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.

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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.