12 October 2009: In UK, excellent news on Kingsnorth and greater honesty on energy costs, but a step change still needed

Last Friday Eon, announced that it is postponing its plan to build a new power station in Kent that would have demonstrated that carbon capture and storage (CCS) technology can be retrofitted. The same day, the energy regulator, the Office of Gas and Electricity Markets (Ofgem), published a report accepting that energy prices would have to increase, but would increase much less under a move to low-carbon energy than under a scenario under which the UK relies on gas and oil. And today, the Committee on Climate Change launches its first report on how the UK is doing on meetings its carbon budgets – basic message: ‘not nearly well enough’.

There is quite a complex debate surrounding CCS, but one thing has always been very clear – Eon’s Kingsnorth proposal should be rejected. This would have built a new coal power station, with CCS covering less than a third of the capacity, using post-combustion technology (see Carbon capture and storage). The UK government restricted its competition for CCS subsidy to post-combustion, on the grounds that this can be retrofitted onto existing power stations. It then accepted onto the shortlist other proposals to build new coal plants to demonstrate that something can be retrofitted!

CCS is a necessary bridge technology, so must be supported. Post-combustion also needs to be demonstrated at large scale, as it will be necessary to retrofit existing coal stations globally. However, this should be done at existing power stations and not new ones like Kingsnorth would have been. In the UK, that means Scottish Power’s Longannet project. Pre-combustion, which cannot be retrofitted but which covers the entire generating capacity, must also be supported and demonstrated, and the European Commission is making some progress on this (see How the EU can speed up CCS). So must oxyfuel, which can be retrofitted and cover the entire capacity of a power station. In fact, this is looking the best technological option, but it is too early to put all the available public funds into a single technological approach.

In the past, Ofgem has interpreted its remit as keeping energy prices as low as possible, whatever the consequences for the climate. However, in July, Climate Secretary Ed Miliband said that it must now broaden this to facilitate the low-carbon-transition. Ofgem’s Discovery report (see Ofgem: Ofgem publishes a comprehensive review of Britain’s energy supplies) accepts that:

… given the massive levels of investment needed, there is a high likelihood of rising consumer bills, especially if oil and gas prices continue their underlying rise since 2003.

It outlines four possible scenarios:

  • Green Transition. A rapid economic recovery and a significant expansion in investment in green measures. Domestic renewables targets are met and energy efficiency measures are effective. Demand for gas in Britain falls but electricity demand increases due to greater use of electric vehicles and heat pumps. The effect on domestic consumer bills is an increase of 23% by 2020.
  • Green Stimulus. A slow recovery from the recession and restricted availability of finance. Governments around the world implement green stimulus packages to achieve environmental goals and boost economic activities. High carbon prices and government policies support investment in renewables, nuclear, and carbon capture and storage. The effect on domestic consumer bills is an increase of 14% by 2020.
  • Dash for Energy. Global economies bounce back strongly, but security of supply concerns prevail over meeting environmental targets. As a result, British renewables targets and carbon budgets are missed. Competition between countries for energy resources results in tight gas supplies and high fuel prices. Planning and supply chain constraints prevent new nuclear plants from becoming operational before 2020. The effect on domestic consumer bills is an increase of more than 60% by 2016 before falling back.
  • Slow Growth. The recession continues resulting in investment in gas and electricity infrastructure being considerably lower than before the credit crunch. Low gas and electricity prices coupled with low carbon prices reduce incentives to build nuclear and renewable power plant. This results in increasing dependence on imported gas for new gas-fired power stations. The effect on domestic consumer bills is relatively low in early years, but there is an increase of 22% by 2020 as conditions tighten.

The argument that controlling climate change is cheaper than not controlling it has been widely accepted since the 2006 Stern Review (see HM Treasury: Stern Review on the Economics of Climate Change). However, it is nevertheless helpful that Ofgem now states publicly that fuel prices will have to rise. It is even more helpful that it states that the cost of the green scenarios would be less than half the cost of the dash for growth scenario.

The Committee on Climate Change, set up by government to measure how the UK is doing on its legally-binding carbon budgets, reports today that:

… emissions reductions in recent years have been very modest. Going forward, a step change is required if carbon budgets are to be achieved. The Committee believes that significant policy strengthening is required to achieve this step change.

Among the many things it recommends:

… investment in the power transmission network is required to support investment in new wind and nuclear capacity. Approval of necessary investments is required at the latest by 2011.

This is correct, but the main problem with upgrading and extending the electricity grid in the UK is land-use planning, not finance. The Committee also says that:

… electric cars are market ready and there is scope for reducing the cost of their batteries by 70% which would mean that they could in fact be priced competitively with conventional cars.

It follows that the UK government must ensure that there are places where electric vehicles can be recharged (see Meeting Carbon Budgets – the need for a step change).

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