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Coal still counts (1): keeping options open in the Energy Act 2013

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Once upon a time, UK energy policy revolved around the politics of dirty old coal.  But in the 21st century, it’s all about low carbon technologies like wind and nuclear – right?  Well – up to a point.  As a reminder that coal is sometimes still at the heart of the debate, take a look at the final stages of the passage of the Energy Bill through Parliament, where the arguments were not about wind or nuclear power, but about keeping open a group of coal-fired power stations that are all over 40 years old.

The Energy Act 2013, as it now is, received Royal Assent on 18 December 2013.  Amongst other things, it legislates for Electricity Market Reform (EMR).  As part of EMR, the Act imposes a limit on the quantity of CO2 which fossil-fuel generating plant may emit each year.  This limit, the “emissions performance standard” or EPS, only applies to new plant.  The EPS is set at a level which makes it uneconomic to construct new coal-fired generating plant with a capacity of more than 50MW in the UK unless it has carbon capture and storage (CCS) fitted – because without CCS, a new coal-fired plant could only meet the EPS by running for too few hours each year to justify the cost of building it. 

In practice, there was arguably little danger of anybody constructing such plant even without the EPS, because existing planning policies require any new plant to include at least 300MW of CCS capacity.  The value of the EPS provisions, beyond simply reinforcing the policy position against new non-CCS coal plant, is that they apply to both gas and coal-fired plant, but in practice only “bite” on coal.  This is because the EPS is fixed, until 2044, in the Act itself, at a level that does not affect the economics of building a new gas-fired plant (either open or combined cycle).  In other words, the EPS regime is intended to reassure potential investors in new gas-fired plant.

But the House of Lords inserted an amendment into the EPS provisions.  This was not about gas, or about the new coal plant that the EPS is aimed at, but about existing coal-fired plant.  Under the amendment, an existing coal-fired plant would have become subject to the EPS if it fitted the equipment necessary to enable it to comply with the new limits on emissions that apply to existing plant under the Industrial Emissions Directive (IED) from 2016.  The IED is, of course, not about CO2   emissions.  But supporters of the amendment argued that once a plant fitted the equipment necessary to comply with the IED limits on pollutants such as NOx, it could be in a position to run for decades to come, with no statutory constraint on its CO2 emissions – thereby potentially undermining the Government’s ability to substantially decarbonise the power sector by 2030.  By applying the EPS to such plant, the amendment would have made retrofitting existing plant for IED compliance almost as uneconomic as building new coal plant, so the existing plant would close.   

The Government succeeded in reversing the amendment, so the EPS will not prevent existing coal-fired plant staying in the generating mix.  This is arguably not ideal from a decarbonisation point of view, though it may have advantages in terms of security and affordability of electricity supply.  But the debate on old coal plant does not end there.  In future posts we will be looking at how decision-making by individual companies under the IED, and perhaps other parts of EMR, will determine the ultimate fate of these plants.

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