The Energy Bill - The Biggest Energy Reform in 20 Years

On Tuesday the government announced the draft energy bill detailing the biggest energy reforms the UK’s seen in the last 20 years. The bill was immediately greeted with concern over the possibility of higher energy bills and a stifling of the renewable energy market, the latter due to the complexity of the bill possibly favouring large corporations.  I therefore will be taking a brief overview of the bill and will try to make sense of what has been drafted. As engineer’s the direction the country takes will have an effect on the opportunities available to us, the success of the energy bill could mean a boom for UK engineering, though if it fails to boost the industry it could have quite the opposite effect.

Electricity Market Reform (EMR)

To start with the leading star of the bill, EMR, which is lauded as a bill to attract £110b of investment to replace our ageing electricity generation capability, upgrade the national grid, and ensure that we can cope with rising electricity demands. Now straight away the idea that by 2020 we will have developed and implemented a smart grid capable of serving our energy needs and able to cope with the transition to low-carbon energy generation is, in my opinion, optimistic to say the least.  What’s worrying is that the bill claims to be a one stop fix for every ill that the energy industry faces.

If we break down the EMR it details six provisions:

·         Contracts for Difference (CfD).

The showpiece of the EMR touted as instruments to provide long-term stable and predictable incentives for investment in low carbon generation. These contracts give energy companies fixed guaranteed prices, which should be above the standard, for each unit of low-carbon energy generated; this guaranteed price will be known as the strike price. Now the aim of the CfD is to negate the risks that may otherwise deter investors; low-carbon energy generation is commercially expensive and the payback without incentives would be lengthy.

OK to try and explain thinks lets think if someone asks a farmer to grow some organic veg, the farmer may so no as the cost to set this up are high. But then if someone was to say to this farmer, I will pay you ten times the going rate of normal veg for your organic veg. This would give the farmer the assurance that he will get his money back and then make healthy profit, CfDs work in the same manner.

Now the CfD will apply to all methods of low-carbon energy generation; not just renewables but nuclear too, which could hugely benefit a stumbling UK nuclear renaissance. This is a two-fold point of contention, firstly it could stifle renewable development, especially smaller firms, in favour for nuclear, and secondly that government had previously pledged that there would be no subsidies for nuclear power.

I believe that the CfD doesn’t go far enough in promoting growth in the renewables sector, and especially in relation to developing technology, it may encourage certain areas but these may not be best placed. For example if an energy company, say Windalot, want to develop low yield wind farms in non-ideal locations the CfD could possibly make this feasible, if the strike price is high, which would not be the best use of resource. The same would be if it encouraged further misplaced resource in installing low efficiency solar panels in a country which receives minimal sunshine...

The other issue of a government u-turn on nuclear subsidies is only really a shock if you have never looked into the nuclear industry before. Factors involved with nuclear development, which includes the complex construction, management of nuclear waste, and most costly safety, means that the sums don’t balance without some sort of incentive. The government has always supported nuclear in one way or another despite ever increasing costs; the idea of that support not being there for the future was always farcical.

The CfD may help boost an uncertain renewable industry though the benefits should be well managed to ensure that the most appropriate technologies profit. They will also be a help to the floundering nuclear industry, which has faced ever more uncertainty over the past year. It also may help to keep the lights on if it boots energy development. However as the strike price will not be set until 2013 and implementation started in 2014, uncertainty may again deter the correct level of investment the industry desperately needs.

·         Final Investment Decisions (FID) or Investment Instruments.

These tools are there to plug the gap until the CfD come into force, with the hope that they will bring forward investment. The scheme aims at providing significant support to key low carbon projects that could be delivered over the next two years, however this is at the secretary of state's discretion. More detail on how this will work is still needed and RenewableUK has urged developers to enquire if their renewable projects may be eligible. So FIDs while being lauded as an early incentive to encourage development, their applicability is yet to be known causing further unease with developers, which may nullify any potential benefit before CfDs.

·         Capacity Market.

The capacity market works on the premise that the government set out a prediction on the demands for electricity over a period of time and the capacity needed to ensure consistent supply. Providers old and new will be invited to bid for contracts to supply capacity, which will take place 4-5 years before the capacity is required. Upon winning the bid providers will enter a capacity contract, which will pay the costs to cover their capacity in the delivery years, if they cannot provide capacity they will face penalty fines.

A worrying area of the policy however is the section where wind power is labelled inconsistent and nuclear generation less flexible, a very sweeping statement indeed, and the fact that it also points to gas compounds my worries. Properly located wind farms have proven to be very predictable in their generation output and nuclear power stations are designed to provide constant base loads. The policy points to fossil fuels as the answer to peak load capacity needs, when we should be developing other methods, along with a smart grid, to cope with these peak loads. The move away from fossil fuels needs to be undertaken at some point so why not start developing the technology to deal with this now.

·         Conflicts of Interest and Contingency Arrangements.  

These arrangements are in place as the government will entrust the operation of the EMR to a private company: the National Grid. The bill will outline powers that allow the government to intervene were there ever a conflict of interest between parties. So if the National Grid tried to implement the EMR in a manner that favoured themselves but not the interest of the country, or in line with the objectives of the EMR, then the government has the power to intervene. Whether the government would intervene is another matter as historically they have favoured business over the well being of the country; we only have to look at a failed car industry to notice that. So think of the government as Judge Dredd... they are the law... they have the power to put a stop to anything...if they see fit.

·         Renewables Transitional.

This sets out how the transition from the current system of Renewable Obligation (RO) will transfer to the new CfD. Existing operators will be able to choose between the CfD and the RO; and for all new operators, as of 2017, only CfD will be available. So effectively giving existing operators the choice of what they see as more of a profitable option going forward. The government also hope this will negate any negative impact to investment while the CfD is implemented. Those operators that choose to go down the RO route will receive the full 20 years’ support as promised when taking out the RO. The 2017 date may also be flexible if projects are delayed for reasons of force majeure.

·         Emission Performance Standard (EPS).

The EPS is in place to prevent the construction of high emission power plants, with the hope of putting an end to polluting fossil fuel fired plants that do not conform to the emission standards, particularly coal fired power plants. It still allows the construction of fossil fuel fired plants that conform to the standard so still leaves the door open for plants that use the, currently fictional, Carbon Capture and Storage (CCS) technology and low emission gas fired plants. Here I’d say the EPS does not go far enough and should push more towards zero emissions from power generation and not leave the door ajar for fossil fuels...but it’s a start we’ve all waited for for a long time and for that we can be a little grateful.

The Rest of the Bill

 Along with the EMR the Energy bill is also made up of the following sections that further detail the reforms:

·         Strategy and Policy Statement (SPS)

o   The SPS will try to ensure that the regulator, Ofgem, and the Government are both heading in the same direction. It’s hoped that it will further clarify the roles of the regulator and the government to ensure that the regulatory changes and development of the energy sector are prioritised correctly. A sort of instruction manual for the energy bill to ensure that is operated correctly... let’s just hope that it’s easier to follow than your average instruction manual!

·         Nuclear Regulation

o   The government has introduced Nuclear Regulation, which gives the currently-interim Office for Nuclear Regulation (ONR) statutory footing.  As the civil regulator for the nuclear industry in the UK, and an agency of the Health and Safety Executive (HSE), the ONR is responsible for the safety and security of civil nuclear activities and administers nuclear licenses on the HSEs behalf – a role previously undertaken by the HSE Nuclear Directorate and Department of Transport’s Radioactive Materials Transport Team.

·         Government Pipe-Line and Storage System (GPSS)

o   The GPSS was created to provide a secure oil distribution network for the UK at the start of World War Two in 1939. As the years have gone one the network has extended and developed to now cover approximately 2500km of pipe-lines and numerous storage depots, pumping stations and associated sites. The GPSS provides links around the country supporting major airports and Ministry of Defence (MoD) sites and is currently managed on behalf of the government by the Oil & Pipelines Agency, which is a public corporation sponsored by the MoD. The Energy Bill outlines the plan to sell off the GPSS to private investors as it is that government ownership is not necessary to ensure the requirements of the MoD. The same old argument will surely arise however that if you sell a commodity to a private firm then there focus will be to make money so the impact on the MoD and civil airports etc. may be significant, though the government is keen to play any potential impact down. The fact that we own very little of our own infrastructure does not seem to concern the government...

·         Miscellaneous

o   The aptly titled misc. section, which actually refers to a section on Offshore Transmission. This bit of legislation will allow developers to transmit electricity form an offshore source to the onshore grid without the need for a licence. Currently  the Electricity Act 1989 prohibits this, which is a significant barrier to an offshore power grid and development of offshore power generation as some electricity transmission is seen as necessary before commissioning equipment. Again, a step in the right direction but bizarrely hidden in the footnotes.

So that is the Energy Bill summarised, well to a certain degree anyway, although there is still a lot of uncertainty surrounding it which may impact on the effectiveness of the bill.  After its unveiling it received widespread condemnation for not going far enough in providing assurance and direction for the energy sector. The biggest worry was the promotion of gas fired power plants as their inclusion in the bill could lead to development in the wrong direction, towards a fossil fuel future. I agree that to meet emissions targets and to continue to power the country we need a mixture of nuclear, renewables and, if it can work, CCS, but we should not direct investment towards a continuing reliance on a depleting resource that is damaging to the atmosphere and largely dependent on foreign import. I know some people will say shale gas can provide a viable and reliable supply but extraction methods are questionable to say the least and the associated emissions may be more harmful than coal fired plants, not to mention our resource of shale gas is small at the very best.

The Energy Bill may be a good start, though may be fatally flawed by one sentence in Annex D that could render the Energy Bill potentially useless in its promotion of low carbon energy, “Exceptions: power to make exceptions to maintain energy security”. This exception could be used to override the bill and enable the construction of the dirtiest of power plants if they can be deemed necessary to maintain energy security; a get out of jail free card for the greenest government ever.

The full two part entry has been published at the developingengineers blog.

 Follow me on twitter @LMY1985.

Low Carbon Subsidies for All!

Through the queens speech the coalition government announced a series of energy market reforms, in the form of the energy bill, that they hope will provide an adrenaline boost to the flagging industry, mainly in the form of complex subsidies. However, as has been apparent with most announcements regarding the energy industry from the government, there are still large areas of policy shrouded in mystery.

The system the government is trying to implement works around low-carbon electricity (from renewable or nuclear sources) can sign long-term contracts to supply at a preferential rate, so effectively legislating against carbon emissions. While this on the face of things looks like a step in the right direction the head of climate change at WWF-UK had some harsh criticism of the legislation, while saying it was a step in the right direction he indicated that it did not nearly go far enough.

One significant implication of the legislation is that it will effectively subsidise the Nuclear Industry as it is a low carbon source of electricity, which is at odds with the coalition agreement, that there would be no state subsidies for nuclear power. Incentives have been shared across, what the government has been to classify as, low-carbon industries; though surely a worry is that the renewable industry will be stifled in the UK, compared against more established technologies.

If we take a look at the German Company Strabag’s development of serialised wind turbine installations, and the speed of that development, we can see what can be achieved focus is placed on renewable energy. This goes to highlight that while the renewable industry is growing in this country at a very healthy rate more can be achieved with greater support.

The Nuclear industry by its very nature is a slow developing beast with small evolutionary design changes targeted towards safety rather than taking revolutionary design steps. This approach being taken to ensure that we have the safest plants possible, as we are dealing with radiation sources after all. If we take a look at the development on the EPR plant at Flamenville in France we can see how slow Nuclear can progress.

The government is worried, and so should we all, about the impending likelihood of black outs and, with the nuclear renaissance faltering, needed to promote growth within the energy sector. With the energy bill they hope to achieve that, unfortunately as the bill seems to be lacking in detail in some areas and over complex in others, the likelihood of success is uncertain.

The future energy balance in the UK must be made up from a mixture of renewable and nuclear in order to be anywhere near the targets set for 2050 on reducing carbon emissions and we must develop a smart grid in order to deliver electricity to where it is needed. That is why clear direction is needed from the government on such issues and while the UK may not ever be a major contributor to global nuclear technology we still have the opportunity to be world leading in renewable/clean technology.

Also posted @ the Developing Engineers Blog!

CCS a Panacea for Climate Change...

This week the UK government announced a new initiative to promote the development of Carbon Capture & Storage (CCS) technology, after the total flop of the last scheme. The CCS roadmap can be split into three distinct parts: the first provides research and development funding, the second grants for the construction of plants and the third funds the running costs, which makes this an attractive scheme for industries looking to develop CCS.

Heralded by the government and fossil fuel companies as a panacea for CO₂ reduction; they say it’ll enable polluting fossil fuel plants to run with ‘zero’ carbon emissions (an 80-90% reduction), a view many will question. Now I will try and answer some key questions: what are the merits of CSS, will it actually work on an industrial scale and what part does it have to play in reducing global warming and aiding theUK in meeting its 2020 and 2050 targets?

As you may know, the idea behind CCS technology in power generation is to enable the stripping of CO₂ from the emissions from fossil fuel fired power plants (pre or post combustion) and to then store it , normally very deep underground or under the sea. The technology behind CCS is largely unproven on an industrial scale and the storage component is an unknown element. The injection of CO₂, and essentially the storage of CO₂, has been used to prolong the life of oil wells in enhanced oil recovery but if this method of storage is stable is unknown.

What has to be remembered is that with CCS we are still producing vast quantities of CO² by burning non-renewable fossil fuels, it doesn’t reduce emissions we’re just storing them away. We do not know how reliable the storage of CO₂ is, and whether or not it will escape or dissipate and rise to the surface adding to global warming in the future. Also, it’s virtually impossible to measure the success of the storage solution and/or any CO₂ escape from deep sea storage. This is also not to mention the problems that may be caused to the pH level of the sea and the effects that it may have on sub-sea ecosystems.

Ok, so if there are so many uncertainties surrounding CCS, and potential pitfalls, what place should it have as one possible solution to reach our 2020 and 2050 emission targets? Well while I do not under any circumstance see this as a long term solution to reducing emissions, especially as we will run out of fossil fuels before long, I do think in the short term it does have a key part to play if we want to have any hope of achieving the targets set for 2020 and 2050 as we are woefully behind with our development of low carbon and renewable energy.

While this new scheme will be welcomed by investors and will aid in meeting the UK’s targets in reducing CO₂ emissions we all have to remember that it still involves burning a fast depleting finite resource where security of supply is a significant concern. CCS isn’t the solution to climate change, or the energy gap, but it may have a supporting role.

A New Horizon for the UK’s Nuclear Future

There has been some very significant developments for the Nuclear Industry in the UK, with E.ON and RWE (nPower) [Horizon Nuclear Power] pulling out of the UK Nuclear New Build Programme, and on Monday the largest decommissioning contract ever will being awarded to the Babcock Dounreay Partnership to decommission Dounreay, by the far the biggest blemish of the nuclear industry.

Now in regards to the decision by EDF and RWE, if you believe the Energy Minister, Charles Hardy, this move was not down to a lack of confidence in the UK Nuclear Industry but due to, “pressures elsewhere in their businesses”, though it may have more to do with the lack of confidence in Nuclear as a whole following the Fukushima disaster in 2011. Whatever the reason for this decision, the fact is that this leaves the Nuclear New Build Programme in a severely weakened position and presents a stark truth that the UK cannot rely on private and foreign investment for our core infrastructure.

The big players that are left, and that the government is relying on to plug the energy gap, are EDF/Centrica (or British Gas) and Nugen, with EDF/Centrica being by far the most serious players. However with cost of a new nuclear plant rising, partly after increased safety precautions have been implemented following on from the Fukushima disaster, and the slow progress and higher than expected cost of EDF’s flagship nuclear reactor, the European Pressurised Reactor, in Flamanville, the continued support by these big players should be viewed with extreme caution.

The governments existing policy of no subsidies for nuclear power will have to come under review in the not too distant future, else the risk of the new nuclear sector collapsing is very real. Now I don’t agree with subsidies for nuclear power, as I believe it has already cost the country enough over decades of poor management leading to heavy decommission costs and that we should focus on more sustainable power. But we have already invested heavily in proving New Nuclear Build Designs and paving the way for their installations so to abandon now would leave the country out of pocket and with a serious and fast approaching energy gap.

Finally I will briefly consider the blemish that is Dounreay and the ever protracted decommissioning process, which at last count was estimated to finish in 2032. Dounreay was, in my opinion, the most poorly managed nuclear facility that the country has ever ran and more a experimental play house for the development of nuclear power and fuel than ever a well run facility. There have been stories of rooms that were out of bounds for decades due to radiation, which have only recently been decommissioned, and nuclear waste leakage into the waterways. The decommissioning process is incredibly complicated and to trust that it will be more cost effective to hand this over to a private firm is incredible at the least.

I have no worries on the ability of Babcock to perform the decommission and I am sure that the people involved will not actually change much due to the limited suitably qualified resource that this country has; though to presume that this will reduce costs is in my opinion a foolish one. It should also be noted that Babcock has an ever expanding portfolio of highly sensitive and very significant operations in this country. Private companies exist for one purpose, to make money, which any sensible person cannot disagree with; however to put them in charge of public infrastructure and services and expect them to act altruistically is incredibly naive.

Take a look at the developing engineers blog!

Onshore Wind Farms, a Brief Debate

Sorry for the long delay since my last post; a lot of things have changed including my Job and location but I'm back now blogging on my view of the renewable future, I'm also mirroring some of my posts on the developing engineers blog... take a look.

I have chosen to take a look at an issue that has featured in the news recently and seems to be always a point of contention for many people, onshore wind farms.

This weekend it was reported by The Telegraph that 101 conservative MPs have demanded that annual subsidies for onshore wind farms should be ‘dramatically cut’. This is also paired with a concern regarding the National Policy Planning Framework (NPPF), which they say hinders any effective opposition to onshore wind farms.

I will focus mainly on the issue subsidies and the wider issue of funding. Firstly without subsidies it is hard to see how anyone could justify, economically, the merits of commissioning onshore wind farms if subsidies did not exist; if anything subsidies do not go far enough in encouraging growth in an emerging market and there review and subsequent scale back will only help us further fall short of 2020 emissions targets.

Firstly I am not in full agreement with the construction of onshore wind farms as the sums often don’t add up; with the amount of electricity actually produced not that great. However at this current point in time we don’t have many viable alternatives, I certainly would rather they remove solar subsidies in this country which were only ever a cursory nod towards the direction of the renewable energy sector, than halt the construction or subsidies for onshore wind farms.

Maybe we should look at the reason why we need such subsidies especially as the opportunity for the UK to be a renewable industry hub is banded about so much by the current government. The infrastructure to support the wind industry in this country is currently not there and the waiting list for wind turbines is a lengthy one, with these and other factors leading to high costs. In August 2009 Vestas moved operations from the Isle of Wight due to uncertainty regarding the industry and of lack of assurance from the government that it will back wind energy; only now are we seeing proposals again for wind turbine manufacturing in the UK, which could always fall down if support is not there for renewable development.

If the government, or more correctly the conservative side of, continues to attack the industry then the costs of renewable energy will continue to rise and become less attractive to potential investors; though maybe this is a preferred option as if renewable energy costs rise it will only give more substance to the Nuclear argument.

Now I cannot say that onshore wind farms are the solution to the energy balance or the best option in renewable energy but green subsidies are a vital component in encouraging growth the renewable energy sector that without them will surely stagnate. Would you rather have a coal or nuclear power plant on your doorstep?

To end on a positive note Nick Clegg has come out in defence of wind power subsidies and renewable energy as a whole, so at least someone is fighting for renewable energy just a pity they have little sway in government...

Also go take a look at the developing engineers website! www.developingengineers.com

Biofuels Role in the Global Food Crisis and GM Energy Crops

Reports this week have highlighted the possibility that increased production of Biofuel crops has a negative impact on the world food supplies. Specifically if we focus on the US large areas of agricultural land is being used for the growth of corn for the production of bio-ethanol (in 2010 40% of corn grown in the US was used for bio-ethanol) and even more worrying now is the use of GM crops that have been designed to aid in the production of bio-ethanol and, though not inedible, are not suitable for food manufacture. This all leads to a decrease in the levels of food crops being grown, which coupled with poor yields across the globe lead to inflated prices. This in turn, Aid organisations warn, will lead to worsen a global food crisis and in particular divert more corn away from famine hit countries such as Somalia.

Now I want to focus on the production of GM energy crops; these are crops that essentially have been altered to produce the enzyme amylase, which speeds breakdown of starches in the production of bio-ethanol, an enzyme usually added in the production process. The corn has been designed by Swiss pesticide firm Syngenta and is branded Enogen. Now this raises a few significant issues first as mentioned previous is the diversion of corn from the food market leading to increased costs, effectively pricing out poorer nations. The second is the risk of contamination, which could see Enogen cross pollinating with normal corn which could render food crops unusable. 

According to data supplied by Syngenta the North American Millers’ Association say that 1 kernel in 10,000 could damage food products. Essentially if amylase was to be introduced into corn destined for food production, by cross-contaminated plants, then this will lead to starch breakdown reducing the corn chips to useless mush. Syngenta have stated that the appropriate safeguards are in place to prevent cross-contamination; however failure to prevent cross-contamination in previous GM breeds cast doubt on this claim. Even if the risk is low the potential consequence, if cross-contamination was to occur, is very high, which surely raises the question whether GM energy crops should be used at all.

As more and more land is devoted to the production of energy crops this obviously in turn reduces the land that would normally be available for food crops therefore leading to lower yields and increased prices and considering the potential impact GM crops could have on food production globally the big question is whether energy crop production will continue to be feasible.

One should note however the American government is expected to put an end to corn ethanol subsidies, which may have an effect on the price of corn and the eagerness to grow corn for bio-ethanol production. The impact however is thought to be minor as the subsidies where mainly eaten up by major oil companies. You can read more on this at the guardian website.

Radical Reforms in UK Energy Policy

With all the news focused on NoW, Rupert Murdoch and the corruption associated you will have been forgiven if you failed to fully take notice of the huge energy reforms announced last week by Chris Huhne.

Given only a cursory glance by many of the major news avenues in the UK media Chris Huhne’s announcement shows a welcome commitment by the government to reduce emissions and ensure greater energy security; not to mention the inevitable brown and black outs the country faces if significant investment is not made, in Chris Huhnes own words, "We have to stop dithering, you can have blackouts or you can have investment. Which do you want?".

 

This reform indicates an end to the liberalised electricity market implemented by the Thatcher government, in by which the private sector would provide competition and keep prices low. This did work in the short term when the electricity market was essentially oversupplied however it made no plans for long term and has part resulted in the sad state of affairs we are now; facing significant global warming and with little to no long term energy security.

The UK needs significant investment in low-carbon energy, mainly renewables, nuclear and possibly carbon-capture (though the merits of this technology are in doubt both in capture and storage); if it is to avoid falling foul of the European Union’s and its own emissions targets and the threat of brown and black outs. To try and achieve this aim Chris Huhne and the government’s white paper outlined a strategy to guide private investment; this includes a minimum carbon price, contracts with energy suppliers for low-carbon energy, a regulation setting maximum emissions levels, a set of payments to ensure sufficient capacity and a new energy efficiency obligation.

While this is definitely welcome news the worry is that these reforms will not go far enough. Firstly Chris Huhne also used this announcement to usher in a new “dash for gas”, now as I have stated previously in this blog a push for natural gas will only result in the UK being depenedant on greenhouse emitting fossil fuels for the foreseeable future and will risk significantly stifling investment in the renewable industry, which is still in its infancy in this country. The IEA’s own executive director Nobuo Tanaka, stated in a press conference in London, "While natural gas is the cleanest fossil fuel, it is still a fossil fuel. Its increased use could muscle out low-carbon fuels such as renewables and nuclear, particularly in the wake of Fukushima. An expansion of gas use alone is no panacea for climate change." So the last thing that the UK needs is a new “dash for gas”, to do so would end any hope of the UK ushering in a green revolution and would inevitably put us on the back foot compared to the rest of Europe.

Secondly over the coming years 9 of the UK’s oil and coal fired power stations are due to be decommissioned along with the last remaining Magnox and two AGR nuclear reactors; this will result in a significant energy gap, with brownouts a certainty and blackouts predicted by 2016. Unless miraculously the UK can construct and commission its planned nuclear power plants and invest significantly in renewable energy there is no avoiding this and that will take unprecedented investment in low-carbon energy. Though this investment could lead the UK to becoming a clean-tech hub for Europe, revitalising the manufacturing industry, creating new jobs and leading to greater economic stability.

In conclusion the energy reforms announced by Chris Huhne are essentially a good thing however unless they are backed up by significant investment and action from the government in the direction of low-carbon energy, and associated infrastructure, (and not a new “dash for gas”) then the UK have no chance of keeping the lights on let alone reaching its emissions targets.