Power Games
BY 2016, BETWEEN 15MW/H AND 20MW/H of generating capacity – nearly a quarter of the UK’s existing power plants – will be taken out of service. Over half of the UK’s nuclear reactors – which provide about a fifth of our electricity – will be mothballed, with more to follow soon after. The UK’s old coal plants which do not comply with European legislation on pollution will also have closed down by then.
In deciding how to plug this looming generating gap, government ministers and the energy industry now must juggle two new factors. Security of energy supply is a mounting concern. The UK is becoming increasingly dependent on imports of oil and gas from politically unstable countries like Russia and Algeria because of rapidly depleting North Sea reserves. Add in the government’s policy of taxing carbon emissions – generators are responsible for about a third of the UK’s total – and some tough decisions must be made and soon.
The government is still consulting on its energy white paper. Ministers have said they want a variety of types of power generation but also insist they will only set the framework for the energy market, leaving companies and financial investors to decide how much of each type of generating capacity to build. Companies have to weigh up the costs of each type of power generation and also judge which form is most reliable.
So let’s open the debate on the merits of the main low carbon forms of electricity generation: nuclear, renewables (wind and marine energy), biomass and coal plants with carbon capture and storage (CCS).
NUCLEAR VERSUS WIND, COAL AND GAS
The ‘nuclear question’– whether to build more reactors – dominates the energy debate. Because no new reactors have been built since 1995, it is often assumed that this is because they are not economic without significant government support. However, this is not necessarily the case. According to government figures used in last year’s energy review, it costs between £30 and £45 per mw/h generated to build, operate and decommission a reactor.
This compares to £52 to £65 per mw/h to build and operate onshore wind farms and about £55 to £90 per mw/h for offshore wind. The cost of nuclear generation is easier to predict than that of coal and gas plants. The biggest cost for nuclear is building the reactor (£1.4bn for a 1,000 MW plant according to the government). For coal and gas plants buying the fuel is the biggest expense. Coal prices are relatively stable and generators can sign long-term supply contracts to fix prices. But coal plants are dirty so they have a higher carbon cost. This means that under the EU Emissions Trading Scheme (ETS) they have to buy in more ‘carbon credits’ to make sure they do not exceed their allocated pollution targets. The ETS does not have a forward market which prices carbon credits beyond 2012,which makes it hard to calculate the ‘carbon cost’ of coal.
Gas plants are cleaner than coal and so generation costs are less influenced by carbon prices. But gas prices are much more volatile than coal and are hard to fix very far ahead. Based on average gas prices and a carbon price of £25 per tonne (the current 2012 price is £21.75), according to government estimates, modern CCGT (combined cycle gas turbine) gas plants cost about £32 to £41 per mw/h to build and operate. Under the same scenario, modern IGCC (Integrated Gasification Combined Cycle) coal plants cost about £29 per mw/h to £43 but become more expensive if carbon prices rise.
It’s worth noting that it would be uneconomic to build any new capacity without government subsidies based on today’s electricity prices of £26 per mw/h (as of 30/7/2007). But since it can take five years or more to get a plant up and running (possibly double that for reactors), future prices are relevant. The markets are already pricing in higher electricity prices as capacity falls, with prices for the winter of 2009/2010 trading at £42 per mw/h (on 30/07/2007).
PLANNING/NUCLEAR WASTE
While nuclear power can compete on cost with coal, gas and wind in some scenarios, regulatory and planning obstacles have prevented any new reactors being built. The UK’s newest reactor – Sizewell B – was finally built in 1995, some 17 years after its inception. It was the subject of the longest planning inquiry in British legal history until this record passed to Heathrow Terminal 5. As a result, costs doubled to an estimated £3bn.
Earlier this year the government issued a planning white paper which proposes to streamline the whole process (for all types of generation), and should encourage someone to try again. The government has also insisted that the cost of decommissioning any new reactors and storing the waste will be met by the industry.
Nuclear generators will probably have to pay a levy – as little as 0.2p for each kw/h of electricity generated (a little under a tenth of current electricity prices) according to Sue Ion, vice president of the Royal Academy of Engineering and former technology director at state owned nuclear holding company British Nuclear Fuels.
New reactor designs also produce much less waste so there will be less to store, according to Ion. “Building new reactors to replace the retiring ones would add less than 10% to the waste volume we have to deal with from the historic legacy. You could fit the fuel needed for a reactor for a year in the equivalent of a living room,” she says.
RENEWABLES
There is about 1,870mw of onshore wind capacity and 300mw of offshore wind (about 2% of the UK’s total capacity), according to the British Wind Energy Association.
Wind farm operators are heavily subsidised, typically able to sell their electricity for about £40 per mw/h above the market rate under the government-run Renewable Obligation Scheme (ROS).
One much quoted drawback is that when the wind doesn’t blow, the turbines don’t generate electricity. As a result, UK turbines operate at around one third of their capacity.
This means building three times as many for the maximum capacity figure to be meaningful. When not operating, wind farms have to be ‘backed up’ by spare conventional generation capacity.
Most wind power is more expensive than nuclear, coal or gas, while marine energy costs more than wind. No commercial marine energy project, which generates electricity for the grid, exists in the UK. Estimates put the cost of such a project as four times more than gas.
The government estimates that 5,000mw of wave and tidal power capacity could be built by 2025. The marine energy industry puts the potential much higher, provided there is enough government support.
The government recently proposed changing the ROS, which awards the same subsidy to all forms of renewable energy. This would mean wave, tidal and offshore wind power will all qualify for larger subsidies.
CARBON CAPTURE AND STORAGE (CCS)
If there was no tax on carbon, and based on average gas prices, modern coal plants would be the cheapest form of generation. It is also easier to import coal than gas. Gas, which is transported by pipeline or expensive special LNG (liquified natural gas) tankers, increasingly comes from potentially unstable countries: Europe’s largest supplier is Russia, followed by Norway and then Algeria. Coal is always shipped and comes from a wider variety of countries.
CCS could be the answer to making coal ‘clean’. Coal plants that combine carbon capture and storage (CCS) can cut emissions by up to about 90%. There are different types of CCS, which can also be used for gas plants. The basic principle is that the carbon burnt during generation is ‘captured’ rather than released into the atmosphere, and stored, usually in empty oil and gas fields.
The technique has been used for several decades by energy firms which pump carbon dioxide into oil caverns to speed up oil recovery. But using the technology for long-term, large-scale carbon storage is still unproven and is at least five years away from commercial roll-out in the UK. The costs are also unclear, although Brian Count, chairman of Progressive Energy, which has proposed with Centrica a £1bn CCS project on Teeside, says that the technology would only need a quarter of the financial support received by onshore wind farms.
BIOMASS
Biomass comes from specially grown energy crops such as miscanthus (a tall grass), oil palms and willow trees or from bio-wastes such as sewage sludge. Biomass is ‘co-fired’ with coal.
Because crops or bio-waste release their carbon into the air anyway when they biodegrade, burning them instead produces extra energy at no extra carbon cost, reducing the amount of coal that needs to be burnt.
However, there are a number of drawbacks. For example, currently, the maximum amount of biomass that can be used in the fuel mix is 20%, otherwise coal plants become too clogged with ash. Co-firing is also more expensive. Depending on coal prices and the kind of biomass used, co-firing is two to three times more expensive than conventional coalpowered energy and needs government subsidy to make it viable.
As with biofuels – energy crops mixed with petrol or diesel – there are concerns about the energy needed to grow and manufacture the biomass.
Much of the bio-waste used in the UK comes from palm-oil plantations in Indonesia and Malaysia, involving the clearance of vast tracts of rainforest, which, of course, contributes to global warming.
TIM WEBB is deputy business editor for the Independent on Sunday. He takes up a new role as industrial editor of the Observer next month.
