Country report: UK – the elder statesmen
Nuclear and renewables may be among the latest players, but coal and gas remain some of the most reliable supply in the UK. Khai Trung Le looks at the future of the load-bearing sectors.
Energy in the UK is a topic that scarcely escapes coverage in Materials World, and while the conversation is often focused on the more recent players – such as nuclear (see page 16), wind (page 12) and solar (see Materials World, September 2015) – one should not ignore the historic and continuing marginal roles played by coal and gas.
While coal has long been earmarked for a complete phase out, with the recent reiteration that the UK’s last coal power plant will close by 2025, gas appears to be enjoying signs of commitment from Government in the form of newborn shale extraction via fracking and North Sea support (see Materials World, November 2016). But the recent Autumn Statement may have revealed fault lines in the Government’s confidence in oil and gas, as the UK seeks to juggle ageing plants and environmental commitments for a yet–undetermined future energy mix.
Rightful place in history
At the time of writing, during winter months when coal use typically reaches its highs, the University of Sheffield, UK, and utility company Elexon’s National Grid tracker, Gridwatch, lists the UK’s total energy demand at 46.08GW. Of this, coal supplies 7.73GW (16.78%) – marginally less than nuclear (7.88GW, 17.10%) and above the combined supply of renewables (5.87GW/12.35%). But the bid to reduce power station emissions has singled out coal as a primary offender, with greater NOx and SO2 emissions, and almost twice as much CO2, than an equivalent gas power station.
With the closure of the UK’s last deep coal mine, Kellingley Colliery, on 18 December 2015, the consultation, Coal generation in Great Britain, seeks to outline its plans to reduce coal use by 2023, and end it entirely by 2025. Options for reducing the impact of coal closures include allowing plants with abatement technology including carbon capture and storage (CCS) to continue operating – not an unrealistic proposition, despite the cancellation of the £1 billion CCS competition (see Materials World, September 2016, page 4) – or revising the existing Emissions Performance Standard to move from an annual limit on emissions to a concentration-based limit.
Beyond environmental concerns, 2016 saw the continuation of record declines in UK coal use. Solar output was greater than coal in May, July and August, and generated around 6,964GWh throughout Q2 and Q3, compared with coal’s 6,342GWh, and the Department of Business, Energy and Industrial Strategy (BEIS) will begin the next round of Contract for Difference (CfD) auctions in April 2017, intended to allow companies to compete for £290 million worth of renewable electricity project contracts.
Drax remains an outlier in the coal sector. Once the UK’s largest coal plant, the site began converting generating units to biomass in 2013. Nearly three boilers have been upgraded to burn wood pellets, but at a cost of £451.8 million in subsidies and additional support in 2015 – around 17% of plant revenue. Now, with 70% of electricity generated through compressed wood pellets, Drax CEO Dorothy Thompson has claimed that the plant could phase out coal entirely in three years, easily besting the 2025 deadline, but only in return for further green subsidies. Thompson claimed that converting the plant’s remaining three boilers would be impossible without further CfDs.
The move away from coal is expected to benefit other energy sectors. Michael Grubb, Professor of International Energy and Climate Change Policy at University College London, UK, remarked, ‘Coal is already struggling economically, and removing it clarifies the market space for gas during the 2020s. Overall, reinforcing the existing commitments and clarifying mid-term plans increases investor confidence, so certainly the coal phase-out will help to bring forward new and cleaner capacity.’
A gaseous clutch
While in its dying throes coal supplies 16.78% of the UK’s energy demand, gas continues to furnish the lion’s share of demand, at 24.75GW (53.71%), and while signs point to furthered gas use, the oil and gas industry has decried the lack of commitment from the Government.
The Treasury announced steps to ‘simplify the reporting process and reduce the administrative costs of petroleum revenue tax and oil and gas companies’, but declined to make significant new tax relief announcements, despite calls from oil producers, the Scottish National Party (SNP) and Scottish Government for further Government subsidies.
In March 2016, former Chancellor George Osborne “effectively abolished” Petroleum Revenue Tax, by zero-rating the tax payable from oil and gas production profits, backdated to 1 January 2016, and although current Chancellor Philip Hammond reiterated his commitment to previous supportive measures, little new information has been made available.
The response Hammond's first Autumn Statement has been mixed. Scott Lehmann, Vice President of Marketing at Petrotechnics, Scotland, lamented the need for more. ‘While [commitment to the March budget] is good, it is not enough. More measures are needed to support a sector that is severely resource-constrained […] This prioritisation of limited resources is creating a growing maintenance backlog for North Sea assets. The result of this could be lessened with additional measures to provide much needed breathing room for operators to addressing underlying inefficiencies.’
SNP energy spokesperson, Callum McCaig, was far more scathing, stating, ‘This has been a complete failure from Philip Hammond […] to move on loan guarantees, a failure to encourage exploration, and a failure to deal with decommissioning. Nine months on from the March 2016 Budget, there is now a pressing need for the UK Government to work directly with the industry to agree and deliver loan guarantees for critical offshore infrastructure.’
KPMG noted that plans presented in 2014 to decommission tax relief and encourage exploration were yet to see clarification on expected timeframe and Government support. But, more optimistically, the company also speculated that the lack of substantial change ‘may herald the start of a period of stability for the North Sea tax regime’.
Gas was not the only energy sector that went without in the Autumn Statement. There was a marked shortage of acknowledgement surrounding low carbon, including how the UK will act on the recently ratified Paris Agreement, and details on renewable energy support. The phrases ‘climate change’, ‘renewable energy’ and ‘air quality’ are entirely absent from the Statement.
The lack of tangible information across sectors has not helped provide clarity on the future UK energy mix. An open letter from UK energy consultancy Inenco, representing some 8,000 companies 'left disappointed at a lack of focus on energy’, decries ‘a strong sentiment of confusion’ from an Autumn Statement that was hoped to provide clarity on future energy policies including support towards low carbon technology beyond 2020.
Materials World has and will continue to write at length at the various machinations of the energy sector, and although we approach uncertainty regarding the energy mix (see Materials World, March 2016), a role for coal and gas look set to continue.