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.

Shale Gas: A Green Critique

With shale gas and fracking (the extraction method used) in the media spotlight, with IEA comments over natural gas and the earthquakes around fracking sites in Blackpool, I thought that this would be the ideal time to take a closer look at shale gas. Shale gas has been pioneered as a ‘green’ alternative to coal and a cheaper alternative to renewable energy solutions; the European Gas Advocacy Forum (EGAF) put forward that €900 billion could be saved by pursuing shale gas over renewable energy to meet 2050 targets.

Now to give a brief introduction shale gas is simply natural gas produced from shale and is classed as an unconventional source of natural gas as shale’s ordinarily lack the sufficient permeability to allow significant flow to a well bore; therefore alternative methods have been developed to enable extraction, specifically fracking. Fracking or hydraulic fracturing is a method of propagating fractures in the shale using pressure from a fluid, therefore enabling the release of natural gas which can be then captured. With often the fluid being used a highly toxic mix of chemicals (including carcinogens) and sand or ceramics.

Now the concerns from pursuing shale gas can be brokeninto the following areas; fracking and environmental impact, emissions associated with shale gas, European energy security and the potential damage it could have on the renewable sector.

Extraction and Hydraulic Fracturing (Fracking)

If we firstly tackle extraction by fracking, there are distinct environmental concerns that result from fracking. Firstly we have the chemical concoction that is used in the process, this is usually a mixture of
water, sand and various chemicals to aid the fracturing process.

The New York State Department of Environmental Conservation listed the solution to be commonly made up of; water, acid (Hydrochloric acid), biocide (Glutaraldehyde, a strong highly toxic disinfectant), breaker (sodium chloride), corrosion inhibitor (Dimethylformahide, a carcinogen which has also been linked to birth defects), friction reducer (petroleum distillate), gel (guar gum), Iron control (citric
acid), oxygen scavenger (Ammonium bisulfite, toxic), proppant (sand) and a scale inhibitor (antifreeze, toxic); not a very nice concoction of chemicals, it has to be said. Though currently in the UK only water, acid, friction reducer and biocide are used.

Only 50% to 70% of the solution is recovered during the fracking process leaving 30% to 50% in the ground, which can potentially lead to contamination of groundwater. So if we look at the potential hazard of
contamination to water supplies, fresh and near surface, both during fracking and involved in transport, handling and storage of the chemical solution, the risk to human health is significant.

The impact to the rock shelf and potential subsidence can also lead to seismic events which has been seen in the UK during preliminary drilling operation that have lead to two small tremors since operation began, which has, at the moment, caused a stop to all operations.

Finally gas leaks into the water supply must be considered as has been seen in the USA where there has been evidence clear of gas leaks into the water basin, videos of which can be seen here.

In summary fracking leads to the injection of toxic and carcinogenic chemicals deep underground that can lead to wide scale pollution, subsidence and seismic events and seepage of gas into water supplies; all in all not a very good case for shale gas as a ‘green’ alternative to coal and a viable alternative to renewables.

Shale Gas Emissions

Next if we take a look at the emissions associated with shale gas and the oil and gas industries claims that the use of shale gas will give around a 50% reduction in carbon emissions over traditional coal. While looking at the direct combustion of shale gas compared to coal it can be seen that there is around a 50% reduction in the level of carbon emissions however this fails to take into consideration various other emissions that occur from extraction to combustion. It has been concluded that shale gas shale releases far greater levels of methane, which is a more potent greenhouse gas compared to CO₂, than conventional natural gas; as is highlighted in this EPA report. This fact is also supported by the Cornell Study which stated that the green house gas emissions from shale gas were significantly larger than that of conventional gas, 20% higher than that of coal in the short term, twice that in the 20-year horizon and comparable over 100 years.

So the argument presented by the oil and gas industry seems somewhat flawed, in fact it can be seen that they have pick and chosen the facts and figures that suit their cause and ignoring all other relevant
information. This is further highlighted by fanciful claims made in the economic analysis by EGAF, which has used open source data taken by the European Climate Foundation (ECF). Using this data the ECF came to the conclusion that Europe’s energy needs and emissions targets where best met by investing in Renewables; rather alarmingly the EGAF report interprets the data quite differently skewing the data to
conclude that gas rather than renewables is the most viable and cheap form of energy that could be used to meet the 2050 targets. Most of the conclusions coming from EGAF are questionable at best and downright lies at worse, with EGAF solely interested in propagating their own wealth and possibly existence.

It can be concluded, quite obviously perhaps, that reports and data that originate from large companies that will benefit significantly from shale gas may not be able to be trusted and that the claims that shale gas is a cleaner alternative to coal are not true when we take into consideration the entire process of extraction to combustion.

European Energy Security

If we look at the global shale gas resource map, it can be seen that China, USA, Agentina and Mexico by
far have the largest potential shale gas resource.

Source: http://www.guardian.co.uk/environment/interactive/2011/apr/26/shale-gas-hydraulic-fracking-graphic

It should also be more specifically noted that this highlights the deficiency of Europe’s shale gas resource, which should immediately lead to questions being asked about the legitimacy of shale gas as a viable replacement to coal and as an alternative to investment in Renewables. The argument presented by the Oil and Gas industry that using shale gas can lead to greater energy security in Europe is therefore immediately discredited; if anything this would just move who we are dependent on.

The Impact on Renewables

As shale gas is pushed more and more by major oil and gas stakeholders there is a real danger that the funding and development of Renewable energy, related technology and infrastructure will be stifled. This
can already be seen in the US where the promotion and push for shale gas, coupled with the economic downturn, has lead to a drop off in funding and development for Renewable energy. The view now taken in the US is that there is no need for action on climate change as they have plentiful resources of ‘green’ shale gas.

If investment and development is directed towards shale gas rather than Renewable energy then it could signify a significant policy against Renewable energy for the foreseeable future. New gas fired power
plants, while reducing emissions in the immediate, will signify a long term commitment to the use of fossil fuels that will continue to contribute to the release of greenhouse emissions. A gas fired power station will have a plant life of between 25 and 40 years, leading to the possible conclusion that Renewable technology could suffer a 40 year gap in development if there was to be a significant push towards shale gas; which also could put emission targets at risk. To satisfy emissions targets the oil and gas industry point towards Carbon Capture and Storage (CCS) technology which is largely unproven, at best a short term solution and currently partly fictitious. EGAF state that they see CCS technology becoming commercially viable in the mid-2020s however if the technology does not come to fruition, is more expensive than predicted or not viable for commercial use then this leaves us dependent on, what would be a ‘dirty’, fossil fuel and leaves Renewable technology off the pace.

Conclusions

Now while there is a place for gas in the future and as a short term replacement for coal it is still a fossil fuel and will continue to add to emissions of greenhouse gases. Taking into additional environmental implications shale gas has over conventional natural gas it is difficult to see shale gas as a significant contributor in reducing greenhouse emissions and as a viable option in the energy mix. Also looking at the
viability of shale gas in the UK and Europe when we have only limited resource is also highly questionable, surely other options need to be developed and as fossil fuels and even nuclear are dependent on a finite resource then we should be looking seriously at investing in Renewables.

IEA Warning Against Natural Gas as the Sole Solution

The International Energy Association (IEA) has issued a statement that natural gas is not a ‘panacea’ in solving climate change. The IEA’s 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."

However the IEA report is purely stating the fact that if we continue to use carbon emitting technology in generating energy then instead of carbon free generation (i.e. renewable and nuclear) then global warming will continue to happen, which while maybe worthy as a statement the value of the research may be overrated.

Natural gas has been the reason for significant reductions in carbon emissions in the UK and similarly for various other countries, however this research points out the obvious in that while it produces half the carbon of burning coal it still produces carbon. You must also look upon the fact that it is a fossil fuel with a finite amount available and with possibly unsustainable and even harmful extraction methods. This can be seen with shale gas extraction; where shale gas extraction will become more prominent as conventional natural gas reserves run low.

If we take a brief look at shale gas and its extraction methods we can see that this particular method of sourcing natural gas and its use can possibly lead to the release of more green houses gases, methane in particular, than other fossil fuels; a view expressed in the US EPA report into the emission factors for greenhouse gas emissions by the oil and gas industry in 2010, http://www.epa.gov/climatechange/emissions/downloads10/Subpart-W_TSD.pdf. The report concluded that shale gas emits much larger amounts of methane that conventional natural gas.

If we also look at recent extraction attempts in the UK shale gas extraction/fracking has been linked to frequent earthquakes, http://www.independent.co.uk/news/science/small-earthquake-in-blackpool-major-shock-for-uks-energy-policy-2291597.html. It must also be noted that the pollution caused by the chemicals used in extraction will have a negative environmental impact.

With significant potential environmental implications, a finite quantity and the fact that it still emits greenhouse gases then surely natural gas is only a short term solution to the long term problem of climate change.