KEY MESSAGES

—  Secure and affordable energy supplies need diverse energy sources and coal will continue to be a major global fuel source for the foreseeable future.

—  To meet its climate and energy policy goals, the UK electricity sector faces a massive new plant build challenge and developing new coal power plants would provide fuel diversity, while at the same time providing the potential to accelerate CCS development and deployment.

—  The cost of delivering climate change targets will be minimised if market mechanisms such as the EU ETS send clear long term signals and provide a stable policy framework to underpin investment.

—  Mandating CCS to fixed timescales ahead of commercial scale demonstration will deter and delay CCS development.

—  EUETS is the mechanism best suited to supporting CCS over the longer term. The immediate priority has to be to ensure the availability of sufficient funds at UK and EU level to allow the early commercial-scale demonstration of a range of CCS technologies.

ABOUT RWE NPOWER

  1.  RWE npower, a division of the RWE Group, is a leading integrated UK energy company. We supply gas and electricity to more than 6.5 million customers in the domestic and business sectors through our retail business npower. We operate and manage our portfolio of more than 10,000GW of flexible, low-cost coal, oil and gas-fired power stations and are one of the foremost developers and operators of industrial combined heat and power (CHP) in the UK. npower renewables is a market leader in renewable energy dedicated to generating electricity using sustainable, environmentally-friendly resources.

  2. RWE npower is developing options for new coal-fired power stations at Tilbury in Essex and Blyth in Northumberland and has submitted environmental "scoping documents" for both projects to BERR ahead of making applications under Section 36 of the Electricity Act. We are also designing and building the UK's first "carbon capture technology" pilot plant at Aberthaw Power Station. We have applied to pre-qualify for the Government's competition to demonstrate commercial-scale Carbon Capture and Storage (CCS) technology, scaling up to at least a 100MW demonstration plant which would form part of the new power station at Tilbury.

ROLE OF COAL IN THE UK ENERGY MIX

  3.  Maintaining diversity of energy sources is critical to meeting the key objectives of UK energy policy in relation to security of supply, affordability and achieving climate change targets. Against the current background of steeply rising oil and gas prices, flexible coal-fired generation plant continues to play an essential role in meeting electricity demand in the UK. At the global level, new coal-fired generating capacity is a major contributor in satisfying the growing energy needs of major developing economies such as China and India.

  4.  The Energy White Paper (EWP) published in May 2007 states that:

"Coal will continue to play a significant role in global electricity generation for the foreseeable future, partly because it is the most abundant global fossil fuel but also because it brings security of supply benefits. For example, coal-fired generation is a flexible electricity source that can respond effectively to changing levels of demand. It also helps to maintain a diverse energy mix." We agree with this strategic assessment and note that all the energy projections for the UK that support the EWP indicate a significant level of coal based generation.

  5.  Even as the target levels for renewable energy increase above those assumed in the EWP to meet the ambitious carbon reduction and renewable energy goals being set under the EU's Climate Change and Renewable Energy Action Package (the "Green Package"), there will be a growing need for a diverse energy generating portfolio that can respond rapidly to fluctuations in both demand and supply, particularly if the majority of the UK renewable energy is to come from fluctuating sources such as wind and tide, coupled with inflexible base-load nuclear generation.

  6.  Existing and developing environmental legislation will mean the closure of most, if not all, existing coal power stations by around 2025. It is important to recognise that if no new coal plants are built then the UK will be entirely dependent on imported gas to fulfil the role of flexible and reliable power generation.

  7.  Modern super-critical coal-fired power generation plant is considerably more efficient, operating with thermal efficiencies of up to 47% compared with existing UK plant which typically achieve efficiencies of around 35%. Consequently, new coal-fired plant can deliver CO2 reductions of 20-25% on a like for like basis without the use of carbon capture and storage technology.

STATUS OF CCS TECHNOLOGY

  8.  CCS is a new technology to the power industry and there are many unknowns in terms of technical performance, costs, reliability and risk that need to be overcome if the technology is to be demonstrated at commercial scale. Until this happens it cannot be considered as an abatement technique that can be mandated by legislation on any fixed timescale. If it is mandated before then the likely result will be no new coal build as investors will be deterred by the high risk of creating stranded assets. Whilst this may seem attractive to some it will deter and delay CCS development. Operators of existing coal plants will not be easily persuaded to invest in CCS at existing sites that are inefficient by todays standards and approaching the end of their life. The successful development of CCS and its subsequent rapid deployment could be a vital part of delivering the twin long term goals of carbon reductions and security of energy supplies. This will be achieved fastest if new coal capacity is delivered in parallel with the development of CCS.

  9. In this regard, RWE npower has developed a three phase R&D programme:

Test facility—RWE npower is currently commissioning a test facility at its Didcot power station for evaluating both oxyfuel and post combustion capture.

Pilot plant—RWE npower plans to design and build the first carbon dioxide capture pilot plant at a UK coal power station. It is anticipated that the plant will be fully operational by 2010 and will be located at Aberthaw Power station in South Wales. The pilot will enable RWE npower to develop a full understanding of both the technical and commercial issues relating to CCS and will allow the CCS concept to be tested in as close to real operational conditions as is possible.

Demonstration plant—RWE npower is planning further investment to support a capture and storage demonstration plant which will be located at Tilbury power station. This plant will act as a crucial test-ground for the potential of CCS technology as a means to generate low-carbon energy.

SUPPORT FOR CCS DEMONSTRATION

  10.  The recent Stern Review highlighted the strategic role that CCS technology could play globally to lower carbon dioxide emissions with a potential to contribute up to 28% of global carbon dioxide mitigation by 2050.

  11.  The European Council has agreed that Europe should aim for all new fossil fuel power generation built beyond 2020 to be equipped with CCS, subject to the technology being technically and commercially feasible. It has also recommended that the Commission work towards a series of up to 12 CCS demonstration projects by 2015. To facilitate the deployment of CCS in the UK and internationally the Government has announced its intention to launch a competition for demonstration of CCS.

  12.  RWE npower welcomes the Government support for a post combustion capture demonstration project and in this regard has submitted a proposal into the pre-qualification phase of the Government's CCS demonstration project. However, there is a need to recognise that the industry in the UK and across the EU is seeking to develop a range of CCS technologies including oxyfuel and Integrated Gasification Combined Cycle (IGCC) and support mechanisms need to address this issue, otherwise the opportunity to assist with the timely development of these technologies could be missed.

DELIVERING CLIMATE CHANGE GOALS

  13.  RWE npower supports the UK Government's aim to demonstrate international leadership in mitigating the impacts of climate change. The UK has signed up to challenging targets for 2020 in terms of EU greenhouse gas emission reduction and renewable energy targets. However, in order to deliver these, the electricity industry urgently needs a long-term stable policy framework to underpin the significant investments that are needed in new capacity and transmission infrastructure.

  14.  The principle mechanism for delivering carbon reductions in the EU is the EU Emissions Trading Scheme (EU ETS). With adequate political support by Member States to deliver a robust framework post 2012, this has the potential to deliver the required decarbonisation of the energy supply chain at least cost. Although it should not be the role of the EU ETS to support emerging technologies such as CCS through the research, development and demonstration stages, it can be expected to remunerate them when they achieve commercial availability, provided the technology cost is lower than that signalled by the carbon market. Only by utilising technology neutral market mechanisms such as the EU ETS, coupled with addressing the barriers to delivery, such as planning, transmission access and R&D support, will the necessary greenhouse gas emission reductions be achieved with optimum economic efficiency.

  15.  The key to delivering the 2020 climate change goals is timely investment and the major challenge for the energy sector is in deciding what to invest in. Given the very high UK renewable energy target implied by the EU Green Package and known coal, oil and nuclear plant closures, it is quite credible that the new build requirement in the period between now and 2020 will approach today's total installed capacity, some 70-80 GW. In order to minimise risk, investors value stable regulatory frameworks and clear long term price signals. In the current revision of the EU ETS, there is potential to provide both of these. Given a robust trajectory for binding carbon emission reductions, clearer price signals will emerge and energy investors will be able to select a range of investment options to manage the range of energy market risks.

  16.  The UK Government's energy strategy is based on utilising competitive markets to deliver ambitious carbon reductions, whilst maintaining security of supply and ensuring every home is adequately and affordably heated. The EWP rightly identifies the EU ETS as having a central role in the delivery of this strategy.

  17.  Some stakeholders advocate the need for mandatory CCS on new coal-fired power plant. Given, the current status of the technology, coupled with the need to ensure adequate provision of storage and transport infrastructure, we believe that this is inappropriate for the foreseeable future. It is likely to have the adverse effect of deterring and delaying CCS development damaging the prospects for the technology within the UK and the EU, and also at the global level, where deployment is critical if developing countries are to address the issue of rising greenhouse gas emissions from the use of coal as a key energy source. The immediate priority within the UK and at EU level has to be to ensure sufficient funds are made available to allow the early commercial-scale demonstration of a range of CCS technologies.

"CAPTURE READY" POWER STATIONS

  18.  The term capture ready has been developed to describe the ability to retrospectively fit CCS technologies to future new power station builds. But without being prescriptive with regard to the CCS technologies applied, it is not practicable to describe in detail what "capture ready" means. Until such time as CCS technologies are developed to commercial scale we believe it would be counterproductive to develop and impose detailed and restrictive requirements on "capture ready" plant.

  19.  However, we fully accept that any operator contemplating new coal build must expect to either fit CCS in the future once the technology has been proven at commercial scale, or alternatively, to operate the plant in a more carbon constrained manner. The choice will depend on the cost of applying the abatement technology and the value of the carbon abatement it offers. The operator is therefore incentivised to make whatever arrangements they can to minimise the cost of future CCS retrofit. If they do not, then their future choices will be even more limited.

  20.  Essentially the main considerations are space on site for the necessary plant to capture and compress CO2, the ability to couple this into the proposed power plant and the potential availability of a route to transport the CO2 away from site into long term storage. Operators have to apply best available techniques (BAT) to minimise the environmental impact of power stations and there can be no justification for imposing tighter environmental emission standards until it is proven that affordable techniques exist to achieve them.

2 June 2008