Ian Lavery
Main Page: Ian Lavery (Labour - Blyth and Ashington)
Michael Fallon
I was coming on to the list of stations that have closed. My right hon. Friend is absolutely right that we need urgently to replace the capacity that is coming off the system. Coal, as he will know, currently accounts for around a quarter of our reliable generating capacity, but that is set to decline rapidly over the coming years. Last year, Kingsnorth closed, this year we have seen the closures of Cockenzie, Didcot A and Tilbury, and we expect Ferrybridge C and Ironbridge to follow suit.
Ian Lavery (Wansbeck) (Lab)
The Minister mentions that coal is producing up to 25% of the electricity generated. Does he agree that the recent statistics prove that over the last 12 months that has been up to 50% and on average was 41%?
Michael Fallon
Coal has been an important part of the mix, and I hope the hon. Gentleman will be with us this afternoon in preventing further coal from being driven off the system.
Coal is being removed from the system due to a number of factors, including the old age of some of the plants, the impacts of environmental legislation, the increasing penalty on high-carbon generation applied under the carbon price floor, and increasing levels of low-carbon generation as we introduce more renewables.
Ian Lavery
Everybody would agree that coal is not going away, but will be here into the future. We will be burning even more tonnages between now and 2030, yet the Minister said that by 2030 we would probably have zero coal burning. I think that that is an absolute impossibility and that we need to progress with CCS as soon as possible. Where are we with the CCS projects?
Tom Greatrex
I agree with my hon. Friend about the need for progress on CCS, which is why I have continued to press the Government on it over the past two years. The Minister might correct me, either at the end of this debate or on the next set of amendments, but my understanding is that there should be some news on the two shortlisted projects, if not towards the end of this year, early next year. I am concerned, however, that with just two demonstration projects, in isolation, without the continuing regime of contracts for difference and other support, CCS will become almost a curiosity, rather than a continuing and integral part of how we reduce and minimise emissions from the peak in capacity we will require for many years to come.
A number of energy companies have made in correspondence much the same point as CoalPro. That was why we proposed an amendment, adopted by the Government, to provide flexibility in the early stages of CCS projects, in the commissioning period, to maximise the chance to achieve what we need to on CCS. That amendment was tabled alongside another one, similar to this amendment, that we discussed in Committee, one part of which the Government accepted.
Let us be clear about what the amendment would do and what it would mean for coal plant. Coal plants operating in 2013 effectively have three choices. The first is to leave the plant as it is, without investment, in which case it would close some time before 2023, depending on how quickly it used the permitted hours of operation to which the Minister referred. The second is to upgrade in order to conform to the industrial emissions directive, as has been done at least once, at Ratcliffe-on-Soar, and as others are considering doing. The third is to upgrade more significantly to extend the lifetime and meet the IED stipulations.
The coal-fired power stations in the first category would be unaffected by the amendment. If they burned through their allowances quickly, operating at 55% load factor, they would still run until 2020, and because of the likely profitability of the capacity market being introduced, I suspect that many would choose to run at slightly lower load levels until 2023. The Government’s emissions performance standards, already in the Bill, will apply to the third category of plant—those that extend their lives through investment. The amendment would impact on the second group and take effect, effectively, from 2023.
The EPS limits on carbon emissions are expressed as the amount of CO2 per kWh, but they limit the amount produced not per hour but per year. A typical power station, therefore, would be limited to a 40% to 45% load factor without lowering its emissions rate. That means running at a low load factor, to manage peaks in demand or in winter, or becoming serious about CCS. Neither choice is the end of coal generation in the UK.
From the Minister’s remarks, it seems that the Government are not persuaded by the amendment for several reasons.
Dr Alan Whitehead (Southampton, Test) (Lab)
I am a little bemused by some of the talk that we are hearing this afternoon about the capacity crunch and the extent to which the amendment might exacerbate it over the next period, bearing in mind, first, that it would not take effect until after 2023 in any event and, secondly—this has perhaps gone rather unremarked—that the power plants that are not producing and that are offline and either light mothballed or deep mothballed are not coal-fired but gas-fired plants. About six of them are mothballed—even though those operators could operate perfectly efficient gas plants for their own operations—not because they cannot produce on a reasonable basis, but because of the spark spread for gas and electricity prices. Therefore, it is not a capacity crunch because there is no capacity; it is a capacity crunch, potentially, because of the way that plants operate relative to each other.
Nothing in the long-term prognosis has changed, in terms of what we have to do in the longer term or how we have to deploy capacity. Getting the right amount of capacity and the right amount of reserve capacity in the market is a combination of ensuring that capacity is properly utilised and that new capacity comes on stream in the right proportion to support the changing nature of our energy production market. As regards that progress over the next period, up to 2030, one of the remarkable things written in most DECC documents to come out on the matter concerns where we need to go in decarbonising our energy supplies.
DECC’s central target is an overall level of emissions of 100g per kWh by about 2030. Everyone knows what that means. Unless we hear this afternoon that the target has changed, there will no longer be room for large amounts of unabated coal to continue to operate in the system, whether in new, existing or refurbished plant, without carbon capture and storage in the period leading up to 2030.
There is currently a disjunction between what DECC says about its target and what the policy appears to suggest when it comes to whether those coal plants will become able to play a part in our future energy mix with carbon capture and storage, or will no longer play a role as base-load generators but either convert to other forms of supply—as Drax is doing in moving to biomass—or run at much lower levels, as peak and back-up plant, over a period, to keep within the overall targets. The amendment connects what we think that we are doing with what we ought really to be doing over the coming period and starts to dissolve the disjunction between what we think is in policy and what appears to be in policy.
One of the effects of uncertain signals about the direction in which we are going in respect of, for instance, decarbonisation targets is that people do not invest in one thing rather than another; they do not invest in anything. They do not do what they might otherwise have been doing, because they are not sure what the signals are telling them. I believe that the amendment gives a certain rather than an uncertain signal in regard to the long-term future of coal, thus enabling those who are thinking of investing in coal over the coming period to be clear about what to do, rather than unclear, as they are at present.
Ministers seem to be saying today that there will be much more operation of coal, and perhaps some new investment in coal, but they know that it cannot really be unabated, and they know that it cannot really operate for all those hours over the period. How certain can an investor be that what he invests in will not to be stranded in the intervening years? It depends whether we believe what Ministers are saying, or believe what is in the documents that they claim to support in their daily work at the Department.
Ian Lavery
Does my hon. Friend believe that if the amendment is passed, investment in carbon capture and storage will be more rapid?
Dr Whitehead
That is an important question. I think that if the amendment were passed and if it sent that “certain” signal in regard to future investment, it would bring about something that my hon. Friend and I observed recently in a Canadian province. Given the certainty of an EPS that would apply to all plants in the province in the future, the operators of a 150 MW power plant decided that if the plant was to continue to provide coal-fired power, it would need carbon capture and storage. As a result, next year there will be a very impressive plant, which will sequester all its carbon and continue to supply the Saskatchewan power system with coal-fired power. I understand that the operators made their decision in the certain knowledge that they would not be able to continue to supply unabated coal-fired power to the Canadian system for ever.
Michael Fallon
With the leave of the House, Madam Deputy Speaker, I shall reply briefly as I sense that the House wants to reach a decision on this matter.
We have had a good debate. Let me emphasise again that I think that we have been considering a well-intentioned amendment. Nobody doubts the motivation behind it and the issue is not completely straightforward. It depends in the end on a judgment—when coal stations are already being lost to the system, do we want to accelerate the closure of coal? The hon. Members for Rutherglen and Hamilton West (Tom Greatrex) and for Wansbeck (Ian Lavery) asked a specific question—others have referred to this, too—about our progress with CCS. The CCS competition is progressing very well. Negotiations are proceeding and we expect to make a decision on the award of the front-end engineering design contracts around the turn of the year. As I have said, we have made amendments to the Bill in the other place to ensure that those projects will be exempt from the EPS for a limited period.
Michael Fallon
The hon. Gentleman might also want to know that CoalPro, the Confederation of UK Coal Producers, wrote to me on 8 November and said that the amendment
“has the potential to turn out the lights, send prices even higher and close down this industry.”
Ian Lavery
When does the Minister expect the first CCS generation plant to begin in the UK?
Michael Fallon
As I said, we hope to sign the first FEED contracts by the end of the year. They will involve a couple of years of engineering study. It will take some time for CCS to be scalable across the system, but we are committing a great deal of money to it and a great deal of effort to the two projects at Peterhead and Drax. I am in no doubt that we have technology that we can exploit, but it will take time.
In the end, as I said, this is a judgment. Is it right now to accelerate the closure of coal and to force all coal off the system by 2025? In my view, that will add to the risks to security of supply and—I must say this to my hon. Friends on the Liberal Democrat Benches—will certainly add to the costs for our constituents. We estimate that if coal disappears by 2025, there will be an increase in domestic bills of about 3% to 4%, or about £22 to £28, and an increase in non-domestic bills of between 4% and 6%. A large number of Members from all parties attended the debate in Westminster Hall this morning and complained about the costs being imposed on energy-intensive industries, and we estimate that their costs will increase by between 5% and 7%.
This proposal will increase the risks to our security of supply and add to the expense of our constituents. I think that is too great a risk and too high an additional expense and I urge the House to reject the amendment.
Question put, That this House disagrees with Lords amendment 105.