Select Committee on Trade and Industry Minutes of Evidence

Memorandum by the Confederation of UK Coal Producers (Coalpro)

1.   Introduction

  1.1  The Confederation of UK Coal Producers (Coalpro) represents around 85 per cent of coal production within the UK and we welcome the opportunity to contribute to the Trade and Industry Committee Inquiry into Security of Energy Supply. It is an opportune time to investigate such matters, coming in the middle of the PIU Energy Review, the Dti Clean Coal Review, the EU Green Paper on Energy Security and the House of Lords inquiry into European Energy Security.

  1.2  Coalpro supports the UK Government's central energy policy objective to "ensure secure, diverse and sustainable supplies of energy at competitive prices" and believes the only way to protect fuel security is to have a diverse fuel base. Coal fired generation has a major role to play in meeting this objective.

2.   Current UK Energy Market

  2.1  The UK coal mining industry over recent years has made great strides to improve its productivity and reduce its cost base. UK coal production is the lowest cost within Europe and is currently competitive with imported coal delivered into inland UK power stations.

  2.2  Over the last 18 months, the UK has seen sustained high demand for coal in the power generation sector. 2000 saw coal consumption at UK power stations rise by almost 14 per cent to 46 million tonnes and in the first seven months of 2001 there has been a further increase of 18 per cent over the same period a year earlier.

  2.3  This increase has been driven by high gas prices, interruptions to gas supply and the poor performance of nuclear units. Coal generators and UK producers have been able to respond to this increased demand by the lifting of coal stocks as well as significantly increased imports. UK suppliers and generators together can safely and easily hold several months fuel supply. This option is not economically available to oil or gas generators. Coal also adds flexibility to the nation's electricity supply, as it can supply either base load or to respond rapidly to variations in demand.

  2.4  Despite the rise in gas prices, consumers have reaped the benefit of increased coal burn with a continued fall in electricity prices. This has benefited industrial competitiveness and helped alleviate fuel poverty, both major objectives of the UK Government.

3.   Security and Diversity

  3.1  Over the past two decades, consumption of natural gas in the UK has more than doubled, mainly due to the growing use for electricity generation. However, UK gas reserves are depleting. Dti figures show that we are using gas more quickly than new reserves are being found. In 1990, the remaining lifetime of total UK gas reserves stood at 36 years, by 2000 this had fallen to 14 years, with just six years of proven reserves. The 1998 White Paper Energy Sources for Power Generation (Cm 4071) states that the UK will become a net importer of gas at some point between 2003 and 2009, and import 55-90 per cent of our gas by 2020.

  3.2  Over 70 per cent of the world's natural gas reserves are concentrated in the Middle East and the Former Soviet Union. Further analysis shows that two companies, Gazprom in Russia and the Iranian National Oil Company, control almost half of global gas reserves. The UK, at the end of very long pipelines passing through many countries, would be subject to the highest transportation costs and greatest risk of supply interruption if, as forecast, the nation was to become largely dependent on imported gas.

  3.3  Indigenous coal reserves provide additional fuel security. Coal, unlike gas, offers security and diversity of supply. In the UK we have reserves for over 50 years production at current rates and internationally traded coal is available from a variety of politically stable countries.

  3.4  The petrol crisis of last year showed that consumers valued security and low cost energy over the environment. Therefore, security of energy supply must be safeguarded before we can look to deliver environmental benefits.

  3.5  The instability of the Middle East has been highlighted over the past few weeks. Coalpro strongly believes that reliance on long term energy supplies from this region is a major issue. The UK Government must act to maintain a diverse and secure energy supply which maximises the use of indigenous energy resources.

  3.6  Consumers now expect a reliable and ordered energy supply, delivered in a timely manner to meet their business and domestic needs. The petrol crisis of last year showed that consumers valued security and low cost energy over the environment. Therefore, security of energy supply must be safeguarded before we can look to deliver environmental benefits.

4.   Environmental Factors

  4.1  When compared to gas, coal combustion for power generation releases more NOx, SO2 and CO2 per kWh produced. The retrofitting of low NOx burners and FGD equipment to existing coal stations can provide vastly improved environmental performance to meet tightening legislation, such as the amended Large Combustion Plant Directive.

  4.2  Because of coal's high carbon content, any form of carbon taxation or emissions trading would encourage fuel switching to gas further reducing diversity and security of supply by further reinforcing the present market position.

  4.3  However, coal can contribute to reducing greenhouse gas emissions with the introduction of clean coal technology. The potential to generate electricity at much higher efficiencies will reduce CO2 emissions by up to 25 per cent as well as eliminating virtually all emissions of particulates and SO2.

  4.4  Currently available clean coal technologies could also be used as a stepping stone towards the capture and sequestration of CO2, providing the ultimate zero emissions coal plant. Used for enhanced oil recovery, CO2 has a natural market in the UK where it could be usefully used to extend the life of North Sea oil reserves. For example, BP estimate an additional 15 per cent of oil within the huge Forties Field could be recovered in this manner.

  4.5  Renewable technologies will help in reducing greenhouse gases to meet our international commitments, but the current progress of the existing NFFO projects leads us to believe that the UK target of 10 per cent by 2010 will be a severe challenge. With the inevitable closure of existing nuclear stations. Coalpro believes the development of clean coal technologies, ultimately leading to carbon sequestration, is necessary in order to keep greenhouse gas emissions levels from rising long-term.

  4.6  Coalpro welcomes the parallel Government review into clean coal technologies and hopes that the outcome will show the need for a structured support programme for clean coal commercial demonstration plant.

5.   Way Forward

  5.1  Coalpro believes the current policy of market liberalisation will never on its own deliver fuel security and diversity any more than it can deliver environmental benefits. At present any new generating capacity could be gas CCGT because of its relatively low capital costs and low technical risk. The present alternatives are nuclear and coal. Whilst the marginal cost of nuclear power is very low, it is offset by a high capital cost, unquantified decommissioning liabilities and other risks such as terrorist attacks.

  5.2  The UK has no experience of operating in the energy market with a net import dependency. This is a situation which is going to occur within the next few years. Coalpro believes that the market in general tends to look short term and therefore does not place a value on long-term fuel security. The market cannot ensure total security and is unable to prevent actual physical disruption of supplies especially if inspired through external events.

  5.3  Integrated gasification combined cycle (IGCC) power stations using indigenous reserves offer an environmentally acceptable way to guarantee long term security of energy supplies within the EU. The flexibility of gasification means that coal gasifiers can provide an alternative to conventional gas supplies. The ability to utilise coal gas in clean coal stations or conventional gas power plant will place a cap on gas prices providing a predictable cost to the UK economy.

  5.4  As with all new technologies, initial investment is difficult to arrange given the associated risks. Private finance is available but is unlikely to be attracted without the guarantee of long term contracts. Therefore, to pump-prime the initial building of commercial units, Coalpro have proposed the introduction of a "Clean Coal" Obligation where electricity suppliers would purchase specified quantities of electricity generated from clean coal sources. This method has already been successfully adopted within the UK, to support both the renewable and nuclear industries.

  5.5  Coalpro would like to draw to the attention of the Committee to the provision held within Directive 96/92/EC on the internal electricity market (article 8.4) which could provide the opportunity for the UK Government to support electricity generated from UK coal in order to protect energy security.

  "A Member State may, for reasons of security of supply, direct that priority to be given to the dispatch of generating installations using indigenous primary energy fuel sources, to an extent not exceeding in any calendar year 15 per cent of the overall primary energy necessary to produce the electricity consumed in the Member State concerned".

  5.6  The UK has at present a diverse energy mix with nuclear, coal and gas holding major shares. If one of the outcomes of this review, were that new nuclear would be required to maintain this diversity then some form of support mechanism would have to be found. In this case, then the same rationale can be applied to support for clean coal technologies especially if working towards carbon sequestration.

  5.7  There is a grave danger that decisions arising out of the Energy Review and the Clean Coal Review may preclude coal from the long-term energy mix. Coalpro believes that the Government needs to develop an energy policy framework which is flexible and does not foreclose options for future years. Coal and in particular indigenous coal can provide a competitively priced long-term secure and flexible energy source which can only be of benefit to the UK consumer.

Brian J Rostron

Director General

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