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TUC Clean Coal Task Group

December 2012

A transitional plan for clean coal in the UK

Briefing on the effect of EU environmental legislation on UK coal power supply

Introduction

Coal power underpins the UK's electricity supply system. It provides stable and flexible baseload, a cost-effective counterbalance to intermittent renewable and inflexible nuclear power. Coal's share of electricity generation increased from 28% to 30% between 2010 and 2011, as it substituted for gas generation. Gas's share of generation in the UK fell from 46% in 2010 to 40% in 2011. At peak times in winter 2011, coal generated over 50% of UK electricity. This pattern has continued in 2012 with coal generating over 40% of UK electricity to date.

However, European environmental legislation is putting increasing pressure on coal plant to close early. This briefing note makes the case for a place for coal within the Capacity Mechanism outlined in the Energy Bill, as part of a transitional plan for clean coal with CCS in the UK energy. This plan will help secure jobs, skills and investment in the UK coal and coal power sector. It will help ensure that when the UK's CCS strategy eventually reaches commercial scale around 2018-2020 it is not then dependent on imported coal

Effect of EU emissions Directives

The EU's Large Combustion Plant Directive (LCPD) will require 8GW of coal generation capacity to close by the end of 2015 at the latest (table 1). However we know 5GW will close at the end of March 2013, almost three years early, as generators look to take advantage of healthy energy price spreads and to avoid forthcoming UK and European carbon taxation. The UK's Carbon price Floor (CPF) kicks in at £0.44 per GJ from April 2013 and will double the following year.

Table 1

Coal power stations facing closure, opting out of the Large Combustion Plant Directive

The follow up to the LCPD, the EU's Industrial Emissions Directive (IED), will progressively tighten emissions of sulphur dioxide and nitrogen oxides (NOx) on the remaining 20GW of coal capacity. To meet fully these lower limits will require power companies to undertake further major investment in NOx abatement equipment; investment in selective catalytic reduction (SCR) equipment is in the order of £110-125million per GWe capacity.

Options within the IED are available to defer investment through entering the Transitional National Plan (TNP) or opting out completely; limiting running time to 17,500 hours before closure by 31^st December 2023 at the latest.

The TNP is a more complicated format which would allow a smooth transition from the current LCPD requirements to the new IED emission limit values on 1st Jan 2021. The TNP would allow trading between plants to meet these targets. It sets a series of reducing targets based on the average annual operating time and fuel use during a 10 year reference period (2001-2010) and the initial LCPD and final IED emission limit values.

But both routes will lead to a further decline in coal burn. Generators have until 31^st December 2013 to formally declare how they will comply with this Directive. The rules of both the LCPD and IED have been agreed with the Commission and Council and it is very unlikely there would be any relaxation allowed.

Impact of coal power supply

As a result of the inexorable rise in UK carbon prices (via the Carbon Price Floor), and uncertain future market conditions it is likely that many coal power stations will opt out of the IED, use up their generating hours early on and close well before 2023. These existing stations are vital in providing cost effective and flexible back up for the increasing volumes of intermittent wind and inflexible nuclear capacity on the system. They also provide a bridging market until CCS technology for coal and gas power becomes proven and rolled out in the mid-2020s.

Without this demand, indigenous coal producers will be forced to downsize their operations and be eventually forced to close, well before new demand is established from CCS stations. Once deep and surface mines are closed, the skills so necessary to maintain a vibrant mining industry will be lost to the UK forever. Once coal demand returns with the advent of CCS, the UK would be reliant solely on imports as its indigenous industry will have gone. This would clearly have a detrimental effect on the UK's security of supply.

Energy Bill: a place for coal in the Capacity Mechanism

The key to maintaining an on-going market for UK-mined coal until it can be replaced by CCS demand is to provide coal operators with mechanisms that may allow them to prolong the life of their plant by investing, including the investment required to comply with the IED. One such tool is the Capacity Mechanism, proposed as part of the Government's Electricity Market Reform (EMR) package.

It is essential to ensure that existing coal plant is allowed to compete in the Capacity Mechanism on a level playing field with new gas plant. It will also be essential to ensure that the capacity auctions are run as soon as they are available (ideally in 2014) and for delivery of capacity as early as Winter 2015.

Table 2: Estimated coal burn by power station, 2011[ii]

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.

Digest of United Kingdom Energy Statistics, 2012.

Table estimates based on returns to the European Community Transaction Log: http://www.eea.europa.eu/data-and-maps/data/european-union-emissions-trading-scheme-eu-ets-data-from-citl-1

Briefing document (1,200 words) issued 18 Dec 2012