Memorandum from Aquila Energy Limited
Aquila would like to thank the Committee for
accepting our submission regarding this important issue. Aquila
Energy Limited is the UK arm of Aquila Energy Corporation, an
international energy wholesaler and risk management company headquartered
in the US. The company provides risk management services to participants
in the UK gas and electricity markets. We will, for example, reduce
the business uncertainty faced by a small electricity generator
by paying them a fixed or benchmarked price for their product
and carrying the risk of price movements in the electricity market
ourselves. I use this example, because it outlines exactly the
kind of service we might offer a small generator of electricity
from renewable resources.
In recent months Acquila has had considerable
dealings with companies involved in the exploitation of coal mine
methane (CMM). This source of gas, which is ideally suited to
small scale electricity production, is not covered by the present
iteration of the Renewables Obligation (RO). In our opinion it
In this paper we outline the benefits coal mine
methane production provides in terms of environmental protection
and sustainable development. We argue in the second part of the
paper that the eligibility criterion for certification under the
Renewables Obligation is inappropriate. In our opinion it betrays
a general misconception as to what a market led approach to green
policy means. In the concluding section we express our hope that
a level playing field will be created for all energy sources that
are both green and help deliver a sustainable energy supply to
UK customers. Only with an even-handed commercial regime will
the most effective emissions-reducing energy schemes get off the
1. THE CASE
Coal mine methane's eligibility for RO certification
should be decided on the basis of two factors: the energy source's
"greenness" and its claim to "renewable" status.
There are over 900 disused coal mines in the
UK leaking very significant quantities of methane (a potent greenhouse
gas) into the atmosphere. This methane can be trapped and commercially
exploited through small scale electricity generation projects.
It is estimated that there is enough methane available from this
source to sustain a significant coal mine methane (CMM) industry
for at least fifty years. UK plc would derive significant economic
and environmental benefits from this development.
Over a 100-year period, methane is 21 times
more effective at trapping heat in the atmosphere than carbon
dioxide. The US Environmental Protection Agency estimates that
recovering and using just 1 billion cubic feet (Bcf) of coal mine
methane is equivalent, in terms of greenhouse gas reduction, to
taking nearly 90,000 cars off the road. As of 1998, CMM use in
the US was 43 Bcf/a (1.2 billion cubic metres per annum): therefore
the development of this sub-sector has enabled a reduction in
greenhouse gas emissions equivalent to keeping around 3.5 million
cars off the road. Power produced by CMM will do more to reduce
greenhouse gas emissions per unit of electricity produced than
any biomass source or indeed, wind, wave, hydro and solar energy
sources. CMM is very "green".
Gas from disused coal mines is not "renewable"
in the sense that it will be around forever, and it can be argued
that the intention of renewable policy should be to promote only
"evergreen" technologies such as wind, water and sun.
However, there are many very compelling reasons for not accepting
Coal mine methane will be commercially exploitable
for 50 to 100 years (ie over the long-term). Unlike wind power,
which has a big problem with short-term sustainability (i.e. the
wind doesn't blow all the time), gas seepage is fairly constant.
Capture and use of this gas therefore contributes to "sustainable"
energy development for the long-term.
Technological change, and the relative cost
changes it inspires, largely determines the development of energy
sources. Water was a major source of energy before coal. King
coal was later superseded by oil, and natural gas has in the last
ten years become the fuel of choice for power generation in the
UK. As the cost of an "evergreen" technology like wind
falls (due to technological improvements in turbine manufacture
perhaps) it will increase its presence in the UK electricity market.
But just because it is "renewable" does not mean we
will use it in perpetuity. There is 800 years worth of coal to
be dug up in Britain but market forces are likely to leave it
where it is. Wind, wave, CMM, biomass and solar energy sources
will similarly be embraced and abandoned by the market.
The country should not therefore limit its promotion
of "sustainable energy sources" to those ones that can
be sustained forever, because such a goal ignores the fundamentals
of technological change in the energy sector. Coal mine methane
can make a useful contribution to the UK's energy balance over
the long-term. It contributes to a "sustainable" energy
policy and this contribution should be recognised in the Renewables
Fuels that are not "evergreen" are
already included among those eligible for RO certification. Methane
from landfill and sewageboth forms of wasteis classified
as "renewable". Disused coal mines emit the same methane
molecules as refuse and effluent and those molecules have exactly
the same impact on the atmosphere, it would be perverse to accord
them a lower commercial classification under the RO. Aquila urges
the Committee to correct this anomaly by bracketing CMM with other
waste-based eligible electricity sources.
2. THE OBJECTIVE
An ideal environmental tax/subsidy regime would
tax or subsidise sources of energy according to how much they
pollute or how renewable they were considered to be. In such a
way the positive and negative externalities of the various sources
of energy would be incorporated within the price mechanism. The
market would then make an economically rational determination
of which energy sources to use.
Clearly such a policy is an ideal and not perfectly
realisable in practice. But the ideal scenario does demonstrate
that the starting point of green energy policy should be to ask
how much a particular technology damages or improves the environment.
With renewable policy (as distinct from climate change policy),
the question should focus on how much the energy encourages "sustainability".
The Renewables Obligation seems to start off
by asking which renewable technologies are "viable"
and where are "not", so as to focus government support
on those technologies that are not currently viable. Viability
is the wrong criterion to use when determining which renewable
technologies should be eligible under the Renewables Obligation.
If all renewable energy sources were supported by the Renewables
Obligation, some technologies would become "viable"
when once they were not. Other technologiessuch as large-scale
hydro and wastewould become more profitable than they currently
are. Increased profitability is a signal to the market to develop
in a certain direction. Only with the even-handed application
of eligibility criteria can the government provide the market
with appropriate price signals.
The government hopes that through its approach
the conditions can be created for "take off" of new
technologies. The danger of this policy is that the technologies
supported may not take off, and an opportunity to extend the use
of new technologies that are "partially" viable at present
will have been squandered.
What do we mean by "partial viability"?
In most cases scale plays a big part in the viability of an energy
project. The Renewables Obligation has made a distinction between
the viability of small and large hydro projects. It has not, however,
made any distinction between the size of waste projects. Whilst
large coal mine methane projects are currently viable, many smaller
projects are not. Failure to classify this technology as eligible
will prevent relatively small CMM projects from getting off the
3. A LEVEL PLAYING
If a technology provides tangible environmental
benefits and can reasonably be classified as renewable, Aquila
believes it should be supported under the Renewables Obligation.
We feel that the current outline of the Renewables Obligation
is unduly technology focused, despite efforts to be otherwise.
It seems designed to make techno-savvy (and commercially unattractive)
energy sources "viable", whilst ignoring an opportunity
to extend the share of electricity production derived from waste
and other (less glamorous) renewable energy sources.
Coal mine methane has a bright future in the
UK with or without government subsidy, tax breaks or redistributive
levies. Nonetheless the extent of its development will depend
on the commercial regime it faces. The technology does more to
prevent global warming than a wind turbine and it is as much a
waste product as landfill gas. Coal mine methane should therefore
be considered "eligible" under the Renewables Obligation.
If it is not, the government will needlessly retard the development
of renewable electricity production. Moreover, unequal treatment
of renewable technologies will lead to an economically inefficient
allocation of resources. This inefficiency will be borne by the
British consumer through their electricity bills.
The creation of a level playing field for all
providers of renewable energy will be the key to making the Renewables
Obligation a success. Some renewable technologies such as nuclear
energy and large-scale hydro may be felt to have environmental
drawbacks that legitimately prevent their designation as "eligible".
No such drawbacks exist with coal mine methane. If this technology
is allowed to complete fairly (i.e. with its environmental value
recognised) it may do much to help the UK reduce its greenhouse
gas emissions and meets is 2010 renewables target.
Aquila hopes the Committee will deem CMM "renewable"
in the same way as other sites that emit methane molecules as
waste are deemed renewable energy sources. We also hope the Committee
will look closely at the RO's eligibility criteria and carefully
consider whether the government should be promoting technologies
according to (un-)viability rather than the good they do for the
environment and long-term sustainability of UK energy supply.