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TUC Clean Coal Task Group

A Roadmap for Coal

March 2012

Introduction

Our central concern is that coal, it appears, is the forgotten fuel, both in the Energy Bill and in DECC's new gas strategy. UK mining industry directly employs over 6,000 people and at least the same again in coal power stations, rail and transport infrastructure. With coal generation supplying a third of the UK's electricity, and 50% in peak times during last winter, this Clean Coal task Group report sets out a Roadmap for coal in the UK energy mix.

The Clean Coal Task Group (CCTG) is a joint energy industry and trade union body formed to promote clean coal technologies within the UK. Its terms of reference are: 'To identify an appropriate policy framework and supporting economic instruments and regulatory framework that would take forward the research, development and promotion and initiation of clean coal burn and carbon capture and storage technologies'.

This document seeks to put forward a roadmap showing how coal can continue to be part of a low-carbon generation mix, helping to meet the UK's climate change, security and affordability targets and secure a future for the indigenous coal industry as part of this solution.

Current Market

In 2010 the UK produced 18.4Mt in response to a total UK market demand of 51.4Mt. High levels of imports are required to satisfy demand, and coal imports have exceeded UK coal production every year since 2003. The UK mining industry directly provides just over 6,000 jobs and supports a similar number in coal power stations combined with the rail and transport infrastructure.

A market breakdown is shown below:

	Million tonnes
Supply
UK production	18.4
Imports	26.5
Exports	(0.7)
Stock lift	7.2
Total	51.4
Demand
Electricity generation	41.5
Coke Ovens	6.6
Industry	1.7
Domestic	0.8
Others	0.8
Total	51.4

The main import countries into the UK are:

	Million tonnes
Russia	9.8
Colombia	6.4
USA	4.5
Australia	3.2
EU*	1.0
South Africa	0.8
Canada	0.4
Others	0.4
Total	26.5

*Includes non EU coal transhipped through the NW European ports of Amsterdam, Rotterdam and Antwerp (ARA)

Coal in the Current Electricity Market

The electricity sector is the main market for coal and in 2010 coal provided 28% of the UK's electricity. In comparison gas supplied 47% of the UK's power over the same period. However at times of peak demand during the winter months, coal generation has sometimes supplied 50% of total generation.

The power sector is one of the major contributors to UK CO₂ emissions, the others being transport and heating, and in 2010 it was estimated that it emitted 156Mt CO₂, almost one third of the UK's CO₂ emissions.

The table below gives a listing of UK coal fired power stations with their status under the Large Combustion Plant Directive (LCPD). As can be seen 8GW of plant has opted out of the Directive and therefore must close by December 2015 at the latest. From 2016 the LCPD is replaced by the Industrial Emissions Directive (IED) and the remaining plant must make significant investments in NOx reduction equipment or otherwise face a restrictive running hours regime before closure no later than December 2023. So far only Ratcliffe power station has committed to investment in SCR to meet the tightening NOx limits.

Estimated coal burn by power station 2010

	Operator	Capacity MW	Million tonnes*	Load Factor (approx)	LCPD status
Aberthaw	RWE	1586	2.0	36%	Opted in
Cockenzie	Scottish Power	1152	1.7	42%	Opted out
Cottam	EDF Energy	2008	3.7	52%	Opted in
Didcot B	RWE	1958	1.7	25%	Opted out
Drax	Drax Power	3870	9.5	70%	Opted in
Eggborough	Eggborough Power	1960	2.0	29%	Opted in
Ferrybridge "C"	SSE	1960	2.1	30%	Half opted in
Fiddlers Ferry	SSE	1980	2.8	40%	Opted in
Ironbridge	E.ON	970	0.6	17%	Opted out
Kilroot	AES	520			Opted in
Kingsnorth	E.ON	1940	1.3	19%	Opted out
Longannet	Scottish Power	2304	3.9	48%	Opted in
Lynemouth	Alcan	420	1.1	75%	Opted in
Ratcliffe on Soar	E.ON	2000	3.6	51%	Opted in
Rugeley	International Power	1006	1.6	45%	Opted in
Teesside	SembCorp	280	0.3	34%	Opted in
Tilbury	RWE	1063	1.2	31%	Opted out
Uskmouth	SSE	363	0.2	16%	Opted in
West Burton	EDF Energy	2012	2.2	52%	Opted in
Total		29352	41.5

*Estimates based on returns to the European Community Transaction Log

The table highlights the wide range of load factors of these stations, from baseload to winter peaking to meet the load variations of the electricity market.

During the cold spell in December 2010, 24GW of the coal plant above was called upon to run, leaving just under 5GW in reserve. At least 8GW of coal plant is going to close by 2016 with a real risk of further closures under the IED and there will be reductions of load factor for most of the plants which stay open.

It is suggested below that these existing coal power plants, normally operating with relatively low load factors could be the lowest cost and least capital intensive route to providing back-up flexible generation in a low-carbon generation mix.

Electricity Market Reform (EMR)

In July 2011 the Government published their White Paper on the reform of the UK electricity market. The paper contained four key proposals:

4.1 Carbon Price Support (CPS)

Designed to encourage investment in low carbon; this would guarantee a minimum carbon price through the levying of the climate change levy (CCL) on all fossil fuels used to generate electricity in the UK based on carbon content. It will be introduced in April 2013 and the floor will start at £16/tCO₂ (2009 money) and will be increased on an annual basis in order to hit the target price of £70/ tCO₂ in 2030 (2009 money). The revenue raised will go directly to the Treasury and is not hypothecated back for clean coal projects.

The effect on coal prices of CPS will be to add £11.88/t in 2013 rising to 23.69/t in 2015. This is an increase on current coal prices of 15% and 30% respectively. The knock on effect on coal generation costs is to add £4.95/MWh in 2013 rising to £9.86/MWh in 2015 and is estimated to be around £37/MWh in 2020. (For comparison the current marginal cost of electricity generation is circa £77/MWh).

The introduction of CPS will result in a change of operation of existing coal and gas plants resulting in greater switching from coal to gas. The policy will also impact the relative attractiveness of investment in new coal and gas power stations, as well as accelerating decisions to retire existing fossil-fuel power stations.

The policy also severely harms the concept of coal plant fitted with partial CCS, since the non CCS portion will be subject to CPS, jeopardising the economics of the overall plant.

4.2 Feed in Tariffs (FITs)

The Government recognises that carbon price support alone is not sufficient to encourage the investment needed for low carbon power and hence they intend to introduce additional support via FITs which would guarantee a price tariff over the life of power projects.

New power stations fitted with carbon capture and storage will be eligible for support under this mechanism.

Looking beyond the first four commercial CCS demonstration plants which will receive support from other support mechanisms, it is important that investors are given full and timely information on the FIT support mechanism. In particular investors need to know how many (GW) of projects will be eligible for guaranteed support given that the Treasury has control of the total subsidies for low carbon electricity.

In order to provide diversify and security of supply, we believe the Government should set a minimum level of support for each technology band. Beyond this minimum level, competition between fuels should be encouraged to deliver the lowest cost low carbon electricity to the consumer.

This would result in no artificial ceilings being imposed on the number of CCS projects which can be supported. The number of CCS projects progressing to completion would therefore be dependent their cost competiveness with other forms of low carbon generation.

4.3 Capacity Payments

In order to encourage the availability of flexible reserve plants to ensure an adequate capacity margin during times of low renewable output, capacity payments will be made available. The final format of this scheme is still to be determined, but existing coal stations could benefit and indeed ought to benefit under this arrangement since they can provide the amount of flexible back-up capacity required whilst still operating at low overall load-factors and in extremes (eg gas supply shortages) operating at high load factors for the period of an emergency could ensuring security of supply.

Coal power stations have the added benefit of being able to safely and securely stockpile fuel ready to be called under this mechanism thus providing timeless support without the time limitations of other potential storage solutions.

It is thus vital to ensure that existing coal plants are eligible to receive payments via the capacity mechanism. This will enable them to play their part in a low cost transition to a low carbon economy.

4.4 Emissions Performance Standard (EPS)

This provides a regulatory back stop and limits the amount of CO₂ emissions that a new fossil fuel station can emit. The EPS will be initially set at a level of 450g CO₂/kWh and will not be applied retrospectively. This reinforces the existing requirement that no new coal is built without CCS but has been set at a level which allows new gas plant to be built unabated with no requirement to retrofit CCS at a later date.

The EPS as proposed increases the attraction of investment of unabated gas power plant at the expense of other much lower carbon alternatives (wind, nuclear and CCS).

4.5 Effect of proposals on coal burn

The White Paper reforms seem likely to significantly reduce future coal burn. Whilst no predictions are made, policies have been designed to switch burn from existing coal to gas plant and encourage new unabated gas build to fill the future generation gap as a result of the closure of old coal and nuclear plant.

As stated above existing coal plant have to make significant investment to meet the tighter emissions standards of the IED. As a result of the EMR and the uncertainty about the on-going role of coal burn this investment is unlikely to be made, forcing the stations to restrict their running hours and eventually close.

Coal mining, especially deep mines, has long development lead-times where financial payback could be 10-15 years away. Because of the limited life expectancy of coal stations, generators could be unwilling to enter into coal supply contracts of a required duration necessary to underpin investment in the mining industry.

It is important that existing coal plants are not forced to close prematurely (due to UK Government action on carbon pricing), as they are able to play a role in providing flexible low cost electricity during the transition to a low carbon economy. This will enable the UK coal industry to continue to invest and preserve the necessary skills base to maintain current levels of production in readiness for the growth of coal plant with carbon abatement (CCS). It will also help preserve the thousands of jobs within the coal infrastructure chain.

Coal in a low carbon energy mix

The Committee for Climate Change in their advice to Government have stated that in order to meet the UK target of 80% reduction in carbon emissions by 2050 from a 1990 baseline, the electricity sector should be substantially decarbonised by 2030 and almost completely decarbonised by 2050.

The CCTG believe that for coal to play its part in the UK's long term energy mix it must be associated with carbon capture and storage (CCS). The Government have confirmed, in the November 2010 Comprehensive Spending Review, up to £1 billion of investment to create one of the world's first commercial scale CCS demonstration plants. The March 2011 Budget also reiterated the UK's commitment to providing public funding for a further three CCS demonstration plants but gave no further details. Following the abandonment of the Longannet Project the government re-committed the £1billionn to the demonstration programme and confirmed that support will be available via CfD FITs for the programme. The coalition remains committed to four demonstrations of which one may be gas.The early approval of these Demonstration projectsremains a crucial first step and it is vital that the £1 billion is accessable to project developers when needed and not lost from the current Treasury spending round.

However much more needs to be done if the UK is to maintain its position as a global leader in this field and maintain a viable coal industry. The current policy aims to deliver the first CCS plant by around 2016 with the other three plants coming on stream by 2018. The total CCS capacity envisaged under the demonstration proposals is only 1.6 GW, (compared to the total UK capacity of 28 GW of which at least 8GW will close by 2016).

There is serious concern that slippage to the above dates will result in a delay to the CCS deployment programme. This will result in coal burn in existing power stations ceasing before new CCS plants are ready to replace them and as a result will cause the UK to lose all its coal production and infrastructure capacity.

5.1 Electricity Market

To decarbonise the electricity power sector by 2030 we believe there will need to be between 20-30 GW of fossil plant (mix of coal and gas) with CCS in operation by 2030 together with a number of CCS industrial projects. To enable this there needs to be a progressive build-up of capacity now rather than a large step change during the 2020s. The Carbon Capture and Storage Association have recently published their report calling for such a deployment trajectory.

Industrial Sector

Companies in the energy intensive sector many of whom use coal, such as iron and steel and cement, are central to supporting low carbon transformation across the broader economy, including developing new products, materials for construction and the development of low carbon power generation. Carbon dioxide emissions from the iron and steel sector combined with other industrial combustion activities amounted to just under 68Mt in 2009.

A report for the Trades Union Congress (TUC) and the Energy Intensive Users Group (EIUG) considers the innovative low carbon technology solutions needed for key energy intensive sectors. It reflects the aligned interests between employers, unions and the government to support the transition of these key industries to a low carbon economy. Representatives of the UK's energy intensive industries were consulted to discuss sector sector specific experiences of low carbon technologies and UK innovation. Potential technology options, barriers to low carbon investment and the need for policy support and technical cooperation were examined.

From a technology perspective, CCS offers the greatest opportunity for carbon dioxide abatement within the UK's energy intensive industries. The viability of this approach, both technologically and economically, varies between sectors, with ammonia production, iron and steel production and chemical processing being best suited to its early adoption.

Integrated iron and steel plants offer good potential for CO₂ capture and storage, with over 75% of total emissions from core processes having the potential for CCS applications. Within the UK, the 3 major steel plants are considered suitable for CCS. Redcar and Scunthorpe are particularly suitable due to their location near the North Sea oil fields and potential power sector regional CCS infrastructure as identified by Yorkshire Forward and in the Tees Valley.

The cement sector is a major contributor to global CO₂ emissions, representing approximately 5% globally and just over 1% in the UK. Emissions are created both from fuel combustion and limestone calcination in kilns. Both of these offer the potential for carbon capture and storage or conversion. As the Technology Innovation study² argued: 'The role of government in acting as a developer of the necessary shared infrastructure for low carbon power supply and CCS was seen as crucial.'

Actions required

In order to achieve this target the following actions are required :

UK Projects 1-4: - all need to be in operation by end 2018. DECC call for proposals early in 2012 and conclusions of selection of the first project(s) should be aligned to meet the timeline for the NER process. The DECC process for projects 1-4 must permit early initiation of Engineering work.

Need early clarity on how further CCS projects (including and beyond demos 1-4) will be supported by the EMR process, and that there are no artificial ceilings on the number of CCS projects so that as soon as CCS can be offered for a lower strike price (£/MWh) than more expensive alternatives the projects can go ahead

Ensure existing coal plants are eligible to receive payments via the capacity mechanism. This will enable them to play their part in a low cost transition to a low carbon economy.

Demonstration CCS on industrial plants to be in operation by 2018

The above actions would preserve a large number of high quality jobs and maintain a skills base within the existing UK mining industry and coal infrastructure chain. It would also ensure that the UK had access to an affordable, secure and flexible energy supply during the transition period to full CCS deployment and beyond.

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Based on actual inflation to date and Government inflation targets

Carbon Capture and Storage Association: A Strategy for CCS in the UK and beyond - September 2011

Waters Wye Associates: The Cumulative Impact of Climate Change Policies on UK Energy Intensive Industries - Are Policies Effectively Focussed? - July 2010

Yorkshire Forward: A Carbon Capture and Storage Network for Yorkshire and Humber - July 2008

One North East: Carbon Capture and Storage in North East England - December 2010

Briefing document (3,000 words) issued 6 Jul 2012