EON WATCH

EON on Kingsnorth and CCS

In EON Parliamentary Statements on December 21, 2008 at 8:46 pm

Who:  E.ON UK  representatives Bob Taylor (MD) and Sarah Vaughn (director of regulation and energy policy)

About: Kingsnorth and CCS

To Whom:  Environmental Audit Committee  (Both written and oral evidence submitted)

Date of Oral Evidence: 4th June 2008

Link:  Here

Detailes after the fold…

DIVERSITY IN FUEL SUPPLY AND THE ROLE OF THE COAL-FIRED GENERATION AND CARBON CAPTURE AND
STORAGE
Key Points

  • By 2020 we expect 25GW of new generating capacity to be needed to replace closing coal, oil and nuclearpower stations and meet some demand growth. This is one third of total UK capacity.
  • The UK faces a massive challenge as we seek to achieve reductions in carbon dioxide emissions whilst
    making sure that electricity supplies remain secure and affordable for consumers.
  • Delivery of this investment should not be taken for granted and there is a risk that the UK will ®nd itself
    with capacity shortages, with adverse consequences for the reliability and price of energy which policy
    makers need to take seriously.
  • Unless the goals of lower CO2 emissions, secure and affordable energy are met in a balanced way, we
    believe the goal of reducing carbon emissions will be put at risk.
  • We believe that the UK needs a diverse range of energy sources for power generation to achieve these
    objectives.
  • More efficient use of energy is vital and renewable energy technologies can also meet some of this
    generation gap but they cannot bridge it on their own.
  • Continuing construction of gas-®red plants alone will leave the UK highly exposed to the price and
    availability of gas. This could lead to rises in the price of gas and power in the medium term with adverse
    consequences for consumers and the UK economy.
  • We believe some new, more efficient, coal-®red capacity is justi®ed to ensure the diversity of energy
    sources we need to provide secure and affordable energy supplies.
  • We recognise that new coal-®red power generation still gives rise to signi®cant CO2 emissions, and
    therefore carbon capture and storage (CCS) will be required in the longer term. However, new coal plant
    will make a contribution to lower emissions as CO2 emissions per unit of output will be of the order of 20%
    lower than the plants they are replacing.
  • The proposed new Kingsnorth power station will be built carbon capture ready and, once the technology
    has been demonstrated at a commercial scale, we will retro®t CCS to the new units as soon as regulatory
    and market conditions reward the investment.
  • We have entered Kingsnorth power station into the Government’s CCS demonstration competition and see this as a tremendous opportunity to demonstrate CCS technology. CCS is an essential technology if CO2 emissions from fossil-®red plants in China, India and other countries reliant on coal are to be reduced and global emission reduction targets are to be met. Without Kingsnorth or a similar supercritical plant, post-combustion CCS cannot be demonstrated at a commercial scale in the UK.

Ev 2 Environmental Audit Committee: Evidence
E.ON UK
1. E.ON UK is one of the largest retailers of electricity and gas in the UK and has over seven million
customer accounts nationwide. We are the second largest generator in the UK, with over 10GW of existing
capacity and produce electricity from gas, coal, and renewable energy sources. We distribute electricity to
®ve million customers in the Midlands through Central Networks.
2. E.ON is one of the largest developers of renewable technologies in Europe. E.ON has 7,300MW of
renewable energy in operation in Europe and North America and by 2010 intends to invest about „6 billion
in this sector. We expect to double this capacity to 15,000MW by 2015 and triple this capacity by 2030. In
the UK we have one of the UK’s ®rst offshore wind farms in operation at Scroby Sands and operate one of
the UK’s largest biomass generating plants at Steven’s Croft. We are also building the Robin Rigg offshore
wind farm in the Solway Firth. We have consent for the London Array Project in the Thames Estuary, which
would be one of the largest offshore wind farms in Europe, and have applied for consent to build the 300MW
Humber Gateway offshore wind project.
3. We are also developing a number of distributed technologies including microCHP and ground source
heat pumps (in which we are the market leader), and biomass-based CHP and district heating schemes. We
are very actively encouraging consumers to use less energy with new innovative products such as real
time displays.
4. We have a substantial programme of investment in new plant to replace the coal and oil stations we
are closing. We are building a gas-®red combined heat and power plant in Kent and have approval to build
a gas-®red combined cycle gas turbine (CCGT) plant in the Midlands. We have also applied for consent to
build a new coal-®red station at Kingsnorth, alongside the existing station which will close. Kingsnorth has
been entered into the Government’s competition to demonstrate CCS technology at a commercial scale. We
explain the reasons for this in the rest of our evidence below. We wish to build at least two nuclear plants
in the UK and have entered into an agreement with AREVA and Siemens to help deliver those plants.
The need for investment, diversity and the role of coal-®red generation
5. The scale of the investment challenge facing the UK power sector is daunting. 8.7GW of coal and
3.7GW of oil-®red capacity, which have been opted out of the Large Combustion Plants Directive, will close
by 2015, and 7.4GW of nuclear plants will have closed by 2018 unless their operating lives are extended.
Assuming growth in demand of 0.5% annually, the UK may need 25GW of new capacity by 2020. This is
one third of present total UK generating capacity of 75GW. From our own perspective, we will have closed
our coal-®red plants at Ironbridge and Kingsnorth (2.9GW) as well as our 1.3GW oil-®red plant at GrainÐ
about two-®fths of our total generationÐby 2015 and need to replace that generation. Delivery of all this
investment should not be taken for granted and there is a risk that the UK will ®nd itself with capacity
shortages with adverse consequences for the reliability and price of energy which policy makers need to take
seriously. We have stressed to Government the need to put in place a planning and regulatory framework
which incentivises its delivery.
6. We also need to meet this generation gap while continuing to provide secure electricity supplies for our
customers, reduce CO2 emissions, and doing what we can to keep prices as affordable as possible. These
potentially con¯icting objectives need to be met in a balanced and sustainable way. If energy is not secure
and affordable, public attention will shift to the priorities of keeping warm and paying their bills, and away
from reducing CO2 emissions, making the policy goal of reducing emissions much more difficult to achieve.
7. If these objectives are to be met in a balanced way, we believe we need to retain a diverse range of
energy sources for power generation. In 2007 the UK generated 43% of its electricity from gas, 34% from
coal, 15% from nuclear and 5% from renewable sources, with the remainder met by oil and net imports. This
diversity provides important bene®ts and reduces our exposure to changes in the price and availability of
any one fuel source, enhancing the security and affordability of the price of energy to the consumer. We need
to retain this diversity in future while continuing to reduce CO2 emissions.
8. More efficient use of energy is vital and renewable energy can also meet some of this generation gap.
We expect to see a major increase in the volume of electricity from renewable energy sources, particularly
in light of the proposed EU targets for renewable energy for 2020, and this will help deliver a large reduction
in emissions from the UK power system. However, from a security of supply perspective, wind has some
drawbacks. Wind farms will only generate about one third of their theoretical maximum throughout the
year and less than 10% of UK wind capacity can be relied on to meet peak demand at any one time. This
means that nearly all wind capacity has to be backed up with generating capacity from alternative sources
to provide for those times when wind speeds are too low or too high. Renewable electricity can also be very
expensive. For example, the current lifetime cost of generating electricity from offshore wind farms is around
twice the current average annual cost of power on the UK wholesale market.
9. Distributed technologies also have a potentially signi®cant role to play. However, some of these
technologies such as micro-wind and photovoltaic cells are still very expensive and will not make a major
contribution for some years. Even in Germany with very high levels of ®nancial support, electricity
production from solar energy is only around 0.3% of total electricity production. Some are reliant on gas
Environmental Audit Committee: Evidence Ev 3
as a fuel source. Others such as biomass-based district heating schemes are logistically complex and raise
local air quality issues. The availability of sufficient biomass which meets sustainability criteria is also an
issue as is the potential effect on food supplies.
10. Some of this gap will be met by gas-®red plant and indeed a number of gas-®red CCGT plants are
under construction, including our plant at Grain. It would be possible to build more. They have relatively
low capital costs and can be built quickly. However gas prices have risen to very high levels and the outlook is
uncertain. We are concerned that continuing construction of gas-®red plants alone will leave the UK highly
exposed to the price and availability of gas, just as the UK’s domestic gas supplies decline and as we become
much more reliant on imported gas. We already expect to be 80% dependent on imported gas by 2020. This
could have adverse effects on the price of gas and power with potentially severe consequences for consumers
and the UK economy. If no new coal or nuclear plants are built, then the UK could be 70% reliant on gas
for power generation by 2030.
11. New nuclear will also make a contribution. However, no more than one or two plants are likely to
be in operation by 2020 and none by 2015.
12. We believe that some new, more efficient, coal-®red capacity is therefore needed to provide a secure
and affordable transition to a low carbon energy system. This will be cleaner coal, with CO2 emissions per
unit of output being 20% lower than the plants they are replacing. In terms ofCO2 reduction this is preferable
to keeping existing plants in operation but we recognise this can only be a transitional solution to the CO2
impact. The longer-term potential for coal-®red generation within a low carbon world lies with the potential
to ®t CCS technology which can capture and permanently store 90% of the CO2 emissions from the plant.
Without CCS, we do not see a long-term role for coal ®red generation. The proposed new Kingsnorth power
station will be built carbon capture ready and, once the technology has been demonstrated at a commercial
scale, we will retro®t CCS to the new units as soon as regulatory and market conditions reward the
investment.
13. We have therefore applied for consent to build the new Kingsnorth power station to help bridge the
generation gap in a way which will help the UK to meet all its energy goals. We also see it as a tremendous
opportunity to demonstrate CCS technology and accelerate its roll-out. CCS is an essential technology if
CO2 emissions growth from fossil-®red power plants from China, India and other countries reliant on coal
are to be reduced. It also means that the capability will exist to achieve radical reductions in CO2 emissions
from the new coal and gas plants we build in the UK. The Government’s competition requires the
submission of bids based on post-combustion capture of emissions. This effectively requires the construction
of a supercritical plant as it is not economically feasible to retro®t it to existing coal plants on a commercial
scale. Without Kingsnorth or a similar supercritical plant, post-combustion CCS cannot be demonstrated
at a commercial scale in the UK, which would be an opportunity lost. We discuss CCS further below.
14. From an environmental perspective gas plants have lower emissions than coal but the economics of
retro®tting CCS to gas plant is much less attractive, perhaps requiring a carbon price of „80/tonne to be
commercially viable compared to around „40/tonne for coal. In time all fossil-®red plant is likely to need
CCS if we are to meet our 2050 targets but gas plant would be ®tted with CCS much later than coal plant
assuming a continuing upward rise in carbon prices.
Kingsnorth and Government Policy
15. Government energy policy recognises the need for a diverse electricity generation mix to help deliver
secure energy supplies and in particular that coal-®red generation can make an important contribution to
the UK’s energy security and the ¯exibility of the UK energy system. However, it also acknowledges that,
in order to have a long term future, the environmental impact of coal must be managed effectively. We see
our application for consent to build Kingsnorth together with our entry of Kingsnorth into the
Government’s CCS competition as very much supporting that approach.
16. The UK has a competitive energy market and this approach allows generators to make their own
choices regarding investment within the framework of energy and environmental policy put in place by
Government which is designed to ensure that the market works in a way which is consistent with achieving
the Government objectives in a balanced way. In terms of climate change, the principal policy mechanism
which applies to the generation of electricity is the EU Emissions Trading Scheme (EU ETS). This works
by imposing a cap on total emissions from power generators and other large sources of CO2 emissions. The
European Commission has proposed that CO2 emissions from the sectors covered by the EU ETS should
by 2020 be 21% below 2005 levels and 30% below 2005 levels if there is a comprehensive international
agreement. This approach allows generators to determine how best to provide secure and affordable supplies
within this overall cap which ensures that total CO2 emissions continue to decline.
17. This means that any new coal plant built will have to buy CO2 emission allowances from the market,
preventing any other power station from using them. Thus new coal plant will not in fact give rise to any
increase in overall emissionsÐthey will only generate if they can displace emissions from other units, most
likely older and less efficient coal units elsewhere in Europe.
Ev 4 Environmental Audit Committee: Evidence
18. We expect the EU ETS to continue to drive CO2 emissions downwards to a point where the power
sector is largely or entirely carbon free by 2050. Carbon capture and storage technologies will make some
contribution to the 2020 target and will have a major role to play in achieving the 2050 objective.
19. For companies such as ours, stability in Government energy policy is vital. Constant changes in the
rules of the game create risks for investors and make it far more difficult to justify investments commercially.
The Government has only recently set out its overall approach to energy in its 2007 Energy White Paper
Meeting the Energy Challenge. Governments are of course entitled to make changes, and may wish to alter
the balance in the priority they give to climate change, security of supply and affordability objectives. But the
consequences need to be fully spelt out. They also need to allow time for investors to adjust taking account of
the long lead times for capital investment in this sector.
Current state of play with Kingsnorth
20. E.ON submitted an application to the Government for consent to build the new Kingsnorth power
station in December 2006, which will be built next to the existing station which will be closed when the new
station is completed. The local planning authority, Medway District Council, raised no objections to the
application and neither did the statutory consultees1 although a number made other comments. The
Secretary of State considers the application in light of the views of the planning authority and the statutory
consultees and in the context of its overall approach to energy and environmental policy.
21. We have made clear that the new Kingsnorth station will be capture ready in that it is designed to
facilitate the retro®tting of CCS once it is commercially demonstrated. This involves con®guration of the
plant to facilitate the capture of CO2 emissions, the provision of sufficient space for installation of CCS
equipment, and identi®cation of a route for a pipeline connection to an appropriate sub-sea geological
storage facility.
22. There is, however, ambiguity about the meaning of ªcapture readyº. In the light of this, E.ON UK
proposed in March 2008 that the Government should not decide on the project until after it had completed
its consultation on what this means in the context of consent conditions. We hope the Government will
publish its consultation as soon as possible. However, we do not now expect a decision on the project until
later in the year. We have not withdrawn or deferred our application for consent and we expect discussion
of other potential consent conditions to continue on a timetable which would not delay a decision further.
23. At the same time, E.ONUKannounced its intention to enter Kingsnorth into the Government’s CCS
demonstration competition. We expect BERR to con®rm whether the bid has been short-listed for further
assessment in the next few weeks. A ®nal decision is expected in 2009. There is a limit to what more we can
say about the bid publicly as it is in competition with other projects.
24. Kingsnorth also has potential to supply heat to housing developments, public and commercial
buildings. We have identi®ed illustrative potential heat loads mainly to the west of the power station arising
from existing and new developments proposed in the Medway, Gravesham and Dartford areas as part of
the Thames Gateway development. This feasibility work will continue over the next few months.
Carbon Capture and Storage and Government Policy
25. We believe the development of CCS technology is essential if global CO2 emissions from fossil-®red
plants are to be reduced and global emission reduction targets are to be met. Many countries do not have
access to large gas reserves and coal-®red generation is the only viable source for much of the power needed
to support their populations. There are a number of technological options for capture but all involve
transmission of CO2 under pressure by pipeline to a geological storage facility.
26. For an independent view, the IPPC has published a special report on the technology. http://
http://www.ipcc.ch/pdf/special-reports/srccs/srccs wholereport.pdf. This states that `CCS has the potential to
reduce overall mitigation costs and increase ¯exibility in achieving greenhouse gas emissions as one of a
number of mitigation technologies which also include nuclear power, renewable energy sources,
enhancement of biological sinks, and reduction of non-CO2 greenhouse gases’. While demonstration of
post-combustion CCS technology at the scale of a large coal-®red plant is a signi®cant engineering challenge,
it is important to recognise that the technology is already available and in operation at smaller scales.2
E.ON is well placed to develop this technology given its extensive engineering experience available at its
Power Technology Centre in Nottingham and at its sister facilities in Germany.
1 Statutory consultees include English Nature, Environment Agency, Medway Council, Kent Wildlife Trust, Kent County
Council, Countryside Agency, English Heritage, RSPB, Medway Ports Authority and Hoo St Werburgh Parish Council.
2 To quote the IPPC: ªPost-combustion capture of CO2 in power plants is economically feasible under speci®c conditions. It
is used to captureCO2 from part of the ¯ue gases from a number of existing power plants. Separation ofCO2 in the natural gas
processing industry, which uses similar technology, operates in a mature market. The technology required for pre-combustion
capture is widely applied in fertilizer manufacturing and in hydrogen production. Although the initial fuel conversion steps
of pre-combustion are more elaborate and costly, the higher concentrations of CO2 in the gas stream and the higher pressure
make the separation easier. Oxyfuel combustion is in the demonstration phase and uses high purity oxygen. This results in
high CO2 concentrations in the gas stream and, hence, in easier separation of CO2 and in increased energy requirements in
the separation of oxygen from air.º
Environmental Audit Committee: Evidence Ev 5
27. The Government has been criticised for developing CCS too slowly and for choosing postcombustion
technology only for its demonstration competition. From our perspective it would of course
have been desirable if the Government had decided to support the demonstration of the technology earlier,
and to have funded clean coal technology generally on a more consistent basis at higher levels of funding.
On the other hand the UK is the only country which has committed to fund a commercial demonstration
project so far. The key issue now is to ensure that this commitment is carried forward. As far as the choice
of technology is concerned we support the choice of post-combustion technology given that only one project
will be supported and that a key objective is to demonstrate the technology so that it can be applied to the
bulk of coal-®red plants which are or will be under construction in China and elsewhere.
28. We believe that further demonstrations of CCS technology at a commercial scale are very important,
including pre-combustion technology with an integrated gasi®cation combined cycle (IGCC) plant which
has the potential to integrate CCS into power generation on a more economic basis in the longer term. It
seems unlikely that the Government will be able to support further projects in the very short term given the
other pressures on public expenditure. We should therefore look to funding from other European countries
either for further projects in the UK or elsewhere in the EU. The US has its own FutureGen project which
our sister company E.ON US is supporting. This project will need renewed focus after the Presidential
elections later this year.

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