Meeting the Energy Challenge

The long-awaited Energy White Paper holds no real surprises for the energy industry as climate change and security top the agenda and the UK Government state their intentions to save energy, clean up fossil fuels and seriously consider nuclear again as a low carbon alternative in the power generation mix. 

More legislation, more powers and more diversification are called upon as old power plants are entering the final stages of their expected life span and energy demand is on the increase. But will this paper help to bring about the changes it suggests?

Oil, Gas & Coal 

About 90% of the UK energy needs are currently met by oil, gas and coal and this is expected to continue to be the case for many years to come. With the decline of indigenous reserves of oil and gas as the North Sea matures, it is expected that gas imports will increase to a third or more of UK gas demand by 2010 and by as much as 80% by 2020. The UK is already a net importer of oil and 75% of coal demand is expected to be met by imports by 2020.

Because imports will expose the UK to developments in the global energy system there is a risk to supply security. Oil and gas reserves are concentrated in areas which include some of the less stable parts of the world. Energy reliability could be affected if energy reserves are used for political rather than commercial ends, and there is always the threat of terrorism, accidents and natural disasters as energy is moved over greater distances and through many countries.

To combat these and other risks to security of supply, the Government has set out a clear strategy in order to manage them. 

• The first point is to reduce overall energy use by greater energy efficiency. Using latest technologies, the Government is committed to increasing energy efficiency in all business and domestic sectors. Combined Heat and Power (CHP) as well as Distributed Energy (DE) solutions may increase renewable technologies. A Renewable Transport Fuels Obligation will be introduced and is designed to ensure that at least 5% of all road transport fuel comes from renewable sources. This in turn will reduce demand and the need for fossil fuel imports.
• The next point is to develop and deploy non-fossil fuel energy. This will reduce the UK’s dependence on fossil fuels and increase the diversification mix. This would include both renewables and, subject to consultation, new nuclear build. As fossil fuels are expected to be a major source of energy for the UK for the foreseeable future the adoption of carbon capture and storage (CCS) as well as other low-carbon technologies is seen as vital to counteract the impact on the climate by the continued use of fossil fuels.
• The UK can also reduce its dependence on imports by more investment in its own hydrocarbon reserves. This is intended to ensure maximum recovery of oil and gas from the UK Continental Shelf (UKCS) as well as remaining coal reserves.

It is estimated that the UKCS still has between 16 and 25 billion boe of hydrocarbons waiting to be produced.

In order to maximise the economic recovery of the remaining UKCS the UK government must maintain a supportive regulatory environment to attract a wide range of companies wishing to exploit existing and prospective fields.

Using the Stewardship initiative and the “Promote” licence and “Fallow” exercise the Government intends to boost UKCS investment over the next 10 to 15 years.
 

In order to speed up and facilitate the transition from larger companies to smaller companies and joint ventures exploiting the remaining reserves from UKCS, the Government intends to remove some of the bureaucratic barriers and introduce web-based systems for both licence applications and assignments. 

Demand from coal-fired generators is a key driver for coal investment in the UK, and coal does make an important contribution to the UK energy mix. But the environmental impact of coal requires much investment and effective management in order for it to have a long term future.  

There are still significant coal reserves in England, Scotland and Wales, which have the potential to meet the UK’s demand for coal as well and reduce the need for imports. This would also contribute to the economic vitality and skills base of the regions where they are found, but recovery costs compared to market value along with planning considerations affect the extent to which these reserves may be recovered.

After the publication of the Energy Review Report, the UK Government convened a coal forum, bringing together coal producers, generators, unions, equipment manufacturers and government to explore the opportunities and challenges facing the coal industry in the UK today and in the future. Whilst an interim overview report is expected in summer 2007, initial findings indicate that UK coal has a future for generators and industry as well as reducing the supply risk from the international coal market.

To ensure an effective energy market, taking into account all of the above, government recognises that the UK will need to increase its imports of oil, gas and coal from the international market place.

Transparency and truthful information is needed for the market to function effectively for both consumers and producers alike, and so to this end the UK Government announces a new security of supply information service, the “Energy Markets Outlook”, which will replace the Joint Energy Security of Supply Working Group (JESS) from autumn 2007. Its aim will be to provide clear forward looking energy market information relating to security of supply. The EMO will be jointly run by the DTI and OFGEM, gathering its information from the National Grid, wider industry and other sources. Initially an annual report will be its chief output, as well as more detailed information on a regularly updated website.

Hardly suprising though that gas imports are expected to rise over the next fifteen years, as rising power demand and the declining UKCS become more of a reality for the UK. The graph opposite shows a possible prediction for the UK annual gas supply mix.

To assist the increase of LNG imports to the UK, a commercial interest has emerged in offshore “energy platforms” where LNG can be transported, regasified and piped to the UK, avoiding planning consent for LNG terminals. To ease the process, the Government is proposing new legislation which would provide a simpler consents procedure, this would also be applied to offshore gas storage.

At present more than 5.6bcm of new gas storage capacity is either under construction, planned or proposed. Delays by beaurocratic planning could prevent the necessary investment needed to more than double the UK’s existing storage by 2015. In 2006 the Secretary of State announced that the current regulatory framework would be reviewed and government is consulting on proposals to address this need.


Electricity Generation

Over the next two decades the UK will need considerable investment in new electricity generation. Currently the UK has around 76GW (gigawatts) of electricity generation capacity to meet annual consumption of approx 350TWh (terawatt hours) and a winter peak demand of 63GW.

The chart opposite (source DTI 2007) shows the 2006 generation mix. A high number of the gas fired generators were built during the late ‘90’s; consequently not many have been built during the early to mid 2000’s. 

This current generation mix accounts for about one third of the UK’s carbon emissions, around 47 MtC per year.

 It is expected that 22.5GW of existing power stations will close either because of end of life or to meet EU requirements by 2020, so there is a requirement to build between 20-25GW of new power stations to replace them and account for increase in demand. Over subsequent years it is expected that a further 10 GW will be needed by 2030. The challenge is what investment signals government want to send out and to whom.  

As already discussed, relying on fossil fuel imports is increasing and so contributing to security of supply, which will also contribute to rising costs. Fossil fuels also create carbon and CCS is not proven yet. With this in mind the Government is keen to diversify the generation mix as widely as possible to minimise risk to supply and reduce emissions.

Renewables 

Since the 1990’s the UK renewable percentage has risen by over double to around 4% of the UK electricity generation mix, and the UK government see renewable energy as a key player in reducing carbon emissions and achieving security of supply. 

Committed to exploiting the UK’s huge renewable resources, the Government introduced the Renewable Obligation (RO) in 2002 to encourage growth in renewable generation, which it achieved. The obligation allows the generally more expensive renewable electricity generation to compete with fossil fuel electricity generation. Further to that the government has set a target of increasing the UK generation mix to 10% by 2010 and 20% by 2020. To encourage this, the government will modify and strengthen the Renewables Obligation, by increasing the Obligation level up to 20% on a guaranteed headroom basis and to introduce banding, allowing other renewable technologies to move forward. 

Renewables form part of Europe’s climate change and energy policy, which has set a binding target of 20% by 2020. This also includes heat and transport and not just electricity generation. 

The UK government currently has a study underway by the Sustainable Development Commission (SDC) to look at issues relating to harnessing tidal power in the UK. At present an untapped resource which could bring huge benefits. One potential site would be the Severn estuary which could supply up to 5% of the UK’s electricity demand. The final report is expected by September 2007 and will assist the UK government as it considers the next step in exploiting this on-the –doorstep resource. 

Wind currently accounts for 2GW of grid connected electricity. The first GW took 14 years to become operational, while the second GW only took 20 months. Around 1260MW of renewables is currently under construction, 4600MW has been consented and 11400MW is in the planning process across the UK. 

Planning consent has proved to be a difficult process giving rise to uncertainty and delays. This gives the wrong message to investors and the Government aims to do something about this. The main reform is that the developer will no longer have to defend the reason for installation in the first place and that decision makers should look favourably on renewable energy developments.

The other main issue is the ability of connecting a potential 20GW of renewable electricity into the grid by 2020, if the UK is to reach its desired target. This will require considerable investment and new infrastructure particularly from Scotland where there are many new wind farms to be built. 

Ofgem has agreed £560 million to connect low carbon generation from Scotland and Northern England to the grid. This essential work is underway and expected, subject to planning permissions, to be completed by 2012. 

There has also been agreed a five year Transmission Price Control by Ofgem and the Great Britain transmission licensees, which will effectively double the electricity transmission network capital expenditure compared to the previous five years and allow an increase in Scotland by about 250%. This is an additional investment of around £4billion at 2006/7 prices, GB wide.

Carbon Capture and Storage 

As part of the UK diverse energy mix, coal has a vital part to play, even though it is more carbon intensive than oil or gas. Three methods have been identified as ways to reduce carbon emissions from coal fired generation.

1. improving coal fired efficiency
2. co-firing coal with biomass, and
3. carbon capture and storage (CSS)

1. Improving coal-fired efficiency

Around 8GW of the current 28GW of coal-fired power capacity in the UK is due to close by 2016 because of the emissions of sulphur dioxide and nitrous oxides that they produce. This is in-line with the Large Combustion Plants Directive (LCPD) and has no relation to carbon dioxide emissions. 

Advanced boilers, improved turbines and gasifiers are now being used in the development of new coal-fired power stations which reduce the amount of fuel required to generate power. This in turn causes a reduction in emissions by around 20% when compared to the less efficient power stations. 

The Government recognised the need to develop cleaner coal technology and in 2005 the Carbon Abatement Technology (CAT) Programme was launched, to realise improvements in cleaner coal technology through technical innovation. 

2. Co-firing with Biomass

If efficient power stations combine their firing with biomass, they can reduce their emissions by a further 10%. A number of power stations have benefited from support under the renewables obligation for doing this and as a consequence have helped to show that co-firing coal with biomass is becoming a commercially viable option for reducing carbon emissions for existing power stations. 

3. Carbon Capture and Storage

CCS, as yet an unproven technology, involves capturing the carbon dioxide as it is emitted when burning fossil fuels, transporting it and then storing it in a secure space such as old oil and gas fields. CCS does represent a major technological challenge as well as the cost uncertainties and regulatory issues that have still to be resolved. 

In order to better understand the costs involved and to understand how commercially viable CCS would be the UK government announced in the 2007 budget that it will launch a competition to develop the UK’s first commercial-scale demonstration of CCS. It is anticipated to be operational early in the next decade. 

Nuclear 

The UK government has published a consultation document detailing the information and evidence that they have considered as they reach the preliminary view that it is in the public interest to give the private sector the option to invest in new nuclear power stations as part of the strategy to tackle climate change and security of energy supply. 

If you would like to view the full consultation document please visit:

http://www.dti.gov.uk/energy/whitepaper/consultations/nuclearpower2007 

This article was researched and written by Paul Cassar of MJMEnergy Ltd.

The full White Paper can be viewed at: http://www.dti.gov.uk/energy/whitepaper/page39534.html