November Newsletter No206

Posted by SONE on 30 November 2015 in Newsletters

Tagged with: Amber Rudd, Andrea Leadsom, Barack Obama, Carbon Capture, China, Climate Change, Energy policy, Fracking, Gas, George Osborne, India, John Kerry, Moorside, Offshore wind, Renewables, SMR, Shale Wealth Fund, Solar, Wylfa Newydd.

A New Direction

Britain has the makings of a credible energy policy at last, one which acknowledges the key role which nuclear energy must play, alongside natural gas, at the centre of the UK’s electricity generation system. Expenditure on energy research is to be doubled, with a major commitment to small modular nuclear reactors (SMRs).

The Government, frustrated at the lack of progress, also intends to fast-track applications for exploratory fracking for shale gas and oil in the UK, reserving the right of the Secretary of State for Communities to take decisions if there is inordinate delay.

Make no mistake about it. These are very significant policy changes. the kind supporters of nuclear energy might have hoped for but not really expected after decades of prevarication and out and out political opposition to the use of nuclear energy at times.

The Chancellor’s announcement in this month’s Autumn Statement that at least £250 million will be spent over the next five years on an ambitious research and development programme “that will revive the UK’s nuclear expertise” came as a complete and very pleasant surprise.

The expenditure will include a competition to identify the best value small modular reactor design, which George Osborne said would pave the way to building one of the world’s first SMRs in the UK in the 2020s.

He also announced that the Government would support the creation of the shale gas industry by ensuring that communities benefit from a Shale Wealth Fund, which could be worth up to £1 billion to them. Support for low-carbon electricity and renewables will more than double – but only if they can prove they are cutting costs.

Government interest in SMRs and in speeding up fracking exploration work was first signalled by Andrea Leadsom, the Energy and Climate Change Minister, when she spoke at SONE’s annual meeting in October. This month it was the turn of the Energy Secretary, Amber Rudd, to take centre stage.

In a wide-ranging speech she spelt out the elements which will shape “a new direction” for energy policy. The speech received less media attention than it deserved.

The broadcasting media, in particular, concentrated on a small part of the speech which had already been very well trailed, confirming that it is intended to shut down the remaining UK coal-fired power stations by 2025, with their use restricted by 2023.

That was more or less what the three main political parties were promising a year ago in the run-up to the General Election, with a similar note of caution. The Government, the Energy Secretary said, will only proceed with the coal station closure programme if it is confident that the shift towards a greater use of gas in place of coal has been completed.

Nevertheless, the Government’s conviction that there is no longer a place for coal was made very apparent when it was announced that a £1 billion competition to develop Britain’s first carbon capture and storage power plant had been scrapped.

The announcement was made by the Department of Energy and Climate Change, which notified the Stock Exchange, and not by the Chancellor.

Once the decision was taken to get rid of coal searching for ways to temper its environmental effects did not make much sense for the UK except, perhaps, as a proving ground for a technology which might eventually have attracted world-wide interest among the major fossil fuel burning countries. Nevertheless, the decision to call a halt still came as a blow to companies which had spent years preparing bids for funds.

The intention had been to find a company or companies which could build carbon capture and storage systems. These are supposed to trap carbon dioxide from power stations burning fossil fuels such as coal and – to a lesser extent – gas and store them deep underground before they can warm the atmosphere.

The technology appeared to offer a lifeline to fossil fuel companies facing mounting pressure to combat global warming. Unfortunately, it turned out to be so costly that only one commercial power plant, in Canada, has installed it so far, despite governments committing £24 billion to it over the last 14 years.
I found the Energy Secretary’s detailed description of future energy and climate change policy far more interesting than her confirmation of what we already knew about the future abandonment of coal as an electrical energy resource.

Support For Some

For example, she announced that wind and solar farms will be forced to pay for the extra costs they impose on the UK’s electricity system as a result of their intermittent nature.

Under new plans being drawn up by the Department of Energy and Climate Change renewable generators “will be held responsible for the pressures they add to the system when the wind does not blow or the sun does not shine.”

Nevertheless, the DECC has plans to offer billions of pounds of new subsidies for offshore wind farms, potentially doubling capacity, but only if wind turbine costs come down further.

“The cost of offshore wind farms has fallen by 20 per cent in the last two years but it is still too expensive. So our approach will be different. We will not support offshore wind at any cost.

“Further support will be strictly conditional on the cost reductions we have seen already accelerating. The technology must move quickly to cost- competitiveness. If that happens we could support up to 10 Gigawatts of new offshore wind projects in the 2020s.

“The industry tells us they can meet that challenge and we will hold them to it. If they don’t there will be no subsidy. No more blank cheques.” That may be so for wind turbines but we can expect to see substantial financial support from the Government for nuclear energy and gas exploration, which are regarded as pivotal.

That seemed to be confirmed when the Energy Secretary acknowledged that “no form of electricity generation, not even gas-fired power stations, can be built without Government intervention” and that is clearly the case for nuclear energy as well. For intervention, of course, read financial support.

It will not be going to the onshore wind turbine builders. The Government reckons that the UK has enough onshore wind in the pipeline to meet the country’s 2020 expectations.

From April next year wind farms will be excluded from the Renewables Obligation subsidy, which is funded by levies added to household fuel bill.

The Energy Secretary said that the Government needed to get the right balance between supporting new technologies and being tough on subsidies in order to keep electricity bills down. “The country needs to work towards a market where success is driven by your ability to compete in a market – not by your ability to lobby Government,” she said.

In Place of Old King Coal

It will not be easy to replace coal on the time-scale which the Government wants. That is what makes the drive to get the fracking industry up and running through changes in the planning procedures and through promised “planning gain” benefits for local communities prepared to accept this new industry so important.

The fact is that even with the huge growth in renewables which has taken place, the UK’s dependence on coal has not been reduced. Indeed, a higher proportion of the UK’s electricity came from coal last year than in 1999.

In the short term gas turbine generation is expected to fill part of the gap which will be created by the ending of coal-fired generation, with new nuclear following on behind.

We currently import around half of the UK’s gas needs, but by 2030 that could be as high as 75 per cent if nothing is done. Much of that gas comes from Russia, a potentially unreliable, threatening supplier which has shown itself willing to use oil and gas exports as a political lever. Oil and gas imports from that source have been of concern to the UK for decades.

“That’s why we’re encouraging investment in shale gas exploration so we can add new sources of home-grown supply to our real diversity of imports,” the Energy Secretary said. “There are also economic benefits in building a new industry for the country and for communities.

“Our North Sea history means the UK is a home to world class oil and gas expertise, in Aberdeen and around the UK. We should build on that base so that our shale potential can be exploited safely.”

More Support for Fracking

The Government has decided that it must do more to persuade local communities to accept fracking, as the Chancellor acknowledged in the Autumn Statement reference to a potential £1 billion Shale Wealth Fund.

A start was made some time ago, with the Government agreeing that local communities should receive concrete benefits if they agreed to accept fracking exploration. The possible extent of these benefits has now been identified by Mr. Osborne, building on earlier statements.

These stated that shale gas operators will pay communities £100,000 for each exploration well site plus one per cent of production revenue, with £5 million to £10 million to be used as the local community sees fit.

This is the sort of scheme I was pressing for 30 years ago for the nuclear industry, convinced that it would ease the way for a waste repository to be built in West Cumbria, as close as possible to Sellafield. The message that communities prepared to accept controversial infrastructure schemes should be allowed to benefit from them has finally got through and appears to be working.

I saw a local television news item recently where people in Blackpool were demonstrating in favour of fracking, with placards bearing such messages as “Let’s Get On With It.”

As far as existing supplies of oil and gas from the North Sea are concerned the situation is distinctly mixed, with offshore exploration looking in need of some further encouragement. There has been a worrying fall in exploration activity in the North Sea.

For example, around 16 billion barrels of recoverable oil is thought to exist offshore but exploratory drilling in the region fell to just 12 wells last year, compared with a peak of 44 in 2008. I expect the oil and gas industry to seek even more support from the Government – and for it to be forthcoming.

By the end of this year it is expected that oil and gas production from the North Sea will be shown to have increased slightly, for the first time in 15 years, despite a global slump in the price of crude oil threatening markets.

The North Sea industry’s comparative success in holding on has only happened as a result of aggressive cost-cutting, however, including the loss of hundreds of jobs, and tax reliefs on production which were provided for the oil and has operators in March. Further mass redundancies will not do the same trick.

New King Nuclear

When Andrea Leadsom spoke at SONE’s recent annual general meeting she made it very clear that she saw her personal priorities as getting the fracking and nuclear new build programmes moving ahead. The point was reinforced by the Energy Secretary in her “new direction” energy policy speech.

While gas is central to the UK’s future energy security so is nuclear, she said. “Opponents of nuclear have simply misread the science. Nuclear is safe and reliable. The challenge, as with other low carbon technologies, is to deliver nuclear power which is low cost as well.

“We are dealing with a legacy of under-investment and with Hinkley Point C planning to start generating in the mid-2020s that is already changing. It is imperative we do not make the mistakes of the past and just build one nuclear power station.

“There are plans for a new fleet of nuclear power stations, including at Wylfa and Moorside. This could provide up to 30 per cent of the low carbon electricity which we’re likely to need through the 2030s and create 30,000 new jobs. This will provide low carbon electricity on the scale that we need. Climate change is a big problem. It needs big technologies.”

I suspect you have been expecting references to climate change and global warming in this Newsletter, given that it was being written as the Heads of State of 147 countries and their accompanying environmental experts gathered in Paris to agree realistic greenhouse gas emission targets.

Unfortunately, the history of these annual talks is not very encouraging and even as the Paris conference gets under way the best our UK delegates can offer in advance is “cautious optimism” at the start of a “challenging negotiation.”

A draft text of the agreement drawn up by negotiators is disappointingly long, with many alternatives for each element of the text. As usual, there are numerous different factions taking part in the talks but the central issue is trying to agree a deal that all countries can sign up to.

As the UK’s Energy Secretary put it, a little unkindly: “Climate change will not be solved by a group of over-tired politicians and their negotiators in a conference centre. It will take action by businesses, civil societies, cities, regions and countries.

“Paris must deliver a clear signal that the future is low carbon that unleashes the levels of private investment and local action needed. Collective action works when you share the burden fairly, but also when each makes a distinctive contribution.

“We know that in isolation, cuts to Britain’s own greenhouse gas emissions, just 1.1 per cent of the global total, would do little to limit climate change.”

For the life of me I cannot see how the Paris conference can lead to a clear signal on anything given the size of the attendance and the vastly different energy situations of those who will be there.

Among the world leaders who will make speeches are Barack Obama, Vladimir Putin, Xi Jinping and David Cameron. Prince Charles will also be speaking. In total up to 40,000 people are expected in Paris for the event, with about 20,000 accredited for the conference venue itself. About 3,000 journalists are also attending.

Not much has been made of this huge representation, a surprise to me. Am I the only one who winced when he heard about it, imagining the extraordinary contribution which will be made to greenhouse gas emissions as delegates make their way to the conference centre at Le Bourget, outside the centre of Paris.

Because of the terrorist scares France is also deploying 2,800 police, gendarmes and soldiers to help keep the Le Bourget site safe, no doubt fuelling armoured vehicles, cars, motor-cycles and goodness knows what else in the process.

At the end of all this what are the “over-tired politicians and negotiators” likely to achieve? The answer seems to be: “Follow the money” and hope for the best.

Developing countries do not want to miss out on the economic growth that developed nations such as the UK have enjoyed by burning polluting fossil fuels for decade upon decade. Entirely reasonably, it seems to me, they want more leeway over the action they take now, as well as financial help, if they are to pursue a greener path.

Poorer countries also want richer nations to pay to help them adapt to the consequences of climate change and to provide financial support to help cover the cost of the “loss and damage” it will cause. They point out that the richer nations are largely responsible for most of the pollution which the world is currently trying to cope with.

The United States remains one of the three countries with the worst records for greenhouse gas emissions, the others being China and India. Many countries feel it is not doing enough to improve matters, although it is showing signs of giving more support to nuclear energy, somewhat belatedly.

A few months ago President Obama also unveiled a plan to reduce America’s carbon pollution this summer, a plan which is the centrepiece of its stance in Paris. It is not certain to be implemented, however, because of the turbulence in US politics during the Presidential election campaign.
The Obama plan provides for greenhouse gas emissions to be cut by between 26 and 28 per cent by 2020 from their 2005 peak. The intention is to achieve that by cutting the 40 per cent of US carbon dioxide emissions that currently belch out from electricity power stations.

President Obama wants the US to obtain 28 per cent of its electricity from renewables by 2030, compared with 22 per cent in an earlier proposal. If implemented, coal’s share of electricity generation in the US will fall to 27 per cent by 2030, down from 39 per cent today.

There is very strong opposition to any reductions in the use of coal for electricity generation, however, led by a pro-coal lobby within those states where mining is a major employer. The National Mining Association has said that it will try to block the Obama plan in the courts if necessary and the Republican Party leadership has urged state governors to defy the Environmental Protection Agency by refusing to submit plans on how they intend to comply with the scheme.

An Ambivalent Public Attitude

Public attitudes towards climate change in the US is ambivalent. An overwhelming number of Americans accept that man-made climate change is happening, but do not believe it will affect them personally, or that it is worth costing US jobs and competitiveness to fix it. Against that background it is not surprising that John Kerry, the US Secretary of State, has warned that the Paris summit will not deliver a legal treaty that requires countries to cut greenhouse emissions.

While President Obama might want a deal, the Administration seems to accept that it cannot sell a new legally binding agreement, because it would require approval from a hostile US Senate, which must ratify all treaties. Negotiators have been working on a compromise agreement – a fudge if you like.

This would make a treaty’s rules and procedures legally binding, but not the actual targets contained in many of the climate pledges that nearly 160 countries (including the UK) have made in advance of the Paris talks. In its pre-summit statement the US agreed to provide $3 billion to help developing countries combat global warming but Mr. Kerry cast doubts on whether it would actually do so. In an interview with the Financial Times he blamed this on attitudes about climate change itself in the US and “an ideological barrier to any kind of federal expenditure that’s dealing with a kind of global issue”. In the same interview he said that another hurdle to be cleared was resistance from countries that insisted that they be compensated more because of their developing nation status. He praised China for what it was doing in this respect.

“We have to break the old mentality. This is not 1992, this is not 1997 and this is not the same Kyoto kind of breakdown,” he said. “China is an example. It’s now the world’s largest emitter and the second largest economy in the world. Now they’re not sitting there being the same. They’re putting up some money and they’re doing other things. It’s a great example.”

While Mr. Kerry praised China he raised concerns about other countries, particularly India. “India has been more cautious, a little more restrained in its embrace of this new paradigm and it’s a challenge,” he said “We’ve got a lot of focus on India right now to try to bring them along.”

He also criticised India for talking about using its own domestically produced coal, which is dirtier than some imported coals, but tempered his remarks by saying he was conscious of the dangers of putting too much pressure on countries that believe that the US and developed nations should take more responsibility for the current level of greenhouse gases. “We have to be careful not to be holier than thou or accusatory,” he said, having to my mind been exactly that during the interview.

India – UK Nuclear Deal

India’s situation is very different to that of the United States. Its population of 1.2 billion, about 363 million of whom live in poverty, is projected to grow to 1.5 billion by 2030. It deserves a little more understanding from Mr. Kerry, particularly as India’s emissions per person are 1.7 tons a year, compared with nearly 17 tons in the US and more than 7 tons in China and the European Union.

India in fact demonstrated that it wants to get involved in climate change abatement approaches when India Prime Minister Narendra Modi signed a civil nuclear agreement with UK Prime Minister David Cameron this month.

A “comprehensive package” of collaboration on energy and climate change which was agreed aims to support economic growth, energy security and energy access. The package contains £3.2 billion of commercial agreements, joint research programmes and initiatives to share technical, scientific and financial and policy expertise.

According to the UK Department of Energy and Climate Change this will encourage the research, development and eventual deployment of clean technology, renewables, gas and nuclear energy. That, to my mind, is a start by India which should be applauded.