ECONOMIC REPORT 2013
64
In addition there is already another, relevant
instrument:
•
A Carbon Price Floor
– legislated by HM
Treasury through the Finance Act 2011,
this sets a minimum price to be paid for
carbon emissions through the Climate
Change Levy and is intended to encourage
power generation by low carbon means.
It took effect on 1 April 2013, but only
applies in the UK, raising our power prices
relative to those in other Member States
of the EU.
It is difficult to reach any conclusionwhich does
not recognise the inherent complexity that
these measures will engender. Indeed, it has
to be a matter of concern that such complex
measures underpin the whole strategy for
low carbon generation. Furthermore, much
of the decision making in power generation
will be moved from companies and markets
to government departments and ministers.
As stated in the last of six conclusions of
Oil & Gas UK’s response in March 2011 to
DECC’s consultation on its proposals for
electricity market reform: “A greater degree
of realism is called for. Policies should be
simplified and de-risked; they would have a
better chance of success.”
However, Oil & Gas UK was pleased when
DECC announced and, in late 2012, released
its gas generation strategy. This recognises the
necessary role that gas fired power generation
will to have to play over the next 15 to 20
years and probably for many years thereafter,
if carbon capture and storage (CCS) can be
made to work at power station scale.
Under the Large Combustion Plant Directive
(LCPD), whose effects are already being felt,
some 12 giga-watts (GW) of coal and oil fired
power generation capacitywill be closed by the
end of 2015. In addition, under the Industrial
Emissions Directive (IED), up to 18.5GW of
coal and 18GW of early gas fired generating
capacity will be closed by the end of 2023,
when most of the coal fired plants will be 50
years old anyhow (although some of it is being
converted to burn biomass). In aggregate,
these represent a very substantial share of
the country’s total power generating capacity,
to which must also be added the progressive
closure of 9.5GW of nuclear capacity within
the same time-frame, because of old age, and
premature closure of some early gas power
plants which are now uneconomic, owing to
the low price of coal mentioned above.
Meanwhile, construction of the first of the
planned new nuclear power stations, at
Hinkley Point in Somerset, is slipping further,
through a combination of difficulties in raising
the necessary finance, continuing negotiations
about the ‘strike price’ under a CfD (that is the
size of the subsidy to be paid by customers),
and concerns about the cost and complexity
of the reactor’s design. A potential rival type
of nuclear reactor, meanwhile, still needs to go
through its Generic Design Approval for use in
the UK (a procedure likely to take two to three
years) and it needs to gain planning permission
before construction can begin. This means
that it is now unlikely that any new nuclear
power plant will start operation in Britain
much before the mid-2020s and there will be
less nuclear generating capacity throughout
most of the 2020s than there is today.
It is therefore inevitable that a fleet of new gas
fired power stations (mainly combined cycle
gas turbines (CCGTs)) will have to be built to
cover the considerable shortfall in base-load
generating capacity and to provide back-up
for intermittent renewable power, especially
offshore wind, where substantial expansion
of capacity is planned. There is no other
technology available that can fulfil these needs
on this scale, with the necessary reliability and
within the time-frame mentioned above.
