Thursday, June 26, 2008

Urgency in Reducing Power Generation Emissions.

Time Critical Issues in Reducing CO2 Emissions in the Power Generation Sector.

This paper was prepared on 23 March 2008 by Mike Parker, John Rhys and Gordon Mackerron as an application of an approach to identifying time critical issues in the power sector. It reflects the continuing focus of the group on injecting urgency into UK policy on carbon and greenhouse gas reduction.


1. The group has consistently emphasised urgency in the conduct of climate change policy. The tension between urgency and the lead-times involved in implementing necessary steps, particularly investments, has led us to define what we have called “time critical” issues. Our earlier analysis has identified the UK power generation sector as absolutely central, within a time critical framework, to the achievement of targeted overall CO2 reduction trajectories. This first note on the identification of sector specific issues therefore concentrates on time criticality within that sector and on the implications for the carbon budgeting system. Resolution of these issues falls in large measure within the responsibility of government. Without attempting to prescribe particular resolutions, we believe the government needs to state clearly the resolutions, measures and initiatives that are required, and the timing that is needed, so that progress can be monitored within the carbon budgeting system.

Matters affecting power generation emissions up to 2020

2. The White Paper central projection has power generation emissions falling from 47 Mtc to 36 Mtc by 2020, consistent with a straight line reduction in CO2 to nil by 2050, which is broadly what will be required if the 80% path is adopted. The White Paper analysis rested on:
  • i) delivery of demand/ efficiency measures sufficient to keep electricity demand broadly stable, rather than rising under business as usual (BAU) conditions
  • ii) a trebling of renewable power generation by 2020 nearly offsetting the decline in nuclear
  • iii) a large fall ( c 40%) in coal reflected mainly in higher gas generation

Of the above (i) requires a conventional monitoring process, but (ii) and (iii) raise important time-critical issues. We therefore deal in turn with renewables and fuel substitution.

3. The whole question of the feasible expansion of renewables by 2020 was difficult even in the context of the White Paper expectation of around 15% of UK electricity generation. Now that the “EU obligation” may be for 30% or more from renewables (from a current position of 5%) in little more than a decade, any sensible discussion of feasibility must be grounded in a realistic view of what can be delivered from different renewable sources within that timescale. This may be considered to be a form of indicative plan but its essential requirement is a framework within which to monitor the effectiveness of policies, and to identify failures or gaps at an early stage. Quite apart from the renewables target per se, an early realistic assessment of the feasible expansion of renewables by 2020 is vital in order to determine the extent to which new gas and coal plants (to offset old coal and nuclear retirements) are unavoidable.

The “indicative plan” for renewables would need to indicate:

  • whether, and if so what, combinations of renewable technologies could in principle meet the 2020 target, based on time profiles, by technology, of capacity or projects under construction, in the planning system, or yet to be submitted?
  • the lead times for the capacity component elements of such combinations need to be identified, together with the extent to which these are affected by
    - constraints in construction capacity
    - complex planning issues for major projects (eg tidal barrages) and generalised planning issues for smaller scale technologies
    - insufficient R&D
    - very high costs and their implications for financing
    - any other potential resource constraints
  • implications for infrastructure; which in turn may require review of regulatory incentives and conditions governing transmission investment, as well as the integration of “distributed” supply within lower voltage local networks
  • addressing the issues associated with any potential intermittency constraints, by progressing electricity storage or other load curve adjustment measures such as sophisticated tariff and load control systems
  • whether and what changes may be required to the financial framework for investment in renewables. In particular will the Renewables Obligation, even with the reforms proposed in the White Paper, be able to cope with the quantum and speed of what is needed? How soon could a new approach be introduced?

4. It is not clear from the White Paper how the substantial switching out of coal, mainly into additional gas, is to be achieved by 2020 or precisely how the workings of the EU ETS will contribute, and when. There is currently considerable uncertainty [notwithstanding the explanatory note in Annex 1, DTI Paper URN/947]about the carbon price which will emerge, either in Stage II or III, and how this will interact with the variable and uncertain relativity of international coal and gas prices.

Proposals for a new coal-fired plant underline the seriousness and relevance of the issue. Failure to solve this problem soon could have a significant effect on the cumulative CO2 emissions from the power sector in the period to 2020, and thereafter.

Matters affecting power generation emissions after 2020.

5. Even if power generation emissions are reduced to 36 Mtc by 2020 (as in the White Paper central case) reductions in emissions after 2020 will be crucially dependent on decisions and measures taken before 2020. For developments post 2020 we need to be concerned with four main issues:

  • the follow-on for renewables development
  • the development of the nuclear component
  • the development of carbon capture and storage
  • preliminary indications of the role of carbon-free electricity in reducing emissions in the building and transport sectors, since this may influence plans for the development of nuclear and carbon capture after 2020 and some decisions at an earlier stage

6. Renewables. The level and momentum of renewables generation after 2020 will be heavily influenced by the performance of the sector before 2020, and, as we argue above (para. 3) this requires the time-critical analysis of an indicative plan as soon as possible. In addition further RD&D will be required to create new or improved technical options to mature after 2020 (whether on a UK, EU or other international basis). Many of the issues identified for attention pre-2020, such as issues of intermittency, and load balancing and control, will remain post 2020 although the emphasis and detailed parameters will alter with the development of both demand and other supply options in the power sector (electricity substitution in transport and heating, and the advent of nuclear and CCS contributions). Given the inherent lead times work needs to begin soon.

7. Nuclear. Generation from new nuclear is unlikely to be significant before 2020, and the overall capacity and timing of new plant thereafter remains very uncertain. Our last paper identified key issues as: licensing, reactor choice and tendering, construction, planning constraints, infrastructure provision. These issues, together with that of assuring a robust financial framework need to be resolved in the next 2/3 years to ensure the earliest feasible achievement of carbon reduction from any nuclear programme, and to get a clear view of the nuclear contribution to the position in 2030 and thereafter.

8. Carbon capture and storage (CCS). Our last paper identified key issues in terms of steps to a demonstration project, identifying storage facilities with appropriate capacity, testing security of storage, mechanisms for moving from demonstration to large scale, decisions on extent of retrofitting, infrastructure provision specifically in relation to CO2 gas gathering and liquefaction/pumping, as well as general infrastructure and financial framework issues common to renewables and nuclear.

Great store is being placed by policy makers, both in the UK and internationally on CCS. but no commercial scale CCS power generation has yet been developed in any country. Without further effort, it is unlikely that the feasibility and economics of CCS can be fully established from currently envisaged pilot plant studies (UK/EU) before 2020. If commitment of investment in major CCS projects has to wait until then, significant CO2 reductions will be further delayed, and there will be a problem of “lock-in” to “unimproved” fossil capacity, capacity that cannot realistically be expected to accomodate CCS at an early date.

With gas and coal plant further increased there is an urgent need to examine how this difficulty can be overcome by addressing, among others, the following questions:

  • i) can technical knowledge be accelerated by access to projects beyond the UK pilot scheme?
  • ii) to what extent are potential UK CCS sites limited by geography or geology? How soon can the best sites and capacity be identified?
  • iii) what infrastructure will be required for identified sites? Given lead-times, when does investment need to begin?
  • iv) when will the UK CCS Regulatory Task Force report? Which details are time-critical? [in the sense of affecting lead-times on CCS projects]
  • v) how soon can a financial framework [including incentives] be determined, both for CCS plants and infrastructure? And how far can this precede full feasibility tests from pilot plant?
  • vi) in the meantime how far can the carbon readiness requirements for new gas or coal plant be strengthened as a means of accelerating CCS preparations generally?

9. Electricity Substitution in Heating and Transport. It was implicit in our earlier paper that, at least under some feasible scenarios, we expected this to be a core component of a realistic pathway to meeting 2050 targets. The questions here are perhaps less obviously or immediately time critical for the power sector per se, but neverthless it is probable that early identification of alternative options could assist in better decision taking with respect to the power sector. The nature and pace of this substitution is relevant, inter alia, to:

  • the overall scale of power generation capacity required
  • accentuation of intermittency and load curve issues (heating load) or their partial resolution through the conversion to stored energy (batteries or hydrogen)

Reliance on the EU ETS

10. One of the themes that has been implicit in some of our analysis of time-critical issues in the power generation sector is the extent to which the Government appears to rely in future on the EU ETS to promote low carbon investment. While we believe that given the proposed reforms in Stage III, EU ETS will have a significant role, we remain sceptical on how to important the carbon price generated from the EU ETS will be for three reasons: first it is uncertain whether this carbon price will be high enough and stable enough, and how long this uncertainty will continue; second the carbon price effect will continue to be heavily conditioned by the absolute and relative prices of fossil fuels and of wholesale electricity which are themselves uncertain; third the exposure to commercial risks will vary between different potential investors - new nuclear, CCS (coal and gas) and a range of renewable technologies. This difficulty was in fact recognised in the White Paper which stated (para 5.1.34):

“Given the scale of investment in new generation assets required in the UK over the next two decades UK investors need clarity over carbon market fundamentals in good time [our italics] if they are to make investment decisions consistent with the Government’s energy policy goals. We will therefore 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.”

Confidence that the scheme can deliver as required is itself time-critical and early resolution of these uncertainties is therefore required.

Implications for the carbon budgeting system

11. We have set out in this paper the main time-critical issue in the power generation sector. If the required rate of progress towards a virtually carbon-free UK electricity system is to be achieved, all these issues need an effective response by government, with clear statements on the measures/ initiatives required, and their timing, within the next 2/3 years [well within the first carbon budget period].

12. On the other hand because of inherent lead-times, even very rapid response by government would result in very limited CO2 savings in the first carbon budget period; a crash programme on renewables would show up in the second and third carbon budget periods; and enabling measures on new nuclear, CCS and second generation renewables would not deliver significant CO2 reductions until after the third budget period.

13. In the case of the time-critical issues set out in this paper, the gross mismatch of timescales, between government initiatives and measures and their full effects in terms of CO2 reduction, needs to be recognised in the accountability process, since the issues are too important to be excluded. The DEFRA note of Feb 2008 “Government Proposals for strengthening the Climate Change Bill” proposed strengthening the compliance mechanism by requiring the Secretary of State to bring forward proposals and policies to enable the three carbon budgets that have been set to be met, and having regard to the duty to meet the 2050 target.

14. In our view this can be done effectively only if, in addition to conventional monitoring of short term “incremental” measures on energy efficiency and demand management, there is detailed annual scrutiny of the progress of all government measures designed to “create the conditions“ for CO2 reduction, not only within the three budget periods but also beyond. In the interest of urgency in policy implementation, such scrutiny should include the time critical issues set out above.