Tuesday, 12 November 2013

Wholesale prices falling but energy bills continue to rise

ONLY a dramatic policy shift will prevent further sharp rises in UK energy bills. Peter McCusker reports.

DEPENDING on your news sources or beliefs it’s easy to jump to conclusions on one of the most pressing issues of today – rising energy bills.

Whether it’s wholesale costs, greedy companies or green energy levies, one thing is certain; energy bills are on a rapid upward trajectory.

Since 2007 annual energy costs for UK households have risen from around £950, to £1,250 now, and are expected to rise a further 20% to £1,500 by 2020.

Wholesale energy costs currently account for 45 % of an average domestic bill – at around £550.
But this is set to change as third party costs, such as network and transmission costs, supplier costs and green levies, markedly increase.

Analysis by Norfolk-based industry experts Cornwall Energy for Journal Energy highlight how third party charges for large industrial users, such as the Teesside chemical and process industries, have risen by 50% in the last four years.

And a recent report by one of the ‘big six’ UK energy companies German-owned RWE npower highlight how these third party charges for domestic customers are set to rise by over 50% by the end of the decade.

Two weeks ago the bosses of the big six energy companies told the Committee on Climate Change green taxes and wholesale prices were behind recent price rises.

But Stephen Fitzpatrick, managing director of independent supplier Ovo Energy, highlighted that since that since May 2011 wholesale prices had fallen by 5%. – a claim supported by the Government’s own figures.

Between 2007 and 2011 the wholesale gas price rose by 50% as the UK became a net importer due to declining North Sea reserves.

With the US now exporting its shale gas, amid moves to develop a global spot market for gas, prices are expected to steady or even fall.

The glut of US shale gas has pushed coal to its lowest price for many years and led to a surge in the use of coal for power generation across Europe – although emissions directives mean most of the UK’s coal-fired power capacity will be closed down in a few years’ time.

RWE npower’s recently published analysis of the UK energy market ‘Energy Explained’ says it expects wholesale costs to rise by 3% over the next few years and then fall.

A Navigant Consulting report for the Department of Energy and Climate Change (DECC) says it expects gas prices to rise by over 10 % in the coming years but could fall by over 10% if a UK shale gas industry develops.

By the end of the decade RWE npower believes wholesale energy prices will have fallen to £514 or 35% of the domestic energy bill.

But third party costs are set to rise substantially in the coming years. These can be broken down into three categories:

Supplier costs and profits
MPs have criticised the ‘big six’ for ‘ripping-off’ the bill payer but market regulator Ofgem’s rolling weekly analysis of the energy market suggests otherwise .

It shows margins steady at 5% over the last two years following a period in 2011 when most of the big six made a loss of £5 per domestic customer. This followed a major spike in the price of gas.

A spokeswoman for RWE npower said: “We have gone from making a loss of £5 per customer to a profit of £59 per customer.

“It is not sustainable to keep making a loss, and a return of 4% to 5% is reasonable in this industry. Our operating costs have increased and we have introduced huge efficiency programmes around the country to reduce costs.”

Suppliers incur costs from billing, sales, customer service and all the other activities that make up a retail business. These plus profit margins of 5% account for up to 20% of a domestic bill.

Network and transmission costs
Npower’s Energy Explained report says Network and transmission costs currently 23% of bills at £289 and this is set to rise to £403 or 27% by 2020.

These include the cost of building, maintaining and operating the local gas pipes and electricity wires, which deliver energy to homes and businesses.

Ofgem sets price controls, which limit the total amount of revenue that gas and electricity network companies can earn.

It estimates that the network and transmission companies such as the National Grid and Northern Powergrid, the electricity distribution network operator for the North East and Yorkshire will need to invest over £30 billion in the next decade.

This will upgrade and renew Britain’s gas and electricity networks, connect new sources of energy generation and increase security of supply.

A large proportion of this is a forecast increase in gas costs which will arise from having to run the national gas network with less gas.

Green Levies
The final element is policy and regulation costs – which are mainly green levies aimed at combating climate change.

These are set to rise from £185 to £329 – from 15 % to 22% - between now and 2020, says the npower report.

Although DECC says the 2020 will be reduced to £1,331 through the impact of some of its domestic energy efficiency schemes.

The Government has a target of ensuring 15% of the UK energy comes from renewable sources by 2020 and to do this it has identified securing 30% of electricity from low carbon generation by that date.

Green levies include the Renewable Obligation scheme which will be replaced by strike prices for low carbon energy sources under the Contract for Difference element of the Energy Bill, which is currently passing through parliament.

They also include the carbon floor price green deal and Energy Company Obligation (ECO) which shifts the burden for domestic energy efficiency schemes onto the energy suppliers.

Janusz Bialek, DONG professor of renewable energy at Durham and a world-leading expert in energy infrastructure, believes network and green costs will continue to rise.

“The network is old and needs replacing and there are substantial costs associated with incorporating renewable energy into the grid.”

Despite MPs wanting to encourage new entrants Bialek believes the UK market is a competitive one.
“The energy companies are not making much of a profit and have gone into the negative. Ofgem agrees the profits are not excessive.

“What we really need is people to understand their energy bills more clearly,” he said.

Henry Edwards-Evans, associate editorial director, at global commodity experts Platts says green levies are likely to lead to significant increases in energy bills, citing the example of Germany, Europe’s renewable standard bearer.

He said: “The wholesale energy cost component in Berlin is only 33% of total final bills, and while German wholesale prices are among the lowest in Europe, end user retail bills are among the highest because of rising energy taxes.

“This demonstrates that the cost of energy transition is going to be high even when you have a huge coal/lignite fleet of power stations to keep wholesale prices low.

“The UK does not have such a huge coal fleet, indeed most of the time the wholesale price reflects the expensive natural gas prices.

“There is no prospect of new coal plant in the UK.  More gas capacity is the short term fix, but this will require capacity payments and is not a cheap option.

“The government’s £92/MWh strike price for nuclear in 2023 gives an idea of where DECC thinks power prices are going.”

James Beard, a spokesperson for the Renewable Energy Association, said: “Importing gas from Russia and the Middle East has become increasingly expensive over the last decade, and this is the main element driving up our energy bills.

“More home-grown renewable energy means less exposure to international gas markets, as well as jobs, investments and tax revenues here in the UK.

“Reducing support for renewables would be a huge mistake from an economic, as well as environmental perspective.

“Renewables and energy efficiency are both vital for preserving a safe environment for future generations, and it is right that they receive public investment.

“But if there is a case that the funding for these programmes can be raised in a more equitable way than at present, then we are willing to engage with that debate – provided any new measures do not undermine the jobs and investments our industry is delivering for UK plc.”

With energy costs now a matter of overriding public concern the Labour Party wants to freeze bills for 20 months, while the Coalition’s is looking to cut green levies.

Labour leader Ed Miliband was energy secretary when most of the legislation mapping out the UK’s green energy transition was implemented.

Most commentators say Labour’s price freeze plans are deterring investment in the sector and will lead to price increases, either before or after its implementation. If the wholesale gas price falls, as some suggest, it may even result in windfall profits.

The most likely short-term measure, which could be announced in Chancellor George Osborne autumn statement next month, will shift the cost of the ECO – a levy of around £70 per domestic customer – on to general taxation.

There is also some discussion of bringing in measures to alleviate the costs incurred by the carbon floor price.
Introduced earlier this year, it punishes large industrial users and power generators for emitting carbon dioxide and is set to cost business millions of pounds.

But third party costs, many of which are locked in by statute and international conventions, will only fall if the politicians row back from the UK’s green energy commitments.

Several EU member states - Spain, Italy, Greece - have already reduced or even abolished support schemes for renewable energy, while others - Poland, Germany, France - are currently reviewing their support schemes, with an aim to relieve the burden on energy consumer bills.

It’s time do to the same in the UK.

Follow Peter McCusker on Twitter: @mccusker60

Wednesday, 23 October 2013

The high price to pay for UK's nuclear renaissance

WITH 60% of the UK’s 100GW of electricity capacity due to come off line in the next decade the Government is anxiously pressing for new capacity to fill the gap.

The Energy Bill sets in place subsidies to support renewables technologies, such as offshore and onshore wind, to help with the transition from fossil fuels to a low carbon network.

But at this point in the game there is no hope of renewable technologies filling the looming energy gap – with significant breakthroughs in energy storage still some way off.

Hence the Government’s delight at securing the deal with EDF for a new nuclear power station at Hinkley Point, Somerset, which will generate 7% of the UK’s capacity when fully operational by 2020.

Nuclear power is a low carbon energy source and unlike intermittent renewables, such as solar and wind, is a reliable base-load option.

It therefore ticks two of the three boxes of what many in the industry like to call the ‘energy trilemma’ - it supports the UK’s energy security and is low carbon.

Whether it ticks the third box of affordability is open to conjecture.

The strike price deal of £92.50 per MW/h (megawatt hour) for 35 years is far below that of offshore wind at £155 per MW/h and if EDF embarks on a second reactor in Suffolk this price will fall to below £90 per MW/h.

But with wholesale market electricity prices between £40 and £50 per MW/h it will cost the hard-pressed bill payer in the long-run.

The Government flimsily argues that by 2030 the deal will save bill payers money, but this is based on assumptions that energy bills will continue to rise as we move from fossil fuels to low carbon power sources.

In fact by arguing the deal will save bill payers in the long term the energy department is effectively saying it expects energy bills to move north towards the £90 per MW/h EDF strike price by 2030 – which is a sobering thought for all.

While EDF has said it will put money to one side to pay for decommissioning and waste disposal, cost overruns are a feature of the nuclear industry.

Earlier this year Hinkley was estimated to cost £14 billion, but this week’s announcement has seen that already rise to £16 billion.

EDF and its construction partner fellow French Government owned company Areva are currently involved in two new nuclear builds in France and Finland, which are both behind schedule and costing more than anticipated.

At Flamanville in France the cost of a single European Pressurised Reactor (EPR) has tripled after four years delay to 8.5 billion euros.

The Finnish project using the same EPR is seven years late.

The UK Government has pledged to provide a loan guarantee for £10 billion of the Hinkley construction costs, exposing the taxpayer to potential liabilities should the project stall or fail.

With other consortia looking to build new nuclear plants in the UK the Government will hope this week’s announcement will re-start an industry which has lay dormant in the UK for a generation.

It is hoping resulting economies of scale may force prices down - but at a time of rising energy prices it is unlikely a UK nuclear renaissance will come cheaply for hard-pressed domestic and commercial bill-payers.


Wednesday, 25 September 2013

Price freeze will short-circuit UK energy supplies

LABOUR’S plans to freeze energy prices threatens the security of the UK’s energy supply and will hamper the Party’s efforts to de-carbonise the sector.

THE UK desperately needs new power generation capacity with EU emissions regulations meaning the on-going closure of the nation’s coal-fired plants and 20GW – or 20% - of capacity.

Ofgem and the National Grid worry about the UK’s declining capacity and warn that from the winters of 2014/15 onwards we may face power cuts.

The Energy Bill is set to unlock £100 billion of investment in new infrastructure spending. The Government is hoping the energy companies, most of which are producers as well as retailers, will invest in new gas-fired power stations in the short term.

But there’s no hope of any of this new large-scale capacity firing up before 2017. Gas would be the quickest to come on line – it takes about 3 years.

But the slow progress of the Energy Bill is already alarming investors, as is the prevarication of setting a decarbonisation target (see earlier blog).

However many commentators say we may just squeeze through we will just about be allright as long as there is enough to encourage the firing up of new gas capacity

But Labour’s plan to freeze price rises for 20 months has short-circuited the dynamic.

It will discourage investment in new capacity and force the power generators and the Labour Government to revert back to coal-fired power if we want to keep the lights – stymieing its green credentials.

In the 1970’s the unions forced the country into blackouts and a three day week. (I remember having corned beef and salad for tea in candlelight). Let’s hope Miliband, who got the leadership role on the strength of the support of the unions, does not allow us to go down that path once more.

Wednesday, 4 September 2013

Fracking, fossil fuels, nuclear needed to keep lights on

FRACKING for gas and nuclear power are the answer to the UK’s looming energy crisis, says one of the North East’s foremost energy experts. Peter McCusker reports.

WITH the National Grid and Ofgem warning of possible electricity shortages in the coming winters there is growing unease in North East business.
Ian Burdon is chairman of the region’s Energy Leadership Council (ELC) and says its members are increasingly concerned at the direction of UK energy policy and its effects on business and families.
He said: “If we continue to use energy in the way we will have to do something different to what we plan to do now. Life cannot continue the way we know it without energy.
“The renewable technologies, such as wind, require substantial subsidies and are not of a large enough scale at present.
“As things currently stand they will only peck at the edges of meeting the nation’s required demand. While the answer is not acceptable to everyone we have to focus on developing technologies that can meet anticipated future electricity demand.”
He highlighted how the Siemens factory in Heaton, Newcastle, (formerly Parsons) can build a 1600 MW steam turbine, which produces power equivalent to 200 of the largest possible offshore wind turbines.
“While the Government wants to see us become more energy efficient it is likely that we will continue to use more and more electricity.
“To meet this required demand I don’t see any realistic alternative to fossil fuels and nuclear power,” said Burdon.
The ELC members include senior regional energy figures such as George Rafferty from Durham-based NOF Energy and Stan Higgins from the North East Processing Industry Cluster which represents over 500 North East businesses in the pharmaceutical, biotechnology, and chemical sectors.
Members also include representatives from the CBI, NECC, manufacturing body  EEF, renewable centre Narec in Blyth and the region’s councils and universities.
The ELC advises the two North East Local Enterprise Partnerships on energy issues and provided technical advice to the Adonis North East Economic Review. It recently sent a delegation to BIS for a meeting with business secretary Vince Cable.
In a strongly-worded letter to The Journal Burdon highlights the concerns of many ELC members.
He says: “The suggestion that we should move, holus bolus, to other forms of power sources such as wind and marine technologies is simply not acceptable to any sane, rational and unprejudiced observer.
“It is an incontrovertible fact that wind power is an intermittent source of energy and, unless and until we devise cost-effective means of large-scale electricity storage, it cannot replace more conventional base-load power generation.”
Burdon is also chairman of the advisory board to the Durham Energy Institute (DEI), at Durham University.  The DEI is headed by Prof Richard Davies, a leading worldwide authority on fracking for shale gas.
In two recent papers Davies and his team have highlighted how concerns over the process of fracking – which involves fracturing shale rocks with water and chemicals to release trapped natural (methane) gas – have been overplayed.
Early last year it reported that it was "incredibly unlikely" that fracking at depths of 2km and below leads to the contamination of water channels.
This year its research of hundreds of thousands of fracking operations found that the process only caused earth tremors that could be felt on the surface in three cases.
It said the size and number of felt earthquakes caused by fracking is low compared to other manmade triggers such as mining, geothermal activity or reservoir water storage.
And that the energy released in a fracking event is “roughly equivalent to, or even less than, someone jumping off a ladder onto the floor”.
Burdon continues: “On balance fracking for gas is fairly safe and environmentally acceptable. It’s the sensible way forward and is a vital asset that we need to use.
“We should not let the protest such as those recently at Balcombe drown out the message that fracking is safe.
“The comments of many protestors are silly and vacuous and rely more on prejudice than hard evidence.”
Burdon is a supporter of renewables, where cost effective, and believes nuclear power is the long-term answer to the nation’s energy dilemma.
Burdon also believes coal has a significant role to play in the UK’s energy mix for some years to come and is a strong supporter of the efforts of Newcastle-based Five-Quarter.
A meeting of the ELC in Newcastle tomorrow will hear an address from Harry Bradbury chairman of Five-Quarter on its efforts to develop a North East underground coal gasification industry.
Burdon added: “The North East has substantial reserves of coal under our feet and under the sea and this should continue to play a major role in the nation’s energy mix.”
He continued: “It is unlikely we will see any frack gas or nuclear power for the next few years so if we want to avoid power cuts then we have little option but to keep open the coal-fired plants earmarked for closure.”
For a number of years Burdon and members of the ELC have been warning of the UK’s looming energy crisis brought about by the switch from fossil fuels to renewables to generate the nation’s electricity.
Earlier this year outgoing Ofgem boss Alistair Buchanan warned of the problem and last month the National Grid warned spare capacity on the UK system would fall to just 4%, and that the risk of disconnections maybe as high as 50% in the winters of 2014/15 and 2015/16.
In July the National Grid unveiled proposals to help address the supply side problems which highlight the seriousness of the electricity supply problems the UK is currently facing.
These include measures to cut demand during the coming winters which involve paying customers not to use electricity between peak hours on winter evenings, between 4pm and 8pm
It also proposes maintaining the option of using electricity from some of the fossil fuel plants which have been earmarked for closure.
Almost 10GW - 10% of the UK’s total capacity - will close this year, with  Kingsnorth in Kent, Didcot A in Oxfordshire, Cockenzie in East Lothian and Tilbury in Essex closing to date.
That leaves around 20GW of coal-fired power from around 15 UK stations, but over half of these face closure by 2015, and possibly all by 2020.
Some experts are warning of potential blackouts in coming winters. Burdon said: “The Government is to politically wily to let such a thing happen as they know they will be out on their backsides
“Discussions are underway to keep some of the fossil fuel plants open. But it’s not easy to bring back generating capacity which has already been closed as any power station manager will tell you.
“It is not inconceivable that industry will face load shedding power disruptions.
“We may even see barge mounted power stations floating off the coast or on our rivers, or we may have to turn to the Polaris nuclear submarines to generate electricity.”
He added: “Life as we know it now depends on ample and secure supplies of electricity and we would do well to remember that fact and not let our emotions or prejudices influence our rational selection of how we obtain that life blood.”


Thursday, 20 June 2013

The de-carbonisation debate

WILL de-carbonising the nation’s energy supply be good for the North East?

OVER 260 MPs recently voted to decarbonise UK electricity generation. They have been backed by Lord Sugar and scores of prominent businesses.
This Energy Bill amendment was effectively calling for the Government to remove all fossil fuels from UK electricity generation by 2030.
However the amendment failed, with 290 MP’s voting with the Government, and no decision on a target will now be taken until after the next election.

What’s all the fuss about? 
It is estimated that over £110 billion of investment is needed over the next 20 years to allow the UK to generate low carbon electricity - representing a significant opportunity for British business.
But there are concerns that if this process is not managed correctly then UK households and business will face rising electricity and gas prices and possibly power cuts.

What does decarbonising the nation’s electricity supply mean?
The Climate Change Act of 2008 bestows a duty on the Government to ensure that UK carbon emissions in 2050 are at least 80% lower than in 1990.
The UK also has to hit a Europe-wide 50% reduction target by 2030. One of the main ways to do this is cut emissions from the larger carbon dioxide emitters.
Two of the largest are coal and gas fired power stations. But they play a prominent part in UK power generation - last year accounting for around three-quarters of all UK electricity.

Why do it? 
The driver behind this is Climate Change. Carbon dioxide levels in the atmosphere reached a one-million year high of 400ppm (0.04%) earlier this year.
This is a rise of some 25% over the last 150 years and has been attributed to the increased burning of fossil fuels since the Industrial Revolution. This is said to be the reason why global temperatures have risen by 1.3% in the last century.

How will the UK electricity supply be decarbonised?
One of the first targets is to increase the level of renewables in the UK energy mix. The Government has set a goal of 15% by 2020 and is on target to achieve that.
The Government has published five year carbon budgets which set out its CO2 reduction targets. Budgets after 2022 have yet to be set.
Those voting for the amendment say a decarbonisation target will speed up the switch away from fossil fuels and provide certainty to renewable investors.
But the Government says it will not set a decarbonisation target until 2016 when the Carbon Budgets for 2022 and beyond are set. These will set the future pace of CO2 reductions.
The Energy Bill, which is currently passing through parliament, will establish the subsidy levels paid to low carbon and nuclear power generators to encourage further investment in renewable energy sources.
It also highlights how over £110 billion will have to be spent decarbonising UK energy supply.

Will North East businesses benefit from this £110 billion investment?
Yes. Offshore wind and nuclear, along with a host of other renewable energy sources, are identified as the main technologies to allow the UK to decarbonise.
The North East is well-placed geographically for access to the proposed wind farms in the North Sea. The region has the ports, infrastructure and marine engineering skills and heritage to become a hub for offshore wind.
It is estimated at least 10,000 new renewable jobs could be created in the North East.

Is there a downside?
Renewables require significant subsidies. Wind power is priced at around £130 per MWh compared to the current wholesale price of around £50 per MWh.
The Energy Bill will also establish a payment mechanism to back-up power stations. These will be asked to generate electricity when the wind is not blowing.

Who will pay for this?
Renewable power is supported by the Government subsidies with some of the costs being passed on to businesses and consumers through higher electricity prices.
The pro-renewable lobby say rising global gas prices would cause bills to increase in any case, and that renewables will be cheaper in the long term. Although many say it is subsidising renewables that will cause prices to rise.
Some say an extra £500 will be added to annual household power bills over the coming decade.

That doesn’t sound very good
There are also concerns rising energy prices will affect the global competitive of business.
And additional Government measures to cut carbon emissions through the Carbon Floor Price (CFP) have already cost the North East 500 jobs, with the closure of the Alcan aluminium smelter at Lynemouth.
This is known as carbon leakage and many fear the CFP will see other businesses pack up and leave.
Global temperatures have remained flat for more than a decade and many argue the case for such a huge upheaval in electricity generation is not so pressing.

What about Carbon Capture and Storage?
Fitting carbon capture and storage technology (CCS) to fossil fuel power stations would stop CO2 getting into the atmosphere but there are no large-scale CCS plants operating effectively anywhere. It’s a complicated and expensive process and some say it is still at least a decade from industrial-scale viability.

What about Shale gas?
US gas prices have plummeted and are now 75% lower than in Europe due to its shale gas bonanza.
Last week shale gas company IGas said its licence area in the north west of England could contain between 15 and 172tn cubic feet. The lower figure would be enough to power the country for five years. The British Geological Survey, which is due to be published soon, is also likely to show the UK has abundant shale gas reserves.

What’s the Government going to do?
Expect to see a new dash for gas with up to 20 new power stations constructed over the next decade. Almost all of the coal powered stations will be closed by 2020. Gas emits half the CO2 of its fossil fuel cousin.
In the meantime the Government will encourage new nuclear and renewables with the subsidies outlined in the Energy Bill.
However there are concerns the UK will be unable to compensate for the loss of coal-fired power sufficiently quickly and we may face power cuts

What do the experts say?
Lord Ridley, the recently elected peer from the Blagdon Estate in Northumberland, is a leading science journalist and author.
Decarbonising the nation’s energy supply, in the way we are currently planning to do it, will be bad for the North East economy, even if we attract some wind-power jobs here. Carbon rationing has already exported 500 jobs from Lynemouth.
It will continue to raise costs for business, destroy jobs, hit the poor, line the pockets of the rich and damage the tourist industry. And it is possible that the current decarbonisation strategy will achieve these feats without actually achieving decarbonisation.
These are not scare stories, but fact-based conclusions from what is happening all over the world. Denmark, which rushed into wind early, has concluded that wind power destroyed as many unsubsidized jobs as it created subsidized ones – by hitting employers’ bottom lines.
As for bioenergy, most experts now agree that both biomass-burning power stations and biofuel crops in practice actually increase emissions over their first 80 years. They do this by directly or indirectly (through the effect on prices) turning forests into emissions.
 Every decarbonisation policy successive governments have pushed – ground-source heat pumps, carbon capture and storage, electric vehicles, biomass, biofuel, onshore wind, offshore wind – has so far proved a costly flop.
 The only decarbonisation policy that has worked, anywhere in the world, was not a policy at all; it was a happy accident. The dash for cheap shale gas that America embarked on six years ago has cut US carbon emissions by nearly 20% since 2007, lowered energy costs and created hundreds of thousands of jobs. Cheap shale gas from Lancashire would be great for the North East.”

Simon Bowens, local and regional campaigner, Friends of the Earth - Yorkshire and the Humber and the North East
“Decarbonising our energy system is the most cost-effective way of achieving the UK’s commitments to tackle climate change.
 The development of low carbon energy such as wave, wind, tidal and solar and energy efficient technology such as electric vehicles presents a great opportunity for the North East.
 Using our innovative engineering skills, infrastructure and, for offshore wind, our proximity to and experience of working in the North Sea, our businesses can be at the heart of this energy revolution.
 We need to do it now. Recent evidence from the Government’s advisors shows that delays to this investment could cost the UK economy over £25bn in higher energy bills, with a resulting negative effect on businesses and families in the North East.
However, investors need greater clarity on future Government direction. The Energy Bill currently going through the House of Lords needs to have a clear clean power target to bring down the cost of capital and investment.”

Opinion is mixed amongst other regional experts
Ian Lavery, MP Wansbeck, sits on Westminster’s Committee for Climate Change. He said: “I supported the amendment to set a decarbonisation target.
“It’s essential that we have a target to decarbonise our electricity supply by 2030
“To ensure we can achieve this we have to crack on with establishing a viable carbon capture and storage programme.
“In terms of renewables the North East is well-placed to capitalise on the opportunities, in particular with offshore wind.
 “The Government wants to have a new dash for gas to get us through the next ten to 20 years and then after that a lot of its focus will be on nuclear power.
“It is banking on some kind of shale gas boom, but shale gas is still a fossil fuel and will need to come with a carbon capture and storage programme.”
George Rafferty, chief executive of NOF Energy, said: “It is clear that a proportion of de-carbonisation of the UK’s energy supply will be required if we are to meet EU Directive of achieving 15% of our energy consumption from renewable sources by 2020.
“However, we cannot ignore the contribution of oil and gas to the energy mix.  We advocate the need for a balanced energy future, which utilises a blend of traditional and emerging energy resources.
Alex Dawson, chief executive of TAG Energy Solutions and chairman of North East renewables group Energi Coast, said: “Any amount of decarbonisation of the energy market will present opportunities for North East businesses.
 “The creation of renewable energy solutions on an industrial scale is the next chapter for the energy industry and North East companies are fully able to play a considerable role in its future.
“However, the delays to the Energy Bill have caused indecision among operators and investors, which has reduced the amount of work available to UK suppliers.
Andrew Davison heads the energy team at Newcastle law firm Muckle. He said: “An explicit decarbonisation target or target range would probably act as brake on new fossil fuel fired generation and support investment in low carbon generation.
“The key question is at what cost? Currently low carbon generation tends to be more costly in terms of capital than, say, gas fired generation.
“There has to be a continuing concern that if we put too much emphasis on renewables and they continue to be more expensive than fossil fuels, the UK’s economy will be disadvantaged in world markets. Business needs to know that the energy costs it will face are competitive in a global context.”
Charles Reynard, corporate partner – clean energy and sustainability team - at Eversheds law firm in Newcastle, said: “Whilst not unexpected, this decision is disappointing. It is likely that the rationale is due to the fact that energy is now very politicised in the UK with energy costs now taking a significant proportion of voters' income.
“In addition, US shale gas will make US industry and others highly competitive and Europe, in comparison, much less so. There are those who no doubt would have viewed a 2030 target as a challenge for UK industry further impacting its ability to compete globally.”
James Bryce, head of energy at Jesmond-based Square One Law said: “If met, the proposed carbon reduction target will save the economy a projected £163m per annum if gas prices rise in line with expectations, or £249m if gas prices rise at the rate of the highest projections.
“However, relying more heavily on gas up to 2030 by building more gas-fired power stations would cost between £312m - £478m, depending on the rates of gas prices rises – amounting to between £10-15 per household.”
“A balanced energy future combining traditional and emerging energy sources is something that should remain a goal for the UK and for the North East. Renewable energy generated locally must continue to be a priority if we are to ensure our energy supply for the coming years.”


Thursday, 23 May 2013

UK’s lights may go out by 2015

UK households and businesses face electricity blackouts in just a few years say two of the country’s leading energy experts. Peter McCusker reports.

“THE situation is really quite serious. We will have to keep our coal-fired power stations open and get fined by the EU,” says Prof Ian Fells, one of the UK’s leading energy experts.
He continued: “By 2015 we will be vulnerable. For the last four years the Government has been sitting on its hands doing nothing, and this is really unacceptable.”
Back in 2004 Prof Fells warned of the UK’s looming energy crisis and he followed this up in 2008 with a 50-page paper elaborating on his views.
Its publication was picked-up by various media outlets and he recounts: “I appeared on Radio Four with Lord Hutton (Government minister with responsibility for energy security issues) where I was accused of being an alarmist.
“But now it’s not just me who’s saying it. It’s Ofgem and many others,” explains the emeritus professor of energy at Newcastle University.
In February this year Alistair Buchanan outgoing chief executive of energy watchdog Ofgem said the UK was facing an uncomfortable squeeze in energy reserves over the next three years as ageing coal-power plants closed to meet environmental targets, and the country was forced to import gas at a time of tightening worldwide supply.
Buchanan said that within three years, the reserve margin of UK power generation will fall from around 15% to below 5%. 
Last year coal-fired power generation accounted for 43% of the nation’s electricity mix. It was a record year for coal and well above the 30% recorded in 2011.
Coal’s global price had plummeted due to competition from US shale gas and UK operators subsequently opted to burn this cheaper, imported coal.
In doing so operators reached their maximum permitted operating hours under the EU Large Combustion Plant Directive, more quickly than previously thought. The coal spurt also allowed the generators to avoid the Carbon Floor Price which came into effect on April 1.
Almost 10GW - 10% of the UK’s total capacity - will close this year. To date Kingsnorth in Kent, Didcot A in Oxfordshire and Cockenzie in East Lothian have ceased operations.
That leaves around 20GW of coal-fired power from around 15 UK stations, but over half of these face closure by 2015, and possibly all by 2020.
Prof Fells, who helped establish the Blyth-based National Renewable Energy Centre (Narec), said: “As things stand we have little renewable power and it is too expensive.
“So, we will have to build new gas-fired power stations and get permission from Europe to keep these coal-fired power stations operating and risk being fined, or we may see the lights go out.” 
Janusz Bialek is professor of electrical power and control at Durham University and a world-leading expert in energy infrastructure.
He has advised the UK Government, the International Energy Agency and European Commission on energy supply issues.
He said: “EMR aims to prevent the lights going out, but it may cause them to go out.
“We have been waiting two years for clarity, but the main issue at the moment is that the EMR process is creating uncertainty in the system. 
“It’s very dangerous from the suppliers’ point of view as it can take three to five years to build a power station.
“We have lost two years already and it will be another one before it is approved, then the Government proposals may fall foul of EU state aid regulations, and if that is so the consequences will be disastrous.
“Renewables won’t deliver in time because the costs are too high. The Government is caught between a rock and a hard place and we may run out of power.”
Prof Bialek fears that 2017 may be the tipping point and if the UK has not secured additional generating capacity by then we could be in ‘deep trouble’.
 “Will the lights go out? No one really knows, but I don’t think they will. However it’s an unsymmetrical risk.
“Say the risk is only 10% that is still quite high, because if the lights do go out the bill will run into billions of pounds and will cause huge disruption to society.
“If the economy picks up, and we start to grow like China, or if we have a spell of bad winter weather with temperatures of minus 20 degrees then we might be in deep trouble.
“This could lead to rolling blackouts. They will be done in a controlled manner but people will die.  It will be very serious.
“The Government is acutely aware that if that does happen they will be judged incompetent and will be done for generations.
“Electricity is our most important infrastructure. If the lights go out then life as we know it will stop.”
The Energy Bill which is currently passing through Parliament aims to address UK power generation issues though the Electricity Market Reform (EMR) process. 
The EMR aims to encourage low-carbon and renewable energy development with the aim of decarbonising the UK’s energy supply by 2050.
To take us to this low-carbon Promised Land the Government is banking on gas power stations and it says the UK might need 37GW of additional gas-fired generation by 2030. 
Gas at around 350g per kWh emits less than half the carbon dioxide of coal and is within the Government limits of 400g per kWh.
However a recent report from London consultancy AT Kearney highlights how nine gas-fired power stations, with the capability to produce around 20GW of power, are currently on hold due to uncertainty caused by the EMR.
The UK now imports over half of its gas supplies and one of Europe’s largest gas–fired power stations on Teesside is currently lying idle due to the high price of gas.
Prof Fells, CBE, a well-known figure on radio and television with more than 600 programmes to his credit, has worked in the energy sector for many years and believes the current answer to the UK’s current energy dilemma lies not in renewables, but in nuclear power. 
“Renewable energy is very expensive and it has to be heavily subsidised. The wind farms would not be built without the huge subsidies.
“It costs us all something like £100 a year to subsidise wind power and that will rise to £300 to £400 over the coming years.
“Then there are issues around the intermittent nature of supply, the lack of storage capacity when the wind is blowing, and the costs of connecting supplies to the grid.
“People are still ignorant about the energy business. I feel many are being deliberately misled by the greens who should know better. The engineering fraternity have not stood up and explained the issues involved. 
“The single issue groups have held sway and the politicians and are being led by them. They have fallen for the renewable propaganda. The solution must be nuclear power.”
In an effort to drive forward the UK nuclear power industry Prof Fells has assembled a consortium of British engineering firms to form Penultimate Power UK.
This is based in the North East and is the vehicle for putting together the British Nuclear Consortium which aims to build nuclear power stations and strengthen the UK nuclear supply base. 
Germany opted to switch off its nuclear power plants in the wake of the Fukushima disaster in Japan and to help fill its energy shortfall is constructing several new coal-fired power plants.
In Holland the picture is similar, with the profile of coal set to rise from 15% to almost a quarter following the construction of new coal-fired plants.
Both nations are keen to add carbon dioxide capture and storage (CCS) facilities to their new coal capacity, although no European country has yet managed to develop cost-effective, large-scale, CCS technology.
Prof Fells says the potential exists for CCS to be retro-fitted to old, and incorporated in new, fossil fuel plants.
 “But at the moment CCS can add 60 to 100% in additional costs. It’s a very complicated piece of chemical engineering.”
He added: “The price of energy is a political hot potato. The price has risen by 30% in three years and will continue to rise as the country follows this renewable path.
“The Government is somehow saying we will miraculously be able to manage without fossil fuel by 2050.
“There is a terrible sense of unreality attached to Government energy policy.
“Energy is the lifeblood of growing civilisations, without it we slide into anarchy.”


Sunday, 28 April 2013

£500m strike price deal for UK Energy plant

AMERICAN industrial gases giant Air Products is set to go-ahead with plans for a new £300m power station after winning a £500m contract to supply electricity to the Government.

Earlier this year Air Products started work on its first 50MW advanced gasification plant in Billingham.
Its plans for the second plant, on land adjacent to the first one, are currently being considered by Stockton Borough Council and if approved Air Products will press ahead with construction after winning the Government contract.

In an unusual move, the Government announced it had agreed to a power purchase agreement with Air Products to buy 37MW of electricity from the plant, at a cost of around £25m a year, for 20 years.

Air Products will receive a Government subsidy of around £70 per MW/h in addition to the price agreed between the two parties for electricity. The current wholesale price of electricity is around £50 per MW/h.
The deal highlights the Government’s desire to support renewable energy projects.

The Minister for the Cabinet Office Francis Maude said: “This is the beginning of a pioneering approach to how government uses its collective buying power and long term demand to buy energy.

“Not only have we secured £84m of savings for taxpayers by signing a new, low cost energy deal with Air Products, but we’re also helping the UK compete in the global race by investing in growth and creating hundreds of new jobs through the construction of a new energy from waste plant.

“Our aspiration is to develop world-leading, exportable technology, and the new state-of-the-art site in Teesside will help the UK become a centre of renewable technology. This is about changing the way we work to not only get the best out of our suppliers, but the best out of the UK.”

Lisa Jordan, Air Products’ business manager for Bio-Energy Europe, said: “We are delighted that the Cabinet Office has agreed to purchase the power which we expect to produce at a new Tees Valley Renewable Energy facility, subject to planning and approval later this year.

“By buying the electricity we produce, the Cabinet Office will help Air Products divert up to 350,000 tonnes of non-recyclable waste from landfill every year, which we will turn into reliable, controllable, renewable energy.”

The two plants are costing Air Products around £600m and will be the largest of their kind in the world. Between them they have the potential to recycle the rubbish from more than one million households.

The waste is heated in a process called advanced gasification producing a syngas, which is composed mainly of hydrogen, and is used to power a turbine and generate electricity.

When the two plants are up and running they will employ around 100 people, with over 700 people involved in construction of each.


Wednesday, 10 April 2013

New UK carbon tax - not green and threatens jobs

A MULTI-MILLION pound sweetener to soften the blow of new measures to cut carbon dioxide emissions will do nothing to alleviate concerns of further carbon leakage, say leading industry figures.

The Carbon Floor Price (CFP), which came into effect last week, will net the UK Government over £4 billion in tax revenues over the next few years.

Its introduction was announced in the Budget of 2011 and contributed to closure the Lynemouth aluminium smelter with the loss of 600 jobs.  Alcan said the CFP levy would wipe out the Northumberland plant’s annual £40m profit.

In an effort to guard against further cases of carbon leakage the Government last month set up a £250m compensation fund to support energy-intensive businesses, but this hardly bears comparison to the £7bn the German Government is offering business to compensate for its renewable energy surcharges.

Members of the London-based Energy Intensive Users Group (EIUG) are businesses where energy can account for up to 70% of production costs, such as those in the steel, paper, cement, lime, aluminium and chemical industries. 

Director Jeremy Nicholson said: “The compensation measures are a step in the right direction but they have not leveled the playing field.”

The CFP will see larger carbon emitters charged £16 for every tonne of carbon dioxide they emit, rising to £30 per tonne by 2020, and £70 per tonne in 2030.

The European carbon price is currently languishing well below £3 per tonne, compared to a £30 high in 2008, meaning UK businesses have to pay over £13 more to emit carbon than EU competitors.

Andrew Hebden, assistant director of CBI North East, said it welcomes the measures to support energy-intensive industries, adding:  “This is all the more important to counter the increasing difference in carbon price between the UK and the EU.” 

Fertliser manufacturer Growhow, which employs 200 people in Billingham, is a member of the EIUG.

Deborah Pritchard-Jones, public affairs director at Growhow, said:  “The compensation package as it currently stands will only last until 2015 and we're not sure what the level of support there will be after that.

“The Carbon Floor Price will impact on our business, the compensation is short term and consequently we have no certainty on the future costs. Long term investment decisions require certainty.” 

The Government estimates the CFP will cost energy-intensive business £130,000 a year in 2013, rising to £1.1m in 2020. But for some larger North East businesses this could be much more.
At the time of the CFP announcement in 2011 Tata Steel on Teesside and a further 20 of Teesside’s chemical and process companies expressed concerns, saying the cost implications could deter long term investment and cost jobs.

A spokesman for Sahaviriya Steel Industries, who have since bought the Teesside plant, said: “At this stage we are not certain of how the compensation scheme will work, but further increases in input prices are detrimental, and create uncertainty over potential future investment.”

Nicholson says the CFP and further measures in the Energy Bill may lead to doubling of energy costs over the next decade.

Michael Dent a director at South Shields–based energy experts Utilitywise highlights how this UK-specific tax will harm indigenous businesses.

“It’s generally accepted that there is a real need to increase the cost of carbon throughout Europe but to maintain a level-playing field for UK industry, policy should be set at a European level.” 

As things stand UK business is at a long-term disadvantage to European competitors, and the continent is at a disadvantage to the US, where shale gas has halved energy costs.

Corin Taylor, senior economic adviser to the Institute of Directors, recently spoke to members of Teesside’s process industry at a shale gas event organised by Teesside University Business School.

He highlighted how the CFP does nothing to reduce carbon emissions and added: “With US energy costs falling the UK and Europe are not looking as attractive and there is a real risk the trickle of businesses leaving the UK could become a flood.”


Thursday, 28 March 2013

UK shale gas - 200 times greater than once thought?

CAN the American shale gas revolution be replicated in the UK, Peter McCusker reports. 

LOWER natural gas prices are having a profound effect on American industry with many of the world’s chemical majors looking to build new US facilities after decades of investing elsewhere, particularly in the Middle East.
The glut of shale gas has seen America become almost self-sufficient and this, combined with a lack of export facilities, has seen the price plummet.
In Europe and the UK gas is trading at around $12 per mcf (thousand cubic feet), in Asia it’s over $14 per mcf whilst in the United States it is $3 per mcf 
Consequently, over a dozen chemical majors are looking to invest in new US plant and take advantage of the substantially lower feedstock costs.
Even Saudi Arabian-based SABIC (Saudi Basic Industries Corp), the world’s largest petrochemical company, is in talks about possible new US plant.
In the UK there is much speculation about the extent of the UK’s shale gas reserves with the results of the latest British Geological Survey (BGS) being eagerly anticipated.
This is due out next month and The Times newspaper recently reported how the BGS is set to dramatically raise its official estimate, suggesting reserves are 200 times greater than experts previously believed. 
The survey is slated to show there is between 1,300 trillion and 1,700 trillion cubic feet, of shale gas in the UK dwarfing its previous estimate of 5.3 trillion cubic feet. 
If these reports are correct then this is enough to heat every home for 1,500 years.
Nigel Smith, a geologist at the British Geological Survey (BGS) would not be drawn on the speculation but confirmed that the best prospect areas in the North of England are in a belt that runs from North Yorkshire to Lancashire, where the shale reserves can be found in seams around 50 meters thick.
He also says there is potential in many sites across the UK including stretches of territory in North Northumberland and straddling the Pennines in Northumberland.
He says these Northumberland shales are found in thinner seams and offer “riskier” plays for exploration companies. 
Late last year the UK Government lifted the moratorium on hydraulic fracturing, or fracking, allowing tests to continue into exploring the potential of the UK’s shale gas industry.
The tests had been suspended in 2011 when experiments by Cuadrilla, in Lancashire had produced earth tremors – although the British Geological Survey said at 2.3 and 1.5 on the Richter scale they were “way too small to cause any damage”.
The joint report from the Royal Society and Royal Academy of Engineering say the technique of fracking - which involves pumping water and chemicals into shale rock at pressure - is safe if firms follow best practice and rules are enforced.
Caudrilla’s activities are now said to be attracting the attentions of some of the industry major players with many media outlets speculating that a bid for the company from Centrica is imminent. 
Christopher Causer, a commercial consultant at Newcastle law firm Ward Hadaway, says that aside from the indirect environmental concerns regarding further use of fossil fuels, there are a number of additional concerns. 
He said: “The principle claim is that, given that the majority of shale gas reserves lie below aquifers and it is often necessary to drill through an aquifer to extract the gas.  
“Whilst the well-hole created by the drilling will be encased in concrete, there is a potential for the casing to become damaged, allowing gas (or the fracturing fluids) to leach into the aquifer.  
“In addition to well integrity concerns, the circulation of fracturing fluids means that a significant volume of contaminated liquids needs to be stored on the surface.  These are controlled substances which need to be disposed of safely, and, as such, can raise concerns where storage facilities become defective.”
Referring to the temporary moratorium placed on Cuadrilla’s activities on the Fylde Coast he continued: “Proponents of the technology comment that the three reported quakes have to be considered in the context of more than 10,000 drilling activities and is a far lower frequency than traditional mining. 
“Whilst this moratorium has now been raised, operators will now have to undertake an extensive seismic monitoring during drilling activities
“Finally, concerns have been raised in respect of the increased pressure on water infrastructure near to fracking sites, as large volumes of water need to be used to driving the fracturing fluids down to the relevant shale.”
Chris Wilson, a senior energy analyst at London-based global oil and gas specialists Evaulate Energy explained that following the shale success in the US, the rest of the world has taken notice. 
He said: “A gigantic shale oil play was discovered in Argentina, and amidst a legal battle between many companies and Repsol, development is slowly ongoing. America’s Petrogas is one company quietly making significant progress here.
“In Europe the picture is very interesting. The main movement has come in Poland which is looking for some energy independence from Russia. 
“However, the task isn’t as simple as just transferring the technology and knowledge from the US to another country, as has been proven with ExxonMobil and Talisman both pulling out of the country following uneconomic well tests.” 
Wilson went on to say that the main issues around shale gas and oil development, are water contamination and earth tremors.
He continued: “A lot of countries placed a moratorium on shale development until these issues have been resolved. 
“France has banned fracking and even gone so far as to relinquish licenses from those companies who failed to display that fracking was not in their plans, even Total was not immune to this. 
“Quebec in Canada, the only Canadian province to do so, and New York State have similar bans in place. 
“The rest of Europe has also been very cautious, with the exception of Poland, although some countries which have moratoriums in place are expected to be retracted soon, as the UK has done.”
Mark Whitehead, a partner and head of the energy team at Ward Hadaway in Newcastle, said: “The impact of shale gas in the US market has been substantial, and has had an effect beyond the borders of the USA.
“The resultant drop in energy prices in the US market has led to relocation back to the USA of a number of significant energy-intensive businesses.  
“Where previously products such as base chemicals and metals would be manufactured in low cost markets such as China, and subsequently imported, they are now made in the market for which they are intended.
“Indirectly, America's renewed confidence in their own energy security may lead to a review of their level of interest in global geopolitical issues.  If they no longer need to secure sources of energy from trading partners, will they also become disinterested in international issues of concern?
“The US has historically had a libertarian view to development of its natural resources, a view which is not shared by the UK government.  The size of the US, and its looser regulatory framework, has allowed operators to maximise shale gas activities within a very short timescale.
“Most commentators agree that the UK will not see the same level of activity due to various factors.  This includes the impact of the regulatory framework, relatively high population density and limited social acceptance of drilling activities.  
“Given the level of scrutiny commonly derived from the conversion of derelict pubs into supermarkets, it is hard to see that the public will not have a strong view of the prospect of a drilling rig arriving in their neighbourhood.”
However Smith from the BGS is less pessimistic citing the example of one drilling effort underway in Poole Harbour which has drilling tentacles over 10kms from the base pad.
He adds: “In Texas shale companies have drilled underneath Forth Worth Airport. This is a technically advanced industry, one which has the ability to avoid the potential surface obstruction.” 
With the UK chemical industry crying out for cheaper supplies of natural gas this may be cheering news for Teesside.

US Sale Revolution 
The US shale revolution began with George Mitchell when his company Mitchell Energy drilled the first horizontal test well in the early 1980’s
Mitchell and his engineers developed the techniques to exploit shale in the Barnett Shale formation Dallas, North Texas, and by the early 1990s they had produced their first gas.
This saw engineers drill down several thousand feet and bank a bit horizontally through the shale. Then they sent 4 million gallon mixture of water, sand and chemicals down to break open the rock and release the gas. 
Mitchell, a father of 10 and sold Mitchell Energy & Development to Oklahoma-based Devon in 2002 for $3.5 billion in cash and stock. 
The Barnett Shale, near Fort Worth, became one of the most prolific natural gas fields in the country and by 2005 fracking became the vogue method for extracting resources from these deposits.
Other shale gas plays to start after the Barnett were the Antrim play in Michigan, the Fayetteville in Arkansas and the Woodford in Oklahoma.
A play that developed a bit later, the Haynesville in East Texas/Louisiana sky-rocketed in 2009 and overtook the Barnett as the biggest producer in 2010. 
Chris Wilson, a senior energy analyst at London-based global oil and gas specialists Evaulate Energy Wilson said: “The new glut of domestic gas however did have a negative impact on profitability, as gas prices tumbled. The US did not have the capacity to export any gas, and the gas was trapped, causing supply to overtake demand.”
Other countries with shale gas deposits include: Australia, Algeria, Bulgaria, Canada, China, Czech Republic, France, Germany, Lithuania, Ukraine