential role that nuclear could play in
helping the UK meet its energy policy goals. As a low carbon form of energy
nuclear can help reduce our emissions, and in increasing the diversity of our
energy supplies it can help to increase the reliability of our energy supply.
1 More information on the “plan-led” system in the UK is available on the Department for Communities and
Local Government website: www.communities.gov.uk/index.asp?id=1143104
Consultation on the Policy Framework for New Nuclear Build
165
Taking all these issues into account, the Government has concluded that
nuclear has a role to play in the future UK generating mix alongside other low
carbon generating options.
Proposed Statement of Need
BOX A3
The Government believes that nuclear has to play a role in the future UK
generating mix because of its contribution to increased diversity of energy
supplies and its role as a source of low carbon generation. The
Government believes that the evidence gathered during the Energy
Review and the associated public consultation supports such a view.
What impact should the Statement of Need have on the Planning
Inquiry?
Under this framework, the Government would assess planning applications
on their merits, taking into account the policy framework set out above. We
would welcome views on this approach. It is important to note that any new
nuclear power stations would be proposed, constructed and operated by
the private sector.
The policy framework, including a Statement of Need, and formalised in a
White Paper, would form a material consideration in future nuclear power
station planning inquiries. The expectation is that planning inquiries should
not consider whether there is a need for nuclear power. Any planning inquiry
should then proceed on the basis that there has been public consultation on
the relevant strategic issues and the outcome has been formalised in the
White Paper. Planning inspectors would therefore have the ability to decide
not to allow discussions of these issues at the inquiry, as they would have
already taken place elsewhere.
An inspector would still be able to open up such issues if they felt that there
were specific aspects of these issues that had not been considered, but the
presumption would be that there should not be detailed oral evidence on
these issues presented to the inquiry.
Justification
One of the internationally accepted principles of radiological protection is that
the benefits of an activity giving rise to ionising radiation must outweigh any
adverse health consequences.
BOX A4
The economic, social and other benefits of a nuclear practice must be
balanced against the economic, social and other detriments. The Government
proposes that the appropriate process for such a strategic consideration is
through the Justification process, as set out in the Justification of Practices
Involving Ionising Radiation Regulations, SI 2004/1769.
166
Department of Trade and Industry THE ENERGY CHALLENGE
What is Justification2?
European Union Member States are required under the Basic Safety
Standards Directive to ensure that all new classes or type of practice resulting
in exposure to ionising radiation are justified in advance of being first adopted
or first approved by their economic, social or other benefits in relation to the
health detriment they may cause.
Existing classes or types of practice may be reviewed whenever new and
important evidence about their efficacy or consequences is acquired.
In the UK the Secretary of State for Trade and Industry is the “Justifying
Authority” for civil nuclear power.
How would the Justification process work?
It is for the Justifying Authority to decide whether a practice belongs to a new
class or type of practice or to review an existing practice.
If Justification is required, the Government will set up a Justification Liaison
Group, with representatives from Department of Trade and Industry,
Department for Environment, Food and Rural Affairs, Department of Health,
the Regulators and the Devolved Administrations, to support the Justifying
Authority in making its decision.
The Government will conduct wide public consultation, alongside engagement
with the following statutory consultees:
• Health and Safety Executive;
• Food Standards Agency;
• Health Protection Agency;
• Environment Agency/Scottish Environmental Protection Agency, and
• other government Departments
Once the views of the public and the statutory consultees have been
assessed by the Justification Liaison Group, the Justifying Authority will
reflect on their recommendations and reach a decision.
The decision to justify a particular class or type of practice would then be
formalised through secondary legislation (a Statutory Instrument).
Devolution
Since energy policy is a reserved matter, the responsibility for reaching a
Justification decision would remain with the Secretary of State for Trade and
Industry. Therefore any Justification decision would be UK-wide. There is a
Concordat3 between the Devolved Administrations and the Government,
which sets out the working relationships in a way that respects the devolution
settlements.
2 Justification was first recommended by the International Commission on Radiation Protection (ICRP) in
1977. The UK legislation on this flows from the Euratom Basic Safety Standards Directive 96/29, which was
implemented in the UK under the Justification of Practices Involving Ionising Radiation Regulations 2004,
SI 2004/1769 (The 2004 Regulations).
3 Concordat on the implementation of the Justification of Practices Involving Ionising Radiation Regulations
2004.
Consultation on the Policy Framework for New Nuclear Build
167
When will the Government undertake Justification?
The first step will be for the Justifying Authority to work with industry,
relevant government Departments and the nuclear regulators to decide how
best to assess candidate designs for new build likely to be put forward by
developers. The Government will be working with interested parties during
2006/07 to make an assessment of the potential candidate designs that
developers might propose.
What impact should Justification have on the Planning Inquiry?
The Justification process is an initial regulatory step, which applies to all new
classes or type of nuclear practice Justification is not about approving a
particular design of reactor on safety, security and other grounds, rather it is
a higher level assessment of these issues, to confirm whether the benefits
outweigh the potential detriments.
The government guidance emphasises that Justification decisions should take
into account the whole nuclear life-cycle and therefore this process will also
consider the decommissioning and waste management processes.
The expectation is that planning inquiries should not consider the general high
level questions of the health and safety aspects of nuclear power, for example
“is nuclear power safe?”. The planning inquiry should proceed on the
assumption that the relevant evidence on these topics has been considered
as part of the Justification decision by the Secretary of State.
An inspector would still be able to open up such issues if they felt that there
were specific aspects of these issues that had not been considered, but the
presumption would be that there should not be detailed oral evidence on
these issues presented to the inquiry.
If new evidence comes to the fore on an existing Justification decision,
then the decision may have to be revisited and reassessed by the Secretary
of State.
The strategic siting of new nuclear build
BOX A5
A Government-led strategic assessment, involving public consultation,
should determine the high level environmental impacts of new nuclear
build. The assessment should also establish the criteria for identifying the
most suitable sites for nuclear power stations, and indicate how potential
sites meet these criteria. As the public will have been fully engaged at
a strategic level already, the same considerations should not then be
re-assessed at a later public inquiry which is site specific.
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Department of Trade and Industry THE ENERGY CHALLENGE
As part of setting the strategic context for new build, the Government will be
undertaking a further assessment of the suitability of sites for new nuclear
build. This assessment will involve a full assessment of the strategic and highlevel environmental impacts of new nuclear build and will identify the criteria
for locations where the Government would support proposals for new nuclear
power stations. It will also indicate how potential sites meet these criteria.
Industry has indicated that the most viable sites for new build are likely to be
adjacent to existing nuclear generating plant, although there might be other
attractive sites, for example other nuclear installations and sites with retiring
fossil fuel generating stations.
The Government will begin this strategic siting assessment in early 2007. The
process will involve public consultation.
What impact should the strategic siting assessment have on the
Inquiry?
The Government considers that it should undertake a thorough assessment to
determine the criteria by which suitable sites for nuclear power stations can
be identified and in turn the most suitable specific locations. In doing so its
consideration will include evaluation of the technical characteristics and the
potential high-level environmental impacts of stations and whether these can
be effectively mitigated.
The expectation is that following a strategic siting assessment on which the
public has been engaged, planning inquiries should not re-assess the question
of whether there are alternative sites for a new nuclear plant, and whether
the proposed site is a viable site. Instead the focus should be on the benefits
of the development and whether the potential local impacts can be
sufficiently mitigated.
An inspector would still be able to explore issues covered by the strategic
sites assessment if they felt that there were specific aspects of these issues
that had not been considered, but it would be expected that there should not
be detailed oral evidence on these issues presented to the inquiry.
The roles and responsibilities of the regulators in new
nuclear build
A mature system of regulation exists for nuclear power stations in the UK.
The regulators are responsible for ensuring that industry sensibly manages
the risks associated with:
• health and safety;
• security;
• non-proliferation; and
• radiological discharges to the environment.
Although these issues may be relevant to whether a proposed new nuclear
power station should be built, the Government proposes that the inspector at
any planning inquiry should act on the assumption that the regulators will
properly discharge their separate duties in these areas. The planning inspector
should not expect detailed oral evidence on these issues to be heard at the
inquiry.
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Consultation on the Policy Framework for New Nuclear Build
There are discrete processes available for considering these regulatory issues
and the presumption within the planning system generally is that controls
should not be imposed which duplicate controls which exist elsewhere.
Health and Safety Executive
In the UK, there is a comprehensive and well-tested framework of legislation
governing the health and safety aspects of the nuclear industry. The
framework of legislation is backed up by assessment, inspection and
enforcement methodologies carried out by the Nuclear Installations
Inspectorate (NII), as part of the Health and Safety Executive (HSE), focussed
on the licensing of nuclear sites. The requirement for an operator to hold a
nuclear site licence granted by the HSE/NII is set out in the Nuclear
Installations Act 1965.
As well as compliance with their nuclear site licence, operators of nuclear
plants in the UK have to comply with the Health and Safety at Work Act 1974.
This places a fundamental duty on employers to ensure, so far as is
reasonably practicable, the health, safety and welfare of all their employees.
It also imposes a duty to ensure, so far as is reasonably practicable, that
persons not in their employment, including the public, are not exposed to
risks to their health and safety as a result of the activities undertaken. Risks
must be reduced to a level which is as low as reasonably practicable.
Any new nuclear power stations would require a nuclear site licence from the
HSE/NII before construction could begin. The HSE/NII would also, as it does
with the existing nuclear power stations, undertake routine monitoring and
assessments of licensees’ comprehensive Periodic Safety Reviews at least
every ten years to ensure that the safety case for continued operation of the
plant remains acceptable.
The HSE/NII has set out its strategy for ensuring any expanded nuclear
industry sensibly manages risks in more detail in the expert report it provided
to the Energy Review4.
In preparing their expert report, as mentioned above, the HSE/NII outlined an
enhancement to their regulatory strategy. The introduction of a multi-stage
design authorisation process will allow the HSE/NII to make an assessment of
the safety case of candidate designs for new build in advance of their sitespecific assessments as part of the site licensing procedure. It is anticipated
that the HSE/NII would process any applications and issue design
authorisations before any planning inquiry for a new power station. More
information on the recommendations of the HSE/NII report are available
online5.
This enhancement will not dilute the scrutiny of the regulator, but will
introduce more clarity and transparency for both the public and industry
throughout the process, including the opportunity for the public to comment.
The Government recommends that the HSE/NII undertake work needed to
implement such a system.
170
4 The Health and Safety Risks and Regulatory Strategy related to Energy Developments; An expert report by
the Health and Safety Executive contributing to the Government’s Energy Review 2006
5 http://www.hse.gov.uk/consult/condocs/energyreview.htm
Department of Trade and Industry THE ENERGY CHALLENGE
Office for Civil Nuclear Security
Similarly, a legal framework is in place for security regulation. Arrangements
are in place including the issue of technical guidance, regular inspections and
security exercises to assure the security of all nuclear installations.
The Office for Civil Nuclear Security (OCNS) is both an autonomous regulator
and security organisation acting on behalf of the Secretary of State for Trade
and Industry. As the security regulator, it is responsible for exercising
oversight over the conditions set to ensure the security of nuclear material,
nuclear licensed sites, sensitive nuclear information and those working in the
industry. Their regulatory strategy is underpinned in legislation:
• the Nuclear Industries Security Regulations 2003 make provision for the
protection of nuclear material, both on sites and in transit, against the risks
of theft and sabotage, and for the protection of sensitive nuclear
information, such as site security arrangements; and
• the Uranium Enrichment Technology (Prohibition on Disclosure)
Regulations 2004 make it an offence to make an unauthorised disclosure
of uranium enrichment technology.
The regulatory framework requires all nuclear site licence holders (as issued
by the HSE//NII) to have an OCNS-approved site security plan setting out how
the nuclear and other radioactive material and sensitive nuclear information is
made secure. The security requirements and procedures specified by OCNS
in its guidance are confidential but they take fully into account the UK’s
obligations and commitments as well as the recommendations on the
physical protection of nuclear material and nuclear facilities issued by the
International Atomic Energy Association (IAEA).
As part of its duties, OCNS is required to make an annual report to the
Secretary of State for Trade and Industry on its activities to ensure the
security of the UK’s nuclear installations. The latest report is available from
the Department of Trade and Industry website6.
UK Nuclear Safeguards Office
The IAEA operates an international mechanism, Safeguards, to detect and
prevent diversion of nuclear material from peaceful use. This non-proliferation
mechanism is underpinned by the international Treaty on the Non-Proliferation
of Nuclear Weapons. The UK, as a nuclear weapons state, has a voluntary
agreement with the IAEA and is a signatory of the EURATOM treaty, both of
which cover all civil nuclear installations. Our obligations under this agreement
are applied by the UK Safeguards Office.
Implementation of these safeguards agreements has focused on nuclear
materials accountancy measures: each country provides the IAEA with
declarations of its nuclear material (i.e. how much material there is and where
it is, what are called nuclear materials accountancy reports), and information
on relevant aspects of the design of the nuclear facilities concerned.
6 “The State of Security in the Civil Nuclear Industry and The Effectiveness of Security Regulation, April 2004
to March 2005”, www.dti.gov.uk/files/file23299.pdf
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171
The IAEA’s activities are designed to verify that nuclear material is present as
declared and that relevant aspects of facility design are as declared. These
activities involve regular routine inspections at nuclear facilities to confirm
that the nuclear materials accountancy reports and supporting records at the
facility are consistent with the information declared to the IAEA. They also
perform checks on the material itself, either by means of direct
measurement/sampling or by so-called containment and surveillance
measures (e.g. sealing containers or stores of material, or video surveillance
of plant areas) to confirm that previously measured material remains
unchanged.
Any new build of nuclear reactors would be covered by these agreements.
The proliferation risks from an increase in the number of modern reactors in
the UK are small; all of the plants that industry have highlighted as potential
candidate designs for new build in the UK can be considered as lowproliferation risk. The UK is working with the US, France, Russia, Germany
and other states, as well as the IAEA, to establish international assurance of
supply for nuclear fuel which will further the aim of persuading countries
not to invest in enrichment and reprocessing plants, which have a greater
proliferation risk.
Further information on Safeguards can be found on the IAEA website7.
Environment Agency/Scottish Environment Protection Agency
The Environment Agency (EA) (and in Scotland, the Scottish Environment
Protection Agency (SEPA)) is responsible for the regulation of a number of
environmental issues:
• radioactive discharges (under the Radioactive Substances Act 1993)
• abstraction and discharge of water for cooling (under the Water Resources
Act 1991)
• emissions from emergency plant, e.g. diesel generators (under the
Pollution Prevent and Control Regulations 2000)
• radioactive waste licensing (under the Environmental Protection Act 1990).
The EA/SEPA oversees all nuclear installations and how radioactive waste
is disposed by granting site authorisations to the operators who run them.
Any operators of new nuclear power stations would have to secure an
authorisation from the EA/SEPA before being allowed to bring nuclear material
onto the site.
These authorisations set out limits and conditions on the amount of
radioactive waste materials and the way operators dispose of their waste. The
authorisations cover all radioactive waste disposals including discharges to air
and water, and transfers of wastes for incineration or disposal to land. The
EA/SEPA also operates an ongoing system of monitoring to ensure operators
are not exceeding their limits and are releasing as little radioactive waste as
possible into the environment. More information on their strategy for
minimising the radiological impact of UK nuclear installations is set out in
a report prepared for the Energy Review8 by the EA.
172
7 http://www.iaea.org/worldatom/Programmes/Safeguards/
8 http://publications.environment-agency.gov.uk/
Department of Trade and Industry THE ENERGY CHALLENGE
In preparing their report, the EA has considered how they can work with
the HSE//NII in their proposed design certification process to minimise
uncertainties for stakeholders during the process of securing a discharge
authorisation under the Radioactive Substances Act, without compromising
their high levels of scrutiny in this area. The EA are proposing to issue a
preliminary statement on the “authorisability” of a candidate design for a
nuclear power station alongside the HSE/NII design certification. This will give
a strong indication to the developer that the radiological effects of a design
should not prevent it being acceptable in the UK. The Government
recommends that the EA undertake work to explore the implementation of
this strategy.
The Role of Planning Inquiries in New
Nuclear Build
The Government recognises the importance of public involvement in the landuse planning system. In the context of nuclear power stations, a planning
inquiry will be an important part of this public involvement.
However, in the past, where the planning inquiry has been the focus of all
discussions on proposals for new nuclear plant (covering strategic national,
regulatory and local issues), it has led to an inefficient system, creating
expense and uncertainty for all participants in the system.
For nuclear projects, the Government considers that the planning process
(under s.36 of the Electricity Act 1989) should take place in the context of this
framework, where the strategic and regulatory issues are addressed in
advance of planning inquiries, as set out above. The planning inquiry should
focus on the relationship between the proposal and the local plans, and the
local environmental impacts. It should also examine the local benefits of the
development and how specific local impacts of the construction and operation
of the plant can be minimised. The Government will reflect this policy in the
setting of all terms of reference for planning inquiries.
The expectation is that planning inquires should focus on the relationship
between the proposal and the local plans, and the local environmental
impacts, taking into account the other “national” or strategic material
considerations. Of course, the inspector will retain the right to explore any
issues, e.g. the safety features of a design, that they consider to be relevant
to the decision on whether to grant planning permission, but they should
not expect detailed oral evidence on these issues to be heard at the inquiry.
The inquiry should focus on the local benefits of the development and how
specific local impacts of the construction and operation of the plant can
be minimised.
Although the planning inquiry plays an important role in providing a forum to
discuss unresolved issues, it is preferable for all parties to reach common
ground where possible. For this reason, the Government proposes to
introduce new inquiry rules under the Electricity Act, that will affect all large
generating stations, to support the policy framework outlined above with an
increased focus on front-loading the system and the use of pre-inquiry
meetings to reach positions of common ground in advance of the inquiry.
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173
Supporting information for proposed changes to the regulatory
framework
The information below provides background for the proposed changes to the
regulatory framework on which the Government is seeking views. Further
information is available at http://www.dti.gov.uk/energy/review/
Nuclear is economic in a range of likely gas and carbon price
scenarios
The Government believes that under likely scenarios for gas and carbon
prices, new nuclear power stations would yield economic benefits in terms of
carbon reductions and security of supply. Therefore, the Government believes
that nuclear has a role to play in the future UK generating mix, alongside other
low-carbon generating technologies. In reaching this assessment, we have
examined the following aspects of nuclear power:
• costs
• environmental benefits
• security of supply benefits
• overall economics or “welfare balance”
A number of nuclear cost/gas price/carbon price scenarios have been
considered in the economic appraisal of nuclear new build
The economics of new nuclear build depend on expectations about future
gas and carbon prices, as well as expected costs of building, operating,
decommissioning and dealing with the waste of a new nuclear plant. The cost
benefit analysis for new nuclear build has considered a range of plausible
scenarios for these variables.
The central case cost of new nuclear power generation is assumed to be
around £38/MWh. A high case nuclear cost of £44/MWh is also considered,
together with a low case cost of £30/MWh.
The main cost drivers are construction and financing costs, giving an assumed
capital cost of £25/MWh in the central case; this is significantly higher than
the capital cost for the project currently under implementation to add a new
nuclear plant in Finland.
Other categories of cost are small in comparison (see chart A1). In particular,
fuel costs are around £4/MWh, representing only around 11% of total cost9.
In this respect, it is important to note that the doubling of uranium prices
since 2000 has had only a minor impact on final fuel costs and overall nuclear
generation costs10.
174
9 Source: DTI analysis 2006
10 IAEA/OECD “Red Book” 2005
Department of Trade and Industry THE ENERGY CHALLENGE
CHART A1: NUCLEAR COSTS BY STAGE
3%
11%
20%
Capital costs
66%
O&M
Fuel
Back end costs
Source: DTI Analysis, 2006
Back end costs (decommissioning and waste recycling), whilst potentially of a
large order of magnitude far into the future, need only a relatively small annual
contribution (equivalent to around £1/MWh) to a financial reserve which grows
over time to the required amount.
The central gas price scenario models a world where the current market
situation prevails, and the gas price remains linked to the oil price. Whereas
the gas price has been around 20 pence/therm on average over the last
decade, the average price in 2005 was 42 pence/therm.
Going forward the central gas price remains high by historical standards,
based on an assumed oil price of $40/bbl. The high gas price scenario models
a world where the oil price remains around $70/bbl. The low gas price
scenario models a world where there is increased competition in the gas
market, resulting in decoupling of the gas price from the oil price, and a falling
of the gas price towards marginal cost.
Regarding carbon prices, the range covered in the analysis models worlds
where: there is no commitment to carbon reduction (then the carbon price is
€0/tonne); there is some commitment, but carbon reduction targets are such
that abatement costs remain low (€15 (£10)/tonne of CO2); there is ongoing
commitment to carbon reduction, resulting in a carbon price in line with the
first quarter 2006 UK market price (€25 (£17)/tonne of CO2); there is ongoing
commitment to carbon reduction, with tightening targets resulting in
increased abatement costs (€36 (£25)/tonne of CO2).
Nuclear generation has a small cost penalty relative to gas-fired
generation in the central case.
Gas fired generation has a narrow cost advantage over new nuclear
generation in the central gas price scenario, and this advantage becomes
greater as the gas price falls and/or the nuclear cost increases. Nuclear
generation has a cost advantage in a high gas price scenario and in a low
nuclear cost scenario.
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Consultation on the Policy Framework for New Nuclear Build
Carbon emissions reductions are significant relative to gas fired plant
The annual carbon emissions reduction from investing in a GW of nuclear
plant is approximately 2.5 million tonnes of CO2 (700,000 tonnes of
carbon)/GW compared to investment in gas fired plant. For illustrative
purposes for this cost benefit analysis, a programme to add 6GW of new
nuclear capacity would reduce annual emissions by around 15 million tonnes
of CO2 (4 million tonnes of carbon). Valuing emissions savings at a CO2
price of €36 [£25]/tonne gives a present value benefit of around
£1.4 billion/GW over forty years from nuclear new build.
It is important to note that the emissions reduction figure above nets out
lifecycle emissions associated with construction of nuclear plants, and with
mining, transportation and processing of uranium. Estimates of lifecycle
emissions for different power generation technologies are summarised in
the following table published by the OECD:
Technology (2005-2010)
GC/kWh*
Lignite
228
Equivalent to GCO2/kWh**
836
Coal
206
755
Natural Gas
105
385
Biomass
8-17
29-62
Wind
3-10
11-37
Nuclear
3-6
11-22
Table A1: Total Lifetime Releases From Selected Technologies
*Grams of carbon per kilowatt hour of electricity produced
** Grams of carbon dioxide per kilowatt hour of electricity produced
Source: OECD Nuclear Energy Agency
Some critics of nuclear energy have questioned its credentials as a net
producer of low carbon energy. In particular it has been claimed that, as ore
grades deteriorate as uranium is used, the energy consumed by mining and
milling will exceed the energy produced by the nuclear power plants and
result in similar overall carbon dioxide releases to fossil generation.
It is true that lower grade ores will require more energy to make fuel for
nuclear power stations, which could increase the lifecycle carbon emissions
from nuclear power. However, as highlighted by the Sustainable Development
Commission it is not expected that high-grade resources will be depleted in
the foreseeable future11. This view is endorsed by the IAEA; none of the
planned new mining projects are of significantly lower grade ores than that
currently mined12. As such, we can have confidence that the estimates of the
lifecycle emissions from nuclear will remain comparable with wind power,
a view endorsed by the Sustainable Development Commission13.
176
11 Sustainable Development Commission – “Paper 8 Uranium Resource Availability”.
www.sd-commission.org.uk/pages/060306.html
12 Information from IAEA member states submitted to IAEA /OECD for ”Uranium 2005: Resources,
Production and Demand”, aka “Red Book”.
13 Sustainable Development Commission – “Paper 2 Reducing CO2 Emissions – Nuclear and the
Alternatives”.
Department of Trade and Industry THE ENERGY CHALLENGE
Security of supply benefits relative to gas fired generation relate to
the risk of gas supply interruption.
Investment in new nuclear capacity would reduce the level of total gas
consumption and gas imports in 2025. A programme to add 6GW of new
nuclear capacity by 2025 would reduce total forecast gas consumption in
2025 by around 7%.
Nuclear can also be an important source of baseload generating capacity.
In a world where gas fired plant is added to the power system rather than
nuclear plant, this increases vulnerability in the event of a gas supply
interruption. Given this vulnerability, the economic option would be to back up
gas fired plants with oil distillate switching capability. In the event of a gas
supply interruption, gas fired plants would then be able to continue operating
by burning oil distillate rather than gas.
If nuclear plant is added rather than gas fired plant, there is no longer the
need to maintain back up capability. One benefit of nuclear generation can
then be seen as the avoided cost of this capability, estimated to be of the
order £100 million/GW. In a more unstable world subject to the possibility of
repeated/prolonged fuel supply interruptions, new nuclear generation can be
viewed as a hedge either against high gas prices, or high costs of ongoing
electricity generation using oil.
There is of course the possibility that nuclear fuel supply might be interrupted;
realising the potential benefits of new nuclear build would naturally be
dependent on the availability of nuclear fuel. A number of assessments of the
availability of fuel were considered as part of the Energy Review process. The
range of assessments of future prospects for uranium supplies reflects the
difficulty in making exact predictions, in exactly the same way as predictions
of future oil and gas reserves cannot be guaranteed.
However, every two years, the IAEA and OECD (NEA) undertakes a
comprehensive assessment of the availability of uranium, taking into account
expected production and demand levels. Their most recent report14 estimates
the identified amount of conventional uranium resources that can be mined
for less than USD 130/kg, just above the current spot price, to be about 4.7
million tonnes. Based on the 2004 nuclear electricity generation rate this
amount is sufficient for 85 years.
As chart A2 shows, deposits of uranium ore are distributed across a number
of countries, including those on whom we are not dependent for fossil fuels;
therefore new nuclear build should help the UK become less reliant on a
limited number of players for energy supplies.
14 IAEA / OECD Red Book 2005.
Consultation on the Policy Framework for New Nuclear Build
177
CHART A2: URANIUM SOURCES
Russia 4%
Canada
9%
Kazakhstan17%
USA
7%
Uzbekistan 2%
Niger 5%
China
1.3%
India
1.4%
Brazil
6%
Others 17.3%
Namibia
6%
Australia 24%
Source: IAEA/OECD (NEA) Red Book 2005
It is difficult to make exact predictions on how long uranium deposits will last
in any given country because it is dependent on a number of variables:
• new mines coming on stream;
• price of uranium ore – the price effects the mining market and may make
mining of certain deposits more viable;
• new nuclear reactor technology may use less uranium thereby extending
the lifetime of available uranium deposits;
• more nuclear reactors may be built thereby increasing the demand on
available uranium deposits;
• increased use of reprocessing to recycle used fuel and create MOX (Mixed
Oxide) fuel (a mix of uranium and plutonium).
Using IAEA figures it is possible to make a rough, high-level estimate that
reserves in the world’s major exporters of uranium, Australia and Canada,
based on current estimated resource and production levels will last another
150 years and 45 years respectively15.
Whilst the demand for uranium has increased in recent years, resulting in
higher prices for uranium ore, future increases, even with further increasing
global demand, are expected by the IAEA/OECD to be modest. Prices are
expected to remain substantially below the historically high levels of the
1970s, but the increases we have seen are expected to encourage further
exploration of uranium resources, as can be seen in the new mines expected
to open across the world and the increasing exploration expenditure:
178
15 Source: IAEA/OECD “Red Book” 2003
Department of Trade and Industry THE ENERGY CHALLENGE
CHART A3: TREND IN URANIUM EXPLORATION EXPENDITURES FOR
SELECTED COUNTRIES
250
USDollars
200
150
100
50
0
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
(exp.)
Year
Uranium Spot Price (USD/kgU)
Exploration Expenditures (USD million)
SOURCE: IAEA / OECD (NEA) Red Book 2005
In addition, the UK has a substantial supply of recycled uranium and
enrichment tails, which could be used to supplement the supply of uranium
ore from overseas. Recycled uranium would need to be treated; currently
only France and Russia have the capability. With changing market conditions,
it may be attractive to build such facilities in the UK. Alternatives fuels such as
MOX, which uses a mix of uranium and plutonium, could further supplement
uranium supplies.
The welfare balance is positive in central/high gas price, central/low
nuclear cost worlds, and negative in low gas price/high nuclear cost
worlds
The welfare balance associated with nuclear new build relative to a do nothing
scenario where gas fired plant is added to the power system is the sum of
environmental and security of supply benefits net of any nuclear cost
penalties. Welfare balances under alternative scenarios are presented in the
summary table below.
The table shows that, even at the high end of carbon prices, the net benefit of
nuclear generation is negative at low gas prices or high nuclear costs. In a low
gas price scenario, a CO2 price of €54 (£37)/tonne is required to justify new
nuclear generation. In a high nuclear cost scenario, a CO2 price of just above
€36 (£25)/tonne is required in order that the net benefit of new nuclear
generation is positive.
179
Consultation on the Policy Framework for New Nuclear Build
Table A2: nuclear generation welfare balance under alternative gas price,
carbon price and nuclear cost scenarios, (net present value) NPV over forty
years, £ million/GW
Carbon price Low gas Central gas,
Central
Central gas, High gas
(€/ tCO2)
price
high nuclear gas price low nuclear
price
0
-2,100
-1,400
-400
900
1,400
15
-1,500
-900
200
1,400
2,000
25
-1,100
-500
600
1,800
2,400
36
-700
0
1,000
2,300
2,800
The welfare balance is positive in the central gas price world for a CO2 price
above €10 (£7)/tonne, and in high gas price/low nuclear cost worlds across
the range of carbon prices (including a zero carbon price). Under the central
gas price and a CO2 price of €36 (£25)/tonne, the NPV benefit over 40 years
associated with a 6GW nuclear programme would be of the order £6 billion.
Nuclear generation is likely to be justified in a world where there is
continued commitment to carbon emissions reduction and gas prices
are at or above 37 pence/therm.
The economic case against nuclear arises if the probability of low gas
prices/high nuclear costs is significantly higher than the probability attached to
other scenarios, and/or the CO2 price is significantly less than the €36
(£25)/tonne value assumed in the analysis.
In the central gas price scenario, nuclear generation is economically justified
unless commitment to emissions reduction falls away, in which case the
relevant carbon price may become zero. As far as some commitment
remains, net benefits associated with nuclear investment are positive, largely
reflecting the environmental benefits of this option.
This continues to be true as nuclear costs increase beyond the range given
in the various studies of nuclear generation. In the central gas price scenario,
and valuing environmental benefits at a CO2 price of €36 (£25)/tonne, the
economics of nuclear generation remain robust for a nuclear generation cost
up to £43.50/MWh. This is well above the forecast cost of power generation
from the Finnish nuclear project currently under construction, by a margin that
far exceeds any historical cost overruns associated with nuclear projects (e.g.
Sizewell B).
Economic risks associated with nuclear playing a role in the future
energy mix would appear to be limited.
In summary, the economics of nuclear depend critically on assumptions made
about future gas and carbon prices, and nuclear costs. On some sets of
assumptions, the nuclear case is positive; in others, negative, so a judgement
has to be made about the relative weight to be given to the various scenarios.
180
Department of Trade and Industry THE ENERGY CHALLENGE
In making such a judgement, it is important to note that probabilities
associated with many of the various states of the world are endogenous
rather than exogenous, and depend on policy decisions. This is true of the
carbon price, which will depend on whether the UK remains committed to
its goal of long-term carbon reduction. To the extent that commitment does
remain, then higher carbon price scenarios should be given more weight.
It is true also for nuclear costs, where policy to improve the planning process
would reduce the likelihood of a high nuclear cost scenario ensuing.
Regarding gas prices, the weight to be attached to the high gas price scenario
is again a policy decision. Where the Government is averse to the risk of
high gas prices, other things being equal, more weight should be attached to
this scenario.
Within these likely scenarios nuclear generation yields positive net economic
benefits. An additional factor in support of this argument is that the likelihood
of low nuclear costs would increase for a programme of new build as
opposed to a one off plant addition; the analysis of the forecast UK capacity
balance suggests that there would be scope for a programme.
The resource cost of taking facilitative measures for new nuclear build would
be limited initially to work required for improving the planning process, and
for elaborating details of waste and decommissioning arrangements. The
likelihood is that commercial projects would only be forthcoming in a world
where the supporting policy framework as described above is in place, in
which case expected economic benefits would be positive.
181
Consultation on the Policy Framework for New Nuclear Build
ANNEX B
Overview of Modelling of the
Relative Electricity Generating
Costs of Different Technologies
Introduction
This paper sets out results of modelling undertaken as part of the Energy
Review. The purpose of this modelling is to provide estimates of the relative
cost of electricity generation technologies under different scenarios and
assumptions to inform policy analysis. These estimates do not represent a
government view on the relative costs of the technologies. To take account
of uncertainties on the assumptions we have also undertaken sensitivities.
The modelling is based on levelised costs and is not intended to predict
specific private sector investment decisions or to ‘rank’ different generation
technologies. Energy investment decisions are taken in the UK by the private
sector within a market-based energy policy framework and take into account
a range of specific factors, including for example post construction financing
costs and market conditions, which are not incorporated into this modelling.
The scenarios considered in the modelling include a base case; varying
assumptions for gas and carbon prices; and a full range of sensitivities
including discount rate, capital cost, operating and maintenance (O&M)
costs, fuel prices, carbon prices, load factors and interest rate margin (for
construction finance only).
Methodology
Overview
We have developed a model to assess the levelised cost of a number of
technologies considered in the Energy Review. These technologies are gasand coal-fired power plant (with and without Carbon Capture and Storage);
nuclear; and onshore and offshore wind generation.
The levelised costs for the technologies are presented as a range in £/MWh.
The levelised costs are calculated by summing capital (annuitised and
including interest during construction), O&M and fuel costs over the life of the
plant, and dividing this sum by the sum of electrical output, i.e. total lifetime
costs divided by total lifetime electrical outputs.
182
The analysis is based on a range of assumptions and data. For each
technology, assumptions have been compiled on the basis of recent studies
which are referred to in the Appendix to this Annex. All of the assumptions
and the resulting levelised costs are based on “first of a kind” costs
(i.e. the costs incurred from building a standalone plant, ignoring cost
reductions that may be achievable through economies of scale or technology
learning). The model structure and assumptions used are set out in the
Appendix to this Annex.
Department of Trade and Industry THE ENERGY CHALLENGE
We have also modelled sensitivities on the key assumptions and data (up to
30 sensitivities, including ranges in the discount rate, capital cost, O&M
costs, fuel prices1, carbon prices, load factors and interest rate margin for
construction finance). We do not estimate probabilities for the occurrence of
the sensitivities. Providing probabilities would unfairly weight outcomes, and
would add a spurious level of accuracy to the underlying probability
distributions of the sensitivities.
Model review
As part of their financial advice to the Energy Review, Ernst & Young LLP
performed a review of the structure and logical integrity of the model which
was developed by the Department of Trade and Industry (DTI) to generate the
relative costs set out in this Annex. This review included conducting a test
programme of the model’s arithmetic based on specific input scenarios to
assess whether the model has been constructed in a manner consistent with
its stated objectives of generating an estimated levelised cost of power and
an estimated new entry price for each of the five energy technologies on the
basis of the DTI’s chosen assumptions and input data set out in the Appendix
to this Annex.
Ernst & Young LLP reported to the DTI that in its opinion, based on the work
performed on the specific instructions of and solely for the DTI, the model has
been constructed appropriately, in so far as its logical integrity and arithmetic
is concerned, so as to achieve materially the objectives described above
under both the base case assumptions for each of the energy technologies
and the specific designated sensitivities. The scope did not extend to
considering the appropriateness of the assumptions and additionally Ernst &
Young LLP may not have addressed issues of relevance to any other party. It
accepts no responsibility or duty of care to any party other than the DTI. Any
reliance placed upon the model review by any third party is entirely at such
party's own risk.
Technologies modelled
The technologies that have been modelled are:
• Gas plant:
– Combined Cycle Gas Turbine (CCGT). The analysis is based on H Frame
technology which is now considered “state-of-the-art” in the UK context
and is commercially available and deployed at Baglan Bay power station
in Wales.
– CCGT with Carbon Capture and Storage (CCS). CCS is an emerging
technology and CCGT with CCS has not yet been deployed on a large
scale. The key developmental elements of CCS relate to the CO2
separation technologies (i.e. pre-combustion, post-combustion and
oxyfuel) and the storage location and formation for storage (e.g. for
enhanced oil or gas recovery, depleted gas fields and saline aquifers).
1 Fuel price assumptions and carbon costs are included as the basis for modelling a number of potential
scenarios and do not represent predictions of future prices.
Overview of Modelling of the Relative Electricity Generating Costs of Different Technologies
183
• Coal plant:
– Pulverised Fuel (Advanced Super Critical, ASC) with Flue Gas
Desulphurisation (FGD). This is considered the base case coal
technology which is being deployed around the world.
– Pulverised Fuel (ASC) with FGD and CCS.
– Integrated Gasification Combined Cycle (IGCC). This technology is
currently being commercialised.
– IGCC with CCS.
• Retrofit coal plant based on Pulverised Fuel (ASC) with FGD with CCS.
• Nuclear:
– The analysis focuses on the Light Water Reactor (LWR) design types,
including Pressurised Water Reactors and Boiling Water Reactors which
are based on evolutionary third generation nuclear technologies used
worldwide.
• Wind:
– Onshore wind. Modelling here is based on an 80MW wind farm.
– Offshore wind. Modelling here is based on a 100MW wind farm.
Scenarios considered
There are a large number of potential factors that influence the generation
costs of different technologies which are modelled here through sensitivity
analysis of key data and assumptions. In this report we present four cases,
demonstrated through seven charts. In each case we provide a short
commentary to aid interpretation of the charts.
The four cases we consider are:
1. Base Case – central gas price (36.6p/therm2) and no carbon price included.
2. Carbon Price Added3 – As the “Base Case” but with a carbon price of
€25/t CO2 (£17/t CO2).
3. Gas and Carbon Price Sensitivities – As the “Base Case”, but with low/
high gas prices (low at 21p/therm and high at 53p/therm) and varying
carbon prices €15/t CO2 (£10/t CO2) and €36/t CO2 (£25/t CO2).
4. Full Sensitivity Ranges – As “Carbon Price Added” but with ranges for
the discount rate, capital costs, O&M costs, fuel prices, carbon prices, load
factors and interest rate margin (for construction finance).
184
2 Fuel price assumptions to 2020 are published in Annex C of this document.
3 Carbon costs are included as the basis for modelling a number of potential scenarios and do not represent
predictions of future CO2 prices. The range covered in the analysis models worlds where: there is some
commitment to carbon reduction, but carbon reduction targets are such that abatement costs remain low
(€15 (£10) / tonne of CO2); there is ongoing commitment to carbon reduction, resulting in a carbon price in
line with the first quarter 2006 UK market price (€25 (£17) / tonne of CO2); there is ongoing commitment
to carbon reduction, with tightening targets resulting in increased abatement costs (€36 (£25) / tonne of
CO2).
Department of Trade and Industry THE ENERGY CHALLENGE
Results
CHART B1: BASE CASE (CENTRAL GAS PRICE AND NO CARBON PRICE INCLUDED)
Offshore Wind (100MW)
Onshore Wind (80MW)
CCGT with CCS
CCGT
IGCC with CCS
IGCC
PF with FGD with CCS
PF with FGD
Retrofit PF with FGD with CCS
Nuclear
0
10
20
30
40
50
60
70
80
90 100
£/MWh
cost range
extended ranges
Comments on Chart B1:
• In this case we plot base case costs for each technology. The red blocks
represent the range of costs based on assumptions provided in Table B1
in the Appendix to this Annex and the blue lines represent extended
assumptions on capital costs for wind and nuclear set out in Table B2.
• Given the sensitivity of the levelised cost to fuel prices, it is worth
specifically noting that the CCGT cost is based on a 36.6p/therm gas price
and the coal technologies are based on a £25/t coal price.
• The small red ranges associated with some technologies (e.g. CCGT)
reflect a high degree of confidence in the cost estimates for technologies
that are proven and where there is good data to draw on.
• In the case of technologies deploying CCS, the larger costs ranges in red
reflect the lack of operational knowledge of these technologies, resulting in
particular in large ranges in current estimates of operation and
maintenance costs. The range of cost for IGCC technology without CCS is
wider than PF coal technology, reflecting the uncertainty around integration
and scale of the technology.
• For the wind and nuclear technologies, the range presented in blue reflects
the influence of capital costs, which vary over time. In these cases, the
levelised costs are particularly sensitive to these costs.
185
Overview of Modelling of the Relative Electricity Generating Costs of Different Technologies
CHART B2: BASE CASE COSTS WITH CENTRAL GAS PRICE AND CARBON PRICE OF
€25/tCO2
Offshore Wind (100MW)
Onshore Wind (80MW)
CCGT with CCS
CCGT
IGCC with CCS
IGCC
PF with FGD with CCS
PF with FGD
Retrofit PF with FGD with CCS
Nuclear
0
10
20
30
40
50
60
70
80
90 100
£/MWh
cost range
extended ranges
carbon cost
CHART B3: BASE CASE COSTS WITH CENTRAL GAS PRICE AND CARBON PRICE OF
€15/tCO2
Offshore Wind (100MW)
Onshore Wind (80MW)
CCGT with CCS
CCGT
IGCC with CCS
IGCC
PF with FGD with CCS
PF with FGD
Retrofit PF with FGD with CCS
Nuclear
0
10
20
30
40
50
60
70
£/MWh
cost range
extended ranges
carbon cost
186
Department of Trade and Industry THE ENERGY CHALLENGE
80
90 100
CHART B4: BASE CASE COSTS WITH CENTRAL GAS PRICE AND CARBON PRICE OF
€36/tCO2
Offshore Wind (100MW)
Onshore Wind (80MW)
CCGT with CCS
CCGT
IGCC with CCS
IGCC
PF with FGD with CCS
PF with FGD
Retrofit PF with FGD with CCS
Nuclear
0
10
20
30
40
50
60
70
80
90 100
£/MWh
cost range
extended ranges
carbon cost
Comments on charts B2 to B4:
• In these charts, the cost of carbon has been added to the base case costs
from chart B1.
• Carbon costs are shown in green, and represent the additional cost of
generation from each technology imposed by the carbon price. Thus the
green bars are wider for more carbon intensive technologies.
• We take varying costs of carbon (€25/t CO2 (£17/t CO2); €15/t CO2
(£10/t CO2) and €36/t CO2 (£25/t CO2)). These costs are included as the
basis for modelling a number of potential scenarios and do not represent
predictions of future CO2 prices.
• The carbon costs are based on the emission factor for the plant, multiplied
by the market price for carbon (converted into a cost per MWh).
• The carbon emissions factors are based on DEFRA’s National Atmospheric
Emissions Inventory (NAEI) divided by the efficiency factor for the relevant
technology.
187
Overview of Modelling of the Relative Electricity Generating Costs of Different Technologies
CHART B5: BASE CASE COSTS WITH CARBON PRICE (€25/tCO2) AND LOW GAS
PRICE (21P/THERM)
Offshore Wind (100MW)
Onshore Wind (80MW)
CCGT with CCS
CCGT
IGCC with CCS
IGCC
PF with FGD with CCS
PF with FGD
Retrofit PF with FGD with CCS
Nuclear
0
10
20
30
40
50
60
70
80
90 100
£/MWh
cost range
extended ranges
carbon cost
CHART B6: BASE CASE COSTS WITH CARBON PRICE (€25/tCO2) AND HIGH GAS
PRICE (53P/THERM)
Offshore Wind (100MW)
Onshore Wind (80MW)
CCGT with CCS
CCGT
IGCC with CCS
IGCC
PF with FGD with CCS
PF with FGD
Retrofit PF with FGD with CCS
Nuclear
0
10
20
30
40
50
60
70
80
90 100
£/MWh
cost range
extended ranges
carbon cost
Comments on charts B5 and B6:
• In these charts, the cost of gas is varied and a price of carbon of €25/t
CO2 (£17/t CO2) is assumed. Varying the gas price results in changes to
the cost of CCGT and CCGT with CCS, while the cost of all other
generation technologies remain the same as in chart B2.
• Charts B5 and B6 take a low and high price for gas respectively (low is
21p/therm, and high is 53p/therm). These gas price assumptions are
published in Annex C of this document.
188
Department of Trade and Industry THE ENERGY CHALLENGE
CHART B7: FULL SENSITIVITIES (DISCOUNT RATE, CAPITAL COST, O&M COSTS,
FUEL PRICES, CARBON PRICES, LOAD FACTOR AND INTEREST RATE MARGIN)
Offshore Wind (100MW)
Onshore Wind (80MW)
CCGT with CCS
CCGT
IGCC with CCS
IGCC
PF with FGD with CCS
PF with FGD
Retrofit PF with FGD with CCS
Nuclear
0
20
40
60
80
100
120
£/MWh
cost range
extended ranges
Comments on chart B7:
• The chart presents the full range of sensitivities that have been conducted
for each technology represented by the blue lines. Section 3 of the
Appendix to this Annex provides further detail on the sensitivities.
• The ranges in red include carbon costs based on a carbon price of €25/t
CO2 (£17/t CO2). The red ranges are therefore different from the base
cases presented in Chart 1.
• The blue lines around the red ranges are used to represent the outcomes
from the range of sensitivities tested for each technology.
• The sensitivities examined are: discount rate, capital cost, O&M costs, fuel
prices, carbon prices, load factors and interest rate margin for construction
finance.
• The low end of the range reflects the low range of the sensitivities (low
discount rate, low fuel prices) and the high end reflects high discount rate
and high fuel prices.
189
Overview of Modelling of the Relative Electricity Generating Costs of Different Technologies
APPENDIX: Overview of
Modelling of the Relative
Electricity Generating Costs
of Different Technologies
1. Introduction
We have developed a financial model to assess the economic cost of the
generating technologies (refer http://www.dti.gov.uk/energy/review). The
generating technologies are gas-fired, coal-fired, nuclear, onshore wind and
offshore wind generation.
INPUT DATA MODEL STRUCTURE
Nuclear
Coal
Input Main
Gas
Wind
(General and plant specific data)
Retrofit
(Plant specific input data)
For each technology assumptions have been compiled on the basis of recent
studies for the:
• predevelopment period;
• construction period; and
• costs associated with:
– construction,
– operation,
– and the back-end costs as they apply to nuclear (specifically
decommissioning and waste disposal).
190
All of the assumptions are based on first of a kind costs, and therefore they
do not take into account the effects of learning or the potential cost savings if
more than one plant type is brought forward. The construction is assumed to
be on a greenfield site aside from the retrofit coal option where the cost of
the existing plant and associated infrastructure is fully depreciated, i.e. has a
cost of zero. Furthermore we have modelled a range of cases for alternative
values of key variables. Probabilities are not assigned to the various variables
Department of Trade and Industry THE ENERGY CHALLENGE
as doing this would suggest a spurious degree of information about
underlying probability distributions for the key variables.
1.1 Levelised costs
The cost of generating electricity has been calculated on a levelised cost basis
expressed in £/MWh. The calculation takes the long-run average costs of a
particular generating technology over its lifespan divided by the total output.
Costs include the capital cost (in an annuitised form including interest during
construction), the operating costs and the fuel cost. All numbers are real (in
2006 prices) and the capital cost is annuitised using a 10% discount rate.
LEVELISED COSTS
Nuclear
Coal
Input Main
Gas
Wind
Retrofit
Predevelopment
& construction
Decommissioning
Operation
(Output, fuel consumption,
operating costs)
Waste
Levelised Cost
2. Modelling Assumptions
Table B1 details the assumptions used in the financial model and Section 4
details the sensitivities.
2.1 Capital, operating and plant performance assumptions
For the capital cost, operating cost and plant performance assumptions we
have used Redpoint Energy4 and industry sources for the gas and coal
technologies, Oxera and Enviros5 for the onshore wind, Climate Change
Capital6 for the offshore wind and various sources for nuclear technologies as
noted in the Nuclear Cost Benefit Analysis on the Energy Review website.
These sources are a subset of the numerous market studies that have been
published7, some of which analyse all technologies whilst others have focused
on specific technologies. Our aim has been to use the most representative
data for a project being developed in the UK. We have not presumed to
4 Redpoint Energy (July 2006) The Dynamics of UK Generation Investment.
5 Enviros Consulting Limited (September 2005) The Cost of Supplying Renewable Energy; Oxera (January
2005) What is the potential for commercially viable renewable generation technologies – Interim report
prepared for the DTI.
6 Climate Change Capital (February 2006) Assessing the risks and implications of government contracts for
offshore wind.
7 A full list of studies referred to is included in Section 5 of this Appendix.
Overview of Modelling of the Relative Electricity Generating Costs of Different Technologies
191
choose the best case but rather the most plausible and therefore our
assumptions may appear to be conservative when compared to some studies.
2.2 Interest during construction
For all technologies, the interest during construction is added to the capital
cost and annuitised for the levelised cost. Interest is assumed to be 6.26%
(the London Inter Bank Offered Rate of 4.26% and a 2% margin). The amount
leveraged is assumed to be 70%.
2.3 Fuel price assumptions
Fuel price assumptions for gas and coal to 2020 have been used, thereafter
they have been assumed to be straight line. The fuel price assumptions are
detailed in Annex C of this document.
2.4 Carbon Sequestration
Given the generic modelling of each project a simplified central assumption of
£8/t CO2 has been used for the transport and storage of CO2. This equates to
£3/MWh for a CCGT with CCS and £6/MWh for the coal-fired technologies
with CCS.
2.5 Nuclear decommissioning and waste disposal
Details of the work programme and timetable to establish arrangements for
dealing with the costs of decommissioning and waste from nuclear new build
will be published by the time of the White Paper. The Government has not
taken a position on how these arrangements should be designed. The nuclear
section of chapter 5 sets out certain principles which will apply to the
arrangements developed. That chapter also establishes that industry
participants will need to meet the financial requirements established by the
Government’s decommissioning and waste frameworks even in challenging
downside scenarios.
For the purposes of the cost benefit analysis, we have made some
assumptions which in no way prejudice the outcome of work to determine
the arrangements for dealing with the costs of decommissioning and waste
from nuclear new build. The cost assumptions are detailed in Table B1 and in
the Nuclear Cost Benefit Analysis8.
2.5.1 Decommissioning
As the entity operating the plant will be responsible for meeting the costs of
decommissioning, it has been assumed that the entity operating the plant will
make an annual contribution to build a financial reserve so that by the end of
operation sufficient reserves are in place to meet the cost of
decommissioning. The reserve is assumed to grow at 2.2%.
Decommissioning is assumed to take 25 years and begins at the end of the
operating life of the plant and finishes 65 years after the start of plant life.
Therefore whilst a portion of the reserve is being spent, the balance is
continuing to grow at 2.2%. At the end of the 25 year decommissioning
period the financial reserve has been drawndown to zero. This model is
illustrative. The methodology described is illustrated in the chart below.
192
8 This is available at www.dti.gov.uk/energy/review
Department of Trade and Industry THE ENERGY CHALLENGE
APPENDIX CHART 1: DECOMMISSIONING AND WASTE FUNDING
30
2500
25
2000
20
15
£m
£m
1500
1000
10
500
5
0
2006
2014
2022
2030
2038
2046
2054
2062
2070
2078
2086
Decommissioning Financial Reserve
Decommissioning Contributions
Waste Contributions
2.5.2 Waste management
Waste disposal assumes the same methodology as decommissioning as
described in 2.5.1 above for the levelised cost calculation. For the purposes of
the cost benefit analysis, we have made some assumptions which in no way
prejudice the outcome of work to determine the arrangements for dealing
with the costs of decommissioning and waste from nuclear new build. The
financial reserve built by the operating entity to meet waste costs is assumed
to be spent in the first year at the end of operations rather than over 25 years
(as per decommissioning).
193
Overview of Modelling of the Relative Electricity Generating Costs of Different Technologies
3. Data Assumptions
Table B1 details the key data assumptions used in the financial model.
Table B1: Assumptions underlying the levelised costs for the technologies
Technology
Capital
Cost1
£/kW
Operations &
Maintenance
Fixed
£/kW
Operations &
Maintenace
Variable
p/kWh
Efficiency2
%
Gas-fired plant
CCGT
440
7.0
0.20
58.0
CCGT with CCS – low
828
12.0
0.17
50.0
CCGT with CCS – high3
698
123.0
0.00
47.6
Retrofit PF with FGD
and CCS – low
721
24.9
0.25
33.5
Retrofit PF with FGD
and CCS – high3
721
77.9
0.46
33.5
PF with FGD – low
918
17.0
0.11
45.6
PF with FGD – high
882
31.3
0.20
44.1
PF with FGD with CCS – low 1,162
26.0
0.27
36.6
PF with FGD with CCS – high 1,625
81.3
0.50
34.8
IGCC – low
1,069
19.0
0.12
44.5
IGCC – high
1,030
50.0
0.20
48.3
IGCC with CCS – low
1,452
26.0
0.26
39.0
IGCC with CCS – high
1,715
100.0
0.40
39.9
819
44.4
0.00
100.0
1,532
46.0
0.00
100.0
1,407
56.6
0.00
36.1
Coal-fired plant
Wind plant
Onshore Wind (80MW)
Offshore Wind (100MW)
Nuclear plant
Pressurised Water Reactor4,5
Real numbers in 2006 prices
1. Capital cost – includes owners costs but excludes interest during construction
2. Efficiency is noted on an LHV basis
3. O&M uplift based on Redpoint new build assumptions
4. The availability used for nuclear plant assumes 80% in the first five years
5. Decommissioning cost assumed to be £400/kW and waste cost assumed to be £173/kW
194
Department of Trade and Industry THE ENERGY CHALLENGE
Plant
Life
Load
Factor
CO2
Sequestration
Basis for capital
and O&M cost
assumptions
%
CO2
Transport
and Storage
p/kWh
years
%
35
85
N/A
N/A
Industry sources
35
85
90
0.3
Industry sources
35
85
90
0.3
Foster Wheeler
30
90
90
0.6
Industry sources
30
90
90
0.6
Industry sources
50
90
N/A
N/A
Industry sources
50
90
N/A
N/A
Redpoint Energy
50
90
90
0.6
Industry sources
50
90
90
0.6
Redpoint Energy
35
90
N/A
N/A
Industry sources
35
90
N/A
N/A
Redpoint Energy
35
90
90
0.6
Industry sources
35
90
90
0.6
Redpoint Energy
20
33
N/A
N/A
Oxera & Enviros
20
33
N/A
N/A
Climate Change Capital
40
85
N/A
N/A
Recent market data
and current projects
195
Overview of Modelling of the Relative Electricity Generating Costs of Different Technologies
4. Sensitivities
Table B2 details the key sensitivities used in the financial model.
Table B2: Sensitivity assumptions underlying the levelised costs for the
technologies in Table B1
Technology
Sensitivity1
Low
High
Very High
Fuel price
21p/therm
53p/therm
Onshore Wind (80MW)
Capital cost
£700/kW
£900/kW
£1000/kW
Offshore Wind (100MW)
Capital cost
£900/kW
£1550/kW
£1650/kW
Capital cost
£850/kW
£1400/kW
£1600/kW
Gas-fired plant
CCGT
Wind plant
Nuclear plant
Pressurised Water Reactor
Real numbers in 2006 prices
1. Capital cost – excludes interest during construction and owners’ costs
Additional sensitivities have been run for all of the technologies on the
following variables:
• predevelopment period and cost;
• construction period and cost – including varying the interest margin and the
leverage;
• operation period;
• operations and Maintenance cost;
• fuel cost;
• load factor in the first five years and thereafter;
• CO2 price (only applies to the gas and coal technologies);
• CO2 transport and storage cost (only applies to the technologies with
CCS);
• decommissioning cost (only applies to nuclear);
• waste disposal cost (only applies to nuclear); and
• discount rate.
The sensitivity ranges and results for each technology are included in the
financial model9 and are summarised in Chart B7.
196
9 This is available at www.dti.gov.uk/energy/review
Department of Trade and Industry THE ENERGY CHALLENGE
5. Market studies
Table B3 lists the market studies we have referred to during the building of
the financial model other than internal and interdepartmental analysis.
Table B3: Source material
Source material (in alphabetical order)
Web link (if available)
Climate Change Capital (February 2006)
Assessing the risks and implications of
Government contracts for offshore wind
Consultation Submissions to the Energy
Review (2006) British Energy, Centrica,
EDF, E.ON, RWE, Scottish & Southern
Energy and ScottishPower
http://www.dti.gov.uk/
energy/review/consultationsubmissions/page27883.html
Department for Environment, Food and
Rural Affairs (April 2006) UK Greenhouse
Gas Inventory, 1990 – 2004 – Annual
Report for submission under the
Framework Convention on Climate
Change
http://www.airquality.co.uk/archive/
reports/cat07/0605231047_ukghgi_
90-04_v1.1.pdf
Department of Trade & Industry (July 2006)
DTI Energy and CO2 Emissions Projections
http://www.dti.gov.uk/energy/review
Department of Trade & Industry (July 2006)
Nuclear Cost Benefit Analysis
http://www.dti.gov.uk/energy/review
Department of Trade & Industry
(December 2005) The Role of Fossil Fuel
Carbon Abatement Technologies (CATs) in
a Low Carbon Energy System – A Report
on the Analysis Undertaken to Advise the
DTI’s CAT Strategy
http://www.dti.gov.uk/energy/
sources/sustainable/carbon-abatementtech/techstrategy/page19434.html
Environmental Audit Committee (March
2006) Keeping the Lights on: Nuclear,
Renewables & Climate Change
http://www.publications.parliament.
uk/pa/cm200506/cmselect/cmenvaud/
584/584i.pdf
Enviros Consulting Limited (September
2005) The Cost of Supplying Renewable
Energy
http: www.dti.gov.uk/renewables
Oxera (January 2005) What is the potential
for commercially viable renewable
generation technologies – Interim report
prepared for the DTI
http: www.dti.gov.uk/renewables
Foster Wheeler Comparative Study of Pre
and Post Combustion Decarbonisation for
a Generic Combined Cycle Power Plant
HM Treasury (2005) Appraisal and
evaluation in Central Government,
“The Green Book”
http://www.hm-treasury.gov.uk./
media/D5E/29/96.pdf
197
Overview of Modelling of the Relative Electricity Generating Costs of Different Technologies
Table B3: Source material continued
Source material (in alphabetical order)
Web link (if available)
Intergovernmental Panel on Climate
Change (2005) Carbon Dioxide Capture
and Storage – Summary for Policymakers
and Technical Summary
http://www.ipcc.ch/activity/
ccsspm.pdf
International Energy Agency (2005 Update)
Projected Costs of Generating Electricity
http://www.iea.org/w/bookshop/
add.aspx?id=196
PB Power (June 2006) Powering the
Nation – A review of the costs of
generating electricity
http://www.pbpower.net/inprint/
pbpubs/powerthenation/
powerthenation.htm
Public Services International Research
Unit (July 2005) The economics of nuclear
power: analysis of recent studies by
Steve Thomas
http://www.psiru.org/reports/
2005-09-E-Nuclear.pdf
Redpoint Energy (July 2006) The Dynamics
of UK Generation Investment
http://www.dti.gov.uk/energy/review
Sustainable Development Commission
(March 2006) The role of nuclear power
in a low carbon economy
http://www.sdcommission.org.uk/publications/downl
oads/SDC-NuclearPosition-2006.pdf
Sustainable Development Commission
(March 2006) The role of nuclear power
in a low carbon economy – Paper 4:
The economics of nuclear power
http://www.sd-commission.org.uk/
publications/downloads/
Nuclear-paper4-Economics.pdf
World Nuclear Association (December
2005) WNA Report, The New Economics
of Nuclear Power
http://www.world-nuclear.org/
economics.pdf
198
Department of Trade and Industry THE ENERGY CHALLENGE
ANNEX C
UK CO2 Emissions Projections
Headline CO2 Projections to 2020
The DTI forecasts a range of possible future carbon dioxide emissions levels,
which reflect four scenarios:
• a high fossil fuel price scenario
• a central fossil fuel price scenario, where the assumed prices somewhat
favour gas in generation
• a central fossil fuel price scenario, where the assumed prices somewhat
favour coal in generation
• a low fossil fuel price scenario.
Current CO2 projections1 (Table C1), which do not take account of proposals
set out in the main body of this report, show emissions falling up to 2010 due
to measures contained in the Climate Change Programme, but increasing to
2015 as the effect of the existing measures is more than counterbalanced by
the increase in energy demand and the closure of nuclear generation plants.
Emissions fall after 2015 as a significant number of coal-fired power plants
retire post 2015. Taking an average of the two central scenarios, and including
the EU Emissions Trading Scheme (EU ETS), the current projections suggest
a 16.2% reduction on 1990 levels by 2010, which will be a shortfall of 6.2MtC
from the target of a 20% reduction in emissions relative to 1990 levels.
The impact of the EU ETS is shown in the table as a separate line. It is
included as the reduction in the UK allocation of allowances (-8MtC annually)
announced for Phase II of the scheme. Not all of this reduction may be
achieved within the UK – the scale of abatement action within the UK will
depend on the level of the carbon price across the EU as a whole.
1 The current projections (DTI Energy and CO2 Emissions Projections to 2020 – UEP26) are available at
www.dti.gov.uk/energy/review/index.html
UK CO2 Emissions Projections
199
Table C1: Carbon dioxide emissions projections (1990 – 2020) (MtC)
Central Scenario
Central Scenario
Favourable to coal Favourable to gas
1990 2000 2005 2010 2015 2020 2010 2015 2020
Power Stations
55.7
43.1
47.1
44.1
47.6
46.5
42.5
45.4
45.0
Refineries
5.0
4.9
5.6
5.7
5.7
5.7
5.7
5.7
5.7
Residential
21.1
23.2
22.3
19.8
19.9
20.1
20.3
20.4
20.6
Services
8.3
8.2
6.8
5.9
6.1
6.9
5.9
6.1
6.9
Industry
35.3
33.4
31.4
32.5
31.4
30.3
32.6
31.7
30.6
Road Transport
30.1
32.0
33.3
32.6
33.2
32.5
32.6
33.2
32.5
Off-road
1.6
1.4
1.5
1.5
1.4
1.4
1.4
1.4
1.4
Other transport
3.4
2.5
2.3
2.3
2.4
2.5
2.3
2.4
2.5
LUC(1)
0.8
-0.1
-0.6
-0.5
0.1
0.7
-0.5
0.1
0.7
Total
(excl. EU ETS)
EU ETS
Total
(incl. EU ETS)
161.4 148.6 149.8 143.9 147.8 146.5 142.9 146.4 145.8
-
-
-
-8.0
-8.0
-8.0
-8.0
-8.0
-8.0
161.4 148.6 149.8 135.9 139.8 138.5 134.9 138.4 137.8
1990
2000
2005
High Scenario
2010 2015 2020
Low Scenario
2010 2015 2020
55.7
43.1
47.1
44.4
48.3
49.5
40.9
41.6
39.9
Refineries
5.0
4.9
5.6
5.7
5.7
5.7
5.7
5.7
5.7
Residential
21.1
23.2
22.3
19.0
19.0
19.3
21.5
21.5
21.6
Services
8.3
8.2
6.8
5.9
6.1
6.9
5.9
6.1
6.9
Industry
35.3
33.4
31.4
32.2
30.7
29.5
32.8
31.9
30.7
Road Transport
30.1
32.0
33.4
32.1
32.3
31.7
33.1
34.0
33.5
Off-road
1.6
1.4
1.5
1.4
1.4
1.4
1.5
1.5
1.5
Other transport
3.4
2.5
2.3
2.3
2.3
2.4
2.4
2.5
2.6
LUC
0.8
-0.1
-0.6
-0.5
0.1
0.7
-0.5
0.1
0.7
Power Stations
(1)
Total
(excl. EU ETS)
EU ETS
Total
(incl. EU ETS)
161.4 148.6 149.8 142.5 145.9 146.9 143.3 145.0 142.9
-
-
-
-8.0
-8.0
-8.0
-8.0
-8.0
-8.0
161.4 148.6 149.8 134.5 137.9 138.9 135.3 137.0 134.9
(1) Land Use Change
200
Department of Trade and Industry THE ENERGY CHALLENGE
Progress towards Kyoto
The Kyoto target is based on a basket of greenhouse gases (GHG) of which
CO2 emissions represent the largest share. The UK remains on track to
comfortably go beyond its Kyoto commitment. Thus the current CO2
projections (UEP26) combined with the emissions of other (non- CO2)
greenhouse gases suggest that in 2010 total UK greenhouse gas emissions,
without the EU ETS, will be some 20% below the base year level2. Including
the EU ETS, the projected reduction is almost 24%. Chart C1 below illustrates
the projected total greenhouse gas emissions relative to the UK Kyoto target
after incorporating the current CO2 projections (UEP26).
FIGURE 1: TOTAL GREENHOUSE GAS EMISSIONS (1990-2020)
220
210
MtC
200
190
180
170
160
150
1990
1995
2000
2005
2010
2015
2020
Total Greenhouse Gas Emissions (excluding EU ETS)
Total Greenhouse Gas Emissions (including EU ETS)
Kyoto Target (A 12.5% Reduction on 1990 Level of GHG Emissions)
Source: DTI
201
2 Historic GHG figures are on the 1990-2003 inventory basis.
UK CO2 Emissions Projections
Revisions to Previous Projections to 2020
Since the previous CO2 projections (UEP 21) were published in February
20063, there have been a number of developments arising from the Budget
announcements in March 2006, developments in UK population statistics,
additional policy measures announced in the Climate Change Policy Review
and responses received to the February 2006 consultation on EU ETS Phase II
CO2 emissions projections4. There has also been a re-assessment of fossil
fuel prices. Generally, fossil fuel prices in 2010 are assumed to be higher than
previously and to rise further between 2010 and 2020. This is to reflect the
signs that demand for oil appears more robust to higher prices than previously
assumed and supply is still expected to remain relatively tight even after
expected increases in supply in the next few years. Table C2 sets out the
fossil fuel price assumptions used for the current CO2 projections (UEP 26).
Table C2: Fossil fuel price assumptions
Central Scenario
Favourable to coal
Real 2005
prices
Crude
Oil
Natural
Gas
$/bbl NBP p/therm
Central Scenario
Favourable to gas
ARA
Coal
Crude
Oil
Natural
Gas
ARA
Coal
$/GJ
$/bbl
NBP p/therm
$/GJ
2005
55.0
41.0
2.4
55.0
41.0
2.4
2010
40.0
33.5
1.9
40.0
25.8
1.9
2015
42.5
35.0
1.9
42.5
27.3
1.9
2020
45.0
36.5
1.8
45.0
28.0
1.8
High Scenario
Real 2005
prices
Crude
Oil
Natural
Gas
$/bbl NBP p/therm
202
Low Scenario
ARA
Coal
Crude
Oil
Natural
Gas
ARA
Coal
$/GJ
$/bbl
NBP p/therm
$/GJ
2005
55.0
41.0
2.4
55.0
41.0
2.4
2010
67.0
49.9
2.6
20.0
18.0
1.4
2015
69.5
51.4
2.6
20.0
19.5
1.2
2020
72.0
53.0
2.6
20.0
21.0
1.0
3 These are available http://www.dti.gov.uk/files/file26363.pdf
4 A full response to the consultation will be available shortly.
Department of Trade and Industry THE ENERGY CHALLENGE
Table C3 below illustrates the revised generation fuel mix consistent with the
current CO2 projections (UEP 26) for the two central cases up to 2020, which
shows how coal and nuclear plant closures affect the changing mix over the
next few years.
Table C3: Electricity generation fuel mix (TWh)5
Central
favourable
to gas
1990
1995
2000
2005
2010
2015
2020
204
145
112
126
106
100
82
oil
15
9
2
2
2
2
1
gas
0
57
127
135
137
183
235
59
81
78
75
73
34
26
5
6
10
17
33
53
53
12
16
14
11
11
11
11
2
2
3
3
3
3
3
298
315
346
369
365
386
411
1990
1995
2000
2005
2010
2015
2020
204
145
112
126
119
116
94
oil
15
9
2
2
3
2
2
gas
0
57
127
135
122
164
219
59
81
78
75
73
34
26
5
6
10
17
33
53
53
12
16
14
11
11
11
11
2
2
3
3
3
3
3
298
315
346
369
362
383
407
coal
nuclear
renewables
imports
pumped storage
Total
Central
favourable
to coal
coal
nuclear
renewables
imports
pumped storage
Total
EU ETS and Projections
The current CO2 emissions projections (UEP 26) have been prepared before
taking account of the impact of the EU ETS6. The impact of including the
reduction in the UK allocation now announced for Phase II is, however, shown
in the summary tables above. Abatement effort within the UK will reflect the
level of the carbon price and the behavioural response to that price. This
carbon price will depend on the UK and other member states’ allocations for
2008-12; levels and relativities of fossil fuel prices; abatement options; and
availability of JI and CDM credits.
5 The coverage of the industry is major power producers plus all other renewable generators. All other
generators of electricity are included within the industrial or commercial sectors.
6 Exclusion of the EU ETS has reflected a number of considerations: the UK’s allocation decision for Phase II
has been informed, amongst other factors, by the projections before the ETS; there is considerable
uncertainty over the level of carbon price in the scheme, which will be determined by other member states
allocations, as well as the UK’s.
UK CO2 Emissions Projections
203
Longer Term Trends to 2050
Longer-term trends7, excluding the proposals set out in the main body of this
report, suggest that total UK energy demand and emissions are expected to
continue to rise beyond 2020 (Table C4 and chart C2).
Table C4: Projected CO2 emissions, by sector, to 2050 (MtC)
Residential Transport
Industry
Services
sector
sector
Total CO2
emissions
(including LUC)
1990
40.3
40.0
56.4
23.8
161.4
2000
38.8
41.1
48.9
20.7
143.5
2010
36.7
42.4
45.8
19.5
146.7
2030
41.1
41.5
46.6
21.6
151.4
2050
47.3
40.5
50.3
23.8
162.6
CHART C2: LONG-TERM PROJECTED CO2 EMISSIONS, TO 2050
(BASED ON NO FURTHER GOVERNMENT ACTION)
200
Million tonnes of carbon
180
160
140
120
100
80
60
40
20
0
1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
Source: DTI, 2006
204
7 Detailed results and assumptions behind longer-term trends to 2050 are included in the paper on the
UEP26 projections, which is available at www.dti.gov.uk/energy/review/index.html
Department of Trade and Industry THE ENERGY CHALLENGE
ANNEX D
Renewables Statement of Need
We remain committed to the important role renewables have to play in
helping the UK meet its energy policy goals. In this publication we are
reiterating previous commitments we have made, not least in the 2003
Energy White Paper and Planning Policy Statement 22 on renewable energy
(PPS22), on the importance of renewable generation and the supporting
infrastructure. We intend this to reconfirm the UK Government policy context
for planning and consent decisions on renewable generation projects.
As highlighted in the 2006 Energy Review report1, the UK faces difficult
challenges in meeting its energy policy goals. Renewable energy as a source
of low-carbon, indigenous electricity generation is central to reducing
emissions and maintaining the reliability of our energy supplies at a time
when our indigenous fossil fuels are declining more rapidly than expected.
A regulatory environment that enables the development of appropriately sited
renewable projects, and allows the UK to realise its extensive renewable
resources, is vital if we are to make real progress towards our challenging
goals.
New renewable projects may not always appear to convey any particular
local benefit, but they provide crucial national benefits. Individual renewable
projects are part of a growing proportion of low-carbon generation that
provides benefits shared by all communities both through reduced emissions
and more diverse supplies of energy, which helps the reliability of our
supplies. This factor is a material consideration to which all participants in the
planning system should give significant weight when considering renewable
proposals. These wider benefits are not always immediately visible to the
specific locality in which the project is sited. However, the benefits to society
and the wider economy as a whole are significant and this must be reflected
in the weight given to these considerations by decision makers in reaching
their decisions.
If we are to maintain a rigorous planning system that does not disincentivise
investment in renewable generation, it must also enable decisions to be taken
in reasonable time. Decision makers should ensure that planning applications
for renewable energy developments are dealt with expeditiously while
addressing the relevant issues.
205
1 The Energy Challenge, July 2006.
Renewables Statement of Need
PPS22 makes clear that regional planning bodies and local planning authorities
should not make assumptions about the technical and commercial feasibility
of renewable energy projects, and that possible locations for renewable
energy development must not be ruled out as unsuitable in advance of full
consideration of the application and its likely impacts. Planning policies, in
Regional Spatial Strategies and Local Development Documents, should not
place unjustified restrictions on renewable developments; they must be
flexible to cope with technological and other change over time.
However, there will be certain areas with more readily available access
to renewable resources that will be more attractive for developers, for
example where windspeeds are greatest. As such, as we increase the level
of renewables, in line with our energy policy goals, there will be occasions
when proposals are received for renewables projects that are located closely
enough together potentially to have cumulative impacts. Decision makers will
have to work closely together with statutory advisers, such as English Nature,
to consider the handling of assessments of the cumulative impact of such
proposed developments. Cumulative effects, like the impacts of individual
projects, will not however necessarily be unacceptable or incapable of
reduction through mitigation measures.
206
Department of Trade and Industry THE ENERGY CHALLENGE
ANNEX E
Renewable Grid Issues
New investment in networks will be needed to accommodate greater
levels of renewable generation
1. New, large renewable plants are likely to connect into the transmission
network, particularly in Scotland where the 132kV system is categorised as
transmission. Because of the geographical concentration of wind resource in
Great Britain, there are likely to be complex connection issues
accommodating large amounts of wind generation, in particular. Substantial
increases in wind generation will therefore require parallel developments in
transmission infrastructure.
2. The Government has long recognised these issues. DTI published the
RETS study in June 2003 and RETS Revisited in November 2005. Ofgem also
published a report between price reviews in December 2004 (Transmission
Investment for Renewable Generation) that approved funding for over £560m
capital expenditure, including the upgrading of the Beauly-Denny line. These
upgrades could allow the connection of a further 6.3GW in Scotland, of which
1.5GW has already been consented and installed.
3. The Government also recognises that planning approval for new overhead
lines will be increasingly required if renewable generation is to continue
growing (see Chapter 7). In the past, approval has sometimes proven to be
problematic and this is likely to be the case if the status quo remains.
Increased uncertainty, risk and therefore cost can all influence developers’
investment decisions.
Grid requirements will be specific to particular regions based on
available wind resource, existing capacity and location within the
system1
4. The need for new transmission capacity is determined using the criteria
stated in the SQSS which was developed prior to the increase of intermittent
sources. Work is currently underway to raise the capacity on the transmission
network linking England and Scotland. Longer term it is possible that existing
capacity may need to be doubled – provided it is efficient and economic to do
so – through construction of two new major onshore or offshore links. This
would allow a further 6 – 8GW of capacity. Additional generation could require
substantial further reinforcement dependent upon the size and location of the
new generation and any changes to existing generation and demand in the
region.
1 Figures are supplied by National Grid and should be considered as broad estimates. No detailed studies
have been undertaken to inform this work.
Renewable Grid Issues
207
5. In northwest England there is currently very little network capacity
available for new generation without significant reinforcement. Work is
underway at Heysham that will allow an extra 1GW of renewable capacity, at
a cost of £75m. Additional generation of around 2GW, either in the local area
or in Scotland, will require reinforcements near to Penwortham and the
Mersey Ring at a further cost of around £275m. The transmission network
around the Thames Estuary and The Wash is currently heavily congested.
National Grid believe that substantial upgrading will be required to
accommodate the significant, predicted amounts of demand for capacity,
around 3GW, in The Wash and in the Thames Estuary at a cost of around
£600m. These very indicative figures are summarised below and show which
costs are potentially significant.
Table E1: Potential costs to accommodate additional renewable generation
Area
Cost (£m)
Additional capacity (GW)
Cost per GW (£m)
NW England
75
1
75
NW England
275
2
137
Scotland
375
4-5
75-94
Wash/Thames
600
3
200
Scotland
1,000-2,000
6-8
125-333
TOTAL
2,325-3,325
16-19
145-175
It should be noted that these costs are not based on firm analysis. Further independent and detailed appraisal
would be required before any approval for funding.
Transmission upgrades alone may not be sufficient
to ensure continued growth in large-scale
renewable generation
6. The Government is aware of a number of significant and pressing issues
that need resolution in the context of the 2010 renewable energy target.
These include current Final Sums Liability (FSL) arrangements and the
“queue” created by the confluence of the Government’s renewable targets,
the Renewable Incentive Scheme and transitional arrangements for BETTA,
given the lack of excess capacity and the time required to consent and build
new transmission capacity. Resolution of these issues is imperative for the
potential of renewables to be maximised and targets achieved. Ofgem and
National Grid are working to resolve these issues. It is crucial that this
progresses to a satisfactory conclusion.
208
Department of Trade and Industry THE ENERGY CHALLENGE
Should renewable generation pay only a proportion of the Transmission
Use of System charges paid by conventional generation?
7. All generation connected to the transmission system is required to pay
charges according to investment cost reflective pricing principles – the greater
the cost impact to the network the higher the transmission charge. These
TNUoS charges are therefore inextricably linked to the future cost of network
investment, largely defined by transmission companies’ planning investment
criteria.
8. Work sponsored by the DTI suggests that renewable generation may drive
the need for transmission reinforcement to a lesser degree than conventional
generation – which implies transmission charges should be lowered. There
are two main reasons why this may be the case. First, the contribution of
renewable generation to security of supply is potentially very different from
conventional generation (expanded below). Although wind generation may
displace energy produced by conventional plant, its ability to displace
conventional network capacity is limited even at substantial penetrations,
due to its variability. (At the low penetrations we currently have, supply
displacement is similar to that of capacity displacement.) Therefore, the need
for transmission network capacity to enable wind generation to contribute to
security of supply would be less than conventional plant.
9. Second, when calculating the proportion of the utilisation of transmission
capacity by wind and conventional plant, during peak-flow condition on a
probabilistic basis, wind occupies less transmission due to its low load factors
(around 35%). Wind occupies the same capacity when generating but is less
likely to be operating at peak.
10. Other work (forthcoming from National Grid) suggests that network
investment costs of variable and conventional generation are similar. What is
agreed is that transmission charges should be cost reflective. If it can be
categorically shown that classes of generation (including renewables) are not
paying an amount equal to the costs they impose on the system, the TNUoS
charge should be adjusted appropriately. Alternatively if preferential treatment
were given for renewables this should be made explicit and the cross-subsidy
justified.
11. The Government notes that there is currently a review of the GB Security
and Quality of Supply Standard (SQSS) and work underway by National Grid
on Condition 3 with regard to treating intermittent generation, both of which
have an impact on this issue. The Government supports this work and the
current transmission charging methodology principle of cost reflectivity.
209
Renewable Grid Issues
Do current transmission reinforcement and connection standards have
potential to overstate necessary investment requirements for renewable
generation?
12. National Grid’s transmission investment standards are designed to ensure
a safe and secure transmission network under a wide range of contingencies.
A report sponsored by the DTI shows that application of these standards
could be inappropriate in the case of renewables. There may exist the
potential for the system to be “over-engineered” in some instances2.
13. Less reinforcement may be required for renewable generation because
wind (or marine) is variable, has low utilisation compared with most
conventional plant and therefore makes less contribution to ensuring that
winter peak demands can be met reliably. Currently, the transmission
companies’ investment standards take only partial account of this, leading to
the possibility of transmission reinforcements being overestimated and
charges too high.
14. The Government is aware of a review of the SQSS by National Grid, and
a technical sub-group has been set up by DTI/Ofgem to assist with decisions
relating to offshore transmission system security requirements.
Does transmission access policy cause unnecessary delays in
connection?
15. Transmission reinforcements are currently required to be in place before
renewable generation can connect and capacity allocated – “invest then
connect”. This, together with the particular application of the transmission
companies’ network planning standards, results in a transmission system
designed to handle the output of both conventional and renewable generation
simultaneously. The invest and connect regime means that a party wishing to
connect to the system must often wait until necessary reinforcements are
complete which can lead to projects being given connection dates later than
when their generation development is complete.
16. This policy would be justified if renewable generation contributed to
overall system security to the same extent as conventional. The role of
renewable generation is not primarily to contribute to system security, but to
displace the output of conventional fossil-fuel generation. In a future system
with significant amounts of renewable generation, it will not be possible for all
renewable and conventional generation to operate simultaneously. Nuclear
and some conventional generation operates at base load and renewable
generation operates whenever its primary “fuel” is available to displace fossil
fuels and reduce carbon emissions. Some conventional fossil-fired generation
will increasingly adopt a regulating role, operating when the availability of
renewable energy is low and reducing its output to accommodate increases
in output of renewable generators.
210
2 Centre for Distributed Generation and Sustainable Energy, “Transmission Planning and Operational
Standards with Intermittent Generation”.
Department of Trade and Industry THE ENERGY CHALLENGE
17. This mode of operation suggests that, rather than designing the
transmission system on today’s “invest and connect” basis, it could be
designed to “connect and manage”, with renewable and conventional
generation “sharing” transmission access.
18. In this situation, transmission access could be granted at an earlier – fixed
– point (e.g. a number of years after application or after consents received).
These options were discussed in a recent access reform report by Ofgem3.
From the point of connection the consequences of accommodating the
generation would need to be managed by the system operator. There may be
some increased costs from balancing the system through constraining-off
generators and contracting for reserve services. The constraint costs could be
significant and would need to be assessed in developing this approach.
19. The connect and manage approach may also increase competition and
allow a greater volume of renewable generation to connect. It is estimated
that it could advance the connection of up to 2GW of renewable generation
by between 2 and 3 years. System security would not be compromised – an
excess of generation capacity would exist, managed by constraining
conventional generation whenever necessary.
20. A “connect and manage” approach could also release the hidden “nonfirm” capacity of the transmission system. This capacity arises because of the
premise underpinning the design of the transmission system – that security
should not be compromised in the event of the worst credible transmission
fault.
21. These fault conditions, while onerous, are extremely infrequent and
consequently Transmission capacity normally operates at relatively low
utilisation. Resulting non-firm capacity could be utilised provided adequate
means of recovery were in place to respond to the occurrence of a credible
fault, such as arrangements for automatic generator disconnection. The
variable output and low load-factor characteristics of renewable generation
are well suited to the utilisation of non-firm capacity.
22. Given the recent introduction of BETTA we are not advocating a
fundamental review of the operation of the market. However, with the
Review’s mandate to look at long-term issues renewable generation grows
as a proportion of the total, some conventional plant will have very low load
factors. The market needs to ensure arrangements are in place to ensure the
necessary reserve is maintained. This issue has been picked up elsewhere
within the Review.
3 Access Reform in Electricity Transmission: Working group report and next steps, May 2006 (Ref No.
83/06a) and A framework for considering reforms to how generators gain access to the GB electricity
transmission system: A report by the Access Reform Options Development Group April 2006, May 2006
(Ref No. 83/06b), both available at www.ofgem.gov.uk
Renewable Grid Issues
211
More research into managing variability and capacity contribution of
renewable generation seems useful
23. A recent UKERC report “Costs and Impacts of Intermittency” concluded
that the likely cost of additional electricity balancing services required to
manage the variability of renewable sources, should such sources reach
~20% of supply, was in the range 0.2 – 0.3p/kWh of wind output (0.5 – 0.8
p/kWh in total). Smeared across all generation the burden on consumers
would be about 0.1 – 0.5 p/kWh. These costs suggest an increase in domestic
electricity bills of around 1%. Under a connect and manage approach,
constraint costs could also be significant, depending on the detail of the
approach adopted and this would need to be evaluated.
24. The UKERC report implies some important issues for policymakers.
It would be helpful for the effect of intermittent generation to be better
monitored in the future and the effectiveness of market mechanisms in
delivering adequate system margin should be kept under review.
25. While not high, the costs of intermittency could be expected to increase
with penetration of renewables above 20%. Furthermore, there appear to be
ways to mitigate these costs through technologies such as “dynamic
demand” which would provide a responsiveness of electricity demand to
variations in system frequency, or the increased application of electricity
storage. In turn: dynamic demand includes such possibilities as appliances
that can vary their load with frequency (imbalances in generation and demand
result in changes in system frequency), reducing the need to carry spinning
reserves; developments in storage would allow excess energy during windy
periods to be stored and released during periods of calm.
26. The Government accepts that further research into technical and
commercial issues may be useful here. Areas include the impact of clustering
in a UK context, adequacy of current reliability criteria and the extent to which
market intervention may be required to ensure the availability of adequate
levels of conventional generation. These were identified in the draft ESTISG
Report, issued by the DTI in November last year and are the subject of a
proposal for funding by the Centre for Distributed Generation and Sustainable
Electrical Networks.
212
Department of Trade and Industry THE ENERGY CHALLENGE
ANNEX F
Energy Review Consultation
and Responses
1. As part of the Energy Review, the Government launched the Energy
Review consultation on 23rd January 2006. The accompanying document: Our
Energy Challenge: Securing clean, affordable energy for the long-term sought
views on the measures needed by 2020 and beyond, to meet the energy
goals set out in the 2003 Energy White Paper.
2. The consultation document invited responses to be made on six key areas
of energy policy: meeting carbon goals, reliable energy supplies, nuclear new
build, low carbon technologies, fuel poverty and international action.
3. There were over 5,300 written responses from individuals, businesses,
academics, non-governmental organisations and other organizations.
4. Key message from these responses included:
• strong support for further efforts on energy saving and efficiency across all
sectors including households, transport, and business;
• on electricity generation, widespread support for renewables and also for
coal, particularly through clean coal technology;
• no consensus on nuclear new build. Most individuals (including some
participating in campaigns) were opposed, with the management of
radioactive waste the most frequently cited concern. But many
respondents were in favour of the UK maintaining its current level of
nuclear capacity;
• concern about the risks of energy from increased dependence on imported
fuels.
5. All the responses to the consultation are available on the DTI website at:
http://www.dti.gov.uk/energy/review/consultationsubmissions/page27883.html
213
Energy Review Consultation and Responses
CHART F1: BREAKDOWN OF RESPONDENT TYPES
22%
14%
64%
Campaign
Organisation
Individuals
6. In drawing up its proposals, the Government has attempted to address key
concerns and issues raised in the consultation. Each response was read and
logged. To help with the analysis of the key messages, and to produce a
summary of the responses, we appointed AEA Technology Environment
through a competitive tender. The summary of consultation responses
includes a breakdown of the views expressed by individuals, those
responding to campaigns, and businesses, energy operators, local
government etc. The summary is available on the DTI website at:
http://www.dti.gov.uk/energy/review
Stakeholder and public engagement
7. Over the consultation period the Energy Minister and the Review team
were involved in around 400 Review-specific activities, involving at least 1,000
stakeholders. This included the organisation of a programme of stakeholder
seminars across the country and a series of round table discussions between
key stakeholders and the Minister. Each event took a different energy topic as
the focus, but stakeholders also had the opportunity to comment on the
Energy Review more broadly.
8. Invitees included representatives from unions; energy providers; energy
generators; industry associations; network operators; non-governmental
organisations with an interest in energy, environment, or fuel poverty issues;
regulatory bodies; official advisory bodies to the Government; national,
devolved, regional and local Government and Government Agencies; think
tanks and academia.
214
Department of Trade and Industry THE ENERGY CHALLENGE
9. Reports from the seminars can be found on the DTI website.
10. On public information and engagement, action was taken through a range
of national and local media to stimulate public debate on the Energy Review.
Over the 12 week consultation period the Minister and the Secretary of State
took part in 88 media activities specific to the Review. This included
interviews with national newspapers and on television; participation in local
radio shows and phone-ins; and articles in local newspapers and specialist
magazines.
11. We produced an introductory booklet describing the challenges that the
Review is facing in accessible language, which was distributed through
community organisations across the country. The Review website also
provided a five minute summary video and a fact sheet providing basic
information on the different sources of energy used in the UK. Finally people
were able to submit their responses to the consultation in a variety of ways –
online, via email or in writing.
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Energy Review Consultation and Responses
215
216
Department of Trade and Industry THE ENERGY CHALLENGE
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